Federal Home Loan Bank of Atlanta - FORM 10-K

Attached files

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EX-99.1 - EXHIBIT 99.1 - Federal Home Loan Bank of Atlanta	fhlb-atlq42016ex991.htm
EX-32.1 - EXHIBIT 32.1 - Federal Home Loan Bank of Atlanta	fhlb-atlq42016ex321.htm
EX-31.2 - EXHIBIT 31.2 - Federal Home Loan Bank of Atlanta	fhlb-atlq42016ex312.htm
EX-31.1 - EXHIBIT 31.1 - Federal Home Loan Bank of Atlanta	fhlb-atlq42016ex311.htm
EX-12.1 - EXHIBIT 12.1 - Federal Home Loan Bank of Atlanta	fhlb-atlq42016ex121.htm
EX-10.8 - EXHIBIT 10.8 - Federal Home Loan Bank of Atlanta	fhlb-atlq42016ex108.htm
EX-10.7 - EXHIBIT 10.7 - Federal Home Loan Bank of Atlanta	fhlb-atlq42016ex107.htm
EX-10.4 - EXHIBIT 10.4 - Federal Home Loan Bank of Atlanta	fhlb-atlq42016ex104.htm
EX-10.1 - EXHIBIT 10.1 - Federal Home Loan Bank of Atlanta	fhlb-atlq42016ex101.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



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

For the fiscal year ended December 31, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission File Number: 000-51845

FEDERAL HOME LOAN BANK OF ATLANTA

(Exact name of registrant as specified in its charter)



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

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

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

____________________________

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Class B Stock, par value $100

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No

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

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

Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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



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

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

Registrant’s stock is not publicly traded and is only issued to members of the registrant. Such stock is issued and redeemed at par value, $100 per share, subject to certain regulatory and statutory limits. At June 30, 2016, the aggregate par value of the stock held by current and former members of the registrant was $5,249,367,100. At February 28, 2017, 51,578,606 total shares were outstanding.

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	PART I.
Item 1.	Business	5
Item 1A.	Risk Factors	18
Item 1B.	Unresolved Staff Comments	23
Item 2.	Properties	23
Item 3.	Legal Proceedings	23
Item 4.	Mine Safety Disclosure	23
	PART II.
Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6.	Selected Financial Data	25
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	62
Item 8.	Financial Statements and Supplementary Data	63
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	116
Item 9A.	Controls and Procedures	116
Item 9B.	Other Information	117
	PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	118
Item 11.	Executive Compensation	128
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	147
Item 13.	Certain Relationships and Related Transactions, and Director Independence	148
Item 14.	Principal Accountant Fees and Services	149
	PART IV.
Item 15.	Exhibits and Financial Statement Schedules	149
Item 16.	Form 10-K Summary	152

SIGNATURES		152

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Important Notice About Information in this Annual Report

In this annual report on Form 10-K (Report), unless the context suggests otherwise, references to the “Bank” mean the Federal Home Loan Bank of Atlanta. “FHLBanks” means the 11 district Federal Home Loan Banks, including the Bank, and “FHLBank System” means the FHLBanks and the Federal Home Loan Banks Office of Finance (Office of Finance), as regulated by the Federal Housing Finance Agency (Finance Agency). “FHLBank Act” means the Federal Home Loan Bank Act of 1932, as amended.

The information contained in this Report is accurate only as of the date of this Report and as of the dates specified herein.

The product and service names used in this Report are the property of the Bank and, in some cases, the other FHLBanks. Where the context suggests otherwise, the products, services, and company names mentioned in this Report are the property of their respective owners.

Special Cautionary Notice Regarding Forward-looking Statements

Some of the statements made in this Report may be “forward-looking statements,” within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provided by the same regulations. Forward-looking statements include statements with respect to the Bank’s beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties, and other factors, many of which may be beyond the Bank’s control and which may cause the Bank’s actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by the forward-looking statements. The reader can identify these forward-looking statements through the Bank’s use of words such as “may,” “will,” “anticipate,” “hope,” “project,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “could,” “intend,” “seek,” “target,” and other similar words and expressions of the future. Such forward-looking statements may include statements regarding any one or more of the following topics:


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


•	future performance, including profitability, dividends, retained earnings, developments, or market forecasts;


•	forward-looking accounting and financial statement effects; and


•	those other factors identified and discussed in the Bank’s public filings with the Securities and Exchange Commission (SEC).

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

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


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


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


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


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

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


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


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


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


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


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


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


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


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


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


•	membership changes, including changes resulting from mergers or changes in the principal place of business of Bank members, which could result in decreased advances or other business from such members;


•	changes in the FHLBank Act or Finance Agency regulations that affect FHLBanks operations and regulatory oversight or changes in other statutes or regulations applicable to the FHLBanks;


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


•	other factors and other information discussed herein under the caption “Risk Factors” and elsewhere in this Report, as well as information included in the Bank’s future filings with the SEC.

A variety of factors could cause the Bank's actual results to differ materially from the Bank's forward-looking statements, including, without limitation, those risk factors provided under Item 1A of this Report and in future reports and other filings made by the Bank with the SEC. The Bank operates in a changing economic environment, and new risk factors emerge from time to time. Management cannot accurately predict any new factors, nor can it assess the effect, if any, of any new factors on the business of the Bank or the extent to which any factor, or combination of factors, may cause actual results to differ from those implied by any forward-looking statements.

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

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PART I.

Item 1. Business.

Overview

General. The Bank is a federally chartered corporation that was organized in 1932 and is one of 11 district FHLBanks. The FHLBanks, along with the Office of Finance, comprise the FHLBank System. The FHLBanks are U.S. government-sponsored enterprises (GSEs) organized under the authority of the FHLBank Act. Each FHLBank operates as a separate entity within a defined geographic district and has its own management, employees, and board of directors. The Bank's defined geographic district includes Alabama, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, and the District of Columbia. The Bank is supervised and regulated by the Finance Agency, an independent federal agency in the executive branch of the United States government.

Cooperative. The Bank is a cooperative owned by member institutions that are required to purchase capital stock in the Bank as a condition of membership. Federally insured depository institutions, insurance companies, privately insured, state-chartered credit unions, and community development financial institutions (CDFIs) located in the Bank's defined geographic district and engaged in residential housing finance are eligible to apply for membership. The Bank's capital stock is not publicly traded and is owned entirely by current or former members and certain non-members that own the Bank's capital stock as a result of a merger with or acquisition of a Bank member. The Bank's membership totaled 901 financial institutions, comprised of 576 commercial banks, 83 thrifts, 211 credit unions, 24 insurance companies, and seven CDFIs as of December 31, 2016.

Mission. The primary function of the Bank is to provide readily available, competitively priced funding to its member institutions. The Bank serves the public by providing its member institutions with a source of liquidity, thereby enhancing the availability of credit for residential mortgages and targeted community developments. The Bank primarily supports this mission by offering collateralized loans, known as advances, to its members. The Bank also offers other products and services, discussed below, that are intended to support the availability of residential-mortgage and community-investment credit.

The Bank's primary source of funds is proceeds from the sale of FHLBank debt instruments to the public. These debt instruments, known as “consolidated obligations,” are the joint and several obligations of all the FHLBanks. Because of the FHLBanks' GSE status, the FHLBanks are generally able to raise funds at favorable rates. The Bank's cooperative ownership structure allows the Bank to pass along the benefit of these low funding rates to its members. The U.S. government does not guarantee the debt securities or other obligations of the Bank or the FHLBank System.

Business. The Bank manages its operations as one business segment. Management and the Bank's board of directors review enterprise-wide financial information in order to make operating decisions and assess performance.

The Finance Agency assesses each FHLBank’s core mission achievement by evaluating its core mission asset ratio, calculated as the ratio of primary mission assets, which includes advances and acquired member assets, to consolidated obligations. The Bank's core mission activities primarily include the issuance of advances. This ratio is calculated annually at year-end, using annual average par values. Based on this ratio, the Finance Agency has provided the following expectations for each FHLBank’s strategic plan:


•	when the ratio is at least 70 percent or higher, the strategic plan should include an assessment of the FHLBank’s prospects for maintaining this level;


•	when the ratio is at least 55 percent but less than 70 percent, the strategic plan should explain the FHLBank’s plan to increase its mission focus; and


•	when the ratio is below 55 percent, the strategic plan should include an explanation of the circumstances that caused the ratio to be at that level and detailed plans to increase the ratio. If the FHLBank maintains a ratio below 55 percent over the course of several consecutive reviews, then the board of directors should consider possible strategic alternatives.

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The Bank's core mission asset ratio was 75.2 percent as of December 31, 2016.

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

For additional information regarding the Bank's financial condition, changes in financial condition, and results of operations, refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

Products and Services

The Bank's products and services include the following:


•	Credit Products;


•	Community Investment Services; and


•	Cash Management and Other Services.

Credit Products

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

Advances

Advances are the Bank's primary product. Advances are fully secured loans made to members and eligible housing finance agencies, authorities, and organizations called “housing associates” (non-members that are approved mortgagees under Title II of the National Housing Act). The carrying value of the Bank's outstanding advances was $99.1 billion and $104.2 billion as of December 31, 2016 and 2015, respectively, and advances represented 71.5 percent and 73.2 percent of total assets as of December 31, 2016 and 2015, respectively. Advances generated 53.0 percent, 23.2 percent, and 26.5 percent of total interest income for the years ended December 31, 2016, 2015, and 2014, respectively.

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

Generally, member institutions use the Bank's advances for one or more of the following purposes:


•	providing funding for mortgages held in the member's portfolio, including both conforming and nonconforming mortgages;


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


•	providing funding for commercial real estate loans;


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


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


•	providing funding for community investment and economic development.

Pursuant to statutory and regulatory requirements, the Bank may only make long-term advances to community financial institutions for the purpose of enabling a member to purchase or fund new or existing residential housing finance assets, which may include defined small business loans, small farm loans, small agri-business loans, and community development loans. The Bank's management indirectly monitors the purpose for which members use advances through limitations on eligible collateral and as described below.

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The Bank obtains a security interest in eligible collateral to secure a member's advance prior to the time that the Bank originates or renews an advance. Eligible collateral is defined by the FHLBank Act, Finance Agency regulations, and the Bank's credit and collateral policy. The Bank requires its borrowers to execute an advances and security agreement that establishes the Bank's security interest in all collateral pledged by the borrower. The Bank perfects its security interest in collateral prior to making an advance to the borrower. As additional security for a member's indebtedness, the Bank has a statutory and contractual lien on the member's capital stock in the Bank. The Bank may also require additional or substitute collateral from a borrower, as provided in the FHLBank Act and the financing documents between the Bank and its borrowers.

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

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

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

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

Adjustable- or variable-rate indexed advances. Adjustable- or variable-rate indexed advances include the following:


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


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


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

Fixed-rate advances. Fixed-rate advances include the following:


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

•

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

•

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

•

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

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

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

Forward starting advances. With the forward starting advance, the borrower may enter into the terms of any structured advance, including the fixed-rate Hybrid, ARC Advance, Expander Advance, or Float-to-Fixed Advance, with a future settlement date. Interest accrues beginning on the settlement date. A termination fee applies if the borrower voluntarily terminates the advance prior to the settlement date.

The following table presents the par value of outstanding advances by product characteristics (dollars in millions). See Note 9—Advances to the Bank's 2016 audited financial statements for further information on the distinction between par value and carrying value of outstanding advances.



	As of December 31,
	2016			2015
	Amount		Percent of Total	Amount		Percent of Total
Fixed rate ⁽¹⁾	$	38,941	39.62	$	35,664	34.67
Adjustable or variable rate indexed	34,930		35.54	43,425		42.22
Hybrid	21,453		21.83	19,782		19.23
Convertible	1,497		1.52	2,394		2.33
Amortizing ⁽²⁾	1,467		1.49	1,599		1.55
Total par value	$	98,288	100.00	$	102,864	100.00

____________

⁽¹⁾ Includes convertible advances whose conversion options have expired.

⁽²⁾ Principal reducing advances, described above.

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

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

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



		As of December 31, 2016
Institution	State	Advances Par Value		Percent of Total Advances	Weighted-average Interest Rate (%) ⁽¹⁾


Capital One, National Association	Virginia	$	17,176	17.48	0.64
Navy Federal Credit Union	Virginia	13,495		13.73	2.00
Bank of America, National Association	North Carolina	11,511		11.71	0.62
EverBank	Florida	5,506		5.60	1.29
BankUnited, National Association	Florida	5,240		5.33	0.76
Regions Bank	Alabama	4,253		4.33	0.84
Branch Banking and Trust Company	North Carolina	4,012		4.08	4.32
SunTrust Bank	Georgia	2,754		2.80	0.79
Pentagon Federal Credit Union	Virginia	2,221		2.26	2.41
Synovus Bank	Georgia	1,325		1.35	0.64
Subtotal (10 largest borrowers)		67,493		68.67	1.27
Subtotal (all other borrowers)		30,795		31.33	1.37
Total par value		$	98,288	100.00	1.30

____________

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

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

Standby Letters of Credit

The Bank issues irrevocable standby letters of credit on behalf of its members to support certain obligations of the members to third-party beneficiaries. Members may use standby letters of credit for residential housing financing and community lending or for liquidity and asset-liability management. In particular, members often use standby letters of credit as collateral for deposits from public sector entities. Standby letters of credit are generally available for nonrenewable terms of up to five years or for one-year terms that are renewable annually with a final expiration date of up to ten years after issuance. The Bank requires members to fully collateralize the face amount of any standby letter of credit issued by the Bank during the term of the standby letter of credit. The Bank also charges members a fee based on the face amount of the standby letter of credit. If the Bank is required to make a payment for a beneficiary's draw, the amount must be reimbursed by the member immediately or, subject to the Bank's discretion, may be converted into an advance to the member. The Bank's underwriting and collateral requirements for standby letters of credit are the same as they are for advances. Standby letters of credit are not subject to activity-based capital stock purchase requirements. The Bank has never experienced a credit loss related to a standby letter of credit reimbursement obligation. Unlike advances, standby letters of credit are accounted for as financial guarantees because a standby letter of credit may expire in accordance with its terms without ever being drawn upon by the beneficiary. The Bank had $32.7 billion and $32.5 billion of outstanding standby letters of credit as of December 31, 2016 and 2015, respectively.

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Advances and Standby Letters of Credit Combined

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



		As of December 31, 2016
Institution	State	Advances Par Value and Standby Letters of Credit Balance		Percent of Total Advances Par Value and Standby Letters of Credit
Bank of America, National Association	North Carolina	$	22,774	17.39
Capital One, National Association	Virginia	17,646		13.48
Navy Federal Credit Union	Virginia	13,638		10.41
SunTrust Bank	Georgia	10,076		7.69
Compass Bank	Alabama	7,778		5.94
EverBank	Florida	5,665		4.33
BankUnited, National Association	Florida	5,244		4.01
Branch Banking and Trust Company	North Carolina	5,001		3.82
Regions Bank	Alabama	4,286		3.27
Pentagon Federal Credit Union	Virginia	4,236		3.23
Subtotal (10 largest borrowers)		96,344		73.57
Subtotal (all other borrowers)		34,612		26.43
Total advances par value and standby letters of credit		$	130,956	100.00

Community Investment Services

Each FHLBank contributes 10 percent of its income subject to assessment to the Affordable Housing Program (AHP), or such additional prorated sums as may be required so that the aggregate annual contribution of the FHLBanks is not less than $100 million. For purposes of the AHP calculation, each FHLBank's income subject to assessment is defined as the individual FHLBank's net income before assessments, plus interest expense related to mandatorily redeemable capital stock. The assessment for AHP is further discussed under the Taxation/Assessments heading below.

AHP provides no-cost or low-cost funds in the form of a direct subsidy or a subsidized advance to members to support the financing of rental and for-sale housing for very low-, low-, and moderate-income households. The Bank offers a Competitive AHP, a Set-aside AHP, and a discounted advance program that supports projects that provide affordable housing and economic development benefiting those households. A description of each program is as follows:


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

•

the Set-aside AHP currently consists of the following nine distinct products: First-time Homebuyer, Community Partners, Foreclosure Recovery, Veterans Purchase, Returning Veterans Purchase, Veterans Rehabilitation, Returning Veterans Rehabilitation, Community Rebuild and Restore, and Structured Partnership Product. The Set-aside AHP products are available on a first-come, first-served basis and provide no-cost funds through member financial institutions to be used for down payments, closing costs, and other costs associated with the purchase, purchase/rehabilitation, or rehabilitation of homes for families at or below 80 percent of the area median income; and


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

The Bank's AHP assessments were $31 million, $33 million, and $30 million, respectively, for the years ended December 31, 2016, 2015, and 2014.

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Cash Management and Other Services

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

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

Mortgage Loan Purchase Programs

The Bank’s mortgage loan purchase programs provide members an alternative to holding mortgage loans in a portfolio or selling them into the secondary market. Prior to 2008, the Bank purchased loans directly from member participating financial institutions (PFIs) through the Mortgage Partnership Finance® Program (MPF® Program), a program developed by FHLBank Chicago and the Mortgage Purchase Program (MPP), a program separately established by the Bank. The Bank ceased directly purchasing new mortgage assets under these mortgage programs in 2008. However, the Bank continues to support its existing MPP and MPF Program mortgage loan portfolios. In 2014, the Bank renewed its participation in the MPF Program. The Bank now offers MPF Program products, MPF Xtra, MPF Direct, and MPF Government MBS, through which the Bank facilitates third parties' purchases of PFI loans rather than holding such loans as Bank assets. During 2016, the Bank and FHLBank Indianapolis began participating in the funding of an MPP master commitment with a member of FHLBank Indianapolis.

MPF Program

From time to time, the Bank has offered various products to members through the MPF Program. FHLBank Chicago, as the MPF provider, is responsible for providing transaction processing services, as well as developing and maintaining the underwriting criteria and program servicing guide. The Bank pays FHLBank Chicago a fee for providing these services. Conventional loans purchased from PFIs under the MPFProgram are subject to varying levels of loss allocation and credit enhancement structures. Federal Housing Administration (FHA)-insured and Department of Veterans Affairs (VA)-guaranteed loans are not subject to the credit enhancement obligations applicable to conventional loans under the MPF Program. The PFI may retain the right and responsibility for servicing the loans or sell the servicing rights, and the PFI may be required to repurchase a loan in the event of a breach of eligibility requirement or other warranty.

Traditional MPF Products. The Bank maintains a portfolio of mortgage loans that were historically purchased directly from PFIs and are recorded on the balance sheet. Two of the Bank's PFIs under the traditional MPF products, Branch Banking and Trust Company and SunTrust Bank, were among the Bank's top 10 borrowers as of December 31, 2016.

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

MPF Direct. In 2015, the Bank began to offer the MPF Direct product to members. MPF Direct is a jumbo loan product that partners the MPF program with Redwood Trust, Inc., a real estate investment trust. This partnership offers PFIs the opportunity to sell their fixed-rate mortgages with loan balances greater than the conforming loan limit up to $2.5 million into the secondary market. The Bank receives a counterparty fee from FHLBank Chicago for each PFI loan sold through the MPF Direct product in exchange for the Bank's role in facilitating the sale. The MPF Direct loans are passed through to Redwood Trust, Inc. and do not become Bank assets.

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MPF Government MBS. In 2015, the Bank began to offer the MPF Government MBS product to members. MPF Government MBS is a product whereby the FHLBank Chicago purchases government-insured and/or -guaranteed loans from eligible PFIs, and the purchased loans are aggregated as “held for sale” and pooled into securities guaranteed by the Government National Mortgage Association (Ginnie Mae). The Bank receives a counterparty fee from FHLBank Chicago for each PFI loan sold through the MPF Government MBS product in exchange for the Bank's role in facilitating the sale.

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

MPP

The Bank’s MPP is independent of other FHLBanks. Therefore, the Bank has greater control over pricing, quality of customer service, relationships with any third-party service providers, and program changes. Certain benefits of greater Bank control include the Bank's ability to control operating costs and to manage its regulatory relationship directly with the Finance Agency.

There were no MPP PFIs that were among the Bank's top 10 borrowers as of December 31, 2016.

The MPF Program and MPP are authorized under applicable regulations. Regulatory interpretive guidance provides that an FHLBank may sell loans acquired through its mortgage loan purchase programs so long as it also sells the related credit enhancement obligation. The Bank currently is not selling loans it has acquired through these mortgage loan purchase programs. The contractual maturity dates of some of the purchased loans extend out to 2047.

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

Investments

The Bank maintains a portfolio of investment securities and other investments for liquidity purposes to provide for the availability of funds to meet member credit needs and to provide additional earnings for the Bank. As of December 31, 2016, the Bank's investment securities consist of mortgage-backed securities (MBS) issued by GSEs, U.S. government agencies, or private-label securities that, at purchase, carried the highest rating from Moody's Investors Service (Moody's) or Standard and Poor's Ratings Services (S&P); securities issued by the U.S. government or U.S. government agencies; and state and local housing agency obligations. The Bank ceased purchasing private-label MBS on January 31, 2008. The investment securities portfolio generally provides the Bank with higher returns than those available in other investments. The Bank's other investments may consist of interest-bearing deposits, overnight and term federal funds sold, and securities purchased under agreements to resell. U.S. agency and GSE securities were 65.8 percent and 66.3 percent of the Bank's total investments as of December 31, 2016 and 2015, respectively, as discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Investments. Investments generated 44.2 percent, 70.3 percent, and 66.2 percent of total interest income for the years ended December 31, 2016, 2015, and 2014, respectively.

The Bank's MBS investment practice is to purchase MBS from a group of Bank-approved dealers, which may include “primary dealers.” Primary dealers are banks and securities brokerages that trade in U.S. government securities with the Federal Reserve System. The Bank does not purchase MBS from its members, except in the case in which a member or its affiliate is on the Bank's list of approved dealers. In all cases, the Bank bases its investment decisions on the relative rates of return of competing investments and does not consider whether an MBS is being purchased from or issued by a member or an affiliate of a member. The MBS balance included a carrying value of $1.1 billion and $1.4 billion, respectively, of MBS that were issued by one of the Bank's members or an affiliate of a member as of December 31, 2016 and 2015. See Note 6—Available-for-sale Securities and Note 7—Held-to-maturity Securities to the Bank's 2016 audited financial statements for a tabular presentation of the available-for-sale and held-to-maturity securities issued by members or affiliates of members.

Finance Agency regulations prohibit the Bank from investing in certain types of securities. These restrictions are discussed in more detail in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Investments.

Finance Agency regulations prohibit an FHLBank from purchasing MBS and asset-backed securities if its investment in such securities exceeds 300 percent of the FHLBank’s previous month-end regulatory capital on the day it purchases the securities. Regulatory capital is defined as the sum of permanent capital, the amount paid-in for Class A stock (if any), the amount of the Bank's general allowance for losses (if any), and the amount of any other instruments identified in the capital plan and approved by the Finance Agency. For discussion regarding the Bank's compliance with this regulatory requirement, refer to

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Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Investments.

Occasionally, the Bank purchases consolidated obligations issued by other FHLBanks through third-party dealers as investment securities, consistent with the Bank's investment strategy and Finance Agency regulations and guidelines. The Bank has not purchased any additional consolidated obligations issued by other FHLBanks since 2002. The balance of these investments is presented in Note 5—Trading Securities to the Bank's 2016 audited financial statements.

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

Funding Sources

Consolidated Obligations

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

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

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


•	cash;


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


•	secured advances;


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


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

The Bank was in compliance with this Finance Agency regulation as of December 31, 2016 and 2015.

Consolidated obligations are issued with either fixed- or variable-rate coupon payment terms that may use a variety of indices. The Bank, working through the Office of Finance, is able to customize consolidated obligations to meet investor demands. Customized features can include different indices and embedded derivatives. The Bank offsets these customized features predominantly by derivatives to reduce the market risk associated with the consolidated obligations.

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

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

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


•	the Bank is unable to provide the required certification;


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


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


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

The Bank must file a consolidated obligation payment plan for Finance Agency approval upon the occurrence of any of the following:


•	the Bank becomes a noncomplying FHLBank as a result of failing to provide a required certification related to liquidity requirements and ability to meet all current obligations;


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


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

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

Deposits

The FHLBank Act allows the Bank to accept deposits from its members, any institution for which it is providing correspondent services, other FHLBanks, or other governmental instrumentalities. Deposits provide some of the Bank's funding resources while also giving members a low-risk earning asset that satisfies their regulatory liquidity requirements. The Bank had demand and overnight deposits of $1.1 billion as of December 31, 2016 and 2015.

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To support its member deposits, the FHLBank Act requires the Bank to have an amount equal to or greater than the current deposits received from its members as a reserve. 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 had excess deposit reserves of $88.7 billion and $80.6 billion as of December 31, 2016 and 2015, respectively.

Capital and Capital Rules

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

As of December 31, 2016, the membership stock requirement was 0.09 percent (nine basis points) of the member's total assets, subject to a cap of $15 million.

As of December 31, 2016, the activity-based stock requirement was the sum of the following:


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


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

In addition, the activity-based stock requirement may include a percentage of any outstanding balance of acquired member assets (such as residential mortgage loan assets), although this percentage was set at zero as of December 31, 2016. The Bank did not have any multifamily residential mortgage loan assets purchased from members or other targeted debt/equity investments outstanding; therefore, the 8.00 percent activity-based stock requirement was inapplicable as of December 31, 2016.

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

The Bank's financial management policy contains provisions to help preserve the value of the members' investment in the Bank and reasonably mitigate the effect on capital of unanticipated operating and accounting events. For additional information regarding the Bank's capital and capital requirements, as well as information regarding the Bank's retained earnings and dividends, refer to Item 5, Market for Registrant's Common Equity—Related Stockholder Matters and Issuer Purchases of Equity Securities; Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Capital; and Note 15—Capital and Mandatorily Redeemable Capital Stock to the Bank's 2016 audited financial statements.

Derivatives

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

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•	preserve a favorable interest-rate spread between the yield of an asset (e.g., an advance) and the cost of the related liability (e.g., the consolidated obligation bond used to fund the advance) by converting both fixed-rate instruments to a variable rate using interest-rate swaps;


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


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


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


•	protect the value of existing asset or liability positions;


•	manage embedded options in assets and liabilities; and


•	achieve overall asset/liability management objectives.

The total notional amount of the Bank's outstanding derivatives was $81.2 billion and $99.8 billion as of December 31, 2016 and 2015, respectively. The contractual or notional amount of a derivative is not a measure of the amount of credit risk from that transaction; rather, the notional amount serves as a basis for calculating periodic interest payments or cash flows.

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

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

Competition

Advances. A number of factors affect demand for the Bank's advances, including, but not limited to, the availability and cost of other sources of liquidity for the Bank's members, such as demand deposits, brokered deposits, and the repurchase market. The Bank individually competes with other suppliers of secured and unsecured wholesale funding. Such other suppliers may include investment banks, commercial banks, and in certain circumstances, other FHLBanks. Smaller members may have access to alternative funding sources through sales of securities under agreements to repurchase, while larger members may have access to all the alternatives listed above. Larger members also may have independent access to the national and global credit markets. The availability of alternative funding sources to members can significantly influence the demand for the Bank's advances and can vary as a result of a number of factors, including market conditions, member liquidity levels, members' creditworthiness, and availability of collateral.

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

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

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Regulatory Oversight, Audits, and Examinations

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

The Government Corporation Control Act provides that, before a government corporation (which includes each of the FHLBanks) issues and offers obligations to the public, the Secretary of the Treasury shall prescribe (1) the form, denomination, maturity, interest rate, and conditions of the obligations; (2) the time and manner in which issued; and (3) the selling price. Under the FHLBank Act, the Secretary of the Treasury has the authority, at his discretion, to purchase consolidated obligations up to an aggregate principal amount of $4.0 billion. No borrowings under this authority have been outstanding since 1977.

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

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

Available Information

The Bank is required to file with the SEC an annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. The SEC maintains a website containing these reports and other information regarding the Bank's electronic filings located at http://www.sec.gov. These reports may also be read and copied at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. Further information about the operation of the Public Reference Room may be obtained at 1-800-SEC-0330.

The Bank's website is located at www.fhlbatl.com. The Bank posts its annual report on Form 10-K on its website as soon as reasonably practicable after it is filed with the SEC, and the Bank also provides a link to the SEC website that has all of the Bank's SEC filings.

The content of the websites referenced above is not incorporated by reference into this Report or in any other report or document that the Bank files with the SEC, and any references to these websites are intended to be inactive textual references only.

Personnel

As of December 31, 2016, the Bank employed 316 full-time and 4 part-time employees.

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Taxation/Assessments

The Bank is exempt from ordinary federal, state, and local taxation, except for real property tax. However, each FHLBank must set aside 10 percent of their income subject to assessment for the AHP, or such additional prorated sums as may be required so that the aggregate annual contribution of the FHLBanks is not less than $100 million. For purposes of the AHP calculation, each FHLBank's income subject to assessment is defined as the individual FHLBank's net income before assessments, plus interest expense related to mandatorily redeemable capital stock. If an FHLBank experiences a net loss for a full year, the FHLBank would have no obligation to the AHP for that year since each FHLBank's required annual AHP contribution is limited to its annual income subject to assessment. AHP assessments for the Bank were $31 million, $33 million, and $30 million for the years ended December 31, 2016, 2015, and 2014, respectively.

Item 1A. Risk Factors.

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

Business and Regulatory Risk

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

The FHLBanks are GSEs, organized under the authority of the FHLBank Act, and governed by federal laws and regulations as adopted and applied by the Finance Agency. Congress may amend the FHLBank Act or amend or adopt other statutes in ways that significantly affect the rights and obligations of the FHLBanks and the manner in which the FHLBanks carry out their housing finance mission and business operations. New or modified legislation enacted by Congress or regulations adopted by the Finance Agency or other financial services regulators could have a negative effect on the Bank's ability to conduct business or on the cost of doing business. In addition, certain regulations affecting our members could impact the extent to which they can engage in business with the Bank. Due to recent changes in the U.S. government administration and recent executive actions, there are additional uncertainties in the legislative and regulatory environment.

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

Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Legislative and Regulatory Developments for a discussion of recent legislative and regulatory activity that could affect the Bank.

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

Advances represent the Bank's primary product offering. Advances represented 71.5 percent of the Bank's total assets for the year ended December 31, 2016. The Bank competes with other suppliers of wholesale funding, including investment banks, commercial banks, and in certain circumstances, other FHLBanks, which provide secured and unsecured loans to the Bank's members. From time to time, these alternative funding sources may offer more favorable terms on their loans than the Bank does on its advances. The Bank's members have continued to experience high deposit levels, which reduces member demand for advances. Any change made by the Bank in the pricing of its advances in an effort to effectively compete with these competitive funding sources may decrease the Bank's profitability on advances, which could have a material adverse impact on the Bank's financial condition and results of operations, including dividend yields to members.

The prolonged low interest rate environment has resulted in a concentration of short-term advances. Although the Federal Reserve raised interest rates in December 2016, and indicated its intention to raise rates further in 2017, the Bank expects this short-term advance preference to continue during 2017. If members do not extend or renew these short-term advances as they come due, the Bank may experience a significant reduction in advances, which could have a material adverse impact on the

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Bank's financial condition and results of operations. Advances due in one year or less comprised 48.1 percent of the Bank's total advances outstanding as of December 31, 2016.

The Bank is exposed to risks because of customer concentration.

The Bank is subject to customer concentration risk as a result of the Bank's reliance on a relatively small number of member institutions for a large portion of the Bank's total advances and resulting interest income. The Bank's largest borrowers as of December 31, 2016, were Capital One, National Association, which accounted for $17.2 billion, or 17.5 percent, Navy Federal Credit Union, which accounted for $13.5 billion, or 13.7 percent, and Bank of America, National Association, which accounted for $11.5 billion, or 11.7 percent, of the Bank's total advances then outstanding. In addition, as of December 31, 2016, ten of the Bank's member institutions (including Capital One, National Association, Navy Federal Credit Union, and Bank of America, National Association) collectively accounted for $67.5 billion of the Bank's total advances then outstanding, which represented 68.7 percent of the Bank's total advances then outstanding. If, for any reason, the Bank were to lose, or experience a decrease in the amount of, its business relationships with its largest borrower or a combination of several of its large borrowers - whether as the result of any such member becoming a party to a merger or other transaction, or as a result of market conditions, competition or otherwise - the Bank's financial condition and results of operations could be negatively affected.

Liquidity Risk

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

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

Market Risk

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

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

The Bank’s businesses and results of operations are affected by the fiscal and monetary policies of the U.S. government, foreign governments and their agencies. The Federal Reserve's policies directly and indirectly influence the yield on interest-earning assets and the cost of interest-bearing liabilities, which could affect the success of the Bank's asset and liability management activities and negatively affect the Bank's financial condition and results of operations. Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Net Interest Income for further discussion of the Bank's yield on assets and interest-rate spread.

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

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

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

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

Prepayment or refinancing of mortgage assets could affect earnings.

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

The Bank may not be able to pay dividends or to repurchase or redeem members' capital stock consistent with past practice.

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

Credit Risk

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

The Bank faces credit risk on advances, standby letters of credit, investments, derivatives, and mortgage loan assets. The Bank requires advances and standby letters of credit to be fully secured with collateral. The Bank evaluates the types of collateral pledged by the member and assigns a borrowing capacity to the collateral, based on the risk associated with that type of collateral. If the Bank has insufficient collateral before or after an event of payment default or failure of the member or the Bank is unable to liquidate the collateral for the value assigned to it in the event of a payment default or failure of a member,

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the Bank could experience a credit loss on advances or standby letters of credit, which could adversely affect its financial condition and results of operations.

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

The Bank invests in U.S. agency (Fannie Mae, Freddie Mac, and Ginnie Mae) MBS and has historically invested in private-label MBS rated AAA by S&P or Fitch Ratings or Aaa by Moody's at the time of purchase. As of December 31, 2016, 10.7 percent of the Bank's MBS portfolio consisted of private-label MBS. Market prices for many of these private-label MBS have continued to improve since the 2008 financial crisis; however, given continued uncertainty in market conditions and the significant judgments involved in determining market value, there is a risk that declines in fair value in the Bank's MBS portfolio may occur and that the Bank may record additional other-than-temporary impairment losses in future periods, which could materially adversely affect the Bank's financial condition and results of operation.

The Bank uses master derivative contracts that contain provisions that require the Bank to net the exposure under all transactions with a counterparty to one amount in order to calculate collateral requirements. Although the Bank attempts to monitor the creditworthiness of all counterparties, it is possible that the Bank may not be able to terminate the agreement with a foreign commercial bank before the counterparty would become subject to an insolvency proceeding.

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

Each of the FHLBanks relies upon the issuance of consolidated obligations as a primary source of funds. Consolidated obligations are the joint and several obligations of all of the FHLBanks, backed only by the financial resources of the FHLBanks. Accordingly, the Bank is jointly and severally liable with the other FHLBanks for the consolidated obligations issued by the FHLBanks through the Office of Finance.

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

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

The Bank is rated Aaa with a stable outlook by Moody's and AA+ with a stable outlook by S&P. In addition, the consolidated obligations of the FHLBanks are rated Aaa with a stable outlook/P-1 by Moody's and AA+ with a stable outlook/A-1+ by S&P. Because of the FHLBanks’ GSE status, the credit ratings of the FHLBank System and the FHLBanks are directly influenced by the sovereign credit of the U.S., which is beyond the Bank's control. Downgrades to the U.S. sovereign credit rating and outlook would likely result in downgrades in the credit ratings and outlook on the Bank and the consolidated obligations of the FHLBanks even though the consolidated obligations are not obligations of the United States.

These ratings are subject to revision or withdrawal at any time by the rating agencies; therefore, the Bank may not be able to maintain these credit ratings. Negative ratings actions or negative guidance, including as a consequence of U.S. debt levels or the U.S. fiscal budget process, may adversely affect the Bank's cost of funds and ability to issue consolidated obligations on acceptable terms, trigger additional collateral requirements under the Bank's derivative contracts, and reduce the attractiveness of the Bank's standby letters of credit. This could have a negative impact on the Bank's financial condition and results of

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operations, including the Bank's ability to make advances on acceptable terms, pay dividends, or redeem or repurchase capital stock.

Operational Risk

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

The Bank makes significant use of business and financial models for managing risk. For example, the Bank uses models to measure and monitor exposures to various risks, including interest rate, prepayment, and other market risks, as well as credit risk. The Bank also uses models in determining the fair value of certain financial instruments when independent price quotations are not available or reliable. The degree of judgment in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. If market quotes are not available, fair values are based on discounted cash flows using market estimates of interest rates and volatility, dealer prices or prices of similar instruments. Pricing models and their underlying assumptions are based on the Bank's best estimates for discount rates, prepayments, market volatility, and other factors. These assumptions may have a significant effect on the reported fair values of assets and liabilities, including derivatives, the related income and expense, and the expected future behavior of assets and liabilities.

While models used by the Bank to value instruments and measure risk exposures are subject to periodic validation by independent parties, rapid changes in market conditions could impact the value of the Bank's instruments, as well as the Bank's financial condition and results of operations. Models are inherently imperfect predictors of actual results because they are based on assumptions about future performance. Changes in any models or in any of the assumptions, judgments, or estimates used in the models may cause the results generated by the model to be materially different from actual results.

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

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

The Bank relies heavily upon information systems and other technology to conduct and manage its business. The Bank owns some of these systems and technology, and third parties own and provide to the Bank some of those systems and technology. Computer systems, software, and networks can be vulnerable to failures and interruptions, including as the result of any cyberattacks (e.g., breaches, unauthorized access, misuse, computer viruses or other malicious code, and other events) or other breaches of technology security, that may derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. These failures, interruptions, or cyberattacks could jeopardize the confidentiality or integrity of information, including personally identifiable information, or otherwise interrupt the Bank's ability to conduct and manage its business effectively, including, without limitation, its deposit account management, hedging activities and advances activities. The Bank can make no assurance that it or its third-party vendors will be able to prevent, timely and adequately address, or mitigate the negative effects of any such failure, interruption, or cyberattack. Like many financial institutions, the Bank has seen an increase in cyberattack attempts. For the Bank, these attempts have predominantly occurred through phishing and social engineering scams, and in particular, ransomware. Although the Bank has disaster recovery and business continuity plans in place, and cybersecurity insurance coverage, a failure, interruption or cyberattack could significantly harm the Bank's reputation, its customer relations, risk management, and profitability, and could result in financial losses, legal and regulatory sanctions, increased costs or other harm.

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

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

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those changes. Failed or inadequate controls and risk management practices could have an adverse effect on the Bank's financial condition and results of operations.

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

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

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

The Bank owns approximately 235,514 square feet of office space at 1475 Peachtree Street, NE, Atlanta, Georgia 30309. The Bank occupies approximately 189,412 square feet of this space. The Bank leases 11,093 square feet of office space in an off-site backup facility located in Marietta, Georgia and 384 square feet of off-site backup space in Norcross, Georgia for the Bank's disaster recovery data center. In addition, the Bank leases approximately 5,600 square feet of off-site warehouse space in Atlanta, Georgia used to store surplus furniture and workstation product. The Bank also leases 2,993 square feet of office space located in Washington, D.C. The Bank's management believes these facilities are well maintained and are adequate for the purposes for which they currently are used.


Item 3.	Legal Proceedings.

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

Item 4. Mine Safety Disclosure.

Not applicable.

PART II.


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

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

A member may request in writing that the Bank redeem its excess capital stock at par value. Excess capital stock is FHLBank capital stock not required to be held by the member to meet its minimum stock requirement under an FHLBank's capital plan. Any such redemption request is subject to a five year redemption period after the Bank receives the request, subject to certain regulatory requirements and to the satisfaction of any ongoing stock investment requirements applicable to the member. In addition, any member may withdraw from membership upon five years written notice to the Bank. Subject to the member's satisfaction of any outstanding indebtedness and other statutory requirements, the Bank redeems the member's capital stock at par value upon withdrawal from membership. The Bank, in its discretion, may repurchase shares held by a member in excess of

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its required stock holdings, subject to certain limitations and thresholds in the Bank's capital plan. The par value of all capital stock is $100 per share, and the operating threshold for daily excess capital stock repurchases is $100 thousand. As of February 28, 2017, the Bank had 904 member and non-member shareholders and 52 million shares of its capital stock outstanding (including mandatorily redeemable shares).

The Bank declares and pays any dividends only after net income is calculated for the preceding quarter. The following table presents the Bank's declared quarterly cash dividends in 2016 and 2015 (dollars in millions).



	2016			2015
	Amount		Annualized Rate (%) ⁽¹⁾	Amount		Annualized Rate (%) ⁽²⁾
First quarter	$	52	4.66	$	51	4.24
Second quarter	59		4.87	51		4.26
Third quarter	55		4.64	50		4.53
Fourth quarter	60		4.64	55		4.56

____________

⁽¹⁾Dividend rate was equal to the average three-month LIBOR for the preceding quarter, plus 425 basis points for the first and second quarters of 2016, 400 basis points for the third quarter of 2016, and 385 basis points for the fourth quarter of 2016.

⁽²⁾Dividend rate was equal to the average three-month LIBOR for the preceding quarter, plus 400 basis points for the first and second quarters of 2015, and 425 basis points for the third and fourth quarters of 2015.

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

Finance Agency regulations prohibit any FHLBank from issuing dividends in the form of capital stock or otherwise issuing new excess capital stock if that FHLBank has excess capital stock greater than one percent of that FHLBank's total assets or if issuing such dividends or new excess capital stock would cause that FHLBank to exceed the one percent excess capital stock limitation. As of December 31, 2016, the Bank's excess capital stock did not exceed one percent of its total assets. Historically, the Bank has not issued dividends in the form of capital stock or issued new excess capital stock, and a member's existing excess activity-based stock is applied to any activity-based stock requirements related to new advances.

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

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

The Bank also issues standby letters of credit in the ordinary course of its business. From time to time, the Bank provides standby letters of credit to support members' obligations, members' standby letters of credit, or obligations issued to support unaffiliated, third-party offerings of notes, bonds, or other securities. The Bank issued $25.1 billion, $13.8 billion, and $19.5 billion in standby letters of credit in 2016, 2015, and 2014, respectively. To the extent that these standby letters of credit are securities for purposes of the Securities Act of 1933, the issuance of the standby letter of credit by the Bank is exempt from registration pursuant to section 3(a)(2) thereof.

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Item 6. Selected Financial Data.

The following table presents selected historical financial data of the Bank and should be read in conjunction with the Bank's 2016 audited financial statements and related notes thereto and with Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, which are included elsewhere in this Report. The following data, insofar as it relates to each of the years 2012 to 2016, have been derived from annual financial statements, including the statements of condition as of December 31, 2016 and 2015 and the related statements of income for the years ended December 31, 2016, 2015, and 2014 and notes thereto appearing elsewhere in this Report. The financial information presented in the following table and in the financial statements included in this Report is not necessarily indicative of the financial condition or results of operations of any other interim or annual periods (dollars in millions):



	As of and for the Years Ended December 31,
	2016			2015			2014			2013			2012
Statements of Condition (as of year end)
Total assets ⁽¹⁾	$	138,671		$	142,246		$	138,344		$	122,316		$	123,705
Advances	99,077			104,168			99,644			89,588			87,503
Mortgage loans held for portfolio	524			586			749			929			1,255
Allowance for credit losses on mortgage loans	(1		)	(2		)	(3		)	(11		)	(11		)
Investments ⁽²⁾	36,510			35,175			36,502			26,944			30,454
Interest-bearing deposits	1,118			1,084			1,110			1,752			2,094
Consolidated obligations, net:
Discount notes ^{(1) (3)}	41,292			69,434			37,162			32,202			31,737
Bonds ^{(1) (3)}	88,647			63,953			92,088			80,728			82,947
Total consolidated obligations, net ^{(1) (3)}	129,939			133,387			129,250			112,930			114,684
Mandatorily redeemable capital stock	1			14			19			24			40
Affordable Housing Program payable	69			63			65			74			80
Capital stock - putable	4,955			5,101			5,150			4,883			4,898
Retained earnings	1,892			1,840			1,746			1,657			1,435
Accumulated other comprehensive income (loss)	104			75			95			112			(58		)
Total capital	6,951			7,016			6,991			6,652			6,275
Statements of Income (for the year ended)
Net interest income	334			243			323			341			376
(Reversal) provision for credit losses	(1		)	(1		)	(5		)	5			6
Net impairment losses recognized in earnings	(3		)	(5		)	(3		)	—			(16		)
Net losses on trading securities	(30		)	(61		)	(60		)	(100		)	(67		)
Net gains on derivatives and hedging activities	119			261			120			204			117
Standby letters of credit fees	28			28			26			20			18
Other income ⁽⁴⁾	(3		)	2			22			42			3
Noninterest expense	137			135			132			127			125
Income before assessments	309			334			301			375			300
Affordable Housing Program assessments	31			33			30			37			30
Net income	278			301			271			338			270
Performance Ratios (%)
Return on equity ⁽⁵⁾	4.08			4.63			4.11			5.42			4.26
Return on assets ⁽⁶⁾	0.20			0.23			0.21			0.28			0.22
Net interest margin ⁽⁷⁾	0.24			0.19			0.25			0.29			0.31
Regulatory capital ratio (as of year end) ⁽⁸⁾	4.94			4.89			5.00			5.37			5.15
Equity to assets ratio ⁽⁹⁾	4.88			4.91			5.09			5.18			5.25
Dividend payout ratio ⁽¹⁰⁾	81.08			68.48			67.30			34.52			32.82

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____________

⁽¹⁾

The Bank adopted new accounting guidance related to the presentation of debt issuance costs, as discussed in Note 3—Recently Issued and Adopted Accounting Guidance to the Bank's 2016 audited financial statements. As a result, $7 million of debt issuance costs that were included in other assets were reclassified as a reduction in the corresponding consolidated obligations balance on the Bank’s Statements of Condition as of December 31, 2015.

⁽²⁾ Investments consist of interest-bearing deposits, securities purchased under agreements to resell, federal funds sold, and securities classified as trading, available-for-sale, and held-to-maturity.

⁽³⁾ The amounts presented are the Bank’s primary obligations on consolidated obligations outstanding. The par value of the other FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable was as follows (in millions):



December 31, 2016	$	859,361
December 31, 2015	771,948
December 31, 2014	718,218
December 31, 2013	654,076
December 31, 2012	574,257

⁽⁴⁾Other income includes service fees and other. For the year ended December 31, 2016, amount includes a $6 million loss on litigation settlements, net. For the years ended December 31, 2014 and 2013, amount includes a $15 million and $6 million gain on extinguishment of debt, respectively, and a $4 million and $33 million gain on litigation settlements, net, respectively.

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

⁽⁶⁾Calculated as net income, divided by average total assets.

⁽⁷⁾Net interest margin is net interest income as a percentage of average earning assets.

⁽⁸⁾Regulatory capital ratio is regulatory capital, which does not include accumulated other comprehensive income, but does include mandatorily redeemable capital stock, as a percentage of total assets as of year end.

⁽⁹⁾Calculated as average total equity, divided by average total assets.

⁽¹⁰⁾Calculated as dividends declared during the year, divided by net income during the year.


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

The following discussion and analysis relates to the Bank's financial condition as of December 31, 2016 and 2015, and results of operations for the years ended December 31, 2016, 2015, and 2014. This section explains the changes in certain key items in the Bank's financial statements from year to year, the primary factors driving those changes, the Bank's risk management processes and results, known trends or uncertainties that the Bank believes may have a material effect on the Bank's future performance, as well as how certain accounting principles affect the Bank's financial statements.

This discussion should be read in conjunction with the Bank's audited financial statements and related notes for the year ended December 31, 2016 included in Item 8 of this Report. Readers also should carefully review “Special Cautionary Notice Regarding Forward-looking Statements” and Item 1A, Risk Factors, for a description of the forward-looking statements in this Report and a discussion of the factors that might cause the Bank's actual results to differ, perhaps materially, from these forward-looking statements.

Executive Summary

Financial Condition

As of December 31, 2016, total assets were $138.7 billion, a decrease of $3.6 billion, or 2.51 percent, from December 31, 2015. This decrease was primarily due to a $5.1 billion, or 4.89 percent, decrease in advances, partially offset by a $1.3 billion, or 3.80 percent, increase in total investments.

As of December 31, 2016, total liabilities were $131.7 billion, a decrease of $3.5 billion, or 2.60 percent, from December 31, 2015. This decrease was primarily due to a $3.4 billion, or 2.59 percent, decrease in consolidated obligations as a result of the decrease in funding needs during the year.

As of December 31, 2016 and 2015, total capital was $7.0 billion.

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Results of Operations

The Bank recorded net income of $278 million for 2016, a decrease of $23 million, or 7.52 percent, from net income of $301 million for 2015.

During 2016, net interest income was $334 million, an increase of $91 million, from net interest income of $243 million in 2015. This increase is partially due to prepayments of previously restructured and redesignated advances during 2016 and 2015. During 2016 and 2015, these prepayments resulted in $16 million and $181 million of accelerated amortization, respectively, which reduced net interest income for the respective periods. These decreases were offset by corresponding increases in net gains on derivatives and hedging activities, reflected in noninterest income. Additionally, during 2016, net interest income was adversely affected by an increase in short-term rates, which impacted consolidated obligation interest expense more than the offsetting increase in advance interest income.

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 has chosen to measure ROE as a spread to average three-month LIBOR because the Bank has significant assets and liabilities priced to average three-month LIBOR. The Bank’s ROE was 4.08 percent for 2016, compared to 4.63 percent for 2015. This decrease in ROE was primarily due to a decrease in net income during the year, as well as an increase in average capital. ROE spread to average three-month LIBOR decreased to 334 basis points for 2016, compared to 431 basis points for 2015. This decrease in the ROE spread to LIBOR was primarily due to the decrease in ROE.

The Bank’s interest rate spread was 21 basis points and 17 basis points for 2016 and 2015, respectively. The increase in the Bank's interest rate spread for 2016, compared to 2015, was primarily due to a decrease in prepayments on previously restructured and redesignated advances during 2016.

Business Outlook

During 2016, the Bank continued to maintain its focus on an advances-driven and conservative-risk business model, which enabled the Bank to report net income, pay dividends, and repurchase excess stock consistently throughout the year. As part of the Bank's cooperative model, the Bank has chosen to operate with narrow margins, which cause the Bank's profitability to be sensitive to changes in market conditions.

The state of the economy is a significant component in determining the Bank's overall business outlook as it impacts advance demand, asset and collateral values, member financial stability, funding costs, and many other facets of the Bank's portfolio. While the U.S. economy has generally continued to improve in recent years, factors such as interest rates, liquidity levels at member institutions, fiscal and monetary policies or performance of global economies, and regulatory changes could have a significant effect - either positive or negative - on the Bank's economic performance.

The prolonged low interest rate environment has resulted in borrowers strongly favoring short-term advances. Although the Federal Reserve raised interest rates in December 2016, and indicated its intention to raise rates further in 2017, the Bank expects this short-term advance preference to continue during 2017. This higher proportion of short-term advances will continue to subject the Bank to advance rollover risk. In addition, members continue to experience high levels of liquidity and low-to-modest loan demand, which may continue to reduce overall member demand for advances. Although a higher interest rate environment is more favorable for the Bank's total profitability, it may have a negative impact on ROE spread to LIBOR.

From a regulatory perspective, changes in money market fund investment regulations during 2016 have caused the Bank to experience increased demand from the mutual fund industry for short-term GSE debt, which the Bank expects to continue in 2017. There is uncertainty, in light of recent changes in the U.S. government administration and recent executive actions, about regulatory changes that could occur in the financial services industry, and what impact those changes could have on the Bank and/or its members.

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Financial Condition

The following table presents the distribution of the Bank’s total assets, liabilities, and capital by major class as of the dates indicated (dollars in millions). These items are discussed in more detail below.



	As of December 31,
	2016			2015			Increase (Decrease)
	Amount		Percent of Total	Amount		Percent of Total	Amount			Percent
Advances	$	99,077	71.45	$	104,168	73.23	$	(5,091	)	(4.89	)
Investment securities	26,248		18.93	26,166		18.40	82			0.32
Other investments	10,262		7.40	9,009		6.33	1,253			13.91
Mortgage loans, net	523		0.38	584		0.41	(61		)	(10.43	)
Other assets	2,561		1.84	2,319		1.63	242			10.35
Total assets	$	138,671	100.00	$	142,246	100.00	$	(3,575	)	(2.51	)
Consolidated obligations, net:
Discount notes	$	41,292	31.35	$	69,434	51.35	$	(28,142	)	(40.53	)
Bonds	88,647		67.30	63,953		47.29	24,694			38.61
Deposits	1,118		0.85	1,084		0.80	34			3.09
Other liabilities	663		0.50	759		0.56	(96		)	(12.62	)
Total liabilities	$	131,720	100.00	$	135,230	100.00	$	(3,510	)	(2.60	)
Capital stock	$	4,955	71.28	$	5,101	72.71	$	(146	)	(2.88	)
Retained earnings	1,892		27.22	1,840		26.22	52			2.86
Accumulated other comprehensive income	104		1.50	75		1.07	29			39.03
Total capital	$	6,951	100.00	$	7,016	100.00	$	(65	)	(0.93	)

Advances

The following table presents the Bank's advances outstanding by year of maturity and the related weighted-average interest rate (dollars in millions):



	As of December 31,
	2016				2015
	Amount			Weighted-average Interest Rate (%)	Amount			Weighted-average Interest Rate (%)
Overdrawn demand deposit accounts	$	—		5.80	$	16		5.49
Due in one year or less	47,325			0.86	46,673			0.58
Due after one year through two years	8,244			2.11	12,747			1.47
Due after two years through three years	5,904			1.53	6,360			2.59
Due after three years through four years	5,859			1.33	2,994			1.99
Due after four years through five years	11,846			1.68	4,616			1.43
Due after five years	19,110			1.78	29,458			1.52
Total par value	98,288			1.31	102,864			1.17
Discount on AHP advances	(5		)		(6		)
Discount on EDGE ⁽¹⁾ advances	(4		)		(4		)
Hedging adjustments	798				1,315
Deferred commitment fees	—				(1		)
Total	$	99,077			$	104,168

____________

⁽¹⁾Economic Development and Growth Enhancement Program

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Advances outstanding as of December 31, 2016 decreased by 4.89 percent, compared to December 31, 2015. As a result of shareholder demand, the majority of new advances in 2016 were short-term advances. As of December 31, 2016 and 2015, 64.2 percent and 57.4 percent, respectively, 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 short-term variable interest rates, the majority of which are based on LIBOR. As of December 31, 2016 and 2015, 44.6 percent and 48.1 percent, respectively, of the Bank's fixed-rate advances were swapped, and 0.68 percent and 0.91 percent, respectively, of the Bank's variable-rate advances were swapped. The Bank also offers variable-rate advances that may be tied to indices such as the federal funds rate, prime rate, or constant maturity swap rates.

The Bank's 10 largest borrowing member institutions had 68.7 percent of the Bank's total advances outstanding as of December 31, 2016. Further information regarding the Bank's 10 largest borrowing member institutions and breakdown of their individual advance balances as of December 31, 2016 is contained in Item 1, Business—Credit Products—Advances. Management believes that the Bank holds sufficient collateral, on a member-specific basis, to secure the advances to all borrowers, including these 10 institutions, and the Bank does not expect to incur any credit losses on these advances.

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

Investments

The following table presents more detailed information regarding investments held by the Bank (dollars in millions).



	As of December 31,				Increase (Decrease)
	2016		2015		Amount			Percent
Investment securities:
State or local housing agency debt obligations	$	77	$	77	$	—		(0.17	)
Government-sponsored enterprises debt obligations	6,302		6,957		(655		)	(9.40	)
Mortgage-backed securities:
U.S. agency obligations-guaranteed residential	209		279		(70		)	(25.23	)
Government-sponsored enterprises residential	10,752		11,958		(1,206		)	(10.09	)
Government-sponsored enterprises commercial	6,773		4,140		2,633			63.61
Private-label residential	2,135		2,755		(620		)	(22.51	)
Total mortgage-backed securities	19,869		19,132		737			3.85
Total investment securities	26,248		26,166		82			0.32
Other investments:
Interest-bearing deposits ⁽¹⁾	1,106		1,088		18			1.67
Securities purchased under agreements to resell	1,386		2,500		(1,114		)	(44.57	)
Federal funds sold	7,770		5,421		2,349			43.33
Total other investments	10,262		9,009		1,253			13.91
Total investments	$	36,510	$	35,175	$	1,335		3.80

____________


⁽¹⁾	Interest-bearing deposits include a $1.1 billion business money market account with Branch Banking and Trust Company, one of the Bank’s ten largest borrowers as of December 31, 2016 and 2015.

The increase in total investments was primarily due to an increase in total other investments from December 31, 2015 to December 31, 2016. The amount held in other investments will vary each day based on the Bank’s liquidity requirements as a result of advances demand, the earnings rates, and the availability of high quality counterparties. The Bank ceased purchasing private-label MBS on January 31, 2008.

The Finance Agency regulations prohibit an FHLBank from purchasing MBS and asset-backed securities if its investment in such securities would exceed 300 percent of the FHLBank’s previous month-end regulatory capital on the day it would purchase the securities. The Bank was in compliance with this regulatory requirement as of December 31, 2016 and 2015, as these investments amounted to 288 percent and 274 percent of regulatory capital, respectively.

Refer to Note 6—Available-for-sale Securities and Note 7—Held-to-maturity Securities to the Bank’s 2016 audited financial statements for information on securities with unrealized losses as of December 31, 2016 and 2015.

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The Bank evaluates its individual investment securities for other-than-temporary impairment on a quarterly basis, as described in Note 8—Other-than-temporary Impairment to the Bank’s 2016 audited financial statements.

Mortgage Loans Held for Portfolio

The Bank had previously ceased purchasing new mortgage loans in 2008. However, during 2016, the Bank and FHLBank Indianapolis began participating in the funding of a master commitment with a member of FHLBank Indianapolis. The decrease in mortgage loans held for portfolio from December 31, 2015 to December 31, 2016 was primarily due to the maturity and prepayments of these assets during the year, partially offset by new mortgage loans acquired through the participation in the master commitment with the FHLBank Indianapolis.

Prior to 2008, members that were selling mortgage loans to the Bank were located primarily in the southeastern United States; therefore the Bank's conventional mortgage loan portfolio is concentrated in that region as of December 31, 2016 and 2015. The following table presents the percentage of unpaid principal balance of conventional residential mortgage loans held for portfolio for the five largest state concentrations.



	As of December 31,
	2016	2015
	Percent of Total	Percent of Total
Florida	24.44	28.08
South Carolina	22.00	25.27
Georgia	11.18	13.59
Virginia	9.82	7.90
North Carolina	9.08	10.39
All other	23.48	14.77
Total	100.00	100.00

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

Consolidated Obligations

The Bank funds its assets primarily through the issuance of consolidated obligation bonds and consolidated obligation discount notes. The decrease in consolidated obligations from December 31, 2015 to December 31, 2016 was a result of a decrease in advances outstanding during the year. Consolidated obligation issuances financed 93.7 percent of the $138.7 billion in total assets as of December 31, 2016, remaining relatively stable compared to the financing ratio of 93.8 percent as of December 31, 2015.

Consolidated obligations outstanding were primarily variable rate as of December 31, 2016, and fixed rate as of December 31, 2015. The Bank often simultaneously enters into derivatives with the issuance of consolidated obligation bonds to convert the interest rates, in effect, into short-term variable interest rates, usually based on LIBOR. As of December 31, 2016 and 2015, 78.1 percent and 82.8 percent, respectively, of the Bank’s fixed-rate consolidated obligation bonds were swapped. None of the Bank's variable-rate consolidated obligation bonds were swapped as of December 31, 2016 and 2015. As of December 31, 2016, and 2015, 38.9 percent and 22.2 percent, respectively, of the Bank's fixed-rate consolidated obligation discount notes were swapped.

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

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Deposits

The Bank offers demand and overnight deposit programs to members and qualifying non-members primarily as a liquidity management service. In addition, a member that services mortgage loans may deposit funds in the Bank that are collected in connection with the mortgage loans, pending disbursement of those funds to the owners of the mortgage loans. 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 fluctuate significantly. As a matter of prudence, the Bank typically invests deposit funds in liquid short-term assets. Member loan demand, deposit flows, and liquidity management strategies influence the amount and volatility of deposit balances carried with the Bank.

Capital

The FHLBank Act and Finance Agency regulations specify that each FHLBank must meet certain minimum regulatory capital standards. The Bank must maintain (1) total regulatory capital in an amount equal to at least four percent of its total assets; (2) leverage capital in an amount equal to at least five percent of its total assets; and (3) permanent capital in an amount equal to at least its regulatory risk-based capital requirement. Permanent capital is defined by the FHLBank Act and applicable regulations as the sum of paid-in capital for Class B stock and retained earnings. Mandatorily redeemable capital stock is considered capital for regulatory purposes. These regulatory capital requirements, and the Bank's compliance with these requirements, are presented in detail in Note 15—Capital and Mandatorily Redeemable Capital Stock to the Bank's 2016 audited financial statements.

Finance Agency regulations establish criteria for four capital classifications, based on the amount and type of capital held by an FHLBank, as follows:


•	Adequately Capitalized - FHLBank meets or exceeds both risk-based and minimum capital requirements;


•	Undercapitalized - FHLBank does not meet one or both of its risk-based or minimum capital requirements;


•	Significantly Undercapitalized - FHLBank has less than 75 percent of one or both of its risk-based or minimum capital requirements; and


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

Under the regulations, the Director of the Finance Agency (Director) will make a capital classification for each FHLBank at least quarterly and notify the FHLBank in writing of any proposed action and provide an opportunity for the FHLBank to submit information relevant to such action. The Director is permitted to make discretionary classifications. An FHLBank must provide written notice to the Finance Agency within 10 days of any event or development that has caused or is likely to cause its permanent or total capital to fall below the level required to maintain its most recent capital classification or reclassification. In the event that an FHLBank is not adequately capitalized, the regulations delineate the types of prompt corrective actions that the Director may order, including submission of a capital restoration plan by the FHLBank and restrictions on its dividends, stock redemptions, executive compensation, new business activities, or any other actions the Director determines will ensure safe and sound operations and capital compliance by the FHLBank. On December 14, 2016, the Bank received notification from the Director that, based on September 30, 2016 data, the Bank meets the definition of “adequately capitalized.”

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

Finance Agency regulations require the Bank to perform annual stress tests under various scenarios and publicly disclose a summary of the stress test results for the severely adverse scenario. The Bank filed the results of its stress test with the Finance Agency on August 31, 2016, and publicly disclosed a summary of the adverse scenario results on November 17, 2016.

Under the Bank's financial management policy, the Bank targets to maintain (1) a capital-to-assets ratio of 4.50 percent to 5.00 percent; (2) a retained earnings account balance equal to the restricted retained earnings account balance, plus extremely stressed scenario losses; and (3) additional retained earnings equal to two quarters of dividends, based on the current dividend rate and current stock balance. The Bank believes that daily excess stock repurchases and consistent dividends give members greater certainty of a return of their principal or the receipt of a dividend, which in turn may have a positive impact on members' appetite for advances. The Bank seeks to pay an amount of dividends each quarter that are consistent with an

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attractive rate of return on capital to its member shareholders relative to an established benchmark, LIBOR, after providing for retained earnings as discussed above. Historically, the Bank's dividend rate has increased with increases in LIBOR, while the spread between the dividend rate and LIBOR may shrink. Conversely, the dividend rate may decrease during periods of lower LIBOR, while the spread may increase. The Bank's ability to maintain dividends consistent with its recent trend depends on LIBOR remaining relatively stable, the Bank's actual financial performance, its ability to maintain adequate retained earnings, other factors described in Item 1A, Risk Factors, and the discretion of the Bank's board of directors. Information about the Bank's dividends declared during 2016 and 2015 is contained in Item 5, Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

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Results of Operations

The following is a discussion and analysis of the Bank's results of operations for the years ended December 31, 2016, 2015, and 2014.

Net Income

The following table presents the Bank’s significant income items for the years ended December 31, 2016, 2015, and 2014, and provides information regarding the changes during those years (dollars in millions). These items are discussed in more detail below.



										Increase (Decrease)
	For the Years Ended December 31,									2016 vs. 2015					2015 vs. 2014
	2016			2015			2014			Amount			Percent		Amount			Percent
Net interest income	$	334		$	243		$	323		$	91		37.87		$	(80	)	(24.90	)
Reversal of provision for credit losses	(1		)	(1		)	(5		)	—			11.16		4			82.17
Noninterest income	111			225			105			(114		)	(50.54	)	120			114.83
Noninterest expense	137			135			132			2			2.22		3			2.02
Total assessments	31			33			30			(2		)	(7.60	)	3			11.11
Net income	$	278		$	301		$	271		$	(23	)	(7.52	)	$	30		11.21

Net Interest Income

The primary source of the Bank’s earnings is net interest income. Net interest income equals interest earned on assets (including member advances, mortgage loans, MBS held in portfolio, and other investments), less the interest expense incurred on liabilities (including consolidated obligations, deposits, and other borrowings). Also included in net interest income are miscellaneous related items such as prepayment fees, the amortization of debt issuance discounts, and certain derivative instruments and hedging activities related adjustments. The Bank also recognizes significant improvements in expected cash flows related to other-than-temporary impairment securities through net interest income as an adjustment to the yield on the investment securities.

Net interest income includes components of hedging activity. When hedging relationships qualify for hedge accounting, the interest components of the hedging derivatives will be reflected in interest income or expense. When a hedging relationship is discontinued, the cumulative fair value adjustment on the hedged item will be amortized into interest income or expense over the remaining life of the asset or liability. The impact of hedging on net interest income was a decrease of $442 million, $616 million, and $608 million during the years ended December 31, 2016, 2015 and 2014, respectively.

The increase in net interest income during 2016, compared to 2015, was primarily due to decreased prepayments of previously restructured advances during 2016, compared to 2015. These prepayments resulted in $16 million and $181 million of accelerated amortization during 2016 and 2015, respectively, which reduced net interest income for those years. This accelerated amortization was offset by corresponding increases in net gains on derivatives and hedging activities, reflected in noninterest income. The remaining change in net interest income was due to an increase in short-term rates, which impacted consolidated obligation interest expense more than the offsetting increase in advance interest income. This was the result of the Federal Reserve raising interest rates in December 2015.

The decrease in net interest income during 2015, compared to 2014, was primarily due to increased prepayments of previously restructured advances during 2015, compared to 2014. These prepayments resulted in $181 million and $62 million of accelerated amortization during 2015 and 2014, respectively, which reduced net interest income for those years. The remaining change in net interest income was primarily related to increased advance rates, partially offset by increased interest expense and decreased investment securities earnings.

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The following table presents key components of net interest income for the years presented (in millions):



	For the Years Ended December 31,
	2016		2015		2014
Interest income:
Advances	$	586	$	141	$	180
Investments	489		427		448
Mortgage loans	31		40		50
Total interest income	1,106		608		678

Interest expense:
Consolidated obligations	768		364		354
Interest-bearing deposits	4		—		—
Mandatorily redeemable capital stock	—		1		1
Total interest expense	772		365		355
Net interest income	$	334	$	243	$	323

The following table presents spreads between the average yield on total interest-earning assets and the average cost of interest-bearing liabilities for the years ended December 31, 2016, 2015, and 2014 (dollars in millions). The interest-rate spread is affected by the inclusion or exclusion of net interest income or expense associated with the Bank's derivatives. For example, as discussed above, if the derivatives qualify for fair-value hedge accounting under GAAP, the interest income or expense associated with the derivatives is included in net interest income and in the calculation of interest-rate spread. If the derivatives do not qualify for fair-value hedge accounting under GAAP, the interest income or expense associated with the derivatives is excluded from net interest income and from the calculation of interest-rate spread and is recorded in noninterest income (loss) as "Net gains on derivatives and hedging activities." Amortization associated with some hedging-related basis adjustments is also reflected in net interest income, which affects interest-rate spread. The Bank's interest-rate spread was 21 basis points, 17 basis points, and 24 basis points for 2016, 2015, and 2014, respectively. The increase in interest-rate spread from 2015 to 2016, and the decrease in interest-rate spread from 2014 to 2015, is primarily due to the larger accelerated amortization related to prepayments of previously restructured and redesignated advances during 2015, compared to the accelerated amortization in 2016 and 2014.

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	For the Years Ended December 31,
	2016						2015						2014
	Average Balance			Interest		Yield/ Rate (%)	Average Balance			Interest		Yield/ Rate (%)	Average Balance			Interest		Yield/ Rate (%)
Assets
Interest-bearing deposits ⁽¹⁾	$	2,718		$	17	0.64	$	2,437		$	5	0.20	$	2,685		$	4	0.15
Securities purchased under agreements to resell	992			4		0.38	2,522			3		0.13	1,715			1		0.08
Federal funds sold	8,501			36		0.42	7,990			11		0.14	8,213			8		0.10
Investment securities ⁽²⁾	26,696			432		1.62	25,982			408		1.57	24,220			435		1.80
Advances	98,396			586		0.60	91,405			141		0.15	90,290			180		0.20
Mortgage loans ⁽³⁾	520			31		5.96	664			40		5.95	836			50		5.92
Loans to other FHLBanks	4			—		0.40	7			—		0.14	3			—		0.07
Total interest-earning assets	137,827			1,106		0.80	131,007			608		0.46	127,962			678		0.53
Allowance for credit losses on mortgage loans	(2		)				(2		)				(5		)
Other assets	1,881						1,435						1,409
Total assets	$	139,706					$	132,440					$	129,366
Liabilities and Capital
Interest-bearing deposits ⁽⁴⁾	$	1,190		4		0.31	$	1,253		—		0.03	$	1,435		—		0.01
Consolidated obligations, net:
Discount notes	58,744			249		0.42	42,328			59		0.14	29,900			29		0.10
Bonds	70,877			519		0.73	80,267			305		0.38	89,014			325		0.37
Other borrowings	9			—		4.80	19			1		4.01	25			1		3.69
Total interest-bearing liabilities	130,820			772		0.59	123,867			365		0.29	120,374			355		0.29
Other liabilities	2,067						2,076						2,412
Total capital	6,819						6,497						6,580
Total liabilities and capital	$	139,706					$	132,440					$	129,366
Net interest income and net yield on interest-earning assets				$	334	0.24				$	243	0.19				$	323	0.25
Interest rate spread						0.21						0.17						0.24
Average interest-earning assets to interest-bearing liabilities						105.36						105.77						106.30

___________


⁽¹⁾	Includes amounts recognized for the right to reclaim cash collateral paid under master netting agreements with derivative counterparties.


⁽²⁾	Includes trading securities at fair value and available-for-sale securities at amortized cost.


⁽³⁾	Nonperforming loans are included in average balances used to determine average rate.


⁽⁴⁾	Includes amounts recognized for the right to return cash collateral received under master netting agreements with derivative counterparties.

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Net interest income for the years presented was affected by changes in average balances (volume change) and changes in average rates (rate change) of interest-earning assets and interest-bearing liabilities. The following table presents the extent to which volume changes and rate changes affected the Bank’s interest income and interest expense (in millions). As presented in the table below, the overall changes in net interest income between 2016 and 2015 and between 2015 and 2014, were primarily rate related.



	2016 vs. 2015								2015 vs. 2014
	Volume ⁽¹⁾			Rate ⁽¹⁾		Increase (Decrease)			Volume ⁽¹⁾			Rate ⁽¹⁾			Increase (Decrease)
Increase (decrease) in interest income:
Interest-bearing deposits	$	1		$	11	$	12		$	—		$	1		$	1
Securities purchased under agreements to resell	(3		)	4		1			1			1			2
Federal funds sold	1			24		25			—			3			3
Investment securities	11			13		24			30			(57		)	(27		)
Advances	11			434		445			2			(41		)	(39		)
Mortgage loans	(9		)	—		(9		)	(10		)	—			(10		)
Total	12			486		498			23			(93		)	(70		)
Increase (decrease) in interest expense:
Interest-bearing deposits	—			4		4			—			—			—
Consolidated obligations, net:
Discount notes	31			159		190			14			16			30
Bonds	(40		)	254		214			(32		)	12			(20		)
Other borrowings	(1		)	—		(1		)	—			—			—
Total	(10		)	417		407			(18		)	28			10
Increase (decrease) in net interest income	$	22		$	69	$	91		$	41		$	(121	)	$	(80	)

____________


⁽¹⁾	Volume change is calculated as the change in volume multiplied by the previous rate, while rate change is calculated as the change in rate multiplied by the previous volume. The rate/volume change, calculated as the change in rate multiplied by the change in volume, is allocated between volume change and rate change at the ratio each component bears to the absolute value of its total.

Noninterest Income (Loss)

The following table presents the components of noninterest income (loss) (dollars in millions):



										Increase (Decrease)
	For the Years Ended December 31,									2016 vs. 2015					2015 vs. 2014
	2016			2015			2014			Amount			Percent		Amount			Percent
Net impairment losses recognized in earnings	$	(3	)	$	(5	)	$	(3	)	$	2		53.90		$	(2	)	(56.62	)
Net losses on trading securities	(30		)	(61		)	(60		)	31			50.87		(1		)	(0.43	)
Net gains on derivatives and hedging activities	119			261			120			(142		)	(54.40	)

Federal Home Loan Bank of Atlanta - FORM 10-K - March 9, 2017

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