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 March 31, 2024
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 | |||||||
| United States | ||||||||
| (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
_____________________________________
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 | ||||||
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
The number of shares outstanding of the registrant’s Class B Stock, par value $100, as of April 30, 2024 was 65,713,063.
Table of Contents
PART I. FINANCIAL INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
PART II. OTHER INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CONDITION
(Unaudited)
(Dollars in millions, except par value)
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||
| Assets | |||||||||||
| Cash and due from banks | $ | 89 | $ | 142 | |||||||
| Interest-bearing deposits (including deposits with other FHLBanks of $3 as of March 31, 2024 and December 31, 2023) | 1,701 | 1,833 | |||||||||
| Securities purchased under agreements to resell | 6,000 | 12,500 | |||||||||
| Federal funds sold | 6,760 | 8,710 | |||||||||
| Investment securities: | |||||||||||
| Available-for-sale securities (amortized cost of $2,428 and $2,455 as of March 31, 2024 and December 31, 2023, respectively) | 2,431 | 2,450 | |||||||||
| Held-to-maturity securities (fair value of $27,576 and $28,335 as of March 31, 2024 and December 31, 2023, respectively) | 27,940 | 28,714 | |||||||||
| Total investment securities | 30,371 | 31,164 | |||||||||
| Advances | 96,610 | 96,608 | |||||||||
| Mortgage loans held for portfolio, net | 100 | 103 | |||||||||
| Accrued interest receivable | 623 | 673 | |||||||||
| Derivative assets | 424 | 523 | |||||||||
| Other assets, net | 125 | 114 | |||||||||
| Total assets | $ | 142,803 | $ | 152,370 | |||||||
| Liabilities | |||||||||||
| Interest-bearing deposits | $ | 1,718 | $ | 1,568 | |||||||
| Consolidated obligations, net: | |||||||||||
| Discount notes | 15,816 | 25,972 | |||||||||
| Bonds | 115,924 | 115,600 | |||||||||
| Total consolidated obligations, net | 131,740 | 141,572 | |||||||||
| Accrued interest payable | 857 | 902 | |||||||||
| Affordable Housing Program payable | 124 | 108 | |||||||||
| Derivative liabilities | 27 | 5 | |||||||||
| Other liabilities | 89 | 99 | |||||||||
| Total liabilities | 134,555 | 144,254 | |||||||||
| Capital | |||||||||||
| Capital stock Class B putable ($100 par value) issued and outstanding shares: | |||||||||||
| Subclass B1 issued and outstanding shares: 10,253,243 and 9,908,193 as of March 31, 2024 and December 31, 2023, respectively | 1,025 | 991 | |||||||||
| Subclass B2 issued and outstanding shares: 45,998,598 and 45,897,094 as of March 31, 2024 and December 31, 2023, respectively | 4,600 | 4,590 | |||||||||
| Subclass B3 issued and outstanding shares: 190,753 and 159,192 as of March 31, 2024 and December 31, 2023, respectively | 19 | 16 | |||||||||
| Total capital stock Class B putable | 5,644 | 5,597 | |||||||||
| Retained earnings: | |||||||||||
| Restricted | 820 | 781 | |||||||||
| Unrestricted | 1,781 | 1,743 | |||||||||
| Total retained earnings | 2,601 | 2,524 | |||||||||
| Accumulated other comprehensive income (loss) | 3 | (5) | |||||||||
| Total capital | 8,248 | 8,116 | |||||||||
| Total liabilities and capital | $ | 142,803 | $ | 152,370 | |||||||
The accompanying notes are an integral part of these financial statements.
3
FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF INCOME
(Unaudited)
(Dollars in millions)
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Advances | $ | 1,466 | $ | 1,507 | |||||||||||||||||||
| Interest-bearing deposits | 46 | 50 | |||||||||||||||||||||
| Securities purchased under agreements to resell | 77 | 83 | |||||||||||||||||||||
| Federal funds sold | 170 | 147 | |||||||||||||||||||||
| Available-for-sale securities | 35 | 14 | |||||||||||||||||||||
| Held-to-maturity securities | 397 | 271 | |||||||||||||||||||||
| Mortgage loans | 1 | 2 | |||||||||||||||||||||
| Total interest income | 2,192 | 2,074 | |||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Consolidated obligations: | |||||||||||||||||||||||
| Discount notes | 294 | 516 | |||||||||||||||||||||
| Bonds | 1,620 | 1,360 | |||||||||||||||||||||
| Interest-bearing deposits | 24 | 24 | |||||||||||||||||||||
| Total interest expense | 1,938 | 1,900 | |||||||||||||||||||||
| Net interest income | 254 | 174 | |||||||||||||||||||||
| Noninterest income (loss) | |||||||||||||||||||||||
| Standby letters of credit fees | 4 | 2 | |||||||||||||||||||||
| Other | 2 | (3) | |||||||||||||||||||||
| Total noninterest income (loss) | 6 | (1) | |||||||||||||||||||||
| Noninterest expense | |||||||||||||||||||||||
| Compensation and benefits | 21 | 18 | |||||||||||||||||||||
| Other operating expenses | 12 | 11 | |||||||||||||||||||||
| Federal Housing Finance Agency | 3 | 3 | |||||||||||||||||||||
| Office of Finance | 2 | 3 | |||||||||||||||||||||
| Voluntary affordable housing contributions | 5 | — | |||||||||||||||||||||
| Other | 1 | 1 | |||||||||||||||||||||
| Total noninterest expense | 44 | 36 | |||||||||||||||||||||
| Income before assessment | 216 | 137 | |||||||||||||||||||||
| Affordable Housing Program assessment | 22 | 14 | |||||||||||||||||||||
| Net income | $ | 194 | $ | 123 | |||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
4
FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in millions)
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Net income | $ | 194 | $ | 123 | |||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||
| Net unrealized gains on available-for-sale securities | 8 | 17 | |||||||||||||||||||||
| Total comprehensive income | $ | 202 | $ | 140 | |||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
5
FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CAPITAL
(Unaudited)
(Dollars and shares in millions)
| Capital Stock Class B Putable | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Capital | ||||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Restricted | Unrestricted | Total | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 54 | $ | 5,397 | $ | 651 | $ | 1,632 | $ | 2,283 | $ | (34) | $ | 7,646 | ||||||||||||||||||||||||||||
| Issuance of capital stock | 56 | 5,603 | — | — | — | — | 5,603 | ||||||||||||||||||||||||||||||||||
| Repurchase/redemption of capital stock | (32) | (3,246) | — | — | — | — | (3,246) | ||||||||||||||||||||||||||||||||||
| Net stock reclassified to mandatorily redeemable capital stock | — | (2) | — | — | — | — | (2) | ||||||||||||||||||||||||||||||||||
| Comprehensive income | — | — | 25 | 98 | 123 | 17 | 140 | ||||||||||||||||||||||||||||||||||
| Cash dividends on capital stock | — | — | — | (78) | (78) | — | (78) | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | 78 | $ | 7,752 | $ | 676 | $ | 1,652 | $ | 2,328 | $ | (17) | $ | 10,063 | ||||||||||||||||||||||||||||
| Balance, December 31, 2023 | 56 | $ | 5,597 | $ | 781 | $ | 1,743 | $ | 2,524 | $ | (5) | $ | 8,116 | ||||||||||||||||||||||||||||
| Issuance of capital stock | 20 | 2,060 | — | — | — | — | 2,060 | ||||||||||||||||||||||||||||||||||
| Repurchase/redemption of capital stock | (20) | (2,013) | — | — | — | — | (2,013) | ||||||||||||||||||||||||||||||||||
| Comprehensive income | — | — | 39 | 155 | 194 | 8 | 202 | ||||||||||||||||||||||||||||||||||
| Cash dividends on capital stock | — | — | — | (117) | (117) | — | (117) | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | 56 | $ | 5,644 | $ | 820 | $ | 1,781 | $ | 2,601 | $ | 3 | $ | 8,248 | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
6
FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in millions)
| For the Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Operating activities | |||||||||||
| Net income | $ | 194 | $ | 123 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization (accretion) | (232) | 40 | |||||||||
| Net change in derivative and hedging activities | 142 | (165) | |||||||||
| Net change in: | |||||||||||
| Accrued interest receivable | 52 | (237) | |||||||||
| Other assets | (10) | 6 | |||||||||
| Affordable Housing Program payable | 16 | 3 | |||||||||
| Accrued interest payable | (45) | 252 | |||||||||
| Other liabilities | (10) | (7) | |||||||||
| Total adjustments | (87) | (108) | |||||||||
| Net cash provided by operating activities | 107 | 15 | |||||||||
| Investing activities | |||||||||||
| Net change in: | |||||||||||
| Interest-bearing deposits | 400 | (735) | |||||||||
| Securities purchased under agreements to resell | 6,500 | (4,250) | |||||||||
| Federal funds sold | 1,950 | (6,019) | |||||||||
| Held-to-maturity securities: | |||||||||||
| Proceeds from principal collected | 775 | 450 | |||||||||
| Purchases of long-term | — | (4,060) | |||||||||
| Advances, net | (253) | (54,831) | |||||||||
| Mortgage loans: | |||||||||||
| Proceeds from principal collected | 3 | 4 | |||||||||
| Purchases of premises, equipment, and software | (2) | (2) | |||||||||
| Net cash provided by (used in) investing activities | 9,373 | (69,443) | |||||||||
7
| FEDERAL HOME LOAN BANK OF ATLANTA STATEMENTS OF CASH FLOWS—(Continued) (Unaudited) (Dollars in millions) | |||||||||||
| For the Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Financing activities | |||||||||||
| Net change in interest-bearing deposits | 136 | 549 | |||||||||
| Net payments on derivatives containing a financing element | 1 | — | |||||||||
| Proceeds from issuance of consolidated obligations: | |||||||||||
| Discount notes | 32,320 | 159,606 | |||||||||
| Discount notes transferred from other FHLBanks | 5 | — | |||||||||
| Bonds | 38,669 | 85,627 | |||||||||
| Payments for debt issuance costs | (2) | (4) | |||||||||
| Payments for maturing and retiring consolidated obligations: | |||||||||||
| Discount notes | (42,241) | (145,383) | |||||||||
| Bonds | (38,351) | (30,963) | |||||||||
| Bonds transferred to other FHLBanks | — | (250) | |||||||||
| Proceeds from issuance of capital stock | 2,060 | 5,603 | |||||||||
| Payments for repurchase/redemption of capital stock | (2,013) | (3,246) | |||||||||
| Payments for repurchase/redemption of mandatorily redeemable capital stock | — | (2) | |||||||||
| Cash dividends paid | (117) | (78) | |||||||||
| Net cash (used in) provided by financing activities | (9,533) | 71,459 | |||||||||
| Net (decrease) increase in cash and due from banks | (53) | 2,031 | |||||||||
| Cash and due from banks at beginning of the period | 142 | 141 | |||||||||
| Cash and due from banks at end of the period | $ | 89 | $ | 2,172 | |||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Cash paid for: | |||||||||||
| Interest | $ | 2,064 | $ | 1,549 | |||||||
| Affordable Housing Program assessment, net | $ | 11 | $ | 10 | |||||||
| Noncash investing and financing activities: | |||||||||||
| Net stock reclassified to mandatorily redeemable capital stock | $ | — | $ | 2 | |||||||
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 fiscal year 2024, 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, 2023, which are contained in the Bank’s 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 8, 2024 (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 10—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.
All investments in interest-bearing deposits and federal funds sold were repaid or expected to be repaid according to the contractual terms as of March 31, 2024 and December 31, 2023. No allowance for credit losses was recorded for these assets as of March 31, 2024 and December 31, 2023. The carrying values of these assets excludes accrued interest receivable that was not material as of March 31, 2024 and December 31, 2023.
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 purchased under agreements to resell as of March 31, 2024 and December 31, 2023. The carrying value of securities purchased under agreements to resell excludes accrued interest receivable that was not material as of March 31, 2024 and December 31, 2023.
Refer to Note 2—Summary of Significant Accounting Policies to the Bank’s 2023 audited financial statements for a description of all the Bank’s significant accounting policies. The Bank adopted new accounting guidance effective for the annual period ending December 31, 2024, and the interim periods thereafter, which improves reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses and requires public entities with a single reportable segment to provide all the disclosures required by the new and existing segment disclosure requirements. There have been no other changes to the Bank’s accounting policies as of March 31, 2024.
Note 2—Recently Issued But Not Yet Adopted Accounting Standards
There are no recently issued but not yet adopted accounting standards which may have an impact on the Bank’s financial statements.
9
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)
Note 3—Investments in Debt Securities
Available-for-sale Securities
Major Security Type. The following table presents available-for-sale securities.
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
Amortized Cost (1) | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | Amortized Cost (1) | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||||||||||||||||||||||
U.S. Treasury obligations (2) | $ | 2,187 | $ | 1 | $ | — | $ | 2,188 | $ | 2,208 | $ | — | $ | (5) | $ | 2,203 | |||||||||||||||||||||||||||||||
| Mortgage-backed securities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Government-sponsored enterprises commercial | 241 | 2 | — | 243 | 247 | — | — | 247 | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 2,428 | $ | 3 | $ | — | $ | 2,431 | $ | 2,455 | $ | — | $ | (5) | $ | 2,450 | |||||||||||||||||||||||||||||||
____________________
(1) Amortized cost includes adjustments made to the cost basis for accretion, amortization, fair value hedge accounting adjustments, and excludes accrued interest receivable of $11 as of March 31, 2024 and December 31, 2023.
(2) All U.S. Treasury obligations as of March 31, 2024 and December 31, 2023 have contractual maturities that are due after one year through five years.
The following table presents available-for-sale securities with gross unrealized losses. The gross unrealized losses are aggregated by the length of time that the individual securities have been in a continuous unrealized loss position.
| As of December 31, 2023 | ||||||||||||||||||||||||||||||||||||||
| Less than 12 Months | ||||||||||||||||||||||||||||||||||||||
| Estimated Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||||||||||
| U.S. Treasury obligations | $ | 2,105 | $ | (5) | ||||||||||||||||||||||||||||||||||
| Mortgage-backed securities: | ||||||||||||||||||||||||||||||||||||||
| Government-sponsored enterprises commercial | 247 | — | ||||||||||||||||||||||||||||||||||||
| Total | $ | 2,352 | $ | (5) | ||||||||||||||||||||||||||||||||||
1) A
Held-to-maturity Securities
Major Security Types. The following table presents held-to-maturity securities.
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
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 | $ | — | $ | — | $ | 1 | $ | 1 | $ | — | $ | — | $ | 1 | |||||||||||||||||||||||||||||||
| Government-sponsored enterprises debt obligations | 1,345 | 3 | (6) | 1,342 | 1,475 | 4 | (12) | 1,467 | |||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities: | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. agency obligations-guaranteed residential | 2,517 | 2 | (37) | 2,482 | 2,715 | 9 | (32) | 2,692 | |||||||||||||||||||||||||||||||||||||||
| Government-sponsored enterprises residential | 8,105 | 12 | (168) | 7,949 | 8,311 | 18 | (185) | 8,144 | |||||||||||||||||||||||||||||||||||||||
| Government-sponsored enterprises commercial | 15,972 | 12 | (182) | 15,802 | 16,212 | 9 | (190) | 16,031 | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 27,940 | $ | 29 | $ | (393) | $ | 27,576 | $ | 28,714 | $ | 40 | $ | (419) | $ | 28,335 | |||||||||||||||||||||||||||||||
____________
(1) Excludes accrued interest receivable of $70 and $72 as of March 31, 2024 and December 31, 2023, respectively.
10
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. Mortgage-backed securities (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 March 31, 2024 | As of December 31, 2023 | ||||||||||||||||||||||
Amortized Cost (1) | Estimated Fair Value | Amortized Cost (1) | Estimated Fair Value | ||||||||||||||||||||
| Non-mortgage-backed securities: | |||||||||||||||||||||||
| Due in one year or less | $ | 550 | $ | 544 | $ | 680 | $ | 668 | |||||||||||||||
| Due after one year through five years | 736 | 739 | 736 | 740 | |||||||||||||||||||
| Due after five years through 10 years | 60 | 60 | 60 | 60 | |||||||||||||||||||
| Total non-mortgage-backed securities | 1,346 | 1,343 | 1,476 | 1,468 | |||||||||||||||||||
| Mortgage-backed securities | 26,594 | 26,233 | 27,238 | 26,867 | |||||||||||||||||||
| Total | $ | 27,940 | $ | 27,576 | $ | 28,714 | $ | 28,335 | |||||||||||||||
____________
(1) Excludes accrued interest receivable of $70 and $72 as of March 31, 2024 and December 31, 2023, respectively.
Allowance For Credit Loss on Available-for-sale and Held-to-maturity Securities
The Bank has not established an allowance for credit loss on any of its available-for-sale and held-to-maturity securities as of March 31, 2024 and December 31, 2023, 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. obligations, they carry an explicit U.S. government guarantee, and (4) in the case of government-sponsored enterprise (GSE) securities, they are purchased under the assumption that the issuers’ obligation to pay principal and interest on those securities will be honored, taking into account their status as GSEs.
Note 4—Advances
Redemption Terms. The following table presents the Bank’s advances outstanding by year of contractual maturity.
___________
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||
| Due in one year or less | $ | 69,910 | $ | 70,501 | |||||||
| Due after one year through two years | 8,539 | 6,038 | |||||||||
| Due after two years through three years | 4,158 | 5,375 | |||||||||
| Due after three years through four years | 3,415 | 3,075 | |||||||||
| Due after four years through five years | 5,904 | 7,544 | |||||||||
| Due after five years | 5,272 | 4,415 | |||||||||
| Total par value | 97,198 | 96,948 | |||||||||
| Deferred prepayment fees | 5 | 10 | |||||||||
| Discounts | (1) | (1) | |||||||||
| Hedging adjustments | (592) | (349) | |||||||||
Total (1) | $ | 96,610 | $ | 96,608 | |||||||
(1) Carrying amounts exclude accrued interest receivable of $533 and $577 as of March 31, 2024 and December 31, 2023, respectively.
11
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 available conversion date.
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||
| Due or convertible in one year or less | $ | 72,759 | $ | 72,951 | |||||||
| Due or convertible after one year through two years | 8,469 | 6,154 | |||||||||
| Due or convertible after two years through three years | 3,690 | 5,117 | |||||||||
| Due or convertible after three years through four years | 3,288 | 3,040 | |||||||||
| Due or convertible after four years through five years | 4,032 | 5,584 | |||||||||
| Due or convertible after five years | 4,960 | 4,102 | |||||||||
| Total par value | $ | 97,198 | $ | 96,948 | |||||||
Interest-rate Payment Terms. The following table presents interest-rate payment terms for advances.
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||
| Fixed-rate: | |||||||||||
| Due in one year or less | $ | 16,525 | $ | 17,162 | |||||||
| Due after one year | 21,258 | 22,100 | |||||||||
| Total fixed-rate | 37,783 | 39,262 | |||||||||
| Variable-rate: | |||||||||||
| Due in one year or less | 53,385 | 53,339 | |||||||||
| Due after one year | 6,030 | 4,347 | |||||||||
| Total variable-rate | 59,415 | 57,686 | |||||||||
| Total par value | $ | 97,198 | $ | 96,948 | |||||||
Advances concentrations. The Bank’s advances are concentrated in commercial banks, credit unions, insurance companies, and savings institutions and is further concentrated in certain larger borrowing relationships. The concentration of the Bank’s advances to its 10 largest borrowers was $70,323, or 72.4 percent of total advances, and $70,499, or 72.7 percent of total advances, as of March 31, 2024 and December 31, 2023, respectively.
Based on the collateral pledged as security for advances, the Bank’s credit analysis of members’ financial condition, and prior repayment history, no allowance for credit losses on advances was deemed necessary by the Bank as of March 31, 2024 and December 31, 2023. No advance was past due, on nonaccrual status, or considered impaired as of March 31, 2024 and December 31, 2023. There were no write-offs of advances or modification of advances to borrowers experiencing financial difficulty during the three months ended March 31, 2024 and 2023.
12
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)
Note 5—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 March 31, 2024 | As of December 31, 2023 | |||||||||||||
| Medium-term (15 years or less) | $ | 1 | $ | 1 | ||||||||||
| Long-term (greater than 15 years) | 99 | 102 | ||||||||||||
| Total unpaid principal balance | 100 | 103 | ||||||||||||
Total mortgage loans held for portfolio (1) | 100 | 103 | ||||||||||||
| Allowance for credit losses on mortgage loans | — | — | ||||||||||||
| Mortgage loans held for portfolio, net | $ | 100 | $ | 103 | ||||||||||
____________
(1) Excludes accrued interest receivable that was not material for the reported periods.
The following table presents mortgage loans held for portfolio by collateral or guarantee type.
| As of March 31, 2024 | As of December 31, 2023 | |||||||||||||
| Conventional mortgage loans | $ | 91 | $ | 94 | ||||||||||
| Government-guaranteed or insured mortgage loans | 9 | 9 | ||||||||||||
| Total unpaid principal balance | $ | 100 | $ | 103 | ||||||||||
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 nonaccrual loans and loans in process of foreclosure. The following tables present the payment status for conventional mortgage loans. All of the Bank’s conventional mortgage loans were originated prior to 2018.
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||||||||||||||||||||
Payment status, at amortized cost:(1) | |||||||||||||||||||||||||||||
| Past due 30-59 days | $ | 2 | $ | 2 | |||||||||||||||||||||||||
| Past due 60-89 days | 1 | 1 | |||||||||||||||||||||||||||
| Past due 90 days or more | 2 | 2 | |||||||||||||||||||||||||||
| Total past due mortgage loans | 5 | 5 | |||||||||||||||||||||||||||
| Current mortgage loans | 86 | 89 | |||||||||||||||||||||||||||
| Total conventional mortgage loans | $ | 91 | $ | 94 | |||||||||||||||||||||||||
____________
(1) Amortized cost excludes accrued interest receivable that was not material for the reported periods.
The following tables present the other delinquency statistics for all mortgage loans.
| As of March 31, 2024 | |||||||||||||||||
| Conventional Residential Mortgage Loans | Government-guaranteed or Insured Residential Mortgage Loans | Total | |||||||||||||||
| Other delinquency statistics, at amortized cost: | |||||||||||||||||
In process of foreclosure (1) | $ | 1 | $ | — | $ | 1 | |||||||||||
Seriously delinquent rate (2) | 2.27 | % | 2.59 | % | 2.30 | % | |||||||||||
Past due 90 days or more and still accruing interest (3) | $ | — | $ | — | $ | — | |||||||||||
Mortgage loans on nonaccrual status (4) | $ | 2 | $ | — | $ | 2 | |||||||||||
13
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)
| As of December 31, 2023 | |||||||||||||||||
| Conventional Residential Mortgage Loans | Government-guaranteed or Insured Residential Mortgage Loans | Total | |||||||||||||||
| Other delinquency statistics, at amortized cost: | |||||||||||||||||
In process of foreclosure (1) | $ | 1 | $ | — | $ | 1 | |||||||||||
Seriously delinquent rate (2) | 2.17 | % | 2.43 | % | 2.19 | % | |||||||||||
Past due 90 days or more and still accruing interest (3) | $ | — | $ | — | $ | — | |||||||||||
Mortgage loans on nonaccrual status (4) | $ | 2 | $ | — | $ | 2 | |||||||||||
____________
(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 March 31, 2024 and December 31, 2023, none of the conventional mortgage loans on nonaccrual status had an associated allowance for credit losses because these loans were either previously charged off to the expected recoverable value and/or the fair value of the underlying collateral, including any credit enhancements, is greater than the amortized cost of the loans.
The Bank offers loan modification programs for its conventional mortgage loans programs. Loan modifications may include temporary interest rate reductions, deferral or temporary reductions in payment, or capitalization of past due amounts, or a combination of these types. There were no write-offs of conventional mortgage loans or modifications of conventional mortgage loans to borrowers experiencing financial difficulty during the three months ended March 31, 2024 and 2023.
Note 6—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 March 31, 2024 | As of December 31, 2023 | ||||||||||
| Fixed-rate | $ | 64,926 | $ | 74,641 | |||||||
| Simple variable-rate | 48,724 | 38,288 | |||||||||
| Step up/down | 3,721 | 4,124 | |||||||||
| Total par value | $ | 117,371 | $ | 117,053 | |||||||
14
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)
Redemption Terms. The following table presents the Bank’s participation in consolidated obligation bonds outstanding by year of contractual maturity.
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||||||||||||||
| Amount | Weighted- average Interest Rate (%) | Amount | Weighted- average Interest Rate (%) | ||||||||||||||||||||
| Due in one year or less | $ | 88,286 | 4.68 | $ | 84,908 | 4.77 | |||||||||||||||||
| Due after one year through two years | 12,781 | 2.85 | 12,584 | 2.71 | |||||||||||||||||||
| Due after two years through three years | 9,768 | 1.77 | 9,736 | 1.66 | |||||||||||||||||||
| Due after three years through four years | 4,053 | 3.29 | 6,172 | 2.70 | |||||||||||||||||||
| Due after four years through five years | 1,397 | 3.06 | 2,552 | 3.06 | |||||||||||||||||||
| Due after five years | 1,086 | 3.21 | 1,101 | 3.07 | |||||||||||||||||||
| Total par value | 117,371 | 4.16 | 117,053 | 4.13 | |||||||||||||||||||
| Premiums | 11 | 12 | |||||||||||||||||||||
| Discounts | (12) | (13) | |||||||||||||||||||||
| Hedging adjustments | (1,446) | (1,452) | |||||||||||||||||||||
| Total | $ | 115,924 | $ | 115,600 | |||||||||||||||||||
The following table presents the Bank’s consolidated obligation bonds outstanding by call feature.
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||
| Noncallable | $ | 72,950 | $ | 52,117 | |||||||
| Callable | 44,421 | 64,936 | |||||||||
| Total par value | $ | 117,371 | $ | 117,053 | |||||||
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 March 31, 2024 | As of December 31, 2023 | ||||||||||
| Due or callable in one year or less | $ | 111,215 | $ | 110,423 | |||||||
| Due or callable after one year through two years | 2,617 | 2,691 | |||||||||
| Due or callable after two years through three years | 1,437 | 1,776 | |||||||||
| Due or callable after three years through four years | 690 | 451 | |||||||||
| Due or callable after four years through five years | 1,006 | 1,307 | |||||||||
| Due or callable after five years | 406 | 405 | |||||||||
| Total par value | $ | 117,371 | $ | 117,053 | |||||||
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 March 31, 2024 | $ | 15,816 | $ | 16,215 | 5.02 | ||||||||||||
| As of December 31, 2023 | $ | 25,972 | $ | 26,241 | 5.25 | ||||||||||||
15
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)
Note 7—Affordable Housing Program and Voluntary Housing Contributions
In addition to the required Affordable Housing Program (AHP) assessment, the Bank’s board of directors may, from time to time, authorize additional voluntary housing contributions. In January 2024, the Bank’s board of directors authorized $36 in voluntary housing contributions for 2024 consisting of $23 in voluntary AHP non-statutory contributions and $13 in voluntary non-AHP contributions. These amounts are anticipated to be expensed during 2024.
The following table presents a rollforward of the Bank’s AHP liability, including voluntary AHP non-statutory contributions:
| For the Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Balance, beginning of year | $ | 108 | $ | 59 | ||||||||||
| AHP assessment | 22 | 14 | ||||||||||||
| Voluntary AHP non-statutory contributions | 5 | — | ||||||||||||
| Subsidy usage, net | (11) | (10) | ||||||||||||
| Balance, end of period | $ | 124 | $ | 63 | ||||||||||
The following table presents voluntary housing contributions reported in noninterest expense as “Voluntary housing contributions” on the Statements of Income which were allocated as follows:
| For the Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| AHP Homeownership Set-aside Program | $ | 3 | $ | — | ||||||||||
| AHP General Fund | 2 | — | ||||||||||||
| Total voluntary housing contributions | $ | 5 | $ | — | ||||||||||
Note 8—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 March 31, 2024 | As of December 31, 2023 | ||||||||||||||||||||||
| Required | Actual | Required | Actual | ||||||||||||||||||||
| Risk-based capital | $ | 1,243 | $ | 8,245 | $ | 1,288 | $ | 8,121 | |||||||||||||||
| Total regulatory capital ratio | 4.00 | % | 5.77 | % | 4.00 | % | 5.33 | % | |||||||||||||||
Total regulatory capital (1) | $ | 5,712 | $ | 8,245 | $ | 6,095 | $ | 8,121 | |||||||||||||||
| Leverage capital ratio | 5.00 | % | 8.66 | % | 5.00 | % | 7.99 | % | |||||||||||||||
| Leverage capital | $ | 7,140 | $ | 12,368 | $ | 7,619 | $ | 12,182 | |||||||||||||||
____________
(1) Total regulatory capital does not include accumulated other comprehensive loss, 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 2024 and 2023.
| 2024 | 2023 | |||||||||||||||||||||||||
| Amount | Annualized Rate (%) | Amount | Annualized Rate (%) | |||||||||||||||||||||||
| First quarter | $ | 117 | 7.35 | $ | 78 | 6.37 | ||||||||||||||||||||
16
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)
Note 9—Accumulated Other Comprehensive Income (Loss)
The following table presents the components comprising accumulated other comprehensive income (loss).
| Net Unrealized Gains (Losses) on Available-for-sale Securities | Pension and Postretirement Benefits | Total Accumulated Other Comprehensive Income (Loss) | |||||||||||||||
| Balance, December 31, 2022 | $ | (34) | $ | — | $ | (34) | |||||||||||
| Other comprehensive income before reclassifications: | |||||||||||||||||
| Net unrealized gains on available-for-sale securities | 17 | — | 17 | ||||||||||||||
| Balance, March 31, 2023 | $ | (17) | $ | — | $ | (17) | |||||||||||
| Balance, December 31, 2023 | $ | (5) | $ | — | $ | (5) | |||||||||||
| Other comprehensive income before reclassifications: | |||||||||||||||||
| Net unrealized gains on available-for-sale securities | 8 | — | 8 | ||||||||||||||
| Balance, March 31, 2024 | $ | 3 | $ | — | $ | 3 | |||||||||||
e
Note 10—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 13—Derivatives and Hedging Activities to the 2023 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.
17
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)
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 March 31, 2024 | As of December 31, 2023 | ||||||||||||||||||||||||||||||||||
| Notional Amount of Derivatives | Derivative Assets | Derivative Liabilities | Notional Amount of Derivatives | Derivative Assets | Derivative Liabilities | ||||||||||||||||||||||||||||||
| Derivatives in hedging relationships: | |||||||||||||||||||||||||||||||||||
Interest-rate swaps (1) | $ | 101,574 | $ | 312 | $ | 1,566 | $ | 107,578 | $ | 215 | $ | 1,603 | |||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||||||||
Interest-rate swaps (1) | 71 | 2 | 1 | 69 | 2 | 1 | |||||||||||||||||||||||||||||
| Interest-rate caps or floors | 4,000 | — | — | 4,000 | — | — | |||||||||||||||||||||||||||||
| Total derivatives not designated as hedging instruments | 4,071 | 2 | 1 | 4,069 | 2 | 1 | |||||||||||||||||||||||||||||
| Total derivatives before netting and collateral adjustments | $ | 105,645 | 314 | 1,567 | $ | 111,647 | 217 | 1,604 | |||||||||||||||||||||||||||
Netting adjustments and cash collateral (2) | 110 | (1,540) | 306 | (1,599) | |||||||||||||||||||||||||||||||
| Derivative assets and derivative liabilities | $ | 424 | $ | 27 | $ | 523 | $ | 5 | |||||||||||||||||||||||||||
___________
(1) Includes variation margin for daily settled contracts of negative $721 and negative $503 as of March 31, 2024 and December 31, 2023, 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 $1,651 and $1,921 as of March 31, 2024 and December 31, 2023, respectively. Cash collateral received including accrued interest, was $2 and $15 as of March 31, 2024 and December 31, 2023, respectively.
The following tables present the net gains (losses) on fair value hedging relationships.
| For the Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest Income (Expense) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Advances | Available-for-sale Securities | Consolidated Obligation Bonds | Consolidated Obligation Discount Notes | Advances | Available-for-sale Securities | Consolidated Obligation Bonds | Consolidated Obligation Discount Notes | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total interest income (expense) recorded in the Statements of Income | $ | 1,466 | $ | 35 | $ | (1,620) | $ | (294) | $ | 1,507 | $ | 14 | $ | (1,360) | $ | (516) | ||||||||||||||||||||||||||||||||||||||||
| Changes in fair value: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hedged items (2) | $ | (250) | $ | (42) | $ | 136 | $ | 15 | $ | 229 | $ | 1 | $ | (370) | $ | (18) | ||||||||||||||||||||||||||||||||||||||||
| Derivatives | 255 | 42 | 9 | (15) | (237) | (1) | 449 | 16 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net changes in fair value | 5 | — | 145 | — | (8) | — | 79 | (2) | ||||||||||||||||||||||||||||||||||||||||||||||||
Net interest settlements on derivatives (1) (2) | 133 | 6 | (330) | (1) | 90 | — | (285) | (2) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization/accretion of active hedging relationships | — | — | (141) | — | 2 | — | (76) | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other | (1) | — | (2) | (1) | (1) | — | (1) | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total net interest income effect from fair value hedging relationships | $ | 137 | $ | 6 | $ | (328) | $ | (2) | $ | 83 | $ | — | $ | (283) | $ | (4) | ||||||||||||||||||||||||||||||||||||||||
____________
(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.
18
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)
The following table presents the total basis adjustments on hedged items designated as fair value hedges and the related
amortized cost of the hedged items.
| As of March 31, 2024 | ||||||||||||||||||||||||||
| Advances | Available-for-sale Securities | Consolidated Obligations Bonds | Consolidated Obligations Discount Notes | |||||||||||||||||||||||
Amortized cost of hedged asset or liability (1) | $ | 24,650 | $ | 2,428 | $ | 62,823 | $ | 10,277 | ||||||||||||||||||
| Fair Value Hedging adjustments | ||||||||||||||||||||||||||
| Basis adjustment for active hedging relationships included in amortized cost | $ | (586) | $ | 17 | $ | (1,431) | $ | (11) | ||||||||||||||||||
| Basis adjustments for discontinued hedging relationships included in amortized cost | (6) | — | (15) | — | ||||||||||||||||||||||
| Total amounts of fair value hedging basis adjustments | $ | (592) | $ | 17 | $ | (1,446) | $ | (11) | ||||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||||
| Advances | Available-for-sale Securities | Consolidated Obligations Bonds | Consolidated Obligations Discount Notes | |||||||||||||||||||||||
Amortized cost of hedged asset or liability (1) | $ | 25,175 | $ | 2,455 | $ | 71,637 | $ | 6,862 | ||||||||||||||||||
| Fair Value Hedging adjustments | ||||||||||||||||||||||||||
| Basis adjustment for active hedging relationships included in amortized cost | $ | (339) | $ | 59 | $ | (1,436) | $ | 3 | ||||||||||||||||||
| Basis adjustments for discontinued hedging relationships included in amortized cost | (10) | — | (16) | — | ||||||||||||||||||||||
| Total amounts of fair value hedging basis adjustments | $ | (349) | $ | 59 | $ | (1,452) | $ | 3 | ||||||||||||||||||
___________
(1) Includes only the portion of amortized cost representing the hedged items in active or discontinued fair value hedging relationships. Amortized cost includes
fair value hedging adjustments.
| For the Three Months Ended March 31, | ||||||||||||||||||||||||||
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.
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 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.
19
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)
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 March 31, 2024 | As of December 31, 2023 | ||||||||||||||||||||||
| Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | ||||||||||||||||||||
| Gross recognized amount: | |||||||||||||||||||||||
| Uncleared derivatives | $ | 299 | $ | 1,554 | $ | 200 | $ | 1,592 | |||||||||||||||
| Cleared derivatives | 15 | 13 | 17 | 12 | |||||||||||||||||||
| Total gross recognized amount | 314 | 1,567 | 217 | 1,604 | |||||||||||||||||||
| Gross amounts of netting adjustments and cash collateral: | |||||||||||||||||||||||
| Uncleared derivatives | (299) | (1,527) | (190) | (1,587) | |||||||||||||||||||
| Cleared derivatives | 409 | (13) | 496 | (12) | |||||||||||||||||||
| Total gross amounts of netting adjustments and cash collateral | 110 | (1,540) | 306 | (1,599) | |||||||||||||||||||
| Net amounts after netting adjustments and cash collateral: | |||||||||||||||||||||||
| Uncleared derivatives | — | 27 | 10 | 5 | |||||||||||||||||||
| Cleared derivatives | 424 | — | 513 | — | |||||||||||||||||||
| Total net amounts after netting adjustments and cash collateral | 424 | 27 | 523 | 5 | |||||||||||||||||||
| Non-cash collateral received or pledged not offset-cannot be sold or repledged: | |||||||||||||||||||||||
| Uncleared derivatives | — | — | — | — | |||||||||||||||||||
| Cleared derivatives | — | — | — | — | |||||||||||||||||||
| Total cannot be sold or repledged | — | — | — | — | |||||||||||||||||||
| Net unsecured amounts: | |||||||||||||||||||||||
| Uncleared derivatives | — | 27 | 10 | 5 | |||||||||||||||||||
| Cleared derivatives | 424 | — | 513 | — | |||||||||||||||||||
Total net unsecured amount | $ | 424 | $ | 27 | $ | 523 | $ | 5 | |||||||||||||||
Note 11—Estimated Fair Values
The Bank records 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.
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 market observability of the fair value measurement for the asset or liability 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.
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.
20
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)
Level 3 - unobservable inputs for the asset or liability. Valuations are derived from techniques that use significant assumptions not observable in the market, which include pricing models, discounted cash flow models, or similar techniques. The Bank did not carry any financial assets or liabilities, measured on a recurring basis, at fair value Level 3 as of March 31, 2024 and December 31, 2023.
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. There were no such transfers during the periods presented.
Described below are the Bank’s fair value measurement methodologies applied 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 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.
The Bank conducts periodic 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 (or some other price identified in the analysis) 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. 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. In all cases, the final price is used to determine the fair value of the security.
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 March 31, 2024 and December 31, 2023. 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.
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 significant assumptions used in this model are based on management’s best estimate of discount rates, market indices, and market volatility. The inputs for interest-rate related derivatives uses the Secured Overnight Financing Rate (SOFR) swap curve for the discounting of cleared derivatives and the Overnight Index Swap (OIS) curve for the discounting of collateralized derivatives.
Derivative instruments are transacted primarily in the institutional dealer market and priced with observable market
21
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)
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 should 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 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 March 31, 2024 and December 31, 2023. 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 best 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 need to take into account future business opportunities and the net profitability of assets versus liabilities.
The following tables present the carrying values and estimated fair values of the Bank’s financial instruments.
| As of March 31, 2024 | |||||||||||||||||||||||||||||||||||
| Estimated Fair Value | |||||||||||||||||||||||||||||||||||
| Carrying Value | Total | Level 1 | Level 2 | Netting Adjustments and Cash Collateral (2) | |||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Cash and due from banks | $ | 89 | $ | 89 | $ | 89 | $ | — | $ | — | |||||||||||||||||||||||||
| Interest-bearing deposits | 1,701 | 1,701 | — | 1,701 | — | ||||||||||||||||||||||||||||||
| Securities purchased under agreements to resell | 6,000 | 6,000 | — | 6,000 | — | ||||||||||||||||||||||||||||||
| Federal funds sold | 6,760 | 6,760 | — | 6,760 | — | ||||||||||||||||||||||||||||||
Available-for-sale securities (1) | 2,431 | 2,431 | — | 2,431 | — | ||||||||||||||||||||||||||||||
| Held-to-maturity securities | 27,940 | 27,576 | — | 27,576 | — | ||||||||||||||||||||||||||||||
| Advances | 96,610 | 96,662 | — | 96,662 | — | ||||||||||||||||||||||||||||||
| Mortgage loans held for portfolio, net | 100 | 96 | — | 96 | — | ||||||||||||||||||||||||||||||
| Accrued interest receivable | 623 | 623 | — | 623 | — | ||||||||||||||||||||||||||||||
Derivative assets (1) | 424 | 424 | — | 314 | 110 | ||||||||||||||||||||||||||||||
Grantor trust assets (included in Other assets) (1) | 27 | 27 | 27 | — | — | ||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | 1,718 | 1,718 | — | 1,718 | — | ||||||||||||||||||||||||||||||
| Consolidated obligations, net: | |||||||||||||||||||||||||||||||||||
| Discount notes | 15,816 | 15,813 | — | 15,813 | — | ||||||||||||||||||||||||||||||
| Bonds | 115,924 | 115,688 | — | 115,688 | — | ||||||||||||||||||||||||||||||
| Accrued interest payable | 857 | 857 | — | 857 | — | ||||||||||||||||||||||||||||||
Derivative liabilities (1) | 27 | 27 | — | 1,567 | (1,540) | ||||||||||||||||||||||||||||||
____________
(1) Financial instruments measured at fair value on a recurring basis.
(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.
22
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)
| As of December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Estimated Fair Value | |||||||||||||||||||||||||||||||||||
| Carrying Value | Total | Level 1 | Level 2 | Netting Adjustments and Cash Collateral (2) | |||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Cash and due from banks | $ | 142 | $ | 142 | $ | 142 | $ | — | $ | — | |||||||||||||||||||||||||
| Interest-bearing deposits | 1,833 | 1,833 | — | 1,833 | — | ||||||||||||||||||||||||||||||
| Securities purchased under agreements to resell | 12,500 | 12,500 | — | 12,500 | — | ||||||||||||||||||||||||||||||
| Federal funds sold | 8,710 | 8,710 | — | 8,710 | — | ||||||||||||||||||||||||||||||
Available-for-sale securities (1) | 2,450 | 2,450 | — | 2,450 | — | ||||||||||||||||||||||||||||||
| Held-to-maturity securities | 28,714 | 28,335 | — | 28,335 | — | ||||||||||||||||||||||||||||||
| Advances | 96,608 | 96,599 | — | 96,599 | — | ||||||||||||||||||||||||||||||
| Mortgage loans held for portfolio, net | 103 | 101 | — | 101 | — | ||||||||||||||||||||||||||||||
| Accrued interest receivable | 673 | 673 | — | 673 | — | ||||||||||||||||||||||||||||||
Derivative assets (1) | 523 | 523 | — | 217 | 306 | ||||||||||||||||||||||||||||||
Grantor trust assets (included in Other assets) (1) | 26 | 26 | 26 | — | — | ||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | 1,568 | 1,568 | — | 1,568 | — | ||||||||||||||||||||||||||||||
| Consolidated obligations, net: | |||||||||||||||||||||||||||||||||||
| Discount notes | 25,972 | 25,968 | — | 25,968 | — | ||||||||||||||||||||||||||||||
| Bonds | 115,600 | 115,280 | — | 115,280 | — | ||||||||||||||||||||||||||||||
| Accrued interest payable | 902 | 902 | — | 902 | — | ||||||||||||||||||||||||||||||
Derivative liabilities (1) | 5 | 5 | — | 1,604 | (1,599) | ||||||||||||||||||||||||||||||
____________
(1) Financial instruments measured at fair value on a recurring basis.
(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.
Note 12—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 $1,038,838 and $1,061,022 as of March 31, 2024 and December 31, 2023, 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 March 31, 2024 and December 31, 2023. Accordingly, the Bank has not recognized a liability for its joint and several obligation related to the other FHLBanks’ consolidated obligations as of March 31, 2024 and December 31, 2023.
23
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 March 31, 2024 | As of December 31, 2023 | |||||||||||||||||||||||||||||||||||||
| Expire Within One Year | Expire After One Year | Total | Expire Within One Year | Expire After One Year | Total | |||||||||||||||||||||||||||||||||
Standby letters of credit (1) | $ | 8,361 | $ | 10,436 | $ | 18,797 | $ | 8,086 | $ | 7,557 | $ | 15,643 | ||||||||||||||||||||||||||
Unsettled consolidated obligation bonds, at par (2) | 1,750 | — | 1,750 | — | — | — | ||||||||||||||||||||||||||||||||
____________
(1)“Expire Within One Year” includes 21 standby letters of credit for a total of $30 as of March 31, 2024 and December 31, 2023, 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 $31 and $26 as of March 31, 2024 and December 31, 2023, respectively. Based on the Bank’s credit analyses and collateral requirements, the Bank does not deem it necessary to record any additional liability on the Statement of Condition for these commitments as of March 31, 2024 and December 31, 2023.
The Bank may be subject to various legal proceedings and actions from time to time in the ordinary course of its business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of those matters presently known to the Bank will have a material effect on the Bank’s financial condition or results of operations.
Note 13—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 as 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 in the ordinary course of business 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.
24
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)
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. The following tables present transactions with shareholders whose holdings of regulatory capital stock exceed 10 percent of total regulatory capital stock outstanding.
| As of March 31, 2024 | |||||||||||||||||||||||||||||||||||
| 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 | $ | 1,197 | 21.21 | $ | 24,701 | 25.41 | $ | — | — | ||||||||||||||||||||||||||
| Bank of America, National Association | 862 | 15.27 | 17,754 | 18.27 | — | 0.01 | |||||||||||||||||||||||||||||
| As of December 31, 2023 | |||||||||||||||||||||||||||||||||||
| 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 | $ | 1,197 | 21.38 | $ | 24,701 | 25.48 | $ | — | — | ||||||||||||||||||||||||||
| Bank of America, National Association | 850 | 15.19 | 17,504 | 18.05 | — | 0.01 | |||||||||||||||||||||||||||||
Note 14—Subsequent Events
On April 25, 2024, the Bank’s board of directors approved a first quarter 2024 cash dividend at an annualized rate of 7.35 percent. The Bank paid the first quarter 2024 dividend on May 2, 2024, in the amount of $108.
25
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 are 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 forward-looking statements. The reader can identify these forward-looking statements through the 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 interest-rate environment; demand for Bank advances and for FHLBank consolidated obligations; gains and losses on derivatives; plans to pay dividends or repurchase excess capital stock; changes to minimum capital requirements from members; the impact of changes in product offerings and demand; the impact changes in Nationally Recognized Statistical Rating Organization (NRSRO) ratings may have on the Bank’s investments, product offerings and pricing; voluntary housing contributions; the impact of housing reform and other legislative or regulatory changes, the impact of prospective regulatory changes on the Bank or its members, including those expected as a result of the “FHLBank System at 100: Focusing on the Future” report issued by the Finance Agency in November, 2023. These statements may involve matters pertaining to, but not limited to: projections regarding revenue, income, earnings, capital expenditures, dividends, liquidity, the Bank’s capital structure, voluntary programs 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, housing reform, regulatory changes, various market factors, as well as the risk factors provided under Item 1A of the Bank’s Form 10-K, and in the Bank’s other filings with the SEC from time to time, and elsewhere in this Report.
All such 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. The statements speak only as of the date that they are made and the Bank has no obligation and does not undertake to update, revise, or correct any of the forward-looking statements after the date of this Report, or after the respective dates on which the statements are made, whether as a result of new information, future events, or otherwise, except as required by law.
The discussion presented below provides an analysis of the Bank’s financial condition as of March 31, 2024 and December 31, 2023, and results of operations for the first quarter of 2024 and 2023. 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, 2023.
Executive Summary
Business Overview
The material factors impacting the Bank’s business outlook remain largely unchanged from the discussion in the Bank’s Form 10-K. The Bank considers macroeconomic drivers in its strategic planning process and business models. External factors such as interest rates, liquidity levels at member institutions, fiscal and monetary policies, and regulatory changes could have a significant effect either positive or negative on the Bank’s financial performance.
On November 7, 2023, the Finance Agency released its FHLBank System at 100: Focusing on the Future report. In the report, the Finance Agency presented their review and analysis of the FHLBank System and the actions and recommendations that it plans to pursue in service of their vision for the future of the FHLBank System, some of which may be enacted by the Finance Agency by way of regulatory guidance or proposed rulemaking, some of which call for further study, and some of which would require legislative action. The Bank is monitoring Finance Agency forthcoming and announced actions in order to assess any impact those may have on the Bank’s financial condition and results of operations. For a further discussion on the report, see “Legislative and Regulatory Developments” section below.
26
Financial Condition
The following table presents the Bank’s total assets, total liabilities, and total capital (dollars in millions). These items are discussed in more detail below.
| Change | |||||||||||||||||||||||||||||||||||
| As of March 31, 2024 | As of December 31, 2023 | Amount | Percent | ||||||||||||||||||||||||||||||||
| Total assets | $ | 142,803 | $ | 152,370 | $ | (9,567) | (6.28) | ||||||||||||||||||||||||||||
| Total liabilities | 134,555 | 144,254 | (9,699) | (6.72) | |||||||||||||||||||||||||||||||
| Total capital | 8,248 | 8,116 | 132 | 1.63 | |||||||||||||||||||||||||||||||
•Total assets decreased primarily due to a $9.4 billion, or 17.3 percent, decrease in total investments. The decrease in total investments was primarily related to additional liquidity investments that were held as of December 31, 2023.
•Total liabilities decreased primarily due to a $9.8 billion, or 6.94 percent, decrease in consolidated obligations as a result of decreased funding and liquidity needs during the period.
•Total capital increased primarily due to an increase in the Bank’s retained earnings.
Results of Operations
The following table presents the Bank’s significant income items (dollars in millions). These items are discussed in more detail below.
| For the Three Months Ended March 31, | Change | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Amount | Percent | |||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 254 | $ | 174 | $ | 80 | 46.01 | |||||||||||||||||||||||||||||||||||||||||||
| Noninterest income (loss) | 6 | (1) | 7 | * | ||||||||||||||||||||||||||||||||||||||||||||||
| Noninterest expense | 44 | 36 | 8 | 22.47 | ||||||||||||||||||||||||||||||||||||||||||||||
| Affordable Housing Program assessment | 22 | 14 | 8 | 58.13 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 194 | $ | 123 | $ | 71 | 58.16 | |||||||||||||||||||||||||||||||||||||||||||
__________
* Not meaningful
•For the first quarter of 2024, the increases in net interest income and net income were primarily due to an increase in interest rates which impacted income from interest-earning assets more than the expense from interest-bearing liabilities.
•Average advance balances were $103.0 billion for the first quarter of 2024, compared to $127.6 billion for the same period in 2023. The decrease in average advance balances for the first quarter of 2024 was primarily due to market liquidity concerns that occurred during the first quarter of 2023, which increased advance demand from the Bank’s members in the prior year.
The following table presents the Bank’s significant income ratios. These items are discussed in more detail below.
| For the Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||
| Return on average equity | 9.24 | % | 5.92 | % | 3.32 | |||||||||||||||||||||||||||||||||
| Average daily SOFR | 5.31 | 4.50 | 0.81 | |||||||||||||||||||||||||||||||||||
| Return on average equity spread to average daily SOFR | 3.93 | 1.42 | 2.51 | |||||||||||||||||||||||||||||||||||
| Net yield on interest-earning assets | 0.66 | 0.39 | 0.27 | |||||||||||||||||||||||||||||||||||
•The increase in return on average equity (ROE) was primarily due to the increase in net income during the period.
•For the first quarter of 2024, compared to the same period in 2023, ROE increased more than the increase in average daily SOFR.
27
Financial Condition
The following table presents the distribution of the Bank’s total assets, liabilities, and capital by major class (dollars in millions). These items are discussed in more detail below.
| As of March 31, 2024 | As of December 31, 2023 | Change | |||||||||||||||||||||||||||||||||
| Amount | Percent of Total | Amount | Percent of Total | Amount | Percent | ||||||||||||||||||||||||||||||
| Advances | $ | 96,610 | 67.65 | $ | 96,608 | 63.40 | $ | 2 | — | ||||||||||||||||||||||||||
| Investment securities | 30,371 | 21.27 | 31,164 | 20.45 | (793) | (2.54) | |||||||||||||||||||||||||||||
| Other investments | 14,461 | 10.13 | 23,043 | 15.12 | (8,582) | (37.24) | |||||||||||||||||||||||||||||
| Mortgage loans, net | 100 | 0.07 | 103 | 0.07 | (3) | (3.05) | |||||||||||||||||||||||||||||
| Other assets | 1,261 | 0.88 | 1,452 | 0.96 | (191) | (13.27) | |||||||||||||||||||||||||||||
| Total assets | $ | 142,803 | 100.00 | $ | 152,370 | 100.00 | $ | (9,567) | (6.28) | ||||||||||||||||||||||||||
| Consolidated obligations, net: | |||||||||||||||||||||||||||||||||||
| Discount notes | $ | 15,816 | 11.75 | $ | 25,972 | 18.00 | $ | (10,156) | (39.10) | ||||||||||||||||||||||||||
| Bonds | 115,924 | 86.15 | 115,600 | 80.14 | 324 | 0.28 | |||||||||||||||||||||||||||||
| Deposits | 1,718 | 1.28 | 1,568 | 1.09 | 150 | 9.53 | |||||||||||||||||||||||||||||
| Other liabilities | 1,097 | 0.82 | 1,114 | 0.77 | (17) | (1.61) | |||||||||||||||||||||||||||||
| Total liabilities | $ | 134,555 | 100.00 | $ | 144,254 | 100.00 | $ | (9,699) | (6.72) | ||||||||||||||||||||||||||
| Capital stock | $ | 5,644 | 68.43 | $ | 5,597 | 68.96 | $ | 47 | 0.85 | ||||||||||||||||||||||||||
| Retained earnings | 2,601 | 31.53 | 2,524 | 31.10 | 77 | 3.05 | |||||||||||||||||||||||||||||
| Accumulated other comprehensive income (loss) | 3 | 0.04 | (5) | (0.06) | 8 | 164.80 | |||||||||||||||||||||||||||||
| Total capital | $ | 8,248 | 100.00 | $ | 8,116 | 100.00 | $ | 132 | 1.63 | ||||||||||||||||||||||||||
Advances
Total advances remained relatively stable as of March 31, 2024, compared to December 31, 2023. A significant percentage of advances originated during the first three months of 2024 were short-term advances.
As of March 31, 2024, 38.9 percent of the Bank’s advances were fixed-rate, compared to 40.5 percent as of December 31, 2023. 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, primarily based on SOFR. As of March 31, 2024 and December 31, 2023, 65.8 percent and 64.9 percent, respectively, of the total Bank’s fixed-rate advances were swapped. SOFR-indexed and OIS-indexed advances comprised 91.6 percent and 6.26 percent, respectively of the Bank’s variable-rate advances as of March 31, 2024. The Bank also offers variable-rate advances that may be tied to other indices, such as the federal funds rate, prime rate, or constant maturity swap rates.
The following table presents the par value of outstanding advances by product characteristics (dollars in millions).
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||||||||||||||
| Amount | Percent of Total | Amount | Percent of Total | ||||||||||||||||||||
| Adjustable or variable-rate indexed | $ | 59,415 | 61.13 | $ | 57,686 | 59.50 | |||||||||||||||||
Fixed rate (1) | 34,399 | 35.39 | 36,187 | 37.33 | |||||||||||||||||||
| Convertible | 3,039 | 3.13 | 2,693 | 2.78 | |||||||||||||||||||
| Principal reducing credit | 345 | 0.35 | 382 | 0.39 | |||||||||||||||||||
| Total par value | $ | 97,198 | 100.00 | $ | 96,948 | 100.00 | |||||||||||||||||
____________
(1)Includes convertible advances whose conversion options have expired.
Refer to Note 4—Advances to the Bank’s interim financial statements for the concentration of the Bank’s advances to its 10 largest borrowing institutions.
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Investments
The following table presents more detailed information regarding investments held by the Bank (dollars in millions).
| Change | |||||||||||||||||||||||||||||||||||||||||||||||
| As of March 31, 2024 | As of December 31, 2023 | Amount | Percent | ||||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale securities: | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury obligations | $ | 2,188 | $ | 2,203 | $ | (15) | (0.68) | ||||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Government-sponsored enterprises commercial | 243 | 247 | (4) | (1.64) | |||||||||||||||||||||||||||||||||||||||||||
| Total available-for-sale securities | 2,431 | 2,450 | (19) | (0.78) | |||||||||||||||||||||||||||||||||||||||||||
| Held-to-maturity securities: | |||||||||||||||||||||||||||||||||||||||||||||||
| State or local housing agency debt obligations | 1 | 1 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Government-sponsored enterprises debt obligations | 1,345 | 1,475 | (130) | (8.81) | |||||||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities: | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. agency obligations-guaranteed residential | 2,517 | 2,715 | (198) | (7.29) | |||||||||||||||||||||||||||||||||||||||||||
| Government-sponsored enterprises residential | 8,105 | 8,311 | (206) | (2.48) | |||||||||||||||||||||||||||||||||||||||||||
| Government-sponsored enterprises commercial | 15,972 | 16,212 | (240) | (1.48) | |||||||||||||||||||||||||||||||||||||||||||
| Total held-to-maturity mortgage-backed securities: | 26,594 | 27,238 | (644) | (2.36) | |||||||||||||||||||||||||||||||||||||||||||
| Total held-to-maturity securities | 27,940 | 28,714 | (774) | (2.70) | |||||||||||||||||||||||||||||||||||||||||||
| Total investment securities | 30,371 | 31,164 | (793) | (2.54) | |||||||||||||||||||||||||||||||||||||||||||
| Other investments: | |||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing deposits | 1,701 | 1,833 | (132) | (7.17) | |||||||||||||||||||||||||||||||||||||||||||
| Securities purchased under agreements to resell | 6,000 | 12,500 | (6,500) | (52.00) | |||||||||||||||||||||||||||||||||||||||||||
| Federal funds sold | 6,760 | 8,710 | (1,950) | (22.39) | |||||||||||||||||||||||||||||||||||||||||||
| Total other investments | 14,461 | 23,043 | (8,582) | (37.24) | |||||||||||||||||||||||||||||||||||||||||||
| Total investments | $ | 44,832 | $ | 54,207 | $ | (9,375) | (17.29) | ||||||||||||||||||||||||||||||||||||||||
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 intends to purchase the securities. The Bank was in compliance with this regulatory requirement at the time of its MBS purchases. As of March 31, 2024 these investments were 325 percent of the Bank’s regulatory capital. The Bank is not required to sell any previously purchased MBS, however, the Bank will be precluded from purchasing additional MBS until its MBS to regulatory capital declines below 300 percent.
The amount held in other investments varies 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.
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Mortgage Loans Held for Portfolio
The Bank purchased fixed-rate residential mortgage loans directly from member participating financial institutions and through participation in eligible mortgage loans from other FHLBanks. The decrease in mortgage loans held for portfolio from December 31, 2023 to March 31, 2024 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 March 31, 2024 and December 31, 2023. 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 March 31, 2024 | As of December 31, 2023 | ||||||||||
| Florida | 22.34 | 22.24 | |||||||||
| South Carolina | 21.05 | 21.12 | |||||||||
| Virginia | 11.58 | 11.55 | |||||||||
| Georgia | 10.56 | 10.92 | |||||||||
| North Carolina | 7.82 | 7.83 | |||||||||
| All other | 26.65 | 26.34 | |||||||||
| 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, 2023 to March 31, 2024 was primarily a result of decreased funding and liquidity needs during the period. Consolidated obligation issuances financed 92.3 percent of the $142.8 billion in total assets as of March 31, 2024, a slight decrease from the financing ratio of 92.9 percent as of December 31, 2023.
The Bank often simultaneously enters into derivatives with the issuance of fixed-rate consolidated obligation bonds to convert the interest rates, in effect, into short-term variable interest rates, primarily based on SOFR. As of March 31, 2024 and December 31, 2023, 93.2 percent and 92.4 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 March 31, 2024 and December 31, 2023. As of March 31, 2024 and December 31, 2023, 65.7 percent and 26.6 percent, respectively, of the Bank’s fixed-rate consolidated obligation discount notes were swapped.
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. All the Bank’s deposits are uninsured. 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 8—Capital 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;
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•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.
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 May 7, 2024, the Bank received notification from the Finance Agency that, based on March 31, 2024 data, it will recommend to the Director that the Bank meets the definition of “adequately capitalized.”
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. As of March 31, 2024, the Bank was in compliance with this ratio.
The Bank’s financial management policy and capital plan are discussed in more detail in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Capital and in Note 10 - Capital to the Bank’s audited financial statements for the year ended on December 31, 2023, respectively, both included in the Bank’s Form 10-K.
Results of Operations
The following is a discussion and analysis of the Bank’s results of operations.
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.
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 on derivatives and hedged items designated in fair value hedging 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 $187 million and $204 million for the first quarter of 2024 and 2023, respectively.
Below are the primary factors that impacted net interest income and net income for the first quarter of 2024, compared to the same period of 2023:
•For the first quarter of 2024, the increases in net interest income and net income were primarily due to an increase in interest rates which impacted income from interest-earning assets more than the expense from interest-bearing liabilities.
•Average advance balances were $103.0 billion for the first quarter of 2024, compared to $127.6 billion for the same period in 2023. The decrease in average advance balances for the first quarter of 2024 was primarily due to market liquidity concerns that occurred during the first quarter of 2023, which increased advance demand from the Bank’s members in the prior year.
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The following tables present the change in interest income and expense due to volume or rate variance for the first quarter of 2024 and 2023 (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).” Amortization associated with hedging-related basis adjustments is also reflected in net interest income, which affects interest-rate spread.
The net yield on interest-earning assets for the first quarter of 2024 was 66 basis points, compared to 39 basis points for the same period in 2023. The increase in the Bank’s net yield on interest-earning assets was primarily due to an increase in interest rates which impacted income from interest-earning assets more than the expense from interest-bearing liabilities. The overall changes in net interest income during the first quarter of 2024, compared to the same period in 2023, was primarily rate related.
| For the Three Months Ended March 31, | Change due to | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the Three Months Ended March 31, | Change due to | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Balance | Interest | Yield/ Rate (%) | Average Balance | Interest | Yield/ Rate (%) | Volumes (6) | Rate (6) | Net Change | |||||||||||||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing deposits (1) | $ | 3,397 | $ | 46 | 5.49 | $ | 4,246 | $ | 50 | 4.69 | $ | (12) | $ | 8 | $ | (4) | |||||||||||||||||||||||||||||||||||||
| Securities purchased under agreements to resell | 5,725 | 77 | 5.39 | 7,478 | 83 | 4.52 | (21) | 15 | (6) | ||||||||||||||||||||||||||||||||||||||||||||
| Federal funds sold | 12,625 | 170 | 5.41 | 12,948 | 147 | 4.59 | (4) | 27 | 23 | ||||||||||||||||||||||||||||||||||||||||||||
Investment securities (2) | 30,690 | 432 | 5.66 | 26,452 | 285 | 4.37 | 51 | 96 | 147 | ||||||||||||||||||||||||||||||||||||||||||||
Advances (3) | 102,963 | 1,466 | 5.72 | 127,559 | 1,507 | 4.79 | (319) | 278 | (41) | ||||||||||||||||||||||||||||||||||||||||||||
Mortgage loans (4) | 102 | 1 | 5.17 | 118 | 2 | 5.22 | (1) | — | (1) | ||||||||||||||||||||||||||||||||||||||||||||
| Loans to other FHLBanks | — | — | — | 34 | — | 4.64 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total interest-earning assets | 155,502 | 2,192 | 5.67 | 178,835 | 2,074 | 4.70 | (306) | 424 | 118 | ||||||||||||||||||||||||||||||||||||||||||||
| Noninterest-earning assets | 1,700 | 1,339 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 157,202 | $ | 180,174 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities and Capital | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing deposits (5) | $ | 1,828 | 24 | 5.24 | $ | 2,143 | 24 | 4.55 | (4) | 4 | — | ||||||||||||||||||||||||||||||||||||||||||
| Consolidated obligations, net: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discount notes | 21,881 | 294 | 5.40 | 45,387 | 516 | 4.61 | (303) | 81 | (222) | ||||||||||||||||||||||||||||||||||||||||||||
| Bonds | 121,924 | 1,620 | 5.34 | 120,762 | 1,360 | 4.57 | 13 | 247 | 260 | ||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 145,633 | 1,938 | 5.35 | 168,292 | 1,900 | 4.58 | (294) | 332 | 38 | ||||||||||||||||||||||||||||||||||||||||||||
| Noninterest -bearing liabilities | 3,124 | 3,470 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total capital | 8,445 | 8,412 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities and capital | $ | 157,202 | $ | 180,174 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-rate spread | 0.32 | 0.12 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Average interest-earning assets to interest-bearing liabilities | 106.78 | 106.26 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net yield on interest-earning assets (7) | $ | 155,502 | $ | 254 | 0.66 | $ | 178,835 | $ | 174 | 0.39 | |||||||||||||||||||||||||||||||||||||||||||
| Changes in net interest income | $ | (12) | $ | 92 | $ | 80 | |||||||||||||||||||||||||||||||||||||||||||||||
____________
(1)Includes amounts recognized for the right to reclaim cash collateral paid under master netting agreements with derivative counterparties.
(2)Includes available-for-sale securities at amortized cost basis.
(3) Interest income and average yield include net prepayment fees on advances that were not material for the reported periods.
(4) Nonperforming mortgage loans are included in average balances used to determine average rate.
(5) Includes amounts recognized for the right to return cash collateral received under master netting agreements with derivative counterparties.
(6) 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.
(7) Calculated as interest earnings divided by total-earning assets, with net interest earnings equaling the difference between total interest earned and total
interest paid.
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Derivatives and Hedging Activity
The following tables present the net effect of derivatives and hedging activity on the Bank’s results of operations (dollars in millions).
| For the Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Advances | Investments | Consolidated Obligation Bonds | Consolidated Obligation Discount Notes | Total | |||||||||||||||||||||||||||||||||||||
| Effect on net interest income: | |||||||||||||||||||||||||||||||||||||||||
| Amortization or accretion of active hedging relationships | $ | — | $ | — | $ | (141) | $ | — | $ | (141) | |||||||||||||||||||||||||||||||
| Net changes in fair value hedges | 5 | — | 145 | — | 150 | ||||||||||||||||||||||||||||||||||||
Net interest settlements on derivatives (1) | 133 | 6 | (330) | (1) | (192) | ||||||||||||||||||||||||||||||||||||
Price alignment amount (2) | (8) | — | — | (1) | (9) | ||||||||||||||||||||||||||||||||||||
| Amortization or accretion of inactive hedging relationships | 7 | — | (2) | — | 5 | ||||||||||||||||||||||||||||||||||||
| Total effect on net interest income | $ | 137 | $ | 6 | $ | (328) | $ | (2) | $ | (187) | |||||||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Advances | Consolidated Obligation Bonds | Consolidated Obligation Discount Notes | Total | ||||||||||||||||||||||||||||||||||||||
| Effect on net interest income: | |||||||||||||||||||||||||||||||||||||||||
| Amortization or accretion of active hedging relationships | $ | 2 | $ | (76) | $ | — | $ | (74) | |||||||||||||||||||||||||||||||||
| Net changes in fair value hedges | (8) | 79 | (2) | 69 | |||||||||||||||||||||||||||||||||||||
Net interest settlements on derivatives (1) | 90 | (285) | (2) | (197) | |||||||||||||||||||||||||||||||||||||
Price alignment amount (2) | (7) | — | — | (7) | |||||||||||||||||||||||||||||||||||||
| Amortization or accretion of inactive hedging relationships | 6 | (1) | — | 5 | |||||||||||||||||||||||||||||||||||||
| Total effect on net interest income | $ | 83 | $ | (283) | $ | (4) | $ | (204) | |||||||||||||||||||||||||||||||||
____________
(1)Represents interest income or expense on derivatives included in net interest income.
(2)This amount is for derivatives for which variation margin is characterized as daily settled contract.
| For the Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
Noninterest Income (Loss)
The following table presents the components of noninterest income (loss) (dollars in millions).
| For the Three Months Ended March 31, | Change | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Amount | Percent | |||||||||||||||||||||||||||||||||||||||||||||||
| Standby letters of credit fees | $ | 4 | $ | 2 | $ | 2 | 75.21 | |||||||||||||||||||||||||||||||||||||||||||
| Other | 2 | (3) | 5 | 143.24 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total noninterest income (loss) | $ | 6 | $ | (1) | $ | 7 | * | |||||||||||||||||||||||||||||||||||||||||||
* Not meaningful
Noninterest Expense and Affordable Housing Program (AHP) Assessment
In January 2024, the Bank’s board of directors authorized $36 million in voluntary housing contributions for 2024 consisting of $23 million in voluntary AHP non-statutory contributions and $13 million in voluntary non-AHP contributions. These amounts are anticipated to be expensed during 2024.
During the first quarter of 2024, voluntary housing contributions to the AHP Homeownership Set-aside Program of $3 million and AHP General Fund of $2 million were expensed and reported as “Voluntary housing contributions” in noninterest expense.
The Bank records statutory AHP assessment expense at a rate of 10 percent of income before assessment, excluding interest expense on mandatorily redeemable capital stock.
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Additional Financial Data
The following table presents additional financial data for the Bank for the periods presented (dollars in millions):
| As of and for the Three Months Ended | |||||||||||||||||||||||||||||
| March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 | |||||||||||||||||||||||||
| Statements of Condition (at period end) | |||||||||||||||||||||||||||||
| Total assets | $ | 142,803 | $ | 152,370 | $ | 163,381 | $ | 174,256 | $ | 223,944 | |||||||||||||||||||
| Advances | 96,610 | 96,608 | 108,091 | 112,380 | 164,658 | ||||||||||||||||||||||||
Investments (1) | 44,832 | 54,207 | 53,839 | 58,429 | 55,764 | ||||||||||||||||||||||||
| Mortgage loans held for portfolio, net | 100 | 103 | 107 | 111 | 116 | ||||||||||||||||||||||||
Consolidated obligations, net (2) | 131,740 | 141,572 | 151,535 | 162,993 | 210,640 | ||||||||||||||||||||||||
| Total Capital stock Class B putable | 5,644 | 5,597 | 6,165 | 5,544 | 7,752 | ||||||||||||||||||||||||
| Retained earnings | 2,601 | 2,524 | 2,454 | 2,403 | 2,328 | ||||||||||||||||||||||||
| Accumulated other comprehensive income (loss) | 3 | (5) | — | (2) | (17) | ||||||||||||||||||||||||
| Total capital | 8,248 | 8,116 | 8,619 | 7,945 | 10,063 | ||||||||||||||||||||||||
| Statements of Income (for the period ended) | |||||||||||||||||||||||||||||
| Net interest income | 254 | 241 | 240 | 234 | 174 | ||||||||||||||||||||||||
| Standby letters of credit fees | 4 | 4 | 2 | 2 | 2 | ||||||||||||||||||||||||
| Net income | 194 | 174 | 178 | 174 | 123 | ||||||||||||||||||||||||
| Performance Ratios (%) | |||||||||||||||||||||||||||||
Return on average equity (3) | 9.24 | 7.83 | 8.76 | 7.23 | 5.92 | ||||||||||||||||||||||||
Return on assets (4) | 0.50 | 0.41 | 0.43 | 0.33 | 0.28 | ||||||||||||||||||||||||
| Net yield on interest-earning assets | 0.66 | 0.58 | 0.59 | 0.45 | 0.39 | ||||||||||||||||||||||||
| Interest-rate spread | 0.32 | 0.24 | 0.26 | 0.18 | 0.12 | ||||||||||||||||||||||||
Regulatory capital ratio (at period end) (5) | 5.77 | 5.33 | 5.28 | 4.56 | 4.50 | ||||||||||||||||||||||||
| Total average equity to average assets | 5.37 | 5.27 | 4.96 | 4.53 | 4.67 | ||||||||||||||||||||||||
Dividend payout ratio (6) | 60.37 | 60.01 | 71.16 | 56.82 | 63.36 | ||||||||||||||||||||||||
____________
(1) Investments consist of interest-bearing deposits, securities purchased under agreements to resell, federal funds sold, and securities classified as 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 (dollars in millions):
| March 31, 2024 | $ | 1,038,838 | |||
| December 31, 2023 | 1,061,022 | ||||
| September 30, 2023 | 1,075,756 | ||||
| June 30, 2023 | 1,174,681 | ||||
| March 31, 2023 | 1,264,394 | ||||
(3) Calculated as net income, divided by average total equity.
(4) Calculated as net income, divided by average total assets.
(5) Regulatory capital ratio is regulatory capital, which does not include accumulated other comprehensive loss, but does include mandatorily redeemable capital stock, as a percentage of total assets as of period end.
(6) Calculated as dividends declared during the period divided by net income during the period.
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.
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 U.S. and are not guaranteed by either the U.S. or any government agency, but have historically received the same credit rating as the government
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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.
The Bank’s short-term funding is generally driven by member advance 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 recent SEC 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. 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 balance and the funding balance between financial assets and financial 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 and extraordinary market events. 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.
Liquidity Reserves for Deposits. Finance Agency regulations require the Bank to hold a total amount of obligations of the United States, deposits in eligible banks or trust companies, or advances with maturities not exceeding five years, in an amount not less than the amount of total member deposits. The Bank has complied with this requirement throughout the first quarter of 2024.
Operational Liquidity. In order to ensure adequate operational liquidity (generally, the ready cash and borrowing capacity available to meet the Bank’s intraday 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 has met this liquidity requirement throughout the first quarter of 2024.
Additional Liquidity Guidance. 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. The Finance Agency periodically issues supervisory letters that identify 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 Liquidity Guidance AB permits an FHLBank to temporarily decrease its liquidity position, in a safe and sound manner, below the stated regulatory levels, as necessary for providing unanticipated extensions of advances to members or draws on letters of credit to beneficiaries. The Bank has met this liquidity requirement as directed by the Finance Agency throughout the first quarter of 2024.
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Summary of Cash Flows
The following table presents a summary of net cash provided by (used in) the Bank’s operating, investing, and financing activities (dollars in millions):
| For the Three Months Ended March 31, | ||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||
| Net cash provided by (used in): | ||||||||||||||||||||
| Operating activities | $ | 107 | $ | 15 | ||||||||||||||||
| Investing activities | 9,373 | (69,443) | ||||||||||||||||||
| Financing activities | (9,533) | 71,459 | ||||||||||||||||||
| Net change in cash and due from banks | $ | (53) | $ | 2,031 | ||||||||||||||||
The primary drivers that can impact net operating cash flows are fluctuations in net income and changes in certain adjustments to net income which may include amortization, accretion, derivative and hedging activities, and other adjustments.
•The Bank recorded net income of $194 million for the first quarter of 2024 compared to net income of $123 million for the same period in 2023.
•The Bank recorded net accretion of $232 million and net amortization of $40 million for the first quarter of 2024 and 2023, respectively. The change was primarily driven by an increase in interest expenses related to consolidated obligation discount notes during the first quarter of 2023.
•The Bank recorded a net positive change of $142 million in derivative and hedging activities for the first quarter of 2024 compared to a net negative change of $165 million in derivative and hedging activities for the same period in 2023. The change in derivative and hedging activities was primarily driven by the change in interest rates.
•The Bank recorded a positive change of $52 million and a negative change of $237 million for the first quarter of 2024 and 2023, respectively, in accrued interest receivable. The change in accrued interest receivable was primarily driven by the change in interest rates and an increase in advances during the first quarter of 2023.
•The Bank recorded a negative change of $45 million and a positive change of $252 million for the first quarter of 2024 and 2023, respectively, in accrued interest payable. The change in accrued interest payable was primarily driven by the change in interest rates and an increase in consolidated obligations during the first quarter of 2023.
Net cash provided by (used in) investing activities fluctuate primarily based on advances and investing activities.
•The Bank originated a total of $76.6 billion of advances and collected $76.4 billion of advances principal for the first quarter of 2024 compared to $197.0 billion and $142.1 billion, respectively, for the same period in 2023.
•The Bank did not purchase any investment securities during the first quarter of 2024 and received proceeds from principal collected of $775 million during the first quarter of 2024 compared to $4.1 billion and $450 million, respectively, for the same period in 2023.
• For the first quarter of 2024, the Bank recorded a net change of positive $8.9 billion related to liquidity investments compared to a net change of negative $11.0 billion for the same period in 2023.
Net cash provided by (used in) financing activities fluctuate primarily based on the issuance and payments for maturing and retiring consolidated obligations.
•The Bank issued $71.0 billion in consolidated obligations and paid $80.6 billion for maturing and retiring consolidated obligations for the first quarter of 2024, compared to $245.2 billion and $176.6 billion, respectively, for the same period in 2023.
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Anticipated Cash Expenditures
As of March 31, 2024, there have been no material changes outside the ordinary course of business in the Bank’s anticipated cash expenditures, as reported in the Bank’s Form 10-K.
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, can be called upon to repay all or any part of such payment obligation, as determined or approved by the Finance Agency. As of March 31, 2024 and December 31, 2023, none of the other FHLBanks had defaulted on their consolidated obligations; the Finance Agency was not required to allocate any obligation among the FHLBanks; and no amount of joint and several obligation has been fixed. Accordingly, the Bank has not recognized a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations as of March 31, 2024 and December 31, 2023. As of March 31, 2024, the FHLBanks had $1,172.4 billion in aggregate par value of consolidated obligations issued and outstanding, $133.6 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 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 unfunded standby letters of credit as of March 31, 2024.
Refer to Note 12—Commitments and Contingencies to the Bank’s interim financial statements for more information about the Bank’s outstanding standby letters of credit.
Legislative and Regulatory Developments
Significant regulatory actions and developments for the period covered by this Report not previously disclosed are summarized below.
Finance Agency’s Review and Analysis of the FHLBank System. On November 7, 2023, the Finance Agency issued a written report titled “FHLBank System at 100: Focusing on the Future,” presenting its review and analysis of the FHLBank System and the actions and recommendations that it plans to pursue in service of its vision for the future of the FHLBank System. The report focused on four broad themes: (1) the mission of the FHLBank System; (2) the FHLBank System as a stable and reliable source of liquidity; (3) housing and community development; and (4) FHLBank System operational efficiency, structure, and governance. The Finance Agency expects to continue a multi-year collaborative effort with the FHLBanks, their member institutions, and other stakeholders to address the recommended actions in the report and has stated that it can implement some of the recommendations from the report through ongoing supervision, guidance, or rulemaking, as well as through statutory changes by proposing specific requests for Congressional action.
In April 2024, the Finance Agency provided an update on its plan to implement the report’s recommendations and announced key priorities for 2024. Among others, these priorities include (1) clarifying the FHLBank System mission; (2) aligning eligibility requirements for different types of FHLBank members; (3) streamlining requirements related to the Affordable Housing Program; and (4) strengthening FHLBank evaluation of member creditworthiness. The Finance Agency stated that it
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would maintain transparency and continue robust stakeholder engagement during the implementation process, including seeking input on FHLBank mission achievement and members’ connection to housing and community development.
The Bank continues to monitor the Finance Agency’s efforts to implement the recommendations from the report and the Bank is not able to predict what actions will ultimately result, the timing or extent of any actions or changes, or the ultimate effect on the Bank or the FHLBank System in the future. The Bank plans to continue to engage with the Finance Agency and other stakeholders in an effort to ensure that the FHLBank System remains well positions to serve the Bank’s members and their communities. For a further discussion of the report and related risks, see, respectively, Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Legislative and Regulatory Developments and Item 1A Risk Factors, each included in the Bank’s Form 10-K.
Finance Agency Final Rule on Fair Lending, Fair Housing, and Equitable Housing Finance Plans. On April 29, 2024, the Finance Agency released its final rule that specifies requirements related to FHLBanks’ compliance with fair housing and fair lending laws and related regulations, including the Fair Housing Act and the Equal Credit Opportunity Act, and prohibitions on unfair or deceptive acts or practices under the Federal Trade Commission Act. The final rule (i) addresses the enforcement authority of the Finance Agency; (ii) articulates standards related to boards of directors’ oversight of fair housing, fair lending, and principles of equitable housing; and (iii) requires each FHLBank to annually report actions it voluntarily takes to address barriers to sustainable housing opportunities for underserved communities (“Equitable Housing Report Requirements”). The final rule will become effective 60 days after the date it is published in the Federal Register, except that the Equitable Housing Report Requirements will become effective on February 15, 2026. The Bank is continuing its review of the final rule and evaluating the impact it may have on the Bank and its operations.
SEC Final Rule on the Enhancement and Standardization of Climate-Related Disclosures for Investors. On March 6, 2024, the SEC adopted a final rule that will require registrants to disclose certain climate-related information in their annual reports (Final Rules). Following several petitions seeking judicial review of the Final Rules, on April 4, 2024, the SEC has determined to exercise its discretion to stay the Final Rules pending the completion of judicial review to avoid regulatory uncertainty for registrants subject to the Final Rules’ requirements during the pendency of the challenges to their validity. As issued, the Final Rules will require disclosure of, among other things: material climate-related risks; activities to mitigate or adapt to such risks; information about a registrant’s board of directors’ oversight of climate-related risks and management’s role in managing such risks; and information on any climate-related targets or goals that are material to the registrant’s business, results of operations, or financial condition. In addition, certain disclosures related to severe weather events and other natural conditions will be required in a registrant’s audited financial statements. The Bank will be subject to the requirements of the Final Rules applicable to the Bank beginning for its annual report for fiscal year 2027. The Bank continues to review the Final Rules and their impact on the Bank’s financial condition and results of operations, including the possible effect on costs and complexities associated with its SEC reporting.
The Bank continues to monitor these actions and guidance as they evolve and to evaluate their potential impact on the Bank.
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 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.
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Credit Risk
The Bank faces credit risk primarily with respect to its advances, investments, derivatives, and mortgage loan assets.
Advances
Secured advances to member financial institutions account for the largest category of Bank assets; thus, advances are a major source of the Bank’s credit risk exposure. The Bank uses a risk-focused approach to credit and collateral underwriting. The Bank attempts to reduce credit risk on advances by monitoring the financial condition of borrowers and the quality and value of the assets 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. The Bank assigns each borrower that is an insured depository institution a credit risk rating from 101 to 104 by utilizing an internal model (101 being the least amount of credit risk and 104 the greatest amount of credit risk). The Bank assigns each borrower that is an insurance company a credit risk rating from 101 to 104 by utilizing an external model. The Bank assigns each borrower that is 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 an internal risk matrix developed for each entity type.
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 March 31, 2024 | As of December 31, 2023 | |||||||||||||||||||||||||
| Rating | Number of Borrowers | Par Value of Outstanding Advances | Number of Borrowers | Par Value of Outstanding Advances | ||||||||||||||||||||||
| 101 | 291 | $ | 78,919 | 323 | $ | 84,969 | ||||||||||||||||||||
| 102 | 51 | 17,802 | 51 | 11,577 | ||||||||||||||||||||||
| 103 | 12 | 366 | 14 | 318 | ||||||||||||||||||||||
| 104 | 2 | 111 | 3 | 84 | ||||||||||||||||||||||
| Total | 356 | $ | 97,198 | 391 | $ | 96,948 | ||||||||||||||||||||
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 be subject to certain additional collateral, reporting, and maintenance requirements. Five borrowers have been approved for a credit limit higher than 30 percent, however, none of these borrowers exceeded the 30 percent credit limit as of March 31, 2024, and their total outstanding advance and standby letters of credit balance was $13.7 billion and $810 million, respectively, as of March 31, 2024.
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 March 31, 2024 and December 31, 2023. The following table presents information about the types of collateral held for the Bank’s advances (dollars in millions).
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| Total Par Value of Outstanding Advances | LCV of Collateral Pledged by Members | First Mortgage Collateral (%) | Securities Collateral (%) | Other Real Estate Related Collateral (%) | |||||||||||||||||||||||||
| As of March 31, 2024 | $ | 97,198 | $ | 403,647 | 59.73 | 18.89 | 21.38 | ||||||||||||||||||||||
| As of December 31, 2023 | 96,948 | 392,828 | 60.22 | 17.89 | 21.89 | ||||||||||||||||||||||||
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. Most members provide the Bank with a blanket lien covering substantially all of the member’s real estate-related assets and their consent for the Bank to file a financing statement evidencing the blanket lien. The Bank requires delivery of cash and securities pledged to the Bank as collateral. Delivery of loan collateral is also required when pledged by insurance company, community development financial institution, or housing associate members. For most commercial bank and credit union members, delivery of loan collateral is not required. The Bank periodically works with commercial bank and credit union members to release collateral from the Bank’s lien to permit such members to pledge those assets to support borrowings, or potential borrowings, from the Federal Reserve Banks’ discount window.
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 March 31, 2024 and December 31, 2023.
Investments
The Bank is subject to credit risk on investments consisting of investment securities, interest-bearing deposits, securities purchased under agreements to resell, 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-U.S. entities, other than those issued by U.S. branches and agency offices of foreign commercial banks;
•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
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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.
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 (dollars in millions).
| As of March 31, 2024 | |||||||||||||||||||||||
| Federal Funds Sold | Interest-bearing Deposits | Net Derivative Exposure (1) | Total | ||||||||||||||||||||
| Australia | $ | 900 | $ | — | $ | — | $ | 900 | |||||||||||||||
| Canada | 1,000 | — | — | 1,000 | |||||||||||||||||||
| Finland | 1,255 | — | — | 1,255 | |||||||||||||||||||
| France | 600 | — | — | 600 | |||||||||||||||||||
| Germany | 505 | — | — | 505 | |||||||||||||||||||
| Netherlands | 500 | — | — | 500 | |||||||||||||||||||
| Sweden | 745 | — | — | 745 | |||||||||||||||||||
| United States of America | 1,255 | 1,701 | 3 | 2,959 | |||||||||||||||||||
| Total | $ | 6,760 | $ | 1,701 | $ | 3 | $ | 8,464 | |||||||||||||||
| As of December 31, 2023 | |||||||||||||||||||||||
| Federal Funds Sold | Interest-bearing Deposits | Net Derivative Exposure (1) | Total | ||||||||||||||||||||
| Australia | $ | 900 | $ | — | $ | — | $ | 900 | |||||||||||||||
| Canada | 3,085 | — | — | 3,085 | |||||||||||||||||||
| Finland | 800 | — | — | 800 | |||||||||||||||||||
| France | 500 | — | — | 500 | |||||||||||||||||||
| Germany | 750 | — | — | 750 | |||||||||||||||||||
| United Kingdom | 500 | — | — | 500 | |||||||||||||||||||
| United States of America | 2,175 | 1,833 | 8 | 4,016 | |||||||||||||||||||
| Total | $ | 8,710 | $ | 1,833 | $ | 8 | $ | 10,551 | |||||||||||||||
___________
(1) Amounts do not reflect collateral; see the table under Risk Management–Credit Risk–Derivatives below for a breakdown of the credit ratings of and the Bank’s credit exposure to derivative counterparties, including net exposure after collateral.
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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 to $8.5 billion as of March 31, 2024 from $10.5 billion as of December 31, 2023. As of March 31, 2024, Australia & New Zealand Banking Group (Australia), Nordea Bank Abp (Finland), and Toronto Dominion Bank (Canada) each represented greater than 10 percent and collectively represented 37.3 percent of the total unsecured credit exposure to non-U.S. government or non-U.S. government agencies counterparties. As of March 31, 2024, 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 U.S. agencies; and (2) other MBS, CMOs, and REMICS that are of sufficient investment quality, which typically have the highest ratings issued by S&P or Moody’s at the time of purchase. In addition to NRSRO ratings, the Bank considers a variety of credit quality factors when analyzing potential investments, such as collateral performance, marketability, asset class considerations, local and regional economic conditions, and the financial health of the underlying issuer.
The following table presents information on the credit ratings of the Bank’s investments held as of March 31, 2024 (dollars in millions), based on their credit ratings as of March 31, 2024. The credit ratings reflect the lowest long-term credit ratings as reported by an NRSRO.
| Carrying Value as of March 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment Grade | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| AAA | AA | A | BBB | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment securities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury obligations | $ | — | $ | 2,188 | $ | — | $ | — | $ | 2,188 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| State or local housing agency debt obligations | — | 1 | — | — | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Government-sponsored enterprises debt obligations | — | 1,345 | — | — | 1,345 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. agency obligations-guaranteed residential | — | 2,517 | — | — | 2,517 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Government-sponsored enterprises residential | — | 8,105 | — | — | 8,105 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Government-sponsored enterprises commercial | 494 | 15,721 | — | — | 16,215 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total mortgage-backed securities | 494 | 26,343 | — | — | 26,837 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total investment securities | 494 | 29,877 | — | — | 30,371 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other investments: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | — | 3 | 1,698 | — | 1,701 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities purchased under agreements to resell | — | 5,500 | 500 | — | 6,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Federal funds sold | — | 1,255 | 4,750 | 755 | 6,760 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other investments | — | 6,758 | 6,948 | 755 | 14,461 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total investments | $ | 494 | $ | 36,635 | $ | 6,948 | $ | 755 | $ | 44,832 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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.
Available-for-sale Securities
Available-for-sale securities are evaluated at the individual security level for impairment on a quarterly basis by comparing the security’s fair value to its amortized cost. Accrued interest receivable is recorded separately on the Statements of Condition. Impairment exists when the fair value of the investment is less than its amortized cost (i.e., in an unrealized loss position). In assessing whether a credit loss exists on an impaired security, the Bank considers whether there would be a shortfall in receiving all cash flows contractually due. In the case of U.S. obligations, they carry an explicit U.S. government guarantee and GSE securities are purchased under an assumption that the issuers’ obligation to pay principal and interest on those securities will be honored, taking into account their status as GSEs. When a shortfall is considered possible, the Bank compares the present value of cash flows to be collected from the security with the amortized cost basis of the security. If the present value of
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cash flows is less than amortized cost, an allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. The allowance is limited by the amount of the unrealized loss. The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately. If management intends to sell an impaired security classified as available-for-sale, or more likely than not will be required to sell the security before expected recovery of its amortized cost basis, any allowance for credit losses is written off and the amortized cost basis is written down to the security’s fair value at the reporting date with any incremental impairment reported in earnings. If management does not intend to sell an impaired security classified as available-for-sale and it is not more likely than not that management will be required to sell the debt security, then the credit portion of the difference is recognized as an allowance for credit losses and any remaining difference between the security’s fair value and amortized cost is recorded as net unrealized gains (losses) on available-for-sale securities within other comprehensive income (loss). The Bank has not established an allowance for credit loss on any of its available-for-sale sale securities as of March 31, 2024.
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.
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 March 31, 2024 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. obligations, they carry an explicit U.S. government guarantee, and (4) in the case of GSE securities, they are purchased under an assumption that the issuers’ obligation to pay principal and interest on those securities will be honored, taking into account their status as GSEs.
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 expect any credit losses on its uncleared derivatives as of March 31, 2024.
Uncleared derivative transactions executed on or after the dates specified in applicable regulations are subject to two-way initial margin requirements as mandated by the Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, if the Bank’s aggregate uncleared derivative transactions exposure to a counterparty exceeds a specified threshold. The initial margin is required to be held at a third-party custodian and does not change ownership. Rather, the party in respect of which the initial margin has been posted to the third-party custodian will have a security interest in the amount of initial margin required under the uncleared margin rules and can only take ownership upon the occurrence of certain events, including an event of default due to bankruptcy, insolvency, or similar proceeding.
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,
43
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 two approved clearing agents, Morgan Stanley & Co. LLC and Goldman Sachs & Co. The Bank does not expect any credit losses on its cleared derivatives as of March 31, 2024. Refer to Note 10 —Derivatives and Hedging Activities to the Bank’s interim financial statements for more information about cleared derivatives.
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.
The following tables present information on the credit ratings of, and the Bank’s credit exposure to, its derivative counterparties (dollars in millions). The credit ratings reflect the lowest long-term credit rating by an NRSRO.
| As of March 31, 2024 | ||||||||||||||||||||||||||||||||
| Notional Amount | Net Derivatives Fair Value Before Collateral | Cash Collateral Pledged To (From) Counterparty | Net Credit Exposure to Counterparties | |||||||||||||||||||||||||||||
| Non-member counterparties: | ||||||||||||||||||||||||||||||||
| Asset positions with credit exposure: | ||||||||||||||||||||||||||||||||
| Single-A | $ | 2,011 | $ | 1 | $ | (1) | $ | — | ||||||||||||||||||||||||
| Cleared derivatives | 40,048 | 2 | 422 | 424 | ||||||||||||||||||||||||||||
| Liability positions with credit exposure: | ||||||||||||||||||||||||||||||||
| Cleared derivatives | 54 | — | — | — | ||||||||||||||||||||||||||||
| Total derivative positions with non-member counterparties to which the Bank had credit exposure | 42,113 | 3 | 421 | 424 | ||||||||||||||||||||||||||||
Member institutions (1) | 11 | — | — | — | ||||||||||||||||||||||||||||
| Total | $ | 42,124 | $ | 3 | $ | 421 | $ | 424 | ||||||||||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||||||||||
| Notional Amount | Net Derivatives Fair Value Before Collateral | Cash Collateral Pledged To (From) Counterparty | Net Credit Exposure to Counterparties | |||||||||||||||||||||||||||||
| Non-member counterparties: | ||||||||||||||||||||||||||||||||
| Asset positions with credit exposure: | ||||||||||||||||||||||||||||||||
| Single-A | $ | 255 | $ | 3 | $ | (3) | $ | — | ||||||||||||||||||||||||
| Cleared derivatives | 35,269 | 5 | 508 | 513 | ||||||||||||||||||||||||||||
| Liability positions with credit exposure: | ||||||||||||||||||||||||||||||||
| Single-A | 39,344 | (658) | 662 | 4 | ||||||||||||||||||||||||||||
| Triple-B | 13,517 | (359) | 365 | 6 | ||||||||||||||||||||||||||||
| Cleared derivatives | 54 | — | — | — | ||||||||||||||||||||||||||||
| Total derivative positions with non-member counterparties to which the Bank had credit exposure | 88,439 | (1,009) | 1,532 | 523 | ||||||||||||||||||||||||||||
Member institutions (1) | 11 | — | — | — | ||||||||||||||||||||||||||||
| Total | $ | 88,450 | $ | (1,009) | $ | 1,532 | $ | 523 | ||||||||||||||||||||||||
____________
(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.
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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 mortgage loans was not material as of March 31, 2024 and December 31, 2023.
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.
Recently Issued But Not Yet Adopted Accounting Guidance
See Note 2—Recently Issued But Not Yet Adopted Accounting Standards to the Bank’s interim financial statements for a discussion of recently issued but not yet adopted accounting standards.
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 March 31, 2024 | As of December 31, 2023 | |||||||||||||||||||||||||
| 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 | $ | 21,473 | $ | 21,270 | ||||||||||||||||||||
| Non-qualifying hedges | 10 | 2 | ||||||||||||||||||||||||
| 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 | 3,038 | 2,693 | ||||||||||||||||||||||
| Non-qualifying hedges | — | 5 | ||||||||||||||||||||||||
| 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 | 347 | 1,502 | ||||||||||||||||||||||
| Total | 24,868 | 25,472 | ||||||||||||||||||||||||
| Investments | ||||||||||||||||||||||||||
| Pay fixed, receive variable interest-rate swap | Converts the investment’s fixed rate to a variable-rate index. | Fair value hedges | 2,350 | 2,350 | ||||||||||||||||||||||
| Pay fixed, receive variable interest-rate swap (with options) | Converts the investment’s fixed rate to a variable-rate index. | Fair value hedges | 239 | 239 | ||||||||||||||||||||||
| Total | 2,589 | 2,589 | ||||||||||||||||||||||||
| 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 | 19,748 | 9,103 | ||||||||||||||||||||||
| 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 | 44,206 | 63,671 | ||||||||||||||||||||||
| Total | 63,954 | 72,774 | ||||||||||||||||||||||||
| 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 | 10,173 | 6,750 | ||||||||||||||||||||||
| Balance Sheet | ||||||||||||||||||||||||||
| Pay variable, receive fixed interest rate swap | Interest-rate swap not linked to specific assets, liabilities or forecasted transactions. | Non-qualifying hedges | 20 | 20 | ||||||||||||||||||||||
| Pay fixed, receive variable interest rate swap | Interest-rate swap not linked to specific assets, liabilities or forecasted transactions. | Non-qualifying hedges | 20 | 20 | ||||||||||||||||||||||
| Interest-rate cap or floor | Protects against changes in income of certain assets due to changes in interest rates. | Non-qualifying hedges | 4,000 | 4,000 | ||||||||||||||||||||||
| Total | 4,040 | 4,040 | ||||||||||||||||||||||||
| 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 | 21 | 22 | ||||||||||||||||||||||
| Total notional amount | $ | 105,645 | $ | 111,647 | ||||||||||||||||||||||
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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 March 31, 2024 | As of December 31, 2023 | ||||||||||||||||||||||||||||||||||
| Down 200 Basis Points | Current | Up 200 Basis Points | Down 200 Basis Points | Current | Up 200 Basis Points | ||||||||||||||||||||||||||||||
| Assets | 0.16 | 0.20 | 0.28 | 0.17 | 0.17 | 0.24 | |||||||||||||||||||||||||||||
| Liabilities | 0.12 | 0.11 | 0.10 | 0.13 | 0.12 | 0.10 | |||||||||||||||||||||||||||||
| Equity | 0.81 | 1.80 | 3.54 | 0.92 | 1.20 | 2.97 | |||||||||||||||||||||||||||||
| Effective duration gap | 0.04 | 0.09 | 0.18 | 0.04 | 0.05 | 0.14 | |||||||||||||||||||||||||||||
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 pricing approach that is more fully described in Note 11—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 (dollars in millions).
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||||||||||||||||||||||||||
| Down 200 Basis Points | Current | Up 200 Basis Points | Down 200 Basis Points | Current | Up 200 Basis Points | ||||||||||||||||||||||||||||||
| Assets | $ | 144,049 | $ | 143,553 | $ | 142,860 | $ | 153,624 | $ | 153,132 | $ | 152,509 | |||||||||||||||||||||||
| Liabilities | 136,055 | 135,734 | 135,459 | 145,932 | 145,574 | 145,253 | |||||||||||||||||||||||||||||
| Equity | 7,994 | 7,819 | 7,401 | 7,692 | 7,558 | 7,256 | |||||||||||||||||||||||||||||
The scenarios above generally include numerous assumptions, including those related to changes in the balance sheet, interest rates, and prepayment trends. Such assumptions may change through time as a result of a host of factors, including changes in the balance sheet as well as the interest-rate environment. The modeling process is performed in a manner consistent with the Bank’s policies and procedures with results reviewed on an on-going basis by the Bank. While all of the above estimates are reflective of the general interest-rate sensitivity of the Bank, market conditions, the realized growth and remixing of the balance sheet, as well as the broader macroeconomic environment could all have a significant impact on the Bank’s assets, liabilities and equity.
47
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Bank’s President and Chief Executive Officer and the Bank’s Executive Vice President and Chief Financial Officer (Certifying Officers) are responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.
As of March 31, 2024, 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 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 first quarter of 2024, 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.
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
The Bank may be subject to various legal proceedings and actions from time to time in the ordinary course of its business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of those matters presently known to the Bank will have a material adverse 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 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 may also materially adversely affect the Bank’s business, financial condition, and operating results.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.
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 | Dated Filed | |||||||||||||||||
| 1 | 8-K | 10/26/2012 | ||||||||||||||||||
| 3.2 | 8-K | 12/11/2021 | ||||||||||||||||||
| 4.1 | 8-K | 10/8/2021 | ||||||||||||||||||
| 31.1 | ||||||||||||||||||||
| 31.2 | ||||||||||||||||||||
| 32.1 | ||||||||||||||||||||
| 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: | May 10, 2024 | By /s/ Kirk R. Malmberg | ||||||
| Name: Kirk R. Malmberg Title: President and Chief Executive Officer | ||||||||
| Date: | May 10, 2024 | By /s/ Haig H. Kazazian III | ||||||
| Name: Haig H. Kazazian III Title: Executive Vice President and Chief Financial Officer | ||||||||
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