UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 20132016
OR
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| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the transition period from to |
FEDERAL HOME LOAN BANK OF ATLANTA
(Exact name of registrant as specified in its charter)
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| Federally chartered corporation | | 56-6000442 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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| 1475 Peachtree Street, NE, Atlanta, Ga. | | 30309 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (404) 888-8000
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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.
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| 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, 2013,2016, the aggregate par value of the stock held by current and former members of the registrant was $4,871,539,700, and 48,715,397 total shares were outstanding as of that date.$5,249,367,100. At February 28, 2014,2017, 47,614,39751,578,606 total shares were outstanding.
Table of Contents
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| | PART I. | |
| Item 1. | | |
| Item 1A. | | |
| Item 1B. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| | PART II. | |
| Item 5. | | |
| Item 6. | | |
| Item 7. | | |
| Item 7A. | | |
| Item 8. | | |
| Item 9 | | |
| Item 9A. | | |
| Item 9B. | | |
| | PART III. | |
| Item 10. | | |
| Item 11. | | |
| Item 12. | | |
| Item 13. | | |
| Item 14. | | |
| | PART IV. | |
| Item 15. | | |
| Item 16. | | |
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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 1211 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”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.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;
• changes in various governmental monetary or fiscal policies, as well as legislative and regulatory changes, including changes in accounting principles generally accepted in the United States of America (GAAP) and related industry practices and standards, or the application thereof;
• changes in the credit ratings of the U.S. government and/or the FHLBanks;
• political, national, and world events, including acts of war, terrorism, natural disasters or other catastrophic events, and legislative, regulatory, judicial, or other developments that affect the economy, the Bank’s market area, the Bank, its members, counterparties, its federal regulator,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 the internet,those provided by third-parties, sufficient to measure and effectively manage the risks of the Bank’s business;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 FHLBankFHLBanks operations and regulatory oversight;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.
The forward-looking statements may not be realized due to aA 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.
PART I.
Item 1. Business.
Overview
General.The Bank is a federally chartered corporation that was organized in 1932 and is one of 1211 district FHLBanks. The FHLBanks, along with the Finance Agency and the Office of Finance, comprise the FHLBank System. The FHLBanks are U.S. government-sponsored enterprises (GSEs) organized under the authority of the FHLBank Act. Each FHLBank operates as a separate entity within a defined geographic district and has its own management, employees, and board of directors. The Bank's defined geographic district includes Alabama, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, and the District of Columbia. The Bank is 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. All federallyFederally insured depository institutions, insurance companies, privately insured, state-chartered credit unions, and certified community development financial institutions (CDFIs) charteredlocated 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,member. The Bank's membership totaled 901 financial institutions, comprised of 576 commercial banks, 83 thrifts, 211 credit unions, 24 insurance companies, and is not publicly traded. Asseven CDFIs as of December 31, 2013, the Bank's membership totaled 996 financial institutions, comprising 705 commercial banks, 106 thrifts, 167 credit unions, 17 insurance companies, and one certified CDFI.2016.
Mission. The primary function of the Bank is to provide readily available, competitively priced funding to theseits member institutions. The Bank serves the public by providing its member institutions with a source of liquidity, thereby enhancing the availability of credit for residential mortgages and targeted community development.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 for the Bank is proceeds from the sale of FHLBank debt instruments to the public of FHLBankpublic. These debt instruments, known as “consolidated obligations,” or “COs,” which are the joint and several obligations of all the FHLBanks. Because of the FHLBanks. Deposits,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 borrowings, andobligations of the issuance of capital stock provide additional funds toBank or the Bank. The Bank accepts deposits from both member and eligible non-member financial institutions and federal instrumentalities. The Bank also provides members and non-members with correspondent banking services such as cash management and other services, as discussed below.FHLBank System.
The Bank is exempt from ordinary federal, state, and local taxation, except real property taxes, and it does not have any subsidiaries nor does it sponsor any off-balance sheet special purpose entities.
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. As
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.
The Bank's core mission asset ratio was 75.2 percent as of December 31, 2013, the2016.
The Bank had total assets of $122.3 billion, total advances of $89.6 billion, total investments of $26.9 billion, total COs of $112.9 billion, total deposits of $1.8 billion,is exempt from ordinary federal, state, and a retained earnings balance of $1.7 billion. The Bank's net income for the year ended December 31, 2013 was $338 million. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations forlocal 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.operations, refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
The Finance Agency was established as the independent regulator of the FHLBanks effective July 30, 2008 with the passage of the Housing and Economic Recovery Act of 2008 (Housing Act). Pursuant to the Housing Act, all regulations, orders, determinations, and resolutions that were issued, made, prescribed, or allowed to become effective by the former Federal Housing Finance Board (Finance Board) will remain in effect until modified, terminated, set aside, or superseded by the Finance Agency Director, any court of competent jurisdiction, or operation of law. The Finance Agency's stated mission with respect to the FHLBanks is to provide effective supervision, regulation, and housing mission oversight of the FHLBanks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market. The Office of Finance, a joint office of the FHLBanks, facilitates the issuance and servicing of the FHLBanks' debt instruments and prepares the combined quarterly and annual financial reports of the FHLBanks.
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 $89.6$99.1 billion and $87.5$104.2 billion as of December 31, 20132016 and 2012,2015, respectively, and advances represented 73.271.5 percent and 70.773.2 percent of total assets as of December 31, 20132016 and 2012,2015, respectively. Advances generated 29.553.0 percent, 30.223.2 percent, and 23.226.5 percent of total interest income for the years ended December 31, 2013, 2012,2016, 2015, and 2011,2014, respectively.
Advances serve as a funding source tofor the Bank's members for a variety of conforming and nonconforming mortgages. Thus, advances support important housing markets, including those focused on low- and moderate-income households. For those members that choose to sell or securitize their mortgages, advances can supply interim funding.
Generally, member institutions use the Bank's advances for one or more of the following purposes:
providing funding for single-family mortgages and multifamily mortgages held in the member's portfolio, including both conforming and nonconforming mortgages;
providing temporary funding during the origination, packaging, and sale of mortgages into the secondary market;
providing funding for commercial real estate loans;
assisting with asset-liability management by matching the maturity and prepayment characteristics of mortgage loans or adjusting the sensitivity of the member's balance sheet to interest-rate changes;
providing a cost-effective alternative to meet contingent liquidity needs and 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 onlyto community financial institutions for the purpose of enabling a member to purchase or fund new or existing residential housing finance assets, which may include for community financial institutions, defined small business loans, small farm loans, small agri-business loans, and community development loans. The BankBank's management indirectly monitors the purpose for which members use advances through limitations on eligible collateral and as described below.
The Bank obtains a security interest in eligible collateral to secure a member's advance prior to the time 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 may require additional or substitute collateral from a borrower, as provided in the FHLBank Act and the financing documents between the Bank and its borrowers.
The BankBank'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:
AdjustableAdjustable- or variable ratevariable-rate indexed advances. AdjustableAdjustable- or variable ratevariable-rate indexed advances include: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.
Capped and Floored Advances. The capped advance includes an interest-rate cap, while the floored advance includes an interest-rate floor. The interest rate on the advance adjusts according to the difference between the interest-rate cap or floor and the established index. The Bank offers this product with a maturity generally of one year to 10 years.
Float-to-Fixed Advance. This advance is an advance that floats to London Interbank Offered Rate (LIBOR) and changes to a predetermined fixed rate on a predetermined date prior to maturity. The Bank offers this product with a maturity generally of up to 15 years.
Fixed rateFixed-rate advances. Fixed rateFixed-rate advances include: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 memberborrower to prepay the advance on an option exercise date(s) before maturity without a fee. The options can be Bermudan (periodically during the life of the advance) or European (one-time). The Bank offers this product with a maturity generally of up to 10 years with options generally from three months to 10 years.
Expander Advance. The expander advance is a fixed-rate advance with a fixed maturity and an option by the borrower to increase the amount of the advance in the future at a predetermined interest rate. The option may be Bermudan or European. The Bank has established internal limits on the amount of such options that may be sold to mature in any given quarter.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.
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 memberborrower 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 sets forthpresents the par value of outstanding advances by product characteristics (dollars in millions). See Note 109—Advances to the Bank's 2016 audited financial statements for further information on the distinction between par value and carrying value of outstanding advances.
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| | | As of December 31, | As of December 31, |
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| | Amount | | Percent of Total | | Amount | | Percent of Total | Amount | | Percent of Total | | Amount | | Percent of Total |
Fixed rate (1) | | $ | 38,941 |
| | 39.62 | | $ | 35,664 |
| | 34.67 |
| Adjustable or variable rate indexed | $ | 12,584 |
| | 14.32 | | $ | 11,678 |
| | 13.92 | 34,930 |
| | 35.54 | | 43,425 |
| | 42.22 |
Fixed rate (1) | 49,768 |
| | 56.63 | | 40,503 |
| | 48.29 | |
| Hybrid | 20,333 |
| | 23.14 | | 24,352 |
| | 29.04 | 21,453 |
| | 21.83 | | 19,782 |
| | 19.23 |
| Convertible | 3,510 |
| | 3.99 | | 5,174 |
| | 6.17 | 1,497 |
| | 1.52 | | 2,394 |
| | 2.33 |
Amortizing (2) | 1,687 |
| | 1.92 | | 2,163 |
| | 2.58 | 1,467 |
| | 1.49 | | 1,599 |
| | 1.55 |
| Total par value | $ | 87,882 |
| | 100.00 | | $ | 83,870 |
| | 100.00 | $ | 98,288 |
| | 100.00 | | $ | 102,864 |
| | 100.00 |
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(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 COsconsolidated 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 a datedates other than an option exercise date(s).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 economicallyfinancially indifferent to a borrower's decision to prepay an advance before maturity or, with respect to a callable advance, on a date other than an option exercise date.
The following table presents information on the Bank's 10 largest borrowers of advances (dollars in millions):
| | | | | As of December 31, 2013 | | As of December 31, 2016 |
| Institution | | City, State | | Advances Par Value | | Percent of Total Advances | | Weighted-average Interest Rate (%) (1) | | 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 | | Charlotte, NC | | $ | 17,263 |
| | 19.64 | | 0.57 | | North Carolina | | 11,511 |
| | 11.71 | | 0.62 |
| Capital One, National Association | | McLean, VA | | 8,506 |
| | 9.68 | | 0.31 | |
| 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 | | Winston Salem, NC | | 8,182 |
| | 9.31 | | 3.28 | | North Carolina | | 4,012 |
| | 4.08 | | 4.32 |
| Capital One Bank (USA), National Association | | Glen Allen, VA | | 7,800 |
| | 8.88 | | 0.24 | |
| SunTrust Bank | | Atlanta, GA | | 7,015 |
| | 7.98 | | 0.31 | | Georgia | | 2,754 |
| | 2.80 | | 0.79 |
| Navy Federal Credit Union | | Vienna, VA | | 6,924 |
| | 7.88 | | 3.40 | |
| Compass Bank | | Birmingham, AL | | 3,468 |
| | 3.94 | | 1.08 | |
| Bank United, National Association | | Miami Lakes, FL | | 2,415 |
| | 2.75 | | 0.35 | |
| Everbank | | Jacksonville, FL | | 2,353 |
| | 2.68 | | 1.60 | |
| Pentagon Federal Credit Union | | Alexandria, VA | | 1,546 |
| | 1.76 | | 3.34 | | Virginia | | 2,221 |
| | 2.26 | | 2.41 |
| Synovus Bank | | | Georgia | | 1,325 |
| | 1.35 | | 0.64 |
| Subtotal (10 largest borrowers) | | 65,472 |
| | 74.50 | | 1.23 | | 67,493 |
| | 68.67 | | 1.27 |
| Subtotal (all other borrowers) | | 22,410 |
| | 25.50 | | 1.91 | | 30,795 |
| | 31.33 | | 1.37 |
| Total par value | | $ | 87,882 |
| | 100.00 | | 1.40 | | $ | 98,288 |
| | 100.00 | | 1.30 |
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(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 provides members withissues irrevocable standby letters of credit on behalf of its members to support certain obligations of the members to third parties.third-party beneficiaries. Members may use standby letters of credit for residential housing financefinancing 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 a one year termone-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, and thecredit. The Bank also charges the member an annualmembers 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, these amountsthe 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 the underwriting and collateral requirementsthey are for advances. LettersStandby 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 $27.8$32.7 billion and $17.7$32.5 billion of outstanding standby letters of credit as of December 31, 20132016 and 2012,2015, respectively.
Advances and Standby Letters of Credit Combined
The following table presents information on the Bank's 10 largest borrowers of advances and standby letters of credit combined (dollars in millions):
| | | | | As of December 31, 2013 | | As of December 31, 2016 |
| Institution | | City, State | | Advances Par Value and Standby Letters of Credit Balance | | Percent of Total Advances Par Value and Standby Letters of Credit | | State | | Advances Par Value and Standby Letters of Credit Balance | | Percent of Total Advances Par Value and Standby Letters of Credit |
| Bank of America, National Association | | Charlotte, NC | | $ | 27,829 |
| | 24.06 | | 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 | | Winston Salem, NC | | 15,052 |
| | 13.01 | | North Carolina | | 5,001 |
| | 3.82 |
| Capital One, National Association | | McLean, VA | | 8,917 |
| | 7.71 | |
| Compass Bank | | Birmingham, AL | | 8,235 |
| | 7.12 | |
| SunTrust Bank | | Atlanta, GA | | 7,869 |
| | 6.80 | |
| Capital One Bank (USA), National Association | | Glen Allen, VA | | 7,800 |
| | 6.74 | |
| Navy Federal Credit Union | | Vienna, VA | | 6,924 |
| | 5.99 | |
| Regions Bank | | Birmingham, AL | | 2,639 |
| | 2.28 | | Alabama | | 4,286 |
| | 3.27 |
| BankUnited, National Association | | Miami Lakes, FL | | 2,415 |
| | 2.09 | |
| EverBank | | Jacksonville, FL | | 2,413 |
| | 2.09 | |
| Pentagon Federal Credit Union | | | Virginia | | 4,236 |
| | 3.23 |
| Subtotal (10 largest borrowers) | | 90,093 |
| | 77.89 | | 96,344 |
| | 73.57 |
| Subtotal (all other borrowers) | | 25,578 |
| | 22.11 | | 34,612 |
| | 26.43 |
| Total advances par value and standby letters of credit | Total advances par value and standby letters of credit | | $ | 115,671 |
| | 100.00 | Total advances par value and standby letters of credit | | $ | 130,956 |
| | 100.00 |
Community Investment Services
Each FHLBank contributes 10 percent of its annual regulatory income subject to itsassessment to the Affordable Housing Program (AHP), or such additional prorated sums as may be required to assureso that the aggregate annual contribution of the FHLBanks is not less than $100 million. RegulatoryFor purposes of the AHP calculation, each FHLBank's income subject to assessment is defined as GAAPthe individual FHLBank's net income before assessments, plus interest expense related to mandatorily redeemable capital stock and thestock. The assessment for AHP is further discussed under the heading Taxation/Assessments heading below.
AHP provides no-cost or low-cost funds in the form of a direct subsidy funds or a subsidized advancesadvance to members to support the financing of rental and for-sale housing for very low-, low-, and moderate-income individuals and families.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 individuals and families.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 tenthe following nine distinct products: First-time Homebuyer, Community Stability,Partners, Foreclosure Recovery, Energy Efficiency & Weatherization Rehabilitation, Accessibility Rehabilitation, Veterans Purchase, Returning Veterans Purchase, Veterans Rehabilitation, Returning Veterans Rehabilitation, Community Rebuild and theRestore, 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 payment,payments, closing costs, and other costs associated with the purchase, purchase/rehabilitation, or rehabilitation of a homehomes for families at or below 80 percent of the area median income; and
the discounted advance program consists of the Community Investment Program and the Economic Development Program, each of which providesboth 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.
ForThe Bank's AHP assessments were $31 million, $33 million, and $30 million, respectively, for the years ended December 31, 2013 , 2012,2016, 2015, and 2011, AHP assessments were $37 million, $30 million, and $21 million, respectively.2014.
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 forto meet the derivatives needs of its smaller members that have limited or no access to the capital markets but need to enter into derivatives.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
Historically, the Bank offeredThe Bank’s mortgage loan purchase programs toprovide members to provide them an alternative to holding mortgage loans in a portfolio or selling them into the secondary market. The names of one program, the Mortgage Partnership Finance® Program,“Mortgage Partnership Finance”, “MPF” and "MPF Xtra" are registered trademarks of FHLBank Chicago. MPF® Program and the Mortgage Purchase Program (MPP) are authorized under applicable regulations. Under both the MPF Program and MPP,Prior to 2008, the Bank purchased loans directly from member participating financial institutions (PFIs). The loans consisted of one-to-four family residential properties with original maturities ranging from five years to 30 years. Depending upon through the Mortgage Partnership Finance® Program (MPF® Program), a program developed by FHLBank Chicago and the acquired loans may have included qualifying conventional conforming, Federal Housing Administration (FHA) insured, and Veterans Administration (VA) guaranteed fixed-rate mortgage loans.Mortgage Purchase Program (MPP), a program separately established by the Bank. The Bank also purchasedceased 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 interests 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 on affordable multifamily rental properties through its Affordable Multifamily Participation Program (AMPP). In August 2013,rather than holding such loans as Bank assets. During 2016, the AMPP loans were sold which resultedBank and FHLBank Indianapolis began participating in the funding of an MPP master commitment with a gainmember of less than $1 million.FHLBank Indianapolis.
MPF Program
FHLBank Chicago developedFrom time to time, the Bank has offered various products to members through the MPF Program and,Program. FHLBank Chicago, as the MPF provider, is responsible for providing transaction processing services, as well as developing and maintaining the underwriting criteria and program servicing guide. The Bank pays FHLBank Chicago a fee for providing these services. Conventional loans purchased from PFIs under the MPF Program are subject to varying levels of loss allocation and credit enhancement structures. FHA-insuredFederal Housing Administration (FHA)-insured and VA-guaranteedDepartment 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 held $67 millionmaintains a portfolio of mortgage loans that were historically purchased directly from PFIs and $92 million in FHA/VA loans underare recorded on the MPF Program as of December 31, 2013 and 2012, respectively. As of December 31, 2013, threebalance sheet. Two of the Bank's PFIs under the traditional MPF PFIs,products, Branch Banking and Trust Company and SunTrust Bank, and Capital One, National Association, which like all PFIs were inactive as of December 31, 2013, were among the Bank's top 10 borrowers.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.
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 operates itsBank’s MPP independentlyis independent of other FHLBanks, and therefore itFHLBanks. Therefore, the Bank has greater control over pricing, quality of customer service, relationshiprelationships with any third-party service provider,providers, and program changes. Certain benefits of greater Bank control include the Bank's ability to control operating costs and to manage its regulatory relationship directly with the Finance Agency.As of December 31, 2013, there
There were no MPP PFIs that were among the Bank's top 10 borrowers.borrowers as of December 31, 2016.
The Bank ceased purchasing new mortgage assets under MPF Program and MPP in 2008. The Bank purchased loans with contractual maturity dates extending out to 2038. The Bank plans to continue to support its existing MPP and MPF portfolios, which eventually will be reduced to zero in the ordinary course of the maturities and prepayments of the assets.
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 itsthese 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.
On January 23, 2014, the Finance Agency approved the Bank's new business activity request to offer the MPF Xtra program to members. Under the MPF Xtra program developed by FHLBank Chicago, FHLBank Chicago will purchase residential conforming fixed rate mortgage loans from FHLBank Atlanta PFIs and concurrently sell these loans to Fannie Mae. The PFI generally will retain the right and responsibility for servicing the loans, and the PFI may be required to repurchase a loan in the event of a breach of eligibility requirement or other warranty. The Bank will receive a counterparty fee from FHLBank Chicago for each PFI loan sold to FHLBank Chicago through the MPF Xtra program in exchange for the Bank's role in facilitating the sale. The MPF Xtra loans are passed through to a third-party investor and do not become Bank assets. The Bank expects to offer the MPF Xtra program to a small number of PFI members in 2014 and gradually expand the program over the next three years.
Investments
The Bank maintains a portfolio of short-investment securities and long-termother investments for liquidity purposes to provide for the availability of funds to meet member credit needs and to provide additional earnings for the Bank. TheAs of December 31, 2016, the Bank's short-term investments consist of interest-bearing deposits and overnight federal funds sold. The Bank's long-term investmentsinvestment securities consist of mortgage-backed securities (MBS) issued by GSEs, U.S. government agencies, or private labelprivate-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,agencies; and state and local housing agency obligations, and COs issued by another FHLBank.obligations. The Bank ceased purchasing private labelprivate-label MBS on January 31, 2008. The long-term investment securities portfolio generally provides the Bank with higher returns than those available in short-termother investments. AsThe Bank's other investments may consist of December 31, 2013, 73.6interest-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 were in U.S. agencyas of December 31, 2016 and GSE securities2015, respectively, as discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Investments. Investments generated 62.844.2 percent, 61.970.3 percent, and 68.066.2 percent of total interest income for the years ended December 31, 2013, 20122016, 2015, and 2011,2014, 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. TheIn all cases, the Bank bases its investment decisions in all cases on the relative rates of return of competing investments and does not consider whether an MBS is being purchased from or issued by a member or an affiliate of a member. The MBS balance as of December 31, 2013 and 2012 included MBS with a carrying value of $2.1$1.1 billion and $2.5$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 its affiliates with dealer relationships.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 set outdiscussed in more detail in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Investments.
Previously, Finance Agency regulations further limited the Bank's investment inprohibit an FHLBank from purchasing MBS and asset-backed securities by requiring that the total carrying value of MBS owned by the Bank not exceedif its investment in such securities exceeds 300 percent of the Bank'sFHLBank’s previous month-end totalregulatory capital as defined by regulation, plus mandatorily redeemable capital stock on the day it purchases the securities. Effective June 20, 2011,Regulatory capital is defined as the valuesum of securities usedpermanent 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 300 percent of capital limit calculation was changed from carrying value to amortized historical cost for securities classified as held-to-maturity or available-for-sale,plan and fair value for securities classified as trading.approved by the Finance Agency. For discussion regarding the Bank's compliance with this regulatory requirement, refer to
Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Investments.
TheOccasionally, the Bank periodically purchases COsconsolidated obligations issued by other FHLBanks through third-party dealers as long-term investments,investment securities, consistent with the Bank's investment strategy and Finance Agency regulations and guidelines. The terms of these purchased COs generally are similar to the COs that are issued by the Bank. The Bank's purchase of these investments is funded by a pool of liabilities and capital of the Bank and is not funded by specific or “matched” COs issued by the Bank. In making such purchases, the Bank considers the same factors that it considers in connection with the Bank's purchase of long-term debt issued by other GSEs, including the maturity, rate of return and liquid nature of the instrument. The Bank has not purchased any additional COsconsolidated obligations issued by other FHLBanks since 2002. AsThe balance of December 31, 2013 and 2012,these investments is presented in Note 5—Trading Securities to the Bank held one inverse variable-rate CO bond of which the FHLBank Chicago was the primary obligor. The carrying value of this CO bond as of December 31, 2013 and 2012 was $65 million and $77 million, respectively.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, or COs, consisting of bonds and discount notes, are the joint and several obligations of the FHLBanks, backed only by the financial resources of the FHLBanks. COsConsolidated obligations are not obligations of the U.S. government, and the United States does not guarantee the COs.consolidated obligations. The Office of Finance has responsibility for facilitating and executing the issuance of COsconsolidated obligations for all the FHLBanks. It also services all outstanding debt. The Bank is primarily liable for its portion of COsconsolidated 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 COsconsolidated obligations of all the FHLBanks. If the principal or interest on any COconsolidated 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. TheAt any time, the Finance Agency may at any time require any FHLBank to make principal or interest payments due on any COs,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 COconsolidated 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 COsconsolidated 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 COsconsolidated obligations outstanding, provided that any assets that are subject to a lien or pledge for the benefit of the holders of any issue of COsconsolidated 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, includesinclude securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located; and
other securities that have been assigned a rating or assessment by a nationally recognized statistical rating organization (NRSRO) that is equivalent to or higher than the rating or assessment assigned by that NRSRO to the COs.located.
The Bank was in compliance with this Finance Agency regulation as of December 31, 20132016 and 2012. Effective May 7, 2014, the Finance Agency negative pledge regulation will no longer include "other securities that have been assigned a rating or assessment by an NRSRO that is equivalent to or higher than the rating or assessment assigned by that NRSRO to the COs."2015.
Consolidated obligations are issued with either fixed-rate coupon payment termsfixed- 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.
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'sshort-term 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-notediscount 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 paymentpayments of all current obligations (which includes the Bank's obligation to pay principal and interest on COsconsolidated 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 COconsolidated 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 such time as the Finance Agency has approved the FHLBank's COconsolidated obligation payment plan or inter-
FHLBankinter-FHLBank assistance agreement or has ordered another remedy, and the noncompliant FHLBank has paid all its direct obligations.
The Bank, working through the Office of Finance, is able to customize COs to meet investor demands. Customized features can include different indices and embedded derivatives. These customized features are offset predominately by derivatives to reduce the market risk associated with the COs.
Deposits
The FHLBank Act allows the Bank to accept deposits from its members, any institution for which it is providing correspondent services, other FHLBanks, or other governmental instrumentalities. Deposits provide some of the Bank's funding resources while also giving members a low-risk earning asset that satisfies their regulatory liquidity requirements. As of December 31, 2013 and 2012, theThe Bank had demand and overnight deposits of $1.8$1.1 billion as of December 31, 2016 and $2.1 billion, respectively.2015.
To support its member deposits, the FHLBank Act requires the Bank to have as a reserve an amount equal to or greater than itsthe current deposits received from members.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 certain advances with maturities not exceeding five years. As of December 31, 2013 and 2012, theThe Bank had excess deposit reserves of $81.8$88.7 billion and $79.5$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, as last amended by the board of directors on May 13, 2011.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, 2013,2016, the membership stock requirement was 0.12 percent (12 basis points) of the member's total assets, subject to a cap of $20 million. On January 30, 2014, the board of directors of the Bank approved a reduction in the membership stock requirement to 0.09 percent (9(nine basis points) of the member's total assets, subject to a cap of $15 million, effective March 21, 2014.million.
As of December 31, 2013,2016, the activity-based stock requirement was the sum of the following:
4.504.25 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 single-family residential mortgage loan assets), although this percentage was set at zero as of December 31, 2013. As of December 31, 2013, the2016. 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.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 has established a capitalBank's financial management planpolicy 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 in or the speculative use of these instruments and limit permissible credit risk arising from these instruments. The Bank enters into derivatives to manage the exposure to interest-rate risk exposures inherent in otherwise unhedged assets and funding positions and to achieve the Bank's risk management objectives. These derivatives consist of interest-rate swaps (including callable swaps and putable swaps), swaptions, interest-rate cap and floor agreements, and forward contracts. Generally, the Bank uses derivatives in its overall interest-rate risk management to accomplish one or more of the following objectives:
preserve a favorable interest-rate spread between the yield of an asset (e.g., an advance) and the cost of the related liability (e.g., the consolidated obligation bond used to fund the advance) by converting both fixed-rate instruments to a variable rate using interest-rate swaps;
reduce funding costs by combining a derivative with a consolidated obligation because the cost of a combined funding structure can be lower than the cost of a comparable consolidated obligation bond;
reduce the interest-rate sensitivity and repricing gaps of assets and liabilities;
mitigate the adverse earnings effects of the shortening or extensionlengthening 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 $101.7$81.2 billion and $124.7$99.8 billion as of December 31, 20132016 and 2012,2015, respectively. The contractual or notional amount of a derivative is not a measure of the amount of credit risk from that transaction. Rather,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 COsconsolidated obligations with embedded options. IssuingWhen issuing bonds, whilethe Bank generally simultaneously enteringenters into derivatives to, in effect, convertsconvert 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. LargeLarger 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. Members continue to experience significant levels of liquidity due to higher FDIC deposit insurance limits which in 2010 were permanently increased to $250,000 per depositor, members' ability under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) to pay interest on and thus attract commercial demand deposit accounts, and the FDIC assessment system, revised in 2011, that eliminates an adjustment to the base assessment rate paid for secured liabilities, including FHLBank advances. To the extent that these assessment changes result in increased assessments and thus indirectly increase the cost of advances for some members, it may negatively impact their demand for advances.
Debt Issuance. The Bank competes with Fannie Mae, Freddie Mac, and other GSEs, as well as corporate, sovereign, and supranational entities for funds raised through the issuance of unsecured debt in the national and global debt markets. Increases in the supply of competing debt products may, in the absence of increases in demand, result in higher debt costs or lesser amounts of debt issued at the same cost than otherwise would be the case. In addition, the availability and cost of funds raised through the issuance of certain types of unsecured debt may be affected adversely by regulatory initiatives that tend to reduce investments by certain depository institutions in unsecured debt with greater price volatility or interest-rate sensitivity than
fixed-rate, fixed-maturity instruments of the same maturity. Further, a perceived or actual higher level of government support for other GSEs may increase demand for their debt securities relative to similar FHLBank securities.
Interest-rate Exchange Agreements. The sale of callable debt and the simultaneous execution of callable interest-rate swaps that mirror the debt have been important sources of competitive funding for the Bank. As such, the availability of markets for callable debt and interest-rate swaps may be an important determinant of the Bank's relative cost of funds. There is considerable competition among high credit quality issuers in the markets for these instruments.
Regulatory Oversight, Audits, and Examinations
The Finance Agency supervises and regulates the FHLBanks. The Finance Agency is responsible for ensuring that (1) the FHLBanks operate in a safe and sound manner, including maintenance of adequate capital and internal controls; (2) the operations and activities of the FHLBanks foster liquid, efficient, competitive, and resilient national housing finance markets; (3) the FHLBanks comply with applicable laws and regulations; and (4) the FHLBanks carry out their housing finance mission through authorized activities that are consistent with the public interest. In this capacity, the Finance Agency issues regulations and policies that govern, among other things, the permissible activities, powers, investments, risk-management practices, and capital requirements of the FHLBanks, and the authorities and duties of FHLBank directors. The Finance Agency conducts annual, on-site examinations of the Bank, as well as periodic off-site reviews. In addition, the Bank must submit to the Finance Agency monthly financial information on the condition and results of operations of the Bank.
In 2006, in accordance with the Finance Board's regulation, the Bank registered its Class B stock with the SEC under Section 12(g)(1) of the Securities Exchange Act of 1934, as amended (Exchange Act). The Housing Act codified the regulatory requirement that each FHLBank register a class of its common stock under Section 12(g) of the Exchange Act. As a result of this registration, the Bank is required to comply with the disclosure and reporting requirements of the Exchange Act and to file with the SEC annual, quarterly, and current reports, as well as meet other SEC requirements,also subject to certain exemptive relief obtained fromregulation by the SEC and under the Housing Act.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 COsconsolidated obligations up to an aggregate principal amount of $4.0 billion. No borrowings under this authority have been outstanding since 1977. The U.S. Department of the Treasury (Treasury) receives the Finance Agency's annual report to Congress, weekly reports reflecting securities transactions of the FHLBanks, and other reports reflecting the operations of the FHLBanks.
The Comptroller General has authority under the FHLBank Act to audit or examine the Finance Agency and the Bank and to decide the extent to which they fairly and effectively fulfill the purposes of the FHLBank Act. Furthermore, the Government Corporation Control Act provides that the Comptroller General may review any audit of the financial statements conducted by an independent registered public accounting firm. If the Comptroller General conducts such a review, he 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,department; the Bank's board of directors has an audit committee,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
Our websiteThe Bank is located at www.fhlbatl.com, and our investor relations website is located at http://corp.fhlbatl.com/who-we-are/investor-relations/. We post ourrequired to file with the SEC an annual reportsreport on Form 10-K, on our investor relations website as soon as reasonably practicable after we file them with the SEC, and we also provide a link to the page on the SEC website at www.sec.gov that has all of our SEC filings, including our annual reports, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, as well as any amendments.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. Additionally, we provide notifications
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 news or announcements regarding our financial performance, includingthe Bank's SEC filings, dividend announcements, press and earnings releases as part of our latest news website at http://corp.fhlbatl.com/who-we-are/news/. filings.
The content of ourthe websites referenced above is not incorporated by reference into this Report or in any other report or document we filethat the Bank files with the SEC, and any references to ourthese websites are intended to be inactive textual references only.
Personnel
As of December 31, 2013,2016, the Bank employed 343316 full-time and 4 part-time employees.
Taxation/Assessments
The Bank is exempt from ordinary federal, state, and local taxation, except for real property tax; however, the Bank was obligated to make quarterly payments to the Resolution Funding Corporation (REFCORP) through the second quarter of 2011. On August 5, 2011, the Finance Agency certified that the FHLBanks had fully satisfied their REFCORP obligation with their payment on July 15, 2011. Prior to the satisfaction of the FHLBanks' REFCORP obligation,tax. However, each FHLBank was required to make payments to REFCORP equivalent to 20 percent of annual GAAP net income before REFCORP assessments and after payment of AHP assessments.
Each year the Bank must set aside for its AHP 10 percent of its annual regulatorytheir income subject to assessment for the AHP, or such additional prorated sums as may be required to assureso 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 experiencedexperiences a regulatorynet 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 regulatory income. Because the REFCORP assessment reduced the amount of regulatory income usedsubject to calculate the AHP assessment, it had the effect of reducing the total amount of funds allocated to the AHP.
REFCORP has been designated as the calculation agent for AHP and REFCORP assessments. The combined REFCORP andassessment. AHP assessments for the Bank were $37$31 million, $30$33 million, and $43$30 million for the years ended December 31, 2013, 2012,2016, 2015, and 2011,2014, 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 affectimpact 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. From time to time, Congress has amendedmay amend the FHLBank Act or amend or adopt other statutes in ways that have affectedsignificantly 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,compliance; a change in membership or permissible business activities,activities; additional liquidity requirements; or a decrease in the size, scope, or nature of the FHLBanks' lending activities, any of which could affectnegatively impact the Bank's financial condition and results of operations.
The statutory and regulatory framework under which most financial institutions, including the Bank, operate will change substantially over the next several years as a result of the enactment of the Dodd-Frank Act and subsequent implementing regulations. 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.
The Bank is jointly and severally liable for payment of principal and interest on the COs issued by the other FHLBanks.
Each of the FHLBanks relies upon the issuance of COs as a primary source of funds. COs are the joint and several obligations of all of the FHLBanks, backed only by the financial resources of the FHLBanks. Accordingly, the Bank is jointly and severally liable with the other FHLBanks for the COs issued by the FHLBanks through the Office of Finance, regardless of whether the Bank receives all or any portion of the proceeds from any particular issuance of COs.
The Finance Agency by regulation may require any FHLBank to make principal or interest payments due on any CO at any time, whether or not the FHLBank that was the primary obligor has defaulted on the payment of that obligation. The Finance Agency may allocate the liability among one or more FHLBanks on a pro rata basis or on any other basis the Finance Agency may determine. Accordingly, the Bank could incur significant liability beyond its primary obligation under COs due to the failure of other FHLBanks to meet their obligations, which could negatively affect the Bank's financial condition and results of operations.
The Bank's funding depends upon its ability to regularly access the capital markets.
The Bank seeks to be in a position to meet its members' credit and liquidity needs and pay its obligations without maintaining excessive holdings of low-yielding liquid investments or being forced to incur unnecessarily high borrowing costs. The Bank's primary source of funds is the sale of COs in the capital markets, including the short-term discount note market. The Bank's ability to obtain funds through the sale of COs depends in part on prevailing conditions in the capital markets (including investor demand), such as the effects of any reduced liquidity in financial markets, which are beyond the Bank's control.
Changes in the Bank's credit ratings may adversely affect the Bank's ability to issue COs on acceptable terms, and such changes may be outside the Bank's control due to changes in the U.S. sovereign ratings.
The Bank is rated Aaa with a stable outlook by Moody's and AA+ with a stable outlook by S&P. In addition, the COs of the FHLBanks are rated Aaa with a stable outlook/P-1 by Moody's and AA+ with a stable outlook/A-1+ by S&P. Historically, the Bank and the FHLBanks' COs enjoyed the highest ratings from Moody's and S&P; however, the credit rating agencies view these ratings as constrained by the sovereign credit of the U.S., which is beyond the Bank's control, and in the third quarter of 2011, the credit rating agencies revised their ratings for the individual FHLBanks and the COs concurrently with their downgrades of the U.S. credit rating. In 2013, the credit rating agencies revised their outlook levels to stable. These ratings are subject to further revision or withdrawal at any time by the rating agencies; therefore, the Bank may not be able to maintain these credit ratings. Further negative ratings actions or negative guidance, as a consequence of U.S. debt levels and/or political efforts to resolve U.S. fiscal policy, may adversely affect the Bank's cost of funds and ability to issue COs on acceptable terms, trigger additional collateral requirements under the Bank's derivative contracts, and reduce the attractiveness of the Bank's standby letters of credit, which could have a negative effect on the Bank's financial condition and results of operations, including the Bank's ability to make advances on acceptable terms, pay dividends, or redeem or repurchase capital stock.
Competition for advances and refinancing risk on short-term advances could have an adverse effect on earnings.
Advances represent the Bank's primary product offering. ForAdvances represented 71.5 percent of the Bank's total assets for the year ended December 31, 2013, advances represented 73.2 percent of the Bank's total assets.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. During 2013, theThe 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 effectimpact on the Bank's financial condition and results of operations, including dividend yields to members.
The prolonged low interest rate environment has resulted in an increaseda concentration of short-term advances. ForAlthough the year endedFederal Reserve raised interest rates in December 31, 2013, advances due2016, and indicated its intention to raise rates further in one year or less comprised 58.4 percent of2017, the Bank's total advances.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 effectimpact on the
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. As of December 31, 2013, the Bank's largest borrower, Bank of America, National Association, accounted for $17.3 billion, or 19.6 percent, of the Bank's total advances then outstanding. The Bank's largest borrowers as of December 31, 20122016, 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 Capital One Bank (USA),of America, National Association, which together accounted for $20.9$11.5 billion, or 24.911.7 percent, of the Bank's total advances then outstanding. In addition, as of December 31, 2013 and 2012, 102016, ten of the Bank's member institutions (including Bank of America, National Association, Capital One, National Association, Navy Federal Credit Union, and Capital One Bank (USA),of America, National Association) collectively accounted for $65.5$67.5 billion and $62.5 billion, respectively, of the Bank's total advances then outstanding. This concentrationoutstanding, which represented 74.568.7 percent of the Bank's total advances then outstanding as of December 31, 2013 and 2012.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 prolonged periodBank’s businesses and results of low interest ratesoperations 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 negatively impactaffect the success of the Bank's earningsasset and dividend yield asliability management activities and negatively affect the Bank's interest rate spread remains lowfinancial condition and the Bank's higher yielding assets mature or prepay in a low yield environment.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,spread.
The Bank relies upon derivative instruments to reduce its interest-rate risk associated with certain assets and reinvestmentliabilities 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 as well as foreclosure prevention efforts such as principal writedowns, could affect earnings.
The Bank invests in both MBS and whole mortgage loans. Changes in interest rates can significantly affect the prepayment patterns of these assets, and such prepayment patterns could affect the Bank's earnings. In the Bank's experience, it is difficult to hedge prepayment risk in mortgage loans. Therefore, prepayments of mortgage assets could have an adverse effect on the income of the Bank.
Federal agencies includingThe 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 Finance Agency, Fannie Mae,Bank's capital stock, payable to members, from the Bank's unrestricted retained earnings and Freddie Mac have implemented various measurescurrent net earnings. The Bank's ability to pay dividends and programs during the past few years intended to prevent foreclosure, such as lowering a home owner's monthly payments through mortgage modificationsrepurchase or refinancings, providing temporary reductions or suspensions of mortgage payments,redeem capital stock is subject to compliance with statutory and helping homeowners transitionregulatory liquidity and capital requirements. The Bank's financial management policy addresses regulatory guidance issued to more affordable housing. Further, settlements announced in 2013 and 2012 with the banking regulators, the federal government and the nation's largest mortgage servicers and states attorneys' general are focused on loan modifications and principal writedowns. In late January 2013, the Treasury department announced that it is expanding refinancing programs for homeowners whose mortgages are greater than their home value to include mortgages underlying private-label MBS. These programs, proposals, and settlements could negatively impact investments in MBS, including the timing and amount of cash flows the Bank realizes from those investments. Additional developments could result in further increases to loss projections from these investments. Additionally, these developments could result in a significant number of prepayments on mortgage loans underlying investments in agency MBS. If that should occur, these investments would be paid off in advance of original expectations, subjectingall FHLBanks regarding retained earnings. It requires the Bank to accelerationestablish a target amount of premium amortizationretained earnings by considering factors such as forecasted income, mark-to-market adjustments on derivatives and reinvestment risk.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,
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, 2013, 22.72016, 10.7 percent of the Bank's MBS portfolio consisted of private-label MBS. Market prices for many of these private-label MBS have improved recently;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 earningsfinancial condition and retained earnings and the valueresults of Bank membership.operation.
The Bank uses master derivative contracts that contain provisions that require the Bank to net the exposure under all transactions with thea counterparty to one amount in order to calculate collateral requirements. At times, the Bank enters into derivative contracts with U.S. branches or agency offices of foreign commercial banks in jurisdictions in which it is uncertain whether the netting provisions would be enforceable in the event of insolvency of the foreign commercial bank. Although the Bank attempts to monitor the creditworthiness of all counterparties, it is possible that the Bank may not be able to terminate the agreement with a foreign commercial bank before the counterparty would become subject to an insolvency proceeding.
The Bank 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 derivative instruments to reduce its interest-rate risk associated with certain assetsthe issuance of consolidated obligations as a primary source of funds. Consolidated obligations are the joint and liabilities onseveral obligations of all of the Bank's balance sheet, including MBS and advances, andFHLBanks, backed only by the financial resources of the FHLBanks. Accordingly, the Bank may be required to change its investment strategiesis jointly and advance product offerings if it is not able to enter into effective derivative instruments on acceptable terms.severally liable with the other FHLBanks for the consolidated obligations issued by the FHLBanks through the Office of Finance.
The Bank uses derivative instrumentsFinance Agency by regulation, may require any FHLBank to attempt to reduce its interest-rate risk and mortgage prepayment risk. The Bank determinesmake principal or interest payments due on any consolidated obligation at any time, whether or not the nature and quantity of hedging transactions based on various factors, including market conditions andFHLBank that was the expected volume and terms of advances. As a result, the Bank's effective use of these instruments dependsprimary obligor has defaulted on the abilitypayment 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 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 satisfactorycould incur significant liability beyond its primary obligation under consolidated obligations due to the Bank, and in the quantities necessaryfailure of other FHLBanks to hedge the Bank's corresponding obligations. 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,meet their obligations, which could affectnegatively 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
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, or on dealer prices or prices of similar instruments. Pricing models and their underlying assumptions are based on the Bank's best estimates for discount rates, prepayments, market volatility, and other factors. These assumptions may have a significant effect on the reported fair values of assets and liabilities, including derivatives, the related income and expense, and the expected future behavior of assets and liabilities.
While models used by the Bank to value instruments and measure risk exposures are subject to periodic validation by independent parties, rapid changes in market conditions could impact the value of the Bank's instruments, as well as the Bank's financial condition and results of operations. Models are inherently imperfect predictors of actual results because they are based on assumptions about future performance. Changes in any models or in any of the assumptions, judgments, or estimates used in the models may cause the results generated by the model to be materially different from actual results.
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 not be ablefail to pay dividends at rates consistent with target ratios.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
The Bank's board of directors may declare dividendsthose changes. Failed or inadequate controls and risk management practices could have an adverse effect on the Bank's capital stock, payable to members, from the Bank's unrestricted retained earningsfinancial condition and current net earnings. The Bank's ability to pay dividends also is subject to statutory and regulatory liquidity requirements. For example, the Bank has adopted a capital management plan to address regulatory guidance issued to all FHLBanks regarding retained earnings. The Bank's capital management plan requires the Bank to establish a target amountresults of retained earnings by considering factors such as forecasted income, mark-to-market adjustments on derivatives and trading securities, market risk, operational risk, and credit risk, all of which may be influenced by events beyond the Bank's control. Events such as changes in interest rates, collateral value, credit quality of members, and any future other-than-temporary impairment losses may affect the adequacy of the Bank's retained earnings and may require the Bank to reduce its dividends from its target ratios or suspend dividends altogether to achieve and maintain the targeted amount of retained earnings.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.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.
The Bank relies heavily upon information systems and other technology, and any disruption or failure of such information systems or other technology could adversely impact our reputation, financial condition, and results of operations.
The Bank relies heavily upon information systems and other technology to conduct and manage its business. The Bank owns some of these systems and technology, and third parties own and provide to the Bank some of the systems and technology. Computer systems, software and networks can be vulnerable to failures and interruptions, including as the result of any “cyberattacks” (e.g., breaches, unauthorized access, misuse, computer viruses or other malicious code and other events) or other breaches of technology security, that may derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. Such failures, interruptions or cyberattacks could jeopardize the confidentiality or integrity of information, including personally identifiable information related to the Bank's advances collateral and AHP and MPF program activities, or otherwise interrupt the Bank's ability to conduct and manage its business effectively, including, without limitation, its hedging and advances activities. The Bank can make no assurance that it will be able to prevent, timely and adequately address, or mitigate the negative effects of, any such failure, interruption or cyberattack. Any failure or interruption could significantly harm the Bank's customer relations, risk management, and profitability, and could result in financial losses and legal and regulatory sanctions.
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 3,1932,993 square feet of office space located in Washington, D.C. The BankBank's management believes these facilities are well maintained and are adequate for the purposes for which they currently are used.
| |
| Item 3. | Legal Proceedings. |
MBS Litigation
On January 18, 2011, the Bank filed a complaint in the State Court of Fulton County, Georgia against Countrywide Financial Corporation (n/k/a/ Bank of America Home Loans), Countrywide Securities Corporation, Countrywide Home Loans, Inc., Bank of America Corporation (as successor to the Countrywide defendants), J.P. Morgan Securities, LLC (f/k/a J.P. Morgan
Securities, Inc. and Bear Stearns & Co., Inc.) and UBS Securities, LLC, et al. The Bank’s claims arise from material misrepresentations in the offering documents of thirty private-label MBS sold to the Bank. The Bank’s complaint alleges that the Countrywide Defendants (Countrywide Financial Corporation, Countrywide Securities Corporation, and Countrywide Home Loans, Inc.) and J.P. Morgan Securities, LLC violated the Georgia RICO (Racketeer Influenced and Corrupt Organizations) Act. The complaint further alleges that those defendants, as well as UBS Securities, LLC, committed fraud and negligent misrepresentation in violation of Georgia law, and that Bank of America Corporation is liable to the Bank as a successor to the Countrywide Defendants. In the complaint, the Bank seeks monetary damages and other relief as compensation for losses it has incurred in connection with the purchase of these private-label MBS. In December 2013, the Bank filed a motion to dismiss with prejudice its claims against Bank of America Corporation, J.P. Morgan Securities, LLC, and UBS Securities, LLC with respect to all Countrywide and J. P. Morgan securities. Bank of America Corporation is the parent holding company of Bank of America, National Association, one of the Bank's largest borrowers and stockholding members. See Item 1, Business - Credit Products and Services for a table of the Bank's 10 largest borrowers of advances, and Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for a table of members that are beneficial owners of more than five percent of the Bank's capital stock.
Other
The Bank is subject to various other legal proceedings and actions from time to time in the ordinary course of its business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of those matters presently known to the Bank will have a material adverse effectimpact 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, thatwhich 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 shall redeem at par valueredeems 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
its required stock holdings, subject to certain limitations and thresholds in the Bank's capital plan. Prior to November 20, 2012, the Bank repurchased excess capital stock based on quarterly determinations. On November 20, 2012, the Bank began repurchasing activity-based excess capital stock on a daily basis. The Bank repurchased $1.3 billion, $1.1 billion, $1.6 billion, and $1.0 billion of excess capital stock during the first, second, third, and fourth quarters of 2013, respectively. The Bank repurchased $1.2 billion, $478 million, and $888 million of excess capital stock during the second, third, and fourth quarters of 2012, respectively. 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, 2014,2017, the Bank had 996904 member and non-member shareholders and 4852 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 Bankfollowing table presents the Bank's declared quarterly cash dividends in 20132016 and 2012 as outlined in the table below2015 (dollars in millions).
|
| | | | | | | | | | | | |
| | | 2013 | | 2012 |
| Quarter | | Amount | | Annualized Rate (%)(1) | | Amount | | Annualized Rate (%)(2) |
| First | | $ | 29 |
| | 2.32 | | $ | 18 |
| | 1.23 |
| Second | | 26 |
| | 2.29 | | 22 |
| | 1.51 |
| Third | | 29 |
| | 2.53 | | 19 |
| | 1.47 |
| Fourth | | 32 |
| | 2.76 | | 30 |
| | 2.43 |
|
| | | | | | | | | | | | |
| | | 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 200, 200, 225, and 250425 basis points for the first second, third, and fourthsecond quarters of 2013, respectively.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 75, 100, 100, and 200400 basis points for the first and second quarters of 2015, and 425 basis points for the third and fourth quarters of 2012, respectively.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 toof 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 stock"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 stock limitation. Excess stock is FHLBank capital stock not required to be held by the member to meet its minimum stock requirement under an FHLBank's capital plan.limitation. As of December 31, 2013,2016, 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 "excessexcess 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 capitalfinancial management planpolicy 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 Bank's capitalfinancial management plan,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 member,members, former member,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 $13.9$25.1 billion, $6.3$13.8 billion, and $13.1$19.5 billion in standby letters of credit in 2013, 2012,2016, 2015, and 2011,2014, 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.
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 20092012 to 2013,2016, have been derived from annual financial statements, including the statements of condition as of December 31, 20132016 and 20122015 and the related statements of income for the years ended December 31, 2013, 2012,2016, 2015, and 20112014 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 yearlyannual periods (dollars in millions):
| | | | As of and for the Years Ended December 31, | As of and for the Years Ended December 31, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| Statements of Condition (as of year end) | | | | | | | | | | | | | | | | | | |
Total assets | $ | 122,316 |
| | $ | 123,705 |
| | $ | 125,270 |
| | $ | 131,798 |
| | $ | 151,311 |
| $ | 138,671 |
| | $ | 142,246 |
| | $ | 138,344 |
| | $ | 122,316 |
| | $ | 123,705 |
|
Investments (1) | 26,944 |
| | 30,454 |
| | 36,138 |
| | 39,879 |
| | 32,940 |
| |
| Advances | | 99,077 |
| | 104,168 |
| | 99,644 |
| | 89,588 |
| | 87,503 |
|
| Mortgage loans held for portfolio | 929 |
| | 1,255 |
| | 1,639 |
| | 2,040 |
| | 2,523 |
| 524 |
| | 586 |
| | 749 |
| | 929 |
| | 1,255 |
|
| Allowance for credit losses on mortgage loans | (11 | ) | | (11 | ) | | (6 | ) | | (1 | ) | | (1 | ) | (1 | ) | | (2 | ) | | (3 | ) | | (11 | ) | | (11 | ) |
| Advances | 89,588 |
| | 87,503 |
| | 86,971 |
| | 89,258 |
| | 114,580 |
| |
Investments (2) | | 36,510 |
| | 35,175 |
| | 36,502 |
| | 26,944 |
| | 30,454 |
|
| Interest-bearing deposits | 1,752 |
| | 2,094 |
| | 2,655 |
| | 3,093 |
| | 2,989 |
| 1,118 |
| | 1,084 |
| | 1,110 |
| | 1,752 |
| | 2,094 |
|
| Consolidated obligations, net: |
| |
| |
| |
| |
| | | | | | | | | |
| Discount notes | 32,202 |
| | 31,737 |
| | 24,330 |
| | 23,915 |
| | 17,127 |
| |
| Bonds | 80,728 |
| | 82,947 |
| | 90,662 |
| | 95,198 |
| | 121,450 |
| |
Total consolidated obligations, net (2) | 112,930 |
| | 114,684 |
| | 114,992 |
| | 119,113 |
| | 138,577 |
| |
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 | 24 |
| | 40 |
| | 286 |
| | 529 |
| | 188 |
| 1 |
| | 14 |
| | 19 |
| | 24 |
| | 40 |
|
| Affordable Housing Program payable | 74 |
| | 80 |
| | 109 |
| | 126 |
| | 125 |
| 69 |
| | 63 |
| | 65 |
| | 74 |
| | 80 |
|
| Payable to REFCORP | — |
| | — |
| | — |
| | 20 |
| | 21 |
| |
| Capital stock - putable | 4,883 |
| | 4,898 |
| | 5,718 |
| | 7,224 |
| | 8,124 |
| 4,955 |
| | 5,101 |
| | 5,150 |
| | 4,883 |
| | 4,898 |
|
| Retained earnings | 1,657 |
| | 1,435 |
| | 1,254 |
| | 1,124 |
| | 873 |
| 1,892 |
| | 1,840 |
| | 1,746 |
| | 1,657 |
| | 1,435 |
|
| Accumulated other comprehensive income (loss) | 112 |
| | (58 | ) | | (411 | ) | | (402 | ) | | (744 | ) | 104 |
| | 75 |
| | 95 |
| | 112 |
| | (58 | ) |
| Total capital | 6,652 |
| | 6,275 |
| | 6,561 |
| | 7,946 |
| | 8,253 |
| 6,951 |
| | 7,016 |
| | 6,991 |
| | 6,652 |
| | 6,275 |
|
| Statements of Income (for the year ended) |
| |
| |
| |
| |
| | | | | | | | | |
| Net interest income | 341 |
| | 376 |
| | 459 |
| | 544 |
| | 397 |
| 334 |
| | 243 |
| | 323 |
| | 341 |
| | 376 |
|
| Provision for credit losses | 5 |
| | 6 |
| | 5 |
| | — |
| | — |
| |
| (Reversal) provision for credit losses | | (1 | ) | | (1 | ) | | (5 | ) | | 5 |
| | 6 |
|
| Net impairment losses recognized in earnings | — |
| | (16 | ) | | (118 | ) | | (143 | ) | | (316 | ) | (3 | ) | | (5 | ) | | (3 | ) | | — |
| | (16 | ) |
| Net (losses) gains on trading securities | (100 | ) | | (67 | ) | | 2 |
| | 31 |
| | (135 | ) | |
| Net gains (losses) on derivatives and hedging activities | 204 |
| | 117 |
| | (9 | ) | | 8 |
| | 543 |
| |
| Letters of credit fees | 20 |
| | 18 |
| | 19 |
| | 14 |
| | 7 |
| |
Other income (3) | 42 |
| | 3 |
| | 2 |
| | 3 |
| | 3 |
| |
Noninterest expense (4) | 127 |
| | 125 |
| | 123 |
| | 79 |
| | 113 |
| |
| 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 | 375 |
| | 300 |
| | 227 |
| | 378 |
| | 386 |
| 309 |
| | 334 |
| | 301 |
| | 375 |
| | 300 |
|
Assessments (5) | 37 |
| | 30 |
| | 43 |
| | 100 |
| | 103 |
| |
| Affordable Housing Program assessments | | 31 |
| | 33 |
| | 30 |
| | 37 |
| | 30 |
|
| Net income | 338 |
| | 270 |
| | 184 |
| | 278 |
| | 283 |
| 278 |
| | 301 |
| | 271 |
| | 338 |
| | 270 |
|
| Performance Ratios (%) |
| |
| |
| |
| |
| | | | | | | | | |
Return on equity (6) | 5.42 |
| | 4.26 |
| | 2.52 |
| | 3.42 |
| | 3.58 |
| |
Return on assets (7) | 0.28 |
| | 0.22 |
| | 0.15 |
| | 0.19 |
| | 0.16 |
| |
Net interest margin (8) | 0.29 |
| | 0.31 |
| | 0.37 |
| | 0.38 |
| | 0.22 |
| |
Regulatory capital ratio (as of year end) (9) | 5.37 |
| | 5.15 |
| | 5.79 |
| | 6.74 |
| | 6.07 |
| |
Equity to assets ratio (10) | 5.18 |
| | 5.25 |
| | 5.91 |
| | 5.63 |
| | 4.34 |
| |
Dividend payout ratio (11) | 34.52 |
| | 32.82 |
| | 29.48 |
| | 9.63 |
| | 8.51 |
| |
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 |
|
____________
| |
(1) | Investments consistThe Bank adopted new accounting guidance related to the presentation of interest-bearing deposits, securities purchased under agreementsdebt issuance costs, as discussed in Note 3—Recently Issued and Adopted Accounting Guidance to resell, federal funds sold, and securities classifiedthe Bank's 2016 audited financial statements. As a result, $7 million of debt issuance costs that were included in other assets were reclassified as trading, available-for-sale, and held-to-maturity. |
| |
(2)
| The amounts presented area reduction in the corresponding consolidated obligations balance on the Bank’s primary obligations on consolidated obligations outstanding. The par valueStatements of the FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable wasCondition as follows (in millions):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, 2013 | $ | 654,076 |
|
| December 31, 2012 | 574,257 |
|
| December 31, 2011 | 578,118 |
|
| December 31, 2010 | 678,528 |
|
| December 31, 2009 | 793,314 |
|
|
| | | |
| 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 |
|
| |
(3)(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. | Other income includes service fees and other, and for the year ended December 31, 2013, amount includes a $33 million gain on litigation settlement. |
| |
(4)
| For the year ended December 31, 2010, amount includes $51 million which represents the reversal of a portion of the provision for credit losses established on a receivable due from Lehman Brothers Special Financing Inc.. |
| |
(5)
| On August 5, 2011, the Finance Agency certified that the FHLBanks have satisfied their REFCORP obligation. |
| |
(6)
| Calculated as net income divided by average total equity. |
| |
(7)
| Calculated as net income divided by average total assets. |
| |
(8)
| Net interest margin is net interest income as a percentage of average earning assets. |
| |
(9)
| Regulatory capital ratio is regulatory capital stock plus retained earnings as a percentage of total assets as of year end. |
| |
(10)
| Calculated as average equity divided by average total assets. |
| |
(11)
| Calculated as dividends declared during the year divided by net income during the year. |
| |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion and analysis relates to the Bank's financial condition as of December 31, 20132016 and 2012,2015, and results of operations for the years ended December 31, 2013, 2012,2016, 2015, and 2011.2014. 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, 20132016 included in Item 8 of this Report. Readers also should carefully review carefully “Special Cautionary Notice Regarding Forward-looking Statements” and Item 1A, Risk Factors, for a description of the forward-looking statements in this Report and a discussion of the factors that might cause the Bank's actual results to differ, perhaps materially, from these forward-looking statements.
Executive Summary
Financial Condition
As of December 31, 2013,2016, total assets were $122.3$138.7 billion,, a decrease of $1.4$3.6 billion,, or 1.122.51 percent,, from December 31, 2012.2015. This decrease was primarily due to a $3.5$5.1 billion, or 11.54.89 percent, decrease in total investments,advances, partially offset by a $2.1$1.3 billion, or 2.383.80 percent, increase in advances.total investments.
As of December 31, 2013,2016, total liabilities were $115.7$131.7 billion,, a decrease of $1.8$3.5 billion,, or 1.502.60 percent,, from December 31, 2012.2015. This decrease was primarily due to a $1.8$3.4 billion, or 1.532.59 percent, decrease in COs.consolidated obligations as a result of the decrease in funding needs during the year.
As of December 31, 2013,2016 and 2015, total capital was $6.7 billion, an increase of $377 million, or 6.00 percent, from December 31, 2012. This increase was primarily due to the issuance of $5.0 billion of capital stock related to new advance activity and the recording of $338 million in net income and $170 million in other comprehensive income, partially offset by the repurchase/redemption of $5.0 billion in excess capital stock, excluding capital stock classified as mandatorily redeemable capital stock, and the payment of $116 million in dividends.$7.0 billion.
Results of Operations
The Bank recorded net income of $338$278 million for 2013, an increase2016, a decrease of $68$23 million, or 24.97.52 percent, from net income of $270$301 million for 2012. The2015.
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 net income was primarily due to a $111 millionshort-term rates, which impacted consolidated obligation interest expense more than the offsetting increase in noninterest income, partially offset by a $35 million decrease in netadvance 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 5.424.08 percent for 20132016, compared to 4.264.63 percent for 2012.2015. This decrease in ROE increased for 2013, comparedwas primarily due to 2012, primarilya decrease in net income during the year, as a result ofwell as an increase in net income, and a decrease in average total capital during the year.
capital. ROE spread to average three-month average LIBOR increaseddecreased to 515334 basis points for 20132016, compared to 383431 basis points for 2012. The increase2015. This decrease in the ROE spread to LIBOR was primarily due to the increasedecrease in ROE.
The Bank’s interest rate spread was relatively stable at 2621 basis points and 2717 basis points for 20132016 and 2012,2015, 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 2013,2016, the Bank maintainedcontinued to maintain its focus on an advances-driven and conservative-risk steady-return business model, which enabled the Bank to report net income, pay dividends, and repurchase excess stock consistently throughout the year despite continued uncertainties in the market.
The prolonged recoveryyear. As part of the U.S. economy, elevated domestic unemployment, continued uncertaintiesBank's cooperative model, the Bank has chosen to operate with narrow margins, which cause the Bank's profitability to be sensitive to changes in the housing market continuing fiscal issues, and current monetary policy continue to create a challenging operating environment for the Bank. While certain areas of the economy are experiencing improvement, such as unemployment, consumer confidence, and housing, the improvement is modest, and the momentum of the recovery remains tepid. conditions.
The state of the economy is the single largest drivera significant component in determining the Bank's overall business outlook andas it impacts advance demand, asset and collateral values, member financial stability, funding costs, spreads, and many other facets of the Bank's portfolio. IfWhile the recovery continues at the current pace, member demand, advance levels, and net income might be challenged during 2014 but will likely continueU.S. economy has generally continued to correlate positively with the pace of overall recovery. The outcome of certainimprove in recent years, factors such as theinterest rates, liquidity levels at member institutions, fiscal and monetary policies measures or performance of global economies, and regulatory changes could have a significant effect - either positive or negative - on national and Bankthe Bank's economic performance.
The prolonged low interest rate environment which is expected to continue through 2015 despite the tapering of the Federal Reserve's quantitative easing programs, has resulted in borrowers strongly favoring short-term advances,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 2014. Although the Bank experienced an overall increase in advances during 2013 compared to 2012, the high2017. This higher proportion of short-term advances subjectswill continue to subject the Bank to significant refinancingadvance rollover risk. In addition, members continue to experience high levels of liquidity and lowlow-to-modest loan demand, which may continue to reduce overall member demand for advances. Given the economic uncertainties discussed above, the Bank cannot accurately predict its ability to refinance or grow advances during the year. The Bank continues to develop additional products and services that enhance members' ability to respond to economic conditions and their increasing regulatory compliance requirements such as liquidity requirements based on Basel III.
The continued low rate environment also creates challenges for the Bank's investment portfolio, as higher-yielding investments mature or prepay in an environment with few attractive reinvestment opportunities, and for the Bank's debt portfolio, as maturing debt is refinanced at higher interest rates. The Bank expects these trends to continue while interest rates remain low. Although a higher interest rate environment is more favorable for the Bank's total profitability, it hasmay 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.
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, | | | | | As of December 31, | | | | |
| | 2013 | | 2012 | | Increase (Decrease) | 2016 | | 2015 | | Increase (Decrease) |
| | Amount | | Percent of Total | | Amount | | Percent of Total | | Amount | | Percent | Amount | | Percent of Total | | Amount | | Percent of Total | | Amount | | Percent |
| Advances | $ | 89,588 |
| | 73.24 | | $ | 87,503 |
| | 70.73 |
| | $ | 2,085 |
| | 2.38 |
| $ | 99,077 |
| | 71.45 | | $ | 104,168 |
| | 73.23 | | $ | (5,091 | ) | | (4.89 | ) |
| Long-term investments | 24,142 |
| | 19.74 | | 21,414 |
| | 17.31 |
| | 2,728 |
| | 12.74 |
| |
| Short-term investments | 2,802 |
| | 2.29 | | 9,040 |
| | 7.31 |
| | (6,238 | ) | | (69.00 | ) | |
| 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 | 918 |
| | 0.75 | | 1,244 |
| | 1.01 |
| | (326 | ) | | (26.23 | ) | 523 |
| | 0.38 | | 584 |
| | 0.41 | | (61 | ) | | (10.43 | ) |
| Other assets | 4,866 |
| | 3.98 | | 4,504 |
| | 3.64 |
| | 362 |
| | 8.03 |
| 2,561 |
| | 1.84 | | 2,319 |
| | 1.63 | | 242 |
| | 10.35 |
|
| Total assets | $ | 122,316 |
| | 100.00 | | $ | 123,705 |
| | 100.00 |
| | $ | (1,389 | ) | | (1.12 | ) | $ | 138,671 |
| | 100.00 | | $ | 142,246 |
| | 100.00 | | $ | (3,575 | ) | | (2.51 | ) |
| Consolidated obligations, net: | | | | | | | | | | | | | | | | |
| Discount notes | $ | 32,202 |
| | 27.84 | | $ | 31,737 |
| | 27.03 |
| | $ | 465 |
| | 1.46 |
| $ | 41,292 |
| | 31.35 | | $ | 69,434 |
| | 51.35 | | $ | (28,142 | ) | | (40.53 | ) |
| Bonds | 80,728 |
| | 69.80 | | 82,947 |
| | 70.64 |
| | (2,219 | ) | | (2.68 | ) | 88,647 |
| | 67.30 | | 63,953 |
| | 47.29 | | 24,694 |
| | 38.61 |
|
| Deposits | 1,752 |
| | 1.51 | | 2,094 |
| | 1.78 |
| | (342 | ) | | (16.33 | ) | 1,118 |
| | 0.85 | | 1,084 |
| | 0.80 | | 34 |
| | 3.09 |
|
| Other liabilities | 982 |
| | 0.85 | | 652 |
| | 0.55 |
| | 330 |
| | 50.80 |
| 663 |
| | 0.50 | | 759 |
| | 0.56 | | (96 | ) | | (12.62 | ) |
| Total liabilities | $ | 115,664 |
| | 100.00 | | $ | 117,430 |
| | 100.00 |
| | $ | (1,766 | ) | | (1.50 | ) | $ | 131,720 |
| | 100.00 | | $ | 135,230 |
| | 100.00 | | $ | (3,510 | ) | | (2.60 | ) |
| Capital stock | $ | 4,883 |
| | 73.41 | | $ | 4,898 |
| | 78.05 |
| | $ | (15 | ) | | (0.30 | ) | $ | 4,955 |
| | 71.28 | | $ | 5,101 |
| | 72.71 | | $ | (146 | ) | | (2.88 | ) |
| Retained earnings | 1,657 |
| | 24.90 | | 1,435 |
| | 22.87 |
| | 222 |
| | 15.42 |
| 1,892 |
| | 27.22 | | 1,840 |
| | 26.22 | | 52 |
| | 2.86 |
|
| Accumulated other comprehensive income (loss) | 112 |
| | 1.69 | | (58 | ) | | (0.92 | ) | | 170 |
| | 293.97 |
| |
| Accumulated other comprehensive income | | 104 |
| | 1.50 | | 75 |
| | 1.07 | | 29 |
| | 39.03 |
|
| Total capital | $ | 6,652 |
| | 100.00 | | $ | 6,275 |
| | 100.00 |
| | $ | 377 |
| | 6.00 |
| $ | 6,951 |
| | 100.00 | | $ | 7,016 |
| | 100.00 | | $ | (65 | ) | | (0.93 | ) |
Advances
The following table sets forthpresents the Bank's advances outstanding by year of maturity and the related weighted-average interest rate (dollars in millions):
| | | | As of December 31, | As of December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| | Amount | | Weighted-average Interest Rate (%) | | Amount | | Weighted-average Interest Rate (%) | Amount | | Weighted-average Interest Rate (%) | | Amount | | Weighted-average Interest Rate (%) |
| Overdrawn demand deposit accounts | $ | 2 |
| | 5.36 | | $ | 2 |
| | 5.36 | $ | — |
| | 5.80 | | $ | 16 |
| | 5.49 |
| Due in one year or less | 51,331 |
| | 0.51 | | 41,482 |
| | 1.05 | 47,325 |
| | 0.86 | | 46,673 |
| | 0.58 |
| Due after one year through two years | 5,366 |
| | 1.77 | | 7,915 |
| | 2.15 | 8,244 |
| | 2.11 | | 12,747 |
| | 1.47 |
| Due after two years through three years | 6,136 |
| | 1.75 | | 4,735 |
| | 2.17 | 5,904 |
| | 1.53 | | 6,360 |
| | 2.59 |
| Due after three years through four years | 8,495 |
| | 2.04 | | 5,821 |
| | 2.01 | 5,859 |
| | 1.33 | | 2,994 |
| | 1.99 |
| Due after four years through five years | 5,088 |
| | 3.18 | | 8,758 |
| | 2.17 | 11,846 |
| | 1.68 | | 4,616 |
| | 1.43 |
| Due after five years | 11,464 |
| | 3.91 | | 15,157 |
| | 3.80 | 19,110 |
| | 1.78 | | 29,458 |
| | 1.52 |
| Total par value | 87,882 |
| | 1.42 | | 83,870 |
| | 1.90 | 98,288 |
| | 1.31 | | 102,864 |
| | 1.17 |
| Discount on AHP advances | (8 | ) | | (11 | ) | | (5 | ) | | (6 | ) | |
| Discount on EDGE advances | (7 | ) | | (8 | ) | | |
Discount on EDGE (1) advances | | (4 | ) | | (4 | ) | |
| Hedging adjustments | 1,726 |
| | 3,658 |
| | 798 |
| | 1,315 |
| |
| Deferred commitment fees | (5 | ) | | (6 | ) | | — |
| | (1 | ) | |
| Total | $ | 89,588 |
| | $ | 87,503 |
| | $ | 99,077 |
| | $ | 104,168 |
| |
____________
(1) Economic Development and Growth Enhancement Program
Advances outstanding as of December 31, 2013 grew modestly2016 decreased by 4.89 percent, compared to December 31, 2012.2015. As a result of the prolonged low interest rate environment,shareholder demand, the majority of new advances arein 2016 were short-term advances. As of December 31, 2013, 85.22016 and 2015, 64.2 percent of
the Bank's advances were fixed-rate. However, the Bank often simultaneously enters into derivatives with the issuance of advances to convert the rates on them, in effect, into a short-term variable interest rate,rates, the majority of which are based on LIBOR. As of December 31, 20132016 and 2012, 41.72015, 44.6 percent and 52.848.1 percent, respectively, of the Bank's fixed-rate advances were swapped, and 28.20.68 percent and 28.80.91 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, andor constant maturity swap rates.
As of December 31, 2013, 74.5The Bank's 10 largest borrowing member institutions had 68.7 percent of the Bank's total advances were outstanding to its 10 largest borrowing member institutions.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, 20132016 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.Information (Unaudited).
Investments
The following table sets forthpresents more detailed information regarding short- and long-term investments held by the Bank (dollars in millions):.
| | | | As of December 31, | | Increase (Decrease) | As of December 31, | | Increase (Decrease) |
| | 2013 | | 2012 | | Amount | | Percent | 2016 | | 2015 | | Amount | | Percent |
| Short-term investments: | | | | | | | | |
Interest-bearing deposits (1) | $ | 1,007 |
| | $ | 1,005 |
| | $ | 2 |
| | 0.22 |
| |
| Certificates of deposit | — |
| | 550 |
| | (550 | ) | | (100.00 | ) | |
| Securities purchased under agreements to resell | — |
| | 250 |
| | (250 | ) | | (100.00 | ) | |
| Federal funds sold | 1,795 |
| | 7,235 |
| | (5,440 | ) | | (75.19 | ) | |
| Total short-term investments | 2,802 |
| | 9,040 |
| | (6,238 | ) | | (69.00 | ) | |
| Long-term investments: | | | | | | | | |
| Investment securities: | | | | | | | | |
| State or local housing agency debt obligations | 93 |
| | 108 |
| | (15 | ) | | (13.44 | ) | $ | 77 |
| | $ | 77 |
| | $ | — |
| | (0.17 | ) |
| U.S. government agency debt obligations | 5,404 |
| | 4,501 |
| | 903 |
| | 20.06 |
| |
| Government-sponsored enterprises debt obligations | | 6,302 |
| | 6,957 |
| | (655 | ) | | (9.40 | ) |
| Mortgage-backed securities: | | | | | | | | | | | | | | |
| U.S. agency obligations-guaranteed residential | 465 |
| | 622 |
| | (157 | ) | | (25.29 | ) | 209 |
| | 279 |
| | (70 | ) | | (25.23 | ) |
| Government-sponsored enterprises residential | 13,952 |
| | 10,763 |
| | 3,189 |
| | 29.63 |
| 10,752 |
| | 11,958 |
| | (1,206 | ) | | (10.09 | ) |
| Government-sponsored enterprises commercial | | 6,773 |
| | 4,140 |
| | 2,633 |
| | 63.61 |
|
| Private-label residential | 4,228 |
| | 5,420 |
| | (1,192 | ) | | (22.00 | ) | 2,135 |
| | 2,755 |
| | (620 | ) | | (22.51 | ) |
| Total mortgage-backed securities | 18,645 |
| | 16,805 |
| | 1,840 |
| | 10.95 |
| 19,869 |
| | 19,132 |
| | 737 |
| | 3.85 |
|
| Total long-term investments | 24,142 |
| | 21,414 |
| | 2,728 |
| | 12.74 |
| |
| 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 | $ | 26,944 |
| | $ | 30,454 |
| | $ | (3,510 | ) | | (11.52 | ) | $ | 36,510 |
| | $ | 35,175 |
| | $ | 1,335 |
| | 3.80 |
|
____________
| |
(1) | As of December 31, 2013 and 2012, interest-bearingInterest-bearing deposits includesinclude a $1.0$1.1 billion business money market account with Branch Banking and Trust Company, one of the Bank’s ten largest borrowers. Oneborrowers as of the Bank’s member directors is a senior executive vice president of Branch BankingDecember 31, 2016 and Trust Company and was elected chairman of the Bank's board of directors effective January 1, 2013. Pursuant to Finance Agency regulation, the Bank’s member directors serve as officers or directors of a Bank member, and the Bank may enter into business transactions, including this account with Branch Banking and Trust Company, with such members from time to time in the ordinary course of business.2015. |
The decreaseincrease in short-termtotal investments was primarily due to an increase in total other investments from December 31, 20122015 to December 31, 2013 was primarily due to a decrease in federal funds sold.2016. The amount held in federal funds soldother investments will vary each day based on the federal funds rates, the Bank’s liquidity requirements as a result of advances demand, the earnings rates, and the availability of high quality counterparties in the federal funds market. Throughout 2013, the Federal Reserve paid interest on required and excess reserves balances held by depository institutions at a rate of 0.25 percent. An increase in bank reserves combined with the rate of interest paid on those reserves at the Federal Reserve has contributed to a decline in the volume of transactions taking place in the federal funds market.counterparties. The Bank has also made a decision to limit its exposure in the unsecured credit market, which has also resulted in a decrease in federal funds sold.
The increase in long-term investments from December 31, 2012 to December 31, 2013 was primarily due to an increase in GSE MBS, partially offset by a decrease in private-label MBS. Recent market conditions have made MBS issued by GSEs more attractive and therefore the Bank has increased new purchases of these securities. Additionally, the Bank suspended new purchases ofceased purchasing private-label MBS beginning in the first quarter of 2008, resulting in a greater percentage of GSE MBS as of Decemberon January 31, 2013 compared to December 31, 2012.2008.
The Finance Agency limitsregulations prohibit an FHLBank’s investment inFHLBank from purchasing MBS and asset-backed securities by requiring that the total amortized historical costs for theseif its investment in such securities classified as held-to-maturity or available-for-sale, and fair value for MBS securities classified as trading owned by the FHLBank, generally may notwould exceed 300 percent of the FHLBank’s previous month-end totalregulatory capital as defined by regulation, plus its mandatorily redeemable capital stock on the day it purchaseswould purchase the securities. The Bank was in compliance with this regulatory requirement as of December 31, 20132016 and 2012,2015, as these investments amounted to 282288 percent and 264274 percent of totalregulatory capital, plus mandatorily redeemable capital stock, 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, 20132016 and 2012.2015.
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. For a discussion regarding impairment losses recognized in earnings during the reported periods see Management’s Discussion and Analysis—Results of Operations—Noninterest Income (Loss) below.
Mortgage Loans HeldResults of Operations
The Bank recorded net income of $278 million for Portfolio2016, 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 mortgage loans heldROE 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 portfolio from December 31, 20122016, compared to December 31, 2013431 basis points for 2015. This decrease in the ROE spread to LIBOR was primarily due to the maturitydecrease in ROE.
The Bank’s interest rate spread was 21 basis points and prepayment of these assets17 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 ceased purchasing new mortgage loans in 2008.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 the third quarter of 2013,2016 have caused the Bank reclassified its multifamily mortgage loan portfolioto experience increased demand from the held-for-portfolio classificationmutual fund industry for short-term GSE debt, which the Bank expects to mortgage loans held for sale. Subsequently,continue in August 2013, these loans, with an unpaid principal balance2017. There is uncertainty, in light of $18 million, were sold, which resulted in a gain of less than $1 million.
As of December 31, 2013 and 2012, the Bank’s conventional mortgage loan portfolio was concentratedrecent changes in the southeastern United States becauseU.S. government administration and recent executive actions, about regulatory changes that could occur in the financial services industry, and what impact those members selling loans tochanges could have on the Bank were located primarily in that region. and/or its members.
Financial Condition
The following table providespresents the percentagedistribution of unpaid principal balancethe Bank’s total assets, liabilities, and capital by major class as of conventional single-family residential mortgage loans held for portfolio for the five largest state concentrations.dates indicated (dollars in millions). These items are discussed in more detail below.
|
| | | | | |
| | As of December 31, |
| | 2013 | | 2012 |
| | Percent of Total | | Percent of Total |
| Florida | 27.04 |
| | 26.15 |
|
| South Carolina | 24.59 |
| | 24.12 |
|
| Georgia | 14.34 |
| | 14.34 |
|
| North Carolina | 10.92 |
| | 11.48 |
|
| Virginia | 7.95 |
| | 8.34 |
|
| All other | 15.16 |
| | 15.57 |
|
| Total | 100.00 |
| | 100.00 |
|
|
| | | | | | | | | | | | | | | | | | |
| | 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 | ) |
Supplementary financial data onAdvances
The following table presents the Bank's mortgage loans is set forth under Item 8, Financial Statementsadvances outstanding by year of maturity and Supplementary Data—Supplementary Financial Information (Unaudited).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
Consolidated Obligations
The Bank funds its assets primarily through the issuanceAdvances outstanding as of consolidated obligation bonds and, to a lesser extent, consolidated obligation discount notes. COs remained relatively stable from December 31, 20122016 decreased by 4.89 percent, compared to December 31, 2013.2015. As a result of shareholder demand, the majority of new advances in 2016 were short-term advances. As of December 31, 2013, CO issuances financed 92.32016 and 2015, 64.2 percent and 57.4 percent, respectively, of the $122.3 billion in total assets, remaining relatively stable from the financing ratio of 92.7 percent as of December 31, 2012.
As of December 31, 2013 and December 31, 2012, COs outstandingBank's advances were primarily fixed rate.fixed-rate. However, the Bank often simultaneously enters into derivatives with the issuance of CO bondsadvances to convert the interest rates on them, in effect, into short-term variable interest rates, usuallythe majority of which are based on LIBOR. As of December 31, 20132016 and 2012, 77.52015, 44.6 percent and 81.448.1 percent, respectively, of the Bank’sBank's fixed-rate CO bondsadvances were swapped, and 0.340.68 percent and 1.570.91 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 variable-rate CO bonds were swapped, respectively. As of December 31, 2013 and December 31, 2012 the Bank had no fixed-rate CO discount notes that were swapped to a variable rate.
As of December 31, 2013, callable CO bonds constituted 29.8 percent of theBank's total par value of CO bondsadvances outstanding compared to 12.2 percent as of December 31, 2012. This increase was due to market conditions during 2013 that favored2016. Further information regarding the issuanceBank's 10 largest borrowing member institutions and breakdown of callable CO bonds. With pricing on swapped fixed maturity debt at historic lows during 2012, the Bank replaced
swapped callable debt with swapped fixed maturity debt to reduce the Bank’s level of refunding risk. Current market conditions no longer favor swapped fixed maturity debt. The derivativesDecember 31, 2016 is contained in Item 1, Business—Credit Products—Advances. Management believes that the Bank may employholds sufficient collateral, on a member-specific basis, to hedge againstsecure the interest-rate risk associated with the Bank’s callable CO bonds are callable by the counterparty; if the call feature of the derivative is exercised,advances to all borrowers, including these 10 institutions, and the Bank in turn will generally call the hedged CO bond. These call features pose risk that the Bank could be requireddoes not expect to refinance a substantial portion of outstanding liabilities during times of decreasing interest rates. Swap spreads tend to decrease as interest rates decrease, resulting in less favorable funding costs for the Bank. Call optionsincur any credit losses on unhedged callable CO bonds generally are exercised when the bond can be replaced at a lower economic cost.these advances.
Supplementary financial data on the Bank's short-term borrowingsadvances is set forth under Item 8, Financial Statements and Supplementary Data—Supplementary Financial Information (Unaudited).
DepositsInvestments
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.
The Bank offers demand and overnight deposit programs to members primarily as a liquidity management service. In addition, a member that services mortgage loans may deposit in the Bank funds collected in connection with the mortgage loans, pending disbursement of those funds to the owners of the mortgage loan. For demand deposits, the Bank pays interest at the overnight rate. Most of these deposits represent member liquidity investments, which members may withdraw on demand. Therefore, the total account balance of the Bank’s deposits may be volatile. As a matter of prudence, the Bank typically invests deposit funds in liquid short-term assets. Member loan demand, deposit flows, and liquidity management strategies influence the amount and volatility of deposit balances carried with the Bank.
Capital
The increasein total capital from December 31, 2012 to December 31, 2013 was primarily due to the issuance of $5.0 billion in capital stock and $508 million in comprehensive income during the period, partially offset by the repurchase/redemption of $5.0 billion in capital stock and the payment of $116 million in dividends. The main components of comprehensive income include $338 million of net income and $166 million net increase in the fair value of the Bank's available-for-sale securities.
The FHLBank Act and Finance Agency regulations specify that each FHLBank must meet certain minimum regulatory capital standards. The Bank must maintain (1) total capital in an amount equal to at least four percent ofevaluates its total assets; (2) weighted 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 capitalindividual investment securities for Class B stock and retained earnings. Mandatorily redeemable capital stock is considered capital for regulatory purposes. These regulatory capital requirements, and the Bank's compliance with these requirements, are shown in detail in Note 15—Capital and Mandatorily Redeemable Capital Stock to the Bank's audited financial statements.
Finance Agency regulations establish criteria based on the amount and type of capital held by an FHLBank for four capital classifications as follows:
Adequately Capitalized - FHLBank meets both risk-based and minimum capital requirements;
Undercapitalized - FHLBank does not meet one or both of its risk-based or minimum capital requirements;
Significantly Undercapitalized - FHLBank has less than 75 percent of one or both of its risk-based or minimum capital requirements; and
Critically Undercapitalized - FHLBank total capital is two percent or less of total assets.
Under the regulations, the Director of the Finance Agency (Director) will make a capital classification for each FHLBank at least quarterly and notify the FHLBank in writing of any proposed action and provide an opportunity for the FHLBank to submit information relevant to such action. The Director is permitted to make discretionary classifications. An FHLBank must provide written notice to the Finance Agency within 10 days of any event or development that has caused or is likely to cause its permanent or total capital to fall below the level required to maintain its most recent capital classification or reclassification. The regulations delineate the types of prompt corrective actions the Director may order in the event an FHLBank is not adequately capitalized, including submission of a capital restoration plan by the FHLBank and restrictions on its dividends, stock redemptions, executive compensation, new business activities, or any other actions the Director determines will ensure safe and sound operations and capital compliance by the FHLBank. On December 19, 2013, the Bank received notification from the Director that, based on September 30, 2013 data, the Bank meets the definition of “adequately capitalized.”
As of December 31, 2013 and 2012, the Bank had capital stock subject to mandatory redemption from 17 members and former members, consisting of B1 membership stock and B2 activity-based capital stock. The Bank is not required to redeem or
repurchase such capital stock until the expiration of the five-year redemption period or, with respect to activity-based capital stock, until the later of the expiration of the five-year redemption period or the activity no longer remains outstanding. The Bank, in its discretion, may repurchase excess capital stock subject to certain limitations and thresholds in the Bank's capital plan.
Prior to November 20, 2012, the Bank made its determination regarding the repurchase of excess capital stockother-than-temporary impairment on a quarterly basis, after financial results were known for the preceding quarter. On November 19, 2012, the Bank repurchased all membership excess capital stock and activity-based excess capital stock. Shareholders with excess capital stock on the repurchase date were not permitted to opt out of the repurchase. Effective November 20, 2012, the Bank began repurchasing activity-based excess capital stock on a daily basis. The operational threshold for daily excess stock repurchases is $100 thousand. The change to daily excess stock repurchases helps reduce the volatility of capital stock balances due to large advance maturities and reduces pressure on the Bank to invest large amounts of capitalas described in a low rate environment.
In 2011, the FHLBanks entered into a Joint Capital Agreement which is intended to enhance the capital position of each FHLBank and the safety and soundness of the FHLBank System. The intent of the Joint Capital Agreement is to allocate that portion of each FHLBank’s earnings historically paid to satisfy its REFCORP obligation to a restricted retained earnings account at that FHLBank. These restricted retained earnings are not available to pay dividends. Each FHLBank amended its capital plan to implement the provisions of the Joint Capital Agreement. The Finance Agency approved the capital plan amendments and certified satisfaction of the REFCORP obligation on August 5, 2011. In accordance with the Joint Capital Agreement, starting in the third quarter of 2011, each FHLBank contributes 20 percent of its net income to a restricted retained earnings account until the account balance equals at least one percent of such FHLBank's average balance of outstanding COs for the previous quarter.
Prior to October 2013, the Bank assessed the adequacy of its capital under a stress testing methodology that largely mirrored the comprehensive capital analysis and review methodology used by the Federal Reserve. This stress testing methodology included a highly stressed scenario and an extremely stressed scenario, each over a two-year time horizon, and considered pessimistic assumptions about forecasted income, mark-to-market adjustments on derivatives and trading securities, credit risk, market risk and operational risk. Effective October 28, 2013, the Finance Agency issued a final rule that requires each FHLBank to implement stress testing under baseline, adverse, and severely adverse scenarios on its consolidated earnings, capital, and other related factors, over a nine-quarter forward horizon based on its portfolio as of September 30 of the previous year. Under the rule, the Finance Agency will annually issue guidance on the scenarios, assumptions and methodologies to be used in conducting the stress test. The Finance Agency's initial guidance for the annual stress test included prescribed assumptions related to house price index projections and other macroeconomic indicators, other-than-temporary-impairment analysis, and global market shocks. The Bank further developed assumptions not specifically provided by the Finance Agency regarding interest rate curves and the Bank's future business positions, within the parameters of the Bank's strategic plan, risk appetite, capital management plan and risk management policies. The Bank is required by the rule to annually disclose publicly the results of its severely adverse economic conditions stress test. The Bank expects to disclose its 2014 severely adverse economic conditions stress test between July 15 and July 30, 2014.
Under its capital management plan, the Bank targets a capital-to-assets ratio of 4.75 percent to 5.25 percent, and retained earnings equalNote 8—Other-than-temporary Impairment to the restricted retained earnings account balance plus extremely stressed scenario losses. The Bank also attempts to maintain additional retained earnings equal to two quarters of dividends, based on the current dividend rate and current stock balance. The Bank believes that daily excess stock repurchases and consistent dividends give members greater certainty of a return of their principal or the receipt of a dividend, which in turn may have a positive impact on members' appetite for advances. The Bank targets the payment of dividends each quarter that are consistent with an attractive rate of return on capital to its member shareholders relative to an established benchmark, LIBOR, after providing for retained earnings as discussed above. Historically, the Bank's dividend rate has increased with increases in LIBOR, while the spread between the dividend rate and LIBOR may shrink. Conversely, the dividend rate may decrease during periods of lower LIBOR, while the spread may increase. The Bank's ability to maintain dividends consistent with its recent trend depends on LIBOR remaining relatively stable, the Bank's actualBank’s 2016 audited financial performance, its ability to maintain adequate retained earnings, and the discretion of the Bank's board of directors. Information about the Bank's dividends declared during 2013 and 2012 is contained in Item 5, Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.statements.
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.
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
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.
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).
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
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.
Results of Operations
The following is a discussion and analysis of the Bank's results of operations for the years ended December 31, 2013, 2012,2016, 2015, and 2011.2014.
Net Income
The following table sets forthpresents the Bank’s significant income items for the years ended December 31, 2013, 2012,2016, 2015, and 2011,2014, and provides information regarding the changes during the periodsthose years (dollars in millions). These items are discussed in more detail below.
| | | | | | | | | | Increase (Decrease) | | | | | | | Increase (Decrease) |
| | For the Years Ended December 31, | | 2013 vs. 2012 | | 2012 vs. 2011 | For the Years Ended December 31, | | 2016 vs. 2015 | | 2015 vs. 2014 |
| | 2013 | | 2012 | | 2011 | | Amount | | Percent | | Amount | | Percent | 2016 | | 2015 | | 2014 | | Amount | | Percent | | Amount | | Percent |
| Net interest income | $ | 341 |
| | $ | 376 |
| | $ | 459 |
| | $ | (35 | ) | | (8.95 | ) | | $ | (83 | ) | | (18.01 | ) | $ | 334 |
| | $ | 243 |
| | $ | 323 |
| | $ | 91 |
| | 37.87 |
| | $ | (80 | ) | | (24.90 | ) |
| Provision for credit losses | 5 |
| | 6 |
| | 5 |
| | (1 | ) | | (19.24 | ) | | 1 |
| | 26.57 |
| |
| Noninterest income (loss) | 166 |
| | 55 |
| | (104 | ) | | 111 |
| | 200.17 |
| | 159 |
| | 153.25 |
| |
| 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 | 127 |
| | 125 |
| | 123 |
| | 2 |
| | 2.64 |
| | 2 |
| | 0.87 |
| 137 |
| | 135 |
| | 132 |
| | 2 |
| | 2.22 |
| | 3 |
| | 2.02 |
|
| Total assessments | 37 |
| | 30 |
| | 43 |
| | 7 |
| | 23.86 |
| | (13 | ) | | (29.08 | ) | 31 |
| | 33 |
| | 30 |
| | (2 | ) | | (7.60 | ) | | 3 |
| | 11.11 |
|
| Net income | $ | 338 |
| | $ | 270 |
| | $ | 184 |
| | $ | 68 |
| | 24.93 |
| | $ | 86 |
| | 46.94 |
| $ | 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 COs,consolidated obligations, deposits, and other borrowings). Also included in net interest income are miscellaneous related items such as prepayment fees, earned and the amortization of debt issuance discounts, concession fees, and certain derivative instruments and hedging activities related adjustments.
The decreaseBank also recognizes significant improvements in expected cash flows related to other-than-temporary impairment securities through net interest income during 2013, comparedas an adjustment to 2012, and during 2012, compared to 2011, was primarily due to a 50 and 58 basis points decrease inthe yield on the Bank’s long-term investments portfolio during the years, respectively. The yield on the Bank’s long-term investment portfolio continued to decline primarily due to the maturity or prepayment of higher yielding investments and the purchase of lower yielding instruments, as well as due to hybrid investments converting from a fixed interest rate to a lower floating interest rate. The Bank believes this trend is likely to continue in the current prolonged low interest rate environment.securities.
The following table summarizes key components of net interest income for the years presented (in millions):
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| Interest income: | | | | | |
| Advances | $ | 233 |
| | $ | 294 |
| | $ | 258 |
|
| Investments | 497 |
| | 603 |
| | 754 |
|
| Mortgage loans | 61 |
| | 76 |
| | 97 |
|
| Total interest income | 791 |
| | 973 |
| | 1,109 |
|
| | | | | | |
| Interest expense: | | | | | |
| Consolidated obligations | 448 |
| | 593 |
| | 645 |
|
| Interest-bearing deposits | 1 |
| | 1 |
| | 1 |
|
| Mandatorily redeemable capital stock | 1 |
| | 3 |
| | 4 |
|
| Total interest expense | 450 |
| | 597 |
| | 650 |
|
| Net interest income | $ | 341 |
| | $ | 376 |
| | $ | 459 |
|
As discussed above, netNet 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. Also, when hedging relationships qualify for hedge accounting, the interest components of the hedging derivatives will be reflected in interest income or expense. As shown in the table summarizing the net effect of derivatives and hedging activity on the Bank’s results of operations, theThe impact of hedging on net interest income was a decrease of $623$442 million, $1.0 billion,$616 million, and $1.4 billion$608 million during the years ended December 31, 2013, 20122016, 2015 and 2011,2014, 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.
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, 2013, 2012,2016, 2015, and 20112014 (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 the interest-rate spread and is recorded in noninterest income (loss) as "Net gains (losses) 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 2621 basis points, 2717 basis points, and 3224 basis points for 2013, 20122016, 2015, and 2011,2014, respectively. The increase in interest-rate spread from 2015 to 2016, and the decrease each year wasin interest-rate spread from 2014 to 2015, is primarily due to a decreasethe larger accelerated amortization related to prepayments of previously restructured and redesignated advances during 2015, compared to the accelerated amortization in yield on the Bank's long-term investment portfolio each year.2016 and 2014.
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| | Average Balance | | Interest | | Yield/ Rate (%) | | Average Balance | | Interest | | Yield/ Rate (%) | | Average Balance | | Interest | | Yield/ Rate (%) | Average
Balance | | Interest | | Yield/
Rate
(%) | | Average
Balance | | Interest | | Yield/
Rate
(%) | | Average
Balance | | Interest | | Yield/
Rate
(%) |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing deposits (1) | $ | 3,204 |
| | $ | 5 |
| | 0.15 | | $ | 4,279 |
| | $ | 7 |
| | 0.17 | | $ | 3,599 |
| | $ | 4 |
| | 0.12 | $ | 2,718 |
| | $ | 17 |
| | 0.64 | | $ | 2,437 |
| | $ | 5 |
| | 0.20 | | $ | 2,685 |
| | $ | 4 |
| | 0.15 |
| Certificates of deposit | 219 |
| | — |
| | 0.20 | | 702 |
| | 2 |
| | 0.30 | | 909 |
| | 2 |
| | 0.23 | |
| Securities purchased under agreements to resell | 1,089 |
| | 1 |
| | 0.08 | | 293 |
| | 1 |
| | 0.20 | | — |
| | — |
| | — | 992 |
| | 4 |
| | 0.38 | | 2,522 |
| | 3 |
| | 0.13 | | 1,715 |
| | 1 |
| | 0.08 |
| Federal funds sold | 7,424 |
| | 9 |
| | 0.12 | | 10,356 |
| | 18 |
| | 0.17 | | 14,483 |
| | 24 |
| | 0.16 | 8,501 |
| | 36 |
| | 0.42 | | 7,990 |
| | 11 |
| | 0.14 | | 8,213 |
| | 8 |
| | 0.10 |
Long-term investments (2) | 21,987 |
| | 482 |
| | 2.19 | | 21,333 |
| | 575 |
| | 2.69 | | 22,160 |
| | 724 |
| | 3.27 | |
Investment securities (2) | | 26,696 |
| | 432 |
| | 1.62 | | 25,982 |
| | 408 |
| | 1.57 | | 24,220 |
| | 435 |
| | 1.80 |
| Advances | 84,452 |
| | 233 |
| | 0.28 | | 81,857 |
| | 294 |
| | 0.36 | | 79,848 |
| | 258 |
| | 0.32 | 98,396 |
| | 586 |
| | 0.60 | | 91,405 |
| | 141 |
| | 0.15 | | 90,290 |
| | 180 |
| | 0.20 |
Mortgage loans (3) | 1,079 |
| | 61 |
| | 5.67 | | 1,438 |
| | 76 |
| | 5.33 | | 1,829 |
| | 97 |
| | 5.32 | 520 |
| | 31 |
| | 5.96 | | 664 |
| | 40 |
| | 5.95 | | 836 |
| | 50 |
| | 5.92 |
| Loans to other FHLBanks | 1 |
| | — |
| | 0.09 | | 1 |
| | — |
| | 0.12 | | 2 |
| | — |
| | 0.14 | 4 |
| | — |
| | 0.40 | | 7 |
| | — |
| | 0.14 | | 3 |
| | — |
| | 0.07 |
| Total interest-earning assets | 119,455 |
| | 791 |
| | 0.66 | | 120,259 |
| | 973 |
| | 0.81 | | 122,830 |
| | 1,109 |
| | 0.90 | 137,827 |
| | 1,106 |
| | 0.80 | | 131,007 |
| | 608 |
| | 0.46 | | 127,962 |
| | 678 |
| | 0.53 |
| Allowance for credit losses on mortgage loans | (11 | ) | | | | (9 | ) | | | | (1 | ) | | | | (2 | ) | | | | (2 | ) | | | | (5 | ) | | | |
| Other assets | 1,068 |
| | | | 799 |
| | | | 844 |
| | | | 1,881 |
| | | | 1,435 |
| | | | 1,409 |
| | | |
| Total assets | $ | 120,512 |
| | | | $ | 121,049 |
| | | | | $ | 123,673 |
| | | | $ | 139,706 |
| | | | $ | 132,440 |
| | | | | $ | 129,366 |
| | | |
| Liabilities and Capital | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing deposits (4) | $ | 2,227 |
| | 1 |
| | 0.02 | | $ | 2,482 |
| | 1 |
| | 0.05 | | $ | 2,851 |
| | 1 |
| | 0.04 | $ | 1,190 |
| | 4 |
| | 0.31 | | $ | 1,253 |
| | — |
| | 0.03 | | $ | 1,435 |
| | — |
| | 0.01 |
| Short-term debt | 23,421 |
| | 26 |
| | 0.11 | | 22,316 |
| | 25 |
| | 0.11 | | 18,960 |
| | 17 |
| | 0.09 | |
| Long-term debt | 85,466 |
| | 421 |
| | 0.49 | | 85,550 |
| | 568 |
| | 0.66 | | 89,896 |
| | 628 |
| | 0.70 | |
| 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 | 30 |
| | 1 |
| | 2.51 | | 154 |
| | 3 |
| | 1.92 | | 421 |
| | 4 |
| | 0.92 | 9 |
| | — |
| | 4.80 | | 19 |
| | 1 |
| | 4.01 | | 25 |
| | 1 |
| | 3.69 |
| Total interest-bearing liabilities | 111,144 |
| | 449 |
| | 0.40 | | 110,502 |
| | 597 |
| | 0.54 | | 112,128 |
| | 650 |
| | 0.58 | 130,820 |
| | 772 |
| | 0.59 | | 123,867 |
| | 365 |
| | 0.29 | | 120,374 |
| | 355 |
| | 0.29 |
| Other liabilities | 3,129 |
| | | | 4,195 |
| | | | 4,230 |
| | | | 2,067 |
| | | | 2,076 |
| | | | 2,412 |
| | | |
| Total capital | 6,239 |
| | | | 6,352 |
| | | | 7,315 |
| | | | 6,819 |
| | | | 6,497 |
| | | | 6,580 |
| | | |
| Total liabilities and capital | $ | 120,512 |
| | | | $ | 121,049 |
| | | | | $ | 123,673 |
| | | | $ | 139,706 |
| | | | $ | 132,440 |
| | | | | $ | 129,366 |
| | | |
| Net interest income and net yield on interest-earning assets | | | $ | 342 |
| | 0.29 | | | | $ | 376 |
| | 0.31 | | | | $ | 459 |
| | 0.37 | | | $ | 334 |
| | 0.24 | | | | $ | 243 |
| | 0.19 | | | | $ | 323 |
| | 0.25 |
| Interest rate spread | | | | | 0.26 | | | | | | 0.27 | | | | | | 0.32 | | | | | 0.21 | | | | | | 0.17 | | | | | | 0.24 |
| Average interest-earning assets to interest-bearing liabilities | | | | | 107.48 | | | | | | 108.83 | | | | | | 109.54 | | | | | 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. |
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 notedpresented in the table below, the overall changechanges in net interest income between 20132016 and 2012 was2015 and between 2015 and 2014, were primarily rate related, and the change between 2012 and 2011 was primarily rate related as well.
related.
| | | | 2013 vs. 2012 | | 2012 vs. 2011 | 2016 vs. 2015 | | 2015 vs. 2014 |
| | Volume (1) | | Rate (1) | | Increase (Decrease) | | Volume (1) | | Rate (1) | | Increase (Decrease) | Volume (1) | | Rate (1) | | Increase (Decrease) | | Volume (1) | | Rate (1) | | Increase (Decrease) |
| Increase (decrease) in interest income: | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing deposits | $ | (2 | ) | | $ | — |
| | $ | (2 | ) | | $ | 1 |
| | $ | 2 |
| | $ | 3 |
| $ | 1 |
| | $ | 11 |
| | $ | 12 |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
|
| Certificates of deposit | (1 | ) | | (1 | ) | | (2 | ) | | (1 | ) | | 1 |
| | — |
| |
| Securities purchased under agreements to resell | 1 |
| | (1 | ) | | — |
| | 1 |
| | — |
| | 1 |
| (3 | ) | | 4 |
| | 1 |
| | 1 |
| | 1 |
| | 2 |
|
| Federal funds sold | (5 | ) | | (4 | ) | | (9 | ) | | (7 | ) | | 1 |
| | (6 | ) | 1 |
| | 24 |
| | 25 |
| | — |
| | 3 |
| | 3 |
|
| Long-term investments | 17 |
| | (110 | ) | | (93 | ) | | (26 | ) | | (123 | ) | | (149 | ) | |
| Investment securities | | 11 |
| | 13 |
| | 24 |
| | 30 |
| | (57 | ) | | (27 | ) |
| Advances | 9 |
| | (70 | ) | | (61 | ) | | 6 |
| | 30 |
| | 36 |
| 11 |
| | 434 |
| | 445 |
| | 2 |
| | (41 | ) | | (39 | ) |
| Mortgage loans | (20 | ) | | 5 |
| | (15 | ) | | (21 | ) | | — |
| | (21 | ) | (9 | ) | | — |
| | (9 | ) | | (10 | ) | | — |
| | (10 | ) |
| Total | (1 | ) | | (181 | ) | | (182 | ) | | (47 | ) | | (89 | ) | | (136 | ) | 12 |
| | 486 |
| | 498 |
| | 23 |
| | (93 | ) | | (70 | ) |
| Increase (decrease) in interest expense: | | | | | | | | | | | | | | | | | | | | | | |
| Short-term debt | 1 |
| | — |
| | 1 |
| | 3 |
| | 5 |
| | 8 |
| |
| Long-term debt | (1 | ) | | (146 | ) | | (147 | ) | | (29 | ) | | (31 | ) | | (60 | ) | |
| 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 | (3 | ) | | 1 |
| | (2 | ) | | (4 | ) | | 3 |
| | (1 | ) | (1 | ) | | — |
| | (1 | ) | | — |
| | — |
| | — |
|
| Total | (3 | ) | | (145 | ) | | (148 | ) | | (30 | ) | | (23 | ) | | (53 | ) | (10 | ) | | 417 |
| | 407 |
| | (18 | ) | | 28 |
| | 10 |
|
| Increase (decrease) in net interest income | $ | 2 |
| | $ | (36 | ) | | $ | (34 | ) | | $ | (17 | ) | | $ | (66 | ) | | $ | (83 | ) | $ | 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, | | 2013 vs. 2012 | | 2012 vs. 2011 |
| | 2013 | | 2012 | | 2011 | | Amount | | Percent | | Amount | | Percent |
| Net impairment losses recognized in earnings | $ | — |
| | $ | (16 | ) | | $ | (118 | ) | | $ | 16 |
| | 99.96 |
| | $ | 102 |
| | 86.01 |
|
| Net (losses) gains on trading securities | (100 | ) | | (67 | ) | | 2 |
| | (33 | ) | | (49.01 | ) | | (69 | ) | | * |
|
| Net gains (losses) on derivatives and hedging activities | 204 |
| | 117 |
| | (9 | ) | | 87 |
| | 74.03 |
| | 126 |
| | * |
|
| Letters of credit fees | 20 |
| | 18 |
| | 19 |
| | 2 |
| | 9.79 |
| | (1 | ) | | (6.41 | ) |
| Gain on litigation settlements | 33 |
| | — |
| | — |
| | 33 |
| | 100.00 |
| | — |
| | — |
|
| Other | 9 |
| | 3 |
| | 2 |
| | 6 |
| | 140.70 |
| | 1 |
| | 80.93 |
|
| Total noninterest income (loss) | $ | 166 |
| | $ | 55 |
| | $ | (104 | ) | | $ | 111 |
| | 200.17 |
| | $ | 159 |
| | 153.25 |
|
____________
* Not meaningful |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 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 | ) | | 141 |
| | 117.87 |
|
| Gain on extinguishment of debt | — |
| | — |
| | 15 |
| | — |
| | — |
| | (15 | ) | | (100.00 | ) |
| Standby letters of credit fees | 28 |
| | 28 |
| | 26 |
| | — |
| | (3.15 | ) | | 2 |
| | 5.91 |
|
| (Loss) gain on litigation settlements, net | (6 | ) | | — |
| | 4 |
| | (6 | ) | | (100.00 | ) | | (4 | ) | | (100.00 | ) |
| Other | 3 |
| | 2 |
| | 3 |
| | 1 |
| | 89.90 |
| | (1 | ) | | (39.83 | ) |
| Total noninterest income | $ | 111 |
| | $ | 225 |
| | $ | 105 |
| | $ | (114 | ) | | (50.54 | ) | | $ | 120 |
| | 114.83 |
|
The changedecrease in total noninterest income (loss) noted in the above tableduring 2016, compared to 2015, was primarily due to an increasea $142 million decrease in gains/lossesnet gains on derivativederivatives and hedging activities, gains on litigation settlements on MBS securities, partially offset by an increasea $31 million decrease in net (losses) gainslosses on trading securities.
The $87increase in total noninterest income during 2015, compared to 2014, was primarily due to a $141 million increase in net gains (losses) on derivatives and hedging activities, primarily resulted from an increase in gains on effective hedges of $56 million as well as gains on stand-alone derivatives that hedge the trading securities of $40 million. There was also a smaller increase associated with the Bank's standalone derivatives used to macrohedge the MBS portfolio of $17 million. These increases in gains were partially offset by a $23$15 million decrease in gains associated with geography related amortizations and interest reclassifications that are offsetgain on extinguishment of debt.
The decrease in net interest income.
The $33 milliongains on derivatives and hedging activities in 2016, compared to 2015, and the increase in derivatives and hedging activities during 2015, compared to 2014, was primarily due to restructured and redesignated advances that were prepaid prior to their maturity during 2016, 2015, and 2014, which resulted in $16 million, $181 million, and $62 million of accelerated amortization, respectively. This accelerated amortization, previously discussed, reduced net interest income for the lossrespective years and was offset by corresponding increases in gains on derivatives and hedging activities. The remaining changes in derivatives and hedging activities and trading securities results from a decrease in the fair value of the securities duewere primarily related to changes in rates during 2013. As noted above, the increase in the loss on the trading securities is offset by an increase in the gains on the derivatives hedging these securities of $40 million.interest rates.
During 2013, the Bank agreed with certain of its defendants to settle claims against them arising from certain investments in private-label MBS. As a result of these settlement agreements, the Bank recorded a gain on litigation settlements of $33 million, which is net of legal fees and expenses.
The following tables summarizepresent the net effect of derivatives and hedging activity on the Bank’s results of operations (in millions):
| | | | For the Year Ended December 31, 2013 | For the Year Ended December 31, 2016 |
| | Advances | | Investments | | Consolidated Obligation Bonds | | Balance Sheet | | Total | Advances | | Investments | | Consolidated Obligation Bonds | | Consolidated
Obligation
Discount
Notes | | Balance Sheet | | Total |
| Net interest income: | | | | | | | | | | | | | | | | | | | | |
Amortization or accretion of hedging activities in net interest income (1) | $ | (216 | ) | | $ | — |
| | $ | 24 |
| | $ | — |
| | $ | (192 | ) | $ | (140 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (140 | ) |
Net interest settlements included in net interest income (2) | (1,033 | ) | | — |
| | 602 |
| | — |
| | (431 | ) | (529 | ) | | — |
| | 230 |
| | (3 | ) | | — |
| | (302 | ) |
| Total effect on net interest (expense) income | $ | (1,249 | ) | | $ | — |
| | $ | 626 |
| | $ | — |
| | $ | (623 | ) | $ | (669 | ) | | $ | — |
| | $ | 230 |
| | $ | (3 | ) | | $ | — |
| | $ | (442 | ) |
| Net gains (losses) on derivatives and hedging activities: | | | | | | | | | | | | | | | | | | | | |
| Gains (losses) on fair value hedges | $ | 202 |
| | $ | — |
| | $ | (22 | ) | | $ | — |
| | $ | 180 |
| $ | 131 |
| | $ | — |
| | $ | (8 | ) | | $ | (3 | ) | | $ | — |
| | $ | 120 |
|
| Gains on derivatives not receiving hedge accounting including net interest settlements | 7 |
| | 5 |
| | 1 |
| | 11 |
| | 24 |
| |
| (Losses) gains on derivatives not receiving hedge accounting including net interest settlements | | — |
| | (2 | ) | | 2 |
| | — |
| | (1 | ) | | (1 | ) |
| Total net gains (losses) on derivatives and hedging activities | 209 |
| | 5 |
| | (21 | ) | | 11 |
| | 204 |
| 131 |
| | (2 | ) | | (6 | ) | | (3 | ) | | (1 | ) | | 119 |
|
Net losses on trading securities (3) | — |
| | (100 | ) | | — |
| | — |
| | (100 | ) | — |
| | (30 | ) | | — |
| | — |
| | — |
| | (30 | ) |
| Total effect on noninterest income (loss) | $ | 209 |
| | $ | (95 | ) | | $ | (21 | ) | | $ | 11 |
| | $ | 104 |
| $ | 131 |
| | $ | (32 | ) | | $ | (6 | ) | | $ | (3 | ) | | $ | (1 | ) | | $ | 89 |
|
____________
(1)Represents the amortization or accretion of hedging fair value adjustments for both open and closed hedge positions.
(2) Represents interest income or expense on derivatives included in net interest income.
(3) Includes only those gains or losses on trading securities or financial instruments held at fair value that have an economic derivative “assigned,“assigned;” therefore, this line item may not agree to the income statement.
| | | | For the Year Ended December 31, 2012 | For the Year Ended December 31, 2015 |
| | Advances | | Investments | | Consolidated Obligation Bonds | | Balance Sheet | | Total | Advances | | Investments | | Consolidated Obligation Bonds | | Consolidated
Obligation
Discount
Notes | | Balance Sheet | | Total |
| Net interest income: | | | | | | | | | | | | | | | | | | | | |
Amortization or accretion of hedging activities in net interest income (1) | $ | (245 | ) | | $ | — |
| | $ | 32 |
| | $ | — |
| | $ | (213 | ) | $ | (385 | ) | | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | (381 | ) |
Net interest settlements included in net interest income (2) | (1,397 | ) | | — |
| | 574 |
| | — |
| | (823 | ) | (713 | ) | | — |
| | 469 |
| | 9 |
| | — |
| | (235 | ) |
| Total effect on net interest (expense) income | $ | (1,642 | ) | | $ | — |
| | $ | 606 |
| | $ | — |
| | $ | (1,036 | ) | $ | (1,098 | ) | | $ | — |
| | $ | 473 |
| | $ | 9 |
| | $ | — |
| | $ | (616 | ) |
| Net gains (losses) on derivatives and hedging activities: | | | | | | | | | | | | | | | | | | | | |
| Gains (losses) on fair value hedges | $ | 199 |
| | $ | — |
| | $ | (32 | ) | | $ | — |
| | $ | 167 |
| $ | 279 |
| | $ | — |
| | $ | (12 | ) | | $ | 2 |
| | $ | — |
| | $ | 269 |
|
| (Losses) gains on derivatives not receiving hedge accounting including net interest settlements | — |
| | (46 | ) | | 3 |
| | (7 | ) | | (50 | ) | — |
| | (6 | ) | | 2 |
| | — |
| | (4 | ) | | (8 | ) |
| Total net gains (losses) on derivatives and hedging activities | 199 |
| | (46 | ) | | (29 | ) | | (7 | ) | | 117 |
| 279 |
| | (6 | ) | | (10 | ) | | 2 |
| | (4 | ) | | 261 |
|
Net losses on trading securities (3) | — |
| | (67 | ) | | — |
| | — |
| | (67 | ) | — |
| | (61 | ) | | — |
| | — |
| | — |
| | (61 | ) |
| Total effect on noninterest income (loss) | $ | 199 |
| | $ | (113 | ) | | $ | (29 | ) | | $ | (7 | ) | | $ | 50 |
| $ | 279 |
| | $ | (67 | ) | | $ | (10 | ) | | $ | 2 |
| | $ | (4 | ) | | $ | 200 |
|
____________
| |
(1) | Represents the amortization or accretion of hedging fair value adjustments for both open and closed hedge positions. |
| |
(2) | Represents interest income or expense on derivatives included in net interest income. |
| |
(3) | Includes only those gains or losses on trading securities or financial instruments held at fair value that have an economic derivative “assigned,“assigned;” therefore, this line item may not agree to the income statement. |
| | | | For the Year Ended December 31, 2011 | For the Year Ended December 31, 2014 |
| | Advances | | Investments | | Consolidated Obligation Bonds | | Consolidated
Obligation
Discount
Notes | | Balance Sheet | | Total | Advances | | Investments | | Consolidated Obligation Bonds | | Balance Sheet | | Total |
| Net interest income: | | | | | | | | | | | | | | | | | | | | |
Amortization or accretion of hedging activities in net interest income (1) | $ | (199 | ) | | $ | — |
| | $ | 37 |
| | $ | — |
| | $ | — |
| | $ | (162 | ) | $ | (234 | ) | | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | (230 | ) |
Net interest settlements included in net interest income(2) | (2,054 | ) | | — |
| | 804 |
| | 2 |
| | — |
| | (1,248 | ) | (875 | ) | | — |
| | 497 |
| | — |
| | (378 | ) |
| Total effect on net interest (expense) income | $ | (2,253 | ) | | $ | — |
| | $ | 841 |
| | $ | 2 |
| | $ | — |
| | $ | (1,410 | ) | $ | (1,109 | ) | | $ | — |
| | $ | 501 |
| | $ | — |
| | $ | (608 | ) |
| Net gains (losses) on derivatives and hedging activities: | | | | | | | | | | | | | | | | | | | | |
| Gains (losses) on fair value hedges | $ | 146 |
| | $ | — |
| | $ | (2 | ) | | $ | — |
| | $ | — |
| | $ | 144 |
| |
| Gains (losses) on derivatives not receiving hedge accounting including net interest settlements | 8 |
| | (129 | ) | | 6 |
| | — |
| | (38 | ) | | (153 | ) | |
| Gains on fair value hedges | | $ | 145 |
| | $ | — |
| | $ | 2 |
| | $ | — |
| | $ | 147 |
|
| (Losses) gains on derivatives not receiving hedge accounting including net interest settlements | | — |
| | (9 | ) | | 1 |
| | (19 | ) | | (27 | ) |
| Total net gains (losses) on derivatives and hedging activities | 154 |
| | (129 | ) | | 4 |
| | — |
| | (38 | ) | | (9 | ) | 145 |
| | (9 | ) | | 3 |
| | (19 | ) | | 120 |
|
Net gains on trading securities (3) | — |
| | 2 |
| | — |
| | — |
| | — |
| | 2 |
| |
| Total effect noninterest income (loss) | $ | 154 |
| | $ | (127 | ) | | $ | 4 |
| | $ | — |
| | $ | (38 | ) | | $ | (7 | ) | |
Net losses on trading securities (3) | | — |
| | (60 | ) | | — |
| | — |
| | (60 | ) |
| Total effect on noninterest income (loss) | | $ | 145 |
| | $ | (69 | ) | | $ | 3 |
| | $ | (19 | ) | | $ | 60 |
|
____________
| |
(1) | Represents the amortization or accretion of hedging fair value adjustments for both open and closed hedge positions. |
| |
(2) | Represents interest income or expense on derivatives included in net interest income. |
| |
(3) | Includes only those gains or losses on trading securities or financial instruments held at fair value that have an economic derivative “assigned,“assigned;” therefore, this line item may not agree to the income statement. |
Noninterest Expense and Assessments
| | | | For the Years Ended December 31, | | Increase (Decrease) | For the Years Ended December 31, | | Increase (Decrease) |
| | 2013 | | 2012 | | 2011 | | 2013 vs. 2012 | | 2012 vs. 2011 | 2016 | | 2015 | | 2014 | | 2016 vs. 2015 | | 2015 vs. 2014 |
| Noninterest expense: | | | | | | | | | | | | | | | | | | |
| Compensation and benefits | $ | 69 |
| | $ | 68 |
| | $ | 75 |
| | $ | 1 |
| | $ | (7 | ) | $ | 79 |
| | $ | 76 |
| | $ | 73 |
| | $ | 3 |
| | $ | 3 |
|
| Cost of quarters | 5 |
| | 5 |
| | 5 |
| | — |
| | — |
| 5 |
| | 5 |
| | 5 |
| | — |
| | — |
|
| Other operating expenses | 39 |
| | 35 |
| | 35 |
| | 4 |
| | — |
| 32 |
| | 34 |
| | 36 |
| | (2 | ) | | (2 | ) |
| Total operating expenses | 113 |
| | 108 |
| | 115 |
| | 5 |
| | (7 | ) | 116 |
| | 115 |
| | 114 |
| | 1 |
| | 1 |
|
| Finance Agency and Office of Finance | 14 |
| | 16 |
| | 16 |
| | (2 | ) | | — |
| 15 |
| | 15 |
| | 14 |
| | — |
| | 1 |
|
| Other | — |
| | 1 |
| | (8 | ) | | (1 | ) | | 9 |
| 6 |
| | 5 |
| | 4 |
| | 1 |
| | 1 |
|
| Total noninterest expense | 127 |
| | 125 |
| | 123 |
| | 2 |
| | 2 |
| 137 |
| | 135 |
| | 132 |
| | 2 |
| | 3 |
|
| | | | | | | | | | | |
| Assessments: | | | | | | | | | | |
| Affordable Housing Program | 37 |
| | 30 |
| | 21 |
| | 7 |
| | 9 |
| |
| REFCORP | — |
| | — |
| | 22 |
| | — |
| | (22 | ) | |
| Total assessments | 37 |
| | 30 |
| | 43 |
| | 7 |
| | (13 | ) | |
| Affordable Housing Program assessments | | 31 |
| | 33 |
| | 30 |
| | (2 | ) | | 3 |
|
| Total noninterest expense and assessments | $ | 164 |
| | $ | 155 |
| | $ | 166 |
| | $ | 9 |
| | $ | (11 | ) | $ | 168 |
| | $ | 168 |
| | $ | 162 |
| | $ | — |
| | $ | 6 |
|
Total noninterest expense remained relatively stable during 2013, 2012,2016, 2015, and 2011.2014.
The increase"Other" includes $2 million of voluntary contributions to AHP in total assessmentsexcess of regulatory requirements during 2013, compared to 2012, was due to an increase in income before assessments during the year. The decrease in total assessments during 2012, compared to 2011, was primarily due to the satisfaction of the Bank's REFCORP obligation during the second quarter of 2011, as previously discussed.2016.
Liquidity and Capital Resources
Liquidity is necessary to satisfy members’ borrowing needs on a timely basis, repay maturing and called COs,consolidated obligations, and meet other obligations and operating requirements. Many members rely on the Bank as a source of standby liquidity, andso the Bank attempts to be in a position to meet member funding needs on a timely basis. The Bank complies with operational liquidity and contingent liquidity, andas well as other regulatory requirements. The Bank also performs a separate and independent measure of liquidity, a 45-day liquidity measurement, to validate the level of liquidity reserves.
Finance Agency regulations require the Bank to maintain operational liquidity (generally, the ready cash and borrowing capacity available to meet the Bank's intraday needs), and contingent liquidity in an amount sufficient to meet its liquidity
needs for five business days if it is unable to access the capital markets. The Bank met these regulatory liquidity requirements throughout 2013.2016. The Finance Agency has also provided liquidity guidance to the FHLBanks generally to provide ranges of days withinfor which each FHLBank should maintain positive cash balances based upon different assumptions and scenarios. The Bank has operated within these ranges since the Finance Agency issued this guidance.
The Bank has established an internal liquidity measurement separate from the Finance Agency requirements described above. The Bank performs a supplemental analysis to confirm that liquidity reserves are sufficient to service debt obligations for at least 45 days. This analysis assumes no access to debt market issuance and other management assumptions, which are completely independent of the operational and contingent liquidity calculation measured above. The Bank met its 45 day internal liquidity goal throughout 2013.2016.
The Bank’s principal source of liquidity is COconsolidated obligation debt instruments. To provide additional liquidity, the Bank also may use other short-term borrowings, such as federal funds purchased, securities sold under agreements to repurchase, and loans from other FHLBanks. These funding sources depend on the Bank’s ability to access the capital markets at competitive market rates. Although the Bank maintains secured and unsecured lines of credit with money market counterparties, theThe Bank’s income and liquidity would be adversely affected if it were not able to access the capital markets at competitive rates for an extended period. Historically, the FHLBanks have had excellent capital market access although pricing and investor appetite tend to favor short-term discount notes during times of market volatility.
The Bank is focused on maintaining a liquidity and funding balance between its financial assets and financial liabilities. The
FHLBanks work collectively to manage the system-wide liquidity and funding management and the FHLBanks jointly monitor
the combined refinancing risk. In managing and monitoring the amounts of assets that require refunding, the Bank considers
contractual maturities of its financial assets, as well as certain assumptions regarding expected cash flows (i.e. estimated
prepayments and scheduled amortizations). See the notes to the Bank’s 2016 audited financial statements for more information regarding contractual maturities of certain of the Bank’s financial assets and liabilities.
Contingency plans are in place that prioritize the allocation of liquidity resources in the event of operational disruptions at the Bank or the Office of Finance, as well as systemic Federal Reserve wire transfer system disruptions. Under the FHLBank Act, the Secretary of Treasury has the authority, at his discretion, to purchase COsconsolidated obligations up to an aggregate amount of $4.0 billion. No borrowings under this authority have been outstanding since 1977.
Off-balance Sheet Commitments
The Bank’s primary off-balance sheet commitments are as follows:
the Bank’s joint and several liability for all FHLBank COs;consolidated obligations; and
the Bank’s outstanding commitments arising from standby letters of credit.
Should an FHLBank be unable to satisfy its payment obligation under a COconsolidated obligation for which it is the primary obligor, any of the other FHLBanks, including the Bank, could be called upon to repay all or any part of such payment obligation, as determined or approved by the Finance Agency. The Bank considersAs of December 31, 2016, none of the other FHLBanks defaulted on their consolidated obligations; the Finance Agency was not required to allocate any obligation among the FHLBanks; and no amount of the joint and several liabilities to be related-party guarantees. These related-party guarantees meet a scope exception under GAAP.obligation was fixed. Accordingly, the Bank has not recognized a liability for its joint and several obligations related to other FHLBanks’ COsconsolidated obligations as of December 31, 20132016 and 2012. As of December 31, 2013, the2015. The FHLBanks had $766.8$989.3 billion in aggregate par value of COsconsolidated obligations issued and outstanding, $112.8$130.0 billion of which was attributable to the Bank.Bank as of December 31, 2016. No FHLBank has ever defaulted on its principal or interest payments under any CO,consolidated obligation, and the Bank has never been required to make payments under any COconsolidated obligation as a result of the failure of another FHLBank to meet its obligations.
Commitments to extend credit, including standby letters of credit, are agreements to lend. The Bank issues a standby letter of credit for the account of a member in exchange for a fee. A member may use these standby letters of credit to facilitate a financing arrangement. As of December 31, 2013, the Bank had outstanding standby letters of credit of $27.8 billion with original terms of one month to 20 years, with the longest final stated expiration in 2030, and 14 outstanding standby letters of credit for a total of $20 million subject to renewal on an annual basis with no stated maturity date (commonly known as evergreen letters of credit). As of December 31, 2012, the Bank had outstanding standby letters of credit of $17.7 billion with original terms of less than four months to 20 years, with the longest final stated expiration in 2030, and five outstanding evergreen letters of credit for a total of $49 million. The increase in standby letters of credit from 2012 is due in part to members' ability to utilize these standby letters of credit to meet their Basel III liquidity requirements.
The Bank generally requires standby letters of credit to contain language permitting the Bank, upon annual renewal dates and prior notice to the beneficiary, to choose not to renew the standby letter of credit, which effectively terminates the standby letter of credit prior to its scheduled final expiration date. The Bank may issue standby letters of credit for terms of longer than one year without annual renewals or evergreen letters of creditthat have no stated maturity and are subject to renewal on an annual basis, based on the creditworthiness of the member applicant and appropriate additional fees.
Commitments to extend credit, including standby letters of credit, are agreements to lend. The Bank issues a standby letter of credit on behalf of a member in exchange for a fee. A member may use these standby letters of credit to facilitate a financing arrangement. Based on management’s credit analyses and collateral requirements, the Bank does not deem it necessary to have an allowance for credit losses for these unfunded standby letters of credit as of December 31, 2013.2016. Management regularly reviews its standby letter of credit pricing in light of several factors, including the Bank’s potential liquidity needs related to draws on its standby letters of credit.
Contractual Obligations
The tables below presentfollowing table presents the payment due dates or expiration terms of the Bank's long-term contractual obligations and commitments as of December 31, 20132016 (in millions):.
| | | | One year or less | | After one year through three years | | After three years through five years | | After five years | | Total | One year or less | | After one year through three years | | After three years through five years | | After five years | | Total |
| Long-term debt | $ | 41,725 |
| | $ | 16,988 |
| | $ | 11,505 |
| | $ | 10,334 |
| | $ | 80,552 |
| |
| Standby letters of credit | 4,785 |
| | 4,840 |
| | 1,311 |
| | 16,853 |
| | 27,789 |
| |
| Mandatorily redeemable capital stock | 5 |
| | 17 |
| | 1 |
| | 1 |
| | 24 |
| |
| Consolidated obligations bonds | | $ | 65,378 |
| | $ | 18,914 |
| | $ | 2,599 |
| | $ | 1,725 |
| | $ | 88,616 |
|
| Commitments to fund additional advances | 110 |
| | 34 |
| | — |
| | — |
| | 144 |
| 100 |
| | 200 |
| | — |
| | — |
| | 300 |
|
| Pension and post-retirement contributions | 7 |
| | 5 |
| | 6 |
| | 17 |
| | 35 |
| 13 |
| | 9 |
| | 11 |
| | 25 |
| | 58 |
|
| Commitments to purchase mortgage loans | | 12 |
| | — |
| | — |
| | — |
| | 12 |
|
| Operating leases | 1 |
| | 2 |
| | — |
| | — |
| | 3 |
| 1 |
| | 1 |
| | — |
| | 1 |
| | 3 |
|
| Mandatorily redeemable capital stock | | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| Total | $ | 46,633 |
| | $ | 21,886 |
| | $ | 12,823 |
| | $ | 27,205 |
| | $ | 108,547 |
| $ | 65,504 |
| | $ | 19,124 |
| | $ | 2,611 |
| | $ | 1,751 |
| | $ | 88,990 |
|
Refer to the respective footnotes in Item 8, Financial Statements and Supplementary Data for more information on each of the contractual obligations and commitments listed in the above table.
Critical Accounting Policies and Estimates
The preparation of the Bank's financial statements in accordance with GAAP requires management to make a number of judgments and assumptions that affect the Bank's reported results and disclosures. Several of the Bank's accounting policies are inherently are subject to valuation assumptions and other subjective assessments and are more critical than others to the Bank's results. The Bank has identified the following policies that, given the assumptions and judgment used, are critical to an understanding of the Bank's financial condition and results of operations:
Fair Value Measurements;
Other-than-temporary Impairment;
Allowance for Credit Losses; and
Derivatives and Hedging Activities.
Fair Value Measurements
The Bank carries certain assets and liabilities, including investments classified as trading and available-for-sale, and all derivatives on the balance sheet at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date, representing an exit price.
Fair values play an important role in the valuation of certain of the assets, liabilities, and hedging transactions of the Bank. Fair values are based on quoted market prices or market-based prices, if such prices are available, even in situations in which trading volume may be low when compared with prior periods as has been the case during the current market environment. If quoted market prices or market-based prices are not available, the Bank determines fair values based on valuation models that use discounted cash flows, using market estimates of interest rates and volatility.
Valuation models and their underlying assumptions are based on the best estimates of management of the BankBank's management with respect to:
market indices (primarily LIBOR and the Fed Funds EffectiveOvernight Index Swap Rate (OIS))curve);
discount rates;
prepayments;
market volatility; and
other factors, including default and loss rates.
These assumptions, particularly estimates of market indices and discount rates, may have a significant effect on the reported fair values of assets and liabilities, including derivatives, and the income and expense related thereto. The use of different assumptions, as well as changes in market conditions, could result in a materially different net income and retained earnings. The assumptions used in the models are corroborated by and independently verified against market observable data where possible.
The Bank categorizes its financial instruments carried at fair value into a three-level classification in accordance with GAAP. The valuation hierarchy is based upon the transparency (observable or unobservable) of inputs to the valuation of an asset or liability as of the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Bank's market assumptions. The Bank utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
As of December 31, 2013 and 2012, the fair value ofRefer to Note 19—Estimated Fair Values to the Bank's available-for-sale private-label MBS investment portfolio was determined using unobservable inputs.
For2016 audited financial statements for further discussion regarding how the Bank measures financial assets and financial liabilities at fair value, see Note 19—Estimated Fair Values to the Bank's 2013 audited financial statements.value.
Other-than-temporary Impairment
The Bank evaluates its individual available-for-sale and held-to-maturity investment securities that are in unrealized loss positions for other-than-temporary impairment on a quarterly basis. The Bank recognizes an other-than-temporary impairment loss when the Bank determines that it will not recover the entire amortized cost basis of a security. Securities in the Bank's private-label MBS portfolio that are in an unrealized loss position are evaluated by estimating the projected cash flows using a model that incorporates projections and assumptions based on the structure of the security and certain economic environment assumptions, such as delinquency and default rates, loss severity, home price appreciation, interest rates, and securities prepayment speeds, while factoring in the underlying collateral and credit enhancement.
If the present value of the expected cash flows of a particular security is less than the security's amortized cost basis, the security is considered to be other-than temporarilyother-than-temporarily impaired. The amount of the other-than-temporary impairment is separated into the following two components: (1) the amount of the total impairment related to credit loss; and (2) the amount of the total impairment related to all other factors. The portion of the other-than-temporary impairment loss that is attributable to the credit loss (that is, the difference between the present value of the cash flows expected to be collected and the amortized cost basis) is recognized in noninterest"Noninterest income (loss)." The credit loss on a debt security is limited to the amount of that security's unrealized loss. If the Bank does not intend to sell the security, and it is not more likely than not that the Bank will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis, the portion of the impairment loss that is not attributable to the credit loss is recognized through other comprehensive income (loss).income.
If the Bank determines that an other-than-temporary impairment exists, the Bank accounts for the investment security as if it had been purchased on the measurement date of the other-than-temporary impairment loss at an amortized cost basis equal to the previous amortized cost basis, less the other-than-temporary impairment recognized in income. For debt securities classified as held-to-maturity, the difference between the new amortized cost basis and the cash flows expected to be collected is accreted into interest income prospectively over the remaining life of the security.
In periods subsequent to an other-than-temporary impairment, if the present value of cash flows expected to be collected is greater than the amortized cost by a significant amount, an adjustment is made to the security's yield on a prospective basis. Therefore, the Bank recognizes significant improvements in expected cash flows through interest income.
Allowance for Credit Losses
The Bank is required to assess potential credit losses and establish an allowance for credit losses, if required, for each identified portfolio segment of financing receivables. A portfolio segment is the level at which the Bank develops and documents a systematic method for determining its allowance for credit losses. The Bank has established a reserve methodology for each of the following portfolio segments of financing receivables: advances and standby letters of credit, conventional single-family residential mortgage loans, government-guaranteed or insured single-family residential mortgage loans, multifamily-insured residential mortgage loans, term federal funds sold, and term securities purchased under agreements to resell.
The Bank considers the application of these standards to its advance,advances, standby letters of credit, mortgage loan,loans, federal fund portfolio, and securities purchased under agreements to resell a critical accounting policy asbecause determining the appropriate amount of the allowance for credit losses requires the Bank to make a number of assumptions. The Bank's assumptions are based on information available as of the date of the financial statements. Actual results may differ from these estimates.
Advances and Standby Letters of Credit
Finance Agency regulations require the Bank to obtain eligible collateral from borrowing membersborrowers to protect against potential credit losses. Eligible collateral is defined by statute and regulation. The Bank monitors the financial condition of borrowers and regularly verifies the existence and characteristics of a risk-based sample of mortgage collateral pledged to secure advances. Each borrower's collateral requirements and the scope and frequency of its collateral verification reviews are
dependent upon certain risk factors. Since its establishment in 1932, the Bank has never experienced a credit loss on an advance or standby letter of credit. Based on the collateral held as security, itsthe Bank's collateral policies, management's credit analysis, and the repayment history on advances, the Bank did not anticipate any credit losses on advances or letters of credit as of December 31, 20132016 and 2012.2015. Accordingly, the Bank has not recorded any allowance for credit losses on advances, or letters of credit.nor has the Bank recorded any liability to reflect an allowance for credit losses for off-balance sheet credit exposure. Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk for further discussion regarding the Bank's credit risk policies and practice.
Single-familyConventional Residential Mortgage Loans
Modified loans that are considered a troubled debt restructuring, and certain other identified conventional single-family residential mortgage loans, are evaluated individually for impairment. All other conventional single-family residential mortgage loans are evaluated collectively for impairment. The overall allowance for credit losses is determined by an analysis (at least quarterly) that includes consideration of various data, such as past performance, current performance, loan portfolio characteristics, collateral valuations, industry data, and prevailing economic conditions. Inherent in the Bank's evaluation of past performance are the effects of various credit enhancements at the individual master commitment level to determine the credit enhancement available to recover losses on conventional single-family residential mortgage loans under each individual master commitment.
A modified loan that is considered a troubled debt restructuring is individually evaluated for impairment when determining its related allowance for credit losses. CreditThis credit loss is measured by factoring in expected cash shortfalls (i.e., loss severity rate) incurred as of the reporting date, as well as the economic loss attributable to delaying the original contractual principal and interest due dates.
All other conventional residential mortgage loans are evaluated collectively for impairment. The allowance for these loans is determined by an analysis (performed at least quarterly) that includes segregating the portfolio into various aging groups. For loans that are 60 days or less past due, the Bank calculates a loss severity, default rate, and the expected loss based on individual loan characteristics. For loans that are more than 60 days past due, the allowance is determined using an automated valuation model.
Government-guaranteed or Insured Single-family-Insured Residential Mortgage Loans
The Bank also invests in government-guaranteed or insured-insured fixed-rate mortgage loans secured by one-to-four family residential properties. Government-guaranteed or insured-insured mortgage loans are mortgage loans guaranteed or insured by the VA or the FHA. Any losses from such loans are expected to be recovered from those entities. Any losses from such loans that are not recovered from those entities are absorbed by the servicers. Therefore, there is nothe Bank does not record an allowance for credit losses on government-guaranteed or insured-insured mortgage loans.
Multifamily Residential Mortgage Loans
The Bank sold its multifamily residential mortgage loan portfolio in August 2013. Prior to the sale, multifamily residential mortgage loans were individually evaluated for impairment. An independent third-party loan review was performed annually on all the Bank's multifamily residential mortgage loans to identify credit risks and to assess the overall ability of the Bank to collect on those loans. The allowance for credit losses related to multifamily residential mortgage loans was comprised of specific reserves and a general reserve.
The Bank established a reserve for all multifamily residential mortgage loans with a credit rating at or below a predetermined classification. A loan was considered impaired when, based on current information and events, it was probable that the Bank would be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan. The loans were collateral dependent; that is, the ability to repay the loan was dependent on amounts generated by the collateral. Therefore, should a loan be classified as impaired, the loan would be adjusted to reflect the fair value of the underlying collateral less cost to sell.
To identify the loans that would be subject to review for impairment, the Bank reviewed all multifamily residential mortgage loans with a credit rating at or below a predetermined classification. The Bank used six grade categories when assigning credit ratings to individual loans. These credit ratings involved a high degree of judgment in estimating the amount and timing of future cash flows and collateral values. While the Bank's allowance for credit losses was sensitive to the credit ratings assigned to a loan, a hypothetical one-level downgrade or upgrade in the Bank's credit ratings for all multifamily residential mortgage loans would not result in a change in the allowance for credit losses that would be material as a proportion of the unpaid principal balance of the Bank's mortgage loan portfolio.
A general reserve was maintained on multifamily residential mortgage loans not subject to specific reserve allocations to recognize the economic uncertainty and the imprecision inherent in estimating and measuring losses when evaluating reserves for individual loans. To establish the general reserve, the Bank assigned a risk classification to this population of loans. A specified percentage was allocated to the general reserve for designated risk classification levels. The loans and risk classification designations were reviewed by the Bank on an annual basis.
Term Federal Funds Sold
Term federal funds sold are generally short-term, and their recorded balance approximates fair value. Thevalue, and they are transacted with counterparties that the Bank investsconsiders to be of investment quality. If the Bank's investment in federal funds with investment-grade counterparties, which are onlysold is not paid when due, it is evaluated for purposes of an allowance for credit losses if the investment is not paid when due. As of December 31, 2013 and 2012, alllosses. All investments in federal funds sold are unsecured and were repaid or expected to repaybe repaid according to the contracted terms.terms as of December 31, 2016 and 2015. The Bank determined that no allowance for credit losses was needed for federal funds sold as of December 31, 2016 and 2015.
Term Securities Purchased Under Agreements to Resell
Securities purchased under agreements to resell are considered collateralized financing arrangements and effectively represent short-term loans transacted with investment-grade counterparties.counterparties that the Bank considers to be of investment quality. The terms of these loans are structured such that if the fair value of the underlying securities decrease below the fair value required as collateral, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash, or the dollar value of the resale agreement will be decreased accordingly.cash. If an agreement to resell is deemed to be impaired, the difference between the fair value of the collateral and the amortized cost of the agreement is recognized in earnings. Based upon the collateral held as security, the Bank determined that no allowance for credit losses was needed for the securities purchased under agreements to resell as of December 31, 2013.2016 and 2015.
See Note 2—Summary of Significant Accounting Policies—Allowance for Credit Losses to the Bank's 20132016 audited financial statements and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk for a further discussion of management's estimate of credit losses.
Derivatives and Hedging Activities
General
The Bank records all derivatives at fair value on the balance sheet at fair value with changes in fair value recognized in current periodcurrent-period earnings. The Bank designates derivatives as either fair-value hedging instruments or non-qualifying hedging instruments for which hedge accounting is not applied. The Bank has not entered into any cash-flow hedges as of December 31, 20132016 and 2012.2015. The Bank uses derivatives in its risk management program for the following purposes:
conversion of a fixed rate to a variable rate;
conversion of a variable rate with a fixed component to another variable rate; and
macro hedging of balance sheet risks.
To qualify for hedge accounting, the Bank documents the following concurrently with the execution of each hedging relationship:
the hedging strategy;
identification of the hedging instrument and the hedged item;
determination of the appropriate accounting designation;
the method used for the determination of effectiveness for transactions qualifying for hedge accounting; and
the method for recording ineffectiveness for hedging relationships.
The Bank also evaluates each debt issuance, advance made, and financial instrument purchased to determine whether the cash item contains embedded derivatives that meet the criteria for bifurcation. If, after evaluation, it is determined that an embedded derivative must be bifurcated, the Bank will measure the fair value of the embedded derivative.
Assessment of Hedge Effectiveness
An assessment must be made to determine the effectiveness of qualifying hedging relationships; the Bank uses two methods torelationships. To make such an assessment. assessment, the Bank either uses (1) the short-cut method; or (2) the long-haul method.
If the hedging instrument is a swap and meets specific criteria, the hedging relationship may qualify for the short-cut method of assessing effectiveness. The short-cut method allows for an assumption of no ineffectiveness, which means that the change in the fair value of the hedged item is assumed to be equal and offsetting ofto the change in fair value of the hedging instrument. For periods beginning after May 31, 2005, the Bank determined that it would no longer apply the short-cut method to new hedging relationships.
The long-haul method of effectiveness is used to assess effectiveness for hedging relationships that qualify for hedge accounting but do not meet the criteria for the use of the short-cut method. The long-haul method requires separate valuations of both the hedged item and the hedging instrument. If the hedging relationship is determined to be highly effective, the change in fair value of the hedged item related to the designated risk is recognized in current period earnings in the same period as the change in fair value of the hedging instrument. If the hedging relationship is determined not to be highly effective, hedge accounting will either will not be allowed or will cease at that point. The Bank performs effectiveness testing on a monthly basis and uses statistical regression analysis techniques to determine whether a long-haul hedging relationship is highly effective.
Accounting for Ineffectiveness and Hedge De-designation
The Bank accounts for any ineffectiveness for all long-haul fair-value hedges using the dollar offset method. In the case of non-qualifying hedges that do not qualify for hedge accounting, the Bank reports only the change in the fair value of the derivative.
The Bank reports all ineffectiveness for qualifying hedges and non-qualifying hedges in the income statement caption “Net gains (losses) on derivatives and hedging activities” which is included in the “Noninterest"Noninterest income (loss)”" section of the Statements of Income.Income within "Net gains on derivatives and hedging activities."
The Bank may discontinue hedge accounting for a hedging transaction (de-designation) if it fails effectiveness testing or for other asset-liability-management reasons. The Bank also treats modifications to hedged items as a discontinuance of a hedging relationship. When a hedgehedging relationship is discontinued, the Bank will cease marking the hedged item to fair value and will amortize the cumulative basis adjustment resulting from hedge accounting. The Bank reports related amortization as interest income or expense over the remaining life of the associated hedged item. The associated derivative will continue to be marked to fair value through earnings until it matures or is terminated.
Recently Issued and Adopted Accounting Guidance
See Note 3—Recently Issued and Adopted Accounting Guidance to the Bank's 20132016 audited financial statements for a discussion of recently issued and adopted accounting guidance.
Legislative and Regulatory Developments
The legislative and regulatory environment in which the Bank and its members operate continues to evolve as a result of regulations enacted pursuant to the Housing Act and the Dodd-Frank Wall Street ReformAct, and Consumer Protection Act of 2010 (Dodd-Frank Act).recent changes in the U.S. government administration. The Bank’s business operations, funding costs, rights, obligations, and/or the environment in which the Bank carries out its housing finance and community lending mission are likely to continue to be significantly impacted by these changes. Significant regulatory actions and developments for the period covered by this report are summarized below.
Significant Finance Agency Developments
Proposed Rule on Responsibilities of Boards of Directors; Corporate PracticesMinority and Corporate Governance MattersWomen Inclusion.. On January 28, 2014,October 27, 2016, the Finance Agency published a proposed ruleamendments to relocateits Minority and consolidateWomen Inclusion regulations that, if adopted, would clarify the scope of the FHLBanks’ obligation to promote diversity and ensure inclusion. These proposed amendments update existing Federal Housing Finance Board and Office of Federal Housing Enterprise OversightAgency regulations pertaining to director responsibilities, corporate practices, and corporate governance matters for Fannie Mae and Freddie Mac (together, the Enterprises)aimed at promoting diversity and the FHLBanks (togetherinclusion and utilization of minorities, women, and individuals with the Enterprises, the "regulated entities"). In addition, the proposed rule would make certain amendments or additions,disabilities in all Bank business and activities, including provisions to:management, employment and contracting.
The proposed amendments would:
Reviserequire the FHLBanks to develop standalone diversity and inclusion strategic plans or incorporate diversity and inclusion into their existing risk management provisionsstrategic planning processes and adopt strategies for promoting diversity and ensuring inclusion;
encourage the FHLBanks to better align themexpand contracting opportunities for minorities, women, and individuals with more recent proposals ofdisabilities through subcontracting arrangements;
require the Federal Reserve Board, including requirements that each regulated entity adopts an enterprise wide risk management programFHLBanks to amend their policies on equal opportunity in employment and appointscontracting by adding sexual orientation, gender identity, and status as a Chief Risk Officer with certain enumerated responsibilities;
Require each regulated entity to maintain a compliance program headed by a compliance officer who reports directlyparent to the chief executive officer and must regularly report to the boardlist of directors (or a board committee);
Require each regulated entity’s board to include committees specifically responsible for the following matters: (a) risk management; (b) audit; (c) compensation; and (d) corporate governance;protected classifications; and
Require each FHLBankrequire the FHLBanks to designateprovide information in its bylaws a body of lawtheir annual reports to follow for its corporate governance practices and procedures that may arise for which no federal law controls, choosing from (a) the law of the jurisdiction in which the FHLBank maintains its principal office; (b) the Delaware General Corporation Law; or (c) the Revised Model Business Corporation Act. The proposed rule states that the Finance Agency hasabout their efforts to advance diversity and inclusion through capital market transactions, affordable housing and community investment programs, initiatives to improve access to mortgage credit, and strategies for promoting the authority to reviewdiversity of supervisors and managers.
The Bank submitted a regulated
entity's indemnification policies, procedures and practices and may limit or prohibit indemnification payments in furtherance ofjoint comment letter with the safe and sound operations of the regulated entity.
Comments on the proposed rule are due by May 15, 2014.
Final Rule on Executive Compensation. On January 28, 2014, the Finance Agency issued an interim final rule setting forth requirements and processes with respect to compensation provided to executive officers byother FHLBanks and the Office of Finance. The final rule addresses the authority of the Finance Agency Director to approve, disapprove, prohibit, or withhold compensation of certain executive officers of the FHLBanks and the Office of Finance. The final rule also addresses the Director’s authority to approve, in advance, agreements or contracts of executive officers that provide compensation in connection with termination of employment. The final rule prohibits an FHLBank or the Office of Finance from paying compensation to an executive officer that is not reasonable and comparable with compensation paid by similar businesses for similar duties and responsibilities. Failure by an FHLBank or the Office of Finance to comply with the rule may result in supervisory action by the Finance Agency. The final rule became effective on February 27, 2014.
Final Rule on Golden Parachute Payments. On January 28, 2014, the Finance Agency issued a final rule setting forth the standards that the Finance Agency would take into consideration when limiting or prohibiting golden parachute payments. The primary impact of this rule would be to better conform existing Finance Agency regulations on golden parachutes with FDIC golden parachute regulations and to further limit golden parachute payments made by an FHLBank or the Office of Finance that is assigned a less than satisfactory composite Finance Agency examination rating. The final rule became effective on February 27, 2014.
Final Guidance on Collateralization of Advances and Other Credit Products Provided to Insurance Company Members. On December 23, 2013, the Finance Agency published a final Advisory Bulletin that sets forth standards to guide the Finance Agency in its supervision of secured lending to insurance company members by the FHLBanks. The guidance asserts that lending to insurance company members exposes FHLBanks to risks that are not associated with advances to insured depository institution members, arising from differences in each state’s statutory and regulatory regimes and the statutory accounting principles and reporting practices applicable to insurance companies. The standards include consideration of, among other things:
an FHLBank’s control of pledged collateral and ensuring it has a first-priority perfected security interest;
the use of funding agreements between an FHLBank and an insurance company member to document advances and whether that FHLBank would be recognized as a secured creditor with a first-priority perfected security interest in the collateral;
the FHLBank’s documented framework, procedures, methodologies and standards to evaluate an insurance company member's creditworthiness and financial condition, and the value of the pledged collateral; and
whether an FHLBank has a written plan for the liquidation of insurance company member collateral.
Final Rule on Stress-Testing Requirements. On September 26, 2013, the Finance Agency issued a final rule that requires each FHLBank to assess the potential impact of certain sets of economic and financial conditions, including baseline, adverse, and severely adverse scenarios, on its consolidated earnings, capital, and other related factors, over a nine-quarter forward horizon based on its portfolio as of September 30 of the previous year. The rule provides that the Finance Agency will issue annual guidance on the scenarios and methodologies to be used in conducting the stress test. Each FHLBank must publicly disclose the results of its severely adverse economic conditions stress tests. The final rule requires each FHLBank to take the results of the annual stress test into account in making any changes, as appropriate to its capital structure (including the level and composition of capital); its exposures, concentrations, and risk positions; any plans for recovery and resolution; and to improve overall risk management. The FHLBank is expected to consult with Finance Agency supervisory staff in making such improvements. The rule became effective October 28, 2013.
Joint Proposed Rule on Credit Risk Retention for Asset-backed Securities. On September 20, 2013, the Finance Agency with other U.S. federal regulators jointly issued a proposed rule requiring asset-backed securities (ABS) sponsors to retain a minimum of five percent economic interest in a portion of the credit risk of the assets collateralizing the ABS, unless all the securitized assets satisfy specified qualifications. The proposed rule revises a 2011 proposed rule on ABS credit risk retention. In general, as with the original proposed rule, the revised proposed rule specifies criteria for qualified residential mortgage, commercial real estate, auto, and commercial loans that would make them exempt from the risk retention requirement. The criteria for qualified residential mortgages is described in the proposed rule as those underwriting and product features which, based on historical data, are associated with low risk even in periods of decline in housing prices and high unemployment. The proposed rule would exempt agency MBS from the risk-retention requirements so long as the sponsoring agency is operating under the conservatorship or receivership of the Finance Agency and fully guarantees the timely payment of principal and
interest on all interests in the issued security. Further, MBS issued by any limited-life regulated entity succeeding to either Fannie Mae or Freddie Mac operating with capital support from the United States would be exempt from the risk-retention requirements. Comments on the proposed rule were due October 30, 2013. At this time,amendments on December 27, 2016, which primarily related to the impactproposed amendment’s enhanced reporting and contract requirements. The proposed amendments, if adopted, may substantially increase the amount of this rule (if adopted) on the Bank’s operations is uncertain.
tracking, monitoring, and reporting that would be required of each FHLBank.
Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special MentionEuropean Union (“EU”) Market Abuse Regulation. In April 2012, the Finance AgencyThe EU issued Advisory Bulletin 2012-02, Frameworkupdated Market Abuse Regulations (“MAR”) that became effective July 3, 2016 and which contain rules on insider dealing, unlawful disclosure of inside information and market manipulation for Adversely Classifying Loans, Other Real Estate Owned,debt and Other Assets and Listing Assets For Special Mention (AB 2012-02). AB 2012-02 establishes a standard and uniform methodology for adverse classification and identification of special mention assets and off-balance sheet credit exposures at the FHLBanks, excluding investment securities.equity securities on European securities exchanges, which differ in certain respects from U.S. regulations. MAR applies to issuers with securities admitted to trading on EU exchanges, including EU exchanges on which FHLBank COs are listed. The Bank expects to adopt the adverse classification requirements and the charge-off requirements of AB 2012-02 beginning in 2014. The Bank does not expect the adoption of AB 2012-02 to have a material impact on the Bank's financial condition or results of operations.
Other Significant Developments
Fraud Detection and Reporting. On February 25, 2014, the Financial Crimes Enforcement Network (FinCEN) issued final regulations that would require the regulated entities to develop anti-money laundering (AML) programs and to file suspicious activity reports (SARs) with FinCEN. FinCEN has delegated the authority to examine the regulated entities' compliance with these regulations to the Finance Agency, but has retained enforcement authority. The requirement to develop, implement, and maintain AML and SAR reporting programs may increase compliance costs and subject the Bank to heightened liability risk.
Regulation of Systemically Important Nonbank Financial Companies. In 2012, the Financial Stability Oversight Council (Oversight Council) issued a final rule and guidance on the standards and procedures the Oversight Council will follow in determining whether to designate a nonbank financial company for supervision by the Federal Reserve Board (FRB) and subject that company to certain heightened prudential standards (commonly referred to as a “systemically important financial institution” or “SIFI”). The Oversight Council will analyze a nonbank financial company for possible SIFI designation under a three stage process based on the size of the nonbank financial company, the potential threatanticipates that the nonbank financial company could pose to U.S. financial stability, and information collected directly from the company. A nonbank financial company that the Oversight Council proposes to designate as a SIFI under this rule has the opportunity to contest the designation.
On April 5, 2013, the Federal Reserve System published a final rule that establishes the requirements for determining when a company is “predominately engaged in financial activities” and thus a “nonbank financial company.” The Bank would likely be deemed a nonbank financial company under these definitions, and as of December 31, 2013, the Bank meets the total consolidated assets and total debt outstanding thresholds for the first stage of analysis established for designating SIFIs. To date, the Bank has not received any request for information or communication from the Oversight Council pursuant to the final rule and guidance. Designation as a SIFI could adversely impact the Bank’s operations and business if additional Federal Reserve standards result in additional costs, liquidity or capital requirements, and/or restrictions on the Bank’s business activities.
Housing Finance and Housing GSE Reform. The Bank expects Congress to continue to consider reforms for U.S. housing finance and the regulated entities, including the resolution of the Enterprises. Legislation has been introduced in both the House of Representatives and the Senate that would wind down the Enterprises and replace them with a new finance system to support the secondary mortgage market. On June 25, 2013, a bill entitled the Housing Finance Reform and Taxpayer Protection Actof 2013 (the Housing Finance Reform Act) was introduced in the Senate with bipartisan support. On July 11, 2013, Republican leaders of the House Financial Services Committee submitted a proposal entitled the Protecting American Taxpayers and Homeowners Act of 2013 (the PATH Act). Both proposals would have direct implications for the FHLBanks if enacted.
While both proposals reflect the Finance Agency’s efforts over the past year to lay the groundwork for a new U.S. housing finance structure by creating a common securitization platform and establishing national standards for mortgage securitization, they differ on the role of the federal government in the revamped housing finance structure. The Housing Finance Reform Act would establish the Federal Mortgage Insurance Corporation (the FMIC) as an independent agency in the Federal government, replacing the Finance Agency as the primary Federal regulator of the FHLBanks. The FMIC would, among other things, facilitate the securitization of eligible mortgages by insuring covered securities in a catastrophic risk position. The FHLBanks would be allowed to apply to become an approved issuer of covered securities to facilitate access to the secondary market for smaller community mortgage lenders. Any covered MBS issued by the FHLBanks or subsidiary would not be issued as a CO and would not be treated as a joint and several obligation of any FHLBank that has not elected to participate in such issuance.
By contrast, the PATH Act would effectively eliminate any government guarantee of conventional, conforming mortgages except for FHA, VA, and similar loans designed to serve first-time homebuyers and low- and moderate-income borrowers. The FHLBanks would be authorized to act as aggregators of mortgages for securitization through a newly established common market utility.
The PATH Act would also revamp the statutory provisions governing the board composition of the FHLBanks. Among other things, for merging FHLBanks, the number of directors would be capped at 15 and the number of member directors allocated to a state would be capped at two until each state has at least one member director. In addition, the Finance Agency would be given the authority, consistent with the authority of other banking regulators, to regulate and examine certain vendors of an FHLBank or an Enterprise. Also, the PATH Act would remove the requirement that the Finance Agency adopt regulations establishing standards of community investment or service for FHLBanks’ members.
On March 11, 2014, U.S. Senate Banking Committee Chairman Tim Johnson, a Democrat, and Senator Mike Crapo, the panel's top Republican, announced bi-partisan agreement on a draft bill to wind down the Enterprises. The Bank will assess the potentialmost significant impact of the bill when it is released publicly.
The Bank expects Congress to consider these and other changes to the U.S. housing finance system in the coming months. Any such proposal likely would have consequences for the FHLBank System and the Bank’s ability to provide readily accessible liquidity to Bank members. However, given the uncertainty of the Congressional process, it is impossible to determine at this time whether or when legislation would be enacted for housing GSE or housing finance reform. The ultimate effects of these effortsMAR on the FHLBanks are unknown andBank will depend on the legislation or other changes, if any, that ultimately are implemented.
Money Market Mutual Fund (MMF) Reform. In 2012, the Oversight Council proposed recommendations for structural reforms of MMFs. The Oversight Council has stated that these reforms are intended to address the structural vulnerabilities of MMFs. In addition, on June 19, 2013, the SEC proposed two alternatives for amending rules that govern MMFs under the Investment Company Act of 1940. The demand for COs may be impacted by the structural reform ultimately adopted. Accordingly, such reforms could cause the Bank’s funding costs to rise or otherwise adversely impact market access and, in turn, adversely impact the Bank’s results of operations.
Consumer Financial Protection Bureau (CFPB) Final Rule on Qualified Mortgages. On January 10, 2013 the CFPB issued its final rule on Ability to Repay and Qualified Mortgage Standards Under the Truth in Lending Act, effective January 10, 2014, establishing new standards for mortgage lenders to follow during the loan approval process to determine whether a borrower can afford to repay the mortgage. Lenders are not required to consider whether a borrower has the ability to repay certain loans, such as home equity lines of credit, timeshare plans, reverse mortgages and temporary loans. The final rule provides for a rebuttable safe harbor from consumer claims that a lender did not adequately consider whether a consumer can afford to repay the lender’s mortgage, provided that the mortgage meets the requirements of a Qualified Mortgage loan (QM). QMs are home loans that are either eligible for purchase by Fannie Mae or Freddie Mac or otherwise satisfy certain underwriting standards. The standards require lenders to consider, among other factors, the borrower's current income, current employment status, credit history, monthly payment for mortgage, monthly payment for other loan obligations, and the borrower's total debt-to-income ratio. Further, the QM underwriting standards generally prohibit loans with excessive points and fees, interest-only or negative-amortization features (subject to limited exceptions), or terms greater than 30 years. On the same date as it issued the final rule, the CFPB also issued a proposal that would allow small creditors (generally those with assets under $2 billion) in rural or underserved areas to treat first lien balloon mortgage loans as QM mortgages. Comments on that proposal were due by February 25, 2013.
The QM liability safe harbor could incentivize lenders, including the Bank’s members, to limit their mortgage lending to QMs or otherwise reduce their origination of mortgage loans that are not QMs. This approach could reduce the overall level of members’ mortgage loan lending and, in turn, reduce demand for FHLBank advances. Additionally, the value and marketability of mortgage loans that are not QMs, including those pledged as collateral to secure member advances, may be adversely affected.
Basel Committee on Banking Supervision - Final Capital Framework. In July 2013, the Federal Reserve and the Office of the Comptroller of the Currency (the OCC) adopted a final rule, and the FDIC (together with the Federal Reserve and the OCC, the Financial Regulators) adopted an interim final rule (which was amended September 10, 2013), establishing new minimum capital standards for financial institutions to incorporate the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision. The FHLBanks are not required to meet Basel III requirements, but many FHLBank members are subject to these new requirements. The new capital framework includes, among other things:
a new common equity tier 1 minimum capital requirement, a higher minimum tier 1 capital requirement, and an additional capital conservation buffer;
revised methodologies for calculation of risk-weighted assets to enhance risk sensitivity; and
a supplementary leverage ratio for financial institutions subject to the “advanced approaches” risk-based capital rules.
The new framework could require some of the Bank’s members to divest assets in order to comply with the more stringent capital requirements, thereby tending to decrease their need for advances. Conversely, the new requirements could create incentives for members to use term advances to create and maintain balance-sheet liquidity. Mostdetailed recordkeeping, creation of the Bank’s members must begin to comply with the final rule by January 1, 2015, although some larger members were required to begin to comply by January 1, 2014.
Basel Committeedetailed lists on Bank Supervision - Proposed Liquidity Coverage Ratio. In October 2013, the Financial Regulators issued a proposed rule with a comment deadline of January 31, 2014 for a minimum liquidity coverage ratio (the LCR) applicable to all internationally active banking organizations, bank holding companies, systemically important, non-bank financial institutions designated for Federal Reserve supervision that do notparties who have substantial insurance activities, certain savings and loan holding companies, and depository institutions with more than $250 billion in total assets or more than $10 billion in on-balance sheet foreign exposure, and to their consolidated subsidiaries that are depository institutions with $10 billion or more in total consolidated assets. A modified and slightly less rigorous LCR would apply to bank holding companies and savings and loan holding companies with $50 billion or more in total assets.
Among other things, the proposed rule defines various categories of high quality, liquid assets (HQLAs) to satisfy the LCR over a 21- or 30- day period, and these HQLAs are further categorized into Levels 1, 2A or 2B. Level 1 has the most favorable, and Level 2B has the least favorable, treatment among HQLAs for the LCR. As proposed, COs would be Level 2A HQLAs. Level 2A HQLAs are subject to a 15% valuation discount and, with all other Level 2 assets, may not constitute more than 40% of all required HQLAs. At this time, the impact of this rule (if adopted) on the System COs is uncertain.
National Credit Union Administration Proposed Rule on Access to Emergency Liquidity. On October 30, 2013, the National Credit Union Administration (NCUA) published a final rule requiring, among other things, that federally-insured credit unions with assets of $250 million or more must maintain access to at least one federal liquidity source for use in times of financial emergencyinside information, and distressed economic circumstances. This access must be demonstrated through direct or indirect membership in the Central Liquidity Facility (a U.S. government corporation created to improve the general financial stability of credit unions by serving as a liquidity lender to credit unions) or by establishing access to the Federal Reserve’s discount window. The final rule does not include FHLBank membership as an emergency liquidity source. Accordingly, the final rule may adversely impact the Bank’s results of operations if it causes the Bank’s federally-insured credit union members to favor these federal liquidity sources over FHLBank membership or advances. The published rule will become effective March 31, 2014.notification requirements.
Risk Management
The Bank’s lending, investment and funding activities, and the use of derivative hedge instruments expose the Bank to a number of risks. A robust risk management framework aligns risk-taking activities with the Bank’s strategies and risk appetite. A risk
management framework also balances risks and rewards. The Bank’s risk management framework consists of risk governance, risk appetite, and risk management policies.
The Bank’s board of directors and management recognize that risks are inherent to the Bank’s business model and that the process of establishing a risk appetite does not imply that the Bank seeks to mitigate or eliminate all risk. By defining and managing to a specific risk appetite, the board of directors and management ensure that there is a common understanding of the Bank’s desired risk profile, which enhances their ability to make improved strategic and tactical decisions. Additionally, the Bank aspires to (1) achieve and exceed best practices in governance, ethics, and compliance,compliance; and to(2) sustain a corporate culture that fostersof transparency, integrity, and adherence to legal and ethical obligations.
The Bank's board of directors and management have established thisa risk appetite statement and risk metrics for controlling and escalating actions based on the following nineeight continuing objectives that represent the foundation of the Bank's strategic and tactical planning:
Capital Adequacy - maintain adequate levels of capital components (retained earnings and capital stock) that protect against the risks inherent on the Bank's balance sheet and provide sufficient resiliency to withstand potential stressed losses.
Market Risk/Earnings - produce a long-termmaintain an adequate ROE spread to 3-monthaverage three-month LIBOR, of 50 to 400 basis points, while providing attractive funding for advance products, consistent payment of dividends, reliable access to funding, and maintenance of retained earnings in excess of stressed retained earnings targets.targets within a conservative risk management framework.
Liquidity Risk - maintain sufficient liquidity and funding sources to allow the Bank to meet expected and unexpected obligations.
Credit and Concentration Risk - avoid credit losses by managing credit and collateral risk exposures within acceptable parameters. Achieve this objective through data-driven analysis (and when appropriate, perform shareholder-specific analysis), monitoring, and verification. Monitor through enhanced reporting any elevated risk concentrations, and when appropriate, manage and mitigate the increased risk.
Governance/Compliance/Legal - complycompliance with all applicable laws and regulations.regulations and manage other legal exposures.
Mission/Business Model - (1) deliver financial services and consistent access to affordable funds inthat are the size and structure membersshareholders desire, helping membersthem to manage risk and extend credit in their communities, while achieving itsthe Bank's affordable housing mission goals; and (2) provide value through the consistent payment of dividends and the repurchasing of excess stock.
Operational Risk - (1) manage the key risks associated with operational availability of critical systems, the integrity and security of the Bank's information, and the alignment of technology investment with key business objectives through enterprise-wide risk management practices and governance based on Committee of Sponsoring Organizations of the Treadway Commission (COSO) and Control Objectives for Information and Related Technologyindustry standards; and(2) deliver an employmentemployee value proposition that allows the Bank to build, retain, engage, and develop staff capable of meetingto meet the evolving needs of itsthe Bank's key stakeholders and the ability to effectively manage enterprise-wide risks.risks; and (3) manage the key risks associated with cyber security threats.
Reputation - recognize the importance of and advancepromote positive awareness and perception of the Bank and its mission among key external stakeholders impacting the Bank's ability to achieve its mission.
Diversification and Concentration -monitor through enhanced reporting any elevated risk concentrations, and when appropriate, manage and mitigate the increased risk.
The board and management recognize that risk and risk producing events are dynamic and constantly being presented. Accordingly, the Bank believes that reporting, analyzing, and mitigating risks are paramount to successful corporate governance.
The RMP also governs the Bank's approach to managing the above risks. The Bank's board of directors reviews the RMP annually and formally re-adopts the RMP at least once every three years. It also reviews and approves amendments to the RMP from time to time as necessary. To ensurepromote compliance with the RMP, the Bank has established internal management committees to provide oversight of these risks. The Bank produces a comprehensive risk assessment report on an annual basis that is reviewed by the board of directors. In addition to the established risk appetite and the RMP, the Bank is also is subject to Finance Agency regulations and policies regarding risk management.
Below is a more specific discussion of how the Bank manages its market risk, liquidity risk, credit risk, operational risk, and business risk within this risk management and appetite framework.
Market Risk
General
The Bank is exposed to market risk in thatbecause changes in interest rates and spreads can have a direct effect on the value of the Bank's assets and liabilities. As a result of the volume of its interest-earning assets and interest-bearing liabilities, the interest-rate risk component of market risk havinghas the greatest effectimpact on the Bank's financial condition and results of operations is interest-rate risk.operations.
Interest-rate risk represents the risk that the aggregate market value or estimated fair value of the Bank's asset, liability, and derivative portfolios will decline as a result of interest-rate volatility or that net earnings will be affected significantly by interest-rate changes. Interest-rate risk can occur in a variety of forms. These includeforms including repricing risk, yield-curve risk, basis risk, and option risk. The Bank faces repricing risk whenever an asset and a liability reprice at different times and with different rates, resulting in interest-margin sensitivity to changes in market interest rates. Yield-curve risk reflects the possibility that changes in the shape of the yield curve may affect the market value of the Bank's assets and liabilities differently because a
liability used to fund an asset may be short-term, while the asset is long-term, or vice versa. Basis risk occurs when yields on assets and costs on liabilities are based on different bases, such as LIBOR, versus the Bank's cost of funds. Different bases can move at different rates or in different directions, which can cause erratic changes in revenues and expenses. Option risk is presented by the optionality that is embedded in some assets and liabilities. Mortgage assets represent the primary source of option risk.
The primary goal of the Bank's interest-rate risk measurement and management efforts is to control the above risks through prudent asset-liability management strategies so that the Bank may provide members with dividends that are consistently are competitive with existing market interest rates on alternative short-term and variable-rate investments. The Bank attempts to manage interest-rate risk exposure by using appropriate funding instruments and hedging strategies. Hedging may occur at the micro level, for one or more specifically identified transactions, or at the macro level. Management evaluates the Bank's macro hedge position and funding strategies on a daily basis and makes adjustments as necessary.
The Bank measures its potential market risk exposure in a number of ways. These include asset, liability, and equity duration analyses; earnings forecast scenario analyses that reflect repricing gaps; and convexity characteristics under assumed changes in interest rates, the shape of the yield curve, and market basis relationships. The Bank establishes tolerance limits for these financial metrics and uses internal models to measure each of these risk exposures at least monthly.
Use of Derivatives
The Bank enters into derivatives to reduce the interest-rate risk exposure inherent in otherwise unhedged assets and funding positions.positions and attempts to do so in the most cost-efficient manner. The Bank does not engage in speculative trading of these instruments. The Bank attempts to use derivatives to reduce interest-rate exposure in the most cost-efficient manner. The Bank's derivative position includes interest-rate swaps, options, swaptions, interest-rate cap and floor agreements, and forward contracts. These derivatives are used to adjust the effective maturity, repricing frequency, or option characteristics of financial instruments to achieve risk-management objectives. Within its risk management strategy, the Bank uses derivative financial instruments in the following two ways:
As a fair-value hedge of an underlying financial instrument or a firm commitment. For example, the Bank uses derivatives to reduce the interest-rate net sensitivity of COs,consolidated obligations, advances, investments, and mortgage loans by, in effect, converting them to a short-term interest rate, usually based on LIBOR. The Bank also uses derivatives to manage embedded options in assets and liabilities and to hedge the market value of existing assets and liabilities. The BankBank's management reevaluates its hedging strategies from time to time and may change the hedging techniques used or adopt new strategies as deemed prudent.
As an asset-liability management tool, for which hedge accounting is not applied (non-qualifying hedge). The Bank may enter into derivatives that do not qualify for hedge accounting. As a result, the Bank recognizes the change in fair value and interest income or expense of these derivatives in the “Noninterest income (loss)” section of the Statements of Income as “Net gains (losses) on derivatives and hedging activities” with no offsetting fair-value adjustments of the hedged asset, liability, or firm commitment. Consequently, these transactions can introduce earnings volatility.
The following table summarizespresents the notional amounts of derivative financial instruments (in millions). The category "Fair value hedges" represents hedge strategies for which hedge accounting is achieved. The category "Non-qualifying hedges" represents hedge strategies for which the derivatives are not in designated hedgehedging relationships that formally meet the hedge accounting requirements under GAAP.
|
| | | | | | | | | | | | |
| | | | | | | As of December 31, |
| | | | | | | 2016 | | 2015 |
| Hedged Item / Hedging Instrument | | Hedging Objective | | Hedge Accounting Designation | | Notional Amount | | Notional Amount |
| Advances | | | | | | | | |
| Pay fixed, receive variable interest rate swap (without options) | | Converts the advance’s fixed rate to a variable rate index. | | Fair value hedges | | $ | 4,761 |
| | $ | 5,928 |
|
Non-qualifying hedges | | — |
| | 1 |
|
| Pay fixed, receive variable interest rate swap (with options) | | Converts the advance’s fixed rate to a variable rate index and offsets option risk in the advance. | | Fair value hedges | | 23,654 |
| | 22,733 |
|
Non-qualifying hedges | | 40 |
| | 40 |
|
| Pay variable with embedded features, receive variable interest rate swap (non-callable) | | Reduces interest rate sensitivity and repricing gaps by converting the advance’s variable rate to a different variable rate index and/or offsets embedded option risk in the advance. | | Fair value hedges | | 227 |
| | 378 |
|
| Pay variable, receive variable basis swap | | Reduces interest rate sensitivity and repricing gaps by converting the advance’s variable rate to a different variable rate index. | | Non-qualifying hedges | | 10 |
| | 20 |
|
| | | | | Total | | 28,692 |
| | 29,100 |
|
| Investments | | | | | | | | |
| Pay fixed, receive variable interest rate swap | | Converts the investment’s fixed rate to a variable rate index. | | Non-qualifying hedges | | 256 |
| | 1,179 |
|
| Pay variable, receive variable interest rate swap | | Converts the investment’s variable rate to a different variable rate index. | | Non-qualifying hedges | | — |
| | 50 |
|
| | | | | Total | | 256 |
| | 1,229 |
|
| Consolidated Obligation Bonds | | | | | | | | |
| Receive fixed, pay variable interest rate swap (without options) | | Converts the bond’s fixed rate to a variable rate index. | | Fair value hedges | | 15,201 |
| | 25,469 |
|
Non-qualifying hedges | | 150 |
| | 1,242 |
|
| Receive fixed, pay variable interest rate swap (with options) | | Converts the bond’s fixed rate to a variable rate index and offsets option risk in the bond. | | Fair value hedges | | 5,144 |
| | 10,366 |
|
| | | | | Total | | 20,495 |
| | 37,077 |
|
|
| | | | | | | | | | | | |
| | | | | | | As of December 31, |
| | | | | | | 2013 | | 2012 |
| Hedged Item / Hedging Instrument | | Hedging Objective | | Hedge Accounting Designation | | Notional Amount | | Notional Amount |
| Advances | | | | | | | | |
| Pay fixed, receive variable interest rate swap (without options) | | Converts the advance’s fixed rate to a variable rate index. | | Fair value hedges | | $ | 6,919 |
| | $ | 7,427 |
|
Non-qualifying hedges | | — |
| | 4 |
|
| Pay fixed, receive variable interest rate swap (with options) | | Converts the advance’s fixed rate to a variable rate index and offsets option risk in the advance. | | Fair value hedges | | 23,715 |
| | 29,711 |
|
Non-qualifying hedges | | 740 |
| | 740 |
|
| Pay variable with embedded features, receive variable interest rate swap (non-callable) | | Reduces interest rate sensitivity and repricing gaps by converting the advance’s variable rate to a different variable rate index and/or offsets embedded option risk in the advance. | | Fair value hedges | | 3,522 |
| | 3,278 |
|
| Pay variable, receive variable basis swap | | Reduces interest rate sensitivity and repricing gaps by converting the advance’s variable rate to a different variable rate index. | | Non-qualifying hedges | | 145 |
| | 222 |
|
| | | | | Total | | 35,041 |
| | 41,382 |
|
| Investments | | | | | | | | |
| Pay fixed, receive variable interest rate swap | | Converts the investment’s fixed rate to a variable rate index. | | Non-qualifying hedges | | 1,380 |
| | 1,990 |
|
| Pay variable, receive variable interest rate swap | | Converts the investment’s variable rate to a different variable rate index. | | Non-qualifying hedges | | 50 |
| | 50 |
|
| | | | | Total | | 1,430 |
| | 2,040 |
|
| Consolidated Obligation Bonds | | | | | | | | |
| Receive fixed, pay variable interest rate swap (without options) | | Converts the bond’s fixed rate to a variable rate index. | | Fair value hedges | | 26,581 |
| | 49,544 |
|
Non-qualifying hedges | | 1,900 |
| | 6,125 |
|
| Receive fixed, pay variable interest rate swap (with options) | | Converts the bond’s fixed rate to a variable rate index and offsets option risk in the bond. | | Fair value hedges | | 23,983 |
| | 12,680 |
|
Non-qualifying hedges | | — |
| | 305 |
|
| Receive variable with embedded features, pay variable interest rate swap (callable) | | Reduces interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index and/or offsets embedded option risk in the bond. | | Fair value hedges | | 20 |
| | 20 |
|
| Receive variable, pay variable basis swap | | Reduces interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index. | | Non-qualifying hedges | | 25 |
| | — |
|
| | | | | Total | | 52,509 |
| | 68,674 |
|
| | | | | As of December 31, | | As of December 31, |
| | | 2013 | | 2012 | | 2016 | | 2015 |
| Hedged Item / Hedging Instrument | | Hedging Objective | | Hedge Accounting Designation | | Notional Amount | | Notional Amount | | Hedging Objective | | Hedge Accounting Designation | | Notional Amount | | Notional Amount |
| Consolidated Obligation Discount Notes | | | | | |
| Receive fixed, pay variable interest rate swap | | | Converts the discount note's fixed rate to a variable rate index. | | Fair value hedges | | 16,040 |
| | 15,416 |
|
| Balance Sheet | | | | | | | | |
| Pay fixed, receive variable interest rate swap | | Converts the asset or liability fixed rate to a variable rate index. | | Non-qualifying hedges | | 125 |
| | 125 |
| | Converts the asset or liability fixed rate to a variable rate index. | | Non-qualifying hedges | | 105 |
| | 105 |
|
| Interest rate cap or floor | | Protects against changes in income of certain assets due to changes in interest rates. | | Non-qualifying hedges | | 12,500 |
| | 12,500 |
| | Protects against changes in income of certain assets due to changes in interest rates. | | Non-qualifying hedges | | 15,000 |
| | 16,500 |
|
| | | Total | | 12,625 |
| | 12,625 |
| | Total | | 15,105 |
| | 16,605 |
|
| Intermediary Positions and Other | Intermediary Positions and Other | | | | | Intermediary Positions and Other | | | | |
| Pay fixed, receive variable interest rate swap, and receive-fixed, pay variable interest rate swap | | To offset interest rate swaps executed with members by executing interest rate swaps with derivatives counterparties. | | Non-qualifying hedges | | 49 |
| | 9 |
| | To offset interest rate swaps executed with members by executing interest rate swaps with derivatives counterparties. | | Non-qualifying hedges | | 597 |
| | 371 |
|
Interest rate swaption
| | To offset swaptions executed with members by executing swaptions with derivatives counterparties. | | Non-qualifying
hedges | | 40 |
| | — |
| |
| | | Total | | 89 |
| | 9 |
| |
| Total notional amount | | $ | 101,694 |
| | $ | 124,730 |
| |
| Stand-alone derivatives | | | | | |
| Mortgage delivery commitment | | | Exposed to fair-value risk associated with fixed-rate mortgage purchase commitments | | N/A | | 12 |
| | — |
|
| Total Notional Amount | | | $ | 81,197 |
| | $ | 99,798 |
|
Interest-rate Risk Exposure Measurement
The Bank measures interest-rate risk exposure by various methods. The primary methods includingused are (1) calculating the effective duration and convexity of assets, liabilities, and equity under various scenarios,scenarios; and (2) calculating the theoretical market value of equity. Effective duration, normally expressed in years or months, measures the price sensitivity of the Bank's interest-bearing assets and liabilities to changes in interest rates. As effective duration lengthens, market-value changes become more sensitive to interest-rate changes. The Bank employs sophisticated modeling systems to measure effective duration.
Effective duration of equity aggregates the estimated sensitivity of market value for each of the Bank's financial assets and liabilities to changes in interest rates. Effective duration of equity is computed by taking the market value-weighted effective duration of assets, less the market value-weighted effective duration of liabilities, and dividing the remainder by the market value of equity. Due to current market conditions, marketMarket value of equity is not indicative of the market value of the Bank as a going concern or the value of the Bank in a liquidation scenario. An effective duration gap is the measure of the difference between the estimated effective durations of portfolio assets and liabilities and summarizes the extent to which the estimated cash flows for assets and liabilities are matched, on average, over time and across interest-rate scenarios.
A positive effective duration of equity or a positive effective duration gap results when the effective duration of assets is greater than the effective duration of liabilities. A negative effective duration of equity or a negative effective duration gap results when the effective duration of assets is less than the effective duration of liabilities. A positive effective duration of equity or a positive effective duration gap generally indicates that the Bank has some exposure to interest-rate risk in a rising rate environment, and a negative effective duration of equity or a negative effective duration gap generally indicates some exposure to interest-rate risk in a declining interest-rate environment. Higher effective duration numbers, whether positive or negative, indicate greater volatility of market value of equity in response to changing interest rates.
Bank policy requires the Bank to maintain its effective duration of equity within a range of +5 years to -5 years, assuming current interest rates, and within a range of +7 years to -7 years, assuming an instantaneous parallel increase or decrease in market interest rates of 200 basis points.
Under normal circumstances, effective duration is computed by calculating an option adjusted spread based on market price. This method works well if the market price is dependent on interest rates instead of credit or liquidity. In light of credit
concerns and lack of liquidity in the private-label MBS market beginning in 2009, however, market prices were influenced more by credit and liquidity than interest rates, resulting in very low prices and very high option adjusted spreads which distorted the effective duration impact. Thus, in the third quarter of 2009, the Bank changed its method of calculating effective duration to use the option adjusted spread of a date prior to the market disruptions at that time. To capture interest-rate changes, the Bank further adjusted its option adjusted spread by adding a spread to reflect option adjusted spread changes in callable debt instruments with effective duration characteristics. The Bank referred to this model as the Adjusted Fair Value (AFV) approach and believed this approach provided effective duration values that more accurately reflected the Bank's interest-rate risk during market disruptions, but could still result in modest differences due to volatility and uncertainty in the capital markets (such as changing credit standards, variable mortgage refinancing capacity, the spread between MBS rates and Treasury rates, and uncertainty regarding future MBS actions by the FRB; factors such as these are difficult to reduce to quantitative model inputs). Given this limitation, the Bank viewed its effective duration gap exposure calculations as approximate, rather than absolute, values. During the second quarter of 2013, the Bank ceased using the AFV approach and returned to the option adjusted spread based on market price because market prices had returned to their normal correlation to interest rates. As the percentage of private-label MBS within the Bank's investment portfolio has continued to decline, the option adjusted spread based on market price now produces similar results to those obtained by using the AFV approach.
Thefollowing table below reflectspresents the Bank’s effective duration exposure measurements as calculated in accordance with Bank policy (in years). The changes in the Bank's effective duration exposure between December 31, 2012 and 2013 in the table below are based upon the option adjusted spread based on market price. Using the AFV approach, the Bank estimates that its effective duration of equity would have been calculated at .05 years and the effective duration gap would have been calculated at negative .02 years as of December 31, 2013.
| | | | As of December 31, | As of December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| | Up 200 Basis Points | | Current | | Down 200 Basis Points (1) | | Up 200 Basis Points | | Current | | Down 200 Basis Points (1) | Up 200 Basis Points | | Current | | Down 200 Basis Points (1) | | Up 200 Basis Points | | Current | | Down 200 Basis Points (1) |
| Assets | 0.62 |
| | 0.47 |
| | 0.26 |
| | 0.48 |
| | 0.31 |
| | 0.24 |
| 0.36 |
| | 0.25 |
| | 0.19 |
| | 0.42 |
| | 0.30 |
| | 0.23 |
|
| Liabilities | 0.37 |
| | 0.48 |
| | 0.36 |
| | 0.38 |
| | 0.43 |
| | 0.33 |
| 0.20 |
| | 0.22 |
| | 0.22 |
| | 0.24 |
| | 0.31 |
| | 0.26 |
|
| Equity | 5.21 |
| | 0.28 |
| | (1.44 | ) | | 2.17 |
| | (1.65 | ) | | (1.26 | ) | 3.55 |
| | 0.82 |
| | (0.32 | ) | | 3.94 |
| | 0.19 |
| | (0.25 | ) |
| Effective duration gap | 0.25 |
| | (0.01 | ) | | (0.10 | ) | | 0.10 |
| | (0.12 | ) | | (0.09 | ) | 0.16 |
| | 0.03 |
| | (0.03 | ) | | 0.18 |
| | (0.01 | ) | | (0.03 | ) |
____________
| |
(1)(1) The “down 200 basis points” scenarios shown above are considered to be “constrained shocks,” intended to prevent the possibility of negative interest rates when a designated low rate environment exists. | The “down 200 basis points” scenarios shown above are considered to be “constrained shocks,” intended to prevent the possibility of negative interest rates when a designated low rate environment exists. |
The Bank uses both sophisticated computer models and an experienced professional staff to measure the amount of interest-rate risk in the balance sheet, thus allowing management to monitor the risk against policy and regulatory limits. Management regularly reviews the major assumptions and methodologies used in the Bank's models and makeswill make adjustments to the Bank's modelsassumptions and methodologies in response to rapid changes in economic conditions. Management believes that the use of market spreads calculated from estimates of current market prices (which include large embedded liquidity spreads), as opposed to valuation spreads that existed at the time the Bank acquired the MBS and mortgage loans (acquisition spreads), results in a disconnect between measured interest-rate risk and the actual interest-rate risks faced by the Bank. Because the Bank intends to and is able to hold its MBS and mortgage loans to maturity, the impact on effective duration of risks of value loss implied by current market prices of MBS and mortgage loans is overstated. As a result, management does not believe that the increased sensitivity indicates a fundamental change in interest-rate risk.
The prepayment risk in both advances and investment assets can significantly affect the Bank's effective duration of equity and effective duration gap. Current regulations require the Bank to mitigate advance prepayment risk by establishing prepayment fees that make the Bank financially indifferent to a borrower's decision to prepay an advance that carries a rate above current market rates unless the advance contains explicit par value prepayment options. The Bank's prepayment fees for advances without embedded options are generally are based on the present value of the difference between the rate on the prepaid advance and the current rate foron an advance with an identical maturity date. Prepayment fees for advances that contain embedded options are generally are based on the inverse of the market value of the derivative instrument that the Bank used to hedge the advance.
The prepayment options embedded in mortgage loan and mortgage security assets may result in extensionsshorten or contractions oflengthen both the actual and expected cash flows when interest rates change. Current Finance Agency policies limit this source of interest-rate risk by limiting the types of MBS the Bank may own to those with defined estimated average life changes under specific interest-rate shock scenarios. These limits do not apply to mortgage loans purchased from members. The Bank typically hedges
mortgage prepayment uncertainty by using callable debt as a funding source and by using interest-rate cap, floor, and swaption transactions. The Bank also uses derivatives to reduce effective duration and option risks for investment securities other than MBS. Effective duration and option risk exposures are measured on a regular basis for all investment assets under alternative rate scenarios.
The Bank also analyzes its interest-rate risk and market exposure by evaluating the theoretical market value of equity. The market value of equity represents the net result of the present value of future cash flows discounted to arrive at the theoretical market value of each balance sheet item. By using the discounted present value of future cash flows, the Bank is able to factor in the various maturities of assets and liabilities, similar to the effective duration analysis discussed above. The Bank determines the theoretical market value of assets and liabilities utilizing a Level 3 pricing approach as more fully described in Note 19—Estimated Fair Values to the Bank's 20132016 audited financial statements. The difference between the market value of total assets and the market value of total liabilities is the market value of equity. A more volatile market value of equity under different shock scenarios tends to result in a higher effective duration of equity, indicating increased sensitivity to interest rate changes.
The following table below reflectspresents the Bank’s market value of equity measurements as calculated in accordance with Bank policy (in millions). | | | | As of December 31, | As of December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| | Up 200 Basis Points | | Current | | Down 200 Basis Points (1) | | Up 200 Basis Points | | Current | | Down 200 Basis Points (1) | Up 200 Basis Points | | Current | | Down 200 Basis Points (1) | | Up 200 Basis Points | | Current | | Down 200 Basis Points (1) |
| Assets | $ | 118,940 |
| | $ | 120,261 |
| | $ | 120,863 |
| | $ | 119,465 |
| | $ | 120,498 |
| | $ | 120,813 |
| $ | 136,659 |
| | $ | 137,500 |
| | $ | 138,439 |
| | $ | 139,647 |
| | $ | 140,659 |
| | $ | 141,254 |
|
| Liabilities | 112,686 |
| | 113,632 |
| | 114,242 |
| | 113,123 |
| | 114,045 |
| | 114,319 |
| 130,111 |
| | 130,660 |
| | 130,985 |
| | 132,943 |
| | 133,655 |
| | 134,061 |
|
| Equity | 6,254 |
| | 6,629 |
| | 6,621 |
| | 6,342 |
| | 6,453 |
| | 6,494 |
| 6,548 |
| | 6,840 |
| | 7,454 |
| | 6,704 |
| | 7,004 |
| | 7,193 |
|
____________
| |
(1)(1) The “down 200 basis points” scenarios shown above are considered to be “constrained shocks,” intended to prevent the possibility of negative interest rates when a designated low rate environment exists. | The “down 200 basis points” scenarios shown above are considered to be “constrained shocks,” intended to prevent the possibility of negative interest rates when a designated low rate environment exists. |
Under the Bank's RMP, the Bank's market value of equity must not decline by more than 15 percent, assuming an immediate, parallel, and sustained interest-rate shock of 200 basis points in either direction.
If effective duration of equity or market value of equity is approaching the boundaries of the Bank's RMP ranges, management will initiate remedial action or review alternative strategies at the next meeting of the board of directors or appropriate committee thereof.
The Bank supplements its interest rate risk analysis by measuring convexity, or the rate of change of effective duration given changes in interest rates. Convexity represents the majority of the change in price not explained by effective duration. The Bank measures convexity using current interest rate curves rather than shocked interest rate curves. By doing so, the Bank can monitor convexity compared to the limits over time and adjust the limits based on actual market curves rather than theoretical analysis. The Bank's convexity limits are derived from the constraints set by the limit for duration of equity of +5 years to -5 years combined with the limit for the change of market value of 15 percent with a +200 to -200 basis point parallel rate shift.
Liquidity Risk
Liquidity risk is the risk that the Bank will be unable to meet its obligations as they come due or meet the credit needs of its members and borrowers in a timely and cost-efficient manner. The Bank's objective is to meet operational and member liquidity needs under all reasonable economic and operational situations. The Bank uses liquidity to absorb fluctuations in asset and liability balances and to provide an adequate reservoir of funding to support attractive and stable advance pricing. The Bank meets its liquidity needs from both asset and liability sources.
The Bank faces the following two basic types of liquidity risk: operational and contingent. The Bank maintains operational and contingent liquidity in compliance with regulatory requirements and performs a supplemental analysis to confirm that the Bank has sufficient liquidity reserves, as discussed in further detail in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources above.
Credit Risk
The Bank faces credit risk primarily with respect to its advances, investments, derivatives, and mortgage loan assets.
Advances
Secured advances to member financial institutions account for the largest category of Bank assets; thus, advances are a major source of the Bank’s credit risk exposure. The Bank uses a risk-focused approach to credit and collateral underwriting. The Bank attempts to reduce credit risk on advances by monitoring the financial condition of borrowers and the quality and value of the assets membersthat borrowers pledge as eligible collateral.
The Bank utilizes a credit risk rating system for its members, which focuses primarily on an institution’s overall financial health and takes into account the quality of assets, earnings, and capital position. The Bank assigns each borrower that is an insured depository institution or an insurance company a credit risk rating from one to 10 according to the relative amount of credit risk that such borrower poses to the Bank (one being the least amount of credit risk and 10 the greatest amount of credit risk). In general, borrowers in category 10 may have more restrictions on the types of collateral they may use to secure advances, may be required to maintain higher collateral maintenance levels and deliver loan collateral, may be restricted from obtaining further advances, and may face more stringent collateral reporting requirements. At times, based upon the Bank's assessment of the borrower and its collateral, the Bank may place more restrictive requirements on a borrower than those generally applicable to borrowers with the same rating. The Bank assigns each borrower that is not an insured depository institution or insurance company, such as housing associates, CDFIs, and corporate credit unions, a risk level rating based uponon a risk matrix developed for each entity type. Each matrix has risk levels that generally correspond to the Bank's assessmentone to 10 credit risk
rating for insured depository institutions and insurance companies. Development of these risk matrices for borrowers that are not insured depository institutions or insurance companies enables the borrowerBank to monitor and its collateral.analyze the financial condition of these borrowers in a more consistent and complete manner. The par value of advances to these institutions totaled $755 million as of December 31, 2016.
The following table sets forthpresents the number of borrowers and the par amountvalue of advances outstanding to borrowers with the specified ratings as of the specified dates (dollars in millions).
| | | | | As of December 31, | | As of December 31, |
| | | 2013 | | 2012 | | 2016 | | 2015 |
| Rating | | Number of Borrowers | | Outstanding Advances | | Number of Borrowers | | Outstanding Advances | | Number of Borrowers | | Outstanding Advances | | Number of Borrowers | | Outstanding Advances |
| 1 | | 7 |
| | $ | 63 |
| | 7 |
| | $ | 169 |
| | 24 |
| | $ | 3,424 |
| | 39 |
| | $ | 3,757 |
|
| 2 | | 32 |
| | 4,742 |
| | 27 |
| | 1,872 |
| | 42 |
| | 17,447 |
| | 22 |
| | 17,643 |
|
| 3 | | 48 |
| | 9,919 |
| | 37 |
| | 1,124 |
| | 75 |
| | 18,012 |
| | 77 |
| | 19,943 |
|
| 4 | | 50 |
| | 14,433 |
| | 35 |
| | 9,467 |
| | 95 |
| | 17,605 |
| | 95 |
| | 28,779 |
|
| 5 | | 114 |
| | 13,792 |
| | 89 |
| | 24,848 |
| | 103 |
| | 17,613 |
| | 121 |
| | 26,125 |
|
| 6 | | 101 |
| | 21,296 |
| | 104 |
| | 26,049 |
| | 80 |
| | 21,466 |
| | 93 |
| | 3,681 |
|
| 7 | | 92 |
| | 20,333 |
| | 84 |
| | 4,357 |
| | 31 |
| | 1,349 |
| | 38 |
| | 1,477 |
|
| 8 | | 56 |
| | 1,063 |
| | 88 |
| | 12,829 |
| | 8 |
| | 139 |
| | 9 |
| | 170 |
|
| 9 | | 27 |
| | 883 |
| | 56 |
| | 1,437 |
| | 9 |
| | 98 |
| | 13 |
| | 243 |
|
| 10 | | 52 |
| | 898 |
| | 65 |
| | 1,403 |
| | 23 |
| | 380 |
| | 28 |
| | 364 |
|
The Bank establishes a credit limit for each borrower. The credit limit is not a committed line of credit, but rather an indication of the borrower’s general borrowing capacity with the Bank. The Bank determines the credit limit in its sole and absolute discretion by evaluating a wide variety of factors indicatingthat indicate the borrower’s overall creditworthiness. The credit limit is generally is expressed as a percentage equal to the ratio of the borrower’s total liabilities to the Bank (including the face amount of outstanding standby letters of credit, the principal amountpar value of outstanding advances, and the total exposure of the Bank to the borrower under any derivative contract) to the borrower’s total assets. Generally, borrowers are held to a credit limit of no more than 30 percent. However, the Bank’s board of directors, or a relevant committee thereof, may approve a higher limit at its discretion, and such borrowers may be subject to certain additional collateral reporting and maintenance requirements. As of December 31, 2013, eightSix borrowers have been approved for a credit limit higher than 30 percent.percent, and their total outstanding advance and standby letters of credit balance was $23.9 billion as of December 31, 2016.
The Bank obtains collateral on advances to protect against losses, but Finance Agency regulations permit the Bank to accept only certain types of collateral. Each borrower must maintain an amount of qualifying collateral that, when discounted to the lendable collateral value (LCV), is equal to at least 100 percent of the borrower's outstanding principal amountpar value of all advances and other liabilities of the borrower tofrom the Bank. The LCV is the value that the Bank assigns to each type of qualifying collateral for purposes of determining the amount of credit that such qualifying collateral will support. For each type of qualifying collateral, the Bank discounts the market value of the qualifying collateral to calculate the LCV. The Bank regularly reevaluates the appropriate level of discounting. For more information about the types of collateral held for the Bank’s advances refer to Note 10—9—Advances to the Bank’s 2016 audited financial statements. The following table presents information about the types of collateral held for the Bank's advances (dollars in millions).
|
| | | | | | | | | | | | | |
| | Total Par Value of Outstanding Advances | | LCV of Collateral Pledged by Members | | First Mortgage Collateral (%) | | Securities Collateral (%) | | Other Real Estate Related Collateral (%) |
| As of December 31, 2016 | $ | 98,288 |
| | $ | 305,884 |
| | 68.29 | | 3.77 | | 27.94 |
| As of December 31, 2015 | 102,864 |
| | 285,796 |
| | 71.84 | | 3.14 | | 25.02 |
For purposes of determining each member's LCV, the Bank estimates the current market value of all residential first mortgage loans, multifamily and commercial real estate loans, and home equity loans, and lines of credit pledged as collateral based on information provided by the member on individual loans or its loan portfolio or on individual loans through the regular collateral reporting process. The estimated market value is discounted to account for the (1) price volatility of loans, as well as(2) model data uncertainty, and (3) estimated liquidation and servicing costs in the event of the member's default. Market values, and thus LCVs, change monthly. The use of this market-
basedmarket-based valuation methodology allows the Bank to establish its collateral discounts with greater precision and providesto
provide greater transparency with respect to the valuation of collateral pledged for advances and other credit products offered by the Bank.
The following table provides information on FDIC insured institutions that were placed into receivership during the years indicated.
|
| | | | | | | | |
| | For the Years Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| FHLBank Atlanta members | 5 |
| | 22 |
| | 45 |
|
| Non-FHLBank Atlanta members | 19 |
| | 29 |
| | 47 |
|
| Total FDIC-insured | 24 |
| | 51 |
| | 92 |
|
All outstanding advances to those member institutions placed into FDIC receivership were either paid in full or assumed by another member or non-member institution under purchase and assumption agreements between the assuming institution and the FDIC. The number of member institution failures decreased significantly from 2012 as capital levels, asset quality, and the overall financial condition of member institutions have improved. The Bank expects this trend to continue.
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.
In its history, the Bank has never experienced a credit loss on an advance. In consideration of this and the Bank’s policies and practices detailed above, the Bank has not established an allowance for credit losses on advances as of December 31, 20132016 and 2012.2015.
Investments
The Bank is subject to credit risk on unsecured investments, such as interest-bearing deposits certificates of deposit, and federal funds sold. These investments are generally transacted with government agencies and large financial institutions that are considered to be of investment quality. The Finance Agency defines investment quality as a security with adequate financial backing, so that full and timely payment of principal and interest on such security is expected, and there is minimal risk that the timely payment of principal and interest would not occur because of adverse changes in economic and financial conditions during the projected life of the security.
TheIn addition to Finance Agency regulations, the Bank follows guidelines approved by its board of directors regarding unsecured extensions of credit, in addition to Finance Agency regulations with respect to term limits and eligible counterparties.
Finance Agency regulations prohibit the Bank from investing in any of the following securities:
instruments, such as common stock, that represent an ownership interest in an entity, other than stock in small business investment companies, or certain investments targeted to low-income people or communities;
instruments issued by non-United States entities, other than those issued by United States branches and agency offices of foreign commercial banks;
non-investment grade debt instruments that are not of investment quality, other than certain investments targeted to low-income people or communities and instruments that were downgraded to below anthe Bank determined became less than investment grade ratingquality because of developments or events that occurred after purchase by the Bank;
whole mortgages or other whole loans, other than the following: (1) those acquired under the Bank’s mortgage purchase programs; (2) certain investments targeted to low-income people or communities; (3) certain marketable direct obligations of state, local, or tribal government units or agencies having at least the second highest credit rating from a NRSRO;that are of investment quality; (4) MBS or asset-backed securities that are backed by manufactured housing loans or home equity loans; and (5) certain foreign housing loans that are authorized under section 12(b) of the FHLBank Act;
interest-only or principal-only stripped MBS, collateralized mortgage obligations (CMOs), collateralized debt obligations, and real estate mortgage investment conduits (REMICs);
residual-interest or interest-accrual classes of CMOs and REMICs;
fixed-rate or variable-rate MBS, CMOs, and REMICs that on the trade date are at rates equal to their contractual cap on the trade date and that have average lives that vary by more than six years under an assumed instantaneous interest-rate change of 300 basis points; and
non-U.S. dollar denominated securities.
Effective May 7, 2014, the
Finance Agency regulations will no longerdo not permit the Bank to rely exclusively on NRSROnationally recognized statistical rating organization (NRSRO) ratings with respect to its investments; theinvestments. The Bank will beis required to make a determination of whether a security is of investment quality based on its own documented analysis.analysis, which includes the NRSRO rating as one of the factors that is assessed to determine investment quality. The Bank monitors the financial condition of investment counterparties to ensure that they are in compliance with the Bank's RMPRisk Management Policy (RMP) and Finance Agency regulations. Unsecured credit exposure to any counterparty is limited by the credit quality and capital of the counterparty and by the capital of the Bank. On a regular basis, management produces financial monitoring reports detailing the financial condition of the Bank’s
counterparties. These reports are reviewed by the Bank’s board of directors. TheIn addition to the Bank's RMP and regulatory requirements, the Bank may further limit or suspend overnight and term trading in addition to RMP and regulatory requirements.trading. Limiting or suspending counterparties limits the pool of available counterparties, shifts the geographical distribution of counterparty exposure, and may reduce the Bank’s overall short-term investment opportunities.
The Bank only enters into investments only with U.S. counterparties or U.S. branches and agencybranch offices of foreign commercial banks that have been approved by the Bank through its internal approval process, but the Bank may still have exposure to foreign entities if a counterparty’s parent entity is located in another country. The following tables below representpresent the Bank’s gross exposure, by instrument type, according to the location of the parent company of the counterparty (in millions):.
| | | | As of December 31, 2013 | As of December 31, 2016 |
| | Federal Funds Sold | | Interest-bearing
Deposits | | Net Derivative Exposure (1) | | Total | Federal Funds Sold | | Interest-bearing Deposits | | Net Derivative Exposure (1) | | Total |
| Australia | | $ | 1,855 |
| | $ | — |
| | $ | — |
| | $ | 1,855 |
|
| Canada | $ | 250 |
| | $ | — |
| | $ | — |
| | $ | 250 |
| 350 |
| | — |
| | — |
| | 350 |
|
| France | | 1,250 |
| | — |
| | — |
| | 1,250 |
|
| Germany | — |
| | — |
| | 67 |
| | 67 |
| 1,185 |
| | — |
| | — |
| | 1,185 |
|
| United Kingdom | 510 |
| | — |
| | — |
| | 510 |
| |
| Netherlands | | 1,165 |
| | — |
| | — |
| | 1,165 |
|
| Norway | | 1,125 |
| | — |
| | — |
| | 1,125 |
|
| Switzerland | | — |
| | — |
| | 22 |
| | 22 |
|
| United States of America | 1,035 |
| | 1,007 |
| | 4 |
| | 2,046 |
| 840 |
| | 1,106 |
| | — |
| | 1,946 |
|
| Total | $ | 1,795 |
| | $ | 1,007 |
| | $ | 71 |
| | $ | 2,873 |
| $ | 7,770 |
| | $ | 1,106 |
| | $ | 22 |
| | $ | 8,898 |
|
____________
| |
(1) Amounts do not reflect collateral; see the table under Risk Management–Credit Risk–Derivatives below for a breakdown of the credit ratings of and the Bank’s credit exposure to derivative counterparties, including net exposure after collateral. | Amounts do not reflect collateral; see the table under Risk Management–Credit Risk–Derivatives below for a breakdown of the credit ratings of and the Bank’s credit exposure to derivative counterparties, including net exposure after collateral. |
| | | | As of December 31, 2012 | As of December 31, 2015 |
| | Federal Funds Sold | | Interest-bearing Deposits | | Certificates of Deposit | | Net Derivative Exposure (1) | | Total | Federal Funds Sold | | Interest-bearing
Deposits | | Net Derivative Exposure (1) | | Total |
| Australia | $ | 1,550 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,550 |
| $ | 1,000 |
| | $ | — |
| | $ | — |
| | $ | 1,000 |
|
| Canada | 2,315 |
| | — |
| | — |
| | 1 |
| | 2,316 |
| 901 |
| | — |
| | — |
| | 901 |
|
| Germany | — |
| | — |
| | — |
| | 91 |
| | 91 |
| 1,125 |
| | — |
| | 12 |
| | 1,137 |
|
| Japan | — |
| | — |
| | 550 |
| | — |
| | 550 |
| |
| Sweden | 2,215 |
| | — |
| | — |
| | — |
| | 2,215 |
| |
| United Kingdom | 850 |
| | — |
| | — |
| | — |
| | 850 |
| |
| Netherlands | | 1,140 |
| | — |
| | — |
| | 1,140 |
|
| Switzerland | | — |
| | — |
| | 12 |
| | 12 |
|
| United States of America | 305 |
| | 1,005 |
| | — |
| | — |
| | 1,310 |
| 1,255 |
| | 1,088 |
| | — |
| | 2,343 |
|
| Total | $ | 7,235 |
| | $ | 1,005 |
| | $ | 550 |
| | $ | 92 |
| | $ | 8,882 |
| $ | 5,421 |
| | $ | 1,088 |
| | $ | 24 |
| | $ | 6,533 |
|
____________
| |
(1)(1) Amounts do not reflect collateral; see the table under Risk Management–Credit Risk–Derivatives below for a breakdown of the credit ratings of and the Bank’s credit exposure to derivative counterparties, including net exposure after collateral. | Amounts do not reflect collateral; see the table under Risk Management–Credit Risk–Derivatives below for a breakdown of the credit ratings of and the Bank’s credit exposure to derivative counterparties, including net exposure after collateral. |
The Bank experienced a decreasean increase in unsecured credit exposure in its investment portfolio related to non-U.S. government and non-U.S. government agency counterparties from $8.8$6.5 billion as of December 31, 20122015 to $2.8$8.9 billion as of December 31, 2013. There were two such2016. The following five counterparties that represented 54.1 percent, and four counterparties, Branch Banking and Trust, Lloyds TSB Bank plc, Peoples United Bank, and SunTrust Bank, that each represented greater than 10 percent and collectively represented 65.4 percent of the total unsecured credit exposure to non-U.S. government or non-U.S. government agencies counterpartiescounterparties: Australia & New Zealand Banking Group, Branch Banking and Trust Company, Cooperatieve Rabobank UA, DnB Bank ASA, and Societe Generale. Branch Banking and Trust was one of the Bank's top 10 advances borrowers as of December 31, 2013. The Bank’s2016 and 2015. As of December 31, 2016, this unsecured credit portfolio consistsconsisted primarily of federal funds sold with overnight maturities.
The Bank’s RMP permits the Bank to invest in U.S. agency (Fannie(i.e., Fannie Mae, Freddie Mac and Ginnie Mae) obligations including the following: (1) CMOs and REMICS that are backed by such securities,securities; and (2) other MBS, CMOs, and REMICS that are of sufficient investment quality, which are typically rated AAA by S&P or Aaa by Moody’s
at the time of purchase. The private-label MBS purchased by the Bank originally attained their triple-A ratings through credit enhancements, which primarily consisted of the subordination of the claims of the other tranches of these securities. In addition to NRSRO ratings, the Bank considers a variety of credit quality factors when analyzing potential investments, such as collateral performance, marketability, asset class considerations, local and regional economic conditions, and the financial health of the underlying issuer.
The following tables below providepresent information on the credit ratings of the Bank’s investments held as of December 31, 20132016 and 2012,2015 (in millions), based on their credit ratingsrating as of December 31, 20132016 and 2012 (in millions),2015, respectively. The credit ratings reflect the lowest long-term credit ratingratings as reported by an NRSRO.
| | | | As of December 31, 2013 | | | As of December 31, 2016 | | |
| | Carrying Value (1) | | | Carrying Value (1) | | |
| | Investment Grade | | Below Investment Grade | | | | | Investment Grade | | Below Investment Grade | | | | |
| | AAA | | AA | | A | | BBB | | BB | | B | | CCC | | CC | | C | | D | | unrated | | Total | AAA | | AA | | A | | BBB | | BB | | B | | CCC | | CC | | C | | D | | Unrated | | Total |
| Short-term investments: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing deposits | $ | — |
| | $ | 1 |
| | $ | 1,006 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,007 |
| |
| Federal funds sold | — |
| | — |
| | 1,395 |
| | 400 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,795 |
| |
| Total short-term investments | — |
| | 1 |
| | 2,401 |
| | 400 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,802 |
| |
| Long-term investments: | | | | | | | | | | | | | | | | | | | | | | | | |
| Investment securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| State or local housing agency debt obligations | — |
| | 93 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 93 |
| $ | — |
| | $ | 77 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 77 |
|
| U.S. government agency debt obligations | — |
| | 5,404 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,404 |
| |
| Government-sponsored enterprises debt obligations | | — |
| | 6,302 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6,302 |
|
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. agency obligations-guaranteed residential | — |
| | 465 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 465 |
| — |
| | 209 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 209 |
|
| Government-sponsored enterprises residential | 466 |
| | 13,486 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 13,952 |
| — |
| | 10,752 |
| | — |
| |
|
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,752 |
|
| Private-label residential | — |
| | 62 |
| | 123 |
| | 511 |
| | 523 |
| | 809 |
| | 534 |
| | 323 |
| | 161 |
| | 1,176 |
| | 6 |
| | 4,228 |
| |
| Government-sponsored enterprises commercial | | 463 |
| | 6,310 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6,773 |
|
| Private-label | | — |
| | 3 |
| | 20 |
| | 255 |
| | 398 |
| | 172 |
| | 621 |
| | 8 |
| | 91 |
| | 556 |
| | 11 |
| | 2,135 |
|
| Total mortgage-backed securities | 466 |
| | 14,013 |
| | 123 |
| | 511 |
| | 523 |
| | 809 |
| | 534 |
| | 323 |
| | 161 |
| | 1,176 |
| | 6 |
| | 18,645 |
| 463 |
| | 17,274 |
| | 20 |
| | 255 |
| | 398 |
| �� | 172 |
| | 621 |
| | 8 |
| | 91 |
| | 556 |
| | 11 |
| | 19,869 |
|
| Total long-term investments | 466 |
| | 19,510 |
| | 123 |
| | 511 |
| | 523 |
| | 809 |
| | 534 |
| | 323 |
| | 161 |
| | 1,176 |
| | 6 |
| | 24,142 |
| |
| Total investment securities | | 463 |
| | 23,653 |
| | 20 |
| | 255 |
| | 398 |
| | 172 |
| | 621 |
| | 8 |
| | 91 |
| | 556 |
| | 11 |
| | 26,248 |
|
| Other investments: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing deposits | | — |
| | 5 |
| | 1,056 |
| | 45 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,106 |
|
| Securities purchased under agreements to resell | | — |
| | 886 |
| | 500 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,386 |
|
| Federal funds sold | | — |
| | 1,855 |
| | 5,165 |
| | 750 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7,770 |
|
| Total other investments | | — |
| | 2,746 |
| | 6,721 |
| | 795 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,262 |
|
| Total investments | $ | 466 |
| | $ | 19,511 |
| | $ | 2,524 |
| | $ | 911 |
| | $ | 523 |
| | $ | 809 |
| | $ | 534 |
| | $ | 323 |
| | $ | 161 |
| | $ | 1,176 |
| | $ | 6 |
| | $ | 26,944 |
| $ | 463 |
| | $ | 26,399 |
| | $ | 6,741 |
| | $ | 1,050 |
| | $ | 398 |
| | $ | 172 |
| | $ | 621 |
| | $ | 8 |
| | $ | 91 |
| | $ | 556 |
| | $ | 11 |
| | $ | 36,510 |
|
____________
| |
(1) | Investment amounts noted in the above table represent the carrying value and do not include related accrued interest receivable of $49$35 million as of December 31, 2013.2016. |
| | | | As of December 31, 2012 | | | As of December 31, 2015 | | | | |
| | Carrying Value (1) | | | Carrying Value (1) | | | | |
| | Investment Grade | | Below Investment Grade | | | Investment Grade | | Below Investment Grade | | | | |
| | AAA | | AA | | A | | BBB | | BB | | B | | CCC | | CC | | C | | D | | Total | AAA | | AA | | A | | BBB | | BB | | B | | CCC | | CC | | C | | D | | Unrated | | Total |
| Short-term investments: | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing deposits | $ | — |
| | $ | 1 |
| | $ | 1,004 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,005 |
| |
| Certificates of deposit | — |
| | — |
| | 550 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 550 |
| |
| Securities purchased under agreements to resell | — |
| | — |
| | 250 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 250 |
| |
| Federal funds sold | — |
| | 2,755 |
| | 4,480 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7,235 |
| |
| Total short-term investments | — |
| | 2,756 |
| | 6,284 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9,040 |
| |
| Long-term investments: | | | | | | | | | | | | | | | | | | | | |
| |
| Investment securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| State or local housing agency debt obligations | — |
| | 108 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 108 |
| $ | — |
| | $ | 77 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 77 |
|
| U.S. government agency debt obligations | — |
| | 4,501 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4,501 |
| |
| Government-sponsored enterprises debt obligations | | — |
| | 6,957 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6,957 |
|
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. agency obligations-guaranteed residential | — |
| | 622 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 622 |
| — |
| | 279 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 279 |
|
| Government-sponsored enterprises residential | — |
| | 10,763 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,763 |
| — |
| | 11,958 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 11,958 |
|
| Government-sponsored enterprises commercial | | 464 |
| | 3,676 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4,140 |
|
| Private-label residential | 1 |
| | 206 |
| | 390 |
| | 536 |
| | 745 |
| | 980 |
| | 1,018 |
| | 369 |
| | 383 |
| | 792 |
| | 5,420 |
| — |
| | 7 |
| | 25 |
| | 325 |
| | 421 |
| | 368 |
| | 616 |
| | 151 |
| | 101 |
| | 729 |
| | 12 |
| | 2,755 |
|
| Total mortgage-backed securities | 1 |
| | 11,591 |
| | 390 |
| | 536 |
| | 745 |
| | 980 |
| | 1,018 |
| | 369 |
| | 383 |
| | 792 |
| | 16,805 |
| 464 |
| | 15,920 |
| | 25 |
| | 325 |
| | 421 |
| | 368 |
| | 616 |
| | 151 |
| | 101 |
| | 729 |
| | 12 |
| | 19,132 |
|
| Total long-term investments | 1 |
| | 16,200 |
| | 390 |
| | 536 |
| | 745 |
| | 980 |
| | 1,018 |
| | 369 |
| | 383 |
| | 792 |
| | 21,414 |
| |
| Total investment securities | | 464 |
| | 22,954 |
| | 25 |
| | 325 |
| | 421 |
| | 368 |
| | 616 |
| | 151 |
| | 101 |
| | 729 |
| | 12 |
| | 26,166 |
|
| Other investments: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing deposits | | — |
| | 3 |
| | 1,050 |
| | 35 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,088 |
|
| Securities purchased under agreements to resell | | — |
| | 2,500 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,500 |
|
| Federal funds sold | | — |
| | 1,401 |
| | 3,200 |
| | 820 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,421 |
|
| Total other investments | | — |
| | 3,904 |
| | 4,250 |
| | 855 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9,009 |
|
| Total investments | $ | 1 |
| | $ | 18,956 |
| | $ | 6,674 |
| | $ | 536 |
| | $ | 745 |
| | $ | 980 |
| | $ | 1,018 |
| | $ | 369 |
| | $ | 383 |
| | $ | 792 |
| | $ | 30,454 |
| $ | 464 |
| | $ | 26,858 |
| | $ | 4,275 |
| | $ | 1,180 |
| | $ | 421 |
| | $ | 368 |
| | $ | 616 |
| | $ | 151 |
| | $ | 101 |
| | $ | 729 |
| | $ | 12 |
| | $ | 35,175 |
|
____________
| |
(1) | Investment amounts noted in the above table represent the carrying value and do not include related accrued interest receivable of $59$40 million as of December 31, 2012.2015. |
Securities Purchased Under Agreements to Resell
Securities purchased under agreements to resell are considered collateralized financing arrangements and effectively represent short-term secured loans transacted with investment-grade counterparties.counterparties that the Bank considers to be of investment quality. The Bankterms of these loans are structured such that if the fair value of the underlying securities decreases below the fair value required as collateral, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash. If an agreement to resell is inherently exposeddeemed to credit risk associated withbe impaired, the riskdifference between the fair value of default by, or insolvencythe collateral and the amortized cost of any counterparty it conducts business with; however, basedthe agreement is recognized in earnings. Based upon the collateral held as security, and the investment-grade of the related counterparties, the Bank considers itsdetermined that no allowance for credit exposure relatedlosses was needed for the securities purchased under agreements to these investments to be minimal.resell as of December 31, 2016 and 2015.
Non-Private-label MBS
The unrealized losses related to U.S. agency and GSE MBS are caused by interest rate changes. Because these securities are guaranteed by government agencies or GSEs, it is expected that these securities would not be settled at a price less than the amortized cost basis. The Bank does not consider these investments to be other-than-temporarily impaired as of December 31, 20132016 because the decline in fair value is attributable to changes in interest rates and not credit quality, the Bank does not intend to sell the investments, and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity.
Private-label MBS
For disclosure purposes, the Bank classifies private-label MBS as either prime or Alt-A based upon the overall credit quality of the underlying loans as determined by the originator at the time of origination.origination, unless otherwise noted. Although there is no universally accepted definition of Alt-A, generally, loans with credit characteristics that range between prime and subprime are classified as Alt-A. Participants in the mortgage market have used the Alt-A classification principally to describe loans for which the underwriting process has been streamlined in order to reduce the documentation requirements of the borrower or allow for alternative documentation. As of December 31, 2013,
The following table presents information, based on the classification by the originator at the time of origination, approximately 86.5 percent of the underlying mortgages collateralizing the Bank’s private-label MBS were considered prime, of which 93.8 percent were variable-rate, and the remaining underlying mortgages collateralizing these securities were considered Alt-A, of which 62.7 percent were variable-rate.
The table below provides information on the interest-rate payment terms of the Bank’s private-label MBS backed by prime and Alt-A loans (in millions).
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2013 | | 2012 |
| | Fixed-Rate | | Variable-Rate | | Total | | Fixed-Rate | | Variable-Rate | | Total |
| Prime | $ | 246 |
| | $ | 3,736 |
| | $ | 3,982 |
| | $ | 494 |
| | $ | 4,760 |
| | $ | 5,254 |
|
| Alt-A | 233 |
| | 391 |
| | 624 |
| | 336 |
| | 458 |
| | 794 |
|
| Total unpaid principal balance | $ | 479 |
| | $ | 4,127 |
| | $ | 4,606 |
| | $ | 830 |
| | $ | 5,218 |
| | $ | 6,048 |
|
The tables below provide additional information, including changes ininvestment ratings, since the original purchase date, on the Bank’s private-label MBS by year of securitization as of December 31, 20132016 (dollars in millions).
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year of Securitization - Prime |
| | 2008 | | 2007 | | 2006 | | 2005 | | 2004 and
Prior | | Total |
| Investment Ratings: | | | | | | | | | | | |
| AA | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 62 |
| | $ | 62 |
|
| A | — |
| | — |
| | — |
| | 12 |
| | 111 |
| | 123 |
|
| BBB | — |
| | — |
| | — |
| | 118 |
| | 328 |
| | 446 |
|
| BB | — |
| | 13 |
| | — |
| | 134 |
| | 286 |
| | 433 |
|
| B | — |
| | 17 |
| | — |
| | 335 |
| | 323 |
| | 675 |
|
| CCC | 34 |
| | 10 |
| | 39 |
| | 257 |
| | 113 |
| | 453 |
|
| CC | 85 |
| | 153 |
| | 86 |
| | 32 |
| | — |
| | 356 |
|
| C | — |
| | 14 |
| | 25 |
| | 144 |
| | — |
| | 183 |
|
| D | — |
| | 638 |
| | 430 |
| | 177 |
| | — |
| | 1,245 |
|
| Unrated | — |
| | — |
| | — |
| | — |
| | 6 |
| | 6 |
|
| Total unpaid principal balance | $ | 119 |
| | $ | 845 |
| | $ | 580 |
| | $ | 1,209 |
| | $ | 1,229 |
| | $ | 3,982 |
|
| Amortized cost | $ | 102 |
| | $ | 650 |
| | $ | 470 |
| | $ | 1,108 |
| | $ | 1,215 |
| | $ | 3,545 |
|
| Gross unrealized losses | $ | — |
| | $ | (1 | ) | | $ | (1 | ) | | $ | (9 | ) | | $ | (17 | ) | | $ | (28 | ) |
| Fair value | $ | 108 |
| | $ | 717 |
| | $ | 509 |
| | $ | 1,127 |
| | $ | 1,207 |
| | $ | 3,668 |
|
| Other-than-temporary impairment (Year-to-date): | | | | | | | | | | | |
| Credit-related losses | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Non-credit-related losses | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total other-than-temporary impairment losses | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Weighted average percentage of fair value to unpaid principal balance | 90.52 | % | | 84.86 | % | | 87.80 | % | | 93.27 | % | | 98.15 | % | | 92.12 | % |
| Original weighted average credit support | 15.72 | % | | 14.22 | % | | 10.39 | % | | 6.93 | % | | 3.65 | % | | 8.23 | % |
| Weighted average credit support | 3.81 | % | | 0.87 | % | | 0.83 | % | | 4.52 | % | | 9.75 | % | | 4.80 | % |
| Weighted average collateral delinquency | 12.17 | % | | 21.13 | % | | 18.42 | % | | 10.35 | % | | 8.60 | % | | 13.32 | % |
| | | | Year of Securitization – Alt-A | | | | | | | |
| | 2008 | | 2007 | | 2006 | | 2005 | | 2004 and
Prior | | Total | Prime | | Alt-A | | Total |
| Investment Ratings: | | | | | | | | | | | | | | | | |
| AA | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| $ | 3 |
| | $ | — |
| | $ | 3 |
|
| A | — |
| | — |
| | — |
| | — |
| | 3 |
| | 3 |
| 20 |
| | — |
| | 20 |
|
| BBB | — |
| | — |
| | — |
| | — |
| | 67 |
| | 67 |
| 245 |
| | 10 |
| | 255 |
|
| BB | — |
| | — |
| | — |
| | — |
| | 90 |
| | 90 |
| 382 |
| | 17 |
| | 399 |
|
| B | — |
| | — |
| | — |
| | — |
| | 138 |
| | 138 |
| 127 |
| | 46 |
| | 173 |
|
| CCC | — |
| | — |
| | — |
| | 151 |
| | 4 |
| | 155 |
| 622 |
| | 104 |
| | 726 |
|
| CC | | 9 |
| | — |
| | 9 |
|
| C | | 99 |
| | — |
| | 99 |
|
| D | — |
| | 42 |
| | — |
| | 128 |
| | — |
| | 170 |
| 548 |
| | 102 |
| | 650 |
|
| Unrated | | 11 |
| | — |
| | 11 |
|
| Total unpaid principal balance | $ | — |
| | $ | 42 |
| | $ | — |
| | $ | 279 |
| | $ | 303 |
| | $ | 624 |
| $ | 2,066 |
| | $ | 279 |
| | $ | 2,345 |
|
| Amortized cost | $ | — |
| | $ | 31 |
| | $ | — |
| | $ | 224 |
| | $ | 303 |
| | $ | 558 |
| $ | 1,784 |
| | $ | 227 |
| | $ | 2,011 |
|
| Gross unrealized losses | $ | — |
| | $ | — |
| | $ | — |
| | $ | (17 | ) | | $ | (2 | ) | | $ | (19 | ) | $ | (6 | ) | | $ | (5 | ) | | $ | (11 | ) |
| Fair value | $ | — |
| | $ | 35 |
| | $ | — |
| | $ | 212 |
| | $ | 305 |
| | $ | 552 |
| $ | 1,906 |
| | $ | 229 |
| | $ | 2,135 |
|
| Other-than-temporary impairment (Year-to-date): | | | | | | | | | | | | | | | | |
| Credit-related losses | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
| Non-credit-related losses | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
| |
| Total other-than-temporary impairment losses | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (1 | ) | | $ | (1 | ) | $ | (2 | ) | | $ | — |
| | $ | (2 | ) |
| Net amount of impairment losses reclassified from accumulated other comprehensive income | | (1 | ) | | — |
| | (1 | ) |
| Net impairment losses recognized in earnings | | $ | (3 | ) | | $ | — |
| | $ | (3 | ) |
| | | | | | | |
| Weighted average percentage of fair value to unpaid principal balance | 0.00 | % | | 82.48 | % | | 0.00 | % | | 75.93 | % | | 100.79 | % | | 88.45 | % | 92.27 | % | | 82.10 | % | | 91.06 | % |
| Original weighted average credit support | 0.00 | % | | 12.29 | % | | 0.00 | % | | 27.34 | % | | 7.95 | % | | 16.91 | % | 9.10 | % | | 23.28 | % | | 10.79 | % |
| Weighted average credit support | 0.00 | % | | 0.00 | % | | 0.00 | % | | 10.42 | % | | 12.29 | % | | 10.63 | % | 5.36 | % | | 12.06 | % | | 6.15 | % |
| Weighted average collateral delinquency | 0.00 | % | | 31.10 | % | | 0.00 | % | | 28.66 | % | | 8.88 | % | | 19.21 | % | 10.89 | % | | 17.78 | % | | 11.71 | % |
The following table representspresents a summary of the significant inputs used to evaluate each of the Bank’s private-label MBS for other-than-temporary impairment as of December 31, 2013:2016.
|
| | | | | | | | |
| | | Significant Inputs | |
| | | Prepayment Rate | | Default Rates | | Loss Severities | | Current Credit Enhancement |
Year of
Securitization | | Weighted
Average
(%) | | Weighted
Average
(%) | | Weighted
Average
(%) | | Weighted
Average
(%) |
| Prime: | | | | | | | | |
| 2008 | | 11.23 | | 15.88 | | 38.89 | | 3.81 |
| 2007 | | 12.67 | | 12.37 | | 36.85 | | 3.30 |
| 2006 | | 10.52 | | 17.04 | | 37.52 | | 1.18 |
| 2005 | | 12.83 | | 5.32 | | 32.10 | | 6.17 |
| 2004 and prior | | 12.74 | | 4.28 | | 31.76 | | 9.49 |
| Total Prime | | 12.45 | | 7.23 | | 33.26 | | 6.70 |
| Alt-A: | | | | | | | | |
| 2007 | | 10.94 | | 30.29 | | 40.25 | | 0.00 |
| 2006 | | 11.34 | | 31.33 | | 43.48 | | 0.00 |
| 2005 | | 8.74 | | 26.95 | | 40.99 | | 4.70 |
| 2004 and prior | | 10.99 | | 8.88 | | 32.63 | | 12.48 |
| Total Alt-A | | 10.32 | | 25.10 | | 39.43 | | 3.77 |
| Total | | 11.54 | | 14.84 | | 35.89 | | 5.45 |
|
| | | | | | | | |
| | | Significant Inputs - Weighted Average (%) | |
Classification of Securities (1) | | Prepayment Rate | | Default Rates | | Loss Severities | | Current Credit Enhancement (%) |
| Prime | | 13.80 | | 5.65 | | 24.86 | | 7.91 |
| Alt-A | | 11.75 | | 18.85 | | 35.23 | | 4.10 |
| Total | | 12.85 | | 11.74 | | 29.65 | | 6.15 |
____________
(1) The classification of securities is based on current characteristics and performance, which may be different from the securities’ classification as determined
by the originator at the time of origination.
For those securities for which an other-than-temporary impairment was determined to have occurred during 2013,2016, a summary of the significant inputs used to measure the amount of the credit loss recognized in earnings is contained in Note 8—Other-than-temporary Impairment to the Bank’s 2016 audited financial statements.
The tables below summarize the total other-than-temporary impairment losses by newly impaired and previously impaired securities (in millions):
|
| | | | | | | | | | | |
| | For the Year Ended December 31, 2013 |
| | Credit Losses | | Net Noncredit Losses | | Total Losses |
| Securities newly impaired during the year | $ | — |
| | $ | 1 |
| | $ | (1 | ) |
| Total | $ | — |
| | $ | 1 |
| | $ | (1 | ) |
|
| | | | | | | | | | | |
| | For the Year Ended December 31, 2012 |
| | Credit Losses | | Net Noncredit Losses | | Total Losses |
| Securities previously impaired prior to current year | $ | (16 | ) | | $ | (16 | ) | | $ | — |
|
| Total | $ | (16 | ) | | $ | (16 | ) | | $ | — |
|
|
| | | | | | | | | | | |
| | For the Year Ended December 31, 2011 |
| | Credit Losses | | Net Noncredit Losses | | Total Losses |
| Securities newly impaired during the year | $ | (11 | ) | | $ | 36 |
| | $ | (47 | ) |
| Securities previously impaired prior to current year | (107 | ) | | (99 | ) | | (8 | ) |
| Total | $ | (118 | ) | | $ | (63 | ) | | $ | (55 | ) |
In addition to the cash flow analysis of the Bank’s private-label MBS under a base case (best estimate) housing price scenario as described in Note 8—Other-than-temporary Impairment to the Bank’s 2016 audited financial statements, a cash flow analysis was also performed based on a housing price scenario that is more adverse than the base case (adverse case housing price scenario). The adverse case housing priceThis more stressful scenario was primarily based on a short-term housing price forecast, thatwhich was decreased five percentage points relative tolower than the base case, followed by a recovery path with annual rates of housing price growth that iswere 33.0 percent lower than the base case. There were no other-than-temporary impairment credit losses under either theThe base case or theand adverse case housing price scenarios for credit losses on all other-than temporary impaired private-label MBS were $1 million, respectively, for the three months ended December 31, 2013.2016.
The adverse case housing price scenario and associated results do not represent the Bank’s current expectations and therefore, should not be construed as a prediction of the Bank’s future results, market conditions, or the actual performance of these securities. Rather, the results from this hypothetical adverse case housing price scenario provide a measure of the credit losses that the Bank might incur if home price declines (and subsequent recoveries) are more adverse than those projected in the Bank’s base case assessment.
The Bank continues to actively monitor the credit quality of its private-label MBS investments. It is not possible to predict the magnitude of additional other-than temporaryother-than-temporary impairment losses in future periods because that prediction depends on the actual performance of the underlying loan collateral, as well as the Bank’s future modeling assumptions. Many factors could influence the Bank’s future modeling assumptions, including economic, financial market, and housing market conditions. If performance of the underlying loan collateral deteriorates and/or the Bank’s modeling assumptions become more pessimistic, the Bank could experience further losses on its investment portfolio.
Derivatives
The Bank is subject to credit risk due to the risk of nonperformance by counterparties to its derivative transactions. The amount of credit risk on derivatives depends on the extent to which netting procedures, collateral requirements, and other credit enhancements are used and are effective in mitigating the risk. The Bank manages credit risk through credit analysis, collateral management, and other credit enhancements. The Bank is also required to follow the requirements set forth by applicable regulations.
Over-the-counterThe Bank's over-the-counter derivative transactions may either be either(1) uncleared derivatives, which are executed bilaterally with a counterparty (bilateral derivatives)counterparty; or (2) cleared derivatives, which are cleared through a Futures Commission Merchant (i.e., clearing(clearing agent), with a Derivative Clearing Organization (cleared derivatives)(Clearinghouse). Derivative transactions may then beOnce a derivative transaction has been accepted for clearing by a Derivative Clearing Organization (Clearinghouse).Clearinghouse, the derivative transaction is novated, and the executing counterparty is replaced with the Clearinghouse as the counterparty.
For bilateral derivative transactions,uncleared derivatives, the Bank is subject to nonperformance by counterparties to its bilateral derivative transactions.counterparties. The Bank generally requires collateral on bilateraluncleared derivative transactions. The amount of net unsecured credit exposure that is permissible with respect to each counterparty depends on the credit rating of that counterparty. A counterparty must deliver collateral to the Bank if the total market value of the Bank's exposure to that counterparty rises above a specific trigger point. As a result of these risk mitigation initiatives, the Bank does not anticipate any credit losses on its bilateral derivative transactionsuncleared derivatives as of December 31, 2013.2016.
For cleared derivatives, the Bank is subject to credit risk due to nonperformance by the Clearinghouse and clearing agent. The requirement that the Bank post initial and variation margin through the clearing agent, to the Clearinghouse, exposes the Bank to institutional credit risk in the event that the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives mitigates credit risk exposure because a central counterparty is substituted for individual counterparties, and collateral is posted daily for changes in the value of cleared derivatives through a clearing agent. This does introduce, however, a risk of concentration among the limited number of Clearinghouses and clearing agents. The Bank actively monitors Clearinghouses and clearing agents. An annual review of the Bank’s Clearinghouses is performed, and the Bank also monitors its exposure to Clearinghouses on a monthly basis. The Bank currently has the following two approved Clearinghouses: CME Group, Inc. and LCH.Clearnet Limited. The Bank also monitors the clearing agents through its unsecured credit system, and the Bank subjects these clearing agents to the same limits as other bilateral derivative counterparties. The parent companies of the clearing agents are monitored through annual reviews, as well as through the Bank’s daily monitoring tools, which include reviewing equity triggers, debt triggers, and credit default swap spread triggers. In addition, exposures to the clearing agents are monitored daily on a swap counterparty report. The Bank currently has the following three approved clearing agents: Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC, and Goldman Sachs & Co. The Bank does not anticipate any credit losses on its cleared derivatives as of December 31, 2013.2016.
The contractual or notional amount of derivativesderivative transactions reflects the involvement of the Bank in the various classes of financial instruments; however, the Bank's maximum credit risk of the Bank with respect to derivative transactions is the estimated cost of
replacing the derivative transactions if there is default, minusless the value of any related collateral, including initial and variation margin. In determining the maximum credit risk, the Bank considers accrued interest receivables and payables, as well as the netting requirements to net assets and liabilities.
The following tables below providepresent information on the credit ratings of, and the Bank’s credit exposure to, its derivative counterparties (in millions). The credit ratings reflect the lowest long-term credit rating by an NRSRO.
| | | | | As of December 31, 2013 | | As of December 31, 2016 |
| | | Notional Amount | | Derivatives Fair Value Before Collateral | | Cash Collateral Pledged To (From) Counterparty | | Other Collateral Pledged To (From) Counterparty | | Net Credit Exposure to Counterparties | | Notional Amount | | Derivatives Fair Value Before Collateral | | Cash Collateral Pledged To (From) Counterparty | | Net Credit Exposure to Counterparties |
| Non-member counterparties: | | | | | | | | | | | | | | | | | | |
| Asset positions with credit exposure: | | | | | | | | | | | | | | | | | | |
| Single-A | | $ | 11,026 |
| | $ | 67 |
| | $ | (65 | ) | | $ | — |
| | $ | 2 |
| |
| Double-A | | | $ | 12 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Cleared derivatives | | 1,965 |
| | 4 |
| | 1 |
| | — |
| | 5 |
| | 944 |
| | 22 |
| | (13 | ) | | 9 |
|
| Liability positions with credit exposure: | | | | | | | | | | | | | | | | | | |
| Single-A | | | 125 |
| | — |
| | — |
| | — |
|
| Cleared derivatives | | 11,030 |
| | (94 | ) | | 140 |
| | — |
| | 46 |
| | 49,771 |
| | (512 | ) | | 858 |
| | 346 |
|
| Total derivative positions with non-member counterparties to which the Bank had credit exposure | | 24,021 |
| | (23 | ) | | 76 |
| | — |
| | 53 |
| | 50,852 |
| | (490 | ) | | 845 |
| | 355 |
|
Member institutions (1) | | 44 |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | — |
| | — |
| | — |
|
| Total | | $ | 24,065 |
| | $ | (23 | ) | | $ | 76 |
| | $ | — |
| | $ | 53 |
| | $ | 50,855 |
| | $ | (490 | ) | | $ | 845 |
| | $ | 355 |
|
| _______________ | | | | | | | | | | | |
(1) Collateral held with respect to derivatives with member institutions where the Bank is acting as an intermediary represents the amount of eligible collateral physically held by or on behalf of the Bank or collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank. | |
____________
| |
(1) | Collateral held with respect to derivatives with member institutions when the Bank is acting as an intermediary represents the amount of eligible collateral physically held by or on behalf of the Bank or collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank. |
| | | | | As of December 31, 2012 | | As of December 31, 2015 |
| | | Notional Amount | | Derivatives Fair Value Before Collateral | | Cash Collateral Pledged To (From) Counterparty | | Other Collateral Pledged To (From) Counterparty | | Net Credit Exposure to Counterparties | | Notional Amount | | Derivatives Fair Value Before Collateral | | Cash Collateral Pledged To (From) Counterparty | | Other Collateral Pledged To (From) Counterparty | | Net Credit Exposure to Counterparties |
| Non-member counterparties: | | | | | | | | | | | | | | | | | | | | |
| Asset positions with credit exposure: | | | | | | | | | | | | | | | | | | | | |
| Single-A | | $ | 15,241 |
| | $ | 92 |
| | $ | (88 | ) | | $ | — |
| | $ | 4 |
| |
| Triple-B | | | $ | 9,862 |
| | $ | 12 |
| | $ | (12 | ) | | $ | — |
| | $ | — |
|
| Cleared derivatives | | | 684 |
| | 12 |
| | (8 | ) | | — |
| | 4 |
|
| Liability positions with credit exposure: | | | | | | | | | | | | | | | | | | | | |
| Single-A | | 14,691 |
| | (434 | ) | | 442 |
| | — |
| | 8 |
| |
| Cleared derivatives | | | 48,469 |
| | (327 | ) | | 497 |
| | — |
| | 170 |
|
| Total derivative positions with non-member counterparties to which the Bank had credit exposure | | 29,932 |
| | (342 | ) | | 354 |
| | — |
| | 12 |
| | 59,015 |
| | (303 | ) | | 477 |
| | — |
| | 174 |
|
Member institutions (1) | | 4 |
| | 1 |
| | — |
| | (1 | ) | | — |
| | 185 |
| | 2 |
| | — |
| | (2 | ) | | — |
|
| Total | | $ | 29,936 |
| | $ | (341 | ) | | $ | 354 |
| | $ | (1 | ) | | $ | 12 |
| | $ | 59,200 |
| | $ | (301 | ) | | $ | 477 |
| | $ | (2 | ) | | $ | 174 |
|
| _______________ | | | | | | | | | | | |
(1) Collateral held with respect to derivatives with member institutions where the Bank is acting as an intermediary represents the amount of eligible collateral physically held by or on behalf of the Bank or collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank. | |
The maximum credit risk is the estimated cost of replacing interest-rate swaps, forward agreements, and purchased caps and floors that have a net positive market value, if the counterparty defaults and any related collateral pledged to the Bank is of no value to the Bank.____________
| |
(1) | Collateral held with respect to derivatives with member institutions when the Bank is acting as an intermediary represents the amount of eligible collateral physically held by or on behalf of the Bank or collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank. |
Certain of the Bank's bilateraluncleared derivative instruments contain provisions that require the Bank to post additional collateral with its counterparties if there is a deterioration in the Bank's credit rating. If the Bank’s credit ratingsrating had been lowered from its current rating to the next lower rating that would have triggered additional collateral to be delivered, the Bank would have been required to deliver up to an additional $65$71 million of collateral (at fair value) to its bilateraluncleared derivative counterparties as of December 31, 2013.2016.
TheIf the counterparty has an NRSRO rating, the net exposure after collateral is treated as unsecured credit, consistent with the Bank's RMP and Finance Agency regulations if the counterparty has an NRSRO rating.regulations. If the counterparty does not have an NRSRO rating, the Bank requires collateral for the full amount of the exposure.
Mortgage Loan Programs
The Bank seeks to manage the credit risk associated with the MPP and the MPF Program by maintaining underwriting and eligibility standards and structuring possible losses into several layers to be shared with the PFI.PFIs. In some cases, a portion of the credit support for MPP and MPF loans is provided under a primary and/or supplemental mortgage insurance policy. Currently, eight10 mortgage insurance companies provide primary and/or supplemental mortgage insurance for mortgage loans in which the Bank has a retained interest. As of December 31, 2013, all2016, seven of the Bank’s 10 mortgage insurance providers have been rated below "A""AA" by one or more NRSROs for their claims paying ability or insurer financial strength.strength, and three are no longer rated. Ratings downgrades imply an increased risk that these mortgage insurers may be unable to fulfill their obligations to pay claims that may be made under the insurance policies. The Bank holds additional risk-based capital to mitigate the incremental risk, if any, that results from the supplemental mortgage insurance providers.
MPF Program
Mortgage loans purchased under the MPF Program must comply with the underwriting and eligibility standards established and maintained by FHLBank Chicago. In some circumstances, the Bank, with the concurrence of FHLBank Chicago, may grant a PFI a waiver exempting it from complying with these standards. The Bank has granted a limited number of such waivers related to documentation requirements or accepted alternate underwriting criteria in circumstances in which such waivers would not materially affect materially the value of the asset.
The Bank manages MPF Program credit risk through underwriting and eligibility guidelines and sharing of potential losses with the PFI.PFIs. The Bank and PFIPFIs share the risk of losses on MPF loans by structuring potential losses on conventional MPF loans into layers with respect to each master commitment. The general allocation of losses under the MPF programProgram is divided into the following loss layers:
Borrower's Equity. The first layer of protection against loss is the borrower's equity in the real property securing the MPF loan.
Primary Mortgage Insurance. The second layer of protection comes from primary mortgage insurance (PMI) that is required for any MPF loan with a loan-to-value ratio (LTV) ratio greater than 80 percent at the time of origination.
First Loss Account. Third, losses for each master commitment that are not paid by PMI, up to an agreed-upon amount, are incurred by the Bank up to a pre-specified amount that is tracked in what is called a “First Loss Account,” or “FLA.”“FLA”. The FLA represents the amount of expected losses that the Bank incurs before the PFI's credit enhancement becomes available to cover losses. For MPF products with performance based credit enhancement fees (e.g., MPF Plus), the Bank may withhold credit enhancement fees to recover losses at the FLA level, essentially transferring a portion of the first layer risk of credit loss to the PFI.
Member Credit Enhancement. Fourth, losses for loans purchased under each master commitment, losses in excess of the FLA, up to an agreed-upon amount, called the credit enhancement or “CE Amount,” are incurred by the PFI, which, forPFI. For MPF Plus, this CE amount includes supplemental mortgage insurance (SMI). The member's CE Amount is sized using the MPF Program methodology to limit the amount of the Bank's losses in excess of, or including, the FLA (depending on the MPF product) to those that would be expected to be experienced by an investor in an MBS that is rated AA under the S&P LEVELS ratings methodology (although the assets are not rated by S&P or any other agency). Pursuant to the Finance Agency's amended regulation on acquired member assets (AMA), effective January 18, 2017, the MPF Program methodology was adjusted to set the PFI’s CE Amount consistent with the Bank’s determination of AMA investment grade. The CE Amount is determined at inception of each loan pool master commitment and is reassessed and increased, if necessary, after the “fill up period” for each master commitment that has been completed, but it is not increased thereafter. In one MPF product, the PFI is required to obtain and pay for SMI, for which the Bank is the insured party. The Bank pays the PFI a monthly credit enhancement fee for managing credit risk on the MPF Program loans. In most cases, the credit enhancement fees are performance based, which further motivates the PFI to minimize loan losses on MPF Program loans.
MPF Bank. Fifth, the Bank absorbs any remaining unallocated losses.
The unpaid principal balance of MPF Program mortgage loans was $815$399 million and $1.1 billion$516 million as of December 31, 20132016 and 2012,2015, respectively. The allowance for credit losses on MPF loans was $11$1 million and $10$2 million as of December 31, 20132016 and 2012,2015, respectively.
The increased loan loss reservedecrease in the allowance for credit losses was duerelated to the increase inimprovement of the Bank's loss severity estimates and additions tocredit quality of the loan loss reserve for defaulted troubled debt restructurings. The Bank uses actual loss claim data from its MPF loans to estimate incurred losses. The loss severity rate does not reflect the application of any credit enhancement that may be available on a given pool.portfolio.
MPP
Mortgage loans purchased under the MPP must comply with the underwriting and eligibility standards set forth in theapplicable MPP guidelines established by the Bank.guidelines. In some circumstances, the Bank may grant a PFI a waiver exempting it from complying with specified provisions of the MPP guidelines.
The Bank manages MPP credit risk by sharing potential losses with the PFI. The general allocation of losses under the MPP is divided into the following loss layers:
Borrower's Equity and Primary Mortgage Insurance. The first layer of protection against loss is the borrower's equity in the real property securing the MPP loan and PMI where applicable.
Lender Risk Account. Second, the Bank establishes a Lender Risk Account (LRA) for each master commitment to cover losses that are not paid by PMI or borrower's equity. The Bank can establish the amount of the LRA balance either up front as a portion of the purchase proceeds (Fixed LRA) or as a portion of the monthly interest paid by the borrower (Spread LRA).
The Bank historically has offered only the Spread LRA option, so the Bank funds the LRA through a portion of the monthly interest paid by the borrower. The PFI's recourse is limited to this predetermined LRA amount so that the PFI has no further obligation to make additional contributions to the LRA, regardless of any losses or deterioration of the mortgage pool exceeding such amount in the LRA. Once the LRA has reached the required amount, but not before five years in the case offor the Fixed LRA, the Bank will pay to the PFI any unused amounts of the LRA that are no longer required to cover expected losses on an annual basis in accordance with a step-down schedule that is established at the time of a master commitment contract any unused amounts of the LRA that are no longer required to cover expected losses.commitment.
Supplemental Mortgage Insurance. Third, losses for each master commitment in excess of the LRA, up to a specified LTV ratio, are covered by SMI obtained by the PFI. In the MPP, SMI generally covers mortgages with an LTV ratio of 45 percent or greater. In addition, SMI policies for master commitments in excess of $35 million contain an aggregate loss limit whereby the total amount payable by the SMI insurer under the policy is less than the total unpaid principal balances onof the insured loans. MPP master commitments entered into in 2016 do not have SMI policies.
The Bank has established formal policies and procedures to monitor its exposure to mortgage insurance companies, including an aggregatea cap on the aggregate amount of permissible exposure to SMI at each provider.
The Bank. Fourth, the Bank absorbs any remaining unallocated losses.
Total credit enhancement is sized to provide the equivalent of an AAat least a BBB rating under the S&P LEVELS rating methodology (although the assets are not rated by S&P or any other agency).
The unpaid principal balance of MPP mortgage loans was $115$126 million and $147$71 million as of December 31, 20132016 and 2012,2015, respectively. The allowance for credit losses on MPP loans was less than $1 million and $0 as of December 31, 20132016 and 2012, respectively.2015.
AMPP
In August 2013, the Bank sold its multifamily mortgage loan portfolio, with an unpaid principal balance of $18 million, which resulted in a gain of less than $1 million. The Bank's AMPP assets did not carry external credit enhancements like the MPFand MPP assets and were not rated by a rating agency. The Bank's primary protection against loss was the borrower's equity in the real property that secured the AMPP loan. An independent third party performed a loan review of the AMPP portfolio on an annual basis, and the Bank established an allowance for credit losses based on the results of the review in accordance with written policies and procedures. The unpaid principal balance of AMPP mortgage loans was $20 million as of December 31, 2012. The Bank's allowance for credit losses on AMPP mortgage loans was $1 million as of December 31, 2012.
Operational Risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events. Operational risk for the Bank also includes reputation and legal risks associated with business practices or market conduct that the Bank may undertake. Operational risk inherently is greatest where transaction processes include numerous processing steps, require greater subjectivity, or are non-routine. As the Bank's activities andThe Bank operates in a complex business environment are becoming increasingly complex dueand is subject to changingnumerous regulatory requirements, the Bank is experiencing increased operational risk.requirements.
The Bank identifies risk through daily operational monitoring, independent reviews, and the strategic planning and risk assessment programs that both of which consider the operational risk ramifications of the Bank’s business strategies and environment. The Bank has established comprehensive financial and operating policies and procedures to mitigate the likelihood of loss resulting from the identified operational risks. In addition, the Bank’s operational risk committee is responsible for overseeing the monitoring process and review of risk assessments related to operational risk and overseeing the Bank’s risk management policies, procedures, strategies, and activities related to operational risks and overseeing the monitoring process and review of risk assessments related to operational risk.risks. This oversight also includes compliance risk and reputational risk. The Bank effects related changes in processes, information systems, lines of communication, and other internal controls as deemed appropriate in response to identified or anticipated increases in operational risk.
The efficiencies offered by information technology (IT) and networks are a necessary component of Bank operations. The information systems architecture of the Bank is client/server-based to support the multiple operating systems and servers,
which are a mixture of vendor-licensed and in-house developed applications. The Bank's IT division maintains and regularly reviews a number of controls to ensure that the IT assets of the Bank are well managed and secure from unauthorized access. Exposure from the internet (and accompanying network security issues, including software virus risk) is a factor that shapes the Bank's risk profile. This exposure results from the Bank's e-commerce activity and an increasing number of specialized vendor-provided solutions that are supported by web-based servers. Management monitors and maintains controls against attempted spyware and anti-virus attacks against Bank systems. The Bank utilizes firewalls to protect the network from internet based attacks while also employing firewalls on laptops that may operate outside of the Bank's network. Additionally, the Bank has systems to detect an intrusion in the event that it is not stopped by one of the firewalls. The Bank also has an information security department that is responsible for the policy,policies, procedures, reviews, education, and management of entitlement requests. One key objective of the information security department is to protect the Bank's sensitive business information from unauthorized access. A security governance committee provides independent and integrated oversight of the information security program, the physical security program, security policies and procedures, and security exceptions and violations. The security governance committee reviews all information security-related incidents and escalates them to the executive management committee or the board, as appropriate.
The board of directors has an Enterprise Risk and Operations Committee to advise and assist the board with respect to enterprise risk management, operations, information technology, and other related matters. In addition, the Bank's internal Enterprise Risk Committee is responsible for the management and oversight of the Bank's risk management programs and practices discussed above.practices. Additionally, the Bank's Internal Audit department, which reports directly to the Audit Committee of the Bank's board of directors, regularly monitorstests compliance with the policies and procedures related to managing operational risks.
Business Risk
Business risk is the risk of an adverse effect on the Bank's profitability resulting from external factors that may occur in both the short- and the long-term. Business risk includes political, strategic, reputational,reputation, and regulatory events that are beyond the Bank's control. In particular, during 20132016 and continuing in 2014,into 2017, the Bank faces the following business risks:
competition for advances from traditional and nontraditional sources; and
legislative and regulatory changes that could affect the Bank's its cost of doing business or alter the Bank's business model.
For discussion of the Bank's competition for advances, see Item 1, Business—Competition above.
For discussion of recent regulatory activity that may have a material impact on the Bank's operations, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Legislative and Regulatory Developments. The Bank attempts to mitigate these risks through long-term strategic planning and through continually monitoring economic indicators and the external environment.
Cyclicality and Seasonality
The Bank's business and the demand for advances from the Bank and the Bank's business,are generally are not subject to the effects of cyclical or seasonal variations.variations, although the Bank's advance demand may vary based upon fluctuations of its members' consumer credit liquidity needs.
Effects of Inflation
The majority of the Bank's assets and liabilities are, and will continue to be, monetary in nature. Although interest rates do not necessarily move in the same direction, or to the same extent, as the prices of goods and services, higher rates of inflation generally result in corresponding increases in interest rates. Inflation, coupled with increasing interest rates, generally has the following effecteffects on the Bank:
the cost of the Bank's funds and operating overhead increases;
the yield on variable rate assets held by the Bank increases;
the fair value of fixed-rate investments and mortgage loans held in portfolio decreases; and
mortgage loan prepayment rates decrease and result in lower levels of mortgage loan refinance activity, which may result in the reduction of Bank advances to members as increased rates tend to slow home sales.
Conversely, lower rates of inflation or deflation have the opposite effecteffects of the above on the Bank and its holdings.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
A discussion of the Bank's market risk is contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Market Risk.
Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of the Federal Home Loan Bank of Atlanta:
In our opinion, the accompanying statements of condition and the related statements of income, comprehensive income, capital, and cash flows present fairly, in all material respects, the financial position of the Federal Home Loan Bank of Atlanta (the "FHLBank"“Bank”) at December 31, 20132016 and 2012,2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20132016 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the FHLBankBank maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013,2016, based on criteria established in Internal Control - Integrated Framework (1992)2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The FHLBank'sBank’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control overOver Financial Reporting. Our responsibility is to express opinions on these financial statements and on the FHLBank'sBank’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
March 14, 20149, 2017
FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CONDITION
(In millions, except par value)
| | | | As of December 31, | As of December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| Assets | | | | | | |
| Cash and due from banks | $ | 4,374 |
| | $ | 4,083 |
| $ | 1,815 |
| | $ | 1,751 |
|
| Interest-bearing deposits (including deposits with another FHLBank of $1 as of December 31, 2013 and 2012) | 1,007 |
| | 1,005 |
| |
| Interest-bearing deposits (including deposits with another FHLBank of $5 and $3 as of December 31, 2016 and 2015, respectively) | | 1,106 |
| | 1,088 |
|
| Securities purchased under agreements to resell | — |
| | 250 |
| 1,386 |
| | 2,500 |
|
| Federal funds sold | 1,795 |
| | 7,235 |
| 7,770 |
| | 5,421 |
|
| Investment securities: | | | | | | |
| Trading securities (includes another FHLBank’s bond of $65 and $77 as of December 31, 2013 and 2012, respectively) | 1,667 |
| | 2,370 |
| |
| Trading securities (includes another FHLBank’s bond of $0 and $52 as of December 31, 2016 and 2015, respectively) | | 262 |
| | 1,265 |
|
| Available-for-sale securities | 2,299 |
| | 2,676 |
| 1,345 |
| | 1,662 |
|
| Held-to-maturity securities (fair value of $20,146 and $17,124 as of December 31, 2013 and 2012, respectively) | 20,176 |
| | 16,918 |
| |
| Held-to-maturity securities (fair value of $24,633 and $23,263 as of December 31, 2016 and 2015, respectively) | | 24,641 |
| | 23,239 |
|
| Total investment securities | 24,142 |
| | 21,964 |
| 26,248 |
| | 26,166 |
|
| Advances | 89,588 |
| | 87,503 |
| 99,077 |
| | 104,168 |
|
| Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans of $11 as of December 31, 2013 and 2012 | 918 |
| | 1,244 |
| |
| Mortgage loans held for portfolio, net: | | | | |
| Mortgage loans held for portfolio | | 524 |
| | 586 |
|
| Allowance for credit losses on mortgage loans | | (1 | ) | | (2 | ) |
| Total mortgage loans held for portfolio, net | | 523 |
| | 584 |
|
| Accrued interest receivable | 199 |
| | 240 |
| 171 |
| | 171 |
|
| Derivative assets | 53 |
| | 13 |
| 355 |
| | 176 |
|
| Premises and equipment, net | 29 |
| | 32 |
| 24 |
| | 25 |
|
| Other assets | 211 |
| | 136 |
| 196 |
| | 196 |
|
| Total assets | $ | 122,316 |
| | $ | 123,705 |
| $ | 138,671 |
|
| $ | 142,246 |
|
| Liabilities | | | | | | |
| Interest-bearing deposits | $ | 1,752 |
| | $ | 2,094 |
| $ | 1,118 |
| | $ | 1,084 |
|
| Consolidated obligations, net: | | | | | | |
| Discount notes | 32,202 |
| | 31,737 |
| 41,292 |
| | 69,434 |
|
| Bonds | 80,728 |
| | 82,947 |
| 88,647 |
| | 63,953 |
|
| Total consolidated obligations, net | 112,930 |
| | 114,684 |
| 129,939 |
| | 133,387 |
|
| Mandatorily redeemable capital stock | 24 |
| | 40 |
| 1 |
| | 14 |
|
| Accrued interest payable | 183 |
| | 229 |
| 128 |
| | 127 |
|
| Affordable Housing Program payable | 74 |
| | 80 |
| 69 |
| | 63 |
|
| Derivative liabilities | 187 |
| | 158 |
| 107 |
| | 124 |
|
| Other liabilities | 514 |
| | 145 |
| 358 |
| | 431 |
|
| Total liabilities | 115,664 |
| | 117,430 |
| 131,720 |
| | 135,230 |
|
| Commitments and contingencies (Note 20) |
| |
|
| |
|
| Capital | | | | | | |
| Capital stock Class B putable ($100 par value) issued and outstanding shares: | | | | | | |
| Subclass B1 issued and outstanding shares: 10 and 12 as of December 31, 2013 and 2012, respectively | 946 |
| | 1,160 |
| |
| Subclass B2 issued and outstanding shares: 39 and 37 as of December 31, 2013 and 2012, respectively | 3,937 |
| | 3,738 |
| |
| Subclass B1 issued and outstanding shares: 8 and 7 as of December 31, 2016 and 2015, respectively | | 787 |
| | 745 |
|
| Subclass B2 issued and outstanding shares: 42 and 44 as of December 31, 2016 and 2015, respectively | | 4,168 |
| | 4,356 |
|
| Total capital stock Class B putable | 4,883 |
| | 4,898 |
| 4,955 |
| | 5,101 |
|
| Retained earnings: | | | | | | |
| Restricted | 141 |
| | 73 |
| 310 |
| | 255 |
|
| Unrestricted | 1,516 |
| | 1,362 |
| 1,582 |
| | 1,585 |
|
| Total retained earnings | 1,657 |
| | 1,435 |
| 1,892 |
| | 1,840 |
|
| Accumulated other comprehensive income (loss) | 112 |
| | (58 | ) | |
| Accumulated other comprehensive income | | 104 |
| | 75 |
|
| Total capital | 6,652 |
| | 6,275 |
| 6,951 |
| | 7,016 |
|
| Total liabilities and capital | $ | 122,316 |
| | $ | 123,705 |
| $ | 138,671 |
| | $ | 142,246 |
|
The accompanying notes are an integral part of these financial statements.
FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF INCOME
(In millions)
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| Interest income | | | | | | | | | | |
| Advances | $ | 230 |
| | $ | 281 |
| | $ | 248 |
| $ | 583 |
| | $ | 137 |
| | $ | 178 |
|
| Prepayment fees on advances, net | 3 |
| | 13 |
| | 10 |
| |
| Prepayment fees, net | | 3 |
| | 4 |
| | 2 |
|
| Interest-bearing deposits | 5 |
| | 7 |
| | 4 |
| 17 |
| | 5 |
| | 4 |
|
| Securities purchased under agreements to resell | 1 |
| | 1 |
| | — |
| 4 |
| | 3 |
| | 1 |
|
| Federal funds sold | 9 |
| | 18 |
| | 24 |
| 36 |
| | 11 |
| | 8 |
|
| Trading securities | 101 |
| | 118 |
| | 156 |
| 38 |
| | 68 |
| | 75 |
|
| Available-for-sale securities | 129 |
| | 160 |
| | 172 |
| 105 |
| | 109 |
| | 122 |
|
| Held-to-maturity securities | 252 |
| | 299 |
| | 398 |
| 289 |
| | 231 |
| | 238 |
|
| Mortgage loans | 61 |
| | 76 |
| | 97 |
| 31 |
| | 40 |
| | 50 |
|
| Total interest income | 791 |
| | 973 |
| | 1,109 |
| 1,106 |
| | 608 |
| | 678 |
|
| Interest expense | | | | | | | | | | |
| Consolidated obligations: | | | | | | | | | | |
| Discount notes | 27 |
| | 25 |
| | 17 |
| 249 |
| | 59 |
| | 29 |
|
| Bonds | 421 |
| | 568 |
| | 628 |
| 519 |
| | 305 |
| | 325 |
|
| Interest-bearing deposits | 1 |
| | 1 |
| | 1 |
| 4 |
| | — |
| | — |
|
| Mandatorily redeemable capital stock | 1 |
| | 3 |
| | 4 |
| — |
| | 1 |
| | 1 |
|
| Total interest expense | 450 |
| | 597 |
| | 650 |
| 772 |
| | 365 |
| | 355 |
|
| Net interest income | 341 |
| | 376 |
| | 459 |
| 334 |
| | 243 |
| | 323 |
|
| Provision for credit losses | 5 |
| | 6 |
| | 5 |
| |
| Net interest income after provision for credit losses | 336 |
| | 370 |
| | 454 |
| |
| Reversal of provision for credit losses | | (1 | ) | | (1 | ) | | (5 | ) |
| Net interest income after reversal of provision for credit losses | | 335 |
| | 244 |
| | 328 |
|
| Noninterest income (loss) | | | | | | | | | | |
| Total other-than-temporary impairment losses | (1 | ) | | — |
| | (55 | ) | (2 | ) | | — |
| | — |
|
| Net amount of impairment losses recorded in (reclassified from) other comprehensive income (loss) | 1 |
| | (16 | ) | | (63 | ) | |
| Net amount of impairment losses reclassified from accumulated other comprehensive income | | (1 | ) | | (5 | ) | | (3 | ) |
| Net impairment losses recognized in earnings | — |
| | (16 | ) | | (118 | ) | (3 | ) | | (5 | ) | | (3 | ) |
| Net (losses) gains on trading securities | (100 | ) | | (67 | ) | | 2 |
| |
| Net gains (losses) on derivatives and hedging activities | 204 |
| | 117 |
| | (9 | ) | |
| Letters of credit fees | 20 |
| | 18 |
| | 19 |
| |
| Gain on litigation settlements | 33 |
| | — |
| | — |
| |
| Net losses on trading securities | | (30 | ) | | (61 | ) | | (60 | ) |
| Net gains on derivatives and hedging activities | | 119 |
| | 261 |
| | 120 |
|
| Gain on extinguishment of debt | | — |
| | — |
| | 15 |
|
| Standby letters of credit fees | | 28 |
| | 28 |
| | 26 |
|
| (Loss) gain on litigation settlements, net | | (6 | ) | | — |
| | 4 |
|
| Other | 9 |
| | 3 |
| | 2 |
| 3 |
| | 2 |
| | 3 |
|
| Total noninterest income (loss) | 166 |
| | 55 |
| | (104 | ) | |
| Total noninterest income | | 111 |
| | 225 |
| | 105 |
|
| Noninterest expense | | | | | | | | | | |
| Compensation and benefits | 69 |
| | 68 |
| | 75 |
| 79 |
| | 76 |
| | 73 |
|
| Other operating expenses | 44 |
| | 40 |
| | 40 |
| 37 |
| | 39 |
| | 41 |
|
| Finance Agency | 8 |
| | 10 |
| | 11 |
| 9 |
| | 9 |
| | 9 |
|
| Office of Finance | 6 |
| | 6 |
| | 5 |
| 6 |
| | 6 |
| | 5 |
|
| Other | — |
| | 1 |
| | (8 | ) | 6 |
| | 5 |
| | 4 |
|
| Total noninterest expense | 127 |
| | 125 |
| | 123 |
| 137 |
| | 135 |
| | 132 |
|
| Income before assessments | 375 |
| | 300 |
| | 227 |
| 309 |
| | 334 |
| | 301 |
|
| Assessments: | | | | | | |
| Affordable Housing Program | 37 |
| | 30 |
| | 21 |
| |
| REFCORP | — |
| | — |
| | 22 |
| |
| Total assessments | 37 |
| | 30 |
| | 43 |
| |
| Affordable Housing Program assessments | | 31 |
| | 33 |
| | 30 |
|
| Net income | $ | 338 |
| | $ | 270 |
| | $ | 184 |
| $ | 278 |
| | $ | 301 |
| | $ | 271 |
|
The accompanying notes are an integral part of these financial statements.
FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| |
|
| | | For the Years Ended December 31, | For the Years Ended December 31, |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| Net income | $ | 338 |
| | $ | 270 |
| | $ | 184 |
| $ | 278 |
| | $ | 301 |
| | $ | 271 |
|
| Other comprehensive income (loss): | | | | | | | | | | |
| Net noncredit portion of other-than-temporary impairment losses on available-for-sale securities: | | | | | | | | | | |
| Noncredit losses transferred from held-to-maturity securities | (1 | ) | | — |
| | (37 | ) | |
| Noncredit losses on available-for-sale securities | | (1 | ) | | — |
| | — |
|
| Net change in fair value on other-than-temporarily impaired available-for-sale securities | 167 |
| | 341 |
| | (69 | ) | 27 |
| | (28 | ) | | (10 | ) |
| Reclassification of noncredit portion of impairment losses included in net income | — |
| | 16 |
| | 100 |
| 3 |
| | 5 |
| | 3 |
|
| Net noncredit portion of other-than-temporary impairment losses on available-for-sale securities | 166 |
| | 357 |
| | (6 | ) | |
| Net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities: | | | | | | |
| Noncredit losses on held-to-maturity securities | (1 | ) | | — |
| | (37 | ) | |
| Reclassification of noncredit portion from held-to-maturity securities to available-for-sale securities | 1 |
| | — |
| | 37 |
| |
| Net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities | — |
| | — |
| | — |
| |
| Total net noncredit portion of other-than-temporary impairment losses on available-for-sale securities | | 29 |
| | (23 | ) | | (7 | ) |
| Other comprehensive income (loss) related to pension and postretirement benefit plans | 4 |
| | (4 | ) | | (3 | ) | — |
| | 3 |
| | (10 | ) |
| Total other comprehensive income (loss) | 170 |
| | 353 |
| | (9 | ) | 29 |
| | (20 | ) | | (17 | ) |
| Total comprehensive income | $ | 508 |
| | $ | 623 |
| | $ | 175 |
| $ | 307 |
| | $ | 281 |
| | $ | 254 |
|
The accompanying notes are an integral part of these financial statements.
FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CAPITAL
(In millions)
| | | | Capital Stock Class B Putable | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Capital | Capital Stock Class B Putable | | Retained Earnings | | Accumulated Other Comprehensive Income | | Total Capital |
| | Shares | | Par Value | | Restricted | | Unrestricted | | Total | | Shares | | Par Value | | Restricted | | Unrestricted | | Total | |
| Balance, December 31, 2010 | 72 |
| | $ | 7,224 |
| | $ | — |
| | $ | 1,124 |
| | $ | 1,124 |
| | $ | (402 | ) | | $ | 7,946 |
| |
| Balance, December 31, 2013 | | 49 |
| | $ | 4,883 |
| | $ | 141 |
| | $ | 1,516 |
| | $ | 1,657 |
| | $ | 112 |
| | $ | 6,652 |
|
| Issuance of capital stock | 7 |
| | 672 |
| | — |
| | — |
| | — |
| | — |
| | 672 |
| 50 |
| | 5,034 |
| | — |
| | — |
| | — |
| | — |
| | 5,034 |
|
| Repurchase/redemption of capital stock | (21 | ) | | (2,052 | ) | | — |
| | — |
| | — |
| | — |
| | (2,052 | ) | (47 | ) | | (4,760 | ) | | — |
| | — |
| | — |
| | — |
| | (4,760 | ) |
| Net shares reclassified to mandatorily redeemable capital stock | (1 | ) | | (126 | ) | | — |
| | — |
| | — |
| | — |
| | (126 | ) | — |
| | (7 | ) | | — |
| | — |
| | — |
| | — |
| | (7 | ) |
| Comprehensive income (loss) | — |
| | — |
| | 19 |
| | 165 |
| | 184 |
| | (9 | ) | | 175 |
| — |
| | — |
| | 54 |
| | 217 |
| | 271 |
| | (17 | ) | | 254 |
|
| Cash dividends on capital stock | — |
| | — |
| | — |
| | (54 | ) | | (54 | ) | | — |
| | (54 | ) | — |
| | — |
| | — |
| | (182 | ) | | (182 | ) | | — |
| | (182 | ) |
| Balance, December 31, 2011 | 57 |
| | 5,718 |
| | 19 |
| | 1,235 |
| | 1,254 |
| | (411 | ) | | 6,561 |
| |
| Balance, December 31, 2014 | | 52 |
| | 5,150 |
| | 195 |
| | 1,551 |
| | 1,746 |
| | 95 |
| | 6,991 |
|
| Issuance of capital stock | | 56 |
| | 5,606 |
| | — |
| | — |
| | — |
| | — |
| | 5,606 |
|
| Repurchase/redemption of capital stock | | (57 | ) | | (5,634 | ) | | — |
| | — |
| | — |
| | — |
| | (5,634 | ) |
| Net shares reclassified to mandatorily redeemable capital stock | | — |
| | (21 | ) | | — |
| | — |
| | — |
| | — |
| | (21 | ) |
| Comprehensive income (loss) | | — |
| | — |
| | 60 |
| | 241 |
| | 301 |
| | (20 | ) | | 281 |
|
| Cash dividends on capital stock | | — |
| | — |
| | — |
| | (207 | ) | | (207 | ) | | — |
| | (207 | ) |
| Balance, December 31, 2015 | | 51 |
| | 5,101 |
| | 255 |
| | 1,585 |
| | 1,840 |
| | 75 |
| | 7,016 |
|
| Issuance of capital stock | 18 |
| | 1,797 |
| | — |
| | — |
| | — |
| | — |
| | 1,797 |
| 54 |
| | 5,405 |
| | — |
| | — |
| | — |
| | — |
| | 5,405 |
|
| Repurchase/redemption of capital stock | (25 | ) | | (2,555 | ) | | — |
| | — |
| | — |
| | — |
| | (2,555 | ) | (55 | ) | | (5,544 | ) | | — |
| | — |
| | — |
| | — |
| | (5,544 | ) |
| Net shares reclassified to mandatorily redeemable capital stock | (1 | ) | | (62 | ) | | — |
| | — |
| | — |
| | — |
| | (62 | ) | — |
| | (7 | ) | | — |
| | — |
| | — |
| | — |
| | (7 | ) |
| Comprehensive income | — |
| | — |
| | 54 |
| | 216 |
| | 270 |
| | 353 |
| | 623 |
| — |
| | — |
| | 55 |
| | 223 |
| | 278 |
| | 29 |
| | 307 |
|
| Cash dividends on capital stock | — |
| | — |
| | — |
| | (89 | ) | | (89 | ) | | — |
| | (89 | ) | — |
| | — |
| | — |
| | (226 | ) | | (226 | ) | | — |
| | (226 | ) |
| Balance, December 31, 2012 | 49 |
| | 4,898 |
| | 73 |
| | 1,362 |
| | 1,435 |
| | (58 | ) | | 6,275 |
| |
| Issuance of capital stock | 50 |
| | 4,960 |
| | — |
| | — |
| | — |
| | — |
| | 4,960 |
| |
| Repurchase/redemption of capital stock | (50 | ) | | (4,966 | ) | | — |
| | — |
| | — |
| | — |
| | (4,966 | ) | |
| Net shares reclassified to mandatorily redeemable capital stock | — |
| | (9 | ) | | — |
| | — |
| | — |
| | — |
| | (9 | ) | |
| Comprehensive income | — |
| | — |
| | 68 |
| | 270 |
| | 338 |
| | 170 |
| | 508 |
| |
| Cash dividends on capital stock | — |
| | — |
| | — |
| | (116 | ) | | (116 | ) | | — |
| | (116 | ) | |
| Balance, December 31, 2013 | 49 |
| | $ | 4,883 |
| | $ | 141 |
| | $ | 1,516 |
| | $ | 1,657 |
| | $ | 112 |
| | $ | 6,652 |
| |
| Balance, December 31, 2016 | | 50 |
| | $ | 4,955 |
| | $ | 310 |
| | $ | 1,582 |
| | $ | 1,892 |
| | $ | 104 |
| | $ | 6,951 |
|
The accompanying notes are an integral part of these financial statements.
FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CASH FLOWS
(In millions)
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| Operating activities | | | | | | | | | | |
| Net income | $ | 338 |
| | $ | 270 |
| | $ | 184 |
| $ | 278 |
| | $ | 301 |
| | $ | 271 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | |
| Depreciation and amortization | (84 | ) | | (50 | ) | | (34 | ) | (45 | ) | | (157 | ) | | (110 | ) |
| Provision for credit losses | 5 |
| | 6 |
| | 5 |
| |
| Reversal of provision for credit losses | | (1 | ) | | (1 | ) | | (5 | ) |
| Loss due to change in net fair value adjustment on derivative and hedging activities | 54 |
| | 111 |
| | 482 |
| 43 |
| | 119 |
| | 62 |
|
| Net change in fair value adjustment on trading securities | 100 |
| | 67 |
| | (2 | ) | 30 |
| | 61 |
| | 61 |
|
| Net impairment losses recognized in earnings | — |
| | 16 |
| | 118 |
| 3 |
| | 5 |
| | 3 |
|
| Gain on extinguishment of debt | (6 | ) | | — |
| | — |
| — |
| | — |
| | (15 | ) |
| Loss on disposal of fixed assets and capital software costs | — |
| | 1 |
| | — |
| |
| Net change in: | | | | | | | | | | |
| Accrued interest receivable | 41 |
| | 74 |
| | 74 |
| (1 | ) | | 8 |
| | 20 |
|
| Other assets | (78 | ) | | 12 |
| | 25 |
| (6 | ) | | 10 |
| | (17 | ) |
| Affordable Housing Program payable | (10 | ) | | (32 | ) | | (19 | ) | 4 |
| | (4 | ) | | (12 | ) |
| Accrued interest payable | (46 | ) | | (57 | ) | | (71 | ) | 1 |
| | (18 | ) | | (38 | ) |
| Payable to REFCORP | — |
| | — |
| | (20 | ) | |
| Other liabilities | 63 |
| | 4 |
| | (19 | ) | (76 | ) | | 65 |
| | 17 |
|
| Total adjustments | 39 |
| | 152 |
| | 539 |
| (48 | ) | | 88 |
| | (34 | ) |
| Net cash provided by operating activities | 377 |
| | 422 |
| | 723 |
| 230 |
| | 389 |
| | 237 |
|
| Investing activities | | | | | | | | | | |
| Net change in: | | | | | | | | | | |
| Interest-bearing deposits | 1,200 |
| | 706 |
| | (1,575 | ) | 214 |
| | 242 |
| | 143 |
|
| Securities purchased under agreements to resell | 250 |
| | (250 | ) | | — |
| 1,114 |
| | (540 | ) | | (1,960 | ) |
| Federal funds sold | 5,440 |
| | 5,395 |
| | 3,071 |
| (2,349 | ) | | 964 |
| | (4,590 | ) |
| Trading securities: | | | | | | | | | | |
| Proceeds from maturities | 611 |
| | 690 |
| | 272 |
| |
| Proceeds from principal collected | | 973 |
| | — |
| | 345 |
|
| Purchases of long-term | | — |
| | (56 | ) | | — |
|
| Available-for-sale securities: | | | | | | | | | | |
| Proceeds from maturities | 565 |
| | 617 |
| | 737 |
| |
| Proceeds from principal collected | | 396 |
| | 333 |
| | 342 |
|
| Held-to-maturity securities: | | | | | | | | | | |
| Net change in short-term | 550 |
| | 100 |
| | 540 |
| |
| Proceeds from maturities of long-term | 4,034 |
| | 4,220 |
| | 4,324 |
| |
| Proceeds from principal collected | | 5,641 |
| | 6,694 |
| | 3,183 |
|
| Purchases of long-term | (7,540 | ) | | (5,000 | ) | | (4,124 | ) | (7,044 | ) | | (6,249 | ) | | (6,862 | ) |
| Advances: | | | | | | | | | | |
| Proceeds from principal collected | 161,781 |
| | 164,894 |
| | 71,497 |
| 265,686 |
| | 234,088 |
| | 176,124 |
|
| Made | (165,786 | ) | | (165,990 | ) | | (68,998 | ) | (261,105 | ) | | (239,051 | ) | | (186,125 | ) |
| Mortgage loans: | | | | | | | | | | |
| Proceeds from principal collected | 277 |
| | 368 |
| | 385 |
| 127 |
| | 150 |
| | 158 |
|
| Proceeds from sale of held for sale | 18 |
| | — |
| | — |
| |
| Purchases from another FHLBank | | (72 | ) | | — |
| | — |
|
| Proceeds from sale of foreclosed assets | 27 |
| | 13 |
| | 17 |
| 13 |
| | 15 |
| | 24 |
|
| Purchase of premise, equipment, and software | (3 | ) | | (4 | ) | | (6 | ) | (4 | ) | | (5 | ) | | (5 | ) |
| Net cash provided by investing activities | 1,424 |
| | 5,759 |
| | 6,140 |
| |
| Net cash provided by (used in) investing activities | | 3,590 |
| | (3,415 | ) | | (19,223 | ) |
| | | | | | | | | | | |
| | FEDERAL HOME LOAN BANK OF ATLANTA STATEMENTS OF CASH FLOWS—(Continued) (In millions)
| FEDERAL HOME LOAN BANK OF ATLANTA STATEMENTS OF CASH FLOWS—(Continued) (In millions)
| FEDERAL HOME LOAN BANK OF ATLANTA STATEMENTS OF CASH FLOWS—(Continued) (In millions)
|
| | For the Years Ended December 31, | For the Years Ended December 31, |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| Financing activities | | | | | | | | | | |
| Net change in deposits | (352 | ) | | (500 | ) | | (477 | ) | |
| Net change in interest-bearing deposits | | 29 |
| | (31 | ) | | (688 | ) |
| Net payments on derivatives containing a financing element | (157 | ) | | (347 | ) | | (502 | ) | (72 | ) | | (97 | ) | | (101 | ) |
| Proceeds from issuance of consolidated obligations: | | | | | | | | | | |
| Discount notes | 312,401 |
| | 331,292 |
| | 833,353 |
| 517,242 |
| | 657,757 |
| | 470,192 |
|
| Bonds | 74,635 |
| | 67,479 |
| | 85,905 |
| 75,617 |
| | 61,513 |
| | 84,624 |
|
| Payments for debt issuance costs | (8 | ) | | (10 | ) | | (14 | ) | (9 | ) | | (9 | ) | | (9 | ) |
| Payments for maturing and retiring consolidated obligations: | | | | | | | | | | |
| Discount notes | (311,935 | ) | | (323,892 | ) | | (832,931 | ) | (545,415 | ) | | (625,495 | ) | | (465,234 | ) |
| Bonds | (75,947 | ) | | (74,971 | ) | | (90,393 | ) | (50,763 | ) | | (89,515 | ) | | (73,337 | ) |
| Proceeds from issuance of capital stock | 4,960 |
| | 1,797 |
| | 672 |
| 5,405 |
| | 5,606 |
| | 5,034 |
|
| Payments for repurchase/redemption of capital stock | (4,966 | ) | | (2,555 | ) | | (2,052 | ) | (5,544 | ) | | (5,634 | ) | | (4,760 | ) |
| Payments for repurchase/redemption of mandatorily redeemable capital stock | (25 | ) | | (308 | ) | | (369 | ) | (20 | ) | | (26 | ) | | (12 | ) |
| Cash dividends paid | (116 | ) | | (89 | ) | | (54 | ) | (226 | ) | | (207 | ) | | (182 | ) |
| Net cash used in financing activities | (1,510 | ) | | (2,104 | ) | | (6,862 | ) | |
| Net increase in cash and due from banks | 291 |
| | 4,077 |
| | 1 |
| |
| Net cash (used in) provided by financing activities | | (3,756 | ) | | 3,862 |
| | 15,527 |
|
| Net increase (decrease) in cash and due from banks | | 64 |
| | 836 |
| | (3,459 | ) |
| Cash and due from banks at beginning of the year | 4,083 |
| | 6 |
| | 5 |
| 1,751 |
| | 915 |
| | 4,374 |
|
| Cash and due from banks at end of the year | $ | 4,374 |
| | $ | 4,083 |
| | $ | 6 |
| $ | 1,815 |
| | $ | 1,751 |
| | $ | 915 |
|
| Supplemental disclosures of cash flow information: | | | | | | | | | | |
| Cash paid for: | | | | | | | | | | |
| Interest | $ | 516 |
| | $ | 679 |
| | $ | 759 |
| $ | 536 |
| | $ | 354 |
| | $ | 402 |
|
| Affordable Housing Program assessments, net | $ | 43 |
| | $ | 59 |
| | $ | 38 |
| $ | 25 |
| | $ | 35 |
| | $ | 39 |
|
| REFCORP assessments | $ | — |
| | $ | — |
| | $ | 42 |
| |
| Noncash investing and financing activities: | | | | | | | | | | |
| Net shares reclassified to mandatorily redeemable capital stock | $ | 9 |
| | $ | 62 |
| | $ | 126 |
| $ | 7 |
| | $ | 21 |
| | $ | 7 |
|
| Held-to-maturity securities acquired with accrued liabilities | $ | 309 |
| | $ | — |
| | $ | — |
| $ | 135 |
| | $ | 133 |
| | $ | 348 |
|
| Transfer of held-to-maturity securities to available-for-sale securities | $ | 11 |
| | $ | 6 |
| | $ | 451 |
| |
| Transfers of mortgage loans to real estate owned | $ | 28 |
| | $ | 16 |
| | $ | 17 |
| $ | 5 |
| | $ | 12 |
| | $ | 18 |
|
The accompanying notes are an integral part of these financial statements.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Note 1—Nature of Operations
The Federal Home Loan Bank of Atlanta (Bank), is a federally chartered corporation and is one of 1211 district Federal Home Loan Banks (FHLBanks). 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 FHLBanks are government-sponsored enterprises that serve the public by enhancing the availability of credit for residential mortgages and targeted community development.developments. The primary function of the Bank provides ais to provide readily available, competitively priced source of fundsfunding to its member institutions.
The Bank is a cooperative whose member institutions own substantially all of the capital stock of the Bank. Former members and certain non-members, thatwhich own the Bank's capital stock as a result of a merger or acquisition of a member of the Bank's member,Bank, own the remaining capital stock to support business transactions still carried on the Bank's Statements of Condition. All holders of the Bank's capital stock are entitled to receive dividends on their capital stock, to the extent declared by the Bank's board of directors.
All federallyFederally insured depository institutions, insurance companies, privately insured, state-chartered credit unions, and certified community development financial institutions charteredthat are located in the Bank's defined geographic district and engaged in residential housing finance are eligible to apply for membership. State and local housing authorities that meet certain statutory criteria may also borrow from the Bank. While eligible to borrow, housing associates are not members of the Bank and are not allowed to hold capital stock. All members must purchase and hold capital stock of the Bank. A member's stock requirement is based on the amount of its total assets, as well as the amount of certain of its business activities with the Bank. State and local housing authorities that meet certain statutory criteria may also borrow from the Bank. While they are eligible to borrow, housing associates are not members of the Bank and are not allowed to hold capital stock.
The Federal Housing Finance Agency (Finance Agency) is the independent federal regulator of the FHLBanks and is responsible for ensuring that (1) the FHLBanks (1) operate in a safe and sound manner, including maintenance ofthat they maintain adequate capital and internal controls; (2) the operations and activities of the FHLBanks foster liquid, efficient, competitive, and resilient national housing finance markets;markets through their operations and activities; (3) the FHLBanks comply with applicable laws and regulations; and (4) the FHLBanks carry out their housing finance mission through authorized activities that are consistent with the public interest. The Finance Agency also establishes policies and regulations covering the operations of the FHLBanks. Each FHLBank operates as a separate entity with its own management, employees, and board of directors. The Bank does not have any special purpose entities or any other types of off-balance sheet conduits.
The Federal Home Loan Banks Office of Finance (Office of Finance), a joint office of the FHLBanks, facilitates the issuance and servicing of the FHLBanks' debt instruments, known as consolidated obligations, and prepares the combined quarterly and annual financial reports of all 12the FHLBanks. As provided by the Federal Home Loan Bank Act of 1932, as amended (FHLBank Act), as amended, and applicable regulations, the Bank's consolidated obligations are backed only by the financial resources of all 12 FHLBanks andthe FHLBanks. Consolidated obligations are the primary source of funds for the Bank.
Deposits,Bank in addition to deposits, other borrowings, and capital stock issued to members provide other funds.members. The Bank primarily uses these funds to provide advances to members. The Bank also provides members and non-members with correspondent banking services, such as safekeeping, wire transfer, and cash management services.
Note 2—Summary of Significant Accounting Policies
Use of Estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) requires the BankBank's management to make subjective assumptions and estimates, which are based upon the information then available to the Bank and are inherently uncertain and subject to change. These assumptions and estimates may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. Actual results could differ significantly from these estimates.
Estimated Fair Values. The estimated fair value amounts, recorded on the Statements of Condition and in the note disclosures for the periods presented, have been determined by the Bank using available market and other pertinent information and reflect the Bank's best judgment of appropriate valuation methods. Although the Bank uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any valuation technique. Therefore, these fair values may not be indicative of the amounts that would have been realized in market transactions at the reporting dates.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Financial Instruments Meeting Netting Requirements. The Bank has certain financial instruments, including derivative instruments and securities purchased under agreements to resell, that are subject to offset under master netting arrangementsagreements or by operation of law. The Bank has elected to offset its derivative asset and liability positions, as well as cash collateral received
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
or pledged, when it has the legal right of offset under these master agreements. The Bank does not have any offsetting liabilities related to its securities purchased under agreements to resell for the periods presented.
The net exposure for these financial instruments can change on a daily basis; therefore, there may be a delay between the time this exposure change is identified and additional collateral is requested, and the time when this collateral is received or pledged. There may be a delay for excess collateral to be returned. For derivative instruments, any excess cash collateral received or pledged is recognized as a derivative liability or derivative asset based on the terms of the individual master agreement between the Bank and its derivative counterparty. Additional information regarding these agreements is provided in Note 18—Derivatives and Hedging Activities. Based on the fair value of the related securities held as collateral, the securities purchased under agreements to resell were fully collateralized for the periods presented.
Interest-bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold. These investments provide short-term liquidity and are carried at cost. The Bank treats securities purchased under agreements to resell as short-term collateralized loans, which are classified as assets inon the Statements of Condition. Securities purchased under agreements to resell are held in safekeeping in the name of the Bank by third-party custodians approved by the Bank. Should the fair value of the underlying securities decrease below the fair value required as collateral, the counterparty has the option to (1) place an equivalent amount of additional securities in safekeeping in the name of the Bank, or (2) remit an equivalent amount of cash; otherwise, the dollar value of the resale agreement will be decreased accordingly. Federal funds sold consist of short-term, unsecured loans conductedtransacted with investment-grade counterparties andthat are carried at cost.considered by the Bank to be of investment quality. Interest on interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold is accrued as earned and recorded in interest income on the Statements of Income.
Investment Securities. The Bank classifies certain investmentsinvestment securities acquired for purposes of liquidity and asset-liability management as trading investments and carries these securities at their estimated fair value. The Bank records changes in the fair value of these investments in noninterest income (loss) as “Net (losses) gainslosses on trading securities” on the Statements of Income, along with gains and losses on sales of investment securities using the specific identification method. The Bank does not participate in speculative trading practices in these investments and generally holds them until maturity, except to the extent management deems necessary to manage the Bank's liquidity position.
TheInvestment securities that the Bank carries at amortized cost, and classifies as held-to-maturity, investments for which it has both the ability and intent to hold to maturity are classified as held-to-maturity and are carried at amortized cost, adjusted for periodic principal repayments, amortization of premiums, and accretion of discounts. Amortization of premiums and accretion of discounts are computed using the contractual level-yield method (contractual interest method), adjusted for actual prepayments. The contractual interest method recognizes the income effects of premiums and discounts over the contractual life of the securities based on the actual behavior of the underlying assets, including adjustments for actual prepayment activities, and reflects the contractual terms of the securities without regard to changes in estimated prepayments based on assumptions about future borrower behavior.
The Bank classifies certain securities that are not held-to-maturity or trading as available-for-sale and carries these securities at their estimated fair value. The Bank records changes in the fair value of these investments in accumulated other comprehensive income (loss).income. The Bank intends to hold its available-for-sale securities for an indefinite period of time but may sell them prior to maturity in response to changes in interest rates, changes in prepayment risk, or other factors.
Certain changes in circumstances may cause the Bank to change its intent to hold a certain security to maturity without calling into question its intent to hold other debt securities to maturity in the future. Thus, the sale or transfer of a held-to-maturity security to another investment classification due to certain changes in circumstances, such as evidence of significant deterioration in the issuer's creditworthiness, is not considered inconsistent with its original classification.
Other-than-temporary Impairment of Investment Securities. The Bank evaluates its individual available-for-sale and held-to-maturity securities in unrealized loss positions for other-than-temporary impairment on a quarterly basis. A security is considered impaired when its fair value is less than its amortized cost. The Bank considers an other-than-temporary impairment to have occurred under any of the following circumstances:
the Bank has an intent to sell the impaired debt security;
if, based on available evidence, the Bank believes it is more likely than not that it will be required to sell the impaired debt security before the recovery of its amortized cost basis; or
the Bank does not expect to recover the entire amortized cost basis of the impaired debt security.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
If either of the first two conditions above is met, the Bank recognizes an other-than-temporary impairment loss in earnings equal to the entire difference between the security's amortized cost basis and its fair value as of the Statements of Condition date.
For securities in an unrealized loss position that meet neither of the first two conditions, the Bank performs a cash flow analysis to determine if it will recover the entire amortized cost basis of each of these securities. The present value of the cash flows expected to be collected is compared to the amortized cost basis of the debt security to determine whether a credit loss exists. If there is a credit loss (the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security), the carrying value of the debt security is adjusted to its fair value. However, rather than recognizing the entire difference between the amortized cost basis and fair value in earnings, only the amount of the impairment representing the credit loss (i.e., the credit component) is recognized in earnings, while the amount related to all other factors (i.e., the non-credit component) is recognized in accumulated other comprehensive income (loss), which is a component of capital.income. The credit loss on a debt security is limited to the amount of that security's unrealized losses. The total other-than-temporary impairment is presented inon the Statements of Income with an offset for the amount of the non-credit component of other-than-temporary impairment that is recognized in accumulated other comprehensive income (loss).income. The remaining amount inon the Statements of Income represents the credit loss for the period.
For subsequent accounting of an other-than-temporarily impaired security, the Bank records an additional other-than-temporary impairment if the present value of cash flows expected to be collected is less than the amortized cost of the security. The total amount of this additional other-than-temporary impairment (both credit and non-credit component, if any) is determined as the difference between the security's amortized cost, less the amount of other-than-temporary impairment recognized in accumulated other comprehensive income (loss) prior to the determination of this additional other-than-temporary impairment, and its fair value. Any additional credit loss is limited to that security's unrealized losses or the difference between the security's amortized cost and its fair value as of the Statements of Condition date. This additional credit loss, up to the amount in accumulated other comprehensive income (loss) related to the security, is reclassified out of accumulated other comprehensive income (loss) and recognized in earnings. Any credit loss in excess of the related accumulated other comprehensive income (loss) is recorded as additional total other-than-temporary impairment loss and recognized in earnings.
For debt securities classified as available-for-sale, the Bank does not accrete the other-than-temporary impairment recognized in accumulated other comprehensive income (loss) to the carrying value. Rather, subsequent related increases and decreases (if not an other-than-temporary impairment) in the fair value of available-for-sale securities are netted against the non-credit component of other-than-temporary impairment recognized previously in accumulated other comprehensive income (loss).income.
Upon subsequent evaluation of a debt security where there is no additional other-than-temporary impairment, the Bank adjusts the accretable yield on a prospective basis if there is a significant increase in the security's expected cash flows. As of the impairment measurement date, a new accretable yield is calculated for the impaired investment security. This adjusted yield is then used to calculate the interest income recognized over the remaining life of the security so as to match the amount and timing of future cash flows expected to be collected. Subsequent significant increases in estimated cash flows change the accretable yield on a prospective basis.
Advances. The Bank reports advances (secured loans to members, former members, or housing associates), net of discounts on advances related to the Affordable Housing Program (AHP) and the Economic Development and Growth Enhancement Program (EDGE), unearned commitment fees, and hedging basis adjustments. The Bank accretes the discounts on advances and amortizes the recognized unearned commitment fees and hedging adjustments to interest income using the level-yieldcontractual interest method. The Bank records interest on advances to interest income as earned.
Prepayment Fees. The Bank charges a borrower a prepayment fee when the borrower prepays certain advances before the original maturity date. The Bank records prepayment fees, net of basis adjustments related to hedging activities included in the carrying value of the advance as “Prepayment fees on advances, net” in the interest income section of the Statements of Income. In cases in which the Bank fundsthere is a new advance within a short period of time from the prepayment of an existing advance and a contemporaneous funding of a new advance, the Bank evaluates whether the new advance meets the accounting criteria to qualify as a modification of an existing advance or whether it constitutes a new advance. If the new advance qualifies as a modification of the existing advance, the hedging basis adjustments and the net prepayment fee on the prepaid advance are recorded in the carrying value of the modified advance and amortized over the life of the modified advance using a level-yieldthe contractual interest method. This amortization is recorded in advance interest income. If the Bank determines that the transaction does not qualify as a modification of an existing advance, it is
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
If the Bank determines that the transaction does not qualify as a modification of an existing advance, it is treated as an advance termination with subsequent funding of a new advance, and the Bank records the net fees as “Prepayment fees, on advances, net” in the interest income section of the Statements of Income.
Mortgage Loans Held for Portfolio. The Bank classifies mortgage loans that it has the intent and ability to hold for the foreseeable future or until maturity or payoff as held for portfolio. Accordingly, these mortgage loans are reported net of unamortized premiums, unaccreted discounts, mark-to-market basis adjustments on loans initially classified as mortgage loan commitments, and any allowance for credit losses.
The Bank defers and amortizes premiums and accretes discounts (1) paid to and received by the participating financial institutions (PFI)(PFIs), and (2) of mark-to-market basis adjustments on loans initially classified as mortgage loan commitments, as interest income using the contractual interest method.
A mortgage loan is considered past due when the principal or interest payment is not received in accordance with the contractual terms of the loan. The Bank places a conventional mortgage loan on nonaccrual status when the collection of the contractual principal or interest from the borrower is 90 days or more past due. When a mortgage loan is placed on nonaccrual status, accrued but uncollected interest is reversed against interest income. The Bank records cash payments received on nonaccrual loans as interest income and as a reduction of principal as specified in the contractual agreement. A loan on nonaccrual status may be restored to accrual status when the contractual principal and interest are less than 90 days past due. A government-guaranteed or insured-insured loan is not placed on nonaccrual status when the collection of the contractual principal or interest is 90 days or more past due because of the (1) U.S. government guarantee or insurance on the loan, and (2) the contractual obligation of the loan servicer to repurchase the loan when certain criteria are met.
A mortgage loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the mortgage loan agreement. Interest income is recognized in the same manner as nonaccrual loans.
Finance Agency regulations require that mortgage loans held in the Bank's portfolios be credit enhanced so that the Bank's risk of loss is limited to the losses of an investor in at least an investment-grade category, such as “BBB.” For conventional mortgage loans, PFIs retain a portion of the credit risk on the loans they sell to the Bank by providing credit enhancement either through a direct liability to pay credit losses up to a specified amount or through a contractual obligation to provide supplemental mortgage insurance. PFIs are paid a credit enhancement fee (CE Fee) for assuming credit risk, and in some instances, all or a portion of the CE Fee may be performance based. CE Fees are paid monthly based on the remaining unpaid principal balance of the loans in a master commitment. CE Fees are recorded as an offset to mortgage loan interest income. To the extent that the Bank experiences losses in a master commitment, it may be able to recapture CE Fees paid to the PFI to offset these losses.
Allowance for Credit Losses. The allowance for credit losses is a valuation allowance separately established for each identified portfolio segment of financing receivables, if necessary, to provide for probable incurred losses in the Bank's portfolio as of the Statements of Condition date. A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology for determining its allowance for credit losses. The Bank has developed and documented a systematic methodology for determining an allowance for credit losses for each of itsthe following portfolio segments of financing receivables: advances and standby letters of credit, government-guaranteed or insured single-family-insured residential mortgage loans held for portfolio, conventional single-family residential mortgage loans held for portfolio, multifamily residential mortgage loans held for portfolio, term federal funds sold, and term securities purchased under agreements to resell.
A portfolio segment may be further disaggregated into classes of financing receivables to the extent that it is needed to understand the exposure to credit risk arising from these financing receivables. Thereceivables; however, the Bank determined that no further disaggregation of the portfolio segments identified above is needed as the credit risk arising from these financing receivables is assessed and measured by the Bank at the portfolio segment level.needed.
The Bank manages its credit exposure to advances through an integrated approach that includes (1) establishing a credit limit for each borrower,borrower; (2) an ongoing review of each borrower's financial condition,condition; and conservative(3) collateral and lending policies to limit risk of loss, while balancing each borrower's needs for a reliable source of funding. In addition, the Bank lends to financial institutions within its district and housing associates in accordance with federal statutes and Finance Agency regulations. Specifically, the Bank complies with the FHLBank Act, which requires the Bank to obtain sufficient collateral to fully secure
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
advances. The estimated value of the collateral required to secure each borrower's advances is calculated by applying discounts to the fair value or unpaid principal balance of the collateral, as applicable. The Bank accepts certain investment securities,
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
residential mortgage loans, deposits, and other real estate related assets as collateral. In addition, community financial institutions (CFIs) are eligible to utilize expanded statutory collateral provisions for small business, agriculture loans, and community development loans. The Bank's capital stock owned by its member borrower is also pledged as additional collateral. Collateral arrangements may vary depending upon borrower credit quality, financial condition and performance, borrowing capacity, and the Bank's overall credit exposure to the borrower. The Bank can call for additional or substitute collateral to protect its security interest. The Bank believes that these policies effectively manage credit risk from advances.
Based upon the financial condition of the borrower, the Bank either allows a borrower to retain physical possession of the collateral pledged to it or requires the borrower to specifically assign the collateral to or place the collateral in physical possession of the collateral with the Bank or its safekeeping agent. The Bank requires its borrowers to execute an advances and security agreement that establishes the Bank's security interest in all collateral pledged by the borrower to the Bank. The Bank perfects its security interest in all pledged collateral. The FHLBank Act affords any security interest granted to the Bank by a borrower priority over the claims or rights of any other party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), except for claims or rights of a third party that (1) would be entitled to priority under otherwise applicable law;law, and (2) is an actual bona fide purchaser for value or is an actual secured party whose security interest is perfected in accordance with state law.
Using a risk-based approach and taking into consideration each borrower's financial strength, the Bank considers the types and amounts of pledged collateral to be the primary indicator of credit quality on its advances. As of December 31, 2013 and 2012, theThe Bank had rights to collateral on a borrower-by-borrower basis with an estimated value equal to or greater than its outstanding extensions of credit.credit as of December 31, 2016 and 2015.
The Bank continues to evaluate and make changes to its collateral policies, as necessary, based on current market conditions. As of December 31, 2013 and 2012, noNo advance was past due, on nonaccrual status, or considered impaired.impaired as of December 31, 2016 and 2015. In addition, there were no troubled debt restructurings related to advances.advances as of December 31, 2016 and 2015.
Based upon the collateral held as security, the Bank's collateral policies, credit analysis, and the repayment history on advances, the Bank did not anticipate any credit losses on advances as of December 31, 20132016 and 2012.2015. Accordingly, as of December 31, 2013 and 2012, the Bank has not recorded any allowance for credit losses on advances, nor has the Bank recorded any liability to reflect an allowance for credit losses for off-balance sheet credit exposure.exposure as of December 31, 2016 and 2015.
The Bank invested in government-guaranteed or insured-insured fixed-rate mortgage loans secured by one-to-four family residential properties. Government-guaranteed or insured-insured mortgage loans are mortgage loans guaranteed or insured by the Department of Veterans Affairs or the Federal Housing Administration. The servicer provides and maintains insurance or a guarantee from the applicable government agency. The servicer is responsible for compliance with all government agency requirements and for obtaining the benefit of the applicable insurance or guarantee with respect to defaulted government-guaranteed or insured-insured mortgage loans. Any losses incurred on these loans that are not recovered from the issuer or the guarantor are absorbed by the servicers. Therefore, the Bank only has credit risk for these loans if the servicer fails to pay for losses not covered by insurance or guarantees. Based on the Bank's assessment of its servicers, the Bank did not establish an allowance for credit losses for its government-guaranteed or insured-insured mortgage loan portfolio as of December 31, 20132016 and 2012.2015.
Modified loans that are considered a troubled debt restructuring and certain other identified conventional single-family residential mortgage loans, are evaluated individually for impairment. All other conventional single-family residential mortgage loans are evaluated collectively for impairment. The overall allowance for credit losses on conventional single-family residential mortgage loans is determined by an analysis (at(performed at least quarterly) that includes consideration ofsegregating the portfolio into various data, such asaging groups. For loans that are 60 days or less past performance, current performance,due, the Bank calculates a loss severity, default rate, and the expected loss based on individual loan portfolio characteristics, collateral valuations, industry data, and prevailing economic conditions. Inherent incharacteristics. For loans that are more than 60 days past due, the Bank's evaluation of past performanceallowance is determined using an analysis of various credit enhancements at the individual master commitment level to determine the credit enhancement available to recover losses on conventional single-family residential mortgage loans under each individual master commitment.automated valuation model.
A modified loan that is considered a troubled debt restructuring is individually evaluated for impairment when determining its related allowance for credit losses. Credit loss is measured by factoring in expected cash shortfalls (i.e., loss severity rate) incurred as of the reporting date, as well as the economic loss attributable to delaying the original contractual principal and interest due dates.
A charge-off is recorded if the recorded investment in the loan will not be recovered. The Bank evaluates whether to record a charge-off on a conventional residential mortgage loan upon the occurrence of a confirming event. Once a loan is 180 days delinquent, the Bank classifies as a loss and charges off the portion of outstanding conventional residential mortgage loan
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The Bank sold its multifamily residential mortgage loan portfoliobalances in August 2013. Prior to the sale, multifamily residential mortgage loans were individually evaluated for impairment. An independent third-party loan review was performed annually on all the Bank's multifamily residential mortgage loans to identify credit risks and to assess the overall abilityexcess of the Bank to collect on those loans. The allowance for credit losses related to multifamily residential mortgage loans was comprised of specific reserves and a general reserve. The Bank established a specific reserve for all multifamily residential mortgage loans with a credit rating at or below a predetermined classification. A general reserve was maintained on multifamily residential mortgage loans not subject to specific reserve allocations to recognize the economic uncertainty and the imprecision inherent in estimating and measuring losses when evaluating reserves for individual loans. To establish the general reserve, the Bank assigned a risk classification to this population of loans. A specified percentage was allocated to the general reserve for designated risk classification levels. The loans and risk classification designations were reviewed by the Bank on an annual basis.
The Bank evaluates whether to record a charge-off on a conventional mortgage loan upon the occurrence of a confirming event. Confirming events include, but are not limited to, the occurrence of foreclosure or notification of a claim against anyfair value of the underlying property, less costs to sell and adjusted for any available credit enhancements. A charge-off is recorded if the recorded investment in the loan will not be recovered.
Term federal funds sold are generally short-term, and their recorded balance approximates fair value.value, and they are transacted with counterparties that the Bank considers to be of investment quality. The Bank investsBank's investment in federal funds with investment-grade counterparties thatsold are only evaluated for purposes of an allowance for credit losses only if the investment is not paid when due. As of December 31, 2013 and 2012, allAll investments in federal funds sold are unsecured and were repaid or expected to repaybe repaid according to the contracted terms.terms as of December 31, 2016 and 2015.
Securities purchased under agreements to resell are considered collateralized financing arrangements and effectively represent short-term loans transacted with investment-grade counterparties.counterparties that the Bank considers to be of investment quality. The terms of these loans are structured such that if the fair value of the underlying securities decreasedecreases below the fair value required as collateral, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash. If an agreement to resell is deemed to be impaired, the difference between the fair value of the collateral and the amortized cost of the agreement is recognized in earnings. Based upon the collateral held as security, the Bank determined that no allowance for credit losses was needed for the securities purchased under agreements to resell as of December 31, 20132016 and 2012.2015.
Real estate owned (REO) includes assets that have been received in satisfaction of debt through foreclosures. REO is initially recorded at fair value, less estimated selling costs and is subsequently carried at the lower of costthat amount or current fair value, less estimated selling costs. The Bank recognizes a charge-off to the allowance for credit losses if the fair value of the REO less estimated selling costs is less than the recorded investment in the loan at the date of transfer from loans to REO. Any subsequent realized gains, realized or unrealized losses, and carrying costs are included in noninterest income (loss) on the Statements of Income. REO is recorded in “Other assets” on the Statements of Condition. AsREO was $2 and $9 as of December 31, 20132016 and 2012, REO was $19 and $18,2015, respectively.
Derivatives. All derivatives are recognized on the Statements of Condition at their fair values and are reported as either derivative assets or derivative liabilities, net of cash collateral, including initial and variation margin, and accrued interest received from or pledged to clearing agents and/or counterparties. The fair values of derivatives are netted by the clearing agent and/or counterparty when the netting requirements have been met. If these netted amounts are positive, they are classified as an asset and, if negative, they are classified as a liability. Cash flows associated with derivatives are reflected as cash flows from operating activities inon the Statements of Cash Flows unless the derivative meets the criteria to be a financing derivative. Derivatives not used for intermediary purposes are designated as either (1) a hedge of the fair value of (a) a recognized asset or liability or (b) an unrecognized firm commitment (a fair-value hedge); or (2) a non-qualifying hedge of an asset or liability for asset-liability management purposes. Changes in the fair value of a derivative that are effective as, and that are designated and qualify as, a fair-value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk (including changes that reflect losses or gains on firm commitments), are recorded in noninterest income (loss) as “Net gains (losses) on derivatives and hedging activities.”activities” on the Statements of Income. Any hedge ineffectiveness (which represents the amount by which the change in the fair value of the derivative differs from the change in the fair value of the hedged item) is recorded in noninterest income (loss) as “Net gains (losses) on derivatives and hedging activities.”activities” on the Statements of Income. A non-qualifying hedge is a derivative hedging specific or non-specific underlying assets, liabilities, or firm commitments that is an acceptable hedging strategy under the Bank's risk management program and Finance Agency regulatory requirements, but it does not qualify or was not designated for fair value or cash flow hedge accounting. A non-qualifying hedge introduces the potential for earnings variability because only the change in fair value of the derivative is recorded and is not offset by corresponding changes in the fair value of the non-qualifying hedged asset, liability, or firm commitment, unless such asset, liability, or firm commitment is required to be accounted for at fair value through earnings. Both the net interest on the derivative and the fair value adjustments of a non-
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
qualifyingnon-qualifying hedge are recorded in noninterest income (loss) as “Net gains (losses) on derivatives and hedging activities” on the Statements of Income.
The derivatives used in intermediary activities do not qualify for hedge accounting treatment and are separately marked-to-market through earnings. These amounts are recorded in noninterest income (loss) as “Net gains (losses) on derivatives and hedging activities” on the Statements of Income. The net result of the accounting for these derivatives does not significantly affectimpact the operatingBank's results of the Bank.operations.
The net settlement of interest receivables and payables related to derivatives designated as fair-value hedges are recognized as adjustments to the interest income or interest expense of the designated hedged item. The net settlement of interest receivables and payables related to intermediated derivatives for members and other non-qualifying hedges are recognized in noninterest income (loss) as “Net gains (losses) on derivatives and hedging activities” on the Statements of Income.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The Bank discontinues hedge accounting prospectively when (1) it determines that the derivative is no longer expected to be effective in offsetting changes in the fair value of a hedged risk, including hedged items such as firm commitments; (2) the derivative and/or the hedged item expires or is sold, terminated, or exercised; (3) a hedged firm commitment no longer meets the definition of a firm commitment; or (4) managementthe bank determines that designating the derivative as a hedging instrument is no longer appropriate.
When hedge accounting is discontinued due to the Bank's determination that a derivative no longer qualifies as an effective fair-value hedge of an existing hedged item, or when managementthe bank decides to cease the specific hedging activity, the Bank will either (1) terminate the derivativederivative; or (2) continue to carry the derivative on the Statements of Condition at its fair value, cease to adjust the hedged asset or liability for changes in fair value, and amortize the cumulative basis adjustment on the hedged item into earnings over the remaining life of the hedged item using the level-yield method. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Bank will carry the derivative at its fair value on the Statements of Condition, recognizing changes in the fair value of the derivative in current-period earnings.
The Bank may issue debt, make advances, or purchase financial instruments in which a derivative instrument may be “embedded.” Upon execution of these transactions, the Bank assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the advance, debt, or purchased financial instruments (i.e., the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contractcontract; and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and designated as a stand-alone derivative instrument pursuant to a non-qualifying hedge. However, if the entire contract (the host contract and the embedded derivative) is to be measured at fair value, with changes in fair value reported in current-period earnings (e.g., an investment security classified as “trading”), or if the Bank could not identify and measure reliably the embedded derivative for purposes of separating that derivative from its host contract, the entire contract would be carried on the Statements of Condition at fair value, and no portion of the contract could be designated as a hedging instrument.
Premises, Equipment, and Software. The Bank records premises and equipment at cost less accumulated depreciation. The Bank's accumulated depreciation was $63$64 and $59$66 as of December 31, 20132016 and 2012,2015, respectively. The Bank computes depreciation using the straight-line method over the estimated useful lives of assets. The estimated useful lives in years are generally as follows: automobiles and computer hardware-three; office equipment-eight; office furniture and building improvements-10; and building-40. The Bank amortizes leasehold improvements using the straight-line method over the shorter of the estimated useful life of the improvement or the remaining term of the lease. The Bank capitalizes improvements and expenses ordinary maintenance and repairs when incurred. Depreciation expense was $5$4 for the years ended December 31, 20132016, 2015, and 2012, and $4 for the year ended December 31, 2011.2014. The Bank includes gains and losses on disposal of premises and equipment in noninterest income (loss).
The Bank records the cost of purchased software and certain costs incurred in developing computer software for internal use at cost, less accumulated amortization. The Bank amortizes capitalized computer software cost using the straight-line method over an estimated useful life of five years. As of December 31, 2013 and 2012, theThe gross carrying amount of computer software included in other assets was $60$55 and $5958, and accumulated amortization was $48$48 and $4349, as of December 31, 2016 and 2015, respectively. Amortization of
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
computer software was $5$3 for the year ended December 31, 2013,2016 and $6$5 for the years ended December 31, 20122015 and 2011.2014. The Bank includes gains and losses on disposal of capitalized software cost in noninterest income (loss).
Consolidated Obligations. The Bank records consolidated obligations at amortized cost. TheAdditionally, the Bank accretes discounts and amortizes premiums as well as hedging basis adjustments on consolidated obligations to interest expense using the contractual interest method over the contractual terms to maturity of the consolidated obligations.
The Bank defers and amortizes thepays concessions paid to dealers in connection with the saleissuance of certain consolidated obligations using the contractual interest method over the contractual term of the corresponding consolidated obligation. When consolidated obligations are called prior to contractual maturity, the related unamortized concessions are written off to interest expense.obligations. The Federal Home Loan Bank Office of Finance (Office of Finance) prorates the amount of these concessions to the Bank based upon the percentage of the debt issued that is assumed by the Bank. UnamortizedThe Bank records concessions are included in “Other assets”paid on the Statements of Condition and the amortization of such concessions is included in consolidated obligations as a direct deduction from their carrying amounts, consistent with the presentation of discounts on consolidated obligations. The Bank accretes discounts and amortizes premiums, as well as concessions and hedging basis adjustments on consolidated obligations, to interest expense.expense using the contractual interest method over the contractual term of the corresponding consolidated obligation.
Mandatorily Redeemable Capital Stock. The Bank reclassifies stock that is subject to redemption from capital to a liability after a member submits a written redemption request, gives notice of intent to withdraw from membership, or attains non-member status bythrough a merger or acquisition, charter termination, or involuntary termination from membership since the member shares will then meet the definition of a mandatorily redeemable financial instrument. Member shares meeting this definition
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
are reclassified to a liability at fair value. Dividends declared on shares classified as a liability are accrued at the expected dividend rate and reflectedrecorded as interest expense inon the Statements of Income. The repurchase or redemption of these mandatorily redeemable financial instruments is reflectedrecorded as cash outflows in the financing activities section of the Statements of Cash Flows.
If a member cancels its written notice of redemption or notice of withdrawal, the Bank will reclassify mandatorily redeemable capital stock from a liability to capital. After the reclassification, dividends on the capital stock no longer will be classified as interest expense.
Restricted Retained Earnings. In 2011, theThe FHLBanks entered into a Joint Capital Enhancement Agreement, as amended (Capital Agreement), which is intended to enhance the capital position of each FHLBank. Under the Capital Agreement, beginning in the third quarter of 2011, each FHLBank began to allocateallocates 20 percent of its net income each quarter historically paid to satisfy its Resolution Funding Corporation (REFCORP) obligation, to a separate retained earnings account until the account balance equals at least one percent of the Bank’sFHLBank’s average balance of outstanding consolidated obligations for the previous quarter. Restricted retained earnings are not available to pay dividends and are presented separately on the Statements of Condition.
Finance Agency and Office of Finance Expenses. The Finance Agency allocates the FHLBanks' portion of its expenses and working capital fund among the FHLBanks based on the ratio between each FHLBank's minimum required regulatory capital and the aggregate minimum required regulatory capital of every FHLBank. As approved by the Office of Finance Board of Directors, effective January 1, 2011, eachEach FHLBank's proportionate share of the Office of FinanceFinance's operating and capital expenditures is calculated using a formula that is based upon the following components: (1) two-thirds based upon each FHLBank's share of total consolidated obligations outstanding, and (2) one-third based upon an equal pro rata allocation.
Affordable Housing Program. The FHLBank Act requires each FHLBank to establish and fund an AHP providingthat provides subsidies to members to assist in the purchase, construction, or rehabilitation of housing for very low-to-moderate-income households. The Bank charges the required funding for AHP against earnings and establishes a corresponding liability. The Bank issues AHP advances at interest rates below the customary interest rate for non-subsidized advances. A discount on the AHP advance and charge against the AHP liability is recorded for the present value of the variation in the cash flow caused by the difference in the interest rate between the AHP advance rate and the Bank's related cost of funds for comparable maturity funding. As an alternative, the Bank has the authority to make the AHP subsidy available to members as a grant. The discount on AHP advances is accreted to interest income on advances using the level-yieldcontractual interest method over the life of the advance.
REFCORP. Although FHLBanks are exempt from ordinary federal, state, and local taxation except for local real estate tax, the FHLBanks were required to make quarterly payments to REFCORP through the second quarter of 2011. These payments represented a portion of the interest on bonds issued by REFCORP, a corporation established by Congress in 1989 to provide funding for the resolution and disposition of insolvent savings institutions.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Note 3—Recently Issued and Adopted Accounting Guidance
Recently Issued Accounting Guidance
ReclassificationClassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.Certain Cash Receipts and Cash Payments. In January 2014,August 2016, the Financial Accounting Standards Board (FASB) issued guidance intended to clarify when a creditor should be considered to have received physical possessionreduce diversity in how cash receipts and cash payments are presented and classified on the Statements of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized.The guidance clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement.Cash Flows for certain transactions. This guidance isbecomes effective for public business entitiesthe Bank for annual periodsthe interim and interim periods within those annual periods beginning after December 15, 2014.2017, and early application is permitted. The adoption of this guidance will result in increased disclosures, but is not expected to materially affecthave an impact on the Bank’sBank's financial condition, or results of operations.operations, or cash flows.
Obligations Resulting from Joint and Several Liability Arrangements for Which the Total AmountMeasurement of the Obligation is Fixed at the Reporting DateCredit Losses on Financial Instruments. .In February 2013,June 2016, the FASB issued guidance intended to improve the timeliness of recording credit losses on loans and other financial instruments held by financial institutions and other organizations. This guidance requires all expected credit losses for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixedfinancial assets that are held at the reporting date.date to be measured based on historical experience, current conditions, and reasonable and supportable forecasts. Credit losses related to available-for-sale securities will be recorded through an allowance for credit losses. Additionally, this guidance amends the accounting for purchased financial assets with credit deterioration and requires enhanced disclosures that provide additional information to help financial statement users better understand significant estimates and judgments. This guidance requires an entity to measure these obligations asbecomes effective for the sum of (1)Bank for the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (2) any additional amount the reporting entity expects to pay on behalf of its co-obligors. This guidance is effective for interim and annual periods beginning on or after December 15, 20132019. Early application is permitted for the interim and will be applied retrospectively to obligations with joint and several liabilities existing at the beginning of an entity's fiscal year of adoption. This guidance will have no effect on the Bank's financial condition or results of operations.
Recently Adopted Accounting Guidance
Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. In July 2013, the FASB issued guidance permitting the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes, in addition to the U.S. Treasury Rate and the London Interbank Offered Rate (LIBOR). This guidance was effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The Bank adopted this guidance effective July 17, 2013. The adoption of this guidance did not have any effect on the Bank's financial condition or results of operations, as the Bank has not designated any hedging relationships using OIS as the benchmark interest rate.
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. In February 2013, the FASB issued amended guidance to improve the transparency of reporting reclassifications out of accumulated other comprehensive income. For public entities, this amended guidance was effective for reportingannual periods beginning after December 15, 2012.2018 although the Bank does not intend to adopt this guidance early. The Bank adoptedis in the process of evaluating this guidance, effective January 1, 2013, which resulted in additional disclosures. The adoption of this guidance did not have any effectand its impact on the Bank'sBank’s financial condition orand results of operations.operations will depend upon the composition of the financial assets held by the Bank at the adoption date, as well as the economic conditions and forecasts at that time.
Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. In January 2013, the FASB issued guidance to clarify the scope of transactions that are subject to previously issued guidance on disclosures about offsetting assets and liabilities. The disclosure guidance on offsetting assets and liabilities applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with GAAP or subject to a master netting arrangement or similar agreement. This guidance was effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Bank adopted and applied this guidance retrospectively effective January 1, 2013 for all comparative periods presented, which resulted in additional disclosures. The adoption of this guidance did not have any effect on the Bank's financial condition or results of operations.
Disclosures about Offsetting Assets and Liabilities. In December 2011, FASB issued disclosure requirements intended to help investors and other financial statement users better assess the effect or potential effect of offsetting arrangements on an entity’s financial position. Entities are required to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, entities are required to disclose collateral received and posted in connection with master netting agreements or similar arrangements. This guidance was effective for annual reporting periods beginning on or
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Leases. In February 2016, the FASB issued guidance on accounting for leases and disclosure of key information about leasing arrangements. This guidance requires lessees to recognize the following for all operating and finance leases at the commencement date: (1) a lease liability, which is the obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset representing the lessee’s right to use, or control the use of, the underlying asset for the lease term. A lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities for short-term leases with a term of 12 months or less. This guidance does not fundamentally change lessor accounting; however, some changes have been made to align that guidance with the lessee guidance and other areas within GAAP. This guidance becomes effective for the Bank for the interim and annual periods beginning after January 1, 2013, and interim periods within those annual periods. TheDecember 15, 2018. Early application is permitted although the Bank adopted and applieddoes not intend to adopt this guidance retrospectively effective January 1, 2013early. This guidance will be applied on a modified retrospective basis for all comparative periodsleases existing at, or entered into after, the earliest period presented which resulted in additional disclosures.the financial statements. The adoption of this guidance didis not expected to have any effecta material impact on the Bank's financial condition or results of operations.
Recognition and Measurement of Financial Assets and Financial Liabilities. In January 2016, the FASB issued guidance designed to improve the recognition, measurement, presentation, and disclosure of financial instruments through targeted changes to existing GAAP. These changes require the following: (1) entities to measure equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) at fair value with changes in fair value recognized in net income; (2) public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (3) entities to separately present financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (4) reporting entities to separately present in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Additionally, these changes eliminate the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. This guidance becomes effective for the Bank for the interim and annual periods beginning after December 31, 2017. The adoption of this guidance is not expected to have a material impact on the Bank’s financial condition or results of operations.
Revenue from Contracts with Customers. In May 2014, the FASB issued guidance on the recognition of revenue from contracts with customers. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Financial instruments and other contractual rights are excluded from the scope of this new revenue recognition guidance and will continue to be accounted for under existing guidance. In 2017 and 2016, the FASB issued amendments, which did not change the core principle of the original guidance, but clarified certain aspects of the guidance. This guidance becomes effective for the Bank for the interim and annual reporting periods beginning after December 15, 2017. This guidance will be applied retrospectively either to each prior reporting period or with a cumulative effect recognized at the date of initial application. Early application is permitted for the interim and annual reporting periods beginning after December 15, 2016 although the Bank does not intend to adopt this guidance early. Because the majority of contracts with the Bank's members are excluded from the scope of this guidance, this guidance is not expected to have a material impact on the Bank’s financial condition or results of operations.
Recently Adopted Accounting Guidance
Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. In January 2015, the FASB issued amended guidance that eliminates the concept of extraordinary items from GAAP. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2016. However, this guidance did not have an impact on the Bank’s financial condition or results of operations.
Amendments to the Consolidation Analysis. In February 2015, the FASB issued amended guidance intended to enhance consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The new guidance places more emphasis on risk of loss when determining a controlling financial interest. Additionally, this guidance reduces the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2016. However, this guidance did not have an impact on the Bank's financial condition or results of operations.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Simplifying the Presentation of Debt Issuance Costs. In April 2015, the FASB issued guidance that requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2016. This amended guidance was applied on a retrospective basis to each individual period presented on the Statements of Condition. As a result, $7 of debt issuance costs that were included in other assets were reclassified as a reduction in the corresponding consolidated obligations balance. Specifically, the reclassification resulted in a $5 reduction in the consolidated bonds balance and a $2 reduction in the consolidated discount notes balance on the Bank's Statements of Condition as of December 31, 2015. Accordingly, the Bank's total assets and total liabilities each decreased by $7 as of December 31, 2015. However, the adoption of this guidance did not have an impact on the Bank's results of operations.
Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. In March 2016, the FASB issued amended guidance designed to clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The Bank early adopted this guidance prospectively, and it became effective for the interim and annual periods beginning on January 1, 2016. However, the adoption of this guidance did not have an impact on the Bank's financial condition or results of operations.
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. In August 2014, the FASB issued guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide the related footnote disclosures. This guidance requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. This guidance became effective for the Bank for the annual period ending December 31, 2016, and the annual and interim periods thereafter. However, the adoption of this guidance did not have an impact on the Bank's financial condition or results of operations.
Contingent Put and Call Options in Debt Instruments. In March 2016, the FASB issued amended guidance to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. This guidance requires entities to apply only the four-step decision sequence when performing this assessment. Consequently, when a call (put) option is contingently exercisable, an entity should not assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2017. This guidance was applied on a modified retrospective basis to existing debt instruments as of the beginning of the period for which the amendments are effective. However, the adoption of this guidance did not have an impact on the Bank's financial condition or results of operations.
Note 4—Cash and Due from Banks
As of December 31, 2013 and 2012, the balances include $4,363 and $4,073, respectively, held at a Federal Reserve Bank.
The Bank maintains a collected cash balancesbalance with a commercial banksbank, which is a member, in return for certain services. These agreements containservices, and the average collected cash balance was $7 and $8 for the years ended December 31, 2016 and 2015, respectively. There are no legal restrictions regarding the withdrawal of these funds. The average collected cash balances were $7 and less than $1 for the years ended December 31, 2013 and 2012, respectively.
As
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in a business money market account with one of the Bank's members.millions, except per share amounts)
Note 5—Trading Securities
Major Security Types. Trading securities were as follows:The following table presents trading securities.
| | | | As of December 31, | As of December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| Government-sponsored enterprises debt obligations | $ | 1,601 |
| | $ | 2,291 |
| $ | 261 |
| | $ | 1,212 |
|
Another FHLBank’s bond (1) | 65 |
| | 77 |
| — |
| | 52 |
|
| State or local housing agency debt obligations | 1 |
| | 2 |
| 1 |
| | 1 |
|
| Total | $ | 1,667 |
| | $ | 2,370 |
| $ | 262 |
| | $ | 1,265 |
|
____________
| |
(1) | The Federal Home Loan Bank of Chicago is the primary obligor of this consolidated obligation bond. |
Net unrealized and realized (losses) gainsThe following table presents net losses on trading securities were as follows:securities.
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| Net unrealized (losses) gains on trading securities held at year end | $ | (84 | ) | | $ | (60 | ) | | $ | 8 |
|
| Net realized/unrealized losses on trading securities sold/matured during the year | (16 | ) | | (7 | ) | | (6 | ) |
| Net (losses) gains on trading securities | $ | (100 | ) | | $ | (67 | ) | | $ | 2 |
|
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Net losses on trading securities held at year end | $ | (8 | ) | | $ | (61 | ) | | $ | (53 | ) |
| Net losses on trading securities that matured during the year | (22 | ) | | — |
| | (7 | ) |
| Net losses on trading securities | $ | (30 | ) | | $ | (61 | ) | | $ | (60 | ) |
Note 6—Available-for-sale Securities
During 2013, 2012, and 2011,
Major Security Type. The following table presents information on private-label residential mortgage-backed securities (MBS) that are classified as available-for-sale.
|
| | | | | | | | | | | | | | | | | | | |
| | Amortized Cost | | Other-than-temporary Impairment Recognized in Accumulated Other Comprehensive Income | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| As of December 31, 2016 | $ | 1,221 |
| | $ | 6 |
| | $ | 130 |
| | $ | — |
| | $ | 1,345 |
|
| As of December 31, 2015 | $ | 1,567 |
| | $ | 19 |
| | $ | 114 |
| | $ | — |
| | $ | 1,662 |
|
The following table presents private-label residential MBS that are classified as available-for-sale with unrealized losses. The unrealized losses are aggregated by the Bank transferred certain private-label MBS from its held-to-maturity portfolio to its available-for-sale portfolio. Theselength of time that the individual securities represent private-label MBShave been in the Bank’s held-to-maturity portfolio for which the Bank has recorded an other-than-temporary impairment loss. The Bank believes the other-than-temporary impairmenta continuous unrealized loss constitutes evidence of a significant deterioration in the issuer’s creditworthiness. The Bank has no current plans to sell these securities nor is the Bank under any requirement to sell these securities.position.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 Months | | 12 Months or More | | Total |
| | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses | | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses | | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses |
| As of December 31, 2016 | 1 |
| | $ | 14 |
| | $ | — |
| | 10 |
| | $ | 189 |
| | $ | 6 |
| | 11 |
| | $ | 203 |
| | $ | 6 |
|
| As of December 31, 2015 | 3 |
| | $ | 107 |
| | $ | 2 |
| | 10 |
| | $ | 247 |
| | $ | 17 |
| | 13 |
| | $ | 354 |
| | $ | 19 |
|
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Interest-rate Payment Terms. The following table presents interest-rate payment terms for investment securities classified as available-for-sale.
|
| | | | | | | | |
| | | As of December 31, |
| | | 2016 | | 2015 |
| Variable-rate | | $ | 1,202 |
| | $ | 1,540 |
|
| Fixed-rate | | 19 |
| | 27 |
|
| Total amortized cost | | $ | 1,221 |
| | $ | 1,567 |
|
The following table presents information on private-label MBS transferred. The amounts below represent the values as of the transfer date.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| | Amortized Cost | | Other-than-temporary Impairment Recognized in Accumulated Other Comprehensive Income (Loss) | | Estimated Fair Value | | Amortized Cost | | Other-than-temporary Impairment Recognized in Accumulated Other Comprehensive Income (Loss) | | Estimated Fair Value | | Amortized Cost | | Other-Than-Temporary Impairment Recognized in Accumulated Other Comprehensive Income (Loss) | | Estimated Fair Value |
| Transferred at March 31, | $ | 12 |
| | $ | 1 |
| | $ | 11 |
| | $ | 6 |
| | $ | — |
| | $ | 6 |
| | $ | 322 |
| | $ | 20 |
| | $ | 302 |
|
| Transferred at June 30, | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 52 |
| | 6 |
| | 46 |
|
| Transferred at September 30, | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 23 |
| | 2 |
| | 21 |
|
| Transferred at December 31, | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 91 |
| | 9 |
| | 82 |
|
| Total | $ | 12 |
| | $ | 1 |
| | $ | 11 |
| | $ | 6 |
| | $ | — |
| | $ | 6 |
| | $ | 488 |
| | $ | 37 |
| | $ | 451 |
|
Major Security Type. Private-label residential MBS were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | Amortized Cost | | Other-than-temporary Impairment Recognized in Accumulated Other Comprehensive Income (Loss) | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| As of December 31, 2013 | $ | 2,174 |
| | $ | 27 |
| | $ | 152 |
| | $ | — |
| | $ | 2,299 |
|
| | | | | | | | | | |
| As of December 31, 2012 | $ | 2,717 |
| | $ | 120 |
| | $ | 79 |
| | $ | — |
| | $ | 2,676 |
|
The following tables summarize the private-label residential MBS with unrealized losses. The unrealized lossesthat are aggregatedclassified as available-for-sale and issued by major security type and lengthmembers or affiliates of time that individual securitiesmembers, all of which have been in a continuous unrealized loss position.issued by Bank of America Corporation, Charlotte, NC.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 Months | | 12 Months or More | | Total |
| | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses | | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses | | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses |
| As of December 31, 2013 | 6 |
| | $ | 137 |
| | $ | 1 |
| | 10 |
| | $ | 243 |
| | $ | 26 |
| | 16 |
| | $ | 380 |
| | $ | 27 |
|
| | | | | | | | | | | | | | | | | | |
| As of December 31, 2012 | 3 |
| | $ | 154 |
| | $ | 1 |
| | 26 |
| | $ | 1,240 |
| | $ | 119 |
| | 29 |
| | $ | 1,394 |
| | $ | 120 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Amortized Cost | | Other-than-temporary Impairment Recognized in Accumulated Other Comprehensive Income | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| As of December 31, 2016 | $ | 792 |
| | $ | 5 |
| | $ | 102 |
| | $ | — |
| | $ | 889 |
|
| As of December 31, 2015 | $ | 1,037 |
| | $ | 16 |
| | $ | 77 |
| | $ | — |
| | $ | 1,098 |
|
Note 7—Held-to-maturity Securities
Major Security Types. The following table presents held-to-maturity securities.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2016 | | 2015 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated
Fair Value |
| State or local housing agency debt obligations | $ | 76 |
| | $ | — |
| | $ | — |
| | $ | 76 |
| | $ | 76 |
| | $ | — |
| | $ | — |
| | $ | 76 |
|
| Government-sponsored enterprises debt obligations | 6,041 |
| | 3 |
| | 5 |
| | 6,039 |
| | 5,693 |
| | — |
| | 12 |
| | 5,681 |
|
| Mortgage-backed securities: | | | | | | | | | | | | | | | |
| U.S. agency obligations-guaranteed residential | 209 |
| | 2 |
| | — |
| | 211 |
| | 279 |
| | 4 |
| | — |
| | 283 |
|
| Government-sponsored enterprises residential | 10,752 |
| | 44 |
| | 43 |
| | 10,753 |
| | 11,958 |
| | 88 |
| | 31 |
| | 12,015 |
|
| Government-sponsored enterprises commercial | 6,773 |
| | 2 |
| | 11 |
| | 6,764 |
| | 4,140 |
| | — |
| | 16 |
| | 4,124 |
|
| Private-label residential | 790 |
| | 5 |
| | 5 |
| | 790 |
| | 1,093 |
| | 4 |
| | 13 |
| | 1,084 |
|
| Total | $ | 24,641 |
| | $ | 56 |
| | $ | 64 |
| | $ | 24,633 |
| | $ | 23,239 |
| | $ | 96 |
| | $ | 72 |
| | $ | 23,263 |
|
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Interest-rate Payment Terms.The following table details interest-rate payment terms for investmenttables present held-to-maturity securities classified as available-for-sale:with unrealized losses. The unrealized losses are aggregated by major security type and by the length of time that the individual securities have been in a continuous unrealized loss position.
|
| | | | | | | | |
| | | As of December 31, |
| | | 2013 | | 2012 |
| Fixed-rate | | $ | 41 |
| | $ | 55 |
|
| Variable-rate | | 2,133 |
| | 2,662 |
|
| Total amortized cost | | $ | 2,174 |
| | $ | 2,717 |
|
A summary of available-for-sale MBS issued by members or affiliates of members, Bank of America Corporation, Charlotte, NC, follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2016 |
| | Less than 12 Months | | 12 Months or More | | Total |
| | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses | | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses | | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses |
| Government-sponsored enterprises debt obligations | 10 |
| | $ | 2,532 |
| | $ | 5 |
| | — |
| | $ | — |
| | $ | — |
| | 10 |
| | $ | 2,532 |
| | $ | 5 |
|
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | |
| Government-sponsored enterprises residential | 46 |
| | 2,813 |
| | 22 |
| | 63 |
| | 2,206 |
| | 21 |
| | 109 |
| | 5,019 |
| | 43 |
|
| Government-sponsored enterprises commercial | 52 |
| | 4,147 |
| | 6 |
| | 22 |
| | 1,540 |
| | 5 |
| | 74 |
| | 5,687 |
| | 11 |
|
| Private-label residential | 6 |
| | 10 |
| | — |
| | 56 |
| | 432 |
| | 5 |
| | 62 |
| | 442 |
| | 5 |
|
| Total | 114 |
| | $ | 9,502 |
| | $ | 33 |
| | 141 |
| | $ | 4,178 |
| | $ | 31 |
| | 255 |
| | $ | 13,680 |
| | $ | 64 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Amortized Cost | | Other-than-temporary Impairment Recognized in Other Accumulated Comprehensive Income (Loss) | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| As of December 31, 2013 | $ | 1,390 |
| | $ | 26 |
| | $ | 98 |
| | $ | — |
| | $ | 1,462 |
|
| | | | | | | | | | |
| As of December 31, 2012 | $ | 1,712 |
| | $ | 112 |
| | $ | 41 |
| | $ | — |
| | $ | 1,641 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2015 |
| | Less than 12 Months | | 12 Months or More | | Total |
| | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses | | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses | | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses |
| Government-sponsored enterprises debt obligations | 20 |
| | $ | 4,535 |
| | $ | 7 |
| | 3 |
| | $ | 745 |
| | $ | 5 |
| | 23 |
| | $ | 5,280 |
| | $ | 12 |
|
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | |
| Government-sponsored enterprises residential | 41 |
| | 3,233 |
| | 21 |
| | 8 |
| | 443 |
| | 10 |
| | 49 |
| | 3,676 |
| | 31 |
|
| Government-sponsored enterprises commercial | 31 |
| | 2,680 |
| | 9 |
| | 25 |
| | 1,037 |
| | 7 |
| | 56 |
| | 3,717 |
| | 16 |
|
| Private-label residential | 29 |
| | 407 |
| | 2 |
| | 47 |
| | 428 |
| | 11 |
| | 76 |
| | 835 |
| | 13 |
|
| Total | 121 |
| | $ | 10,855 |
| | $ | 39 |
| | 83 |
| | $ | 2,653 |
| | $ | 33 |
| | 204 |
| | $ | 13,508 |
| | $ | 72 |
|
Note 7—Held-to-maturity Securities
Major Security Types. Held-to-maturity securities were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2013 | | 2012 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated
Fair Value |
| Certificates of deposit | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 550 |
| | $ | — |
| | $ | — |
| | $ | 550 |
|
| State or local housing agency debt obligations | 92 |
| | 1 |
| | — |
| | 93 |
| | 106 |
| | 2 |
| | — |
| | 108 |
|
| Government-sponsored enterprises debt obligations | 3,738 |
| | — |
| | 24 |
| | 3,714 |
| | 2,133 |
| | — |
| | — |
| | 2,133 |
|
| Mortgage-backed securities: | | | | | | | | | | | | | | | |
| U.S. agency obligations-guaranteed residential | 465 |
| | 7 |
| | — |
| | 472 |
| | 622 |
| | 8 |
| | — |
| | 630 |
|
| Government-sponsored enterprises residential | 13,952 |
| | 109 |
| | 115 |
| | 13,946 |
| | 10,763 |
| | 184 |
| | 2 |
| | 10,945 |
|
| Private-label residential | 1,929 |
| | 12 |
| | 20 |
| | 1,921 |
| | 2,744 |
| | 36 |
| | 22 |
| | 2,758 |
|
| Total | $ | 20,176 |
| | $ | 129 |
| | $ | 159 |
| | $ | 20,146 |
| | $ | 16,918 |
| | $ | 230 |
| | $ | 24 |
| | $ | 17,124 |
|
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The following tables summarize the held-to-maturity securities with unrealized losses. The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2013 |
| | Less than 12 Months | | 12 Months or More | | Total |
| | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses | | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses | | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses |
| Government-sponsored enterprises debt obligations | 9 |
| | $ | 1,970 |
| | $ | 24 |
| | — |
| | $ | — |
| | $ | — |
| | 9 |
| | $ | 1,970 |
| | $ | 24 |
|
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | |
| Government-sponsored enterprises residential | 65 |
| | 3,932 |
| | 108 |
| | 1 |
| | 147 |
| | 7 |
| | 66 |
| | 4,079 |
| | 115 |
|
| Private-label residential | 40 |
| | 817 |
| | 12 |
| | 18 |
| | 241 |
| | 8 |
| | 58 |
| | 1,058 |
| | 20 |
|
| Total | 114 |
| | $ | 6,719 |
| | $ | 144 |
| | 19 |
| | $ | 388 |
| | $ | 15 |
| | 133 |
| | $ | 7,107 |
| | $ | 159 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2012 |
| | Less than 12 Months | | 12 Months or More | | Total |
| | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses | | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses | | Number of Positions | | Estimated Fair Value | | Gross Unrealized Losses |
| Government-sponsored enterprises debt obligations | 3 |
| | $ | 750 |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | 3 |
| | $ | 750 |
| | $ | — |
|
| Mortgage-backed securities: | | | | | | | | | | | | | | | | | |
| Government-sponsored enterprises residential | 1 |
| | 154 |
| | 1 |
| | 1 |
| | 13 |
| | 1 |
| | 2 |
| | 167 |
| | 2 |
|
| Private-label residential | — |
| | — |
| | — |
| | 43 |
| | 974 |
| | 22 |
| | 43 |
| | 974 |
| | 22 |
|
| Total | 4 |
| | $ | 904 |
| | $ | 1 |
| | 44 |
| | $ | 987 |
| | $ | 23 |
| | 48 |
| | $ | 1,891 |
| | $ | 24 |
|
Redemption Terms. The following table presents the amortized cost and estimated fair value of held-to-maturity securities by contractual maturity are shown below.maturity. Expected maturities of some securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
| | | | As of December 31, | As of December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| | Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value | Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
| Non-mortgage-backed securities: | | | | | | | | | | | | | | |
| Due in one year or less | $ | 430 |
| | $ | 430 |
| | $ | 1,092 |
| | $ | 1,093 |
| $ | 2,454 |
| | $ | 2,455 |
| | $ | 651 |
| | $ | 651 |
|
| Due after one year through five years | 3,400 |
| | 3,377 |
| | 1,697 |
| | 1,698 |
| 3,487 |
| | 3,484 |
| | 5,118 |
| | 5,106 |
|
| Due after five years through ten years | | 176 |
| | 176 |
| | — |
| | — |
|
| Total non-mortgage-backed securities | 3,830 |
| | 3,807 |
| | 2,789 |
| | 2,791 |
| 6,117 |
| | 6,115 |
| | 5,769 |
| | 5,757 |
|
| Mortgage-backed securities | 16,346 |
| | 16,339 |
| | 14,129 |
| | 14,333 |
| 18,524 |
| | 18,518 |
| | 17,470 |
| | 17,506 |
|
| Total | $ | 20,176 |
| | $ | 20,146 |
| | $ | 16,918 |
| | $ | 17,124 |
| $ | 24,641 |
| | $ | 24,633 |
| | $ | 23,239 |
| | $ | 23,263 |
|
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Interest-rate Payment Terms. The following table detailspresents interest-rate payment terms for investment securities classified as held-to-maturity:held-to-maturity.
| | | | | As of December 31, | | As of December 31, |
| | | 2013 | | 2012 | | 2016 | | 2015 |
| Non-mortgage-backed securities: | | | | | | | | |
| Fixed-rate | | $ | 1,586 |
| | $ | 656 |
| | $ | 2,413 |
| | $ | 1,915 |
|
| Variable-rate | | 2,244 |
| | 2,133 |
| | 3,704 |
| | 3,854 |
|
| Total non-mortgage-backed securities | | 3,830 |
| | 2,789 |
| | 6,117 |
| | 5,769 |
|
| | | | | | | | | |
| Mortgage-backed securities: | | | | | | | | |
| Fixed-rate | | 3,624 |
| | 2,689 |
| | 2,438 |
| | 2,949 |
|
| Variable-rate | | 12,722 |
| | 11,440 |
| | 16,086 |
| | 14,521 |
|
| Total mortgage-backed securities | | 16,346 |
| | 14,129 |
| | 18,524 |
| | 17,470 |
|
| Total amortized cost | | $ | 20,176 |
| | $ | 16,918 |
| | $ | 24,641 |
| | $ | 23,239 |
|
A summary ofThe following table presents private-label residential MBS that are classified as held-to-maturity MBSand issued by members or affiliates of members, follows:all of which have been issued by Bank of America Corporation, Charlotte, NC.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2013 | | 2012 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| Bank of America Corporation, Charlotte, NC | $ | 619 |
| | $ | 4 |
| | $ | 8 |
| | $ | 615 |
| | $ | 896 |
| | $ | 11 |
| | $ | 8 |
| | $ | 899 |
|
|
| | | | | | | | | | | | | | | |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| As of December 31, 2016 | $ | 177 |
| | $ | — |
| | $ | 2 |
| | $ | 175 |
|
| As of December 31, 2015 | $ | 286 |
| | $ | — |
| | $ | 5 |
| | $ | 281 |
|
Note 8—Other-than-temporary Impairment
Mortgage-backed Securities. The Bank’s investments in MBS consist of U.S. agency guaranteed securities and senior tranches of private-label MBS. The Bank has increased exposure to the risk of loss on its investments in MBS when the loans backing the MBS exhibit high rates of delinquency and foreclosures, as well as losses on the sale of foreclosed properties. TheTo reduce its risk of loss on such securities, the Bank regularly requires high levels of credit enhancements from the structure of the collateralized mortgage obligation to reduce its risk of loss on such securities.obligation. Credit enhancements are defined as the percentage of subordinate tranches, overcollateralization, or excess spread, or the support of monoline insurance, if any, in a security structure that will absorb the losses before the security that the Bank purchased will take a loss. The Bank does not purchase credit enhancements for its MBS from monoline insurance companies.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The Bank’s investments in private-label MBS were rated “AAA” (or its equivalent) by a nationally recognized statistical rating organization (NRSRO), such as Moody’s Investors Service (Moody’s) and Standard and Poor’s Ratings Services (S&P), at their purchase dates. The “AAA”-rated securities achieved their ratings through credit enhancement, overcollateralization, and senior-subordinated shifting interest features; the latter results in subordination of payments by junior classes to ensure cash flows to the senior classes. The ratings on all of the Bank’s private-label MBS have changed since their purchase dates.
Non-private-label MBS. The unrealized losses related to U.S. agency MBS are caused by interest rate changes, and not credit quality. These securities are guaranteed by government agencies or government-sponsored enterprises (GSEs) and the Bank does not expect these securities to be settled at a price less than their amortized cost basis. In addition, the Bank does not intend to sell these investments and it is not more likely than not that the Bank will be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. The Bank does not consider these investments to be other-than-temporarily impaired as of December 31, 2013.2016.
Private-label MBS. To assess whether the entire amortized cost basis of its private-label MBS will be recovered, the Bank performs a cash flow analysis for each of its private-label MBS. In performing the cash flow analysis for each of these securities, the Bank usesMBS using two third-party models.
The first third-party model considers borrower characteristics and the particular attributes of the loans underlying the Bank’s securities, in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults, and loss severities. A significant input to the first model is the forecast of future housing price changes for the relevant states and core based statistical areas (CBSAs)(CBSA), which are based upon an
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
assessment of the individual housing markets. The term CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and Budget; as currently defined, a CBSA must contain at least one urban area with a population of 10,000 or more people. The Bank’s housing price forecast as of December 31, 20132016 included a short-term housing price forecast with projected changes ranging from a decrease of fivethree percent to an increase of seven10 percent over the twelve12 month period beginning October 1, 2013.
2016. For the vast majority of markets, the projected short-term housing price forecast rangeschanges range from onean increase of two percent to fivean increase of six percent. Thereafter, home prices werea unique path is projected to recover using one of for each geographic area based on an internally developed framework derived from historical data.five different recovery paths. The following table presents projected home price recovery ranges by months following the short-term housing price forecast:
|
| | |
Months | | Annualized Rates (%) |
1 to 6 | | 0.00 to 3.00 |
7 to 12 | | 1.00 to 4.00 |
13 to 18 | | 2.00 to 4.00 |
19 to 30 | | 2.00 to 5.00 |
31 to 54 | | 2.00 to 6.00 |
Thereafter | | 2.30 to 5.60 |
The month-by-month projections of future loan performance derived from the first model, which reflect projected prepayments, defaults, and loss severities, were then input into a second model. The second model that allocates the projected loan level cash flows and losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. The model classifies securities based on current characteristics and performance, which may be different from the securities’ classification as determined by the originator at the time of origination.
At each quarter end, the Bank compares the present value of the cash flows (discounted at the securities' effective yield) expected to be collected with respect to its private-label MBS to the amortized cost basis of the security to determine whether a credit loss exists. For the Bank’s variable rate and hybrid private-label MBS, the Bank uses a forward interest rate curve to project the future estimated cash flows. The Bank then uses the effective interest rate for the security prior to impairment for determining the present value of the future estimated cash flows. For securities previously identified as other-than-temporarily impaired, the Bank updates its estimate of future estimated cash flows on a quarterly basis.
The following table representspresents a summary of the significant inputs used to measure the amount of the credit loss recognized in earnings for the one Alt-A securitythose securities for which an other-than-temporary impairment was determined to have occurred during the year ended December 31, 2013,2016, as well as the related current credit enhancement:enhancement.
|
| | | | | | | | |
| | | Significant Inputs | |
| | | Prepayment Rate | | Default Rates | | Loss Severities | | Current Credit Enhancement |
Year of
Securitization | | Weighted
Average
(%) | | Weighted
Average
(%) | | Weighted
Average
(%) | | Weighted
Average
(%) |
| 2004 and prior | | 12.08 | | 22.32 | | 44.43 | | 18.89 |
|
| | | | | | | | |
| | | Significant Inputs - Weighted Average (%) (1) | |
| Classification of Securities | | Prepayment Rates | | Default Rates | | Loss Severities | | Current Credit Enhancement (%) |
| Prime | | 15.02 | | 4.62 | | 19.73 | | 0.24 |
| Alt-A | | 12.13 | | 17.56 | | 40.22 | | 0.00 |
| Total | | 12.31 | | 16.76 | | 38.95 | | 0.02 |
____________
(1) The classification of securities is based on current characteristics and performance, which may be different from the securities’ classification as determined by the originator at the time of origination.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The following table presents a roll-forward of the amount of credit losses on the Bank’s investment securities recognized in earnings during the life of the securities for which a portion of the other-than-temporary loss was recognized in accumulated other comprehensive income (loss):income.
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| Balance, beginning of year | $ | 586 |
| | $ | 582 |
| | $ | 464 |
| $ | 505 |
| | $ | 542 |
| | $ | 574 |
|
| Amount related to credit loss for which an other-than-temporary impairment was not previously recognized | — |
| | — |
| | 11 |
| |
| Amount related to credit loss for which an other-than-temporary impairment was previously recognized | — |
| | 16 |
| | 107 |
| 3 |
| | 5 |
| | 3 |
|
| Increase in cash flows expected to be collected, recognized over the remaining life of the securities | (12 | ) | | (12 | ) | | — |
| |
| Increase in cash flows expected to be collected, (accreted as interest income over the remaining lives of the applicable securities) | | (53 | ) | | (42 | ) | | (35 | ) |
| Balance, end of year | $ | 574 |
| | $ | 586 |
| | $ | 582 |
| $ | 455 |
| | $ | 505 |
| | $ | 542 |
|
Certain other private-label MBS that have not been designated as other-than-temporarily impaired have experienced unrealized losses and decreases in fair value due to interest rate volatility and illiquidity in the marketplace, and general disruption in the U.S. mortgage markets.marketplace. These declines in fair value are considered temporary as the Bank expects to recover the amortized cost basis of the securities, the Bank does not intend to sell these securities, and it is not more likely than not that the Bank will be required to sell these securities before the anticipated recovery of the securities’ remaining amortized cost basis, which may be at maturity. This assessment is based on the fact that the Bank has sufficient capital and liquidity to operate its business and has no need to sell these securities, nor has the Bank entered into any contractual constraints that would require the Bank to sell these securities.
Note 9—Mortgage Loans Held for PortfolioAdvances
PriorRedemption Terms. The Bank had advances outstanding at interest rates ranging from zero percent to 2009, the Bank purchased single-family residential mortgage loans directly from PFIs. The total dollar amount7.55 percent as of the Bank's single-family residential mortgage loans represents held-for-portfolio loans whereby the PFIs serviceDecember 31, 2016. Advances with interest rates of zero percent are AHP and credit enhance residential mortgage loans that they sell to the Bank. Prior to August 30, 2013, mortgage loans also included multifamily residential mortgage loans, which are investments by the Bank in participation interests in loans on affordable multifamily rental properties. In August 2013, the Bank sold its multifamily mortgage loan portfolio, with an unpaid principal balance of $18, to a member which resulted in a gain of less than $1.
EDGE subsidized advances and certain structured advances. The following table presents information on mortgage loans held for portfolio:the Bank's advances outstanding.
|
| | | | | | | | |
| | | As of December 31, |
| | | 2013 | | 2012 |
Fixed-rate medium-term(1) single-family residential mortgage loans | | $ | 150 |
| | $ | 230 |
|
| Fixed-rate long-term single-family residential mortgage loans | | 781 |
| | 1,007 |
|
| Multifamily residential mortgage loans | | — |
| | 20 |
|
| Total unpaid principal balance | | 931 |
| | 1,257 |
|
| Premiums | | 3 |
| | 5 |
|
| Discounts | | (5 | ) | | (7 | ) |
| Total | | $ | 929 |
| | $ | 1,255 |
|
____________
(1)Medium-term is defined as a term of 15 years or less. |
| | | | | | | |
| | As of December 31, |
| | 2016 | | 2015 |
| Overdrawn demand deposit accounts | $ | — |
| | $ | 16 |
|
| Due in one year or less | 47,325 |
| | 46,673 |
|
| Due after one year through two years | 8,244 |
| | 12,747 |
|
| Due after two years through three years | 5,904 |
| | 6,360 |
|
| Due after three years through four years | 5,859 |
| | 2,994 |
|
| Due after four years through five years | 11,846 |
| | 4,616 |
|
| Due after five years | 19,110 |
| | 29,458 |
|
| Total par value | 98,288 |
| | 102,864 |
|
| Discount on AHP advances | (5 | ) | | (6 | ) |
| Discount on EDGE advances | (4 | ) | | (4 | ) |
| Hedging adjustments | 798 |
| | 1,315 |
|
| Deferred commitment fees | — |
| | (1 | ) |
| Total | $ | 99,077 |
| | $ | 104,168 |
|
The following table detailsBank offers callable advances to members that may be prepaid on prescribed dates (call dates) without incurring prepayment or termination fees. The Bank also offers prepayable advances, which are variable-rate advances that may be contractually prepaid by the unpaid principal balanceborrower on specified dates without incurring prepayment or termination fees. Other advances may be prepaid only by paying a fee to the Bank, so the Bank is financially indifferent to the prepayment of mortgage loans held for portfolio by collateral or guarantee type:
|
| | | | | | | | |
| | | As of December 31, |
| | | 2013 | | 2012 |
| Conventional loans | | $ | 864 |
| | $ | 1,165 |
|
| Government-guaranteed or insured loans | | 67 |
| | 92 |
|
| Total unpaid principal balance | | $ | 931 |
| | $ | 1,257 |
|
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The Bank records credit enhancement fees related to single-family residential mortgage loans as a reduction to mortgage loan interest income. Credit enhancement fees totaled $1 for the year ended December 31, 2013 and $2 for the years ended December 31, 2012 and 2011.
For information related to the Bank's credit risk on mortgage loans and allowance for credit losses, see Note 11—Allowance for Credit Losses.
Note 10—Advances
Redemption Terms. The Bank had advances outstanding, including AHP advances (see Note 14—Assessments), at interest rates ranging from zero percent to 8.64 percent, as summarized below. Advances with interest rates of zero percent are AHP subsidized advances and certain types of structured advances.
|
| | | | | | | |
| | As of December 31, |
| | 2013 | | 2012 |
| Overdrawn demand deposit accounts | $ | 2 |
| | $ | 2 |
|
| Due in one year or less | 51,331 |
| | 41,482 |
|
| Due after one year through two years | 5,366 |
| | 7,915 |
|
| Due after two years through three years | 6,136 |
| | 4,735 |
|
| Due after three years through four years | 8,495 |
| | 5,821 |
|
| Due after four years through five years | 5,088 |
| | 8,758 |
|
| Due after five years | 11,464 |
| | 15,157 |
|
| Total par value | 87,882 |
| | 83,870 |
|
| Discount on AHP advances | (8 | ) | | (11 | ) |
| Discount on EDGE advances | (7 | ) | | (8 | ) |
| Hedging adjustments | 1,726 |
| | 3,658 |
|
| Deferred commitment fees | (5 | ) | | (6 | ) |
| Total | $ | 89,588 |
| | $ | 87,503 |
|
The Bank offers advances to members that may be prepaid on prescribed dates (call dates) without incurring prepayment or termination fees (callable advances). Other advances may be prepaid only by paying a fee to the Bank that makes the Bank financially indifferent to the prepayment of the advance. The Bank had callable advances outstanding of $39 and $20 as of December 31, 2013 and 2012, respectively.
The following table summarizespresents advances by year of contractual maturity or next call date for callable advances:advances.
| | | | As of December 31, | As of December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| Overdrawn demand deposit accounts | $ | 2 |
| | $ | 2 |
| $ | — |
| | $ | 16 |
|
| Due or callable in one year or less | 51,339 |
| | 41,482 |
| 72,404 |
| | 71,243 |
|
| Due or callable after one year through two years | 5,375 |
| | 7,915 |
| 7,680 |
| | 11,593 |
|
| Due or callable after two years through three years | 6,159 |
| | 4,745 |
| 3,740 |
| | 5,545 |
|
| Due or callable after three years through four years | 8,495 |
| | 5,830 |
| 2,289 |
| | 2,214 |
|
| Due or callable after four years through five years | 5,088 |
| | 8,758 |
| 4,570 |
| | 2,371 |
|
| Due or callable after five years | 11,424 |
| | 15,138 |
| 7,605 |
| | 9,882 |
|
| Total par value | $ | 87,882 |
| | $ | 83,870 |
| $ | 98,288 |
| | $ | 102,864 |
|
Convertible advances offered by the Bank allow the Bank to convert the fixed-rate advance to a variable-rate advance at the current market rate on certain specified dates. The Bank had convertible advances outstanding of $3,510$1,497 and $5,1742,394 as of December 31, 20132016 and 2012,2015, respectively.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The following table summarizespresents advances by year of contractual maturity or, for convertible advances, next conversion date:date.
| | | | As of December 31, | As of December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| Overdrawn demand deposit accounts | $ | 2 |
| | $ | 2 |
| $ | — |
| | $ | 16 |
|
| Due or convertible in one year or less | 54,522 |
| | 46,198 |
| 47,935 |
| | 48,743 |
|
| Due or convertible after one year through two years | 5,414 |
| | 7,886 |
| 7,724 |
| | 11,434 |
|
| Due or convertible after two years through three years | 5,867 |
| | 4,748 |
| 5,943 |
| | 5,768 |
|
| Due or convertible after three years through four years | 6,643 |
| | 5,368 |
| 5,867 |
| | 3,020 |
|
| Due or convertible after four years through five years | 4,168 |
| | 6,570 |
| 11,866 |
| | 4,609 |
|
| Due or convertible after five years | 11,266 |
| | 13,098 |
| 18,953 |
| | 29,274 |
|
| Total par value | $ | 87,882 |
| | $ | 83,870 |
| $ | 98,288 |
| | $ | 102,864 |
|
Interest-rate Payment Terms. The following table detailspresents interest-rate payment terms for advances:advances.
|
| | | | | | | |
| | As of December 31, |
| | 2013 | | 2012 |
| Fixed-rate: | | | |
| Due in one year or less | $ | 46,343 |
| | $ | 38,307 |
|
| Due after one year | 28,535 |
| | 33,425 |
|
| Total fixed-rate | 74,878 |
| | 71,732 |
|
| Variable-rate: | | | |
| Due in one year or less | 4,990 |
| | 3,177 |
|
| Due after one year | 8,014 |
| | 8,961 |
|
| Total variable-rate | 13,004 |
| | 12,138 |
|
| Total par value | $ | 87,882 |
| | $ | 83,870 |
|
Security Terms. The Bank obtains collateral on advances to protect against losses and Finance Agency regulations permit the Bank to accept only certain types of collateral. The lendable collateral value (LCV) is the value that the Bank assigns to each type of qualifying collateral for purposes of determining the amount of credit that such qualifying collateral will support.
The following table provides information about the types of collateral held for the Bank's advances:
|
| | | | | | | | | | | | | |
| | Total Par Value of Outstanding Advances | | LCV of Collateral Pledged by Members | | First Mortgage Collateral (%) | | Securities Collateral (%) | | Other Real Estate Related Collateral (%) |
| As of December 31, 2013 | $ | 87,882 |
| | $ | 231,342 |
| | 67.20 | | 8.18 | | 24.62 |
| As of December 31, 2012 | 83,870 |
| | 217,935 |
| | 69.78 | | 7.09 | | 23.13 |
|
| | | | | | | |
| | As of December 31, |
| | 2016 | | 2015 |
| Fixed-rate: | | | |
| Due in one year or less | $ | 38,597 |
| | $ | 32,011 |
|
| Due after one year | 24,528 |
| | 27,051 |
|
| Total fixed-rate | 63,125 |
| | 59,062 |
|
| Variable-rate: | | | |
| Due in one year or less | 8,728 |
| | 14,678 |
|
| Due after one year | 26,435 |
| | 29,124 |
|
| Total variable-rate | 35,163 |
| | 43,802 |
|
| Total par value | $ | 98,288 |
| | $ | 102,864 |
|
Credit Risk. The Bank’s potential credit risk from advances is concentrated in commercial banks, thrifts, and credit unions and further is concentrated in certain larger borrowing relationships. The concentration of the Bank's advances to its 10 member institutions largest borrowers was $65,472$67,493 and $62,488,$75,842 as of December 31, 20132016 and 20122015, respectively. This concentration represented 68.7 percent and 74.573.7 percent of total advances outstanding as of December 31, 20132016 and 2012.
Based on the collateral pledged as security for advances, the Bank's credit analysis of members’ financial condition, and prior repayment history, no allowance for credit losses on advances was deemed necessary by the Bank as of December 31, 2013 and 2012. No advance was past due as of December 31, 2013 and 2012.2015, respectively.
For additional information related to the Bank's credit risk on advances and allowance for credit losses, see Note 11—Allowance for Credit Losses.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Based on the collateral pledged as security for advances, the Bank's credit analysis of members’ financial condition, and prior repayment history, no allowance for credit losses on advances was deemed necessary by the Bank as of December 31, 2016 and 2015. No advance was past due as of December 31, 2016 and 2015.
For additional information related to the Bank's credit risk on advances and allowance for credit losses, see Note 2—Summary of Significant Accounting Policies.
Note 10—Mortgage Loans Held for Portfolio
The Bank purchased fixed-rate residential mortgage loans directly from PFIs, who service and credit enhance the residential mortgage loans that they sold to the Bank. The Bank ceased purchasing these loans directly from PFIs in 2008. The Bank may also acquire fixed-rate residential mortgage loans through participations in eligible mortgage loans purchased from other FHLBanks.
The following table presents information on mortgage loans held for portfolio by contractual maturity at the time of purchase.
|
| | | | | | | | |
| | | As of December 31, |
| | | 2016 | | 2015 |
| Medium-term (15 years or less) | | $ | 40 |
| | $ | 66 |
|
| Long-term (greater than 15 years) | | 485 |
| | 521 |
|
| Total unpaid principal balance | | 525 |
| | 587 |
|
| Premiums | | 2 |
| | 2 |
|
| Discounts | | (3 | ) | | (3 | ) |
| Total | | $ | 524 |
| | $ | 586 |
|
The following table presents the unpaid principal balance of mortgage loans held for portfolio by collateral or guarantee type.
|
| | | | | | | | |
| | | As of December 31, |
| | | 2016 | | 2015 |
| Conventional mortgage loans | | $ | 492 |
| | $ | 546 |
|
| Government-guaranteed or insured mortgage loans | | 33 |
| | 41 |
|
| Total unpaid principal balance | | $ | 525 |
| | $ | 587 |
|
The Bank records credit enhancement fees related to residential mortgage loans as a reduction to mortgage loan interest income.
For information related to the Bank's credit risk on mortgage loans and allowance for credit losses, see Note 11—Allowance for Credit Losses.
Note 11—Allowance for Credit Losses
The following table presents the activity in the allowance for credit losses was as follows:related to conventional residential mortgage loans.
|
| | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2013 |
| | | Conventional Single-family Residential Mortgage Loans | | Government-guaranteed or Insured Residential Mortgage Loans | | Multifamily Residential Mortgage Loans | | Total |
| Balance, beginning of year | | $ | 10 |
| | $ | — |
| | $ | 1 |
| | $ | 11 |
|
| Provision for credit losses | | 5 |
| | — |
| | — |
| | 5 |
|
| Charge-offs | | (4 | ) | | — |
| | — |
| | (4 | ) |
| Mortgage loans transferred to held for sale | | — |
| | — |
| | (1 | ) | | (1 | ) |
| Balance, end of year | | $ | 11 |
| | $ | — |
| | $ | — |
| | $ | 11 |
|
|
| | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2012 |
| | | Conventional Single-family Residential Mortgage Loans | | Government-guaranteed or Insured Residential Mortgage Loans | | Multifamily Residential Mortgage Loans | | Total |
| Balance, beginning of year | | $ | 5 |
| | $ | — |
| | $ | 1 |
| | $ | 6 |
|
| Provision for credit losses | | 6 |
| | — |
| | — |
| | 6 |
|
| Charge-offs | | (1 | ) | | — |
| | — |
| | (1 | ) |
| Balance, end of year | | $ | 10 |
| | $ | — |
| | $ | 1 |
| | $ | 11 |
|
| | | | | For the Year Ended December 31, 2011 | | For the Years Ended December 31, |
| | | Conventional Single-family Residential Mortgage Loans | | Government-guaranteed or Insured Residential Mortgage Loans | | Multifamily Residential Mortgage Loans | | Total | | 2016 | | 2015 | | 2014 |
| Balance, beginning of year | | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | 2 |
| | $ | 3 |
| | $ | 11 |
|
| Provision for credit losses | | 5 |
| | — |
| | — |
| | 5 |
| |
| Reversal of provision for credit losses | | | (1 | ) | | (1 | ) | | (5 | ) |
| Charge-offs | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) |
| Balance, end of year | | $ | 5 |
| | $ | — |
| | $ | 1 |
| | $ | 6 |
| | $ | 1 |
| | $ | 2 |
| | $ | 3 |
|
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The following table presents the recorded investment in conventional residential mortgage loans by impairment methodology.
|
| | | | | | | | |
| | | As of December 31, |
| | | 2016 | | 2015 |
| Allowance for credit losses: | | | | |
| Collectively evaluated for impairment | | $ | 1 |
| | $ | 2 |
|
| Recorded investment: | | | | |
| Individually evaluated for impairment | | $ | 12 |
| | $ | 15 |
|
| Collectively evaluated for impairment | | 481 |
| | 532 |
|
| Total recorded investment | | $ | 493 |
| | $ | 547 |
|
Key credit quality indicators for mortgage loans include the migration of past due mortgage loans, nonaccrual mortgage loans, and mortgage loans in process of foreclosure. The following tables present the Bank's recorded investment in mortgage loans by impairment methodology was as follows:these key credit quality indicators.
|
| | | | | | | | | | | | |
| | | As of December 31, 2013 |
| | | Conventional Single-family Residential Mortgage Loans | | Government-guaranteed or Insured Residential Mortgage Loans | | Total |
| Allowance for credit losses: | | | | | | |
| Individually evaluated for impairment | | $ | 2 |
| | $ | — |
| | $ | 2 |
|
| Collectively evaluated for impairment | | 9 |
| | — |
| | 9 |
|
| Total allowance for credit losses | | $ | 11 |
| | $ | — |
| | $ | 11 |
|
| Recorded investment: | | | | | | |
| Individually evaluated for impairment | | $ | 15 |
| | $ | — |
| | $ | 15 |
|
| Collectively evaluated for impairment | | 851 |
| | 67 |
| | 918 |
|
Total recorded investment (1) | | $ | 866 |
| | $ | 67 |
| | $ | 933 |
|
|
| | | | | | | | | | | |
| | As of December 31, 2016 |
| | Conventional Residential Mortgage Loans | | Government-guaranteed or Insured Residential Mortgage Loans | | Total |
| Past due 30-59 days | $ | 17 |
| | $ | 4 |
| | $ | 21 |
|
| Past due 60-89 days | 3 |
| | 1 |
| | 4 |
|
| Past due 90 days or more | 12 |
| | 1 |
| | 13 |
|
| Total past due mortgage loans | 32 |
| | 6 |
| | 38 |
|
| Total current mortgage loans | 461 |
| | 27 |
| | 488 |
|
Total mortgage loans (1) | $ | 493 |
| | $ | 33 |
| | $ | 526 |
|
| Other delinquency statistics: | | | | | |
In process of foreclosure (2) | $ | 6 |
| | $ | 1 |
| | $ | 7 |
|
Seriously delinquent rate (3) | 2.44 | % | | 3.75 | % | | 2.53 | % |
Past due 90 days or more and still accruing interest (4) | $ | — |
| | $ | 1 |
| | $ | 1 |
|
Mortgage loans on nonaccrual status (5) | $ | 12 |
| | $ | — |
| | $ | 12 |
|
____________
(1) The difference between the recorded investment and the carrying value of total mortgage loans of $4$2 relates to accrued interest.
|
| | | | | | | | | | | | | | | | |
| | | As of December 31, 2012 |
| | | Conventional Single-family Residential Mortgage Loans | | Government-guaranteed or Insured Residential Mortgage Loans | | Multifamily Residential Mortgage Loans | | Total |
| Allowance for credit losses: | | | | | | | | |
| Individually evaluated for impairment | | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | 2 |
|
| Collectively evaluated for impairment | | 9 |
| | — |
| | — |
| | 9 |
|
| Total allowance for credit losses | | $ | 10 |
| | $ | — |
| | $ | 1 |
| | $ | 11 |
|
| Recorded investment: | | | | | | | | |
| Individually evaluated for impairment | | $ | 13 |
| | $ | — |
| | $ | 21 |
| | $ | 34 |
|
| Collectively evaluated for impairment | | 1,135 |
| | 93 |
| | — |
| | 1,228 |
|
Total recorded investment (1) | | $ | 1,148 |
| | $ | 93 |
| | $ | 21 |
| | $ | 1,262 |
|
____________(2) Includes mortgage loans where the decision of foreclosure or similar alternative, such as a pursuit of deed-in lieu, has been reported. Mortgage loans in the process of foreclosure are included in past due or current mortgage loans depending on their delinquency status.
(1)(3) The difference betweenMortgage loans that are 90 days or more past due or in the recorded investment andprocess of foreclosure expressed as a percentage of the carrying value of total mortgage loan portfolio segment.
(4) Mortgage loans insured or guaranteed by the Federal Housing Administration or the Department of $7 relates to accruedVeterans Affairs.
(5) Represents mortgage loans with contractual principal or interest payments 90 days or more past due and not accruing interest.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Key credit quality indicators for mortgage loans include the migration of past due loans, nonaccrual loans, loans in process of foreclosure, and impaired loans. The tables below summarize the Bank's recorded investment in mortgage loans by these key credit quality indicators:
| | | | As of December 31, 2013 | As of December 31, 2015 |
| | Conventional Single-family Residential Mortgage Loans | | Government-guaranteed or Insured Single-family Residential Mortgage Loans | | Total | Conventional Residential Mortgage Loans | | Government-guaranteed or Insured Residential Mortgage Loans | | Total |
| Past due 30-59 days | $ | 30 |
| | $ | 7 |
| | $ | 37 |
| $ | 17 |
| | $ | 4 |
| | $ | 21 |
|
| Past due 60-89 days | 9 |
| | 3 |
| | 12 |
| 5 |
| | 1 |
| | 6 |
|
| Past due 90 days or more | 51 |
| | 9 |
| | 60 |
| 18 |
| | 3 |
| | 21 |
|
| Total past due mortgage loans | 90 |
| | 19 |
| | 109 |
| 40 |
| | 8 |
| | 48 |
|
| Total current mortgage loans | 776 |
| | 48 |
| | 824 |
| 507 |
| | 34 |
| | 541 |
|
Total mortgage loans (1) | $ | 866 |
| | $ | 67 |
| | $ | 933 |
| $ | 547 |
| | $ | 42 |
| | $ | 589 |
|
| Other delinquency statistics: | | | | | | | | | | |
In process of foreclosure (2) | $ | 38 |
| | $ | 3 |
| | $ | 41 |
| $ | 9 |
| | $ | 1 |
| | $ | 10 |
|
Seriously delinquent rate (3) | 5.90 | % | | 13.13 | % | | 6.42 | % | 3.32 | % | | 6.65 | % | | 3.55 | % |
Past due 90 days or more and still accruing interest (4) | $ | — |
| | $ | 9 |
| | $ | 9 |
| $ | — |
| | $ | 3 |
| | $ | 3 |
|
Loans on nonaccrual status (5) | $ | 51 |
| | $ | — |
| | $ | 51 |
| |
Mortgage loans on nonaccrual status (5) | | $ | 18 |
| | $ | — |
| | $ | 18 |
|
____________
(1) The difference between the recorded investment and the carrying value of total mortgage loans of $4$3 relates to accrued interest.
(2) Includes mortgage loans where the decision of foreclosure or similar alternative, such as a pursuit of deed-in lieu, has been reported. LoansMortgage loans in the process of foreclosure are included in past due or current mortgage loans depending on their delinquency status.
(3) LoansMortgage loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total mortgage loan portfolio segment.
(4) Mortgage loans insured or guaranteed by the Federal Housing Administration or the Department of Veterans Affairs.
(5) Represents mortgage loans with contractual principal or interest payments 90 days or more past due and not accruing interest.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | |
| | As of December 31, 2012 |
| | Conventional Single-family Residential Mortgage Loans | | Government-guaranteed or Insured Single-family Residential Mortgage Loans | | Multifamily Residential Mortgage Loans | | Total |
| Past due 30-59 days | $ | 34 |
| | $ | 8 | | | $ | — |
| | $ | 42 |
|
| Past due 60-89 days | 12 |
| | 4 | | | — |
| | 16 |
|
| Past due 90 days or more | 78 |
| | 11 | | | — |
| | 89 |
|
| Total past due mortgage loans | 124 |
| | 23 | | | — |
| | 147 |
|
| Total current mortgage loans | 1,024 |
| | 70 | | | 21 |
| | 1,115 |
|
Total mortgage loans (1) | $ | 1,148 |
| | $ | 93 | | | $ | 21 |
| | $ | 1,262 |
|
| Other delinquency statistics: | | | | | | | |
In process of foreclosure (2) | $ | 59 |
| | $ | 5 | | | $ | — |
| | $ | 64 |
|
Seriously delinquent rate (3) | 6.78 | % | | 11.45 | % | | 0.00 | % | | 7.01 | % |
Past due 90 days or more and still accruing interest (4) | $ | — |
| | $ | 11 | | | $ | — |
| | $ | 11 |
|
Loans on nonaccrual status (5) | $ | 78 |
| | $ | — | | | $ | — |
| | $ | 78 |
|
____________
(1) The difference between the recorded investment and the carrying value of total mortgage loans of $7 relates to accrued interest.
(2) Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in lieu has been reported. Loans in the process of foreclosure are included in past due or current loans depending on their delinquency status.
(3) Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total loan portfolio segment.
(4) Mortgage loans insured or guaranteed by the Federal Housing Administration or the Department of Veterans Affairs.
(5) Represents mortgage loans with contractual principal or interest payments 90 days or more past due and not accruing interest.
A troubled debt restructuring is considered to have occurred when a concession that would not have been considered otherwise is granted to a borrower for economic or legal reasons related to the borrower's financial difficulties and that concession would not have been considered otherwise.difficulties. The Bank has granted a concession when it does not expect to collect all amounts due under the original contract as a result of the restructuring. The Bank's conventional single-family residential mortgage loan troubled debt restructurings primarily involve modifyingIn the event the Bank grants a concession, the borrower's monthly payment is restructured for a period of up to 36 months to try to achieve a target housing expense ratio of not more than 31.0 percent of their qualifying monthly income. TheTo restructure the loan, the outstanding principal balance is first re-amortized to reflect a principal and interest payment for a term not to exceed 40 years. This would resultresults in a balloon payment at the original maturity date of the loan as the maturity date and number of remaining monthly payments are not adjusted. If the 31.0 percent housing expense ratio is not achieved through re-amortization, the interest rate is reduced in 0.125 percent increments below the original note rate in 0.125 percent increments to a floor rate of 3.00 percent resultinguntil the target 31.0 percent housing expense ratio is met. These reductions in reduced principal and interest payments are for the temporary payment modification period of up to 36 months, until the target 31.0 percent housing expense ratio is met. A months. Additionally, a conventional single-family residential mortgage loan in which the borrower filed for Chapter 7 bankruptcy and the bankruptcy court discharged the borrower's obligation to the Bank, is considered a troubled debt restructuring. Troubled debt restructurings are evaluated individually for impairment.
The following table below presents the Bank's recorded investment balance in mortgage loans classified as troubled debt restructured loans as of the dates presented:restructurings.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2013 | | 2012 |
| | | Performing | | Non-performing | | Total | | Performing | | Non-performing | | Total |
| Conventional single-family residential loans | | $ | 11 |
| | $ | 4 |
| | $ | 15 |
| | $ | 9 |
| | $ | 2 |
| | $ | 11 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2016 | | 2015 |
| | | Performing | | Non-performing | | Total | | Performing | | Non-performing | | Total |
| Conventional residential mortgage loans | | $ | 10 |
| | $ | 2 |
| | $ | 12 |
| | $ | 13 |
| | $ | 2 |
| | $ | 15 |
|
Due to the minimal change in terms of modified loans (i.e., no write-offs of principal), the Bank's pre-modification recorded investment was not materially different than the post-modification recorded investment in troubled debt restructuringrestructurings during the years ended December 31, 2013, 2012,2016, 2015, and 2011.2014.
DuringThe financial amounts related to the years ended December 31, 2013, 2012, and 2011, certain conventional single-family residential mortgage loans modified asBank's troubled debt restructurings and experiencing a payment default withinimpaired loans are not material to the previous 12 months were $2, less thanBank's financial condition or results of operations for the periods presented.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
$1, and $1 respectively. A payment default on a troubled debt restructuring is considered to have occurred if the contractually due principal or interest is 60 days or more past due at any time during the reported periods.
The following tables summarize the recorded investment, unpaid principal balance, and related allowance for credit losses for impaired loans individually assessed for impairment as of December 31, 2013 and 2012, and the average recorded investment and related interest income recognized on these loans during the years ended December 31, 2013 and 2012. All impaired conventional single-family residential loans had an allowance for credit losses as of December 31, 2013 and 2012.
|
| | | | | | | | | | | | | | | | | | | | |
| | | As of and for the Year Ended December 31, 2013 |
| | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Average Recorded Investment | | Interest Income Recognized |
| Conventional single-family residential loans | | $ | 15 |
| | $ | 15 |
| | $ | 2 |
| | $ | 15 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | As of and for the Year Ended December 31, 2012 |
| | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Average Recorded Investment | | Interest Income Recognized |
| Conventional single-family residential loans | | $ | 13 |
| | $ | 13 |
| | $ | 1 |
| | $ | 13 |
| | $ | — |
|
Note 12—Interest-bearing Deposits
The Bank offers demand and overnight deposits for members and qualifying non-members. A member that services mortgage loans may deposit funds in the Bank fundsthat were collected in connection with the mortgage loans, pending disbursement of such funds to the owners of the mortgage loans. The Bank classifiesrecords these items as interest-bearing depositsin "Interest-bearing deposits" on the Statements of Condition.
The Bank pays interest on demand and overnight deposits based on a daily interest rate.
Note 13—Consolidated Obligations
Consolidated obligations, consisting of consolidated obligation bonds and discount notes, are the joint and several obligations of the FHLBanks and are backed only by the financial resources of the FHLBanks.
The Bank is primarily liable for its portion of consolidated obligations (i.e., those issued on its behalf), and also is jointly and severally liable with the other 1110 FHLBanks for the payment of principal and interest on all consolidated obligations of each of the FHLBanks. The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligation, whether or not the consolidated obligation represents a primary liability of such FHLBank. Although it has never occurred, to the extent that an FHLBank makes any payment on a consolidated obligation on behalf of another FHLBank that is primarily liable for such consolidated obligation, Finance Agency regulations provide that the paying FHLBank is entitled to reimbursement from the noncomplying FHLBank for any payments made on its behalf and any other associated costs (including interest to be determined by the Finance Agency). If, however,However, if the Finance Agency determines that the noncomplying FHLBank is unable to satisfy its repayment obligations, the Finance Agency may allocate the outstanding liabilities of the noncomplying FHLBank among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank's participation in all consolidated obligations outstanding. The Finance Agency reserves the right to allocate the outstanding liabilities for the consolidated obligations among the FHLBanks in any other manner it may determine to ensure that the FHLBanks operate in a safe and sound manner.
The par value of the12 FHLBanks' outstanding consolidated obligations, including consolidated obligations issued by the Bank, was $766,837$989,311 and $687,903$905,202 as of December 31, 20132016 and 2012,2015, respectively.
Regulations require each FHLBank to maintain, in the aggregate, unpledged qualifying assets equal to that FHLBank's consolidated obligations outstanding. Qualifying assets are defined as cash; secured advances; assets with an assessment or rating at least equivalent to the current assessment or rating of the consolidated obligations; obligations of or fully guaranteed by the United States; mortgages guaranteed or insured by the United States or its agencies; participations, mortgages, or other securities of or issued by certain government-sponsored enterprises; and such securities as fiduciary and trust funds may invest in under the laws of the state in which the FHLBank is located. The Bank held unpledged qualifying assets of $122,024$138,097 and $123,523$141,848 as of December 31, 2013
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
2016 and 2012,2015, respectively, compared to a book value of $112,930$129,939 and $114,684$133,387 in consolidated obligations as of December 31, 20132016 and 2012,2015, respectively.
General Terms. Consolidated obligations are issued with either fixed-rate coupon payment termsfixed- or variable-rate coupon payment terms that use a variety of indices for interest-rate resets including the London Interbank Offered Rate (LIBOR), Constant Maturity Treasury, (CMT), and others. To meet the expected specific needs of certain investors in consolidated obligations, both fixed-rate consolidated obligation bondsfixed- and variable-rate consolidated obligation bonds also may contain certain features, which may result in complex coupon payment terms and call options. When such consolidated obligations are issued, the Bank generally enters into derivatives containing offsetting features that, in effect, convert the terms of the consolidated obligation bond to those of a simple variable-rate consolidated obligation bond.
These consolidated obligations, beyond having fixed-rate or simple variable-rate coupon payment terms, may also may have the following broad term regarding either principal repayment or coupon payment terms:
Optional Principal Redemption Consolidated Obligation Bonds (callable bonds) that the Bank may redeem in whole or in part at its discretion on predetermined call dates according to the terms of the consolidated obligation bond offerings.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
With respect to interest payments, consolidated obligation bonds also may have the following terms:
Step-up/down Consolidated Obligation Bonds have coupons at fixed rates for specified intervals over the lives of the consolidated obligation bonds. At the end of each specified interval, the coupon rate increases (decreases)(or decreases) or steps up (steps(or steps down). These consolidated obligation bond issues generally contain call provisions enabling the bonds to be called at the Bank's discretion; and
Variable-rate Capped Floater Consolidated Obligation Bonds pay interest at variable rates subject to an interest-rate ceiling.
Interest-rate Payment Terms. The following table detailspresents the Bank’s consolidated obligation bonds by interest-rate payment type:type. | | | | As of December 31, | As of December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| Fixed-rate | $ | 59,885 |
| | $ | 76,212 |
| $ | 23,674 |
| | $ | 40,512 |
|
| Step up/down | 7,617 |
| | 4,419 |
| 2,534 |
| | 4,239 |
|
| Simple variable-rate | 13,005 |
| | 1,250 |
| 62,408 |
| | 19,022 |
|
| Variable-rate capped floater | 45 |
| | 20 |
| |
| Total par value | $ | 80,552 |
| | $ | 81,901 |
| $ | 88,616 |
| | $ | 63,773 |
|
Redemption Terms. The following table presents the Bank’s participation in consolidated obligation bonds outstanding by year of contractual maturity.
|
| | | | | | | | | | | |
| | As of December 31, |
| | 2016 | | 2015 |
| | Amount | | Weighted- average Interest Rate (%) | | Amount | | Weighted- average Interest Rate (%) |
| Due in one year or less | $ | 65,378 |
| | 0.91 | | $ | 32,559 |
| | 0.74 |
| Due after one year through two years | 17,065 |
| | 1.05 | | 17,132 |
| | 1.41 |
| Due after two years through three years | 1,849 |
| | 1.67 | | 5,959 |
| | 1.63 |
| Due after three years through four years | 1,482 |
| | 1.68 | | 2,124 |
| | 1.67 |
| Due after four years through five years | 1,117 |
| | 1.58 | | 1,975 |
| | 1.72 |
| Due after five years | 1,725 |
| | 2.37 | | 4,024 |
| | 2.18 |
| Total par value | 88,616 |
| | 1.00 | | 63,773 |
| | 1.16 |
| Premiums | 24 |
| | | | 36 |
| | |
| Discounts | (12 | ) | | | | (20 | ) | | |
| Hedging adjustments | 19 |
| | | | 164 |
| | |
| Total | $ | 88,647 |
| | | | $ | 63,953 |
| | |
The following table presents the Bank’s consolidated obligation bonds outstanding by call feature.
|
| | | | | | | |
| | As of December 31, |
| | 2016 | | 2015 |
| Noncallable | $ | 83,487 |
| | $ | 53,432 |
|
| Callable | 5,129 |
| | 10,341 |
|
| Total par value | $ | 88,616 |
| | $ | 63,773 |
|
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Redemption Terms. The following is a summary of the Bank’s participation in consolidated obligation bonds outstanding, by year of contractual maturity:
|
| | | | | | | | | | | |
| | As of December 31, |
| | 2013 | | 2012 |
| | Amount | | Weighted- average Interest Rate (%) | | Amount | | Weighted- average Interest Rate (%) |
| Due in one year or less | $ | 41,725 |
| | 0.50 | | $ | 55,397 |
| | 0.79 |
| Due after one year through two years | 9,485 |
| | 0.67 | | 7,587 |
| | 2.08 |
| Due after two years through three years | 7,503 |
| | 2.21 | | 2,507 |
| | 1.92 |
| Due after three years through four years | 6,355 |
| | 2.81 | | 3,344 |
| | 4.25 |
| Due after four years through five years | 5,150 |
| | 1.67 | | 6,298 |
| | 2.82 |
| Due after five years | 10,334 |
| | 1.92 | | 6,768 |
| | 2.31 |
| Total par value | 80,552 |
| | 1.13 | | 81,901 |
| | 1.36 |
| Premiums | 82 |
| | | | 91 |
| | |
| Discounts | (24 | ) | | | | (34 | ) | | |
| Hedging adjustments | 118 |
| | | | 989 |
| | |
| Total | $ | 80,728 |
| | | | $ | 82,947 |
| | |
The Bank’s consolidated obligation bonds outstanding by call feature:
|
| | | | | | | |
| | As of December 31, |
| | 2013 | | 2012 |
| Noncallable | $ | 56,569 |
| | $ | 71,880 |
|
| Callable | 23,983 |
| | 10,021 |
|
| Total par value | $ | 80,552 |
| | $ | 81,901 |
|
The following table summarizespresents the Bank’s consolidated obligation bonds outstanding, by year of contractual maturity, or for callable consolidated obligation bonds, by next call date:date.
| | | | As of December 31, | As of December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| Due or callable in one year or less | $ | 59,458 |
| | $ | 62,540 |
| $ | 70,232 |
| | $ | 41,410 |
|
| Due or callable after one year through two years | 7,795 |
| | 6,550 |
| 15,250 |
| | 16,277 |
|
| Due or callable after two years through three years | 4,491 |
| | 2,136 |
| 1,399 |
| | 3,461 |
|
| Due or callable after three years through four years | 6,095 |
| | 3,024 |
| 1,103 |
| | 1,055 |
|
| Due or callable after four years through five years | 1,571 |
| | 6,028 |
| 162 |
| | 1,023 |
|
| Due or callable after five years | 1,142 |
| | 1,623 |
| 470 |
| | 547 |
|
| Total par value | $ | 80,552 |
| | $ | 81,901 |
| $ | 88,616 |
| | $ | 63,773 |
|
Consolidated Obligation Discount Notes. Consolidated obligation discount notes are issued to raise short-term funds. Consolidated obligation discount notes are consolidated obligations withfunds and have original contractual maturities of up to one year. These consolidated obligation discount notes are issued at less than their face amounts and redeemed at par value when they mature.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The Bank’sfollowing table presents the Bank's participation in consolidated obligation discount notes was as follows:
notes.
|
| | | | | | | | | |
| | Book Value | | Par Value | | Weighted-average Interest Rate (%) |
| As of December 31, 2013 | $ | 32,202 |
| | $ | 32,208 |
| | 0.11 |
| As of December 31, 2012 | $ | 31,737 |
| | $ | 31,745 |
| | 0.12 |
|
| | | | | | | | | |
| | Book Value | | Par Value | | Weighted-average Interest Rate (%) |
| As of December 31, 2016 | $ | 41,292 |
| | $ | 41,334 |
| | 0.48 |
| As of December 31, 2015 | $ | 69,434 |
| | $ | 69,481 |
| | 0.27 |
Note 14—AssessmentsAffordable Housing Program
Affordable Housing Program. Annually, the FHLBankseach FHLBank must set aside 10 percent of its income subject to assessment for the AHP, or such additional prorated sums as may be required so that the greateraggregate annual contribution of the aggregateFHLBanks is not less than $100. For purposes of $100 or 10 percent ofthe AHP calculation, each FHLBank's regulatory income. Regulatory income subject to assessment is defined as GAAPthe individual FHLBank's net income before assessments, plus interest expense related to mandatorily redeemable capital stock and the assessment for AHP, but after any assessment for REFCORP. The AHP and REFCORP assessments were calculated simultaneously due to their interdependence on each other.stock. The Bank accrues this expense monthly based on its regulatory income before assessments.subject to assessment. The Bank reduces the AHP liability as members use subsidies.
If the Bank experienced a regulatorynet loss during a quarter but still had regulatory income for the year, the Bank's obligationsubject to the AHP would be calculated based on the Bank's year-to-date regulatory income. If the Bank had regulatory incomeassessment in subsequent quarters, it would be required to contribute additional amounts to meet its calculated annual obligation.obligation based on the Bank's year-to-date income subject to assessment. If the Bank experienced a regulatorynet loss for a full year, the Bank would have no obligation to the AHP for the year since each FHLBank's required annual AHP contribution is limited to its annual regulatory income.income subject to assessment. If the aggregate of 10 percent calculation described aboveof income subject to assessment for all FHLBanks was less than $100 for all 12 FHLBanks,$100, each FHLBank would be required to assurecontribute additional amounts so that the aggregate contribution of the FHLBanks equals $100. The prorationthe required $100. Each FHLBanks' prorated contribution would be madedetermined based on the basis of an FHLBank'sits income in relation to the income of all FHLBanks for the previous year. There was no shortfall in 2013, 2012,the years ended December 31, 2016, 2015, or 2011.2014. If an FHLBank finds that its required contributions are contributing to the financial instability of that FHLBank, it may apply to the Finance Agency for a temporary suspension of its contributions. No FHLBank made such an application in 2013, 2012,the years ended December 31, 2016, 2015, or 2011.2014. The Bank had outstanding principal in AHP-related advances of $41$27 and $48$30 as of December 31, 20132016 and 2012,2015, respectively.
A
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The following table presents a rollforward of the Bank's AHP liability is as follows:
liability.
| | | | | For the Years Ended December 31, | | For the Years Ended December 31, |
| | | 2013 | | 2012 | | 2011 | | 2016 | | 2015 | | 2014 |
| Balance, beginning of year | | $ | 80 |
| | $ | 109 |
| | $ | 126 |
| | $ | 63 |
| | $ | 65 |
| | $ | 74 |
|
| AHP assessments | | 37 |
| | 30 |
| | 21 |
| | 31 |
| | 33 |
| | 30 |
|
| Subsidy usage, net | | (43 | ) | | (59 | ) | | (38 | ) | | (25 | ) | | (35 | ) | | (39 | ) |
| Balance, end of year | | $ | 74 |
| | $ | 80 |
| | $ | 109 |
| | $ | 69 |
| | $ | 63 |
| | $ | 65 |
|
REFCORP. Prior to the satisfaction of the FHLBanks' REFCORP obligation in July 2011, each FHLBank was required to make payments to REFCORP (20 percent of annual GAAP net income before REFCORP assessments and after payment of AHP assessments) until the total amount of payments actually made was equivalent to a $300 million annual annuity whose final maturity date was April 15, 2030.
Note 15—Capital and Mandatorily Redeemable Capital Stock
Capital.The Bank is subject to the following three regulatory capital requirements under its capital plan, the FHLBank Act, and Finance Agency regulations. First, the
Risk-Based Capital. The Bank must maintain, permanent capital at all times, permanent capital in an amount at least equal to the sum of its credit risk capital requirement, its market risk capital requirement, and its operations risk capital requirement, calculated in accordance with the rules and regulations of the Finance Agency.Only “permanent Permanent capital” is defined by the FHLBank Act and regulations as the sum of retained earnings (determined in accordance with GAAP) and the amounts paid-in for Class B stock,stock.Only permanent capital satisfies the risk-based capital requirement. The Finance Agency may require the Bank to maintain a greater amount of permanent capital than is required by the risk-based capital requirement as defined.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Second, theTotal Regulatory Capital. The FHLBank Act requires the Bank to maintain at all times total regulatory capital in an amount equal to at least four percent of total assets.
Third, the FHLBank Act requires the Bank to maintainassets at all times weighted-leveragetimes. Total regulatory capital in an amount equal to at least five percent of total assets. “Total capital” is defined in the regulations as the sum of permanent capital, the amount paid-in for Class A stock (if any), the amount of the Bank's general allowance for losses (if any), and the amount of any other instruments identified in the capital plan and approved by the Finance Agency. As of December 31, 2013, theThe Bank has not issued any Class A stock, and has no general allowance for losses, or anyand has no other instruments identified in the capital plan and approved by the Finance Agency; therefore, the Bank's total regulatory capital is equal to its permanent capital. “Weighted-leverage capital”capital as of December 31, 2016.
Leverage Capital. The FHLBank Act requires the Bank to maintain leverage capital in an amount equal to at least five percent of total assets at all times. Leverage capital is defined as the sum of permanent capital weighted 1.5 times and nonpermanentall other capital weighted 1.0 times. It should be noted that, althoughAlthough mandatorily redeemable capital stock is not included in capital for financial reporting purposes, such outstanding stock is considered capital for determining compliance with these regulatory capital requirements.
The Bank was infollowing table presents the Bank's compliance with the Finance Agency's regulatory capital rules and requirements as shown in the following table:requirements.
|
| | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2013 | | 2012 |
| | Required | | Actual | | Required | | Actual |
| Risk based capital | $ | 2,246 |
| | $ | 6,563 |
| | $ | 1,625 |
| | $ | 6,373 |
|
| Total capital-to-assets ratio | 4.00 | % | | 5.37 | % | | 4.00 | % | | 5.15 | % |
Total regulatory capital (1) | $ | 4,893 |
| | $ | 6,563 |
| | $ | 4,948 |
| | $ | 6,373 |
|
| Leverage ratio | 5.00 | % | | 8.05 | % | | 5.00 | % | | 7.73 | % |
| Leverage capital | $ | 6,116 |
| | $ | 9,845 |
| | $ | 6,185 |
| | $ | 9,560 |
|
|
| | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2016 | | 2015 |
| | Required | | Actual | | Required | | Actual |
| Risk-based capital | $ | 1,701 |
| | $ | 6,848 |
| | $ | 1,621 |
| | $ | 6,956 |
|
| Total regulatory capital ratio | 4.00 | % | | 4.94 | % | | 4.00 | % | | 4.89 | % |
Total regulatory capital (1) | $ | 5,547 |
| | $ | 6,848 |
| | $ | 5,690 |
| | $ | 6,956 |
|
| Leverage capital ratio | 5.00 | % | | 7.41 | % | | 5.00 | % | | 7.33 | % |
| Leverage capital | $ | 6,934 |
| | $ | 10,273 |
| | $ | 7,113 |
| | $ | 10,433 |
|
___________
| |
(1) | Mandatorily redeemableTotal regulatory capital stock is considered capital for regulatory purposes, and “total regulatory capital” includes the Bank’s $24and $40 indoes not include accumulated other comprehensive income but does include mandatorily redeemable capital stock as of December 31, 2013 and 2012, respectively.
stock. |
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The Bank offers two subclasses of Class B stock, each of which is issued, redeemed, and repurchased at a par value of $100$100 per share. Member shares cannot be purchased or sold except between the Bank and its members at $100$100 per share par value. Shares of subclass B1 capital stock are issued to meet the membership stock requirement under the capital plan and shares of subclass B2 capital stock are issued to meet the activity-based stock requirement under the capital plan. Activity-based stock held by a member is that amount of subclass B2 capital stock that the member is required to own for as long as certain transactions between the Bank and the member remain outstanding. The manner in which the activity-based stock requirement is determined under the capital plan is set forth below.
The minimum stock requirement for each member is the sum of the membership stock requirement and the activity-based stock requirement. The capital plan permits the Bank's board of directors to set the membership and activity-based stock requirements within a range as set forth in the capital plan. As of December 31, 2013,2016, the membership stock requirement was an amount of subclass B1 capital stock equal to 0.120.09 percent (12nine basis points) of the member's total assets as of December 31, 2012,2015, subject to a cap of $2015. The membership stock requirement is recalculated at least annually by March 31, using the member's total assets as of the preceding calendar year-end.year-end at least annually by March 31. As of December 31, 2013,2016, the activity-based stock requirement was an amount of subclass B2 capital stock equal to the sum of the following:
4.504.25 percent of the member's outstanding par value of advances;advances and
8.00 percent of targeted debt/equity investments (such as multifamily residential mortgage loan assets) sold by the member to the Bank on or after December 17, 2004.
The activity-based stock requirement also may include a percentage of any outstanding balance of acquired member assets (such as single-family residential mortgage loan assets), although this percentage was set at zero as of December 31, 20132016 and 2012.2015.
The FHLBank Act and Finance Agency regulations require that the minimum stock requirement for members must be sufficient to enable the Bank to meet its minimum regulatory capital requirement. Therefore, from time to time, the Bank's board of directors may adjust the membership stock requirement and the activity-based stock requirement within specified ranges set forth in the capital plan. Any adjustment outside the ranges would require an amendment to the capital plan and Finance
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Agency approval. Each member is required to comply promptly with any adjustment to the minimum stock requirement. The FHLBank Act provides that the Bank may repurchase, at its sole discretion, any member's capital stock investment that exceeds the required minimum amount (excess capital stock). Under certain circumstances, Finance Agency rules limit the ability of the Bank to create member excess stock under certain circumstances.stock. The Bank may not pay dividends in the form of capital stock or issue excess capital stock to any member if the Bank's excess capital stock exceeds one percent of its total assets or if the issuance of excess capital stock would cause the Bank's excess capital stock to exceed one percent of its total assets. As of December 31, 20132016 and 2012,2015, the Bank's excess capital stock did not exceed one percent of its total assets.
A member may obtain redemption ofredeem its excess Class B capital stock at par value payable in cash five years after providing written notice to the Bank. The Bank, at its option, may repurchase a member's excess capital stock before expiration of the five-year notice period. The Bank's authority to redeem or repurchase capital stock is subject to a number of limitations.
TheUnder Finance Agency rules, the Bank's board of directors may, but is not required to, declare and pay non-cumulative dividends out ofin cash or capital stock from unrestricted retained earnings and current earnings in either cash or capital stock in compliance with Finance Agency rules.earnings. All shares of capital stock share in any dividend without preference. Dividends are computed on the average daily balance of capital stock outstanding during the relevant time period. The Bank may not pay a dividend if the Bank is not in compliance with any of its regulatory capital requirements or if thea payment if made, would cause the Bank to fail to meet any of its regulatory capital requirements.
AsThe concentration of the Bank's regulatory capital stock to its 10 largest shareholders was $3,018, or 60.9 percent, and $3,373, or 65.9 percent, as of December 31, 20132016 and 2012, the 10 largest holders2015, respectively.
Mandatorily Redeemable Capital Stock. Dividends on mandatorily redeemable capital stock, recorded as interest expense, were $1, $3, and $4 for the years ended December 31, 2013, 2012, and 2011, respectively.FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The following table providespresents the activity in mandatorily redeemable capital stock:stock.
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| Balance, beginning of year | $ | 40 |
| | $ | 286 |
| | $ | 529 |
|
| Capital stock subject to mandatory redemption reclassified from equity during the year due to: | | | | | |
| Attainment of non-member status | 9 |
| | 90 |
| | 149 |
|
| Withdrawal | — |
| | 1 |
| | 4 |
|
| Repurchase/redemption of mandatorily redeemable capital stock | (25 | ) | | (308 | ) | | (369 | ) |
| Capital stock no longer subject to redemption due to the transfer of stock from a non-member to a member | — |
| | (29 | ) | | (27 | ) |
| Balance, end of year | $ | 24 |
|
| $ | 40 |
|
| $ | 286 |
|
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Balance, beginning of year | $ | 14 |
| | $ | 19 |
| | $ | 24 |
|
| Net reclassification from capital during the year | 7 |
| | 21 |
| | 7 |
|
| Repurchase/redemption of mandatorily redeemable capital stock | (20 | ) | | (26 | ) | | (12 | ) |
| Balance, end of year | $ | 1 |
|
| $ | 14 |
|
| $ | 19 |
|
As of December 31, 2013,2016, the Bank's outstanding mandatorily redeemable capital stock consisted of B1 membership stock and B2 activity-based stock. The Bank is not required to redeem activity-based stock until the later of the expiration of the redemption period, which is five years after notification is received, or until the activity no longer remains outstanding.
The following table showspresents the amount of mandatorily redeemable capital stock by year of redemption. The year of redemption in the table is the end of the five-year redemption period, or with respect to activity-based stock, the later of the expiration of the five-year redemption period or the activity’s maturity date.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
| | | | As of December 31, | As of December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| Due in one year or less | $ | 5 |
| | $ | — |
| $ | — |
| | $ | 7 |
|
| Due after one year through two years | 9 |
| | 12 |
| — |
| | 1 |
|
| Due after two years through three years | 8 |
| | 9 |
| |
| Due after three years through four years | 1 |
| | 17 |
| 1 |
| | — |
|
| Due after four years through five years | — |
| | 1 |
| — |
| | 6 |
|
| Due after five years | 1 |
| | 1 |
| |
| Total | $ | 24 |
| | $ | 40 |
| $ | 1 |
| | $ | 14 |
|
A member may cancel or revoke its written notice of redemption or its notice of withdrawal from membership at any time prior to the end of the five-year redemption period, subject to payment of a cancellation fee as set forth in the capital plan. If a member cancels its written notice of redemption or notice of withdrawal, the Bank will reclassify mandatorily redeemable capital stock from a liability to capital. After the reclassification, dividends on the capital stock would no longer be classified as interest expense.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Note 16—Accumulated Other Comprehensive Income (Loss)
ComponentsThe following table presents the components comprising accumulated other comprehensive income (loss) were as follows:income.
| | | | Pension and Postretirement Benefits | | Noncredit Portion of Other-than- temporary Impairment Losses on Available-for- sale Securities | | Noncredit Portion of Other-than-temporary Impairment Losses on Held-to-maturity Securities | | Total Accumulated Other Comprehensive Income (Loss) | Pension and Postretirement Benefits | | Noncredit Portion of Other-than- temporary Impairment Losses on Available-for- sale Securities | | Total Accumulated Other Comprehensive Income |
| Balance, December 31, 2010 | $ | (10 | ) | | $ | (392 | ) | | $ | — |
| | $ | (402 | ) | |
| Other comprehensive loss before reclassifications: | | | | | | | | |
| Noncredit other-than-temporary impairment losses | — |
| | — |
| | (37 | ) | | (37 | ) | |
| Noncredit other-than-temporary impairment losses transferred | — |
| | (37 | ) | | 37 |
| | — |
| |
| Balance, December 31, 2013 | | $ | (13 | ) | | $ | 125 |
| | $ | 112 |
|
| Other comprehensive income before reclassifications: | | | | | | |
| Net change in fair value | — |
| | (69 | ) | | — |
| | (69 | ) | — |
| | (10 | ) | | (10 | ) |
| Actuarial loss | (5 | ) | | — |
| | — |
| | (5 | ) | (11 | ) | | — |
| | (11 | ) |
| Reclassification from other comprehensive loss to net income: | | | | | | | | |
| Reclassification from accumulated other comprehensive income to net income: | | | | | | |
| Noncredit other-than-temporary impairment losses | — |
| | 100 |
| | — |
| | 100 |
| — |
| | 3 |
| | 3 |
|
Amortization of pension and postretirement (1) | 2 |
| | — |
| | — |
| | 2 |
| 1 |
| | — |
| | 1 |
|
| Net current period other comprehensive loss | (3 | ) | | (6 | ) | | — |
| | (9 | ) | (10 | ) | | (7 | ) | | (17 | ) |
| Balance, December 31, 2011 | (13 | ) | | (398 | ) | | — |
| | (411 | ) | |
| Other comprehensive loss before reclassifications: | | | | | | | | |
| Balance, December 31, 2014 | | (23 | ) | | 118 |
| | 95 |
|
| Other comprehensive income before reclassifications: | | | | | | |
| Net change in fair value | | — |
| | (28 | ) | | (28 | ) |
| Actuarial gain | | 1 |
| | — |
| | 1 |
|
| Reclassification from accumulated other comprehensive income to net income: | | | | | | |
| Noncredit other-than-temporary impairment losses | | — |
| | 5 |
| | 5 |
|
Amortization of pension and postretirement (1) | | 2 |
| | — |
| | 2 |
|
| Net current period other comprehensive income (loss) | | 3 |
| | (23 | ) | | (20 | ) |
| Balance, December 31, 2015 | | (20 | ) | | 95 |
| | 75 |
|
| Other comprehensive income before reclassifications: | | | | | | |
| Noncredit other-than-temporary impairment losses | | — |
| | (1 | ) | | (1 | ) |
| Net change in fair value | — |
| | 341 |
| | — |
| | 341 |
| — |
| | 27 |
| | 27 |
|
| Actuarial loss | (5 | ) | | — |
| | — |
| | (5 | ) | (1 | ) | | — |
| | (1 | ) |
| Reclassification from other comprehensive loss to net income: | | | | | | | | |
| Reclassification from accumulated other comprehensive income to net income: | | | | | | |
| Noncredit other-than-temporary impairment losses | — |
| | 16 |
| | — |
| | 16 |
| — |
| | 3 |
| | 3 |
|
Amortization of pension and postretirement (1) | 1 |
| | — |
| | — |
| | 1 |
| 1 |
| | — |
| | 1 |
|
| Net current period other comprehensive (loss) income | (4 | ) | | 357 |
| | — |
| | 353 |
| |
| Balance, December 31, 2012 | (17 | ) | | (41 | ) | | — |
| | (58 | ) | |
| Other comprehensive loss before reclassifications: | | | | | | | | |
| Noncredit other-than-temporary impairment losses | — |
| | — |
| | (1 | ) | | (1 | ) | |
| Noncredit other-than-temporary impairment losses transferred | — |
| | (1 | ) | | 1 |
| | — |
| |
| Net change in fair value | — |
| | 167 |
| | — |
| | 167 |
| |
| Actuarial gain | 3 |
| | — |
| | — |
| | 3 |
| |
| Reclassification from other comprehensive loss to net income: | | | | | | | | |
Amortization of pension and postretirement (1) | 1 |
| | — |
| | — |
| | 1 |
| |
| Net current period other comprehensive income | 4 |
| | 166 |
| | — |
| | 170 |
| — |
| | 29 |
| | 29 |
|
| Balance, December 31, 2013 | $ | (13 | ) | | $ | 125 |
| | $ | — |
| | $ | 112 |
| |
| Balance, December 31, 2016 | | $ | (20 | ) | | $ | 124 |
| | $ | 104 |
|
____________
| |
(1)Included in Compensation and benefits on the Statements of Income. | Included in Compensation and benefits on the Statements of Income. |
Note 17—Pension and Postretirement Benefit Plans
The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra Plan), a tax-qualified defined-benefit pension plan. The Pentegra Plan is treated as a multiemployer plan for accounting purposes but operates as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. As a result, certain multiemployer plan disclosures including the certified zone status, are not applicable to the Pentegra Plan. Under the Pentegra Plan, contributions made by a participating employer may be used to provide benefits to employees of other participating employers because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer. Also, in the event a participating employer is unable to meet its contribution requirements, the required contributions for the other participating employers could increase proportionately. The Pentegra Plan covers substantially all officers and employees of the Bank hired before March 1, 2011.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The Pentegra Plan operates on a fiscal year from July 1 through June 30. The Pentegra Plan files one Form 5500 on behalf of all employers who participate in the plan. The Employer Identification Number is 13-5645888, and the three-digit plan number is 333. There are no collective bargaining agreements in place at the Bank.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The Pentegra Plan's annual valuation process includes separately calculating the plan's funded status and separately calculating the funded status of each participating employer. The funded status is defined as the fair value of assets divided by the funding target (100%100 percent of the present value of all benefit liabilities accrued at that date). As permitted by ERISA, the Pentegra Plan accepts contributions for the prior plan year up to eight and a half months after the asset valuation date. As a result, the fair value of assets at the valuation date (July 1) will increase by any subsequent contributions designated for the immediately preceding plan year ended June 30.
The most recent Form 5500 available for the Pentegra Plan is for the year ended June 30, 2012. For2015. The contributions made by the Pentegra Plan years ended June 30, 2012Bank during 2016 and 2011, the Bank's contribution was not2015 were more than five percent of the total contributions tofor each of the Pentegra Plan.Plan years ended June 30, 2015 and 2014.
The following table presents information on Pentegra Planthe net pension costcosts and funded status:
status of the Pentegra Plan. | | | | | 2013 | | 2012 | | 2011 | | 2016 | | 2015 | | 2014 |
| Net pension cost charged to compensation and benefit expense for the year ended December 31 | | $ | 7 |
| | $ | 9 |
| | $ | 9 |
| | $ | 12 |
| | $ | 11 |
| | $ | 10 |
|
Pentegra Plan funded status as of July 1(1) | | 101.31 | % | | 108.39 | % | | 90.29 | % | | 104.12 | % | | 107.01 | % | | 111.44 | % |
| Bank's funded status as of the plan year end | | 99.60 | % | | 105.26 | % | | 88.82 | % | | 105.51 | % | | 108.82 | % | | 114.16 | % |
____________
(1)The Pentegra Plan's funded status as of July 1 is preliminary and may increase because the plan's participants wereare permitted to make contributions through March 15 of the following year (i.e. through March 15, 20142017 for the plan year ended June 30, 20132016 and through March 15, 20132016 for the plan year ended June 30, 2012)2015). Contributions made before the March 15th deadline may be credited to the plan for the plan year ended June 30 of the previous year and included in the final valuation as of July 1 of the year the plan ended. The final funded status as of July 1 will not be available until the Form 5500 for the plan year July 1 through June 30 is filed. Form 5500 is due to be filed no later than April 20152018 for the plan year July 1, 20132016 through June 30, 20142017 and April 20142017 for the plan year July 1, 20122015 through June 2013.2016. Form 5500 was filed in March 2013April 2016 for the plan year July 1, 20112014 through June 30, 2012.2015.
The Bank also participates in a qualified defined contribution plan. The Bank's contribution to this plan is equal to a percentage of voluntary contributions, subject to certain limitations, plus contributions for all employees hired on or after March 1, 2011. The Bank contributed $2$2 to this plan during each of the years ended December 31, 2013, 2012,2016, 2015, and 2011.2014.
The Bank offers a supplemental nonqualified defined contribution retirement plan to eligible executives. The Bank's contribution to this plan is equal to a percentage of voluntary contributions. The Bank contributed less than $1$1 to this plan during each of the years ended December 31, 2013, 2012,2016, 2015, and 2011.2014.
In addition, the Bank maintains a nonqualified deferred compensation plan, available to Bank directors and officers at the senior vice president level and above, which is, in substance, an unfunded supplemental savings plan. The plan's liability consists of the accumulated compensation deferrals and accrued earnings on thethose deferrals. The Bank's minimum obligation from this plan was $1$3 and $2 as of December 31, 20132016 and 2012.2015, respectively. Operating expense includes deferred compensation and accrued earnings of less than $1$1 during each of the years ended December 31, 2013, 2012,2016 and 2011.2015, and less than $1 during the year ended December 31, 2014.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The Bank offers a supplemental nonqualified defined benefit pension plan to eligible executives and a postretirement health benefit plan to eligible retirees. There are no funded plan assets that have been designated to provide supplemental retirement plan or postretirement health benefits. The obligations and funding status of the Bank's supplemental defined benefit pension plan and postretirement health benefit plan as of December 31, 2013 and 2012 were as follows:
|
| | | | | | | | | | | | | | | | |
| | | Supplemental Defined Benefit Pension Plan | | Postretirement Health Benefit Plan |
| | | 2013 | | 2012 | | 2013 | | 2012 |
| Change in benefit obligation: | | | | | | | | |
| Benefit obligation at beginning of year | | $ | 26 |
| | $ | 20 |
| | $ | 13 |
| | $ | 12 |
|
| Service cost | | 1 |
| | 1 |
| | 1 |
| | 1 |
|
| Interest cost | | 1 |
| | 1 |
| | — |
| | — |
|
| Actuarial loss | | (1 | ) | | 5 |
| | (2 | ) | | — |
|
| Benefits paid | | (2 | ) | | (1 | ) | | (1 | ) | | — |
|
| Benefit obligation at end of year | | 25 |
| | 26 |
| | 11 |
| | 13 |
|
| Change in plan assets: | | | | | | | | |
| Fair value of plan assets at beginning of year | | — |
| | — |
| | — |
| | — |
|
| Employer contributions | | 2 |
| | 1 |
| | 1 |
| | — |
|
| Benefits paid | | (2 | ) | | (1 | ) | | (1 | ) | | — |
|
| Fair value of plan assets at end of year | | — |
| | — |
| | — |
| | — |
|
| Funded status at end of year | | $ | (25 | ) | | $ | (26 | ) | | $ | (11 | ) | | $ | (13 | ) |
Amounts recognized in “Other liabilities”other liabilities (funded status) on the Statements of Condition for the Bank'sBank’s supplemental defined benefit pension plan and postretirement health benefit plan were $36$56 and $39$51 as of December 31, 20132016 and 2012,2015, respectively.
Amounts The net periodic benefit costs recognized in accumulated other comprehensive income (loss)“Compensation and benefits” on the Statements of Income for the Bank'sBank’s supplemental defined benefit pension plan and postretirement health benefit plan aswere $6 for each of the years ended December 31, 20132016 and 2012 were as follows:
|
| | | | | | | | | | | | | | | |
| | Supplemental Defined Benefit Pension Plan | | Postretirement Health Benefit Plan |
| | 2013 | | 2012 | | 2013 | | 2012 |
| Net loss | $ | 11 |
| | $ | 14 |
| | $ | 3 |
| | $ | 5 |
|
| Prior service credit | — |
| | — |
| | (2 | ) | | (2 | ) |
| Total amount recognized | $ | 11 |
| | $ | 14 |
| | $ | 1 |
| | $ | 3 |
|
The accumulated benefit obligation2015, and $4 for the year ended December 31, 2014. The amount recognized in other comprehensive income (loss) related to pension and postretirement benefit plans on the Statements of Comprehensive Income for the Bank’s supplemental defined benefit pension plan and postretirement health benefit plan was $16 asincome of less than $1 and $3 for the years ended December 31, 20132016 and 2012.2015, respectively, and a loss of $10 for the year ended December 31, 2014.
The financial amounts related to the Bank's supplemental nonqualified defined benefit pension plan and postretirement health benefit plan are not material to the Bank's financial condition or results of operations.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Components of the net periodic benefit cost and other amounts recognized in other comprehensive income (loss) for the Bank's supplemental defined benefit pension plan and postretirement health benefit plan for the years ended December 31, 2013, 2012, and 2011 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Supplemental Defined Benefit Pension Plan | | Postretirement Health Benefit Plan |
| | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
| Net periodic benefit cost: | | | | | | | | | | | |
| Service cost | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
|
| Interest cost | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
|
| Amortization of prior service credit | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | | (1 | ) |
| Amortization of net loss | 2 |
| | 1 |
| | 1 |
| | — |
| | — |
| | — |
|
| Settlement loss | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
| Net periodic benefit cost | 4 |
| | 3 |
| | 4 |
| | 1 |
| | 1 |
| | 1 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Other changes in benefit obligations recognized in other comprehensive income (loss): | | | | | | | | | | | |
| Net (gain) loss | (1 | ) | | 5 |
| | 2 |
| | (2 | ) | | — |
| | 1 |
|
| Amortization of net loss | (2 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
|
| Amortization of prior service credit | — |
| | — |
| | — |
| | 1 |
| | 1 |
| | 1 |
|
| Settlement loss | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
|
| Total recognized in other comprehensive income (loss) | (3 | ) | | 4 |
| | — |
| | (1 | ) | | 1 |
| | 2 |
|
| Total recognized in periodic benefit cost and other comprehensive income (loss) | $ | 1 |
| | $ | 7 |
| | $ | 4 |
| | $ | — |
| | $ | 2 |
| | $ | 3 |
|
The amounts in accumulated other comprehensive income (loss) that are expected to be recognized as components of net periodic benefit cost during the next fiscal year are as follows:
|
| | | | | | | | | | | | |
| | | Supplemental Defined Benefit Pension Plan | | Postretirement Health Benefit Plan | | Total |
| Net loss | | $ | 1 |
| | $ | — |
| | $ | 1 |
|
| Prior service credit | | — |
| | (1 | ) | | (1 | ) |
| Total | | $ | 1 |
| | $ | (1 | ) | | $ | — |
|
The measurement date used to determine the Bank's 2013 benefit obligation was December 31, 2013.
Key assumptions used for the actuarial calculations to determine benefit obligations for the Bank's supplemental defined benefit pension plan and postretirement health benefit plan for the years ended December 31, 2013 and 2012 were as follows:
|
| | | | | | | | |
| | | Supplemental Defined Benefit Pension Plan (%) | | Postretirement Health Benefit Plan (%) |
| | | 2013 | | 2012 | | 2013 | | 2012 |
| Discount rate | | 5.04 | | 4.10 | | 5.05 | | 4.15 |
| Rate of compensation increase | | 5.50 | | 5.50 | | N/A | | N/A |
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Key assumptions used for the actuarial calculations to determine net periodic benefit cost for the Bank's supplemental defined benefit pension plan and postretirement health benefit plan for the years ended December 31, 2013, 2012, and 2011 were as follows:
|
| | | | | | | | | | | | |
| | | Supplemental Defined Benefit Pension Plan (%) | | Postretirement Health Benefit Plan (%) |
| | | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
| Discount rate | | 4.10 | | 3.73 | | 4.53 | | 4.15 | | 4.40 | | 5.55 |
| Rate of compensation increase | | 5.50 | | 5.50 | | 5.50 | | N/A | | N/A | | N/A |
The discount rate used for the years ended December 31, 2013 and December 31, 2012 was derived by matching projected benefit payments to bond yields obtained from the Towers Watson's proprietary RATE:Link 40-90 pension discount curve developed as of the measurement date. The Towers Watson RATE:Link 40-90 pension discount curve is based on certain corporate bonds rated Aa whose weighted average yields lie within the 40th to 90th percentiles of the bonds considered. The discount rate used for the year ended December 31, 2011 was derived using a discounted cash flow approach, which incorporated matching the timing and amount of each expected future benefit payment against the Citigroup Pension Discount Curve.
Assumed health-care cost trend rates for the Bank's postretirement health benefit plan were as follows:
|
| | | | |
| | | As of December 31, |
| | | 2013 | | 2012 |
| Assumed for next year (%) | | 7.75 | | 8.00 |
| Ultimate rate (%) | | 5.00 | | 5.00 |
| Year that ultimate rate is reached | | 2023 | | 2017 |
As of December 31, 2013, a one percentage point change in the assumed health-care cost trend rates would have the following effects:
|
| | | | | | | | |
| | One Percentage Point |
| | Increase | | Decrease |
Effect on total service and interest cost components | | $ | — |
| | $ | — |
|
Effect on accumulated postretirement benefit obligation | | — |
| | (1 | ) |
The supplemental defined benefit pension plan and postretirement health benefit plan are not funded plans; therefore, the Bank will not make contributions to them in 2014 except for the payment of benefits.
The benefits the Bank expects to pay in each of the next five years and subsequent five years for the supplemental defined benefit pension plan are listed in the table below:
|
| | | | |
| Years | | Supplemental Defined Benefit Pension Plan |
| 2014 | | $ | 2 |
|
| 2015 | | 2 |
|
| 2016 | | 2 |
|
| 2017 | | 3 |
|
| 2018 | | 3 |
|
| 2019-2023 | | 14 |
|
The benefits the Bank expects to pay for the postretirement health benefit plan for the years 2014 through 2018 is less than $1 per year and for 2019 through 2023 the amount expected to be paid totals $3.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Note 18—Derivatives and Hedging Activities
Nature of Business Activity
The Bank is exposed to interest-rate risk primarily from the effect of interest rate changes on its interest-earning assets and on its funding sources that finance these assets. The goal of the Bank’s interest-rate risk management strategies is not to eliminate interest-rate risk, but to manage it within appropriate limits. To mitigate the risk of loss, the Bank has established policies and procedures, which include guidelines on the amount of exposure to interest rate changes that it is willing to accept. In addition, the Bank monitors the risk to its interest income, net interest margin, and average maturity of its interest-earning assets and funding sources. The goal of the Bank’s interest-rate risk management strategies is not to eliminate interest-rate risk, but to manage it within appropriate limits.
The Bank enters into derivatives to manage the interest-rate risk exposure that is inherent in its otherwise unhedged assets and funding sources, to achieve the Bank's risk management objectives, and to act as an intermediary between its members and counterparties. Finance Agency regulations and the Bank's risk management policy prohibit the trading in or the speculative use of these derivative instruments and limit credit risk arising from these instruments. The use of derivatives is an integral part of the Bank's financial management strategy.
The most common ways in which the Bank uses derivatives are to:
preserve a favorable interest-rate spread between the yield of an asset (e.g., an advance) and the cost of the related liability (e.g., the consolidated obligation bond used to fund the advance) by converting both fixed-rate instruments to a variable rate using interest-rate swaps;
reduce funding costs by combining a derivative with a consolidated obligation because the cost of a combined funding structure can be lower than the cost of a comparable consolidated obligation bond;
reduce the interest-rate sensitivity and repricing gaps of assets and liabilities;
mitigate the adverse earnings effects offrom the shortening or extensionlengthening of certain assets (e.g., mortgage assets);
protect the value of existing asset or liability positions;
manage embedded options in assets and liabilities; and
achieve overall asset/liability management objectives.
Application of Derivatives
General.The Bank may use derivatives to,designates derivative instruments in effect, adjust the term, repricing frequency, or option characteristics of financial instruments to achieve its risk management and funding objectives. The Bank uses derivatives infollowing three ways: (1) as a fair value hedge of an underlying financial instrument or a firm commitment; (2) as an intermediary transaction; or (3) as a non-qualifying hedge for purposes of asset or liability management. In addition to using derivatives to manage mismatches of interest rates between assets and liabilities, the Bank also uses derivatives to manage embedded options in assets and liabilities, to hedge the fair value of existing assets and liabilities, to hedge the duration risk of prepayable instruments, to offset exactly other derivatives executed with members (when the Bank serves as an intermediary) and to reduce funding costs.
The Bank reevaluates its hedging strategies from time to time and may change the hedging techniques it uses or adopt new strategies.
The Bank transacts most of its derivatives with large banks and major broker-dealers. Some of these banks and broker-dealers or their affiliates buy, sell, and distribute consolidated obligations. Over-the-counterThe Bank's over-the-counter derivative transactions may either be either(1) uncleared derivatives, which are executed bilaterally with a counterparty (bilateral derivatives)counterparty; or (2) cleared derivatives, which are cleared through a Futures Commission Merchant (i.e., clearing(clearing agent), with a Derivative Clearing Organization (cleared derivatives)(Clearinghouse).
Once a derivative transaction has been accepted for clearing by a Derivative Clearing Organization (Clearinghouse),Clearinghouse, the derivative transaction is novated, and the executing counterparty is replaced with the Clearinghouse. The Clearinghouse notifiesas the clearing agent of the required initial and variation margin and the clearing agent notifies the Bank of the required initial and variation margin.counterparty. The Bank is not a derivative dealer and does not trade derivatives for short-term profit.
The Bank uses derivatives when they are considered to be the most cost-effective alternative to achieve the Bank's long-term financial and risk management objectives. Accordingly, the Bank may enter into derivatives that do not qualify for hedge accounting (non-qualifying hedges).
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Types of Derivatives
The Bank may use the following derivatives to reduce funding costs and to manage its exposure to interest-rate risks inherent in the normal course of business.
Interest-Rate Swaps. An interest-rate swap is an agreement between two entities to exchange cash flows in the future. The agreement sets the dates on which the cash flows will be paid and the manner in which the cash flows will be calculated. One of the simplest forms of an interest-rate swap involves the promise by one party to pay cash flows equivalent to the interest on a notional principal amount at a predetermined fixed rate for a given period of time. In return for this promise, this party receives cash flows equivalent to the interest on the same notional principal amount at a variable-ratevariable rate for the same period of time. The variable rate received or paid by the Bank in most derivative transactions agreements is LIBOR.
Swaptions. A swaption is an option on a swap that gives the buyer the right to enter into a specified interest-rate swap at a certain time in the future. When used as a hedge, a swaption can protect the Bank against future interest rate changes when it is planning to lend or borrow funds in the future against future interest rate changes.future. The Bank may purchaseenter into both payer swaptions and receiver swaptions. A payer swaption is the option to make fixed interest payments at a later date, and a receiver swaption is the option to receive fixed interest payments at a later date.
Interest-Rate Cap and Floor Agreements. In an interest-rate cap agreement, a cash flow is generated if the price or rate of an underlying variable rises above a certain threshold (or cap) price. In an interest-rate floor agreement, a cash flow is generated if the price or rate of an underlying variable falls below a certain threshold (or floor) price. Caps may be used in conjunction with liabilities, and floors may be used in conjunction with assets. Caps and floors are designed as protectionto protect against the interest rate on a variable-rate asset or liability rising above or falling below a certain level.
Types of Hedged Items
TheAt inception, the Bank documents at inception all relationships between derivatives designated as hedging instruments and hedged items, its risk management objectives and strategies for undertaking various hedge transactions, and its method of assessing effectiveness. This process includes linking all derivatives that are designated as fair value hedges to (1) assets and liabilities on the Statements of ConditionCondition; or (2) firm commitments. The Bank also formally assesses (both at the hedge's inception and at least quarterly on an ongoing basis) whether the derivatives that it uses in hedging relationships have been effective in offsetting changes in the fair value of hedged items attributable to the hedged risk being hedged and whether those derivatives may be expected to remain effective in future periods. The Bank uses regression analyses to assess the effectiveness of its hedges.
Consolidated Obligations. While consolidated obligations are the joint and several obligations of the FHLBanks, each FHLBank has consolidated obligations for which it is the primary obligor. The Bank enters into derivatives to hedge the interest-rate risk associated with its specific debt issuances in conjunction with the associated interest-rate risk on advances. The Bank manages the risk arising from changing market prices and volatility of a consolidated obligation by matching the cash inflow on the derivative with the cash outflow on the consolidated obligation. For instance, in a typical transaction, fixed-rate consolidated obligations are issued for the Bank, and the Bank simultaneously enters into a matching derivative in which the counterparty pays fixed cash flows to the Bank designed to mirror in timing and amount the cash outflows that the Bank pays on the consolidated obligation.obligation in timing and amount. The Bank pays a variable cash flow that closely matches the interest payments it receives on short-term or variable-rate advances (typically one- or three-month LIBOR). These transactions are typically treated as fair-value hedges. This intermediation between the capital and swap markets permits the Bank to raise funds at lower costs than otherwise would be available through the issuance of simple fixed-rate consolidated obligations in the capital markets.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Advances. The Bank offers a variety of advance structures to meet members' funding needs. These advances may have maturities of up to 30 years with variable or fixed rates and may include early termination features or options. The Bank may use derivatives to adjust the repricing and/or options characteristics of advances in order to more closely match the characteristics of the Bank's funding liabilities. In general, whenever a member executes a fixed-rate advancefixed- or a variable-rate advance with embedded options, the Bank simultaneously will execute a derivative with terms that offset the terms and embedded options in the advance. For example, the Bank may hedge a fixed-rate advance with an interest-rate swap wherein which the Bank pays a fixed-rate coupon and receives a variable-rate coupon, effectively converting the fixed-rate advance to a variable-rate advance. This type of hedge is typically treated as a fair-value hedge.
Mortgage Assets. The Bank has invested in mortgage assets. The prepayment options embedded in mortgage assets may result in extensionsshorten or contractions inlengthen the expected repayment of these investments, depending on changes in estimated prepayment speeds. The Bank manages the interest-rate and prepayment risk associated with mortgages through a combination of debt issuance and
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
derivatives. The Bank issues both callable and noncallablenon-callable debt to achieve cash flow patterns and liability durations similar to those expected on the mortgage loans. The Bank may use derivatives to match the expected prepayment characteristics of the mortgages.
Options (interest-rate caps, interest-rate floors and/or options) also may be used to hedge prepayment risk on the mortgages, many of whichmortgages. Many options are not identified to specific mortgages and therefore, do not receive fair-value or cash-flow hedge accounting treatment. The Bank also may purchase interest-rate caps and floors, swaptions, callable swaps, calls, and puts to minimize the prepayment risk embedded in the mortgage loans. Although these derivatives are valid non-qualifying hedges against the prepayment risk of the loans, they do not receive either fair-value or cash-flow hedge accounting. These derivatives are marked-to-market through earnings.
Firm Commitments. Certain mortgage purchase commitments are considered derivatives. Mortgage purchase commitments are recorded on the balance sheet at fair value, with changes in fair value recognized in current-period earnings. When the mortgage purchase commitment derivative settles, the current fair value of the commitment is included with the basis of the mortgage loan and amortized accordingly.
The Bank also may enter into a fair value hedge of a firm commitment for a forward starting advance through the use of an interest-rate swap. In this case, the swap will functionfunctions as the hedging instrument for both the firm commitment and the subsequent advance. The basis movement associated with the firm commitment will beis recorded as a basis adjustment of the advance at the time the commitment is terminated and the advance is issued. The basis adjustment willis then be amortized into interest income over the life of the advance using the level-yield method.
Investments. The Bank invests in MBS, U.S. agency obligations, certificates of deposit, and the taxable portion of state or local housing finance agency obligations. The interest-rate and prepayment risks associated with these investment securities are managed through a combination of debt issuance and derivatives. The Bank may manage the prepayment and interest-rate risks by funding investment securities with consolidated obligations that have call features, or by hedging the prepayment risk with caps or floors, or by adjusting the duration of the securities by using derivatives to modify the cash flows of the securities. Investment securities may be classified as trading, available-for-sale, or held-to-maturity.
The Bank also may manage the risk arising from changing market prices and volatility of investment securities classified as trading by entering into derivatives (non-qualifying hedges) that offset the changes in fair value of thethese securities.
Financial Statement Effect and Additional Financial Information
Derivative Notional Amounts. The notional amount of derivatives serves as a factor in determining periodic interest payments or cash flows received and paid. However, the notional amount of derivatives reflects the Bank's involvement in the various classes of financial instruments and represents neither the actual amounts exchanged nor the overall exposure of the Bank to credit and market risk; the overall risk is much smaller. The risks of derivatives can be measured meaningfully on a portfolio basis that takes into account the counterparties, the types of derivatives, the items being hedged, and any offsets between the derivatives and the items being hedged.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The following table summarizespresents the fair value of derivative instruments, including the effect of netting adjustments and cash collateral. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2013 | | 2012 |
| | Notional Amount of Derivatives | | Derivative Assets | | Derivative Liabilities | | Notional Amount of Derivatives | | Derivative Assets | | Derivative Liabilities |
| Derivatives in hedging relationships: | | | | | | | | | | | |
| Interest rate swaps | $ | 84,740 |
| | $ | 800 |
| | $ | (2,336 | ) | | $ | 102,660 |
| | $ | 1,129 |
| | $ | (3,689 | ) |
| Total derivatives in hedging relationships | 84,740 |
| | 800 |
| | (2,336 | ) | | 102,660 |
| | 1,129 |
| | (3,689 | ) |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | |
| Interest rate swaps | 4,414 |
| | 14 |
| | (309 | ) | | 9,570 |
| | 29 |
| | (497 | ) |
| Interest rate swaptions | 40 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | — |
|
| Interest rate caps or floors | 12,500 |
| | 44 |
| | (28 | ) | | 12,500 |
| | 32 |
| | (22 | ) |
| Total derivatives not designated as hedging instruments | 16,954 |
| | 59 |
| | (338 | ) | | 22,070 |
| | 61 |
| | (519 | ) |
| Total derivatives before netting and collateral adjustments | $ | 101,694 |
| | 859 |
| | (2,674 | ) | | $ | 124,730 |
| | 1,190 |
| | (4,208 | ) |
| Netting adjustments | | | (741 | ) | | 741 |
| | | | (1,089 | ) | | 1,089 |
|
| Cash collateral and related accrued interest | | | (65 | ) | | 1,746 |
| | | | (88 | ) | | 2,961 |
|
Total collateral and netting adjustments (1) | | | (806 | ) | | 2,487 |
| | | | (1,177 | ) | | 4,050 |
|
| Derivative assets and derivative liabilities | | | $ | 53 |
| | $ | (187 | ) | | | | $ | 13 |
| | $ | (158 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2016 | | 2015 |
| | Notional Amount of Derivatives | | Derivative Assets | | Derivative Liabilities | | Notional Amount of Derivatives | | Derivative Assets | | Derivative Liabilities |
| Derivatives in hedging relationships: | | | | | | | | | | | |
| Interest-rate swaps | $ | 65,027 |
| | $ | 256 |
| | $ | 1,029 |
| | $ | 80,290 |
| | $ | 312 |
| | $ | 1,467 |
|
| Derivatives not designated as hedging instruments: | | | | | | | | | | | |
| Interest-rate swaps | 1,158 |
| | 9 |
| | 31 |
| | 3,008 |
| | 10 |
| | 74 |
|
| Interest-rate caps or floors | 15,000 |
| | 17 |
| | 13 |
| | 16,500 |
| | 15 |
| | 10 |
|
| Mortgage delivery commitments | 12 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total derivatives not designated as hedging instruments | 16,170 |
| | 26 |
| | 44 |
| | 19,508 |
| | 25 |
| | 84 |
|
| Total derivatives before netting and collateral adjustments | $ | 81,197 |
| | 282 |
| | 1,073 |
| | $ | 99,798 |
| | 337 |
| | 1,551 |
|
Netting adjustments and cash collateral (1) | | | 73 |
| | (966 | ) | | | | (161 | ) | | (1,427 | ) |
| Derivative assets and derivative liabilities | | | $ | 355 |
| | $ | 107 |
| | | | $ | 176 |
| | $ | 124 |
|
___________
| |
(1) | Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions and also cash collateral and related accrued interest held or placed with the same clearing agentagents and/or counterparty. Cash collateral posted and related accrued interest was $1,061 and $1,293 as of December 31, 2016 and 2015, respectively. Cash collateral received and related accrued interest was $22 and $27 as of December 31, 2016 and 2015, respectively. |
The following tables presenttable presents the components of net gains (losses) on derivatives and hedging activities as presented inon the Statements of Income:Income.
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| Derivatives and hedged items in fair value hedging relationships: | | | | | |
| Interest rate swaps | $ | 180 |
| | $ | 167 |
| | $ | 144 |
|
| Total net gains related to fair value hedge ineffectiveness | 180 |
| | 167 |
| | 144 |
|
| Derivatives not designated as hedging instruments: | | | | | |
| Interest rate swaps | 102 |
| | 52 |
| | 12 |
|
| Interest rate caps or floors | 6 |
| | (1 | ) | | (23 | ) |
| Net interest settlements | (84 | ) | | (101 | ) | | (142 | ) |
| Total net gains (losses) related to derivatives not designated as hedging instruments | 24 |
| | (50 | ) | | (153 | ) |
| Net gains (losses) on derivatives and hedging activities | $ | 204 |
| | $ | 117 |
| | $ | (9 | ) |
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Derivatives and hedged items in fair value hedging relationships: | | | | | |
| Interest-rate swaps | $ | 120 |
| | $ | 269 |
| | $ | 147 |
|
| Derivatives not designated as hedging instruments: | | | | | |
| Interest-rate swaps | 30 |
| | 53 |
| | 57 |
|
| Interest-rate caps or floors | (1 | ) | | (2 | ) | | (14 | ) |
| Net interest settlements | (30 | ) | | (59 | ) | | (70 | ) |
| Total net losses related to derivatives not designated as hedging instruments | (1 | ) | | (8 | ) | | (27 | ) |
| Net gains on derivatives and hedging activities | $ | 119 |
| | $ | 261 |
| | $ | 120 |
|
The following tables present, by type of hedged item, the gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the Bank’s net interest income:income.
| | | | | For the Year Ended December 31, 2013 | | For the Year Ended December 31, 2016 |
Hedged Item Type | | Gains (Losses) on Derivative | | Gains (Losses) on Hedged Item | | Net Fair Value Hedge Ineffectiveness | | Effect of Derivatives on Net Interest Income (1) | | Gains (Losses) on Derivative | | Gains (Losses) on Hedged Item | | Net Fair Value Hedge Ineffectiveness | | Effect of Derivatives on Net Interest Income (1) |
| Advances | | $ | 1,880 |
| | $ | (1,678 | ) | | $ | 202 |
| | $ | (1,033 | ) | | $ | 524 |
| | $ | (393 | ) | | $ | 131 |
| | $ | (529 | ) |
| Consolidated obligations bonds | | (868 | ) | | 846 |
| | (22 | ) | | 602 |
| |
| Consolidated obligations: | | | | | | | | | |
| Bonds | | | (154 | ) | | 146 |
| | (8 | ) | | 230 |
|
| Discount notes | | | 2 |
| | (5 | ) | | (3 | ) | | (3 | ) |
| Total | | $ | 1,012 |
| | $ | (832 | ) | | $ | 180 |
| | $ | (431 | ) | | $ | 372 |
| | $ | (252 | ) | | $ | 120 |
| | $ | (302 | ) |
____________
| |
(1) | The net interest on derivatives in fair value hedge relationships is presented in the interest income or expense line item of the respective hedged item. |
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
| | | | | For the Year Ended December 31, 2012 | | For the Year Ended December 31, 2015 |
Hedged Item Type | | Gains (Losses) on Derivative | | Gains (Losses) on Hedged Item | | Net Fair Value Hedge Ineffectiveness | | Effect of Derivatives on Net Interest Income (1) | | Gains (Losses) on Derivative | | Gains (Losses) on Hedged Item | | Net Fair Value Hedge Ineffectiveness | | Effect of Derivatives on Net Interest Income (1) |
| Advances | | $ | 554 |
| | $ | (355 | ) | | $ | 199 |
| | $ | (1,397 | ) | | $ | 448 |
| | $ | (169 | ) | | $ | 279 |
| | $ | (713 | ) |
| Consolidated obligations bonds | | (191 | ) | | 159 |
| | (32 | ) | | 574 |
| |
| Consolidated obligations: | | |
|
| |
|
| |
|
| |
|
|
| Bonds | | | (93 | ) | | 81 |
| | (12 | ) | | 469 |
|
| Discount notes | | | (6 | ) | | 8 |
| | 2 |
| | 9 |
|
| Total | | $ | 363 |
| | $ | (196 | ) | | $ | 167 |
| | $ | (823 | ) | | $ | 349 |
| | $ | (80 | ) | | $ | 269 |
| | $ | (235 | ) |
____________
| |
(1) | The net interest on derivatives in fair value hedge relationships is presented in the interest income or expense line item of the respective hedged item. |
| | | | | For the Year Ended December 31, 2011 | | For the Year Ended December 31, 2014 |
Hedged Item Type | | Gains (Losses) on Derivative | | Gains (Losses) on Hedged Item | | Net Fair Value Hedge Ineffectiveness | | Effect of Derivatives on Net Interest Income (1) | | Gains (Losses) on Derivative | | Gains (Losses) on Hedged Item | | Net Fair Value Hedge Ineffectiveness | | Effect of Derivatives on Net Interest Income (1) |
| Advances | | $ | (201 | ) | | $ | 347 |
| | $ | 146 |
| | $ | (2,054 | ) | | $ | (152 | ) | | $ | 297 |
| | $ | 145 |
| | $ | (875 | ) |
| Consolidated obligations: | | | | | | | | | |
| Bonds | | 23 |
| | (25 | ) | | (2 | ) | | 804 |
| |
| Discount notes | | (2 | ) | | 2 |
| | — |
| | 2 |
| |
| Consolidated obligation bonds | | | 135 |
| | (133 | ) | | 2 |
| | 497 |
|
| Total | | $ | (180 | ) | | $ | 324 |
| | $ | 144 |
| | $ | (1,248 | ) | | $ | (17 | ) | | $ | 164 |
| | $ | 147 |
| | $ | (378 | ) |
____________
| |
(1) | The net interest on derivatives in fair value hedge relationships is presented in the interest income or expense line item of the respective hedged item. |
Managing Credit Risk on Derivatives
The Bank is subject to credit risk to its derivative transactions due to the risk of nonperformance by counterparties to its derivative transactions and manages creditthis risk through credit analysis, collateral requirements, and adherence to the requirements set forth in its policies, U.S. Commodity Futures Trading Commission regulations, and Finance Agency regulations. For bilateraluncleared derivatives, the degree of credit risk depends on the extent to which master netting arrangements are included in such contracts to mitigate the risk. The Bank requires collateral agreements with collateral delivery thresholds on all bilateraluncleared derivatives. Additionally, collateral related to derivatives with member institutions includes collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank.
For cleared derivatives, the Clearinghouse is the Bank's counterparty. The requirement thatClearinghouse notifies the clearing agent of the required initial and variation margin, and the clearing agent notifies the Bank. Because the Bank is required to post initial and variation margin through the clearing agent to the Clearinghouse, it exposes the Bank to institutional credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties, and collateral is posted daily through a clearing agent for changes in the fair value of cleared derivatives. The Bank has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions and determined that the exercise of those offsetting rights by a non-defaulting party under these transactions should be upheld under applicable law upon an event of default, including a bankruptcy, insolvency, or similar proceeding involving the Clearinghouse or the Bank’s clearing agent, or both. Based on this analysis, the Bank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular Clearinghouse.
The Bank presents derivative instruments and the related cash collateral including(including initial and variation margin,margin) that is received or pledged, andplus the associated accrued interest, on a net basis by clearing agent and/or by counterparty when it has met the netting requirements.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The following table presents the fair value of derivative instruments meeting or not meeting netting requirements, including the related collateral received from or pledged to counterparties.
| | | | As of December 31, | As of December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
| | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
| Gross recognized amount: | | | | | | | | | | | | | | |
| Bilateral derivatives | $ | 820 |
| | $ | (2,545 | ) | | $ | 1,190 |
| | $ | (4,208 | ) | |
| Uncleared derivatives | | $ | 70 |
| | $ | 370 |
| | $ | 260 |
| | $ | 1,159 |
|
| Cleared derivatives | 39 |
| | (129 | ) | | — |
| | — |
| 212 |
| | 703 |
| | 77 |
| | 392 |
|
| Total gross recognized amount | 859 |
| | (2,674 | ) | | 1,190 |
| | (4,208 | ) | 282 |
| | 1,073 |
| | 337 |
| | 1,551 |
|
| Gross amounts of netting adjustments and cash collateral: | | | | | | | | | | | | | | |
| Bilateral derivatives | (818 | ) | | 2,358 |
| | (1,177 | ) | | 4,050 |
| |
| Uncleared derivatives | | (69 | ) | | (263 | ) | | (258 | ) | | (1,035 | ) |
| Cleared derivatives | 12 |
| | 129 |
| | — |
| | — |
| 142 |
| | (703 | ) | | 97 |
| | (392 | ) |
| Total gross amounts of netting adjustments and cash collateral | (806 | ) | | 2,487 |
| | (1,177 | ) | | 4,050 |
| 73 |
| | (966 | ) | | (161 | ) | | (1,427 | ) |
| Derivative assets and derivative liabilities: | | | | | | | | | | | | | | |
| Bilateral derivatives | 2 |
| | (187 | ) | | 13 |
| | (158 | ) | |
| Uncleared derivatives | | 1 |
| | 107 |
| | 2 |
| | 124 |
|
| Cleared derivatives | 51 |
| | — |
| | — |
| | — |
| 354 |
| | — |
| | 174 |
| | — |
|
| Total derivative assets and total derivative liabilities | 53 |
| | (187 | ) | | 13 |
| | (158 | ) | 355 |
| | 107 |
| | 176 |
| | 124 |
|
Non-cash collateral received or pledged not offset- cannot be sold or repledged: (1) | | | | | | | | | | | | | | |
| Bilateral derivatives | — |
| | — |
| | 1 |
| | — |
| |
| Cleared derivatives | — |
| | — |
| | — |
| | — |
| |
| Total cannot be sold or repledged | — |
| | — |
| | 1 |
| | — |
| |
| Uncleared derivatives | | — |
| | — |
| | 2 |
| | — |
|
Net unsecured amounts: (2) | | | | | | | | | | | | | | |
| Bilateral derivatives | 2 |
| | (187 | ) | | 12 |
| | (158 | ) | |
| Uncleared derivatives | | 1 |
| | 107 |
| | — |
| | 124 |
|
| Cleared derivatives | 51 |
| | — |
| | — |
| | — |
| 354 |
| | — |
| | 174 |
| | — |
|
| Total net unsecured amount | $ | 53 |
| | $ | (187 | ) | | $ | 12 |
| | $ | (158 | ) | $ | 355 |
| | $ | 107 |
| | $ | 174 |
| | $ | 124 |
|
____________
| |
(1) | Collateral held with respect to derivatives with member institutions, wherein which the Bank is acting as an intermediary, represents the amount of eligible collateral physically held by or on behalf of the Bank or collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank. |
| |
(2) | The Bank had net credit exposure of $47$346 and $8170 as of December 31, 20132016 and 2012,2015, respectively, due to instances where the Bank’s pledged collateral to a counterparty exceeds the Bank’s net derivative liability position. |
Certain of the Bank’s bilateraluncleared derivative instruments contain provisions that require the Bank to post additional collateral with its counterparties if there is deterioration in the Bank’s credit rating. If the Bank’s credit rating is lowered by aan NRSRO, the Bank may be required to deliver additional collateral on uncleared derivative instruments in net liability positions. The aggregate fair value of all bilateraluncleared derivative instruments with credit-risk-related contingent features that were in a net liability position (before cash collateral and related accrued interest) as of December 31, 20132016 was $1,791,$296, for which the Bank has posted collateral with a fair value of $1,605$193 in the normal course of business. If the Bank’s credit ratings had been lowered from its current rating to the next lower rating that would have triggered additional collateral to be delivered, the Bank would have been required to deliver an additional $65$71 of collateral at fair value to its bilateraluncleared derivative counterparties as of December 31, 2013.2016.
Note 19—Estimated Fair Values
The Bank records trading securities, available-for-sale securities, derivative assets and liabilities, and grantor trust assets (publicly-traded mutual funds) at estimated fair value on a recurring basis. Fair value is a market-based measurement and is defined as the price that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that holds the assetsasset or owes the liability. In general, the transaction price will equal the exit price and therefore, representrepresents the fair value of the asset or liability at initial recognition. In determining whether a transaction price represents the fair value of the asset or liability at initial recognition, each reporting entity is required to consider factors specific to the transaction, and the asset or liability, the principal or most advantageous market for the asset or liability, and market participants with whom the entity would transact in the market.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
A fair value hierarchy is used to prioritize the inputs of valuation techniques used to measure fair value. The inputs are evaluated, and an overall level for the fair value measurement is determined. This overall level is an indication of how market-observable the fair value measurement is and defines the level of disclosure. The fair value hierarchy defines fair value in terms of a price in an orderly transaction between market participants to sell an asset or transfer a liability in the principal (or most advantageous) market for the asset or liability at the measurement date (an exit price). In order to determine the fair value or the exit price, entities must determine the unit of account, highest and best use, principal market, and market participants. These determinations allow the reporting entity to define the inputs for fair value and level of hierarchy.
Outlined below is the application of the “fair value hierarchy” to the Bank's financial assets and financial liabilities that are carried at fair value.value or disclosed in the notes to the financial statements.
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. As of December 31, 2013, theThe Bank carried grantor trust assets at fair value hierarchy Level 1.1 as of December 31, 2016 and 2015.
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. As of December 31, 2013, theThe Bank carried trading securities and derivatives at fair value hierarchy Level 2.2 as of December 31, 2016 and 2015.
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are supported by little or nolimited market activity and reflect the entity's own assumptions. As of December 31, 2013, theThe Bank carried available-for-sale securities at fair value hierarchy Level 3.3 as of December 31, 2016 and 2015.
The Bank utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
Fair Value on a Recurring Basis. The following tables present, for each fair value hierarchy level, the Bank’s financial assets and liabilities that are measured at fair value on a recurring basis on its Statements of Condition:
|
| | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2013 |
| | Fair Value Measurements Using | | Netting Adjustment (1) | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | |
| Trading securities: | | | | | | | | | |
| Government-sponsored enterprises debt obligations | $ | — |
| | $ | 1,601 |
| | $ | — |
| | $ | — |
| | $ | 1,601 |
|
| Another FHLBank’s bond | — |
| | 65 |
| | — |
| | — |
| | 65 |
|
| State or local housing agency debt obligations | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
| Total trading securities | — |
| | 1,667 |
| | — |
| | — |
| | 1,667 |
|
| Available-for-sale securities: | | | | | | | | | |
| Private-label residential MBS | — |
| | — |
| | 2,299 |
| | — |
| | 2,299 |
|
| Derivative assets: | | | | | | | | | |
| Interest-rate related | — |
| | 859 |
| | — |
| | (806 | ) | | 53 |
|
| Grantor trust (included in Other assets) | 21 |
| | — |
| | — |
| | — |
| | 21 |
|
| Total assets at fair value | $ | 21 |
| | $ | 2,526 |
| | $ | 2,299 |
| | $ | (806 | ) | | $ | 4,040 |
|
| Liabilities | | | | | | | | | |
| Derivative liabilities: | | | | | | | | | |
| Interest-rate related | $ | — |
| | $ | (2,674 | ) | | $ | — |
| | $ | 2,487 |
| | $ | (187 | ) |
| Total liabilities at fair value | $ | — |
| | $ | (2,674 | ) | | $ | — |
| | $ | 2,487 |
| | $ | (187 | ) |
____________
| |
(1)
| Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions and also cash collateral held or placed with the same counterparties. |
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2012 |
| | Fair Value Measurements Using | | Netting Adjustment (1) | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | |
| Trading securities: | | | | | | | | | |
| Government-sponsored enterprises debt obligations | $ | — |
| | $ | 2,291 |
| | $ | — |
| | $ | — |
| | $ | 2,291 |
|
| Another FHLBank’s bond | — |
| | 77 |
| | — |
| | — |
| | 77 |
|
| State or local housing agency debt obligations | — |
| | 2 |
| | — |
| | — |
| | 2 |
|
| Total trading securities | — |
| | 2,370 |
| | — |
| | — |
| | 2,370 |
|
| Available-for-sale securities: | | | | | | | | | |
| Private-label residential MBS | — |
| | — |
| | 2,676 |
| | — |
| | 2,676 |
|
| Derivative assets: | | | | | | | | | |
| Interest-rate related | — |
| | 1,190 |
| | — |
| | (1,177 | ) | | 13 |
|
| Grantor trust (included in Other assets) | 17 |
| | — |
| | — |
| | — |
| | 17 |
|
| Total assets at fair value | $ | 17 |
| | $ | 3,560 |
| | $ | 2,676 |
| | $ | (1,177 | ) | | $ | 5,076 |
|
| Liabilities | | | | | | | | | |
| Derivative liabilities: | | | | | | | | | |
| Interest-rate related | $ | — |
| | $ | (4,208 | ) | | $ | — |
| | $ | 4,050 |
| | $ | (158 | ) |
| Total liabilities at fair value | $ | — |
| | $ | (4,208 | ) | | $ | — |
| | $ | 4,050 |
| | $ | (158 | ) |
____________
| |
(1)
| Amounts represent the effect of legally enforceable master netting agreements that allow the Bank to settle positive and negative positions and also cash collateral held or placed with the same counterparties. |
For financial instruments carried at fair value, the Bank reviews the fair value hierarchy classification of financial assets and liabilities on a quarterly basis. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities.liabilities within the fair value hierarchy. Such reclassifications are reported as transfers in/out at fair value as of the beginning of the quarter in which the changes occur. There were no such transfers during the years ended December 31, 2013 and 2012.periods presented.
Estimated Fair Value Measurements on a Recurring Basis.The following table presents a reconciliation of available-for-sale securitiestables present, for each fair value hierarchy level, the Bank’s financial assets and liabilities that are measured at fair value using significant unobservable inputs (Level 3):
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| Balance, beginning of year | $ | 2,676 |
| | $ | 2,942 |
| | $ | 3,319 |
|
| Transfer of private-label MBS from held-to-maturity to available-for-sale | 11 |
| | 6 |
| | 451 |
|
Total (losses) gains realized and unrealized: (1) | | | | | |
| Included in net impairment losses recognized in earnings | — |
| | (16 | ) | | (111 | ) |
Included in other comprehensive income (loss) (2) | 167 |
| | 357 |
| | 31 |
|
| Accretion of credit losses in net interest income | 10 |
| | 4 |
| | (11 | ) |
| Settlements | (565 | ) | | (617 | ) | | (737 | ) |
| Balance, end of year | $ | 2,299 |
| | $ | 2,676 |
| | $ | 2,942 |
|
____________
| |
(1)
| Related to available-for-sale securities held at year end. |
| |
(2)
| This amount is included in other comprehensive income (loss) within the net change in fair value on other-than-temporary impairment available-for-sale securities and reclassification of noncredit portion of impairment losses included in net income. |
Described below are the Bank's fair value measurement methodologies for financial assets and liabilities measured or disclosed at fair value.
Cash and Due from Banks. The estimated fair value approximates the recorded carrying value.on a recurring basis on its Statements of Condition.
116 |
| | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2016 |
| | Fair Value Measurements Using | | Netting Adjustment (1) | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | |
| Trading securities: | | | | | | | | | |
| Government-sponsored enterprises debt obligations | $ | — |
| | $ | 261 |
| | $ | — |
| | $ | — |
| | $ | 261 |
|
| State or local housing agency debt obligations | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
| Total trading securities | — |
| | 262 |
| | — |
| | — |
| | 262 |
|
| Available-for-sale securities: | | | | | | | | | |
| Private-label residential MBS | — |
| | — |
| | 1,345 |
| | — |
| | 1,345 |
|
| Derivative assets: | | | | | | | | | |
| Interest-rate related | — |
| | 282 |
| | — |
| | 73 |
| | 355 |
|
| Grantor trust (included in Other assets) | 37 |
| | — |
| | — |
| | — |
| | 37 |
|
| Total assets at fair value | $ | 37 |
| | $ | 544 |
| | $ | 1,345 |
| | $ | 73 |
| | $ | 1,999 |
|
| Liabilities | | | | | | | | | |
| Derivative liabilities: | | | | | | | | | |
| Interest-rate related | $ | — |
| | $ | 1,073 |
| | $ | — |
| | $ | (966 | ) | | $ | 107 |
|
| Total liabilities at fair value | $ | — |
| | $ | 1,073 |
| | $ | — |
| | $ | (966 | ) | | $ | 107 |
|
(1) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions and also cash collateral held or placed with the same clearing agents and/or counterparties.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2015 |
| | Fair Value Measurements Using | | Netting Adjustment (1) | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | |
| Trading securities: | | | | | | | | | |
| Government-sponsored enterprises debt obligations | $ | — |
| | $ | 1,212 |
| | $ | — |
| | $ | — |
| | $ | 1,212 |
|
| Another FHLBank’s bond | — |
| | 52 |
| | — |
| | — |
| | 52 |
|
| State or local housing agency debt obligations | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
| Total trading securities | — |
| | 1,265 |
| | — |
| | — |
| | 1,265 |
|
| Available-for-sale securities: | | | | | | | | | |
| Private-label residential MBS | — |
| | — |
| | 1,662 |
| | — |
| | 1,662 |
|
| Derivative assets: | | | | | | | | | |
| Interest-rate related | — |
| | 337 |
| | — |
| | (161 | ) | | 176 |
|
| Grantor trust (included in Other assets) | 31 |
| | — |
| | — |
| | — |
| | 31 |
|
| Total assets at fair value | $ | 31 |
| | $ | 1,602 |
| | $ | 1,662 |
| | $ | (161 | ) | | $ | 3,134 |
|
| Liabilities | | | | | | | | | |
| Derivative liabilities: | | | | | | | | | |
| Interest-rate related | $ | — |
| | $ | 1,551 |
| | $ | — |
| | $ | (1,427 | ) | | $ | 124 |
|
| Total liabilities at fair value | $ | — |
| | $ | 1,551 |
| | $ | — |
| | $ | (1,427 | ) | | $ | 124 |
|
____________
(1) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions and also cash collateral held or placed with the same clearing agents and/or counterparties.
The following table presents a reconciliation of available-for-sale securities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
|
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Balance, beginning of year | $ | 1,662 |
| | $ | 1,981 |
| | $ | 2,299 |
|
Total (losses) gains realized and unrealized: (1) | | | | | |
| Included in net impairment losses recognized in earnings | (3 | ) | | (5 | ) | | (3 | ) |
| Included in other comprehensive income | 29 |
| | (23 | ) | | (7 | ) |
| Accretion of credit losses in net interest income | 53 |
| | 42 |
| | 34 |
|
| Settlements | (396 | ) | | (333 | ) | | (342 | ) |
| Balance, end of year | $ | 1,345 |
| | $ | 1,662 |
| | $ | 1,981 |
|
____________
| |
(1) | Related to available-for-sale securities held at year end. |
Estimated Fair Value Measurements on a Nonrecurring Basis. The Bank periodically measures and recognizes certain assets at fair value on a nonrecurring basis in certain circumstances. Adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting, or write-downs of individual assets due to impairment. The following table presents the fair value hierarchy and carrying value of all assets as of the last impairment date that were still held as of December 31, 2015, for which a nonrecurring fair value adjustment was recorded during the period presented. The carrying value for each of the assets presented in the following table was less than $1 as of December 31, 2016.
|
| | | | | | | | | | | | | | | |
| | As of December 31, 2015 |
| | Fair Value Measurements Using | | |
| | Level 1 | | Level 2 | | Level 3 | Total |
| Mortgage loans held for portfolio | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
|
| Real estate owned (included in Other assets) | — |
| | — |
| | 3 |
| | 3 |
|
| Total nonrecurring assets at fair value | $ | — |
| | $ | — |
| | $ | 4 |
| | $ | 4 |
|
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Described below are the Bank's fair value measurement methodologies for financial assets and liabilities measured or disclosed at fair value.
Cash and Due from Banks. The estimated fair value approximates the recorded carrying value due to the short-term nature and negligible credit risk.
Interest-bearing Deposits. The estimated fair value is determined by calculating the present value of the expected future cash flows from the deposits and reducing this amount for accrued interest receivable. The discount raterates used in these calculations isare the raterates for deposits with similar terms and represents market observable rates.
Securities purchased under agreements to resell. The estimated fair value is determined by calculating the present value of the expected future cash flows. The discount rates used in these calculations are the rates for securities with similar terms and represent market observable rates.
Federal Funds Sold. The estimated fair value isvalues of overnight federal funds sold approximate the carrying values. The estimated fair values of term federal funds sold are determined by calculating the present value of the expected future cash flows. The discount rates used in these calculations are the rates for federal funds with similar terms and represent market observable rates.
Investment Securities. The Bank obtains prices from four designated third-party pricing vendors, when available, to estimate the fair value of its investment securities. The pricing vendors use various proprietary models to price investment securities. The inputs to those models are derived from various sources including, but not limited to:to, the following: benchmark yields, reported trades, dealer estimates, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many investment securities do not trade on a daily basis, the pricing vendors use available information as applicable, such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing to determine the prices for individual securities. Each pricing vendor has an established challenge process in place for all investment securities valuations, which facilitates resolution of potentially erroneous prices identified by the Bank.
The Bank periodically conducts reviews of the four pricing vendors to confirm and further augment its understanding of the vendors' pricing processes, methodologies, and control procedures for U.S. agency and private-label MBS.
The Bank's valuation technique for estimating the fair value of its investment securities first requires the establishment of a “median” price for each security.
All prices that are within a specified tolerance threshold of the median price are included in the “cluster” of prices that are averaged to compute a “default” price. All prices that are outside the threshold (“outliers”) are subject to further analysis (including, but not limited to, comparison to prices provided by an additional third-party valuation service, prices for similar securities, and/or non-binding dealer estimates) to determine if an outlier is a better estimate of fair value. If an outlier (or some other price identified in the analysis) is determined to be a better estimate of fair value, then the outlier (or the other price as appropriate) is used as the final price rather than the default price. Alternatively, if the analysis does not provide evidence that an outlier is in fact more representative of the fair value and the default price is the best estimate, then the default price is used as the final price. In all cases, the final price is used to determine the fair value of the security.
If all prices received for a security are outside the tolerance threshold level of the median price, then there is no default price, and the final price is determined by an evaluation of all outlier prices as described above.
As of December 31, 2013 and 2012, fourFour vendor prices were received for a majority of the Bank's investment securities holdings and the final prices for those securities were computed by averaging the prices received.received as of December 31, 2016 and 2015. Based on the Bank's review of the pricing methods and controls employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices (or the Bank's additional analysis in those instances in which there were outliers or significant yield variances, the Bank's additional analyses)variances), the Bank believes that its final prices are representative of the prices that would have been received if the assets had been sold at the measurement date (i.e., exit prices) and further that the fair value measurements are classified appropriately in the fair value hierarchy. Based on the lack of significant market activity for private-label MBS, the fair value measurement for those securities were classified as Level 3 within the fair value hierarchy as of December 31, 20132016 and 2012.2015.
As an additional step for certain securities, the Bank reviewed the final fair value estimates of its private-label MBS holdings for reasonableness using an implied yield test.Advances. The Bank calculated an implied yield for certain of its private-label MBS usingdetermines the estimated fair values of advances by calculating the present value derived from the process described above and the security's projectedof expected future cash flows from the Bank's other-than-temporary impairment process and compared such yield toadvances, excluding the market yield for comparable securities according to a third source toamount of the extent comparable market yield data was available. This analysis did not indicate that any material adjustments to the fair value estimates were necessary.accrued interest receivable. The discount rates used in these calculations
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
are the equivalent to the replacement advance rates for advances with similar terms. The Bank calculates its replacement advance rates at a spread to its cost of funds. The Bank's cost of funds approximates the consolidated obligation curve (See "Consolidated Obligations" paragraph within this note for a discussion of the consolidated obligation curve). To estimate the fair values of advances with optionality, market-based expectations of future interest rate volatility implied from current market prices for similar options are also used. In accordance with the Finance Agency's advances regulations, advances with a maturity or repricing period greater than six months require a prepayment fee sufficient enough to make the Bank financially indifferent to the borrower's decision to prepay the advances, thereby removing prepayment risk from the fair value calculation. The Bank did not adjust the fair value measurement of advances for creditworthiness because advances were fully collateralized.
Mortgage Loans Held for Portfolio. The estimated fair values for mortgage loans are determined based on quoted market prices of similar mortgage loans available in the pass-through securities market. These prices, however, can change rapidly based upon market conditions and are highly dependent upon the underlying prepayment assumptions.
Advances. The Bank determines the estimated fair values of advances by calculating the present value of expected future cash flows from the advances and excluding the amount of the accrued interest receivable. The discount rates used in these calculationsimpaired mortgage loans are the replacement advance rates based on the market observable LIBOR curvecurrent property value, as provided by a third party vendor, adjusted for advances with similar terms as of December 31, 2013 and 2012, respectively. In accordance with the advances regulations, advances with a maturity or repricing period greater than six months require a prepayment fee sufficient to make the Bank financially indifferent to the borrower's decision to prepay the advances, thereby removing prepayment risk from the fair value calculation. The Bank did not adjust the fair value measurement of advances for creditworthiness because advances were fully collateralized as described in Note 10–Advances.estimated selling costs.
Accrued Interest Receivable and Payable. The estimated fair value approximates the recorded carrying value.value due to the short-term nature and negligible credit risk.
Derivative Assets and Liabilities. The Bank calculates the fair value of derivatives using a present valuediscounted cash flow analysis. The Bank’s discounted cash flow analysis utilizes market-observable inputs. Inputs by class of future cash flows discounted by a market observable rate. The Bank used OIS to discount future cash flowsderivatives are as follows:
Interest-rate related - the Overnight Index Swap curve for collateralized derivatives.derivatives; and
Mortgage delivery commitments - to be announced (TBA) securities prices adjusted for differences in coupon, average loan rate, and seasoning.
Derivative instruments are transacted primarily in the institutional dealer market and priced with observable market assumptions at a mid-market valuation point. The Bank does not provide a credit valuation adjustment based on aggregate exposure by derivative counterparty when measuring the fair value of its derivatives. This is because the collateral provisions pertaining to the Bank's derivatives obviate the need to provide such a credit valuation adjustment. The fair values of the Bank's derivatives take into consideration the effects of legally enforceable master netting agreements, where applicable, that allow the Bank to settle positive and negative positions and offset cash collateral with the same counterparty on a net basis. The Bank and each bilateraluncleared derivative counterparty have bilateral collateral thresholds that take into account both the Bank's and the counterparty's credit ratings. As a result of these practices and agreements, the Bank has concluded that the impact of the credit differential between the Bank and its derivative counterparties was mitigated to an immaterial level, and no further adjustments were deemed necessary to the recorded fair values of derivative assets and liabilities on the Statements of Condition as of December 31, 20132016 and 2012.2015.
Grantor Trust Assets. Grantor trust assets, included as a componentrecorded in "Other assets" on the Statements of Other assets,Condition, are carried at estimated fair value based on quoted market prices.
Interest-bearing Deposits. The Bank determines estimated fair values of Bank deposits by calculating the present value of expected future cash flows from the deposits and reducing this amount for accrued interest payable. The discount rate used in these calculations is based on LIBOR.
Consolidated Obligations.The Bank calculates the fair value of consolidated obligation bonds and discount notes by usingcalculating the present value of future cash flows using a cost of funds as the discount rate. The cost of funds discount curves are based primarily on the market observable LIBOR and to some extent on the Office of Finance costconstructs an internal curve, referred to as the consolidated obligation curve, using the U.S. Treasury curve as a base curve that is then adjusted by adding indicative spreads obtained from market observable sources. These market indications are generally derived from pricing indications from dealers, historical pricing relationships, recent government-sponsored enterprise trades, and secondary market activity. To estimate the fair values of funds curve, which also isconsolidated obligations with optionality, the Bank uses market observable.based expectations of future interest rate volatility implied from current market prices for similar options.
Mandatorily Redeemable Capital Stock. The fair value of mandatorily redeemable capital stock is par value includingand also includes estimated dividends earned at the time of reclassification from capital to liabilities, until such amount is paid. Capital stock can be acquired by members only at par value and redeemed by the Bank at par value. Capital stock is not traded and no market mechanism exists for the exchange of capital stock outside the cooperative structure.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The following estimated fair value amounts have been determined by the Bank using available market information and the Bank’s best judgment of appropriate valuation methods. These estimates are based on pertinent information available to the Bank as of December 31, 20132016 and 2012.2015. Although the Bank uses its best judgment in estimating the fair values of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology.
For example, because an active secondary market does not exist for a portion of the Bank’s financial instruments, in certain cases, fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change. Therefore, these estimated fair values are not necessarily indicative of the amounts that would be realized in current market transactions, although they do reflect the Bank’s judgment of how a market participant would estimate the fair value. The fair value tables presented below do not represent an estimate of the overall fair value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of assets versus liabilities.
The following tables present the carrying values and estimated fair values of the Bank’s financial instruments.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2016 |
| | | | Estimated Fair Value |
| | Carrying Value | | Total | | Level 1 | | Level 2 | | Level 3 | | Netting Adjustment (1) |
| Assets: | | | | | | | | | | | |
| Cash and due from banks | $ | 1,815 |
| | $ | 1,815 |
| | $ | 1,815 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Interest bearing-deposits | 1,106 |
| | 1,106 |
| | — |
| | 1,106 |
| | — |
| | — |
|
| Securities purchased under agreements to resell | 1,386 |
| | 1,386 |
| | — |
| | 1,386 |
| | — |
| | — |
|
| Federal funds sold | 7,770 |
| | 7,770 |
| | — |
| | 7,770 |
| | — |
| | — |
|
| Trading securities | 262 |
| | 262 |
| | — |
| | 262 |
| | — |
| | — |
|
| Available-for-sale securities | 1,345 |
| | 1,345 |
| | — |
| | — |
| | 1,345 |
| | — |
|
| Held-to-maturity securities | 24,641 |
| | 24,633 |
| | — |
| | 23,843 |
| | 790 |
| | — |
|
| Advances | 99,077 |
| | 99,062 |
| | — |
| | 99,062 |
| | — |
| | — |
|
| Mortgage loans held for portfolio, net | 523 |
| | 569 |
| | — |
| | 569 |
| | — |
| | — |
|
| Accrued interest receivable | 171 |
| | 171 |
| | — |
| | 171 |
| | — |
| | — |
|
| Derivative assets | 355 |
| | 355 |
| | — |
| | 282 |
| | — |
| | 73 |
|
| Grantor trust assets (included in Other assets) | 37 |
| | 37 |
| | 37 |
| | — |
| | — |
| | — |
|
| Liabilities: | | | | | | | | | | | |
| Interest-bearing deposits | 1,118 |
| | 1,118 |
| | — |
| | 1,118 |
| | — |
| | — |
|
| Consolidated obligations, net: | | | | | | | | | | | |
| Discount notes | 41,292 |
| | 41,293 |
| | — |
| | 41,293 |
| | — |
| | — |
|
| Bonds | 88,647 |
| | 88,768 |
| | — |
| | 88,768 |
| | — |
| | — |
|
| Mandatorily redeemable capital stock | 1 |
| | 1 |
| | 1 |
| | — |
| | — |
| | — |
|
| Accrued interest payable | 128 |
| | 128 |
| | — |
| | 128 |
| | — |
| | — |
|
| Derivative liabilities | 107 |
| | 107 |
| | — |
| | 1,073 |
| | — |
| | (966 | ) |
____________
| |
(1) | Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions and also cash collateral held or placed with the same clearing agents and/or counterparties. |
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Bank as a going concern, which would take into account future business opportunities and the net profitability of assets versus liabilities.
The carrying values and estimated fair values of the Bank’s financial instruments were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2013 |
| | | | Estimated Fair Value |
| | Carrying Value | | Total | | Level 1 | | Level 2 | | Level 3 | | Netting Adjustment |
| Assets: | | | | | | | | | | | |
| Cash and due from banks | $ | 4,374 |
| | $ | 4,374 |
| | $ | 4,374 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Interest bearing-deposits | 1,007 |
| | 1,007 |
| | — |
| | 1,007 |
| | — |
| | — |
|
| Federal funds sold | 1,795 |
| | 1,795 |
| | — |
| | 1,795 |
| | — |
| | — |
|
| Trading securities | 1,667 |
| | 1,667 |
| | — |
| | 1,667 |
| | — |
| | — |
|
| Available-for-sale securities | 2,299 |
| | 2,299 |
| | — |
| | — |
| | 2,299 |
| | — |
|
| Held-to-maturity securities | 20,176 |
| | 20,146 |
| | — |
| | 18,225 |
| | 1,921 |
| | — |
|
| Mortgage loans held for portfolio, net | 918 |
| | 1,004 |
| | — |
| | 1,004 |
| | — |
| | — |
|
| Advances | 89,588 |
| | 89,413 |
| | — |
| | 89,413 |
| | — |
| | — |
|
| Accrued interest receivable | 199 |
| | 199 |
| | — |
| | 199 |
| | — |
| | — |
|
| Derivative assets | 53 |
| | 53 |
| | — |
| | 859 |
| | — |
| | (806 | ) |
| Grantor trust assets (included in Other assets) | 21 |
| | 21 |
| | 21 |
| | — |
| | — |
| | — |
|
| Liabilities: | | | | | | | | | | | |
| Interest-bearing deposits | (1,752 | ) | | (1,752 | ) | | — |
| | (1,752 | ) | | — |
| | — |
|
| Consolidated obligations, net: | | | | | | | | | | | |
| Discount notes | (32,202 | ) | | (32,203 | ) | | — |
| | (32,203 | ) | | — |
| | — |
|
| Bonds | (80,728 | ) | | (80,733 | ) | | — |
| | (80,733 | ) | | — |
| | — |
|
| Mandatorily redeemable capital stock | (24 | ) | | (24 | ) | | (24 | ) | | — |
| | — |
| | — |
|
| Accrued interest payable | (183 | ) | | (183 | ) | | — |
| | (183 | ) | | — |
| | — |
|
| Derivative liabilities | (187 | ) | | (187 | ) | | — |
| | (2,674 | ) | | — |
| | 2,487 |
|
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
| | | | As of December 31, 2012 | As of December 31, 2015 |
| | | | Estimated Fair Value | | | Estimated Fair Value |
| | Carrying Value | | Total | | Level 1 | | Level 2 | | Level 3 | | Netting Adjustment | Carrying Value | | Total | | Level 1 | | Level 2 | | Level 3 | | Netting Adjustment (1) |
| Assets: | | | | | | | | | | | | | | | | | | | | | | |
| Cash and due from banks | $ | 4,083 |
| | $ | 4,083 |
| | $ | 4,083 |
| | $ | — |
| | $ | — |
| | $ | — |
| $ | 1,751 |
| | $ | 1,751 |
| | $ | 1,751 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Interest bearing-deposits | 1,005 |
| | 1,005 |
| | — |
| | 1,005 |
| | — |
| | — |
| 1,088 |
| | 1,088 |
| | — |
| | 1,088 |
| | — |
| | — |
|
| Securities purchased under agreements to resell | 250 |
| | 250 |
| | — |
| | 250 |
| | — |
| | — |
| 2,500 |
| | 2,500 |
| | — |
| | 2,500 |
| | — |
| | — |
|
| Federal funds sold | 7,235 |
| | 7,235 |
| | — |
| | 7,235 |
| | — |
| | — |
| 5,421 |
| | 5,421 |
| | — |
| | 5,421 |
| | — |
| | — |
|
| Trading securities | 2,370 |
| | 2,370 |
| | — |
| | 2,370 |
| | — |
| | — |
| 1,265 |
| | 1,265 |
| | — |
| | 1,265 |
| | — |
| | — |
|
| Available-for-sale securities | 2,676 |
| | 2,676 |
| | — |
| | — |
| | 2,676 |
| | — |
| 1,662 |
| | 1,662 |
| | — |
| | — |
| | 1,662 |
| | — |
|
| Held-to-maturity securities | 16,918 |
| | 17,124 |
| | — |
| | 14,366 |
| | 2,758 |
| | — |
| 23,239 |
| | 23,263 |
| | — |
| | 22,179 |
| | 1,084 |
| | — |
|
Mortgage loans held for portfolio, net (1) | 1,244 |
| | 1,358 |
| | — |
| | 1,358 |
| | — |
| | — |
| |
Advances (2) | 87,503 |
| | 87,933 |
| | — |
| | 87,933 |
| | — |
| | — |
| |
| Advances | | 104,168 |
| | 104,021 |
| | — |
| | 104,021 |
| | — |
| | — |
|
| Mortgage loans held for portfolio, net | | 584 |
| | 647 |
| | — |
| | 646 |
| | 1 |
| | — |
|
| Accrued interest receivable | 240 |
| | 240 |
| | — |
| | 240 |
| | — |
| | — |
| 171 |
| | 171 |
| | — |
| | 171 |
| | — |
| | — |
|
| Derivative assets | 13 |
| | 13 |
| | — |
| | 1,190 |
| | — |
| | (1,177 | ) | 176 |
| | 176 |
| | — |
| | 337 |
| | — |
| | (161 | ) |
| Grantor trust assets (included in Other assets) | 17 |
| | 17 |
| | 17 |
| | — |
| | — |
| | — |
| 31 |
| | 31 |
| | 31 |
| | — |
| | — |
| | — |
|
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing deposits | (2,094 | ) | | (2,094 | ) | | — |
| | (2,094 | ) | | — |
| | — |
| 1,084 |
| | 1,084 |
| | — |
| | 1,084 |
| | — |
| | — |
|
| Consolidated obligations, net: | | | | | | | | | | | | | | | | | | | | | | |
| Discount notes | (31,737 | ) | | (31,739 | ) | | — |
| | (31,739 | ) | | — |
| | — |
| 69,434 |
| | 69,432 |
| | — |
| | 69,432 |
| | — |
| | — |
|
Bonds (3) | (82,947 | ) | | (83,671 | ) | | — |
| | (83,671 | ) | | — |
| | — |
| 63,953 |
| | 63,940 |
| | — |
| | 63,940 |
| | — |
| | — |
|
| Mandatorily redeemable capital stock | (40 | ) | | (40 | ) | | (40 | ) | | — |
| | — |
| | — |
| 14 |
| | 14 |
| | 14 |
| | — |
| | — |
| | — |
|
| Accrued interest payable | (229 | ) | | (229 | ) | | — |
| | (229 | ) | | — |
| | — |
| 127 |
| | 127 |
| | — |
| | 127 |
| | — |
| | — |
|
| Derivative liabilities | (158 | ) | | (158 | ) | | — |
| | (4,208 | ) | | — |
| | 4,050 |
| 124 |
| | 124 |
| | — |
| | 1,551 |
| | — |
| | (1,427 | ) |
____________
| |
(1) | The estimated fair valueAmounts represent the application of mortgage loansthe netting requirements that allow the Bank to settle positive and negative positions and also cash collateral held for portfolio, net was adjusted by $19, which represents a change of 1.36 percent fromor placed with the previously reported value. |
| |
(2)
| The estimated fair value of advances was adjusted by $12, which represents a change of 0.01 percent from the previously reported value.
|
| |
(3)
| The estimated fair value of consolidated obligation bonds was adjusted by $79, which represents a change of 0.09 percent from the previously reported value.
same clearing agents and/or counterparties. |
Note 20—Commitments and Contingencies
As described in Note 13–Consolidated Obligations, consolidated obligations are backed only by the financial resources of the 12FHLBanks. TheAt any time, the Finance Agency may at any time require any FHLBank to make principal or interest payments due on any consolidated obligations,obligation, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation. No FHLBank has ever had to assume or pay the consolidated obligation of another FHLBank.
The Bank determined it is not necessary to recognize a liability for the fairpar value of the Bank's jointother FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and several liability for allseverally liable was $859,361 and $771,948 as of December 31, 2016 and 2015, respectively, exclusive of the Bank’s own outstanding consolidated obligations. The joint and severalNone of the other FHLBanks defaulted on their consolidated obligations, are mandated bythe Finance Agency regulations and arewas not the result of arms-length transactionsrequired to allocate any obligation among the FHLBanks. The FHLBanks, haveand no control over the amount of the guaranty or the determination of how each FHLBank would perform under the joint and several obligation.obligation was fixed as of December 31, 2016 and 2015. Accordingly, the Bank has not recognized a liability for its joint and several obligation related to the other FHLBanks' consolidated obligations as of December 31, 20132016 and 2012. 2015.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The par value of the FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable was $654,076 and $574,257 as of December 31, 2013 and 2012, respectively, exclusive offollowing table presents the Bank’s own outstanding consolidatedcommitments, which represent off-balance sheet obligations.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2016 | | 2015 |
| | | Expire Within One Year | | Expire After One Year | | Total | | Expire Within One Year | | Expire After One Year | | Total |
Standby letters of credit (1) | | $ | 10,934 |
| | $ | 21,734 |
| | $ | 32,668 |
| | $ | 8,693 |
| | $ | 23,823 |
| | $ | 32,516 |
|
| Commitments to fund additional advances | | 100 |
| | 200 |
| | 300 |
| | 207 |
| | 100 |
| | 307 |
|
Unsettled consolidated obligation discount notes, at par (2) | | — |
| | — |
| | — |
| | 100 |
| | — |
| | 100 |
|
Unsettled consolidated obligation bonds, at par (2) | | 15 |
| | — |
| | 15 |
| | 25 |
| | — |
| | 25 |
|
| Commitments to purchase mortgage loans | | 12 |
| | — |
| | 12 |
| | — |
| | — |
| | — |
|
| |
(1) | "Expire Within One Year" includes 12 standby letters of credit for a total of $34 and 11 standby letters of credit for a total of $29 as of December 31, 2016 and 2015, respectively, that have no stated maturity date and are subject to renewal on an annual basis. |
| |
(2) | Expiration is based on settlement period rather than underlying contractual maturity of consolidated obligations. |
The Bank issues standby letters of credit for the accounton behalf of its members for a fee. A standby letter of credit is a financing arrangement between the Bank and its member. If the Bank is required to make payment for a beneficiary's draw, the Bank in its discretion may convert such paid amount to an advance to the member and will require a corresponding activity-based capital stock purchase.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The Bank’s outstanding standby letters of credit were as follows:
|
| | | | | | | |
| | As of December 31, |
| | 2013 | | 2012 |
| Standby letters of credit | $ | 27,789 |
| | $ | 17,687 |
|
Original terms (1) | One month to 20 years |
| | Less than four months to 20 years |
|
| Final expiration year | 2030 |
| | 2030 |
|
____________
| |
(1)
| The Bank had 14 standby letters of credit for a total of $20 as of December 31, 2013, and five standby letters of credit for a total of $49 as of December 31, 2012, that have no stated maturity date and are subject to renewal on an annual basis.
|
The carrying value of the guarantees related to standby letters of credit is recorded in other liabilities and amounted to $137 and $74 as of December 31, 2013 and 2012, respectively. Based on the Bank's credit analyses and collateral requirements, the Bank does not deem it necessary to record any additional liability on these commitments.
The Bank monitors the creditworthiness of its standby letters of credit based on an evaluation of the member. In addition, standby letters of credit are fully collateralized from the time of issuance. The Bank has established parameters for the measurement, review, classification, and monitoring of credit risk related to these standby letters of credit that results in an internal credit rating, which focuses primarily on an institution’s overall financial health and takes into account the quality of assets, earnings, and capital position. In general, borrowers categorized into the highest risk rating category have more restrictions on the types of collateral that they may use to secure standby letters of credit, may be required to maintain higher collateral maintenance levels and deliver loan collateral, and may face more stringent collateral reporting requirements.
Commitments that legally bindThe carrying value of the guarantees related to standby letters of credit is recorded in "Other liabilities" on the Statements of Condition and unconditionally obligate the Bank for additional advances were $144amounted to $135 and $5136 as of December 31, 20132016 and December 31, 2012, respectively,2015, respectively. Based on the Bank's credit analyses and may be outstanding for periods of upcollateral requirements, the Bank does not deem it necessary to two years.record any additional liability on these commitments.
The Bank had nomay enter into commitments that unconditionally obligate the Bankit to purchase closed mortgage loansloans. Commitments are generally for periods not exceeding 91 days. Delivery commitments are recorded at fair value as derivative assets or derivative liabilities on the Statements of December 31, 2013 and 2012. Such commitments would be recorded as derivatives at their fair values.
As of December 31, 2013, the Bank had committed to the issuance of $171 (par value) in consolidated obligation bonds, of which $145 were hedged with associated interest rate swaps, and $467 (par value) in consolidated obligation discount notes, none of which were hedged with associated interest rate swaps, that had traded but not yet settled. As of December 31, 2012, the Bank had committed to the issuance of $3,055 (par value) in consolidated obligation bonds, of which $3,035 were hedged with associated interest rate swaps that had traded but not yet settled.Condition.
The Bank charged to operating expenses net rental costs of $2$2 for each of the years ended December 31, 2013, 2012,2016, 2015, and 2011.2014.
Lease agreements for Bank premises generally provide for increases in the basic rentals resulting from increases in property taxes and maintenance expenses. Such increases are not expected to have a material effect on the Bank's results of operations.
The Bank is subject to legal proceedings arising in the normal course of business. After consultation with legal counsel, management does not anticipate, as of the date of the financial statements, that the ultimate liability, if any, arising out of these matters will have a material effect on the Bank’s financial condition or results of operations.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Note 21—Transactions with Members and their Affiliates and with Housing AssociatesShareholders
The Bank is a cooperative whose member institutions own substantially all of the capital stock of the Bank. Former members and certain non-members, thatwhich own the Bank's capital stock as a result of a merger or acquisition of a member of the Bank's member,Bank, own the remaining capital stock to support business transactions still carried on the Bank’s Statements of Condition. All holders of the Bank’s capital stock receive dividends on their investments, to the extent declared by the Bank’s board of directors. All advances are issued to members and eligible “housing associates” under the FHLBank Act, and mortgage loans held for portfolio are purchased from members. The Bank also maintains demand deposit accounts primarily to facilitate settlement activities that are related directly to advances and mortgage loan purchases.
Transactions with any member that has an officer or director who is also is a director of the Bank are subject to the same Bank policies as transactions with other members, andmembers.
Related Parties. In accordance with GAAP, financial statements are required to disclose material related-party transactions with members which are entered intoother than compensation arrangements, expense allowances, or other similar items that occur in the ordinary course of business. Under GAAP, related parties include owners of more than 10 percent of the Bank's business are not consideredvoting interests of the Bank. Due to limits on member voting rights under the FHLBank Act and Finance Agency regulations, no member owned more than 10 percent of the total voting interests. Therefore, the Bank had no such related party transactions subjectrequired to disclosure.be disclosed for the periods presented.
Shareholder Concentrations. The Bank defines related partiesconsiders shareholder concentration as each of the other FHLBanks and those members or non-members with regulatory capital stock outstanding in excess of 10 percent of the Bank's total regulatory capital stock. Based on this definition, one member institution, BankThe following tables present transactions with shareholders whose holdings of America, National Association, which held 16.2regulatory capital stock exceed 10 percent of the Bank’s total regulatory capital stock as of December 31, 2013, was considered a related party. Total advances outstanding to Bank of America, National Association were outstanding.$17,263 and $9,914 as of December 31, 2013 and 2012, respectively. Total deposits held in the name of Bank of America, National Association were less than $1 as of December 31, 2013 and 2012. No mortgage loans or mortgage-backed securities were acquired from Bank of America, National Association during the three years ended December 31, 2013.
|
| | | | | | | | | | | | | | | | | |
| | As of December 31, 2016 |
| | Regulatory Capital Stock Outstanding | | Percent of Total Regulatory Capital Stock Outstanding | | Par Value of Advances | | Percent of Total Par Value Advances | | Interest-bearing Deposits | | Percent of Total Interest-bearing Deposits |
| Capital One, National Association | $ | 745 |
| | 15.03 | | $ | 17,176 |
| | 17.48 | | $ | 16 |
| | 1.41 |
| Navy Federal Credit Union | 589 |
| | 11.88 | | 13,495 |
| | 13.73 | | 156 |
| | 13.93 |
| Bank of America, National Association | 504 |
| | 10.17 | | 11,511 |
| | 11.71 | | — |
| | 0.01 |
During 2013, the Bank agreed with certain of its defendants to settle claims arising from certain investments in private-label mortgage-backed securities. The gross settlement of these claims was $40, resulting in a gain of $33, net of legal fees and expenses, which is recorded in Other Income (Loss) as "Gain on Litigation Settlements." Included in these settlements was $25 (net of legal fees and expenses) related to one of the Bank’s members. |
| | | | | | | | | | | | | | | | | |
| | As of December 31, 2015 |
| | Regulatory Capital Stock Outstanding | | Percent of Total Regulatory Capital Stock Outstanding | | Par Value of Advances | | Percent of Total Par Value Advances | | Interest-bearing Deposits | | Percent of Total Interest-bearing Deposits |
| Capital One, National Association | $ | 869 |
| | 16.99 | | $ | 20,095 |
| | 19.54 | | $ | 17 |
| | 1.55 |
| Navy Federal Credit Union | 643 |
| | 12.57 | | 14,773 |
| | 14.36 | | — |
| | 0.01 |
| Bank of America, National Association | 579 |
| | 11.31 | | 13,262 |
| | 12.89 | | — |
| | 0.01 |
Note 22—Transactions with Other FHLBanks
The Bank's activities with other FHLBanks are summarized below and have been identified in the Statements of Condition, Statements of Income and Statements of Cash Flows.below.
Loans to and Borrowings withfrom Other FHLBanks. Occasionally, the Bank loans (or borrows) short-term funds to (from)or borrows short-term funds from the other FHLBanks. ThereFHLBanks; however, there were no outstanding loans to or borrowings from the other FHLBanks outstanding as of December 31, 20132016 and 2012.2015. Interest income on loans to other FHLBanks was less than $1 for each of the years ended December 31, 2016, 2015, and interest2014. Interest expense on borrowings from other FHLBanks was $0 for the year ended December 31, 2016, and less than $1$1 for each of the years ended December 31, 2013, 2012,2015 and 2011.2014.
The following table summarizes the cash flow activities for loans to and borrowings from other FHLBanks:
|
| | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| | | 2013 | | 2012 | | 2011 |
| Investing activities: | | | | | | |
| Loans made to other FHLBanks | | $ | (305 | ) | | $ | (484 | ) | | $ | (859 | ) |
| Principal collected on loans to other FHLBanks | | 305 |
| | 484 |
| | 859 |
|
| Net change in loans to other FHLBanks | | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | |
| Financing activities: | | | | | | |
| Proceeds from short-term borrowings from other FHLBanks | | $ | 2,270 |
| | $ | 446 |
| | $ | 3,066 |
|
| Payments of short-term borrowings from other FHLBanks | | (2,270 | ) | | (446 | ) | | (3,066 | ) |
| Net change in borrowings from other FHLBanks | | $ | — |
| | $ | — |
| | $ | — |
|
Investment in Another FHLBank's Consolidated Obligation Bond. The Bank's trading investment securities portfolio includes a consolidated obligation bond for which FHLBank Chicago is the primary obligor. The balance of this investment is presented in Note 5—Trading Securities. This consolidated obligation bond was purchased in the open market from a third party and is accounted for in the same manner as other similarly classified investments (see Note 2—Summary of Significant Accounting Policies). Interest income earned on the consolidated obligation bond on which FHLBank Chicago is the primary obligor totaled $9, $10, and $8 for the years ended December 31, 2013, 2012, and 2011, respectively.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
The following table presents the cash flow activities for loans to and borrowings from other FHLBanks.
|
| | | | | | | | | | | | |
| | | For the Years Ended December 31, |
| | | 2016 | | 2015 | | 2014 |
| Investing activities: | | | | | | |
| Loans made to other FHLBanks | | $ | (1,010 | ) | | $ | (11,759 | ) | | $ | (990 | ) |
| Principal collected on loans made to other FHLBanks | | 1,010 |
| | 11,759 |
| | 990 |
|
| Net change in loans made to other FHLBanks | | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | |
| Financing activities: | | | | | | |
| Proceeds from short-term borrowings from other FHLBanks | | $ | — |
| | $ | 927 |
| | $ | 1,038 |
|
| Payments of short-term borrowings from other FHLBanks | | — |
| | (927 | ) | | (1,038 | ) |
| Net change in borrowings from other FHLBanks | | $ | — |
| | $ | — |
| | $ | — |
|
MPF Program® Service Fees and Loan Participations.Investment in Another FHLBank's Consolidated Obligation Bond. Beginning in 2005,Occasionally, the Bank began paying a fee to FHLBank Chicago for services performedpurchases consolidated obligations issued by it under the MPF Program, oneother FHLBanks through third-party dealers as investment securities. The balance of the programs through which the Bank historically purchased mortgage loans. These feesthese investments is presented in Note 5—Trading Securities. Interest income earned on these consolidated obligation bonds totaled less than $1$2 for the year ended December 31, 2013,2016 and $1$9 for each of the years ended December 31, 20122015 and 2011 .2014.
MPF Program PurchaseMortgage Loan Purchases of Participation Interests from Other FHLBanks. In 2000 and 2001,During 2016, the Bank together with FHLBank Pittsburgh and FHLBank Chicago, participatedIndianapolis began participating in the funding of onea master commitment with a member of FHLBank Pittsburgh. As of December 31, 2013, theIndianapolis. The Bank's outstanding balance related to these MPF Programmortgage loan assets was $2.$72 as of December 31, 2016.
Note 23— Subsequent Events
On March 9, 2017, the Bank’s board of Credit Participation. In 2013,directors approved a cash dividend for the fourth quarter of 2016. The Bank together withwill pay the FHLBank of Seattle, entered into a participation agreement whereby FHLBank of Seattle guaranteed a standby letter of creditfourth quarter 2016 dividend on March 14, 2017, in the amount of $150. Fees paid to FHLBank Seattle associated with this agreement totaled less than $1 for the year ended December 31, 2013.$58.
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Supplementary Financial Information (Unaudited)
Selected Quarterly Financial Data
SupplementaryThe following tables present supplementary financial information for each quarter in the years ended December 31, 20132016 and 2012 is included in the following tables2015 (in millions).
| | | | For the Year Ended December 31, 2013 | For the Year Ended December 31, 2016 |
| | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter | | Total | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter | | Total |
| Interest income | $ | 187 |
| | $ | 196 |
| | $ | 200 |
| | $ | 208 |
| | $ | 791 |
| $ | 290 |
| | $ | 292 |
| | $ | 266 |
| | $ | 258 |
| | $ | 1,106 |
|
| Interest expense | 105 |
| | 110 |
| | 114 |
| | 121 |
| | 450 |
| 222 |
| | 199 |
| | 186 |
| | 165 |
| | 772 |
|
| Net interest income | 82 |
| | 86 |
| | 86 |
| | 87 |
| | 341 |
| 68 |
| | 93 |
| | 80 |
| | 93 |
| | 334 |
|
| Provision for credit losses | 1 |
| | 1 |
| | 1 |
| | 2 |
| | 5 |
| |
| Noninterest income | 76 |
| | 25 |
| | 41 |
| | 24 |
| | 166 |
| |
| Reversal of provision for credit losses | | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) |
| Noninterest income (loss) | | 69 |
| | 28 |
| | 17 |
| | (3 | ) | | 111 |
|
| Noninterest expense | 35 |
| | 31 |
| | 31 |
| | 30 |
| | 127 |
| 38 |
| | 34 |
| | 31 |
| | 34 |
| | 137 |
|
| Affordable Housing Program assessments | 12 |
| | 8 |
| | 9 |
| | 8 |
| | 37 |
| 10 |
| | 9 |
| | 6 |
| | 6 |
| | 31 |
|
| Net income | $ | 110 |
| | $ | 71 |
| | $ | 86 |
| | $ | 71 |
|
| $ | 338 |
| $ | 89 |
| | $ | 79 |
| | $ | 60 |
| | $ | 50 |
|
| $ | 278 |
|
| | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2012 | For the Year Ended December 31, 2015 |
| | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter | | Total | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter | | Total |
| Interest income | $ | 226 |
| | $ | 238 |
| | $ | 255 |
| | $ | 254 |
| | $ | 973 |
| $ | 202 |
| | $ | 186 |
| | $ | 36 |
| | $ | 184 |
| | $ | 608 |
|
| Interest expense | 129 |
| | 147 |
| | 152 |
| | 169 |
| | 597 |
| 110 |
| | 91 |
| | 84 |
| | 80 |
| | 365 |
|
| Net interest income | 97 |
| | 91 |
| | 103 |
| | 85 |
|
| 376 |
| |
| Provision for credit losses | 2 |
| | 1 |
| | — |
| | 3 |
| | 6 |
| |
| Noninterest income (loss) | 14 |
| | 24 |
| | (6 | ) | | 23 |
| | 55 |
| |
| Net interest income (expense) | | 92 |
| | 95 |
| | (48 | ) | | 104 |
|
| 243 |
|
| (Reversal) provision for credit losses | | (1 | ) | | 1 |
| | — |
| | (1 | ) | | (1 | ) |
| Noninterest income | | 22 |
| | 7 |
| | 176 |
| | 20 |
| | 225 |
|
| Noninterest expense | 38 |
| | 30 |
| | 30 |
| | 27 |
| | 125 |
| 37 |
| | 33 |
| | 31 |
| | 34 |
| | 135 |
|
| Affordable Housing Program assessments | 7 |
| | 8 |
| | 7 |
| | 8 |
| | 30 |
| 7 |
| | 7 |
| | 10 |
| | 9 |
| | 33 |
|
| Net income | $ | 64 |
| | $ | 76 |
| | $ | 60 |
| | $ | 70 |
|
| $ | 270 |
| $ | 71 |
| | $ | 61 |
| | $ | 87 |
| | $ | 82 |
|
| $ | 301 |
|
Investment Portfolio
SupplementaryThe following table presents supplementary financial information on the Bank's investments is included in the tables below (dollars in millions):
| | | | | As of December 31, | | As of December 31, |
| | | 2013 | | 2012 | | 2011 | | 2016 | | 2015 | | 2014 |
| | | Due in one year or less | | Due after one year through five years | | Due after five through 10 years | | Due after 10 years | | Total | | Due in one year or less | | Due after one year through five years | | Due after five through 10 years | | Due after 10 years | | Total |
| Interest-bearing deposits | | | $ | 1,106 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,106 |
| | $ | 1,088 |
| | $ | 1,010 |
|
| Securities purchased under agreements to resell | | | 1,386 |
| | — |
| | — |
| | — |
| | 1,386 |
| | 2,500 |
| | 1,960 |
|
| Federal funds sold | | | 7,770 |
| | — |
| | — |
| | — |
| | 7,770 |
| | 5,421 |
| | 6,385 |
|
| | | | | | | | | | | | | | | | |
| Total Investment Securities by Major Security Type | | | | | | | | | | | | | | | |
| Trading securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Government-sponsored enterprises debt obligations | | $ | 345 |
| | $ | 1,256 |
| | $ | — |
| | $ | — |
| | $ | 1,601 |
| | $ | 2,291 |
| | $ | 3,035 |
| | 206 |
| | — |
| | 55 |
| | — |
| | 261 |
| | 1,212 |
| | 1,208 |
|
| Another FHLBank's bond | | — |
| | 65 |
| | — |
| | — |
| | 65 |
| | 77 |
| | 82 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 52 |
| | 60 |
|
| State and local housing agency debt obligations | | — |
| | 1 |
| | — |
| | — |
| | 1 |
| | 2 |
| | 3 |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
| | 1 |
| | 1 |
|
| Total trading securities | | 345 |
| | 1,322 |
| | — |
| | — |
| | 1,667 |
| | 2,370 |
| | 3,120 |
| | 206 |
| | 1 |
| | 55 |
| | — |
| | 262 |
| | 1,265 |
| | 1,269 |
|
| Yield on trading securities | | 5.13 | % | | 4.91 | % | | 0.00 | % | | 0.00 | % | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Private-label residential MBS | | $ | — |
| | $ | — |
| | $ | 12 |
| | $ | 2,287 |
| | 2,299 |
| | 2,676 |
| | 2,942 |
| | — |
| | 1 |
| | 2 |
| | 1,342 |
| | 1,345 |
| | 1,662 |
| | 1,981 |
|
| Total available-for-sale securities | | — |
| | — |
| | 12 |
| | 2,287 |
| | 2,299 |
| | 2,676 |
| | 2,942 |
| |
| Yield on available-for-sale securities | | 0.00 | % | | 0.00 | % | | 5.48 | % | | 5.40 | % | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Held-to-maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Certificates of deposit | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | — |
| | 550 |
| | 650 |
| |
| State and local housing agency debt obligations | | — |
| | 92 |
| | — |
| | — |
| | 92 |
| | 106 |
| | 100 |
| | 75 |
| | — |
| | 1 |
| | — |
| | 76 |
| | 76 |
| | 81 |
|
| Government-sponsored enterprises debt obligations | | 430 |
| | 3,308 |
| | — |
| | — |
| | 3,738 |
| | 2,133 |
| | 1,111 |
| | 2,379 |
| | 3,487 |
| | 175 |
| | — |
| | 6,041 |
| | 5,693 |
| | 6,667 |
|
| Mortgage-backed securities: | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| U.S. agency obligations- guaranteed residential | | — |
| | — |
| | 1 |
| | 464 |
| | 465 |
| | 622 |
| | 803 |
| | — |
| | — |
| | 6 |
| | 203 |
| | 209 |
| | 279 |
| | 366 |
|
| Government-sponsored enterprises residential | | — |
| | 95 |
| | 1,352 |
| | 12,505 |
| | 13,952 |
| | 10,763 |
| | 9,886 |
| | 3 |
| | 268 |
| | 348 |
| | 10,133 |
| | 10,752 |
| | 11,958 |
| | 13,665 |
|
| Government-sponsored enterprises commercial | | | — |
| | 808 |
| | 5,749 |
| | 216 |
| | 6,773 |
| | 4,140 |
| | 1,663 |
|
| Private-label residential | | — |
| | 243 |
| | 79 |
| | 1,607 |
| | 1,929 |
| | 2,744 |
| | 3,693 |
| | — |
| | 30 |
| | — |
| | 760 |
| | 790 |
| | 1,093 |
| | 1,455 |
|
| Total held-to-maturity securities | | 430 |
| | 3,738 |
| | 1,432 |
| | 14,576 |
| | 20,176 |
| | 16,918 |
| | 16,243 |
| | 2,457 |
| | 4,593 |
| | 6,279 |
| | 11,312 |
| | 24,641 |
| | 23,239 |
| | 23,897 |
|
| Yield on held-to-maturity securities | | 0.20 | % | | 0.89 | % | | 2.83 | % | | 1.56 | % | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total investment securities | | $ | 775 |
| | $ | 5,060 |
| | $ | 1,444 |
| | $ | 16,863 |
| | 24,142 |
| | 21,964 |
| | 22,305 |
| | 2,663 |
| | 4,595 |
| | 6,336 |
| | 12,654 |
| | 26,248 |
| | 26,166 |
| | 27,147 |
|
| Total investments | | | $ | 12,925 |
| | $ | 4,595 |
| | $ | 6,336 |
| | $ | 12,654 |
| | $ | 36,510 |
|
| $ | 35,175 |
| | $ | 36,502 |
|
| | | | | | | | | | | | | | | | |
| Yield on trading securities | | | 5.50 | % | | 6.72 | % | | 2.66 | % | | 0.00 | % | | | | | | |
| Yield on available-for-sale securities | | | 0.00 | % | | 4.75 | % | | 5.95 | % | | 5.30 | % | | | | | | |
| Yield on held-to-maturity securities | | | 0.80 | % | | 1.15 | % | | 1.06 | % | | 1.69 | % | | | | | | |
| Yield on total investment securities | | 2.37 | % | | 1.88 | % | | 2.85 | % | | 2.06 | % | | | | | | | | 1.17 | % | | 1.15 | % | | 1.08 | % | | 2.04 | % | | | | | | |
| | | | | | | | | | | | | | | | |
| Interest-bearing deposits | | $ | 1,007 |
| | $ | — |
| | $ | — |
| | $ | — |
| | 1,007 |
| | 1,005 |
| | 1,203 |
| |
| Securities purchased under agreements to resell | | — |
| | — |
| | — |
| | — |
| | — |
| | 250 |
| | — |
| |
| Federal funds sold | | 1,795 |
| | — |
| | — |
| | — |
| | 1,795 |
| | 7,235 |
| | 12,630 |
| |
| Total investments | | $ | 3,577 |
| | $ | 5,060 |
| | $ | 1,444 |
| | $ | 16,863 |
| | $ | 26,944 |
| | $ | 30,454 |
| | $ | 36,138 |
| |
The following table presents securities the Bank held securities ofwith the following issuersissuer with a carrying value greater than 10 percent of the Bank's total capital. These amounts include securities issued by the issuer's holding company, along with its subsidiaries and affiliate trusts (in millions):
|
| | | | | | | |
| | As of December 31, 2013 |
| | Total Carrying Value | | Total Fair Value |
| Bank of America Corporation, Charlotte, NC | $ | 2,081 |
| | $ | 2,077 |
|
| Wells Fargo & Company, San Francisco, CA | 830 |
| | 830 |
|
| JPMorgan Chase & Co., New York, NY | 782 |
| | 780 |
|
|
| | | | | | | |
| | As of December 31, 2016 |
| | Total Carrying Value | | Total Fair Value |
| Bank of America Corporation, Charlotte, NC | $ | 1,066 |
| | $ | 1,064 |
|
Loan Portfolio
The following table presents the Bank's outstanding domestic loans, nonaccrual loans, loans 90 days or more past due and accruing interest, and restructured loans were as follows (in millions):.
| | | | As of December 31, | As of December 31, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| Advances | $ | 89,588 |
| | $ | 87,503 |
| | $ | 86,971 |
| | $ | 89,258 |
| | $ | 114,580 |
| $ | 99,077 |
| | $ | 104,168 |
| | $ | 99,644 |
| | $ | 89,588 |
| | $ | 87,503 |
|
Real estate mortgages (1) | $ | 929 |
| | $ | 1,255 |
| | $ | 1,639 |
| | $ | 2,040 |
| | $ | 2,523 |
| $ | 524 |
| | $ | 586 |
| | $ | 749 |
| | $ | 929 |
| | $ | 1,255 |
|
| Nonaccrual real estate mortgages, unpaid principal balance | $ | 51 |
| | $ | 77 |
| | $ | 88 |
| | $ | 82 |
| | $ | 56 |
| $ | 11 |
| | $ | 18 |
| | $ | 33 |
| | $ | 51 |
| | $ | 77 |
|
Real estate mortgages past due 90 days or more and still accruing interest, unpaid principal balance (2) | $ | 9 |
| | $ | 10 |
| | $ | 15 |
| | $ | 21 |
| | $ | 27 |
| $ | 1 |
| | $ | 3 |
| | $ | 5 |
| | $ | 9 |
| | $ | 10 |
|
Troubled debt restructurings, unpaid principal balance (not included above)(3) | $ | 11 |
| | $ | 9 |
| | $ | 6 |
| | $ | 3 |
| | $ | — |
| $ | 10 |
| | $ | 13 |
| | $ | 11 |
| | $ | 11 |
| | $ | 9 |
|
| Interest contractually due during the year | $ | 4 |
| | | | | | | | | $ | 1 |
| | | | | | | | |
| Interest actually received during the year | $ | — |
| | | | | | | | | $ | — |
| | | | | | | | |
___________
(1) Amounts include single-family residential loans and Affordable Multifamily Participation Program loans classified as substandard. In August 2013, the Bank sold its Affordable Multifamily Participation Program.Program mortgage loan portfolio.
(2) Only government loans (e.g., FHA, VA) continue to accrue interest after 90 days or more delinquent.
(3) Represents troubled debt restructured loans that are still performing as of year end.
The Bank places a conventional mortgage loan on nonaccrual status when the collection of the contractual principal or interest from the borrower is 90 days or more past due.
Summary of Loan Loss Experience
The following table presents the allowance for credit losses on domestic real estate mortgage loans was as follows (in(dollars in millions):.
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| Balance, beginning of year | $ | 11 |
| | $ | 6 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| $ | 2 |
| | $ | 3 |
| | $ | 11 |
| | $ | 11 |
| | $ | 6 |
|
| Provisions for credit losses | 5 |
| | 6 |
| | 5 |
| | — |
| | — |
| |
| (Reversal) provision for credit losses | | (1 | ) | | (1 | ) | | (5 | ) | | 5 |
| | 6 |
|
| Charge-offs | (4 | ) | | (1 | ) | | — |
| | — |
| | — |
| — |
| | — |
| | (3 | ) | | (4 | ) | | (1 | ) |
| Mortgage loans transferred to held for sale | (1 | ) | | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | (1 | ) | | — |
|
| Balance, end of year | $ | 11 |
| | $ | 11 |
| | $ | 6 |
| | $ | 1 |
| | $ | 1 |
| $ | 1 |
| | $ | 2 |
| | $ | 3 |
| | $ | 11 |
| | $ | 11 |
|
| Ratio of net charge-offs during the year to average loans outstanding during the year (in basis points) | | 2 |
| | 4 |
| | 39 |
| | 35 |
| | 4 |
|
The ratio of charge-offs to average loans outstanding was 35 basis points forfollowing table presents the year ended December 31, 2013, four basis points December 31, 2012, and zero for the years ended December 31, 2009 through 2011.
The allocation of the allowance for credit losses on mortgage loans was as follows (dollars in millions):
| | | | As of December 31, | As of December 31, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| | Amount (1) | | % of Total Loans (2) | | Amount (1) | | % of Total Loans (2) | | Amount (1) | | % of Total Loans (2) | | Amount (1) | | % of Total Loans (2) | | Amount (1) | | % of Total Loans (2) | Amount (1) | | % of Total Loans (2) | | Amount (1) | | % of Total Loans (2) | | Amount (1) | | % of Total Loans (2) | | Amount (1) | | % of Total Loans (2) | | Amount (1) | | % of Total Loans (2) |
| Single-family residential mortgages | $ | 11 |
| | 100 | | $ | 10 |
| | 98 | | $ | 5 |
| | 99 | | $ | — |
| | 99 | | $ | — |
| | 99 | $ | 1 |
| | 100 | | $ | 2 |
| | 100 | | $ | 3 |
| | 100 | | $ | 11 |
| | 100 | | $ | 10 |
| | 98 |
| Multifamily residential mortgages | — |
| | — | | 1 |
| | 2 | | 1 |
| | 1 | | 1 |
| | 1 | | 1 |
| | 1 | — |
| | — | | — |
| | — | | — |
| | — | | — |
| | — | | 1 |
| | 2 |
| Total | $ | 11 |
| | 100 | | $ | 11 |
| | 100 | | $ | 6 |
| | 100 | | $ | 1 |
| | 100 | | $ | 1 |
| | 100 | $ | 1 |
| | 100 | | $ | 2 |
| | 100 | | $ | 3 |
| | 100 | | $ | 11 |
| | 100 | | $ | 11 |
| | 100 |
____________
(1) Amount allocated for credit losses on mortgage loans.
(2) Mortgage loans outstanding as a percentage of total mortgage loans.
Short-term Borrowings
Borrowings with original maturities of one year or less are classified as short-term. The following table providespresents information regarding the Bank's short-term borrowings (dollars in millions):.
| | | | As of and for the Years Ended December 31, | As of and for the Years Ended December 31, |
| | 2013 | | 2012 | | 2011 | 2016 | | 2015 | | 2014 |
| Consolidated obligation discount notes: | | | | | | | | | | |
| Amount outstanding at the end of the year | $ | 32,202 |
| | $ | 31,737 |
| | $ | 24,330 |
| $ | 41,292 |
| | $ | 69,434 |
| | $ | 37,162 |
|
| Weighted average interest rate at the end of the year | 0.11 | % | | 0.12 | % | | 0.03 | % | 0.48 | % | | 0.27 | % | | 0.10 | % |
| Daily average outstanding for the year | $ | 23,408 |
| | $ | 22,314 |
| | $ | 18,948 |
| $ | 58,744 |
| | $ | 42,328 |
| | $ | 29,899 |
|
| Weighted average interest rate for the year | 0.11 | % | | 0.11 | % | | 0.09 | % | 0.42 | % | | 0.14 | % | | 0.10 | % |
| Maximum amount outstanding at any month-end during the year | $ | 32,202 |
| | $ | 31,737 |
| | $ | 27,268 |
| $ | 69,375 |
| | $ | 69,434 |
| | $ | 37,162 |
|
| | | | | | | | | | | |
| Consolidated obligation bonds: | | | | | | | | | | |
| Amount outstanding at the end of the year | $ | 24,139 |
| | $ | 26,186 |
| | $ | 11,623 |
| $ | 41,705 |
| | $ | 13,279 |
| | $ | 31,138 |
|
| Weighted average interest rate at the end of the year | 0.13 | % | | 0.19 | % | | 0.15 | % | 0.68 | % | | 0.26 | % | | 0.11 | % |
| Daily average outstanding for the year | $ | 25,217 |
| | $ | 25,366 |
| | $ | 15,894 |
| $ | 27,227 |
| | $ | 20,262 |
| | $ | 31,461 |
|
| Weighted average interest rate for the year | 0.16 | % | | 0.20 | % | | 0.25 | % | 0.65 | % | | 0.18 | % | | 0.14 | % |
| Maximum amount outstanding at any month-end during the year | $ | 30,692 |
| | $ | 28,235 |
| | $ | 17,245 |
| $ | 41,705 |
| | $ | 26,773 |
| | $ | 36,529 |
|
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
The Bank's President and Chief Executive Officer and the Bank's Executive Vice President and Chief Financial Officer (Certifying Officers) are responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its Certifying Officers, as appropriate, to allow timely decisions regarding required disclosure.
As of December 31, 2013,2016, the Bank's management, with the participation of the Certifying Officers, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures. Based on that evaluation, the Certifying Officers have concluded that the Bank's disclosure controls and procedures (as defined in Rules 13a-15(a) and 15d-15(e) under
the Exchange Act) were effective to provide reasonable assurance that information required to be disclosed by the Bank in the
reports that it files or submits under the Exchange Act (1) is accumulated and communicated to the Bank's management, including the Certifying Officers, as appropriate, to allow timely decisions regarding required disclosure; and (2) is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms.
In designing and evaluating the Bank's disclosure controls and procedures, the Bank's Certifying Officers recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Management's Assessment ofReport on Internal Control Over Financial Reporting
The Bank's management is responsible for establishing and maintaining adequate internal control over financial reporting for the Bank, as defined in Rule 13a-15(f) under the Exchange Act. The Bank's management assessed the effectiveness of the Bank's internal control over financial reporting as of December 31, 2013.2016. In making this assessment, the Bank's management utilized the criteria set forth by COSO in Internal Control-Integrated Framework (1992)(2013). Based upon that evaluation, management has concluded that the Bank's internal control over financial reporting was effective as of December 31, 2013.2016.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. The effectiveness of the Bank's internal control over financial reporting as of December 31, 20132016, has been audited by PricewaterhouseCoopers LLP (PwC), an independent registered public accounting firm, as stated in their report which appears within.
Changes in Internal Control Over Financial Reporting
During the fourth quarter of 2013,2016, there were no changes in the Bank's internal control over financial reporting that have affected materially, or are reasonably likely to affect materially, the Bank's internal control over financial reporting.
Item 9B. Other Information.
None.PricewaterhouseCoopers LLP (PwC) serves as the independent registered public accounting firm for the Bank. Rule 201(c)(1)(ii)(A) of Regulation S-X (the Loan Rule) prohibits an accounting firm, such as PwC, from having certain financial relationships with its audit clients and affiliated entities. Specifically, the Loan Rule provides, in relevant part, that an accounting firm generally would not be independent if it or a covered person in the firm receives a loan from a lender that is a “record or beneficial owner of more than ten percent of the audit client’s equity securities.” A covered person in the firm includes personnel on the audit engagement team, personnel in the chain of command, partners and managers who provide ten or more hours of non-audit services to the audit client, and partners in the office where the lead engagement partner practices in connection with the client.
PwC has advised the Bank that for the year ended December 31, 2016 that PwC and certain covered persons had borrowing relationships with two Bank members (referred below as the “Lenders”) who own more than ten percent of the Bank’s capital stock, which could call into question PwC’s independence with respect to the Bank. The Bank is providing this disclosure to explain the facts and circumstances, as well as PwC’s and the Audit Committee’s conclusions, concerning PwC’s objectivity and impartiality with respect to the audit of the Bank.
PwC advised the Audit Committee of the Bank that it believes that, in light of the facts of these borrowing relationships, its ability to exercise objective and impartial judgment on all matters encompassed within PwC’s audit engagement has not been impaired and that a reasonable investor with knowledge of all relevant facts and circumstances would reach the same conclusion. PwC has advised the Audit Committee that this conclusion is based in part on the following considerations:
the firm's borrowings are in good standing and neither Lender has the right to take action against PwC, as borrower, in connection with the financings;
the debt balances outstanding are immaterial to PwC and to each Lender;
PwC has borrowing relationships with a diverse group of lenders, therefore PwC is not dependent on any single lender or group of lenders;
the PwC audit engagement team has no involvement in PwC’s treasury function and PwC’s treasury function has no oversight or ability to influence the PwC audit engagement team; and
neither Lender has made any attempt to influence the conduct of the Bank’s audit or the objectivity and impartiality of any member of PwC’s audit engagement team.
Additionally, the Audit Committee of the Bank assessed PwC’s ability to perform an objective and impartial audit, including consideration of the ownership structure of the Bank, the limited voting rights of the Bank’s members and the composition of the board of directors. In addition to the above listed considerations, the Audit Committee considered the following:
although the Lenders owned more than ten percent of the Bank’s capital stock, the Lenders' voting rights are each less than ten percent;
as of December 31, 2016 and as of the date of the filing of this Form 10-K, no officer or director of either Lender served on the board of directors of the Bank;
the Lenders will each be eligible to vote only in the at-large independent directorship election for 2017; and
the Lenders are subject to the same terms and conditions for conducting business with the Bank as any other member.
Based on the Audit Committee’s evaluation, the Audit Committee has concluded that PwC’s ability to exercise objective and impartial judgment on all issues encompassed within PwC’s audit engagement has not been impaired.
PART III.
Item 10. Directors, Executive Officers and Corporate Governance.
Executive Officers
The following table sets forth the names, ages, and titlesof theexecutive officers of the Bank and all persons chosen to become executive officers as of the date of this Report. No executive officer has any family relationship with any other executive officer or director of the Bank.
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| | | | |
Executive Officer | | Age | | Title |
W. Wesley McMullan | | 50 | | President and Chief Executive Officer |
Kirk R. Malmberg | | 53 | | Executive Vice President and Chief Financial Officer |
Cathy C. Adams | | 54 | | Executive Vice President and Chief Operations Officer |
Robert F. Dozier, Jr. | | 45 | | Executive Vice President and Chief Business Officer |
Robert C. Bennett | | 59 | | Senior Vice President and Chief Information Officer |
Julia S. Brown | | 48 | | Senior Vice President and Corporate Secretary |
J. Daniel Counce | | 58 | | Senior Vice President, Controller |
M. Bryan Delong | | 49 | | Senior Vice President, Director of Human Resources and Staff Services |
Arthur L. Fleming | | 54 | | Senior Vice President, Director of Community Investment Services |
Haig H. Kazazian, III | | 48 | | Senior Vice President, Treasurer |
Robert S. Kovach | | 50 | | Senior Vice President, Chief Credit Officer |
Eric M. Mondres | | 58 | | Senior Vice President, Director of Government and Industry Relations |
Reginald T. O'Shields | | 43 | | Senior Vice President and General Counsel |
Richard A. Patrick | | 58 | | Senior Vice President, Chief Audit Officer |
Ken Yoo | | 43 | | Senior Vice President and Chief Risk Officer |
W. Wesley McMullan was appointed president and chief executive officer in December 2010. Previously, he served as executive vice president and director of financial management since 2004, with responsibility for sales, MPP sales, asset-liability management, liquidity management, other mission-related investments, customer systems and operations, and member education. Mr. McMullan joined the Bank as a credit analyst in 1988 and later earned promotions to assistant vice president in 1993, vice president in 1995, group vice president in 1998, and senior vice president in 2001. He is a chartered financial analyst and earned a B.S. in finance from Clemson University.
Kirk R. Malmberg was appointed executive vice president and chief financial officer effective April 1, 2011. He oversees accounting, financial reporting, investment and derivatives operations, and financial risk modeling as well as the Bank's credit and collateral services. From December 2007 through March 2011, he served as executive vice president and chief credit officer, overseeing collateral services, credit services, community investment services and mortgage program operations. He served as senior vice president responsible for the Bank's mortgage programs from December 2003 to December 2007. He joined the Bank in February 2001 as senior vice president, asset-liability management, after having served for five years as senior vice president, treasury, at FHLBank Chicago. Mr. Malmberg earned an M.B.A. from Rice University and a B.A. in political science from Trinity University.
Cathy C. Adams was appointed executive vice president and chief operations officer effective March 1, 2011. She is responsible for overseeing all Bank programs related to information technology, human resources, administrative services, and financial operations management. Ms. Adams was named executive vice president and chief administrative officer in August 2008. Previously, she served as senior vice president of staff services from January 2004 through August 2008. Ms. Adams joined the Bank in 1986. She earned an M.B.A. in management from Georgia State University and a B.A. in business administration from Tift College.
Robert F. Dozier, Jr. has served as executive vice president and chief business officer since joining the Bank on June 6, 2011. Mr. Dozier oversees the Bank's member sales and outreach, community investment services, corporate communications, and government and industry relations. Prior to joining the Bank, Mr. Dozier was president and chief operating officer for Homeowners Mortgage Enterprises, a subsidiary of CoastalStates Bank, from 1999 to 2011, overseeing all aspects of the company's day to day operations and its strategic growth throughout the southeast. He first began at Homeowners Mortgage Enterprises as a loan officer in 1992. Mr. Dozier also served on the board of directors for CoastalSouth Bancshares, the holding company of CoastalStates Bank, from July 2007 to May 2011. From 2002 to 2004, Mr. Dozier served as a director of the Bank. He earned a B.A. in political science from the University of South Carolina.
Robert C. Bennett serves as senior vice president and chief information officer, overseeing the Bank’s information technology division. Prior to joining the Bank in January 2009, Mr. Bennett was executive vice president and chief information officer for Homebanc Corporation from 1998 through 2007. During a 17-year career from 1981 through 1998 with BellSouth Telecommunications, Mr. Bennett served as chief information officer for various divisions, including corporate marketing and small business services. He also was re-engineering vice president for BellSouth Telecom, director of marketing information systems for BellSouth Enterprises Marketing and Bellsouth Mobility, and applications development manager for BellSouth Information Systems. Mr. Bennett earned a B.A. in English literature from Ohio University.
Julia S. Brown serves as senior vice president and corporate secretary. The board of directors appointed Brown to serve as corporate secretary in April 2011. Prior to her appointment as corporate secretary, she served as associate general counsel, assistant corporate secretary beginning in 2005, deputy general counsel, assistant corporate secretary beginning in 2007, and first vice president, deputy general counsel for governance beginning in 2009. Before joining the Bank in August 2001 as a senior attorney, Ms. Brown practiced commercial real estate law with Sutherland Asbill & Brennan, LLP, in Atlanta, Georgia. She received a B.S. in Spanish and anthropology from Wellesley College, and her J.D. from Harvard Law School.
J. Daniel Counce is senior vice president, controller of the Bank. Mr. Counce oversees financial reporting, accounting policy, derivatives hedge accounting and accounts payable. Mr. Counce joined the Bank in 1990 as assistant controller and was promoted to controller in 1997. Prior to joining the Bank, Mr. Counce held various EDP audit and data processing positions at First Atlanta and subsequently Wachovia, which acquired First Atlanta. He also worked in internal and EDP audit at First Tennessee National Corporation and as a tax accountant and auditor with Rhea and Ivy CPAs in Memphis. He received a B.S. in accounting from the University of Tennessee and is a certified public accountant. He also completed the ABA Graduate School of Bank Investments and Financial Management at the University of South Carolina.
M. Bryan Delong is senior vice president, director of human resources and staff services, and is responsible for developing and executing the Bank’s human resources and total reward strategies. Mr. Delong also leads the Bank’s staff services functions, which include facilities operations, print and mail services, and procurement. A 20-year veteran of the Bank, he previously served as the assistant director of human resources with responsibility for managing the Bank’s compensation, benefits, human resources information systems, and employee development programs. Mr. Delong was named to his current position in September 2011. Prior to joining the Bank in March, 1993, Mr. Delong worked at LOMA as a compensation consultant and AT&T as a training specialist. He holds a M.S. in industrial and organizational psychology from Radford University, an M.A. in human resources development from Georgia State University, and a B.A. in English from Earlham College. He holds a certification as a Professional in Human Resources.
Arthur L. Fleming serves as senior vice president, director of community investment services, directing the Bank’s community investment, economic development, and affordable housing products and services. Mr. Fleming has experience in a variety of financial services, legal, housing development, and academic roles. Before joining the Bank in November 2007, he was chief lending and investment officer for the Opportunity Finance Network, Inc., a national community development financial institution. He also served as the senior director for the southeast region and director of housing finance for the Fannie Mae Foundation; the senior vice president, managing director of housing initiatives at GMAC; founder and executive director of the Community Financing Consortium, Inc; and an attorney/senior associate for the FAU/FIU Joint Center for Environmental and Urban Problems. Mr. Fleming earned a B.S. in criminology from Florida State University, and an M.A. in Urban and Regional Planning and a J.D. from the University of Florida.
Haig H. Kazazian, III has served as treasurer since June 3, 2013, and was promoted to senior vice president, treasurer effective January 1, 2014. Mr. Kazazian joined the Bank as a credit analyst in 1992 and earned promotions to manager of national accounts and product development in 2001, first vice president in 2005, manager of national accounts and capital markets trading in 2009, and manager of treasury analysis and national accounts sales and trading in 2011. He is a chartered financial analyst and earned an M.B.A. and a B.A. in economics, each from Emory University. Mr. Kazazian was an M.B.A. Fellowship Recipient.
Robert S. Kovach has served as senior vice president, chief credit officer since January 2012, directing the Bank’s credit and collateral services and collateral risk management operations. Prior to joining the Bank in 2010 as Director of Collateral Services, Kovach served a variety of roles with the FHLBank Pittsburgh from January, 2008 to October, 2010, including director of collateral services, chief investment officer, and director of internal audit. He also served as a field manager and a senior examiner for the Office of Thrift Supervision. Kovach holds a Chartered Financial Analyst designation and earned a B.S. in chemistry from Dickinson College.
Eric M. Mondres serves as senior vice president, director of government and industry relations and oversees the Bank's efforts related to public policy development and strategy, as well as its relationships with industry members and groups as it relates to the Bank's
business and mission. Mr. Mondres joined the Bank in March 2003 as vice president of government relations. Before joining the Bank, he worked for America's Community Bankers, the Thrift Depositor Protection Oversight Board, the Environmental Protection Agency as a consultant, the U.S. Department of Agriculture, and the U.S. House of Representatives’ House Administration Committee as assistant minority counsel. Mr. Mondres earned a B.A. degree in history and political science from Bridgewater College and a J.D. from Cumberland School of Law.
Reginald T. O’Shields has served as senior vice president and general counsel since April 2, 2011. Mr. O’Shields manages the delivery of legal services by the Bank’s legal department covering a wide variety of corporate, securities, finance, and regulatory matters. He joined the Bank in 2003 as a senior attorney and earned promotions to assistant general counsel in 2005, associate general counsel in 2006 and deputy general counsel in 2007. He was named senior vice president, deputy general counsel and director of legal services January 1, 2011. Before joining the Bank, Mr. O’Shields was in private legal practice with Sutherland Asbill & Brennan, LLP in Atlanta, Georgia, Haynsworth Sinkler Boyd in Greenville, South Carolina, and Simpson, Thacher & Bartlett in New York, New York. Mr. O’Shields earned a J.D. from Vanderbilt University and a B.A. in economics from Furman University.
Richard A. Patrick serves as senior vice president and chief audit officer. He is responsible for providing an independent audit of the Bank by evaluating the internal control system and testing for compliance with internal policies and procedures as well as with applicable laws and directives from the Federal Housing Finance Agency. Mr. Patrick reports directly to the audit committee of the board of directors. Mr. Patrick joined the Bank in 1991 as the vice president and director of internal audit and was promoted to his senior position in 2002. Prior to joining the Bank, Mr. Patrick was a vice president and audit manager for C&S/Sovran Corporation, which is now known as Bank of America. Previously, he was a branch and operations audit officer for National Bank of Georgia. A certified public accountant, certified fraud examiner, certified financial services auditor, and certified bank auditor, Mr. Patrick earned a Bachelor's degree in business administration from Appalachian State University. He is also an honors graduate of the Bank Administration Institute's School for Bank Administration.
Ken Yoo has served as first vice president and chief risk officer since April 1, 2011, and was promoted to senior vice president and chief risk officer effective January 1, 2013. Mr. Yoo directs the Bank's enterprise risk management function and is responsible for overseeing enterprise-wide risk assessment and reporting functions as well as model validation efforts for the Bank. Mr. Yoo joined the Bank in 2006 as manager of risk reporting and analysis and was promoted to director of enterprise risk management and then deputy chief risk officer prior to his current position. Prior to joining the Bank, Mr. Yoo was employed by the Office of Federal Housing Enterprise Oversight (which was subsequently merged into the Finance Agency pursuant to the Housing Act), where he was a senior member of its supervisory group since 2005. Previously, Mr. Yoo was employed in various senior risk management consulting positions at BearingPoint, Inc. and at Merrill Lynch & Co. Mr. Yoo earned an M.A. in international affairs from George Washington University, an M.B.A. from Yonsei University in Seoul, Korea, and a B.A. in economics from Virginia Tech.
Directors
The FHLBank Act provides that an FHLBank's board of directors is to comprise 13 directors, or such other number as the Director determines appropriate. For 2014,2017, the Director has designated 14 directorships for the Bank, eight of which are member directorships and six of which are independent directorships.
All individuals serving as Bank directors must be United States citizens. At least a majority of the directors must be member directors and not fewerless than two-fifths must be independent directors. Under the FHLBank Act, as amended by the Housing Act, and Finance Agency regulations, the term of office of each director is four years, subject to certain adjustments to achieve a staggered board, and anyboard. Any director that has been elected to three consecutive full terms is not eligible for election to directorship for any term that begins within two years of the expiration of the third term.
The board of directors does not solicit proxies, nor are member institutions permitted to solicit or use proxies in order to cast their votes in an election.
Member Directors
Candidates for member directorships in a particular state are nominated by members in that state. FHLBank Boards are not permitted to nominate or elect member directors, except for vacant member directorships. Finance Agency regulations require that that:
a member directorship be held only by an officer or director of a member institution. Further, the member institution must be located within the Bank's district,district;
the member institution meet all minimum capital requirements established by its appropriate federal banking agency or appropriate state regulator,regulator(s); and
the member institution be a member as of the record date established for the election of suchthe member director.
The Bank is not permitted to establish additional eligibility criteria or qualifications for member directorships. With respect to member directors, under Finance Agency regulations, no director, officer, employee, attorney, or agent of the Bank (except in his/her personal capacity) may, directly or indirectly, support the nomination or election of a particular individual for a member directorship.
For each member director position to be filled, an eligible member in that state may cast one vote for each share of capital stock it was required to hold as of the record date, except that an eligible member's votes for each member
director position to be filled may not exceed the average number of shares of capital stock required to be held by all of the members in that state as of the record date.
The regulations permit, but do not require, the board of directors to conduct an annual assessment of the skills and experience possessed by the members of its board of directors as a whole and to determine whether the capabilities of the board would be enhanced through the addition of individuals with particular skills and experience. The Bank may identify those qualifications and so inform the members as part of its election notification process, but the Bank may not exclude a nomineemember director candidate from the election ballot on the basis of such qualifications. For the 2013 elections,In 2016, the board of directors conducted an assessment of its directors, but did not identify any particular qualifications as part of its 2016 election notification process.
Independent Directors
Candidates for independent directorships are nominated by the Bank's board of directors. Finance Agency regulations require that an independent directorship be held only by an individual individual:
who is a bona fide resident of the Bank's district, district;
who is not a director, officer, or employee of a member institution or of any recipient of advances from the Bank,Bank; and
who is not an officer of any FHLBank.
At least two of the independent directors must be public interest directors. Finance Agency regulations further require thatdefine a public interest independent director haveas someone having more than four years of experience representing consumer or community interests in banking services, credit needs, housing or
consumer financial protection. AnThe other independent director other than a public interest directordirectors must have either four years of experience representing consumer or community interests in the foregoing areas or have experience in, or knowledge of, one or more of the following areas: auditing and accounting, derivatives, financial management, organizational management, project development, risk management practices, and the law.
Any individual may submit an application form and request to be considered by the Bank to be an independent director candidate. Before nominating any individual for an independent directorship, other than for a public interest directorship, the Board must determine that the candidate's knowledge or experience is commensurate with that needed to oversee a financial institution with a size and complexity that is comparable to the Bank's. Finance Agency regulations require the board to consult with the Bank's Affordable Housing Advisory Council with respect to the independent directorship candidates. Further, the Bank must submit information about independent directorship candidates to the Finance Agency for its review prior to their nomination. After the independent director candidates are nominated by the board, the candidates are then presented to the Bank's membership for a district-wide vote. Finance Agency regulations permit the Bank's directors, officers, attorneys, employees, agents, and Advisory Council members to support the candidacy of the board's candidates for independent directorships.
For independent directorships, candidates are elected on a district-wide basis, with the candidate receiving the most votes being declared the winner. Candidates running unopposed must receive at least 20 percent of the number of votes eligible to be cast. If an unopposed candidate receives less than 20 percent of eligible votes, a new election must be conducted.
Board Vacancies
When the board has a vacancy, Finance Agency regulations require the board to elect a director to fill the vacancy by a majority vote of the remaining directors.
The Bank has determined that all member directors meet the regulatory eligibility requirements for directors. Because of the laws and regulations governing member directorship elections that are described above, the Bank is not in a position to know what specific factors the Bank's member institutions may consider in selecting member director candidates or electing member directors. For the Bank's independent directors and based on the specificdirectors who hold their current directorship due to vacancy and appointment by the board, the board considered the experience, qualifications, attributes or skills described in the biographical paragraphs provided below in determining to nominate or appoint that each independent director is qualified to serveperson as an independenta director for the Bank. In addition the board has at times considered the importance of maintaining a continuity of relevant knowledge, leadership and experience on the board and diversity the candidate would bring to the board when nominating or appointing a candidate.
The following table sets forthpresents information regarding each of the Bank's directors, and all persons nominated or chosen to become directors, as of the date of this Report. Except as otherwise indicated, each director has been engaged in the principal occupation described below for at least five years. No director has any family relationship with any other director or executive officer of the Bank.
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| | | | | | | |
| Name | | | Age | | Director Since | | Expiration of Current Term
as Director |
Donna C. Goodrich(1) | | | 51 | | 2008 | | 12/31/2016 |
William C. Handorf(2) | | | 69 | | 2007 | | 12/31/2015 |
John M. Bond, Jr.(1) | | | 70 | | 2005 | | 12/31/2014 |
Travis Cosby, III(1) | | | 55 | | 2014 | | 12/31/2017 |
Michael P. Fitzgerald(1) | | | 57 | | 2014(4) | | 12/31/2017 |
F. Gary Garczynski(2)(3) | | | 67 | | 2007 | | 12/31/2016 |
J. Thomas Johnson(1) | | | 67 | | 2004 | | 12/31/2015 |
Jonathan Kislak(2) | | | 65 | | 2008 | | 12/31/2014 |
LaSalle D. Leffall, III(2) | | | 51 | | 2007 | | 12/31/2016 |
Miriam Lopez(1) | | | 63 | | 2008 | | 12/31/2014 |
John C. Neal(1) | | | 64 | | 2013 | | 12/31/2016 |
Henry Gary Pannell(2) | | | 76 | | 2008 | | 12/31/2015 |
Robert L. Strickland, Jr.(2)(3) | | | 62 | | 2007 | | 12/31/2017 |
Richard A. Whaley(1) | | | 54 | | 2013 | | 12/31/2014 |
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| | | | | | | |
| Name | | | Age | | Director Since | | Expiration of Current Term
as Director |
Brian E. Argrett(1) | | | 53 | | 2016 | | 12/31/2017 |
Travis Cosby, III (1) | | | 58 | | 2014 | | 12/31/2017 |
Suzanne S. DeFerie (1) | | | 60 | | 2015 | | 12/31/2020 |
R. Thornwell Dunlap, III (1) | | | 59 | | 2016 | | 12/31/2019 |
F. Gary Garczynski (2)(3) | | | 70 | | 2007 | | 12/31/2020 |
William C. Handorf (2) | | | 72 | | 2007 | | 12/31/2019 |
Scott C. Harvard(1)(4) | | | 62 | | 2017 | | 12/31/2020 |
Jonathan Kislak (2) | | | 68 | | 2008 | | 12/31/2018 |
LaSalle D. Leffall, III (2) | | | 54 | | 2007 | | 12/31/2020 |
Kim C. Liddell (1) | | | 56 | | 2015 | | 12/31/2018 |
Miriam Lopez (1) | | | 66 | | 2008 | | 12/31/2018 |
John B. Rucker (2) | | | 65 | | 2017 | | 12/31/2019 |
Robert L. Strickland, Jr. (2)(3)(4) | | | 65 | | 2007 | | 12/31/2017 |
Richard A. Whaley (1) | | | 57 | | 2013 | | 12/31/2018 |
____________
| |
(3) | Public Interest Director |
| |
(4) | On February 14, 2014, Michael P. Fitzgerald was elected to fill the vacant member directorship designated for the District of Columbia seat, effective March 26, 2014.Mr. Harvard previously served as a director from 2003-2012. Mr. Strickland previously served as a director from 2002-2004. |
Chairman of the board, Donna C. Goodrich,F. Gary Garczynski, has served as senior executive vicethe president of Branch Banking & Trust Company (BB&T)National Capital Land and Development, Inc., a construction and real estate development company in Woodbridge, Virginia, since December 2006. She is responsible for deposit services, payment services, processing services1997. Mr. Garczynski served as chairman of the National Housing Endowment from 2004 to 2010 and electronic delivery channels at BB&T. Ms. Goodrich joined BB&T in 1985,continues to serve on its executive committee. He previously served as the 2002 President of the National Association of Home Builders (NAHB). Mr. Garczynski serves as a Senior Life Director of NAHB, a Life Director of the Home Builders Association of Virginia, and has helda Senior Life Director of the positions of retail services officer, financial center manager, mergers and acquisition analyst, asset/liability management specialist, and deposit and corporate funding manager. SheNorthern Virginia Building Industry Association. He also is a member of the Senior Leadership TeamPrince William County, Virginia, Affordable Housing Task Force and a three-term appointee to the Virginia Housing Commission. Mr. Garczynski serves on several committees, including the Market Risk, Liquidity and Capital Committee, and the Risk Management Committee. Ms. Goodrich also servesa gubernatorial appointment through 2018 as senior executive vice president of BB&T Corporation, the holding company of BB&T, a position she has held since December 2006. Ms. Goodrich is a past chairman of the North Carolina Bankers Association. SheCommonwealth Transportation Board and has expertisepreviously served as a director on the Northern Virginia Transportation Authority. Mr. Garczynski's public interest experience in asset/liability managementhousing, affordable housing and finance.housing policy supported his nomination as a public interest director.
Vice chairman of the board, Richard A. Whaley, has served as president, chief executive officer, and director of Citizens Bank of Americus in Americus, Georgia, since 2001. From 1989 to 2001, he served as market manager and commercial lender for Wachovia Bank. Mr. Whaley served as chairman of the Georgia Bankers Association from October 2010 to June 2012. Mr. Whaley also served as chairman of the South Georgia Technical College Foundation from 2008 to 2010. He has served as a director of the Georgia Bankers Association Insurance Trust, Inc. since June 2013 and is a veteran of the U.S. Army.
Brian E. Argretthas served as president, chief executive officer, and director of City First Bank of DC since 2011. Previously, Mr. Argrett was founder and managing partner of both Fulcrum Capital Group and Fulcrum Capital Partners, L.P. from 1992 to 2011. He served as president, chief executive officer, and director of Fulcrum Venture Capital Corporation, a federally licensed and regulated Small Business Investment Company, from 1992 to 2011. He currently serves as chairman of the boards of directors of City First Enterprises, a nonprofit bank holding company, and City First Foundation. Mr. Argrett also serves as presidential appointee to the Community Development Advisory Board, chairman of the Community Development Bankers Association, and director of the Washington DC Economic Partnership. From 2006-2009, Mr. Argrett served on the audit
committee of First Federal Financial Corp. (NYSE- FED). Mr. Argrett's experience in affordable housing and underserved markets and his SEC and board-level experience supported his appointment to fill the member directorship vacancy.
Travis Cosby, III has served as chairman of the board of First Community Bank of Central Alabama in Wetumpka, Alabama, since January 1, 2013, having previously served as president from 2001 to 2011 as well as chief executive officer from 2004 to 2012. He has over 30 years of banking experience and served in operations, lending, investment portfolio management, and funds management positions. He worked at Union Planters Bank from 1998 to 2001, achieving the title of city president, after rising to executive vice president during his tenure at First National Bank of Wetumpka from 1982 to 1998. From 1980 to 1982, Mr. Cosby worked at Jackson Thornton and Co., CPAs. He earned a B.S. in accounting from Auburn University, and became a certified public accountant in June 1982. Mr. Cosby is a past chairman and current board member of the Alabama Bankers Association, Inc.
Suzanne S. DeFerie has served as president and chief executive officer of Asheville Savings Bank, S.S.B. in Asheville, North Carolina, since 2008 and its holding company, ASB Bancorp. Inc. (NASDAQ - ASBB) since its incorporation in 2011. Ms. DeFerie also serves a member of the boards of directors for both Asheville Savings Bank and ASB Bancorp. Inc. Prior to becoming chief executive officer, Ms. DeFerie was executive vice president and chief financial officer of Asheville Savings Bank for 16 years.
R. Thornwell Dunlap, III has served as president and chief executive officer of Countybank since 1995 and chairman of its holding company, TCB Corporation, since 2001. He has served on the South Carolina Bankers Association Board of Directors since 2016 and is a past chairman of the Independent Banks of South Carolina Board of Directors. Mr. Dunlap also serves on the Greenwood Partnership Alliance Board of Directors and Executive Committee and is a past chairman. Mr. Dunlap served on the Piedmont Technical College Foundation Board of Directors from 1995 to 2004, and returned to serve in 2010 to present. He has served on the Ten at the Top Board of Directors since 2009 and is a founding director. Mr. Dunlap is a member and past chairman of the Greenwood Rotary Club.
William C. Handorf, Ph.D., has served as a professor of finance and real estate at The George Washington University's School of Business in Washington, D.C. since 1975. From 2001 to 2006, Mr. Handorf served as a director of the Federal Reserve Bank of Richmond's Baltimore branch, including two years as chair. From 1992 to 1995, Mr. Handorf served as a private citizen director of the FHLBanks Office of Finance. Mr. Handorf has expertiseHandorf's experience in financial markets, banking, real estate investment, accounting, and derivatives.derivatives supported his nomination as an independent director.
John M. Bond, Jr.Scott C. Harvard is a director of The Columbia Bank, a wholly-owned affiliate of Fulton Financial Corporation. He has served on the board of directors of The Columbia Bank since 1988 and as chairman of the board from 2004 to 2009. Mr. Bond served as chief executive officer of The Columbia Bank from 1988 until his retirement in December 2006. From May 2004 until February 2006 when it was acquired by Fulton Financial, Mr. Bond served as chairman and chief executive officer of Columbia Bancorp, a publicly-traded
company and the holding company of The Columbia Bank. From 1987 to May 2004, Mr. Bond served as president, chief executive officer and director of Columbia Bancorp.First National Corporation (OTC - FXNC) since 2011. He alsoserved as president, chief executive officer and director of First Bank from 2011 to 2015 and has served as chief executive officer and director of First Bank since 2015. He previously served as a director of Fulton Financial Corporation, a publicly-traded financial holding company, since March 2006 and has servedthe Bank from 2003 to 2012, serving as chairman of its audit committee since June 2012. from 2007-2012. Mr. Bond has expertise in commercial banking, credit, finance, and accounting.
Travis Cosby, IIIHarvard has served as chairman of the board of First Community Bank of Central Alabama since January 1, 2013, having previously served as president, from 2001 - 2011 as well as chief executive officer from 2004 - 2012. He has over 30 yearsand as a director of banking experience and served in operations, lending, investment portfolio management, and funds management positions. He worked at Union PlantersShore Bank from 1998 - 2001, achieving the title1985 to 2008 and as president, chief executive officer and director of city president, after risingits parent, Shore Financial Corporation, from 1997 to 2008. He served as executive vice president during his tenure at First National Bankand director of WetumpkaHampton Roads Bankshares from 1982 - 1998. From 1980 - 1982, Mr. Cosby worked at Jackson Thornton2008 to 2009 and Co., CPAs. He earned a B.S. in accounting from Auburn University, and became a Certified Public Accountant in June, 1982. Mr. Cosby is a past chairman and current board member of the Alabama Bankers Association, Inc. He has expertise in auditing, accounting, financial management, strategic planning, and community banking.
Michael P. Fitzgerald is chairman, president and chief executive officer of Bank of Georgetown, located in Washington, D.C.Mr. Fitzgerald co-founded Bank of Georgetown in 2005 and oversees strategic planning, overall bank management and daily operations. Mr. Fitzgerald has more than 32 years of experience in commercial banking in the Greater Washington, D.C. area. From 1998 through 2003, he served as senior vice president of SequoiaBank, overseeing all commercial banking operations in Maryland as well as government contractor banking efforts throughout the region. Mr. Fitzgerald began his banking career with Riggs Bank, where he served for 15 years in several capacities, including corporate banking, special assistant to the chairman, and from 1988 through 1994, was named president and chief executive officer of The Riggs National Bank of Maryland. Throughout his career, Mr. Fitzgerald has been active in a number of civic, cultural and educational organizations. He currently serves on the board of trustees of Marymount University and Providence Hospital, as a board member and former president of The Friendly Sons of St. Patrick of Washington, D.C. Mr. Fitzgerald also serves as a member of the Community Depository Institutions Advisory Councilexecutive committee of the Federal Reserve Bank of Richmond. Mr. Fitzgerald has expertise in accounting, financial management, organizational management, project development, credit and collateral, board service, and community banking.
F. Gary Garczynski is the president of National Capital Land and Development, Inc., a construction and real estate development company in Woodbridge, Virginia a position he has held since 1997. Mr. Garczynski has served as chairman of the National Housing Endowment since 2004 and previously served as the 2002 President of the National Association of Home Builders (NAHB).Mr. Garczynski serves as a Senior Life Director of NAHB, a Life Director of the Home Builders Association of Virginia, and a Senior Life Director of the Northern Virginia Building Industry Association. He also is a member of the Prince William County, Virginia, Affordable Housing Task Force and a three-term appointee to the Virginia Housing Commission. Mr. Garczynski serves a gubernatorial appointment through 2016 as the Northern Virginia Director to the Commonwealth Transportation Board and the Northern Virginia Transportation Authority. Mr. Garczynski has expertise in community development, planning and zoning, business development, and business organization.
J. Thomas Johnson is president and chief executive officer of Citizens Building and Loan, SSB, a position he has held since May 2009. Mr. Johnson is also vice chairman of the board of First Community Bank and its holding company, First Community Corporation, a position he has held since October 2004. From 1984 to 2004, Mr. Johnson was chief executive officer of Newberry Federal Savings Bank, and was chairman of the board of its holding company, Dutch Fork Bancshares, Inc., from its inception in 2000 until its acquisition by First Community Corporation in 2004. Mr. Johnson had previously been with Newberry Federal Savings Bank since 1977. Mr. Johnson is chairman of Business Carolina Inc., a statewide economic development lender, and serves on the boards of the South Carolina Bankers Association and a number of other civic and professional organizations. Mr. Johnson served as vice chairman ofon the board of the Virginia Association of Community Banks from 2012-2014. He is also a director of the Community Bankers Bank from 2008 through 2010.in Richmond, Virginia. Mr. JohnsonHarvard was the founder of the United Way of Virginia's Eastern Shore and currently serves as a director of the United Way of the Northern Shenandoah Valley. He has expertise in residential, commercial, and community development finance.also served on the Council of Federal Home Loan Banks.
Jonathan Kislakhas served as principal and chairman of the board of Antares Capital Corporation, a venture capital firm investing equity capital in expansion stage companies and management buyout opportunities, since 1999. From 1993 to 2005, Mr. Kislak served as president and chairman of the board of Kislak Financial Corporation, a community bank holding company in Miami, Florida. Since October, 2013,From 2013-2016, Mr. Kislak has served on the board of directors and chair of the audit committee of Cherry Hill Mortgage Investment Corp. (NYSE - CHMI). Mr. Kislak has expertiseKislak's experience in economics and finance.finance supported his nomination as an independent director.
LaSalle D. Leffall, IIIis president of LDL Financial, a corporate advisory and investment firm he founded in 2006. From 2002 to 2006, he was a senior executive of The NHP Foundation, one of the nation's largest nonprofit owners of affordable multifamily housing, and served as president chief operating officer, and chief financialoperating officer. In October and November 2008, he served as acting chief executive officer. From 1996 to 2002, Mr. Leffall was an investment banker in the mergers and acquisitions divisions of UBS and Credit Suisse First Boston in New York, New York. In 1992, Mr. Leffall began his career as an attorney in the corporate department of Cravath, Swaine & Moore in New York, New York. Mr. Leffall has served on the board of directors for Mutual of
America Investment Corporation and Mutual of America Institutional Funds, registered investment companies, from 2011 through the present. He is a member of the New York State Bar, District of Columbia Bar, Council on Foreign Relations, The Federal City Council, and The Economic Club
of Washington, D.C. Mr. Leffall has expertiseearned a B.A., magna cum laude, in History from Harvard College followed by the simultaneous completion of a J.D., cum laude, from Harvard Law School and M.B.A. from Harvard Business School. Mr. Leffall's experience in finance, law, and affordable multifamily housing, and accounting.derivatives knowledge supported his nomination as an independent director.
Kim C. Liddell has served as president and chief executive officer of 1880 Bank, formerly known as the National Bank of Cambridge, in Cambridge, Maryland, since 2010. He was elected chairman of the board of directors in April 2011. From 2004 to 2009, Mr. Liddell served as chief operating officer and executive vice president of Cardinal Financial Corporation (CFNL) and Cardinal Bank. Mr. Liddell has served as a board member of the Virginia Bankers Association's Member Services, Inc., Junior Achievement of the National Capital Area, Business in Education Partnership with the Falls Church City Public Schools, Arlington County Chamber of Commerce, Celebrate Fairfax, and Leadership Fairfax. Mr. Liddell currently serves on the boards of the Maryland Bankers Association and Dorchester General Hospital Foundation. He previously served on the board of the Dorchester County Chamber of Commerce.
Miriam Lopez has served as president, chief lending officer, and director of Marquis Bank in Coral Gables, Florida since July 2010. She previously served as chief executive officer of TransAtlantic Bank in Miami, Florida for 24 years and as TransAtlantic's chairman of the board from 2003 to 2007. She is a former president (non-executive position) of the Florida Bankers Association and former member of the American Bankers Association's Government Relations Council and Executive Committee. Ms. Lopez has expertise in accounting and finance.
John C. NealB. Rucker has served as president andmanaging director of Union First Market BankStifel, Nicolaus & Company, Incorporated (“Stifel”), an investment banking firm, since 2010. 2015, and manages Stifel’s affordable housing business. Mr. Rucker was a founding partner and managing director of Merchant Capital, L.L.C., a public finance investment banking firm, from 1987 to 2015, which was aquired by Stifel in 2015. He was a member of Fannie Mae’s Southeast Regional Housing Advisory Council and Fannie Mae’s National Housing Impact Advisory Council in 2004 and 2005. He has also serves as chief banking officer of Union First Market Bankshares Corporation. From 2004 to 2010, he served as president and chief executive officer of Union Bank and Trust Company. Mr. Neal has served as Union First Market Bankshares Corporation's executive vice president and chief banking officer since 2005. Currently, Mr. Neal serves on the board of directors of the Benefits Corporation, a subsidiary of the Virginia Bankers Association. He also servesNational Housing & Rehabilitation Association since 2003. Mr. Rucker served on the board of trustees of the Virginia Commonwealth University FoundationBank’s Affordable Housing Advisory Council from 2012 to 2016, serving as its vice chairman from 2014 to 2015 and the board of directors of the Fredericksburg Regional Alliance. He is a past board member andas its chairman of the Virginia Association of Community Banks.in 2016. Mr. Neal has been active in numerous community development organizations, including the Rappahannock Economic Development Commission, and the Fredericksburg Industrial Development Authority.
Henry Gary Pannell has served as special counsel with the law firm Jones, Walker, Waechter, Poitevent, Carrère & Denègre L.L.P. in Atlanta, Georgia since September 2008, previously having been a member with the law firm Miller Hamilton Snider & Odom, LLC in Atlanta, Georgia since 2001. He servedRucker's experience as a trustee with the Atlanta Nehemiah Housing Trust, a fund to provide interest-free construction loans to buildlawyer and in affordable housing for municipal employees from 2003 through 2009. From 1973finance supported his appointment to 2000, he held leadership positions withfill the Office of the Comptroller of the Currency in Atlanta, Georgia, including district counsel for the Southeastern District and regional counsel, 6th National Bank Region. From 1988 through 2009, he served as treasurer of the Episcopal Diocese of Atlanta, and as a trustee of the Diocesan Foundation, Inc., a non-profit corporation that makes loans for church buildings and homes for clerics. Mr. Pannell has expertise in federal banking law, corporate governance, bank accounting, and community development.independent directorship vacancy.
Robert L. Strickland, Jr.is executive director of the Alabama Housing Finance Authority, an independent public corporation dedicated to serving the housing needs of low- and moderate-income Alabamians, a position he has held since 1987. Mr. Strickland served as president of the National Council of State Housing Agencies for two terms. He has also served on the National Association of Home Builders Mortgage Finance Roundtable and as a member of Fannie Mae's National Advisory Council. He currently serves as a director of the Alabama MultiFamily Loan Consortium. Mr. Strickland has expertiseStrickland's experience in affordable housing finance.finance supported his nomination as a public interest director.
Richard A. Whaley serves as president, chief executive officer, and director of Citizens Bank of Americus in Americus, Georgia, positions he has held since 2001. From 1989 to 2001, he served as market manager and commercial lender for Wachovia Bank. Mr. Whaley served as chairman of the Georgia Bankers Association from October 2010 to June 2012. Mr. Whaley also served as chairman of the South Georgia Technical College Foundation from 2008 to 2010. He has been a member of the Georgia Municipal Association and Georgia Cities Foundation Special Downtown Task Force since 2011, and has served as a director of the Georgia Bankers Association Insurance Trust, Inc. since June 2013. Mr. Whaley has expertise in community banking, auditing, accounting, risk management, and credit and collateral matters.
Nominating Procedures
Finance Agency regulations establish certain requirements and limitations regarding director eligibility, elections, compensation, and expenses. No material changes to these requirements or the director nominating procedures thereunder occurred during 2013.
On March 6, 2013, the board of directors elected Richard A. Whaley, president, chief executive officer, and director of Citizens Bank of Americus, to fill the member directorship designated for the state of Georgia, which seat became vacant on December 13, 2012, as previously disclosed in the Bank's Form 8-K filed with the SEC on December 14, 2012. Finance Agency regulations require the board to elect, by a majority vote of the remaining directors, an individual to fill the unexpired term of office.
On February 14, 2014, the board of directors elected Michael P. Fitzgerald, chairman, president and chief executive officer of Bank of Georgetown, to fill the member directorship designated for the District of Columbia seat, effective March 26, 2014 through December 31, 2017. Because the Bank did not receive any nominating certificates for this member directorship prior to the nomination deadline for the 2013 elections, applicable law required that the D.C. member directorship be deemed vacant as of January 1, 2014 and that the board of directors fill the position.
Code of Conduct
The board has adopted a Code of Conduct that applies to the Bank's principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions, in each case, who are employees of the Bank. The Code of Conduct is posted on the Who We Are - Investor Relations -Governance section of the Bank's Internet website at http://corp.fhlbatl.com/who-we-are/investor-relations/. Any amendments to, or waivers under, the Bank's Code of Conduct that are required to be disclosed pursuant to the SEC's rules will be disclosed on the Bank's website.
Director Independence, Compensation Committee, Audit Committee, and Audit Committee Financial Expert
General
The board of directors of the Bank is required to evaluate the independence of the directors of the Bank under two distinct director independence standards. First, Finance Agency regulations establish independence criteria for directors who serve as members of the Bank's Audit Committee. Second, SEC rules require that the Bank's board of directors apply the independence criteria of a national securities exchange or automated quotation system in assessing the independence of its directors.
As of the date of this Report, the Bank has 1314 directors, seveneight of whom are member directors and six of whom are independent directors. None of the Bank's directors is an “inside” director. That is, none of the Bank's directors is a Bank employee or officer. Further, as the Bank's capital stock may only be owned by members, former members, and certain non-members, the Bank's directors cannot personally own stock or stock options in the Bank. However, each of the member directors is an officer or director of an institution that is a member of the Bank and that is encouraged to, and does, engage in transactions with the Bank on a regular basis.
Finance Agency Regulations Regarding Independence
The Finance Agency's director independence standards prohibit an individual from serving as a member of the Bank's Audit Committee if he or she has one or more disqualifying relationships with the Bank or its management that would interfere with the exercise of that individual's independent judgment. Disqualifying relationships considered by the board are: employment with the Bank at any time during the last five years; acceptance of compensation from the Bank other than for service as a director; being a consultant, advisor, promoter, underwriter, or legal counsel for the Bank at any time within the last five years; and being an immediate family member of an individual who is or who has been within the past five years, a Bank executive officer. The board assesses the independence of each director under the Finance Agency's independence standards, regardless of whether he or she serves on the Audit Committee. As of March 14, 2014,9, 2017, each of the Bank's directors was independent under these criteria.
SEC Rules Regarding Independence
SEC rules require the Bank's board of directors to adopt a standard of independence to evaluate its directors. The board has adopted the independence standards of the New York Stock Exchange (NYSE) to determine which of its directors are independent, including members of its Governance and Compensation Committee and Audit Committee, and whether the Bank's Audit Committee's financial experts are independent.
After applying the NYSE independence standards, the board determined that, as of March 14, 2014, Messrs.9, 2017, directors Garczynski, Handorf, Kislak, Leffall, and Pannell,Rucker, each an independent director, were independent. Based upon the fact that each member director is a senior official of an institution that is a member of the Bank (and thus is an equity holder in the Bank), that each such institution routinely engages in transactions with the Bank, and that such transactions occur frequently and are encouraged, the board determined that for the present time it would conclude that none of the member directors presently meets the independence criteria under the NYSE independence standards. For the same reasons, because Mr. Strickland is a senior official of a housing associate that is able to transacthas transacted business with the Bank, the board has determined that he does not meet the independence criteria under the NYSE independence standards.
It is possible that under a strict reading of the NYSE objective criteria for independence (particularly the criterion regarding the amount of business conducted with the Bank by the director's institution), a member director could meet the independence standard on a particular day. However, because the amount of business conducted by a member director's institution may change frequently, and because the Bank generally desires to increase the amount of business it conducts with each member, the directors deemed it inappropriate to draw distinctions among the member directors based upon the amount of business conducted with the Bank by any director's institution at a specific time. The same reasoning generally applies to Mr. Strickland.
Compensation Committee
The board has a Governance and Compensation Committee, composed of directors Bond, Cosby,Dunlap, Harvard, Liddell, Lopez, Garczynski, Goodrich, Handorf, Johnson, Kislak,Rucker, Strickland and Pannell.Whaley. As the Bank's Governance and Compensation Committee may only recommend actions to the full board regarding governance practices and compensation and benefits programs, which the full board may approve or disapprove, the board assesses the independence of the full board under the NYSE's standards for compensation committees. The board determined that, as of March 14, 2014,9, 2017, each of directors Garczynski, Handorf, Kislak, Leffall, and PannellRucker, was independent under the NYSE independence standards for compensation committee members, but for the reasons noted above, none of the member directors or Mr. Strickland was independent under such standards.
Audit Committee
The board has a standing Audit Committee, composed of directors Bond,Argrett, Cosby, Goodrich,DeFerie, Garczynski, Handorf, Kislak, Leffall, and Lopez.Whaley. The board determined that, as of March 14, 2014,9, 2017, each of directors Garczynski, Handorf,
Kislak, and Leffall was independent under the NYSE independence standards for audit committee members, but, for the reasons noted above, none of the member directors serving on the Audit Committee was independent under such standards. The board also determined that each of directors Argrett, DeFerie, Handorf, Kislak, Leffall, and LeffallWhaley is an “audit committee financial expert” within the meaning of the SEC rules.
The board also assesses the independence of the Audit Committee members under Section 10A(m)(3) of the Exchange Act. As of March 14, 2014,9, 2017, each of the Bank's directors was independent under these criteria. As stated above, the board determined that each member of the Audit Committee was independent under the Finance Agency's standards applicable to the Bank's Audit Committee.
Board Leadership Structure and Risk Oversight
The directors are nominated and elected in accordance with applicable law and Finance Agency regulations. As required by applicable law, the chairman and vice chairman of the board are elected by a majority of all the directors of the Bank from among the directors of the Bank for two year terms, and since Bank officers may not serve as directors of the Bank, neither the board chairman or vice chairman position can be filled by the president and chief executive officer of the Bank.
The board of directors establishes the Bank's risk management culture, including risk tolerances and risk management philosophies, by establishing its risk management system, overseeing its risk management activities, and adopting its risk appetite and RMP. The board reviews the risk appetite report on a quarterly basis and approves any changes as appropriate. The board receives regular updates on the Bank's key risks including an independent risk assessment. The board reviews the RMP at least annually and approves any amendments to it as appropriate, and re-adopts it at least every three years.appropriate. For further discussion of the risk appetite and the RMP, please see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations-Risk Management. The board works with management to align the Bank's strategic activities and objectives within the parameters of the risk appetite framework and the RMP. The board utilizes committees as an integral part of overseeing risk management, including an audit committee, a credit and member services committee, an enterprise risk and operations committee, an executive committee, a finance committee, a governance and compensation committee, and a housing and community investment committee, with the following oversight responsibilities:
Audit Committee oversees the Bank's financial reporting process, system of internal control, audit process, policies and procedures for assessing and monitoring implementation of the strategic plan, and the Bank's process for monitoring compliance with laws and regulations.
Credit and Member Services Committee oversees the Bank's credit and collateral policies and related programs, services, products and documentation, and the Bank's credit and collateral risk management program, strategies, and activities.
Enterprise Risk and Operations Committee oversees the Bank's enterprise risk management functions, operations, information technology, and other related matters.
Executive Committee exercises most of the powers of the board in the management and direction of the affairs of the Bank during the intervals between board meetings.
Finance Committee oversees matters affecting the Bank's financial performance, capital management and other related matters, including the Bank's market and liquidity risk management program, strategies, and activities.
Governance and Compensation Committee oversees the Bank's governance practices, compensation and benefits programs, and other related matters.
Housing and Community Investment Committee oversees the Bank's housing and community investment policies, programs, and other relevant matters, including any other Bank products, services, and programs that may provide grants, subsidies, or other forms of assistance to support affordable housing and community economic development for low- and moderate-income individuals and communities.
The Bank's internal management is overseen by the president and chief executive officer and delegated to other senior managers and internal management committees. The Bank has determined that this leadership structure is the most
effective means of actively engaging the board of directors in risk management oversight while utilizing Bank management to implement and maintain sound risk management practices.
Compensation Committee Interlocks and Insider Participation
The board has a Governance and Compensation Committee that recommends actions to the full board regarding governance practices and compensation and benefits programs, which the full board of directors may approve or disapprove. None of the directors serving on the board in 20132016 has at any time been an officer or employee with us.the Bank. None of ourthe Bank's executive officers served during 20132016 or is serving on ourthe board of directors or the compensation committee of any entity whose executive officers served on ourthe Bank's board of directors.
Executive Officers
The following table presents the names, ages, and titles of the executive officers of the Bank and all persons chosen to become executive officers as of the date of this Report. No executive officer has any family relationship with any other executive officer or director of the Bank.
|
| | | | |
| Executive Officer | | Age | | Title |
| W. Wesley McMullan | | 53 | | President and Chief Executive Officer |
| Kirk R. Malmberg | | 56 | | Executive Vice President and Chief Financial Officer |
| Cathy C. Adams | | 57 | | Executive Vice President and Chief Operations Officer |
| Robert F. Dozier, Jr. | | 48 | | Executive Vice President and Chief Business Officer |
| Robert C. Bennett | | 62 | | Senior Vice President and Chief Information Officer |
| Julia S. Brown | | 52 | | Senior Vice President, Corporate Secretary |
| Bryan Delong | | 53 | | Senior Vice President, Director of Human Resources and Staff Services |
| Arthur L. Fleming | | 58 | | Senior Vice President, Director of Community Investment Services |
| Annette Hunter | | 52 | | Senior Vice President, Director of Accounting Operations |
| Haig H. Kazazian, III | | 51 | | Senior Vice President, Treasurer |
| Robert S. Kovach | | 53 | | Senior Vice President, Chief Credit Officer |
| Eric M. Mondres | | 62 | | Senior Vice President, Director of Government and Industry Relations |
| Reginald T. O'Shields | | 46 | | Senior Vice President, General Counsel |
| Richard A. Patrick | | 61 | | Senior Vice President, Chief Audit Officer |
| William T. Shaw | | 45 | | First Vice President, Controller |
| Ken Yoo | | 46 | | Senior Vice President, Chief Risk Officer |
W. Wesley McMullan was appointed president and chief executive officer in December 2010. Previously, he served as executive vice president and director of financial management since 2004, with responsibility for sales, MPP sales, asset-liability management, liquidity management, other mission-related investments, customer systems and operations, and member education. Mr. McMullan joined the Bank as a credit analyst in 1988 and later earned promotions to assistant vice president in 1993, vice president in 1995, group vice president in 1998, and senior vice president in 2001. He is a chartered financial analyst and earned a B.S. in finance from Clemson University.
Kirk R. Malmberg was appointed executive vice president and chief financial officer effective April 1, 2011. He oversees accounting, financial reporting, investment and derivatives operations, and treasury as well as the Bank's credit and collateral services. From 2007 through March 2011, he served as executive vice president and chief credit officer, overseeing collateral services, credit services, community investment services and mortgage program operations. Prior to that, Mr. Malmberg served as senior vice president responsible for the Bank's mortgage programs. He joined the Bank in 2001 as senior vice president, asset-liability management, after having served for five years as senior vice president, treasury, at FHLBank Chicago. Mr. Malmberg earned an M.B.A. from Rice University and a B.A. from Trinity University.
Cathy C. Adams was appointed executive vice president and chief operations officer effective March 1, 2011. She is responsible for overseeing all Bank programs related to information technology, human resources, administrative
services, and financial operations management. Ms. Adams was named executive vice president and chief administrative officer in 2008. Previously, she served as senior vice president of staff services from 2004 through 2008. Ms. Adams joined the Bank in 1986. She earned an M.B.A. in management from Georgia State University and a B.A. in business administration from Tift College.
Robert F. Dozier, Jr. was appointed executive vice president and chief business officer effective June 6, 2011. Mr. Dozier oversees the Bank's member sales and outreach, community investment services, corporate communications, and government and industry relations. Prior to joining the Bank, Mr. Dozier was president and chief operating officer for Homeowners Mortgage Enterprises, a subsidiary of CoastalStates Bank, where he began as a loan officer in 1992. Mr. Dozier also served on the board of directors for CoastalSouth Bancshares, the holding company of CoastalStates Bank. From 2002 to 2004, Mr. Dozier served as a director of the Bank. He earned a B.A. in political science from the University of South Carolina.
Robert C. Bennett has served as senior vice president, chief information officer, overseeing the Bank's information technology division, since joining the Bank in 2009. Prior to that, Mr. Bennett was executive vice president and chief information officer for Homebanc Corporation from 1998 through 2007. During a 17-year career from 1981 through 1998 with BellSouth Telecommunications, Mr. Bennett served as chief information officer for various divisions, including corporate marketing and small business services. Mr. Bennett earned a B.A. in English literature from Ohio University.
Julia S. Brown serves as senior vice president and corporate secretary. The board of directors appointed Ms. Brown to serve as corporate secretary in April 2011. Prior to her appointment as corporate secretary, she served as associate general counsel, assistant corporate secretary beginning in 2005, deputy general counsel, assistant corporate secretary beginning in 2007, and first vice president, deputy general counsel for governance beginning in 2009. Before joining the Bank in 2001 as a senior attorney, Ms. Brown practiced commercial real estate law with Sutherland Asbill & Brennan, LLP, in Atlanta, Georgia. She earned a B.S. in Spanish and anthropology from Wellesley College, summa cum laude, and her J.D., cum laude, from Harvard Law School.
Bryan Delong has served as senior vice president, chief human resources officer, since January 1, 2016, having previously served as director of human resources and staff services since 2011. Mr. Delong is responsible for executing the Bank's human resources strategies to include: talent acquisition, total rewards, employee development, diversity and inclusion, and human resources compliance. Mr. Delong also leads the Bank's staff services and property management functions, which include facilities operations, tenant leasing, security, print and mail services, and procurement. A 24-year veteran of the Bank, Mr. Delong previously served as the assistant director of human resources with responsibility for managing the Bank's compensation, benefits, human resources information systems, and employee development programs. Prior to joining the Bank in 1993, Mr. Delong worked at LOMA as a compensation consultant and AT&T as a training specialist. Mr. Delong holds an M.S. in industrial and organizational psychology from Radford University, an M.A. in human resources development from Georgia State University, and a B.A. in English from Earlham College. He holds a certification as a Professional in Human Resources.
Arthur L. Fleming has served as senior vice president, director of community investment services, directing the Bank's community investment, economic development, and affordable housing products and services, since 2007. Mr. Fleming has experience in a variety of financial services, legal, housing development, and academic roles. Before joining the Bank, Mr. Fleming was chief lending and investment officer for the Opportunity Finance Network, Inc., a national community development financial institution. He also served as the senior director for the southeast region and director of housing finance for the Fannie Mae Foundation; the senior vice president, managing director of housing initiatives at GMAC; founder and executive director of the Community Financing Consortium, Inc; and an attorney/senior associate for the FAU/FIU Joint Center for Environmental and Urban Problems. Mr. Fleming earned his undergraduate degree from Florida State University, and a master's degree in Urban and Regional Planning and a J.D. from the University of Florida.
Annette Hunter has served as director of accounting operations since 2006. On January 1, 2015, she was promoted from first vice president to senior vice president. In that role, Ms. Hunter is responsible for the daily accounting operations of the derivatives, investments, consolidated obligations, advances and purchased mortgage portfolios. Ms. Hunter joined the Bank in 2002 as manager of derivative and investment operations. Prior to joining the Bank, she served in various managerial accounting roles at Mirant Corporation, Louis Dreyfus Energy Corporation and Continental Hydraulic Hose. Ms. Hunter earned a B.S. in Business Administration from The Ohio State University and an M.B.A. from Kennesaw State University. She is a certified public accountant.
Haig H. Kazazian, III has served as treasurer since June 3, 2013, and was promoted to senior vice president, treasurer effective January 1, 2014. Mr. Kazazian joined the Bank as a credit analyst in 1992 and earned promotions to manager of national accounts and product development in 2001, first vice president in 2005, manager of national accounts and capital markets trading in 2009, and manager of treasury analysis and national accounts sales and trading in 2011. He is a chartered financial analyst and earned an M.B.A. and a B.A. in economics, each from Emory University. Mr. Kazazian was an M.B.A. Fellowship Recipient.
Robert S. Kovach has served as senior vice president, chief credit officer since January 2012, directing the Bank's credit and collateral services and collateral risk management operations. Prior to joining the Bank in 2010 as director of collateral services, Mr. Kovach served a variety of roles with FHLBank Pittsburgh from 1996 to 2010, including director of collateral services, chief investment officer, and director of internal audit. He also served as a field manager and a senior examiner for the Office of Thrift Supervision. Mr. Kovach holds a chartered financial analyst designation and earned a B.S. in chemistry from Dickinson College.
Eric M. Mondres has served as senior vice president, director of government and industry relations since 2009. Mr. Mondres oversees the Bank's efforts related to public policy development and strategy, as well as its relationships with industry members and groups as it relates to the Bank's business and mission. He joined the Bank in 2003 as vice president and director of government relations. Before joining the Bank, he worked for America's Community Bankers, the Thrift Depositor Protection Oversight Board, the Environmental Protection Agency as a consultant, the U.S. Department of Agriculture, and the U.S. House of Representatives' House Administration Committee as assistant minority counsel. Mr. Mondres earned a B.A. degree in history and political science from Bridgewater College and a J.D. from Cumberland School of Law.
Reginald T. O'Shields has served as senior vice president and general counsel since April 2, 2011. Mr. O'Shields manages the delivery of legal services by the Bank's legal department covering a wide variety of corporate, securities, finance, and regulatory matters. He joined the Bank in 2003 as a senior attorney and earned promotions to assistant general counsel in 2005, associate general counsel in 2006 and deputy general counsel in 2007. He was named senior vice president, deputy general counsel and director of legal services January 1, 2011. Before joining the Bank, Mr. O'Shields was in private legal practice with Sutherland Asbill & Brennan, LLP in Atlanta, Georgia, Haynsworth Sinkler Boyd in Greenville, South Carolina, and Simpson, Thacher & Bartlett in New York, New York. Mr. O'Shields earned a J.D. from Vanderbilt University and a B.A. in economics from Furman University.
Richard A. Patrick has served as senior vice president and chief audit officer since 2002. He is responsible for providing an independent audit of the Bank by evaluating the internal control system and testing for compliance with internal policies and procedures as well as with applicable laws and directives from the Finance Agency. Mr. Patrick reports directly to the audit committee of the board of directors. Mr. Patrick joined the Bank in 1991 as the vice president and director of internal audit and was promoted to his senior position in 2002. Prior to joining the Bank, Mr. Patrick was a vice president and audit manager for C&S/Sovran Corporation, which is now known as Bank of America. Previously, he was a branch and operations audit officer for National Bank of Georgia. A certified public accountant, certified fraud examiner, certified financial services auditor, and certified bank auditor, Mr. Patrick earned a B.A. in business administration from Appalachian State University. He is also an honors graduate of the Bank Administration Institute's School for Bank Administration.
William T. Shaw has served as first vice president and controller of the Bank since June 28, 2014. Mr. Shaw oversees financial reporting, accounting policy, and derivatives hedge accounting. From 2009 to 2013 he served as vice president, director of accounting policy. Mr. Shaw was promoted to director of accounting policy and financial reporting in 2013 and to first vice president in January, 2014. Before joining the Bank as assistant vice president, manager of accounting policy in 2008, Mr. Shaw served as vice president of accounting and assistant controller for First Charter Corporation, director of SEC reporting for Novelis Inc., manager of inspections with the Public Company Accounting Oversight Board, and various manager roles with PricewaterhouseCoopers LLP. He received his B.S. in accounting and master’s degree in accountancy from Brigham Young University. He is also a certified public accountant.
Ken Yoo has served as chief risk officer since April 1, 2011. On January 1, 2013, he was promoted from first vice president to senior vice president. Mr. Yoo directs the Bank's enterprise risk management function and is responsible for overseeing enterprise-wide risk assessment and reporting functions, financial risk modeling, as well as model validation efforts for the Bank. Mr. Yoo joined the Bank in 2006 as manager of risk reporting and analysis and was
promoted to director of enterprise risk management and then deputy chief risk officer prior to his current position. Prior to joining the Bank, Mr. Yoo was employed by the Office of Federal Housing Enterprise Oversight (which was subsequently merged into the Finance Agency pursuant to the Housing Act), where he was a senior member of its supervisory group since 2005. Previously, Mr. Yoo was employed in various senior risk management consulting positions at BearingPoint, Inc. and at Merrill Lynch & Co. Mr. Yoo earned a Masters in International Affairs from George Washington University, an M.B.A. from Yonsei University in Seoul, Korea, and a B.A. in Economics from Virginia Tech.
Item 11. Executive Compensation.
Compensation Discussion and Analysis
Introduction
This section describes and analyzes the Bank's 20132016 compensation program for its chief executive officer, chief financial officer, and the three other most highly-compensated executive officers. These executive officers are collectively referred to as the Bank's “named executive officers.”
In 2013 theThe Bank's named executive officers were as follows:during 2016 are identified in the following table.
|
| | |
| Name | | Title |
| W. Wesley McMullan | | President and Chief Executive Officer |
| Kirk R. Malmberg | | Executive Vice President and Chief Financial Officer |
| Cathy C. Adams | | Executive Vice President and Chief Operations Officer |
| Robert F. Dozier, Jr. | | Executive Vice President and Chief Business Officer |
Robert C. BennettS. Kovach | | Senior Vice President, and Chief InformationCredit Officer |
Philosophy and Objectives
The Bank's compensation philosophy and objectives are to attract, motivate, and retain high caliber financial services executives capable of achieving strategic business initiatives, that lead to enhancedenhancing business performance and increasing shareholder value. The Bank's compensation program is designed to reward this performance and enhanced value and to offer competitive compensation elements that align its executives' incentives with the interests of its members. To mitigate unnecessary or excessive risk-taking by executive management, the Bank's incentive compensation plan contains overall Bank performance thresholdsgoals that are dependent on an aggregation of transactions throughout the Bank and that cannot be individually altered by executive management. The incentive compensation plan contains qualitativequantitative components that are evaluated by the board of directors. Additionally, the board of directors maintains discretionary authority over all incentive compensation awards, giving the board of directors the flexibility to review Bank performance throughout the year and to adjust incentive compensation accordingly.
Elements of Compensation
To achieve the goals described above, theThe Bank compensates its executive officers with a combination of base salary, incentive compensation, and benefits. The Bank is unable to offer equity-related compensation because it is a cooperative, and only member financial institutions may own its capital stock. Accordingly, the Bank offers other compensation elements, such as qualified and non-qualified defined benefit and defined contribution pension plans, to motivate long-term performance and encourage retention. Additionally, becauseBecause the Bank is exempt from federal taxes, the deductibility of compensation is not relevant to compensation plan design. The elements of the Bank's compensation program for executive officers, and the objective of each compensation element, are described below.
Base salary. Base salary is established on the basis of the ongoing duties associated with managing a particular set of functions at the Bank and provides an amount of fixed compensation. Each executive's base salary also is used as a basis in calculating the executive's yearlyannual incentive award opportunity, as described below.
Incentive compensation. The Bank provides an annual cash award opportunity under its Incentive Compensation Plan (ICP) to executive officers based on the achievement of quantitative and qualitative goals set and evaluated by the board of directors. The ICP is designed to promote and reward achievement of annual corporate performance goals set by the board. To promote consistently high corporate performance on a long-term basis and enhance the retention of key senior executive officers, payment of a portion of any ICP granted is deferred and distributed over a three-year period, together with positive or negative returns (Deferred Incentive). If, as of the time any payment of the Deferred Incentive otherwise would be due, the board of directors has made a good faith determination that the Bank doeshas not have the financial capacity to repurchase excess stock, and/or achieveachieved certain financial performance requirements, the board of directors may in its sole discretion elect to reduce or eliminate such payment of Deferred Incentive.
Benefits. The Bank provides retirement benefits to promote executive retention.retention, and the executive officers are eligible to participate in the same benefit plans that are made available to other employees of the Bank, such as medical, group term life and long-term disability coverage. The Bank also provides limited perquisites and other benefits to enhance executive officers' ability to devote maximum attention to their primary responsibilities and to minimize the amount of time spent on non-Bank related matters.officers.
Executive Compensation Process
Board and committee consideration of executive compensation. The Bank's board of directors establishes the Bank's executive compensation philosophy and objectives and has final approval of any compensation decisions related to the Bank's chief executive officer and all officers reporting directly to the chief executive officer who are senior vice presidents or higher. The governance and compensation committee of the board of directors advises and assists the board and makes recommendations to the board relating to compensation of such officers. Prior to October 2012, the board approved any compensation decisions related to the Bank's chief executive officer and all of his direct reports.
The chief executive officer reviews and recommends to the board the base salary of the officers who report directly to him and who are senior vice president and higher level officers that report directly to him.officers. The chief executive officer also determines the base salary of all other senior vice president officers (other than the chief audit officer) and all Bank officers at the first vice president level within an overall budget approved by the board of directors.
Use of compensation consultant. The governance and compensation committee of the board of directors independently selected and engaged Willis Towers Watson to provide assistance in evaluating the Bank's executive compensation programs for 2013.2016. Willis Towers Watson reports directly to the committee with respect to executive compensation.
Consideration of competitive compensation levels. The Bank's executive compensation program is designed to be appropriately competitive with prevailing practices in the broader financial services industry, consistent with the Bank's business and risk profile. As part of each compensation review process, the board considers (1) the total cash compensation including(including base salary and target incentive compensation plan,compensation), retirement benefits, perquisites and other benefits, severance agreements, and change in control agreements, at FHLBanks of similar size and complexity based on total assets, advance activity, membership, and scope of operations, and (2) the median and 75th percentiles for base pay, bonus pay, and total cash compensation offered at certain comparable commercial banks and financial services organizations with assets between $18 billion and $62 billion.organizations. The median asset size for the comparative commercial bank peer group was $25 billion. The median asset size for the comparative financial services organizations peer group was $27.6 billion. The companies that were included in the peer groups for 20132016 are listed below in "Compensation Decisions in 20132016 - Overview." The board usesused this data to assess competitive levels of compensation for ourthe Bank's executives and did not target any named executive officer's compensation to a specific percentile of such executive officer's comparable position in the peer groups.
The board does not evaluate specifically the internal pay relationship among the executives and other employees when setting executive cash compensation, or the multiples by which a named executive officer's cash compensation is greater than that of non-executive employees.employees when setting executive compensation. The Bank is exempt from SEC proxy rules and does not provide shareholder advisory “say on pay” votes regarding executive compensation.
Finance Agency oversight of executive compensation. Pursuant to the Housing Act, the Director is required to prohibitprohibits the FHLBanks from providing compensation to any executive officer that is not reasonable and comparable with compensation for employment in other similar businesses involving similar duties and responsibilities. Pursuant to this authority and a Finance Agency final rule on executive compensation, effective February 27, 2014, the FHLBanks are required to report to the Director all compensation actions relating to the president, the chief financial officer, and the three other most highly compensated officers at least 30 days in advance of any planned board decision with respect to those actions, and at least 60 days prior to entering into any written arrangement that provides incentive awards to any executive officer. At any time before an executive compensation action is taken, the Director may require an FHLBank to withhold any payment, transfer, or disbursement of compensation to an executive officer, or to place such compensation in an escrow account, or prohibit the action. The Housing Act also authorizes the Director to prohibit the Bank from making any golden parachute payments to its officers, employees, and directors.
In addition, Finance Agency Advisory Bulletin 2009-AB-02 establishes five principles for executive compensation by the FHLBanks and the Office of Finance:
executive compensation must be reasonable and comparable to that offered to executives in similar positions at other comparable financial institutions;
executive incentive compensation should be consistent with sound risk management and preservation of the par value of the FHLBank's capital stock;
a significant percentage of an executive's incentive-based compensation should be tied to longer-term performance and outcome indicators;
a significant percentage of an executive's incentive-based compensation should be deferred and made contingent upon the FHLBank's financial performance over several years; and
the FHLBank's board of directors should promote accountability and transparency in the process of setting compensation.
In addition, underUnder the capital classifications rules issued by the Finance Agency, a significantly undercapitalized FHLBank is prohibited from paying any bonus to an executive officer, or giving any salary increase to an executive officer without the prior written approval of the Director. The Bank was not undercapitalized during 2013. The Housing Act also authorizes the Director to prohibit the Bank from making any golden parachute payments to its officers, employees, and directors. 2016.
Compensation Decisions in 20132016
Overview
The board of directors bases its compensation decisions on both objective criteria related to corporatethe Bank's performance and subjective criteria related to general executive performance. Among the various criteria the board considered in evaluating the named executive officers' performance in 20132016 were:
achievement of performance objectives for 20132016 as determined by the board;
fulfillment of the Bank's public policy mission;
demonstration of leadership and vision for the Bank;
implementation and maintenance of effective business strategies and operations, legal and regulatory compliance programs, risk management activities, and internal controls commensurate with the Bank's size, scope, and complexity;
establishment and maintenance of strong relationships between the Bank and its customers, shareholders, employees, regulators, and other stakeholders; and
the Bank's 20132016 financial results.
Base Salary
Mr. McMullan was appointed president and chief executive officer effective December 16, 2010. His base salary during 20132016 was $682,500.$800,000, which represents a 6.52 percent increase from 2015. In determining the base salary for Mr. McMullan, the board considered data developed by Willis Towers Watson noting (1) totalregarding the cash compensation provided atby two different groups:
(1) the following FHLBanks deemed to be of similar size and complexity based on total assets, advance activity, membership, and scope of operations:operations (FHLB Peers):
FHLBank Chicago;Boston
FHLBank Dallas;Chicago
FHLBank Cincinnati
FHLBank Des Moines
FHLBank New York; andYork
FHLBank Pittsburgh
FHLBank San Francisco
and (2) total cash compensation at the following commercial banks with assets between $18$20 billion and $62 billion:$65 billion (Commercial Bank Peers):
Ÿ Associated Banc-CorpŸ First Horizon National
Ÿ Bank of the WestŸ Huntington Bancshares
BOK Financial
Ÿ City National Bank
ComericaŸ People’s Bank
Ÿ Commerce Bancshares Ÿ Synovus Financial Corporation
Ÿ East West Bank
First Citizens Bank
First Horizon National
Hancock Holding
Huntington Bancshares
OneWest Bank
People’s United Financial Inc.
Popular
Ÿ Webster Bank
Zion’s BancorporationŸ Everbank Ÿ BOK Financial
The median asset size for the Commercial Bank Peers was $27.9 billion. According to the historical data provided to the board by Willis Towers Watson, Mr. McMullan's 2013 salary is belowwas at the median base salary for the presidents of the FHLBanksFHLB Peers and commercial financial institutions listed above.
In determiningbelow the 2013median base salary for Mr. Malmberg, the board considered the same comparative compensation data provided by Towers Watson listed above. Commercial Bank Peers.
In order to review sufficient market data in determining the base salaries for Mr. Malmberg, and for Ms. Adams and Mr. Dozier, whose positions are not as precisely mirrored at other institutions, the board also considered compensation data supplied by Willis Towers Watson from the following financial services organizations with assets between $18$20 billion and $62 billion:$65 billion (Financial Service Peers):
Ÿ Anthem Ÿ Great American Insurance
Ÿ Associated Banc-CorpŸ Humana
Ÿ Assurant Ÿ Huntington Bancshares
Ÿ Bank of the WestŸ Markel
Ÿ BOK FinancialŸ People's Bank
Chicago Mercantile ExchangeŸ Chubb Ÿ Phoenix Companies
ChubbŸ Cigna Ÿ Progressive
Cigna
Ÿ City National BankŸ Reinsurance Group of America
Ÿ CNO FinancialŸ Synovus Financial Corporation
ComericaŸ Commerce Bancshares Ÿ TD Ameritrade
Ÿ Cullen Frost BankersŸ Unum
Ÿ East West BankŸ Visa
eBay
Federal Reserve Bank of St. Louis
Ÿ First Citizens Bank
First HorizonsHorizon National
First Niagara Financial Group
Hancock Holding
Huntington Bancshares
Navy Federal Credit Union
NRUCFC
OneWest Bank
People’s United Financial Inc.
Phoenix Companies
Popular
Progressive
Protective Life
SVB Financial
Synovus Financial Corporation
Unum Group
Visa
Ÿ Webster Bank
Wellpoint
Zion’s Bancorporation
The median asset size for the Financial Service Peers was $29.1 billion.
According to the historical data provided to the board by Willis Towers Watson, the base salaries of Mr. Malmberg, Ms. Adams, and Mr. Dozier were at or below the median base salaries for comparable positions at the considered FHLB Peers, and below the median base salaries for comparable positions at the considered Commercial Bank Peers and Financial Service Peers. Following this review, the board opted to increase the existing base salaries offor 2016 as follows:
• Mr. Malmberg to $495,000 (a 4.65 percent increase)
• Ms. Adams andto $480,000 (a 4.80 percent increase)
• Mr. Dozier to $428,000, $414,000, and $409,000, respectively, for 2013. As discussed above, the chief executive officer determines the base salary of all senior vice president officers (other than those officers reporting directly to him, whose base salaries are established by the board of directors, and the chief audit officer). $475,000 (a 4.86 percent increase)
Mr. Bennett'sKovach's base salary for 20132016 was $354,500.
Incentive Compensation
The 2013following table presents the 2016 award opportunities, as established by the board under the ICP, expressed as a percentage of base pay earnings during the year, were as follows:year.
20132016 Award Opportunities | | | | | Percent of Base Salary | | Percent of Base Salary (%) |
| Title | | Threshold (%) | | Target (%) | | Maximum (%) | | Threshold | | Target | | Maximum |
| President and Chief Executive Officer | | 32.00 | | 64.00 | | 96.00 | | 40.00 | | 75.00 | | 98.00 |
| Executive Vice President | | 25.00 | | 50.00 | | 75.00 | | 30.00 | | 55.00 | | 80.00 |
| Senior Vice President | | 22.00 | | 43.00 | | 65.00 | | 24.00 | | 48.00 | | 70.00 |
These percentages are consistent withthe same as the award percentages established for the past three years.
2015.
For 2013,2016, the board established fourthree incentive goals under the ICP, which correlate to the shareholder focus and risk management performance priorities reflected in the Bank's strategic plan. Each of these goals is described in more detail below. Awards for senior vice presidents also included individual and team goals. The board of directors established threshold, target, and maximum performance levels for each quantitative incentive goal. Each goal's “target” performance level is consistent with the assumptions set forth in the annual operating budget, forecasts, and strategic plan. The “threshold” and “maximum” performance levels are designed to reward partial attainment of the goal and performance beyond the forecasted levels, respectively. Factors considered in setting threshold and maximum performance levels include management's projections concerning economic conditions, interest rates, demand for advances products, and balance sheet structure.
The following tables provide the weights and awards for each performance target as a percentage of base salary that the board established for 2013.2016. A description of each of the performance metrics, and the performance against such metrics in 2013,2016, is provided following the tables.
20132016 Weights and Awards |
| | | | | | | | |
| President and Chief Executive Officer | | | | | | | | |
| | | | | Percent of Base Salary |
| Goal | | Weight (%) | | Threshold (%) | | Target (%) | | Maximum (%) |
| Shareholder Focus - Product Utilization | | 35.00 | | 11.20 | | 22.40 | | 33.60 |
| Risk Management - Examination Performance | | 15.00 | | 4.80 | | 9.60 | | 14.40 |
| Risk Management - Retained Earnings | | 15.00 | | 4.80 | | 9.60 | | 14.40 |
| Risk Management - ROE Spread to 3-Month Libor | | 35.00 | | 11.20 | | 22.40 | | 33.60 |
| Total | | 100.00 | | 32.00 | | 64.00 | | 96.00 |
| | | | | | | | | |
| Executive Vice President | | | | | | | | |
| | | | | Percent of Base Salary |
| Goal | | Weight (%) | | Threshold (%) | | Target (%) | | Maximum (%) |
| Shareholder Focus - Product Utilization | | 35.00 | | 8.75 | | 17.50 | | 26.25 |
| Risk Management - Examination Performance | | 15.00 | | 3.75 | | 7.50 | | 11.25 |
| Risk Management - Retained Earnings | | 15.00 | | 3.75 | | 7.50 | | 11.25 |
| Risk Management - ROE Spread to 3-Month Libor | | 35.00 | | 8.75 | | 17.50 | | 26.25 |
| Total | | 100.00 | | 25.00 | | 50.00 | | 75.00 |
| | | | | | | | | |
| Senior Vice President | | | | | | | | |
| | | | | Percent of Base Salary |
| Goal | | Weight (%) | | Threshold (%) | | Target (%) | | Maximum (%) |
| Shareholder Focus - Product Utilization | | 25.00 | | 5.50 | | 10.75 | | 16.25 |
| Risk Management - Examination Performance | | 20.00 | | 4.40 | | 8.60 | | 13.00 |
| Risk Management - Retained Earnings | | 10.00 | | 2.20 | | 4.30 | | 6.50 |
| Risk Management - ROE Spread to 3-Months Libor | | 25.00 | | 5.50 | | 10.75 | | 16.25 |
| Individual and Team Goals | | 20.00 | | 4.40 | | 8.60 | | 13.00 |
| Total | | 100.00 | | 22.00 | | 43.00 | | 65.00 |
|
| | | | | | | | |
| President and Chief Executive Officer | | | | | | | | |
| | | | | Percent of Base Salary |
| Goal | | Weight (%) | | Threshold (%) | | Target (%) | | Maximum (%) |
Shareholder Focus - Shareholder Activity
| | 40.00 | | 16.00 | | 30.00 | | 39.20 |
| Risk Management - Risk Appetite | | 30.00 | | 12.00 | | 22.50 | | 29.40 |
| Risk Management - ROE Spread to 3-Month LIBOR | | 30.00 | | 12.00 | | 22.50 | | 29.40 |
| Total | | 100.00 | | 40.00 | | 75.00 | | 98.00 |
| | | | | | | | | |
| Executive Vice President | | | | | | | | |
| | | | | Percent of Base Salary |
| Goal | | Weight (%) | | Threshold (%) | | Target (%) | | Maximum (%) |
Shareholder Focus - Shareholder Activity
| | 40.00 | | 12.00 | | 22.00 | | 32.00 |
| Risk Management - Risk Appetite | | 30.00 | | 9.00 | | 16.50 | | 24.00 |
| Risk Management - ROE Spread to 3-Month LIBOR | | 30.00 | | 9.00 | | 16.50 | | 24.00 |
| Total | | 100.00 | | 30.00 | | 55.00 | | 80.00 |
| | | | | | | | | |
| Senior Vice President | | | | | | | | |
| | | | | Percent of Base Salary |
| Goal | | Weight (%) | | Threshold (%) | | Target (%) | | Maximum (%) |
Shareholder Focus - Shareholder Activity
| | 30.00 | | 7.20 | | 14.40 | | 21.00 |
| Risk Management - Risk Appetite | | 25.00 | | 6.00 | | 12.00 | | 17.50 |
| Risk Management - ROE Spread to 3-Month LIBOR | | 25.00 | | 6.00 | | 12.00 | | 17.50 |
| Individual and Team Goals | | 20.00 | | 4.80 | | 9.60 | | 14.00 |
| Total | | 100.00 | | 24.00 | | 48.00 | | 70.00 |
The Shareholder Focus - Product Utilization measure includes increasingShareholder Activity goal measures the increase in the number of products and services utilized by members during 2013.2016. Performance under this measure was determined by calculating the percentage increase in product utilization as of December 31, 20132016, over a product utilization baseline established as of December 31, 2012.2015. The performance goals were six1.00 percent product utilization increase (threshold), eight3.50 percent (target), and 127.00 percent (maximum). This goal was substantially the same for each named executive officer, and performance was determined on an overall basis. TheAs of December 31, 2016, the Bank achieved a shareholder activity performance score of 6.85 percent. Based on 2016 performance, the board awarded between the target and maximum level for this goal.
The Risk Management - Examination PerformanceRisk Appetite goal involves managing the Bank’s key risks at appropriate tolerance levels. Under this measure, includes operating safelythe board and soundlymanagement defined the Bank’s key risks and the tolerance levels with respect to effectively manage a range of risks during 2013.those risks. The Bank soughtthen scored each key risk based upon whether the Bank was satisfying the defined tolerance level. If the Bank was performing at or better than the defined tolerance level for all key risks, a risk appetite performance score of 100 was achieved. A deduction was applied to maintain or achieve certainthe risk appetite performance score for each key risk performing below the defined tolerance level. The amount that was deducted depended upon the extent of the underperformance. The performance goals measured through the regulatory examination process, including the significance of examination findings, the resolution of examination items within a prescribed time frame,were 85.0 percent risk appetite performance score (threshold), 95.0 percent risk appetite performance score (target), and certain composite and component examination rating results.100 percent risk appetite performance score (maximum). This goal was substantially the same for each named executive officer, and performance under these measures was determined on an overall basis. TheAs of December 31, 2016, the Bank achieved a risk appetite performance score of 99.1 percent. Based upon that score, the board awarded between the target and maximum level for this goal.
The Risk Management - Retained Earnings measure includes increasing the Bank's retained earnings in 2013. This performance measure reflects the Bank's ability to pay consistent quarterly dividends to its members. Performance under this measure was determined by calculating the percentage increase in retained earnings, including unrestricted and restricted retained earnings and certain reserve amounts of retained earnings, as of December 31, 2013 over a retained earnings baseline established from December 31, 2012. The performance goals were 6.97 percent increase, (threshold), 8.71 percent increase (target), and 10.45 percent or greater
increase (maximum). As of December 31, 2013, the Bank's retained earnings resulted in eligibility of each named executive officer to receive an award of maximum with respect to that goal.
The Risk Management - ROE Spread to 3-Month LIBOR performance measure isgoal relates to the ROEBank's return on equity (ROE) amount in excess of average three-month LIBOR, excluding the impact of other-than-temporary impairment losses on private-label MBS.LIBOR. This performance measure reflects the Bank's ability to pay quarterly
dividends to its members and was established with a sliding scale so that the spread performance metrics become smaller as LIBOR increases. The board of directors could reduce the award for this measure or increase the required ROE spread to LIBOR under certain economic scenarios. No adjustments were made. As of December 31, 2013,For 2016, the performance goals were 275250 basis points (threshold), 300275 basis points (target), and 325300 basis points (maximum). In 20132016, the Bank's ROE spread to average three-month LIBOR, resultedafter adjusting for the amount the Bank voluntarily contributed to AHP in eligibilityexcess of each named executive officer to receive an award ofregulatory requirements, was 337 basis points. Based upon that calculation, the board awarded the maximum with respect to thatlevel for this goal.
In 2013,2016, the board of directors did not establish individual performance award opportunities for the Bank's president and executive management.vice presidents. Mr. Kovach's individual goals were focused on shareholder service, risk management and team development. Based upon performance in 2016, Mr. Kovach was awarded the maximum level for this goal.
The following table providespresents the final award level associated with each performance goal and total award amounts for each named executive officer.
20132016 Incentive Compensation Plan Awards
| | | Name | | Product Utilization (%) of Base Salary | | Examination Performance (%) of Base Salary | | Retained Earnings (%) of Base Salary | | ROE Spread to LIBOR (%) of Base Salary | | Individual/Team Goals (%) of Base Salary | | Total Award (%) of Base Salary | | Overall Award Level | | Total Calculated Award | | Deferred Incentive | | Shareholder Activity (%) | | Risk Appetite (%) | | ROE Spread to 3-Month LIBOR (%) | | Individual/Team Goals (%) | | Total Award (%) of Base Salary | | Overall Award Level | | Total Calculated Award | | Deferred Incentive |
| W. Wesley McMullan | | 33.60 | | 14.40 | | 14.40 | | 33.60 | | — | | 96.00 | | Maximum | | $ | 655,200 |
| | $ | 327,600 |
| | 38.81 | | 28.20 | | 29.40 | | — | | 96.41 | | Target-Max | $ | 771,280 |
| | $ | 385,640 |
|
| Kirk R. Malmberg | | 26.25 | | 11.25 | | 11.25 | | 26.25 | | — | | 75.00 | | Maximum | | 321,000 |
| | 160,500 |
| | 31.57 | | 22.70 | | 24.00 | | — | | 78.27 | | Target-Max | 387,436 |
| | 193,718 |
|
| Cathy C. Adams | | 26.25 | | 11.25 | | 11.25 | | 26.25 | | — | | 75.00 | | Maximum | | 310,500 |
| | 155,250 |
| | 31.57 | | 22.70 | | 24.00 | | — | | 78.27 | | Target-Max | 375,696 |
| | 187,848 |
|
| Robert F. Dozier, Jr. | | 26.25 | | 11.25 | | 11.25 | | 26.25 | | — | | 75.00 | | Maximum | | 306,750 |
| | 153,375 |
| | 31.57 | | 22.70 | | 24.00 | | — | | 78.27 | | Target-Max | 371,782 |
| | 185,891 |
|
| Robert C. Bennett | | 16.25 | | 13.00 | | 6.50 | | 16.25 | | 13.00 | | 65.00 | | Maximum | | 230,425 |
| | 115,213 |
| |
| Robert S. Kovach | | | 20.72 | | 16.54 | | 17.50 | | 14.00 | | 68.76 | | Target-Max | 268,164 |
| | 134,082 |
|
The amount of incentive compensation earned by each of the named executive officers under the ICP, as shown in the “Total Calculated Award” column in the preceding table is reflected under the “Non-Equity Incentive Compensation Plan” column in the Summary Compensation Table below. The Deferred Incentive portion was subtracted from the total calculated award value and will be paid, together with positive or negative returns (equal to the Bank's return on equity for the applicable year) over three years (2015-2017)(2018-2020) on the following schedule, subject to certain restrictions discussed above:
Deferred Incentive Fee Payout Schedule
|
| | |
| Payment Year | | Payment |
20152018 | | 1/3 of balance (± 1-year return) |
20162019 | | 1/2 of balance (± 2-year return) |
20172020 | | Remaining balance (± 3-year return) |
If a named executive officer's employment with the Bank terminates for any reason prior to payment of any earned incentive compensation, all remaining payments (including Deferred Incentive) shall be forfeited, subject to certain limited exceptions if the named executive officer dies, becomes disabled, or retires with a combination of age and years of service to the Bank totaling at least 70.
Retirement Benefits
The named executive officers are eligible to participate in certain tax-qualified and non-qualified defined benefit pension plans and defined contribution/deferred compensation plans. These plans are described in more detail below in the sections entitled Executive Compensation, Pension Benefits, and Deferred Compensation.
The Bank's retirement benefit plans are a vital component of the Bank's retention strategy for executive officers and are important to the Bank's strategy to compete with other organizations that provide executive officers with economic benefits based on equity interests in the employer, especially recognizing that some of those organizations also may provide similar retirement benefits.
Perquisites and Other Benefits
All named executive officers are eligible to participate in the benefit plans that are made available to all other employees of the Bank including medical, dental, and vision insurance coverage, group term life and long-term disability insurance coverage, and paid vacation and sick leave. The named executive officers generally participate in these plans on the same basis and terms as all other employees.
The Bank offers its named executive officers a limited number of perquisites, including an annual physical examination, guest travel to certain business functions, business club memberships, and financial planning services. For Mr. McMullan, the Bank also provides an automobile allowance of up to $1,500 per month. Because perquisites generally are limited, the board does not specifically consider perquisites when reviewing total compensation for any of the named executive officers.
Employment Arrangements and Severance Benefits
Other than the specific contractual arrangements discussed below, all Bank employees are employed under an “at will” arrangement. Accordingly, an employee may resign employment at any time, and the Bank may terminate the employee's employment at any time for any reason, with or without cause.
The board of directors may, in its discretion, provide severance benefits to an executive officer in the event of termination of his/her employment. In determining whether severance compensation is appropriate, the board of directors considers both the factors underlying the termination of employment and the employment history of the executive officer. The Bank does not provide a “gross up” benefit on taxes incurred with respect to any severance.
Employment Agreement. The Bank entered into an Employment Agreement with Mr. McMullan, effective January 1, 2014 (Employment Agreement). Under the Employment Agreement, Mr. McMullan's employment with the Bank may be terminated by the Bank with or without “cause,” or by Mr. McMullan with or without “good reason,” as defined in the Employment Agreement. Unless earlier terminated by either party as provided therein, the Employment Agreement has a three-year term and will extend automatically for subsequent one-year periods unless either party elects not to renew. The Employment Agreement established Mr. McMullan's base salary at $722,000 per year, which amount may be increased from year to year by the Bank's board of directors. Pursuant to the Employment Agreement, the Bank provides Mr. McMullan with a $1,500 per month automobile allowance. Mr. McMullan is entitled to participate in all incentive, savings, and retirement plans and programs available to senior executives of the Bank.
The Bank has a formal severance arrangement with Mr. McMullan, which is discussed below under “Potential Payments upon Termination or Change in Control.” This severance arrangement was an integral and necessary component of the Bank's strategy to recruit Mr. McMullan to the president and chief executive officer position.
Report of the Board of Directors
The board of directors of the Bank has reviewed and discussed the Compensation Discussion and Analysis above with management, and based on such review and discussion, the board of directors has determined that the Compensation Discussion and Analysis above should be included in the Bank's Annual Report on Form 10-K.
The board of directors of the Bank has primary responsibility for establishing and determining the Bank's compensation program. Therefore, this report is submitted by the full board of directors.
BOARD OF DIRECTORS
|
| | |
Donna C. Goodrich, Chairman | | William C. Handorf, Vice Chairman |
John M. Bond, Jr. | | Miriam Lopez |
Travis Cosby, III | | John C. Neal |
F. Gary Garczynski | | Henry Gary Pannell |
J. Thomas Johnson | | Robert L. Strickland, Jr. |
Jonathan Kislak | | Richard A. Whaley |
LaSalle D. Leffall, III | | |
Executive Compensation
Summary Compensation Tables
The following table provides a summary of cash and other compensation earned by the named executive officers for the years ended December 31, 2013, 2012, and 2011. It is important to read this table, and the other tables that follow, closely and in conjunction with the Compensation Discussion and Analysis. The narratives following the tables and the footnotes accompanying each table are important parts of each table.
2013 Summary Compensation Table
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal
Position
(a) | | Year
(b) | | Salary
(c) | | Bonus(3)(d) | | Non-Equity
Incentive Plan
Compensation(4)(e) | | Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(5) (f) | | All Other
Compensation(6)(g) | | Total
(h) |
W. Wesley McMullan
President and Chief Executive Officer | | 2013 | | $ | 682,500 |
| | $ | 1,100 |
| | $ | 681,764 |
| | $ | 154,640 |
| | $ | 59,980 |
| | $ | 1,579,984 |
|
| | 2012 | | 650,000 |
| | 100 |
| | 634,959 |
| | 888,648 |
| | 58,112 |
| | 2,231,819 |
|
| | 2011 | | 650,000 |
| | 100 |
| | 599,362 |
| | 1,089,000 |
| | 58,758 |
| | 2,397,220 |
|
Kirk R. Malmberg Executive Vice President and Chief Financial Officer | | 2013 | | 428,000 |
| | 100 |
| | 334,624 |
| | 3,730 |
| | 25,730 |
| | 792,184 |
|
| | 2012 | | 411,950 |
| | 100 |
| | 315,086 |
| | 298,740 |
| | 28,815 |
| | 1,054,691 |
|
| | 2011 | | 411,950 |
| | 350 |
| | 297,385 |
| | 526,000 |
| | 24,885 |
| | 1,260,570 |
|
Cathy C. Adams
Executive Vice President and Chief Operations Officer | | 2013 | | 414,000 |
| | 100 |
| | 323,601 |
| | 348 |
| | 25,158 |
| | 763,207 |
|
| | 2012 | | 395,625 |
| | 100 |
| | 302,625 |
| | 481,352 |
| | 24,288 |
| | 1,203,990 |
|
| | 2011 | | 395,625 |
| | 1,100 |
| | 285,622 |
| | 951,000 |
| | 34,788 |
| | 1,668,135 |
|
Robert F. Dozier, Jr.
Executive Vice President and Chief Business Officer(1) | | 2013 | | 409,000 |
| | 100 |
| | 316,927 |
| | 25,000 |
| | 25,550 |
| | 776,577 |
|
| | 2012 | | 390,000 |
| | 100 |
| | 294,840 |
| | 18,000 |
| | 25,048 |
| | 727,988 |
|
| | 2011 | | 225,000 |
| | 100 |
| | 161,550 |
| | — |
| | 110,556 |
| | 497,206 |
|
Robert C. Bennett Senior Vice President and Chief Information Officer(2) | | 2013 | | 354,500 |
| | 100 |
| | 240,396 |
| | 34,000 |
| | 22,805 |
| | 651,801 |
|
| | | | | | | | | | | | | |
|
|
| | | | | | | | | | | | | | |
____________
| |
(1)
| Mr. Dozier joined the Bank as executive vice president and chief business officer effective June 6, 2011. The 2011 amounts reported for Mr. Dozier reflect his partial year of service. |
| |
(2)
| Mr. Bennett was not a named executive officer in 2012 or 2011. |
| |
(3)
| The amounts in column (d) reflect an annual $100 employee appreciation bonus provided to all employees of the Bank. The Bank provides the named executive officers a tax gross-up on this bonus, which amount is included in column (g). The 2013 bonus amount for Mr. McMullan and the 2011 bonus amounts for Mr. Malmberg and Ms. Adams also include award payments of $1,000, $250 and $1,000, respectively, under the Bank's Service Award Program to recognize employees with five or more years of service. The Service Award Program is administered by the Bank's human resources department and is available to all employees of the Bank under the same general terms and conditions. To the extent the Bank provided a tax gross-up on such awards, those amounts are included in column (g). |
| |
(4)
| The amounts in column (e) reflect the dollar value of all earnings for services performed during the fiscal years ended December 31, 2013, 2012, and 2011 pursuant to awards under the ICP, subject to certain mandatory deferral requirements. In 2011 and 2012, thirty-four percent and fifty percent, respectively, of the ICP awards for such year was subject to mandatory deferral over three years. Fifty percent of the 2013 ICP awards is subject to mandatory deferral over three years. As discussed in the Compensation Discussion and Analysis, the 2013 non-equity incentive compensation awards are subject to a 30 day review period and receipt of non-objection by the Finance Agency. The Bank received written non-objection from the Finance Agency on February 27, 2014. The amounts in column (e) also include the dollar value of all interest during each year earned on Deferred Incentive related to ICP awards for prior fiscal years. |
| |
(5)
| The amounts in column (f) reflect the sum of (i) the actuarial increase during each fiscal year in present value of the named executive officer's aggregate pension benefits under the Bank's Qualified and Excess Plans, computed as described in footnote (1) to the 2013 Pension Benefits table, and (ii) all "above market" earnings earned under the Bank's non-qualified deferred compensation plans. Under SEC rules, "above-market" earnings result when deferrals are credited with interest in excess of 120 percent of the Applicable Federal Rate. The 2013 above-market amounts for Mr. McMullan, Mr. Malmberg, and Ms. Adams were $640, $730, and $348, respectively. Ms. Adams had an actuarial decrease of $8,000 for 2013, which is not included in this column. These plans are described in greater detail below under “Pension Benefits” and “Deferred Compensation.” |
(6) The amounts in column (g) for 2013 consist of the following amounts:
|
| | | | | | | | | | | | | | | | | | | | |
| Name | | Contributions under the Bank's qualified 401(k) Plan (1) | | Matching contributions under the Bank's non-qualified defined contribution benefit equalization plan | | Perquisite(2) | | Tax Gross-ups | | Total |
| W. Wesley McMullan | | $ | 14,175 |
| | $ | 26,775 |
| | $ | 18,480 |
| | $ | 550 |
| | $ | 59,980 |
|
| | | | | | | | | | | |
| Kirk R. Malmberg | | 9,666 |
| | 16,014 |
| | — |
| | 50 |
| | 25,730 |
|
| | | | | | | | | | | |
| Cathy C. Adams | | 9,554 |
| | 15,286 |
| | 280 |
| | 38 |
| | 25,158 |
|
| | | | | | | | | | | |
| Robert F. Dozier, Jr. | | 25,500 |
| | — |
| | — |
| | 50 |
| | 25,550 |
|
| | | | | | | | | | | |
| Robert C. Bennett | | 15,300 |
| | 5,970 |
| | 1,485 |
| | 50 |
| | 22,805 |
|
____________
(1) The Bank provided Mr. Dozier with $15,300 in matching 401(k) contributions and $10,200 in automatic 401(k) contributions.
(2) Perquisites are valued at the actual amounts paid by the Bank, and the value of each perquisite for each executive was less than $25,000. The Bank provides Mr. McMullan reimbursement for travel-related expenses (Global Entry Application Fee and Delta Crown Room membership), as well as a $1,500 per month car allowance. The Bank provided Ms. Adams reimbursement for guest travel to certain business functions and Mr. Bennett reimbursement for legal and tax planning services.
Awards of Incentive Compensation in 2013
The following table provides information concerning each grant of an award to a named executive officer in 2013 under the ICP.
2013 Grants of Plan-Based Awards
|
| | | | | | | | | | | | |
Name
(a) | | Threshold
(b)(1) | | Target
(c)(1) | | Maximum
(d)(1) |
| W. Wesley McMullan | | $ | 218,400 |
| | $ | 436,800 |
| | $ | 655,200 |
|
| Kirk R. Malmberg | | 107,000 |
| | 214,000 |
| | 321,000 |
|
| Cathy C. Adams | | 103,500 |
| | 207,000 |
| | 310,500 |
|
| Robert F. Dozier, Jr. | | 102,250 |
| | 204,500 |
| | 306,750 |
|
| Robert C. Bennett | | 77,990 |
| | 152,435 |
| | 230,425 |
|
____________
| |
(1)
| Columns (b-d) reflect threshold, target, and maximum payment opportunities under the Bank's ICP for the fiscal year ended December 31, 2013. The actual amounts earned pursuant to the ICP during 2013 are reported under column (e) of the summary compensation table. Fifty percent of the actual amount earned is subject to mandatory deferral. For information on these awards, see “Compensation Discussion and Analysis.” |
Retirement Benefits
The named executive officers are eligible to participate in certain tax-qualified and non-qualified defined benefit pension plans and defined contribution and deferred compensation plans. These plans are described in more detail below in the sections entitled "Executive Compensation -- Pension Benefits" and "--Deferred Compensation."
The Bank's retirement benefit plans are a vital component of the Bank's retention strategy for executive officers, particularly because many other competing organizations provide executive officers with economic benefits based on equity interests in the employer, oftentimes in addition to similar retirement benefits.
Perquisites and Other Benefits
All named executive officers are eligible to participate in the benefit plans that are made available to all other employees of the Bank including medical, dental, and vision insurance coverage, group term life and long-term disability insurance coverage, paid vacation, and sick leave. The named executive officers generally participate in these plans on the same basis and terms as all other employees.
The Bank offers its named executive officers a limited number of perquisites, including an annual physical examination, guest travel to certain business functions, business club memberships, and financial planning services. For Mr. McMullan, the Bank also provides an automobile allowance of up to $1,500 per month. Because perquisites generally are limited, the board does not specifically consider perquisites when reviewing total compensation for any of the named executive officers.
Employment Arrangements and Severance Benefits
Other than the specific contractual arrangements discussed below, all Bank employees are employed under an “at will” arrangement. Accordingly, an employee may resign employment at any time, and the Bank may terminate the employee's employment at any time for any reason, with or without cause.
The board of directors may, in its discretion, provide severance benefits to an executive officer in the event of termination of his/her employment. In determining whether severance compensation is appropriate, the board of directors considers both the factors underlying the termination of employment and the employment history of the executive officer. The Bank does not provide a “gross up” benefit on taxes incurred with respect to any severance.
Employment Agreement. The Bank entered into an Employment Agreement with Mr. McMullan, effective January 1, 2014 (Employment Agreement). Under the Employment Agreement, Mr. McMullan's employment with the Bank may be terminated by the Bank with or without “cause,” or by Mr. McMullan with or without “good reason,” as defined in the Employment Agreement. Unless earlier terminated by either party as provided therein, the Employment Agreement has a three-year term and will extend automatically for subsequent one-year periods unless either party elects not to renew. Pursuant to the Employment Agreement, the Bank provides Mr. McMullan with a $1,500 per month automobile allowance. Mr. McMullan is entitled to participate in all incentive, savings, and retirement plans and programs available to senior executives of the Bank. The Employment Agreement also provides for certain severance benefits for Mr. McMullan, which are discussed below under "Potential Payments upon Termination or Change in Control." This severance arrangement was an integral and necessary component of the Bank's strategy to recruit Mr. McMullan to the president and chief executive officer position.
Severance Plan. Effective January 1, 2017, the Bank adopted an Executive Change in Control Severance Plan (Severance Plan). The purpose of the Severance Plan is to facilitate the hiring and retention of senior executives capable of executing the Bank’s strategic priorities, to ensure their continued dedication to the Bank notwithstanding the possibility of a change in control, and to provide them with certain protection and benefits in the event of certain termination events following a defined change in control of the Bank. The board has designated certain of the named executive officers as eligible to participate in the Severance Plan. The Severance Plan is discussed below under "Potential Payments upon Termination or Change in Control."
Report of the Board of Directors
The board of directors of the Bank has reviewed and discussed the Compensation Discussion and Analysis above with management, and based on such review and discussion, the board of directors has determined that the Compensation Discussion and Analysis above should be included in the Bank's Annual Report on Form 10-K.
The board of directors of the Bank has primary responsibility for establishing and determining the Bank's compensation program. Therefore, this report is submitted by the full board of directors.
BOARD OF DIRECTORS
|
| | |
| F. Gary Garczynski, Chairman | | Richard A. Whaley, Vice Chairman |
| Brian E. Argrett | | Jonathan Kislak |
| Travis Cosby, III | | LaSalle D. Leffall, III |
| Suzanne S. DeFerie | | Kim C. Liddell |
| R. Thornwell Dunlap, III | | Miriam Lopez |
| William C. Handorf | | John B. Rucker |
| Scott C. Harvard | | Robert L. Strickland, Jr. |
Executive Compensation
Summary Compensation Tables
The following table presents a summary of cash and other compensation earned by the named executive officers for the years ended December 31, 2016, 2015, and 2014. It is important to read this table, and the other tables that follow, closely and in conjunction with the Compensation Discussion and Analysis. The narratives following the tables and the footnotes accompanying each table are important parts of each table.
2016 Summary Compensation Table
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal
Position
(a) | | Year
(b) | | Salary
(c) | | Bonus (d) (1) | | Non-Equity
Incentive Plan
Compensation (e) (2) | | Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings (f) (3) | | All Other
Compensation (g) (4) | | Total
(h) |
W. Wesley McMullan
President and Chief Executive Officer | | 2016 | | $ | 800,000 |
| | $ | 100 |
| | $ | 799,865 |
| | $ | 1,871,447 |
| | $ | 69,688 |
| | $ | 3,541,100 |
|
| | 2015 | | 751,000 |
| | 100 |
| | 757,270 |
| | 498,478 |
| | 64,679 |
| | 2,071,527 |
|
| | 2014 | | 722,000 |
| | 100 |
| | 651,166 |
| | 2,545,955 |
| | 62,401 |
| | 3,981,622 |
|
Kirk R. Malmberg
Executive Vice President and Chief Financial Officer | | 2016 | | 495,000 |
| | 600 |
| | 401,882 |
| | 775,473 |
| | 32,682 |
| | 1,705,637 |
|
| | 2015 | | 473,000 |
| | 100 |
| | 387,308 |
| | 245,184 |
| | 29,244 |
| | 1,134,836 |
|
| | 2014 | | 455,000 |
| | 100 |
| | 327,033 |
| | 964,617 |
| | 28,301 |
| | 1,775,051 |
|
Cathy C. Adams
Executive Vice President and Chief Operations Officer | | 2016 | | 480,000 |
| | 1,100 |
| | 389,676 |
| | 1,123,030 |
| | 29,873 |
| | 2,023,679 |
|
| | 2015 | | 458,000 |
| | 100 |
| | 374,990 |
| | 335,020 |
| | 28,319 |
| | 1,196,429 |
|
| | 2014 | | 440,000 |
| | 100 |
| | 316,213 |
| | 1,556,293 |
| | 26,840 |
| | 2,339,446 |
|
Robert F. Dozier, Jr.
Executive Vice President and Chief Business Officer | | 2016 | | 475,000 |
| | 200 |
| | 385,605 |
| | 67,000 |
| | 28,614 |
| | 956,419 |
|
| | 2015 | | 453,000 |
| | 100 |
| | 370,880 |
| | 38,000 |
| | 29,352 |
| | 891,332 |
|
| | 2014 | | 435,000 |
| | 100 |
| | 311,992 |
| | 66,000 |
| | 26,050 |
| | 839,142 |
|
| Robert S. Kovach Senior Vice President and Chief Credit Officer | | 2016 | | 390,000 |
| | 100 |
| | 278,317 |
| | 190,000 |
| | 23,491 |
| | 881,908 |
|
| | | | | | | | | | | | | | |
____________
(1) The amounts in column (d) reflect an annual $100 employee appreciation bonus provided to all employees of the Bank. The Bank provides the named executive officers a tax gross-up on this bonus, which amount is included in column (g). The 2016 bonus amounts for Ms. Adams and Messrs. Malmberg and Dozier also includes an award payment of $1,000, $500 and $100, respectively, under the Bank's Service Award Program to recognize employees with five or more years of service. The Service Award Program is administered by the Bank's human resources department and is available to all employees of the Bank under the same general terms and conditions. To the extent the Bank provided a tax gross-up on such awards, those amounts are included in column (g).
(2) The amounts in column (e) reflect the dollar value of all earnings for services performed during the fiscal years ended December 31, 2016, 2015, and 2014 pursuant to awards under the ICP, even though a portion of those awards were subject to certain mandatory deferral requirements. Fifty percent of the ICP awards for each year were subject to mandatory deferral over three years. As discussed in the Compensation Discussion and Analysis, the 2016 non-equity incentive compensation awards were subject to a 30 day review period and receipt of non-objection by the Finance Agency. The Bank received written non-objection from the Finance Agency on February 6, 2017. The amounts in column (e) also include the dollar value of all interest during each year earned on Deferred Incentive related to ICP awards for prior fiscal years, in the following amounts for 2016: $28,585 for Mr. McMullan, $14,446 for Mr. Malmberg, $13,980 for Ms. Adams, $13,823 for Mr. Dozier, and $10,153 for Mr. Kovach.
(3) The amounts in column (f) reflect the sum of (i) the actuarial increase during each fiscal year in present value of the named executive officer's aggregate pension benefits under the Bank's Pension and Excess Plans, computed as described in footnote (1) to the 2016 Pension Benefits table, and (ii) all "above market" earnings earned under the Bank's non-qualified deferred compensation plans. Under SEC rules, "above-market" earnings result when deferrals are credited with interest in excess of 120 percent of the Applicable Federal Rate. The 2016 above-market amounts for Mr. McMullan, Mr. Malmberg, and Ms. Adams were $27,447, $1,473, and $2,030, respectively. These plans are described in greater detail below under “Pension Benefits” and “Deferred Compensation.”
(4) The amounts in column (g) for 2016 consist of the following amounts:
|
| | | | | | | | | | | | | | | | | | | | |
| Name | | Bank Contributions under the 401(k) Plan (1) | | Matching contributions under the Bank's non-qualified Defined Contribution Benefit Equalization Plan | | Perquisite (2) | | Tax Gross-ups (3) | | Total |
| W. Wesley McMullan | | $ | 14,769 |
| | $ | 33,231 |
| | $ | 21,638 |
| | $ | 50 |
| | $ | 69,688 |
|
| | | | | | | | | | | |
| Kirk R. Malmberg | | 15,900 |
| | 13,800 |
| | 2,891 |
| | 91 |
| | 32,682 |
|
| | | | | | | | | | | |
| Cathy C. Adams | | 15,900 |
| | 12,900 |
| | 736 |
| | 337 |
| | 29,873 |
|
| | | | | | | | | | | |
| Robert F. Dozier, Jr. | | 26,500 |
| | — |
| | 2,062 |
| | 52 |
| | 28,614 |
|
| | | | | | | | | | | |
| Robert S. Kovach | | 5,400 |
| | 18,000 |
| | 41 |
| | 50 |
| | 23,491 |
|
____________
(1) The Bank provided Mr. Dozier with $15,900 in matching 401(k) contributions and $10,600 in automatic 401(k) contributions.
(2) Perquisites are valued at the actual amounts paid by the Bank, and the value of each perquisite for each executive was less than $25,000. The Bank paid premiums for each NEO for the Bank's Business Travel Accidental Death and Dismemberment Policy. The Bank provided Mr. McMullan reimbursement for guest travel to certain business functions, executive health benefits and a $1,500 per month car allowance. The Bank provided Mr. Malmberg and Mr. Dozier reimbursement for executive health benefits. The Bank provided Ms. Adams reimbursement for an airline program membership.
(3) The tax gross-up amount represents Federal Insurance Contributions Act (FICA) tax on the $100 employee appreciation bonus provided to all employees of the Bank and the service awards provided to Ms. Adams, Mr. Malmberg and Mr. Dozier.
Awards of Incentive Compensation in 2016
The following table provides information concerning each grant of an award to a named executive officer in 2016 under the ICP.
2016 Grants of Plan-Based Awards
|
| | | | | | | | | | | | |
| | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards |
Name
(a) | | Threshold
(b) (1) | | Target
(c) (1) | | Maximum
(d) (1) |
| W. Wesley McMullan | | $ | 320,000 |
| | $ | 600,000 |
| | $ | 784,000 |
|
| Kirk R. Malmberg | | 148,500 |
| | 272,250 |
| | 396,000 |
|
| Cathy C. Adams | | 144,000 |
| | 264,000 |
| | 384,000 |
|
| Robert F. Dozier, Jr. | | 142,500 |
| | 261,250 |
| | 380,000 |
|
| Robert S. Kovach | | 93,600 |
| | 187,200 |
| | 273,000 |
|
____________
(1) Columns (b-d) reflect threshold, target, and maximum payment opportunities under the Bank's ICP for the fiscal year ended December 31, 2016. The actual amounts earned pursuant to the ICP during 2016 are reported under column (e) of the summary compensation table. Fifty percent of the actual amount earned is subject to mandatory deferral. For information on these awards, see “Compensation Discussion and Analysis.”
Retirement Benefits
Pension Benefits
The following 20132016 Pension Benefits table below provides information with respect to the Pentegra Plan, the Bank's tax-qualified pension plan (Qualified(Pension Plan), and the Bank's non-qualified excess benefit pension plan (Excess Plan). The table shows the actuarial present value of accumulated benefits as of December 31, 2013, payable to2016, for each of the named executive officers includingand the number of years of service credited to each named executive under each plan.
QualifiedPension Plan
The pension benefits payable under the QualifiedPension Plan are based on a pre-established defined benefit formula that provides for an annual retirement allowance and a retirement death benefit. A participant's benefit in the plan vests upon completion of five years of service with the Bank, and the participant then may retire under the plan at the times described below.
Employees hired on or before July 1, 2005
For participants hired on or before July 1, 2005, the QualifiedPension Plan generally provides an annual retirement allowance equal to 2.52.50 percent of the participant's highest consecutive three-year average compensation for each year of credited service under the plan (not to exceed 30 years). Average compensation is defined as base salary and annual short-term incentive compensation.
For these participants, the standard retirement age is 65, with reduced early retirement benefits available at age 45. If the participant continues to work for the Bank until the sum of the participant's age and years of service with the Bank equals at least 70, the annual benefit payable following retirement is reduced by 1.51.50 percent for each year that retirement precedes normal retirement age. If the participant terminates employment before the participant's age and years of service with the Bank total 70, the annual benefit payable following retirement is reduced by six percent for each year between age 6564 and 60, by four percent for each year between age 6059 and 55, and by three percent for each year between age 5554 and 45, in each case, that retirement precedes normal retirement age. For these participants, lump sum payments are available beginning at age 50.
Mr. McMullan, Mr. Malmberg, and Ms. Adams participate in the QualifiedPension Plan on these terms because they were hired on or before July 1, 2005. AsEach of March 15, 2013, each of Mr. McMullan, Mr. Malmberg, and Ms. Adams hadthem has attained eligibility for immediate early retirement.
Employees hired between July 1, 2005, and March 1,February 28, 2011
For participants hired between July 1, 2005, and March 1,February 28, 2011, the QualifiedPension Plan generally provides an annual retirement allowance equal to 1.51.50 percent of the participant's highest consecutive five-year average compensation for each year of credited service under the plan (not to exceed 30 years). Average compensation is defined as base salary only. For these participants, the standard retirement age is 65, with reduced early retirement benefits available at age 55. If the participant terminates employment before reaching age 65, the annual benefit payable following retirement is reduced by six percent for each year between age 65 and 60, by four percent for each year between age 60 and 55, in each case, that retirement precedes normal retirement age. For these participants, lump sum payments are not available. Mr. BennettKovach, hired in 2010, participates in the QualifiedPension Plan under these terms because he was hired January 2009.and has satisfied the plan vesting requirements, but is not eligible for immediate early retirement.
Employees hired on or after March 1, 2011
The QualifiedPension Plan was closed to new participants effective March 1, 2011. Accordingly, Mr. Dozier does not participate in the QualifiedPension Plan.
Excess Plan
Payments under the QualifiedPension Plan may be limited due to federal tax code limitations. The Excess Plan exists to restore those benefits that executives otherwise would forfeit due to these limitations. The Excess Plan operates using the same benefit formula and retirement eligibility provisions as described above under the QualifiedPension Plan. Because the Excess Plan is a non-qualified plan, the benefits received from this plan do not receive the same tax treatment and funding protection associated with the QualifiedPension Plan.
Mr. Dozier participates solely in the Excess Plan because he was hired after March 1, 2011. As approved by the board of directors, Mr. Dozier participates in the Excess Plan to the same extent as if he were participating in the QualifiedPension Plan (as if he was an employee hired between July 1, 2005, and March 1,February 28, 2011). Based on his length of employment, Mr. Dozier has not yet satisfied the plan vesting requirements, and thereforebut is not yet eligible to retire under the Excess Plan.for immediate early retirement.
Death Benefits
Death benefits, which do not vary based on date of hire, also are available under the QualifiedPension Plan and the Excess Plan. If an employee dies while in active service, his/her beneficiary is entitled to a lump sum amount equal to the commuted value of 120 monthly retirement payments. If a former employee dies while in retirement, having elected the normal form of retirement benefits, his/her beneficiary also is entitled to a lump sum amount equal to the commuted value of 120 monthly retirement payments less payments received before the former employee died.
20132016 Pension Benefits
| | Name
(a) | | Plan Name
(b) | | Number of Years of
Credited Service
(c) | | Present Value of
Accumulated Benefit(1)(d) | | Payments during last fiscal year
(e) | | Plan Name
(b) | | Number of Years of
Credited Service
(c) | | Present Value of
Accumulated Benefit (d) (1) | | Payments during last fiscal year
(e) |
| W. Wesley McMullan | | Qualified Plan | | 25.8 | | $ | 1,053,000 |
| | $ | — |
| | Pension Plan | | 28.8 | | $ | 1,692,000 |
| | $ | — |
|
| | | Excess Plan | | 25.8 | | 3,020,000 |
| | — |
| | Excess Plan | | 28.8 | | 7,230,000 |
| | — |
|
Kirk R. Malmberg(2) | | Qualified Plan | | 16.8 | | 737,000 |
| | — |
| | Pension Plan | | 19.8 | | 1,261,000 |
| | — |
|
| | | Excess Plan | | 16.8 | | 1,062,000 |
| | — |
| | Excess Plan | | 19.8 | | 2,520,000 |
| | — |
|
| Cathy C. Adams | | Qualified Plan | | 27.3 | | 1,374,000 |
| | — |
| | Pension Plan | | 30.0 | | 2,022,000 |
| | — |
|
| | | Excess Plan | | 27.3 | | 1,835,000 |
| | — |
| | Excess Plan | | 30.0 | | 4,199,000 |
| | — |
|
Robert F. Dozier, Jr. | | Qualified Plan | | — | | — |
| | — |
| | Pension Plan | | — | | — |
| | — |
|
| | | Excess Plan | | 1.5 | | 43,000 |
| | — |
| | Excess Plan | | 4.5 | | 214,000 |
| | — |
|
| Robert C. Bennett | | Qualified Plan | | 3.9 | | 140,000 |
| | — |
| |
Robert S. Kovach (2)
| | | Pension Plan | | 30.0 | | 1,229,000 |
| | — |
|
| | | Excess Plan | | 3.9 | | 53,000 |
| | — |
| | Excess Plan | | 30.0 | | 399,000 |
| | — |
|
____________
| |
(1)The “Present Value of Accumulated Benefit” is the present value of the annual pension benefit that was earned as of December 31, 2016, assuming retirement at age 65. Benefits under the Pension Plan were calculated using a 4.14 percent discount rate; 4.17 percent was used to calculate benefits under the Excess Plan. (2) In accordance with plan provisions, the years of credited service for Mr. Malmberg include 4.0 years credited for prior service earned while employed by FHLBank Chicago and for Mr. Kovach include 23.8 years credited for prior service earned while employed by FHLBank Pittsburgh. The incremental value of this prior service, as valued in the Bank's Excess Plan, using the methodology described in note 1, is $511,000 for Mr. Malmberg and $316,000 for Mr. Kovach. (3) As noted above, Mr. Dozier is not eligible to participate in the Pension Plan.
| The “Present Value of Accumulated Benefit” is the present value of the annual pension benefit that was earned as of December 31, 2013, assuming retirement at age 65. Benefits under the Qualified Plan were calculated using a 4.95 percent discount rate; 5.04 percent was used to calculate benefits under the Excess Plan. |
| |
(2)
| In accordance with plan provisions, the years of credited service for Mr. Malmberg include 4.0 years credited for prior service earned while employed by FHLBank Chicago. The incremental value of this prior service, as valued in the Bank's Excess Plan, using the methodology described in note 1, is $254,000. |
Deferred Compensation
Each named executive officer of the Bank is eligible to participate in the Bank's non-qualified, elective deferred compensation plan. Each named executive officer is also eligible to participate in the non-qualified defined contribution benefit equalization plan (DC BEP), with the exception of Mr. Dozier.(DCBEP). Directors are eligible to participate in the deferred compensation plan but are not eligible to participate in the DC BEP.
DCBEP.
The deferred compensation plan permits a participant to defer all or a portion of his/her compensation, including base salary and awards under the ICP, and to directselect the method of determining the earnings on such deferred compensation, intobased on a range of mutual fund options designed to mirror the Bank's 401(k) Plan. Directors, and beginning in 2014, all deferredDeferred compensation plan participants also may select an interest crediting rate based on the Bank's return on equity. Distributions from the deferred compensation plan may be made either in a specific year, whether or not a participant's employment has ended, or at a time that begins at or after the participant's retirement or separation. Participants may elect to receive either a lump sum distribution or annual installment payments over periods ranging from two to five years. The Bank does not match contributions to the deferred compensation plan. Mr. McMullan, Mr. Malmberg and Ms. Adams participated in the deferred compensation plan for the year ended December 31, 2013.
2016.
Named executive officers also are permitted to defer up to 4040.0 percent of salary under the Bank's qualified (401(k))401(k) Plan and non-qualified (DC BEP) plans. In addition, the DCBEP. The Bank matches the amount contributed by a participating employee on the firstparticipant up to six percent of his/her base salary. For employees hired on or after March 1, 2011, including Mr. Dozier, the Bank automatically contributes four percent of his/her base salary into the 401(k) planPlan on behalf of the employee, regardless of whetherin addition to the employee makes his/her own contribution. six percent match described above.
All Bank contributions to the DCBEP are subject to a two-year vesting period.
The DC BEP,DCBEP, like the 401(k) plan,Plan, is self-directed and provides participants with a range of mutual fund options through the Vanguard Group. Participants earn a market rate of return based on the mutual funds selected. Distributions from the DC BEPDCBEP begin when a participant's employment has ended. Participants may elect to receive either a lump sum distribution or annual installment payments over periods ranging from two to five years. These plans are designed to encourage additional voluntary savings and to offer a valuable financial planning tool.
The board amended the DCBEP, effective January 1, 2017, to:
increase the amount that the Bank contributes to Mr. Dozier under the Bank’s 401(k) Plan and DCBEP by two percent;
permit Mr. Dozier to participate in the DCBEP outside of the 401(k) benefit limits imposed by the Internal Revenue Service; and
provide an additional contribution by the Bank of 12% of Mr. Dozier’s incentive compensation plan awards to the DCBEP.
In addition, the amendments provided that Mr. Dozier shall be deemed to have satisfied the plan vesting requirements.
The amounts shown in thefollowing table below includepresents compensation earned and deferred in 2013,2016, and earnings on, or distributions of, such amounts. In accordance with SEC rules, the amounts shown in the table do not include any amounts in respect of the 401(k) plan.Plan.
20132016 Nonqualified Deferred Compensation
Defined Contribution Benefit Equalization Plan (DC BEP)
| | Name
(a) | | Executive Contributions in Last Fiscal Year
(b)(1) | | Bank
Contributions in Last Fiscal Year
(c)(2) | | Aggregate Earnings
In Last Fiscal Year
(d)(3) | | Aggregate
Withdrawals / Distributions
(e) | | Aggregate Balance
at Last FYE
(f) | | Executive Contributions in Last Fiscal Year
(b) (1) | | Bank
Contributions in Last Fiscal Year
(c) (2) | | Aggregate Earnings
In Last Fiscal Year
(d) (3) | | Aggregate
Withdrawals / Distributions
(e) | | Aggregate Balance
at Last Fiscal Year End
(f) (4) |
| W. Wesley McMullan | | $ | 45,250 |
| | $ | 26,775 |
| | $ | 51,873 |
| | $ | — |
| | $ | 445,968 |
| | $ | 419,484 |
| | $ | 33,231 |
| | $ | 129,705 |
| | $ | — |
| | $ | 2,314,122 |
|
| Kirk R. Malmberg | | 41,200 |
| | 16,014 |
| | 138,887 |
| | — |
| | 617,409 |
| | 75,000 |
| | 13,800 |
| | 92,742 |
| | — |
| | 1,026,975 |
|
| Cathy C. Adams | | 39,100 |
| | 15,286 |
| | 106,041 |
| | — |
| | 659,876 |
| | 196,800 |
| | 12,900 |
| | 73,015 |
| | (16,695 | ) | | 1,205,734 |
|
| Robert F. Dozier, Jr. | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Robert C. Bennett | | 1,815 |
| | 5,970 |
| | 7,942 |
| | — |
| | 45,144 |
| |
| Robert S. Kovach | | | 93,000 |
| | 18,000 |
| | 90,485 |
| | — |
| | 837,247 |
|
____________
(1) Amounts under column (b) are included in salary reported for 20132016 in column (c) of the 20132016 Summary Compensation Table for all named executive officers, except for Mr. McMullan, for whom $56,000 is included in salary reported for column (c) of the 2016 Summary Compensation Table and $363,484 is included in non-equity incentive plan compensation reported in column (e) of the 2016 Summary Compensation Table.
(2) Amounts under column (c) are included in all other compensation amounts reported for 20132016 in column (g) of the 20132016 Summary Compensation Table.
(3) Amounts under column (d) reflect actual market returns for mutual funds selected by participants and interest credit received under the Bank's core economic income return on equity interest crediting rate.
(4) To the extent that a participant was a named executive officer in prior years, executive and Bank contributions included in the “Aggregate Balance at Last Fiscal Year End” column have been reported as compensation in the Summary Compensation Table for the applicable year.
Potential Payments upon Termination or Change in Control
No executive officer has a change-in-control agreement with the Bank. With the exception of McMullan Employment Agreement
Mr. McMullan, none of the current executive officers has a severance arrangement with the Bank.
For Mr. McMullan, the board approved a severance arrangement providingMcMullan's Employment Agreement provides that upon the Bank's termination of his employment for any reason other than “cause,” or upon Mr. McMullan's termination of his employment for “good reason,” the Bank shall pay a total of one year's base salary in effect at the date of termination in a lump sum within 30 days after Mr. McMullan executes and delivers a general release of termination,claims to the Bank, plus an amount equal to the amount that would have been payable pursuant to Mr. McMullan's incentive compensation award for the year in which the date of termination occurs, prorated based upon the number of days Mr. McMullan was employed that year. The incentive compensation award is based on the Bank's actual performance for the year in which termination occurs and is payable at the time such incentive compensation awards are paid to other senior executives.
In addition, Mr. McMullan is entitled to receive certain healthcare replacement costs and other amounts required to be paid or provided under any other Bank plan, program, policy or practice or contract or agreement.
Under Mr. McMullan's Employment Agreement, “cause” is defined to include Mr. McMullan's willful failure to perform substantially his duties; his willful engagement in illegal conduct or gross misconduct injurious to the Bank; a written request from the Finance Agency or any other regulatory agency or body requesting that the Bank terminate his employment; crimes involving a felony, fraud or other dishonest acts; certain other notices from or actions by the Finance Agency; or his breach of fiduciary duty or breach of certain covenants in the Employment Agreement; his refusal to comply with a lawful directive from the Chairman of the board of directors or from the board of directors; or his material breach of the Employment Agreement. In addition, theThe Employment Agreement defines “good reason” to include a material diminution in Mr. McMullan's base salary or in his authority, duties, or responsibilities, or the authority, duties, or responsibilities of the person to whom Mr. McMullan reports;authority; the Bank requiring Mr. McMullan to be based at any office or location other than in Atlanta, Georgia; or a material breach of the Employment Agreement by the Bank.
The following table providespresents information about potential payments to Mr. McMullan under his Employment Agreement in the event his employment had terminated on December 31, 2013.2016. He is not entitled to any tax gross-up payments in the event of termination, whether under the 280G "golden parachute" tax rules or otherwise. None of the other executive officers had a severance arrangement with the Bank in 2016.
| | Potential Payments upon Termination | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cause | | Severance | | Medical, Dental, and Life Insurance Benefits | | Pension Benefit Enhancements | | Other Perquisites | | Total | | Severance | | Medical, Dental, and Vision Insurance Benefits | | Pension Benefit Enhancements | | Other Perquisites | | Total |
| | 2013 ICP Award | | Deferred Incentive for Prior Periods | | Annual Base Salary | | 2016 ICP Award | | Deferred Incentive for Prior Periods (1) | | Annual Base Salary |
| Resignation without Good Reason | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Involuntary For Cause | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Involuntary Without Cause | | 655,200 |
| | 507,966 |
| | 682,500 |
| | — |
| | — |
| | — |
| | 1,845,666 |
| |
| Involuntary Termination For Cause | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Involuntary Termination Without Cause | | | 771,280 |
| | 729,215 |
| | 800,000 |
| | 47,143 |
| | — |
| | — |
| | 2,347,638 |
|
| Resignation For Good Reason | | 655,200 |
| | 507,966 |
| | 682,500 |
| | — |
| | — |
| | — |
| | 1,845,666 |
| | 771,280 |
| | 729,215 |
| | 800,000 |
| | 47,143 |
| | — |
| | — |
| | 2,347,638 |
|
____________
(1) Mr. McMullan has reached a combination of age and years of service to the Bank totaling at least 70.
The other named executive officers are entitled to receive amounts earned during their terms of employment, regardless of the manner in which their employment terminated, on the same terms generally applicable to all employees of the Bank. These amounts include:
Severance, if and as determined at the sole discretion of the board.
Amounts accrued and vested through the Bank's QualifiedPension Plan and the Excess Plan (the Bank's qualified and non-qualified defined benefit plans). Up to three months of incremental service under the Bank's pension planPension Plan may be granted, in the sole discretion of the board, if an employee is provided with severance pay.
Amounts accrued and vested through the 401(k) Plan and the DC BEPDCBEP (the Bank's qualified and non-qualified defined contribution plans) and amounts contributed and associated earnings under the Bank's deferred compensation plan.
Accrued vacation and applicable retiree medical benefits and applicable retiree life insurance.
In the event of the death or disability of an employee, including a named executive officer, in conjunction with the benefits above, the employee or his/her beneficiary may receive benefits under the Bank's disability plan or payments under the Bank's life insurance plan, as appropriate. Named executive officers also are entitled to receive death benefit payments under the Pension Plan and the Excess Plan, as described under "Retirement Benefits--Death Benefits."
Severance Plan
Effective January 1, 2017, the Bank adopted an Executive Change in Control Severance Plan (Severance Plan).
Overview of the Severance Plan
The Severance Plan provides certain protection and benefits in the event of a Qualifying Termination(as defined below) following a Change in Control (as defined below). The Severance Plan applies to employees or officers who are designated by the Bank’s board of directors as participants. The Bank’s board designated Messrs. McMullan, Malmberg and Dozier, and Ms. Adams, as participants in the Severance Plan.
Qualifying Termination
“Qualifying Termination” means any separation, termination or other discontinuation of the employment relationship between the Bank and a participant, (A) by the Bank, other than for“cause” (as defined in the Severance Plan); or (B) by the participant, for “good reason” (as defined in the Severance Plan), but does not include a termination resulting from the participant’s death or disability.
The Severance Plan defines “cause” to include:
the participant’s failure to perform substantially his/her duties;
the participant’s engagement in illegal conduct or willful misconduct injurious to the Bank;
the participant’s material violation of law or regulation or of the Bank’s written policies or guidelines;
a written request from the Finance Agency requesting that the Bank terminate the participant’s employment;
crimes involving a felony, fraud or other dishonest acts;
certain other notices from or actions by the Finance Agency;
the participant’s breach of fiduciary duty or breach of certain covenants in the Severance Plan; and
the participant’s refusal to comply with a lawful directive from the chief executive officer or the board of directors.
The Severance Plan defines “good reason” to include:
a material diminution in the participant’s base salary or in his/her duties or authority;
the Bank requiring the participant to be based at any office or location other than in Atlanta, Georgia; or
or a material breach of the Severance Plan by the Bank.
Under the terms of the Severance Plan, if there is a Qualifying Termination during the period beginning on the earliest of the date a definitive agreement or order for a Change in Control has been entered, or the effective date of a Change of Control as prescribed by the Finance Agency, and ending, in all cases, twenty-four (24) months following the effective date of the Change in Control, the participant becomes entitled to certain severance payments and benefits.
These payments and benefits include the following:
The chief executive officer would receive a cash payment equal to 2.5 times his/her annual base salary amount.
An executive vice president would receive a cash payment equal to 1.75 times his/her annual base salary amount.
Participants would receive a lump sum cash payment equal to the amount that would have been payable pursuant to the participant’s incentive compensation award for the year in which the date of a Qualifying Termination occurs, prorated based on the number of days the participant was employed that year.
Participants would receive a lump sum cash payment for outplacement assistance in the amount of $7,500.
In addition, the chief executive officer would receive a cash payment equivalent to 24 months of health continuation coverage, and executive vice presidents would receive a cash payment equivalent to 18 months of health continuation coverage.
The Severance Plan defines a “Change in Control” as:
the merger, reorganization, or consolidation of the Bank with or into, or acquisition of the Bank by, another Federal Home Loan Bank or other entity;
the sale or transfer of all or substantially all of the business or assets of the Bank to another Federal Home Loan Bank or other entity; or
a change in the composition of the Bank’s board that causes the combined number of member directors from the jurisdictions of Alabama, the District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina and Virginia to cease to constitute a majority of the Bank’s directors; or
the Bank’s liquidation or dissolution.
The payments described above are payable in a lump sum within sixty (60) days following the participant’s employment termination date, except the prorated incentive compensation award, which is payable at the time such incentive compensation awards are paid to other senior executives. All payments and benefits are conditioned on the executive having delivered an irrevocable general release of claims against the Bank before payment occurs. In addition, all payments and benefits remain subject to the Bank’s compliance with any applicable statutory and regulatory requirements relating to the payment of amounts under the Severance Plan.The Severance Plan requires that an individual execute a participation agreement to become a participant in the Severance Plan. Messrs. McMullan, Malmberg and Dozier, and Ms. Adams, each executed a participation agreement to become participants in the Severance Plan, effective January 1, 2017.
Director Compensation
The FHLBank Act provides that each FHLBank may pay its directors reasonable compensation for the time required of them, and their necessary expenses, in the performance of their duties, subject to approval by the Director. In accordance with the FHLBank Act, the Bank has adopted a policy governing the compensation and travel expense reimbursement provided to its directors. Under this policy, directors receive fees paid for attendance at each meeting of the board of directors and meeting of a committee of the board of directors, as further described below. These fees are subject to the annual caps established under the policy. Directors do not receive separate retainers.
Directors are reimbursed for reasonable Bank-related travel expenses associated with meeting attendance in accordance with Bank policy. In specified instances, the Bank may reimburse a director for the transportation and other ordinary travel expenses of the director's guest. Totalguest; in 2016, these expenses paid under Bank policy in 2013 were $44,016.totaled $30,044.
During 2013,2016, directors received fees for attendance at each board and committee meeting as described below. The following table presents the annual compensation limits applied.
20132016 Annual Director Compensation Limits
| | | Title | | Amount | | Amount |
| Chairman of the Board | | $ | 70,000 |
| | $ | 100,000 |
|
| Vice Chairman of the Board | | 65,000 |
| | 95,000 |
|
| Chairman of the Audit Committee | | 65,000 |
| | 95,000 |
|
| Other Committee Chairmen (other than Audit and Executive) | | 60,000 |
| |
| Other Committee Chairmen (excluding Audit and Executive) | | | 90,000 |
|
| All Other Directors | | 55,000 |
| | 80,000 |
|
Under the 20132016 Directors' Compensation Policy, each director had an opportunity to receive a payment of approximately one-seventh of suchthat director's annual cap for attendance at no less than 7575.0 percent of the board meeting and meetings of each committee of the board on which the director serves during each interim period. The first interim period began on January 1, 2013December 14, 2015 and ended January 31, 201328, 2016 (the day of the first scheduled in-person board meeting for 2013)2016). Each successive interim period began on the calendar day immediately following a scheduled board meeting through and including the day of the next scheduled board meeting, with the seventh interim period ending on December 13, 201311, 2016 after the seventh scheduled in-person board meeting. Under the policy, after the end of the seventh interim period and before the seventh payment was made, the governance and compensation committee of the board reviewed the cumulative attendance and performance of each director during 20132016 and, in consultation with the chair of the board, recommended to the board a reduction, elimination or increase in the final payment opportunity. No increase could exceed the applicable annual compensation cap.
The following table sets forthpresents the cash and other compensation earned or paid by the Bank to the members of the board of directors for all services in all capacities during 2013.
2016.
|
| | | | | | | | | | | | | | | | |
| Director Compensation |
Name
(a) | | Fees Earned or Paid in Cash (b) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings (c)(2) | | All Other Compensation (d)(3) | | Total
(e) |
| John M. Bond, Jr. | | $ | 60,000 |
| | $ | 6,195 |
| | $ | 1,040 |
| | $ | 67,235 |
|
| W. Russell Carothers, II | | 55,000 |
| | — |
| | 79 |
| | 55,079 |
|
| F. Gary Garczynski | | 60,000 |
| | — |
| | 545 |
| | 60,545 |
|
Donna C. Goodrich(1) | | 70,000 |
| | — |
| | — |
| | 70,000 |
|
| William C. Handorf | | 65,000 |
| | — |
| | — |
| | 65,000 |
|
| J. Thomas Johnson | | 55,000 |
| | — |
| | — |
| | 55,000 |
|
Jonathan Kislak(1) | | 65,000 |
| | — |
| | — |
| | 65,000 |
|
| LaSalle D. Leffall, III | | 60,000 |
| | — |
| | 73 |
| | 60,073 |
|
| Miriam Lopez | | 60,000 |
| | — |
| | 777 |
| | 60,777 |
|
| John C. Neal | | 55,000 |
| | — |
| | — |
| | 55,000 |
|
| Henry Gary Pannell | | 55,000 |
| | 147 |
| | — |
| | 55,147 |
|
| Robert L. Strickland, Jr. | | 60,000 |
| | — |
| | — |
| | 60,000 |
|
| Thomas H. Webber, III | | 55,000 |
| | — |
| | 24 |
| | 55,024 |
|
Richard A. Whaley(4) | | 47,143 |
| | — |
| | 107 |
| | 47,250 |
|
|
| | | | | | | | | | | | | | | | |
| 2016 Director Compensation |
Name
(a) | | Fees Earned or Paid in Cash (b) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings (c) (1) | | All Other Compensation (d) (2) | | Total
(e) |
Brian E. Argrett(3) | | $ | 34,286 |
| | $ | — |
| | $ | 41 |
| | $ | 34,327 |
|
| Travis Cosby, III | | 80,000 |
| | — |
| | 1,041 |
| | 81,041 |
|
| Suzanne S. DeFerie | | 80,000 |
| | — |
| | 41 |
| | 80,041 |
|
| R. Thornwell Dunlap, III | | 80,000 |
| |
| | 3,041 |
| | 83,041 |
|
Michael P. Fitzgerald(3) | | 34,286 |
| | — |
| | 41 |
| | 34,327 |
|
| F. Gary Garczynski | | 100,000 |
| | — |
| | 3,041 |
| | 103,041 |
|
| William C. Handorf | | 90,000 |
| | — |
| | 1,541 |
| | 91,541 |
|
Jonathan Kislak(4) | | 95,000 |
| | — |
| | 3,041 |
| | 98,041 |
|
| LaSalle D. Leffall, III | | 90,000 |
| | — |
| | 1,041 |
| | 91,041 |
|
| Kim C. Liddell | | 80,000 |
| | — |
| | 41 |
| | 80,041 |
|
| Miriam Lopez | | 90,000 |
| |
| | 3,041 |
| | 93,041 |
|
| John C. Neal | | 90,000 |
| | — |
| | 3,041 |
| | 93,041 |
|
H. Gary Pannell(3) | | 45,714 |
| | 106 |
| | 41 |
| | 45,861 |
|
| Robert L. Strickland, Jr. | | 90,000 |
| | — |
| | 41 |
| | 90,041 |
|
| Richard A. Whaley | | 95,000 |
| | 522 |
| | 2,041 |
| | 97,563 |
|
____________
(1)At the request of the director, this amount was paid to a charity of his or her choosing.
(2) Directors are eligible to participate in the Bank's deferred compensation plan. Directors Dunlap, Lopez, Neal, Pannell and PannellWhaley elected to defer compensation during 2013.2016. Amounts reported for Directors BondPannell and PannellWhaley represent above-market earnings on amounts deferred during prior years.
(2) Represents premiums paid by the Bank for each director for the Bank's Business Travel Accidental Death and Dismemberment Policy and matching contributions under the Bank's Once For All Trust charitable matching contribution program.
(3) Directors may be reimbursed for certain guest transportation and other ordinary travel expenses.Director served a portion of 2016.
(4)Director Whaley At the request of the director, the amount in column (b) was elected by the boardpaid to a charity of directors effective March 6, 2013 to fill a vacant member director seat.his choosing.
In December 2013,September 2016, the board of directors approved the 20142017 Directors' Compensation Policy, which is substantially similar to the 20132016 policy, but increased thekeeping annual compensation limits at the 2016 level, as reflectedpresented in the following table.
20142017 Annual Compensation Limits
| | | Title | | Amount |
| | Amount |
|
| Chairman of the Board | | $ | 85,000 |
| | $ | 100,000 |
|
| Vice Chairman of the Board | | 80,000 |
| | 95,000 |
|
| Chairman of the Audit Committee | | 80,000 |
| | 95,000 |
|
| Other Committee Chairmen (other than Audit and Executive) | | 75,000 |
| |
| Other Committee Chairmen (excluding Audit and Executive) | | | 90,000 |
|
| All Other Directors | | 65,000 |
| | 80,000 |
|
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The Bank is a cooperative whose members own substantially all of the outstanding capital stock of the Bank and elect the directors of the Bank. The exclusive voting right of members is forgenerally limited to the election of the Bank's board of directors. A member is eligible to vote for the number of open member director seats in the state in which its principal place of business is located, and all members are eligible to vote for the number of open independent director seats. Membership is voluntary, and a member must give notice of its intent to withdraw from membership. A member that withdraws from membership may not acquire shares of any FHLBank before the end of the five-year period beginning on the date of the completion of its divestiture of Bank stock.
The Bank does not offer any compensation plan under which equity securities of the Bank are authorized for issuance. OwnershipThe following table presents the ownership of the Bank's capital stock, which is concentrated within the financial services industry and is stratified across various institution types as noted in the following table (in millions).
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Commercial Banks | | Thrifts | | Credit Unions | | Insurance Companies | | CDFIs | | Mandatorily Redeemable Capital Stock | | Total |
| December 31, 2013 | $ | 3,766 |
| | $ | 290 |
| | $ | 739 |
| | $ | 86 |
| | $ | 2 |
| | $ | 24 |
| | $ | 4,907 |
|
| December 31, 2012 | 3,641 |
| | 342 |
| | 810 |
| | 104 |
| | 1 |
| | 40 |
| | 4,938 |
|
| December 31, 2011 | 4,133 |
| | 675 |
| | 810 |
| | 98 |
| | 2 |
| | 286 |
| | 6,004 |
|
| December 31, 2010 | 5,273 |
| | 996 |
| | 847 |
| | 107 |
| | 1 |
| | 529 |
| | 7,753 |
|
| December 31, 2009 | 6,166 |
| | 1,026 |
| | 816 |
| | 116 |
| | — |
| | 188 |
| | 8,312 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Commercial
Banks | | Thrifts | | Credit
Unions | | Insurance
Companies | | CDFIs | | Mandatorily Redeemable Capital Stock | | Total |
| December 31, 2016 | $ | 3,393 |
| | $ | 366 |
| | $ | 1,100 |
| | $ | 94 |
| | $ | 2 |
| | $ | 1 |
| | $ | 4,956 |
|
| December 31, 2015 | 3,557 |
| | 368 |
| | 1,094 |
| | 81 |
| | 1 |
| | 14 |
| | 5,115 |
|
| December 31, 2014 | 3,821 |
| | 381 |
| | 872 |
| | 75 |
| | 1 |
| | 19 |
| | 5,169 |
|
| December 31, 2013 | 3,766 |
| | 290 |
| | 739 |
| | 86 |
| | 2 |
| | 24 |
| | 4,907 |
|
| December 31, 2012 | 3,641 |
| | 342 |
| | 810 |
| | 104 |
| | 1 |
| | 40 |
| | 4,938 |
|
The following table sets forthpresents information about those members that are beneficial owners of more than five percent of the Bank's capital stock as of February 28, 2014.2017.
| | | Name and Address | | Number of Shares Owned | | Percent of Total Capital Stock | | Number of Shares Owned | | Percent of
Total Capital Stock |
| Bank of America, National Association | | 11,455,760 |
| | 24.06 | | 13,117,079 |
| | 25.43 |
| 100 North Tryon Street | | | | | | |
| Charlotte, NC 28255 | | | | | | |
| Branch Banking and Trust Company | | 3,877,087 |
| | 8.14 | |
| 200 W 2nd Street | | | | |
| Winston Salem, NC 27104 | | | | |
| Navy Federal Credit Union | | 3,358,251 |
| | 7.05 | | 5,122,687 |
| | 9.93 |
| 820 Follin Lane | | | | | | |
| Vienna, VA 22180 | | | | | | |
| SunTrust Bank | | 3,131,744 |
| | 6.58 | |
| 25 Park Place | | | | |
| Atlanta, GA 30302 | | | | |
| Capital One, National Association | | | 3,029,700 |
| | 5.87 |
| 1680 Capital One Drive | | | | |
| McLean, VA 22102 | | | | |
Additionally, member directors, which comprise a majority of the board of directors of the Bank, are officers or directors of member institutions that own the Bank's capital stock. The following table listspresents these institutions as of February 28, 2014.2017.
|
| | | | | | | |
| Member Name | | City, State | | Number of Shares Owned | | Percent of Total Capital Stock |
| Branch Banking and Trust Company | | Winston Salem, NC | | 3,877,087 |
| | 8.14 |
| Union First Market Bank | | Richmond, VA | | 193,017 |
| | 0.41 |
| The Columbia Bank | | Columbia, MD | | 40,180 |
| | 0.08 |
| First Community Bank | | Lexington, SC | | 24,616 |
| | 0.05 |
| Marquis Bank | | Coral Gables, FL | | 5,655 |
| | 0.01 |
| First Community Bank of Central Alabama | | Wetumpka, AL | | 3,533 |
| | 0.01 |
| Citizens Bank of Americus | | Americus, GA | | 2,903 |
| | 0.01 |
| Citizens Building and Loan, SSB | | Greer, SC | | 1,450 |
| | * |
|
| | | | | | | |
| Member Name | | City, State | | Number of Shares Owned | | Percent of Total Capital Stock |
| Asheville Savings Bank, S.S.B. | | Asheville, NC | | 28,286 |
| | 0.05 |
| Marquis Bank | | Coral Gables, FL | | 14,592 |
| | 0.03 |
| Countybank | | Greenwood, SC | | 7,892 |
| | 0.02 |
| Community Bankers' Bank | | Midlothian, VA | | 6,560 |
| | 0.01 |
| First Bank | | Strasburg, VA | | 6,229 |
| | 0.01 |
| Citizens Bank of Americus | | Americus,GA | | 5,288 |
| | 0.01 |
| First Community Bank of Central Alabama | | Wetumpka, AL | | 3,021 |
| | 0.01 |
| 1880 Bank | | Cambridge, MD | | 2,847 |
| | 0.01 |
| City First Bank of D.C., N.A. | | Washington, DC | | 2,314 |
| | * |
____________
* Represents less than 0.01 percent.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Because the Bank is a cooperative, capital stock ownership is a prerequisite for a member to transactingtransact any business with the Bank. The Bank's member directors are officers or directors of member institutions. As a result, all membersAll directors and most directors would beany member that holds five percent or more of the Bank's voting securities are classified as related parties as defined by securities law andunder SEC regulations. In the ordinary course of its business, the Bank transactsmay transact business with each of the members that has an officer or director serving as a director of the Bank.Bank and members that hold five percent or more of the Bank's voting securities. All such transactions:
have been made in the ordinary course of the Bank's business;
have been made subject to the same Bank policies as transactions with the Bank's members generally; and
in the opinion of management, do not involve more than the normal risk of collection or present other unfavorable features.
The Bank has adopted a written related person transaction policy, which requires the Governance and Compensation Committee of the board of directors to review and, if appropriate, to approve any transaction between the Bank and any related person (as defined by applicable SEC regulations). Pursuant to the policy, the committee will review any transaction the Bank would be required to disclose in filings with the SEC in which the Bank is or will be a participant and the amount involved exceeds $120,000, and in which any related person had, has, or will have a direct or indirect material interest. The Bank has exemptive relief, pursuant to an SEC no-action letter, from disclosing certain related person transactions that arise in the ordinary course
of the Bank's business. The committee may approve those transactions that are in, or are not inconsistent with, the best interests of the Bank and its shareholders.
In addition, the Bank has a written Code of Conduct applicable to all employees and a Code of Conduct and Ethics for Directors as well as other written policies and procedures that also may apply to or prohibit certain related person transactions.
Director Independence
For a discussion of director independence, refer to Item 10, Directors, Executive Officers and Corporate Governance-Director Independence, Compensation Committee, Audit Committee and Audit Committee Financial Expert.
Item 14. Principal Accountant Fees and Services.
The following table presents the aggregate fees billed to the Bank by PwC are set forth in the following table for each of the years ended December 31, 2013 and 2012 (in thousands).
| | | | For the Years Ended December 31, | For the Years Ended December 31, |
| | 2013 | | 2012 | 2016 | | 2015 |
Audit fees(1) | $ | 796 |
| | $ | 735 |
| $ | 841 |
| | $ | 838 |
|
Audit-related fees(2) | 58 |
| | 61 |
| 48 |
| | 47 |
|
All other fees(3) | — |
| | 4 |
| 8 |
| | 2 |
|
| Total fees | $ | 854 |
| | $ | 800 |
| $ | 897 |
| | $ | 887 |
|
____________
| |
(1) Audit fees and expenses for the years ended December 31, 2016 and 2015 were for professional services rendered by PwC in connection with the Bank's annual audits and quarterly reviews of the Bank's financial statements. (2) Audit-related fees and expenses for the years ended December 31, 2016 and 2015 were for certain FHLBank system assurance and related services, as well as fees related to PwC’s participation at conferences. (3) All other fees for the year ended December 31, 2016 were for non-audit services for a FHLBanks' project related to employee benefits and the annual license for PwC's accounting research software.
The Bank paid additional fees to PwC in the form of assessments paid to the Office of Finance. The Bank is assessed its proportionate share of the costs of operating the Office of Finance, which includes the expenses associated with the annual audits of the combined financial statements of the FHLBanks. These assessments, which totaled $60,870 and $60,569 in 2016 and 2015, respectively, are not included in the table above. | Audit fees and expenses for the years ended December 31, 2013 and 2012 were for professional services rendered by PwC in connection with the Bank's annual audits and quarterly reviews of the Bank's financial statements. |
| |
(2)
| Audit-related fees and expenses for the years ended December 31, 2013 and 2012 were for assurance and related services primarily related to accounting and consultations. |
| |
(3)
| All other fees for the year ended December 31, 2012 relate to the annual license for PwC's accounting research software. |
The Bank is exempt from federal, state, and local taxation. Therefore, no tax relatedtax-related fees were paid during the years ended December 31, 20132016 and 2012.2015.
The Audit Committee of the board of directors has adopted the Audit Committee Pre-Approval Policy (Pre-Approval Policy). In accordance with the Pre-Approval Policy and applicable law, the Audit Committee pre-approves audit services, audit-related services, tax services, and non-audit services to be provided by the Bank's independent registered public accounting firm. The term of any pre-approval is 12 months from the date of pre-approval unless the Audit Committee specifically provides otherwise. On an annual basis, the Audit Committee reviews the list of specific services and projected fees for services to be provided for the next 12 months and pre-approves services as the Audit Committee deems necessary. Under the Pre-Approval Policy, the Audit Committee has granted pre-approval authority to the Chairman and the Vice-Chairman of the Audit Committee, subject to limitation as set forth in the Pre-Approval Policy. The Chairman or the Vice-Chairman must report any pre-approval decisions to the Audit Committee at its next regularly scheduled meeting. New services that have not been pre-approved by the Audit Committee that are in excess of the pre-approval fee level established by the Audit Committee must be presented to the entire Audit Committee for pre-approval. In the years ended December 31, 20132016 and 2012,2015, 100 percent of the audit fees, audit-related fees, and all other fees were pre-approved by the Audit Committee.
PART IV.
Item 15. Exhibits and Financial Statement Schedules.
| |
| (a) | Financial Statements. The following financial statements of the Federal Home Loan Bank of Atlanta, set forth in Item 8 above, are filed as part of this Report. |
|
|
| Report of Independent Registered Public Accounting Firm |
Statements of Condition as of December 31, 20132016 and 20122015 |
Statements of Income for the Years Ended December 31, 2013, 2012,2016, 2015, and 20112014 |
Statements of Comprehensive Income for the Years Ended December 31, 2013, 2012,2016, 2015, and 20112014 |
Statements of Capital Accounts for the Years Ended December 31, 2013, 2012,2016, 2015, and 20112014 |
Statements of Cash Flows for the Years Ended December 31, 2013, 2012,2016, 2015, and 20112014 |
| Notes to Financial Statements |
| |
| (b) | Exhibits. The following exhibits are filed as a part of this Report: |
|
| | | | |
| Exhibit No. | Description | | |
| 3.1 | Amended and Restated Organization Certificate of the Federal Home Loan Bank of Atlanta1 | | |
| 3.2 | Bylaws of the Federal Home Loan Bank of Atlanta (Revised and Restated through October 25, 2012)January 28, 2016)12 | | |
| 4.1 | Capital Plan of the Federal Home Loan Bank of Atlanta23 | | |
| 10.1 | Federal Home Loan Bank of Atlanta Benefit Equalization Plan (2011 revision)(2017 restatement) 3* | | |
| 10.2 | Federal Home Loan Bank of Atlanta Deferred Compensation Plan (2009 revision)44* | | |
| 10.3 | Form of Officer and Director Indemnification Agreement55* | | |
| 10.4 | Federal Home Loan Bank of Atlanta 20142017 Directors' Compensation PolicyPolicy* | | |
| 10.5 | Federal Home Loan Bank of Atlanta Omnibus Annual Incentive Compensation Plan (as amended January 26, 2012)66* | | |
| 10.6 | Employment Agreement, effective as of January 1, 2014, between the Bank and W. Wesley McMullan7* | | |
| 10.7 | Federal Home Loan Bank of Atlanta Executive Change in Control Severance Plan, effective January 1, 2017 | | |
| 10.8 | Amended and Restated Federal Home Loan Banks P&I Funding and Contingency Plan Agreement, effective as of July 20, 2006,January 1, 2017, by and among the Office of Finance and each of the Federal Home Loan Banks7 | | |
10.810.9 | Amended Joint Capital Enhancement Agreement by and among each of the Federal Home Loan Banks8 | | |
| 12.1 | Statement regarding computation of ratios of earnings to fixed charges | | |
| 31.1 | Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | |
| 31.2 | Certification of the Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | |
| 32.1 | Certification of the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 135, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | |
| 99.1 | Audit Committee Report | | |
| 101 | Audited financial statements from the Annual Report on Form 10-K of Federal Home Loan Bank of Atlanta for the year ended December 31, 2013,2016, filed on March 14, 2014,9, 2017, formatted in XBRL: (i) the Statements of Condition, (ii) Statements of Income, (iii) the Statements of Capital, (iv) the Statements of Cash Flows and (v) the Notes to Financial Statements. | | |
| | |
| * Denotes management contract or compensatory plan. |
| 1 | Filed on October 26, 2012 with the SEC in the Bank's Form 8-K and incorporated herein by reference. |
| 2 | Filed on August 5, 2011February 1, 2016 with the SEC in the Bank's Form 8-K and incorporated herein by reference. | |
| 3 | Filed on March 23, 2012August 5, 2011 with the SEC in the Bank's Form 10-K8-K and incorporated herein by reference. | |
| 4 | Filed on March 30, 2009 with the SEC in the Bank's Form 10-K and incorporated herein by reference. | |
| 5 | Filed on March 17, 2006 with the SEC in the Bank's Form 10 Registration Statement and incorporated herein by reference. | |
| 6 | Filed on March 23, 2012 with the SEC in the Bank's Form 10-K and incorporated herein by reference. | |
| 7 | Filed on June 27, 2006March 14, 2014 with the SEC in the Bank's Form 8-K10-K and incorporated herein by reference. | |
| 8 | Filed on August 5, 2011 with the SEC in the Bank's Form 8-K and incorporated herein by reference. | |
Item 16. Form 10-K Summary.
157
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | |
| | | Federal Home Loan Bank of Atlanta |
| | | |
| Date: | March 14, 20149, 2017 | By/s/ W. Wesley McMullan |
| | | Name: W. Wesley McMullan Title: President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | |
| Date: | March 14, 20149, 2017 | By/s/ W. Wesley McMullan |
| | | Name: W. Wesley McMullan |
| | | Title: President and Chief Executive Officer |
| | |
| Date: | March 14, 20149, 2017 | By/s/Kirk R. Malmberg |
| | | Name: Kirk R. Malmberg |
| | | Title: Executive Vice President and Chief Financial Officer |
| | |
| Date: | March 14, 20149, 2017 | By/s/ J. Daniel CounceWilliam T. Shaw |
| | | Name: J. Daniel CounceWilliam T. Shaw |
| | | Title: SeniorFirst Vice President and Controller |
| | |
| Date: | March 14, 20149, 2017 | By/s/ Donna C. GoodrichF. Gary Garczynski |
| | | Name: Donna C. GoodrichF. Gary Garczynski |
| | | Title: Chairman of the Board of Directors |
| | |
| Date: | March 14, 20149, 2017 | By/s/ William C. HandorfRichard A. Whaley |
| | | Name: William C. HandorfRichard A. Whaley |
| | | Title: Vice Chairman of the Board of Directors |
| | |
| Date: | March 14, 20149, 2017 | By/s/ John M. Bond, Jr.Brian E. Argrett |
| | | Name: John M. Bond, Jr.Brian E. Argrett |
| | | Title: Director |
| | |
| Date: | March 14, 20149, 2017 | By/s/ Travis Cosby, III |
| | | Name: Travis Cosby, III |
| | | Title: Director |
| | |
| Date: | March 14, 201410, 2016 | By/s/ F. Gary GarczynskiSuzanne S. DeFerie |
| | | Name: F. Gary GarczynskiSuzanne S. DeFerie |
| | | Title: Director |
| | |
| Date: | March 14, 20149, 2017 | By/s/ J. Thomas JohnsonR. Thornwell Dunlap, III |
| | | Name: J. Thomas JohnsonR. Thornwell Dunlap, III |
| | | Title: Director |
| | |
| Date: | March 14, 20149, 2017 | By/s/ William C. Handorf |
| | Name: William C. Handorf |
| | Title: Director |
| | |
|
| | |
| | |
| Date: | March 9, 2017 | By /s/ Scott C. Harvard |
| | Name: Scott C. Harvard |
| | Title: Director |
| | |
| Date: | March 9, 2017 | By /s/ Jonathan Kislak |
| | | Name: Jonathan Kislak |
| | | Title: Director |
| | |
| Date: | March 14, 20149, 2017 | By/s/ LaSalle D. Leffall, III |
| | | Name: LaSalle D. Leffall, III |
| | | Title: Director |
| | |
| Date: | March 14, 20149, 2017 | By/s/ Kim C. Liddell |
| | Name: Kim C. Liddell |
| | Title: Director |
| | |
| Date: | March 9, 2017 | By /s/ Miriam Lopez |
| | | Name: Miriam Lopez |
| | | Title: Director |
| | |
| Date: | March 14, 20149, 2017 | By/s/ John C. NealB. Rucker |
| | | Name: John C. NealB. Rucker |
| | | Title: Director |
Date: | March 14, 2014 | By/s/ Henry Gary Pannell
|
| | | Name: Henry Gary Pannell |
| | Title: Director |
| Date: | March 14, 20149, 2017 | By/s/ Robert L. Strickland, Jr. |
| | | Name: Robert L. Strickland, Jr. |
| | | Title: Director |
Date: | March 14, 2014 | By/s/ Richard A. Whaley
|
| | Name: Richard A. Whaley |
| | Title: Director |