Federal Home Loan Bank of Atlanta 10-Q 2020 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________ 

FORM 10-Q

_____________________________________

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

For the quarterly period ended September 30, 2020

OR 

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

Commission File Number: 000-51845

 ____________________________________ 

FEDERAL HOME LOAN BANK OF ATLANTA

(Exact name of registrant as specified in its charter)

_____________________________________                  

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

1475 Peachtree Street, NE, Atlanta, GA

(Address of principal executive offices)

30309

(Zip Code)

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

_____________________________________  

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    ☒  Yes   ☐  No

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

The number of shares outstanding of the registrant’s Class B Stock, par value $100, as of October 31, 2020 was 32,923,473.

Table of Contents

PART I.  FINANCIAL INFORMATION		3
Item 1.	Financial Statements (Unaudited)	3
	STATEMENTS OF CONDITION	3
	STATEMENTS OF INCOME	4
	STATEMENTS OF COMPREHENSIVE INCOME	5
	STATEMENTS OF CAPITAL	6
	STATEMENTS OF CASH FLOWS	7
	NOTES TO FINANCIAL STATEMENTS	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64
Item 4.	Controls and Procedures	67
PART II. OTHER INFORMATION		68
Item 1.	Legal Proceedings	68
Item 1A.	Risk Factors	68
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosure	69
Item 5.	Other Information	69
Item 6.	Exhibits	70
SIGNATURES		71

PART I. FINANCIAL INFORMATION.

Item 1. Financial Statements.

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CONDITION

(Unaudited)

(In millions, except par value)

	As of September 30, 2020		As of December 31, 2019
Assets
Cash and due from banks	$	4,186	$	911
Interest-bearing deposits (including deposits with other FHLBanks of $5 as of September 30, 2020 and December 31, 2019)	1,398		3,810
Securities purchased under agreements to resell	13,000		8,800
Federal funds sold	8,565		9,826
Investment securities:
Trading securities	1,563		1,558
Available-for-sale securities (amortized cost of $0 and $643 as of September 30, 2020 and December 31, 2019, respectively)	0		684
Held-to-maturity securities (fair value of $23,821 and $25,903 as of September 30, 2020 and December 31, 2019, respectively)	23,729		25,939
Total investment securities	25,292		28,181
Advances	58,802		97,167
Mortgage loans held for portfolio, net of allowance for credit losses of $1 as of September 30, 2020 and December 31, 2019	242		296
Accrued interest receivable	97		259
Derivative assets	440		380
Other assets	143		227
Total assets	$	112,165	$	149,857
Liabilities
Interest-bearing deposits	$	1,967	$	1,492
Consolidated obligations, net:
Discount notes	35,519		52,134
Bonds	68,858		88,503
Total consolidated obligations, net	104,377		140,637
Mandatorily redeemable capital stock	1		1
Accrued interest payable	60		212
Affordable Housing Program payable	86		89
Derivative liabilities	9		7
Other liabilities	143		256
Total liabilities	106,643		142,694
Commitments and contingencies (Note 13)
Capital
Capital stock Class B putable ($100 par value) issued and outstanding shares:
Subclass B1 issued and outstanding shares: 9 as of September 30, 2020 and December 31, 2019	932		899
Subclass B2 issued and outstanding shares: 24 and 41 as of September 30, 2020 and December 31, 2019, respectively	2,409		4,089
Total capital stock Class B putable	3,341		4,988
Retained earnings:
Restricted	581		537
Unrestricted	1,617		1,616
Total retained earnings	2,198		2,153
Accumulated other comprehensive (loss) income	(17)		22
Total capital	5,522		7,163
Total liabilities and capital	$	112,165	$	149,857

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

3

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF INCOME

(Unaudited)

(In millions)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Interest income
Advances	$	135	$	584	$	786	$	1,899
Interest-bearing deposits	1		23		17		76
Securities purchased under agreements to resell	2		34		30		88
Federal funds sold	2		63		46		218
Trading securities	1		8		8		18
Available-for-sale securities	0		21		3		65
Held-to-maturity securities	44		175		243		522
Mortgage loans	3		5		10		14
Total interest income	188		913		1,143		2,900
Interest expense
Consolidated obligations:
Discount notes	40		363		344		1,145
Bonds	59		424		530		1,340
Interest-bearing deposits	0		8		5		21
Total interest expense	99		795		879		2,506
Net interest income	89		118		264		394
Noninterest income (loss)
Net impairment losses recognized in earnings	0		(4)		0		(7)
Net gains on trading securities	0		1		5		3
Net realized gains from sale of available-for-sale securities	0		0		82		0
Net realized gains from sale of held-to-maturity securities	0		0		3		0
Net gains (losses) on derivatives and hedging activities	1		(1)		(6)		(5)
Standby letters of credit fees	4		5		16		18
Other	4		4		8		7
Total noninterest income	9		5		108		16
Noninterest expense
Compensation and benefits	21		21		81		58
Other operating expenses	8		10		26		29
Federal Housing Finance Agency	3		3		8		8
Office of Finance	1		2		5		5
Other	2		3		7		10
Total noninterest expense	35		39		127		110
Income before assessment	63		84		245		300
Affordable Housing Program assessment	7		8		25		30
Net income	$	56	$	76	$	220	$	270

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

4

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In millions)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Net income	$	56	$	76	$	220	$	270
Other comprehensive income (loss):
Reclassification of unrealized gains related to the sale of available-for-sale securities	0		0		(41)		0
Net noncredit portion of other-than-temporary impairment losses on available-for-sale securities	0		(8)		0		(24)
Pension and postretirement benefits	1		1		2		2
Total other comprehensive income (loss)	1		(7)		(39)		(22)
Total comprehensive income	$	57	$	69	$	181	$	248

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

5

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CAPITAL

(Unaudited)

(In millions)

	Capital Stock Class B Putable			Retained Earnings						Accumulated Other Comprehensive (Loss) Income		Total Capital
	Shares	Par Value		Restricted		Unrestricted		Total
Balance, June 30, 2019	52	$	5,196	$	502	$	1,636	$	2,138	$	36	$	7,370
Issuance of capital stock	21	2,134		—		—		—		—		2,134
Repurchase/redemption of capital stock	(21)	(2,114)		—		—		—		—		(2,114)
Net shares reclassified to mandatorily redeemable capital stock	—	(3)		—		—		—		—		(3)
Comprehensive income (loss)	—	—		15		61		76		(7)		69
Cash dividends on capital stock	—	—		0		(82)		(82)		—		(82)
Balance, September 30, 2019	52	$	5,213	$	517	$	1,615	$	2,132	$	29	$	7,374
Balance, June 30, 2020	37	$	3,680	$	570	$	1,630	$	2,200	$	(18)	$	5,862
Issuance of capital stock	3	308		—		—		—		—		308
Repurchase/redemption of capital stock	(7)	(647)		—		—		—		—		(647)
Comprehensive income	—	—		11		45		56		1		57
Cash dividends on capital stock	—	—		0		(58)		(58)		—		(58)
Balance, September 30, 2020	33	$	3,341	$	581	$	1,617	$	2,198	$	(17)	$	5,522

	Capital Stock Class B Putable			Retained Earnings						Accumulated Other Comprehensive (Loss) Income		Total Capital
	Shares	Par Value		Restricted		Unrestricted		Total
Balance, December 31, 2018	55	$	5,486	$	463	$	1,647	$	2,110	$	51	$	7,647
Issuance of capital stock	70	7,065		—		—		—		—		7,065
Repurchase/redemption of capital stock	(73)	(7,335)		—		—		—		—		(7,335)
Net shares reclassified to mandatorily redeemable capital stock	0	(3)		—		—		—		—		(3)
Comprehensive income (loss)	—	—		54		216		270		(22)		248
Cash dividends on capital stock	—	—		0		(248)		(248)		—		(248)
Balance, September 30, 2019	52	$	5,213	$	517	$	1,615	$	2,132	$	29	$	7,374
Balance, December 31, 2019	50	$	4,988	$	537	$	1,616	$	2,153	$	22	$	7,163
Issuance of capital stock	48	4,868		—		—		—		—		4,868
Repurchase/redemption of capital stock	(65)	(6,493)		—		—		—		—		(6,493)
Net shares reclassified to mandatorily redeemable capital stock	0	(22)		—		—		—		—		(22)
Comprehensive income (loss)	—	—		44		176		220		(39)		181
Partial recovery of prior capital distribution to Financing Corporation	—	—		—		29		29		—		29
Cash dividends on capital stock	—	—		0		(204)		(204)		—		(204)
Balance, September 30, 2020	33	$	3,341	$	581	$	1,617	$	2,198	$	(17)	$	5,522

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

6

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)

	For the Nine Months Ended September 30,
	2020		2019
Operating activities
Net income	$	220	$	270
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	(98)		(42)
Net change in derivative and hedging activities	(689)		(829)
Net change in fair value adjustment on trading securities	(5)		(3)
Net impairment losses recognized in earnings	0		7
Net realized gains from sale of available-for-sale securities	(82)		0
Net realized gains from sale of held-to-maturity securities	(3)		0
Net change in:
Accrued interest receivable	162		22
Other assets	84		18
Affordable Housing Program payable	(4)		(2)
Accrued interest payable	(151)		10
Other liabilities	(77)		(24)
Total adjustments	(863)		(843)
Net cash used in operating activities	(643)		(573)
Investing activities
Net change in:
Interest-bearing deposits	1,971		3,549
Securities purchased under agreements to resell	(4,200)		(3,000)
Federal funds sold	1,261		(997)
Loans to other FHLBanks	0		500
Trading securities:
Purchases of long-term	0		(1,499)
Available-for-sale securities:
Proceeds from sales	726		0
Proceeds from principal collected	0		147
Held-to-maturity securities:
Proceeds from sales	195		0
Proceeds from principal collected	7,710		5,156
Purchases of long-term	(5,730)		(6,251)
Advances:
Proceeds from principal collected	215,848		277,629
Made	(176,347)		(270,659)
Mortgage loans:
Proceeds from principal collected	53		47
Proceeds from sale of foreclosed assets	1		1
Purchases of premises, equipment, and software	(5)		(1)
Net cash provided by investing activities	41,483		4,622

7

FEDERAL HOME LOAN BANK OF ATLANTA STATEMENTS OF CASH FLOWS—(Continued) (Unaudited) (In millions)
	For the Nine Months Ended September 30,
	2020		2019
Financing activities
Net change in interest-bearing deposits	450		370
Net payments on derivatives containing a financing element	(3)		0
Proceeds from issuance of consolidated obligations:
Discount notes	270,257		733,941
Bonds	59,849		78,475
Payments for debt issuance costs	(7)		(9)
Payments for maturing and retiring consolidated obligations:
Discount notes	(286,765)		(744,911)
Bonds	(79,524)		(71,345)
Proceeds from issuance of capital stock	4,868		7,065
Payments for repurchase/redemption of capital stock	(6,493)		(7,335)
Payments for repurchase/redemption of mandatorily redeemable capital stock	(22)		(3)
Partial recovery of prior capital distribution to Financing Corporation	29		0
Cash dividends paid	(204)		(248)
Net cash used in financing activities	(37,565)		(4,000)
Net increase in cash and due from banks	3,275		49
Cash and due from banks at beginning of the period	911		35
Cash and due from banks at end of the period	$	4,186	$	84
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	1,129	$	2,496
Affordable Housing Program assessment, net	$	28	$	31
Noncash investing and financing activities:
Net shares reclassified to mandatorily redeemable capital stock	$	22	$	3
Held-to-maturity securities acquired with accrued liabilities	$	0	$	0

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

8

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Note 1—Basis of Presentation

The accompanying unaudited interim financial statements of the Federal Home Loan Bank of Atlanta (Bank) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). To prepare the financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and income and expenses during the reporting period. Actual results could be different from these estimates. The foregoing interim financial statements are unaudited; however, in the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods, have been included. The results of operations for interim periods are not necessarily indicative of results to be expected for the year ending 2020, or for other interim periods. The unaudited interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2019, which are contained in the Bank’s 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 5, 2020 (Form 10-K).

The Bank has certain financial instruments, including derivative instruments and securities purchased under agreements to resell, that are subject to offset under master netting arrangements or by operation of law. Additional information regarding derivative instruments is provided in Note 11—Derivatives and Hedging Activities to the Bank’s interim financial statements. The Bank does not have any offsetting liabilities related to its securities purchased under agreements to resell for the periods presented. Based on the fair value of the related securities held as collateral, the securities purchased under agreements to resell were fully collateralized for the periods presented.

Refer to Note 2—Summary of Significant Accounting Policies to the Bank’s 2019 audited financial statements for a description of all the Bank’s significant accounting policies. There have been no changes to these policies as of September 30, 2020, except for policy updates related to new accounting guidance pertaining to the measurement of credit losses on financial instruments which is described below.

Beginning on January 1, 2020, the Bank adopted new accounting guidance pertaining to the measurement of credit losses on financial instruments that requires a financial asset or group of financial assets measured at amortized cost to be presented at the net amount expected to be collected. The new guidance also requires credit losses relating to these financial instruments as well as available-for-sale securities to be recorded through the allowance for credit losses. Key changes as compared to prior accounting guidance are detailed below. Consistent with the modified retrospective method of adoption, the prior period has not been revised to conform to the new basis of accounting. Refer to Note 2—Summary of Significant Accounting Policies to the Bank’s 2019 audited financial statements for information on the prior accounting treatment.

Interest-bearing Deposits, Securities Purchased under Agreements to resell, and Federal Funds Sold. Interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold provide short-term liquidity and are carried at amortized cost. Accrued interest receivable is recorded separately on the Statements of Condition. These investments are generally transacted with counterparties that have received a credit rating of triple-B or greater (investment grade) by a nationally recognized statistical rating organization (NRSRO) including the following: Standard and Poor’s (S&P), Moody’s Investors Service (Moody’s), and Fitch Ratings. All of these investments were with counterparties rated investment grade as of September 30, 2020. These investments are evaluated quarterly for expected credit losses. If applicable, an allowance for credit losses is recorded with a corresponding credit loss expense (or reversal of credit loss expense).

The Bank uses the collateral maintenance provision practical expedient to evaluate potential credit losses related to securities purchased under agreements to resell. Consequently, a credit loss would be recognized if there is a collateral shortfall which the Bank does not believe the counterparty will replenish in accordance with its contractual terms. The credit loss would be limited to the difference between the fair value of the collateral and the investment’s amortized cost. Securities purchased under agreements to resell are short-term and are structured such that they are evaluated regularly to determine if the market value of the underlying securities decreases below the market value required as collateral (i.e. subject to collateral maintenance provisions). If so, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash, generally by the next business day. Based upon the collateral held as security and collateral maintenance provisions with its counterparties, the Bank determined that no allowance for credit losses was needed for its securities

9

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

purchased under agreements to resell as of September 30, 2020 and December 31, 2019. The carrying value of securities purchased under agreements to resell excludes accrued interest receivable that was not material as of September 30, 2020 and December 31, 2019.

Federal funds sold are unsecured loans that are generally transacted on an overnight term. All investments in interest-bearing deposits and federal funds sold were repaid or expected to be repaid according to the contractual terms as of September 30, 2020 and December 31, 2019. NaN allowance for credit losses was recorded for these assets as of September 30, 2020 and December 31, 2019. The carrying values of interest-bearing deposits excludes accrued interest receivable that was not material as of September 30, 2020 and December 31, 2019. The carrying values of federal funds sold excludes accrued interest receivable that was not material as of September 30, 2020 and $10 as of December 31, 2019.

Held-to-maturity Securities. Securities that the Bank has both the ability and intent to hold to maturity are classified as held-to-maturity and carried at amortized cost, which is original cost net of periodic principal repayments and amortization of premiums and accretion of discounts. Accrued interest receivable is recorded separately on the Statements of Condition.

Held-to-maturity securities are evaluated quarterly for expected credit losses on a pool basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. If applicable, an allowance for credit losses is recorded with a corresponding credit loss expense (or reversal of credit loss expense). The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately. Prior to January 1, 2020, credit losses were recorded as a direct write-down of the held-to-maturity security carrying value.

The Bank’s held-to-maturity securities consist of U.S. agency obligations, government-sponsored enterprise debt obligations, state or local housing agency debt obligations, and MBS issued by the Government National Mortgage Association (Ginnie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal National Mortgage Association (Fannie Mae) that are backed by single-family or multifamily mortgage loans. The Bank only purchase securities considered investment quality. All of these investments were rated double-A, or above, by a NRSRO as of September 30, 2020, based on the lowest long-term credit rating for each security.

The Bank evaluates its held-to-maturity securities for impairment on a collective, or pooled basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. The Bank has not established an allowance for credit loss on any of its held-to-maturity securities as of September 30, 2020 because the securities: (1) were all highly-rated and/or had short remaining terms to maturity, (2) had not experienced, nor did the Bank expect, any payment default on the instruments, and (3) in the case of U.S., government-sponsored enterprises, or other agency obligations, carry an implicit or explicit government guarantee such that the Bank considers the risk of nonpayment to be zero.

Advances. Advances are carried at amortized cost, which is original cost net of periodic principal repayments and amortization of premiums and accretion of discounts (including discounts related to the Affordable Housing Program and Economic Development and Growth Enhancement Program), net deferred fees or costs, and fair value hedge adjustments. Accrued interest receivable is recorded separately on the Statements of Condition. The advances are evaluated quarterly for expected credit losses. If applicable, an allowance for credit losses is recorded with a corresponding credit loss expense (or reversal of credit loss expense). Refer to Note 2—Summary of Significant Accounting Policies to the Bank’s 2019 audited financial statements for details on the allowance methodologies related to advances.

Mortgage Loans Held for Portfolio. Mortgage loans held for portfolio are recorded at amortized cost, which is original cost, net of periodic principal repayments and amortization of premiums and accretion of discounts, fair value hedge adjustments on loans initially classified as mortgage loan commitments, and direct write-downs. Accrued interest receivable is recorded separately on the Statements of Condition. The Bank performs at least quarterly an assessment of its mortgage loans held for portfolio to estimate expected credit losses. If applicable, an allowance for credit losses is recorded with a corresponding credit loss expense (or reversal of credit loss expense).

The Bank measures expected credit losses on mortgage loans on a collective basis, pooling loans with similar risk characteristics. If a mortgage loan no longer shares risk characteristics with other loans, it is removed from the pool and evaluated for expected credit losses on an individual basis. When developing the allowance for credit losses, the Bank measures the estimated loss over the remaining life of a mortgage loan, which also considers how the Bank’s credit enhancements mitigate credit losses. If a loan was purchased at a discount, the discount does not offset the allowance for credit losses. The allowance excludes uncollectible accrued interest receivable, as the Bank writes off accrued interest receivable by reversing

10

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

interest income if a mortgage loan is placed on nonaccrual status. Refer to Note 2—Summary of Significant Accounting Policies to the Bank’s 2019 audited financial statements for details on the allowance methodologies related to mortgage loans.

Off-Balance Sheet Credit Exposures. The Bank evaluates its off-balance sheet credit exposure on a quarterly basis for expected credit losses. If deemed necessary, an allowance for expected credit losses on these off-balance sheet exposures is recorded in other liabilities with a corresponding credit loss expense (or reversal of credit loss expense).

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 result 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. Based on the Bank’s credit analyses and collateral requirements, the Bank does not deem it necessary to record any additional liability on the Statements of Condition for these commitments as of September 30, 2020.

Troubled Debt Restructuring Relief. On March 27, 2020, the Coronavirus, Aid, Relief, and Economic Security Act (the CARES Act) providing optional, temporary relief from accounting for certain loan modifications as troubled debt restructurings (TDRs) was signed into law. Under the CARES Act, TDR relief is available to banks for loan modifications related to the adverse effects of Coronavirus Disease 2019 (COVID-19) (COVID-related modifications) granted to borrowers that are current as of December 31, 2019. TDR relief applies to COVID-related modifications made from March 1, 2020, until the earlier of December 31, 2020, or 60 days following the termination of the national emergency declared by the President of the United States. The Bank has elected to apply the TDR relief provided by the CARES Act.

As such, all COVID-related modifications meeting the provisions of the CARES Act will be excluded from TDR classification and accounting. COVID-related modifications that do not meet the provisions of the CARES Act will continue to be assessed for TDR classification. Refer to Note 7—Mortgage Loans Held for Portfolio to the Bank’s interim financial statements for additional information.

11

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Note 2—Recently Issued and Adopted Accounting Guidance

The following tables provide a summary of accounting guidance issued by the Financial Accounting Standards Board that was adopted, and recently issued guidance not yet adopted, which may impact the Bank’s financial statements.

Recently Adopted Accounting Guidance

Accounting Standard Update (ASU)	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13)	This guidance amends the disclosure requirements on fair value measurements.	January 1, 2020	The adoption of this guidance did not have an impact on the Bank’s financial condition or results of operations.
Measurement of Credit Losses on Financial Instruments (ASU 2016-13)	This guidance replaces the incurred loss impairment methodology in current generally accepted accounting principles in the United States of America (GAAP) with a methodology that reflects lifetime expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.	January 1, 2020	The adoption of this guidance did not have an impact on the Bank’s financial condition or results of operations.
Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04)	This guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.	March 12, 2020 through December 31, 2022	The Bank expects it may apply certain of the expedients and exceptions provided in the guidance; however, the Bank is still evaluating this guidance and has yet to apply any of its provisions. Therefore, the impact of adopting this guidance on the Bank’s financial condition and results of operations has not yet been determined.

Recently Issued Accounting Guidance Not Yet Adopted

Accounting Standard Update (ASU)	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
Disclosure Framework–Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14)	This guidance amends the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.	December 31, 2020 Early adoption is permitted	The Bank does not intend to adopt this guidance early. This guidance is not expected to have any impact on the Bank’s financial condition or results of operations.

Note 3—Trading Securities

Major Security Types. The following table presents trading securities.

	As of September 30, 2020		As of December 31, 2019
U.S. Treasury obligations	$	1,501	$	1,499
Government-sponsored enterprises debt obligations	62		59
Total	$	1,563	$	1,558

The following table presents net gains on trading securities.

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Net gains on trading securities held at period end	$	0	$	1	$	5	$	3

Note 4—Available-for-sale Securities

During the nine months ended September 30, 2020, the Bank sold all of its available-for-sale private-label mortgage-backed securities (MBS). Proceeds from the sale of the available-for-sale private-label MBS totaled $726 which resulted in a net realized gain of $82 determined by the specific identification method. There were no sales during the nine months ended September 30, 2019.

Major Security Type. The following table presents information on private-label residential MBS that are classified as available-for-sale.

	Amortized     Cost		Other-than-temporary Impairment Recognized in Accumulated Other Comprehensive Income (1)		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
As of September 30, 2020	$	0	$	0	$	0	$	0	$	0
As of December 31, 2019	$	643	$	(1)	$	42	$	0	$	684

____________ 

(1) Amounts represent the non-credit portion of an other-than-temporary impairment during the life of the security.

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 length of time that the individual securities have been in a continuous unrealized loss position. 

	Less than 12 Months					12 Months or More					Total
	Number of   Positions	Estimated   Fair  Value		Gross Unrealized Losses		Number of   Positions	Estimated   Fair  Value		Gross Unrealized Losses		Number of   Positions	Estimated   Fair  Value		Gross Unrealized Losses
As of September 30, 2020	0	$	0	$	0	0	$	0	$	0	0	$	0	$	0
As of December 31, 2019	4	$	14	$	0	2	$	3	$	(1)	6	$	17	$	(1)

12

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

The following table presents private-label residential MBS that are classified as available-for-sale and issued by members or affiliates of members, all of which have been issued by Bank of America Corporation, Charlotte, NC.

	Amortized   Cost		Other-than-temporary Impairment Recognized in Accumulated Other Comprehensive Income (1)		Gross   Unrealized   Gains		Gross   Unrealized   Losses		Estimated   Fair  Value
As of September 30, 2020	$	0	$	0	$	0	$	0	$	0
As of December 31, 2019	$	456	$	0	$	31	$	0	$	487

____________ 

(1) Amounts represent the non-credit portion of an other-than-temporary impairment during the life of the security.

Note 5—Held-to-maturity Securities

During the nine months ended September 30, 2020, for strategic, economic and operational reasons, the Bank sold all of its held-to-maturity private-label MBS. The amortized cost of the held-to-maturity private-label MBS sold was $192. Proceeds from the sale of the held-to-maturity private-label MBS totaled $195, which resulted in a net realized gain of $3 determined by the specific identification method. For each of the held-to-maturity securities which were sold, the Bank had previously collected at least 85 percent of the principal outstanding at the time of acquisition due to prepayments or scheduled prepayments over the term of the security. As such, the sales were considered maturities for purposes of security classification. There were no sales of held-to-maturity securities during the nine months ended September 30, 2019.

Major Security Types. The following table presents held-to-maturity securities.

	As of September 30, 2020								As of December 31, 2019
	Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
State or local housing agency debt obligations	$	1	$	0	$	0	$	1	$	1	$	0	$	0	$	1
Government-sponsored enterprises debt obligations	3,905		5		0		3,910		4,497		7		0		4,504
Mortgage-backed securities:
U.S. agency obligations-guaranteed residential	312		2		0		314		89		0		0		89
Government-sponsored enterprises residential	7,986		69		(6)		8,049		8,642		20		(29)		8,633
Government-sponsored enterprises commercial	11,525		34		(12)		11,547		12,518		0		(34)		12,484
Private-label residential	0		0		0		0		192		1		(1)		192
Total	$	23,729	$	110	$	(18)	$	23,821	$	25,939	$	28	$	(64)	$	25,903

 ____________

(1) Excludes accrued interest receivable of $11 and $27 as of September 30, 2020 and December 31, 2019, respectively.

13

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Redemption Terms. The following table presents the amortized cost and estimated fair value of held-to-maturity securities by contractual maturity. MBS are not presented by contractual maturity because their actual maturities 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 September 30, 2020				As of December 31, 2019
	Amortized Cost (1)		Estimated Fair Value		Amortized Cost (1)		Estimated Fair Value
Non-mortgage-backed securities:
Due in one year or less	$	270	$	270	$	1,202	$	1,203
Due after one year through five years	3,375		3,377		3,035		3,037
Due after five years through 10 years	201		203		201		204
Due after 10 years	60		61		60		61
Total non-mortgage-backed securities	3,906		3,911		4,498		4,505
Mortgage-backed securities	19,823		19,910		21,441		21,398
Total	$	23,729	$	23,821	$	25,939	$	25,903

 ____________

(1) Excludes accrued interest receivable of $11 and $27 as of September 30, 2020 and December 31, 2019, respectively.

The following table presents private-label residential MBS that are classified as held-to-maturity and issued by members or affiliates of members, all of which have been issued by Bank of America Corporation, Charlotte, NC.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
As of September 30, 2020	$	0	$	0	$	0	$	0
As of December 31, 2019	$	65	$	0	$	0	$	65

Note 6—Advances

Redemption Terms. The following table presents the Bank’s advances outstanding by year of contractual maturity.

	As of September 30, 2020		As of December 31, 2019
Due in one year or less	$	28,120	$	64,413
Due after one year through two years	3,523		7,421
Due after two years through three years	4,719		5,420
Due after three years through four years	2,869		3,382
Due after four years through five years	4,450		4,778
Due after five years	13,280		11,042
Total par value	56,961		96,456
Deferred prepayment fees	(10)		(9)
Discount on AHP (1) advances	(3)		(3)
Discount on EDGE (2) advances	(1)		(2)
Hedging adjustments	1,855		725
Total (3)	$	58,802	$	97,167

___________

(1) The Affordable Housing Program

(2) The Economic Development and Growth Enhancement Program

(3) Carrying amounts exclude accrued interest receivable of $84 and $214 as of September 30, 2020 and December 31, 2019, respectively.

14

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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

	As of September 30, 2020		As of December 31, 2019
Due or convertible in one year or less	$	33,690	$	68,520
Due or convertible after one year through two years	3,872		7,437
Due or convertible after two years through three years	4,591		5,319
Due or convertible after three years through four years	2,843		3,342
Due or convertible after four years through five years	4,403		4,529
Due or convertible after five years	7,562		7,309
Total par value	$	56,961	$	96,456

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

	As of September 30, 2020		As of December 31, 2019
Fixed-rate:
Due in one year or less	$	17,607	$	36,366
Due after one year	25,720		25,985
Total fixed-rate	43,327		62,351
Variable-rate:
Due in one year or less	10,513		28,047
Due after one year	3,121		6,058
Total variable-rate	13,634		34,105
Total par value	$	56,961	$	96,456

Credit Risk. The Bank’s potential credit risk from advances is concentrated in commercial banks, savings institutions, and credit unions and further is concentrated in certain larger borrowing relationships. The concentration of the Bank’s advances to its 10 largest borrowers was $37,117 and $71,769 as of September 30, 2020 and December 31, 2019, respectively. This concentration represented 65.2 percent and 74.4 percent of total advances outstanding as of September 30, 2020 and December 31, 2019, respectively.

Based on the collateral pledged as security for advances, the Bank’s credit analysis of members’ financial condition, and prior repayment history, 0 allowance for credit losses on advances was deemed necessary by the Bank as of September 30, 2020 and December 31, 2019. NaN advance was past due as of September 30, 2020 and December 31, 2019.

Note 7—Mortgage Loans Held for Portfolio

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

	As of September 30, 2020		As of December 31, 2019
Medium-term (15 years or less)	$	3	$	5
Long-term (greater than 15 years)	240		292
Total unpaid principal balance	243		297
Premiums	1		1
Discounts	(1)		(1)
Total mortgage loans held for portfolio (1)	243		297
Allowance for credit losses on mortgage loans	(1)		(1)
Mortgage loans held for portfolio, net	$	242	$	296

____________

(1) Exclude accrued interest receivable of $1 as of September 30, 2020 and December 31, 2019.

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

	As of September 30, 2020		As of December 31, 2019
Conventional mortgage loans	$	226	$	278
Government-guaranteed or insured mortgage loans	17		19
Total unpaid principal balance	$	243	$	297

The following table presents the activity in the allowance for credit losses related to conventional residential mortgage loans.

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Balance, beginning of period	$	1	$	1	$	1	$	1
Provision for credit losses	0		0		0		0
Balance, end of period	$	1	$	1	$	1	$	1

Payment status is a key credit quality indicator for conventional mortgage loans and allows the Bank to monitor the migration of past due loans. Other delinquency statistics include, non-accrual loans and loans in process of foreclosure. The following tables present the payment status for conventional mortgage loans.

	As of September 30, 2020
	Origination Year
		2016		Prior to 2016		Total
Payment status, at amortized cost:(1)
Past due 30-59 days		$	0	$	6	$	6
Past due 60-89 days		0		2		2
Past due 90 days or more		1		12		13
Total past due mortgage loans		1		20		21
Current mortgage loans		52		153		205
Total conventional mortgage loans		$	53	$	173	$	226

____________

(1) Amortized cost excludes accrued interest receivable of $1 as of September 30, 2020.

	As of December 31, 2019
Payment status, at recorded investment:(1)
Past due 30-59 days	$	8
Past due 60-89 days	2
Past due 90 days or more	6
Total past due mortgage loans	16
Current mortgage loans	263
Total conventional mortgage loans	$	279

____________

(1) Recorded investment includes accrued interest receivable of $1 as of December 31, 2019.

The following tables present the other delinquency statistics for all mortgage loans.

	As of September 30, 2020
	Conventional Residential Mortgage Loans			Government-guaranteed or Insured Residential Mortgage Loans			Total
Other delinquency statistics, at amortized cost:
In process of foreclosure (1)	$	0		$	0		$	0
Seriously delinquent rate (2)	6.03		%	5.96		%	6.03		%
Past due 90 days or more and still accruing interest (3)	$	0		$	1		$	1
Mortgage loans on nonaccrual status (4)	$	14		$	0		$	14

____________

(1) Includes mortgage loans where the decision of foreclosure or similar alternative, such as a pursuit of deed-in-lieu, has been reported.

(2) Mortgage 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.

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

(4) Represents mortgage loans with contractual principal or interest payments 90 days or more past due and not accruing interest. As of September 30, 2020, 0.64 percent of these conventional mortgage loans on non-accrual status had an associated allowance for credit losses.

	As of December 31, 2019
	Conventional Residential Mortgage Loans			Government-guaranteed or Insured Residential Mortgage Loans			Total
Other delinquency statistics, at recorded investment:
In process of foreclosure (1)	$	1		$	0		$	1
Seriously delinquent rate (2)	1.96		%	0.39		%	1.86		%
Past due 90 days or more and still accruing interest (3)	$	0		$	0		$	0
Mortgage loans on nonaccrual status (4)	$	5		$	0		$	5

____________

(1) Includes mortgage loans where the decision of foreclosure or similar alternative, such as a pursuit of deed-in-lieu, has been reported.

(2) Mortgage 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.

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

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

Section 4013 of the CARES Act provides temporary relief from the accounting and reporting requirements for TDRs for certain loan modifications related to COVID-19. Specifically, the CARES Act provides that a qualifying financial institution may elect to suspend (1) the requirements under U.S. GAAP for certain loan modifications that would otherwise be categorized as a TDR, and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. Section 4013 of the CARES Act applies to any modification related to an economic hardship as a result of the COVID-19 pandemic, including an interest rate modification, a repayment plan, or any similar arrangement that defers or delays payment of principal or interest, that occurs during the period beginning on March 1, 2020 and ending on the earlier of December 31, 2020 or the date that is 60 days after the declaration of the national emergency related to the COVID-19 pandemic ends for a loan that was not more than 30 days past due as of December 31, 2019. The Bank has elected to suspend TDR accounting for eligible modifications under Section 4013 of the CARES Act. The Bank had none of these modifications outstanding as of September 30, 2020.

The Bank’s servicers may grant a forbearance period to borrowers who have requested forbearance based on COVID-19 related difficulties regardless of the status of the loan at the time of the request. The Bank continues to apply its accounting policy for past due loans and charge-offs to loans during the forbearance period unless there is a legal modification made to update the terms of the mortgage loan contract. The accrual status for loans under forbearance will be driven by the past due status of the loan.

As of September 30, 2020, there were $18 in unpaid principal balance of conventional residential mortgage loans in a forbearance plan as a result of COVID-19, representing 7.57 percent of the Bank’s mortgage loans held for portfolio. Of the conventional residential mortgage loans in a forbearance plan, $5 in unpaid principal balance of these conventional loans had a

current payment status, $2 were 30 to 59 days past due, $1 were 60 to 89 days past due, and $10 were 90 days or more past due and in nonaccrual payment status.

Note 8—Consolidated Obligations

Consolidated obligations, consisting of consolidated obligation bonds and discount notes, are the joint and several obligations of the 11 Federal Home Loan Banks (FHLBanks) and are backed only by the financial resources of the FHLBanks. The Federal Home Loan Banks Office of Finance (Office of Finance) tracks the amount of debt issued on behalf of each FHLBank. In addition, the Bank separately tracks its specific portion of consolidated obligations for which it is the primary obligor and records it as a liability.

Interest-rate Payment Terms. The following table presents the Bank’s consolidated obligation bonds by interest-rate payment type. 

	As of September 30, 2020		As of December 31, 2019
Simple variable-rate	$	61,644	$	56,938
Fixed-rate	7,067		30,810
Step up/down	90		735
Total par value	$	68,801	$	88,483

Redemption Terms. The following table presents the Bank’s participation in consolidated obligation bonds outstanding by year of contractual maturity.

	As of September 30, 2020			As of December 31, 2019
	Amount		Weighted- average Interest Rate (%)	Amount		Weighted- average Interest Rate (%)
Due in one year or less	$	55,412	0.21	$	79,699	1.75
Due after one year through two years	8,779		0.42	4,426		1.90
Due after two years through three years	435		2.18	817		2.32
Due after three years through four years	1,603		2.31	546		2.84
Due after four years through five years	1,382		0.95	1,635		2.47
Due after five years	1,190		3.76	1,360		3.54
Total par value	68,801		0.37	88,483		1.82
Premiums	12			4
Discounts	(21)			(20)
Hedging adjustments	66			36
Total	$	68,858		$	88,503

The following table presents the Bank’s consolidated obligation bonds outstanding by call feature.

	As of September 30, 2020		As of December 31, 2019
Noncallable	$	68,576	$	76,243
Callable	225		12,240
Total par value	$	68,801	$	88,483

15

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

The following table presents the Bank’s consolidated obligation bonds outstanding, by year of contractual maturity, or for callable consolidated obligation bonds, by next call date.

	As of September 30, 2020		As of December 31, 2019
Due or callable in one year or less	$	55,637	$	81,624
Due or callable after one year through two years	8,779		3,746
Due or callable after two years through three years	370		432
Due or callable after three years through four years	1,493		171
Due or callable after four years through five years	1,332		1,320
Due or callable after five years	1,190		1,190
Total par value	$	68,801	$	88,483

Consolidated Obligation Discount Notes. Consolidated obligation discount notes are issued to raise short-term funds 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.

The following table presents the Bank’s participation in consolidated obligation discount notes.

	Book Value		Par Value		Weighted-average Interest Rate (%)
As of September 30, 2020	$	35,519	$	35,531	0.22
As of December 31, 2019	$	52,134	$	52,298	1.64

Note 9—Capital and Mandatorily Redeemable Capital Stock

Partial recovery of prior capital distribution to Financing Corporation. The Competitive Equality Banking Act of 1987 was enacted in August 1987, which, among other things, provided for the recapitalization of the Federal Savings and Loan Insurance Corporation through a newly-chartered entity, the Financing Corporation (FICO). The capitalization of FICO was provided by capital distributions from the FHLBanks to FICO in exchange for FICO nonvoting capital stock. Capital distributions were made by the FHLBanks in 1987, 1988, and 1989 that aggregated to $680. Upon passage of Financial Institutions Reform, Recovery and Enforcement Act of 1989, the FHLBanks’ previous investment in capital stock of FICO was determined to be non-redeemable and the FHLBanks charged-off their prior capital distributions to FICO directly against retained earnings.

Upon the dissolution of FICO which ultimately concluded in July 2020, FICO determined that excess funds aggregating to $200 were available for distribution to its stockholders, the FHLBanks. Specifically, the Bank’s partial recovery of prior capital distribution was $29 which was determined based on its share of the $680 originally contributed. This distribution of funds was received by the Bank in June 2020. The FHLBanks treated the receipt of these funds as a return of the FHLBanks’ investment in FICO capital stock, and therefore as a partial recovery of the prior capital distributions made by the FHLBanks to FICO in 1987, 1988, and 1989. These funds have been credited to unrestricted retained earnings.

16

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Capital. The following table presents the Bank’s compliance with the Federal Housing Finance Agency’s (Finance Agency) regulatory capital rules and requirements.

	As of September 30, 2020						As of December 31, 2019
	Required			Actual			Required			Actual
Risk-based capital	$	1,530		$	5,540		$	1,423		$	7,142
Total regulatory capital ratio	4.00		%	4.94		%	4.00		%	4.77		%
Total regulatory capital (1)	$	4,487		$	5,540		$	5,994		$	7,142
Leverage capital ratio	5.00		%	7.41		%	5.00		%	7.15		%
Leverage capital	$	5,608		$	8,310		$	7,493		$	10,713

____________

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

The Bank declares and pays any dividends only after net income is calculated for the preceding quarter. The following table presents the Bank’s declared and paid quarterly cash dividends in 2020 and 2019.

	2020			2019
	Amount		Annualized Rate (%)	Amount		Annualized Rate (%)
First quarter	$	76	5.93	$	85	6.47
Second quarter	70		5.53	81		6.54
Third quarter	58		4.35	82		6.36
Total	$	204	4.90	$	248	6.46

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Balance, beginning of period	$	1	$	1	$	1	$	1
Net reclassification from capital during the period	0		3		22		3
Repurchase/redemption of mandatorily redeemable capital stock	0		(3)		(22)		(3)
Balance, end of period	$	1	$	1	$	1	$	1

The following table presents the amount of mandatorily redeemable capital stock by year of redemption. The year of redemption in the table is the end of the five-year redemption period, or with respect to activity-based stock, the later of the expiration of the five-year redemption period or the activity’s maturity date.

	As of September 30, 2020		As of December 31, 2019
Due after two years through three years	$	1	$	0
Due after three years through four years	0		1
Total	$	1	$	1

17

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Note 10—Accumulated Other Comprehensive (Loss) Income

The following table presents the components comprising accumulated other comprehensive (loss) income.

	Net Unrealized Gains (Losses) on Available-for-sale Securities		Noncredit Portion of Other-than- temporary Impairment  Losses on Available-for- sale Securities		Pension and Postretirement Benefits		Total  Accumulated Other Comprehensive (Loss) Income
Balance, June 30, 2019	$	0	$	56	$	(20)	$	36
Other comprehensive income before reclassifications:
Net change in fair value	0		(12)		0		(12)
Reclassification from accumulated other comprehensive income to net income:
Noncredit other-than-temporary impairment losses	0		4		0		4
Amortization of pension and postretirement (1)	0		0		1		1
Net current period other comprehensive (loss) income	0		(8)		1		(7)
Balance, September 30, 2019	$	0	$	48	$	(19)	$	29
Balance, June 30, 2020	$	0	$	0	$	(18)	$	(18)
Reclassification from accumulated other comprehensive income to net income:
Amortization of pension and postretirement (1)	0		0		1		1
Net current period other comprehensive income	0		0		1		1
Balance, September 30, 2020	$	0	$	0	$	(17)	$	(17)

____________

(1) Included in Noninterest expense - Other on the Statements of Income.

	Net Unrealized Gains (Losses) on Available-for-sale Securities		Net Noncredit Portion of Other-than-temporary Impairment Losses on Available-for-sale Securities		Pension and Postretirement Benefits		Total  Accumulated Other Comprehensive (Loss) Income
Balance, December 31, 2018	$	0	$	72	$	(21)	$	51
Other comprehensive income before reclassifications:
Net change in fair value	0		(31)		0		(31)
Reclassification from accumulated other comprehensive income to net income:
Noncredit other-than-temporary impairment losses	0		7		0		7
Amortization of pension and postretirement (1)	0		0		2		2
Net current period other comprehensive (loss) income	0		(24)		2		(22)
Balance, September 30, 2019	$	0	$	48	$	(19)	$	29
Balance, December 31, 2019	$	0	$	41	$	(19)	$	22
Other comprehensive income before reclassifications:
Adoption of ASU 2016-13 as amended	41		(41)		0		0
Net unrealized gains on available-for-sale securities	41		0		0		41
Reclassification from accumulated other comprehensive income to net income:
Net realized gains from sale of available-for-sale securities	(82)		0		0		(82)
Amortization of pension and postretirement (1)	0		0		2		2
Net current period other comprehensive (loss) income	0		(41)		2		(39)
Balance, September 30, 2020	$	0	$	0	$	(17)	$	(17)

____________

(1) Included in Noninterest expense - Other on the Statements of Income.

18

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Note 11—Derivatives and Hedging Activities

Nature of Business Activity

The Bank is exposed to interest-rate risk primarily from the effect of interest-rate changes on its interest-earning assets and on its interest-bearing liabilities that finance these assets. 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. 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. The Bank’s over-the-counter derivatives transactions may either be (1) uncleared derivatives, which are executed bilaterally with a counterparty; or (2) cleared derivatives, which are cleared through a Futures Commission Merchant (clearing agent) with a Derivatives Clearing Organization (Clearinghouse). Once a derivatives transaction has been accepted for clearing by a Clearinghouse, the derivatives transaction is novated, and the executing counterparty is replaced with the Clearinghouse as the counterparty. The Bank is not a derivatives dealer and does not trade derivatives for short-term profit. For additional information on the Bank’s derivatives and hedging activities, see Note 17—Derivatives and Hedging Activities to the 2019 audited financial statements contained in the Bank’s Form 10-K.

Financial Statement Effect and Additional Financial Information

Derivative Notional Amounts. The notional amount of derivatives serves as a factor in determining periodic interest payments or cash flows received and paid. However, the notional amount of derivatives represents neither the actual amounts exchanged nor the overall exposure of the Bank to credit and market risk; the overall risk is much smaller. The risks of derivatives can be measured meaningfully on a portfolio basis that takes into account the counterparties, the types of derivatives, the items being hedged, and any offsets between the derivatives and the items being hedged.

The following table presents the notional amount, fair value of derivative instruments, and total derivative assets and liabilities. Total derivative assets and liabilities include the effect of netting adjustments and cash collateral. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest.

	As of September 30, 2020						As of December 31, 2019
	Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities		Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities
Derivatives in hedging relationships:
Interest-rate swaps (1)	$	36,617	$	25	$	578	$	73,637	$	71	$	221
Derivatives not designated as hedging instruments:
Interest-rate swaps (1)	81		1		1		478		5		1
Interest-rate caps or floors	7,000		1		1		7,084		0		0
Total derivatives not designated as hedging instruments	7,081		2		2		7,562		5		1
Total derivatives before netting and collateral adjustments	$	43,698	27		580		$	81,199	76		222
Netting adjustments and cash collateral (2)			413		(571)				304		(215)
Derivative assets and derivative liabilities			$	440	$	9			$	380	$	7

___________

(1) Includes variation margin for daily settled contracts of $1,326 and $503 as of September 30, 2020 and December 31, 2019, respectively.

(2) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, and also cash collateral and related accrued interest held or placed with the same clearing agents and/or counterparty. Cash collateral posted, including accrued interest was $984 and $543 as of September 30, 2020 and December 31, 2019, respectively. Cash collateral received, including accrued interest was $0 and $25 as of September 30, 2020 and December 31, 2019, respectively.

19

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

The following tables present the net gains (losses) on fair value hedging relationships.

	For the Three Months Ended September 30, 2020						For the Nine Months Ended September 30, 2020
	Interest Income (Expense)						Interest Income (Expense)
	Advances		Consolidated Obligation Bonds		Consolidated Obligation Discount Notes		Advances		Consolidated Obligation Bonds		Consolidated Obligation Discount Notes
Total interest income (expense) recorded in the Statements of Income	$	135	$	(59)	$	(40)	$	786	$	(530)	$	(344)
Changes in fair value:
Hedged items	$	(202)	$	17	$	1	$	1,173	$	(28)	$	0
Derivatives	219		(16)		(2)		(1,164)		30		0
Net changes in fair value	17		1		(1)		9		2		0
Net interest settlements on derivatives (1) (2)	(109)		15		0		(238)		34		38
Amortization/accretion of active hedging relationships	(15)		0		0		(39)		(2)		0
Other	(1)		0		0		(1)		0		0
Total net interest (expense) income effect from fair value hedging relationships	$	(108)	$	16	$	(1)	$	(269)	$	34	$	38

____________

(1) Represents interest income/expense on derivatives in qualifying fair-value hedging relationships. Net interest settlements on derivatives that are not in qualifying fair-value hedging relationships are reported in other income.

(2) Excludes the interest income/expense of the respective hedged items.

	For the Three Months Ended September 30, 2019						For the Nine Months Ended September 30, 2019
	Interest Income (Expense)						Interest Income (Expense)
	Advances		Consolidated Obligation Bonds		Consolidated Obligation Discount Notes		Advances		Consolidated Obligation Bonds		Consolidated Obligation Discount Notes
Total interest income (expense) recorded in the Statements of Income	$	584	$	(424)	$	(363)	$	1,899	$	(1,340)	$	(1,145)
Changes in fair value:
Hedged items	$	232	$	(10)	$	(1)	$	990	$	(179)	$	(1)
Derivatives	(244)		11		1		(1,002)		175		1
Net changes in fair value	(12)		1		0		(12)		(4)		0
Net interest settlements on derivatives (1) (2)	1		(2)		0		35		(32)		0
Amortization/accretion of active hedging relationships	(5)		0		0		(17)		0		0
Other	(3)		(1)		0		(3)		(1)		0
Total net interest (expense) income effect from fair value hedging relationships	$	(19)	$	(2)	$	0	$	3	$	(37)	$	0

____________

(1) Represents interest income/expense on derivatives in qualifying fair-value hedging relationships. Net interest settlements on derivatives that are not in qualifying fair-value hedging relationships are reported in other income.

(2) Excludes the interest income/expense of the respective hedged items.

20

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

The following table presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related

amortized cost of the hedged items.

	As of September 30, 2020								As of December 31, 2019
Line Item in Statement of Conditions of Hedged Item	Amortized Cost of Hedged Asset or Liability (1)		Basis Adjustments for Active Hedging Relationships Included in Amortized Cost		Basis Adjustments for Discontinued Hedging Relationships included in Amortized Cost		Cumulative Amount of Fair Value Hedging Basis Adjustments		Amortized Cost of Hedged Asset or Liability (1)		Basis Adjustments for Active Hedging Relationships Included in Amortized Cost		Basis Adjustments for Discontinued Hedging Relationships included in Amortized Cost		Cumulative Amount of Fair Value Hedging Basis Adjustments
Advances	$	27,518	$	1,845	$	10	$	1,855	$	29,984	$	716	$	9	$	725
Consolidated obligations:
Bonds	1,994		66		0		66		26,348		36		0		36
Discount notes	7,368		0		0		0		17,742		0		0		0

___________

(1) Includes only the portion of amortized cost representing the hedged items in fair value hedging relationships.

The following table presents net losses related to derivatives and hedging activities recorded in noninterest income on the Statements of Income.

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Derivatives not designated as hedging instruments:
Interest-rate swaps	$	1	$	(1)	$	(5)	$	(5)
Net interest settlements	0		0		(1)		0
Net gains (losses) on derivatives and hedging activities	$	1	$	(1)	$	(6)	$	(5)

Managing Credit Risk on Derivatives

The Bank is subject to credit risk to its derivative transactions due to the risk of nonperformance by counterparties and manages this 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 uncleared 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 uncleared 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.

Certain of the Bank’s uncleared derivative instruments contain provisions that require the Bank to post additional collateral with its counterparties if there is deterioration in the Bank’s credit rating. If the Bank’s credit rating is lowered by a NRSRO, the Bank may be required to deliver additional collateral on uncleared derivative instruments in net liability positions. The aggregate fair value of all uncleared derivative instruments with credit-risk-related contingent features that were in a net liability position (before cash collateral and related accrued interest) as of September 30, 2020 was $9, for which the Bank was not required to post collateral as of September 30, 2020. If the Bank’s credit ratings had been lowered from its current rating to the next lower rating, the Bank would have been required to deliver $4 of collateral at fair value to its uncleared derivative counterparties as of September 30, 2020.

For cleared derivatives, the Clearinghouse is the Bank’s counterparty. The Clearinghouse notifies the clearing agent of the required initial and variation margin, and the clearing agent notifies the Bank. The Bank utilizes two Clearinghouses for all cleared derivative transactions, CME Clearing and LCH Ltd. At both Clearinghouses, variation margin is characterized as daily settlement payments, and initial margin is considered cash collateral. 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/payments is posted daily through a

21

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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 that is received or pledged, plus the associated accrued interest, on a net basis by clearing agent and/or by counterparty when it has met the netting requirements.

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 September 30, 2020				As of December 31, 2019
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Gross recognized amount:
Uncleared derivatives	$	10	$	579	$	59	$	219
Cleared derivatives	17		1		17		3
Total gross recognized amount	27		580		76		222
Gross amounts of netting adjustments and cash collateral:
Uncleared derivatives	26		(570)		(47)		(212)
Cleared derivatives	387		(1)		351		(3)
Total gross amounts of netting adjustments and cash collateral	413		(571)		304		(215)
Net amounts after netting adjustments and cash collateral:
Uncleared derivatives	36		9		12		7
Cleared derivatives	404		0		368		0
Total net amounts after netting adjustments and cash collateral	440		9		380		7
Non-cash collateral received or pledged not offset-cannot be sold or repledged: (1)
Uncleared derivatives	1		0		4		0
Cleared derivatives	0		0		0		0
Total cannot be sold or repledged (1)	1		0		4		0
Net unsecured amounts: (1)
Uncleared derivatives	35		9		8		7
Cleared derivatives	404		0		368		0
Total net unsecured amount (1)	$	439	$	9	$	376	$	7

____________ 

(1) The Bank had net credit exposure of $36 and $6 as of September 30, 2020 and December 31, 2019, due to instances where the Bank’s pledged collateral to a counterparty exceeded the Bank’s net derivative liability position.

Note 12—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 defined under GAAP 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 asset or owes the liability. In general, the transaction price will equal the exit price and therefore, represents 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, 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.

22

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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. 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 liabilities that are carried at fair 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. The Bank carried grantor trust assets at fair value hierarchy Level 1 as of September 30, 2020 and December 31, 2019.

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. The Bank carried trading securities and derivatives at fair value hierarchy Level 2 as of September 30, 2020 and December 31, 2019.

Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are supported by limited market activity and reflect the entity’s own assumptions. The Bank carried available-for-sale securities at fair value hierarchy Level 3 as of December 31, 2019.

The Bank utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

For financial instruments carried at fair value, the Bank reviews the fair value hierarchy classification of financial assets and liabilities on a quarterly basis. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities 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 periods presented.

Estimated Fair Value Measurements 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 September 30, 2020
	Fair Value Measurements Using						Netting Adjustments and Cash Collateral (1)
	Level 1		Level 2		Level 3				Total
Assets
Trading securities:
U.S. Treasury obligations	$	0	$	1,501	$	0	$	0	$	1,501
Government-sponsored enterprises debt obligations	0		62		0		0		62
Total trading securities	0		1,563		0		0		1,563
Derivative assets:
Interest-rate related	0		27		0		413		440
Grantor trust (included in Other assets)	71		0		0		0		71
Total assets at fair value	$	71	$	1,590	$	0	$	413	$	2,074
Liabilities
Derivative liabilities:
Interest-rate related	$	0	$	580	$	0	$	(571)	$	9
Total liabilities at fair value	$	0	$	580	$	0	$	(571)	$	9

____________ 

(1) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, and also cash collateral and related accrued interest held or placed with the same clearing agents and/or counterparty.

23

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

	As of December 31, 2019
	Fair Value Measurements Using						Netting Adjustments and Cash Collateral (1)
	Level 1		Level 2		Level 3				Total
Assets
Trading securities:
U.S. Treasury obligations	$	0	$	1,499	$	0	$	0	$	1,499
Government-sponsored enterprises debt obligations	0		59		0		0		59
Total trading securities	0		1,558		0		0		1,558
Available-for-sale securities:
Private-label residential MBS	0		0		684		0		684
Derivative assets:
Interest-rate related	0		76		0		304		380
Grantor trust (included in Other assets)	68		0		0		0		68
Total assets at fair value	$	68	$	1,634	$	684	$	304	$	2,690
Liabilities
Derivative liabilities:
Interest-rate related	$	0	$	222	$	0	$	(215)	$	7
Total liabilities at fair value	$	0	$	222	$	0	$	(215)	$	7

____________ 

(1)Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, and also cash collateral and related accrued interest held or placed with the same clearing agents and/or counterparty.

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 Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Balance, beginning of period	$	0	$	777	$	684	$	865
Total (losses) gains realized and unrealized: (1)
Net realized gains from sale of available-for-sale securities	0		0		82		0
Net impairment losses recognized in earnings	0		(4)		0		(7)
Included in other comprehensive loss	0		(8)		(41)		(24)
Accretion of credit losses in net interest income	0		13		1		40
Sales	0		0		(726)		0
Settlements	0		(51)		0		(147)
Balance, end of period	$	0	$	727	$	0	$	727

____________ 

(1) Related to available-for-sale securities held at period end.

Described below are the Bank’s fair value measurement methodologies for financial assets and liabilities that are measured at fair value on a recurring or nonrecurring basis on the Statements of Condition and categorized within Level 2 and Level 3 of the fair value hierarchy.

Investment securities. The Bank obtains prices from multiple 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, 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.

24

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

The Bank periodically conducts reviews of its pricing vendors to confirm and further augment its understanding of the vendors’ pricing processes, methodologies, and control procedures for U.S. agency 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 “resultant” 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 resultant price. Alternatively, if the analysis does not provide evidence that an outlier is more representative of the fair value, and the resultant price is the best estimate, then the resultant 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 resultant price, and the final price is determined by an evaluation of all outlier prices as described above.

Multiple third-party 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 as of September 30, 2020 and December 31, 2019. 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 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, 2019.

Derivative assets and liabilities. The Bank calculates the fair values of interest-rate related derivatives using a discounted cash flow analysis which utilizes market-observable inputs. The inputs for interest-rate related derivatives uses the Overnight Index Swap curve for collateralized derivatives.

Derivative instruments are transacted primarily in the institutional dealer market and priced with observable market assumptions at a mid-market valuation point. The Bank does not provide a credit valuation adjustment based on aggregate exposure by derivative counterparty when measuring the fair value of its derivatives. This is because the collateral provisions pertaining to the Bank’s derivatives obviate the need to provide such a credit valuation adjustment. The fair values of the Bank’s derivatives take into consideration the effects of legally enforceable master netting agreements, where applicable, that allow the Bank to settle positive and negative positions and offset cash collateral with the same counterparty on a net basis. The Bank and each uncleared derivative counterparty have 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 September 30, 2020 and December 31, 2019.

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 September 30, 2020 and December 31, 2019. 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.

25

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

The following tables present the carrying values and estimated fair values of the Bank’s financial instruments.

	As of September 30, 2020
			Estimated Fair Value
	Carrying Value		Total		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral (1)
Assets:
Cash and due from banks	$	4,186	$	4,186	$	4,186	$	0	$	0	$	—
Interest-bearing deposits	1,398		1,398		0		1,398		0		—
Securities purchased under agreements to resell	13,000		13,000		—		13,000		—		—
Federal funds sold	8,565		8,565		0		8,565		0		—
Trading securities	1,563		1,563		0		1,563		0		0
Held-to-maturity securities	23,729		23,821		0		23,821		0		0
Advances	58,802		59,232		0		59,232		0		—
Mortgage loans held for portfolio, net	242		258		0		258		0		—
Accrued interest receivable	97		97		0		97		0		—
Derivative assets	440		440		0		27		0		413
Grantor trust assets (included in Other assets)	71		71		71		0		0		—
Liabilities:
Interest-bearing deposits	1,967		1,967		0		1,967		0		—
Consolidated obligations, net:
Discount notes	35,519		35,527		0		35,527		0		—
Bonds	68,858		69,336		0		69,336		0		—
Mandatorily redeemable capital stock	1		1		1		0		0		0
Accrued interest payable	60		60		0		60		0		—
Derivative liabilities	9		9		0		580		0		(571)

____________ 

(1) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, and also cash collateral and related accrued interest held or placed with the same clearing agents and/or counterparty.

26

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

	As of December 31, 2019
			Estimated Fair Value
	Carrying Value		Total		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral (1)
Assets:
Cash and due from banks	$	911	$	911	$	911	$	0	$	0	$	—
Interest-bearing deposits	3,810		3,810		0		3,810		0		—
Securities purchased under agreements to resell	8,800		8,800		0		8,800		0		0
Federal funds sold	9,826		9,826		0		9,826		0		—
Trading securities	1,558		1,558		0		1,558		0		0
Available-for-sale securities	684		684		0		0		684		0
Held-to-maturity securities	25,939		25,903		0		25,711		192		0
Advances	97,167		97,365		0		97,365		0		—
Mortgage loans held for portfolio, net	296		324		0		324		0		—
Accrued interest receivable	259		259		0		259		0		—
Derivative assets	380		380		0		76		0		304
Grantor trust assets (included in Other assets)	68		68		68		0		0		—
Liabilities:
Interest-bearing deposits	1,492		1,492		0		1,492		0		—
Consolidated obligations, net:
Discount notes	52,134		52,138		0		52,138		0		—
Bonds	88,503		88,764		0		88,764		0		—
Mandatorily redeemable capital stock	1		1		1		0		0		0
Accrued interest payable	212		212		0		212		0		—
Derivative liabilities	7		7		0		222		0		(215)

____________ 

(1)Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, and also cash collateral and related accrued interest held or placed with the same clearing agents and/or counterparty.

Note 13—Commitments and Contingencies

Consolidated obligations are backed only by the financial resources of the FHLBanks. At any time, the Finance Agency may require any FHLBank to make principal or interest payments due on any consolidated obligation, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation. No FHLBank has ever had to assume or pay the consolidated obligation of another FHLBank.

The par value of the other FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable was $715,531 and $885,114 as of September 30, 2020 and December 31, 2019, respectively, exclusive of the Bank’s own outstanding consolidated obligations. None of the other FHLBanks defaulted on their consolidated obligations, the Finance Agency was not required to allocate any obligation among the FHLBanks, and no amount of the joint and several obligation was fixed as of September 30, 2020 and December 31, 2019. Accordingly, the Bank has not recognized a liability for its joint and several obligation related to the other FHLBanks’ consolidated obligations as of September 30, 2020 and December 31, 2019.

27

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

The following table presents the Bank’s outstanding commitments, which represent off-balance sheet obligations.

	As of September 30, 2020						As of December 31, 2019
	Expire Within One Year		Expire After One Year		Total		Expire Within One Year		Expire After One Year		Total
Standby letters of credit (1)	$	8,284	$	7,871	$	16,155	$	8,532	$	23,973	$	32,505
Commitments to fund additional advances	10		10		20		0		0		0
Unsettled consolidated obligation discount notes, at par (2)	0		0		0		2,000		0		2,000

____________

(1)“Expire Within One Year” includes 14 standby letters of credit for a total of $19 and 13 standby letters of credit for a total of $36 as of September 30, 2020 and December 31, 2019, respectively, which 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 carrying value of the guarantees related to standby letters of credit is recorded in “Other liabilities” on the Statements of Condition and amounted to $34 and $117 as of September 30, 2020 and December 31, 2019, respectively.

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

Note 14—Transactions with Shareholders

The Bank is a cooperative whose member institutions own substantially all of the capital stock of the Bank. Former members and certain non-members, which own the Bank’s capital stock as a result of a merger or acquisition of a member of the 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 Federal Home Loan Bank Act of 1932, as amended (FHLBank Act), and mortgage loans held for portfolio were purchased from members. The Bank also maintains demand deposit accounts primarily to facilitate settlement activities that are related directly to advances and mortgage loans purchased. Transactions with any member that has an officer or director who is also a director of the Bank are subject to the same Bank policies as transactions with other members.

Related Parties. In accordance with GAAP, financial statements are required to disclose material related-party transactions other 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 voting 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 required to be disclosed for the periods presented.

Shareholder Concentrations. The Bank considers shareholder concentration as members or non-members with regulatory capital stock outstanding in excess of 10 percent of the Bank’s total regulatory capital stock. There were no shareholders whose regulatory capital stock exceeded 10 percent of the total regulatory capital stock outstanding as of September 30, 2020. The following table presents transactions with shareholders whose holdings of regulatory capital stock exceeded 10 percent of total regulatory capital stock outstanding as of December 31, 2019.

	As of December 31, 2019
	Regulatory Capital Stock Outstanding		Percent of Total Regulatory Capital Stock Outstanding	Par Value of Advances		Percent of Total Par Value of Advances	Interest-bearing Deposits		Percent of Total Interest-bearing Deposits
Truist Bank	$	760	15.24	$	17,537	18.18	$	0	0

28

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Note 15—Subsequent Events

On October 29, 2020, the Bank's board of directors approved a cash dividend for the third quarter of 2020. The Bank paid the third quarter 2020 dividend on November 3, 2020 in the amount of $35.

29

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Information

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

Forward-looking statements may include statements related to, among others, the impact of the COVID-19 pandemic on the Bank, its employees, members and counterparties, or on the capital markets and the U.S. economy, which impact is evolving and unknowable at this time; the interest-rate environment; demand for Bank advances and FHLBank consolidated obligations; gains and losses on derivatives; plans to pay dividends and repurchase excess capital stock; future classification of securities; the impact of changes in product offerings; the impact of housing reform and other regulatory changes. These statements may involve matters pertaining to, but not limited to: projections regarding revenue, income, earnings, capital expenditures, dividends, liquidity, the capital structure and other financial items; statements of plans or objectives for future operations; expectations for future economic performance; and statements of assumptions underlying certain of the foregoing types of statements.

The forward-looking statements may not be realized due to a variety of factors, including, but not limited to risks and uncertainties relating to economic, competitive, governmental, technological and market factors, the impact of the COVID-19 pandemic, as well as those risk factors provided under Item 1A of the Bank’s most recent Form 10-K filed on March 5, 2020, and from time to time in the Bank’s other filings with the SEC, and elsewhere in this Report.

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 otherwise may be required by law.

The discussion presented below provides an analysis of the Bank’s financial condition as of September 30, 2020 and December 31, 2019, and results of operations for the third quarter and first nine months of 2020 and 2019. Management’s discussion and analysis should be read in conjunction with the financial statements and accompanying notes presented elsewhere in this Report, as well as the Bank’s audited financial statements for the year ended December 31, 2019.

Executive Summary

Recent Market Conditions

The Bank’s overall results of operations are influenced by the economy and the financial markets. In particular, market conditions impact members’ demand for advances and the Bank’s ability to maintain sufficient access to sources of funding at favorable costs. The COVID-19 pandemic continued to impact the financial markets during the third quarter of 2020. In light of these market conditions, the Federal Open Market Committee (FOMC) maintained the target range for federal funds of 0.00 percent to 0.25 percent, and market interest rates continued at historically low levels. Additionally, the Federal Reserve continued its emergency actions, initiated in March 2020, to help facilitate liquidity and support stability in the capital markets. In particular, the Federal Reserve has continued to increase its provision of liquidity to the repurchase agreements and U.S. Treasury markets through open market operations. Additional fiscal stimulus through the CARES Act and other measures has also led to increased liquidity and deposit levels at the Bank’s member institutions. As discussed below, these actions and market conditions reduced demand for the Bank’s advances during the third quarter. The Bank continued to meet its funding needs through September 30, 2020.

30

Operating Status Update

As a financial institution, the Bank is part of the nation’s critical infrastructure, has continually operated its business, and has continued to serve as a reliable source of funding for our members. The Bank continues to operate in Phase 2 of its return to office plan, pursuant to which approximately 25 percent of the Bank’s employees are working on-site. At this time the Bank cannot predict when its full employee base will return to work in its offices or the potential impact of the COVID-19 pandemic to our members, counterparties, vendors and other third parties upon which we rely upon to conduct our business. To date, the Bank has not experienced significant operational difficulties or disruptions, however the possibility exists, which could impair the Bank’s ability to conduct and manage its business effectively. To date, no member of the Bank’s executive management team has been incapacitated or unable to perform duties. The Bank’s board of directors regularly reviews the Bank’s succession plan in the event of incapacitation of any executive team member.

Financial Condition

As of September 30, 2020, total assets were $112.2 billion, a decrease of $37.7 billion, or 25.2 percent, from December 31, 2019. This decrease was primarily due to a $38.4 billion, or 39.5 percent, decrease in advances. Decreased demand for liquidity from the Bank’s members, as well as increased member deposits were the primary drivers of the decrease in advance balances.

As of September 30, 2020, total liabilities were $106.6 billion, a decrease of $36.1 billion, or 25.3 percent, from December 31, 2019. This decrease was primarily due to a $36.3 billion, or 25.8 percent, decrease in consolidated obligations. Consolidated obligations are the principal funding source used by the Bank and the decrease in funding was driven by the decrease in advance demand.

As of September 30, 2020, total capital was $5.5 billion, a decrease of $1.6 billion, or 22.9 percent, from December 31, 2019. This decrease was primarily due to a decrease in the Bank’s subclass B2 activity-based capital stock resulting from a decrease in the total outstanding advances during the period.

Results of Operations

The Bank recorded net interest income of $89 million for the third quarter of 2020, a decrease of $29 million, or 24.6 percent, from net interest income of $118 million for the same period in 2019. The Bank recorded net interest income of $264 million for the first nine months of 2020, a decrease of $130 million, or 32.8 percent, from net interest income of $394 million for the same period in 2019. The additional market liquidity from the monetary and fiscal stimulus actions resulted in lower demand from the Bank’s members for advances. Additionally, during 2020 market interest rates declined significantly and have remained at historically low levels. During the third quarter and first nine months of 2020, these low market interest rates impacted the Bank’s income on interest-earning assets resulting in lower net interest income.

The Bank recorded net income of $56 million for the third quarter of 2020, a decrease of $20 million, or 25.8 percent, from net income of $76 million for the same period in 2019. The Bank recorded net income of $220 million for the first nine months of 2020, a decrease of $50 million, or 18.5 percent, from net income of $270 million for the same period in 2019. The decrease in net income for the third quarter and first nine months of 2020, were primarily due to lower net interest income, as described above. Additionally, in January of 2020, the Bank made an additional voluntary $20 million retirement plan contribution which reduced net income for the first nine months of 2020. The decrease in net income for the first nine months of 2020 was partially offset by an $85 million gain from the sale of the Bank’s private-label MBS investment portfolio during the first quarter of 2020.

One way in which the Bank currently analyzes its performance is by comparing its annualized return on average equity (ROE) to three-month average London Interbank Offered Rate (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 3.95 percent and 4.33 percent for the third quarter and first nine months of 2020, respectively, compared to 4.24 percent and 5.02 percent for the same periods in 2019, respectively. The decrease in ROE was primarily due to the decrease in net income during third quarter and first nine months of 2020, compared to the same periods in 2019. ROE spread to three-month average LIBOR was 370 basis points and 354 basis points for the third quarter of 2020 and the first nine months of 2020, respectively, compared to 204 basis points and 256 basis points for the same periods in 2019, respectively. The increase in the ROE spread to three-month average LIBOR was primarily due to a decrease in three-month average LIBOR during the third quarter and first nine months of 2020, compared to the same periods in 2019. The Bank is currently planning for the eventual replacement of the LIBOR benchmark interest rate, including the probability of the Secured Overnight Financing Rate (SOFR) as the dominant replacement. For comparative purposes, the Bank’s ROE spread to average SOFR was 386 basis points and 388 basis points for the third quarter and first nine months of 2020, respectively.

31

The Bank’s interest-rate spread was 31 basis points for the third quarter of 2020, compared to 22 basis points for the same period in 2019. The increase in the Bank’s interest rate spread for the third quarter of 2020, compared to the same period in 2019, was primarily due to changes in interest rates that impacted the expense from interest-bearing liabilities more than the earnings from interest-bearing assets. The Bank’s interest-rate spread was 22 basis points for the first nine months of 2020, compared to 25 basis points for the same period in 2019. The decrease in the Bank’s interest-rate spread for the first nine months of 2020, compared to the same period in 2019, was primarily due to the decrease in market interest rates which impacted interest income related to interest-earning assets more than the offsetting interest expense related to interest-bearing liabilities.

Business Outlook

The factors impacting the Bank’s business outlook remain largely unchanged from the discussion in the Bank’s 2019 Form 10-K. External factors, including changes in interest rates, liquidity levels and loan demand at member institutions, the general state of the economy, and fiscal and monetary policies continue to impact the Bank’s overall business outlook and advance demand. The COVID-19 pandemic has and is expected to continue to influence these external factors and the financial markets. As discussed throughout this Report, the Federal Reserve has undertaken a number of emergency actions to increase market liquidity, which along with market conditions resulting from the COVID-19 pandemic, resulted in lower demand for new advances and prepayment of existing advances and a significantly lower advance balance as of September 30, 2020. The Bank expects that the current low market interest rate environment, as well as decreased advance demand, will continue into the foreseeable future, which is expected to reduce the Bank’s net income for 2020 and could decrease the Bank’s future net income. If the Bank experiences these lower levels of net income, the amount that the Bank pays as dividends could be impacted. The Bank relies on access to the capital markets to meet its funding needs, and the Bank expects continued sufficient access to capital markets. Given the evolving and unknowable effect of the COVID-19 pandemic on these external factors, the Bank cannot predict the extent to which, and the duration of, the impact to the Bank’s future business performance and profitability due to the COVID-19 pandemic. A more detailed discussion of the risks to the Bank associated with the COVID-19 pandemic is discussed in “Part II Other Information- Item 1A Risk Factors.”

32

Selected Financial Data

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

	As of and for the Three Months Ended
	September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019
Statements of Condition (at period end)
Total assets	$	112,165	$	126,596	$	189,392	$	149,857	$	150,880
Advances	58,802		67,221		137,037		97,167		102,466
Investments (1)	48,255		54,167		46,429		50,617		47,130
Mortgage loans held for portfolio	243		264		282		297		314
Allowance for credit losses on mortgage loans	(1)		(1)		(1)		(1)		(1)
Interest-bearing deposits	1,967		2,192		1,766		1,492		1,541
Consolidated obligations, net:
Discount notes (2)	35,519		58,295		96,490		52,134		55,049
Bonds (2)	68,858		59,925		81,856		88,503		86,423
Total consolidated obligations, net (2)	104,377		118,220		178,346		140,637		141,472
Mandatorily redeemable capital stock	1		1		1		1		1
Affordable Housing Program payable	86		92		95		89		84
Capital stock - putable	3,341		3,680		6,652		4,988		5,213
Retained earnings	2,198		2,200		2,185		2,153		2,132
Accumulated other comprehensive (loss) income	(17)		(18)		(19)		22		29
Total capital	5,522		5,862		8,818		7,163		7,374
Statements of Income (for the period ended)
Net interest income	89		90		85		141		118
Net impairment losses recognized in earnings	—		—		—		(6)		(4)
Net gains on trading securities	—		—		5		—		1
Net realized gains from sale of investment securities	—		—		85		—		—
Net gains (losses) on derivatives and hedging activities	1		(1)		(6)		1		(1)
Standby letters of credit fees	4		5		7		6		5
Other income	4		2		2		2		4
Noninterest expense	35		34		58		36		39
Income before assessment	63		62		120		108		84
Affordable Housing Program assessment	7		6		12		11		8
Net income	56		56		108		97		76
Performance Ratios (%)
Return on equity (3)	3.95		3.01		5.97		5.26		4.24
Return on assets (4)	0.20		0.14		0.28		0.25		0.21
Net interest margin (5)	0.33		0.22		0.23		0.37		0.32
Regulatory capital ratio (at period end) (6)	4.94		4.65		4.67		4.77		4.87
Equity to assets ratio (7)	5.17		4.53		4.76		4.72		4.84
Dividend payout ratio (8)	101.75		125.35		70.70		78.30		107.18

33

____________

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

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

September 30, 2020	$	715,531
June 30, 2020	797,560
March 31, 2020	996,251
December 31, 2019	885,114
September 30, 2019	868,664

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

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

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

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

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

(8) Calculated as dividends declared during the period divided by net income during the period.

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 September 30, 2020			As of December 31, 2019			Increase (Decrease)
	Amount		Percent of Total	Amount		Percent of Total	Amount		Percent
Advances	$	58,802	52.42	$	97,167	64.84	$	(38,365)	(39.48)
Investment securities	25,292		22.55	28,181		18.81	(2,889)		(10.25)
Other investments	22,963		20.47	22,436		14.97	527		2.35
Mortgage loans, net	242		0.22	296		0.20	(54)		(18.34)
Other assets	4,866		4.34	1,777		1.18	3,089		173.91
Total assets	$	112,165	100.00	$	149,857	100.00	$	(37,692)	(25.15)
Consolidated obligations, net:
Discount notes	$	35,519	33.31	$	52,134	36.53	$	(16,615)	(31.87)
Bonds	68,858		64.57	88,503		62.02	(19,645)		(22.20)
Deposits	1,967		1.84	1,492		1.05	475		31.77
Other liabilities	299		0.28	565		0.40	(266)		(47.00)
Total liabilities	$	106,643	100.00	$	142,694	100.00	$	(36,051)	(25.26)
Capital stock	$	3,341	60.49	$	4,988	69.63	$	(1,647)	(33.02)
Retained earnings	2,198		39.82	2,153		30.06	45		2.10
Accumulated other comprehensive (loss) income	(17)		(0.31)	22		0.31	(39)		(177.58)
Total capital	$	5,522	100.00	$	7,163	100.00	$	(1,641)	(22.91)

Advances

Total advances decreased by 39.5 percent as of September 30, 2020, compared to December 31, 2019. In response to the deteriorating market conditions in early 2020, the Federal Reserve implemented a number of asset purchase programs to provide additional liquidity to the financial markets. The additional market liquidity from monetary and fiscal stimulus actions resulted in increased deposits at the Bank’s members and lower demand for the Bank’s advances. The Bank expects that advance demand will continue at reduced levels. A significant percentage of advances made during the first nine months of 2020 were short-term advances.

As of September 30, 2020, 76.1 percent of the Bank’s advances were fixed-rate, compared to 64.6 percent as of December 31, 2019. However, the Bank often simultaneously entered into derivatives with the issuance of advances to convert the rates on them, in effect, into short-term variable interest rates, which primarily based on LIBOR and SOFR. As of September 30, 2020 and December 31, 2019, 62.0 percent and 46.7 percent, respectively, of the Bank’s fixed-rate advances were swapped, and 3.23 percent and 2.03 percent, respectively, of the Bank’s variable-rate advances, which contained optionality, were swapped. The majority of the Bank’s variable-rate advances were indexed to LIBOR and SOFR. Beginning June 30, 2020, the Bank ceased

34

issuing LIBOR-based advances and entering into LIBOR-based derivatives with maturities/termination dates beyond December 31, 2021. The Bank also offers variable-rate advances that may be tied to other indices, such as the federal funds rate, prime rate, SOFR, or constant maturity swap rates.

The following table presents the par value of outstanding advances by product characteristics (dollars in millions).

	As of September 30, 2020			As of December 31, 2019
	Amount		Percent of Total	Amount		Percent of Total
Fixed rate (1)	$	36,839	64.68	$	57,711	59.83
Adjustable or variable-rate indexed	13,193		23.16	33,412		34.64
Convertible	5,998		10.53	4,261		4.42
Principal reducing credit	931		1.63	1,072		1.11
Total par value	$	56,961	100.00	$	96,456	100.00

____________ 

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

Refer to Note 6—Advances to the Bank’s interim financial statements for the concentration of the Bank’s advances to its 10 largest borrowing institutions.

35

Investments

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

					Increase (Decrease)
	As of September 30, 2020		As of December 31, 2019		Amount		Percent
Investment securities:
Government-sponsored enterprises debt obligations	$	3,967	$	4,556	$	(589)	(12.91)
U.S. Treasury obligations	1,501		1,499		2		0.10
State or local housing agency debt obligations	1		1		—		—
Mortgage-backed securities:
U.S. agency obligations-guaranteed residential	312		89		223		251.23
Government-sponsored enterprises residential	7,986		8,642		(656)		(7.60)
Government-sponsored enterprises commercial	11,525		12,518		(993)		(7.93)
Private-label residential	—		876		(876)		(100.00)
Total mortgage-backed securities	19,823		22,125		(2,302)		(10.40)
Total investment securities	25,292		28,181		(2,889)		(10.25)
Other investments:
Interest-bearing deposits (1)	1,398		3,810		(2,412)		(63.30)
Securities purchased under agreements to resell	13,000		8,800		4,200		47.73
Federal funds sold (2)	8,565		9,826		(1,261)		(12.83)
Total other investments	22,963		22,436		527		2.35
Total investments	$	48,255	$	50,617	$	(2,362)	(4.67)

____________ 

(1)Interest-bearing deposits includes a $430 million and $508 million business money market account with Truist Bank one of the Bank’s 10 largest borrowers, as of September 30, 2020 and December 31, 2019, respectively.

(2) Federal funds sold includes $180 million and $100 million with BankUnited, National Association, one of the Bank’s 10 largest borrowers as of September 30, 2020 and December 31, 2019.

The decrease in total investment securities was primarily due to the prepayments that occurred during the first nine months of 2020 and the sale of the Bank’s private-label residential mortgage backed securities portfolio which occurred in the first quarter of 2020. The amount held in other investments will vary each day based on the Bank’s liquidity needs as a result of advances demand, the earnings rates, and the availability of high quality counterparties in the federal funds market.

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. As of September 30, 2020 and December 31, 2019, these investments were 358 percent and 309 percent of the Bank’s regulatory capital, respectively. These investments exceeded the 300 percent level due to a decrease in regulatory capital that resulted from a decrease in advances at September 30, 2020 and December 31, 2019. The Bank was in compliance with this regulatory requirement at the time of its MBS purchases and was not required to sell any previously purchased MBS. However, the Bank is precluded from purchasing additional MBS until its MBS to regulatory capital declines below 300 percent.

36

Mortgage Loans Held for Portfolio

The decrease in mortgage loans held for portfolio from December 31, 2019 to September 30, 2020 was primarily due to the maturity and prepayment of these assets during the period.

Members that sold mortgage loans to the Bank were located primarily in the southeastern United States; therefore, the Bank’s conventional mortgage loan portfolio was concentrated in that region as of September 30, 2020 and December 31, 2019. 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 September 30, 2020	As of December 31, 2019
	Percent of Total	Percent of Total
Florida	22.89	22.36
South Carolina	20.64	20.47
Virginia	11.02	11.61
Georgia	10.22	9.96
North Carolina	7.96	8.13
All other	27.27	27.47
Total	100.00	100.00

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, 2019 to September 30, 2020 was primarily a result of a decrease in advances outstanding during the period. Consolidated obligation issuances financed 93.1 percent of the $112.2 billion in total assets as of September 30, 2020, remaining relatively stable compared to the financing ratio of 93.9 percent as of December 31, 2019.

The Bank often simultaneously entered into derivatives with the issuance of consolidated obligation bonds to convert the interest rates, in effect, into short-term variable interest rates, primarily based on LIBOR and SOFR. As of September 30, 2020 and December 31, 2019, 26.8 percent and 83.3 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 September 30, 2020 and December 31, 2019. As of September 30, 2020 and December 31, 2019, 20.7 percent and 33.9 percent, respectively, of the Bank’s fixed-rate consolidated obligation discount notes were swapped. Beginning June 30, 2020, the Bank ceased issuing LIBOR-based consolidated obligation bonds and entering into LIBOR-based derivatives with maturities/termination dates beyond December 31, 2021.

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 was in compliance with these regulatory capital rules and requirements as shown in Note 9—Capital and Mandatorily Redeemable Capital Stock to the Bank’s interim 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;

37

•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 September 25, 2020 the Bank received notification from the Director that, based on June 30, 2020 data, the Bank meets the definition of “adequately capitalized.”

In August 2019, the Finance Agency issued an Advisory Bulletin providing for each FHLBank to maintain a ratio of at least two percent of capital stock to total assets, measured on a daily average basis at month end, which it began assessing in February 2020. As of September 30, 2020, the Bank’s capital stock ratio was 3.15 percent.

The Bank’s capital management plan is discussed in more detail in the Bank’s Form 10-K, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Capital.

38

Results of Operations

The following is a discussion and analysis of the Bank’s results of operations for the third quarter and first nine months of 2020 and 2019.

Net Income

The following table presents the Bank’s significant income items for the third quarter and first nine months of 2020 and 2019, and provides information regarding the changes during those periods (dollars in millions). These items are discussed in more detail below.

	For the Three Months Ended September 30,				Increase (Decrease)			For the Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		Percent	2020		2019		Amount		Percent
Net interest income	$	89	$	118	$	(29)	(24.55)	$	264	$	394	$	(130)	(32.81)
Noninterest income	9		5		4		60.03	108		16		92		*
Noninterest expense	35		39		(4)		(9.12)	127		110		17		15.74
Affordable Housing Program assessment	7		8		(1)		(25.86)	25		30		(5)		(18.45)
Net income	$	56	$	76	$	(20)	(25.84)	$	220	$	270	$	(50)	(18.46)

____________ 

* Not meaningful

Net Interest Income

The primary source of the Bank’s earnings is net interest income. Net interest income equals interest earned on assets (including member advances, mortgage loans, MBS held in portfolio, and other investments), less the interest expense incurred on liabilities (including consolidated obligations, deposits, and other borrowings). Also included in net interest income are miscellaneous related items, such as prepayment fees, the amortization of debt issuance discounts, concession fees, and certain derivative instruments and hedging activities related adjustments. During the first nine months of 2019, the Bank recognized significant improvements in expected cash flows related to other-than-temporary impairment securities through net interest income.

As discussed above, net interest income includes components of hedging activity. When hedging relationships qualify for hedge accounting, the interest components of the hedging derivatives will be reflected in interest income or expense. Fair value gains and losses of derivatives and hedged items designated in fair value hedge relationships are also recognized in interest income or interest expense. When a hedging relationship is discontinued, the cumulative fair value adjustment on the hedged item will be amortized into interest income or expense over the remaining life of the asset or liability. The impact of hedging on net interest income was a decrease of $93 million and $21 million for the third quarter of 2020 and 2019, and a decrease of $197 and $34 million for the first nine months of 2020 and 2019, respectively.

The decreases in net interest income for the third quarter and first nine months of 2020, compared to the same periods in 2019, were due to decreased advance balances, as well as lower interest rates. During 2020, market interest rates declined significantly and have remained as historically low levels and these low market interest rates further impacted the Bank’s income on interest-earning assets. As noted previously, during 2020, conditions in the financial markets have been impacted by the global pandemic associated with COVID-19. In response to these market conditions, the FOMC lowered the target range for federal funds to 0.00 percent to 0.25 percent. Additionally, the Federal Reserve implemented a number of asset purchase programs to provide additional liquidity to the financial markets. The additional market liquidity, as well as increased deposit levels at the Bank’s members, resulted in lower demand for Bank’s advances.

The following tables present spreads between the average yield on total interest-earning assets and the average cost of interest-bearing liabilities for the third quarter and first nine months of 2020 and 2019 (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, when 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. When derivatives do not qualify for fair-value hedge accounting under GAAP, the interest income or expense associated with the derivatives is excluded from net interest income and from the calculation of interest-rate spread and is recorded in “Noninterest income (loss)” as “Net gains (losses) on derivatives and hedging activities.” Amortization associated with hedging-related basis adjustments is also reflected in net interest income, which affects interest-rate spread.

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The Bank’s interest-rate spread was 31 basis points and 22 basis points for the third quarter and first nine months of 2020, respectively, compared to 22 basis points and 25 basis points for the same periods in 2019. The increase in the Bank’s interest rate spread for the third quarter of 2020, compared to the same period in 2019, was primarily due to changes in interest rates that impacted the expense from interest-bearing liabilities more than the earnings from interest-bearing asset. The decrease in the Bank’s interest-rate spread for the first nine months of 2020, compared to the same period in 2019, was primarily due to the decrease in interest rates that impacted the earnings from interest-bearing assets more than the expense from interest-bearing liabilities.

	For the Three Months Ended September 30,
	2020					2019
	Average  Balance		Interest		Yield/     Rate (%)	Average  Balance		Interest		Yield/     Rate (%)
Assets
Interest-bearing deposits (1)	$	2,780	$	1	0.15	$	3,910	$	23	2.29
Securities purchased under agreements to resell	8,821		2		0.09	6,047		34		2.25
Federal funds sold	9,231		2		0.09	11,257		63		2.23
Investment securities (2)	24,742		45		0.73	27,805		204		2.92
Advances	62,822		135		0.85	96,156		584		2.41
Mortgage loans (3)	253		3		4.73	321		5		5.75
Loans to other FHLBanks	—		—		—	36		—		2.21
Total interest-earning assets	108,649		188		0.69	145,532		913		2.49
Allowance for credit losses on mortgage loans	(1)					(1)
Other assets	1,130					1,275
Total assets	$	109,778				$	146,806
Liabilities and Capital
Interest-bearing deposits (4)	$	2,179	—		0.01	$	1,446	8		2.09
Consolidated obligations, net:
Discount notes	38,639		40		0.41	62,907		363		2.29
Bonds	62,313		59		0.38	74,611		424		2.26
Other borrowings	1		—		0.39	3		—		4.70
Total interest-bearing liabilities	103,132		99		0.38	138,967		795		2.27
Other liabilities	974					737
Total capital	5,672					7,102
Total liabilities and capital	$	109,778				$	146,806
Net interest income and net yield on interest-earning assets			$	89	0.33			$	118	0.32
Interest-rate spread					0.31					0.22
Average interest-earning assets to interest-bearing liabilities					105.35					104.72

____________ 

(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 mortgage 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.

40

	For the Nine Months Ended September 30,
	2020					2019
	Average  Balance		Interest		Yield/     Rate (%)	Average  Balance		Interest		Yield/     Rate (%)
Assets
Interest-bearing deposits (1)	$	3,571	$	17	0.63	$	4,148	$	76	2.44
Securities purchased under agreements to resell	8,010		30		0.50	4,970		88		2.36
Federal funds sold	14,089		46		0.44	12,200		218		2.39
Investment securities (2)	25,228		254		1.34	26,190		605		3.09
Advances	89,441		786		1.17	97,897		1,899		2.59
Mortgage loans (3)	271		10		4.93	337		14		5.58
Loans to other FHLBanks	—		—		—	17		—		2.54
Total interest-earning assets	140,610		1,143		1.09	145,759		2,900		2.66
Allowance for credit losses on mortgage loans	(1)					(1)
Other assets	1,813					1,148
Total assets	$	142,422				$	146,906
Liabilities and Capital
Interest-bearing deposits (4)	$	1,951	5		0.32	$	1,243	21		2.23
Consolidated obligations, net:
Discount notes	60,145		344		0.76	63,794		1,145		2.40
Bonds	72,511		530		0.98	73,930		1,340		2.42
Other borrowings	2		—		4.52	9		—		3.16
Total interest-bearing liabilities	134,609		879		0.87	138,976		2,506		2.41
Other liabilities	1,009					739
Total capital	6,804					7,191
Total liabilities and capital	$	142,422				$	146,906
Net interest income and net yield on interest-earning assets			$	264	0.25			$	394	0.36
Interest-rate spread					0.22					0.25
Average interest-earning assets to interest-bearing liabilities					104.46					104.88

____________ 

(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 mortgage loans are included in average balances used to determine average rate.

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

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Net interest income for the periods presented was affected by changes in average balances (volume changes) and changes in average rates (rate changes) of interest-earning assets and interest-bearing liabilities. The following table presents the extent to which volume changes and rate changes affected the Bank’s interest income and interest expense (in millions). As presented in the table below, the overall change in net interest income during the third quarter of 2020, compared to the same period in 2019, was primarily related to changes in average balances. The overall change in net interest income during the first nine months of 2020, compared to the same period in 2019, was primarily rate related.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020 vs. 2019						2020 vs. 2019
	Volume (1)		Rate (1)		Increase (Decrease)		Volume (1)		Rate (1)		Increase (Decrease)
Increase (decrease) in interest income:
Interest-bearing deposits	$	(5)	$	(17)	$	(22)	$	(9)	$	(50)	$	(59)
Securities purchased under agreements to resell	11		(43)		(32)		35		(93)		(58)
Federal funds sold	(10)		(51)		(61)		29		(201)		(172)
Investment securities	(20)		(139)		(159)		(21)		(330)		(351)
Advances	(156)		(293)		(449)		(152)		(961)		(1,113)
Mortgage loans	(1)		(1)		(2)		(3)		(1)		(4)
Total	(181)		(544)		(725)		(121)		(1,636)		(1,757)
Increase (decrease) in interest expense:
Interest-bearing deposits	2		(10)		(8)		8		(24)		(16)
Consolidated obligations, net:
Discount notes	(103)		(220)		(323)		(62)		(739)		(801)
Bonds	(60)		(305)		(365)		(25)		(785)		(810)
Total	(161)		(535)		(696)		(79)		(1,548)		(1,627)
Decrease in net interest income	$	(20)	$	(9)	$	(29)	$	(42)	$	(88)	$	(130)

____________ 

(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.

Derivatives and Hedging Activity

The following tables present the net effect of derivatives and hedging activity on the Bank’s results of operations (in millions).

	For the Three Months Ended September 30, 2020
	Advances		Investments		Consolidated Obligation Bonds		Consolidated Obligation Discount Notes		Total
Net interest income:
Amortization or accretion of active hedging relationships	$	(15)	$	—	$	—	$	—	$	(15)
Net changes in fair value hedges	17		—		1		(1)		17
Net interest settlements on derivatives (1)	(109)		—		15		—		(94)
Other (2)	(1)		—		—		—		(1)
Total effect on net interest income	$	(108)	$	—	$	16	$	(1)	$	(93)
Net losses on derivatives:
Gains on derivatives not receiving hedge accounting including net interest settlements	$	—	$	1	$	—	$	—	$	1
Net losses on trading securities (3)	—		(1)		—		—		(1)
Total effect on noninterest income	$	—	$	—	$	—	$	—	$	—

____________

(1)Represents interest income or expense on derivatives included in net interest income.

(2)Amount in “Other” includes the price alignment amount on derivatives for which variation margin is characterized as daily settled contract.

(3)Includes only those gains or losses on trading securities or financial instruments held at fair value that have an economic derivative “assigned;” therefore, this line item may not agree to the income statement.

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	For the Three Months Ended September 30, 2019
	Advances		Investments		Consolidated Obligation Bonds		Total
Net interest income:
Amortization or accretion of active hedging relationships	$	(5)	$	—	$	—	$	(5)
Net changes in fair value hedges	(12)		—		1		(11)
Net interest settlements on derivatives (1)	1		—		(2)		(1)
Other (2)	(3)		—		(1)		(4)
Total effect on net interest income	$	(19)	$	—	$	(2)	$	(21)
Net losses on derivatives:
Losses on derivatives not receiving hedge accounting including net interest settlements	$	—	$	(1)	$	—	$	(1)
Net gains on trading securities (3)	—		1		—		1
Total effect on noninterest income	$	—	$	—	$	—	$	—

____________

(1)Represents interest income or expense on derivatives included in net interest income.

(2)Amount in “Other” includes the price alignment amount on derivatives for which variation margin is characterized as daily settled contract.

(3)Includes only those gains or losses on trading securities or financial instruments held at fair value that have an economic derivative “assigned;” therefore, this line item may not agree to the income statement.

	For the Nine Months Ended September 30, 2020
	Advances		Investments		Consolidated Obligation Bonds		Consolidated Obligation Discount Notes		Total
Net interest income:
Amortization or accretion of active hedging relationships	$	(39)	$	—	$	(2)	$	—	$	(41)
Net changes in fair value hedges	9		—		2		—		11
Net interest settlements on derivatives (1)	(238)		—		34		38		(166)
Other (2)	(1)		—		—		—		(1)
Total effect on net interest income	$	(269)	$	—	$	34	$	38	$	(197)
Net losses on derivatives:
Losses on derivatives not receiving hedge accounting including net interest settlements	$	(2)	$	(4)	$	—	$	—	$	(6)
Net gains on trading securities (3)	—		3		—		—		3
Total effect on noninterest income	$	(2)	$	(1)	$	—	$	—	$	(3)

____________

(1)Represents interest income or expense on derivatives included in net interest income.

(2)Amount in “Other” includes the price alignment amount on derivatives for which variation margin is characterized as daily settled contract.

(3)Includes only those gains or losses on trading securities or financial instruments held at fair value that have an economic derivative “assigned;” therefore, this line item may not agree to the income statement.

	For the Nine Months Ended September 30, 2019
	Advances		Investments		Consolidated Obligation Bonds		Balance Sheet		Total
Net interest income:
Amortization or accretion of active hedging relationships	$	(17)	$	—	$	—	$	—	$	(17)
Net changes in fair value hedges	(12)		—		(4)		—		(16)
Net interest settlements on derivatives (1)	35		—		(32)		—		3
Other (2)	(3)		—		(1)		—		(4)
Total effect on net interest income	$	3	$	—	$	(37)	$	—	$	(34)
Net losses on derivatives:
Losses on derivatives not receiving hedge accounting including net interest settlements	$	—	$	(4)	$	—	$	(1)	$	(5)
Net gains on trading securities (3)	—		4		—		—		4
Total effect on noninterest income	$	—	$	—	$	—	$	(1)	$	(1)

____________ 

(1)Represents interest income or expense on derivatives included in net interest income.

(2)Amount in “Other” includes the price alignment amount on derivatives for which variation margin is characterized as daily settled contract.

43

(3)Includes only those gains or losses on trading securities or financial instruments held at fair value that have an economic derivative “assigned;” therefore, this line item may not agree to the income statement.

Noninterest Income (Loss)

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

	For the Three Months Ended September 30,				Increase (Decrease)			For the Nine Months Ended September 30,				Increase (Decrease)
	2020		2019		Amount		Percent	2020		2019		Amount		Percent
Net impairment losses recognized in earnings	$	—	$	(4)	$	4	100.00	$	—	$	(7)	$	7	100.00
Net gains on trading securities	—		1		(1)		(291.34)	5		3		2		84.35
Net realized gains from sale of investment securities	—		—		—		—	85		—		85		—
Net gains (losses) on derivatives and hedging activities	1		(1)		2		116.99	(6)		(5)		(1)		(23.11)
Standby letters of credit fees	4		5		(1)		(37.31)	16		18		(2)		(14.10)
Other	4		4		—		18.84	8		7		1		13.57
Total noninterest income	$	9	$	5	$	4	60.03	$	108	$	16	$	92	*

____________ 

* Not meaningful

During the first quarter of 2020, the Bank sold its entire private-label MBS portfolio. Proceeds from the sale totaled $921 million and resulted in a realized gain of $85 million.

Noninterest Expense and Affordable Housing Program (AHP) Assessment

Total noninterest expense was relatively stable for the third quarter of 2020 compared to the same period in 2019. The increase in total noninterest expense for the first nine months of 2020, compared to the same period in 2019, was primarily due to the Bank making an additional $20 million retirement plan contribution during January of 2020, which was recorded in compensation and benefits expense.

The Bank records AHP assessment expense at a rate of 10 percent of income before assessment, excluding interest expense on mandatorily redeemable capital stock.

Liquidity and Capital Resources

Liquidity is necessary to satisfy members’ borrowing needs on a timely basis, repay maturing and called consolidated obligations, and meet other obligations and operating requirements. Many members rely on the Bank as a source of standby liquidity, so the Bank attempts to be in a position to meet member funding needs on a timely basis. The Bank is required to maintain liquidity in accordance with the FHLBank Act, Finance Agency regulations, and policies established by the Bank’s management and board of directors. In addition, the Finance Agency, at times, has issued guidance and expectations to the FHLBanks related to liquidity.

Liquidity Reserves for Deposits. Finance Agency regulations require the Bank to hold a total amount of cash, obligations of the U.S., and advances with maturities of less than five years, in an amount not less than the amount of total member deposits. The Bank has complied with this requirement during the first nine months of 2020.

Operational Liquidity. In order to ensure adequate operational liquidity (generally, the ready cash and borrowing capacity available to meet the Bank’s intra-day needs) each day, Bank policy establishes a daily liquidity target based upon member deposit levels and current day liability maturities and asset settlements. The Bank met this liquidity requirement throughout the first nine months of 2020.

Additional Liquidity Guidance. In 2018, the Finance Agency issued an Advisory Bulletin on FHLBank liquidity (Liquidity Guidance AB) that communicates the Finance Agency’s expectations with respect to the maintenance of sufficient liquidity to enable the Bank to provide advances and standby letters of credit for members during a sustained capital market disruption, assuming no access to capital markets and assuming renewal of all maturing advances for a period of between ten to thirty calendar days. Contemporaneously with the issuance of the Liquidity Guidance AB, the Finance Agency issued a supervisory

44

letter that identifies initial thresholds for measures of liquidity within the established ranges set forth in the Liquidity Guidance AB.

The Liquidity Guidance AB’s measurements of liquidity include a cash flow scenario, on a daily basis, that projects forward the number of days for which the Bank should maintain positive cash balances assuming the renewal of all maturing advances and the maintenance of a liquidity reserve for outstanding letters of credit. The measurements of liquidity also include a funding gap measurement of the difference between assets and liabilities that are scheduled to mature during a specified period, expressed as a percentage of the Bank’s total assets to reduce the liquidity risks associated with a mismatch in asset and liability maturities, including an undue reliance on short-term debt funding, which may increase debt rollover risk.

The Bank has increased the amount of liquid assets it holds to meet this guidance. The Bank has met this liquidity requirement as directed by the Finance Agency throughout the first nine months of 2020.

Sources of Liquidity. The Bank’s principal source of liquidity is consolidated 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. The Bank’s consolidated obligations are not obligations of the United States and are not guaranteed by either the United States or any government agency, but have historically received the same credit rating as the government bond credit rating of the United States. As a result, the Bank generally has comparatively stable access to funding through a diverse investor base at relatively favorable spreads to U.S. Treasury rates. The Bank’s income and liquidity would be adversely affected if it were not able to access the capital markets at competitive rates for an extended period.

As discussed elsewhere in this Report, the COVID-19 pandemic continued to impact the financial markets during the third quarter of 2020. The Bank maintained continual access to funding and adapted its debt issuance to meet the needs of its members throughout the first nine months of 2020. The Bank relies on access to the capital markets to meet its funding needs, and the Bank expects continued sufficient access to capital markets. 

The Bank’s short-term funding is generally driven by member demand and is achieved through the issuance of consolidated discount notes and short-term consolidated bonds. Access to short-term debt markets has been reliable because investors, driven by increased liquidity preferences and risk aversion, including the effects of money market fund reform, have often sought the Bank’s short-term debt as an asset of choice.

The Bank is focused on maintaining an adequate liquidity balance and a funding balance between its financial assets and financial liabilities and the FHLBanks work collectively to manage the system-wide liquidity and funding needs. Management and the FHLBanks jointly monitor the combined refinancing risk primarily by tracking the maturities of financial assets and financial liabilities. The Bank monitors the funding balance between financial assets and financial liabilities and is committed to prudent risk management practices. 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). External factors including Bank member borrowing needs, supply and demand in the debt markets, and other factors may also affect the liquidity balances and the funding balance between financial assets and financial liabilities. See the notes to the Bank’s interim 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. Under the FHLBank Act, the Secretary of Treasury has the authority, at his discretion, to purchase consolidated 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 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 consolidated 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. As of September 30, 2020 and December 31, 2019, none of the other FHLBanks defaulted on their consolidated obligations; the Finance Agency was not required to allocate any obligation

45

among the FHLBanks; and no amount of the joint and several obligation was fixed. Accordingly, the Bank has not recognized a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations as of September 30, 2020 and December 31, 2019. As of September 30, 2020, the FHLBanks had $819.9 billion in aggregate par value of consolidated obligations issued and outstanding, $104.3 billion of which was attributable to the Bank. No FHLBank has ever defaulted on its principal or interest payments under any consolidated obligation, and the Bank has never been required to make payments under any consolidated obligation as a result of the failure of another FHLBank to meet its obligations.

The Bank generally requires standby letters of credit to contain language permitting the Bank, upon annual renewal dates and prior notice to the beneficiary, to choose not to renew the standby letter of credit, which effectively terminates the standby letter of credit prior to its scheduled final expiration date. Based on the creditworthiness of the member applicant and appropriate additional fees, the Bank may issue standby letters of credit that have terms of longer than one year without annual renewals or that have no stated maturity and are subject to renewal on an annual basis.

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. 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. 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 September 30, 2020.

Refer to Note 13—Commitments and Contingencies to the Bank’s interim financial statements for more information about the Bank’s outstanding standby letters of credit.

Contractual Obligations

As of September 30, 2020, there have been no material changes outside the ordinary course of business in the Bank’s contractual obligations as reported in the Bank’s Form 10-K.

Legislative and Regulatory Developments

Significant regulatory actions and developments for the period covered by this Report not previously disclosed are summarized below.

LIBOR Transition – ISDA 2020 IBOR Fallbacks Protocol and Supplement to the 2006 ISDA Definitions. On October 23, 2020, the International Swaps and Derivatives Association, Inc. (ISDA), launched the Supplement to the 2006 ISDA Definitions (Supplement) and the ISDA 2020 IBOR Fallbacks Protocol (Protocol). Both the Supplement and the Protocol will take effect on January 25, 2021.On that date, all legacy bilateral derivatives transactions subject to Protocol-covered agreements (including ISDA agreements) that incorporate certain covered ISDA definitional booklets and reference covered IBORs, including US Dollar LIBOR, will be amended to apply the new ISDA-recommended IBOR fallbacks in the event of the relevant IBOR’s cessation. Both an FHLBank and its relevant counterparty must have adhered to the Protocol in order to effectively amend legacy derivative contracts, otherwise the parties must bilaterally agree to include amended legacy contracts to address LIBOR fallbacks. The Protocol will remain open for adherence after this effective date. As of January 25, 2021, new and future derivative contracts will be subject to the relevant IBOR fallbacks set forth in the Supplement.

On October 21, 2020, the Finance Agency issued a Supervisory Letter to the FHLBanks that requires each FHLBank to adhere to the Protocol no later than December 31, 2020, and to the extent necessary, to amend any bilateral agreements regarding the adoption of the Protocol by December 15, 2020.

The Bank has adhered to the Protocol and will work with its counterparties, as necessary, to address its over-the-counter derivative agreements referencing US Dollar LIBOR as a part of its LIBOR Transition efforts. As of the date of this Report, substantially all of the Bank’s counterparties have also adhered to the Protocol.

Margin and Capital Requirements for Covered Swap Entities. On July 1, 2020, the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), the Farm Credit Administration, and the Finance Agency (collectively, Prudential Banking Regulators) jointly published a final rule, effective August 31, 2020, amending regulations that established minimum margin and capital requirements for uncleared swaps for covered swap entities under the jurisdiction of the Prudential Banking Regulators (Prudential Margin Rules) which, among other changes: (1) allows swaps entered into by a covered swap entity prior to an applicable compliance date to retain their legacy status and not become subject to the Prudential Margin Rules in the event that the legacy swaps are amended to replace an interbank offered rate (such as LIBOR) or other discontinued rate; and (2) introduces a new Phase 6 compliance date for

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initial margin requirements for covered swap entities and their counterparties with an average daily aggregate notional amount (AANA) of uncleared swaps from $8 billion to $50 billion, and limits Phase 5 to counterparties with an AANA of uncleared swaps from $50 billion to $750 billion; and (3) clarifies that initial margin trading documentation does not need to be executed prior to a counterparty reaching the initial margin threshold.

On the same date, the Prudential Banking Regulators issued an interim final rule, effective September 1, 2020, extending the initial margin compliance date for Phase 5 counterparties to September 1, 2021 and extending the initial margin compliance date for Phase 6 counterparties to September 1, 2022. On July 10, 2020, the Commodity Futures Trading Commission (CFTC) issued a final rule and a proposed rule to amend the minimum margin and capital requirements for uncleared swaps under the jurisdiction of the CFTC (CFTC Margin Rules) which collectively, among other things, extend the initial margin compliance date for Phase 5 counterparties to September 1, 2021 and extend the initial margin compliance date for Phase 6 counterparties to September 1, 2022, thereby aligning with the Prudential Banking Regulators.

On September 22, 2020, the CFTC issued a proposed rule to amend the CFTC Margin Rules which would permit, among other changes, covered swap entities to maintain separate minimum transfer amounts (MTA) for initial and variation margin for each swap counterparty, provided the combined MTA does not exceed $500,000. Separately, on September 23, 2020, the CFTC issued a proposed rule to address concerns by covered entities related to determining IM compliance across different regulators and jurisdictions. The CFTC’s proposed rule would, among other things, require entities subject to the CFTC’s jurisdiction to calculate the AANA for uncleared swaps during March, April and May of the current year, based on an average of month-end dates, as opposed to the existing requirement which requires the calculation of AANA during June, July and August of the prior year, based on daily calculations. Parties would continue to be expected to exchange IM based on the AANA totals as of September 1 of the current year. The proposed change aligns with the recommendation of the Basel Committee on Banking Supervision and Board of the International Organization of Securities Commission.

The Bank does not expect these final or proposed rules, if adopted as proposed, to have a material effect on its financial condition or results of operations.

Legislative and Regulatory Developments Related to COVID-19 Pandemic

Finance Agency Supervisory Letter - Paycheck Protection Program (PPP) Loans as Collateral for FHLBank Advances. On July 1, 2020, Congress approved an extension of the Paycheck Protection Program until August 8, 2020. The April 23, 2020 Supervisory Letter from the Finance Agency allowing FHLBanks to accept PPP loans as collateral remains in effect.

Federal Reserve Lending Facilities. The Federal Reserve announced on July 28, 2020 that its lending facilities scheduled to expire on or around September 30, 2020 would be extended through December 31, 2020.

Coronavirus Aid, Relief, and Economic Security Act. The CARES Act provisions began to expire in July 2020, but some have been extended by regulatory action.

–Additional federal unemployment funds expired July 31, 2020.

–Statutory eviction freeze for federally-backed properties expired July 25, 2020.

–Foreclosure moratorium on federally-backed properties and on evictions was extended by the Finance Agency on August 27, 2020 to until “at least” December 31, 2020.

Additional phases of the CARES Act or other COVID-19 pandemic relief legislation may be enacted by Congress. The Bank continues to evaluate the potential impact of the CARES Act on its business, including its continued impact to the U.S. economy; impacts to mortgages held or serviced by the Bank’s members and that the Bank accepts as collateral; and the impacts on the Bank’s MPF program.

Additional COVID-19 Presidential, Legislative and Regulatory Developments. In light of the COVID-19 pandemic, the President, through executive orders, governmental agencies, including the Securities and Exchange Commission, OCC, Federal Reserve, FDIC, National Credit Union Administration, CFTC and the Finance Agency, as well as state governments and agencies, have taken, and may continue to take, actions to provide various forms of relief from, and guidance regarding, the financial, operational, credit, market, and other effects of the pandemic, some of which may have a direct or indirect impact on the Bank or its members. Many of these actions are temporary in nature. The Bank continues to monitor these actions and guidance as they evolve and to evaluate their potential impact on the Bank.

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Risk Management

The Bank’s lending, investment and funding activities, and 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 strategic and tactical decisions. Additionally, the Bank aspires to (1) sustain a corporate culture of transparency, integrity, and adherence to legal and ethical obligations; and (2) achieve and exceed best practices in governance, ethics, and compliance.

The Bank’s board of directors and management have established a risk appetite statement and risk metrics for controlling and escalating actions based on the continuing objectives that represent the foundation of the Bank’s strategic and tactical planning, as described in the Bank’s Form 10-K.

Discussion of the Bank’s management of its LIBOR transition risk, credit risk and market risk is provided below. Further discussion of these risks, as well as the Bank’s management of its liquidity, operational, and business risks, is contained in the Bank’s Form 10-K.

Transition of LIBOR to an Alternative Reference Rate

In July 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that after 2021 it will no longer persuade or compel banks to submit rates for the calculation of LIBOR. In response, the Federal Reserve Board and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee to identify a set of alternative reference interest rates for possible use as market benchmarks. This committee has proposed SOFR as its recommended alternative to U.S. dollar LIBOR, and the Federal Reserve Bank of New York began publishing SOFR rates in the second quarter of 2018. SOFR is based on a broad segment of the overnight Treasury repurchase market and is intended to be a measure of the cost of borrowing cash overnight collateralized by Treasury securities.

Certain of the Bank’s assets and liabilities, and certain collateral pledged to the Bank, are indexed to LIBOR, with exposure extending past December 31, 2021. The Bank is currently evaluating and planning for the eventual replacement of the LIBOR benchmark interest rate, including the probability of SOFR as the dominant replacement. In general, the transition away from LIBOR may result in increased market risk, credit risk, operational risk and business risk for the Bank. The Bank has adopted a LIBOR transition plan, which outlines the Bank’s transition activities, including LIBOR exposure evaluation, risk management, legal, operational, systems and operations, shareholder and external communication and education, and other aspects of planning. The Bank has a LIBOR Steering Committee, which oversees the Bank’s transition away from LIBOR in accordance with the strategies and requirements put forth by senior management and regulatory guidance, providing periodic reports to the Bank’s executive management committee and board of directors.

As of December 31, 2019, the Bank ceased purchasing assets tied to LIBOR with a contractual maturity beyond December 31, 2021. In light of this change, the Bank is evaluating and transitioning its investment and related hedging strategy, including the availability of alternate permissible investments. In addition, beginning June 30, 2020, the Bank ceased entering into new LIBOR-based transactions involving advances, debt, derivatives, or other products with maturities beyond December 31, 2021. In preparation for this change and to help manage balance sheet exposure to LIBOR-indexed assets and liabilities with maturities beyond 2021, the Bank has begun updating its systems, participating in the issuance of SOFR-indexed consolidated bonds, issuing SOFR-linked advances, and swapping certain financial instruments to Overnight Index Swap (OIS) and SOFR as an alternative interest rate hedging strategy for certain financial instruments. The pace of transition, however, is dependent on external factors, including market developments and demand. The Bank closely monitors and participates in industry activity related to LIBOR transition, including those of the Alternate Reference Rate Committee, ISDA and the derivative Clearinghouses. In October 2020, the Bank participated in the LCH and CME Clearinghouses’ transition to SOFR discounting for cleared derivatives.

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The Bank updated its pledged collateral certification reporting requirements as of September 30, 2020 so that members may distinguish LIBOR-linked collateral maturing past December 31, 2021. The Bank intends to utilize this information in connection with its LIBOR exposure evaluation and risk management.

As part of the Bank’s risk LIBOR exposure evaluation and risk management, the Bank has developed an inventory of financial instruments impacted by the LIBOR transition and has worked to identify and update contracts that may require adding or adjusting the fallback language. The Bank has added or adjusted fallback language in advance confirmations, consolidated obligations and its credit and collateral policy to include fallback language addressing the discontinuation of LIBOR as a benchmark rate. The Bank continues to monitor the market-wide efforts to address fallback language related to derivatives and cash products. On October 23, 2020, ISDA launched the Supplement to the 2006 ISDA Definitions and the ISDA 2020 IBOR Fallbacks Protocol. The supplement and the amendments made by the protocol will take effect on January 25, 2021. On that date, all legacy bilateral derivative transactions subject to protocol-covered agreements (including ISDA agreements) that incorporate certain covered ISDA definitional booklets and reference covered IBORs, including US Dollar LIBOR, will be amended to apply the new ISDA-recommended IBOR fallbacks in the event of the relevant IBOR’s cessation. Both the Bank and its relevant counterparty must have adhered to the protocol in order to effectively amend legacy derivative contracts, otherwise the parties must bilaterally agree to include amended legacy contracts to address LIBOR fallbacks. The Bank has adhered to the protocol and as of the date of this Report, substantially all of the Bank’s counterparties have also adhered to the protocol, covering 99.3 percent of the Bank’s portfolio of LIBOR-based uncleared derivatives that terminate after December 31, 2021.

The Bank has LIBOR exposure related to advances, investment securities, consolidated obligation bonds, and derivatives. The following tables present the Bank’s LIBOR-indexed variable-rate financial instruments and interest-rate swaps with LIBOR exposure as of September 30, 2020 and December 31, 2019, respectively, is set forth below (in millions).

	As of September 30, 2020
	Due/Terminates before or		Due/Terminates after
	on December 31, 2021		December 31, 2021		Total
Assets with LIBOR exposure
Advance by redemption term (principal amount) (1)	$	7,232	$	2,142	$	9,374
Investment securities by contractual maturity (principal amount)
Non-mortgage-backed securities	320		900		1,220
Mortgage-backed securities	20		17,102		17,122
Total investment securities	340		18,002		18,342
LIBOR-indexed interest-rate swaps notional amount (receive leg)
Cleared	2,304		9,348		11,652
Uncleared	135		4,435		4,570
Total interest-rate swaps	2,439		13,783		16,222
Total principal/notional amount	$	10,011	$	33,927	$	43,938
Liabilities with LIBOR exposure
Consolidated bonds by contractual maturity (principal amount)	$	25,060	$	—	$	25,060
LIBOR-indexed interest-rate swaps notional amount (pay leg)
Cleared	720		263		983
Uncleared	273		653		926
Total interest-rate swaps	993		916		1,909
Total principal/notional amount	$	26,053	$	916	$	26,969
____________
(1) Includes all fixed-rate advances that have cap/floor optionality and excludes convertible advances.

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	As of December 31, 2019
	Due/Terminates before or		Due/Terminates after
	on December 31, 2021		December 31, 2021		Total
Assets with LIBOR exposure
Advance by redemption term (principal amount) (1)	$	24,828	$	2,334	$	27,162
Investment securities by contractual maturity (principal amount)
Non-mortgage-backed securities	1,312		900		2,212
Mortgage-backed securities	20		20,631		20,651
Total investment securities	1,332		21,531		22,863
LIBOR-indexed interest-rate swaps notional amount (receive leg)
Cleared	9,968		11,408		21,376
Uncleared	265		4,901		5,166
Total interest-rate swaps	10,233		16,309		26,542
Total principal/notional amount	$	36,393	$	40,174	$	76,567
Liabilities with LIBOR exposure
Consolidated bonds by contractual maturity (principal amount)	$	42,820	$	—	$	42,820
LIBOR-indexed interest-rate swaps notional amount (pay leg)
Cleared	12,973		263		13,236
Uncleared	11,578		1,980		13,558
Total interest-rate swaps	24,551		2,243		26,794
Total principal/notional amount	$	67,371	$	2,243	$	69,614
____________
(1) Includes all fixed-rate advances that have cap/floor optionality and excludes convertible advances.

In addition to LIBOR-indexed interest-rate swaps included in the above tables, the Bank has interest-rate caps and floors with LIBOR exposure as of September 30, 2020 and December 31, 2019. The following table presents the notional amount of caps and floors with LIBOR exposure as of September 30, 2020 and December 31, 2019 (in millions).

	As of September 30, 2020		As of December 31, 2019
Terminates before or on December 31, 2021	$	3,000	$	3,084
Terminates after December 31, 2021	4,000		4,000
Total (1)	$	7,000	$	7,084

____________ 

(1) The estimated net fair value of these interest-rate caps and floors was less than $1 million as of September 30, 2020 and December 31, 2019.

Credit Risk

The Bank faces credit risk primarily with respect to its advances, investments, derivatives, and mortgage loan assets. The Bank continues to monitor the potential financial impact of COVID-19 on Bank members, counterparties, collateral values, and critical vendors.

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 that borrowers pledge as eligible collateral.

The Bank determines credit risk ratings for its members by evaluating each institution’s overall financial health, taking into account the quality of assets, earnings, and capital position. Prior to September 15, 2020, the Bank assigned each borrower that was an insured depository institution a credit risk rating from one to 10 according to the relative amount of credit risk that such

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borrower poses to the Bank (one being the least amount of credit risk and 10 the greatest amount of credit risk). The Bank assigned each borrower that was an insurance company a credit risk rating from 101 to 104 by utilizing an external model (101 being the least amount of credit risk and 104 the greatest amount of credit risk). The Bank assigned each borrower that was not an insured depository institution or an insurance company (including housing associates, community development financial institutions, and corporate credit unions), a credit risk rating from 101 to 104 based on a risk matrix developed for each entity type.

Beginning on September 15, 2020, the Bank no longer assigned each borrower that is an insured depository institution a credit risk rating from one to 10, and began assigning a credit risk rating from 101 to 104. In general, ratings of one through five in the previous rating system equates to a rating of 101 in the new ratings system, ratings of six through eight equates to a rating of 102, a rating of nine equates to a rating of 103, and a rating of 10 equates to a rating of 104. The rating process for other borrowers remains unchanged.

In general, borrowers with the greatest amount of credit risk 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 a borrower and its collateral, the Bank may place more restrictive requirements on a borrower than those generally applicable to borrowers with the same rating. Management and the board also monitor the Bank’s concentration in secured credit and standby letters of credit exposure to individual borrowers.

The following table presents the number of borrowers and the par value of advances outstanding to borrowers with the specified ratings as of the specified dates (dollars in millions).

	As of September 30, 2020
Rating	Number of Borrowers	Par Value of Outstanding Advances
101	318	$	46,711
102	34	10,157
103	2	29
104	5	64
Total	359	$	56,961

	As of December 31, 2019
Rating		Number of Borrowers	Par Value of Outstanding Advances
1		96	$	2,387
2		62	14,958
3		48	10,287
4		91	61,269
5		40	4,695
6		7	79
7		4	31
8		1	16
9		2	12
10		3	31
Subtotal (rating from 1 to 10)		354	93,765
101		11	2,359
102		3	298
103		1	19
104		1	15
Subtotal (rating from 101 to 104)		16	2,691
Total		370	$	96,456

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 that indicate the borrower’s overall creditworthiness. The credit limit is generally 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 par 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 may approve a higher limit at its discretion, and such borrowers may

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be subject to certain additional collateral, reporting, and maintenance requirements. Five borrowers have been approved for a credit limit higher than 30 percent, and their total outstanding advance and standby letters of credit balance was $18.5 billion and $327 million, respectively, as of September 30, 2020.

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 par value of all advances and other liabilities from 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. The Bank had rights to collateral on a borrower-by-borrower basis with an estimated value equal to or greater than its outstanding extension of credit as of September 30, 2020 and December 31, 2019. 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 September 30, 2020	$	56,961	$	327,185	64.31	9.81	25.88
As of December 31, 2019	96,456		348,964		66.00	8.32	25.68

For purposes of determining each member’s LCV, the Bank estimates the current market value of all residential first mortgage loans, commercial real estate loans, home equity loans, and lines of credit pledged as collateral based on information provided by the member on 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, (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-based valuation methodology allows the Bank to establish its collateral discounts with greater precision and to provide greater transparency with respect to the valuation of collateral pledged for advances and other credit products offered by the Bank.

The FHLBank Act affords any security interest granted to the Bank by any member of the Bank, or any affiliate of any such member, priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor) other than 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 September 30, 2020 and December 31, 2019.

Investments

The Bank is subject to credit risk on unsecured investments, such as interest-bearing deposits 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.

In addition to Finance Agency regulations, the Bank has established guidelines approved by its board of directors regarding unsecured extensions of credit, 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;

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•debt instruments that are not of investment quality, other than certain investments targeted to low-income people or communities and instruments that the Bank determined became less than investment quality because of developments or events that occurred after purchase by the Bank;

•whole mortgages or other whole loans, other than 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 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 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.

Finance Agency regulations do not permit the Bank to rely exclusively on NRSRO ratings with respect to its investments. The Bank is required to make a determination of whether a security is of investment quality based on its own documented analysis, which includes the NRSRO rating as one of the factors that is assessed to determine investment quality. The Bank monitors the financial condition of investment counterparties to ensure that they are in compliance with the Bank’s Risk 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. In addition to the Bank’s RMP and regulatory requirements, the Bank may limit or suspend overnight and term 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 investment opportunities.

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The Bank only enters into investments with U.S. counterparties or U.S. branch offices of foreign banks that have been approved by the Bank through its internal approval process, but the Bank may still have exposure to foreign entities if a counterparty’s parent entity is located in another country. The following tables present the Bank’s gross exposure, by instrument type, according to the location of the parent company of the counterparty (in millions).

	As of September 30, 2020
	Federal Funds Sold		Interest-bearing   Deposits (1)		Net Derivative Exposure (2)		Total
Australia	$	1,150	$	—	$	—	$	1,150
Canada	1,535		—		—		1,535
Finland	350		—		—		350
France	800		—		—		800
Germany	1,415		—		—		1,415
Netherlands	1,005		—		—		1,005
Sweden	1,000		—		—		1,000
United States of America	1,310		1,398		15		2,723
Total	$	8,565	$	1,398	$	15	$	9,978

_________ 

(1)Interest-bearing deposits includes a $430 million business money market account with Truist Bank one of the Bank’s 10 largest borrowers, as of September 30, 2020.

(2) Federal funds sold includes $180 million with BankUnited, National Association, one of the Bank’s 10 largest borrowers as of September 30, 2020.

(3) 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, 2019
	Federal Funds Sold (1)		Interest-bearing   Deposits (2)		Net Derivative Exposure (3)		Total
Australia	$	975	$	—	$	—	$	975
Austria	500		—		—		500
Canada	2,275		—		6		2,281
Finland	1,150		—		—		1,150
Germany	1,250		—		—		1,250
Japan	—		—		1		1
Netherlands	450		—		—		450
Norway	1,495		—		—		1,495
Switzerland	—		—		1		1
United States of America	1,731		3,810		16		5,557
Total	$	9,826	$	3,810	$	24	$	13,660

____________ 

(1)Interest-bearing deposits includes a $508 million business money market account with Truist Bank one of the Bank’s 10 largest borrowers, as of December 31, 2019.

(2) Federal funds sold includes $100 million with BankUnited, National Association, one of the Bank’s 10 largest borrowers as of December 31, 2019.

(3) 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 decrease in unsecured credit exposure in its investment portfolio related to non-U.S. government and non-U.S. government agency counterparties from $13.6 billion as of December 31, 2019 to $10.0 billion as of September 30, 2020. The following five counterparties each represented greater than 10 percent and collectively represented 55.6 percent of the total unsecured credit exposure to non-U.S. government or non-U.S. government agencies counterparties: Australia & New Zealand Banking Group, Cooperatieve Rabobank UA, Northern Trust Company, Royal Bank of Canada, and Skandinaviska Enskilda Banken. As of September 30, 2020, total unsecured credit portfolio consisted primarily of federal funds sold with overnight maturities.

The Bank’s RMP permits the Bank to invest in U.S. agency (i.e., Fannie Mae, Freddie Mac and Ginnie Mae) obligations including the following: (1) CMOs and REMICS that are backed by such securities; and (2) other MBS, CMOs, and REMICS that are of sufficient investment quality, which are typically have the highest ratings issued by S&P or 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.

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The following tables present information on the credit ratings of the Bank’s investments held as of September 30, 2020 and December 31, 2019 (in millions), based on their credit ratings as of September 30, 2020 and December 31, 2019, respectively. The credit ratings reflect the lowest long-term credit ratings as reported by an NRSRO.

	As of September 30, 2020
	Carrying Value (1)
	Investment Grade
	AAA		AA		A		BBB		Total
Investment securities:
Government-sponsored enterprises debt obligations	$	—	$	3,967	$	—	$	—	$	3,967
U.S. Treasury obligations	—		1,501		—		—		1,501
State or local housing agency debt obligations	—		1		—		—		1
Mortgage-backed securities:
U.S. agency obligations-guaranteed residential	—		312		—		—		312
Government-sponsored enterprises residential	—		7,986		—		—		7,986
Government-sponsored enterprises commercial	552		10,973		—		—		11,525
Total mortgage-backed securities	552		19,271		—		—		19,823
Total investment securities	552		24,740		—		—		25,292
Other investments:
Interest-bearing deposits	—		5		1,345		48		1,398
Securities purchased under agreements to resell	—		4,000		5,000		4,000		13,000
Federal funds sold	—		2,085		6,170		310		8,565
Total other investments	—		6,090		12,515		4,358		22,963
Total investments	$	552	$	30,830	$	12,515	$	4,358	$	48,255

____________

(1) Investment amounts noted in the above table represent the carrying value and excludes accrued interest receivable of $12 million as of September 30, 2020.

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	As of December 31, 2019
	Carrying Value (1)
	Investment Grade								Below Investment Grade
	AAA		AA		A		BBB		BB		B		CCC		CC		D		Unrated		Total
Investment securities:
Government-sponsored enterprises debt obligations	$	—	$	4,556	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	4,556
U.S. Treasury obligations	—		1,499		—		—		—		—		—		—		—		—		1,499
State or local housing agency debt obligations	—		1		—		—		—		—		—		—		—		—		1
Mortgage-backed securities:
U.S. agency obligations-guaranteed residential	—		89		—		—		—		—		—		—		—		—		89
Government-sponsored enterprises residential	—		8,642		—		—		—		—		—		—		—		—		8,642
Government-sponsored enterprises commercial	167		12,351		—		—		—		—		—		—		—		—		12,518
Private-label residential	—		38		44		47		54		18		210		34		48		383		876
Total mortgage-backed securities	167		21,120		44		47		54		18		210		34		48		383		22,125
Total investment securities	167		27,176		44		47		54		18		210		34		48		383		28,181
Other investments:
Interest-bearing deposits	—		939		2,222		649		—		—		—		—		—		—		3,810
Securities purchased under agreements to resell	—		1,800		4,250		2,750		—		—		—		—		—		—		8,800
Federal funds sold	—		4,120		5,176		530		—		—		—		—		—		—		9,826
Total other investments	—		6,859		11,648		3,929		—		—		—		—		—		—		22,436
Total investments	$	167	$	34,035	$	11,692	$	3,976	$	54	$	18	$	210	$	34	$	48	$	383	$	50,617

____________

(1) Investment amounts noted in the above table represent the carrying value and excludes accrued interest receivable of $44 million as of December 31, 2019.

Securities Purchased Under Agreements to Resell

Securities purchased under agreements to resell are considered collateralized financing arrangements and effectively represent short-term loans transacted with counterparties that 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 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 deemed to be impaired, the difference between the fair value of the collateral and the amortized cost of the agreement is recognized in earnings.

Held-to-maturity Securities

Held-to-maturity securities are evaluated quarterly for expected credit losses on a pool basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. If applicable, an allowance for credit losses is recorded with a corresponding credit loss expense (or reversal of credit loss expense). The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately. Prior to January 1, 2020, credit losses were recorded as a direct write-down of the held-to-maturity security carrying value.

The Bank evaluates its held-to-maturity securities for impairment on a collective, or pooled basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. The Bank has not established an allowance for credit loss on any of its held-to-maturity securities as of September 30, 2020 because the securities: (1) were all highly-rated and/or had short remaining terms to maturity, (2) had not experienced, nor did the Bank expect, any payment default on the instruments, and (3) in the case of U.S., government-sponsored enterprises, or other agency obligations, carry an implicit or explicit government guarantee such that the Bank considers the risk of nonpayment to be zero.

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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.

The Bank’s over-the-counter derivative transactions may either be (1) uncleared derivatives, which are executed bilaterally with a counterparty; or (2) cleared derivatives, which are cleared through a clearing agent with a Clearinghouse. Once a derivative transaction has been accepted for clearing by a Clearinghouse, the derivative transaction is novated, and the executing counterparty is replaced with the Clearinghouse as the counterparty.

For uncleared derivatives, the Bank is subject to nonperformance by counterparties. The Bank generally requires collateral on uncleared derivative transactions. 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, the Bank does not anticipate any credit losses on its uncleared derivatives as of September 30, 2020.

Certain of the Bank’s uncleared 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 rating had been lowered from its current rating to the next lower rating, the Bank would have been required to deliver $4 million of collateral at fair value to its uncleared derivative counterparties as of September 30, 2020.

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 utilized two approved Clearinghouses, CME Clearing and LCH Ltd. 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 September 30, 2020.

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

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The following tables present 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 September 30, 2020
	Notional Amount		Net 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:
Cleared derivatives	$	27,943	$	15	$	385	$	—	$	400
Liability positions with credit exposure:
Single-A	8,670		(390)		406		—		16
Triple-B	6,448		(170)		189		—		19
Cleared derivatives	482		—		4		—		4
Total derivative positions with non-member counterparties to which the Bank had credit exposure	43,543		(545)		984		—		439
Member institutions (1)	12		1		—		(1)		—
Total	$	43,555	$	(544)	$	984	$	(1)	$	439

____________ 

(1) Collateral held with respect to derivatives with member institutions where the Bank is acting as an intermediary represents the amount of eligible collateral physically held by or on behalf of the Bank or collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank.

	As of December 31, 2019
	Notional Amount		Net 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:
Double-A	$	705	$	6	$	(6)	$	—	$	—
Single-A	6,798		3		(1)		—		2
Cleared derivatives	23,766		15		336		—		351
Liability positions with credit exposure:
Single-A	5,189		(165)		169		—		4
Triple-B	6,233		(18)		20		—		2
Cleared derivatives	31,425		(1)		18		—		17
Total derivative positions with non-member counterparties to which the Bank had credit exposure	74,116		(160)		536		—		376
Member institutions (1)	141		4		—		(4)		—
Total	$	74,257	$	(156)	$	536	$	(4)	$	376

____________ 

(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.

Mortgage Loan Programs

The Bank seeks to manage the credit risk associated with the Mortgage Purchase Program (MPP) and the Mortgage Partnership Finance® Program (MPF® Program or MPF) by maintaining underwriting and eligibility standards and structuring possible losses into several layers to be shared with the participating financial institutions.

The allowance for credit losses on MPF loans was $1 million as of September 30, 2020 and December 31, 2019.

Critical Accounting Policies and Estimates

A detailed description of the Bank’s critical accounting policies and estimates is contained in the Bank’s Form 10-K. There have been no material changes to these policies and estimates during the periods presented, except for policy updates related to

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new accounting guidance pertaining to the measurement of credit losses on financial instruments that requires a financial asset or group of financial assets measured at amortized cost to be presented at the net amount expected to be collected. The new guidance also requires credit losses relating to these financial instruments, as well as available-for-sale securities, to be recorded through the allowance for credit losses. Refer to Note 1—Basis of Presentation to the Bank’s interim financial statements for more details on key changes. Consistent with the modified retrospective method of adoption, the prior period has not been revised to conform to the new basis of accounting. Refer to Note 2—Summary of Significant Accounting Policies to the Bank’s 2019 audited financial statements for information on the prior accounting treatment.

Recently Issued and Adopted Accounting Guidance

See Note 2—Recently Issued and Adopted Accounting Guidance to the Bank’s interim financial statements for a discussion of recently issued and adopted accounting guidance.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The following quantitative and qualitative disclosures about market risk should be read in conjunction with the quantitative and qualitative disclosures about market risk that are included in the Bank’s Form 10-K. The information provided herein is intended to update the disclosures made in the Bank’s Form 10-K.

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 the Bank’s interest-earning assets and interest-bearing liabilities, the component of market risk having the greatest effect on the Bank’s financial condition and results of operations is interest-rate risk. A description of the Bank’s management of interest-rate risk is contained in the Bank’s Form 10-K.

The Bank uses derivative financial instruments to reduce the interest-rate risk exposure inherent in otherwise unhedged assets and funding positions. These derivatives are used to adjust the effective maturity, repricing frequency, or option characteristics of financial instruments to achieve risk management objectives.

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The following table presents 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 hedging relationships that formally meet the hedge accounting requirements under GAAP.

			As of September 30, 2020		As of December 31, 2019
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	$	2,334	$	2,382
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	24,109		26,442
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	41		43
Pay-fixed with embedded features, receive-variable interest-rate swap (non-callable)	Reduces interest-rate sensitivity and repricing gaps by converting the advance’s fixed rate to a variable-rate index and/or offsets embedded option risk in the advance.	Fair value hedges	472		260
Pay variable with embedded features, receive variable interest-rate swap (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	400		650
		Total	27,356		29,777
Investments
Pay fixed, receive variable interest-rate swap	Converts the investment’s fixed rate to a variable-rate index.	Non-qualifying hedges	56		56
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	1,694		14,033
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	225		12,240
		Total	1,919		26,273
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	7,342		17,587
Balance Sheet
Pay fixed, receive variable interest-rate swap	Converts the asset or liability fixed rate to a variable-rate index.	Non-qualifying hedges	—		100
Interest-rate cap or floor	Protects against changes in income of certain assets due to changes in interest rates.	Non-qualifying hedges	7,000		7,000
		Total	7,000		7,100
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	25		323
Interest-rate cap or floor	To offset interest-rate caps or floors executed with members by executing interest-rate caps or floors with derivatives counterparties.	Non-qualifying hedges	—		83
		Total	25		406
Total notional amount			$	43,698	$	81,199

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Interest-rate Risk Exposure Measurement

The Bank measures interest-rate risk exposure by various methods. The primary methods used are (1) calculating the effective duration of assets, liabilities, and equity under various 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.

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

The following table presents the Bank’s effective duration exposure measurements as calculated in accordance with Bank policy (in years). 

	As of September 30, 2020			As of December 31, 2019
	Down 200 Basis  Points (1)	Current	Up 200 Basis Points	Down 200 Basis  Points (1)	Current	Up 200 Basis Points
Assets	0.39	0.35	0.44	0.23	0.21	0.28
Liabilities	0.26	0.33	0.25	0.21	0.20	0.18
Equity	2.63	0.79	4.24	0.53	0.37	2.38
Effective duration gap	0.13	0.02	0.19	0.02	0.01	0.10

___________ 

(1)The “down 200 basis points” scenarios shown above are considered to be “constrained shocks,” intended to prevent the possibility of negative interest rates when a designated low rate environment exists. The “constrained shock” scenario may not represent current expectations.

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 12—Estimated Fair Values to the Bank’s interim 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 presents the Bank’s market value of equity measurements as calculated in accordance with Bank policy (in millions). 

	As of September 30, 2020						As of December 31, 2019
	Down 200 Basis  Points (1)		Current		Up 200 Basis Points		Down 200 Basis  Points (1)		Current		Up 200 Basis Points
Assets	$	111,172	$	110,365	$	109,472	$	149,996	$	148,896	$	148,146
Liabilities	104,885		104,738		104,194		142,301		141,858		141,313
Equity	6,287		5,627		5,278		7,695		7,038		6,833

____________ 

(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 “constrained shock” scenario may not represent current expectations.

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Item 4. Controls and Procedures.

Disclosure Controls and Procedures

The Bank’s President and Chief Executive Officer and the Bank’s Senior 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.

As of September 30, 2020, 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 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.

Changes in Internal Control Over Financial Reporting

During the third quarter of 2020, there were no changes in the Bank’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.

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PART II. OTHER INFORMATION.

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

In addition to the other information set forth in this Report, the factors discussed in Part I, “Item 1A. Risk Factors” in the Bank’s Form 10-K, should be carefully considered as they could materially affect the Bank’s business, financial condition, and/or operating results. The risks described in the Bank’s Form 10-K are not the only risks facing the Bank. Additional risks and uncertainties not currently known to the Bank or that the Bank currently deems to be immaterial also may materially adversely affect the Bank’s business, financial condition, and/or operating results.

An economic downturn or natural disaster in the Bank’s region, or a pandemic, could adversely affect the Bank’s profitability and financial condition.

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

Additionally, the impact of widespread health emergencies may adversely impact the Bank’s results of operations, such as the impact from the COVID-19 pandemic. As of the date of the filing of this Report, the full effects of the COVID-19 pandemic are evolving and unknowable. The COVID-19 pandemic has to date caused significant economic and financial turmoil both in the U.S. and around the world, and has fueled concerns that it will lead to a global recession. These conditions are expected to continue in the near term. Many businesses in the Bank’s district and across the U.S. have been forced to suspend operations for an indefinite period of time in an attempt to slow the spread of the virus, and unemployment claims increased dramatically as more employers laid off workers. Ultimately, the significant slowdown in economic activity caused by the COVID-19 pandemic could reduce demand at our member institutions, which could impact members’ demand for our products and services. It could also lead to a devaluation of our assets and/or the collateral pledged by the Bank’s members to secure advances and other extensions of credit, all of which could have an adverse impact on the Bank’s financial condition and results of operations, including as a result of reduced business volumes, reduced income or credit losses.

The Bank’s ability to obtain funds through the issuance 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. Volatility in the capital markets caused by the COVID-19 pandemic can impact demand for the Bank’s debt and the cost of the debt the Bank issues, which could impact the Bank’s liquidity and profitability. The Bank’s business and results of operations are affected by the fiscal and monetary policies of the U.S. government, foreign governments and their agencies. The Federal Reserve Board’s policies directly and indirectly influence the yield on the Bank’s interest-earning assets and the cost of its interest-bearing liabilities. In response to COVID-19, the FOMC lowered and has maintained the target range for federal funds from 1.50 percent to 1.75 percent to a target range of 0.00 percent to 0.25 percent. The outlook for the remainder of 2020 is uncertain, and there is a possibility that the FOMC may keep interest rates low or even use negative interest rates if economic conditions warrant, each of which could affect the success of Bank’s asset and liability management activities and negatively affect the Bank’s financial condition and results of operations.

At this time, the Bank is in Phase 2 of its return to office plan, whereby approximately 75 percent of the Bank’s employees are working remotely. The Bank cannot currently predict when its full employee base will be permitted to return to work in our offices. With most of the Bank’s employees working remotely, the Bank could face operational difficulties or disruptions that could impair its ability to conduct and manage its business effectively. In addition, some, most or all of the Bank’s employees, executive management team, or board of directors could become infected with the COVID-19 virus which, depending upon the number and the severity of their cases, could similarly affect the Bank’s ability to conduct and manage its business effectively. Counterparties, vendors and other third parties upon which the Bank relies to conduct its business could be adversely impacted

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by the COVID-19 pandemic which could, in turn, lead to operational challenges for the Bank. These potential difficulties, disruptions and challenges could increase the likelihood that the Bank’s financial condition and results of operations could be impacted.

Significant borrower defaults on loans made by the Bank’s members could occur as a result of reduced economic activity and these defaults could cause members to fail. The Bank could be adversely impacted by the reduction in business volume that would arise from the failure of one or more of the Bank’s members. Further, counterparty default, whether as a result of the operational or financial impacts of the COVID-19 pandemic, could adversely impact the Bank’s financial condition and results of operations.

The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pension Plan), a tax qualified defined benefit pension plan. A prolonged negative impact on the value of stocks and other asset classes in the Pension Plan due to the COVID-19 pandemic may result in a significant reduction to pension plan asset values and increased pension liability, requiring the Bank to increase its contribution amount, which could negatively impact the Bank’s profitability.

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

The Bank’s board of directors may declare dividends on the Bank’s capital stock, payable to members, from the Bank’s unrestricted retained earnings and current net earnings. The Bank’s ability to pay dividends and to repurchase or redeem capital stock is subject to compliance with statutory and regulatory liquidity and capital requirements. The Bank’s financial management policy addresses regulatory guidance issued to all FHLBanks regarding retained earnings. It requires the Bank to establish a target amount of retained earnings by considering factors such as forecasted income, mark-to-market adjustments on derivatives and trading securities, market risk, operational risk, and credit risk, all of which may be influenced by events beyond the Bank’s control. The Bank’s capital plan addresses minimum regulatory capital requirements. Events such as changes in interest rates, collateral value, credit quality of members, changes to regulatory capital requirements, and any future credit 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.

During 2020, in response to monetary and fiscal stimulus related to the global pandemic associated with COVID-19, market interest rates declined significantly. The decrease in market interest rates has impacted the Bank’s income on interest-earning assets and net income. Additionally, these stimulus actions have resulted in lower demand from the Bank’s members for advances, further impacting net income. The Bank expects that the current low market interest rate environment, as well as decreased advance demand, may continue into the foreseeable future which could decrease the Bank’s future net income. As such, the amount that the Bank pays as dividends may be impacted.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosure.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits. The exhibits listed below are being filed with or incorporated by reference as a part of this Report:

Exhibit No.	Description	Form	Exhibit	Dated Filed
3.1	Amended and Restated Organization Certificate of the Federal Home Loan Bank of Atlanta	8-K	3.1	10/26/2012
3.2	Bylaws of the Federal Home Loan Bank of Atlanta (Revised and Restated through October 31, 2019)	8-K	3.2	10/31/2019
4.1	Capital Plan of the Federal Home Loan Bank of Atlanta	8-K	99.2	8/5/2011
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 Senior 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 Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +
101.INS	XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
104	The cover page of this Quarterly Report 10-Q, formatted in inline XBRL.
	+ Furnished herewith

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SIGNATURES

Pursuant to the requirements 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:	November 6, 2020	By /s/ W. Wesley McMullan
		Name: W. Wesley McMullan Title: President and Chief Executive Officer
Date:	November 6, 2020	By /s/ Haig H. Kazazian III
		Name: Haig H. Kazazian III Title: Senior Vice President and Chief Financial Officer

67