UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2011

OR

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

For the transition period from                      to                     

Commission file number 000-51845

FEDERAL HOME LOAN BANK OF ATLANTA

(Exact name of registrant as specified in its charter)

Federally chartered corporation	56-6000442
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1475 Peachtree Street, NE, Atlanta, Ga.	30309
(Address of principal executive offices)	(Zip Code)

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

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

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

Class B Stock, par value $100

(Title of class)

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

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

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

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

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

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

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

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

Registrant’s stock is not publicly traded and is only issued to members of the registrant. Such stock is issued and redeemed at par value, $100 per share, subject to certain regulatory and statutory limits. At June 30, 2011, the aggregate par value of the stock held by current and former members of the registrant was $6,717,491,500, and 67,174,915 total shares were outstanding as of that date. At February 29, 2012, 61,971,001 total shares were outstanding.

Table of Contents

	PART I
Item 1.	Business	4
Item 1A.	Risk Factors	21
Item 1B.	Unresolved Staff Comments	26
Item 2.	Properties	26
Item 3.	Legal Proceedings	26
Item 4.	Mine Safety Disclosure	27
	PART II
Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
Item 6.	Selected Financial Data	30
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	82
Item 8.	Financial Statements and Supplementary Data	83
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	147
Item 9A.	Controls and Procedures	147
Item 9B.	Other Information	147
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	148
Item 11.	Executive Compensation	155
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	172
Item 13.	Certain Relationships, Related Transactions and Director Independence	173
Item 14.	Principal Accountant Fees and Services	174
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	176
SIGNATURES

Important Notice About Information in this Annual Report

In this annual report on Form 10-K (Report), unless the context suggests otherwise, references to the “Bank” mean the Federal Home Loan Bank of Atlanta. “FHLBanks” means the 12 district Federal Home Loan Banks, including the Bank, and “FHLBank System” means the FHLBanks and the Federal Home Loan Banks Office of Finance (Office of Finance), as regulated by the Federal Housing Finance Agency (Finance Agency). “FHLBank Act” means the Federal Home Loan Bank Act of 1932, as amended.

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

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

Special Cautionary Notice Regarding Forward-looking Statements

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

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

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

• forward-looking accounting and financial statement effects; and

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

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

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

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

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

2

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

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

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

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

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

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

• the Bank’s ability to develop, implement, promote the efficient performance of, and support technology and information systems, including the internet, sufficient to measure and effectively manage the risks of the Bank’s business;

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

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

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

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

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

• changes in the FHLBank Act or Finance Agency regulations that affect FHLBank operations and regulatory oversight;

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

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

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

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

3

PART I.

Item 1. Business.

Overview

The Bank is a federally chartered corporation organized in 1932 and one of 12 district FHLBanks. The FHLBanks, along with the Finance Agency and the Office of Finance, comprise the FHLBank System. The FHLBanks are U.S. government-sponsored enterprises (GSEs) organized under the authority of the FHLBank Act. Each FHLBank operates as a separate entity within a defined geographic district and has its own management, employees, and board of directors. The Bank’s defined geographic district includes Alabama, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, and the District of Columbia.

The Bank is a cooperative owned by member institutions that are required to purchase capital stock in the Bank as a condition of membership. All federally insured depository institutions, insurance companies, and certified community development financial institutions (CDFIs) chartered in the Bank’s defined geographic district and engaged in residential housing finance are eligible to apply for membership. The Bank’s stock is owned entirely by current or former members and is not publicly traded. As of December 31, 2011, the Bank’s membership totaled 1,062 financial institutions, comprising 757 commercial banks, 96 savings banks, 39 thrifts, 154 credit unions, 15 insurance companies, and one certified CDFI.

The primary function of the Bank is to provide readily available, competitively priced funding to these member institutions. The Bank serves the public by providing its member institutions with a source of liquidity, thereby enhancing the availability of credit for residential mortgages and targeted community development.

The primary source of funds for the Bank is proceeds from the sale to the public of FHLBank debt instruments, known as “consolidated obligations,” or “COs,” which are the joint and several obligations of all of the FHLBanks. Deposits, other borrowings, and the issuance of capital stock provide additional funds to the Bank. The Bank accepts deposits from both member and eligible nonmember financial institutions and federal instrumentalities. The Bank also provides members and nonmembers with correspondent banking services such as safekeeping, wire transfer, and cash management.

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

As of December 31, 2011, the Bank had total assets of $125.3 billion, total advances of $87.0 billion, total deposits of $2.7 billion, total COs of $115.0 billion, and a retained earnings balance of $1.3 billion. The Bank’s net income for the year ended December 31, 2011 was $184 million. The Bank manages its operations as one business segment. Management and the Bank’s board of directors review enterprise-wide financial information in order to make operating decisions and assess performance.

The Finance Agency was established and became the independent regulator of the FHLBanks effective July 30, 2008 with the passage of the Housing and Economic Recovery Act of 2008 (Housing Act). Pursuant to the Housing Act, all regulations, orders, determinations, and resolutions that were issued, made, prescribed, or allowed to become effective by the former Federal Housing Finance Board (Finance Board) will remain in effect until modified, terminated, set aside, or superseded by the Finance Agency Director, any court of competent jurisdiction, or operation of law. The Finance Agency’s stated mission with respect to the FHLBanks is to provide effective supervision, regulation and housing mission oversight of the FHLBanks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market. The Office of Finance, a joint office of the FHLBanks, facilitates the issuance and servicing of the FHLBanks’ debt instruments and prepares the combined quarterly and annual financial reports of the FHLBanks.

4

Products and Services

The Bank’s products and services include the following:

• Credit Products;

• Community Investment Services; and

• Cash Management and Other Services.

Credit Products

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

Advances

Advances are the Bank’s primary product. Advances are fully secured loans made to members and eligible housing finance agencies, called “housing associates” (nonmembers that are approved mortgagees under Title II of the National Housing Act). The carrying value of the Bank’s outstanding advances was $87.0 billion and $89.3 billion as of December 31, 2011 and 2010, respectively, and advances represented 69.4 percent and 67.7 percent of total assets as of December 31, 2011 and 2010, respectively. Advances generated 23.2 percent, 22.8 percent, and 38.9 percent of total interest income for the years ended December 31, 2011, 2010, and 2009, respectively.

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

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

• providing funding for single-family mortgages and multifamily mortgages held in the member’s portfolio, including both conforming and nonconforming mortgages;

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

• providing funding for commercial real estate loans;

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

• providing a cost-effective alternative to meet contingent liquidity needs.

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

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

5

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

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

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

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

Adjustable or variable rate indexed advances. Adjustable or variable rate indexed advances include:

• Daily Rate Credit Advance (DRC Advance). The DRC Advance provides short-term funding with rate resets on a daily basis, similar to federal funds lines. The DRC Advance is available generally from one day to 24 months.

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

• Capped and Floored Advances. The capped advance includes an interest-rate cap, while the floored advance includes an interest-rate floor. The interest rate on the advance adjusts according to the difference between the interest-rate cap/floor and the established index. The Bank offers this product with a maturity generally of one year to 10 years.

• Float-to-Fixed Advance. This advance is an advance that floats to London Interbank Offered Rate (LIBOR) and changes to a predetermined fixed rate on a predetermined date prior to maturity. The Bank offers this product with a maturity generally of up to 20 years. The float-to-fixed advance is a new product that became available to members beginning in the third quarter of 2011.

Fixed rate advances. Fixed rate advances include:

• Fixed Rate Credit Advance (FRC Advance). The FRC Advance offers fixed-rate funds with principal due at maturity generally from one month to 10 years.

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

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

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

6

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

In 2012, the Bank expects to offer members additional flexibility to customize advances by allowing members to combine one or more of the above advance features in a single advance.

The following table sets forth the par value of outstanding advances by product characteristics (dollars in millions). See Note 9–Advances to the audited financial statements for further information on the distinction between par value and carrying value of outstanding advances.

	As of December 31,
	2011				2010
	Amount		Percent of Total		Amount		Percent of Total
Adjustable or variable rate indexed	$	10,977		13.29	$	8,852		10.41
Fixed rate(1)		37,038		44.86		23,073		27.13
Hybrid		25,082		30.38		39,415		46.34
Convertible		8,276		10.02		12,592		14.80
Amortizing(2)		1,196		1.45		1,119		1.32
Total par value	$	82,569		100.00	$	85,051		100.00

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

⁽²⁾  The Bank offers a fixed-rate advance that may be structured with principal amortization in either equal increments or similar to a mortgage.

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

The Bank includes prepayment fee provisions in most advance transactions. With respect to callable advances, prepayment fees apply to prepayments on a date other than an option exercise date(s). As required by Finance Agency regulations, the prepayment fee is intended to make the Bank economically indifferent to a borrower’s decision to prepay an advance before maturity or, with respect to a callable advance, on a date other than an option exercise date.

7

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

		As of December 31, 2011
Institution	City, State	Advances Par Value		Percent of Total Advances		Weighted- average Interest Rate (%) (1)
Bank of America, National Association	Charlotte, NC	$	16,039		19.43		3.47
Branch Banking and Trust Company	Winston Salem, NC		9,098		11.02		3.29
Navy Federal Credit Union	Vienna, VA		7,605		9.21		3.27
SunTrust Bank	Atlanta, GA		7,027		8.51		0.16
Capital One, National Association	McLean, VA		6,373		7.72		0.28
Compass Bank	Birmingham, AL		2,944		3.57		1.44
E*TRADE Bank	Arlington, VA		2,274		2.75		3.18
BankUnited	Miami Lakes, FL		2,215		2.68		3.07
Regions Bank	Birmingham, AL		1,910		2.31		0.95
Pentagon Federal Credit Union	Alexandria, VA		1,506		1.82		4.07
Subtotal (10 largest borrowers)			56,991		69.02		2.45
Subtotal (all other borrowers)			25,578		30.98		2.78
Total par value		$	82,569		100.00		2.55

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

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

Standby Letters of Credit

The Bank provides members with irrevocable standby letters of credit to support certain obligations of the members to third parties. Members may use standby letters of credit for residential housing finance and community lending or for liquidity and asset-liability management. In particular, members often use standby letters of credit as collateral for deposits from public sector entities. Standby letters of credit are generally available for terms of two months up to 20 years or for a one year term renewable annually. The Bank requires members to fully collateralize the face amount of any letter of credit issued by the Bank during the term of the letter of credit, and the Bank charges the member an annual fee based on the face amount of the letter of credit. If the Bank is required to make payment for a beneficiary’s draw, these amounts must be reimbursed by the member immediately or, subject to the Bank’s discretion, may be converted into an advance to the member. The Bank’s underwriting and collateral requirements for standby letters of credit are the same as the underwriting and collateral requirements for advances. Letters of credit are not subject to activity-based capital stock purchase requirements. The Bank has never experienced a credit loss related to a standby letter of credit reimbursement obligation. Unlike advances, standby letters of credit are accounted for as contingent liabilities because a standby letter of credit may expire in accordance with its terms without ever being drawn upon by the beneficiary. The Bank had $21.5 billion and $22.3 billion of outstanding standby letters of credit as of December 31, 2011 and 2010, respectively.

8

Advances and Standby Letters of Credit Combined

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

		As of December 31, 2011
Institution	City, State	Advances Par Value and Standby Letters of Credit Balance		Percent of Total Advances Par Value and Standby Letters of Credit
Bank of America, National Association	Charlotte, NC	$	23,174		22.27
Branch Banking and Trust Company	Winton Salem, NC		14,492		13.92
SunTrust Bank	Atlanta, GA		8,787		8.44
Navy Federal Credit Union	Vienna, VA		7,605		7.31
Capital One, National Association	McLean, VA		6,621		6.36
Compass Bank	Birmingham, AL		6,297		6.05
E*TRADE Bank	Arlington, VA		2,274		2.18
BankUnited	Miami Lakes, FL		2,216		2.13
RBC Bank (USA) (1)	Raleigh, NC		2,204		2.12
Regions Bank	Birmingham, AL		2,051		1.97
Subtotal (10 largest borrowers)			75,721		72.75
Subtotal (all other borrowers)			28,358		27.25
Total advances par value and standby letters of credit		$	104,079		100.00

⁽¹⁾ After close of business on March 9, 2012, RBC Bank (USA) merged with and into PNC Bank, National Association, a nonmember.

Community Investment Services

Each FHLBank contributes 10 percent of its annual regulatory income to its Affordable Housing Program (AHP), or such additional prorated sums as may be required to assure that the aggregate annual contribution of the FHLBanks is not less than $100 million. Regulatory income is defined as GAAP income before interest expense related to mandatorily redeemable capital stock and the assessment for AHP, but after the assessment for the Resolution Funding Corporation (REFCORP), discussed under the heading Taxation/Assessments below.

AHP provides direct subsidy funds or subsidized advances to members to support the financing of rental and for-sale housing for very low-, low-, and moderate-income individuals and families. The Bank offers a competitive AHP, a set-aside AHP, and a discounted advance program that supports projects that provide affordable housing to those individuals and families. A description of each program is as follows:

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

• the set-aside AHP currently consists of five distinct products: First-time Homebuyer, Community Stability, Foreclosure Recovery, Energy Efficiency/Weatherization, and Accessibility Rehabilitation. Except for the First-time Homebuyer product, each of the set-aside AHP products are new products offered by the Bank in 2011. The set-aside AHP products are available on a first-come, first-served basis and provide funds through member financial institutions to be used for down payment, closing costs, and other costs associated with the purchase, purchase/rehabilitation, or rehabilitation of a home for families at or below 80 percent of the area median income; and

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

9

During the first quarter of 2011, the Bank discontinued its Economic Development and Growth Enhancement Program (EDGE). The EDGE was a selective program that provided subsidized advances to member financial institutions for specific community economic development projects; however, EDGE experienced low utilization by members.

For the years ended December 31, 2011 and 2010, AHP assessments were $21 million and $31 million, respectively.

Cash Management and Other Services

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

The Bank also acts as an intermediary for its members that have limited or no access to the capital markets but need to enter into derivatives. This service assists members with asset-liability management by giving them indirect access to the capital markets. These intermediary transactions involve the Bank entering into a derivative with a member and then entering into a mirror-image derivative with one of the Bank’s approved counterparties. The derivatives entered into by the Bank as a result of its intermediary activities do not qualify for hedge accounting treatment and are separately marked to fair value through earnings. The Bank attempts to earn income from this service sufficient to cover its operating expenses through the minor difference in rates on these mirror-image derivatives. The net result of the accounting for these derivatives is not material to the operating results of the Bank. The Bank may require both the member and the counterparty to post collateral for any market value exposure that may exist during the life of the transaction. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Legislative and Regulatory Updates for a discussion of new and pending regulations that may affect the Bank’s ability to continue to act as an intermediary for its members in derivatives transactions.

Mortgage Loan Purchase Programs

Historically, the Bank offered mortgage loan purchase programs to members to provide them an alternative to holding mortgage loans in portfolio or selling them into the secondary market. These programs, the Mortgage Partnership Finance^® Program¹ (MPF^® Program or MPF) and the Mortgage Purchase Program (MPP), are authorized under applicable regulations. Under both the MPF Program and MPP, the Bank purchased loans directly from member participating financial institutions (PFIs). The loans consisted of one-to-four family residential properties with original maturities ranging from five years to 30 years. Depending upon the program, the acquired loans may have included qualifying conventional conforming, Federal Housing Administration (FHA) insured, and Veterans Administration (VA) guaranteed fixed-rate mortgage loans. The Bank also purchased participation interests in loans on affordable multifamily rental properties through its Affordable Multifamily Participation Program (AMPP).

The Bank ceased purchasing new mortgage assets under MPF and MPP in 2008, and stopped purchasing participation interests under AMPP in 2006. The Bank purchased loans with contractual maturity dates extending out to 2038. The Bank plans to continue to support its existing MPP, MPF, and AMPP portfolios, which eventually will be reduced to zero in the ordinary course of the maturities of the assets.

Regulatory interpretive guidance provides that an FHLBank may sell loans acquired through its mortgage loan purchase programs, so long as it also sells the related credit enhancement obligation. The Bank currently is not selling loans it has acquired through its mortgage loan purchase programs.

1 “Mortgage Partnership Finance” and “MPF” are registered trademarks of FHLBank Chicago.

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

MPF Program

The unpaid principal balance of MPF loans held by the Bank was $1.4 billion and $1.8 billion at December 31, 2011 and 2010, respectively. FHLBank Chicago developed the MPF Program and, as the MPF provider, is responsible for providing transaction processing services, as well as developing and maintaining the underwriting criteria and program servicing guide. The Bank pays FHLBank Chicago a fee for providing these services. Conventional loans purchased from PFIs under the MPF Program are subject to varying levels of loss allocation and credit enhancement structures. FHA-insured and VA-guaranteed loans are not subject to the credit enhancement obligations applicable to conventional loans under the MPF Program. The Bank held $123 million and $160 million in FHA/VA loans under the MPF Program as of December 31, 2011 and 2010, respectively.

As of December 31, 2011, three of the Bank’s MPF PFIs, Branch Banking and Trust Company, SunTrust Bank and Capital One, National Association, which like all PFIs are currently inactive, were among the Bank’s top 10 borrowers.

MPP

The unpaid principal balance of MPP loans held by the Bank was $193 million and $241 million as of December 31, 2011 and 2010, respectively. As the Bank operates its MPP independently of other FHLBanks, it has greater control over the prices offered to its customers, quality of customer service, relationship with any third-party service provider, and program changes. Certain benefits of greater Bank control include the Bank’s ability to control operating costs and to manage its regulatory relationship directly with the Finance Agency. As of December 31, 2011, there were no MPP PFIs that were among the Bank’s top 10 borrowers.

AMPP

The Bank held participation interests in AMPP loans with an unpaid principal balance of $21 million as of December 31, 2011 and 2010.

Investments

The Bank maintains a portfolio of short- and long-term investments for liquidity purposes, to provide for the availability of funds to meet member credit needs and to provide additional earnings for the Bank. Investment income also enhances the Bank’s capacity to meet its commitments to affordable housing and community investment, cover operating expenses, and satisfy the Bank’s annual REFCORP assessment, discussed below. The long-term investment portfolio generally provides the Bank with higher returns than those available in short-term investments.

The Bank’s short-term investments were $14.5 billion and $16.9 billion as of December 31, 2011 and 2010, respectively. The Bank’s long-term investments were $21.7 billion and $23.0 billion as of December 31, 2011 and 2010, respectively. Short- and long-term investments represented 28.9 percent and 30.3 percent of the Bank’s total assets as of December 31, 2011 and 2010, respectively. These investments generated 68.0 percent, 68.5 percent and 54.4 percent of total interest income for the years ended December 31, 2011, 2010, and 2009, respectively.

The Bank’s short-term investments consist of overnight and term federal funds sold, certificates of deposit, and interest-bearing deposits. The Bank’s long-term investments consist of mortgage-backed securities (MBS) issued by government-sponsored mortgage agencies or private securities that, at purchase, carried the highest rating

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from Moody’s Investors Service (Moody’s) or Standard and Poor’s Ratings Services (S&P), securities issued by the U.S. government or U.S. government agencies, state and local housing agency obligations, and COs issued by other FHLBanks.

The Bank’s MBS investment practice is to purchase MBS from a group of Bank-approved dealers, which may include “primary dealers.” Primary dealers are banks and securities brokerages that trade in U.S. government securities with the Federal Reserve System. The Bank does not purchase MBS from its members, except in the case in which a member or its affiliate is on the Bank’s list of approved dealers. The Bank bases its investment decisions in all cases on the relative rates of return of competing investments and does not consider whether an MBS is being purchased from or issued by a member or an affiliate of a member. The MBS balance at December 31, 2011 and 2010 included MBS with a carrying value of $3.0 billion and $3.9 billion, respectively, issued by one of the Bank’s members and its affiliates with dealer relationships. See Note 6—Available-for-sale Securities and Note 7—Held-to-maturity Securities to the audited financial statements for a tabular presentation of the available-for-sale and held-to-maturity securities issued by members or affiliates of members.

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

Prior to June 20, 2011, Finance Agency regulations further limited the Bank’s investment in MBS and asset-backed securities by requiring that the total carrying value of MBS owned by the Bank not exceed 300 percent of the Bank’s previous month-end total capital, as defined by regulation, plus mandatorily redeemable capital stock on the day it purchases the securities. Effective June 20, 2011, the value of securities used in the 300 percent of capital limit calculation was changed from carrying value to amortized historical cost for securities classified as held-to-maturity or available-for-sale, and fair value for securities classified as trading. For discussion regarding the Bank’s compliance with this regulatory requirement, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Investments.

The Bank periodically invests in the outstanding COs issued by other FHLBanks as a part of its investment strategy. A description of the FHLBanks’ COs appears below under the heading Funding Sources—Consolidated Obligations. The terms of these investment COs generally are similar to the terms of COs issued by the Bank. At the time of such investment decision, however, indebtedness of the Bank may not be available for repurchase. The purchase of these investments is funded by a pool of liabilities and capital of the Bank and is not funded by specific or “matched” COs issued by the Bank.

The Bank purchases COs issued by other FHLBanks through third-party dealers as long-term investments, consistent with Finance Agency regulations and guidance. These investments provide a relatively predictable source of liquidity while at the same time maximizing earnings and the Bank’s leveraged capital ratio (as these longer-term investments typically earn a higher yield than short-term investments such as term federal funds sold). The Bank purchases long-term debt issued by other GSEs for the same reason, and generally the rates of return on such other long-term debt are similar to those on COs of the same maturity.

Normally, at the time of purchase of these investments, the Bank also enters into derivatives with mirror-image terms to the investments to offset price movements in the investment. This hedging helps maintain an appropriate repricing balance between assets and liabilities. At December 31, 2011 and 2010, the Bank held only one other FHLBank’s CO bond, in the amounts indicated in the table below.

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The following table sets forth the Bank’s investments in U.S. agency securities (dollars in millions):

	As of December 31,
	2011						2010
	Amount		Percent of Total Investments		Weighted -average Yield (%)		Amount		Percent of Total Investments		Weighted -average Yield (%)
Government-sponsored enterprises debt obligations	$	4,146		11.47		3.16	$	4,179		10.48		3.61
Other FHLBank’s bond(1)		82		0.23		18.75		74		0.19		17.63
Mortgage-backed securities:
U.S. agency obligations-guaranteed		803		2.22		1.08		960		2.41		1.07
Government-sponsored enterprises		9,886		27.36		1.89		8,716		21.86		2.57
Total	$	14,917		41.28			$	13,929		34.94

⁽¹⁾  Consists of one inverse variable-rate consolidated obligation bond, on which Federal Home Loan Bank of Chicago is the primary obligor.

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

Funding Sources

Consolidated Obligations

COs consisting of bonds and discount notes are the joint and several obligations of the FHLBanks, backed only by the financial resources of the FHLBanks. COs are not obligations of the U.S. government, and the United States does not guarantee the COs. The Bank, working through the Office of Finance, is able to customize COs to meet investor demands. Customized features can include different indices and embedded derivatives. These customized features are offset predominately by derivatives to reduce the market risk associated with the COs.

Although the Bank is primarily liable for its portion of COs (i.e., those issued on its behalf), the Bank also is jointly and severally liable with the other FHLBanks for the payment of principal and interest on COs of all the FHLBanks. If the principal or interest on any CO issued on behalf of the Bank is not paid in full when due, the Bank may not pay any extraordinary expenses or pay dividends to, or redeem or repurchase shares of stock from, any member of the Bank. The Finance Agency may at any time require any FHLBank to make principal or interest payments due on any COs, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation.

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

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

• cash;

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

• secured advances;

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

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

• other securities that have been assigned a rating or assessment by a nationally recognized statistical rating organization (NRSRO) that is equivalent to or higher than the rating or assessment assigned by that NRSRO to the COs.

The following table presents the Bank’s compliance with this requirement (in millions):

	Outstanding Debt		Aggregate Unencumbered Assets
As of December 31, 2011	$	114,992	$	125,061
As of December 31, 2010		119,113		131,532

The Office of Finance has responsibility for facilitating and executing the issuance of the COs. It also services all outstanding debt.

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

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

The following table shows the net amount of the Bank’s outstanding consolidated obligation bonds and discount notes (in millions).

	As of December 31,
	2011		2010
Consolidated obligations, net:
Bonds	$	90,662	$	95,198
Discount notes		24,330		23,915
Total	$	114,992	$	119,113

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

• the Bank is unable to provide the required certification;

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

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

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

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

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

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

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

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

Deposits

The FHLBank Act allows the Bank to accept deposits from its members, any institution for which it is providing correspondent services, other FHLBanks, or other governmental instrumentalities. Deposits provide some of the Bank’s funding resources while also giving members a low-risk earning asset that satisfies their regulatory liquidity requirements. As of December 31, 2011 and 2010, the Bank had demand and overnight deposits of $2.7 billion and $3.1 billion, respectively.

To support its member deposits, the FHLBank Act requires the Bank to have as a reserve an amount equal to or greater than its current deposits from members. These reserves are required to be invested in obligations of the United States, deposits in eligible banks or trust companies, or certain advances with maturities not exceeding five years. As of December 31, 2011 and 2010, the Bank had excess deposit reserves of $76.1 billion and $77.6 billion, respectively.

Capital, Capital Rules, Retained Earnings, and Dividends

Capital and Capital Rules

The Bank is required to comply with regulatory requirements for total capital, leverage capital, and risk-based capital. Under these requirements, the Bank must maintain total capital in an amount equal to at least four percent of total assets and weighted leverage capital in an amount equal to at least five percent of total assets. “Weighted leverage capital” is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times. Under the risk-based capital requirement, the Bank must maintain permanent capital, defined by the FHLBank Act and applicable regulations as the sum of paid-in capital for Class B stock and retained earnings, in an amount equal to or greater than the sum of the Bank’s credit, market, and operating risk capital requirements. The regulatory definition of permanent capital results in a calculation of permanent capital different from that determined in accordance with GAAP because the regulatory definition treats mandatorily redeemable capital stock as capital.

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Credit risk capital is the sum of the capital charges for the Bank’s assets, off-balance sheet items, and derivatives contracts. The Bank calculates these charges using the methodology and risk weights assigned to each classification by the Finance Agency. Market risk capital is the sum of the market value of the Bank’s portfolio at risk from movement in interest rates, foreign exchange rates, commodity prices, and equity prices that could occur during times of market stress and the amount, if any, by which the market value of total capital is less than 85 percent of the carrying value of total capital. Operational risk capital is equal to 30 percent of the sum of the credit risk capital component and the market risk capital component. Regulations define “total capital” as the sum of:

• permanent capital;

• the amount of paid-in Class A stock, if any (the Bank does not issue Class A stock);

• the amount of the Bank’s general allowance for losses (if any); and

• the amount of any other instruments identified in the Bank’s capital plan that the Finance Agency has determined to be available to absorb losses.

To satisfy these capital requirements, the Bank maintains a capital plan, as last amended by the board of directors on May 13, 2011. Each member’s minimum stock requirement is an amount equal to the sum of a “membership” stock component and an “activity-based” stock component under the plan. The FHLBank Act and applicable regulations require that the minimum stock requirement for members must be sufficient to enable the Bank to meet its minimum leverage and risk-based capital requirements. If necessary, the Bank may adjust the minimum stock requirement from time to time within the ranges established in the capital plan. Each member is required to comply promptly with any adjustment to the minimum stock requirement.

The capital plan permits the Bank’s board of directors to set the membership and activity-based stock requirements within a range as set forth in the capital plan. As of December 31, 2011, the membership stock requirement was 0.15 percent (15 basis points) of the member’s total assets, subject to a cap of $26 million.

As of December 31, 2011, the activity-based stock requirement was the sum of the following:

• 4.50 percent of the member’s outstanding par value of advances; and

• 8.00 percent of any outstanding targeted debt/equity investment (investments similar to AMPP assets) sold by the member to the Bank on or after December 17, 2004.

In addition, the activity-based stock requirement may include a percentage of any outstanding balance of acquired member assets (such as MPF and MPP assets), although this percentage was set at zero as of December 31, 2011. As of December 31, 2011, all of the Bank’s AMPP assets had been acquired from a nonmember; therefore, the 8.00 percent activity-based stock requirement did not apply with respect to those AMPP assets.

Although applicable regulations allow the Bank to issue Class A stock or Class B stock, or both, to its members, the Bank’s capital plan allows it to issue only Class B stock. For additional information regarding the Bank’s stock, refer to Item 5, Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Retained Earnings and Dividends

The Bank has established a capital management policy to help preserve the value of the members’ investment in the Bank and reasonably mitigate the effect on capital of unanticipated operating and accounting events. At least quarterly, the Bank assesses the adequacy of its retained earnings under a highly stressed scenario and an extremely stressed scenario, each over a three year horizon and assuming quarterly excess stock repurchases. This assessment considers pessimistic assumptions about forecasted income, mark-to-market adjustments on

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derivatives and trading securities, credit risk, market risk, and operational risk. Quarterly, the board of directors sets the targeted amount of retained earnings the Bank is required to hold after the payment of dividends based on this assessment. Based upon this quantitative analysis, the board of directors established the target amount of retained earnings at $468 million as of December 31, 2011. The Bank’s retained earnings at December 31, 2011 were higher than this target by $786 million, as discussed in more detail in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

The Finance Agency prohibits any FHLBank from issuing dividends in the form of stock or otherwise issuing new “excess stock” if that FHLBank has excess stock greater than one percent of that FHLBank’s total assets or if issuing such dividends or new excess stock would cause that FHLBank to exceed the one percent excess stock limitation. Excess stock is FHLBank capital stock not required to be held by the member to meet its minimum stock requirement under an FHLBank’s capital plan. At December 31, 2011, the Bank’s excess capital stock outstanding was 0.92 percent of the Bank’s total assets. Historically, the Bank has not issued dividends in the form of stock or issued new “excess stock,” and a member’s existing excess activity-based stock is applied to any activity-based stock requirements related to new advances.

Derivatives

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

• reduce the interest-rate net sensitivity of COs, advances, investments, and mortgage loans by, in effect, converting them to a short-term interest rate, usually based on LIBOR;

• manage embedded options in assets and liabilities;

• hedge the market value of existing assets or liabilities; and

• hedge the duration risk of pre-payable instruments.

The total notional amount of the Bank’s outstanding derivatives was $139.7 billion and $142.2 billion as of December 31, 2011 and 2010, respectively. The contractual or notional amount of a derivative is not a measure of the amount of credit risk from that transaction. Rather, the notional amount serves as a basis for calculating periodic interest payments or cash flows.

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

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The Bank is subject to credit risk in all derivatives due to potential nonperformance by the derivative counterparty. The Bank reduces this risk by executing derivatives only with highly-rated financial institutions. In addition, the legal agreements governing the Bank’s derivatives require the credit exposure of all derivatives with each counterparty to be netted. As of December 31, 2011, the Bank had credit risk exposure to four counterparties, before considering collateral, in an aggregate amount of $40 million. None of these counterparties was a top ten borrower of the Bank. As of December 31, 2010, the Bank had credit risk exposure to one counterparty, before considering collateral, in an aggregate amount of $66 million. This counterparty was Bank of America, National Association, which was one of the Bank’s ten largest advances borrowing institutions as of December 31, 2010.

The market risk of derivatives can be measured meaningfully only on a portfolio basis, taking into account the entire balance sheet and all derivatives. The market risk of the derivatives and the hedged items is included in the measurement of the Bank’s effective duration gap (the difference between the expected weighted average maturities of the Bank’s assets and liabilities). As of December 31, 2011, the Bank’s duration calculations suggested an effective duration gap of negative 0.06 years. While duration calculations are inherently approximate rather than absolute, a positive duration gap generally indicates an overall exposure to rising interest rates; conversely, a negative duration gap normally indicates an overall exposure to falling interest rates. The larger the duration gap, whether positive or negative, indicates a larger exposure risk.

For further discussion as to how the Bank manages its credit risk and market risk on its derivatives, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation—Prudent Risk Management and Risk Appetite. For further discussion as to the possible impact of new and pending regulations regarding derivatives, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Legislative and Regulatory Update.

Competition

Advances. A number of factors affect demand for the Bank’s advances, including, but not limited to, the availability and cost of other sources of liquidity for the Bank’s members, such as demand deposits, brokered deposits and the repurchase market. The Bank individually competes with other suppliers of secured and unsecured wholesale funding. Such other suppliers may include investment banks, commercial banks, and in certain circumstances, other FHLBanks. Smaller members may have access to alternative funding sources through sales of securities under agreements to repurchase, while larger members may have access to all the alternatives listed. Large members also may have independent access to the national and global credit markets. The availability of alternative funding sources to members can significantly influence the demand for the Bank’s advances and can vary as a result of a number of factors including, among others, market conditions, members’ creditworthiness, and availability of collateral. As the banking industry generally has stabilized, the competition to fund large members affiliated with members of other FHLBanks has increased. Aggressive pricing strategies by other FHLBanks or other alternative funding sources could impact the Bank’s membership and overall business.

Members continue to experience significant levels of liquidity in part due to higher FDIC deposit insurance limits which in 2010 were permanently increased to $250,000 per depositor, and the extension of the FDIC Transaction Account Guaranty Program, which provided depositors with unlimited coverage for qualifying noninterest-bearing accounts through December 31, 2012. Further, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) repealed the statutory prohibition against the payment of interest on commercial demand deposits, effective July 21, 2011. Members’ ability to pay interest on their commercial demand deposit accounts may increase their ability to attract or retain customer deposits, which could further increase their liquidity and reduce their demand for advances. In addition, the FDIC issued a final rule on February 25, 2011 to revise the assessment system applicable to FDIC insured financial institutions. Among other things, the rule now includes FHLBank advances in members’ assessment base, and eliminates an adjustment to the base assessment rate paid for secured liabilities, including FHLBank advances. To the extent that these changes result in increased assessments and thus indirectly increase the cost of advances for some

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members, it may negatively impact their demand for our advances. Recent legislative proposals to develop a U.S. covered bond market could enhance the attractiveness of covered bonds as an alternative funding source for members, although it is unclear the extent to which these proposals will progress during 2012.

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

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

Regulatory Oversight, Audits, and Examinations

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

In 2006, in accordance with the Finance Board’s regulation, the Bank registered its Class B stock with the SEC under Section 12(g)(1) of the Securities Exchange Act of 1934, as amended (Exchange Act). The Housing Act codified the regulatory requirement that each FHLBank register a class of its common stock under Section 12(g) of the Exchange Act. As a result of this registration, the Bank is required to comply with the disclosure and reporting requirements of the Exchange Act and to file with the SEC annual, quarterly and current reports, as well as meet other SEC requirements, subject to certain exemptive relief obtained from the SEC and under the Housing Act.

The Government Corporation Control Act provides that, before a government corporation (which includes each of the FHLBanks) issues and offers obligations to the public, the Secretary of the Treasury shall prescribe (1) the form, denomination, maturity, interest rate, and conditions of the obligations; (2) the time and manner in which issued; and (3) the selling price. Under the FHLBank Act, the Secretary of the Treasury has the authority, at his or her discretion, to purchase COs up to an aggregate principal amount of $4.0 billion. No borrowings under this authority have been outstanding since 1977. The U.S. Department of the Treasury (Treasury) receives the Finance Agency’s annual report to Congress, weekly reports reflecting securities transactions of the FHLBanks, and other reports reflecting the operations of the FHLBanks.

The Comptroller General has authority under the FHLBank Act to audit or examine the Finance Agency and the Bank and to decide the extent to which they fairly and effectively fulfill the purposes of the FHLBank Act.

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Furthermore, the Government Corporation Control Act provides that the Comptroller General may review any audit of the financial statements conducted by an independent registered public accounting firm. If the Comptroller General conducts such a review, he or she must report the results and provide his or her recommendations to Congress, the Office of Management and Budget, and the FHLBank in question. The Comptroller General also may conduct his or her own audit of any financial statements of the Bank.

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

Personnel

As of December 31, 2011, the Bank employed 357 full-time and nine part-time employees. The number of full-time employees decreased 11.6 percent and part-time employees decreased 30.8 percent from December 31, 2010. Over the last several years, staffing levels at the Bank increased in response to growing shareholder demand for products and services. During 2011, management began to strategically reduce overall staffing levels and restructure the Bank in response to changing business and economic conditions.

Taxation/Assessments

Although the Bank is exempt from ordinary federal, state, and local taxation except for real property tax, the Bank was obligated to make quarterly payments to REFCORP through the second quarter of 2011. On August 5, 2011, the Finance Agency certified that the FHLBanks had fully satisfied their REFCORP obligation with their payment on July 15, 2011. Prior to the satisfaction of the FHLBanks’ REFCORP obligation, each FHLBank was required to make payments to REFCORP (20 percent of annual GAAP net income before REFCORP assessments and after payment of AHP assessments) until the total amount of payments actually made was equivalent to a $300 million annual annuity whose final maturity date was April 15, 2030 (the expiration date of the REFCORP obligation). The Finance Agency shortened or lengthened the period during which the FHLBanks made payments to REFCORP based on actual payments made relative to the referenced annuity. The Finance Agency, in consultation with the U.S. Secretary of the Treasury, selected the appropriate discounting factors used in calculating the annuity.

The FHLBanks entered into a Joint Capital Enhancement Agreement (as amended, the Joint Capital Agreement), which requires each FHLBank to allocate 20 percent of its net income to a separate restricted retained earnings account, beginning in the third quarter of 2011. Because the REFCORP assessment reduced the amount of regulatory income used to calculate the AHP assessment, it had the effect of reducing the total amount of funds allocated to the AHP. The amounts allocated to the new restricted retained earnings account, however, will not be treated as an assessment and will not reduce each FHLBank’s net income. As a result, each FHLBank’s AHP contributions as a percentage of pre-assessment earnings will increase because the REFCORP obligation has been fully satisfied. Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Capital, for further discussion of the Joint Capital Agreement.

Each year the Bank must set aside for its AHP 10 percent of its annual regulatory income, or such prorated sums as may be required to assure that the aggregate contribution of the FHLBanks is not less than $100 million. If an FHLBank experienced a regulatory loss for a full year, the FHLBank would have no obligation to the AHP for that year, since each FHLBank’s required annual AHP contribution is limited to its annual regulatory income.

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REFCORP has been designated as the calculation agent for AHP and REFCORP assessments. The combined REFCORP and AHP assessments for the Bank were $43 million, $100 million and $103 million for the years ended December 31, 2011, 2010, and 2009, respectively.

Item 1A. Risk Factors.

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

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

Each of the FHLBanks relies upon the issuance of COs as a primary source of funds. COs are the joint and several obligations of all of the FHLBanks, backed only by the financial resources of the FHLBanks. Accordingly, the Bank is jointly and severally liable with the other FHLBanks for the COs issued by the FHLBanks through the Office of Finance, regardless of whether the Bank receives all or any portion of the proceeds from any particular issuance of COs.

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

During 2011, at least one of the other FHLBanks was classified by the Finance Agency as undercapitalized. In addition, during the recent financial crisis several FHLBanks announced matters related to net losses, suspension of dividends, suspension of stock repurchases and risk-based capital deficiencies, primarily in light of losses related to private-label MBS. If the economy experiences additional significant stress, it is possible that these FHLBanks may experience further MBS-related losses that in turn affect the FHLBanks’ financial condition and ability to pay principal and interest when due on the COs for which they are primarily liable.

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

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

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

The Bank is rated Aaa with a negative outlook by Moody’s and AA+ with a negative outlook by S&P. In addition, the COs of the FHLBanks are rated Aaa with a negative outlook/P-1 by Moody’s and AA+/A-1+ by

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S&P. Historically, the Bank and the FHLBanks’ COs enjoyed the highest ratings from Moody’s and S&P; however, the credit rating agencies view these ratings as constrained by the sovereign credit of the U.S., which is beyond the Bank’s control, and in the third quarter of 2011, the credit rating agencies revised their ratings for the individual FHLBanks and the COs concurrently with their downgrades of the U.S. credit rating. These ratings are subject to further revision or withdrawal at any time by the rating agencies; therefore, the Bank may not be able to maintain these credit ratings. Further negative ratings actions or negative guidance may adversely affect the Bank’s cost of funds and ability to issue COs on acceptable terms, trigger additional collateral requirements under the Bank’s derivative contracts, and reduce the attractiveness of the Bank’s standby of credit, which could have a negative effect on the Bank’s financial condition and results of operations.

The Bank faces competition for advances, which could have an adverse effect on earnings.

Advances represent the Bank’s primary product offering. For the year ended December 31, 2011, advances represented 69.4 percent of the Bank’s total assets. The Bank competes with other suppliers of wholesale funding, including investment banks, commercial banks, and in certain circumstances, other FHLBanks, which provide secured and unsecured loans to the Bank’s members. These alternative funding sources may offer more favorable terms on their loans than the Bank does on its advances, including more flexible credit or collateral standards. During 2011, the Bank’s members experienced high deposit levels partly as a result of the FDIC’s increased deposit insurance coverage, and decreasing member demand for advances. In addition, many of the Bank’s competitors are not subject to the same body of regulations applicable to the Bank, which enables those competitors to offer products more quickly and on terms that the Bank may not be able to offer. Any change made by the Bank in the pricing of its advances in an effort to effectively compete with these competitive funding sources may decrease the Bank’s profitability on advances, which could result in lower dividend yields to members. A decrease in the demand for the Bank’s advances or a decrease in the Bank’s profitability on advances could have a material adverse effect on the Bank’s financial condition and results of operations.

The Bank is exposed to risks because of customer concentration.

The Bank is subject to customer concentration risk as a result of the Bank’s reliance on a relatively small number of member institutions for a large portion of the Bank’s total advances and resulting interest income. As of December 31, 2011 and 2010, the Bank’s largest borrower, Bank of America, National Association, accounted for $16.0 billion and $25.0 billion, respectively, of the Bank’s total advances then outstanding, which represented 19.4 percent and 29.4 percent, respectively, of the Bank’s total advances then outstanding. In addition, as of December 31, 2011 and 2010, 10 of the Bank’s member institutions (including Bank of America, National Association) collectively accounted for $57.0 billion and $58.0 billion, respectively, of the Bank’s total advances then outstanding, which represented 69.0 percent and 68.3 percent, respectively, of the Bank’s total advances then outstanding. If, for any reason, the Bank were to lose, or experience a decrease in the amount of, its business relationships with its largest borrower or a combination of several of its large borrowers—whether as the result of any such member becoming a party to a merger or other transaction, or as a result of market conditions, competition or otherwise—the Bank’s financial condition and results of operations could be negatively affected.

The financial services industry has seen a significant number of failed financial institutions, many of which were Bank members, during 2011, and the Bank expects more financial institution failures during 2012. All or a portion of the assets and liabilities of a failed financial institution may be acquired by another financial institution. In addition, stronger financial institutions may see more opportunities during 2012 to acquire other financial institutions under attractive terms and conditions. This consolidation of the industry may reduce the number of potential members in the Bank’s district and result in a loss of overall business for the Bank.

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

Like many financial institutions, the Bank realizes income primarily from the spread between interest earned on the Bank’s outstanding loans and investments and interest paid on the Bank’s borrowings and other liabilities. Although the Bank uses a number of measures to monitor and manage changes in interest rates, the Bank may

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experience “gaps” in the interest-rate sensitivities of its assets and liabilities resulting from both duration and convexity mismatches. The existence of gaps in interest-rate sensitivities means that either the Bank’s interest-bearing liabilities will be more sensitive to changes in interest rates than its interest-earning assets, or vice versa. In either case, if interest rates move contrary to the Bank’s position, any such gap could adversely affect the net present value of the Bank’s interest-sensitive assets and liabilities, which could negatively affect the Bank’s financial condition and results of operations.

Prepayment of mortgage assets could affect earnings.

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

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

The Bank assumes secured and unsecured credit risk exposure associated with the risk of default by, or insolvency of, a borrower or counterparty. Any substantial devaluation of collateral, failure to properly perfect the Bank’s security interest in collateral, an inability to liquidate collateral, or any disruptions in the servicing of collateral in the event of a default could create credit losses for the Bank.

The Bank invests in U.S. agency (Fannie Mae, Freddie Mac, and Ginnie Mae) MBS and has historically invested in private-label MBS rated AAA by S&P or Fitch Ratings or Aaa by Moody’s at the time of purchase. As of December 31, 2011, a substantial portion of the Bank’s MBS portfolio consisted of private-label MBS. Market prices for many of these private-label MBS have deteriorated since 2007. Given continued uncertainty in market conditions and the significant judgments involved in determining market value, there is a risk that further declines in fair value in the Bank’s MBS portfolio may occur and that the Bank may record additional other-than-temporary impairment losses in future periods, which could materially adversely affect the Bank’s earnings and retained earnings and the value of Bank membership.

Rising delinquency rates on the Bank’s mortgage loans held for portfolio could adversely impact the Bank’s financial condition.

As discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Allowance for Credit Losses, delinquency rates on the Bank’s conventional single-family residential mortgages increased from 4.37 percent as of December 31, 2010 to 5.87 percent as of December 31, 2011, and the estimated loss severity rate used in the loan loss reserve methodology for MPF loans increased from 14.0 percent at December 31, 2010 to 37.6 percent at December 31, 2011. Accordingly, the Bank recorded an allowance for credit losses on conventional single-family residential mortgage loans of $5 million at December 31, 2011, an increase from $0 at December 31, 2010. While the Bank has not changed its base methodology for calculating the allowance for loan losses since December 31, 2010, the Bank increased the loss severity estimates that it applies to projected defaulted loans. This revision in loss assumptions reflects the prolonged deterioration in U.S. housing markets and resulting expectations as to the length and depth of depressed housing prices and impact on realized losses. To the extent that economic conditions further weaken and regional or national home prices continue to decline, the Bank may determine to further increase its allowance for credit losses on mortgage loans.

The insolvency or other inability of a significant counterparty to perform its obligations could adversely affect the Bank.

The Bank assumes credit risk when entering into securities transactions, money market transactions, supplemental mortgage insurance agreements, and derivative contracts with counterparties. The Bank routinely

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executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. The insolvency or other inability of a significant counterparty to perform its obligations under a derivative contract or other agreement could have an adverse effect on the Bank’s financial condition and results of operations. In addition, the Bank’s credit risk may be exacerbated based on market movements or when the collateral pledged to the Bank cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Bank.

The Bank uses master derivative contracts that contain provisions that require the Bank to net the exposure under all transactions with the counterparty to one amount to calculate collateral requirements. At times, the Bank enters into derivative contracts with U.S. branches or agency offices of foreign commercial banks in jurisdictions in which it is uncertain whether the netting provisions would be enforceable in the event of insolvency of the foreign commercial bank. Although the Bank attempts to monitor the creditworthiness of all counterparties, it is possible that the Bank may not be able to terminate the agreement with a foreign commercial bank before the counterparty would become subject to an insolvency proceeding.

The Bank relies upon derivative instruments to reduce its interest-rate risk, and the Bank may not be able to enter into effective derivative instruments on acceptable terms.

The Bank uses derivative instruments to attempt to reduce its interest-rate risk and mortgage prepayment risk. The Bank’s management determines the nature and quantity of hedging transactions based on various factors, including market conditions and the expected volume and terms of advances. As a result, the Bank’s effective use of these instruments depends on the ability of Bank management to determine the appropriate hedging positions in light of the Bank’s assets, liabilities, and prevailing and anticipated market conditions. In addition, the effectiveness of the Bank’s hedging strategy depends upon the Bank’s ability to enter into these instruments with acceptable parties, upon terms satisfactory to the Bank, and in the quantities necessary to hedge the Bank’s corresponding obligations. If the Bank is unable to manage its hedging positions properly or is unable to enter into hedging instruments upon acceptable terms, the Bank may be unable to manage its interest-rate and other risks, or may be required to decrease its MBS holdings, which could affect the Bank’s financial condition and results of operations.

Refer to the information set forth in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Derivatives and Hedging Activities, for a discussion of the effect of the Bank’s use of derivative instruments on the Bank’s net income, and Management’s Discussion and Analysis of Financial Condition and Results of Operations—Legislative and Regulatory Developments for a discussion of the new statutory and regulatory requirements for derivative transactions under the Dodd-Frank Act.

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

The degree of management judgment in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. If market quotes are not available, fair values are based on discounted cash flows using market estimates of interest rates and volatility or on dealer prices or prices of similar instruments. Pricing models and their underlying assumptions are based on management’s best estimates for discount rates, prepayments market volatility, and other factors. These assumptions may have a significant effect on the reported fair values of assets and liabilities, including derivatives, the related income and expense, and the expected future behavior of assets and liabilities. While models used by the Bank to value instruments and measure risk exposures are subject to periodic validation by independent parties, rapid changes in market conditions could impact the value of the Bank’s instruments, as well as the Bank’s financial condition and results of operations. Models are inherently imperfect predictors of actual results because they are based on assumptions about future performance. Changes in any models or in any of the assumptions, judgments or estimates used in the models may cause the results generated by the model to be materially different from actual results.

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An increase in the percentage of AHP contributions that the Bank is required to make could decrease the Bank’s dividends payable to its members.

If the aggregate AHP contributions of the FHLBanks were to fall below $100 million, the Finance Agency would prorate the remaining sums among the FHLBanks, subject to certain conditions, as may be required to meet the minimum $100 million annual contribution. Increasing the Bank’s AHP contribution in such a scenario would reduce the Bank’s earnings and potentially reduce the dividend paid to members.

The Bank may not be able to pay dividends at rates consistent with historical practices.

The Bank’s board of directors may declare dividends on the Bank’s capital stock, payable to members, from the Bank’s unrestricted retained earnings and current net earnings. The Bank’s ability to pay dividends also is subject to statutory and regulatory liquidity requirements. For example, the Bank has adopted a capital management policy to address regulatory guidance issued to all FHLBanks regarding retained earnings. The Bank’s capital management policy requires the Bank to establish a target amount of retained earnings by considering factors such as forecasted income, mark-to-market adjustments on derivatives and trading securities, market risk, operational risk, and credit risk, all of which may be influenced by events beyond the Bank’s control. Events such as changes in interest rates, collateral value, credit quality of members, and any future other-than-temporary impairment losses may affect the adequacy of the Bank’s retained earnings and may require the Bank to reduce its dividends from historical ratios to achieve and maintain the targeted amount of retained earnings. During the recent financial crisis, the Bank did not declare any dividends for the fourth quarter of 2008 or the first two quarters of 2009. Although the Bank has declared quarterly dividends since the third quarter of 2009, the dividend rate has been lower than before the financial crisis and it is unclear whether, or when, the Bank will be able to return to pre-crisis dividend rates.

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

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

The Bank relies heavily upon information systems and other technology.

The Bank relies heavily upon information systems and other technology to conduct and manage its business. The Bank owns some of these systems and technology, and third parties own and provide to the Bank some of the systems and technology. To the extent that the Bank experiences a failure or interruption in any of these systems or other technology, including as the result of any “cyberattacks” or other breaches of technology security, the Bank may be unable to conduct and manage its business effectively, including, without limitation, its hedging and advances activities. The Bank can make no assurance that it will be able to prevent, timely and adequately address, or mitigate the negative effects of, any such failure or interruption. Any failure or interruption could significantly harm the Bank’s customer relations, risk management, and profitability, which could have a negative effect on the Bank’s financial condition and results of operations.

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

The FHLBanks are GSEs, organized under the authority of the FHLBank Act, and governed by federal laws and regulations as adopted and applied by the Finance Agency. From time to time, Congress has amended the FHLBank Act in ways that have affected the rights and obligations of the FHLBanks and the manner in which the FHLBanks carry out their housing finance mission and business operations. New or modified legislation enacted by Congress or regulations adopted by the Finance Agency could have a negative effect on the Bank’s ability to conduct business or on the cost of doing business.

Changes in regulatory requirements could result in, among other things, an increase in the FHLBanks’ cost of funding and regulatory compliance, a change in permissible business activities, or a decrease in the size, scope, or nature of the FHLBanks’ lending activities, which could affect the Bank’s financial condition and results of operations.

The statutory and regulatory framework under which most financial institutions, including the Bank, operate will change substantially over the next several years as a result of the enactment of the Dodd-Frank Act and subsequent implementing regulations. Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Legislative and Regulatory Developments for a discussion of recent legislative and regulatory activity that could affect the Bank.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

The Bank owns approximately 235,514 square feet of office space at 1475 Peachtree Street, NE, Atlanta, Georgia 30309. The Bank occupies approximately 208,776 square feet of this space, and approximately 26,738 square feet of this space is leased to a single tenant. This lease expires December 31, 2012. The annual rental income from this lease is not material to the Bank’s results of operations. The Bank leases 17,900 square feet of office space in an off-site backup facility located in Norcross, Georgia. The Bank also leases 3,337 square feet of office space located in Washington, D.C. for its government relations personnel. The Bank believes these facilities are well maintained and are adequate for the purposes for which they currently are used.

Item 3. Legal Proceedings.

MBS Litigation

On January 18, 2011, the Bank filed a complaint in the State Court of Fulton County, Georgia against Countrywide Financial Corporation (n/k/a/ Bank of America Home Loans), Countywide Securities Corporation, Countrywide Home Loans, Inc., Bank of America Corporation (as successor to the Countrywide defendants), J.P. Morgan Securities, LLC (f/k/a J.P. Morgan Securities, Inc. and Bear Stearns & Co., Inc.) and UBS Securities, LLC, et al. The Bank’s claims arise from material misrepresentations in the offering documents of thirty private-label MBS sold to the Bank. The Bank’s complaint alleges that the Countrywide Defendants (Countrywide Financial Corporation, Countrywide Securities Corporation, and Countrywide Home Loans, Inc.) and J.P. Morgan Securities, LLC violated the Georgia RICO (Racketeer Influenced and Corrupt Organizations) Act. The complaint further alleges that those defendants, as well as UBS Securities, LLC committed fraud and negligent misrepresentation in violation of Georgia law, and that Bank of America Corporation is liable to the Bank as a successor to the Countrywide Defendants. The Bank is seeking monetary damages and other relief as compensation for losses it has incurred in connection with the purchase of these private-label MBS.

On May 19, 2011, the defendants filed a joint motion to dismiss; the Bank filed its opposition on July 8, 2011. No order has been issued by the court in response to this motion. On January 5, 2012, the State Court of Fulton

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County, Georgia entered into a scheduling order that requires the parties to complete fact discovery by December 15, 2012 and expert discovery by March 1, 2013, requires the parties to file pretrial dispositive motions by May 1, 2013 and responses by June 1, 2013, establishes September 15, 2013 as the date for the consolidated pretrial order, and sets trial for October 2013.

MBS Proposed Settlement

In a separate matter, on January 21, 2011, the Bank (together with certain other private-label MBS holders collectively comprising greater than 25 percent of the voting rights with respect to certain private-label MBS) instructed Bank of New York, in its capacity as indenture trustee, to pursue enforcement of seller representations and warranties concerning the eligibility of mortgages for securitization in certain Countrywide-issued private-label MBS. On June 29, 2011, a proposed settlement was announced between the trustee and certain Countrywide affiliates with respect to nearly all trust-related claims arising out of these private-label MBS, and the Bank and other investors (Institutional Investors) filed a Notice of Petition to intervene with the Supreme Court of the State of New York, County of New York in support of final court approval of this settlement. On August 26, 2011, certain other interested investors (Objectors) removed the action to the United States District Court, Southern District of New York; Bank of New York subsequently moved to remand the action back to state court. On October 19, 2011, the district court denied the motion to remand. On October 31, 2011, the Institutional Investors filed a petition with the United States Court of Appeals for the Second Circuit seeking to appeal the denial. On February 27, 2012, the United States Court of Appeals for the Second Circuit reversed the district court decision and remanded the action back to state court. It is not certain at this time whether the settlement will ultimately be approved, the timing of any final settlement or the amount of any distribution the Bank may receive as part of a final settlement.

Other

The Bank is subject to other 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 4. Mine Safety Disclosure.

Not applicable.

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PART II

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

The Bank’s members or former members own all the stock of the Bank. The Bank’s stock is not publicly traded or quoted, and there is no established marketplace for it, nor does the Bank expect a market to develop. The Bank’s capital plan prohibits the trading of its capital stock, except in connection with merger or acquisition activity.

A member may request in writing that the Bank redeem its excess stock at par. Any such redemption request is subject to a five year redemption period after the Bank receives the request, subject to certain regulatory requirements and to the satisfaction of any ongoing stock investment requirements applicable to the member. In addition, any member may withdraw from membership upon five years written notice to the Bank. Subject to the member’s satisfaction of any outstanding indebtedness and other statutory requirements, the Bank shall redeem at par the member’s stock upon withdrawal from membership. The Bank, in its discretion, may repurchase shares held by a member in excess of its required stock holdings, subject to certain limitations and thresholds in the Bank’s capital plan. The Bank repurchased $927 million, $513 million and $612 million of excess activity-based stock during the second, third, and fourth quarters of 2011, respectively. The Bank repurchased $4 million, $503 million, and $247 million of excess activity-based stock during the first, third, and fourth quarters of 2010, respectively. Repurchases of excess activity-based stock during the first quarter of 2010 were limited to an amount equal to each member’s increased membership stock requirement for 2010, if any, pursuant to the annual recalculation of each member’s minimum stock requirement. The par value of all capital stock is $100 per share. As of February 29, 2012, the Bank had 1,095 member and non-member shareholders and 62.0 million shares of its common stock outstanding (including mandatorily redeemable shares); 1.25 million of those outstanding shares represented excess membership stock and 17.1 million of those outstanding shares represented excess activity-based stock. Under the Bank’s capital management plan, the Bank expects to repurchase excess capital stock on a quarterly basis during 2012 at levels consistent with 2011; however, determinations of excess capital stock repurchases are subject to the Bank’s actual financial performance for each quarter.

The Bank declares and pays any dividends only after net income is calculated for the preceding quarter. The Bank declared quarterly cash dividends in 2011 and 2010 as outlined in the table below (dollars in millions).

	2011				2010
Quarter	Amount		Annualized Rate (%)(1)		Amount		Annualized Rate (%)(2)
First		$15		0.79		$5		0.27
Second		14		0.81		6		0.26
Third		13		0.76		8		0.44
Fourth		12		0.80		8		0.39

⁽¹⁾  Dividend rate was equal to the average three-month LIBOR for the preceding quarter plus 50 basis points.

⁽²⁾  Dividend rate was equal to the average three-month LIBOR for the preceding quarter.

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

The Bank’s board of directors has adopted a capital management policy that includes a targeted amount of retained earnings separate and apart from the restricted retained earnings account. For further discussion of the

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Bank’s dividends and the Joint Capital Agreement pursuant to which the restricted retained earnings account was established, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Because only member and former member institutions, not individuals, may own the Bank’s capital stock, the Bank has no equity compensation plans.

The Bank also issues standby letters of credit in the ordinary course of its business. From time to time, the Bank provides standby letters of credit to support members’ obligations, members’ letters of credit or obligations issued to support unaffiliated, third-party offerings of notes, bonds, or other securities. The Bank issued $13.1 billion, $10.9 billion, and $13.2 billion in letters of credit in 2011, 2010, and 2009, respectively. To the extent that these letters of credit are securities for purposes of the Securities Act of 1933, the issuance of the letter of credit by the Bank is exempt from registration pursuant to section 3(a)(2) thereof.

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Item 6. Selected Financial Data.

The following selected historical financial data of the Bank should be read in conjunction with the audited financial statements and related notes thereto, and with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are included elsewhere in this Report. The following data, insofar as it relates to each of the years 2007 to 2011, have been derived from annual financial statements, including the statements of condition at December 31, 2011 and 2010 and the related statements of income and of cash flows for the three years ended December 31, 2011 and notes thereto appearing elsewhere in this Report. The financial information presented in the following table, and in the financial statements included in this Report, is not necessarily indicative of the financial condition, results of operations, or cash flows of any other interim or yearly periods (dollars in millions).

	As of and for the Years Ended December 31,
	2011		2010		2009		2008		2007
Statements of Condition (at year end)
Total assets	$	125,270	$	131,798	$	151,311	$	208,564	$	188,938
Investments(1)		36,138		39,879		32,940		38,376		41,527
Mortgage loans held for portfolio		1,639		2,040		2,523		3,252		3,527
Allowance for credit losses on mortgage loans		(6)		(1)		(1)		(1)		(1)
Advances		86,971		89,258		114,580		165,856		142,867
REFCORP prepayment		—		—		—		14		—
Deposits		2,655		3,093		2,989		3,573		7,135
Consolidated obligations, net:
Discount notes		24,330		23,915		17,127		55,195		28,348
Bonds		90,662		95,198		121,450		138,181		142,237
Total consolidated obligations, net(2)		114,992		119,113		138,577		193,376		170,585
Mandatorily redeemable capital stock		286		529		188		44		55
Affordable Housing Program payable		109		126		125		139		156
Payable to REFCORP		—		20		21		—		31
Capital stock - putable		5,718		7,224		8,124		8,463		7,556
Retained earnings		1,254		1,124		873		435		469
Accumulated other comprehensive loss		(411)		(402)		(744)		(5)		(3)
Total capital		6,561		7,946		8,253		8,893		8,022
Statements of Income (for the year ended)
Net interest income		459		544		397		841		704
Provision for credit losses		5		—		—		—		—
Net impairment losses recognized in earnings		(118)		(143)		(316)		(186)		—
Net gains (losses) on trading securities		2		31		(135)		200		107
Net (losses) gains on derivatives and hedging activities		(9)		8		543		(229)		(97)
Letters of credit fees		19		14		7		4		—
Other income(3)		2		3		3		1		3
Noninterest expense(4)		123		79		113		286		110
Income before assessments		227		378		386		345		607
Assessments(5)		43		100		103		91		162
Net income		184		278		283		254		445
Performance Ratios (%)
Return on equity(6)		2.52		3.42		3.58		2.95		6.47
Return on assets(7)		0.15		0.19		0.16		0.13		0.28
Net interest margin(8)		0.37		0.38		0.22		0.42		0.44
Regulatory capital ratio (at year end)(9)		5.79		6.74		6.07		4.29		4.28
Equity to assets ratio(10)		5.91		5.63		4.34		4.25		4.27
Dividend payout ratio(11)		29.48		9.63		8.51		113.36		85.97

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

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

December 31, 2011	$	578,118
December 31, 2010		678,528
December 31, 2009		793,314
December 31, 2008		1,060,410
December 31, 2007		1,019,272

⁽³⁾  Other income includes service fees and other.

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⁽⁴⁾  For the year ended December 31, 2010, amount includes $51 million which represents the reversal of a portion of the provision for credit losses established on a receivable due from Lehman Brothers Special Financing Inc. (LBSF). For the year ended December 31, 2008, amount includes $170 million which represents provision for credit losses established on a receivable due from LBSF.

⁽⁵⁾  On August 5, 2011, the Finance Agency certified that the FHLBanks have satisfied their REFCORP obligation.

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

⁽⁷⁾  Calculated as net income divided by average total assets.

⁽⁸⁾  Net interest margin is net interest income as a percentage of average earning assets.

⁽⁹⁾  Regulatory capital ratio is regulatory capital stock plus retained earnings as a percentage of total assets at year end.

⁽¹⁰⁾  Calculated as average equity divided by average total assets.

⁽¹¹⁾  Calculated as dividends declared during the year divided by net income during the year.

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

The following discussion and analysis relates to the Bank’s financial condition as of December 31, 2011 and 2010, and results of operations for the years ended December 31, 2011, 2010, and 2009. This section explains the changes in certain key items in the Bank’s financial statements from year to year, the primary factors driving those changes, the Bank’s risk management processes and results, known trends or uncertainties that the Bank believes may have a material effect on the Bank’s future performance, as well as how certain accounting principles affect the Bank’s financial statements.

This discussion should be read in conjunction with the Bank’s audited financial statements and related notes for the year ended December 31, 2011 included in Item 8 of this Report. Readers also should review carefully “Special Cautionary Notice Regarding Forward-looking Statements” and Item 1A, Risk Factors, for a description of the forward-looking statements in this Report and a discussion of the factors that might cause the Bank’s actual results to differ, perhaps materially, from these forward-looking statements.

Executive Summary

Financial Condition

As of December 31, 2011, total assets were $125.3 billion, a decrease of $6.5 billion, or 4.95 percent, from December 31, 2010. This decrease was primarily due to a $3.7 billion, or 9.38 percent, decrease in total investments and a $2.3 billion, or 2.56 percent, decrease in advances. Advances, the largest asset on the Bank’s balance sheet, decreased as a result of scheduled maturities, strategic prepayments, prepayments as a result of member closures, and members’ significant deposit holdings and slow loan growth. The decrease in total investments was primarily due to a $2.4 billion decrease in short-term investments and a $1.3 billion decrease in MBS as further discussed in Management’s Discussion and Analysis—Financial Condition—Investments below.

As of December 31, 2011, total liabilities were $118.7 billion, a decrease of $5.1 billion, or 4.15 percent, from December 31, 2010. This decrease was primarily due to a $4.1 billion, or 3.46 percent, decrease in COs. The decrease in COs corresponds to the decrease in demand for advances by the Bank’s members during the year.

As of December 31, 2011, total capital was $6.6 billion, a decrease of $1.4 billion, or 17.4 percent, from December 31, 2010. This decrease was primarily due to the repurchase of $2.1 billion of excess capital stock and the payment of $54 million in dividends. These decreases were partially offset by the issuance of $649 million in activity-based capital stock and $23 million in membership capital stock, and the recording of $184 million in net income during the year.

Results of Operations

The Bank recorded net income of $184 million for 2011, a decrease of $94 million, or 33.7 percent, from net income of $278 million for 2010. The decrease in net income was primarily due to an $85 million decrease in net interest income, a $44 million increase in noninterest expense and a $17 million increase in noninterest loss, partially offset by a $57 million decrease in total assessments. These items are discussed in more detail in Management’s Discussion and Analysis—Results of Operations—Net Income below.

One way in which the Bank analyzes its performance is by comparing its annualized return on equity (ROE) to three-month average LIBOR. The Bank’s ROE was 2.52 percent for 2011, compared to 3.42 percent for 2010. ROE decreased in 2011 compared to 2010 primarily as a result of a decrease in net income, as discussed above. ROE spread to three-month average LIBOR decreased in 2011 compared to 2010, equaling 218 basis points for 2011 as compared to 308 basis points for 2010. The decrease in this spread was due to the decrease in ROE as previously discussed.

The Bank’s interest rate spread was 32 basis points for 2011 and 2010. The Bank’s interest rate spread has remained stable during the two periods.

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Business Outlook

During a sluggish 2011, the Bank maintained a reasonable level of net income, increased its retained earnings, repurchased excess capital stock, and paid dividends each quarter. Despite some recent signs of marginal economic improvement, the Bank expects the challenges of 2011 to continue during 2012: moderate demand for advances, continued uncertainty with respect to the Bank’s private-label MBS portfolio, limited investment opportunities, and increasing pressure on income. A growing challenge is the increase in regulatory requirements, such as derivatives clearing requirements driven by the Dodd-Frank Act, that may have a material impact on the Bank’s operations. The Bank seeks to maintain a conservative capital and financial management approach that will protect members’ investment in the Bank and provide long term value of membership.

Overall advance demand decreased during 2011 as a result of scheduled maturities, strategic prepayments, prepayments as a result of member closures, and members’ significant deposit holdings and slow loan growth. Advances increased during the fourth quarter of 2011 as members increased their liquidity in response to market volatility from the European sovereign debt crisis and in anticipation of increased Basel III liquidity requirements. The overall decline in advances slowed compared to 2010 as members began to focus on extending their existing low interest-rate advances and saw some increased loan growth. The Bank believes overall advances likely will decline somewhat during 2012, but the Bank anticipates more stabilization. During 2011, the Bank established four new AHP products. Letter of credit activity has remained, and is expected to continue to remain, relatively stable.

Although the credit related portion of other-than-temporary impairment losses recognized in earnings was lower during 2011 compared to 2010, the private-label MBS portfolios of the Bank and the FHLBank System continue to deteriorate. Other-than-temporary impairment losses have been highly volatile and there is little basis for establishing a ceiling on the amount of losses these securities could be expected to experience. Delays in foreclosures with respect to defaulted loans underlying the private-label MBS may increase credit related losses, as delays have the effect of diverting cash streams to subordinate tranches of the private-label MBS and shortening the amount of time until the Bank’s more senior tranches may be required to absorb any losses. The Bank has seen some recovery in fair market values for some of its private-label MBS; this recovery reduces pressure on the Bank’s retained earnings.

Looking forward, the Bank may experience income declines as a result of the decrease in advances. The Bank’s investments, which represented 68.0 percent of the Bank’s total interest income for the year ended December 31, 2011, are also declining, primarily due to reductions in the MBS portfolio. In addition, the Bank’s mortgage loan portfolio will also experience income declines as loans mature. The current interest rate environment and conditions in the mortgage market have made it challenging for the Bank to reinvest maturing and prepaying portfolios with attractive yielding investments, which may adversely affect the Bank’s earnings. To offset declining yields on its MBS portfolio, the Bank has invested in liquidity investments and money market investments.

In 2011, the Bank made several strategic changes to its internal organization in order to optimize business development and realign the Bank’s risk management structure. During the first half of 2011, the Bank separated the chief financial officer and the chief risk officer roles, establishing the chief risk officer (who oversees the Bank’s enterprise risk management department) as a direct report to the president and chief executive officer. The credit and collateral, accounting, and financial reporting functions were consolidated under the chief financial officer, and a new chief business officer position was created to oversee the Bank’s member sales and outreach, community investment services, corporate communications, and government and industry relations. The Bank also began to strategically reduce overall staffing levels during 2011 in response to the changing business and economic conditions.

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Financial Condition

The Bank’s principal assets consist of advances, short- and long-term investments, and mortgage loans held for portfolio. The Bank obtains funding to support its business primarily through the issuance of debt securities in the form of COs by the Office of Finance on the Bank’s behalf.

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

	As of December 31,								Increase (Decrease)
	2011				2010
	Amount		Percent of Total		Amount		Percent of Total		Amount		Percent
Advances	$	86,971		69.43	$	89,258		67.72	$	(2,287)		(2.56)
Long-term investments		21,655		17.29		22,986		17.44		(1,331)		(5.79)
Short-term investments		14,483		11.56		16,893		12.82		(2,410)		(14.27)
Mortgage loans, net		1,633		1.30		2,039		1.55		(406)		(19.94)
Other assets		528		0.42		622		0.47		(94)		(14.94)
Total assets	$	125,270		100.00	$	131,798		100.00	$	(6,528)		(4.95)
Consolidated obligations, net:
Discount notes	$	24,330		20.50	$	23,915		19.31	$	415		1.73
Bonds		90,662		76.37		95,198		76.86		(4,536)		(4.76)
Deposits		2,655		2.24		3,093		2.50		(438)		(14.14)
Other liabilities		1,062		0.89		1,646		1.33		(584)		(35.47)
Total liabilities	$	118,709		100.00	$	123,852		100.00	$	(5,143)		(4.15)
Capital stock	$	5,718		87.15	$	7,224		90.92	$	(1,506)		(20.86)
Retained earnings		1,254		19.11		1,124		14.14		130		11.55
Accumulated other comprehensive loss		(411)		(6.26)		(402)		(5.06)		(9)		(2.12)
Total capital	$	6,561		100.00	$	7,946		100.00	$	(1,385)		(17.44)

Advances

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

	As of December 31,
	2011				2010
	Amount		Weighted- average Interest Rate (%)		Amount		Weighted- average Interest Rate (%)
Overdrawn demand deposit accounts	$	3		5.36	$	1		5.47
Due in one year or less		36,542		1.41		26,628		3.23
Due after one year through two years		11,173		3.38		16,186		3.28
Due after two years through three years		7,851		2.89		10,938		3.59
Due after three years through four years		3,881		3.48		6,369		3.32
Due after four years through five years		5,836		2.53		3,678		3.75
Due after five years		17,283		4.21		21,251		3.89
Total par value		82,569		2.58		85,051		3.48
Discount on AHP advances		(12)				(13)
Discount on EDGE advances		(10)				(11)
Hedging adjustments		4,431				4,238
Deferred commitment fees		(7)				(7)
Total	$	86,971			$	89,258

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The decrease in advances from December 31, 2010 to December 31, 2011 was due to maturing advances, prepayments, and decreased demand for new advances. The Bank has not seen a discernible impact on either the volume of advances or the distribution of advances outstanding by year of maturity as a result of the Federal Reserve’s recent announcements that it expects to maintain short-term interest rates near zero through 2014. At December 31, 2011, 86.2 percent of the Bank’s advances were fixed-rate. However, the Bank often simultaneously enters into derivatives with the issuance of advances to convert the rates on them, in effect, into a short-term variable interest rate, usually based on LIBOR. As of December 31, 2011 and 2010, 65.7 percent and 87.4 percent, respectively, of the Bank’s fixed-rate advances were swapped and 9.79 percent and 9.42 percent, respectively, of the Bank’s variable-rate advances were swapped. The majority of the Bank’s variable-rate advances were indexed to LIBOR. The Bank also offers variable-rate advances tied to the federal funds rate, prime rate, and constant maturity swap rates.

The concentration of the Bank’s advances to its 10 largest borrowing member institutions as of December 31, 2011 is contained in Item 1, Business–Credit Products–Advances. Management believes that the Bank holds sufficient collateral, on a member-specific basis, to secure the advances to all borrowers, including these 10 institutions, and the Bank does not expect to incur any credit losses on these advances.

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

Investments

The following table sets forth more detailed information regarding short- and long-term investments held by the Bank (dollars in millions):

	As of December 31,				Increase (Decrease)
	2011		2010		Amount		Percent
Short-term investments:
Interest-bearing deposits (1)	$	1,203	$	2	$	1,201		*
Certificates of deposit		650		1,190		(540)		(45.38)
Federal funds sold		12,630		15,701		(3,071)		(19.56)
Total short-term investments		14,483		16,893		(2,410)		(14.27)
Long-term investments:
State or local housing agency debt obligations		103		111		(8)		(7.21)
U.S. government agency debt obligations		4,228		4,253		(25)		(0.58)
Mortgage-backed securities:
U.S. government agency securities		10,689		9,676		1,013		10.46
Private label		6,635		8,946		(2,311)		(25.83)
Total mortgage-backed securities		17,324		18,622		(1,298)		(6.97)
Total long-term investments		21,655		22,986		(1,331)		(5.79)
Total investments	$	36,138	$	39,879	$	(3,741)		(9.38)

⁽¹⁾  As of December 31, 2011, interest-bearing deposits includes a $1.2 billion business money market account with Branch Banking and Trust Company, one of the Bank’s ten largest borrowers. One of the Bank’s member directors is a senior executive vice president of Branch Banking and Trust Company. Pursuant to Finance Agency regulation, the Bank’s member directors serve as officers or directors of a Bank member, and the Bank may enter into business transactions with such members from time to time in the ordinary course of business.

* Not meaningful

The decrease in short-term investments from December 31, 2010 to December 31, 2011 was primarily due to a decrease in federal funds sold. The amount held in federal funds sold will vary each day based on the federal funds rates, the Bank’s liquidity requirements, and the availability of high quality counterparties in the federal

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funds market. In addition, during 2011, the Federal Reserve paid interest on required and excess reserves held by depository institutions at a rate of 0.25 percent. A significant and sustained increase in bank reserves during 2011 combined with the rate of interest paid on those reserves at the Federal Reserve has contributed to a decline in the volume of transactions taking place in the overnight federal funds market.

The decrease in long-term investments from December 31, 2010 to December 31, 2011 was primarily due to a decrease in private-label MBS during the year due to principal repayments and maturities and no additional purchases by the Bank of private-label MBS.

As of December 31, 2011 and 2010, the total MBS balance included MBS with a carrying value of $3.0 billion and $3.9 billion, respectively, issued by one of the Bank’s members and their affiliates with dealer relationships. This member, Bank of America, National Association, was one of the Bank’s ten largest advances borrowing institutions as of December 31, 2011 and 2010.

Prior to June 20, 2011, the Finance Agency limited an FHLBank’s investment in MBS and asset-backed securities by requiring that the total carrying value of MBS owned by the FHLBank generally may not exceed 300 percent of the FHLBank’s previous month-end total capital, as defined by regulation, plus its mandatorily redeemable capital stock on the day it purchases the securities. Effective June 20, 2011, the value of MBS securities used in the 300 percent of capital limit calculation was changed from carrying value to amortized historical costs for securities classified as held-to-maturity or available-for-sale, and fair value for MBS securities classified as trading. These investments amounted to 244 percent and 210 percent of total capital plus mandatorily redeemable capital stock at December 31, 2011 and 2010, respectively. The Bank was below its target range of 250 percent to 275 percent at December 31, 2011 and 2010 due to a lack of quality MBS at attractive prices during recent market conditions and due to the Bank’s high level of excess capital stock. The Bank suspended new purchases of private-label MBS beginning in the first quarter of 2008, resulting in a greater percentage of U.S. government agency MBS as of December 31, 2011 compared to December 31, 2010. In addition, private-label MBS are experiencing faster prepayments than U.S. government agency MBS, further increasing the proportion of U.S. government agency MBS in the Bank’s MBS portfolio.

As of December 31, 2011, the Bank had a total of 52 securities classified as available-for-sale in an unrealized loss position, with total gross unrealized losses of $410 million and a total of 107 securities classified as held-to-maturity in an unrealized loss position, with total gross unrealized losses of $224 million. As of December 31, 2010, the Bank had a total of 44 securities classified as available-for-sale in an unrealized loss position, with total gross unrealized losses of $397 million and a total of 130 securities classified as held-to-maturity in an unrealized loss position, with total gross unrealized losses of $234 million.

The Bank evaluates its individual investment securities for other-than-temporary impairment on at least a quarterly basis, as described in detail in Note 8—Other-than-temporary Impairment to the Bank’s 2011 audited financial statements. The table below summarizes the total other-than-temporary impairment losses (in millions):

	For the Years Ended December 31,
	2011		2010		2009
Total other-than-temporary impairment losses	$	(55)	$	(200)	$	(1,306)
Net amount of impairment losses (reclassified from) recorded in other comprehensive loss		(63)		57		990
Net impairment losses recognized in earnings	$	(118)	$	(143)	$	(316)

Certain other private-label MBS in the Bank’s investment securities portfolio that have not been designated as other-than-temporarily impaired have experienced unrealized losses and decreases in fair value due to interest-rate volatility, illiquidity in the marketplace, and credit deterioration in the U.S. mortgage markets. These declines in fair value are considered temporary as the Bank presently expects to collect all contractual cash flows, the Bank does not intend to sell the securities and it is not more likely than not that the Bank will be required to sell the securities before the anticipated recovery of its remaining amortized cost basis, which may be at

36

maturity. This assessment is based on the determination that the Bank has sufficient capital and liquidity to operate its business and has no need to sell these securities, nor has the Bank entered into any contractual constraints that would require the Bank to sell these securities.

Supplementary financial data on the Bank’s investment securities is set forth under Item 8, Financial Statements and Supplementary Data.

Mortgage Loans Held for Portfolio

The decrease in mortgage loans held for portfolio from December 31, 2010 to December 31, 2011 was due to the Bank ceasing to purchase these assets and the maturity of these assets during the year.

As of December 31, 2011 and 2010, the Bank’s conventional mortgage loan portfolio was concentrated in the southeastern United States because those members selling loans to the Bank were located primarily in that region. The following table provides the percentage of unpaid principal balance of conventional single-family residential mortgage loans held for portfolio for the five largest state concentrations.

	As of December 31,
	2011		2010
	Percent of Total		Percent of Total
South Carolina		24.61		24.50
Florida		23.17		21.07
Georgia		14.45		14.42
North Carolina		12.99		14.12
Virginia		8.90		9.19
All other		15.88		16.70
Total		100.00		100.00

Supplementary financial data on the Bank’s mortgage loans is set forth under Item 8, Financial Statements and Supplementary Data.

Consolidated Obligations

The Bank funds its assets primarily through the issuance of consolidated obligation bonds and, to a lesser extent, consolidated obligation discount notes. CO issuances financed 91.8 percent of the $125.3 billion in total assets at December 31, 2011, remaining relatively stable from the financing ratio of 90.4 percent as of December 31, 2010.

The decrease in COs from December 31, 2010 to December 31, 2011 corresponds to the decrease in demand for advances by the Bank’s members and the increase in liquidity from maturing and prepaid advances during the year. COs outstanding at December 31, 2011 and 2010 were primarily fixed-rate. However, the Bank often simultaneously enters into derivatives with the issuance of CO bonds to convert the interest rates, in effect, into short-term variable interest rates, usually based on LIBOR. As of December 31, 2011 and 2010, 81.9 percent and 77.3 percent, respectively, of the Bank’s fixed-rate CO bonds were swapped and 6.42 percent and 0.24 percent, respectively, of the Bank’s variable-rate CO bonds were swapped. As of December 31, 2011 and 2010, 4.64 percent and 5.41 percent, respectively, of the Bank’s fixed-rate CO discount notes were swapped to a variable rate.

As of December 31, 2011, callable CO bonds constituted 32.0 percent of the total par value of CO bonds outstanding, compared to 26.3 percent at December 31, 2010. This increase was due to market conditions during the third quarter of 2011 that made the issuance of swapped callable fixed maturity debt more attractive to the

37

Bank. The derivatives that the Bank may employ to hedge against the interest-rate risk associated with the Bank’s callable CO bonds are callable by the counterparty. The Bank generally will call a hedged CO bond if the call feature of the derivative is exercised. These call features could require the Bank to refinance a substantial portion of outstanding liabilities during times of decreasing interest rates. Call options on unhedged callable CO bonds generally are exercised when the bond can be replaced at a lower economic cost.

On July 13, 2011, Moody’s placed the Aaa bond rating of the U.S., and consequently the ratings of GSEs, including the FHLBanks, on review for possible downgrade. The review was prompted due to the risk that the statutory debt limit may not be raised in time to prevent a default on U.S. Treasury debt obligations. On August 2, 2011, Moody’s confirmed the Aaa rating of the U.S., but revised the rating outlook to negative. Consequently, Moody’s confirmed the Aaa ratings of GSEs, including the FHLBanks, but revised the ratings outlook to negative.

On July 15, 2011, S&P placed the long-term AAA credit ratings of 10 of the 12 FHLBanks, including the Bank, on CreditWatch with negative implications. S&P also placed the long-term AAA rating on the senior unsecured debt issues of the FHLBank System on CreditWatch with negative implications, and affirmed the short-term A-1+ ratings of all FHLBanks and the FHLBank System’s debt issues. These rating actions reflected S&P’s concurrent placement of the long-term sovereign credit rating of the U.S. on CreditWatch negative, and S&P’s view that the issuer credit ratings of the FHLBanks are constrained by such U.S. credit rating. On August 8, 2011, S&P downgraded the long-term senior unsecured debt issues of the FHLBank System to AA+ with a negative outlook, following S&P’s downgrade on August 5, 2011 of the U.S. long-term sovereign credit rating to AA+ with a negative outlook. Additionally, S&P placed the long-term credit ratings of all 12 FHLBanks, including the Bank, at AA+ with a negative outlook, and affirmed the short-term A-1+ ratings of all FHLBanks.

During the period immediately prior to August 2, 2011 (the date established by Treasury as the date the U.S. would begin defaulting on its debt obligations if the U.S. debt limit was not increased), capital markets tightened and demand for FHLBank CO bonds decreased. The Bank increased its issuance of CO discount notes during this period; in addition, the Bank previously had increased its short-term liquidity during the month of July in anticipation of possible disruption in the capital markets due to the statutory debt limit debate. Debt issuance and pricing in the capital markets generally stabilized after the debt limit was increased on August 2, 2011, and the Bank did not experience a material impact on its ability to issue COs or on the Bank’s financial condition or results of operations for the third quarter of 2011. However, any additional downgrade of the U.S. sovereign debt and a resultant downgrade of the FHLBanks could result in disruptions in the capital markets and increase the Bank’s cost of funds, which may adversely impact the Bank’s results of operations and financial condition.

The European sovereign debt crisis triggered a rotation to less risky assets during the second half of 2011, resulting in increased demand for FHLBank COs and a lower cost of funds for the Bank.

Supplementary financial data on the Bank’s short-term borrowings is set forth under Item 8, Financial Statements and Supplementary Data.

Deposits

The Bank offers demand and overnight deposit programs to members primarily as a liquidity management service. In addition, a member that services mortgage loans may deposit in the Bank funds collected in connection with the mortgage loans, pending disbursement of those funds to the owners of the mortgage loan. For demand deposits, the Bank pays interest at the overnight rate. Most of these deposits represent member liquidity investments, which members may withdraw on demand. Therefore, the total account balance of the Bank’s deposits may be volatile. As a matter of prudence, the Bank typically invests deposit funds in liquid short-term assets. Member loan demand, deposit flows, and liquidity management strategies influence the amount and volatility of deposit balances carried with the Bank. Total deposits were relatively stable at December 31, 2011 compared to December 31, 2010.

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To support its member deposits, the FHLBank Act requires the Bank to have as a reserve an amount equal to or greater than the current deposits received from members. These reserves are required to be invested in obligations of the United States, deposits in eligible banks or trust companies or advances with maturities not exceeding five years. The Bank was in compliance with this depository liquidity requirement as of December 31, 2011.

Capital

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

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

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

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

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

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

Under the regulations, the Director of the Finance Agency (Director) will make a capital classification for each FHLBank at least quarterly and notify the FHLBank in writing of any proposed action and provide an opportunity for the FHLBank to submit information relevant to such action. The Director is permitted to make discretionary classifications. An FHLBank must provide written notice to the Finance Agency within 10 days of any event or development that has caused or is likely to cause its permanent or total capital to fall below the level required to maintain its most recent capital classification or reclassification. The regulations delineate the types of prompt corrective actions the Director may order in the event an FHLBank is not adequately capitalized, including submission of a capital restoration plan by the FHLBank and restrictions on its dividends, stock redemptions, executive compensation, new business activities, or any other actions the Director determines will ensure safe and sound operations and capital compliance by the FHLBank. On December 22, 2011, the Bank received notification from the Director that, based on September 30, 2011 data, the Bank meets the definition of “adequately capitalized.”

As of December 31, 2011, the Bank had capital stock subject to mandatory redemption from 68 members and former members, consisting of B1 membership stock and B2 activity-based capital stock, compared to 63 members and former members as of December 31, 2010, consisting of B1 membership capital stock and B2 activity-based capital stock. The Bank is not required to redeem or repurchase such capital stock until the expiration of the five-year redemption period or, with respect to activity-based capital stock, until the later of the expiration of the five-year redemption period or the activity no longer remains outstanding. The Bank makes its determination regarding the repurchase of excess capital stock on a quarterly basis.

As of December 31, 2011 and 2010, the Bank’s outstanding stock included $1.1 billion and $2.7 billion, respectively, of excess shares subject to repurchase by the Bank at its discretion.

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In 2011, the FHLBanks entered into a Joint Capital Agreement which is intended to enhance the capital position of each FHLBank and the safety and soundness of the FHLBank System. The intent of the Joint Capital Agreement is to allocate that portion of each FHLBank’s earnings historically paid to satisfy its REFCORP obligation to a restricted retained earnings account at that FHLBank. These restricted retained earnings are not available to pay dividends. Each FHLBank subsequently amended its capital plan to implement the provisions of the Joint Capital Agreement. The Finance Agency approved the capital plan amendments and certified satisfaction of the REFCORP obligation on August 5, 2011. In accordance with the Joint Capital Agreement, starting in the third quarter of 2011, each FHLBank contributes 20% of its net income to a restricted retained earnings account.

Results of Operations

The following is a discussion and analysis of the Bank’s results of operations for the years ended December 31, 2011, 2010, and 2009.

Net Income

The following table sets forth the Bank’s significant income items for the years ended December 31, 2011, 2010, and 2009, and provides information regarding the changes during the periods (dollars in millions). These items are discussed in more detail below.

	For the Years Ended December 31,						Increase (Decrease)
							2011 vs. 2010				2010 vs. 2009
	2011		2010		2009		Amount		Percent		Amount		Percent
Net interest income	$	459	$	544	$	397	$	(85)		(15.64)	$	147		36.83
Provision for credit losses		5		—		—		5		*		—		(171.70)
Noninterest (loss) income		(104)		(87)		102		(17)		(18.80)		(189)		(185.94)
Noninterest expense		123		79		113		44		57.40		(34)		(30.36)
Total assessments		43		100		103		(57)		(57.37)		(3)		(2.01)
Net income		184		278		283		(94)		(33.73)		(5)		(2.03)

* Not meaningful

Net Interest Income

A primary source of the Bank’s earnings is net interest income. Net interest income equals interest earned on assets (including member advances, mortgage loans, MBS held in portfolio, and other investments), less the interest expense incurred on liabilities (including COs, deposits, and other borrowings). Also included in net interest income are miscellaneous related items such as prepayment fees earned and the amortization of debt issuance discounts, concession fees, and certain derivative instruments and hedging activities related adjustments.

The decrease in net interest income during 2011 compared to 2010 was primarily due to a decrease in interest earned on the Bank’s long-term investments and advances during 2011 compared to 2010. The decrease in interest earned on long-term investments was primarily due to a decrease in yield on these investments during 2011 compared to 2010. The decrease in interest earned on advances was primarily due to a decrease in the average balance of advances outstanding during 2011 compared to 2010.

The increase in net interest income during 2010 compared to 2009 was primarily due to the write-off of hedging related basis adjustments on advances that were prepaid during 2009. In addition, during 2009, amortization related to discontinued hedging activities and the reclassification of interest from net interest income to “Net (losses) gains on derivatives and hedging activities” on derivatives in non-qualifying hedging relationships lowered net interest income in 2009.

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

	Years Ended December 31,
	2011		2010		2009
Interest income:
Advances	$	258	$	320	$	881
Investments		754		960		1,232
Mortgage loans held for portfolio		97		121		152
Total interest income		1,109		1,401		2,265
Interest expense:
Consolidated obligations		645		852		1,862
Deposits		1		3		4
Mandatorily redeemable capital stock		4		2		2
Total interest expense		650		857		1,868
Net interest income	$	459	$	544	$	397

As discussed above, net interest income also includes components of hedging activity. When a hedging relationship is discontinued, the cumulative fair value adjustment on the hedged item will be amortized into interest income or expense over the remaining life of the asset or liability. Also, when hedging relationships qualify for hedge accounting, the interest components of the hedging derivatives will be reflected in interest income or expense. As shown in the table summarizing the net effect of derivatives and hedging activity on the Bank’s results of operations, the impact of hedging on interest income was a decrease of $1.4 billion, $2.1 billion and $2.5 billion during the years ended December 31, 2011, 2010, and 2009, respectively.

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The following table presents spreads between the average yield on total interest-earning assets and the average cost of interest-bearing liabilities for the years ended December 31, 2011, 2010, and 2009 (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, if the derivatives qualify for fair-value hedge accounting under GAAP, the net interest income or expense associated with the derivative is included in net interest income and in the calculation of interest-rate spread. If the derivatives do not qualify for fair-value hedge accounting under GAAP, the net interest income or expense associated with the derivatives is excluded from net interest income and the calculation of the interest-rate spread. Amortization associated with hedging-related basis adjustments is also reflected in net interest income, which affects interest-rate spread.

Spread and Yield Analysis

	For the Years Ended December 31,
	2011						2010						2009
	Average Balance		Interest		Yield/ Rate (%)		Average Balance		Interest		Yield/ Rate (%)		Average Balance		Interest		Yield/ Rate (%)
Assets
Federal funds sold		$    14,483		$    24		0.16		$    13,302		$       31		0.23		$    11,637		$       22		0.19
Interest-bearing deposits (1)		3,599		4		0.12		3,655		7		0.18		4,427		7		0.17
Certificates of deposit		909		2		0.23		1,146		4		0.33		17		—		0.19
Long-term investments (2)		22,160		724		3.27		21,814		918		4.21		25,096		1,203		4.79
Advances		79,848		258		0.32		100,948		320		0.32		136,868		881		0.64
Mortgage loans held for portfolio (3)		1,829		97		5.32		2,300		121		5.25		2,861		152		5.30
Loans to other FHLBanks		2		—		0.14		1		—		0.19		1		—		0.18
Total interest-earning assets		122,830		1,109		0.90		143,166		1,401		0.98		180,907		2,265		1.25
Allowance for credit losses on mortgage loans		(1)						(1)						(1)
Other assets		844						1,013						1,403
Total assets		$  123,673						$  144,178						$  182,309
Liabilities and Capital
Deposits (4)		$      2,851		1		0.04		$      3,142		3		0.09		$      4,067		4		0.09
Short-term borrowings		18,960		17		0.09		19,486		29		0.15		38,200		260		0.68
Long-term debt		89,896		628		0.70		107,614		823		0.76		124,514		1,602		1.29
Other borrowings		421		4		0.92		443		2		0.38		380		2		0.40
Total interest-bearing liabilities		112,128		650		0.58		130,685		857		0.66		167,161		1,868		1.12
Other liabilities		4,230						5,372						7,236
Total capital		7,315						8,121						7,912
Total liabilities and capital		$  123,673						$  144,178						$  182,309
Net interest income and net yield on interest-earning assets				$  459		0.37				$     544		0.38				$     397		0.22
Interest rate spread						0.32						0.32						0.13
Average interest-earning assets to interest-bearing liabilities						109.54						109.55						108.22

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

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

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

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

The interest-rate spread has remained stable in 2011 compared to 2010.

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The interest-rate spread increased by 19 basis points in 2010 compared to 2009. Approximately 13 basis points of this increase was the result of derivative and hedging adjustments in 2009 that decreased interest income on advances that were offset by increases in other income that did not reoccur in 2010. The remaining increase resulted from rates on liabilities decreasing faster than yields on assets over categories with comparable balances.

Net interest income for the periods presented was affected by changes in average balances (volume change) and changes in average rates (rate change) of interest-earning assets and interest-bearing liabilities. The following table presents the extent to which volume changes and rate changes affected the Bank’s interest income and interest expense (in millions). As noted in the table below, the overall decrease in net interest income in 2011 compared to 2010 and the increase in net interest income in 2010 compared to 2009 were primarily rate related.

Volume and Rate Table⁽¹⁾

	2011 vs. 2010						2010 vs. 2009
	Volume		Rate		Increase     (Decrease)		Volume		Rate		Increase      (Decrease)
Increase (decrease) in interest income:
Federal funds sold		$      3		$      (10)		$      (7)		$        3		$            6		$        9
Interest-bearing deposits		—		(3)		(3)		(1)		1		—
Certificates of deposit		(1)		(1)		(2)		4		—		4
Long-term investments		15		(209)		(194)		(149)		(136)		(285)
Advances		(68)		6		(62)		(191)		(370)		(561)
Mortgage loans held for portfolio		(25)		1		(24)		(29)		(2)		(31)
Total		(76)		(216)		(292)		(363)		(501)		(864)
Increase (decrease) in interest expense:
Deposits		—		(2)		(2)		(1)		—		(1)
Short-term borrowings		—		(12)		(12)		(89)		(142)		(231)
Long-term debt		(128)		(67)		(195)		(195)		(584)		(779)
Other borrowings		—		2		2		—		—		—
Total		(128)		(79)		(207)		(285)		(726)		(1,011)
Increase (decrease) in net interest income		$    52		$    (137)		$    (85)		$    (78)		$        225		$        147

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

Noninterest Income (Loss)

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

	For the Years Ended December 31,						Increase (Decrease)
	2011		2010		2009		2011 vs. 2010		2010 vs. 2009
Net impairment losses recognized in earnings		$            (118)		$            (143)		$            (316)		$              25		$              173
Net gains (losses) on trading securities		2		31		(135)		(29)		166
Net (losses) gains on derivatives and hedging activities		(9)		8		543		(17)		(535)
Letters of credit fees		19		14		7		5		7
Other		2		3		3		(1)		—
Total noninterest (loss) income		$            (104)		$              (87)		$              102		$            (17)		$            (189)

The increase in total noninterest loss in 2011 compared to 2010 was primarily due to a decrease in net (losses) gains on derivatives and hedging activities due to a decrease in hedging and stand alone related income partially offset by an increase in income associated with derivatives hedging trading securities. Noninterest loss also increased in 2011 compared to 2010 due to a decrease in the fair value of trading securities, partially offset by lower credit related other-than-temporary impairment losses in 2011 compared to 2010.

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The Bank recorded total noninterest loss of $87 million in 2010 compared to total noninterest income of $102 million in 2009. The primary reason for the decline was a $244 million decrease in derivatives and hedging adjustments associated with prepaid advances that were offset in net interest income that occurred in 2009 but did not reoccur in 2010. In addition, there was a $125 million decrease in net gains on derivative and hedging activities, net of trading securities. These decreases were partially offset by a $173 million decrease in other-than-temporary impairment losses recognized in earnings in 2010 compared to 2009.

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

	For the Year Ended December 31, 2011
	Advances		Investments		Consolidated   Obligation Bonds		Consolidated   Obligation Discount Notes		Balance   Sheet		Total
Net interest income:
Amortization or accretion of hedging activities in net interest income(1)	$	(199)	$	—	$	37	$	—	$	—	$	(162)
Net interest settlements included in net interest income(2)		(2,054)		—		804		2		—		(1,248)
Total net interest (expense) income		(2,253)		—		841		2		—		(1,410)
Net gains (losses) on derivatives and hedging activities:
Gains (losses) on fair value hedges		146		—		(2)		—		—		144
Gains (losses) on derivatives not receiving hedge accounting		8		(129)		6		—		(38)		(153)
Total net gains (losses) on derivatives and hedging activities		154		(129)		4		—		(38)		(9)
Total net interest income and net gains (losses) on derivatives and hedging activities		(2,099)		(129)		845		2		(38)		(1,419)
Net gains on trading securities(3)		—		2		—		—		—		2
Total net effect of derivatives and hedging activities	$	(2,099)	$	(127)	$	845	$	2	$	(38)	$	(1,417)

⁽¹⁾ Represents the amortization or accretion of hedging fair value adjustments for both open and closed hedge positions.

⁽²⁾  Represents interest income or expense on derivatives included in net interest income.

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

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	For the Year Ended December 31, 2010
	Advances		Investments		Consolidated   Obligation Bonds		Consolidated   Obligation Discount Notes		Balance   Sheet		Total
Net interest income:
Amortization or accretion of hedging activities in net interest income(1)	$	(254)	$	—	$	55	$	—	$	—	$	(199)
Net interest settlements included in net interest income(2)		(3,068)		—		1,149		10		—		(1,909)
Total net interest (expense) income		(3,322)		—		1,204		10		—		(2,108)
Net gains (losses) on derivatives and hedging activities:
Gains (losses) on fair value hedges		234		—		(35)		(3)		—		196
(Losses) gains on derivatives not receiving hedge accounting		—		(192)		13		—		(9)		(188)
Total net gains (losses) on derivatives and hedging activities		234		(192)		(22)		(3)		(9)		8
Total net interest income and net gains (losses) on derivatives and hedging activities		(3,088)		(192)		1,182		7		(9)		(2,100)
Net gains on trading securities(3)		—		31		—		—		—		31
Total net effect of derivatives and hedging activities	$	(3,088)	$	(161)	$	1,182	$	7	$	(9)	$	(2,069)

⁽¹⁾  Represents the amortization or accretion of hedging fair value adjustments for both open and closed hedge positions.

⁽²⁾  Represents interest income or expense on derivatives included in net interest income.

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

	For the Year Ended December 31, 2009
	Advances		Investments		Consolidated     Obligation Bonds		Consolidated     Obligation Discount Notes		Balance      Sheet		Total
Net interest income:
Amortization or accretion of hedging activities in net interest income(1)	$	(605)	$	—	$	68	$	(1)	$	—	$	(538)
Net interest settlements included in net interest income(2)		(3,527)		—		1,491		103		—		(1933)
Total net interest (expense) income		(4,132)		—		1,559		102		—		(2,471)
Net gains (losses) on derivatives and hedging activities:
Gains (losses) on fair value hedges		518		—		(39)		(9)		—		470
Gains on derivatives not receiving hedge accounting		7		49		8		4		5		73
Total net gains (losses) on derivatives and hedging activities		525		49		(31)		(5)		5		543
Total net interest income and net gains (losses) on derivatives and hedging activities		(3,607)		49		1,528		97		5		(1,928)
Net losses on trading securities(3)		—		(135)		—		—		—		(135)
Total net effect of derivatives and hedging activities	$	(3,607)	$	(86)	$	1,528	$	97	$	5	$	(2,063)

⁽¹⁾  Represents the amortization or accretion of hedging fair value adjustments for both open and closed hedge positions.

⁽²⁾  Represents interest income or expense on derivatives included in net interest income.

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

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Noninterest Expense and Assessments

The following table presents the components of noninterest expense and assessments (in millions).

	For the Years Ended December 31,						Increase (Decrease)
	2011		2010		2009		2011 vs. 2010		2010 vs. 2009
Noninterest expense:
Compensation and benefits	$	75	$	66	$	55	$	9	$	11
Cost of quarters		5		4		4		1		—
Other operating expenses		35		45		42		(10)		3
Total operating expenses		115		115		101		—		14
Finance Agency and Office of Finance		16		14		11		2		3
Reversal of provision for credit losses on receivable		—		(51)		—		51		(51)
Other		(8)		1		1		(9)		—
Total noninterest expense		123		79		113		44		(34)
Assessments:
Affordable Housing Program		21		31		32		(10)		(1)
REFCORP		22		69		71		(47)		(2)
Total assessments		43		100		103		(57)		(3)
Total	$	166	$	179	$	216	$	(13)	$	(37)

Total operating expenses remained stable during 2011 compared to 2010. The increase in noninterest expense during 2011, compared to 2010, and the decrease in noninterest expense during 2010, compared to 2009, was primarily due to the Bank’s reduction in its provision for credit losses on a receivable due from LBSF by $51 million during 2010, which resulted in an increase in income. For more information about the LBSF receivable, see Note 18—Derivatives and Hedging Activities—Managing Credit Risk on Derivatives, to the audited financial statements.

The decrease in total assessments during 2011, compared to 2010, was primarily due to the satisfaction of the Bank’s REFCORP obligation during the second quarter of 2011 as previously discussed. Total assessments remained relatively stable in 2010 compared to 2009, decreasing by $3 million during 2010 compared to 2009.

Liquidity and Capital Resources

Liquidity is necessary to satisfy members’ borrowing needs on a timely basis, repay maturing and called COs, and meet other obligations and operating requirements. Many members rely on the Bank as a source of standby liquidity, and the Bank attempts to be in a position to meet member funding needs on a timely basis. The Bank maintains contingent liquidity, 45 day liquidity, and operational liquidity.

Finance Agency regulations require the Bank to maintain contingent liquidity in an amount sufficient to meet its liquidity needs for five business days if it is unable to access the capital markets. The Bank met this regulatory liquidity requirement throughout 2011. During the recent financial crisis, the Finance Agency provided liquidity guidance to the FHLBanks generally to provide ranges of days within which each FHLBank should maintain positive cash balances based upon different assumptions and scenarios. The Bank has operated within these ranges since the Finance Agency issued this guidance.

In addition, the Bank strives to maintain sufficient liquidity to service debt obligations for at least 45 days (30-day moving average), assuming restricted debt market access. The Bank implemented this 45 day debt service goal effective January 28, 2010; prior to that, the Bank’s goal was to maintain sufficient liquidity for 90 days. The Bank determined that changing the Bank’s liquidity goal from 90 days to 45 days would more closely align the Bank’s internal measures with those recommended by the Finance Agency and would more accurately

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reflect the Bank’s practice of not committing to CO settlements beyond 30 days. The Bank was in compliance with its 90 day liquidity goal at the time of this determination and through January 28, 2010. The Bank met its 45 day internal liquidity goal throughout 2011. The Bank has established a daily liquidity target to meet its operational liquidity (defined as the ready cash and borrowing capacity available to meet the Bank’s day-to-day needs). The Bank has had significant excess operational liquidity throughout the past two years.

The Bank’s principal source of liquidity is CO debt instruments. To provide liquidity, the Bank also may use other short-term borrowings, such as federal funds purchased, securities sold under agreements to repurchase, and loans from other FHLBanks. These funding sources depend on the Bank’s ability to access the capital markets at competitive market rates. Although the Bank maintains secured and unsecured lines of credit with money market counterparties, the Bank’s income and liquidity would be affected adversely if it were not able to access the capital markets at competitive rates for an extended period. Historically, the FHLBanks have had excellent capital market access, although the FHLBanks experienced a decrease in investor demand for consolidated obligation bonds beginning in mid-July 2008 and continuing through the first half of 2009. During that time, the Bank increased its issuance of short-term discount notes as an alternative source of funding. The Bank’s funding costs and ability to issue longer-term and structured debt generally have returned to pre-2008 levels, but continue to reflect some market volatility.

Contingency plans are in place that prioritize the allocation of liquidity resources in the event of operational disruptions at the Bank or the Office of Finance, as well as systemic Federal Reserve wire transfer system disruptions. Under the FHLBank Act, the Secretary of Treasury has the authority, at his or her discretion, to purchase COs up to an aggregate amount of $4.0 billion. No borrowings under this authority have been outstanding since 1977.

During July 2011 the Bank increased its issuance of CO discount notes to maintain a high level of short-term liquidity in anticipation of possible disruption in the capital markets as a result of the statutory debt limit debate. Although some temporary tightening occurred in the capital markets immediately prior to the August 2, 2011 debt limit deadline, the Bank was essentially unaffected as a result of its prior increase in liquidity. After the debt ceiling agreement was announced, the debt markets generally stabilized. The Bank maintained higher than historical levels of short-term liquidity during the second half of 2011, and expects to continue to do so for the near future, in order to take advantage of relatively attractive short-term investment rates in a prolonged low-rate environment and protect against continued general market uncertainty.

As discussed above under Financial Condition–Consolidated Obligations, in August, Moody’s revised its rating outlook on the Aaa bond rating of the U.S., and consequently the ratings outlook of the FHLBanks, to negative. On August 5, 2011, S&P downgraded the long-term sovereign credit rating of the U.S. from AAA to AA+, and consequently downgraded all the FHLBanks to AA+ on August 8, 2011. These actions reflect the rating agencies’ view that the ratings of the FHLBank System and the individual FHLBanks are constrained by the sovereign rating of the U.S. However, the Bank did not experience a material impact on its ability to meet its liquidity goals or on the Bank’s financial condition or results of operations during 2011 due to these rating agency actions. It is possible that any further changes to the U.S. sovereign credit rating, and consequently to the FHLBanks’ credit ratings, may cause disruptions in the financial markets, increase the Bank’s cost of funds, or decrease the Bank’s ability to access the capital markets, which may adversely impact the Bank’s ability to maintain sufficient liquidity levels.

Off-Balance Sheet Commitments

The Bank’s primary off-balance sheet commitments are as follows:

• the Bank’s joint and several liability for all FHLBank COs; and

• the Bank’s outstanding commitments arising from standby letters of credit.

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Should an FHLBank be unable to satisfy its payment obligation under a CO for which it is the primary obligor, any of the other FHLBanks, including the Bank, could be called upon to repay all or any part of such payment obligation, as determined or approved by the Finance Agency. The Bank considers the joint and several liability to be a related-party guarantee. These related-party guarantees meet the scope exception under GAAP. Accordingly, the Bank has not recognized a liability for its joint and several obligations related to other FHLBanks’ COs at December 31, 2011 and December 31, 2010. As of December 31, 2011, the FHLBanks had $691.9 billion in aggregate par value of COs issued and outstanding, $113.8 billion of which was attributable to the Bank. No FHLBank has ever defaulted on its principal or interest payments under any CO, and the Bank has never been required to make payments under any CO as a result of the failure of another FHLBank to meet its obligations.

As of December 31, 2011, the Bank had outstanding standby letters of credit of $21.5 billion with original terms of less than 12 months to 20 years, with the longest final stated expiration in 2030. As of December 31, 2010, the Bank had outstanding standby letters of credit of $22.3 billion with original terms of less than two months to 20 years, with the longest final stated expiration in 2030, as well as one evergreen letter of credit.

S&P’s downgrade of the U.S. sovereign credit rating and S&P’s related downgrade of the issuer credit ratings of the FHLBanks did not have a material impact on the Bank’s standby letter of credit activity during 2011. However, any further downgrade of the Bank’s credit rating by one or more NRSROs could negatively impact the Bank’s standby letter of credit activity, as beneficiaries may have certain issuer credit rating requirements or other eligibility requirements. See Financial Condition–Consolidated Obligations and Liquidity and Capital Resources above for further discussion of recent actions taken by Moody’s and S&P.

The Bank generally requires standby letters of credit to contain language permitting the Bank, upon annual renewal dates and prior notice to the beneficiary, to choose not to renew the standby letter of credit, which effectively terminates the standby letter of credit prior to its scheduled final expiration date. The Bank may issue standby letters of credit for terms of longer than one year without annual renewals or for open-ended terms with annual renewals (commonly known as evergreen letters of credit) based on the creditworthiness of the member applicant and appropriate additional fees.

Commitments to extend credit, including standby letters of credit, are agreements to lend. The Bank issues a standby letter of credit for the account of a member in exchange for a fee. A member may use these standby letters of credit to facilitate a financing arrangement. The Bank requires its borrowers, upon the effective date of the letter of credit through its expiration, to collateralize fully the face amount of any letter of credit issued by the Bank, as if such face amount were an advance to the borrower. Standby letters of credit are not subject to activity-based capital stock purchase requirements. If the Bank is required to make a payment for a beneficiary’s draw, the Bank in its discretion may convert such paid amount to an advance to the member and will require a corresponding activity-based capital stock purchase. The Bank’s underwriting and collateral requirements for standby letters of credit are the same as those requirements for advances. Based on management’s credit analyses and collateral requirements, the Bank does not deem it necessary to have an allowance for credit losses for these unfunded standby letters of credit as of December 31, 2011. 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.

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Contractual Obligations

The table below presents the payment due dates or expiration terms of the Bank’s contractual obligations and commitments as of December 31, 2011 (in millions):

	One year or less		After one year     through three years		After three years     through five     years		After five       years		Total
Contractual obligations:
Long-term debt	$	48,163	$	28,914	$	6,088	$	6,254	$	89,419
Standby letters of credit		4,297		8,042		1,411		7,760		21,510
Mandatorily redeemable capital stock		4		60		221		1		286
Pension and post-retirement contributions		5		4		5		12		26
Operating leases		—		1		1		—		2
Total	$	52,469	$	37,021	$	7,726	$	14,027	$	111,243

Critical Accounting Policies and Estimates

The preparation of the Bank’s financial statements in accordance with GAAP requires management to make a number of judgments and assumptions that affect the Bank’s reported results and disclosures. Several of the Bank’s accounting policies inherently are subject to valuation assumptions and other subjective assessments and are more critical than others to the Bank’s results. The Bank has identified the following policies that, given the assumptions and judgment used, are critical to an understanding of the Bank’s financial condition and results of operations:

• Fair Value Measurements;

• Other-than-temporary Impairment;

• Allowance for Credit Losses; and

• Derivatives and Hedging Activities.

Fair Value Measurements

The Bank carries certain assets and liabilities, including investments classified as trading and available-for-sale, and all derivatives on the balance sheet at fair value. Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date, representing an exit price.

Fair values play an important role in the valuation of certain of the assets, liabilities and hedging transactions of the Bank. Fair values are based on quoted market prices or market-based prices, if such prices are available, even in situations in which trading volume may be low when compared with prior periods as has been the case during the current market disruption. If quoted market prices or market-based prices are not available, the Bank determines fair values based on valuation models that use discounted cash flows, using market estimates of interest rates and volatility.

Valuation models and their underlying assumptions are based on the best estimates of management of the Bank with respect to:

• market indices (primarily LIBOR);

• discount rates;

• prepayments;

• market volatility; and

• other factors, including default and loss rates.

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These assumptions, particularly estimates of market indices and discount rates, may have a significant effect on the reported fair values of assets and liabilities, including derivatives, and the income and expense related thereto. The use of different assumptions, as well as changes in market conditions, could result in materially different net income and retained earnings. The assumptions used in the models are corroborated by and independently verified against market observable data where possible.

The Bank categorizes its financial instruments carried at fair value into a three-level classification in accordance with GAAP. The valuation hierarchy is based upon the transparency (observable or unobservable) of inputs to the valuation of an asset or liability as of the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Bank’s market assumptions. The Bank utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

As of December 31, 2011 and 2010, the fair value of the Bank’s available-for-sale private-label MBS investment portfolio was determined using unobservable inputs.

For further discussion regarding how the Bank measures financial assets and financial liabilities at fair value, see Note 19—Estimated Fair Values to the Bank’s 2011 audited financial statements.

Other-than-temporary Impairment

The Bank evaluates its individual available-for-sale and held-to-maturity investment securities for other-than-temporary impairment on at least a quarterly basis. The Bank recognizes an other-than-temporary impairment loss when the Bank determines it will not recover the entire amortized cost basis of a security. Securities in the Bank’s private-label MBS portfolio that are in an unrealized loss position are evaluated by estimating the projected cash flows using a model that incorporates projections and assumptions based on the structure of the security and certain economic environment assumptions such as delinquency and default rates, loss severity, home price appreciation, interest rates, and securities prepayment speeds while factoring in the underlying collateral and credit enhancement.

If the present value of the expected cash flows of a particular security is less than the security’s amortized cost basis, the security is considered to be other-than temporarily impaired. The amount of the other-than-temporary impairment is separated into two components: (1) the amount of the total impairment related to credit loss; and (2) the amount of the total impairment related to all other factors. The portion of the other-than-temporary impairment loss that is attributable to the credit loss (that is, the difference between the present value of the cash flows expected to be collected and the amortized cost basis) is recognized in noninterest income (loss). The credit loss on a debt security is limited to the amount of that security’s unrealized loss. If the Bank does not intend to sell the security and it is not more likely than not that the Bank will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis, the portion of the impairment loss that is not attributable to the credit loss is recognized through other comprehensive loss.

If the Bank determines that an other-than-temporary impairment exists, the Bank accounts for the investment security as if it had been purchased on the measurement date of the other-than-temporary impairment loss at an amortized cost basis equal to the previous amortized cost basis less the other-than-temporary impairment recognized in income. For debt securities classified as held-to-maturity, the difference between the new amortized cost basis and the cash flows expected to be collected is accreted into interest income prospectively over the remaining life of the security.

Allowance for Credit Losses

The Bank is required to assess potential credit losses and establish an allowance for credit losses, if required, for each identified portfolio segment of financing receivables. A portfolio segment is the level at which the Bank

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develops and documents a systematic method for determining its allowance for credit losses. The Bank has established a reserve methodology for each of the following portfolio segments of financing receivables: advances and letters of credit, conventional single-family residential mortgage loans, government-guaranteed or insured single-family residential mortgage loans, multifamily residential mortgage loans and term federal funds.

The Bank considers the application of these standards to its advance, mortgage loan and federal fund portfolio a critical accounting policy, as determining the appropriate amount of the allowance for credit losses requires the Bank to make a number of assumptions. The Bank’s assumptions are based on information available as of the date of the financial statements. Actual results may differ from these estimates.

Advances

Finance Agency regulations require the Bank to obtain eligible collateral from borrowing members to protect against potential credit losses. Eligible collateral is defined by statute and regulation. The Bank monitors the financial condition of borrowers and regularly verifies the existence and characteristics of a risk-based sample of mortgage collateral pledged to secure advances. Each borrower’s collateral requirements and the scope and frequency of its collateral verification reviews are dependent upon certain risk factors. Since its establishment in 1932, the Bank has never experienced a credit loss on an advance. Based on the collateral held as security, its collateral policies, management’s credit analysis and the repayment history on advances, the Bank’s management did not anticipate any credit losses on advances as of December 31, 2011 or 2010. Accordingly, the Bank has not recorded any allowance for credit losses on advances. Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Prudent Risk Management and Appetite—Credit Risk for further discussion regarding the Bank’s credit risk policies and practice.

Single-family Residential Mortgage Loans

With the exception of modified loans that are considered a troubled debt restructuring, conventional single-family residential mortgage loans are evaluated collectively for impairment. The overall allowance for credit losses is determined by an analysis (at least quarterly) that includes consideration of various data, such as past performance, current performance, loan portfolio characteristics, collateral valuations, industry data, and prevailing economic conditions. Inherent in the Bank’s evaluation of past performance are the effects of various credit enhancements at the individual master commitment level to determine the credit enhancement available to recover losses on conventional single-family residential mortgage loans under each individual master commitment.

A modified loan that is considered a troubled debt restructuring is individually evaluated for impairment when determining its related allowance for credit losses. Credit loss is measured by factoring in expected cash shortfalls (i.e., loss severity rate) incurred as of the reporting date, as well as the economic loss attributable to delaying the original contractual principal and interest due dates.

Government-guaranteed or Insured Single-family Residential Mortgage Loans

The Bank also invests in government-guaranteed or insured fixed-rate mortgage loans secured by one-to-four family residential properties. Government-guaranteed or insured mortgage loans are mortgage loans guaranteed or insured by the VA or the FHA. Any losses from such loans are expected to be recovered from those entities. Any losses from such loans that are not recovered from those entities are absorbed by the servicers. Therefore, there is no allowance for credit losses on government-guaranteed or insured mortgage loans.

Multifamily Residential Mortgage Loans

Multifamily residential mortgage loans are individually evaluated for impairment. An independent third-party loan review is performed annually on all the Bank’s multifamily residential mortgage loans to identify credit

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risks and to assess the overall ability of the Bank to collect on those loans. This assessment may be conducted more frequently if management notes significant changes in the portfolio’s performance in the quarterly review report provided on each loan. The allowance for credit losses related to multifamily residential mortgage loans is comprised of specific reserves and a general reserve.

The Bank establishes a specific reserve for all multifamily residential mortgage loans with a credit rating at or below a predetermined classification. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan. The loans are collateral dependent; that is, the ability to repay the loan is dependent on amounts generated by the collateral. Therefore, should a loan be classified as impaired, the loan will be adjusted to reflect the fair value of the underlying collateral less cost to sell.

To identify the loans that will be subject to review for impairment, the Bank reviews all multifamily residential mortgage loans with a credit rating at or below a predetermined classification. The Bank uses six grade categories when assigning credit ratings to individual loans. These credit ratings involve a high degree of judgment in estimating the amount and timing of future cash flows and collateral values. While the Bank’s allowance for credit losses is sensitive to the credit ratings assigned to a loan, a hypothetical one-level downgrade or upgrade in the Bank’s credit ratings for all multifamily residential mortgage loans would not result in a change in the allowance for credit losses that would be material as a proportion of the unpaid principal balance of the Bank’s mortgage loan portfolio.

A general reserve is maintained on multifamily residential mortgage loans not subject to specific reserve allocations to recognize the economic uncertainty and the imprecision inherent in estimating and measuring losses when evaluating reserves for individual loans. To establish the general reserve, the Bank assigns a risk classification to this population of loans. A specified percentage is allocated to the general reserve for designated risk classification levels. The loans and risk classification designations are reviewed by the Bank on an annual basis.

Federal Funds

Term federal funds are generally short-term and their recorded balance approximates fair value. The Bank invests in federal funds with investment-grade counterparties, which are only evaluated for purposes of an allowance for credit losses if the investment is not paid when due. As of December 31, 2011 and 2010, all investments in federal funds were repaid or expected to repay according to the contracted terms.

See Note 2—Summary of Significant Accounting Policies—Mortgage Loans Held in Portfolio to the Bank’s 2011 audited financial statements and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Prudent Risk Management and Appetite—Credit Risk for a further discussion of management’s estimate of credit losses.

Derivatives and Hedging Activities

General

The Bank records all derivatives on the Statements of Condition at fair value with changes in fair value recognized in current period earnings. The Bank designates derivatives as either fair-value hedging instruments or non-qualifying hedging instruments for which hedge accounting is not applied. The Bank has not entered into any cash-flow hedges as of December 31, 2011 and 2010. The Bank uses derivatives in its risk management program for the following purposes:

• conversion of a fixed rate to a variable rate;

• conversion of a variable rate with a fixed component to another variable rate; and

• macro hedging of balance sheet risks.

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To qualify for hedge accounting, the Bank documents the following concurrently with the execution of each hedging relationship:

• the hedging strategy;

• identification of the hedging instrument and the hedged item;

• determination of the appropriate accounting designation;

• the method used for the determination of effectiveness for transactions qualifying for hedge accounting; and

• the method for recording ineffectiveness for hedging relationships.

The Bank also evaluates each debt issuance, advance made, and financial instrument purchased to determine whether the cash item contains embedded derivatives that meet the criteria for bifurcation. If, after evaluation, it is determined that an embedded derivative must be bifurcated, the Bank will measure the fair value of the embedded derivative.

Assessment of Hedge Effectiveness

An assessment must be made to determine the effectiveness of qualifying hedging relationships; the Bank uses two methods to make such an assessment. If the hedging instrument is a swap and meets specific criteria, the hedging relationship may qualify for the short-cut method of assessing effectiveness. The short-cut method allows for an assumption of no ineffectiveness, which means that the change in the fair value of the hedged item is assumed to be equal and offsetting of the change in fair value of the hedging instrument. For periods beginning after May 31, 2005, management determined that it would no longer apply the short-cut method to new hedging relationships.

The long-haul method of effectiveness is used to assess effectiveness for hedging relationships that qualify for hedge accounting, but do not meet the criteria for the use of the short-cut method. The long-haul method requires separate valuations of both the hedged item and the hedging instrument. If the hedging relationship is determined to be highly effective, the change in fair value of the hedged item related to the designated risk is recognized in current period earnings in the same period as the change in fair value of the hedging instrument. If the hedging relationship is determined not to be highly effective, hedge accounting either will not be allowed or will cease at that point. The Bank performs effectiveness testing on a monthly basis and uses statistical regression analysis techniques to determine whether a long-haul hedging relationship is highly effective.

Accounting for Ineffectiveness and Hedge De-designation

The Bank accounts for any ineffectiveness for all long-haul fair-value hedges using the dollar offset method. In the case of non-qualifying hedges that do not qualify for hedge accounting, the Bank reports only the change in fair value of the derivative. The Bank reports all ineffectiveness for qualifying hedges and non-qualifying hedges in the income statement caption “Net (losses) gains on derivatives and hedging activities” which is included in the “Noninterest income (loss)” section of the Statements of Income.

The Bank may discontinue hedge accounting for a hedging transaction (de-designation) if it fails effectiveness testing or for other asset-liability-management reasons. The Bank also treats modifications to hedged items as a discontinuance of a hedging relationship. When a hedge relationship is discontinued, the Bank will cease marking the hedged item to fair value and will amortize the cumulative basis adjustment resulting from hedge accounting. The Bank reports related amortization as interest income or expense over the remaining life of the associated hedged item. The associated derivative will continue to be marked to fair value through earnings until it matures or is terminated.

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Recently Issued and Adopted Accounting Guidance

See Note 3—Recently Issued and Adopted Accounting Guidance to the Bank’s 2011 audited financial statements for a discussion of recently issued and adopted accounting guidance.

Legislative and Regulatory Developments

The legislative and regulatory environment for the FHLBanks and the Office of Finance has changed profoundly over the past few years, beginning with the Housing Act in 2008 and continuing, as financial regulators issue proposed and/or final rules to implement the Dodd-Frank Act following its enactment in July 2010 and as Congress considers housing finance and GSE reform. The FHLBanks’ business operations, funding costs, rights, obligations, and/or the environment in which the FHLBanks carry out their housing finance mission are likely to be materially affected by the Dodd-Frank Act; however, the full effect of the Dodd-Frank Act will become known only after the required regulations, studies and reports are issued and finalized. Significant regulatory actions and developments for the period covered by this Report are summarized below.

Dodd-Frank Act

Derivatives Transactions

The Dodd-Frank Act provides for new statutory and regulatory requirements for derivative transactions, including those utilized by the Bank to hedge its interest rate and other risks. As a result of these requirements, certain derivative transactions will be required to be cleared through a third-party central clearinghouse and traded on regulated exchanges or new swap execution facilities.

Mandatory Clearing of Derivatives Transactions. The Commodity Futures Trading Commission (CFTC) has issued a final rule regarding the process for determining which types of swaps will be subject to mandatory clearing, but has not yet made any such determinations under this process. The CFTC has also issued a proposal setting forth an implementation schedule for effectiveness of its mandatory clearing determinations. Pursuant to this proposal, regardless of when the CFTC determines that a type of swap is required to be cleared, such mandatory clearing would not take effect until certain rules being promulgated by the CFTC and the SEC under the Dodd-Frank Act have been finalized. In addition, the proposal provides that each time the CFTC determines that a type of swap is required to be cleared, the CFTC would have the option to implement such requirement in three phases. Under the proposal, the Bank would be a “category 2 entity” and would therefore have to comply with mandatory clearing requirements for a particular swap during phase 2 (within 180 days of the CFTC’s issuance of such requirements). Based on the CFTC’s proposed implementation schedule and the time periods set forth in the rule for CFTC determinations regarding mandatory clearing, it is not expected that any of the Bank’s swaps will be required to be cleared until the end of 2012, at the earliest.

Collateral Requirements for Cleared Swaps. Cleared swaps will be subject to initial and variation margin requirements established by the clearinghouse and its clearing members. While clearing swaps may reduce counterparty credit risk, the margin requirements for cleared swaps have the potential of making derivative transactions more costly. In addition, mandatory swap clearing will require the Bank to enter into new relationships and accompanying documentation with clearing members (which the Bank is currently negotiating) and additional documentation with the Bank’s swap counterparties.

The CFTC has issued a final rule requiring that collateral posted by swap customers to a clearinghouse in connection with cleared swaps be legally segregated on a customer-by-customer basis (the LSOC Model). Pursuant to the LSOC Model, customer collateral must be segregated by customer on the books of a futures commission merchant (FCM) and derivatives clearing organization but may be commingled with the collateral of other customers of the same FCM in one physical account. The LSOC model affords greater protection to collateral posted for cleared swaps than is currently afforded to collateral posted for futures contracts. However, because of operational and investment risks inherent in the LSOC Model and because of certain provisions applicable to FCM insolvencies under the U.S. Bankruptcy Code, the LSOC Model does not afford complete

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protection to cleared swaps customer collateral. To the extent the CFTC’s final rule places the Bank’s posted collateral at greater risk of loss in the clearing structure than under the current over-the-counter market structure, the Bank may be adversely impacted.

Definitions of Certain Terms under New Derivatives Requirements. The Dodd-Frank Act will require swap dealers and certain other large users of derivatives to register as “swap dealers” or “major swap participants,” as the case may be, with the CFTC and/or the SEC. Based on the definitions in the proposed rules jointly issued by the CFTC and SEC, it does not appear likely that the Bank will be required to register as a “major swap participant,” although this remains a possibility. Also, based on the definitions in the proposed rules, it does not appear likely that the Bank will be required to register as a “swap dealer” for the derivative transactions that the Bank enters into with dealer counterparties for the purpose of hedging and managing the Bank’s interest rate risk.

It is also unclear how the final rule will treat the call and put optionality in certain advances to members. The CFTC and SEC have issued joint proposed rules further defining the term “swap” under the Dodd-Frank Act. These proposed rules and accompanying interpretive guidance attempt to clarify what products will and will not be regulated as “swaps.” While it is unlikely that advance transactions between the Bank and its member customers will be treated as “swaps,” the proposed rules and accompanying interpretive guidance are not entirely clear on this issue.

Depending on how the terms “swap” and “swap dealer” are defined in the final regulations, the Bank may be faced with the business decision of whether to continue to offer certain types of advance products to member customers if those transactions would require the Bank to register as a swap dealer. Designation as a swap dealer would subject the Bank to significant additional regulation and costs including, without limitation, registration with the CFTC, new internal and external business conduct standards, additional reporting requirements, and additional swap-based capital and margin requirements. Even if the Bank is designated as a swap dealer as a result of its advance activities, the proposed regulations would permit the Bank to apply to the CFTC to limit such designation to those specified activities for which the Bank is acting as a swap dealer. Upon such designation, the Bank’s hedging activities would not be subject to the full requirements that will generally be imposed on traditional swap dealers.

Uncleared Derivatives Transactions. The Dodd-Frank Act will also change the regulatory landscape for derivative transactions that are not subject to mandatory clearing requirements (uncleared trades). While the Bank expects to continue to enter into uncleared trades on a bilateral basis, such trades will be subject to new regulatory requirements, including mandatory reporting, documentation, and minimum margin and capital requirements. Under the proposed margin rules, the Bank will have to post both initial margin and variation margin to the Bank’s swap dealer counterparties, but may be eligible in both instances for modest unsecured thresholds as “low-risk financial end users.” Pursuant to additional Finance Agency provisions, the Bank will be required to collect both initial margin and variation margin from the Bank’s swap dealer counterparties, without any unsecured thresholds. These margin requirements and any related capital requirements could adversely impact the liquidity and pricing of certain uncleared derivative transactions entered into by the Bank, making such trades more costly.

The CFTC has issued a proposal setting forth an implementation schedule for the effectiveness of the new margin and documentation requirements for uncleared swaps. Pursuant to the proposal, regardless of when the final rules regarding these requirements are issued, such rules would not take effect until (1) certain other rules being promulgated under the Dodd-Frank Act take effect; and (2) a certain additional time period has elapsed. The length of this additional time period depends on the type of entity entering into the uncleared swaps. The Bank would be a “category 2 entity” and would therefore have to comply with the new requirements during phase 2 (within 180 days of the effectiveness of the final applicable rulemaking). Accordingly, it is not likely that the Bank would have to comply with such requirements until the end of 2012, at the earliest.

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Temporary Exemption from Certain Provisions. While certain provisions of the Dodd-Frank Act took effect on July 16, 2011, the CFTC has issued an order (and an amendment to that order) temporarily exempting persons or entities with respect to provisions of Title VII of the Dodd-Frank Act that reference “swap dealer,” “major swap participant,” “eligible contract participant,” and “swap.” These exemptions will expire upon the earlier of: (1) the effective date of the applicable final rule further defining the relevant terms; or (2) July 16, 2012. In addition, the provisions of the Dodd-Frank Act that will have the most effect on the Bank did not take effect on July 16, 2011, but will take effect no less than 60 days after the CFTC publishes final regulations implementing such provisions. The CFTC is expected to publish such final regulations during the first half of 2012, but it is not expected that such final regulations will become effective until later in 2012, and delays beyond that time are possible. In addition, as discussed above, mandatory clearing requirements and new margin and documentation requirements for uncleared swaps may be subject to additional implementation schedules, further delaying the effectiveness of such requirements.

The Bank, together with the other FHLBanks, is actively participating in the regulatory process regarding the Dodd-Frank Act by formally commenting to the regulators regarding a variety of rulemakings that could impact the FHLBanks. The Bank is also working with the other FHLBanks to implement the processes and documentation necessary to comply with the Dodd-Frank Act’s new requirements for derivatives.

Regulation of Systemically Important Nonbank Financial Companies.

Federal Reserve Board Proposed Definitions. On February 11, 2011, the Federal Reserve Board (FRB) issued a proposed rule with a comment deadline of March 30, 2011 that would define certain key terms relevant to “nonbank financial companies” under the Dodd-Frank Act, including the interagency oversight council’s (Oversight Council) authorities described below. The proposed rule provides that a company is “predominantly engaged in financial activities” and thus a nonbank financial company if:

• the annual gross financial revenue of the company represents 85 percent or more of the company’s gross revenue in either of its two most recent completed fiscal years; or

• the company’s total financial assets represent 85 percent or more of the company’s total assets as of the end of either of its two most recently completed fiscal years.

The Bank would likely be deemed predominantly engaged in financial activities and thus a nonbank financial company under the proposed rule.

Oversight Council Proposed Rule. On October 18, 2011, the Oversight Council issued a second notice of proposed rulemaking to provide guidance regarding the standards and procedures it will consider in designating nonbank financial companies whose financial activities or financial condition may pose a threat to the overall financial stability of the U.S., and to subject those companies to FRB supervision and certain prudential standards. The proposed rule supersedes a prior proposal on these designations. Under the proposed designation process, in non-emergency situations the Oversight Council will first identify those U.S. nonbank financial companies that have $50 billion or more of total consolidated assets and exceed any of five other quantitative threshold indicators of interconnectedness or susceptibility to material financial distress. Significantly for the Bank, in addition to the asset size criterion, one of the other thresholds is whether a nonbank financial company has $20 billion or more of borrowing outstanding, including bonds (in the Bank’s case, COs) issued. As of December 31, 2011, the Bank had $125.3 billion in total assets and $115.0 billion in total outstanding COs. If a nonbank financial company meets both the total consolidated assets threshold and any of the other quantitative thresholds, the Oversight Council will then analyze the potential threat that the nonbank financial company may pose to the U.S. financial stability, based in part on information from the company’s primary financial regulator and nonpublic information collected directly from the company. Comments on the proposed rule were due by December 19, 2011.

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FRB Proposed Prudential Standards. On January 5, 2012, the FRB issued a proposed rule that would implement the enhanced prudential standards and early remediation standards required by the Dodd-Frank Act for nonbank financial companies identified by the Oversight Council as posing a threat to the U.S. financial stability. Such proposed prudential standards include: risk-based capital and leverage requirements, liquidity standards, requirements for overall risk management, single-counterparty credit limits, stress test requirements, and a debt-to-equity limit. The capital and liquidity requirements would be implemented in phases and would be based on or exceed the Basel international capital and liquidity framework (as discussed in further detail below under Additional Developments). Comments on the proposed rule are due by April 30, 2012.

The FRB and Oversight Council proposed rules are broad enough to likely capture the Bank as a nonbank financial company and may subject the Bank to FRB oversight and prudential standards, unless the final applicable rules exempt the FHLBanks. If the Bank is designated by the Oversight Council for supervision and oversight by the FRB, then the Bank’s operations and business could be adversely impacted by additional costs and business activities’ restrictions resulting from such oversight.

Significant Finance Agency Regulatory Actions

Proposed Rule on Incentive-based Compensation Arrangements. On April 14, 2011, seven federal financial regulators, including the Finance Agency, published a proposed rule with a comment deadline of May 31, 2011, that would prohibit “covered financial institutions” from entering into incentive-based compensation arrangements with covered persons (including executive officers and other employees that may be in a position to expose the institution to risk of material loss) that encourage inappropriate risks. Among other things, the proposed rule would require mandatory deferrals of a portion of incentive compensation for executive officers and require board identification and oversight of incentive-based compensation for covered persons who are not executive officers. The proposed rule would impact the design of the Bank’s compensation policies and practices, including its incentive compensation policies and practices, if adopted as proposed. Comments on the proposed rule were due by May 31, 2011.

Proposed Rule on Prudential Management and Operations Standards. On June 20, 2011, the Finance Agency issued a proposed rule to establish prudential standards with respect to ten categories of operation and management of the FHLBanks and the other housing finance GSEs, including internal controls, interest rate risk exposure and market risk. The Finance Agency proposes to adopt the standards as guidelines set out in an appendix to the rule, which generally provide principles and leave to the regulated entities the obligation to organize and manage their operations in a way that ensures the standards are met, subject to the oversight of the Finance Agency. The proposed rule also provides potential consequences for failing to meet the standards, such as requirements regarding submission of a corrective action plan and the authority of the Director to impose other sanctions, such as limits on asset growth or increases in capital, that the Director believes appropriate, until the regulated entity returns to compliance with the prudential standards. Comments on this proposed rule were due on or before August 19, 2011.

Conservatorship and Receivership. On June 20, 2011, the Finance Agency issued a final rule to establish a framework for conservatorship and receivership operations for the FHLBanks. The final rule addresses the nature of a conservatorship or receivership and provides greater specificity on the FHLBank’s operations, in line with procedures set forth in similar regulatory frameworks such as the FDIC’s receivership authority. The rule clarifies the relationship among various classes of creditors and equity holders under a conservatorship or receivership and the priorities for contract parties and other claimants in receivership. This rule became effective on July 20, 2011.

Final Rule on Voluntary Mergers. On November 28, 2011, the Finance Agency issued a final rule, effective December 28, 2011, that establishes the conditions and procedures for the consideration and approval of voluntary mergers between FHLBanks. Under the rule, two or more FHLBanks may merge provided:

• the FHLBanks have agreed upon the terms of the proposed merger and the board of directors of each such FHLBank has authorized the execution of the merger agreement;

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• the FHLBanks have jointly filed a merger application with the Finance Agency to obtain the approval of the Director;

• the Director has granted approval of the merger, subject to any closing conditions as the Director may determine must be met before the merger is consummated;

• the members of each such FHLBank ratify the merger agreement;

• the Director has received evidence that the closing conditions have been met; and

• the Director has accepted the organization certificate of the continuing FHLBank.

Final Rule on Private Transfer Fee Covenants. On March 16, 2012, the Finance Agency issued a final rule, effective 120 days after publication, that would restrict the Bank from purchasing, investing in, taking a security interest in, or otherwise dealing in mortgage loans on properties encumbered by private transfer fee covenants, securities backed by such mortgage loans, and securities backed by the income stream from such covenants, except for certain transfer fee covenants. Excepted transfer fee covenants would include covenants to pay private transfer fees to covered associations (including organizations comprising owners of home, condominiums, cooperatives, manufactured homes and certain other tax-exempt organizations) that use the private transfer fees exclusively for the direct benefit of the property. The foregoing restrictions would apply only to mortgages on properties encumbered by private transfer fee covenants created on or after February 8, 2011, securities backed by such mortgages, and securities issued after February 8, 2011 and backed by revenue from private transfer fees regardless of when the covenants were created.

Other Significant Regulatory Actions

National Credit Union Administration Proposal on Emergency Liquidity. On December 22, 2011, the National Credit Union Administration (NCUA) issued an advance notice of proposed rulemaking that would require federally insured credit unions to have access to backup federal liquidity sources for use in times of financial emergency and distressed economic circumstances. The proposed rule would require federally insured credit unions, as part of their contingency funding plans, to have access to backup federal liquidity sources through one of four ways:

• becoming a member in good standing of the Central Liquidity Facility (CLF) directly;

• becoming a member in good standing of CLF indirectly through a corporate credit union;

• obtaining and maintaining demonstrated access to the Federal Reserve Discount Window; or

• maintaining a certain percentage of assets in highly liquid Treasury securities.

The rule would apply to both federal and state-chartered credit unions. If enacted, the proposed rule may encourage credit unions to favor these federal sources of liquidity over FHLBank membership and advances, which could have a negative impact on the Bank’s results of operations. Comments on the advance notice of proposed rulemaking were due by February 21, 2012.

Additional Developments

Fraud Detection and Reporting. The FHLBanks have seen an increased regulatory focus on preventing, detecting, and reporting fraud or possible fraud. In 2010, the Finance Agency issued a regulation requiring the FHLBanks to report to the Finance Agency upon the discovery of any fraud or possible fraud related to the purchase or sale of financial instruments or loans. On November 3, 2011, the Financial Crimes Enforcement Network (FinCEN) proposed regulations that would require the GSEs to develop anti-money laundering (AML) programs and to file suspicious activity reports (SARs) with FinCen, in addition to any reports provided to the Finance Agency. Any requirement to develop AML and SARs reporting programs would significantly increase the Bank’s fraud reporting and detection operations.

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Home Affordable Refinance Program and Other Foreclosure Prevention Efforts. During the third quarter of 2011, the Finance Agency and Fannie Mae and Freddie Mac (the Enterprises) announced a series of changes to the Home Affordable Refinance Program (HARP) that are intended to assist more eligible borrowers who can benefit from refinancing their home mortgage. Other federal agencies have implemented other programs during the past few years to prevent foreclosure (including the Home Affordable Modification Program and the Principal Reduction Alternative). Other proposals such as expansive principal writedowns or principal forgiveness, or converting delinquent borrowers into renters and conveying the properties to investors, have recently gained some popularity as well. On February 9, 2012, state and federal officials announced a settlement with five of the nation’s largest mortgage servicers. The announced settlement, among other things, will require the servicers to implement new servicing and foreclosure practices and includes certain incentives for the servicers to offer loan modifications that may include principal reductions on certain loans. The Bank does not expect the HARP changes or existing foreclosure prevention programs to have a material impact on the Bank’s MBS portfolio. Although it is unclear at this time whether additional foreclosure prevention efforts will be implemented during 2012, new programs that include expansive principal writedowns or forgiveness with respect to securitized loans could have a material negative impact on the Bank’s MBS portfolio.

Housing Finance and GSE Reform. On February 11, 2011, the Department of the Treasury and the U.S. Department of Housing and Urban Development issued a report to Congress entitled Reforming America’s Housing Finance Market. The report provided options for Congressional consideration regarding the long-term structure of housing finance. In response, several bills were introduced in Congress during 2011, and Congress continues to consider various proposals to reform the U.S. housing finance system, including specific reforms to Fannie Mae and Freddie Mac. Although the FHLBanks are not the primary focus of these housing finance reforms, they have been recognized as playing a vital role in helping smaller financial institutions access liquidity and capital to compete in an increasingly competitive marketplace.

Housing finance and GSE reform is not expected to progress significantly prior to the 2012 presidential election, but it is expected that GSE legislative activity will continue. While none of the legislation introduced thus far proposes specific changes to the FHLBanks, the Bank could nonetheless be affected in numerous ways by changes to the U.S. housing finance structure and to Fannie Mae and Freddie Mac. The ultimate effects of housing finance and GSE reform or any other legislation, including legislation to address the debt limit or federal deficit, on the FHLBanks is unknown at this time and will depend on the legislation, if any, that is finally enacted.

Basel Committee on Banking Supervision Capital Framework. In September 2010, the Basel Committee on Banking Supervision (Basel Committee) approved a new capital framework for internationally active banks, commonly known as Basel III. Banks subject to the new framework would be subject to increased capital and liquidity requirements, with core capital being more strictly defined to include only common equity and other capital assets that are able to fully absorb losses. The Basel Committee also proposed a liquidity coverage ratio for short-term liquidity needs that would be phased in by 2015, as well as a net stable funding ratio for longer-term liquidity needs that would be phased in by 2018.

On January 5, 2012, the FRB announced its proposed rule on enhanced prudential standards and early remediation requirements, as required by the Dodd-Frank Act, for nonbank financial companies designated as systemically important by the Oversight Council. The proposed rule proposes risk-based capital and leverage requirements, liquidity standards, requirements for overall risk management, single-counterparty credit limits, stress test requirements, and a debt-to-equity limit. The proposal declines to finalize certain standards such as liquidity requirements until the Basel III framework gains greater international consensus, but the proposal includes a liquidity buffer requirement that would be in addition to the final Basel Committee framework requirements. The size of the buffer would be determined through liquidity stress tests, taking into account a financial institution’s structure and risk factors.

While it is still uncertain how the capital and liquidity standards being developed by the Basel Committee ultimately will be implemented by the U.S. regulatory authorities, the new framework and the FRB’s proposed

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plan could require some of the Bank’s members to divest assets in order to comply with the more stringent capital and liquidity requirements, thereby tending to decrease their need for advances; on the other hand, the new framework may incent the Bank’s members to borrow term advances to create balance sheet liquidity. The requirements may also adversely affect investor demand for FHLBank System COs to the extent that impacted institutions divest or limit their investments in FHLBank System COs.

Prudent Risk Management and Appetite

The Bank’s lending, investment, and funding activities and the use of derivative hedge instruments expose the Bank to a number of risks. A robust risk management framework aligns risk-taking activities with the Bank’s strategies and risk appetite. A risk management framework also balances risks and rewards. The Bank’s risk management framework consists of risk governance, risk appetite, and risk management policies.

The Bank’s board of directors and management recognize that risks are inherent to the Bank’s business model and that the process of establishing a risk appetite does not imply that the Bank seeks to mitigate or eliminate all risk. By defining and managing to a specific risk appetite, the board of directors and management ensure that there is a common understanding of the Bank’s desired risk profile which enhances their ability to make improved strategic and tactical decisions. Additionally, the Bank aspires to achieve and exceed best practices in governance, ethics, and compliance, and to sustain a corporate culture that fosters transparency, integrity, and adherence to legal and ethical obligations.

The Bank’s board of directors and management have established this risk appetite statement and risk metrics for controlling and escalating actions based on the nine continuing objectives that represent the foundation of the Bank’s strategic and tactical planning:

• Capital Adequacy—maintain adequate levels of capital components (retained earnings and capital stock) that protect against the risks inherent on the Bank’s balance sheet and provide sufficient resiliency to withstand potential stressed losses.

• Market Risk/Earnings—produce a long-term return on equity spread to 3-month LIBOR of 50 to 100 basis points, while providing attractive funding for advance products, consistent payment of dividends, reliable access to funding, and maintenance of retained earnings in excess of stressed retained earnings targets.

• Liquidity Risk—maintain sufficient liquidity and funding sources to allow the Bank to meet expected and unexpected obligations.

• Credit Risk—avoid credit losses by managing credit and collateral risk exposures within acceptable parameters. Achieve this objective through data-driven analysis (and when appropriate perform shareholder-specific analysis), monitoring and verification.

• Governance/Compliance/Legal—comply with all applicable laws and regulations.

• Mission/Business Model—deliver financial services and consistent access to affordable funds in the size and structure members desire, helping members to manage risk and extend credit in their communities, while achieving its affordable housing mission goals; and provide value through the consistent payment of dividends and the repurchasing of excess stock.

• Operational Risk—manage the key risks associated with operational availability of critical systems, the integrity and security of the Bank’s information, and the alignment of technology investment with key business objectives through enterprise-wide risk management practices and governance based on Committee of Sponsoring Organizations of the Treadway Commission (COSO) and Control Objectives for Information and Related Technology standards; and deliver an employment value proposition that allows the Bank to build, retain, engage, and develop staff capable of meeting the evolving needs of our key stakeholders and the ability to effectively manage enterprise-wide risks.

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• Reputation—recognize the importance of and advance positive awareness and perception of the Bank and its mission among key external stakeholders impacting the Bank’s ability to achieve its mission.

• Diversification and Concentration—monitor through enhanced reporting any elevated risk concentrations, and when appropriate, manage and mitigate the increased risk.

The board and management recognize risk and risk producing events are dynamic and constantly being presented. Accordingly, reporting, analyzing, and mitigating risks are paramount to successful corporate governance.

The RMP also governs the Bank’s approach to managing the above risks. The Bank’s board of directors reviews the RMP annually and formally re-adopts the RMP at least once every three years. It also reviews and approves amendments to the RMP from time to time as necessary. To ensure compliance with the RMP, the Bank has established internal management committees to provide oversight of these risks. The Bank produces a comprehensive risk assessment report on an annual basis that is reviewed by the board of directors. In addition to the established risk appetite and the RMP, the Bank also is subject to Finance Agency regulations and policies regarding risk management.

Below is a more specific discussion of how the Bank manages its market risk, liquidity risk, credit risk, operational risk, and business risk within this risk management and appetite framework.

Market Risk

General

The Bank is exposed to market risk in that changes in interest rates and spreads can have a direct effect on the value of the Bank’s assets and liabilities. As a result of the volume of its interest-earning assets and interest-bearing liabilities, the component of market risk having the greatest effect on the Bank’s financial condition and results of operations is interest-rate risk.

Interest-rate risk represents the risk that the aggregate market value or estimated fair value of the Bank’s asset, liability, and derivative portfolios will decline as a result of interest-rate volatility or that net earnings will be affected significantly by interest-rate changes. Interest-rate risk can occur in a variety of forms. These include repricing risk, yield-curve risk, basis risk, and option risk. The Bank faces repricing risk whenever an asset and a liability reprice at different times and with different rates, resulting in interest-margin sensitivity to changes in market interest rates. Yield-curve risk reflects the possibility that changes in the shape of the yield curve may affect the market value of the Bank’s assets and liabilities differently because a liability used to fund an asset may be short-term while the asset is long-term, or vice versa. Basis risk occurs when yields on assets and costs on liabilities are based on different bases, such as LIBOR, versus the Bank’s cost of funds. Different bases can move at different rates or in different directions, which can cause erratic changes in revenues and expenses. Option risk is presented by the optionality that is embedded in some assets and liabilities. Mortgage assets represent the primary source of option risk.

The primary goal of the Bank’s interest-rate risk measurement and management efforts is to control the above risks through prudent asset-liability management strategies so that the Bank may provide members with dividends that consistently are competitive with existing market interest rates on alternative short-term and variable-rate investments. The Bank attempts to manage interest-rate risk exposure by using appropriate funding instruments and hedging strategies. Hedging may occur at the micro level, for one or more specifically identified transactions, or at the macro level. Management evaluates the Bank’s macro hedge position and funding strategies on a daily basis and makes adjustments as necessary.

The Bank measures its potential market risk exposure in a number of ways. These include asset, liability, and equity duration analyses; earnings forecast scenario analyses that reflect repricing gaps; and convexity

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characteristics under assumed changes in interest rates, the shape of the yield curve, and market basis relationships. The Bank establishes tolerance limits for these financial metrics and uses internal models to measure each of these risk exposures at least monthly.

Use of Derivatives

The Bank enters into derivatives to reduce the interest-rate risk exposure inherent in otherwise unhedged assets and funding positions. The Bank does not engage in speculative trading of these instruments. The Bank’s management attempts to use derivatives to reduce interest-rate exposure in the most cost-efficient manner. The Bank’s derivative position includes interest-rate swaps, options, swaptions, interest-rate cap and floor agreements, and forward contracts. These derivatives are used to adjust the effective maturity, repricing frequency, or option characteristics of financial instruments to achieve risk-management objectives. Within its risk management strategy, the Bank uses derivative financial instruments in two ways:

• As a fair-value hedge of an underlying financial instrument or a firm commitment. For example, the Bank uses derivatives to reduce the interest-rate net sensitivity of COs, advances, investments, and mortgage loans by, in effect, converting them to a short-term interest rate, usually based on LIBOR. The Bank also uses derivatives to manage embedded options in assets and liabilities, and to hedge the market value of existing assets and liabilities. The Bank reevaluates its hedging strategies from time to time and may change the hedging techniques used or adopt new strategies as deemed prudent.

• As an asset-liability management tool, for which hedge accounting is not applied (non-qualifying hedge). The Bank may enter into derivatives that do not qualify for hedge accounting. As a result, the Bank recognizes the change in fair value and interest income or expense of these derivatives in the “Noninterest Income (Loss)” section of the Statements of Income as “Net (losses) gains on derivatives and hedging activities” with no offsetting fair-value adjustments of the hedged asset, liability, or firm commitment. Consequently, these transactions can introduce earnings volatility.

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The following table summarizes the notional amounts of derivative financial instruments (in millions).

			As of December 31,
			2011		2010
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	$	13,160	$	13,632
		Non-qualifying hedges		100		100
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		32,749		50,519
		Non-qualifying hedges		741		1,241
Pay variable with embedded features, receive variable interest rate swap (non-callable)	Reduces interest rate sensitivity and repricing gaps by converting the advance’s variable rate to a different variable rate index and/or offsets embedded option risk in the advance.	Fair value hedges		864		413
Pay variable with embedded features, receive variable interest rate swap (callable)	Reduces interest rate sensitivity and repricing gaps by converting the advance’s variable rate to a different variable rate index and/or offsets embedded option risk in the advance.	Fair value hedges		—		323
Pay variable, receive variable basis swap	Reduces interest rate sensitivity and repricing gaps by converting the advance’s variable rate to a different variable rate index.	Non-qualifying hedges		248		216
		Total		47,862		66,444
Investments
Pay fixed, receive variable interest rate swap	Converts the investment’s fixed rate to a variable rate index.	Non-qualifying hedges		2,678		2,950
Pay variable, receive variable interest rate swap	Converts the investment’s variable rate to a different variable rate index.	Non-qualifying hedges		50		50
		Total		2,728		3,000
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		46,674		38,310
		Non-qualifying hedges		1,100		2,850
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		26,403		21,962
		Non-qualifying hedges		1,000		—
Receive variable with embedded features, pay variable interest rate swap (callable)	Reduces interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index and/or offsets embedded option risk in the bond.	Fair value hedges		20		30
Receive variable, pay variable basis swap	Reduces interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index.	Non-qualifying hedges		100		—
		Total		75,297		63,152

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			As of December 31,
			2011		2010
Hedged Item / Hedging Instrument	Hedging Objective	Hedge Accounting Designation	Notional Amount		Notional Amount
Consolidated Obligation Discount Notes
Receive fixed, pay variable interest rate swap	Converts the discount note’s fixed rate to a variable rate index.	Fair value hedges		1,129		1,295
		Total		1,129		1,295
Balance Sheet
Pay fixed, receive variable interest rate swap	Converts the asset or liability fixed rate to a variable rate index.	Non-qualifying hedges		125		225
Interest rate cap or floor	Protects against changes in income of certain assets due to changes in interest rates.	Non-qualifying hedges		12,500		6,000
		Total		12,625		6,225
Intermediary Positions and Other
Pay fixed, receive fixed interest rate swap	To offset interest rate swaps executed with members by executing interest rate swaps with derivatives counterparties.	Non-qualifying hedges		—		1
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		79		92
Interest rate cap or floor	To offset interest rate caps or floors executed with members by executing interest rate caps or floors with derivatives counterparties.	Non-qualifying hedges		—		2,000
		Total		79		2,093
Total notional amount			$	139,720	$	142,209

Interest-rate Risk Exposure Measurement

The Bank measures interest-rate risk exposure by various methods, including calculating the effective duration and convexity of assets, liabilities, and equity under various scenarios, and calculating the theoretical market value of equity. Effective duration, normally expressed in years or months, measures the price sensitivity of the Bank’s interest-bearing assets and liabilities to changes in interest rates. As effective duration lengthens, market-value changes become more sensitive to interest-rate changes. The Bank employs sophisticated modeling systems to measure effective duration.

Effective duration of equity aggregates the estimated sensitivity of market value for each of the Bank’s financial assets and liabilities to changes in interest rates. Effective duration of equity is computed by taking the market value-weighted effective duration of assets, less the market value-weighted effective duration of liabilities, and dividing the remainder by the market value of equity. Due to current market conditions, market value of equity is not indicative of the market value of the Bank as a going concern or the value of the Bank in a liquidation scenario. An effective duration gap is the measure of the difference between the estimated effective durations of portfolio assets and liabilities and summarizes the extent to which the estimated cash flows for assets and liabilities are matched, on average, over time and across interest-rate scenarios.

A positive effective duration of equity or a positive effective duration gap results when the effective duration of assets is greater than the effective duration of liabilities. A negative effective duration of equity or a negative effective duration gap results when the effective duration of assets is less than the effective duration of liabilities.

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A positive effective duration of equity or a positive effective duration gap generally indicates that the Bank has some exposure to interest-rate risk in a rising rate environment, and a negative effective duration of equity or a negative effective duration gap indicates some exposure to interest-rate risk in a declining interest-rate environment. Higher effective duration numbers, whether positive or negative, indicate greater volatility of market value of equity in response to changing interest rates.

Bank policy requires the Bank to maintain its effective duration of equity within a range of +5 years to –5 years, assuming current interest rates, and within a range of +7 years to –7 years, assuming an instantaneous parallel increase or decrease in market interest rates of 200 basis points.

Under normal circumstances, effective duration is computed by calculating an option adjusted spread based on market price. This method works well if the market price is dependent on interest rates instead of credit or liquidity. In light of the ongoing credit concerns and lack of liquidity in the private-label MBS market, however, market prices are influenced more by credit and liquidity than interest rates, resulting in very low prices and very high option adjusted spreads which distort the effective duration impact. Thus, in the third quarter of 2009, management changed its method of calculating effective duration to use the option adjusted spread at a date prior to the recent market disruptions. To capture interest-rate changes, management further adjusted its option adjusted spread by adding a spread to reflect option adjusted spread changes in callable debt instruments with like effective duration characteristics. This approach provides effective duration values that more accurately reflect the Bank’s interest-rate risk but may still result in modest differences due to volatility and uncertainty in the capital markets (such as changing credit standards, variable mortgage refinancing capacity, the spread between MBS rates and Treasury rates, and uncertainty regarding future MBS actions by the FRB; factors such as these are difficult to reduce to quantitative model inputs). Given this limitation, management views its current effective duration gap exposure calculations as approximate, rather than absolute, values.

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

	As of December 31,
	2011						2010
	Up 200 Basis Points		Current		Down 200 Basis Points(1)		Up 200 Basis Points		Current		Down 200 Basis Points(1)
Assets		0.56		0.37		(0.03)		0.67		0.46		0.01
Liabilities		0.45		0.43		0.06		0.50		0.57		0.23
Equity		2.27		(0.53)		(1.33)		2.95		(0.97)		(2.89)
Effective duration gap		0.11		(0.06)		(0.09)		0.17		(0.11)		(0.22)

(1) The “down 200 basis points” scenarios shown above are considered to be “constrained shocks,” intended to prevent the possibility of negative interest rates when a designated low rate environment exists.

The Bank uses both sophisticated computer models and an experienced professional staff to measure the amount of interest-rate risk in the balance sheet, thus allowing management to monitor the risk against policy and regulatory limits. Management regularly reviews the major assumptions and methodologies used in the Bank’s models, and makes adjustments to the Bank’s models in response to rapid changes in economic conditions. Management believes that the use of market spreads calculated from estimates of current market prices (which include large embedded liquidity spreads), as opposed to valuation spreads that existed at the time the Bank acquired the MBS and mortgage loans (acquisition spreads), results in a disconnect between measured interest-rate risk and the actual interest-rate risks faced by the Bank. Because the Bank intends to and is able to hold its MBS and mortgage loans to maturity, the impact on effective duration of risks of value loss implied by current market prices of MBS and mortgage loans is overstated. As a result, management does not believe that the increased sensitivity indicates a fundamental change in interest-rate risk.

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The prepayment risk in both advances and investment assets can affect significantly the Bank’s effective duration of equity and effective duration gap. Current regulations require the Bank to mitigate advance prepayment risk by establishing prepayment fees that make the Bank financially indifferent to a borrower’s decision to prepay an advance that carries a rate above current market rates unless the advance contains explicit par value prepayment options. The Bank’s prepayment fees for advances without embedded options generally are based on the present value of the difference between the rate on the prepaid advance and the current rate for an advance with an identical maturity date. Prepayment fees for advances that contain embedded options generally are based on the inverse of the market value of the derivative instrument that the Bank used to hedge the advance.

The prepayment options embedded in mortgage loan and mortgage security assets may result in extensions or contractions of both actual and expected cash flows when interest rates change. Current Finance Agency policies limit this source of interest-rate risk by limiting the types of MBS the Bank may own to those with defined estimated average life changes under specific interest-rate shock scenarios. These limits do not apply to mortgage loans purchased from members. The Bank typically hedges mortgage prepayment uncertainty by using callable debt as a funding source and by using interest-rate cap, floor, and swaption transactions. The Bank also uses derivatives to reduce effective duration and option risks for investment securities other than MBS. Effective duration and option risk exposures are measured on a regular basis for all investment assets under alternative rate scenarios.

The Bank also analyzes its interest-rate risk and market exposure by evaluating the theoretical market value of equity. The market value of equity represents the net result of the present value of future cash flows discounted to arrive at the theoretical market value of each balance sheet item. By using the discounted present value of future cash flows, the Bank is able to factor in the various maturities of assets and liabilities, similar to the effective duration analysis discussed above. The Bank determines the theoretical market value of assets and liabilities utilizing a Level 3 pricing approach as more fully described in Note 19–Estimated Fair Values to the Bank’s 2011 audited financial statements. The difference between the market value of total assets and the market value of total liabilities is the market value of equity. A more volatile market value of equity under different shock scenarios tends to result in a higher effective duration of equity, indicating increased sensitivity to interest rate changes. The Bank’s total capital and market value of equity each decreased by $1.4 billion from December 31, 2010 to December 31, 2011.

The table below reflects the Bank’s market value of equity measurements as calculated in accordance with Bank policy (in millions).

	As of December 31,
	2011						2010
	Up 200 Basis Points		Current		Down 200 Basis Points(1)		Up 200 Basis Points		Current		Down 200 Basis Points(1)
Assets	$	120,027	$	121,356	$	121,878	$	125,891	$	127,451	$	128,219
Liabilities		113,610		114,676		114,904		118,095		119,338		120,156
Equity		6,417		6,680		6,974		7,796		8,113		8,063

(1) The “down 200 basis points” scenarios shown above are considered to be “constrained shocks,” intended to prevent the possibility of negative interest rates when a designated low rate environment exists.

Under the Bank’s RMP, the Bank’s market value of equity must not decline by more than 15 percent, assuming an immediate, parallel, and sustained interest-rate shock of 200 basis points in either direction.

If effective duration of equity or market value of equity is approaching the boundaries of the Bank’s RMP ranges, management will initiate remedial action or review alternative strategies at the next meeting of the board of directors or appropriate committee thereof.

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Beginning in January 2010, the Bank supplements its interest rate risk analysis by measuring convexity, or the rate of change of effective duration given changes in interest rates. Convexity represents the majority of the change in price not explained by effective duration. The Bank measures convexity using current interest rate curves rather than shocked interest rate curves. By doing so, the Bank can monitor convexity compared to the limits over time and adjust the limits based on actual market curves rather than theoretical analysis. The Bank’s convexity limits are derived from the constraints set by the limit for duration of equity of +5 years to –5 years combined with the limit for the change of market value of 15 percent with a +200 to –200 basis point parallel rate shift.

Liquidity Risk

Liquidity risk is the risk that the Bank will be unable to meet its obligations as they come due or meet the credit needs of its members and borrowers in a timely and cost-efficient manner. The Bank’s objective is to meet operational and member liquidity needs under all reasonable economic and operational situations. The Bank uses liquidity to absorb fluctuations in asset and liability balances and to provide an adequate reservoir of funding to support attractive and stable advance pricing. The Bank meets its liquidity needs from both asset and liability sources.

The Bank faces two basic types of liquidity risk: operational and contingent. Operational liquidity is defined as the ready cash and borrowing capacity available to meet the Bank’s day-to-day needs. To maintain adequate operational liquidity on each business day, the Bank has established a daily liquidity target. As discussed in further detail in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources above, Finance Agency regulations require the Bank to maintain contingent liquidity in an amount sufficient to meet its liquidity needs for five business days if it is unable to access the capital markets. In addition, the Bank strives to maintain sufficient liquidity to service debt obligations for at least 45 days, assuming restricted debt market access. The Bank met both liquidity requirements during 2011.

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 the Bank’s principal source of 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 members pledge as eligible collateral.

The Bank utilizes a credit risk rating system for its members, which focuses primarily on an institution’s overall financial health and takes into account quality of assets, earnings, and capital position. The Bank assigns each borrower that is an insured depository institution a credit risk rating from one to 10 according to the relative amount of credit risk such borrower poses to the Bank (one being the least amount of credit risk and 10 the greatest amount of credit risk). Prior to the second quarter of 2010, the Bank’s credit risk rating system included an estimate of a borrower’s probability of default without differentiation between types of financial institutions. Beginning in the second quarter of 2010, the Bank implemented a separate model for banks incorporating updated actual historical default information for commercial banks in assessing commercial bank members’ credit risk ratings, and in January 2011 the Bank implemented separate models for credit unions and thrifts incorporating actual historical default information for credit unions and thrifts, respectively. The Bank implemented a similarly specialized model for insurance companies during the second half of 2011. In general, borrowers in category 10 may have more restrictions on the types of collateral they may use to secure advances, may be required to maintain higher collateral maintenance levels and deliver loan collateral, may be restricted

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from obtaining further advances and may face more stringent collateral reporting requirements. At times, the Bank may place more restrictive requirements on a borrower than those generally applicable to borrowers with the same rating based upon management’s assessment of the borrower and its collateral.

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

	As of December 31,
	2011				2010
Rating	Number of Borrowers		Outstanding Advances		Number of Borrowers		Outstanding Advances
1-9		536	$	78,355		569	$	79,170
10		117		3,033		157		4,815

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 indicating the borrower’s overall creditworthiness. The credit limit is expressed as a percentage equal to the ratio of the borrower’s total liabilities to the Bank, including the face amount of outstanding letters of credit, the principal amount 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, a higher limit may be approved solely by the Bank’s board of directors, or a relevant committee thereof, in its sole discretion. As of December 31, 2011, 10 borrowers have been approved for a credit limit higher than 30 percent.

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 outstanding principal amount of all advances and other liabilities of the borrower to 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 unpaid principal balance, market value, or other value of the qualifying collateral, to calculate the LCV. The Bank regularly reevaluates the appropriate level of discounting. The following table provides information about the types of collateral held for the Bank’s advances (dollars in millions).

	Total Par Value of Outstanding Advances		LCV of Collateral Pledged by Members		First Mortgage Collateral (%)		Securities Collateral (%)		Other Real Estate Related Collateral (%)
As of December 31, 2011	$	82,569	$	188,597		64.36		10.93		24.71
As of December 31, 2010		85,051		188,212		67.43		10.19		22.38

Beginning in 2010, for purposes of determining each member’s LCV, the Bank estimates the current market value of all residential first mortgage loans, home equity loans and lines of credit pledged as collateral based on information provided by the member on individual loans or its loan portfolio through the regular collateral reporting process. The estimated market value is discounted to account for the price volatility of loans as well as estimated liquidation and servicing costs in the event of the member’s default. Market values, and thus LCVs, change monthly. The Bank believes that this shift to a market-based valuation methodology allows the Bank to establish its collateral discounts with greater precision. These changes are part of a broader effort to provide greater transparency with respect to the valuation of collateral pledged for advances and other credit products offered by the Bank. In 2012, the Bank expects to expand this market-based valuation methodology to multifamily and commercial real estate collateral.

Prior to October 28, 2010, borrowers with credit risk ratings of 9 and 10 were required to maintain collateral levels of 110 percent and 125 percent, respectively, of the outstanding principal amount of all liabilities of the

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borrower to the Bank. In light of the Bank’s experience in resolving member failures without credit losses, the Bank determined that, when combined with the market valuation methodology, the overcollateralization requirements for credit score 9 borrowers were excessive. On October 28, 2010, the board of directors of the bank approved changing the collateral maintenance requirements for credit score 9 borrowers to be the same as for credit score 1-8 members. Credit score 10 borrowers remain subject to more stringent collateral requirements.

The following table provides information on FDIC-insured institutions that were placed into receivership during the years indicated.

	For the Years Ended December 31,
	2011		2010		2009
FHLBank Atlanta members		45		57		44
Non-FHLBank Atlanta members		47		100		96
Total FDIC-insured		92		157		140

All outstanding advances to those member institutions placed into FDIC receivership were either paid in full or assumed by another member or non-member institution under purchase and assumption agreements between the assuming institution and the FDIC. The Bank expects more member institution failures during 2012, but at a lower rate than during 2011 as capital levels, asset quality, and the overall financial condition of member institutions slowly improve.

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 claims and rights of a party that (1) would be entitled to priority under otherwise applicable law; and (2) is an actual bona fide purchaser for value or is an actual secured party whose security interest is perfected in accordance with applicable state law.

In its history, the Bank has never experienced a credit loss on an advance. In consideration of this, and the Bank’s policies and practices detailed above, the Bank has not established an allowance for credit losses on advances as of December 31, 2011 and 2010.

Investments

The Bank is subject to credit risk on certain unsecured investments, including interest-bearing deposits, certificates of deposits and federal funds sold.

The Bank follows guidelines approved by its board of directors regarding unsecured extensions of credit, in addition to Finance Agency regulations with respect to term limits and eligible counterparties.

Finance Agency regulations prohibit the Bank from investing in any of the following securities:

• instruments such as common stock that represent an ownership interest in an entity, other than stock in small business investment companies or certain investments targeted to low-income people or communities;

• instruments issued by non-United States entities, other than those issued by United States branches and agency offices of foreign commercial banks;

• non-investment grade debt instruments, other than certain investments targeted to low-income people or communities and instruments that were downgraded to below an investment grade rating after purchase by the Bank;

• whole mortgages or other whole loans, other than (1) those acquired under the Bank’s mortgage purchase programs; (2) certain investments targeted to low-income people or communities; (3) certain marketable

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direct obligations of state, local, or tribal government units or agencies having at least the second highest credit rating from a NRSRO; (4) MBS or asset-backed securities backed by manufactured housing loans or home equity loans; and (5) certain foreign housing loans authorized under section 12(b) of the FHLBank Act;

• interest-only or principal-only stripped MBS, collateralized mortgage obligations (CMOs), collateralized debt obligations (CDOs), and real estate mortgage investment conduits (REMICs);

• residual-interest or interest-accrual classes of CMOs and REMICs;

• fixed-rate or variable-rate MBS, CMOs, and REMICs that on the trade date are at rates equal to their contractual cap 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.

The Bank monitors the financial condition of investment counterparties to ensure that they are in compliance with the Bank’s 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 light of significant European sovereign credit concerns which triggered falling equity prices and higher credit default swap spreads during the third quarter of 2011, the Bank suspended overnight and term trading with its French counterparties, and the Bank has limited term trades and capped overnight trades with certain European counterparties based on their financial condition. The Bank may further limit or suspend overnight and term trading in addition to RMP and regulatory requirements. Limiting or suspending counterparties limits the pool of available counterparties, shifts the geographical concentration of counterparty exposure, and may reduce the Bank’s overall short-term investment opportunities. As noted above, Finance Agency regulations prohibit the Bank from investing in non-U.S. sovereign debt.

The Bank enters into investments only with U.S. counterparties or U.S. brandes and agency offices of foreign commercial banks, but may have exposure to foreign entities if a counterparty’s parent entity is located in another country. The table below represents the Bank’s gross exposure, by instrument type, according to the location of the parent company of the counterparty (in millions):

	As of December 31, 2011
	Federal Funds Sold		Interest- bearing Deposits		Certificates of Deposit		Net Derivative Exposure(1)		Total
Australia	$	1,335	$	—	$	—	$	—	$	1,335
Canada		2,050		—		—		—		2,050
France		—		—		—		3		3
Germany		1,225		—		—		37		1,262
Japan		—		—		650		—		650
Norway		950		—		—		—		950
Spain		575		—		—		5		580
Sweden		3,090		—		—		—		3,090
Switzerland		400		—		—		—		400
United Kingdom		1,700		—		—		—		1,700
United States of America		1,305		1,203		—		—		2,508
Total	$	12,630	$	1,203	$	650	$	45	$	14,528

(1) Amounts do not reflect collateral; see the table under Prudent Risk Management and Appetite—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 or non-U.S. government agency counterparties from $16.9 billion as of December 31, 2010 to $14.5 billion as of December 31, 2011. There were six such counterparties (including Branch Banking and Trust Company, one of the Bank’s ten largest borrowers as of December 31, 2011) that represented 55.9 percent, and two such counterparties, Bank of Nova Scotia and Svenska Handelsbanken, that each represented greater than 10 percent, of the total unsecured credit exposure to non-U.S. government or non-U.S. government agencies counterparties. The Bank’s unsecured credit exposure is comprised primarily of federal funds sold.

As of December 31, 2011, the distribution of maturities of unsecured credit exposure was as follows:

• 58.6 percent of the exposure matured in one business day;

• 5.40 percent of the exposure matured within two to 10 business days;

• 16.0 percent matured within 11 to 30 business days; and

• 20.0 percent matured after 31 business days.

The Bank’s RMP permits the Bank to invest in U.S. agency (Fannie Mae, Freddie Mac and Ginnie Mae) obligations, including CMOs and REMICS backed by such securities, and other MBS, CMOs and REMICS rated AAA by S&P or Aaa by Moody’s at the time of purchase. The MBS purchased by the Bank attain their triple-A ratings through credit enhancements, which primarily consist of the subordination of the claims of the other tranches of these securities. As of December 31, 2011, the Bank’s long-term investment portfolio included $6.6 billion of private-label MBS, which represented 30.6 percent of the carrying value of the Bank’s long-term investment portfolio.

The tables below provide information on the credit ratings of the Bank’s investments held at December 31, 2011 and 2010, based on their credit ratings as of December 31, 2011 and 2010 (in millions). The credit ratings reflect the lowest long-term credit rating as reported by an NRSRO.

As of December 31, 2011

Carrying Value⁽¹⁾

	Investment Grade								Below Investment Grade
	AAA		AA		A		BBB		BB		B		CCC		CC		C		D
Short-term investments:
Interest-bearing deposits	$	—	$	2	$	1,201	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Certificates of deposit		—		—		650		—		—		—		—		—		—		—
Federal funds sold		—		5,825		6,805		—		—		—		—		—		—		—
Total short-term investments		—		5,827		8,656		—		—		—		—		—		—		—
Long-term investments:
State or local housing agency debt obligations		—		103		—		—		—		—		—		—		—		—
U.S. government agency debt obligations		—		4,228		—		—		—		—		—		—		—		—
Mortgage-backed securities:
U.S. government agency securities		—		10,689		—		—		—		—		—		—		—		—
Private label		664		314		757		559		689		891		1,394		663		689		15
Total mortgage-backed securities		664		11,003		757		559		689		891		1,394		663		689		15
Total long-term investments		664		15,334		757		559		689		891		1,394		663		689		15
Total investments	$	664	$	21,161	$	9,413	$	559	$	689	$	891	$	1,394	$	663	$	689	$	15

⁽¹⁾  Investment amounts noted in the above table represent the carrying value and do not include related accrued interest receivable of $83 million at December 31, 2011.

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As of December 31, 2010

Carrying Value ⁽¹⁾

	Investment Grade								Below Investment Grade
	AAA		AA		A		BBB		BB		B		CCC		CC		C
Short-term investments:
Interest-bearing deposits	$	—	$	2	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Certificates of deposit		—		—		1,190		—		—		—		—		—		—
Federal funds sold		—		7,016		8,685		—		—		—		—		—		—
Total short-term investments		—		7,018		9,875		—		—		—		—		—		—
Long-term investments:
State or local housing agency debt obligations		111		—		—		—		—		—		—		—		—
U.S. government agency debt obligations		4,253		—		—		—		—		—		—		—		—
Mortgage-backed securities:
U.S. government agency securities		9,676		—		—		—		—		—		—		—		—
Private label		2,766		455		1,084		355		712		1,049		1,708		608		209
Total mortgage-backed securities		12,442		455		1,084		355		712		1,049		1,708		608		209
Total long-term investments		16,806		455		1,084		355		712		1,049		1,708		608		209
Total investments	$	16,806	$	7,473	$	10,959	$	355	$	712	$	1,049	$	1,708	$	608	$	209

(1) Investment amounts noted in the above table represent the carrying value and do not include related accrued interest receivable of $104 million at December 31, 2010.

Subsequent to December 31, 2011, $28 million, or 0.08 percent, of the Bank’s investments have been downgraded as of March 15, 2012 as outlined in the below table (in millions):

Investment Ratings		Downgrades - Balances Based on Carrying Values at December 31, 2011
At December 31, 2011	At March 15, 2012	Private-label MBS
From	To	Carrying Value		Fair Value
AAA	AA	$	6	$	6
AAA	A		9		9
AA	BBB		6		6
BBB	BB		1		1
BB	B		6		6
Total		$	28	$	28

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The following table presents all investments, excluding overnight investments, held on December 31, 2011 and on negative watch at March 15, 2012 (in millions):

	On Negative Watch - Balances Based on Carrying Values at December 31, 2011
	Private-label MBS				Non-MBS Investments
Investment   Ratings	Carrying         Value		Fair Value		Carrying         Value		Fair Value
AAA	$	8	$	8	$	—	$	—
AA		45		45		1,090		1,090
A		187		182		1,225		1,225
BBB		103		101		—		—
BB		47		37		—		—
Total	$	390	$	373	$	2,315	$	2,315

Private-label MBS

For disclosure purposes, the Bank classifies private-label MBS as either prime or Alt-A based upon the overall credit quality of the underlying loans as determined by the originator at the time of origination. Although there is no universally accepted definition of Alt-A, generally loans with credit characteristics that range between prime and subprime are classified as Alt-A. Participants in the mortgage market have used the Alt-A classification principally to describe loans for which the underwriting process has been streamlined in order to reduce the documentation requirements of the borrower or allow alternative documentation. At December 31, 2011, based on the classification by the originator at the time of origination, approximately 87.2 percent of the underlying mortgages collateralizing the Bank’s private-label MBS were considered prime and the remaining underlying mortgages collateralizing these securities were considered Alt-A.

The tables below provide additional information, including changes in ratings since the original purchase date, on the Bank’s private-label MBS by year of securitization at December 31, 2011 (dollars in millions).

	Year of Securitization - Prime
	2008		2007		2006		2005		2004 and Prior		Total
Investment Ratings:
AAA	$	—	$	—	$	—	$	23	$	621	$	644
AA		—		—		—		—		253		253
A		—		—		—		186		456		642
BBB		—		26		—		20		229		275
BB		—		87		9		327		270		693
B		—		—		—		314		553		867
CCC		52		775		136		698		32		1,693
CC		129		125		256		254		—		764
C		—		297		514		15		—		826
D		—		27		—		—		—		27
Total unpaid principal balance	$	181	$	1,337	$	915	$	1,837	$	2,414	$	6,684
Amortized cost	$	163	$	1,095	$	765	$	1,716	$	2,392	$	6,131
Gross unrealized losses	$	(9)	$	(88)	$	(68)	$	(212)	$	(152)	$	(529)
Fair value	$	155	$	1,011	$	706	$	1,504	$	2,261	$	5,637
Other-than-temporary impairment (Year-to-date):
Credit-related losses	$	—	$	(30)	$	(23)	$	(30)	$	(9)	$	(92)
Non-credit-related losses		—		(20)		(14)		(25)		22		(37)
Total other-than-temporary impairment losses	$	—	$	(10)	$	(9)	$	(5)	$	(31)	$	(55)
Weighted average percentage of fair value to unpaid principal balance		85.28%		75.70%		77.08%		81.83%		93.67%		84.32%
Original weighted average credit support		15.72%		13.40%		10.01%		6.68%		3.24%		7.48%
Weighted average credit support		12.84%		6.72%		3.75%		7.30%		8.04%		7.11%
Weighted average collateral delinquency		17.68%		23.76%		20.91%		13.36%		7.61%		14.51%

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	Year of Securitization – Alt-A
	2008		2007		2006		2005		2004 and Prior		Total
Investment Ratings:
AAA	$	—	$	—	$	—	$	—	$	26	$	26
AA		—		—		—		—		62		62
A		—		—		—		—		117		117
BBB		—		—		—		—		285		285
B		—		—		—		—		76		76
CCC		—		—		—		184		—		184
CC		—		—		—		169		—		169
C		—		61		—		—		—		61
Total unpaid principal balance	$	—	$	61	$	—	$	353	$	566	$	980
Amortized cost	$	—	$	45	$	—	$	289	$	568	$	902
Gross unrealized losses	$	—	$	(5)	$	—	$	(90)	$	(5)	$	(100)
Fair value	$	—	$	40	$	—	$	199	$	568	$	807
Other-than-temporary impairment (Year-to-date):
Credit-related losses	$	—	$	(2)	$	—	$	(24)	$	—	$	(26)
Non-credit-related losses		—		(2)		—		(24)		—		(26)
Total other-than-temporary impairment losses	$	—	$	—	$	—	$	—	$	—	$	—
Weighted average percentage of fair value to unpaid principal balance		0.00%		65.12%		0.00%		56.50%		100.20%		82.30%
Original weighted average credit support		0.00%		12.29%		0.00%		26.45%		7.12%		14.40%
Weighted average credit support		0.00%		1.83%		0.00%		21.71%		11.51%		14.58%
Weighted average collateral delinquency		0.00%		37.00%		0.00%		39.53%		6.68%		20.38%

The table below provides information on the interest-rate payment terms of the Bank’s private-label MBS backed by prime and Alt-A loans (in millions).

	As of December 31,
	2011						2010
	Fixed-Rate		Variable-Rate		Total		Fixed-Rate		Variable-Rate		Total
Prime	$	933	$	5,751	$	6,684	$	1,649	$	7,041	$	8,690
Alt-A		451		529		980		574		587		1,161
Total unpaid principal balance	$	1,384	$	6,280	$	7,664	$	2,223	$	7,628	$	9,851

The Bank evaluates its individual investment securities for other-than-temporary impairment on a quarterly basis, as described in detail in Note 8–Other-than-temporary Impairment to the Bank’s 2011 audited financial statements. Each quarter, the Bank updates the input assumptions used in the model to reflect the most current actual loan performance information and the most current housing market assumptions. During 2011, the current and forecasted economic trends included continued high unemployment, ongoing pressure on housing prices, limited refinancing opportunities for borrowers whose houses are now worth less than the balance of their mortgages, a slower-than-expected recovery and an uncertain outlook.

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The following table represents a summary of the significant inputs used for all of the Bank’s private-label MBS:

	Significant Inputs
	Prepayment Rate				Default Rates				Loss Severities				Current Credit Enhancement
Year of Securitization	Weighted Average (%)		Range (%)		Weighted Average (%)		Range (%)		Weighted Average       (%)		Range (%)		Weighted Average (%)		Range (%)
Prime:
2008		6.31		6.31 to 6.31		37.35		37.35 to 37.35		50.21		50.21 to 50.21		12.84		12.52 to 13.63
2007		9.50		6.34 to 22.67		12.67		0.00 to 18.71		39.21		0.00 to 48.28		5.08		2.43 to 8.63
2006		7.00		4.76 to 16.01		20.95		11.83 to 40.25		49.38		29.10 to 58.80		4.21		0.87 to 6.89
2005		9.29		4.66 to 12.27		10.46		0.47 to 30.58		34.83		19.94 to 58.17		7.28		4.50 to 14.20
2004 and prior		16.92		3.36 to 43.79		7.66		0.00 to 29.03		27.41		0.00 to 50.39		7.68		2.33 to 42.95
Total Prime		12.62		3.36 to 43.79		11.41		0.00 to 40.25		33.74		0.00 to 58.80		7.17		0.87 to 42.95
Alt-A:
2007		5.50		3.99 to 6.93		60.06		46.81 to 69.95		49.69		46.15 to 54.85		7.16		0.05 to 12.77
2006		5.80		4.15 to 7.44		56.75		47.03 to 66.20		50.78		44.67 to 55.78		3.26		0.33 to 5.42
2005		5.71		2.64 to 7.30		52.83		29.24 to 79.49		51.66		37.17 to 58.01		13.58		1.88 to 39.97
2004 and prior		10.18		5.54 to 13.93		10.09		0.97 to 41.46		31.26		19.79 to 48.66		11.98		3.57 to 39.44
Total Alt-A		6.74		2.64 to 13.93		45.41		0.97 to 79.49		45.93		19.79 to 58.01		9.54		0.05 to 39.97
Total		10.38		2.64 to 43.79		24.36		0.00 to 79.49		38.38		0.00 to 58.80		8.07		0.05 to 42.95

For those securities for which an other-than-temporary impairment was determined to have occurred during 2011, a summary of the significant inputs used to measure the amount of the credit loss recognized in earnings is contained in Note 8–Other-than-temporary Impairment to the Bank’s 2011 audited financial statements.

The tables below summarize the total other-than-temporary impairment losses by newly impaired and previously impaired securities (in millions):

	For the Year Ended December  31, 2011
	Credit     Losses		Net      Noncredit     Losses		Total Losses
Securities newly impaired during the year	$	(11)	$	36	$	(47)
Securities previously impaired prior to current year		(107)		(99)		(8)
Total	$	(118)	$	(63)	$	(55)
	For the Year Ended December  31, 2010
	Credit     Losses		Net      Noncredit     Losses		Total Losses
Securities newly impaired during the year	$	(38)	$	159	$	(197)
Securities previously impaired prior to current year		(105)		(102)		(3)
Total	$	(143)	$	57	$	(200)
	For the Year Ended December  31, 2009
	Credit     Losses		Net      Noncredit     Losses		Total     Losses
Securities newly impaired during the year	$	(262)	$	1,024	$	(1,286)
Securities previously impaired prior to current year		(54)		(34)		(20)
Total	$	(316)	$	990	$	(1,306)

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

In addition to the cash flow analysis of the Bank’s private-label MBS under a base case (best estimate) housing price scenario, a cash flow analysis also was performed based on a housing price scenario that is more adverse than the base case (adverse case housing price scenario). The adverse case housing price scenario was based on a housing price forecast that was five percentage points lower at the trough than the base case scenario, followed by a flatter recovery path. Under this scenario, current-to-trough home price declines were projected to range from 5.00 percent to 13.0 percent over the three- to nine-month period beginning October 1, 2011. From the trough, home prices were projected to recover using one of five different recovery paths that vary by housing market. The below table presents projected home price recovery ranges by year under the adverse case scenario.

	Recovery Range (%)
Year one		0.00 to 1.90
Year two		0.00 to 2.00
Year three		1.00 to 2.70
Year four		1.30 to 3.40
Years five and six		1.30 to 4.00
Thereafter		1.50 to 3.80

The adverse case housing price scenario and associated results do not represent the Bank’s current expectations, and therefore should not be construed as a prediction of the Bank’s future results, market conditions or the actual performance of these securities. Rather, the results from this hypothetical adverse case housing price scenario provide a measure of the credit losses the Bank might incur if home price declines (and subsequent recoveries) are more adverse than those projected in the Bank’s base case assessment.

The following table shows the base case scenario and what the impact on other-than-temporary impairment would have been under the more stressful adverse case housing price scenario (dollars in millions). Under the adverse case housing price scenario, the Bank may recognize a credit loss in excess of the maximum credit loss, the difference between the security’s amortized cost basis and fair value, because the Bank believes fair value would decrease in the adverse case housing price scenario.

	For the Year Ended December 31, 2011
	Housing Price Scenario
	Base Case(2)							Adverse Case
	Number of     Securities		Unpaid Principal balance		Other-Than- Temporary Impairment Related to Credit Loss			Number of     Securities		Unpaid Principal balance		Other-Than- Temporary Impairment Related to Credit Loss
Prime loans(1)		44	$	2,901	$	(92	)		52	$	3,236	$	(149	)
Alt-A(1)		4		422		(26	)		4		422		(31	)
Total		48	$	3,323	$	(118	)		56	$	3,658	$	(180	)

(1) Based on the originator’s classification of collateral at the time of origination or based on classification of collateral by an NRSRO upon issuance of the MBS.

(2) Represents securities and related other-than-temporary-impairment credit losses for the year ended December 31, 2011.

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The Bank continues to actively monitor the credit quality of its private-label MBS investments. It is not possible to predict the magnitude of additional other-than temporary impairment losses in future periods because that prediction depends on the actual performance of the underlying loan collateral as well as the Bank’s future modeling assumptions. Many factors could influence the Bank’s future modeling assumptions, including economic, financial market and housing market conditions. If performance of the underlying loan collateral deteriorates and/or the Bank’s modeling assumptions become more pessimistic, the Bank could experience further losses on its investment portfolio.

Non-Private-label MBS. The unrealized losses related to U.S. agency MBS are caused by interest rate changes. Because these securities are guaranteed by U.S government agencies or U.S. GSEs, it is expected that these securities would not be settled at a price less than the amortized cost basis. The Bank does not consider these investments to be other-than-temporarily impaired as of December 31, 2011 because the decline in fair value is attributable to changes in interest rates and not credit quality, the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity.

Derivatives

Derivatives transactions may subject the Bank to credit risk due to potential nonperformance by counterparties to the agreements. The Bank seeks to limit counterparty risk by collateral requirements and netting procedures that establish collateral requirement thresholds. The Bank also manages counterparty credit risk through credit analysis, collateral management, and other credit enhancements. Additionally, the Bank follows applicable regulatory requirements, which set forth the eligibility criteria for counterparties (i.e., minimum capital requirements, NRSRO ratings, dollar and term limits, etc.). The Bank requires collateral agreements with counterparties that establish maximum allowable net unsecured credit exposure before collateral requirements are triggered. Limits are based on the credit rating of the counterparty. Uncollateralized exposures result when credit exposures to specific counterparties fall below collateralization trigger levels. In light of significant European sovereign credit concerns, beginning in the third quarter of 2011, the Bank suspended new derivative transactions with French counterparties. The Bank may further limit or suspend derivative transactions for other European counterparties in addition to RMP and regulatory requirements.

As of December 31, 2011, the Bank had $139.7 billion in total notional amount of derivatives outstanding compared to $142.2 billion at December 31, 2010. The notional amount serves as a factor in determining periodic interest payments or cash flows received and paid. It does not represent actual amounts exchanged or the Bank’s exposure to credit and market risk. The amount potentially subject to credit loss is based upon the counterparty’s net payment obligations. The credit risk of derivatives is measured on a portfolio basis by netting the market values of all outstanding transactions for each counterparty.

As of December 31, 2011, 95.6 percent of the total notional amount of outstanding derivatives was represented by 18 counterparties with a credit rating of A or better. Of these counterparties, there were three, BNP Paribas, Deutsche Bank AG and Goldman Sachs Group, Inc., that each represented more than 10 percent of the Bank’s total notional amount, and there were two counterparties, Deutsche Bank AG and Natixis Financial Products, that represented more than 10 percent of the Bank’s net exposure. As of December 31, 2010, 99.2 percent of the total notional amount of outstanding derivatives was represented by 20 counterparties with a credit rating of A or better. Of these counterparties, there were three, JP Morgan Chase Bank, N.A., Deutsche Bank AG, and Goldman Sachs Group, Inc., that each represented more than 10 percent of the Bank’s total notional amount, and there were no counterparties that represented more than 10 percent of the Bank’s net exposure. None of the foregoing named counterparties is a member, or advances borrower, of the Bank.

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The following tables represent the credit ratings of and the Bank’s credit exposure to its derivative counterparties (in millions):

	As of December 31, 2011
	Notional     Amount		Total Net Exposure at Fair Value		Total  Net Exposure Collateralized		Net Exposure After Collateral
AA	$	3,751	$	—	$	—	$	—
A		129,805		40		27		13
BBB		6,125		—		—		—
Member institutions(1)		39		5		5		—
Total derivatives	$	139,720	$	45	$	32	$	13

(1) Collateral held with respect to intermediated derivative financial instruments with member institutions represents either collateral physically held by or on behalf of the Bank or collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank.

	As of December 31, 2010
	Notional     Amount		Total Net Exposure at Fair Value		Total Net Exposure Collateralized		Net Exposure After Collateral
AA	$	42,689	$	—	$	—	$	—
A		98,353		66		66		—
BBB		121		—		—		—
Member institutions(1)		1,046		5		5		—
Total derivatives	$	142,209	$	71	$	71	$	—

(1) Collateral held with respect to intermediated derivative financial instruments with member institutions represents either collateral physically held by or on behalf of the Bank or collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank.

The maximum credit risk is the estimated cost of replacing interest-rate swaps, forward agreements, mandatory delivery contracts for mortgage loans, and purchased caps and floors that have a net positive market value, if the counterparty defaults and any related collateral pledged to the Bank is of no value to the Bank.

The net exposure after collateral is treated as unsecured credit consistent with the Bank’s RMP and Finance Agency regulations if the counterparty has an NRSRO rating. If the counterparty does not have an NRSRO rating, the Bank requires collateral for the full amount of the exposure.

Mortgage Loan Programs

The Bank seeks to manage the credit risk associated with MPP and the MPF Program by maintaining underwriting and eligibility standards and structuring possible losses into several layers to be shared with the PFI. In some cases, a portion of the credit support for MPP and MPF loans is provided under a primary and/or supplemental mortgage insurance policy. Currently, eight mortgage insurance companies provide primary and/or supplemental mortgage insurance for loans in which the Bank has a retained interest. As of December 31, 2011, all of the Bank’s mortgage insurance providers have been rated below AA by one or more NRSROs for their claims paying ability or insurer financial strength. Ratings downgrades imply an increased risk that these mortgage insurers may be unable to fulfill their obligations to pay claims that may be made under the insurance policies. The Bank holds additional risk-based capital to mitigate the incremental risk, if any, that results from the supplemental mortgage insurance providers.

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MPF Program

Mortgage loans purchased under the MPF Program must comply with the underwriting and eligibility standards established and maintained by FHLBank Chicago. In some circumstances, the Bank, with the concurrence of FHLBank Chicago, may grant a PFI a waiver exempting it from complying with these standards. The Bank has granted a limited number of such waivers related to documentation requirements or accepted alternate underwriting criteria in circumstances in which such waivers would not affect materially the value of the asset.

The Bank manages MPF Program credit risk through underwriting and eligibility guidelines and sharing of potential losses with the PFI. The Bank and PFI share the risk of losses on MPF loans by structuring potential losses on conventional MPF loans into layers with respect to each master commitment. The general allocation of losses under the MPF program is divided into the following loss layers:

Borrower’s Equity. The first layer of protection against loss is the borrower’s equity in the real property securing the MPF loan.

Primary Mortgage Insurance. The second layer of protection comes from primary mortgage insurance (PMI) that is required for any MPF loan with a loan-to-value (LTV) greater than 80 percent.

First Loss Account. Third, losses for each master commitment that are not paid by PMI, up to an agreed-upon amount, are incurred by the Bank up to a pre-specified amount that is tracked in what is called a “First Loss Account,” or “FLA.” The FLA represents the amount of expected losses that the Bank incurs before the PFI’s credit enhancement becomes available to cover losses. For MPF products with performance based credit enhancement fees (e.g., MPF Plus), the Bank may withhold credit enhancement fees to recover losses at the FLA level, essentially transferring a portion of the first layer risk of credit loss to the PFI.

Member Credit Enhancement. Fourth, losses for loans purchased under each master commitment in excess of the FLA, up to an agreed-upon amount, called the credit enhancement, or “CE Amount,” are incurred by the PFI, which, for MPF Plus, includes supplemental mortgage insurance (SMI). The member’s CE Amount is sized using the MPF Program methodology to limit the amount of the Bank’s losses in excess of, or including, the FLA (depending on the MPF product) to those that would be expected to be experienced by an investor in an MBS rated AA under the S&P LEVELS ratings methodology (although the assets are not rated by S&P or any other agency). The CE Amount is determined at inception of each loan pool master commitment and is reassessed and increased, if necessary, after the “fill up period” for each master commitment that has been completed but is not increased thereafter. In one MPF product, the PFI is required to obtain and pay for SMI, for which the Bank is the insured party. The Bank pays the PFI a monthly credit enhancement fee for managing credit risk on the MPF Program loans. In most cases, the credit enhancement fees are performance based, which further motivates the PFI to minimize loan losses on MPF Program loans.

MPF Bank. Fifth, the Bank absorbs any remaining unallocated losses.

The unpaid principal balance of MPF Program mortgage loans was $1.4 billion and $1.8 billion as of December 31, 2011 and 2010, respectively. As of December 31, 2011 and 2010, the allowance for credit losses on MPF loans was $5 million and $0, respectively. While the Bank did not change its base methodology for calculating loan losses during 2011, the key variables that drive the calculation changed to reflect the deterioration in portfolio performance and economic conditions.

The primary driver for the increased loan loss reserve was the increase in the Bank’s severity estimates. The loss severity rate used in the loan loss reserve methodology for MPF loans increased from 14.0 percent at December 31, 2010 to 37.6 percent at December 31, 2011. The increase was based on weakening performance of the Bank’s portfolio of MPF loans. The Bank uses actual loss claim data from its MPF loans to estimate future losses and experienced a significant increase in the severity amount for claims settled in 2011. The severity rate does not reflect the application of any credit enhancement that may be available on a given pool.

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Another factor contributing to the increased loan loss reserve was an increased percentage of seriously delinquent loans. The Bank’s seriously delinquent rate for conventional single-family residential mortgages increased from 4.37 percent as of December 31, 2010 to 5.87 percent as of December 31, 2011.

MPP

Mortgage loans purchased under MPP must comply with the underwriting and eligibility standards set forth in the MPP guidelines established by the Bank. In some circumstances, the Bank may grant a PFI a waiver exempting it from complying with specified provisions of the MPP guidelines.

The Bank manages MPP credit risk by sharing potential losses with the PFI. The general allocation of losses under the MPP is divided into the following loss layers:

Borrower’s Equity and Primary Mortgage Insurance. The first layer of protection against loss is the borrower’s equity in the real property securing the MPP loan and PMI where applicable.

Lender Risk Account. Second, the Bank establishes a Lender Risk Account (LRA) for each master commitment to cover losses that are not paid by PMI or borrower’s equity. The Bank can establish the amount of the LRA balance either up front as a portion of the purchase proceeds (Fixed LRA) or as a portion of the monthly interest paid by the borrower (Spread LRA).

The Bank historically has offered only the Spread LRA option, so the Bank funds the LRA through a portion of the monthly interest paid by the borrower. The PFI’s recourse is limited to this predetermined LRA amount, so that the PFI has no further obligation to make additional contributions to the LRA, regardless of any losses or deterioration of the mortgage pool exceeding such amount in the LRA. Once the LRA has reached the required amount, but not before five years in the case of the Fixed LRA, the Bank will pay to the PFI on an annual basis in accordance with a step-down schedule that is established at the time of a master commitment contract any unused amounts of the LRA that are no longer required to cover expected losses.

Supplemental Mortgage Insurance. Third, losses for each master commitment in excess of the LRA, up to a specified LTV ratio, are covered by SMI obtained by the PFI. In MPP, SMI generally covers mortgages with an LTV of 45 percent or greater. In addition, SMI policies for master commitments in excess of $35 million contain an aggregate loss limit whereby the total amount payable by the SMI insurer under the policy is less than the total unpaid principal balances on the insured loans.

The Bank has established formal policies and procedures to monitor its exposure to mortgage insurance companies, including an aggregate cap on the amount of permissible exposure to SMI at each provider.

The Bank. Fourth, the Bank absorbs any remaining unallocated losses.

Total credit enhancement is sized to provide the equivalent of an AA rating under the S&P LEVELS rating methodology (although the assets are not rated by S&P or any other agency).

The unpaid principal balance of MPP mortgage loans was $193 million and $241 million as of December 31, 2011 and 2010, respectively. The Bank determined that an allowance for credit losses on MPP mortgage loans was not required at December 31, 2011 and 2010.

AMPP

The Bank’s AMPP assets do not carry external credit enhancements like the MPF and MPP assets and are not rated by a rating agency. The Bank’s primary protection against loss is the borrower’s equity in the real property that secures the AMPP loan. The unpaid principal balance of AMPP mortgage loans was $21 million as of

80

December 31, 2011 and 2010. An independent third party performs a loan review of the AMPP portfolio on an annual basis, and the Bank establishes an allowance for credit losses based on the results of the review in accordance with written policies and procedures. The Bank’s allowance for credit losses on AMPP mortgage loans was $1 million at December 31, 2011 and 2010.

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events. Operational risk for the Bank also includes reputation and legal risks associated with business practices or market conduct the Bank may undertake. Operational risk inherently is greatest where transaction processes include numerous processing steps, require greater subjectivity or are non-routine. As the Bank’s activities and business environment are becoming increasingly complex due to changing regulatory requirements, the Bank is experiencing increased operational risk.

The Bank identifies risk through daily operational monitoring, independent reviews, and the strategic planning and risk assessment programs, both of which consider the operational risk ramifications of the Bank’s business strategies and environment. The Bank has established comprehensive financial and operating policies and procedures to mitigate the likelihood of loss resulting from the identified operational risks. For example, the Bank has a disaster recovery plan designed to restore critical business processes and systems in the event of disaster. The Bank effects related changes in processes, information systems, lines of communication, and other internal controls as deemed appropriate in response to identified or anticipated increases in operational risk.

The efficiencies offered by information technology (IT) and networks are a necessary component of Bank operations. The information systems architecture of the Bank is client/server-based to support the multiple operating systems and servers, which are a mixture of vendor-licensed and in-house developed applications. The Bank’s IT division maintains and regularly reviews a number of controls to ensure that the IT assets of the Bank are well managed and secure from unauthorized access. Exposure from the internet (and accompanying network security issues, including software virus risk) is a factor that shapes the Bank’s risk profile. This exposure results from the Bank’s e-commerce activity and an increasing number of specialized vendor-provided solutions that are supported by web-based servers. Management monitors and maintains controls against attempted spyware and anti-virus attacks against Bank systems. The Bank utilizes firewalls to protect the network from internet based attacks while also employing firewalls on laptops that may operate outside of the Bank’s network. Additionally, the Bank has systems to detect an intrusion in the event that it is not stopped by one of the firewalls. The Bank also has an information security department that is responsible for the policy, procedures, reviews, education and management of entitlement requests. One key objective of the information security department is to protect the Bank’s sensitive business information from unauthorized access. A security governance committee provides independent and integrated oversight of the information security program, the physical security program, security policies and procedures and security exceptions and violations. The security governance committee reviews all information security-related incidents and escalates them to the executive management committee or the board as appropriate.

The board of directors has an Enterprise Risk and Operations Committee to advise and assist the board with respect to enterprise risk management, operations, information technology and other related matters. In addition, the Bank’s internal Enterprise Risk Committee is responsible for management and oversight of the Bank’s risk management programs and practices discussed above. Additionally, the Bank’s Internal Audit department, which reports directly to the Audit Committee of the Bank’s board of directors, regularly monitors compliance with the policies and procedures related to managing operational risks.

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Business Risk

Business risk is the risk of an adverse effect on the Bank’s profitability resulting from external factors that may occur in both the short- and the long-term. Business risk includes political, strategic, reputational, and regulatory events that are beyond the Bank’s control. In particular, during 2011 and continuing in 2012, the Bank faces the following business risks:

• competition for advances from traditional and nontraditional sources;

• legislative and regulatory changes that could affect the Bank’s status and its cost of doing business; and

• risks related to the Bank’s letter of credit portfolio.

For discussion of the Bank’s competition for advances, see Item 1, Business–Competition above.

For discussion of recent regulatory activity that may have a material impact on the Bank’s operations and for additional business risks that may impact the Bank’s letter of credit portfolio, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations –Legislative and Regulatory Developments, and –Off-Balance Sheet Commitments, respectively. The Bank attempts to mitigate these risks through long-term strategic planning and through continually monitoring economic indicators and the external environment.

Cyclicality and Seasonality

The demand for advances from the Bank, and the Bank’s business generally, are not subject to the effects of cyclical or seasonal variations.

Effects of Inflation

The majority of the Bank’s assets and liabilities are, and will continue to be, monetary in nature. Although interest rates do not necessarily move in the same direction, or to the same extent, as the prices of goods and services, higher rates of inflation generally result in corresponding increases in interest rates. Inflation, coupled with increasing interest rates, generally has the following effect on the Bank:

• the cost of the Bank’s funds and operating overhead increases;

• the yield on variable rate assets held by the Bank increases;

• the fair value of fixed-rate investments and mortgage loans held in portfolio decreases; and

• mortgage loan prepayment rates decrease and result in lower levels of mortgage loan refinance activity, which may result in the reduction of Bank advances to members as increased rates tend to slow home sales.

Conversely, lower rates of inflation or deflation have the opposite effect of the above on the Bank and its holdings.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

A discussion of the Bank’s market risk is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Market Risk.

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Item 8. Financial Statements and Supplementary Data.

	Page
Financial Statements:
Report of Independent Registered Public Accounting Firm		84
Statements of Condition as of December 31, 2011 and 2010		85
Statements of Income for the Years Ended December 31, 2011, 2010, and 2009		86
Statements of Capital for the Years Ended December 31, 2011, 2010, and 2009		87
Statements of Cash Flows for the Years Ended December 31, 2011, 2010, and 2009		88
Notes to Financial Statements		90
Supplementary Data:
Supplementary Financial Data (Unaudited)		143

83

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

of the Federal Home Loan Bank of Atlanta:

In our opinion, the accompanying statement of condition and the related statements of operations, capital, and cash flows present fairly, in all material respects, the financial position of Federal Home Loan Bank of Atlanta (the “Bank”) at December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Bank maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Bank’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Bank’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance with the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the Bank’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Bank’s financial statements that is more than inconsequential will not be prevented or detected by the Bank’s internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the Bank’s internal control.

In accordance with Government Auditing Standards, we have also issued our report dated March 23, 2012 on our tests of the Bank’s compliance with certain provisions of laws, regulations and other matters. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

/s/ PricewaterhouseCoopers LLP

Atlanta, GA

March 23, 2012

84

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CONDITION

(In millions, except par value)

	As of December 31,
	2011		2010
Assets
Cash and due from banks	$	6	$	5
Interest-bearing deposits (including deposits with other FHLBank of $2 as of December 31, 2011 and 2010)		1,203		2
Federal funds sold		12,630		15,701
Trading securities (includes $0 and $37 pledged as collateral as of December 31, 2011 and 2010, respectively, that may be repledged and includes other FHLBank’s bond of $82 and $74 as of December 31, 2011 and 2010, respectively)		3,120		3,383
Available-for-sale securities		2,942		3,319
Held-to-maturity securities (fair value of $16,242 and $17,511 as of December 31, 2011 and 2010, respectively)		16,243		17,474
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans of $6 and $1 as of December 31, 2011 and 2010, respectively		1,633		2,039
Advances		86,971		89,258
Accrued interest receivable		314		388
Premises and equipment, net		35		35
Derivative assets		18		5
Other assets		155		189
Total assets	$	125,270	$	131,798
Liabilities
Interest-bearing deposits	$	2,655	$	3,093
Consolidated obligations, net:
Discount notes		24,330		23,915
Bonds		90,662		95,198
Total consolidated obligations, net		114,992		119,113
Mandatorily redeemable capital stock		286		529
Accrued interest payable		286		357
Affordable Housing Program payable		109		126
Payable to REFCORP		—		20
Derivative liabilities		241		455
Other liabilities		140		159
Total liabilities		118,709		123,852
Commitments and contingencies (Note 20)
Capital
Capital stock Class B putable ($100 par value) issued and outstanding shares:
Subclass B1 issued and outstanding shares: 12 and 15 as of December 31, 2011 and 2010, respectively		1,250		1,466
Subclass B2 issued and outstanding shares: 45 and 57 as of December 31, 2011 and 2010, respectively		4,468		5,758
Total capital stock Class B putable		5,718		7,224
Retained earnings:
Restricted		19		—
Unrestricted		1,235		1,124
Total retained earnings		1,254		1,124
Accumulated other comprehensive loss		(411)		(402)
Total capital		6,561		7,946
Total liabilities and capital	$	125,270	$	131,798

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

85

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF INCOME

(In millions)

	For the Years Ended December 31,
	2011		2010		2009
Interest income
Advances	$	248	$	310	$	865
Prepayment fees on advances, net		10		10		16
Interest-bearing deposits		4		7		7
Federal funds sold		24		31		22
Trading securities		156		166		197
Available-for-sale securities		172		182		104
Held-to-maturity securities		398		574		902
Mortgage loans held for portfolio		97		121		152
Total interest income		1,109		1,401		2,265
Interest expense
Consolidated obligations:
Discount notes		17		29		260
Bonds		628		823		1,602
Deposits		1		3		4
Mandatorily redeemable capital stock		4		2		2
Total interest expense		650		857		1,868
Net interest income		459		544		397
Provision for credit losses		5		—		—
Net interest income after provision for credit losses		454		544		397
Noninterest income (loss)
Total other-than-temporary impairment losses		(55)		(200)		(1,306)
Net amount of impairment losses (reclassified from) recorded in other comprehensive loss		(63)		57		990
Net impairment losses recognized in earnings		(118)		(143)		(316)
Net gains (losses) on trading securities		2		31		(135)
Net (losses) gains on derivatives and hedging activities		(9)		8		543
Letters of credit fees		19		14		7
Other		2		3		3
Total noninterest (loss) income		(104)		(87)		102
Noninterest expense
Compensation and benefits		75		66		55
Other operating expenses		40		49		46
Finance Agency		11		8		6
Office of Finance		5		6		5
Reversal of provision for credit losses on receivable		—		(51)		—
Other		(8)		1		1
Total noninterest expense		123		79		113
Income before assessments		227		378		386
Assessments:
Affordable Housing Program		21		31		32
REFCORP		22		69		71
Total assessments		43		100		103
Net income	$	184	$	278	$	283

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

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FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

(In millions)

	Capital Stock Class B Putable				Retained Earnings						Accumulated Other Comprehensive Loss		Total Capital
	Shares		Par Value		Restricted		Unrestricted		Total
Balance, December 31, 2008		85	$	8,463	$	—	$	435	$	435	$	(5)	$	8,893
Cumulative effect of adjustment to opening balance relating to amended other-than-temporary impairment guidance		—		—		—		179		179		(179)		—
Issuance of capital stock		9		926		—		—		—		—		926
Repurchase/redemption of capital stock		(11)		(1,111)		—		—		—		—		(1,111)
Net shares reclassified to mandatorily redeemable capital stock		(2)		(154)		—		—		—		—		(154)
Comprehensive loss:
Net income		—		—		—		283		283		—		283
Other comprehensive loss		—		—		—		—		—		(560)		(560)
Total comprehensive loss		—		—		—		—		—		—		(277)
Cash dividends on capital stock		—		—		—		(24)		(24)		—		(24)
Balance, December 31, 2009		81		8,124		—		873		873		(744)		8,253
Issuance of capital stock		3		252		—		—		—		—		252
Repurchase/redemption of capital stock		(8)		(754)		—		—		—		—		(754)
Net shares reclassified to mandatorily redeemable capital stock		(4)		(398)		—		—		—		—		(398)
Comprehensive income:
Net income		—		—		—		278		278		—		278
Other comprehensive income		—		—		—		—		—		342		342
Total comprehensive income		—		—		—		—		—		—		620
Cash dividends on capital stock		—		—		—		(27)		(27)		—		(27)
Balance, December 31, 2010		72		7,224		—		1,124		1,124		(402)		7,946
Issuance of capital stock		7		672		—		—		—		—		672
Repurchase/redemption of capital stock		(21)		(2,052)		—		—		—		—		(2,052)
Net shares reclassified to mandatorily redeemable capital stock		(1)		(126)		—		—		—		—		(126)
Comprehensive income:
Net income		—		—		19		165		184		—		184
Other comprehensive loss		—		—		—		—		—		(9)		(9)
Total comprehensive income		—		—		—		—		—		—		175
Cash dividends on capital stock		—		—		—		(54)		(54)		—		(54)
Balance, December 31, 2011		57	$	5,718	$	19	$	1,235	$	1,254	$	(411)	$	6,561

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

87

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CASH FLOWS

(In millions)

	For the Years Ended December 31,
	2011			2010			2009
Operating activities
Net income	$	184		$	278		$	283
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		(34	)		(47	)		(267	)
Provision for credit losses		5			—			—
Loss due to change in net fair value adjustment on derivative and hedging activities		482			877			848
Net change in fair value adjustment on trading securities		(2	)		(31	)		162
Net impairment losses recognized in earnings		118			143			316
Reversal of provision for credit losses on receivable		—			(51	)		—
Net change in:
Accrued interest receivable		74			127			260
Other assets		25			63			(61	)
Affordable Housing Program payable		(19	)		—			(16	)
Accrued interest payable		(71	)		(255	)		(427	)
Payable to REFCORP(1)		(20	)		(1	)		21
Other liabilities		(19	)		15			51
Total adjustments		539			840			887
Net cash provided by operating activities		723			1,118			1,170
Investing activities
Net change in:
Interest-bearing deposits		(1,575	)		459			2,783
Federal funds sold		3,071			(5,658	)		725
Deposits with other FHLBank		—			1			—
Trading securities:
Proceeds from sales		—			—			300
Proceeds from maturities		272			207			478
Available-for-sale securities:
Proceeds from maturities		737			613			241
Held-to-maturity securities:
Net change in short-term		540			(890	)		(300	)
Proceeds from maturities of long-term		4,324			5,364			4,954
Purchases of long-term		(4,124	)		(6,337	)		(1,983	)
Advances:
Proceeds from principal collected		71,497			71,815			111,129
Made		(68,998	)		(47,013	)		(64,661	)
Mortgage loans held for portfolio:
Proceeds from principal collected		385			484			730
Proceeds from sale of foreclosed assets		17			—			—
Purchase of premise, equipment and software		(6)			(10)			(15)
Net cash provided by investing activities		6,140			19,035			54,381

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

88

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CASH FLOWS—(Continued)

(In millions)

	For the Years Ended December 31,
	2011		2010		2009
Financing activities
Net change in deposits		(477)		79		(561)
Net payments on derivatives containing a financing element		(502)		(735)		(1,025)
Proceeds from issuance of consolidated obligations:
Discount notes		833,353		1,077,334		280,929
Bonds		85,905		91,425		95,580
Bonds transferred from other FHLBanks		—		162		518
Payments for debt issuance costs		(14)		(17)		(36)
Payments for maturing and retiring consolidated obligations:
Discount notes		(832,931)		(1,070,502)		(318,693)
Bonds		(90,393)		(117,773)		(111,607)
Proceeds from issuance of capital stock		672		252		926
Payments for repurchase/redemption of capital stock		(2,052)		(754)		(1,111)
Payments for repurchase/redemption of mandatorily redeemable capital stock		(369)		(57)		(10)
Cash dividends paid		(54)		(27)		(24)
Net cash used in financing activities		(6,862)		(20,613)		(55,114)
Net increase (decrease) in cash and due from banks		1		(460)		437
Cash and due from banks at beginning of the year		5		465		28
Cash and due from banks at end of the year	$	6	$	5	$	465
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	759	$	1,132	$	1,994
AHP assessments, net	$	38	$	30	$	46
REFCORP assessments	$	42	$	70	$	36
Noncash investing and financing activities:
Net shares reclassified to mandatorily redeemable capital stock	$	126	$	398	$	154
Transfer of held-to-maturity securities to available-for-sale securities	$	451	$	1,298	$	2,318
Transfers of mortgage loans to real estate owned	$	17	$	15	$	6

⁽¹⁾  Payable to REFCORP includes the net change in the REFCORP receivable/payable.

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

89

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Note 1—Nature of Operations

The Federal Home Loan Bank of Atlanta (Bank), a federally chartered corporation, is one of 12 district Federal Home Loan Banks (FHLBanks). The FHLBanks serve the public by enhancing the availability of credit for residential mortgages and targeted community development. The Bank provides a readily available, competitively priced source of funds to its member institutions. The Bank is a cooperative whose member institutions own almost all of the capital stock of the Bank. Former members own the remaining capital stock to support business transactions still carried on the Bank’s Statements of Condition. All holders of the Bank’s capital stock are entitled to receive dividends on their capital stock, to the extent declared by the Bank’s board of directors.

All federally insured depository institutions, insurance companies and certified community development financial institutions chartered in the Bank’s defined geographic district and engaged in residential housing finance are eligible to apply for membership. State and local housing authorities that meet certain statutory criteria may also borrow from the Bank. While eligible to borrow, housing associates are not members of the Bank and are not allowed to hold capital stock. All members must purchase and hold capital stock of the Bank. A member’s stock requirement is based on the amount of its total assets, as well as the amount of certain of its business activities with the Bank.

The Federal Housing Finance Agency (Finance Agency) is the independent federal regulator of the FHLBanks and is responsible for ensuring that (1) the FHLBanks operate in a safe and sound manner, including maintenance of adequate capital and internal controls; (2) the operations and activities of the FHLBanks foster liquid, efficient, competitive and resilient national housing finance markets; (3) the FHLBanks comply with applicable laws and regulations; and (4) the FHLBanks carry out their housing finance mission through authorized activities that are consistent with the public interest. The Finance Agency also establishes policies and regulations covering the operations of the FHLBanks. Each FHLBank operates as a separate entity with its own management, employees, and board of directors. The Bank does not have any special purpose entities or any other types of off-balance sheet conduits.

The Federal Home Loan Banks Office of Finance (Office of Finance), a joint office of the FHLBanks, facilitates the issuance and servicing of the FHLBanks’ debt instruments, known as consolidated obligations, and prepares the combined quarterly and annual financial reports of all 12 FHLBanks. As provided by the Federal Home Loan Bank Act of 1932 (FHLBank Act), as amended, and applicable regulations, the Bank’s consolidated obligations are backed only by the financial resources of all 12 FHLBanks and are the primary source of funds for the Bank.

Deposits, other borrowings, and capital stock issued to members provide other funds. The Bank primarily uses these funds to provide advances to members. The Bank also provides members and non-members with correspondent banking services, such as safekeeping, wire transfer, and cash management services.

Note 2—Summary of Significant Accounting Policies

Use of Estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) requires the Bank’s management to make subjective assumptions and estimates, which are based upon the information then available to management and are inherently uncertain and subject to change. These assumptions and estimates may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. Actual results could differ significantly from these estimates.

90

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Estimated Fair Values. The estimated fair value amounts, recorded on the Statements of Condition and presented in the note disclosures, 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 at December 31, 2011 and 2010. Although the Bank uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any valuation technique. Therefore, these fair values may not be indicative of the amounts that would have been realized in market transactions at the reporting dates.

Interest-bearing Deposits and Federal Funds Sold. These investments provide short-term liquidity and are carried at cost.

Investment Securities. The Bank classifies certain investments acquired for purposes of liquidity and asset-liability management as trading investments and carries these securities at their estimated fair value. The Bank records changes in the fair value of these investments in noninterest income (loss) as “Net gains (losses) on trading securities” on the Statements of Income, along with gains and losses on sales of investment securities using the specific identification method. The Bank does not participate in speculative trading practices in these investments and generally holds them until maturity, except to the extent management deems necessary to manage the Bank’s liquidity position.

The Bank carries at amortized cost, and classifies as held-to-maturity, investments for which it has both the ability and intent to hold to maturity, adjusted for periodic principal repayments, amortization of premiums and accretion of discounts. Amortization of premiums and accretion of discounts are computed using the contractual level-yield method (contractual interest method), adjusted for actual prepayments. The contractual interest method recognizes the income effects of premiums and discounts in a manner that effectively is proportionate to the actual behavior of the underlying assets and reflects the contractual terms of the assets without regard to changes in estimated prepayments based on assumptions about future borrower behavior.

The Bank classifies certain securities that are not held-to-maturity or trading as available-for-sale and carries these securities at their estimated fair value. The Bank records changes in the fair value of these investments in accumulated other comprehensive loss. The Bank intends to hold its available-for-sale securities for an indefinite period of time, but may sell them prior to maturity in response to changes in interest rates, changes in prepayment risk, or other factors.

Certain changes in circumstances may cause the Bank to change its intent to hold a certain security to maturity without calling into question its intent to hold other debt securities to maturity in the future. Thus, the sale or transfer of a held-to-maturity security to another investment classification due to certain changes in circumstances, such as evidence of significant deterioration in the issuer’s creditworthiness, is not considered inconsistent with its original classification. During 2011 and 2010, the Bank transferred certain private-label mortgage-backed securities (MBS) from its held-to-maturity portfolio to its available-for-sale portfolio. These securities represent private-label MBS in the Bank’s held-to-maturity portfolio for which the Bank has recorded an other-than-temporary impairment loss.

Other-than-Temporary Impairment of Investment Securities. The Bank evaluates its individual available-for-sale and held-to-maturity securities in unrealized loss positions for other-than-temporary impairment on at least a quarterly basis. A security is considered impaired when its fair value is less than its amortized cost. The Bank considers an other-than-temporary impairment to have occurred under any of the following circumstances:

• the Bank has an intent to sell the impaired debt security;

91

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

• if, based on available evidence, the Bank believes it is more likely than not that it will be required to sell the impaired debt security before the recovery of its amortized cost basis; or

• the Bank does not expect to recover the entire amortized cost basis of the impaired debt security.

If either of the first two conditions above is met, the Bank recognizes an other-than-temporary impairment loss in earnings equal to the entire difference between the security’s amortized cost basis and its fair value as of the Statements of Condition date.

For securities in an unrealized loss position that meet neither of the first two conditions, the Bank performs a cash flow analysis to determine if it will recover the entire amortized cost basis of each of these securities. The present value of the cash flows expected to be collected is compared to the amortized cost basis of the debt security to determine whether a credit loss exists. If there is a credit loss (the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security), the carrying value of the debt security is adjusted to its fair value. However, rather than recognizing the entire difference between the amortized cost basis and fair value in earnings, only the amount of the impairment representing the credit loss (i.e., the credit component) is recognized in earnings, while the amount related to all other factors (i.e., the non-credit component) is recognized in accumulated other comprehensive loss, which is a component of capital. The credit loss on a debt security is limited to the amount of that security’s unrealized losses. The total other-than-temporary impairment is presented in the Statements of Income with an offset for the amount of the non-credit component of other-than-temporary impairment that is recognized in accumulated other comprehensive loss.

For subsequent accounting of an other-than-temporarily impaired security, the Bank records an additional other-than-temporary impairment if the present value of cash flows expected to be collected is less than the amortized cost of the security. The total amount of this additional other-than-temporary impairment (both credit and non-credit component, if any) is determined as the difference between the security’s amortized cost less the amount of other-than-temporary impairment recognized in accumulated other comprehensive loss prior to the determination of this additional other-than-temporary impairment and its fair value. Any additional credit loss is limited to that security’s unrealized losses, or the difference between the security’s amortized cost and its fair value as of the Statements of Condition date. This additional credit loss, up to the amount in accumulated other comprehensive loss related to the security, is reclassified out of accumulated other comprehensive loss and charged to earnings. Any credit loss in excess of the related accumulated other comprehensive loss is recorded as additional total other-than-temporary impairment loss and charged to earnings.

For held-to-maturity securities, if the current carrying value is less than its current fair value, the carrying value of the security is not increased. However, the other-than-temporary impairment recognized in accumulated other comprehensive loss for held-to-maturity securities is accreted to the carrying value of each security on a prospective basis, based on the amount and timing of future estimated cash flows (with no effect on earnings unless the security is subsequently sold at a realized gain or loss or the Bank recognizes additional decreases in cash flows expected to be collected). For debt securities classified as available-for-sale, the Bank does not accrete the other-than-temporary impairment recognized in accumulated other comprehensive loss to the carrying value. Rather, subsequent related increases and decreases (if not an other-than-temporary impairment) in the fair value of available-for-sale securities are netted against the non-credit component of other-than-temporary impairment recognized previously in accumulated other comprehensive loss.

Upon subsequent evaluation of a debt security where there is no additional other-than-temporary impairment, the Bank adjusts the accretable yield on a prospective basis if there is a significant increase in the security’s expected

92

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

cash flows. As of the impairment measurement date, a new accretable yield is calculated for the impaired investment security. This yield is then used to calculate the amount to be recognized into income over the remaining life of the security so as to match the amount and timing of future cash flows expected to be collected. Subsequent significant increases in estimated cash flows change the accretable yield on a prospective basis.

The Bank adopted the current accounting guidance for other-than-temporary impairment as of January 1, 2009, and recognized the effects of adoption as a change in accounting principle. The Bank recognized the $179 cumulative effect of initial application as an adjustment to its retained earnings at January 1, 2009, with an offsetting adjustment to accumulated other comprehensive loss.

Mortgage Loans Held for Portfolio. The Bank classifies mortgage loans that it has the intent and ability to hold for the foreseeable future or until maturity or payoff as held for portfolio. Accordingly, these mortgage loans are reported net of unamortized premiums, unaccreted discounts, mark-to-market basis adjustments on loans initially classified as mortgage loan commitments, and any allowance for credit losses.

The Bank defers and amortizes premiums and accretes discounts paid to and received by the participating financial institutions (PFI), and mark-to-market basis adjustments on loans initially classified as mortgage loan commitments, as interest income using the contractual interest method.

A mortgage loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the mortgage loan agreement.

A mortgage loan is considered past due when the principal or interest payment is not received in accordance with the contractual terms of the loan. The Bank places a conventional mortgage loan on nonaccrual status when the collection of the contractual principal or interest from the borrower is 90 days or more past due. When a mortgage loan is placed on nonaccrual status, accrued but uncollected interest is reversed against interest income. The Bank records cash payments received on nonaccrual loans as interest income and a reduction of principal as specified in the contractual agreement. A loan on nonaccrual status may be restored to accrual status when the contractual principal and interest are less than 90 days past due. A government-guaranteed or insured loan is not placed on nonaccrual status when the collection of the contractual principal or interest is 90 days or more past due because of the (1) U.S. government guarantee of the loan and (2) contractual obligation of the loan servicer.

Finance Agency regulations require that mortgage loans held in the Bank’s portfolios be credit enhanced so that the Bank’s risk of loss is limited to the losses of an investor in at least an investment-grade category, such as “BBB.” For conventional mortgage loans, PFIs retain a portion of the credit risk on the loans they sell to the Bank by providing credit enhancement either through a direct liability to pay credit losses up to a specified amount or through a contractual obligation to provide supplemental mortgage insurance. PFIs are paid a credit enhancement fee (CE Fee) for assuming credit risk and in some instances all or a portion of the CE Fee may be performance based. CE Fees are paid monthly based on the remaining unpaid principal balance of the loans in a master commitment. CE Fees are recorded as an offset to mortgage loan interest income. To the extent the Bank experiences losses in a master commitment, it may be able to recapture CE Fees paid to the PFI to offset these losses.

Advances. The Bank reports advances (loans to members, former members or housing associates), net of discounts on advances related to the Affordable Housing Program (AHP) and the Economic Development and Growth Enhancement Program (EDGE), unearned commitment fees, and hedging adjustments. The Bank accretes the discounts on advances and amortizes the recognized unearned commitment fees and hedging

93

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

adjustments to interest income using the level-yield method. The Bank records interest on advances to interest income as earned.

Prepayment Fees. The Bank charges a member a prepayment fee when the member prepays certain advances before the original maturity date. The Bank records prepayment fees net of basis adjustments related to hedging activities included in the book basis of the advance as “Prepayment fees on advances, net” in the interest income section of the Statements of Income. In cases in which the Bank funds a new advance within a short period of time from the prepayment of an existing advance, the Bank evaluates whether the new advance meets the accounting criteria to qualify as a modification of an existing advance or whether it constitutes a new advance. If the new advance qualifies as a modification of the existing advance, the hedging basis adjustments and the net prepayment fee on the prepaid advance are recorded in the carrying value of the modified advance and amortized over the life of the modified advance using a level-yield method. This amortization is recorded in advance interest income.

If the Bank determines that the transaction does not qualify as a modification of an existing advance, it is treated as an advance termination with subsequent funding of a new advance and the Bank records the net fees as “Prepayment fees on advances, net” in the interest income section of the Statements of Income.

Allowance for Credit Losses. The allowance for credit losses is a valuation allowance separately established for each identified portfolio segment of financing receivables, if necessary, to provide for probable losses inherent in the Bank’s portfolio as of the Statements of Condition date. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. The Bank has established a reserve methodology for each of its portfolio segments of financing receivables: advances and letters of credit, government-guaranteed or insured single-family residential mortgage loans held for portfolio, conventional single-family residential mortgage loans held for portfolio, multifamily residential mortgage loans held for portfolio and term federal funds.

A portfolio segment may be further disaggregated into classes of financing receivables to the extent that it is needed to understand the exposure to credit risk arising from these financing receivables. The Bank determined that no further disaggregation of the portfolio segments identified above is needed as the credit risk arising from these financing receivables is assessed and measured by the Bank at the portfolio segment level.

The Bank manages its credit exposure to advances through an integrated approach that provides for a credit limit to be established for each borrower, an ongoing review of each borrower’s financial condition and conservative collateral and lending policies to limit risk of loss while balancing each borrower’s needs for a reliable source of funding. In addition, the Bank lends to its members and housing associates in accordance with federal statutes and Finance Agency regulations. Specifically, the Bank complies with the FHLBank Act, which requires the Bank to obtain sufficient collateral to fully secure advances. The estimated value of the collateral required to secure each member’s advances is calculated by applying discounts to the market value or unpaid principal balance of the collateral, as applicable. The Bank accepts certain investment securities, residential mortgage loans, deposits, and other real estate related assets as collateral. In addition, community financial institutions (CFIs) are eligible to utilize expanded statutory collateral provisions for small business and agriculture loans. The Bank’s capital stock owned is also pledged as additional collateral. Collateral arrangements may vary depending upon borrower credit quality, financial condition and performance, borrowing capacity, and the Bank’s overall credit exposure to the borrower. The Bank can call for additional or substitute collateral to protect its security interest. Bank management believes that these policies effectively manage credit risk from advances.

94

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Based upon the financial condition of the borrower, the Bank either allows a borrower to retain physical possession of the collateral pledged to it, or requires the borrower to place physical possession of the collateral with the Bank or its safekeeping agent. The Bank perfects its security interest in all pledged collateral. The FHLBank Act affords any security interest granted to the Bank by a borrower priority over the claims or rights of any other party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), except for claims or rights of a third party that (1) would be entitled to priority under otherwise applicable law; and (2) is an actual bona fide purchaser for value or is an actual secured party whose security interest is perfected in accordance with state law.

Using a risk-based approach and taking into consideration each borrower’s financial strength, the Bank considers the types and amounts of pledged collateral to be the primary indicator of credit quality on its advances. At December 31, 2011 and 2010, the Bank had rights to collateral on a borrower-by-borrower basis with an estimated value in excess of its outstanding extensions of credit.

The Bank continues to evaluate and make changes to its collateral policies, as necessary, based on current market conditions. No advance was past due, on nonaccrual status, or considered impaired at December 31, 2011 and 2010. In addition, there were no troubled debt restructurings related to advances.

Based upon the collateral held as security, the Bank’s collateral policies, management’s credit analysis and the repayment history on advances, the Bank’s management did not anticipate any credit losses on advances as of December 31, 2011 and 2010. Accordingly, the Bank has not recorded any allowance for credit losses on advances. At December 31, 2011 and 2010, no liability to reflect an allowance for credit losses for off-balance sheet credit exposure was recorded.

The Bank invested in government-guaranteed or insured fixed-rate mortgage loans secured by one-to-four family residential properties. Government-guaranteed or insured mortgage loans are mortgage loans guaranteed or insured by the Department of Veterans Affairs or the Federal Housing Administration. The servicer provides and maintains insurance or a guaranty from the applicable government agency. The servicer is responsible for compliance with all government agency requirements and for obtaining the benefit of the applicable insurance or guaranty with respect to defaulted government mortgage loans. Any losses incurred on such loans that are not recovered from the issuer or the guarantor are absorbed by the servicers. Therefore, the Bank only has credit risk for these loans if the servicer fails to pay for losses not covered by insurance, or guarantees. Based on the Bank’s assessment of its servicers, the Bank did not establish an allowance for credit losses for its government mortgage loan portfolio as of December 31, 2011 and 2010. Furthermore, due to the government guarantee or insurance, none of these mortgage loans have been placed on nonaccrual status.

With the exception of modified loans that are considered a troubled debt restructuring, conventional single-family residential mortgage loans are evaluated collectively for impairment. The overall allowance for credit losses on conventional single-family residential mortgage loans is determined by an analysis (at least quarterly) that includes consideration of various data, such as past performance, current performance, loan portfolio characteristics, collateral valuations, industry data, and prevailing economic conditions. Inherent in the Bank’s evaluation of past performance is an analysis of various credit enhancements at the individual master commitment level to determine the credit enhancement available to recover losses on conventional single-family residential mortgage loans under each individual master commitment.

A modified loan that is considered a troubled debt restructuring is individually evaluated for impairment when determining its related allowance for credit losses. Credit loss is measured by factoring in expected cash shortfalls (i.e., loss severity rate) incurred as of the reporting date as well as the economic loss attributable to delaying the original contractual principal and interest due dates.

95

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Multifamily residential mortgage loans are individually evaluated for impairment. An independent third-party loan review is performed annually on all the Bank’s multifamily residential mortgage loans to identify credit risks and to assess the overall ability of the Bank to collect on those loans. This assessment may be conducted more frequently if management notes significant changes in the portfolio’s performance in the quarterly review report provided on each loan. The allowance for credit losses related to multifamily residential mortgage loans is comprised of specific reserves and a general reserve. The Bank establishes a specific reserve for all multifamily residential mortgage loans with a credit rating at or below a predetermined classification. A general reserve is maintained on multifamily residential mortgage loans not subject to specific reserve allocations to recognize the economic uncertainty and the imprecision inherent in estimating and measuring losses when evaluating reserves for individual loans. To establish the general reserve, the Bank assigns a risk classification to this population of loans. A specified percentage is allocated to the general reserve for designated risk classification levels. The loans and risk classification designations are reviewed by the Bank on an annual basis.

The Bank evaluates whether to record a charge-off on a conventional mortgage loan upon the occurrence of a confirming event. Confirming events include, but are not limited to, the occurrence of foreclosure or notification of a claim against any of the credit enhancements. A charge-off is recorded if the recorded investment in the loan will not be recovered. The Bank did not record any charge-offs related to its portfolio segments of financing receivables during the years ended December 31, 2011, 2010, and 2009.

Term federal funds are generally short-term and their recorded balance approximates fair value. The Bank invests in federal funds with investment-grade counterparties, which are only evaluated for purposes of an allowance for credit losses if the investment is not paid when due. As of December 31, 2011 and 2010, all investment in federal funds were repaid or expected to repay according to the contracted terms.

Real estate owned (REO) includes assets that have been received in satisfaction of debt through foreclosures. REO is recorded at the lower of cost or fair value less estimated selling costs. The Bank recognizes a charge-off to the allowance for credit losses if the fair value of the REO less estimated selling costs is less than the recorded investment in the loan at the date of transfer from loans to REO. Any subsequent realized gains, realized or unrealized losses and carrying costs are included in noninterest income (loss) on the Statements of Income. REO is recorded in “Other assets” on the Statements of Condition. As of December 31, 2011 and 2010, REO was $16 and $15, respectively.

Premises and Equipment. The Bank records premises and equipment at cost less accumulated depreciation. The Bank’s accumulated depreciation was $54 and $50 as of December 31, 2011 and 2010, respectively. The Bank computes depreciation using the straight-line method over the estimated useful lives of assets. The estimated useful lives in years are generally as follows: automobiles and computer hardware—three; office equipment—eight; office furniture and building improvements—10; and building—40. The Bank amortizes leasehold improvements using the straight-line method over the shorter of the estimated useful life of the improvement or the remaining term of the lease. The Bank capitalizes improvements and expenses ordinary maintenance and repairs when incurred. Depreciation expense was $4 for the years ended December 31, 2011 and 2010 and $3 for the year ended December 31, 2009. The Bank includes gains and losses on disposal of premises and equipment in noninterest income (loss).

Software. The Bank records the cost of purchased software and certain costs incurred in developing computer software for internal use at cost, less accumulated amortization. The Bank amortizes capitalized computer software cost using the straight-line method over an estimated useful life of five years. As of December 31, 2011 and 2010, the gross carrying amount of computer software included in other assets was $58 and $56, and accumulated amortization was $39 and $33, respectively. Amortization of computer software was $6 for the year

96

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

ended December 31, 2011 and $5 for the years ended December 31, 2010 and 2009. The Bank includes gains and losses on disposal of capitalized software cost in noninterest income (loss).

Derivatives. All derivatives are recognized on the Statements of Condition at their fair values and are reported as either derivative assets or derivative liabilities, net of cash collateral and accrued interest from counterparties. Cash flows associated with derivatives are reflected as cash flows from operating activities in the Statements of Cash Flows unless the derivative meets the criteria to be a financing derivative. Derivatives not used for intermediary purposes are designated as either (1) a hedge of the fair value of (a) a recognized asset or liability or (b) an unrecognized firm commitment (a fair-value hedge); or (2) a non-qualifying hedge of an asset or liability for asset-liability management purposes. Changes in the fair value of a derivative that are effective as, and that are designated and qualify as, a fair-value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk (including changes that reflect losses or gains on firm commitments), are recorded in noninterest income (loss) as “Net (losses) gains on derivatives and hedging activities.” Any hedge ineffectiveness (which represents the amount by which the change in the fair value of the derivative differs from the change in the fair value of the hedged item) is recorded in noninterest income (loss) as “Net (losses) gains on derivatives and hedging activities.” A non-qualifying hedge is a derivative hedging specific or non-specific underlying assets, liabilities, or firm commitments that is an acceptable hedging strategy under the Bank’s risk management program and Finance Agency regulatory requirements, but does not qualify or was not designated for fair value or cash flow hedge accounting. A non-qualifying hedge introduces the potential for earnings variability because only the change in fair value of the derivative is recorded and is not offset by corresponding changes in the fair value of the non-qualifying hedged asset, liability, or firm commitment, unless such asset, liability, or firm commitment is required to be accounted for at fair value through earnings. Both the net interest on the derivative and the fair value adjustments are recorded in noninterest income (loss) as “Net (losses) gains on derivatives and hedging activities” on the Statements of Income.

The derivatives used in intermediary activities do not qualify for hedge accounting treatment and are separately marked-to-market through earnings. These amounts are recorded in noninterest income (loss) as “Net (losses) gains on derivatives and hedging activities” on the Statements of Income. The net result of the accounting for these derivatives does not significantly affect the operating results of the Bank.

The differences between accruals of interest receivables and payables on derivatives designated as fair-value hedges are recognized as adjustments to the interest income or interest expense of the designated hedged item. The differences between accruals of interest receivables and payables on intermediated derivatives for members and other non-qualifying hedges are recognized in noninterest income (loss) as “Net (losses) gains on derivatives and hedging activities” on the Statements of Income.

The Bank discontinues hedge accounting prospectively when (1) it determines that the derivative is no longer expected to be effective in offsetting changes in the fair value of a hedged risk, including hedged items such as firm commitments; (2) the derivative and/or the hedged item expires or is sold, terminated, or exercised; (3) a hedged firm commitment no longer meets the definition of a firm commitment; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate.

When hedge accounting is discontinued due to the Bank’s determination that a derivative no longer qualifies as an effective fair-value hedge of an existing hedged item, or when management decides to cease the specific hedging activity, the Bank will continue to carry the derivative on the Statements of Condition at its fair value, cease to adjust the hedged asset or liability for changes in fair value, and amortize the cumulative basis adjustment on the hedged item into earnings over the remaining life of the hedged item using the level-yield method. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the

97

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Bank will carry the derivative at its fair value on the Statements of Condition, recognizing changes in the fair value of the derivative in current-period earnings.

The Bank may issue debt, make advances, or purchase financial instruments in which a derivative instrument may be “embedded.” Upon execution of these transactions, the Bank assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the advance, debt or purchased financial instruments (i.e., the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and designated as a stand-alone derivative instrument pursuant to a non-qualifying hedge. However, if the entire contract (the host contract and the embedded derivative) is to be measured at fair value, with changes in fair value reported in current-period earnings (e.g., an investment security classified as “trading”), or if the Bank could not identify and measure reliably the embedded derivative for purposes of separating that derivative from its host contract, the entire contract would be carried on the Statements of Condition at fair value and no portion of the contract could be designated as a hedging instrument.

Consolidated Obligations. The Bank records consolidated obligations at amortized cost. The Bank accretes discounts and amortizes premiums on consolidated obligations to interest expense using the contractual interest method over the contractual terms to maturity of the consolidated obligations.

The Bank defers and amortizes the amounts paid to dealers in connection with the sale of consolidated obligations using the contractual interest method over the contractual term of the corresponding consolidated obligation. When consolidated obligations are called prior to contractual maturity, the related unamortized concessions are written off to interest expense. The Office of Finance prorates the amount of the concession to the Bank based upon the percentage of the debt issued that is assumed by the Bank. Unamortized concessions are included in “Other assets” on the Statements of Condition and the amortization of such concessions is included in consolidated obligations interest expense.

Mandatorily Redeemable Capital Stock. The Bank reclassifies stock subject to redemption from capital to a liability after a member submits a written redemption request, gives notice of intent to withdraw from membership, or attains non-member status by merger or acquisition, charter termination, or involuntary termination from membership, since the member shares will then meet the definition of a mandatorily redeemable financial instrument. Member shares meeting this definition are reclassified to a liability at fair value. Dividends declared on shares classified as a liability are accrued at the expected dividend rate and reflected as interest expense in the Statements of Income. The repurchase or redemption of these mandatorily redeemable financial instruments is reflected as cash outflows in the financing activities section of the Statements of Cash Flows.

If a member cancels its written notice of redemption or notice of withdrawal, the Bank will reclassify mandatorily redeemable capital stock from a liability to capital. After the reclassification, dividends on the capital stock no longer will be classified as interest expense.

Restricted Retained Earnings. The FHLBanks entered into a Joint Capital Enhancement Agreement, as amended, which is intended to enhance the capital position of each FHLBank. Beginning in the third quarter of 2011, each FHLBank began to allocate a portion of each FHLBank’s earnings historically paid to satisfy its REFCORP obligation to a separate retained earnings account at that FHLBank.

98

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Each FHLBank had been required to contribute 20 percent of its income toward payment of the interest on REFCORP bonds until satisfaction of its REFCORP obligation, as certified by the Finance Agency on August 5, 2011. The Joint Capital Enhancement Agreement, as amended, provides that, upon full satisfaction of the REFCORP obligation, each FHLBank will contribute 20 percent of its net income each quarter to a restricted retained earnings account until the balance of that account equals at least one percent of that FHLBank’s average balance of outstanding consolidated obligations for the previous quarter. These restricted retained earnings are not available to pay dividends.

Finance Agency and Office of Finance Expenses. The Finance Agency allocates the FHLBanks’ portion of its expenses and working capital fund among the FHLBanks based on the ratio between each FHLBank’s minimum required regulatory capital and the aggregate minimum required regulatory capital of every FHLBank. As approved by the Office of Finance Board of Directors, effective January 1, 2011, each FHLBank’s proportionate share of Office of Finance operating and capital expenditures is calculated using a formula that is based upon the following components: (1) two-thirds based upon each FHLBank’s share of total consolidated obligations outstanding and (2) one-third based upon an equal pro rata allocation. Prior to January 1, 2011, the FHLBanks were assessed for Office of Finance operating and capital expenditures based equally on each FHLBank’s percentage of the following components: (1) percentage of capital, (2) percentage of consolidated obligations issued and (3) percentage of consolidated obligations outstanding.

Affordable Housing Program. The FHLBank Act requires each FHLBank to establish and fund an AHP, providing subsidies to members to assist in the purchase, construction, or rehabilitation of housing for very low-to-moderate-income households. The Bank charges the required funding for AHP against earnings and establishes a corresponding liability. The Bank issues AHP advances at interest rates below the customary interest rate for non-subsidized advances. A discount on the AHP advance and charge against the AHP liability is recorded for the present value of the variation in the cash flow caused by the difference in the interest rate between the AHP advance rate and the Bank’s related cost of funds for comparable maturity funding. As an alternative, the Bank has the authority to make the AHP subsidy available to members as a grant. The discount on AHP advances is accreted to interest income on advances using the level-yield method over the life of the advance.

Resolution Funding Corporation (REFCORP). Although FHLBanks are exempt from ordinary federal, state, and local taxation except for local real estate tax, the FHLBanks were required to make quarterly payments to REFCORP through the second quarter of 2011. These payments represented a portion of the interest on bonds issued by REFCORP, a corporation established by Congress in 1989 to provide funding for the resolution and disposition of insolvent savings institutions. Officers, employees, and agents of the Office of Finance are authorized to act for and on behalf of REFCORP to carry out the functions of REFCORP.

Reclassifications. Certain amounts in the 2010 and 2009 financial statements have been reclassified to conform to the 2011 presentation.

In particular, letters of credit fees were reclassified from advances interest income to the “Noninterest income (loss)” section of the Statements of Income. The Bank’s experience with letters of credit indicates that the likelihood that the commitment will be exercised is remote, thus, the letters of credit fees should be recognized over the commitment period on a straight-line basis as service fee income. If the commitment is subsequently exercised during the commitment period, the remaining unamortized commitment fee at the time of exercise will be recognized over the life of the loan as an adjustment of yield. This reclassification had no effect on net income.

99

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Note 3—Recently Issued and Adopted Accounting Guidance

Recently Issued Accounting Guidance

Disclosures about Offsetting Assets and Liabilities. In December 2011, the Financial Accounting Standards Board (FASB) issued disclosure requirements that are intended to help investors and other financial statement users to better assess the effect or potential effect of offsetting arrangements on an entity’s financial position. Entities are required to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, entities are required to disclose collateral received and posted in connection with master netting agreements or similar arrangements. This guidance is effective for interim and annual periods beginning on or after January 1, 2013 and will be applied retrospectively for all comparative periods presented. The adoption of this guidance will result in increased disclosures, but will have no effect on the Bank’s financial condition or results of operations.

Presentation of Comprehensive Income. In June 2011, the FASB issued amended guidance that eliminates the option to report other comprehensive income and its components in the statement of change in equity. The main provisions of this amended guidance provide that an entity that reports items of other comprehensive income present comprehensive income in either: (1) a single financial statement that presents the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and total comprehensive income; or (2) a two-statement approach, where the components of net income and total net income are presented in the first statement, immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income, and total comprehensive income. For public entities, this amended guidance is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011 (January 1, 2012 for the Bank). Early adoption is permitted. The adoption of this guidance will have no effect on the Bank’s financial condition or results of operations.

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. In May 2011, the FASB issued amended guidance to converge fair value measurement and disclosure guidance in GAAP with the fair value measurement guidance concurrently issued by the International Accounting Standards Board for International Financial Reporting Standards (IFRS). The amended guidance does not extend the use of fair value but, rather, provides guidance about how fair value should be applied where it already is required or permitted under GAAP. While many of the changes are clarifications of existing guidance or wording changes to align with IFRS, the amended guidance changes some fair value measurement principles and disclosure requirements. For public entities, this guidance is effective prospectively for interim and annual periods beginning on or after December 15, 2011 (January 1, 2012 for the Bank). Early adoption is not permitted. Bank management does not believe that the adoption of this guidance will have a material effect on the Bank’s financial condition or results of operations.

Reconsideration of Effective Control for Repurchase Agreements. In April 2011, the FASB issued guidance to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The new guidance removes certain criteria from the assessment of effective control. This guidance is effective for the Bank for interim and annual periods beginning on January 1, 2012. This guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. Bank management does not believe that the adoption of this guidance will have a material effect on the Bank’s financial condition or results of operations.

100

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Recently Adopted Accounting Guidance

Disclosures about an Employer’s Participation in a Multiemployer Plan. In September 2011, the FASB issued amended guidance that provides new requirements for the disclosures that an employer should provide related to its participation in multiemployer pension plans. The Bank adopted this guidance effective for the annual period ending December 31, 2011 and applied this guidance retrospectively for all comparative periods presented. The adoption of this guidance resulted in increased disclosures, but had no effect on the Bank’s financial condition or results of operations.

A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. In April 2011, the FASB issued amended guidance to creditors for evaluating whether a modification or restructuring of a receivable is a troubled debt restructuring. The amended guidance clarifies whether (1) the creditor has granted a concession and (2) whether the debtor is experiencing financial difficulties, which are the two criteria used to determine whether a modification or restructuring is a troubled debt restructuring. For public entities, this guidance was effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The Bank adopted this guidance effective July 1, 2011. The adoption of this guidance did not have any effect on the Bank’s financial condition or results of operations.

Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. In July 2010, the FASB issued amended guidance to enhance disclosures about an entity’s allowance for credit losses and the credit quality of its financing receivables. The amended guidance requires entities with financing receivables, including loans, lease receivables and other long-term receivables, to provide additional disclosure related to the nature of credit risk inherent in financing receivables and how that risk is analyzed and assessed in arriving at the allowance for credit losses. The Bank fully adopted this guidance effective January 1, 2011, which resulted in increased disclosure, but had no effect on the Bank’s financial condition or results of operations.

Improving Disclosures about Fair Value Measurements. In January 2010, the FASB issued guidance that requires new disclosures related to transfers in and out of Level 1 and 2 fair value hierarchy, and activity in Level 3 fair value hierarchy, and clarifies some existing disclosure requirements about fair value measurement. The Bank fully adopted this guidance effective January 1, 2011, which resulted in increased fair value disclosures, but had no effect on the Bank’s financial condition or results of operations.

Note 4—Cash and Due from Banks

The Bank maintains collected cash balances with commercial banks in return for certain services. These agreements contain no legal restrictions regarding the withdrawal of funds. The average compensating balances were less than $1 for the years ended December 31, 2011 and 2010.

In addition, the Bank maintained an average compensating balance with a Federal Reserve Bank of $6 for the years ended December 31, 2011 and 2010. The Bank must maintain these average balances over any two-week settlement period to avoid charges for certain services provided to the Bank by the Federal Reserve Bank.

Interest-bearing deposits includes $1,201 in a business money market account with one of the Bank’s members.

101

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Note 5—Trading Securities

Major Security Types. Trading securities were as follows:

	As of December 31,
	2011		2010
Government-sponsored enterprises debt obligations	$	3,035	$	3,306
Other FHLBank’s bond(1)		82		74
State or local housing agency debt obligations		3		3
Total	$	3,120	$	3,383

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

Net unrealized and realized gains (losses) on trading securities were as follows:

	For the Years Ended December 31,
	2011		2010		2009
Net unrealized gains (losses) on trading securities held at year end		$    8		$    32		$    (121)
Net unrealized/realized losses on trading securities sold/matured during the year		(6)		(1)		(14)
Net gains (losses) on trading securities		$    2		$    31		$    (135)

At December 31, 2011 and 2010, 99.9 percent of the Bank’s fixed-rate trading securities were swapped and all of the Bank’s variable-rate trading securities were swapped.

Note 6—Available-for-sale Securities

During 2011 and 2010, the Bank transferred certain private-label MBS from its held-to-maturity portfolio to its available-for-sale portfolio. These securities represent private-label MBS in the Bank’s held-to-maturity portfolio for which the Bank has recorded an other-than-temporary impairment loss. The Bank believes the other-than-temporary impairment loss constitutes evidence of a significant deterioration in the issuer’s creditworthiness. The Bank has no current plans to sell these securities nor is the Bank under any requirement to sell these securities.

The following table presents information on private-label MBS transferred during 2011 and 2010. The amounts below represent the values as of the transfer date.

	2011						2010
	Amortized Cost		Other-Than- Temporary Impairment Recognized in Accumulated  Other Comprehensive Loss		Estimated Fair Value		Amortized Cost		Other-Than- Temporary Impairment Recognized in Accumulated  Other Comprehensive Loss		Estimated Fair Value
Transferred at March 31,		$    321		$                    19		$    302		$        467		$                      58		$        409
Transferred at June 30,		53		7		46		908		97		811
Transferred at September 30,		23		2		21		83		5		78
Transferred at December 31,		91		9		82		—		—		—
Total		$    488		$                     37		$    451		$     1,458		$                    160		$     1,298

102

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Major Security Type. Available-for-sale securities were as follows:

	As of December 31, 2011
	Amortized         Cost		Other-Than- Temporary Impairment Recognized in Accumulated Other    Comprehensive Loss		Gross     Unrealized     Gains		Gross     Unrealized     Losses		Estimated     Fair Value
Private-label MBS		$        3,340		$            392		$        12		$        18		$        2,942

	As of December 31, 2010
	Amortized         Cost		Other-Than- Temporary Impairment Recognized in Accumulated Other    Comprehensive Loss		Gross     Unrealized     Gains		Gross     Unrealized     Losses		Estimated     Fair Value
Private-label MBS		$        3,711		$                396		$        5		$        1		$        3,319

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

As of December 31, 2011

Less than 12 Months

12 Months or More

Total

Number of Positions

Estimated Fair  Value

Gross Unrealized Losses

Number of Positions

Estimated Fair  Value

Gross Unrealized Losses

Number of Positions

Estimated Fair  Value

Gross Unrealized Losses

Private-label MBS

10

$    635

$    26

42

$  2,053

$  384

52

$  2,688

$  410

As of December 31, 2010

Less than 12 Months

12 Months or More

Total

Number of Positions

Estimated Fair  Value

Gross Unrealized Losses

Number of Positions

Estimated Fair  Value

Gross Unrealized Losses

Number of Positions

Estimated Fair  Value

Gross Unrealized Losses

Private-label MBS

1

$    17

$      1

43

$  2,976

$  396

44

$  2,993

$  397

The amortized cost of the Bank’s MBS classified as available-for-sale includes net discounts of $14 and $11 as of December 31, 2011 and 2010, respectively.

Interest-rate Payment Terms. The following table details interest-rate payment terms for investment securities classified as available-for-sale:

	As of December 31,
	2011		2010
Fixed-rate		$            139		$            268
Variable-rate		3,201		3,443
Total amortized cost		$         3,340		$         3,711

103

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

The Bank did not swap any of its available-for-sale securities as of December 31, 2011 and 2010.

A summary of available-for-sale MBS issued by members or affiliates of members follows:

	As of December 31, 2011
	Amortized Cost		Other-Than-Temporary Impairment Recognized in Other Accumulated Comprehensive Loss		Gross Unrealized     Gains		Gross Unrealized Losses		Estimated     Fair Value
Bank of America Corporation, Charlotte, NC	$	2,027	$	287	$	1	$	12	$	1,729
	As of December 31, 2010
	Amortized Cost		Other-Than-Temporary Impairment Recognized in Other Accumulated Comprehensive Loss		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Bank of America Corporation, Charlotte, NC	$	2,128	$	294	$	1	$	1	$	1,834

Note 7—Held-to-maturity Securities

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

	As of December 31,
	2011								2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Certificates of deposit	$	650	$	—	$	—	$	650	$	1,190	$	—	$	—	$	1,190
State or local housing agency debt obligations		100		1		—		101		108		3		—		111
Government-sponsored enterprises debt obligations		1,111		1		—		1,112		873		—		3		870
Mortgage-backed securities:
U.S. agency obligations-guaranteed		803		8		—		811		960		9		—		969
Government-sponsored enterprises		9,886		185		5		10,066		8,716		210		14		8,912
Private label		3,693		28		219		3,502		5,627		49		217		5,459
Total	$	16,243	$	223	$	224	$	16,242	$	17,474	$	271	$	234	$	17,511

104

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

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

	As of December 31, 2011
	Less than 12 Months						12 Months or More						Total
	Number of Positions		Estimated Fair Value		Gross Unrealized Losses		Number of Positions		Estimated Fair Value		Gross Unrealized Losses		Number of Positions		Estimated Fair Value		Gross Unrealized Losses
Certificates of deposit		3	$	350	$	—		—	$	—	$	—		3	$	350	$	—
Government-sponsored enterprises debt obligations		3		194		—		—		—		—		3		194		—
Mortgage-backed securities:
Government-sponsored enterprises		9		1,104		3		10		804		2		19		1,908		5
Private label		23		437		8		59		1,656		211		82		2,093		219
Total		38	$	2,085	$	11		69	$	2,460	$	213		107	$	4,545	$	224

	As of December 31, 2010
	Less than 12 Months						12 Months or More						Total
	Number of Positions		Estimated Fair Value		Gross Unrealized Losses		Number of Positions		Estimated Fair Value		Gross Unrealized Losses		Number of Positions		Estimated Fair Value		Gross Unrealized Losses
Certificates of deposit		1	$	125	$	—		—	$	—	$	—		1	$	125	$	—
State or local housing agency debt obligations		1		7		—		—		—		—		1		7		—
Government-sponsored enterprises debt obligations		6		870		3		—		—		—		6		870		3
Mortgage-backed securities:
U.S. agency obligations-guaranteed		1		173		—		—		—		—		1		173		—
Government-sponsored enterprises		25		2,833		14		—		—		—		25		2,833		14
Private label		16		475		4		80		2,883		213		96		3,358		217
Total		50	$	4,483	$	21		80	$	2,883	$	213		130	$	7,366	$	234

105

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Redemption Terms. The amortized cost and estimated fair value of held-to-maturity securities by contractual maturity are shown below. Expected maturities of some securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

	As of December 31,
	2011				2010
	Amortized     Cost		Estimated     Fair Value		Amortized     Cost		Estimated     Fair Value
Non-mortgage-backed securities:
Due in one year or less	$	703	$	702	$	1,191	$	1,191
Due after one year through five years		1,158		1,161		978		978
Due after 10 years		—		—		2		2
Total non-mortgage-backed securities		1,861		1,863		2,171		2,171
Mortgage-backed securities		14,382		14,379		15,303		15,340
Total	$	16,243	$	16,242	$	17,474	$	17,511

The amortized cost of the Bank’s mortgage-backed securities classified as held-to-maturity includes net discounts of $13 and $24 as of December 31, 2011 and 2010, respectively.

Interest-rate Payment Terms. The following table details interest-rate payment terms for investment securities classified as held-to-maturity:

	As of December 31,
	2011		2010
Non-mortgage-backed securities:
Fixed-rate	$	892	$	1,671
Variable-rate		969		500
Total non-mortgage-backed securities		1,861		2,171
Mortgage-backed securities:
Fixed-rate		3,330		4,889
Variable-rate		11,052		10,414
Total mortgage-backed securities		14,382		15,303
Total amortized cost	$	16,243	$	17,474

A summary of held-to-maturity MBS issued by members or affiliates of members follows:

	As of December 31,
	2011								2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair  Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair  Value
Bank of America Corporation, Charlotte, NC	$	1,226	$	10	$	56	$	1,180	$	2,035	$	17	$	75	$	1,977

106

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Note 8—Other-than-temporary Impairment

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

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

Non-private-label MBS. The unrealized losses related to U.S. agency MBS and government-sponsored enterprises MBS are caused by interest rate changes and not credit quality. These securities are guaranteed by government agencies or government-sponsored enterprises and Bank management does not expect these securities to be settled at a price less than the amortized cost basis. In addition, the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity. The Bank does not consider these investments to be other-than-temporarily impaired as of December 31, 2011.

Private-label MBS. To assess whether the entire amortized cost basis of its private-label MBS will be recovered, the Bank performs a cash flow analysis for each of its private-label MBS. In performing the cash flow analysis for each of these securities, the Bank uses two third-party models. The first model considers borrower characteristics and the particular attributes of the loans underlying the Bank’s securities, in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults and loss severities. A significant input to the first model is the forecast of future housing price changes for the relevant states and core based statistical areas (CBSAs), which are based upon an assessment of the individual housing markets. The term CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and Budget; as currently defined, a CBSA must contain at least one urban area of 10,000 or more people. The Bank’s housing price forecast as of December 31, 2011 assumed current-to-trough home price declines ranging from zero percent (for those housing markets that are believed to have reached their trough) to 8.00 percent. For those markets for which further home price declines are anticipated, such declines were projected to occur over the three- to nine-month period beginning October 1, 2011. From the trough, home prices were projected to recover using one of five different recovery paths that vary by housing market.

107

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

The following table presents projected home price recovery ranges by year as of December 31, 2011:

	Recovery Range (%)
Year one	0.00 to 2.80
Year two	0.00 to 3.00
Year three	1.50 to 4.00
Year four	2.00 to 5.00
Years five and six	2.00 to 6.00
Thereafter	2.30 to 5.60

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

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

The following table presents a summary of the significant inputs used to measure the amount of the credit loss recognized in earnings for those securities for which an other-than-temporary impairment was determined to have occurred during the year ended December 31, 2011 as well as related current credit enhancement:

	Significant Inputs
	Prepayment Rate				Default Rates				Loss Severities				Current Credit Enhancement
	Weighted Average (%)		Range (%)		Weighted Average (%)		Range(%)		Weighted Average (%)		Range (%)		Weighted Average (%)		Range (%)
Year of Securitization
Prime:
2007		7.31		7.07 to 8.53		16.84		7.42 to 18.71		47.03		40.72 to 48.28		7.96		4.59 to 8.63
2006		6.52		4.76 to 7.93		22.81		15.94 to 40.25		50.04		46.60 to 58.80		3.99		0.87 to 6.89
2005		7.39		5.02 to 9.06		19.84		8.66 to 30.58		43.95		35.53 to 58.17		6.92		4.50 to 9.24
2004		8.35		7.90 to 9.02		23.54		19.15 to 29.03		40.62		39.67 to 42.14		9.45		8.39 to 11.93
Total Prime		7.29		4.76 to 9.06		21.24		7.42 to 40.25		45.65		35.53 to 58.80		6.60		0.87 to 11.93
Alt-A:
2007		5.50		3.99 to 6.93		60.06		46.81 to 69.95		49.69		46.15 to 54.85		7.16		0.05 to 12.77
2006		6.02		4.15 to 7.44		55.43		47.03 to 66.20		51.01		44.67 to 55.78		4.10		2.93 to 5.42
2005		5.71		2.64 to 7.30		52.83		29.24 to 79.49		51.66		37.17 to 58.01		13.58		1.88 to 39.97
2004		6.60		5.54 to 6.99		30.85		1.90 to 41.46		34.46		23.35 to 40.70		13.84		3.92 to 16.32
Total Alt-A		5.69		2.64 to 7.44		55.81		1.90 to 79.49		50.22		23.35 to 58.01		9.27		0.05 to 39.97
Total		6.25		2.64 to 9.06		43.84		1.90 to 79.49		48.64		23.35 to 58.80		8.35		0.05 to 39.97

108

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

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

	For the Years Ended December 31,
	2011		2010		2009
Balance of credit losses previously recognized in earnings, beginning of year	$	464	$	321	$	5
Amount related to credit loss for which an other-than-temporary impairment was not previously recognized		11		38		262
Amount related to credit loss for which an other-than-temporary impairment was previously recognized		107		105		54
Balance of cumulative credit losses recognized in earnings, end of year	$	582	$	464	$	321

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

Note 9—Mortgage Loans Held for Portfolio

The Bank invested in single-family residential mortgage loans purchased directly from PFIs. The total dollar amount of the Bank’s single-family residential mortgage loans represents held-for-portfolio loans whereby the PFIs service and credit enhance residential mortgage loans that they sell to the Bank. Also included in mortgage loans are multifamily residential mortgage loans, which are investments by the Bank in participation interests in loans on affordable multifamily rental properties. In 2006, the Bank ceased purchasing multifamily residential mortgage loans, and in 2008 the Bank ceased purchasing single-family residential mortgage loans.

The following table presents information on mortgage loans held for portfolio:

	As of December 31,
	2011		2010
Fixed-rate medium-term(1) single-family residential mortgage loans	$	341	$	458
Fixed-rate long-term single-family residential mortgage loans		1,279		1,564
Multifamily residential mortgage loans		21		21
Total unpaid principal balance		1,641		2,043
Premiums		7		9
Discounts		(9)		(12)
Total	$	1,639	$	2,040

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

109

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

The following table details the unpaid principal balance of mortgage loans held for portfolio outstanding:

	As of December 31,
	2011		2010
Government-guaranteed or insured loans	$	123	$	160
Conventional loans		1,518		1,883
Total unpaid principal balance	$	1,641	$	2,043

The Bank records credit enhancement fees related to single-family residential mortgage loans as a reduction to mortgage loan interest income. Credit enhancement fees totaled $2 for the years ended December 31, 2011 and 2010 and $3 for the year ended December 31, 2009.

For information related to the Bank’s credit risk on mortgage loans and allowance for credit losses, see Note 11–Allowance for Credit Losses.

Note 10—Advances

Redemption Terms. The Bank had advances outstanding, including AHP advances (see Note 14–Assessments), at interest rates ranging from zero percent to 8.64 percent, as summarized below. Advances with interest rates of zero percent are AHP subsidized advances and certain types of structured advances.

	As of December 31,
	2011		2010
Overdrawn demand deposit accounts	$	3	$	1
Due in one year or less		36,542		26,628
Due after one year through two years		11,173		16,186
Due after two years through three years		7,851		10,938
Due after three years through four years		3,881		6,369
Due after four years through five years		5,836		3,678
Due after five years		17,283		21,251
Total par value		82,569		85,051
Discount on AHP advances		(12)		(13)
Discount on EDGE advances		(10)		(11)
Hedging adjustments		4,431		4,238
Deferred commitment fees		(7)		(7)
Total	$	86,971	$	89,258

The Bank offers advances to members that may be prepaid on prescribed dates (call dates) without incurring prepayment or termination fees (callable advances). Other advances may be prepaid only by paying a fee to the Bank that makes the Bank financially indifferent to the prepayment of the advance. The Bank had callable advances outstanding of $0 and $1 at December 31, 2011 and 2010, respectively.

110

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

The following table summarizes advances by year of contractual maturity or next call date for callable advances:

	As of December 31,
	2011		2010
Overdrawn demand deposit accounts	$	3	$	1
Due or callable in one year or less		36,542		26,629
Due or callable after one year through two years		11,173		16,186
Due or callable after two years through three years		7,851		10,938
Due or callable after three years through four years		3,881		6,369
Due or callable after four years through five years		5,836		3,678
Due or callable after five years		17,283		21,250
Total par value	$	82,569	$	85,051

Convertible advances offered by the Bank allow the Bank to convert the fixed-rate advance to a variable-rate advance at the current market rate on certain specified dates. The Bank had convertible advances outstanding of $8,276 and $12,592 at December 31, 2011 and 2010, respectively.

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

	As of December 31,
	2011		2010
Overdrawn demand deposit accounts	$	3	$	1
Due or convertible in one year or less		42,376		36,487
Due or convertible after one year through two years		11,946		14,302
Due or convertible after two years through three years		7,716		11,374
Due or convertible after three years through four years		3,464		6,065
Due or convertible after four years through five years		5,021		3,023
Due or convertible after five years		12,043		13,799
Total par value	$	82,569	$	85,051

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

	As of December 31,
	2011		2010
Fixed-rate:
Due in one year or less	$	32,389	$	24,033
Due after one year		38,811		50,907
Total fixed-rate		71,200		74,940
Variable-rate:
Due in one year or less		4,156		2,596
Due after one year		7,213		7,515
Total variable-rate		11,369		10,111
Total par value	$	82,569	$	85,051

111

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

At December 31, 2011 and 2010, 65.7 percent and 87.4 percent, respectively, of the Bank’s fixed-rate advances were swapped and 9.79 percent and 9.42 percent, respectively, of the Bank’s variable-rate advances were swapped.

Security Terms. The Bank obtains collateral on advances to protect against losses and Finance Agency regulations permit the Bank to accept only certain types of collateral. The lendable collateral value (LCV) is the value that the Bank assigns to each type of qualifying collateral for purposes of determining the amount of credit that such qualifying collateral will support.

As of December 31, 2011 and 2010, the Bank had rights to collateral, on a member to member specific basis, with an LCV greater than outstanding advances. The following table provides information about the types of collateral held for the Bank’s advances:

	Total Par Value of Outstanding            Advances		LCV of Collateral Pledged by     Members		First Mortgage  Collateral (%)		Securities  Collateral (%)		Other Real Estate Related  Collateral (%)
As of December 31, 2011	$	82,569	$	188,597		64.36		10.93		24.71
As of December 31, 2010		85,051		188,212		67.43		10.19		22.38

The Bank requires its borrowers to execute an advances and security agreement that establishes the Bank’s security interest in all collateral pledged by the borrower to the Bank. The Bank perfects its security interest in collateral before making an advance to the borrower.

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 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.

Credit Risk. The Bank’s potential credit risk from advances is concentrated in commercial banks, savings institutions and credit unions and further is concentrated in certain larger borrowing relationships. As of December 31, 2011 and 2010, the concentration of the Bank’s advances was $56,991 and $58,043, respectively, to 10 member institutions, and representing 69.0 percent and 68.3 percent of total advances outstanding.

Based on the collateral pledged as security for advances, management’s credit analysis of members’ financial condition, and prior repayment history, no allowance for credit losses on advances was deemed necessary by Bank management as of December 31, 2011 and 2010. No advance was past due as of December 31, 2011 or 2010.

For additional information related to the Bank’s credit risk on advances and allowance for credit losses, see Note 11–Allowance for Credit Losses.

Note 11—Allowance for Credit Losses

The Bank’s portfolio segments of financing receivables are at the level at which the Bank develops a systematic method for determining an allowance for credit losses. The Bank considers its portfolio segments to be advances and letters of credit, conventional single-family residential mortgage loans, government-guaranteed or insured single-family residential mortgage loans, multifamily residential mortgage loans, and term federal funds.

112

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

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

	For the Years Ended December 31,
	2011								2010		2009
	Conventional Singe-family Residential     Mortgage Loans		Government- Guaranteed or Insured Residential     Mortgage  Loans		Multifamily     Residential Mortgage  Loans		Total		Total		Total
Balance, beginning of year	$	—	$	—	$	1	$	1	$	1	$	1
Provision for credit losses		5		—		—		5		—		—
Charge-offs		—		—		—		—		—		—
Balance, end of year	$	5	$	—	$	1	$	6	$	1	$	1

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

	As of December 31,
	2011								2010
	Conventional Singe-family Residential Mortgage Loans		Government- Guaranteed or Insured Residential Mortgage Loans		Multifamily          Residential Mortgage Loans		Total		Total
Allowance for credit losses:
Individually evaluated for impairment	$	1	$	—	$	1	$	2	$	1
Collectively evaluated for impairment		4		—		—		4		—
Total allowance for credit losses	$	5	$	—	$	1	$	6	$	1
Recorded investment:
Individually evaluated for impairment	$	8	$	—	$	22	$	30	$	23
Collectively evaluated for impairment		1,492		124		—		1,616		2,027
Total recorded investment	$	1,500	$	124	$	22	$	1,646	$	2,050

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

	As of December 31, 2011
	Conventional Single-     family Residential Mortgage Loans			Government- Guaranteed or Insured Single-     family  Residential     Mortgage Loans			Multifamily Residential     Mortgage Loans			Total
Past due 30-59 days	$	35		$	11		$	—		$	46
Past due 60-89 days		14			6			—			20
Past due 90 days or more		88			15			—			103
Total past due		137			32			—			169
Total current loans		1,363			92			22			1,477
Total mortgage loans	$	1,500		$	124		$	22		$	1,646
Other delinquency statistics:
In process of foreclosure (1)	$	67		$	9		$	—		$	76
Seriously delinquent rate (2)		5.87	%		12.29	%		0.00	%		6.27	%
Past due 90 days or more and still accruing interest (3)	$	—		$	15		$	—		$	15
Loans on nonaccrual status (4)	$	88		$	—		$	—		$	88
Troubled debt restructurings	$	8		$	—		$	—		$	8

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

113

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

⁽²⁾  Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total loan portfolio segment unpaid principal balance.

⁽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 December 31, 2010
	Conventional Single-     family Residential Mortgage Loans		Government- Guaranteed or Insured Single-     family  Residential     Mortgage Loans		Multifamily Residential     Mortgage Loans		Total
Past due 30-59 days	$	45	$	14	$	—	$	59
Past due 60-89 days		20		5		—		25
Past due 90 days or more		82		21		—		103
Total past due		147		40		—		187
Total current loans		1,719		121		23		1,863
Total mortgage loans	$	1,866	$	161	$	23	$	2,050
Other delinquency statistics:
In process of foreclosure (1)	$	58	$	7	$	—	$	65
Seriously delinquent rate (2)		4.37%		13.12%		0.00%		5.01%
Past due 90 days or more and still accruing interest (3)	$	—	$	21	$	—	$	21
Loans on nonaccrual status (4)	$	82	$	—	$	—	$	82
Troubled debt restructurings	$	4	$	—	$	—	$	4

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

⁽²⁾  Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total loan portfolio segment unpaid principal balance.

⁽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.

A troubled debt restructuring is considered to have occurred when a concession is granted to a borrower for economic or legal reasons related to the borrower’s financial difficulties and that concession would not have been considered otherwise. The Bank’s conventional single-family residential mortgage loan troubled debt restructurings primarily involve modifying the borrower’s monthly payment for a period of up to 36 months to no more than a housing expense ratio of 38.0 percent of their monthly income. The outstanding principal balance is re-amortized to reflect a principal and interest payment for a term not to exceed 40 years. This would result in a balloon payment at the original maturity date of the loan as the maturity date and number of remaining monthly payments is unchanged. If the 38.0 percent housing expense ratio is still not met, the interest rate is reduced for up to 36 months in 0.125 percent increments below the original note rate, to a floor rate of 3.00 percent, resulting in reduced principal and interest payments, until the target 38.0 percent housing expense ratio is met.

The table below presents the Bank’s recorded investment balance in troubled debt restructured loans as of the dates presented:

	As of December 31,
	2011						2010
	Performing		Non- performing		Total		Performing		Non- performing		Total
Conventional single-family residential loans		$6		$2		$8		$3		$1		$4

Due to the minimal change in terms of modified loans (i.e., no write-offs of principal), the Bank’s pre-modification recorded investment was not materially different than the post-modification recorded investment in troubled debt restructuring during the year ended December 31, 2011.

114

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Mortgage loans considered troubled debt restructurings and experiencing a payment default within the previous 12 months consisted of conventional single-family residential mortgage loans with a recorded investment amount of $1 as of December 31, 2011.

As a result of adopting the new accounting guidance on a creditor’s determination of whether a restructuring is a troubled debt restructuring discussed in Note 3–Recently Issued and Adopted Accounting Guidance, the Bank reassessed all restructuring that occurred on or after January 1, 2011 and identified certain loans as troubled debt restructurings as shown in the table below. The allowance for credit losses on these loans had previously been measured under a general allowance for credit losses methodology. Upon identifying those receivables as troubled debt restructurings, the Bank identified them as impaired and applied the impairment measurement guidance for those loans prospectively.

	As of December 31, 2011
	Recorded     Investment		Related     Allowance
Conventional single-family residential loans		$4		$            —

The following table summarizes the recorded investment, unpaid principal balance and related allowance for credit losses for impaired loans individually assessed for impairment at December 31, 2011, and the average recorded investment and related interest income recognized on these loans during the year ended December 31, 2011. All impaired conventional single-family residential loans had an allowance for credit losses at December 31, 2011.

	As of and for the Year Ended December 31, 2011
	Recorded       Investment		Unpaid Principal       Balance		Related       Allowance		Average Recorded       Investment		Interest Income       Recognized
Conventional single-family residential loans	$	8	$	8	$	1	$	8	$	—

Note 12—Deposits

The Bank offers demand and overnight deposits for members and qualifying nonmembers. A member that services mortgage loans may deposit in the Bank funds collected in connection with the mortgage loans, pending disbursement of such funds to the owners of the mortgage loans. The Bank classifies these items as interest-bearing deposits on the Statements of Condition.

The Bank pays interest on demand and overnight deposits based on a daily interest rate.

Note 13—Consolidated Obligations

Consolidated obligations, consisting of consolidated obligation bonds and discount notes, are the joint and several obligations of the FHLBanks and are backed only by the financial resources of the 12 FHLBanks.

The Bank is primarily liable for its portion of consolidated obligations (i.e., those issued on its behalf), and also is jointly and severally liable with the other 11 FHLBanks for the payment of principal and interest on all consolidated obligations of each of the FHLBanks. The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligation, whether or not the consolidated obligation represents a primary liability of such FHLBank. Although it has never occurred, to the

115

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

extent that an FHLBank makes any payment on a consolidated obligation on behalf of another FHLBank that is primarily liable for such consolidated obligation, Finance Agency regulations provide that the paying FHLBank is entitled to reimbursement from the noncomplying FHLBank for any payments made on its behalf and other associated costs (including interest to be determined by the Finance Agency). If, however, the Finance Agency determines that the noncomplying FHLBank is unable to satisfy its repayment obligations, the Finance Agency may allocate the outstanding liabilities of the noncomplying FHLBank among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding. The Finance Agency reserves the right to allocate the outstanding liabilities for the consolidated obligations among the FHLBanks in any other manner it may determine to ensure that the FHLBanks operate in a safe and sound manner.

The par value of the 12 FHLBanks’ outstanding consolidated obligations, including consolidated obligations issued by the Bank, was $691,868 and $796,374 as of December 31, 2011 and 2010, respectively. Regulations require each FHLBank to maintain, in the aggregate, unpledged qualifying assets equal to that FHLBank’s consolidated obligations outstanding. Qualifying assets are defined as cash; secured advances; assets with an assessment or rating at least equivalent to the current assessment or rating of the consolidated obligations; obligations of or fully guaranteed by the United States; mortgages guaranteed or insured by the United States or its agencies; participations, mortgages, or other securities of or issued by certain government-sponsored enterprises; and such securities as fiduciary and trust funds may invest in under the laws of the state in which the FHLBank is located. The Bank held unpledged qualifying assets of $125,062 and $131,532 as of December 31, 2011 and 2010, respectively, compared to a book value of $114,992 and $119,113 in consolidated obligations as of December 31, 2011 and 2010, respectively.

General Terms. Consolidated obligations are issued with either fixed-rate coupon payment terms or variable-rate coupon payment terms that use a variety of indices for interest-rate resets including the London Interbank Offered Rate (LIBOR), Constant Maturity Treasury (CMT), and others. To meet the expected specific needs of certain investors in consolidated obligations, both fixed-rate consolidated obligation bonds and variable-rate consolidated obligation bonds also may contain certain features, which may result in complex coupon payment terms and call options. When such consolidated obligations are issued, the Bank generally enters into derivatives containing offsetting features that, in effect, convert the terms of the consolidated obligation bond to those of a simple variable-rate consolidated obligation bond.

These consolidated obligations, beyond having fixed-rate or simple variable-rate coupon payment terms, also may have the following broad term regarding either principal repayment or coupon payment terms:

Optional Principal Redemption Consolidated Obligation Bonds (callable bonds) that the Bank may redeem in whole or in part at its discretion on predetermined call dates according to the terms of the consolidated obligation bond offerings.

With respect to interest payments, consolidated obligation bonds also may have the following terms:

Step-up/down Consolidated Obligation Bonds have coupons at fixed rates for specified intervals over the lives of the consolidated obligation bonds. At the end of each specified interval, the coupon rate increases (decreases) or steps up (steps down). These consolidated obligation bond issues generally contain call provisions enabling the bonds to be called at the Bank’s discretion; and

116

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Variable-rate Capped Floater Consolidated Obligation Bonds pay interest at variable rates subject to an interest-rate ceiling.

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

	As of December 31,
	2011		2010
Fixed-rate	$	84,571	$	73,779
Step up/down		2,978		7,686
Simple variable-rate		1,850		12,432
Variable-rate capped floater		20		30
Total par value	$	89,419	$	93,927

At December 31, 2011 and 2010, 81.9 percent and 77.3 percent, respectively, of the Bank’s fixed-rate consolidated obligation bonds were swapped and 6.42 percent and 0.24 percent, respectively, of the Bank’s variable-rate consolidated obligation bonds were swapped.

Redemption Terms. The following is a summary of the Bank’s participation in consolidated obligation bonds outstanding, by year of contractual maturity:

	As of December 31,
	2011				2010
	Amount		Weighted-     average Interest Rate (%)		Amount		Weighted-     average Interest Rate (%)
Due in one year or less	$	48,163		0.57	$	46,987		0.76
Due after one year through two years		20,987		1.83		13,751		1.50
Due after two years through three years		7,927		2.40		14,097		2.63
Due after three years through four years		2,083		2.65		4,378		3.70
Due after four years through five years		4,005		3.79		4,660		1.89
Due after five years		6,254		3.97		10,054		4.19
Total par value		89,419		1.46		93,927		1.70
Premiums		101				127
Discounts		(38)				(48)
Hedging adjustments		1,180				1,192
Total	$	90,662			$	95,198

The Bank’s consolidated obligation bonds outstanding by call feature:

	As of December 31,
	2011		2010
Noncallable	$	60,794	$	69,248
Callable		28,625		24,679
Total par value	$	89,419	$	93,927

117

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

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

	As of December 31,
	2011		2010
Due or callable in one year or less	$	60,321	$	61,505
Due or callable after one year through two years		17,467		11,329
Due or callable after two years through three years		3,284		10,477
Due or callable after three years through four years		1,110		2,685
Due or callable after four years through five years		2,870		1,062
Due or callable after five years		4,367		6,869
Total par value	$	89,419	$	93,927

Consolidated Obligation Discount Notes. Consolidated obligation discount notes are issued to raise short-term funds. Consolidated obligation discount notes are consolidated obligations with 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 Bank’s participation in consolidated obligation discount notes was as follows:

	Book Value		Par Value		Weighted-     average Interest     Rate (%)
As of December 31, 2011	$	24,330	$	24,331		0.03
As of December 31, 2010	$	23,915	$	23,919		0.14

At December 31, 2011 and 2010, 4.64 percent and 5.41 percent, respectively, of the Bank’s fixed-rate consolidated obligation discount notes were swapped to a variable rate.

Concessions on Consolidated Obligations. Unamortized concessions were $17 and $22 as of December 31, 2011 and 2010, respectively, and are included in “Other assets” on the Statements of Condition. Amortization of such concessions is included in consolidated obligation interest expense and totaled $19, $34, and $42 during the years ended December 31, 2011, 2010, and 2009, respectively.

Note 14—Assessments

Affordable Housing Program. Annually, the FHLBanks must set aside for the AHP the greater of $100 or 10 percent of each FHLBank’s regulatory income. Regulatory income is defined as GAAP income before interest expense related to mandatorily redeemable capital stock and the assessment for AHP, but after any assessment for REFCORP. The AHP and REFCORP assessments were calculated simultaneously due to their interdependence on each other. The Bank accrues this expense monthly based on its regulatory income before assessments. The Bank reduces the AHP liability as members use subsidies.

If the Bank experienced a regulatory loss during a quarter, but still had regulatory income for the year, the Bank’s obligation to the AHP would be calculated based on the Bank’s year-to-date regulatory income. If the Bank had regulatory income in subsequent quarters, it would be required to contribute additional amounts to

118

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

meet its calculated annual obligation. If the Bank experienced a regulatory loss for a full year, the Bank would have no obligation to the AHP for the year, since each FHLBank’s required annual AHP contribution is limited to its annual regulatory income. If the aggregate 10 percent calculation described above were less than $100 for all 12 FHLBanks, each FHLBank would be required to assure that the aggregate contribution of the FHLBanks equals $100. The pro ration would be made on the basis of an FHLBank’s income in relation to the income of all FHLBanks for the previous year. If an FHLBank finds that its required contributions are contributing to the financial instability of that FHLBank, it may apply to the Finance Agency for a temporary suspension of its contributions. There was no shortfall in 2011, 2010, or 2009. No FHLBank made such an application in 2011, 2010, or 2009. The Bank had outstanding principal in AHP-related advances of $59 and $64 as of December 31, 2011 and 2010, respectively.

A rollforward of the Bank’s AHP liability is as follows:

	For the Years Ended December 31,
	2011		2010		2009
Balance, beginning of year	$	126	$	125	$	139
AHP assessments		21		31		32
Subsidy usage, net		(38)		(30)		(46)
Balance, end of year	$	109	$	126	$	125

REFCORP. Prior to the satisfaction of the FHLBanks’ REFCORP obligation, each FHLBank was required to make payments to REFCORP (20 percent of annual GAAP net income before REFCORP assessments and after payment of AHP assessments) until the total amount of payments actually made was equivalent to a $300 million annual annuity whose final maturity date was April 15, 2030. The Finance Agency shortened or lengthened the period during which the FHLBanks made payments to REFCORP based on actual payments made relative to the referenced annuity. The Finance Agency, in consultation with the U.S. Secretary of the Treasury, selected the appropriate discounting factors used in calculating the annuity.

A rollforward of the Bank’s REFCORP liability is as follows:

	For the Years Ended December 31,
	2011		2010		2009
Balance, beginning of year	$	20	$	21	$	(14)
REFCORP assessments		22		69		71
Payments during the year		(42)		(70)		(36)
Balance, end of year	$	—	$	20	$	21

The REFCORP balance as of December 31, 2008 represents an overpayment of the 2008 REFCORP assessments by the Bank. The Bank used its overpayment as a credit against its 2009 REFCORP assessments.

Note 15—Capital and Mandatorily Redeemable Capital Stock

Capital. The Bank is subject to three regulatory capital requirements under its capital plan and Finance Agency regulations. First, the Bank must maintain permanent capital at all times in an amount at least equal to the sum of its credit risk capital requirement, its market risk capital requirement, and its operations risk capital requirement,

119

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

calculated in accordance with the rules and regulations of the Finance Agency. Only “permanent capital,” defined by the FHLBank Act and regulations as retained earnings (determined in accordance with GAAP) and the amounts paid-in for Class B stock, satisfies the risk-based capital requirement. The Finance Agency may require the Bank to maintain a greater amount of permanent capital than is required by the risk-based capital requirement as defined.

Second, the FHLBank Act requires the Bank to maintain at all times total capital in an amount equal to at least four percent of total assets.

Third, the FHLBank Act requires the Bank to maintain at all times weighted-leverage capital in an amount equal to at least five percent of total assets. “Total capital” is defined in the regulations as the sum of permanent capital, the amount paid-in for Class A stock (if any), the amount of the Bank’s general allowance for losses (if any), and the amount of any other instruments identified in the capital plan and approved by the Finance Agency. As of December 31, 2011, the Bank has not issued any Class A stock and has no general allowance for losses or any other instruments identified in the capital plan and approved by the Finance Agency; therefore, the Bank’s total capital is equal to its permanent capital. “Weighted-leverage capital” is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times. It should be noted that, although mandatorily redeemable capital stock is not included in capital for financial reporting purposes, such outstanding stock is considered capital for determining compliance with these regulatory capital requirements.

The Bank was in compliance with the Finance Agency’s regulatory capital rules and requirements as shown in the following table:

	As of December 31,
	2011				2010
	Required		Actual		Required		Actual
Risk based capital	$	1,951	$	7,258	$	2,377	$	8,877
Total capital-to-assets ratio		4.00%		5.79%		4.00%		6.74%
Total regulatory capital(1)	$	5,011	$	7,258	$	5,272	$	8,877
Leverage ratio		5.00%		8.69%		5.00%		10.10%
Leverage capital	$	6,264	$	10,887	$	6,590	$	13,316

⁽¹⁾  Mandatorily redeemable capital stock is considered capital for regulatory purposes, and “total regulatory capital” includes the Bank’s $286 and $529 in mandatorily redeemable capital stock at December 31, 2011 and 2010, respectively.

The Bank offers two subclasses of Class B stock, each of which is issued, redeemed, and repurchased at a par value of $100 per share. Member shares cannot be purchased or sold except between the Bank and its members at $100 per share par value. Shares of subclass B1 capital stock are issued to meet the membership stock requirement under the capital plan and shares of subclass B2 capital stock are issued to meet the activity-based stock requirement under the capital plan. Activity-based stock held by a member is that amount of subclass B2 capital stock that the member is required to own for as long as certain transactions between the Bank and the member remain outstanding. The manner in which the activity-based stock requirement is determined under the capital plan is set forth below.

The minimum stock requirement for each member is the sum of the membership stock requirement and the activity-based stock requirement. The capital plan permits the Bank’s board of directors to set the membership and activity-based stock requirements within a range as set forth in the capital plan. As of December 31, 2011, the membership stock requirement was an amount of subclass B1 capital stock equal to 0.15 percent (15 basis

120

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

points) of the member’s total assets as of December 31, 2010, subject to a cap of $26. The membership stock requirement is recalculated at least annually by March 31, using the member’s total assets as of the preceding calendar year-end. As of December 31, 2011, the activity-based stock requirement was an amount of subclass B2 capital stock equal to the sum of the following:

• 4.50 percent of the member’s outstanding par value of advances; and

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

The activity-based stock requirement also may include a percentage of any outstanding balance of acquired member assets (such as single-family residential mortgage loan assets), although this percentage was set at zero at December 31, 2011.

The FHLBank Act and Finance Agency regulations require that the minimum stock requirement for members must be sufficient to enable the Bank to meet its minimum regulatory capital requirement. Therefore, from time to time the Bank’s board of directors may adjust the membership stock requirement and the activity-based stock requirement within specified ranges set forth in the capital plan. Any adjustment outside the ranges would require an amendment to the capital plan and Finance Agency approval. Each member is required to comply promptly with any adjustment to the minimum stock requirement. The FHLBank Act provides that the Bank may repurchase, at its sole discretion, any member’s capital stock investment that exceeds the required minimum amount (excess capital stock). Finance Agency rules limit the ability of the Bank to create member excess stock under certain circumstances. The Bank may not pay dividends in the form of capital stock or issue excess capital stock to any member if the Bank’s excess capital stock exceeds one percent of its total assets or if the issuance of excess capital stock would cause the Bank’s excess capital stock to exceed one percent of its total assets. At December 31, 2011, the Bank’s excess capital stock outstanding was 0.92 percent of its total assets.

A member may obtain redemption of its excess Class B capital stock at par value payable in cash five years after providing written notice to the Bank. The Bank, at its option, may repurchase a member’s excess capital stock before expiration of the five-year notice period. The Bank’s authority to redeem or repurchase capital stock is subject to a number of limitations.

The Bank’s board of directors may, but is not required to, declare and pay non-cumulative dividends out of previously unrestricted retained earnings and current earnings in either cash or capital stock in compliance with Finance Agency rules. All shares of capital stock share in any dividend without preference. Dividends are computed on the average daily balance of capital stock outstanding during the relevant time period. The Bank may not pay a dividend if the Bank is not in compliance with any of its regulatory capital requirements or if the payment, if made, would cause the Bank to fail to meet any of its regulatory capital requirements.

As of December 31, 2011 and 2010, the 10 largest holders of capital stock held $3,375 and $4,414, respectively, of the total regulatory capital stock of the Bank.

Mandatorily Redeemable Capital Stock. The Bank reclassifies capital stock subject to redemption from capital to a liability once a member exercises a written redemption right, gives notice of intent to withdraw from membership, or attains non-member status by merger or acquisition, charter termination, or involuntary termination from membership. Shares of capital stock meeting these definitions are reclassified to a liability at fair value. Dividends related to capital stock classified as a liability are accrued at the expected dividend rate and reported as interest expense in the Statements of Income. Dividends on mandatorily redeemable capital stock, recorded as interest expense, were $4 for the year ended December 31, 2011 and $2 for the years ended December 31, 2010 and 2009. The repayment of these mandatorily redeemable financial instruments is reflected as a financing cash outflow in the Statements of Cash Flows.

121

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

The following table provides the activity in mandatorily redeemable capital stock:

	For the Years Ended December 31,
	2011		2010		2009
Balance, beginning of year	$	529	$	188	$	44
Capital stock subject to mandatory redemption reclassified from capital during the year due to:
Attainment of nonmember status		149		424		2,446
Withdrawal		4		—		3
Other redemptions		—		—		4
Redemption of mandatorily redeemable capital stock		(369)		(57)		(10)
Capital stock no longer subject to redemption due to the transfer of stock from a nonmember to a member		(27)		(26)		(2,299)
Balance, end of year	$	286	$	529	$	188

The Bank reclassified $1,848 in capital stock held by Countrywide Bank, FSB (Countrywide) from capital to mandatorily redeemable capital stock upon termination of its membership with the Bank during the first quarter of 2009. Bank of America Corporation converted Countrywide into a national bank and merged it into Bank of America, National Association, a member of the Bank, on April 27, 2009. Upon the merger, the mandatorily redeemable capital stock of Countrywide became capital stock of Bank of America, National Association under the Bank’s capital plan and was reclassified from mandatorily redeemable capital stock to capital stock.

As of December 31, 2011, the Bank’s outstanding mandatorily redeemable capital stock consisted of B1 membership stock and B2 activity-based stock. The Bank is not required to redeem activity-based stock until the later of the expiration of the redemption period, which is five years after notification is received, or until the activity no longer remains outstanding.

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

	As of December 31,
	2011		2010
Due in one year or less	$	4	$	—
Due after one year through two years		8		8
Due after two years through three years		52		12
Due after three years through four years		122		137
Due after four years through five years		99		366
Due after five years		1		6
Total	$	286	$	529

A member may cancel or revoke its written notice of redemption or its notice of withdrawal from membership at any time prior to the end of the five-year redemption period, subject to payment of a cancellation fee as set forth in the capital plan. If a member cancels its written notice of redemption or notice of withdrawal, the Bank will reclassify mandatorily redeemable capital stock from a liability to capital. After the reclassification, dividends on the capital stock would no longer be classified as interest expense.

122

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Note 16—Accumulated Other Comprehensive Loss

Components comprising other comprehensive (loss) income were as follows:

	For the Years Ended December 31,
	2011		2010		2009
Benefit plans:
Net actuarial loss	$	(3)	$	(5)	$	—
Benefit plans, net		(3)		(5)		—
Noncredit portion of other-than-temporary losses on available-for-sale securities:
Change in unrealized losses on available-for-sale securities		(69)		404		430
Noncredit portion of other-than-temporary impairment losses on available-for-sale securities		—		—		(200)
Reclassification adjustment of noncredit portion of impairment losses included in net income related to available-for-sale securities		100		104		162
Noncredit portion of other-than-temporary impairment losses on available-for-sale securities, net		31		508		392
Noncredit portion of other-than-temporary impairment losses on held-to-maturity securities		(37)		(161)		(952)
Other comprehensive (loss) income	$	(9)	$	342	$	(560)

Components comprising accumulated other comprehensive loss were as follows:

	Benefit Plans		Available-for- sale  Securities Noncredit Other-Than- Temporary- Impairment Losses		Held-tomaturity Securities Noncredit Other-Than- Temporary-     Impairment Losses		Total
Balance, December 31, 2010	$	(10)	$	(392)	$	—	$	(402)
Other comprehensive (loss) income during the period		(3)		31		(37)		(9)
Reclassification of noncredit portion of other-than-temporary impairment losses on held-to-maturity securities to available-for-sale securities		—		(37)		37		—
Balance, December 31, 2011	$	(13)	$	(398)	$	—	$	(411)

Note 17—Employee Retirement Plans

The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra Plan), a tax-qualified defined-benefit pension plan. The Pentegra Plan is treated as a multiemployer plan for accounting purposes, but operates as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. As a result, certain multiemployer plan disclosures, including the certified zone status, are not applicable to the Pentegra Plan. Under the Pentegra Plan, contributions made by a participating employer may be used to provide benefits to employees of other participating employers because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer. Also, in the event a participating employer is unable to meet its contribution requirements, the required contributions for the other participating employers could increase proportionately. The Pentegra Plan covers substantially all officers and employees of the Bank hired before March 1, 2011.

123

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

The Pentegra Plan operates on a fiscal year from July 1 through June 30. The Pentegra Plan files one Form 5500 on behalf of all employers who participate in the plan. The Employer Identification Number is 13-5645888 and the three-digit plan number is 333. There are no collective bargaining agreements in place at the Bank.

The Pentegra Plan’s annual valuation process includes calculating the plan’s funded status and separately calculating the funded status of each participating employer. The funded status is defined as the market value of assets divided by the funding target (100% of the present value of all benefit liabilities accrued at that date). As permitted by ERISA, the Pentegra Plan accepts contributions for the prior plan year up to eight and a half months after the asset valuation date. As a result, the market value of assets at the valuation date (July 1) will increase by any subsequent contributions designated for the immediately preceding plan year ended June 30.

The most recent Form 5500 available for the Pentegra Plan is for the year ended June 30, 2010. For the Pentegra Plan years ended June 30, 2010 and 2009, the Bank’s contribution was not more than five percent of the total contributions to the Pentegra Plan.

The following table presents information on Pentegra Plan net pension cost and funded status:

	2011		2010		2009
Net pension cost charged to compensation and benefit expense for the year ended December 31	$	9	$	6	$	4
Pentegra Plan funded status as of July 1(1)		90.01%		85.81%		93.74%
Bank’s funded status as of the plan year end		88.82%		92.49%		104.24%

⁽¹⁾  For the year ended December 31, 2011, based on cash contributions made through December 31, 2011, which were designated for and credited to the plan year ended June 30, 2011 (and included in the valuation as of July 1, 2011). The funded status may increase because the plan’s participants are permitted to make contributions through March 15, 2012 for the plan year ended June 30, 2011.

The Bank also participates in a qualified, defined contribution plan. The Bank’s contribution to this plan is equal to a percentage of voluntary contributions, subject to certain limitations. The Bank contributed $2 to this plan during the years ended December 31, 2011, 2010, and 2009.

The Bank offers a supplemental nonqualified defined contribution retirement plan to eligible executives. The Bank’s contribution to this plan is equal to a percentage of voluntary contributions. The Bank contributed less than $1 to this plan during the years ended December 31, 2011, 2010, and 2009.

In addition, the Bank maintains a nonqualified deferred compensation plan, available to Bank directors and officers at the senior vice president level and above, which is, in substance, an unfunded supplemental savings plan. The plan’s liability consists of the accumulated compensation deferrals and accrued earnings on the deferrals. The Bank’s minimum obligation from this plan was $2 as of December 31, 2011 and 2010. Operating expense includes deferred compensation and accrued earnings of less than $1 during the years ended December 31, 2011, 2010, and 2009.

124

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

The Bank offers a supplemental nonqualified defined benefit pension plan to eligible executives and a postretirement health benefit plan to eligible retirees. There are no funded plan assets that have been designated to provide supplemental retirement plan or postretirement health benefits. The obligations and funding status of the Bank’s supplemental defined benefit pension plan and postretirement health benefit plan at December 31, 2011 and 2010 were as follows:

	Supplemental Defined     Benefit Pension Plan				Postretirement Health     Benefit Plan
	2011		2010		2011		2010
Change in benefit obligation:
Benefit obligation at beginning of year	$	19	$	14	$	8	$	7
Service cost		1		1		1		—
Interest cost		1		1		1		—
Actuarial loss		2		4		2		1
Benefits paid		—		(1)		—		—
Settlement		(3)		—		—		—
Projected benefit obligation at end of year		20		19		12		8
Change in plan assets:
Fair value of plan assets at beginning of year		—		—		—		—
Employer contributions		—		1		—		—
Benefits paid		—		(1)		—		—
Fair value of plan assets at end of year		—		—		—		—
Funded status at end of year	$	(20)	$	(19)	$	(12)	$	(8)

Amounts recognized in “Other liabilities” on the Statements of Condition for the Bank’s supplemental defined benefit pension plan and postretirement health benefit plan were $32 and $27 as of December 31, 2011 and 2010, respectively.

Amounts recognized in accumulated other comprehensive loss for the Bank’s supplemental defined benefit pension plan and postretirement health benefit plan at December 31, 2011 and 2010 were as follows:

	Supplemental Defined Benefit Pension Plan				Postretirement Health Benefit Plan
	2011		2010		2011			2010
Net loss	$	10	$	9	$	6		$	4
Prior service credit		—		—		(3	)		(3	)
Total amount recognized	$	10	$	9	$	3		$	1

The accumulated benefit obligation for the supplemental defined benefit pension plan was $12 at December 31, 2011 and 2010.

125

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Components of the net periodic benefit cost and other amounts recognized in other comprehensive loss for the Bank’s supplemental defined benefit pension plan and postretirement health benefit plan for the years ended December 31, 2011, 2010, and 2009 were as follows:

	Supplemental Defined Benefit Pension Plan						Postretirement Health Benefit Plan
	2011		2010		2009		2011		2010		2009
Net periodic benefit cost:
Service cost	$	1	$	1	$	1	$	1	$	1	$	—
Interest cost		1		1		1		1		1		1
Amortization of prior service credit		—		—		—		(1)		(1)		(1)
Amortization of net loss		1		—		1		—		—		—
Settlement loss		1		—		—		—		—		—
Net periodic benefit cost		4		2		3		1		1		—
Other changes in benefit obligations recognized in other comprehensive loss
Net loss		2		4		—		1		1		—
Amortization of net loss		(1)		—		(1)		—		—		—
Amortization of prior service credit		—		—		—		1		1		1
Settlement loss		(1)		—		—		—		—		—
Total recognized in other comprehensive loss		—		4		(1)		2		2		1
Total recognized in periodic benefit cost and other comprehensive loss	$	4	$	6	$	2	$	3	$	3	$	1

The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost during the next fiscal year are as follows:

	Supplemental Defined     Benefit Pension Plan		Postretirement Health     Benefit Plan		Total
Net loss	$	1	$	—	$	1
Prior service credit		—		(1)		(1)
Total	$	1	$	(1)	$	—

The measurement date used to determine the Bank’s 2011 benefit obligation was December 31, 2011.

Key assumptions used for the actuarial calculations to determine benefit obligations for the Bank’s supplemental defined benefit pension plan and postretirement health benefit plan for the years ended December 31, 2011 and 2010 were as follows:

	Supplemental Defined Benefit Pension Plan (%)				Postretirement Health Benefit Plan (%)
	2011		2010		2011		2010
Discount rate		3.73		4.53		4.40		5.55
Rate of compensation increase		5.50		5.50		N/A		N/A

126

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Key assumptions used for the actuarial calculations to determine net periodic benefit cost for the Bank’s supplemental defined benefit pension plan and postretirement health benefit plan for the years ended December 31, 2011, 2010, and 2009 were as follows:

	Supplemental Defined Benefit Pension Plan (%)						Postretirement Health Benefit Plan (%)
	2011		2010		2009		2011		2010		2009
Discount rate		4.53		5.30		5.85		5.55		5.96		6.96
Rate of compensation increase		5.50		5.50		5.50		N/A		N/A		N/A

The discount rate used for the years ended December 31, 2011, 2010, and 2009 was determined using a discounted cash flow approach, which incorporates matching the timing and amount of each expected future benefit payment against the Citigroup Pension Discount Curve.

Assumed health-care cost trend rates for the Bank’s postretirement health benefit plan were as follows:

	As of December 31,
	2011		2010
Assumed for next year (%)		7.50		7.50
Ultimate rate (%)		5.00		5.00
Year that ultimate rate is reached		2016		2016

As of December 31, 2011, a one percentage point change in the assumed health-care cost trend rates would have the following effects:

	One Percentage Point
	Increase		Decrease
Effect on total service and interest cost components	$	—	$	—
Effect on accumulated postretirement benefit obligation		—		(1)

The supplemental defined benefit pension plan and postretirement health benefit plan are not funded plans; therefore, the Bank will not make contributions to them in 2012 except for the payment of benefits.

The benefits the Bank expects to pay in each of the next five years and subsequent five years for the supplemental defined benefit pension plan are listed in the table below:

Years	Supplemental Defined     Benefit Pension Plan
2012	$	1
2013		2
2014		1
2015		2
2016		2
2017-2021		10

The benefits the Bank expects to pay for the postretirement health benefit plan for the years 2012 through 2016 is less than $1 per year and for 2017 through 2021 the amount expected to be paid totals $2.

127

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Note 18—Derivatives and Hedging Activities

Nature of Business Activity

The Bank is exposed to interest-rate risk primarily from the effect of interest rate changes on its interest-earning assets and funding sources which finance these assets. The goal of the Bank’s interest-rate risk management strategies is not to eliminate interest-rate risk, but to manage it within appropriate limits. To mitigate the risk of loss, the Bank has established policies and procedures, which include guidelines on the amount of exposure to interest rate changes it is willing to accept. In addition, the Bank monitors the risk to its interest income, net interest margin and average maturity of interest-earning assets and funding sources.

The Bank enters into derivatives to manage the interest-rate risk exposures inherent in its otherwise unhedged assets and funding positions, to achieve the Bank’s risk management objectives, and to act as an intermediary between its members and counterparties. Finance Agency regulations and the Bank’s risk management policy prohibit trading in or the speculative use of these derivative instruments and limit credit risk arising from these instruments. The use of derivatives is an integral part of the Bank’s financial management strategy.

The most common ways in which the Bank uses derivatives are to:

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

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

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

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

• protect the value of existing asset or liability positions;

• manage embedded options in assets and liabilities; and

• achieve overall asset/liability management objectives.

Application of Derivatives

General. The Bank may use derivatives to, in effect, adjust the term, repricing frequency, or option characteristics of financial instruments to achieve its risk management and funding objectives. The Bank uses derivatives in three ways: (1) as a fair value hedge of an underlying financial instrument or a firm commitment; (2) as an intermediary transaction; or (3) as a non-qualifying hedge for purposes of asset or liability management. In addition to using derivatives to manage mismatches of interest rates between assets and liabilities, the Bank also uses derivatives to manage embedded options in assets and liabilities, to hedge the market value of existing assets and liabilities, to hedge the duration risk of prepayable instruments, to offset exactly other derivatives executed with members (when the Bank serves as an intermediary) and to reduce funding costs.

The Bank reevaluates its hedging strategies from time to time and may change the hedging techniques it uses or adopt new strategies.

Bank management uses derivatives when they are considered to be the most cost-effective alternative to achieve the Bank’s financial and risk management objectives. Accordingly, the Bank may enter into derivatives that do not qualify for hedge accounting (non-qualifying hedges).

128

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Types of Derivatives

The Bank may use the following derivatives to reduce funding costs and to manage its exposure to interest-rate risks inherent in the normal course of business.

Interest-Rate Swaps. An interest-rate swap is an agreement between two entities to exchange cash flows in the future. The agreement sets the dates on which the cash flows will be paid and the manner in which the cash flows will be calculated. One of the simplest forms of an interest-rate swap involves the promise by one party to pay cash flows equivalent to the interest on a notional principal amount at a predetermined fixed rate for a given period of time. In return for this promise, this party receives cash flows equivalent to the interest on the same notional principal amount at a variable-rate for the same period of time. The variable rate received by the Bank in most interest-rate swap agreements is LIBOR.

Swaptions. A swaption is an option on a swap that gives the buyer the right to enter into a specified interest-rate swap at a certain time in the future. When used as a hedge, a swaption can protect the Bank when it is planning to lend or borrow funds in the future against future interest rate changes. The Bank purchases both payer swaptions and receiver swaptions. A payer swaption is the option to make fixed interest payments at a later date and a receiver swaption is the option to receive fixed interest payments at a later date.

Interest-Rate Cap and Floor Agreements. In an interest-rate cap agreement, a cash flow is generated if the price or rate of an underlying variable rises above a certain threshold (or cap) price. In an interest-rate floor agreement, a cash flow is generated if the price or rate of an underlying variable falls below a certain threshold (or floor) price. Caps may be used in conjunction with liabilities and floors may be used in conjunction with assets. Caps and floors are designed as protection against the interest rate on a variable-rate asset or liability rising above or falling below a certain level.

Types of Hedged Items

The Bank documents at inception all relationships between derivatives designated as hedging instruments and hedged items, its risk management objectives and strategies for undertaking various hedge transactions and its method of assessing effectiveness. This process includes linking all derivatives that are designated as fair value hedges to (1) assets and liabilities on the Statements of Condition or (2) firm commitments. The Bank also formally assesses (both at the hedge’s inception and at least quarterly on an ongoing basis) whether the derivatives that it uses in hedging relationships have been effective in offsetting changes in the fair value of hedged items attributable to the risk being hedged and whether those derivatives may be expected to remain effective in future periods. The Bank uses regression analyses to assess the effectiveness of its hedges.

Consolidated Obligations. While consolidated obligations are the joint and several obligations of the FHLBanks, each FHLBank has consolidated obligations for which it is the primary obligor. The Bank enters into derivatives to hedge the interest-rate risk associated with its specific debt issuances in conjunction with associated interest-rate risk on advances. The Bank manages the risk arising from changing market prices and volatility of a consolidated obligation by matching the cash inflow on the derivative with the cash outflow on the consolidated obligation. For instance, in a typical transaction, fixed-rate consolidated obligations are issued for the Bank, and the Bank simultaneously enters into a matching derivative in which the counterparty pays fixed cash flows to the Bank designed to mirror in timing and amount the cash outflows the Bank pays on the consolidated obligation. The Bank pays a variable cash flow that closely matches the interest payments it receives on short-term or variable-rate advances (typically one- or three-month LIBOR). These transactions are typically treated as fair-value hedges. This intermediation between the capital and swap markets permits the Bank to raise funds at lower costs than otherwise would be available through the issuance of simple fixed-rate consolidated obligations in the capital markets.

129

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Advances. The Bank offers a variety of advance structures to meet members’ funding needs. These advances may have maturities of up to 30 years with variable or fixed rates and may include early termination features or options. The Bank may use derivatives to adjust the repricing and/or options characteristics of advances in order to more closely match the characteristics of the Bank’s funding liabilities. In general, whenever a member executes a fixed-rate advance or a variable-rate advance with embedded options, the Bank simultaneously will execute a derivative with terms that offset the terms and embedded options in the advance. For example, the Bank may hedge a fixed-rate advance with an interest-rate swap where the Bank pays a fixed-rate coupon and receives a variable-rate coupon, effectively converting the fixed-rate advance to a variable-rate advance. This type of hedge is typically treated as a fair-value hedge.

Mortgage Assets. The Bank has invested in mortgage assets. The prepayment options embedded in mortgage assets may result in extensions or contractions in the expected repayment of these investments, depending on changes in estimated prepayment speeds. The Bank manages the interest-rate and prepayment risk associated with mortgages through a combination of debt issuance and derivatives. The Bank issues both callable and noncallable debt to achieve cash flow patterns and liability durations similar to those expected on the mortgage loans. The Bank may use derivatives to match the expected prepayment characteristics of the mortgages.

Options (interest-rate caps, interest-rate floors and/or options) also may be used to hedge prepayment risk on the mortgages, many of which are not identified to specific mortgages and, therefore, do not receive fair-value or cash-flow hedge accounting treatment. The Bank also may purchase interest-rate caps and floors, swaptions, callable swaps, calls, and puts to minimize the prepayment risk embedded in the mortgage loans. Although these derivatives are valid non-qualifying hedges against the prepayment risk of the loans, they do not receive either fair-value or cash-flow hedge accounting. These derivatives are marked-to-market through earnings.

Firm Commitments. Certain mortgage purchase commitments are considered derivatives. Mortgage purchase commitments are recorded on the balance sheet at fair value, with changes in fair value recognized in current-period earnings. When the mortgage purchase commitment derivative settles, the current market value of the commitment is included with the basis of the mortgage loan and amortized accordingly.

The Bank also may enter into a fair value hedge of a firm commitment for a forward starting advance through the use of an interest-rate swap. In this case, the swap will function as the hedging instrument for both the firm commitment and the subsequent advance. The basis movement associated with the firm commitment will be rolled into the basis of the advance at the time the commitment is terminated and the advance is issued. The basis adjustment will then be amortized into interest income over the life of the advance using the level-yield method.

Investments. The Bank invests in MBS, U.S. agency obligations, certificates of deposit, and the taxable portion of state or local housing finance agency obligations. The interest-rate and prepayment risks associated with these investment securities are managed through a combination of debt issuance and derivatives. The Bank may manage the prepayment and interest-rate risks by funding investment securities with consolidated obligations that have call features, or by hedging the prepayment risk with caps or floors, or by adjusting the duration of the securities by using derivatives to modify the cash flows of the securities. Investment securities may be classified as trading, available-for-sale or held-to-maturity.

The Bank also may manage the risk arising from changing market prices and volatility of investment securities classified as trading by entering into derivatives (non-qualifying hedges) that offset the changes in fair value of the securities.

130

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

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 risks of derivatives can be measured meaningfully on a portfolio basis that takes into account the derivatives, the item being hedged and any offsets between the two.

The following table summarizes the fair value of derivative instruments. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest.

	As of December 31,
	2011						2010
	Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities		Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities
Derivatives in hedging relationships:
Interest rate swaps	$	120,999	$	1,344	$	(4,467)	$	126,484	$	1,466	$	(4,460)
Total derivatives in hedging relationships		120,999		1,344		(4,467)		126,484		1,466		(4,460)
Derivatives not designated as hedging instruments:
Interest rate swaps		6,221		14		(567)		7,725		26		(526)
Interest rate caps or floors		12,500		64		(53)		8,000		53		(38)
Total derivatives not designated as hedging instruments		18,721		78		(620)		15,725		79		(564)
Total derivatives before netting and collateral adjustments	$	139,720		1,422		(5,087)	$	142,209		1,545		(5,024)
Netting adjustments				(1,377)		1,377				(1,473)		1,473
Cash collateral and related accrued interest				(27)		3,469				(67)		3,096
Total collateral and netting adjustments (1)				(1,404)		4,846				(1,540)		4,569
Derivative assets and derivative liabilities			$	18	$	(241)			$	5	$	(455)

⁽¹⁾  Amounts represent the effect of legally enforceable master netting agreements that allow the Bank to settle positive and negative positions and also cash collateral and related accrued interest held or placed with the same counterparties.

The following tables present the components of net (losses) gains on derivatives and hedging activities as presented in the Statements of Income:

	For the Years Ended December 31,
	2011		2010		2009
Derivatives and hedged items in fair value hedging relationships:
Interest rate swaps	$	144	$	196	$	470
Total net gains related to fair value hedge ineffectiveness		144		196		470
Derivatives not designated as hedging instruments:
Interest rate swaps		12		(23)		244
Interest rate caps or floors		(23)		(23)		(21)
Net interest settlements		(142)		(142)		(150)
Total net (losses) gains related to derivatives not designate as hedging instruments		(153)		(188)		73
Net (losses) gains on derivatives and hedging activities	$	(9)	$	8	$	543

131

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

The following tables present, by type of hedged item, the (losses) gains on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the Bank’s net interest income:

	For the Year Ended December 31, 2011
Hedged Item Type	Gains (Losses) on Derivative		Gains (Losses) on Hedged Item		Net Fair  Value Hedge Ineffectiveness		Effect of Derivatives on Net Interest Income (1)
Advances	$	(201)	$	347	$	146	$	(2,054)
Consolidated obligations:
Bonds		23		(25)		(2)		804
Discount notes		(2)		2		—		2
Total	$	(180)	$	324	$	144	$	(1,248)

⁽¹⁾  The net interest on derivatives in fair value hedge relationships is presented in the interest income or expense line item of the respective hedged item.

	For the Year Ended December 31, 2010
Hedged Item Type	Gains (Losses) on Derivative		Gains (Losses) on Hedged Item		Net Fair  Value Hedge Ineffectiveness		Effect of Derivatives on Net Interest Income (1)
Advances	$	541	$	(307)	$	234	$	(3,068)
Consolidated obligations:
Bonds		(10)		(25)		(35)		1,149
Discount notes		(6)		3		(3)		10
Total	$	525	$	(329)	$	196	$	(1,909)

⁽¹⁾  The net interest on derivatives in fair value hedge relationships is presented in the interest income or expense line item of the respective hedged item.

	For the Year Ended December 31, 2009
Hedged Item Type	Gains (Losses) on Derivative		Gains (Losses) on Hedged Item		Net Fair  Value Hedge Ineffectiveness		Effect of Derivatives on Net Interest Income (1)
Advances	$	4,673	$	(4,155)	$	518	$	(3,527)
Consolidated obligations:
Bonds		(1,201)		1,162		(39)		1,491
Discount notes		(49)		40		(9)		103
Total	$	3,423	$	(2,953)	$	470	$	(1,933)

⁽¹⁾  The net interest on derivatives in fair value hedge relationships is presented in the interest income or expense line item of the respective hedged item.

Managing Credit Risk on Derivatives

The Bank is subject to credit risk due to nonperformance by counterparties to the derivative agreements. The amount of counterparty risk depends on the extent to which master netting arrangements are included in such contracts to mitigate the risk. The Bank manages counterparty credit risk through credit analysis, collateral

132

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

requirements and adherence to the requirements set forth in Bank policies and Finance Agency regulations. Based on credit analyses and collateral requirements, Bank management presently does not anticipate any credit losses on its existing derivative agreements with counterparties as of December 31, 2011.

The following table presents credit risk exposure on derivative instruments, excluding circumstances where a counterparty’s pledged collateral to the Bank exceeds the Bank’s net position.

	As of December 31,
	2011		2010
Total net exposure at fair value (1)	$	45	$	71
Cash collateral held		27		66
Net positive exposure after cash collateral		18		5
Other collateral		5		5
Net exposure after collateral	$	13	$	—

⁽¹⁾  Includes net accrued interest receivable of $1 and $22 as of December 31, 2011 and 2010, respectively.

Certain of the Bank’s derivative instruments contain provisions that require the Bank to post additional collateral with its counterparties if there is deterioration in the Bank’s credit rating. If the Bank’s credit rating is lowered by a major credit rating agency, the Bank would be required to deliver additional collateral on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position (before cash collateral and related accrued interest) at December 31, 2011 was $3,711 for which the Bank has posted collateral of $3,469 in the normal course of business. If the Bank’s credit ratings had been lowered from its current rating to the next lower rating that would have triggered additional collateral to be delivered, the Bank would have been required to deliver up to an additional $145 of collateral (at fair value) to its derivative counterparties at December 31, 2011.

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 is not a derivatives dealer and thus does not trade derivatives for short-term profit.

Prior to September 19, 2008, Lehman Brothers Special Financing Inc. (LBSF) was a counterparty to the Bank on multiple derivative transactions. On September 19, 2008, the Bank terminated all of its derivative contracts with LBSF and determined that the net amount due to the Bank as a result of excess collateral held by LBSF was approximately $189. At that time, the Bank recorded a $189 receivable for the net amount due and a $170 reserve, with a corresponding increase to “Noninterest expense,” at September 30, 2008 based on management’s estimate of the probable amount that would be realized.

During the second quarter of 2010, the Bank and management of the Lehman bankruptcy estate concluded that the agreed-upon amount of the Bank’s claims on the Lehman estate was $175. Based on a financial disclosure report made available by the Lehman bankruptcy estate during the second quarter of 2010 and market prices for the sale of claims on the Lehman bankruptcy estate, Bank management’s estimate of the probable amount to be realized as of June 30, 2010 was $68. The Bank therefore increased its estimate of the probable amount to be realized related to the net receivable due from LBSF by $49, with a corresponding reduction to “Noninterest expense.”

133

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

During the third quarter of 2010, Bank management began negotiations with a third party for the sale of its claim on the Lehman bankruptcy estate. Based on these negotiations, Bank management’s estimate of the probable amount to be realized as of August 30, 2010 was $70. The Bank therefore increased its estimate of the probable amount to be realized related to the net receivable due from LBSF by $2, with a corresponding reduction to “Other expense.” On September 30, 2010, the Bank sold its claim on the Lehman bankruptcy estate for $70, the carrying value of the net receivable due from LBSF. For the year ended December 31, 2010, the total reduction to “Noninterest expense” related to the net receivable due from LBSF was $51.

Note 19—Estimated Fair Values

The Bank records trading securities, available-for-sale securities and derivative assets and liabilities at fair value on a recurring basis. Fair value is a market-based measurement and is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that holds the assets or owes the liability. In general, the transaction price will equal the exit price and, therefore, represent the fair value of the asset or liability at initial recognition. In determining whether a transaction price represents the fair value of the asset or liability at initial recognition, each reporting entity is required to consider factors specific to the transaction and the asset or liability, the principal or most advantageous market for the asset or liability, and market participants with whom the entity would transact in the market.

A fair value hierarchy is used to prioritize the inputs of valuation techniques used to measure fair value. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of how market-observable the fair value measurement is and defines the level of disclosure. The fair value hierarchy defines fair value in terms of a price in an orderly transaction between market participants to sell an asset or transfer a liability in the principal (or most advantageous) market for the asset or liability at the measurement date (an exit price). In order to determine the fair value or the exit price, entities must determine the unit of account, highest and best use, principal market, and market participants. These determinations allow the reporting entity to define the inputs for fair value and level of hierarchy.

Outlined below is the application of the “fair value hierarchy” to the Bank’s financial assets and financial liabilities that are carried at fair value.

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. As of December 31, 2011, the Bank did not carry any financial assets or liabilities at fair value hierarchy Level 1.

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. As of December 31, 2011, the types of financial assets and liabilities the Bank carried at fair value hierarchy Level 2 included trading securities and derivatives.

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are supported by little or no market activity and reflect the entity’s own assumptions. As of December 31, 2011, the Bank carried available-for-sale securities at fair value hierarchy Level 3.

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

134

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Fair Value on a Recurring Basis. The following tables present for each fair value hierarchy level, the Bank’s financial assets and financial liabilities that are measured at fair value on a recurring basis on its Statements of Condition:

	As of December 31, 2011
	Fair Value Measurements Using						Netting Adjustment (1)		Total
	Level 1		Level 2		Level 3
Assets
Trading securities:
Government-sponsored enterprises debt obligations	$	—	$	3,035	$	—	$	—	$	3,035
Other FHLBank’s bond		—		82		—		—		82
State or local housing agency debt obligations		—		3		—		—		3
Total trading securities		—		3,120		—		—		3,120
Available-for-sale securities:
Private-label MBS		—		—		2,942		—		2,942
Derivative assets:
Interest-rate related		—		1,422		—		(1,404)		18
Total assets at fair value	$	—	$	4,542	$	2,942	$	(1,404)	$	6,080
Liabilities
Derivative liabilities:
Interest-rate related	$	—	$	(5,087)	$	—	$	4,846	$	(241)
Total liabilities at fair value	$	—	$	(5,087)	$	—	$	4,846	$	(241)

⁽¹⁾  Amounts represent the effect of legally enforceable master netting agreements that allow the Bank to settle positive and negative positions and also cash collateral held or placed with the same counterparties.

	As of December 31, 2010
	Fair Value Measurements Using						Netting Adjustment (1)		Total
	Level 1		Level 2		Level 3
Assets
Trading securities:
Government-sponsored enterprises debt obligations	$	—	$	3,306	$	—	$	—	$	3,306
Other FHLBank’s bond		—		74		—		—		74
State or local housing agency debt obligations		—		3		—		—		3
Total trading securities		—		3,383		—		—		3,383
Available-for-sale securities:
Private-label MBS		—		—		3,319		—		3,319
Derivative assets:
Interest-rate related		—		1,545		—		(1,540)		5
Total assets at fair value	$	—	$	4,928	$	3,319	$	(1,540)	$	6,707
Liabilities
Derivative liabilities:
Interest-rate related	$	—	$	(5,024)	$	—	$	4,569	$	(455)
Total liabilities at fair value	$	—	$	(5,024)	$	—	$	4,569	$	(455)

⁽¹⁾  Amounts represent the effect of legally enforceable master netting agreements that allow the Bank to settle positive and negative positions and also cash collateral held or placed with the same counterparties.

135

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

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. Such reclassifications are reported as transfers in/out at fair value as of the beginning of the quarter in which the changes occur. There were no such transfers during the years ended December 31, 2011 and 2010.

The following table presents a reconciliation of available-for-sale securities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

	For the Years Ended December 31,
	2011		2010
Balance, beginning of year	$	3,319	$	2,256
Transfer of private-label MBS from held-to-maturity to available-for-sale		451		1,298
Total (losses) gains realized and unrealized:(1)
Included in net impairment losses recognized in earnings		(111)		(118)
Included in other comprehensive loss		20		496
Settlements		(737)		(613)
Balance, end of year	$	2,942	$	3,319

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

Described below are the Bank’s fair value measurement methodologies for financial assets and liabilities measured or disclosed at fair value.

Cash and Due from Banks. The estimated fair value approximates the recorded carrying value.

Interest-bearing Deposits. The estimated fair value is determined by calculating the present value of the expected future cash flows from the deposits and reducing this amount for accrued interest receivable. The discount rate used in these calculations are the rates for deposits with similar terms and represent market observable rates.

Federal Funds Sold. The estimated fair value is determined by calculating the present value of the expected future cash flows. The discount rates used in these calculations are the rates for federal funds with similar terms and represent market observable rates.

Investment Securities. The Bank obtains prices from four designated third-party pricing vendors when available to estimate the fair value of its investment securities. The pricing vendors use various proprietary models to price investment securities. The inputs to those models are derived from various sources including, but not limited to: 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.

Recently, the Bank conducted reviews of the four pricing vendors to confirm and further augment their understanding of the vendors’ pricing processes, methodologies and control procedures for agency and private-label MBS.

136

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Prior to December 31, 2011, the estimated fair value of investment securities was determined based on independent market-based prices received from up to four designated third-party pricing vendors, when available. The Bank established a preliminary estimated fair value for each of its investment securities by calculating the median of the prices received. The median price was generally accepted as an appropriate estimate of fair value unless the median price fell outside of certain tolerance thresholds established by the Bank or evidence suggested that using the median price would not be appropriate. If only one third-party price was received or if no third-party price was available, the Bank estimated the fair value of the security using an approved internal discounted cash flow model. Preliminary estimated fair values that were outside the tolerance thresholds established by the Bank, or those that management believed may not be appropriate based on all available information (including those limited instances in which only one price was received), were subject to further analysis. This further analysis included, but was not limited to, a comparison of the preliminary fair value estimate to prices of similar securities, a comparison to non-binding dealer estimates, or the use of an internal model.

Effective December 31, 2011, the Bank refined its method for estimating the fair values of investment securities. The Bank’s revised valuation technique first requires the establishment of a “median” price for each security.

All prices that are within a specified tolerance threshold of the median price are included in the “cluster” of prices that are averaged to compute a “default” price. Prices that are outside the threshold (“outliers”) are subject to further analysis (including, but not limited to, comparison to prices provided by an additional third-party valuation service, prices for similar securities, and/or non-binding dealer estimates) to determine if an outlier is a better estimate of fair value. If an outlier (or some other price identified in the analysis) is determined to be a better estimate of fair value, then the outlier (or the other price as appropriate) is used as the final price rather than the default price. If, on the other hand, the analysis does not provide evidence that an outlier (or outliers) is (are) in fact more representative of the fair value and that the default price is the best estimate, then the default price is used as the final price. In all cases, the final price is used to determine the fair value of the security.

If all prices received for a security are outside the tolerance threshold level of the median price, then there is no default price, and the final price is determined by an evaluation of all outlier prices as described above.

As an additional step for certain securities, the Bank reviewed the final fair value estimates of its private-label MBS holdings as of December 31, 2011 for reasonableness using an implied yield test. The Bank calculated an implied yield for certain of its private-label MBS using the estimated fair value derived from the process described above and the security’s projected cash flows from the Bank’s other-than-temporary impairment process and compared such yield to the market yield for comparable securities according to a third-party source to the extent comparable market yield data was available. Significant variances were evaluated in conjunction with all of the other available pricing information to determine whether an adjustment to the fair value estimate was appropriate. This additional verification process confirmed the final prices that were determined using the four third-party vendors.

As of December 31, 2011, four vendor prices were received for substantially all of the Bank’s investment securities holdings and the final prices for substantially all of those securities were computed by averaging the prices within the cluster. The refinement to the valuation technique did not have a significant impact on the estimated fair values of the Bank’s investment securities holdings as of December 31, 2011. 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, in those instances in which there were outliers or significant yield variances, the Bank’s additional analyses), the Bank believes 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.

137

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

Mortgage Loans Held for Portfolio. The estimated fair values for mortgage loans are determined based on quoted market prices of similar mortgage loans available in the pass-through securities market. These prices, however, can change rapidly based upon market conditions and are highly dependent upon the underlying prepayment assumptions.

Advances. The Bank determines the estimated fair values of advances by calculating the present value of expected future cash flows from the advances and excluding the amount of the accrued interest receivable. The discount rates used in these calculations are the replacement advance rates based on the market observable LIBOR curve for advances with similar terms as of December 31, 2011 and 2010, respectively. In accordance with the advances regulations, advances with a maturity or repricing period greater than six months require a prepayment fee sufficient to make the Bank financially indifferent to the borrower’s decision to prepay the advances, thereby removing prepayment risk from the fair value calculation.

Accrued Interest Receivable and Payable. The estimated fair value approximates the recorded carrying value.

Derivative Assets and Liabilities. The Bank calculates the fair value of derivatives using a present value of future cash flows discounted by a market observable rate, predominately LIBOR.

Derivative instruments are transacted primarily in the institutional dealer market and priced with observable market assumptions at a mid-market valuation point. The Bank does not provide a credit valuation adjustment based on aggregate exposure by derivative counterparty when measuring the fair value of its derivatives. This is because the collateral provisions pertaining to the Bank’s derivatives obviate the need to provide such a credit valuation adjustment. The fair values of the Bank’s derivatives take into consideration the effects of legally enforceable master netting agreements that allow the Bank to settle positive and negative positions and offset cash collateral with the same counterparty on a net basis. The Bank and each derivative counterparty have bilateral collateral thresholds that take into account both the Bank’s and the counterparty’s credit ratings. As a result of these practices and agreements, the Bank has concluded that the impact of the credit differential between the Bank and its derivative counterparties was mitigated to an immaterial level and no further adjustments were deemed necessary to the recorded fair values of derivative assets and liabilities on the Statements of Condition at December 31, 2011 and 2010.

Interest-bearing Deposits. The Bank determines estimated fair values of Bank deposits by calculating the present value of expected future cash flows from the deposits and reducing this amount for accrued interest payable. The discount rates used in these calculations are based on LIBOR.

Consolidated Obligations. The Bank calculates the fair value of consolidated obligation bonds and discount notes by using the present value of future cash flows using a cost of funds as the discount rate. The cost of funds discount curves are based primarily on the market observable LIBOR and to some extent on the Office of Finance cost of funds curve, which also is market observable.

Mandatorily Redeemable Capital Stock. The fair value of mandatorily redeemable capital stock is par value, including estimated dividends earned at the time of reclassification from capital to liabilities, until such amount is paid. Capital stock can be acquired by members only at par value and redeemed by the Bank at par value. Capital stock is not traded and no market mechanism exists for the exchange of capital stock outside the cooperative structure.

138

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

The following estimated fair value amounts have been determined by the Bank using available market information and the Bank’s best judgment of appropriate valuation methods. These estimates are based on pertinent information available to the Bank at December 31, 2011 and 2010. Although the Bank uses its best judgment in estimating the fair values of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology.

For example, because an active secondary market does not exist for a portion of the Bank’s financial instruments, in certain cases, fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change. Therefore, these estimated fair values are not necessarily indicative of the amounts that would be realized in current market transactions, although they do reflect the Bank’s judgment of how a market participant would estimate the fair value. The fair value table presented below does not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of assets versus liabilities.

The carrying values and estimated fair values of the Bank’s financial instruments were as follows:

	As of December 31,
	2011				2010
	Carrying       Value		Estimated       Fair Value		Carrying       Value		Estimated       Fair  Value
Assets:
Cash and due from banks	$	6	$	6	$	5	$	5
Interest-bearing deposits		1,203		1,203		2		2
Federal funds sold		12,630		12,629		15,701		15,701
Trading securities		3,120		3,120		3,383		3,383
Available-for-sale securities		2,942		2,942		3,319		3,319
Held-to-maturity securities		16,243		16,242		17,474		17,511
Mortgage loans held for portfolio, net		1,633		1,796		2,039		2,189
Advances		86,971		87,655		89,258		89,330
Accrued interest receivable		314		314		388		388
Derivative assets		18		18		5		5
Liabilities:
Interest-bearing deposits		(2,655)		(2,655)		(3,093)		(3,093)
Consolidated obligations, net:
Discount notes		(24,330)		(24,330)		(23,915)		(23,916)
Bonds		(90,662)		(91,839)		(95,198)		(95,993)
Mandatorily redeemable capital stock		(286)		(286)		(529)		(529)
Accrued interest payable		(286)		(286)		(357)		(357)
Derivative liabilities		(241)		(241)		(455)		(455)

Note 20—Commitments and Contingencies

As described in Note 13–Consolidated Obligations, consolidated obligations are backed only by the financial resources of the 12 FHLBanks. The Finance Agency may at any time require any FHLBank to make principal or interest payments due on any consolidated obligations, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation. No FHLBank has had to assume or pay the consolidated obligation of another FHLBank.

139

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

The Bank determined it is not necessary to recognize a liability for the fair value of the Bank’s joint and several liability for all of the consolidated obligations. The joint and several obligations are mandated by Finance Agency regulations and are not the result of arms-length transactions among the FHLBanks. The FHLBanks have no control over the amount of the guaranty or the determination of how each FHLBank would perform under the joint and several obligation. Accordingly, the Bank has not recognized a liability for its joint and several obligation related to other FHLBanks’ consolidated obligations as of December 31, 2011 and 2010. The par value of the FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable was $578,118 and $678,528 at December 31, 2011 and 2010, respectively, exclusive of the Bank’s own outstanding consolidated obligations.

The Bank issues standby letters of credit for the account of its members for a fee. A standby letter of credit is a financing arrangement between the Bank and its member. If the Bank is required to make payment for a beneficiary’s draw, the Bank in its discretion may convert such paid amount to an advance to the member and will require a corresponding activity-based capital stock purchase.

The Bank’s outstanding standby letters of credit were as follows:

	As of December 31,
	2011		2010
Outstanding notional		$        21,510		$        22,333
Original terms(1)		Less than 12 months to 20 years		Less than two months to 20 years
Final expiration year		2030		2030

⁽¹⁾  The Bank had one outstanding standby letter of credit for less than $1 as of December 31, 2010 that has no stated maturity date and is subject to renewal on an annual basis.

The carrying value of the guarantees related to standby letters of credit is recorded in other liabilities and amounted to $80 and $92 as of December 31, 2011 and 2010, respectively. Based on management’s credit analyses and collateral requirements, the Bank does not deem it necessary to record any additional liability on these commitments.

The Bank monitors the creditworthiness of its standby letters of credit based on an evaluation of the member. The Bank has established parameters for the measurement, review, classification, and monitoring of credit risk related to these standby letters of credit that results in an internal credit rating, which focuses primarily on an institution’s overall financial health and takes into account quality of assets, earnings, and capital position. In general, borrowers categorized into the highest risk rating category have more restrictions on the types of collateral they may use to secure standby letters of credit, may be required to maintain higher collateral maintenance levels and deliver loan collateral, and may face more stringent collateral reporting requirements.

The Bank did not have any commitments that unconditionally obligate the Bank to purchase closed mortgage loans as of December 31, 2011 and 2010. Such commitments would be recorded as derivatives at their fair values.

The Bank executes derivatives with major banks and broker-dealers and generally enters into bilateral collateral agreements. As of December 31, 2011 and 2010, the Bank had pledged, as collateral to broker-dealers who have market risk exposure from the Bank related to derivatives, securities with a carrying value of $0 and $37, respectively, which can be sold or repledged by those counterparties.

140

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

At December 31, 2011, the Bank had committed to the issuance of $3,492 (par value) in consolidated obligation bonds, of which $3,475 were hedged with associated interest rate swaps that had traded but not yet settled. At December 31, 2010, the Bank had committed to the issuance of $118 (par value) in consolidated obligation bonds, of which $115 were hedged with associated interest rate swaps that had traded but not yet settled.

The Bank charged to operating expenses net rental costs of $2 for the years ended December 31, 2011, 2010, and 2009.

Lease agreements for Bank premises generally provide for increases in the basic rentals resulting from increases in property taxes and maintenance expenses. Such increases are not expected to have a material effect on the Bank’s results of operations.

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

Note 21—Transactions with Members and their Affiliates and with Housing Associates

The Bank is a cooperative whose member institutions own almost all of the capital stock of the Bank. Former members own the remaining capital stock to support business transactions still carried on the Bank’s Statements of Condition. All holders of the Bank’s capital stock receive dividends on their investments, to the extent declared by the Bank’s board of directors. All advances are issued to members and eligible “housing associates” under the FHLBank Act, and mortgage loans held for portfolio are purchased from members. The Bank also maintains demand deposit accounts primarily to facilitate settlement activities that are related directly to advances and mortgage loan purchases. All transactions with members are entered into in the ordinary course of the Bank’s business. Transactions with any member that has an officer or director who also is a director of the Bank are subject to the same Bank policies as transactions with other members.

The Bank defines related parties as each of the other FHLBanks and those members with regulatory capital stock outstanding in excess of 10 percent of total regulatory capital stock. Based on this definition, one member institution, Bank of America, N.A., which held 17.7 percent of the Bank’s total regulatory capital stock as of December 31, 2011, was considered a related party. Total advances outstanding to Bank of America, N.A. were $16,039 and $25,040 as of December 31, 2011 and 2010, respectively. Total deposits held in the name of Bank of America, N.A. were less than $1 at December 31, 2011 and 2010. No mortgage loans or mortgage-backed securities were acquired from Bank of America, N.A. during the three years ended December 31, 2011.

Note 22—Transactions with Other FHLBanks

The Bank’s activities with other FHLBanks are summarized below and have been identified in the Statements of Condition, Statements of Income and Statements of Cash Flows.

Borrowings with Other FHLBanks. Occasionally, the Bank loans (or borrows) short-term funds to (from) other FHLBanks. There were no loans to or from other FHLBanks outstanding as of December 31, 2011 and 2010. Interest income on loans to other FHLBanks and interest expense on borrowings from other FHLBanks was less than $1 for the years ended December 31, 2011, 2010, and 2009.

141

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Dollars in millions, except per share amounts)

The following table summarizes the cash flow activities for loans to and borrowings from other FHLBanks:

	For the Years Ended December 31,
	2011		2010		2009
Investing activities:
Loans made to other FHLBanks	$	(859)	$	(390)	$	(398)
Principal collected on loans to other FHLBanks		859		390		398
Net change in loans to other FHLBanks	$	—	$	—	$	—
Financing activities:
Proceeds from short-term borrowings from other FHLBanks	$	3,066	$	1,372	$	1,706
Payments of short-term borrowings from other FHLBanks		(3,066)		(1,372)		(1,706)
Net change in borrowings from other FHLBanks	$	—	$	—	$	—

Investment in Other FHLBank Consolidated Obligation Bond. The Bank’s trading investment securities portfolio includes a consolidated obligation bond for which FHLBank Chicago is the primary obligor. The balance of this investment is presented in Note 5–Trading Securities. This consolidated obligation bond was purchased in the open market from a third party and is accounted for in the same manner as other similarly classified investments (see Note 2–Summary of Significant Accounting Policies). Interest income earned on the consolidated obligation bond on which FHLBank Chicago is the primary obligor totaled $8 for the years ended December 31, 2011 and 2010 and $11 for the year ended December 31, 2009.

Assumption of Other FHLBank Consolidated Obligation Bonds. The Bank may, from time to time, assume the outstanding primary liability of another FHLBank’s consolidated obligation bonds rather than issue new debt for which the Bank is the primary obligor. During the years ended December 31, 2011, 2010, and 2009, the par value of the consolidated obligation bonds transferred to the Bank were $0, $140, and $480, respectively. The Bank accounts for these transfers in the same manner as it accounts for new debt issuances.

MPF Program^® Service Fees and Loan Participations. Beginning in 2005, the Bank began paying a fee to FHLBank Chicago for services performed by it under the MPF Program, one of the programs through which the Bank historically purchased mortgage assets. These fees totaled $1 for the years ended December 31, 2011, 2010, and 2009.

MPF Program Purchase of Participation Interests from Other FHLBanks. In 2000 and 2001, the Bank, together with FHLBank Pittsburgh and FHLBank Chicago, participated in the funding of one master commitment with a member of FHLBank Pittsburgh. As of December 31, 2011, the Bank’s outstanding balance related to these MPF Program assets was $2.

Note 23—Subsequent Events

On March 22, 2012, the Bank’s board of directors approved a cash dividend for the fourth quarter of 2011 in the amount of $18. The Bank will pay the fourth quarter 2011 dividend on March 28, 2012.

On March 23, 2012, the Bank sent a notice to each current shareholder of the Bank announcing that it will repurchase up to $700 of excess capital stock on April 9, 2012. The amount of excess stock to be repurchased from any individual shareholder will be based on the shareholder’s total excess capital stock as of March 30, 2012.

142

Supplementary Financial Information (Unaudited)

Selected Quarterly Financial Data

Supplementary financial information for each quarter in the years ended December 31, 2011 and 2010 is included in the following tables (in millions).

2011	4th Qtr		3rd Qtr		2nd Qtr		1st Qtr
Interest income	$	267	$	258	$	279	$	305
Interest expense		159		149		164		178
Net interest income		108		109		115		127
Provision for credit losses		5		—		—		—
Noninterest income (loss)		7		(44)		(32)		(35)
Noninterest expense		40		29		32		22
Total assessments		7		4		13		19
Net income	$	63	$	32	$	38	$	51
2010	4th Qtr		3rd Qtr		2nd Qtr		1st Qtr
Interest income	$	320	$	368	$	353	$	360
Interest expense		193		234		220		210
Net interest income		127		134		133		150
Noninterest income (loss)		20		(1)		(50)		(56)
Noninterest expense		37		32		(19)		29
Total assessments		29		27		27		17
Net income	$	81	$	74	$	75	$	48

Investment Portfolio

Supplementary financial information on the Bank’s investments is included in the tables below (dollars in millions):

	As of December 31,
	2011		2010		2009
Trading securities:
Government-sponsored enterprises debt obligations	$	3,035	$	3,306	$	3,470
Other FHLBank’s bond		82		74		72
State and local housing agency debt obligations		3		3		11
Total trading securities		3,120		3,383		3,553
Available-for-sale securities:
Private-label MBS		2,942		3,319		2,256
Total available-for-sale securities		2,942		3,319		2,256
Held-to-maturity securities:
Certificates of deposit		650		1,190		300
State and local housing agency debt obligations		100		108		115
Government-sponsored enterprises debt obligations		1,111		873		—
Mortgage-backed securities:
U.S. agency obligations-guaranteed		803		960		777
Government-sponsored enterprises		9,886		8,716		6,598
Private-label		3,693		5,627		9,295
Total held-to-maturity securities		16,243		17,474		17,085
Total investment securities		22,305		24,176		22,894
Interest-bearing deposits		1,203		2		3
Federal funds sold		12,630		15,701		10,043
Total investments	$	36,138	$	39,879	$	32,940

143

	As of December 31, 2011
	Due in one year or less		Due after one  year through five years		Due after five through  10 years		Due after 10 years		Total
Trading securities:
Government-sponsored enterprises debt obligations	$	696	$	2,094	$	245	$	—	$	3,035
Other FHLBank’s bond		—		82		—		—		82
State and local housing agency debt obligations		—		1		2		—		3
Total trading securities		696		2,177		247		—		3,120
Yield on trading securities		3.70%		4.77%		4.81%		0.00%
Available-for-sale securities:
Private-label MBS	$	—	$	—	$	8	$	2,934		2,942
Total available-for-sale securities		—		—		8		2,934		2,942
Yield on available-for-sale securities		0.00%		0.00%		4.65%		5.87%
Held-to-maturity securities:
Certificates of deposit	$	650	$	—	$	—	$	—		650
State and local housing agency debt obligations		53		47		—		—		100
Government-sponsored enterprises debt obligations		—		1,111		—		—		1,111
Mortgage-backed securities:
U.S. agency obligations-guaranteed		—		1		—		802		803
Government-sponsored enterprises		—		—		785		9,101		9,886
Private-label		—		—		959		2,734		3,693
Total held-to-maturity securities		703		1,159		1,744		12,637		16,243
Yield on held-to-maturity securities		0.50%		0.40%		4.71%		2.44%
Total investment securities	$	1,399	$	3,336	$	1,999	$	15,571		22,305
Yield on total investment securities		2.21%		3.15%		4.72%		3.16%
Interest-bearing deposits	$	1,203	$	—	$	—	$	—		1,203
Federal funds sold		12,630		—		—		—		12,630
Total investments	$	15,232	$	3,336	$	1,999	$	15,571	$	36,138

The Bank held securities of the following issuers with a carrying value greater than 10 percent of the Bank’s total capital. These amounts include securities issued by the issuer’s holding company, along with its subsidiaries and affiliate trusts (in millions):

	As of December 31, 2011
	Total Carrying Value		Total Fair Value
Bank of America Corporation, Charlotte, NC	$	2,955	$	2,909
Wells Fargo & Company, San Francisco, CA		1,570		1,474
JPMorgan Chase & Co., New York, NY		1,165		1,134

144

Loan Portfolio

The Bank’s outstanding domestic loans, nonaccrual loans, and loans 90 days or more past due and accruing interest were as follows (in millions):

	As of December 31,
	2011		2010		2009		2008		2007
Advances		$      86,971		$      89,258		$      114,580		$      165,856		$      142,867
Real estate mortgages (1)		$        1,639		$        2,040		$          2,523		$          3,252		$          3,527
Nonaccrual real estate mortgages		$             88		$             82		$               56		$               14		$                 3
Real estate mortgages past due 90 days or more and still accruing interest (2)		$             15		$             21		$               27		$               14		$                 2
Interest contractually due during the year		$               6
Interest actually received during the year		$               1

(1) Amounts include single-family residential loans and Affordable Multifamily Participation Program loans classified as substandard.

(2) Only government loans (e.g., FHA, VA) continue to accrue interest after 90 days or more delinquent.

The Bank places a conventional mortgage loan on nonaccrual status when the collection of the contractual principal or interest from the borrower is 90 days or more past due.

Summary of Loan Loss Experience

The allowance for credit losses on domestic real estate mortgage loans was as follows (in millions):

	For the Years Ended December 31,
	2011		2010		2009		2008		2007
Balance, beginning of year		$                1		$                1		$                1		$                1		$                1
Provisions for credit losses		5		—		—		—		—
Charge-offs		—		—		—		—		—
Balance, end of year		$                6		$                1		$                1		$                1		$                1

The ratio of charge-offs to average loans outstanding was zero for the years ended December 31, 2007 through 2011.

The allocation of the allowance for credit losses on mortgage loans was as follows (dollars in millions):

	As of December 31,
	2011				2010				2009				2008				2007
	Amount(1)		% of Total Loans(2)		Amount(1)		% of Total Loans(2)		Amount(1)		% of Total Loans(2)		Amount(1)		% of Total Loans(2)		Amount(1)		% of Total Loans(2)
Single-family residential mortgages		$    5		99		$  —		99		$  —		99		$  —		99		$  —		99
Multifamily residential mortgages		1		1		1		1		1		1		1		1		1		1
Total		$    6		100		$    1		100		$    1		100		$    1		100		$    1		100

(1) Amount allocated for credit losses on mortgage loans.

(2) Mortgage loans outstanding as a percentage of total mortgage loans.

145

Short-term Borrowings

Borrowings with original maturities of one year or less are classified as short-term. The following table provides information regarding the Bank’s short-term borrowings (dollars in millions):

	As of December 31,
	2011		2010		2009
Consolidated obligation discount notes:
Amount outstanding at the end of the year	$	24,330	$	23,915	$	17,127
Weighted average interest rate at the end of the year		0.03%		0.14%		0.38%
Daily average outstanding for the year	$	18,948	$	19,455	$	38,172
Weighted average interest rate for the year		0.09%		0.15%		0.68%
Maximum amount outstanding at any month-end during the year	$	27,268	$	27,599	$	57,248
Consolidated obligation bonds:
Amount outstanding at the end of the year	$	11,623	$	17,209	$	23,903
Weighted average interest rate at the end of the year		0.15%		0.35%		0.65%
Daily average outstanding for the year	$	15,894	$	17,500	$	29,903
Weighted average interest rate for the year		0.25%		0.48%		1.35%
Maximum amount outstanding at any month-end during the year	$	17,245	$	23,236	$	37,731

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

The Bank’s President and Chief Executive Officer and the Bank’s Executive Vice President and Chief Financial Officer (Certifying Officers) are responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.

As of December 31, 2011, the Bank’s Certifying Officers have evaluated the effectiveness of the design and operation of its disclosure controls and procedures. Based on that evaluation, they have concluded that the Bank’s disclosure controls and procedures (as defined in Rules 13a-15(a) and 15d-15(e) under the Exchange Act) were effective to provide reasonable assurance that information required to be disclosed by the Bank in the reports that it files or submits under the Exchange Act (1) is accumulated and communicated to the Certifying Officers, as appropriate, to allow timely decisions regarding required disclosure; and (2) is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

In designing and evaluating the Bank’s disclosure controls and procedures, the Bank’s Certifying Officers recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Management’s Assessment of Internal Control Over Financial Reporting

The Bank’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Bank, as defined in Rule 13a-15(f) under the Exchange Act. The Bank’s management assessed the effectiveness of the Bank’s internal control over financial reporting as of December 31, 2011. In making this assessment, the Bank’s management utilized the criteria set forth by COSO in Internal Control-Integrated Framework. Based upon that evaluation, management has concluded that the Bank’s internal control over financial reporting was effective as of December 31, 2011.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The effectiveness of the Bank’s internal control over financial reporting as of December 31, 2011 has been audited by PricewaterhouseCoopers LLP (PwC), an independent registered public accounting firm, as stated in their report which appears within.

Changes in Internal Control Over Financial Reporting

During the fourth quarter of 2011, there were no changes in the Bank’s internal control over financial reporting that have affected materially, or are reasonably likely to affect materially, the Bank’s internal control over financial reporting.

Item 9B. Other Information.

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Executive Officers

The following table sets forth the names, ages, and titles of the executive officers of the Bank and all persons chosen to become executive officers as of the date of this Report. No executive officer has any family relationship with any other executive officer or director of the Bank.

Executive Officer	Age		Title
W. Wesley McMullan		48	President and Chief Executive Officer
Kirk R. Malmberg		51	Executive Vice President and Chief Financial Officer
Cathy C. Adams		52	Executive Vice President and Chief Operations Officer
Robert F. Dozier, Jr.		43	Executive Vice President and Chief Business Officer
Andrew B. Mills		61	Senior Vice President and Treasurer
Reginald T. O’Shields		41	Senior Vice President and General Counsel
Ken Yoo		41	First Vice President and Chief Risk Officer

W. Wesley McMullan was appointed president and chief executive officer in December 2010. Previously, he served as executive vice president and director of financial management since 2004, with responsibility for sales, MPP sales, asset-liability management, liquidity management, other mission-related investments, customer systems and operations, and member education. Mr. McMullan joined the Bank as a credit analyst in 1988 and later earned promotions to assistant vice president in 1993, vice president in 1995, group vice president in 1998, and senior vice president in 2001. He is a chartered financial analyst and earned a B.S. in finance from Clemson University.

Kirk R. Malmberg was appointed executive vice president and chief financial officer effective April 1, 2011. He oversees accounting, financial reporting, investment and derivatives operations, and financial risk modeling as well as the Bank’s credit and collateral services. From December 2007 through March 2011, he served as executive vice president and chief credit officer, overseeing collateral services, credit services, community investment services and mortgage program operations. He served as senior vice president responsible for the Bank’s mortgage programs since December 2003. He joined the Bank in February 2001 as senior vice president, asset-liability management, after having served for five years as senior vice president, treasury, at FHLBank Chicago. Mr. Malmberg earned an M.B.A. from Rice University and a B.A. from Trinity University.

Cathy C. Adams was appointed executive vice president and chief operations officer effective March 1, 2011. She is responsible for overseeing all Bank programs related to information technology, human resources, administrative services, and financial operations management. Ms. Adams was named executive vice president and chief administrative officer in August 2008. Previously, she served as senior vice president of staff services from January 2004 through August 2008. Ms. Adams joined the Bank in 1986. She earned an M.B.A. in management from Georgia State University and a B.A. in business administration from Tift College.

Robert F. Dozier, Jr. has served as chief business officer since joining the Bank effective June 6, 2011. Mr. Dozier oversees the Bank’s member sales and outreach, community investment services, corporate communications, and government and industry relations. Prior to joining the Bank, Mr. Dozier was president and chief operating officer for Homeowners Mortgage Enterprises, a subsidiary of CoastalStates Bank, where he began as a loan officer in 1992. Mr. Dozier also served on the board of directors for CoastalSouth Bancshares, the holding company of CoastalStates Bank. From 2002 to 2004, Mr. Dozier served as a director of the Bank. He earned a B.A. in political science from the University of South Carolina.

Andrew B. Mills has served as senior vice president and treasurer since January 2007. He oversees mortgage portfolio management, liability management, liquidity management, and asset/liability analysis. Mr. Mills joined

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the Bank in 1991 and earned promotions to assistant vice president in 1992, vice president in 1994, and group vice president, director of funding and financial management in 1999. In 2004, he was promoted to first vice president, director of financial risk management. He was promoted to senior vice president, director of financial risk management and modeling in 2005. Mr. Mills earned a B.A. in finance from Lehigh University.

Reginald T. O’Shields has served as senior vice president and general counsel since April 2, 2011. He joined the Bank in 2003 as a senior attorney and earned promotions to assistant general counsel in 2005, associate general counsel in 2006 and deputy general counsel in 2007. He was named senior vice president, deputy general counsel and director of legal services January 1, 2011. Before joining the Bank, Mr. O’Shields practiced law at private law firms in New York, Atlanta, and Greenville, South Carolina from 1996 to 2003. Mr. O’Shields earned a J.D. from Vanderbilt University and a B.A. in economics from Furman University.

Ken Yoo has served as first vice president and chief risk officer since April 1, 2011. He directs the Bank’s enterprise risk management function and is responsible for overseeing enterprise-wide risk assessment and reporting functions as well as model validation efforts for the Bank. Mr. Yoo joined the Bank in 2006 as manager of risk reporting and analysis and was promoted to director of enterprise risk management and then deputy chief risk officer prior to his current title. Prior to joining the Bank, Mr. Yoo was employed by the Office of Federal Housing Enterprise Oversight (which was subsequently merged into the Finance Agency pursuant to the Housing Act), where he was a senior member of its supervisory group since 2005.

Previously, Mr. Yoo was employed in various senior risk management consulting positions at BearingPoint, Inc. and at Merrill Lynch & Co. Mr. Yoo earned a masters in international affairs from George Washington University, an M.B.A. from Yonsei University in Seoul, Korea and a B.A. in economics from Virginia Tech.

Directors

The FHLBank Act provides that an FHLBank’s board of directors is to comprise 13 directors, or such other number as the Director determines appropriate. For 2012, the Director has designated 14 directorships for the Bank, eight of which are member directorships and six of which are independent directorships. All individuals serving as Bank directors must be United States citizens. At least a majority of the directors must be member directors and not fewer than 2/5 must be independent directors.

Finance Agency regulations require that a member directorship be held only by an officer or director of a member institution that is located within the Bank’s district and that meets all minimum capital requirements established by its appropriate federal banking agency or appropriate state regulator and that is a member as of the record date. The regulations permit, but do not require, the board of directors to conduct an annual assessment of the skills and experience possessed by the members of its board of directors as a whole and to determine whether the capabilities of the board would be enhanced through the addition of individuals with particular skills and experience. The Bank may identify those qualifications and so inform the members as part of its election notification process; however, the Bank may not exclude a nominee from the election ballot on the basis of those qualifications so identified. For the 2011 elections, the board of directors did not identify any particular qualifications as part of its election notification process.

Finance Agency regulations require that an independent directorship be held only by an individual who is a bona fide resident of the Bank’s district, who is not a director, officer, or employee of a member institution or of any recipient of advances from the Bank, and who is not an officer of any FHLBank. Finance Agency regulations further require that a public interest independent director have more than four years experience representing consumer or community interests in banking services, credit needs, housing or consumer financial protection. An independent director other than a public interest director must have either four years experience representing consumer or community interests in the foregoing areas or have experience in, or knowledge of, one or more of the following areas: auditing and accounting, derivatives, financial management, organizational management, project development, risk management practices, and the law.

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The Bank has determined that all member directors meet the regulatory eligibility requirements and, based on the specific experience, qualifications, attributes or skills described in the biographical paragraphs provided below, that each independent director is qualified to serve as an independent director for the Bank.

The following table sets forth information regarding each of the Bank’s directors as of the date of this Report. Except as otherwise indicated, each director has been engaged in the principal occupation described below for at least five years. No director has any family relationship with any other director or executive officer of the Bank.

Name	Age	Director Since	Expiration of Term     as Director
John M. Bond, Jr.(1)	68	2005	12/31/14
W. Russell Carothers, II(1)	70	2002	12/31/13
F. Gary Garczynski(2)(3)	65	2007	12/31/12
Donna C. Goodrich(1)	49	2008	12/31/12
William C. Handorf(2)	67	2007	12/31/15
Scott C. Harvard(1)	57	2003	12/31/12
John C. Helmken, II(1)	48	2011	12/31/14
J. Thomas Johnson(1)	65	2004	12/31/15
Jonathan Kislak(2)	63	2008	12/31/14
LaSalle D. Leffall, III(2)	49	2007	12/31/12
Miriam Lopez(1)	61	2008	12/31/14
Henry Gary Pannell(2)	74	2008	12/31/15
Robert L. Strickland, Jr.(2)(3)	60	2007	12/31/13
Thomas H. Webber, III(1)	70	2007	12/31/13

⁽¹⁾  Member Director

⁽²⁾  Independent Director

⁽³⁾  Public Interest Director

Chairman of the board, Scott C. Harvard, has served as president and chief executive officer of First National Corp. and First Bank since May 2011, and as a director of both since August 2011. Previously, he served as vice president of Virginia Savings Bank, F.S.B. since June 2009, and as president and chief executive officer and as a director of Shore Bank from 1985 to June 2009. He served as president and chief executive officer of its parent, Shore Financial Corporation, from 1997 to 2008. Mr. Harvard served as a director and an executive vice president of Hampton Roads Bankshares from June 2008 to June 2009. Mr. Harvard has served as chairman of the board of the Bank since 2007. Mr. Harvard has expertise in community banking and corporate governance.

Vice chairman of the board, William C. Handorf, Ph.D., has served as a professor of finance and real estate at The George Washington University’s School of Business in Washington, D.C. since 1975. From 2001 to 2006, Mr. Handorf served as a director of the Federal Reserve Bank of Richmond’s Baltimore Branch, including two years as chair. From 1992 to 1995, Mr. Handorf served as a private citizen director of the FHLBanks Office of Finance. Mr. Handorf has expertise in financial markets, banking, real estate investment, accounting, and derivatives.

John M. Bond, Jr. is a director of The Columbia Bank, a wholly-owned affiliate of Fulton Financial Corporation. He has served on the board of directors of The Columbia Bank since 1988 and as chairman of the board from 2004 to 2009. Mr. Bond served as chief executive officer of The Columbia Bank from 1988 until his retirement in December 2006. From May 2004 until February 2006 when it was acquired by Fulton Financial, Mr. Bond served as chairman and chief executive officer of Columbia Bancorp, a publicly-traded company and the holding company of The Columbia Bank. From 1987 to May 2004, Mr. Bond served as president, chief executive officer,

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and director of Columbia Bancorp. He also has served as a director of Fulton Financial Corporation, a publicly-traded financial holding company, since March 2006. Mr. Bond has expertise in commercial banking, credit, finance, and accounting.

W. Russell Carothers, II is chairman and chief executive officer of The Citizens Bank of Winfield, Alabama, a position he has held for the past 20 years. He joined The Citizens Bank in 1963 and served as its president for 30 years. Mr. Carothers has also served as a director for First National Bankers Bank and its holding company, First National Bankers Bankshares, Inc. since January 2011. Mr. Carothers has expertise in general banking, finance, accounting, auditing, and community development.

F. Gary Garczynski is the president of National Capital Land and Development, Inc., a construction and real estate development company in Woodbridge, Virginia, a position he has held since 1997. Mr. Garczynski has served as chairman of the National Housing Endowment since 2004 and previously served as the 2002 President of the National Association of Home Builders (NAHB). Mr. Garczynski serves as a Senior Life Director of NAHB, a Life Director of the Home Builders Association of Virginia, and a Senior Life Director of the Northern Virginia Building Industry Association. He also is a member of the Prince William County, Virginia, Affordable Housing Task Force and a three-term appointee to the Virginia Housing Commission. Mr. Garczynski has expertise in community development, planning and zoning, business development and business organization.

Donna C. Goodrich has served as senior executive vice president of Branch Banking & Trust Company (BB&T) since 2007. She also has served as deposit services manager of BB&T since 2004. Ms. Goodrich joined BB&T in 1985, and has held the positions of retail services officer, financial center manager, mergers and acquisition analyst, asset/liability management specialist, and deposit and corporate funding manager. She is a member of the Senior Leadership Team and serves on several committees, including the Market Risk and Liquidity Committee. Ms. Goodrich also serves as senior executive vice president of BB&T Corporation, the holding company of BB&T, a position she has held since 2007. Ms. Goodrich is the chairman of the North Carolina Bankers Association. She has expertise in asset/liability management and finance.

John C. Helmken, II serves as chief executive officer and director of The Savannah Bank. He has also served as president, chief executive officer, and director of The Savannah Bancorp, Inc., the holding company of The Savannah Bank, since 2007. He has served as chief executive officer of The Savannah Bank since 2003, director since 2003, and as president from 2002 to 2010. He joined The Savannah Bank in 1994 and has served as vice president, senior vice president, and executive vice president during his tenure there. He is a director of Minis and Company, Inc., a registered investment advisor and subsidiary of The Savannah Bancorp, Inc., and is also a director of Bryan Bank & Trust in Richmond Hill. He previously served on the board of the Georgia Bankers Association. Mr. Helmken has expertise in residential and commercial lending and extensive involvement in all areas of community banking.

J. Thomas Johnson is president and chief executive officer of Citizens Building and Loan Association, a position he has held since May 2009. Mr. Johnson is also vice chairman of the board of First Community Bank and its holding company, First Community Corporation, a position he has held since October 2004. From 1984 to 2004, Mr. Johnson was chief executive officer of Newberry Federal Savings Bank, and was chairman of the board of its holding company, Dutch Fork Bancshares, Inc., from its inception in 2000 until its acquisition by First Community Corporation in 2004. Mr. Johnson had previously been with Newberry Federal Savings Bank since 1977. Mr. Johnson is chairman of Business Carolina Inc., a statewide economic development lender, and has served on the boards of the South Carolina Bankers Association and a number of other civic and professional organizations. Mr. Johnson served as vice chairman of the board of the Bank from 2008 through 2010. Mr. Johnson has expertise in residential, commercial, and community development finance.

Jonathan Kislak has served as principal and chairman of the board of Antares Capital Corporation, a venture capital firm investing equity capital in expansion stage companies and management buyout opportunities, since

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1999. From 1993 to 2005, Mr. Kislak served as president and chairman of the board of Kislak Financial Corporation, a community bank holding company in Miami, Florida. Mr. Kislak has expertise in economics and finance.

LaSalle D. Leffall, III is president of LDL Financial, a corporate advisory and investment firm he founded in 2006. From 2002 to 2006, he was a senior executive of The NHP Foundation, one of the nation’s largest nonprofit owners of affordable multifamily housing, and served as president, chief operating officer, and chief financial officer. In October and November 2008, he served as acting chief executive officer. From 1996 to 2002, Mr. Leffall was an investment banker in the mergers and acquisitions divisions of UBS and Credit Suisse First Boston in New York, New York. In 1992, Mr. Leffall began his career as an attorney in the corporate department of Cravath, Swaine & Moore in New York, New York. Mr. Leffall has served on the board of directors for Mutual of America Investment Corporation and Mutual of America Institutional Funds from 2011 through the present. He is a member of the Council on Foreign Relations, The Federal City Council, and The Economic Club of Washington, D.C. Mr. Leffall has expertise in finance, law, affordable multifamily housing, and accounting.

Miriam Lopez has served as president, chief lending officer and director of Marquis Bank in North Miami Beach, Florida since July 2010. She previously served as chief executive officer of TransAtlantic Bank in Miami, Florida for 24 years and as TransAtlantic’s chairman of the board from 2003 to 2007. She is a former president of the Florida Bankers Association and serves on the American Bankers Association’s Government Relations Council and Executive Committee. Ms. Lopez has expertise in accounting and finance.

Henry Gary Pannell has served as special counsel with the law firm Jones, Walker, Waechter, Poitevent, Carrère & Denègre L.L.P. since September 2008, previously having been a member with the law firm Miller Hamilton Snider & Odom, LLC in Atlanta since 2001. He served as a trustee with the Atlanta Nehemiah Housing Trust, a fund to provide interest-free construction loans to build affordable housing for municipal employees from 2003 through 2009. From 1973 to 2000, he held leadership positions with the Office of the Comptroller of the Currency in Atlanta, including district counsel for the Southeastern District and regional counsel, 6^th National Bank Region. From 1988 through 2009, he served as treasurer of the Episcopal Diocese of Atlanta, and as a trustee of the Diocesan Foundation, Inc., a non-profit corporation that makes loans for church buildings and homes for clerics. Mr. Pannell has expertise in federal banking law, corporate governance, bank accounting, and community development.

Robert L. Strickland, Jr. is executive director of the Alabama Housing Finance Authority, an independent public corporation dedicated to serving the housing needs of low- and moderate-income Alabamians, a position he has held since 1987. Mr. Strickland served as president of the National Council of State Housing Agencies for two terms. He has also served on the National Association of Home Builders Mortgage Finance Roundtable and as a member of Fannie Mae’s National Advisory Council. He currently serves as a director of the Alabama MultiFamily Loan Consortium. Mr. Strickland has expertise in affordable housing finance.

Thomas H. Webber, III serves as vice president corporate finance and risk management for IDB-IIC Federal Credit Union, Washington D.C., having served as vice president since 1999. Mr. Webber previously served on the boards of industry as well as civic organizations in the Nashville, Tennessee community. Mr. Webber has 40 years of banking and investment management experience. He has expertise in economics, mathematics, economic development, and labor relations.

Nominating Procedures

Finance Agency regulations establish certain requirements and limitations regarding director eligibility, elections, compensation and expenses. No material changes to these requirements or the director nominating procedures thereunder occurred during 2011.

Code of Conduct

The board has adopted a Code of Conduct that applies to the Bank’s principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions, in each

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case, who are employees of the Bank. The Code of Conduct is posted on the Investor Relations—Governance section of the Bank’s Internet website at http://www.fhlbatl.com. Any amendments to, or waivers under, the Bank’s Code of Conduct that are required to be disclosed pursuant to the SEC’s rules will be disclosed on the Bank’s website.

Director Independence, Audit Committee and Audit Committee Financial Expert

General

The board of directors of the Bank is required to evaluate the independence of the directors of the Bank under two distinct director independence standards. First, Finance Agency regulations establish independence criteria for directors who serve as members of the Bank’s Audit Committee. Second, SEC rules require that the Bank’s board of directors apply the independence criteria of a national securities exchange or automated quotation system in assessing the independence of its directors.

As of the date of this Report, the Bank has 14 directors, eight of whom are member directors and six of whom are independent directors. None of the Bank’s directors is an “inside” director. That is, none of the Bank’s directors is a Bank employee or officer. Further, the Bank’s directors are prohibited from personally owning stock or stock options in the Bank. Each of the member directors, however, is an officer or director of an institution that is a member of the Bank that is encouraged to engage in transactions with the Bank on a regular basis.

Finance Agency Regulations regarding Independence

The Finance Agency’s director independence standards prohibit an individual from serving as a member of the Bank’s Audit Committee if he or she has one or more disqualifying relationships with the Bank or its management that would interfere with the exercise of that individual’s independent judgment. Disqualifying relationships considered by the board are: employment with the Bank at any time during the last five years; acceptance of compensation from the Bank other than for service as a director; being a consultant, advisor, promoter, underwriter or legal counsel for the Bank at any time within the last five years; and being an immediate family member of an individual who is or who has been within the past five years, a Bank executive officer. The board assesses the independence of each director under the Finance Agency’s independence standards, regardless of whether he or she serves on the Audit Committee. As of March 22, 2012, each of the Bank’s directors was independent under these criteria.

SEC Rules regarding Independence

SEC rules require the Bank’s board of directors to adopt a standard of independence to evaluate its directors. The board has adopted the independence standards of the New York Stock Exchange (NYSE) to determine which of its directors are independent, which members of its Audit Committee are not independent, and whether the Bank’s Audit Committee’s financial expert(s) is independent.

After applying the NYSE independence standards, the board determined that, as of March 22, 2012, Messrs. Garczynski, Handorf, Kislak, Leffall, and Pannell, each an independent director, were independent. Based upon the fact that each member director is a senior official of an institution that is a member of the Bank (and thus is an equity holder in the Bank), that each such institution routinely engages in transactions with the Bank, and that such transactions occur frequently and are encouraged, the board determined that for the present time it would conclude that none of the member directors meets the independence criteria under the NYSE independence standards. For the same reasons, because Mr. Strickland is a senior official of a housing associate that is able to transact business with the Bank, the board has determined that he does not meet the independence criteria under the NYSE independence standards.

It is possible that under a strict reading of the NYSE objective criteria for independence (particularly the criterion regarding the amount of business conducted with the Bank by the director’s institution), a member director could

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meet the independence standard on a particular day. However, because the amount of business conducted by a member director’s institution may change frequently, and because the Bank generally desires to increase the amount of business it conducts with each member, the directors deemed it inappropriate to draw distinctions among the member directors based upon the amount of business conducted with the Bank by any director’s institution at a specific time. The same reasoning applies to Mr. Strickland.

Audit Committee

The board has a standing Audit Committee, composed of directors Bond, Carothers, Handorf, Harvard, Kislak, Lopez, Pannell, and Webber. For the reasons noted above, the board determined that, as of March 22, 2012, none of the member directors on the Bank’s Audit Committee was independent under the NYSE standards for audit committee members. The board determined that, as of March 22, 2012, each of directors Handorf, Kislak and Pannell, each of whom is an independent director that currently serves on the Audit Committee, was independent under the NYSE independence standards for audit committee members. The board also determined that each of directors Handorf, Kislak, Pannell, and Webber is an “audit committee financial expert” within the meaning of the SEC rules.

The board also assesses the independence of the Audit Committee members under Section 10A(m)(3) of the Exchange Act. As of March 22, 2012, each of the Bank’s directors was independent under these criteria. As stated above, the board determined that each member of the Audit Committee was independent under the Finance Agency’s standards applicable to the Bank’s Audit Committee.

Board Leadership Structure and Risk Oversight

The directors are nominated and elected in accordance with applicable law and Finance Agency regulations. As required by applicable law, the chairman and vice chairman of the board are elected by a majority of all the directors of the Bank from among the directors of the Bank for two year terms, and the president and chief executive officer of the Bank may not serve as either the chairman or vice chairman of the board.

The board of directors establishes the Bank’s risk management culture, including risk tolerances and risk management philosophies, by establishing its risk management system, overseeing its risk management activities, and adopting its risk appetite and RMP. The board reviews the risk appetite report on a quarterly basis and approves any changes as appropriate. The board receives regular updates on the Bank’s key risks including an independent risk assessment. The board reviews the RMP at least annually, approves any amendments to it as appropriate, and re-adopts it at least every three years. For further discussion of the risk appetite and the RMP, please see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations–Prudent Risk Management and Appetite. The board works with management to align the Bank’s strategic activities and objectives within the parameters of the risk appetite framework and the RMP. The board utilizes committees as an integral part of overseeing risk management, including an audit committee, a credit and member services committee, an enterprise risk and operations committee, an executive committee, a finance committee, a governance and compensation committee, and a housing and community investment committee, with the following oversight responsibilities:

• Audit Committee oversees the Bank’s financial reporting process, system of internal control, audit process, policies and procedures for assessing and monitoring implementation of the strategic plan, and the Bank’s process for monitoring compliance with laws and regulations.

• Credit and Member Services Committee oversees the Bank’s credit and collateral policies and related programs, services, products and documentation, and the Bank’s credit and collateral risk management program, strategies, and activities.

• Enterprise Risk and Operations Committee oversees the Bank’s enterprise risk management functions, operations, information technology, and other related matters.

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• Executive Committee exercises most of the powers of the board in the management and direction of the affairs of the Bank during the intervals between board meetings.

• Finance Committee oversees matters affecting the Bank’s financial performance, capital management and other related matters, including the Bank’s market and liquidity risk management program, strategies, and activities.

• Governance and Compensation Committee oversees the Bank’s governance practices, compensation and benefits programs, and other related matters.

• Housing and Community Investment Committee oversees the Bank’s housing and community investment policies, programs, and other relevant matters, including any other Bank products, services, and programs that may provide grants, subsidies, or other forms of assistance to support affordable housing and community economic development for low- and moderate-income individuals and communities.

The Bank’s internal management is overseen by the president and delegated to other senior managers and internal management committees. The Bank has determined that this leadership structure is the most effective means of actively engaging the board of directors in risk management oversight while utilizing Bank management to implement and maintain sound risk management practices.

Item 11. Executive Compensation.

Compensation Discussion and Analysis

Introduction

This section describes and analyzes the Bank’s 2011 compensation program for its chief executive officer, chief financial officer, and three other most highly-compensated executive officers. These executive officers are collectively referred to as the Bank’s “named executive officers.”

In 2011 the Bank’s named executive officers were as follows:

W. Wesley McMullan	President and Chief Executive Officer
Kirk R. Malmberg	Executive Vice President and Chief Financial Officer
Cathy C. Adams	Executive Vice President and Chief Operations Officer
Robert F. Dozier, Jr.	Executive Vice President and Chief Business Officer
Andrew B. Mills	Senior Vice President and Treasurer

Information is also provided for Steven J. Goldstein, who served as the Bank’s chief financial officer until his retirement from the Bank on March 31, 2011. Mr. Malmberg served as executive vice president and chief credit officer from January 1, 2011 until his appointment as chief financial officer effective April 1, 2011. Mr. Dozier joined the Bank in the newly created position of chief business officer effective June 6, 2011. In his role as senior vice president and treasurer, Mr. Mills serves on the Bank’s executive management committee (EMC).

Philosophy and Objectives

The Bank’s compensation philosophy and objectives are to attract, motivate, and retain high caliber financial services executives capable of achieving strategic business initiatives that lead to enhanced business performance and member value. The Bank’s compensation program is designed to reward this performance and enhanced value and to offer competitive compensation elements that align its executives’ incentives with the interests of its members. To mitigate unnecessary or excessive risk-taking by executive management, the Bank’s incentive compensation plan contains overall Bank performance thresholds that are dependent on an aggregation of transactions throughout the Bank and that cannot be individually altered by executive management. The incentive

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compensation plan contains qualitative components that are evaluated by the board of directors. Additionally, the board of directors maintains discretionary authority over all incentive compensation awards, giving the board of directors the flexibility to review Bank performance throughout the year and to adjust incentive compensation accordingly.

Elements of Compensation

To achieve the goals described above, the Bank compensates its executive officers with a combination of base salary, incentive compensation and benefits. In the past, the Bank has compensated its executive officers under separate short-term and long-term incentive compensation plans. In 2010, the board of directors discontinued the long-term compensation plan and revised the short-term incentive compensation plan to incorporate certain deferred compensation components. The Bank is unable to offer equity-related compensation because it is a cooperative, and only member financial institutions may own its capital stock. Accordingly, the Bank offers other compensation elements, such as defined benefit pension plans, to motivate long-term performance and encourage retention. Additionally, because the Bank is exempt from federal taxes, the deductibility of compensation is not relevant to compensation plan design.

The elements of the Bank’s compensation program for executive officers, and the objective of each compensation element, are described below:

Base salary. Base salary is established on the basis of the ongoing duties associated with managing a particular set of functions at the Bank, and provides an amount of fixed compensation each year. Each executive’s base salary also is used as a basis in calculating the executive’s yearly incentive award opportunity, as described below.

Incentive compensation. The Bank provides an annual cash award opportunity (ICP) to executive officers based on the achievement of quantitative and qualitative goals set and evaluated by the board of directors. The ICP is designed to promote and reward achievement of annual corporate performance goals set by the board. To promote consistently high corporate performance on a long-term basis and enhance the retention of key senior executive officers, payment of a portion of any ICP granted is deferred and distributed over a three-year period, together with positive or negative returns (Deferred Incentive). If, as of the time any payment of the Deferred Incentive otherwise would be due, the board of directors has made a good faith determination that the Bank does not have the financial capacity to repurchase excess stock, the board of directors may in its sole discretion elect to reduce or eliminate such payment of Deferred Incentive.

Benefits. The Bank provides retirement benefits to promote executive retention. The Bank also provides limited perquisites and other benefits to enhance executive officers’ ability to devote maximum attention to their primary responsibilities and to minimize the amount of time spent on non-Bank related matters.

Executive Compensation Process

Board and committee consideration of executive compensation. The Bank’s board of directors establishes the Bank’s executive compensation philosophy and objectives. The governance and compensation committee of the board of directors advises and assists the board and recommends to the board for approval any compensation decisions related to the Bank’s chief executive officer and the officers reporting directly to the chief executive officer.

The chief executive officer reviews and recommends to the board the base salary of the officers that report directly to him. The chief executive officer also determines the base salary of all Bank officers at the first vice president level and senior vice president level (other than the chief audit officer), within an overall budget approved by the board of directors.

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Use of compensation consultant. The governance and compensation committee of the board of directors independently selected and engaged Towers Watson to provide assistance in evaluating the Bank’s executive compensation programs for 2011. Towers Watson reports directly to the committee with respect to executive compensation.

Consideration of competitive compensation levels. The Bank’s executive compensation program is designed to be appropriately competitive with prevailing practices in the broader financial services industry, consistent with the Bank’s business and risk profile. As part of each compensation review process, the board considers the (1) total cash compensation, including base salary, incentive compensation plan, retirement benefits, perquisites and other benefits, severance agreements, and change in control agreements, at FHLBanks of similar size and complexity based on total assets, advance activity, membership, and scope of operations, and (2) the median and 75^th percentiles for base pay, bonus pay, and total cash compensation offered at commercial banks with assets between $20 billion and $60 billion. However, the board did not target any named executive officer’s compensation at a specific percentile of such executive officer’s peer group comparable position.

The board does not evaluate specifically the internal pay relationship among the executives and other employees when setting executive cash compensation, or the multiples by which a named executive officer’s cash compensation is greater than that of non-executive employees. The Bank is exempt from SEC proxy rules and does not provide shareholder advisory “say on pay” votes regarding executive compensation.

Finance Agency oversight of executive compensation. Pursuant to the Housing Act, the Director is required to prohibit the FHLBanks from providing compensation to any executive officer that is not reasonable and comparable with compensation for employment in other similar businesses. Pursuant to this authority, the FHLBanks are required to report to the Director all compensation actions relating to the five most highly compensated officers, including compensation plans of general applicability to those officers, at least four weeks in advance of any planned board decision with respect to those actions. Finance Agency Advisory Bulletin 2009-AB-02 establishes five principles for executive compensation by the FHLBanks and the Office of Finance:

• executive compensation must be reasonable and comparable to that offered to executives in similar positions at other comparable financial institutions;

• executive incentive compensation should be consistent with sound risk management and preservation of the par value of the FHLBank’s capital stock;

• a significant percentage of an executive’s incentive-based compensation should be tied to longer-term performance and outcome indicators;

• a significant percentage of an executive’s incentive-based compensation should be deferred and made contingent upon the FHLBank’s financial performance over several years; and

• the FHLBank’s board of directors should promote accountability and transparency in the process of setting compensation.

In addition, under the capital classifications rules issued by the Finance Agency, a significantly undercapitalized FHLBank is prohibited from paying any bonus to an executive officer, or giving any salary increase to an executive officer without the prior written approval of the Director. The Bank was not undercapitalized in 2011. The Housing Act also authorizes the Director to prohibit the Bank from making any golden parachute payments to its officers, employees, and directors.

Compensation Decisions in 2011

Overview

The board of directors bases its compensation decisions on both objective criteria related to corporate performance and subjective criteria related to general executive performance. Among the various criteria the board considered in evaluating the named executive officers’ performance in 2011 were:

• achievement of performance objectives for 2011 as determined by the board;

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• fulfillment of the Bank’s public policy mission;

• demonstration of leadership and vision for the Bank;

• implementation and maintenance of effective business strategies and operations, legal and regulatory compliance programs, risk management activities, and internal controls commensurate with the Bank’s size, scope, and complexity;

• establishment and maintenance of strong relationships between the Bank and its customers, shareholders, employees, regulators, and other stakeholders; and

• the Bank’s 2011 financial results.

Base Salary

Mr. McMullan was appointed president and chief executive officer effective December 16, 2010. His base salary during 2011 remained at $650,000. In determining the base salary for Mr. McMullan, the board considered data developed by Towers Watson noting (1) total cash compensation provided at the following FHLBanks deemed to be of similar size and complexity based on total assets, advance activity, membership, and scope of operations:

• FHLBank Chicago;

• FHLBank Dallas;

• FHLBank New York; and

• FHLBank San Francisco

and (2) total cash compensation at the following commercial financial institutions with assets between $20 billion and $60 billion:

• Bank of the West;

• BOK Financial Corporation;

• CoBank;

• Comerica Bank;

• First Horizon National Bank;

• Huntington Bancshares;

• Marshall & Ilsley Bank;

• People’s Bank; and

• Union Bank of California.

Mr. McMullan’s salary is below the average base salary for the presidents of the FHLBanks and commercial financial institutions listed above.

In determining the 2011 base salaries for Mr. Malmberg, Ms. Adams and Mr. Dozier, and the 2011 base fee for Mr. Goldstein, the board considered comparative compensation data provided by Towers Watson that reflected total cash compensation provided at the FHLBanks listed above deemed to be of similar size and complexity based on total assets, advance activity, membership, and scope of operations and total cash compensation at the commercial financial institutions listed above with assets between $20 billion and $60 billion.

Following the review, the board opted to increase the existing base salaries of Mr. Malmberg and Ms. Adams to $411,950 and $395,625, respectively, and the base fee for Mr. Goldstein to $411,730 during 2011. The board established a base salary of $390,000 during 2011 for Mr. Dozier. The Bank established a base salary of $352,500 during 2011 for Mr. Mills.

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Incentive Compensation

The 2011 award opportunities, as established by the board under the ICP, expressed as a percentage of base pay earnings during the year, were as follows:

	Threshold	Target	Maximum
President and Chief Executive Officer	32%	64%	96%
Executive Vice President	25%	50%	75%
EMC - Senior Vice President	22%	43%	65%

These percentages are consistent with 2010 award percentages, but are higher than those the Bank historically has used for these officer designations, in order to reflect adjustments to short-term incentive compensation opportunities made when the board terminated the Bank’s long-term incentive compensation plan in 2010. In aggregate, total incentive opportunities for executives are lower than in years prior to 2010. For 2011, the board established four incentive goals under the ICP, which correlate to the performance priorities reflected in the Bank’s strategic plan. The board of directors establishes threshold, target, and maximum performance levels for each quantitative incentive goal. Each goal’s “target” performance level is consistent with the assumptions set forth in the annual operating budget, forecasts, and strategic plan. The “threshold” and “maximum” performance levels are designed to reward partial attainment of the goal and performance beyond the forecasted levels, respectively. Factors considered in setting threshold and maximum performance levels include management’s projections concerning economic conditions, interest rates, demand for advances products and balance sheet structure.

The following tables provide the weights and awards for each performance target as a percentage of base salary that the board established for 2011.

President and Chief Executive Officer
		Percent of Base Salary
Goal	Weight	Threshold	Target	Maximum
ROE Spread to LIBOR	40.00%	12.80%	25.60%	38.40%
Housing Mission	20.00%	6.40%	12.80%	19.20%
Risk Management I – Examination	25.00%	8.00%	16.00%	24.00%
Risk Management II – Member Failures	15.00%	4.80%	9.60%	14.40%
TOTAL	100.00%	32.00%	64.00%	96.00%
Executive Vice President
		Percent of Base Salary
Goal	Weight	Threshold	Target	Maximum
ROE Spread to LIBOR	40.00%	10.00%	20.00%	30.00%
Housing Mission	20.00%	5.00%	10.00%	15.00%
Risk Management I – Examination	25.00%	6.25%	12.50%	18.75%
Risk Management II – Member Failures	15.00%	3.75%	7.50%	11.25%
TOTAL	100.00%	25.00%	50.00%	75.00%
EMC—Senior Vice President
		Percent of Base Salary
Goal	Weight	Threshold	Target	Maximum
ROE Spread to LIBOR	40.00%	8.80%	17.20%	26.00%
Housing Mission	20.00%	4.40%	8.60%	13.00%
Risk Management I – Examination	25.00%	5.50%	10.75%	16.25%
Risk Management II – Member Failures	15.00%	3.30%	6.45%	9.75%
TOTAL	100.00%	22.00%	43.00%	65.00%

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The return on equity performance measure is the return on equity amount in excess of average three-month LIBOR, excluding the impact of other-than-temporary impairment losses on private-label MBS. This performance measure reflects the Bank’s ability to pay quarterly dividends to its members and was established with a sliding scale so that the spread performance metrics become smaller as LIBOR increases. In addition, the board of directors may reduce the award for this measure by as much as 100 percent if the Bank’s market value/capital stock ratio declines below 95 percent or the ROE spread to LIBOR, including the impact of other-than-temporary impairment losses on private-label MBS, is less than 200 basis points. The board also may increase the ROE spread levels if the average leverage ratio is greater than 22 times. At December 31, 2011, the performance goals were 3.00 percent (threshold), 3.25 percent (target), and 3.50 percent (maximum). In 2011 the Bank’s ROE spread to three-month LIBOR resulted in eligibility of each named executive officer to receive an award of between target and maximum with respect to that goal.

The housing mission measure includes the development and implementation of new AHP set-aside products to improve the Bank’s ability to disburse AHP funds to effectively meet community needs. This goal was substantially the same for each named executive officer, and performance under this measure was determined on an overall basis. The board awarded the maximum level for this goal.

The risk management measures include effective preparation and performance in the regulatory examination process and effective management of member failures. The Bank sought to reduce the number of examination items requiring board attention, and to successfully execute policies and procedures that resulted in failed members having been identified as high risk and placed into collateral delivery 45 – 90 days prior to failure and resulting in no credit losses to the Bank. These goals were substantially the same for each named executive officer, and performance under these measures was determined on an overall basis. The board awarded the maximum level for these goals.

In 2011, the board of directors did not establish individual performance award opportunities for executive management.

The following table provides the award level associated with each performance goal and total award amounts for each named executive officer.

2011 Incentive Compensation Plan Awards
Name	ROE Spread to LIBOR (%)		Housing Mission (%)		Risk Management				Total Award (% of Base Salary)		Overall Award Level	Total Calculated Award ($)		Deferred Incentive ($)
					I (%)		II (%)
W. Wesley McMullan		34.30		19.20		24.00		14.40		91.90	Between Target and Maximum		597,350		203,099
Kirk R. Malmberg		26.80		15.00		18.75		11.25		71.80	Between Target and Maximum		295,780		100,565
Cathy Adams		26.80		15.00		18.75		11.25		71.80	Between Target and Maximum		284,059		96,580
Robert F. Dozier, Jr.		26.80		15.00		18.75		11.25		71.80	Between Target and Maximum		161,550		54,927
Andrew B. Mills		23.18		13.00		16.25		9.75		62.18	Between Target and Maximum		219,185		74,523

The amount of incentive compensation earned by each of the named executive officers under the ICP, as shown in the “Total Calculated Award” column in the preceding table is reflected under the “Non-Equity Incentive

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Compensation Plan” column in the Summary Compensation Table below. The Deferred Incentive portion will be paid, together with positive or negative returns (equal to the Bank’s return on equity for the applicable year) over three years (2013-2015) on the following schedule, subject to certain restrictions discussed above:

Payment Year	Payment
2013	1/3 of balance (± 1-year return)
2014	1/2 of balance (± 2-year return)
2015	Remaining balance (± 3-year return)

If a named executive officer’s employment with the Bank terminates for any reason prior to payment of any earned incentive compensation, all remaining payments (including Deferred Incentive) shall be forfeited, subject to certain limited exceptions if the named executive officer dies, becomes disabled, or retires with a combination of age and years of service to the Bank totaling at least 70.

Retirement Benefits

The named executive officers are eligible to participate in both tax-qualified and non-tax-qualified defined benefit pension plans and defined contribution/deferred compensation plans. These plans are described in more detail below in the sections entitled Executive Compensation—Retirement Benefits—Pension Benefits, and—Deferred Compensation.

The Bank’s retirement benefit plans are a vital component of the Bank’s retention strategy for executive officers and are important to the Bank’s strategy to compete with other organizations that provide executive officers with economic benefits based on equity interests in the employer, especially recognizing that some of those organizations also may provide similar retirement benefits.

Perquisites and Other Benefits

All named executive officers are eligible to participate in the benefit plans that are made available to all other employees of the Bank including medical, dental, and vision insurance coverage, group term life and long-term disability insurance coverage, and paid vacation and sick leave. The named executive officers generally participate in these plans on the same basis and terms as all other employees.

The Bank offers its named executive officers a limited number of perquisites, including an annual physical examination, guest travel to certain business functions, and business club memberships. For Mr. McMullan, the Bank provides an automobile allowance of up to $1,500 per month. Because perquisites generally are limited, the board does not specifically consider perquisites when reviewing total compensation for any of the named executive officers.

Employment Arrangements and Severance Benefits

Other than the specific contractual arrangements discussed below, all Bank employees are employed under an “at will” arrangement. Accordingly, an employee may resign employment at any time, and the Bank may terminate employment at any time for any reason, with or without cause.

The board of directors may, in its discretion, provide severance benefits to an executive officer in the event of termination of his/her employment. In determining whether severance compensation is appropriate, the board of directors considers both the factors underlying the termination of employment and the employment history of the executive officer. The Bank does not provide a “gross up” benefit with respect to any severance.

Mr. McMullan. The Bank entered into an Employment Agreement with Mr. McMullan in connection with his appointment as president and chief executive officer (McMullan Agreement), effective December 16, 2010.

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Under the McMullan Agreement, Mr. McMullan’s employment with the Bank may be terminated by the Bank with or without “cause,” or by Mr. McMullan with or without “good reason,” as defined in the McMullan Agreement. Unless earlier terminated by either party as provided therein, the McMullan Agreement has a three-year term and will extend automatically for subsequent one-year periods unless either party elects not to renew. The McMullan Agreement established Mr. McMullan’s base salary at $650,000 per year, which amount may be increased from year to year by the Bank’s board of directors. Pursuant to the McMullan Agreement, the Bank provides Mr. McMullan with a $1,500 per month automobile allowance. Mr. McMullan is entitled to participate in all incentive, savings, and retirement plans and programs available to senior executives of the Bank.

The Bank has a formal severance arrangement with Mr. McMullan, which is discussed below under “Potential Payments upon Termination or Change in Control.” This severance arrangement was an integral and necessary component of the Bank’s strategy to recruit Mr. McMullan to the president and chief executive officer position.

Mr. Goldstein. The Bank entered into a Second Amended and Restated Services Agreement on April 1, 2010 (Goldstein Agreement) with SJG Financial Consultants, LLC, a limited liability company of which Mr. Goldstein is the sole member, in connection with Mr. Goldstein’s service as chief financial officer of the Bank. Pursuant to the Goldstein Agreement, the Bank paid an annual fee of $411,730 for Mr. Goldstein’s services.

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Report of the Board of Directors

The board of directors of the Bank has reviewed and discussed the Compensation Discussion and Analysis above with management, and based on such review and discussion, the board of directors has determined that the Compensation Discussion and Analysis above should be included in the Bank’s Annual Report on Form 10-K.

The board of directors of the Bank has primary responsibility for establishing and determining the Bank’s compensation program. Therefore, this report is submitted by the full board of directors.

BOARD OF DIRECTORS

Scott C. Harvard, Chairman	William C. Handorf, Vice Chairman
John M. Bond, Jr.	Jonathan Kislak
W. Russell Carothers, II	LaSalle D. Leffall, III
F. Gary Garczynski	Miriam Lopez
Donna C. Goodrich	Henry Gary Pannell
John C. Helmken, II	Robert L. Strickland, Jr.
J. Thomas Johnson	Thomas H. Webber, III

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Executive Compensation

Summary Compensation Table

The following table provides a summary of cash and other compensation earned by the named executive officers for the years ended December 31, 2011, 2010, and 2009. It is important to read this table, and the other tables that follow, closely and in conjunction with the Compensation Discussion and Analysis. The narratives following the tables and the footnotes accompanying each table are important parts of each table.

2011 Summary Compensation Table

Name and Principal Position (a)	Year (b)		Salary ($) (c)		Bonus ($)(6) (d)		Non-Equity Incentive Plan Compensation ($)(7)(8) (e)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(9) (f)		All Other Compensation ($)(10) (g)		Total ($) (h)
W. Wesley McMullan President and Chief Executive Officer (1)		2011		650,000		148		599,362		1,089,000		58,710		2,397,220
		2010		474,492		140		354,457		478,000		30,660		1,337,749
		2009		466,000		148		141,772		424,000		27,960		1,059,880
Kirk R. Malmberg Executive Vice President and Chief Financial Officer		2011		411,950		518		297,385		526,000		24,717		1,260,570
		2010		385,000		140		281,673		283,000		23,252		973,065
		2009		385,000		148		97,336		256,000		23,100		761,584
Cathy C. Adams Executive Vice President and Chief Operations Officer (2)		2011		395,625		1,151		285,622		951,000		34,737		1,668,135
		2010		375,000		140		267,811		493,000		23,509		1,159,460
Robert F. Dozier, Jr. Executive Vice President and Chief Business Officer (3)		2011		225,000		148		161,550		—		110,508		497,206
Andrew B. Mills Senior Vice President and Treasurer (4)		2011		352,500		5,062		220,515		659,000		21,150		1,258,227
Principal Financial Officer for Part of 2011
Steven J. Goldstein Executive Vice President and Chief Financial Officer (5)		2011		149,499		—		—		—		154		149,653
		2010		394,000		100		285,394		—		—		679,494
		2009		393,996		100		104,322		—		—		498,418

⁽¹⁾  The 2010 amounts reported for Mr. McMullan reflect his separate service as executive vice president and director of financial management and, effective December 16, 2010, as president and chief executive officer.

⁽²⁾  Ms. Adams was not a named executive officer in 2009.

⁽³⁾  Mr. Dozier joined the Bank as executive vice president and chief business officer effective June 6, 2011. Amounts for Mr. Dozier reflect his partial year of service.

⁽⁴⁾  Mr. Mills was not a named executive officer in 2010 or 2009.

⁽⁵⁾  Mr. Goldstein retired from the Bank effective March 31, 2011.

⁽⁶⁾  The 2011 bonus amounts for Mr. Malmberg, Ms. Adams, and Mr. Mills include award payments of $370, $1,014 and $914, respectively, under the Bank’s Service Award Program to recognize employees with five or more years of service, and a $4,000 award payment to Mr. Mills under the Bank’s Winners Circle Awards Program to recognize a special project, service, or achievement by an employee in

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the areas of customer service, growth/profitability, initiative/innovation, or risk management. Both the Service Award Program and the Winners Circle Awards Program are administered by the Bank’s human resources department and are available to all employees of the Bank under the same general terms and conditions.

⁽⁷⁾  In 2009, the board exercised its overall discretion to modify incentive compensation awards and reduced by 50% the awards that otherwise would have been available to the Bank’s named executive officers pursuant to the short-term incentive compensation plan metrics and goals for calendar year 2009, and to other Bank employees under a similar incentive compensation plan for non-executive officers.

⁽⁸⁾  The amounts in column (e) reflect the dollar value of all earnings for services performed during the fiscal year ended December 31, 2011 pursuant to awards under the ICP. Thirty-four percent of the 2011 ICP awards is subject to mandatory deferral over three years. As discussed in the Compensation Discussion and Analysis, the 2011 non-equity incentive compensation awards are subject to a four week review period and receipt of non-objection by the Finance Agency. The amounts in column (e) also include the dollar value of all interest during 2011 earned on Deferred Incentive related to ICP awards for prior fiscal years.

⁽⁹⁾  The amounts in column (f) reflect the sum of the actuarial increase during each fiscal year in present value of the named executive officer’s aggregate pension benefits under the Bank’s Qualified and Excess Plans, computed using the assumptions described in footnote (1) to the 2011 Pension Benefits table. These plans are described in greater detail below under “Pension Benefits” and “Deferred Compensation.”

⁽¹⁰) The amounts in column (g) for 2011 consist of the following amounts:

	Matching contributions under the Bank’s qualified 401(k) Plan ($)		Matching contributions under the Bank’s non- qualified defined contribution benefit equalization plan ($)		Perquisites ($)(1)		Total ($)
W. Wesley McMullan		14,700		24,810		19,200		58,710
Kirk R. Malmberg		14,700		10,017		—		24,717
Cathy C. Adams		12,109		11,628		11,000		34,737
Robert F. Dozier, Jr.		16,333		—		94,175		110,508
Andrew B. Mills		14,700		6,450		—		21,150
Principal Financial Officer for Part of 2011
Steven J. Goldstein		—		—		154		154

⁽¹⁾  Perquisites are valued at the actual amounts paid by the Bank, and the value of each perquisite for each executive other than Mr. Dozier was less than $25,000. The Bank provides Mr. McMullan reimbursement for travel-related expenses (Global Entry Application Fee and Delta Crown Room membership), as well a $1,500 per month car allowance. The Bank provided Ms. Adams reimbursement for financial planning services. The Bank provided Mr. Dozier with reimbursement for financial planning services and $90,000 in relocation expenses.

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Awards of Incentive Compensation in 2011

2011 Grants of Plan-Based Awards

The following table provides information concerning each grant of an award to a named executive officer in 2011 under the ICP.

Estimated Future Payouts Under Non-Equity Incentive Plan Awards
Name (a)	Threshold ($) (b)(1)		Target ($) (c)(1)		Maximum ($) (d)(1)
W. Wesley McMullan		208,000		416,000		624,000
Kirk R. Malmberg		102,988		205,975		308,963
Cathy C. Adams		98,906		197,813		296,719
Robert F. Dozier, Jr.(2)		56,250		112,500		168,750
Andrew B. Mills		77,550		151,575		229,125
Principal Financial Officer for Part of 2011
Steven J. Goldstein(3)		—		—		—

⁽¹⁾  Columns (b-d) reflect threshold, target, and maximum payment opportunities under the Bank’s ICP for the fiscal year ended December 31, 2011. The actual amounts earned pursuant to the ICP during 2011 are reported under column (e) of the summary compensation table. Thirty-four percent of the actual amount earned is subject to mandatory deferral. For information on these awards, see “Compensation Discussion and Analysis.”

⁽²⁾  Mr. Dozier joined the Bank as executive vice president and chief business officer effective June 6, 2011. Amounts for Mr. Dozier reflect his partial year of service.

⁽³⁾  Mr. Goldstein was not eligible for non-equity incentive plan awards during 2011 due to his retirement from the Bank on March 31, 2011.

Retirement Benefits

Pension Benefits

The following table provides information with respect to the Pentegra Plan, the Bank’s tax-qualified pension plan (Qualified Plan), and the Bank’s non-qualified excess benefit pension plan (Excess Plan). The table shows the actuarial present value of accumulated benefits as of December 31, 2011, payable to each of the named executive officers, including the number of years of service credited to each named executive under each plan.

Qualified Plan

The pension benefits payable under the Qualified Plan are based on a pre-established defined benefit formula that provides for an annual retirement allowance and a retirement death benefit. A participant’s benefit in the plan vests upon completion of five years of service with the Bank, and the participant then may retire under the plan at the times described below.

Employees hired on or before July 1, 2005

For participants hired on or before July 1, 2005, the Qualified Plan generally provides an annual retirement allowance equal to 2.5 percent of the participant’s highest consecutive three-year average compensation for each year of credited service under the plan (not to exceed 30 years). Average compensation is defined as base salary and annual short-term incentive compensation.

For these participants, the standard retirement age is 65, with reduced early retirement benefits available at age 45. If the participant continues to work for the Bank until the sum of the participant’s age and years of service

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with the Bank equals at least 70, the annual benefit payable following retirement is reduced by 1.5 percent for each year that retirement precedes normal retirement age. If the participant terminates employment before the participant’s age and years of service with the Bank total 70, the annual benefit payable following retirement is reduced by six percent for each year between age 65 and 60, by four percent for each year between age 60 and 55, and by three percent for each year between age 55 and 45, in each case, that retirement precedes normal retirement age. For these participants, lump sum payments are available beginning at age 50.

Mr. McMullan, Mr. Malmberg, Ms. Adams, and Mr. Mills participate in the Qualified Plan on these terms because they were hired on or before July 1, 2005. As of March 15, 2012, each of Mr. McMullan, Mr. Malmberg, Ms. Adams, and Mr. Mills had attained eligibility for immediate early retirement.

Employees hired between July 1, 2005 and March 1, 2011

As of December 31, 2011, Mr. Goldstein was the only named executive officer hired between July 1, 2005 and March 1, 2011; however, Mr. Goldstein did not participate in the Qualified Plan. The following description is provided for informational purposes.

For participants hired after July 1, 2005, the Qualified Plan generally provides an annual retirement allowance equal to 1.5 percent of the participant’s highest consecutive five-year average compensation for each year of credited service under the plan (not to exceed 30 years). Average compensation is defined as base salary only. For these participants, the standard retirement age is 65, with reduced early retirement benefits available at age 55. If the participant terminates employment before reaching age 65, the annual benefit payable following retirement is reduced by six percent for each year between age 65 and 60, by four percent for each year between age 60 and 55, in each case, that retirement precedes normal retirement age. For these participants, lump sum payments are not available.

Employees hired on or after March 1, 2011

The Qualified Plan was closed to new participants effective March 1, 2011. Accordingly, Mr. Dozier does not participate in the Qualified Plan.

Excess Plan

Payments under the Qualified Plan may be limited due to federal tax code limitations. The Excess Plan exists to restore those benefits that executives otherwise would forfeit due to these limitations. The Excess Plan operates using the same benefit formula and retirement eligibility provisions as described above under the Qualified Plan. Because the Excess Plan is a non-tax-qualified plan, the benefits received from this plan do not receive the same tax treatment and funding protection associated with the Qualified Plan.

Mr. Dozier participates solely in the Excess Plan because he was hired after March 1, 2011. As approved by the board of directors, Mr. Dozier may participate in the Excess Plan to the same extent as if he were participating in the Qualified Plan (as if an employee hired between July 1, 2005 and March 1, 2011). Based on his length of employment, Mr. Dozier has not satisfied the plan vesting requirements and therefore is not yet eligible to retire under the Excess Plan.

Death Benefits

Death benefits, which do not vary based on date of hire, also are available under the Qualified Plan and the Excess Plan. If an employee dies while in active service, his/her beneficiary is entitled to a lump sum amount equal to the commuted value of 120 monthly retirement payments. If a former employee dies while in retirement, having elected the normal form of retirement benefits, his/her beneficiary also is entitled to a lump sum amount equal to the commuted value of 120 monthly retirement payments less payments received before the former employee died.

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2011 Pension Benefits

Name (a)	Plan Name (b)	Number of  Years of Credited Service (#) (c)	Present Value of Accumulated Benefit  ($) (1) (d)	Payments during last fiscal year  ($) (e)
W. Wesley McMullan	Qualified Plan	23.8	1,006,000	—
	Excess Plan	23.8	2,025,000	—
Kirk R. Malmberg(2)	Qualified Plan	14.8	662,000	—
	Excess Plan	14.8	836,000	—
Cathy C. Adams	Qualified Plan	25.3	1,283,000	—
	Excess Plan	25.3	1,453,000	—
Robert F. Dozier, Jr.	Qualified Plan	—	—	—
	Excess Plan	—	—	—
Andrew B. Mills	Qualified Plan	20.5	1,471,000	—
	Excess Plan	20.5	1,232,000	—
Principal Financial Officer for Part of 2011
Steven J. Goldstein(3)	—	—	—	—

⁽¹⁾  The “Present Value of Accumulated Benefit” is the present value of the annual pension benefit that was earned as of December 31, 2011, assuming retirement at age 65. Benefits under the Qualified Plan were calculated using a 4.40 percent discount rate; 3.73 percent was used to calculate benefits under the Excess Plan. The 2000 RP Mortality Table (50% static mortality table for lump sums; 50% generational mortality table for annuities) was used for both plans. These are the same assumptions used for financial statement reporting purposes.

⁽²⁾  In accordance with plan provisions, the years of credited service for Mr. Malmberg include 4.0 years credited for prior service earned while employed by FHLBank Chicago. The incremental value of this prior service, as valued in the Bank’s Excess Plan, using the methodology described in note 1, is $228,000.

⁽³⁾  Under the terms of his Services Agreement, Mr. Goldstein did not participate in either the Qualified Plan or the Excess Plan. Mr. Goldstein retired from the Bank effective March 31, 2011.

Deferred Compensation

Each named executive officer of the Bank is eligible to participate in the Bank’s non-qualified, elective deferred compensation plan and defined contribution benefit equalization plan (DC BEP). Directors are eligible to participate in the deferred compensation plan but are not eligible to participate in the DC BEP.

The deferred compensation plan permits a participant to defer all or a portion of his/her compensation, including base salary and awards under the ICP, and to direct such compensation into 16 mutual fund options designed to mirror the Bank’s 401(k) Plan. Directors also may select an interest crediting rate based on the Bank’s return on equity. Distributions from the deferred compensation plan may be made either in a specific year, whether or not a participant’s employment has ended, or at a time that begins at or after the participant’s retirement or separation. Participants may elect to receive either a lump sum distribution or annual installment payments over periods ranging from two to five years. The Bank does not match contributions to the deferred compensation plan.

As of December 31, 2011, none of the named executive officers have elected to participate in the deferred compensation plan.

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Named executive officers also are permitted to defer up to 40 percent of salary under the Bank’s qualified (401(k)) and non-qualified (DC BEP) plans. In addition, the Bank matches the amount contributed by a participating employee on the first six percent of his/her base salary. For employees hired on or after March 1, 2011, the Bank automatically contributes four percent of his/her base salary into the 401(k) plan on behalf of the employee, regardless of whether the employee makes his/her own contribution; these automatic contribution amounts are subject to a two-year vesting period.

The DC BEP, like the 401(k) plan, is self-directed and provides participants with 16 mutual fund options through the Vanguard Group. Participants earn a market rate of return based on the mutual funds selected. Distributions from the DC BEP begin when a participant’s employment has ended. Participants may elect to receive either a lump sum distribution or annual installment payments over periods ranging from two to five years. These plans are designed to encourage additional voluntary savings and to offer a valuable financial planning tool.

The amounts shown in the tables below include compensation earned and deferred in 2011, and earnings on, or distributions of, such amounts. In accordance with SEC rules, the amounts shown in the table do not include any amounts in respect of the 401(k) plan.

2011 Nonqualified Deferred Compensation

Defined Contribution Benefit Equalization Plan (DC BEP)

Name     (a)	Executive Contributions in Last Fiscal Year ($) (b)		Bank Contributions in Last  Fiscal Year ($) (c)		Aggregate Earnings In  Last Fiscal Year ($) (d) (1)		Aggregate Withdrawals  / Distributions ($) (e)		Aggregate Balance at Last FYE ($) (f)
W. Wesley McMullan		23,010		24,810		1,409		—		248,915
Kirk R. Malmberg		10,956		10,017		1,792		—		344,381
Cathy Adams		21,519		11,628		9,704		—		400,713
Robert F. Dozier, Jr.		—		—		—		—		—
Andrew B. Mills		—		6,450		4,555		—		207,604
Principal Financial Officer for Part of 2011
Steven J. Goldstein(2)		—		—		—		—		—

⁽¹⁾  Amounts under column (d) reflect actual market returns for mutual funds selected by participants and interest credit received under the Bank’s core economic income return on equity interest crediting rate.

⁽²⁾  Under the terms of his Services Agreement, Mr. Goldstein did not participate in the DC BEP. Mr. Goldstein retired from the Bank effective March 31, 2011.

Potential Payments upon Termination or Change in Control

No executive officer has a change-in-control agreement with the Bank. With the exception of Mr. McMullan, none of the current executive officers has a severance arrangement with the Bank.

For Mr. McMullan, the board approved a severance arrangement providing that upon the Bank’s termination of his employment for any reason other than “cause,” or upon Mr. McMullan’s termination of his employment for “good reason,” the Bank shall pay a total of the base salary in effect at the date of termination in a lump sum

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within 30 days of termination, plus an amount equal to the amount that would have been payable pursuant to Mr. McMullan’s incentive compensation award for the year in which the date of termination occurs, payable at the time such incentive compensation awards are paid to other executives.

Under the McMullan Agreement, “cause” is defined to include Mr. McMullan’s willful failure to perform his duties; his willful engagement in illegal conduct or gross misconduct injurious to the Bank; a written request from the Finance Agency or any other regulatory agency or body requesting that the Bank terminate his employment; crimes involving fraud or other dishonest acts; certain other notices from or actions by the Finance Agency; or his breach of fiduciary duty or breach of certain covenants in the McMullan Agreement. In addition, the McMullan Agreement defines “good reason” to include a material diminution in Mr. McMullan’s base salary or in his authority, duties, or responsibilities, or the authority, duties, or responsibilities of the person to whom Mr. McMullan reports; the Bank’s requiring Mr. McMullan to be based at any office or location other than in Atlanta, Georgia; or a material breach of the McMullan Agreement by the Bank.

The following table provides information about potential payments to Mr. McMullan in the event his employment had terminated on December 31, 2011. He is not entitled to any 280G gross-up payments in the event of termination.

	Severance
	2011 ICP Award ($)		Deferred Incentive for Prior Periods ($)		Annual Base Salary ($)		Medical, Dental and Life Insurance Benefits ($)		Pension Benefit Enhancements ($)		Other Perquisites ($)		Total ($)
W. Wesley McMullan
Voluntary Resignation		—		—		—		—		—		—		—
Involuntary For Cause		—		—		—		—		—		—		—
Involuntary Without Cause		597,350		81,243		650,000		—		—		—		1,328,593
Voluntary For Good Reason		597,350		81,243		650,000		—		—		—		1,328,593

The other named executive officers are entitled to receive amounts earned during their terms of employment, regardless of the manner in which their employment terminated, on the same terms generally applicable to all employees of the Bank. These amounts include:

• Severance, if and as determined at the sole discretion of the board.

• Amounts accrued and vested through the Bank’s Qualified Plan and the Excess Plan (the Bank’s qualified and non-qualified defined benefit plans). Up to three months of incremental service under the Bank’s pension plan may be granted, in the sole discretion of the board, if an employee is provided with severance pay.

• Amounts accrued and vested through the 401(k) Plan and the DC BEP (the Bank’s qualified and non-qualified defined contribution plans) and amounts contributed and associated earnings under the Bank’s deferred compensation plan.

• Accrued vacation and applicable retiree medical benefits and applicable retiree life insurance.

In the event of the death or disability of an employee, including a named executive officer, in conjunction with the benefits above, the employee or his/her beneficiary may receive benefits under the Bank’s disability plan or payments under the Bank’s life insurance plan, as appropriate.

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Director Compensation

The FHLBank Act provides that each FHLBank may pay its directors reasonable compensation for the time required of them, and their necessary expenses, in the performance of their duties, subject to approval by the Director. In accordance with the FHLBank Act, the Bank has adopted a policy governing the compensation and travel expense reimbursement provided to its directors. Under this policy, directors receive fees paid for attendance at each meeting of the board of directors, meeting of a committee of the board of directors, or certain official Bank-related events. These fees are subject to the annual caps established under the policy. Directors do not receive separate retainers.

Directors are reimbursed for reasonable Bank-related travel expenses associated with meeting attendance in accordance with Bank policy. In specified instances, the Bank may reimburse a director for the transportation and other ordinary travel expenses of the director’s guest. Total expenses paid under that policy in 2011 were $42,846.

During 2011, directors received fees for attendance at each board and committee meeting as described below. Scott C. Harvard, as chairman of the board of directors, was subject to an annual cap of $60,000 for 2011. William C. Handorf, as vice chairman of the board of directors, was subject to an annual cap of $55,000. The chairman of the audit committee was subject to an annual cap of $55,000, the chairman of each committee excluding audit and executive was subject to an annual cap of $50,000, and all other directors were subject to an annual cap of $45,000 in 2011.

2011 Meeting Fees

	Chairman		Vice Chairman		All Directors
Meeting of board when chairing a board meeting		$ 6,900		$6,900		$        —
Meeting of board		—		6,400		6,400
Meeting of a committee of the board of which he/she is chairman		2,100		2,100		2,100
Meeting of a committee of which he/she is a member		1,600		1,600		1,600
Joint meeting of the Affordable Housing Advisory Council and board or committee		1,600		1,600		1,600
Meeting of the Council of FHLBanks		800		800		800
FHLBanks’ Chairs/Vice Chairs		800		800		800
Telephonic meetings of the board or a committee, if serving as chair		1,200		1,200		1,200
Telephonic meetings (other than chair)		800		800		800

The following table sets forth the cash and other compensation earned or paid by the Bank to the members of the board of directors for all services in all capacities during 2011.

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2011 Director Compensation

Name (a)	Fees Earned     or Paid in Cash ($)(b)	Total       ($)(c)
John M. Bond, Jr.	50,000	50,000
W. Russell Carothers, II	45,000	45,000
F. Gary Garczynski	50,000	50,000
Donna C. Goodrich(1)	50,000	50,000
William C. Handorf	55,000	55,000
Scott C. Harvard	60,000	60,000
John C. Helmken	45,000	45,000
J. Thomas Johnson	45,000	45,000
Jonathan Kislak(1)	55,000	55,000
LaSalle D. Leffall, III	45,000	45,000
Miriam Lopez	50,000	50,000
Henry Gary Pannell	45,000	45,000
Robert L. Strickland, Jr.	50,000	50,000
Thomas H. Webber, III	45,000	45,000
(1)    At the request of the director, this amount was paid to a charity of his or her choosing.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The Bank is a cooperative whose members or former members own all of the outstanding capital stock of the Bank, and the members elect the directors of the Bank. The exclusive voting right of members is for the election of the Bank’s board of directors. A member is eligible to vote for the number of open member director seats in the state in which its principal place of business is located, and all members are eligible to vote for the number of open independent director seats. Membership is voluntary, and a member must give notice of its intent to withdraw from membership. A member that withdraws from membership may not acquire shares of any FHLBank before the end of the five-year period beginning on the date of the completion of its divestiture of Bank stock.

The Bank does not offer any compensation plan under which equity securities of the Bank are authorized for issuance. Ownership of the Bank’s capital stock is concentrated within the financial services industry and is stratified across various institution types as noted in the following table (in millions).

	Commercial Banks		Thrifts		Credit Unions		Insurance Companies		CDFIs		Mandatorily Redeemable Capital Stock		Total
December 31, 2011	$	4,133	$	675	$	810	$	98	$	2	$	286	$	6,004
December 31, 2010		5,273		996		847		107		1		529		7,753
December 31, 2009		6,166		1,026		816		116		—		188		8,312
December 31, 2008		4,508		3,024		816		115		—		44		8,507
December 31, 2007		3,501		3,464		528		63		—		55		7,611

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The following table sets forth information about those members that are beneficial owners of more than five percent of the Bank’s capital stock as of February 29, 2012.

Name and Address	Number of Shares Owned		Percent of Total Capital  Stock
Bank of America, National Association		10,622,670		17.14
200 North College Street
Charlotte, NC 28255
Branch Banking and Trust Company		4,985,026		8.04
200 W 2nd Street
Winston Salem, NC 27104
SunTrust Bank		4,322,034		6.97
25 Park Place
Atlanta, GA 30302
Capital One, National Association		4,011,878		6.47
1680 Capital One Drive
McLean, VA 22102
Navy Federal Credit Union		3,719,729		6.00
820 Follin Lane
Vienna, VA 22180

Additionally, member directors, which comprise a majority of the board of directors of the Bank, are officers or directors of member institutions that own the Bank’s capital stock. The following table lists these institutions as of February 29, 2012.

Member Name	City, State	Number of Shares Owned		Percent of Total Capital  Stock
Branch Banking and Trust Company	Winston Salem, NC		4,985,026		8.04
The Columbia Bank	Columbia, MD		57,431		0.09
First Community Bank, N.A.	Lexington, SC		38,313		0.06
IDB-IIC Federal Credit Union	Washington, DC		23,256		0.04
The Citizens Bank of Winfield	Winfield, AL		21,667		0.03
The Savannah Bank, N.A.	Savannah, GA		20,903		0.03
First Bank	Strasburg, VA		19,090		0.03
Bryan Bank and Trust	Richmond Hill, GA		6,250		0.01
Marquis Bank	Coral Gables, FL		4,297		*
Citizens Building and Loan Association	Greer, SC		1,749		*

* Represents less than 0.01 percent.

Item 13. Certain Relationships, Related Transactions and Director Independence.

Because the Bank is a cooperative, capital stock ownership is a prerequisite to transacting any business with the Bank. The Bank’s member directors are officers or directors of member institutions. As a result, all members and most directors would be classified as related parties, as defined by securities law and SEC regulations. In the ordinary course of its business, the Bank transacts business with each of the members that has an officer or director serving as a director of the Bank. All such transactions:

• have been made in the ordinary course of the Bank’s business;

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• have been made subject to the same Bank policies as transactions with the Bank’s members generally; and

• in the opinion of management, do not involve more than the normal risk of collection or present other unfavorable features.

The Bank has adopted a written related person transaction policy which requires the Governance and Compensation Committee of the board of directors to review and, if appropriate, to approve any transaction between the Bank and any related person (as defined by applicable SEC regulations). Pursuant to the policy, the committee will review any transaction the Bank would be required to disclose in filings with the SEC in which the Bank is or will be a participant and the amount involved exceeds $120,000, and in which any related person had, has, or will have a direct or indirect material interest. The Bank has exemptive relief from disclosing certain related person transactions that arise in the ordinary course of the Bank’s business. The committee may approve those transactions that are in, or are not inconsistent with, the best interests of the Bank and its shareholders.

In addition, the Bank has a written Code of Conduct applicable to all employees and a Code of Conduct and Ethics for Directors as well as other written policies and procedures that also may apply to or prohibit certain related person transactions.

Director Independence

For a discussion of director independence, refer to Item 10, Directors, Executive Officers and Corporate Governance–Director Independence, Audit Committee and Audit Committee Financial Expert.

Item 14. Principal Accountant Fees and Services.

The aggregate fees billed to the Bank by PwC are set forth in the following table for each of the years ended December 31, 2011 and 2010 (in thousands).

	For the Years Ended December 31,
	2011		2010
Audit fees(1)	$	790	$	819
Audit-related fees(2)		20		19
All other fees(3)		47		74
Total fees	$	857	$	912

⁽¹⁾  Audit fees for the years ended December 31, 2011 and 2010 were for professional services rendered by PwC in connection with the Bank’s annual audits and quarterly reviews of the Bank’s financial statements.

⁽²⁾  Audit-related fees for the years ended December 31, 2011 and 2010 were for assurance and related services primarily related to new accounting guidance.

⁽³⁾  All other fees for the years ended December 31, 2011 and 2010 relate to non audit-related advisory service, PwC’s attendance at FHLBanks’ Accounting Conferences and the annual license for PwC’s accounting research software.

The Bank is exempt from federal, state and local taxation. Therefore, no tax related fees were paid during the years ended December 31, 2011 and 2010.

The Audit Committee of the board of directors has adopted the Audit Committee Pre-Approval Policy (Pre-Approval Policy). In accordance with the Pre-Approval Policy and applicable law, the Audit Committee pre-approves audit services, audit-related services, tax services and non-audit services to be provided by the Bank’s independent registered public accounting firm. The term of any pre-approval is 12 months from the date of pre-approval unless the Audit Committee specifically provides otherwise. On an annual basis, the Audit Committee reviews the list of specific services and projected fees for services to be provided for the next 12 months and pre-approves services as the Audit Committee deems necessary. Under the Pre-Approval Policy, the

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Audit Committee has granted pre-approval authority to the Chairman and the Vice-Chairman of the Audit Committee, subject to limitation as set forth in the Pre-Approval Policy. The Chairman or the Vice-Chairman must report any pre-approval decisions to the Audit Committee at its next regularly scheduled meeting. New services that have not been pre-approved by the Audit Committee that are in excess of the pre-approval fee level established by the Audit Committee must be presented to the entire Audit Committee for pre-approval. In the years ended December 31, 2011 and 2010, 100 percent of the audit fees, audit-related fees and all other fees were pre-approved by the Audit Committee.

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PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) Financial Statements. The following financial statements of the Federal Home Loan Bank of Atlanta, set forth in Item 8 above, are filed as part of this Report.

Report of Independent Registered Public Accounting Firm

Statements of Condition as of December 31, 2011 and 2010

Statements of Income for the Years Ended December 31, 2011, 2010, and 2009

Statements of Capital Accounts for the Years Ended December 31, 2011, 2010, and 2009

Statements of Cash Flows for the Years Ended December 31, 2011, 2010, and 2009

Notes to Financial Statements

(b) Exhibits. The following exhibits are filed as a part of this Report:

Exhibit No.	Description
3.1	Restated Organization Certificate of the Federal Home Loan Bank of Atlanta1
3.2	Bylaws of the Federal Home Loan Bank of Atlanta (Revised and Restated)2
4.1	Capital Plan of the Federal Home Loan Bank of Atlanta3
10.1	Federal Home Loan Bank of Atlanta Benefit Equalization Plan (2011 revision)+
10.2	Federal Home Loan Bank of Atlanta Deferred Compensation Plan (2009 revision)3
10.3	Form of Officer and Director Indemnification Agreement1
10.4	Federal Home Loan Bank of Atlanta 2012 Directors’ Compensation Policy+
10.5	Second Amended and Restated Services Agreement, dated April 1, 2010, between the Bank, SJG Financial Consultants, LLC, and Steven J. Goldstein4
10.6	Indemnification Agreement, dated April 1, 2010, between the Bank, SJG Financial Consultants, LLC, and Steven J. Goldstein4
10.7	Agreement and Release of All Claims, dated as of April 14, 2010, between the Bank and Richard A. Dorfman4
10.8	Federal Home Loan Bank of Atlanta Omnibus Annual Incentive Compensation Plan, amended January 26, 2012+
10.9	Executive Award Letter for 2012 under the Omnibus Annual Incentive Compensation Plan+
10.10	Federal Home Loan Bank Executive Long-Term Incentive Plan1
10.11	Employment Agreement, dated as of December 16, 2010, between the Bank and W. Wesley McMullan5
10.12	Federal Home Loan Banks P&I Funding and Contingency Plan Agreement, effective as of July 20, 2006, by and among the Office of Finance and each of the Federal Home Loan Banks6
10.13	Amended Joint Capital Enhancement Agreement by and among each of the Federal Home Loan Banks7
10.14	General and ADEA Release, effective as of April 1, 2011, between the Federal Home Loan Bank of Atlanta and Jill Spencer8
12.1	Statement regarding computation of ratios of earnings to fixed charges+

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Exhibit No.	Description
31.1	Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002+
31.2	Certification of the Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002+
32.1	Certification of the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 135, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+
99.1	Audit Committee Report+
101	Audited financial statements from the Annual Report on Form 10-K of Federal Home Loan Bank of Atlanta for the year ended December 31, 2011, filed on March 23, 2012, formatted in XBRL: (i) the Statements of Condition, (ii) Statements of Income, (iii) the Statements of Capital, (iv) the Statements of Cash Flows and (v) the Notes to Financial Statements.+

1 Filed on March 17, 2006 with the SEC in the Bank’s Form 10 Registration Statement and incorporated herein by reference.

2 Filed on September 27, 2011 with the SEC in the Bank’s Form 8-K and incorporated herein by reference.

3 Filed on August 5, 2011 with the SEC in the Bank’s Form 8-K and incorporated herein by reference.

4 Filed on August 10, 2010 with the SEC in the Bank’s Form 10-Q and incorporated herein by reference.

5 Filed on March 25, 2011 with the SEC in the Bank’s Form 10-K and incorporated herein by reference.

6 Filed on June 27, 2006 with the SEC in the Bank’s Form 8-K and incorporated herein by reference.

7 Filed on August 5, 2011 with the SEC in the Bank’s Form 8-K and incorporated herein by reference.

8 Filed on May 12, 2011 with the SEC in the Bank’s Form 10-Q and incorporated herein by reference.

+ Furnished herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Federal Home Loan Bank of Atlanta
Date:    March 23, 2012	By	/S/    W. WESLEY MCMULLAN
	Name:	W. Wesley McMullan
	Title:	President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date:    March 23, 2012	By	/S/    W. WESLEY MCMULLAN
	Name:	W. Wesley McMullan
	Title:	President and Chief Executive Officer
Date:    March 23, 2012	By	/S/    KIRK R. MALMBERG
	Name:	Kirk R. Malmberg
	Title:	Executive Vice President and Chief Financial Officer
Date:    March 23, 2012	By	/S/    J. DANIEL COUNCE
	Name:	J. Daniel Counce
	Title:	Senior Vice President and Controller
Date:    March 23, 2012	By	/S/    SCOTT C. HARVARD
	Name:	Scott C. Harvard
	Title:	Chairman of the Board of Directors
Date:    March 23, 2012	By	/S/    WILLIAM C. HANDORF
	Name:	William C. Handorf
	Title:	Vice Chairman of the Board of Directors
Date:    March 23, 2012	By	/S/    JOHN M. BOND, JR.
	Name:	John M. Bond, Jr.
	Title:	Director
Date:    March 23, 2012	By	/S/    W. RUSSELL CAROTHERS, II
	Name:	W. Russell Carothers, II
	Title:	Director
Date:    March 23, 2012	By	/S/    F. GARY GARCZYNSKI
	Name:	F. Gary Garczynski
	Title:	Director
Date:    March 23, 2012	By	/S/    DONNA C. GOODRICH
	Name:	Donna C. Goodrich
	Title:	Director

Date:    March 23, 2012	By	/S/    JOHN C. HELMKEN, II
	Name:	John C. Helmken, II
	Title:	Director
Date:    March 23, 2012	By	/S/    J. THOMAS JOHNSON
	Name:	J. Thomas Johnson
	Title:	Director
Date:    March 23, 2012	By	/S/    JONATHAN KISLAK
	Name:	Jonathan Kislak
	Title:	Director
Date:    March 23, 2012	By	/S/    LASALLE D. LEFFALL, III
	Name:	LaSalle D. Leffall, III
	Title:	Director
Date:    March 23, 2012	By	/S/    MIRIAM LOPEZ
	Name:	Miriam Lopez
	Title:	Director
Date:    March 23, 2012	By	/S/    HENRY GARY PANNELL
	Name:	Henry Gary Pannell
	Title:	Director
Date:    March 23, 2012	By	/S/    ROBERT L. STRICKLAND, JR.
	Name:	Robert L. Strickland, Jr.
	Title:	Director
Date:    March 23, 2012	By	/S/    THOMAS H. WEBBER, III
	Name:	Thomas H. Webber, III
	Title:	Director