ATLANTA, Aug. 22 /PRNewswire/ -- The Federal Home Loan Bank of Atlanta
today announced its plans to restate its financial statements for 2001 through
the first quarter of 2005. As a result of the Bank's ongoing registration
process with the Securities and Exchange Commission (the "SEC"), the Bank
concluded, based upon discussions with the SEC and its independent auditors,
that its accounting for hedge transactions associated with advances and
consolidated obligations that contained caps and floors on interest rates
("Cap/Floor Hedges") did not comply with all of the requirements of Statement
of Financial Accounting Standard No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"), as it relates to the
application of the short-cut accounting method.
The Bank is working to quantify the impact of the necessary adjustments
for each of the affected prior periods. As a result, the Bank's financial
statements for these periods should no longer be relied upon. While
management believes that these adjustments will be material to net income for
each of the individual periods, management also believes that the cumulative
effect of these adjustments, before Affordable Housing Program ("AHP") and
REFCORP assessments, will not be material to the Bank's operations. The
restatement should not affect the Bank's reported Core Economic Income results
for the affected prior periods. The effect of these adjustments on the Bank's
AHP and REFCORP assessments cannot be determined at this time.
SFAS 133 requires that all derivatives be carried on the Bank's balance
sheet at fair value and that periodic changes in their fair value be recorded
in earnings. If a hedging relationship meets certain criteria specified in
SFAS 133, including appropriately documenting compliance with the criteria at
the time the hedging relationship is established, it is eligible for hedge
accounting and the offsetting changes in fair value of the hedged item may be
recorded in earnings. The application of hedge accounting generally requires
the Bank to evaluate the effectiveness of the hedging relationship on an
ongoing basis and to calculate the changes in fair value of the derivative and
related hedged item independently. This is known as the long-haul method of
hedge accounting. Transactions that meet more stringent criteria qualify for
the short-cut method of hedge accounting, which assumes that the change in
value of the hedged item exactly offsets the change in value of the
derivative.
Management had believed that these highly effective Cap/Floor Hedges were
eligible for the short-cut accounting method and therefore did not perform the
periodic effectiveness testing. Although the Cap/Floor Hedges have been
highly effective and would have been eligible for the long-haul method of
hedge accounting if appropriately documented at inception, the provisions of
SFAS 133 generally do not allow retroactive application of the long-haul
method. As a result, the Bank cannot record the changes in market value of
both sides of the transaction, but must instead only recognize in income the
market value changes in the derivative and not in the hedged item.
Lee Puschaver, Executive Vice President and CFO, stated, "While we took
great care in implementing SFAS 133 in 2001, including a review by our
independent auditors, SFAS 133 is a very complex accounting standard. We do
not expect the restatement resulting from the Cap/Floor Hedges to have a
significant impact on net income in future periods."
"Although the Bank does not expect to complete the registration process
with the SEC by August 29, 2005, it will continue diligently to pursue its
registration effectiveness," stated Raymond Christman, President and CEO.
In addition to the Cap/Floor Hedges, the Bank also is evaluating its
application of the short-cut accounting method of SFAS 133 to certain other
transactions, including the Bank's convertible advance products and zero
coupon bonds. Once this review is completed, the Bank may be required to make
additional adjustments, which could be material, to the Bank's financial
statements.
About FHLBank Atlanta
FHLBank Atlanta is a $144 billion financial services organization that
provides low-cost financing, community development grants, and other banking
services to nearly 1,200 financial institutions in Alabama, Florida, Georgia,
Maryland, North Carolina, South Carolina, Virginia, and the District of
Columbia. FHLBank Atlanta is one of 12 district banks in the Federal Home Loan
Bank System, which since 1990 has contributed more than $1.9 billion to
affordable housing development in the United States.
Some of the statements made in this press release may be "forward-looking
statements," which 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 forward-looking statements may not be realized due to a variety of
factors, including: future economic and market conditions; changes in demand
for advances or consolidated obligation; changes in interest rates;
legislative and regulatory changes; the Bank's registration with the SEC;
political, national and world events; and adverse developments or events
affecting or involving other FHLBanks or the FHLBank System in general.
Additional factors that might cause the Bank's results to differ from these
forward-looking statements are contained in the Bank's annual and quarterly
reports, available on the Bank's website at http://www.fhlbatl.com.
SOURCE Federal Home Loan Bank of Atlanta
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http://www.fhlbatl.com
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CONTACT:
Christopher McEntee of Federal Home Loan Bank
of Atlanta, +1-404-888-8158, or cmcentee@fhlbatl.com
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