UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-51397
Federal Home Loan Bank of New York
(Exact name of registrant as specified in its charter)
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Federal
(State or other jurisdiction of
incorporation or organization)
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13-6400946
(I.R.S. Employer
Identification No.) |
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101 Park Avenue, New York, N.Y.
(Address of principal executive offices)
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10178
(Zip Code) |
(212) 681-6000
(Registrants telephone number, including area code)
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.
Yes þ No o
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).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares outstanding of the issuers common stock as of April 30, 2010 was
47,916,499.
FEDERAL HOME LOAN BANK OF NEW YORK
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010
Table of Contents
Federal Home Loan Bank of New York
Statements of Condition Unaudited (in thousands, except par value of capital stock)
As of March 31, 2010 and December 31, 2009
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March 31, 2010 |
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December 31, 2009 |
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Assets |
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Cash and due from banks (Note 3) |
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$ |
1,167,824 |
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$ |
2,189,252 |
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Federal funds sold |
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3,130,000 |
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|
3,450,000 |
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Available-for-sale securities, net of unrealized gains (losses)
of $11,521 at March 31, 2010 and ($3,409) at December 31, 2009 (Note 5) |
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2,654,814 |
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|
2,253,153 |
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Held-to-maturity securities (Note 4) |
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|
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Long-term securities |
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9,776,282 |
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10,519,282 |
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Advances (Note 6) |
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88,858,753 |
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94,348,751 |
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Mortgage loans held-for-portfolio, net of allowance for credit losses
of $5,179 at March 31, 2010 and $4,498 at December 31, 2009 (Note 7) |
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1,287,770 |
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|
1,317,547 |
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Accrued interest receivable |
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320,730 |
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|
340,510 |
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Premises, software, and equipment |
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14,046 |
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|
14,792 |
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Derivative assets (Note 16) |
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9,246 |
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|
8,280 |
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Other assets |
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19,761 |
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|
19,339 |
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Total assets |
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$ |
107,239,226 |
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$ |
114,460,906 |
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Liabilities and capital |
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Liabilities |
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Deposits (Note 8) |
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Interest-bearing demand |
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$ |
7,942,668 |
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$ |
2,616,812 |
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Non-interest bearing demand |
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6,254 |
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|
6,499 |
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Term |
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28,000 |
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|
7,200 |
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Total deposits |
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7,976,922 |
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2,630,511 |
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Consolidated obligations, net (Note 10) |
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Bonds (Includes $6,780,613 at March 31, 2010 and $6,035,741 at December 31, 2009
at fair value under the fair value option) |
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72,408,203 |
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74,007,978 |
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Discount notes |
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19,815,956 |
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|
30,827,639 |
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Total consolidated obligations |
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92,224,159 |
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|
104,835,617 |
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|
|
|
|
|
|
|
|
|
|
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Mandatorily redeemable capital stock (Note 11) |
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105,192 |
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|
126,294 |
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|
|
|
|
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Accrued interest payable |
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|
330,715 |
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|
277,788 |
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Affordable Housing Program (Note 12) |
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|
145,660 |
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|
144,489 |
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Payable to REFCORP (Note 12) |
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|
13,873 |
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|
24,234 |
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Derivative liabilities (Note 16) |
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|
850,911 |
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|
746,176 |
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Other liabilities |
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216,168 |
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|
72,506 |
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|
|
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|
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|
|
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Total liabilities |
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101,863,600 |
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108,857,615 |
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Commitments and Contingencies (Notes 10, 12, 16 and 18) |
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Capital (Note 11) |
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Capital stock ($100 par value), putable, issued and outstanding shares: |
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48,276 at March 31, 2010 and 50,590 at December 31, 2009 |
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4,827,626 |
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5,058,956 |
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Retained earnings |
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671,519 |
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688,874 |
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Accumulated other comprehensive income (loss) (Note 13) |
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Net unrealized gain (loss) on available-for-sale securities |
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11,521 |
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(3,409 |
) |
Non-credit portion of OTTI on held-to-maturity securities, net of accretion |
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(106,612 |
) |
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|
(110,570 |
) |
Net unrealized loss on hedging activities |
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|
(20,551 |
) |
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|
(22,683 |
) |
Employee supplemental retirement plans (Note 15) |
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(7,877 |
) |
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(7,877 |
) |
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Total capital |
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5,375,626 |
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|
5,603,291 |
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Total liabilities and capital |
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$ |
107,239,226 |
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$ |
114,460,906 |
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The accompanying notes are an integral part of these unaudited financial statements.
3
Federal Home Loan Bank of New York
Statements of Income Unaudited (in thousands, except per share data)
For the three months ended March 31, 2010 and 2009
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March 31, |
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2010 |
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2009 |
|
Interest income |
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Advances (Note 6) |
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$ |
149,640 |
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$ |
502,222 |
|
Interest-bearing deposits (Note 3) |
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|
830 |
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|
8,918 |
|
Federal funds sold |
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|
1,543 |
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|
68 |
|
Available-for-sale securities (Note 5) |
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|
5,764 |
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|
8,519 |
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Held-to-maturity securities (Note
4) |
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Long-term securities |
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|
98,634 |
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|
126,820 |
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Certificates of deposit |
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|
508 |
|
Mortgage loans held-for-portfolio (Note 7) |
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|
16,741 |
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|
19,104 |
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|
|
|
|
|
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|
|
|
|
|
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Total interest income |
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273,152 |
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|
666,159 |
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|
|
|
|
|
|
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|
|
|
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|
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Interest expense |
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|
|
|
|
|
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Consolidated obligations-bonds (Note 10) |
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|
154,913 |
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|
343,707 |
|
Consolidated obligations-discount notes (Note 10) |
|
|
9,657 |
|
|
|
89,378 |
|
Deposits (Note 8) |
|
|
892 |
|
|
|
777 |
|
Mandatorily redeemable capital stock (Note 11) |
|
|
1,495 |
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|
878 |
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Cash collateral held and other borrowings (Note 19) |
|
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|
37 |
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|
|
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|
|
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|
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|
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Total interest expense |
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|
166,957 |
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|
434,777 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net interest income before provision for credit losses |
|
|
106,195 |
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|
|
231,382 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Provision for credit losses on mortgage loans |
|
|
709 |
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|
443 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net interest income after provision for credit losses |
|
|
105,486 |
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|
|
230,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (loss) |
|
|
|
|
|
|
|
|
Service fees |
|
|
1,045 |
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|
|
985 |
|
Instruments held at fair value Unrealized (loss) gain (Note 17) |
|
|
(8,419 |
) |
|
|
8,313 |
|
|
|
|
|
|
|
|
|
|
Total OTTI losses |
|
|
(3,873 |
) |
|
|
(15,203 |
) |
Portion of loss recognized in other comprehensive income |
|
|
473 |
|
|
|
9,938 |
|
|
|
|
|
|
|
|
Net impairment losses recognized in earnings |
|
|
(3,400 |
) |
|
|
(5,265 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized (loss)
on derivatives and hedging activities (Note 16) |
|
|
(363 |
) |
|
|
(13,666 |
) |
Net realized gain from sale of available-for-sale securities (Note 5) |
|
|
708 |
|
|
|
440 |
|
Other |
|
|
(227 |
) |
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss) |
|
|
(10,656 |
) |
|
|
(9,147 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses |
|
|
|
|
|
|
|
|
Operating |
|
|
19,236 |
|
|
|
18,094 |
|
Finance Agency and Office of Finance |
|
|
2,418 |
|
|
|
1,967 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
|
21,654 |
|
|
|
20,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before assessments |
|
|
73,176 |
|
|
|
201,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affordable Housing Program (Note 12) |
|
|
6,126 |
|
|
|
16,557 |
|
REFCORP (Note 12) |
|
|
13,410 |
|
|
|
37,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assessments |
|
|
19,536 |
|
|
|
53,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
53,640 |
|
|
$ |
148,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (Note 14) |
|
$ |
1.09 |
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|
$ |
2.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid per share |
|
$ |
1.41 |
|
|
$ |
0.75 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
4
Federal Home Loan Bank of New York
Statements of Capital Unaudited (in thousands, except per share data)
For the three months ended March 31, 2010 and 2009
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Capital Stock1 |
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|
|
|
|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
Class B |
|
|
Retained |
|
|
Comprehensive |
|
|
Total |
|
|
Comprehensive |
|
|
|
Shares |
|
|
Par Value |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Capital |
|
|
Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
55,857 |
|
|
$ |
5,585,700 |
|
|
$ |
382,856 |
|
|
$ |
(101,161 |
) |
|
$ |
5,867,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of capital stock |
|
|
10,418 |
|
|
|
1,041,817 |
|
|
|
|
|
|
|
|
|
|
|
1,041,817 |
|
|
|
|
|
Redemption of capital stock |
|
|
(12,145 |
) |
|
|
(1,214,491 |
) |
|
|
|
|
|
|
|
|
|
|
(1,214,491 |
) |
|
|
|
|
Shares reclassified to mandatorily
redeemable capital stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends ($0.75 per share) on
capital stock |
|
|
|
|
|
|
|
|
|
|
(42,100 |
) |
|
|
|
|
|
|
(42,100 |
) |
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
148,139 |
|
|
|
|
|
|
|
148,139 |
|
|
$ |
148,139 |
|
Net change in Accumulated other
comprehensive income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-credit portion of OTTI on
held-to-maturity securities,
net of accretion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,938 |
) |
|
|
(9,938 |
) |
|
|
(9,938 |
) |
Net unrealized gains on
available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,426 |
|
|
|
30,426 |
|
|
|
30,426 |
|
Hedging activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,879 |
|
|
|
1,879 |
|
|
|
1,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
170,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009 |
|
|
54,130 |
|
|
$ |
5,413,026 |
|
|
$ |
488,895 |
|
|
$ |
(78,794 |
) |
|
$ |
5,823,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
50,590 |
|
|
$ |
5,058,956 |
|
|
$ |
688,874 |
|
|
$ |
(144,539 |
) |
|
$ |
5,603,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of capital stock |
|
|
3,644 |
|
|
|
364,445 |
|
|
|
|
|
|
|
|
|
|
|
364,445 |
|
|
|
|
|
Redemption of capital stock |
|
|
(5,944 |
) |
|
|
(594,365 |
) |
|
|
|
|
|
|
|
|
|
|
(594,365 |
) |
|
|
|
|
Shares reclassified to mandatorily
redeemable capital stock |
|
|
(14 |
) |
|
|
(1,410 |
) |
|
|
|
|
|
|
|
|
|
|
(1,410 |
) |
|
|
|
|
Cash dividends ($1.41 per share) on
capital stock |
|
|
|
|
|
|
|
|
|
|
(70,995 |
) |
|
|
|
|
|
|
(70,995 |
) |
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
53,640 |
|
|
|
|
|
|
|
53,640 |
|
|
$ |
53,640 |
|
Net change in Accumulated other
comprehensive income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-credit portion of OTTI on
held-to-maturity securities,
net of accretion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,958 |
|
|
|
3,958 |
|
|
|
3,958 |
|
Net unrealized gains on
available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,930 |
|
|
|
14,930 |
|
|
|
14,930 |
|
Hedging activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,132 |
|
|
|
2,132 |
|
|
|
2,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
74,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010 |
|
|
48,276 |
|
|
$ |
4,827,626 |
|
|
$ |
671,519 |
|
|
$ |
(123,519 |
) |
|
$ |
5,375,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
5
Federal Home Loan Bank of New York
Statements of Cash Flows Unaudited (in thousands)
For the three months ended March 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
53,640 |
|
|
$ |
148,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
Net premiums and discounts on consolidated obligations,
investments, mortgage loans and other adjustments |
|
|
(19,849 |
) |
|
|
(16,488 |
) |
Concessions on consolidated obligations |
|
|
2,497 |
|
|
|
1,858 |
|
Premises, software, and equipment |
|
|
1,365 |
|
|
|
1,323 |
|
Provision for credit losses on mortgage loans |
|
|
709 |
|
|
|
443 |
|
Net realized (gains) from sale of available-for-sale securities |
|
|
(708 |
) |
|
|
(440 |
) |
Credit impairment losses on held-to-maturity securities |
|
|
3,400 |
|
|
|
5,265 |
|
Change in net fair value adjustments on derivatives and hedging activities |
|
|
145,124 |
|
|
|
10,927 |
|
Change in fair value adjustments on financial instruments held at fair value |
|
|
8,419 |
|
|
|
(8,313 |
) |
Net change in: |
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
|
19,781 |
|
|
|
81,356 |
|
Derivative assets due to accrued interest |
|
|
(9,558 |
) |
|
|
122,496 |
|
Derivative liabilities due to accrued interest |
|
|
(27,425 |
) |
|
|
(184,242 |
) |
Other assets |
|
|
2,560 |
|
|
|
2,353 |
|
Affordable Housing Program liability |
|
|
1,171 |
|
|
|
5,919 |
|
Accrued interest payable |
|
|
54,380 |
|
|
|
(48,275 |
) |
REFCORP liability |
|
|
(10,361 |
) |
|
|
37,035 |
|
Other liabilities |
|
|
(32,257 |
) |
|
|
(2,619 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
139,248 |
|
|
|
8,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
by operating
activities |
|
|
192,888 |
|
|
|
156,737 |
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
3,874 |
|
|
|
4,328,324 |
|
Federal funds sold |
|
|
320,000 |
|
|
|
(500,000 |
) |
Deposits with other FHLBanks |
|
|
22 |
|
|
|
(3 |
) |
Premises, software, and equipment |
|
|
(619 |
) |
|
|
(1,348 |
) |
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
Long-term securities |
|
|
|
|
|
|
|
|
Purchased |
|
|
|
|
|
|
(395,221 |
) |
Repayments |
|
|
916,331 |
|
|
|
624,495 |
|
In-substance maturities |
|
|
|
|
|
|
1,479 |
|
Net change in certificates of deposit |
|
|
|
|
|
|
903,000 |
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
Purchased |
|
|
(581,936 |
) |
|
|
(346 |
) |
Proceeds |
|
|
164,325 |
|
|
|
120,446 |
|
Proceeds from sales |
|
|
32,993 |
|
|
|
131,780 |
|
Advances: |
|
|
|
|
|
|
|
|
Principal collected |
|
|
66,264,709 |
|
|
|
159,760,816 |
|
Made |
|
|
(60,622,185 |
) |
|
|
(155,769,454 |
) |
Mortgage loans held-for-portfolio: |
|
|
|
|
|
|
|
|
Principal collected |
|
|
49,065 |
|
|
|
54,415 |
|
Purchased and originated |
|
|
(20,106 |
) |
|
|
(28,208 |
) |
Loans to other FHLBanks |
|
|
|
|
|
|
|
|
Loans made |
|
|
(27,000 |
) |
|
|
|
|
Principal collected |
|
|
27,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
by investing
activities |
|
|
6,526,473 |
|
|
|
9,230,175 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
6
Federal Home Loan Bank of New York
Statements of Cash Flows Unaudited (in thousands)
For the three
months ended March 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Financing activities |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Deposits and other borrowings 1 |
|
$ |
5,238,715 |
|
|
$ |
919,256 |
|
Consolidated obligation bonds: |
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
14,103,711 |
|
|
|
5,795,744 |
|
Payments for maturing and early retirement |
|
|
(15,757,412 |
) |
|
|
(18,272,802 |
) |
Consolidated obligation discount notes: |
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
27,155,228 |
|
|
|
190,143,891 |
|
Payments for maturing |
|
|
(38,157,604 |
) |
|
|
(187,741,830 |
) |
Capital stock: |
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
364,445 |
|
|
|
1,041,817 |
|
Payments for redemption / repurchase |
|
|
(594,365 |
) |
|
|
(1,214,491 |
) |
Redemption of Mandatorily redeemable capital stock |
|
|
(22,512 |
) |
|
|
(3,160 |
) |
Cash dividends paid 2 |
|
|
(70,995 |
) |
|
|
(42,100 |
) |
|
|
|
|
|
|
|
|
Net cash used by
financing activities |
|
|
(7,740,789 |
) |
|
|
(9,373,675 |
) |
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(1,021,428 |
) |
|
|
13,237 |
|
Cash and cash equivalents at beginning of the period |
|
|
2,189,252 |
|
|
|
18,899 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period |
|
$ |
1,167,824 |
|
|
$ |
32,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
136,535 |
|
|
$ |
583,725 |
|
Affordable Housing Program payments 3 |
|
$ |
4,955 |
|
|
$ |
10,638 |
|
REFCORP payments |
|
$ |
23,771 |
|
|
$ |
|
|
Transfers of mortgage loans to real estate owned |
|
$ |
377 |
|
|
$ |
108 |
|
Portion of non-credit OTTI losses on held-to-maturity
securities |
|
$ |
473 |
|
|
$ |
9,938 |
|
|
|
|
1 |
|
Cash flows from derivatives containing financing elements
were considered as a financing activity $109,565 and
$41,605 cash out-flows for the three months ended 2010 and 2009. |
|
2 |
|
Does not include payments to holders of Mandatorily redeemable capital stock. |
|
3 |
|
AHP payments = (beginning accrual - ending accrual) + AHP assessment for the period;
payments represent funds released to the Affordable Housing Program. |
The accompanying notes are an integral part of these unaudited financial statements.
7
Background
The Federal Home Loan Bank of New York (FHLBNY or the Bank) is a federally chartered
corporation, exempt from federal, state and local taxes except real estate taxes. It is one of
twelve district Federal Home Loan Banks (FHLBanks). The FHLBanks are U.S. government-sponsored
enterprises (GSEs), organized under the authority of the Federal Home Loan Bank Act of 1932, as
amended (FHLBank Act). Each FHLBank is a cooperative owned by member institutions located within
a defined geographic district. The members purchase capital stock in the FHLBank and receive
dividends on their capital stock investment. The FHLBNYs defined geographic district is New
Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. The FHLBNY provides a readily
available, low-cost source of funds for its member institutions. The FHLBNY does not have any
wholly or partially owned subsidiaries, nor does it have an equity position in any partnerships,
corporations, or off-balance-sheet special purpose entities.
The FHLBNY obtains its funds from several sources. A primary source is the issuance of FHLBank
debt instruments, called consolidated obligations, to the public. The issuances and servicing of
consolidated obligations are performed by the Office of Finance, a joint office of the FHLBanks.
These debt instruments represent the joint and several obligations of all the FHLBanks. Additional
sources of FHLBNY funding are member deposits and the issuance of capital stock. Deposits may be
accepted from member financial institutions and federal instrumentalities.
Members of the cooperative must purchase FHLBNY stock according to regulatory requirements (For
more information, see Note 11 Capital, Capital ratios, and Mandatorily redeemable capital stock
). The business of the cooperative is to provide liquidity for the members (primarily in the form
of loans referred to as advances) and to provide a return on members investment in FHLBNY stock
in the form of a dividend. Since the members are both stockholders and customers, the Bank
operates such that there is a trade-off between providing value to them via low pricing for
advances with a relatively lower dividend versus higher advances pricing with a relatively higher
dividend. The FHLBNY is managed to deliver balanced value to members, rather than to maximize
profitability or advance volume through low pricing.
All federally insured depository institutions, insured credit unions and insurance companies
engaged in residential housing finance can apply for membership in the FHLBank in their district.
All members are required to purchase capital stock in the FHLBNY as a condition of membership. A
member of another FHLBank or a financial institution that is not a member of any FHLBank may also
hold FHLBNY stock as a result of having acquired an FHLBNY member. Because the Bank operates as a
cooperative, the FHLBNY conducts business with related parties in the normal course of business and
considers all members and non-member stockholders as related parties in addition to the other
FHLBanks. For more information, see Note 19 Related party transactions.
The FHLBNYs primary business is making collateralized advances to members which is the principal
factor that impacts the financial condition of the FHLBNY.
8
Since July 30, 2008, the FHLBNY has been supervised and regulated by the Federal Housing Finance
Agency (Finance Agency), which is an independent agency in the executive branch of the U.S.
government. With the passage of the Housing and Economic Recovery Act of 2008 (Housing Act),
the Finance Agency was established and became the new independent Federal regulator (the
Regulator) of the FHLBanks, effective July 30, 2008. The Federal Housing Finance Board (Finance
Board), the FHLBanks former regulator, was merged into the Finance Agency as
of October 27, 2008. The Finance Board was abolished one year after the date of enactment of the
Housing Act. Finance Board regulations, orders, determinations and resolutions remain in effect
until modified, terminated, set aside or superseded in accordance with the Housing Act by the FHFA
Director, a court of competent jurisdiction or by operation of the law.
The Finance Agencys mission statement is to provide effective supervision, regulation and housing
mission oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to promote their
safety and soundness, support housing finance and affordable housing, and to support a stable and
liquid mortgage market. However, while the Finance Agency establishes regulations governing the
operations of the FHLBanks, the Bank functions as a separate entity with its own management,
employees and board of directors.
Tax Status
The FHLBanks, including the FHLBNY, are exempt from ordinary federal, state, and local
taxation except for local real estate taxes.
Assessments
Resolution Funding Corporation (REFCORP) Assessments. Although the FHLBNY is exempt from
ordinary federal, state, and local taxation except for local real estate taxes, it is required to
make payments to REFCORP.
REFCORP was established by Congress in 1989 to help facilitate the U.S. governments bailout of
failed financial institutions. The REFCORP assessments are used by the U.S. Treasury to pay a
portion of the annual interest expense on long-term obligations issued to finance a portion of the
cost of the bailout. Principal of those long-term obligations is paid from a segregated account
containing zero-coupon U.S. government obligations, which were purchased using funds that Congress
directed the FHLBanks to provide for that purpose in 1989.
Each FHLBank is required to pay 20 percent of income calculated in accordance with accounting
principles generally accepted in the U.S. (GAAP) after the assessment for the Affordable Housing
Program, but before the assessment for REFCORP. The Affordable Housing Program and REFCORP
assessments are calculated simultaneously because of their dependence on each other. The FHLBNY
accrues its REFCORP assessment on a monthly basis.
The Resolution Funding Corporation has been designated as the calculation agent for the Affordable
Housing Program and REFCORP assessments. Each FHLBank provides the amount of quarterly income
before Affordable Housing Program and REFCORP assessments and other information to the Resolution
Funding Corporation, which then performs the calculations for each quarter end.
9
Affordable Housing Program (AHP) Assessments. Section 10(j) of the FHLBank Act requires each
FHLBank to establish an Affordable Housing Program. Each FHLBank provides subsidies in the form of
direct grants and below-market interest rate advances to members who use the funds to assist in the
purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income
households.
Annually, the FHLBanks must set aside for the Affordable Housing Program the greater of $100
million or 10 percent of regulatory defined net income. Regulatory defined net income is GAAP net
income before interest expense related to mandatorily redeemable capital stock under the accounting
guidance for certain financial instruments with characteristics of both liabilities and equity, and
the assessment for Affordable Housing Program, but after the assessment for REFCORP. The exclusion
of interest expense related to mandatorily redeemable capital stock is a regulatory interpretation
of the Finance Agency. The FHLBNY accrues the AHP expense monthly.
Basis of Presentation
The preparation of financial statements in accordance with generally accepted accounting
principles in the U.S. requires management to make a number of judgments, estimates, and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities (if applicable), and the reported amounts of income and expense
during the reported periods. Although management believes these judgments, estimates, and
assumptions to be appropriate, actual results may differ. The information contained in these
financial statements is unaudited. In the opinion of management, normal recurring adjustments
necessary for a fair presentation of the interim period results have been made. Certain amounts in
the comparable 2009 presentations have been conformed to the 2010 presentation and the impact of
the changes was insignificant.
These unaudited financial statements should be read in conjunction with the FHLBNYs audited
financial statements for the year ended December 31, 2009, included in Form 10-K filed on March 25,
2010.
See Note 1 Summary of Significant Accounting Policies in Notes to the Financial Statements of
the Federal Home Loan Bank of New York filed on Form 10-K on March 25, 2010, which contains a
summary of the Banks significant accounting policies.
Note 1. Significant Accounting Policies and Estimates.
The FHLBNY has identified certain accounting policies that it believes are significant because
they require management to make subjective judgments about matters that are inherently uncertain
and because of the likelihood that materially different amounts would be reported under different
conditions or by using different assumptions. These policies include estimating the allowance for
credit losses on the advance and mortgage loan portfolios, evaluating the impairment of the Banks
securities portfolios, estimating the liabilities for employee benefit programs, and estimating
fair values of certain assets and liabilities.
Fair Value Measurements and Disclosures The accounting standard on fair value
measurements and disclosures discusses how entities should measure fair value based on whether the
inputs to those valuation techniques are observable or unobservable. In January 2010, the
Financial Accounting Standards Board (FASB) provided further guidelines effective January 1,
2010, that required enhanced disclosures about fair value measurements that the FHLBNY adopted in
the 2010 first quarter, and the Banks disclosures incorporate the enhanced standards. For more
information, see Note 17 Fair values of financial instruments.
Observable inputs reflect market data obtained from independent sources or those that can be
directly corroborated to market sources, while unobservable inputs reflect the FHLBNYs market
assumptions. 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 in the principal or most advantageous market for the
asset or liability between market
participants at the measurement date. This definition is based on an exit price rather than
transaction or entry price.
10
Valuation Techniques Three valuation techniques are prescribed under the fair value
measurement standards Market approach, Income approach and Cost approach. Valuation techniques
for which sufficient data is available and that are appropriate under the circumstances should be
used.
In determining fair value, FHLBNY uses various valuation methods, including both the market and
income approaches.
|
|
|
Market approach This technique uses prices and other relevant information generated
by market transactions involving identical or comparable assets or liabilities. |
|
|
|
Income approach This technique uses valuation techniques to convert future amounts
(for example, cash flows or earnings) to a single present amount (discounted), based on
assumptions used by market participants. The present value technique used to measure fair
value depends on the facts and circumstances specific to the asset or liability being
measured and the availability of data. |
|
|
|
Cost approach This approach is based on the amount that currently would be required
to replace the service capacity of an asset (often referred to as current replacement
cost). |
The accounting guidance on fair value measurements and disclosures establishes a hierarchy for
inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the
use of unobservable inputs by requiring that the most observable inputs be used when available.
Observable inputs are inputs that market participants would use in pricing the asset or liability,
and would be based on market data obtained from sources independent of FHLBNY. Unobservable inputs
are inputs that reflect FHLBNYs assumptions about the parameters market participants would use in
pricing the asset or liability, and would be based on the best information available in the
circumstances.
The fair value hierarchy is broken down into three levels based on the reliability of inputs as
follows:
Level 1 Quoted prices for identical instruments in active markets.
Level 2 Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and model-based valuations in
which all significant inputs and significant parameters are observable in active markets.
Level 3 Valuations based upon valuation techniques in which significant inputs and
significant parameters are unobservable.
The availability of observable inputs can vary from product to product and is affected by a wide
variety of factors including, for example, the characteristics peculiar to the transaction. To the
extent that valuation is based on models or inputs that are less observable or unobservable in the
market, the determination of fair value requires more judgment. Accordingly, the degree of
judgment exercised by FHLBNY in determining fair value is greatest for instruments categorized as
Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, for disclosure purpose the level in the fair value
hierarchy within which the fair value measurement falls is determined based on the lowest level
input that is significant to the fair value measurement in its entirety.
In its Statements of Condition at March 31, 2010 and December 31, 2009, the FHLBNY measured and
recorded fair values using the above guidance for derivatives, available-for-sale securities, and
certain
consolidated obligation bonds that were designated under the fair value option accounting (FVO).
Held-to-maturity securities determined to be credit impaired or OTTI at March 31, 2010 and December
31, 2009 were also measured at fair value on a non-recurring basis.
11
Fair Values of Derivative positions The FHLBNY is an end-user of over-the-counter
(OTC) derivatives to hedge assets and liabilities under hedge accounting rules to mitigate fair
value risks. In addition, the Bank records the fair value of an insignificant amount of
mortgage-delivery commitments as derivatives. For additional information, see Note 16
Derivatives and hedging activities.
Valuations of derivative assets and liabilities reflect the value of the instrument including the
value associated with counterparty risk. Derivative values also take into account the FHLBNYs own
credit standing. The computed fair values of the FHLBNYs OTC derivatives take into consideration
the effects of legally enforceable master netting agreements that allow the FHLBNY to settle
positive and negative positions and offset cash collateral with the same counterparty on a net
basis. The agreements include collateral thresholds that reflect the net credit differential
between the FHLBNY and its derivative counterparties. On a contract-by-contract basis, the
collateral and netting arrangements sufficiently mitigated the impact of the credit differential
between the FHLBNY and its derivative counterparties to an immaterial level such that an adjustment
for nonperformance risk was not deemed necessary. Fair values of the derivatives were computed
using quantitative models and employed multiple market inputs including interest rates, prices and
indices to generate continuous yield or pricing curves and volatility factors. These multiple
market inputs were predominantly actively quoted and verifiable through external sources, including
brokers and market transactions.
Fair Values of investments classified as available-for-sale securities The FHLBNY measures
and records fair values of available-securities in the Statements of Condition in accordance with
the fair value measurement standards. Changes in the values of available-for-sale securities
are recorded in Accumulated other comprehensive income (loss) (AOCI), a component of members
capital, with an offset to the recorded value of the investments in the Statements of Condition.
The Banks investments classified as available-for-sale (AFS) are comprised of mortgage-backed
securities that are GSE issued, variable-rate collateralized mortgage obligations and are
marketable at their recorded fair values. A small percentage of the AFS portfolio at March 31,
2010 and December 31, 2009 consisted of investments in equity and bond mutual funds held by grantor
trusts owned by the FHLBNY. The unit prices, or the Net asset values, of the underlying mutual
funds were available through publicly viewable web sites and the units were marketable at recorded
fair values.
The fair values of these investment securities are estimated by management using specialized
pricing services that employ pricing models or quoted prices of securities with similar
characteristics. Inputs into the pricing models are market based and observable. Examples of
securities, which would generally be classified within Level 2 of the valuation hierarchy and
valued using the market approach as defined under the accounting standard for fair value
measurements and disclosures, include GSE issued collateralized mortgage obligations and money
market funds.
See Note 17 Fair Values of financial instruments for additional disclosures about fair values
and Levels associated with assets and liabilities recorded on the Banks Statements of Condition at
March 31, 2010 and December 31, 2009.
Fair Value of held-to-maturity securities on a Nonrecurring Basis Certain
held-to-maturity investment securities are measured at fair value on a nonrecurring basis; that is,
they are not measured at fair value on an ongoing basis but are subject to fair-value adjustments
when there is evidence of other-than-temporary impairment. In accordance with the guidance on
recognition and presentation of other-
than-temporary impairment, certain held-to-maturity mortgage-backed securities were determined to
be credit impaired at March 31, 2010 and December 31, 2009 and the securities were recorded at
their fair values in the Statements of Condition at those dates. For more information, see Note 4
Held-to-maturity securities, and Note 17 Fair Values of financial instruments.
12
Financial Assets and Financial Liabilities recorded under the Fair Value Option The
accounting standards on the fair value option for financial assets and liabilities, created a fair
value option (FVO) allowing, but not requiring, an entity to irrevocably elect fair value as the
initial and subsequent measurement attribute for certain financial assets and financial liabilities
with changes in fair value recognized in earnings as they occur. In the third quarter of 2008 and
thereafter, the FHLBNY had elected the FVO designation for certain consolidated obligation bonds.
At March 31, 2010 and December 31, 2009, the Bank had designated certain consolidated obligation
debt under the FVO and recorded their fair values in the Statements of Condition at those dates.
The changes in fair values of the designated bonds are economically hedged by interest rate swaps.
See Note 17 Fair Values of financial instruments for more information.
Investments
Early adoption by the FHLBNY of the guidance on disclosures about the fair value of financial
instruments at January 1, 2009 required the Bank to incorporate certain clarifications and
definitions in its investment policies. The guidance amended the pre-existing accounting rules for
investments in debt and equity securities, and the guidance was primarily intended to provide
greater clarity to investors about the credit and noncredit component of an other-than-temporary
impairment (OTTI) event and to more effectively communicate when an OTTI event has occurred. The
guidance was incorporated in the Banks investment policies as summarized below.
Held-to-maturity securities The FHLBNY classifies investments for which it has both the ability
and intent to hold to maturity as held-to-maturity investments. Such investments are recorded at
amortized cost basis, which includes adjustments made to the cost of an investment for accretion
and amortization of discounts and premiums, collection of cash, and fair value hedge accounting
adjustments. If a held-to-maturity security is determined to be OTTI, the amortized cost basis of
the security is adjusted for credit losses. Amortized cost basis of a held-to-maturity OTTI
security is further adjusted for impairment related to all other factors (also referred to as the
non-credit component of OTTI) and recognized in AOCI; the adjusted amortized cost basis is the
carrying value of the OTTI security as reported in the Statements of Condition. Carrying value for
a held-to-maturity security that is not OTTI is its amortized cost basis.
Under the accounting guidance for investments in debt and equity securities, changes in
circumstances may cause the FHLBNY to change its intent to hold certain securities 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 due to changes in circumstances, such as
evidence of significant deterioration in the issuers creditworthiness or changes in regulatory
requirements, is not considered inconsistent with its original classification. Other events that
are isolated, nonrecurring, and unusual for the FHLBNY that could not have been reasonably
anticipated may cause the FHLBNY to sell or transfer a held-to-maturity security without
necessarily calling into question its intent to hold other debt securities to maturity. The Bank
did not transfer or sell any held-to-maturity securities due to changes in circumstances in any
period in this report.
13
In accordance with accounting guidance for investments in debt and equity securities, sales of debt
securities that meet either of the following two conditions may be considered as maturities for
purposes of
the classification of securities: (1) the sale occurs near enough to its maturity date (or call
date if exercise of the call is probable) such that interest rate risk is substantially eliminated
as a pricing factor and the changes in market interest rates would not have a significant effect on
the securitys fair value, or (2) the sale of a security occurs after the FHLBNY has already
collected a substantial portion (at least 85 percent) of the principal outstanding at acquisition.
Available-for-sale securities The FHLBNY classifies investments that it may sell before maturity
as available-for-sale and carries them at fair value.
Until available-for-sale securities (AFS) are sold, changes in fair values are recorded in AOCI
as Net unrealized gain or (loss) on available-for-sale securities. If available-for-sale
securities had been hedged under a fair value hedge qualifying for hedge accounting, the FHLBNY
would record the portion of the change in fair value related to the risk being hedged in Other
income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities
together with the related change in the fair value of the derivative, and would record the
remainder of the change in AOCI as a Net unrealized gain (loss) on available-for-sale securities.
If available-for-sale securities had been hedged under a cash flow hedge qualifying for hedge
accounting, the FHLBNY would record the effective portion of the change in value of the derivative
related to the risk being hedged in AOCI as a Net unrealized gain (loss) on derivatives and hedging
activities. The ineffective portion would be recorded in Other income (loss) and presented as a
Net realized and unrealized gain (loss) on derivatives and hedging activities.
The FHLBNY computes gains and losses on sales of investment securities using the specific
identification method and includes these gains and losses in Other income (loss). The FHLBNY
treats securities purchased under agreements to resell as collateralized financings because the
counterparty retains control of the securities.
Other-than-temporary impairment (OTTI) Accounting and Governance Policies
Impairment analysis, Pricing of mortgage-backed securities, and Bond insurer methodology.
The FHLBNY regularly evaluates its investments for impairment and determines if unrealized
losses are temporary based in part on the creditworthiness of the issuers, and in part on the
underlying collateral within the structure of the security and the cash flows expected to be
collected on the security. A security is considered impaired if its fair value is less than its
amortized cost basis. If management has made a decision to sell such an impaired security, OTTI is
considered to have occurred. If a decision to sell the impaired investment has not been made, but
management concludes that it is more likely than not that it will be required to sell such a
security before recovery of the amortized cost basis of the security, an OTTI is also considered to
have occurred.
Even if management does not intend to sell such an impaired security, an OTTI has occurred if cash
flow analysis determines that a credit loss exists. The difference between the present value of
the cash flows expected to be collected and the amortized cost basis is a credit loss. To
determine if a credit loss exists, management compares the present value of the cash flows expected
to be collected to the amortized cost basis of the security. If the present value of the cash
flows expected to be collected is less than the securitys amortized cost, an OTTI exists,
irrespective of whether management will be required to sell such a security. The Banks
methodology to calculate the present value of expected cash flows is to discount the expected cash
flows (principal and interest) of a fixed-rate security, that is being evaluated for OTTI, by using
the effective interest rate of the security as of the date it was acquired. For a variable-
rate security that is evaluated for OTTI, the expected cash flows are computed using a forward-rate
curve and discounted using the forward rates.
14
If the FHLBNY determines that OTTI has occurred, it accounts for the investment security as if it
had been purchased on the measurement date of the other-than-temporary impairment. The investment
security is written down to fair value, which becomes its new amortized cost basis. The new
amortized cost basis is not adjusted for subsequent recoveries in fair value.
For securities designated as available-for-sale, subsequent unrealized changes to the fair values
(other than OTTI) are recorded in AOCI. For securities designated as held-to-maturity, the amount
of OTTI recorded in AOCI for the non-credit component of OTTI is amortized prospectively over the
remaining life of the securities based on the timing and amounts of estimated future cash flows.
Amortization out of AOCI is offset by an increase in the carrying value of securities until the
securities are repaid or are sold or subsequent OTTI is recognized in earnings.
If subsequent evaluation indicates a significant increase in cash flows greater than previously
expected to be collected or if actual cash flows are significantly greater than previously
expected, the increases are accounted for as a prospective adjustment to the accretable yield
through interest income. In subsequent periods, if the fair value of the investment security has
further declined below its then-current carrying value and there has been a decrease in the
estimated cash flows the FHLBNY expects to collect, the FHLBNY will deem the security as OTTI.
OTTI FHLBank System Governance Committee On April 28, 2009, and May 7, 2009, the Finance Agency,
the FHLBanks regulator, provided the FHLBanks with guidance on the process for determining OTTI
with respect to the FHLBanks holdings of private-label MBS and for adoption of the guidance for
recognition and presentation of OTTI. The goal of the guidance is to promote consistency among all
FHLBanks in the process for determining and presenting OTTI for private-label MBS.
Beginning with the second quarter of 2009, consistent with the objectives of the Finance Agency,
the FHLBanks formed an OTTI Governance Committee (OTTI Committee) with the responsibility for
reviewing and approving key modeling assumptions, inputs, and methodologies to be used by the
FHLBanks to generate the cash flow projections used in analyzing credit losses and determining OTTI
for private-label MBS. The OTTI Committee charter was approved on June 11, 2009, and provides a
formal process by which the FHLBanks can provide input on and approve the assumptions.
Although a FHLBank may engage another FHLBank to perform its OTTI analysis under the guidelines of
the OTTI Committee, each FHLBank is responsible for making its own determination of impairment and
the reasonableness of assumptions, inputs, and methodologies used and for performing the required
present value calculations using appropriate historical cost bases and yields. FHLBanks that hold
the same private-label MBS are required to consult with one another to make sure that any decision
that a commonly held private-label MBS is other-than-temporarily impaired, including the
determination of fair value and the credit loss component of the unrealized loss, is consistent
among those FHLBanks.
The OTTI Committees role and scope with respect to the assessment of credit impairment for the
FHLBNYs private-label MBS are discussed further in the section Impairment analysis of
mortgage-backed securities.
15
FHLBank System Pricing Committee In an effort to achieve consistency among the FHLBanks pricing
of investments of mortgage-backed securities, in the third quarter of 2009 the FHLBanks also
formed the MBS Pricing Governance Committee, which was responsible for developing a fair value
methodology for mortgage-backed securities that all FHLBanks could adopt. Consistent with the
guidance from the Pricing Committee, the FHLBNY conformed its pre-existing methodology for
estimating the fair value of mortgage-backed securities starting with the interim period ended
September 30, 2009. Under the approved methodology, the FHLBNY requests prices for all
mortgage-backed securities from four specific third-party vendors. Prior to the change, the FHLBNY
used three of the four vendors specified by the Pricing Committee. Depending on the number of
prices received from the four vendors for each security, the FHLBNY selects a median or average
price as defined by the methodology. The methodology also incorporates variance thresholds to
assist in identifying median or average prices that may require further review by the FHLBNY. In
certain limited instances (i.e., when prices are outside of variance thresholds or the third-party
services do not provide a price), the FHLBNY obtains a price from securities dealers that is deemed
most appropriate after consideration of all relevant facts and circumstances that would be
considered by market participants. Prices for CUSIPs held in common with other FHLBanks are
reviewed for consistency. The incorporation of the Pricing Committee guidelines did not have a
significant impact in the FHLBNYs estimate of the fair values of its investment securities at
implementation of the policy as of September 30, 2009.
Bond Insurer analysis Certain held-to-maturity private-label MBS owned by the FHLBNY are insured
by third-party bond insurers (monoline insurers). The bond insurance on these investments
guarantees the timely payments of principal and interest if these payments cannot be satisfied from
the cash flows of the underlying mortgage pool. The FHLBNY performs cash flow credit impairment
tests on all of its private-label insured securities, and the analysis of the MBS protected by such
third-party insurance looks first to the performance of the underlying security, and considers its
embedded credit enhancements in the form of excess spread, overcollateralization, and credit
subordination, to determine the collectability of all amounts due. If the embedded credit
enhancement protections are deemed insufficient to make timely payment of all amounts due, then the
FHLBNY considers the capacity of the third-party bond insurer to cover any shortfalls.
Certain monoline insurers have been subject to adverse ratings, rating downgrades, and weakening
financial performance measures. In estimating the insurers capacity to provide credit protection
in the future to cover any shortfall in cash flows expected to be collected for securities deemed
to be OTTI, the FHLBNY has developed a methodology to assess the ability of the monoline insurers
to meet future insurance obligations.
The methodology calculates the length of time a monoline is expected to remain financially viable
to pay claims for securities insured. It employs, for the most part, publicly available
information to identify cash flows used up by a monoline for insurance claims. Based on the
monolines existing insurance reserves, the methodology attempts to predict the length of time over
which the monolines claims-paying resources could sustain bond insurance losses. The methodology
establishes boundaries that can be used on a consistent basis, and includes both quantitative
factors and qualitative considerations that management utilizes to estimate the period of time that
it is probable that the Banks insured securities will receive cash flow support from the
monolines.
For the FHLBNYs insured securities that are deemed to be credit impaired absent insurer
protection, the methodology compares the timing and amount of the cash flow shortfall to the timing
of when a monolines claim-paying resource is deemed exhausted. The analysis quantifies both the
timing and the amount of cash flow shortfall that the insurer is unlikely to be able to cover.
However, estimation of an insurers financial strength to remain viable over a long time horizon
requires significant judgment and assumptions. Predicting when the insurers may no longer have the
ability to perform under their contractual agreements, then comparing the timing and amounts of
cash flow shortfalls of securities that are credit impaired absent insurer protection requires
significant judgment.
16
For reasons outlined in previous paragraphs, the FHLBNY believes that bond insurance is an inherent
aspect of credit support within the structure of the security itself and it is appropriate to
include insurance in its evaluation of expected cash flows and determination of OTTI. The FHLBNY
has also established that the terms of insurance enable the insurance to travel with the security
if the security is sold in the future. As of March 31, 2010, the monolines that provide insurance
for the Banks securities are going concerns and were honoring claims with their existing capital
resources. Up until March 31, 2010, both Ambac Assurance Corp (Ambac), and MBIA Insurance Corp
(MBIA), the two primary bond insurers for the FHLBNY, have been paying claims in order to meet
any current cash flow deficiency within the structure of the insured securities. On March 24,
2010, Ambac, with the consent of the Commissioner of Insurance for the State of Wisconsin (the
Commissioner), entered into a temporary injunction to suspend payments to bond holders and to
create a segregated account for bond holders, which had no effect on payments due from Ambac
through March 31, 2010. MBIA is continuing to meet claims.
Within the boundaries set in the methodology outlined above, which are re-assessed at each quarter,
the Bank believes it is appropriate to assert that insurer credit support can be relied upon over a
certain period of time. For Ambac that support period was set at March 31, 2010 (no-reliance after
that date) based on the late-breaking news and the FHLBNYs analysis of the temporary injunction by
the Commissioner and Ambac. As with all assumptions, changes to these assumptions may result in
materially different outcomes and the realization of additional other-than-temporary impairment
charges in the future.
Impairment analysis of mortgage-backed securities
Securities with a fair value below amortized cost basis are considered impaired. Determining
whether a decline in fair value is OTTI requires significant judgment. The FHLBNY evaluates its
individual held-to-maturity investment in private-label issued mortgage- and asset-backed
securities for OTTI on a quarterly basis. As part of this process, the FHLBNY assesses if it has
the intent to sell the security or it is more likely than not that it will be required to sell
the impaired investment before recovery of its amortized cost basis. To assess whether the entire
amortized cost basis of the FHLBNYs private-label MBS will be recovered in future periods,
beginning with the quarter ended September 30, 2009, at December 31, 2009 and March 31, 2010, the
Bank performed OTTI analysis by cash flow testing 100 percent of its 54 private-label
MBS. In the first two quarters of 2009, the FHLBNY methodology was to analyze all its
private-label MBS to isolate securities that were considered to be at risk of OTTI and to perform
cash flow analysis on securities at risk of OTTI.
Cash flow analysis derived from the FHLBNYs own assumptions Assessment for OTTI employed by the
FHLBNYs own techniques and assumptions were determined primarily using historical performance data
of the 54 private-label MBS. These assumptions and performance measures were benchmarked by
comparing to (1) performance parameters from market consensus, and (2) to the assumptions and
parameters provided by the OTTI Committee for the FHLBNYs private-label MBS, which represented
about 50 percent of the FHLBNYs private-label MBS portfolio.
The internal process calculated the historical average of each bonds prepayments, defaults, and
loss severities, and considered other factors such as delinquencies and foreclosures. Managements
assumptions were primarily based on historical performance statistics extracted from reports from
trustees, loan servicer reports and other sources. In arriving at historical performance
assumptions, which is the FHLBNYs expected case assumptions, the FHLBNY also considered various
characteristics of each security including, but not limited to, the following: the credit rating
and related outlook or status; the creditworthiness of the issuers of the debt securities; the
underlying type of collateral; the year of securitization or vintage, the duration and level of the
unrealized loss, credit enhancements, if any; and other collateral-related characteristics such as
FICO® credit scores, and delinquency rates. The relative
importance of this information varies based on the facts and circumstances surrounding each
security as well as the economic environment at the time of assessment.
17
If the security is insured by a bond insurer and the security relies on the insurer for support
either currently or potentially in future periods, the FHLBNY performed another analysis to assess
the financial strength of the monoline insurers. The results of the insurer financial analysis
(monoline burn-out period) were then incorporated in the third-party cash flow model, as a key
input. If the cash flow model projected cash flow shortfalls (credit impairment) on an insured
security, the monolines burn-out period (an end date for credit support), was then input to the
cash flow model. The end date, also referred to as the burn-out date, provided the necessary
information as an input to the cash flow model for the continuation of cash flows up until the
burn-out date. Any cash flow shortfalls that occurred beyond the burn-out date were considered
to be not recoverable and the insured security was then deemed to be credit impaired.
Each bonds performance parameters, primarily prepayments, defaults and loss severities, and bond
insurance financial guarantee predictors , as calculated by the Banks internal approach
were then input into the specialized bond cash flow model that allocated the projected
collateral level losses to the various security classes in the securitization structure in
accordance with its prescribed cash flow and loss allocation rules. In a securitization in which
the credit enhancements for the senior securities were derived from the presence of subordinate
securities, losses were generally allocated first to the subordinate securities until their
principal balance was reduced to zero.
Role and scope of the OTTI Governance Committee
Starting with the third quarter of 2009, the OTTI Committee has adopted guidelines that each
FHLBank should assess credit impairment by cash flow testing of 100 percent of private-label
securities. Of the 54 private-label MBS owned by
the FHLBNY, approximately 50 percent of MBS backed by sub-prime loans, home equity loans, and
manufactured housing loans were deemed to be outside the scope of the OTTI Committee because
sufficient loan level collateral data was not available to determine the assumptions under the OTTI
Committees approach described below. The remaining securities were modeled in the OTTI Committee
common platform. The FHLBNY developed key modeling assumptions and forecasted cash flows using the
FHLBNYs own assumptions for 100 percent of its private-label MBS.
Cash flow derived from the OTTI Committee common platform Consistent with the guidelines
provided by the OTTI Committee, the FHLBNY has contracted with the FHLBanks of San Francisco and
Chicago to perform cash-flow analyses for the securities within the scope of the OTTI Committee as
a means of benchmarking the FHLBNYs own cash flow analysis. At March 31, 2010 and December 31,
2009, FHLBanks of San Francisco and Chicago cash flow tested approximately 50 percent of the
FHLBNYs private-label MBS. Although the FHLBNY has engaged the two FHLBanks to perform the cash
flow analysis, the FHLBNY is ultimately responsible for making its own determination of impairment
and the reasonableness of assumptions, inputs, and methodologies used and performing the required
present value calculations using appropriate historical cost bases and yields.
The FHLBanks of San Francisco and Chicago performed cash flow analysis for the FHLBNYs
private-label securities in scope using two third-party models to establish the modeling
assumptions and calculate the forecasted cash flows in the structure of the MBS. The first model
considered borrower characteristics and the particular attributes of the loans underlying a
security 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 was the
forecast of future housing price changes for the relevant states and core based statistical areas
(CBSAs), which were based upon an assessment of
the individual housing markets. CBSA refers collectively to metropolitan and micropolitan
statistical areas as defined by the United States Office of Management and Budget; as currently
defined, a CBSA must contain at least one urban area with a population of 10,000 or more people.
The housing price forecast assumed CBSA level current-to-trough home price declines ranging from 0
percent to 12 percent over the next 6 to 12 months
beginning January 1, 2010. Thereafter, home prices are projected to
remain flat in the first six months, and to increase 0.5 percent in the next six months, 3 percent
in the second year and 4 percent in each subsequent year.
18
The month-by-month projections of future loan performance derived from the first model, which
reflected projected prepayments, defaults and loss severities, were then input into a second model
that allocated 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.
In a securitization in which the credit enhancement for the senior securities was derived from the
presence of subordinate securities, losses were generally allocated first to the subordinate
securities until their principal balance was reduced to zero.
The projected cash flows were based on a number of assumptions and expectations, and the results of
these models can vary significantly with changes in assumptions and expectations. The scenario of
cash flows determined based on model approach described above reflects a best estimate scenario and
includes a base case current-to-through housing price forecast and a base case housing price
recovery path described in the prior paragraph.
GSE issued securities The FHLBNY evaluates its individual securities issued by Fannie Mae and
Freddie Mac or a government agency by considering the creditworthiness and performance of the debt
securities and the strength of the GSEs guarantees of the securities. Based on the Banks
analysis, GSE and U.S. agency issued securities are performing in accordance with their contractual
agreements. The Housing Act contains provisions allowing the U.S. Treasury to provide support to
Fannie Mae and Freddie Mac. In September 2008, the U.S. Treasury and the Finance Agency placed
Fannie Mae and Freddie Mac into conservatorship in an attempt to stabilize their financial
conditions and their ability to support the secondary mortgage market. The FHLBNY believes that it
will recover its investments in GSE and agency issued securities given the current levels of
collateral and credit enhancements and guarantees that exist to protect the investments.
Mortgage Loans Held-for-portfolio
The FHLBNY participates in the Mortgage Partnership Finance program®
(MPF ®) by purchasing and originating conventional mortgage loans from
its participating members, hereafter referred to as Participating Financial Institutions (PFI).
Federal Housing Administration (FHA) and Veterans Administration (VA) insured loans purchased
were not a significant total of the outstanding mortgage loans held-for-portfolio at March 31, 2010
and December 31, 2009. The FHLBNY manages the liquidity, interest rate and prepayment option risk
of the MPF loans, while the PFIs retain servicing activities. The FHLBNY and the PFI share the
credit risks of the uninsured MPF loans by structuring potential credit losses into layers.
Collectability of the loans is first supported by liens on the real estate securing the loan. For
conventional mortgage loans, additional loss protection is provided by private mortgage insurance
required for MPF loans with a loan-to-value ratio of more than 80 percent at origination, which is
paid for by the borrower. Credit losses are absorbed by the FHLBNY to the extent of the First Loss
Account (FLA) for which the maximum exposure is estimated to be $13.8 million and $13.9 million
at March 31, 2010 and December 31, 2009. The aggregate amount of FLA is memorialized and tracked
but is neither recorded nor reported as a loan loss reserve in the FHLBNYs financial statements.
If second losses beyond this layer are incurred, they are absorbed through a credit enhancement
provided by the PFI. The credit enhancement held by PFIs ensures that the lender retains a credit
stake in the loans it sells to the FHLBNY or originates as an agent for the FHLBNY (only relates to
MPF 100 product). For assuming this risk, PFIs receive monthly credit enhancement fees from the
FHLBNY.
The amount of the credit enhancement is computed with the use of a Standard & Poors model to
determine the amount of credit enhancement necessary to bring a pool of uninsured loans to AA
credit risk. The credit enhancement becomes an obligation of the PFI. For certain MPF products,
the credit enhancement fee is accrued and paid each month. For other MPF products, the credit
enhancement fee is accrued and paid monthly after the FHLBNY has accrued 12 months of credit
enhancement fees.
19
Delivery commitment fees are charged to a PFI for extending the scheduled delivery period of the
loans. Pair-off fees may be assessed and charged to PFI when the settlement of the delivery
commitment (1) fails to occur, or (2) the principal amount of the loans purchased by the FHLBNY
under a delivery commitment is not equal to the contract amount beyond established limits.
The FHLBNY records credit enhancement fees as a reduction to mortgage loan interest income. The
FHLBNY records other non-origination fees, such as delivery commitment extension fees and
pair-off-fees, as derivative income over the life of the commitment. All such fees were
inconsequential for all periods reported. The FHLBNY defers and amortizes premiums, costs, and
discounts as interest income using the level yield method to the loans contractual maturities.
The FHLBNY classifies mortgage loans as held-for-portfolio and, accordingly, reports them at their
principal amount outstanding, net of premiums, costs and discounts, which is the fair value of the
mortgage loan on settlement date.
The FHLBNY places a mortgage loan on non-accrual status when the collection of the contractual
principal or interest is 90 days or more past due. When a mortgage loan is placed on non-accrual
status, accrued but uncollected interest is reversed against interest income.
Allowance for credit losses on mortgage loans. The Bank reviews its portfolio to identify the
losses inherent within the portfolio and to determine the likelihood of collection of the principal
and interest. Mortgage loans, that are either classified under regulatory criteria (Special
Mention, Sub-standard, or Loss) or past due, are separated from the aggregate pool and evaluated
separately for impairment.
The allowances for credit losses on mortgage loans were $5.2 million and $4.5 million as of March
31, 2010 and December 31, 2009.
The Bank identifies inherent losses through analysis of the conventional loans (FHA and VA are
insured loans, and excluded from the analysis) that are not adversely classified or past due.
Reserves are based on the estimated costs to recover any portions of the MPF loans that are not FHA
and VA insured. When a loan is foreclosed, the Bank will charge to the loan loss reserve account
for any excess of the carrying value of the loan over the net realizable value of the foreclosed
loan.
If adversely classified, or on non-accrual status, reserves for conventional mortgage loans, except
FHA and VA insured loans, are analyzed under liquidation scenarios on a loan level basis, and
identified losses are reserved. FHA and VA insured mortgage loans have minimal inherent credit
risk; risk generally arises mainly from the servicers defaulting on their obligations. FHA and VA
insured mortgage loans, if adversely classified, would have reserves established only in the event
of a default of a PFI, and would be based on aging, collateral value and estimated costs to recover
any uninsured portion of the MPF loan.
Derivatives
The contractual or notional amount of derivatives reflects the involvement of the FHLBNY in the
various classes of financial instruments. The notional amount of derivatives does not measure the
credit risk exposure of the FHLBNY, and the maximum credit exposure of the FHLBNY is substantially
less than the notional amount. The maximum credit risk is the estimated cost of replacing
favorable interest-rate swaps, forward agreements, mandatory delivery contracts for mortgage loans,
and purchased caps and floors if the derivative counterparties default and the related collateral,
if any, is of insufficient value to
the FHLBNY. Accounting for derivatives is addressed under accounting standards for derivatives and
hedging. All derivatives are recognized on the balance sheet at their estimated fair values,
including accrued unpaid interest as either a derivative asset or a derivative liability net of
cash collateral received from and pledged to derivative counterparties.
20
Each derivative is designated as one of the following:
|
(1) |
|
a qualifying 1 hedge of the fair value of a recognized asset or liability or
an unrecognized firm commitment (a fair value hedge); |
|
(2) |
|
a qualifying 1 hedge of a forecasted transaction or the variability of cash
flows that are to be received or paid in connection with a recognized asset or liability (a
cash flow hedge); |
|
(3) |
|
a non-qualifying 1 hedge of an asset or liability (economic hedge) for
asset-liability management purposes; or |
|
(4) |
|
a non-qualifying 1 hedge of another derivative (an intermediation hedge)
that is offered as a product to members or used to offset other derivatives with non-member
counterparties. |
|
|
|
1 |
|
Note: The terms qualifying and non-qualifying refer to accounting standards for
derivatives and hedging. |
The FHLBNY had no foreign currency assets, liabilities or hedges at 2010 first quarter, or in 2009.
Changes in the fair value of a derivative that is designated and qualifies 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
current periods earnings in Other income (loss) as a Net realized and unrealized gain (loss) on
derivatives and hedging activities.
Changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge, to
the extent that the hedge is effective, are reported in AOCI, a component of equity, until earnings
are affected by the variability of the cash flows of the hedged transaction (i.e., until the
recognition of interest on a variable rate asset or liability is recorded in earnings).
The FHLBNY records derivatives on trade date, but records the associated hedged consolidated
obligations and advances on settlement date. Hedge accounting commences on trade date, at which
time subsequent changes to the derivatives fair value are recorded along with the offsetting
changes in the fair value of the hedged item attributable to the risk being hedged. On settlement
date, the basis adjustments to the hedged items carrying amount are combined with the principal
amounts and the basis becomes part of the total carrying amount of the hedged item.
The FHLBNY has defined its market settlement conventions for hedged items to be five business days
or less for advances and thirty calendar days or less, using a next business day convention, for
consolidated obligations bonds and discount notes. These market settlement conventions are the
shortest period possible for each type of advance and consolidated obligation from the time the
instruments are committed to the time they settle.
The FHLBNY considers hedges of committed advances and consolidated obligation bonds eligible for
the short cut provisions, under accounting standards for derivatives and hedging, as long as
settlement of the committed asset or liability occurs within the market settlement conventions for
that type of instrument. A short-cut hedge is a highly effective hedging relationship that uses an
interest rate swap as
the hedging instrument to hedge a recognized asset or liability and that meets the criteria under
the accounting standards for derivatives and hedging to qualify for an assumption of no
ineffectiveness.
To meet the short-cut provisions that assumes no ineffectiveness, the FHLBNY expects the fair value
of the swap to be zero on the date the FHLBNY designates the hedge.
21
For both fair value and cash flow hedges that qualify for hedge accounting treatment, 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 or the variability in the
cash flows of the forecasted transaction) are recorded in current periods earnings in Other income
(loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities. The
differentials between accruals of interest income and expense on derivatives designated as fair
value or cash flow hedges that qualify for hedge accounting treatment are recognized as adjustments
to the interest income or expense of the hedged advances and consolidated obligations.
Changes in the fair value of a derivative not qualifying as a hedge are recorded in current period
earnings with no fair value adjustment to the asset or liability being hedged. Both the net
interest and the fair value adjustments on the derivative are recorded in Other income (loss) as a
Net realized and unrealized gain (loss) on derivatives and hedging activities. Interest income and
expense and changes in fair values of derivatives designated as economic hedges (also referred to
as standalone hedges), or when executed as intermediated derivatives for members are also recorded
in the manner described above.
The FHLBNY routinely issues debt and makes advances in which a derivative instrument is embedded.
Upon execution of these transactions, the FHLBNY 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 or debt (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. If the FHLBNY determines that (1) the embedded derivative has economic characteristics
that are not clearly and closely related to the economic characteristics of the host contract, and
(2) a separate, standalone instrument with the same terms would qualify as a derivative instrument,
the embedded derivative would be separated from the host contract as prescribed for hybrid
financial instruments under accounting standards for derivatives and hedge accounting, and carried
at fair value. However, if the entire contract (the host contract and the embedded derivative) is
to be measured at fair value, the changes in fair value would be reported in current earnings (such
as an investment security classified as trading; or, if the FHLBNY cannot reliably identify and
measure the embedded derivative for purposes of separating that derivative from its host contract,
the entire contract would be carried on the balance sheet at fair value and no portion of the
contract would be designated as a hedging instrument). The FHLBNY had no financial instruments
with embedded derivatives that required bifurcation at March 31, 2010, March 31, 2009 or at
December 31, 2009.
When hedge accounting is discontinued because the FHLBNY determines that the derivative no longer
qualifies as an effective fair value hedge of an existing hedged item, the FHLBNY continues to
carry the derivative on the balance sheet at its fair value, ceases to adjust the hedged asset or
liability for changes in fair value, and amortizes the cumulative basis adjustment on the hedged
item into earnings over the remaining life of the hedged item using the level-yield methodology.
When hedge accounting is discontinued because the FHLBNY determines that the derivative no longer
qualifies as an effective cash flow hedge of an existing hedged item, the FHLBNY continues to carry
the derivative on the balance sheet at its fair value and reclassifies the basis adjustment in AOCI
to earnings when earnings are affected by the existing hedge item, which is the original forecasted
transaction. Under limited circumstances, when the FHLBNY discontinues cash flow hedge accounting
because it is no longer probable that the forecasted transaction will occur in the originally
expected period plus the
following two months, but it is probable the transaction will still occur in the future, the gain
or loss on the derivative remains in AOCI and is recognized into earnings when the forecasted
transaction affects earnings. However, if it is probable that a forecasted transaction will not
occur by the end of the originally specified time period or within two months after that, the gains
and losses that were included in AOCI are recognized immediately in earnings.
22
When hedge accounting is discontinued because the hedged item no longer meets the definition of a
firm commitment, the FHLBNY would continue to carry the derivative on the balance sheet at its fair
value, removing from the balance sheet any asset or liability that was recorded to recognize the
firm commitment and recording it as a gain or loss in current period earnings.
Cash Collateral associated with Derivative Contracts
The Bank reports derivative assets and derivative liabilities in its Statements of Condition after
giving effect to legally enforceable master netting agreements with derivative counterparties,
which include interest receivable and payable on derivative contracts and the fair values of the
derivative contracts. The Bank records cash collateral received and paid in the Statements of
Condition as Derivative assets and liabilities in the following manner Cash collateral pledged by
the Bank is reported as a deduction to Derivative liabilities; cash collateral received from
derivative counterparties is reported as a deduction to Derivative assets. No securities were
either pledged or received as collateral for derivatives at
March 31, 2010 and December 31, 2009.
Amortization of Premiums and Accretion of Discounts Investment securities
The FHLBNY estimates prepayments for purposes of amortizing premiums and accreting discounts
associated with certain investment securities in accordance with accounting guidance for
investments in debt and equity securities, which requires premiums and discounts to be recognized
in income at a constant effective yield over the life of the instrument. Because actual
prepayments often deviate from the estimates, the FHLBNY periodically recalculates the effective
yield to reflect actual prepayments to date.
|
|
|
Adjustments of the effective yields for mortgage-backed securities are recorded on a
retrospective basis, meaning as if the new estimated life of the security had been known at
its original acquisition date. Changes in interest rates have a direct impact on
prepayment speeds and estimated life, which will result in yield adjustments and can be a
source of income volatility. Reductions in interest rates generally accelerate
prepayments, which accelerate the amortization of premiums and reduce current earnings.
Typically, declining interest rates also accelerate the accretion of discounts, thereby
increasing current earnings. On the other hand, in a rising interest rate environment,
prepayments will generally extend over a longer period, shifting some of the premium
amortization and discount accretion to future periods. |
|
|
|
The Bank uses the contractual method to amortize premiums and accrete discounts on
mortgage loans held-for-portfolio. The contractual method recognizes the income effects of
premiums and discounts in a manner that is reflective of the actual behavior of the
mortgage loans during the period in which the behavior occurs while also reflecting the
contractual terms of the assets without regard to changes in estimated prepayments based
upon assumptions about future borrower behavior. |
Note 2. Recently issued accounting policies and interpretations
Accounting for the Consolidation of Variable Interest Entities In June 2009, the Financial
Accounting Standards Board (FASB) issued guidance to improve financial reporting by enterprises
involved with variable interest entities (VIEs) and to provide more relevant and reliable
information to users of financial statements. This guidance amends the manner in which entities
evaluate whether consolidation is required for VIEs. The guidance also requires that an entity
continually evaluate VIEs for consolidation, rather than making such an assessment based upon the
occurrence of triggering events. Additionally, the guidance requires enhanced disclosures about
how an entitys involvement with a VIE affects its financial statements and its exposure to risks.
This guidance is effective as of the beginning of each reporting entitys first annual reporting
period that begins after November 15, 2009 (January 1, 2010 for the FHLBNY), for interim periods
within that first annual reporting period, and for interim and annual reporting periods thereafter.
Earlier application is prohibited. The FHLBNY has evaluated its operations and investments and
has concluded that it has no VIEs and this pronouncement will have no impact on its financial
statements, results of operations and cash flows.
23
Fair Value Measurements and Disclosures Improving Disclosures about Fair Value Measurements
In January 2010, the FASB issued amended guidance for fair value measurements and disclosures. The
amended guidance requires a reporting entity to disclose separately the amounts of significant
transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for
the transfers. Furthermore, this update requires a reporting entity to present separately
information about purchases, sales, issuances, and settlements in the reconciliation for fair value
measurements using significant unobservable inputs; clarifies existing fair value disclosures about
the level of disaggregation and about inputs and valuation techniques used to measure fair value;
and amends guidance on employers disclosures about postretirement benefit plan assets to require
that disclosures be provided by classes of assets instead of by major categories of assets. The
new guidance is effective for interim and annual reporting periods beginning after December 15,
2009 (January 1, 2010 for the FHLBNY), except for the disclosures about purchases, sales,
issuances, and settlements in the rollforward of activity in Level 3 fair value measurements. Those
disclosures are effective for fiscal years beginning after December 15, 2010 (January 1, 2011 for
the FHLBNY), and for interim periods within those fiscal years. In the period of initial adoption,
entities will not be required to provide the amended disclosures for any previous periods presented
for comparative purposes. Early adoption is permitted. The FHLBNY adopted this guidance as of
January 1, 2010. Adoption of the guidance resulted in increased financial statement footnote
disclosures only. It did not impact the Statements of Condition, Operations, Cash Flows, or
Changes in Capital or the determination of fair value.
Accounting for Transfers of Financial Assets On June 12, 2009, the FASB issued guidance, which
is intended to improve the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial reports about a transfer of financial
assets; the effects of a transfer on its financial position, financial performance, and cash flows;
and a transferors continuing involvement in transferred financial assets. Key provisions of the
guidance include: (i) the removal of the concept of qualifying special purpose entities: (ii) the
introduction of the concept of a participating interest, in circumstances in which a portion of a
financial asset has been transferred; and (iii) the requirement that to qualify for sale
accounting, the transferor must evaluate whether it maintains effective control over transferred
financial assets either directly or indirectly. The guidance also requires enhanced disclosures
about transfers of financial assets and the transferors continuing involvement. This guidance is
effective as of the beginning of each reporting entitys first annual reporting period that begins
after November 15, 2009 (January 1, 2010 for the FHLBNY), for interim periods within that first
annual reporting period and for interim and annual reporting periods thereafter. Earlier
application is prohibited. The FHLBNY has evaluated the effect of the adoption of this guidance
and has concluded that adoption had no impact on its financial statements, results of operations
and cash flows.
Reclassifications
Certain amounts in the 2009 unaudited financial statements have been reclassified to conform to the
2010 presentation.
24
Note 3. Cash and due from banks
Cash on hand, cash items in the process of collection, and amounts due from correspondent
banks and the Federal Reserve Banks are included in cash and due from banks.
Compensating balances
The Bank maintained average required clearing balances with the Federal Reserve Banks of
approximately $1.0 million as of March 31, 2010 and December 31, 2009. The Bank uses earnings
credits on these balances to pay for services received from the Federal Reserve Banks.
Pass-through deposit reserves
The Bank acts as a pass-through correspondent for member institutions required to deposit reserves
with the Federal Reserve Banks. Pass-through reserves deposited with Federal Reserve Banks were
$31.2 million and $29.3 million as of March 31, 2010 and December 31, 2009. The Bank includes
member reserve balances in Other liabilities in the Statements of Condition.
Note 4. Held-to-maturity securities
Held-to-maturity securities consist of mortgage- and asset-backed securities (collectively
mortgage-backed securities or MBS), state and local housing finance agency bonds, and short-term
certificates of deposits issued by highly rated banks and financial institutions.
At March 31, 2010 and December 31, 2009, the FHLBNY had pledged MBS of $3.5 million and $2.0
million (amortized cost basis) to the FDIC in connection with deposits maintained by the FDIC at
the FHLBNY.
Mortgage-backed securities The FHLBNYs investments in MBS are predominantly government
sponsored enterprise issued securities. The carrying values of investments in mortgage-backed
securities issued by Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan
Mortgage Corp. (Freddie Mac) (together, government sponsored enterprises or GSEs) and a U.S.
government agency at March 31, 2010 were $8.0 billion, or 88.9% of the total MBS classified as
held-to-maturity. The comparable carrying values of GSE issued MBS at December 31, 2009 were $8.7
billion, or 89.1% of the total MBS classified as held-to-maturity. The carrying values (amortized
cost less non-credit component of OTTI) of privately issued mortgage- and asset-backed securities
at March 31, 2010 and December 31, 2009 were $1.0 billion and $1.1 billion. Privately issued MBS
primarily included asset-backed securities, mortgage pass-throughs and Real Estate Mortgage
Investment Conduit bonds, and securities supported by manufactured housing loans.
State and local housing finance agency bonds Investments in primary public and private
placements of taxable obligations of state and local housing finance authorities (HFA) were
classified as held-to-maturity and the amortized cost basis were $749.8 million and $751.8 million
at March 31, 2010 and December 31, 2009.
25
Major Security Types
The amortized cost basis1, the gross unrecognized holding gains and losses, the fair
values of held-to-maturity securities, and OTTI recognized in AOCI were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
Amortized |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Cost |
|
|
OTTI |
|
|
Carrying |
|
|
Unrecognized |
|
|
Unrecognized |
|
|
Fair |
|
Issued, guaranteed or insured: |
|
Basis |
|
|
in OCI |
|
|
Value |
|
|
Holding Gains |
|
|
Holding Losses |
|
|
Value |
|
Pools of Mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
1,081,039 |
|
|
$ |
|
|
|
$ |
1,081,039 |
|
|
$ |
44,361 |
|
|
$ |
|
|
|
$ |
1,125,400 |
|
Freddie Mac |
|
|
307,168 |
|
|
|
|
|
|
|
307,168 |
|
|
|
14,795 |
|
|
|
|
|
|
|
321,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pools of mortgages |
|
|
1,388,207 |
|
|
|
|
|
|
|
1,388,207 |
|
|
|
59,156 |
|
|
|
|
|
|
|
1,447,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage Obligations/Real
Estate Mortgage Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
|
2,406,059 |
|
|
|
|
|
|
|
2,406,059 |
|
|
|
75,431 |
|
|
|
|
|
|
|
2,481,490 |
|
Freddie Mac |
|
|
3,854,479 |
|
|
|
|
|
|
|
3,854,479 |
|
|
|
125,672 |
|
|
|
(56 |
) |
|
|
3,980,095 |
|
Ginnie Mae |
|
|
150,882 |
|
|
|
|
|
|
|
150,882 |
|
|
|
422 |
|
|
|
(355 |
) |
|
|
150,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CMOs/REMICs |
|
|
6,411,420 |
|
|
|
|
|
|
|
6,411,420 |
|
|
|
201,525 |
|
|
|
(411 |
) |
|
|
6,612,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac |
|
|
174,048 |
|
|
|
|
|
|
|
174,048 |
|
|
|
|
|
|
|
|
|
|
|
174,048 |
|
Ginnie Mae |
|
|
49,342 |
|
|
|
|
|
|
|
49,342 |
|
|
|
674 |
|
|
|
|
|
|
|
50,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
mortgage-backed securities |
|
|
223,390 |
|
|
|
|
|
|
|
223,390 |
|
|
|
674 |
|
|
|
|
|
|
|
224,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GSE MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMOs/REMICs |
|
|
409,839 |
|
|
|
(2,287 |
) |
|
|
407,552 |
|
|
|
2,771 |
|
|
|
(5,397 |
) |
|
|
404,926 |
|
Commercial MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-federal-agency MBS |
|
|
409,839 |
|
|
|
(2,287 |
) |
|
|
407,552 |
|
|
|
2,771 |
|
|
|
(5,397 |
) |
|
|
404,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing (insured) |
|
|
195,700 |
|
|
|
|
|
|
|
195,700 |
|
|
|
|
|
|
|
(35,830 |
) |
|
|
159,870 |
|
Home equity loans (insured) |
|
|
296,280 |
|
|
|
(76,935 |
) |
|
|
219,345 |
|
|
|
18,484 |
|
|
|
(11,316 |
) |
|
|
226,513 |
|
Home equity loans (uninsured) |
|
|
208,217 |
|
|
|
(27,390 |
) |
|
|
180,827 |
|
|
|
10,257 |
|
|
|
(29,822 |
) |
|
|
161,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset-backed securities |
|
|
700,197 |
|
|
|
(104,325 |
) |
|
|
595,872 |
|
|
|
28,741 |
|
|
|
(76,968 |
) |
|
|
547,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
$ |
9,133,053 |
|
|
$ |
(106,612 |
) |
|
$ |
9,026,441 |
|
|
$ |
292,867 |
|
|
$ |
(82,776 |
) |
|
$ |
9,236,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local housing finance
agency obligations |
|
$ |
749,841 |
|
|
$ |
|
|
|
$ |
749,841 |
|
|
$ |
3,471 |
|
|
$ |
(55,583 |
) |
|
$ |
697,729 |
|
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other |
|
$ |
749,841 |
|
|
$ |
|
|
|
$ |
749,841 |
|
|
$ |
3,471 |
|
|
$ |
(55,583 |
) |
|
$ |
697,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-maturity securities |
|
$ |
9,882,894 |
|
|
$ |
(106,612 |
) |
|
$ |
9,776,282 |
|
|
$ |
296,338 |
|
|
$ |
(138,359 |
) |
|
$ |
9,934,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Amortized |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Cost |
|
|
OTTI |
|
|
Carrying |
|
|
Unrecognized |
|
|
Unrecognized |
|
|
Fair |
|
Issued, guaranteed or insured: |
|
Basis |
|
|
in OCI |
|
|
Value |
|
|
Holding Gains |
|
|
Holding Losses |
|
|
Value |
|
Pools of Mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
1,137,514 |
|
|
$ |
|
|
|
$ |
1,137,514 |
|
|
$ |
38,378 |
|
|
$ |
|
|
|
$ |
1,175,892 |
|
Freddie Mac |
|
|
335,368 |
|
|
|
|
|
|
|
335,368 |
|
|
|
12,903 |
|
|
|
|
|
|
|
348,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pools of mortgages |
|
|
1,472,882 |
|
|
|
|
|
|
|
1,472,882 |
|
|
|
51,281 |
|
|
|
|
|
|
|
1,524,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage Obligations/Real
Estate Mortgage Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
|
2,609,254 |
|
|
|
|
|
|
|
2,609,254 |
|
|
|
70,222 |
|
|
|
(2,192 |
) |
|
|
2,677,284 |
|
Freddie Mac |
|
|
4,400,003 |
|
|
|
|
|
|
|
4,400,003 |
|
|
|
128,952 |
|
|
|
(3,752 |
) |
|
|
4,525,203 |
|
Ginnie Mae |
|
|
171,531 |
|
|
|
|
|
|
|
171,531 |
|
|
|
245 |
|
|
|
(1,026 |
) |
|
|
170,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CMOs/REMICs |
|
|
7,180,788 |
|
|
|
|
|
|
|
7,180,788 |
|
|
|
199,419 |
|
|
|
(6,970 |
) |
|
|
7,373,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ginnie Mae-CMBS |
|
|
49,526 |
|
|
|
|
|
|
|
49,526 |
|
|
|
62 |
|
|
|
|
|
|
|
49,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GSE MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMOs/REMICs |
|
|
447,367 |
|
|
|
(2,461 |
) |
|
|
444,906 |
|
|
|
2,437 |
|
|
|
(7,833 |
) |
|
|
439,510 |
|
Commercial MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-federal-agency MBS |
|
|
447,367 |
|
|
|
(2,461 |
) |
|
|
444,906 |
|
|
|
2,437 |
|
|
|
(7,833 |
) |
|
|
439,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing (insured) |
|
|
202,278 |
|
|
|
|
|
|
|
202,278 |
|
|
|
|
|
|
|
(37,101 |
) |
|
|
165,177 |
|
Home equity loans (insured) |
|
|
307,279 |
|
|
|
(79,445 |
) |
|
|
227,834 |
|
|
|
12,795 |
|
|
|
(25,136 |
) |
|
|
215,493 |
|
Home equity loans (uninsured) |
|
|
217,981 |
|
|
|
(28,664 |
) |
|
|
189,317 |
|
|
|
3,436 |
|
|
|
(34,804 |
) |
|
|
157,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset-backed securities |
|
|
727,538 |
|
|
|
(108,109 |
) |
|
|
619,429 |
|
|
|
16,231 |
|
|
|
(97,041 |
) |
|
|
538,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
$ |
9,878,101 |
|
|
$ |
(110,570 |
) |
|
$ |
9,767,531 |
|
|
$ |
269,430 |
|
|
$ |
(111,844 |
) |
|
$ |
9,925,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local housing finance
agency obligations |
|
$ |
751,751 |
|
|
$ |
|
|
|
$ |
751,751 |
|
|
$ |
3,430 |
|
|
$ |
(11,046 |
) |
|
$ |
744,135 |
|
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other |
|
$ |
751,751 |
|
|
$ |
|
|
|
$ |
751,751 |
|
|
$ |
3,430 |
|
|
$ |
(11,046 |
) |
|
$ |
744,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-maturity securities |
|
$ |
10,629,852 |
|
|
$ |
(110,570 |
) |
|
$ |
10,519,282 |
|
|
$ |
272,860 |
|
|
$ |
(122,890 |
) |
|
$ |
10,669,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Amortized cost basis, as defined under the guidance on recognition and presentation
of OTTI, includes adjustments made to the cost of an investment for accretion, amortization,
collection of cash, and fair value hedge accounting adjustments. If a held-to-maturity security is
determined to be OTTI, the amortized cost basis of the security is adjusted for previous OTTI
recognized in earnings. Amortized cost basis of a held-to-maturity OTTI security is further
adjusted for impairment related to all other factors (also referred to as the non-credit component
of OTTI) recognized in AOCI, and the adjusted amortized cost basis is the carrying value of the
OTTI security reported in the Statements of Condition. Carrying value of a held-to-maturity
security that is not OTTI is its amortized cost basis. |
26
Unrealized Losses
The following tables summarize held-to-maturity securities with fair values below their amortized
cost basis. The fair values and gross unrealized holding losses are aggregated by major security
type and by the length of time individual securities have been in a continuous unrealized loss
position as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
Non-MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local
housing finance
agency obligations |
|
$ |
143,016 |
|
|
$ |
(10,889 |
) |
|
$ |
213,571 |
|
|
$ |
(44,694 |
) |
|
$ |
356,587 |
|
|
$ |
(55,583 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-MBS |
|
|
143,016 |
|
|
|
(10,889 |
) |
|
|
213,571 |
|
|
|
(44,694 |
) |
|
|
356,587 |
|
|
|
(55,583 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS Other US Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ginnie Mae |
|
|
110,737 |
|
|
|
(355 |
) |
|
|
|
|
|
|
|
|
|
|
110,737 |
|
|
|
(355 |
) |
MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac |
|
|
126,350 |
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
126,350 |
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS-GSE |
|
|
126,350 |
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
126,350 |
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS-Private-Label |
|
|
97,372 |
|
|
|
(502 |
) |
|
|
768,161 |
|
|
|
(158,064 |
) |
|
|
865,533 |
|
|
|
(158,566 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
334,459 |
|
|
|
(913 |
) |
|
|
768,161 |
|
|
|
(158,064 |
) |
|
|
1,102,620 |
|
|
|
(158,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
477,475 |
|
|
$ |
(11,802 |
) |
|
$ |
981,732 |
|
|
$ |
(202,758 |
) |
|
$ |
1,459,207 |
|
|
$ |
(214,560 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
Non-MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local
housing finance
agency obligations |
|
$ |
212,112 |
|
|
$ |
(8,611 |
) |
|
$ |
43,955 |
|
|
$ |
(2,435 |
) |
|
$ |
256,067 |
|
|
$ |
(11,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-MBS |
|
|
212,112 |
|
|
|
(8,611 |
) |
|
|
43,955 |
|
|
|
(2,435 |
) |
|
|
256,067 |
|
|
|
(11,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS Other US Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ginnie Mae |
|
|
122,359 |
|
|
|
(1,020 |
) |
|
|
2,274 |
|
|
|
(6 |
) |
|
|
124,633 |
|
|
|
(1,026 |
) |
MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
|
780,645 |
|
|
|
(2,192 |
) |
|
|
|
|
|
|
|
|
|
|
780,645 |
|
|
|
(2,192 |
) |
Freddie Mac |
|
|
814,881 |
|
|
|
(3,752 |
) |
|
|
|
|
|
|
|
|
|
|
814,881 |
|
|
|
(3,752 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS-GSE |
|
|
1,595,526 |
|
|
|
(5,944 |
) |
|
|
|
|
|
|
|
|
|
|
1,595,526 |
|
|
|
(5,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS-Private-Label |
|
|
113,140 |
|
|
|
(1,523 |
) |
|
|
765,445 |
|
|
|
(196,134 |
) |
|
|
878,585 |
|
|
|
(197,657 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
1,831,025 |
|
|
|
(8,487 |
) |
|
|
767,719 |
|
|
|
(196,140 |
) |
|
|
2,598,744 |
|
|
|
(204,627 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,043,137 |
|
|
$ |
(17,098 |
) |
|
$ |
811,674 |
|
|
$ |
(198,575 |
) |
|
$ |
2,854,811 |
|
|
$ |
(215,673 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Impairment analysis of GSE issued securities The FHLBNY evaluates its individual securities
issued by Fannie Mae, Freddie Mac and a government agency by considering the creditworthiness and
performance of the debt securities and the strength of the GSEs guarantees of the securities.
Based on the Banks analysis, GSE and agency issued securities are performing in accordance with
their contractual agreements. The Housing Act contains provisions allowing the U.S. Treasury to
provide support to Fannie Mae and Freddie Mac. In September 2008, the U.S. Treasury and the
Finance Agency placed Fannie Mae and Freddie Mac into conservatorship in an attempt to stabilize
their financial conditions and their ability to support the secondary mortgage market. The FHLBNY
believes that it will recover its investments in GSE and agency issued securities given the current
levels of collateral, credit enhancements and guarantees that exist to protect the investments.
Impairment analysis of held-to-maturity non-agency private-label mortgage- and
asset-backed securities (PLMBS).
Management evaluates its investments for OTTI on a quarterly basis, under amended OTTI guidance
issued by the Financial Accounting Standards Board (FASB) in the 2009 first quarter. This
amended OTTI guidance, which the FHLBNY early adopted in the 2009 first quarter, results in only
the credit portion of OTTI securities being recognized in earnings. The noncredit portion of OTTI,
which represent fair value losses of OTTI securities, is recognized in AOCI. Prior to 2009, if
impairment was determined to be other-than-temporary, the impairment loss recognized in earnings
was equal to the entire difference between the securitys amortized cost basis and its fair value.
Prior to 2009, the FHLBNY had no impaired securities. Beginning with the quarter ended September
30, 2009, and at March 31, 2010, the FHLBNY performed its OTTI analysis by cash flow testing 100%
of it private-label MBS. At December 31, 2008, and at the two interim quarters ended June 30,
2009, the FHLBNYs methodology was to analyze all its private-label MBS to isolate securities that
were considered to be at risk of OTTI and to perform cash flow analysis on securities at risk of
OTTI.
Base case (best estimate) assumptions and adverse case scenarios In evaluating its private-label
MBS
for OTTI, the FHLBNY develops a base case assumption about future changes in home prices,
prepayments, default and loss severities. The base case assumptions are the Banks best estimate of
the performance parameters of its private-label MBS. The assumptions are then input to an industry
standard bond cash flow model that generates expected cash flows based on various security classes
in the securitization structure of each private-label MBS. See Note 1 for information with respect
to critical estimates and assumptions about the Banks impairment methodologies.
In addition to evaluating its private-label MBS under a base case scenario, the FHLBNY also
performs a cash flow analysis for each security determined to be OTTI under a more stressful
performance scenario.
For more information, see tables below summarizing the base case assumptions and OTTI results under
an adverse case scenario.
Third-party Bond Insurers (Monoline insurers) Certain held-to-maturity private-label MBS owned
by the FHLBNY are insured by third-party bond insurers (monoline insurers). The bond insurance
on these investments guarantees the timely payments of principal and interest if these payments
cannot be satisfied from the cash flows of the underlying mortgage pool. The FHLBNY performs cash
flow credit impairment tests on all of its private-label insured securities, and the analysis of
the MBS protected by such third-party insurance looks first to the performance of the underlying
security, and considers its embedded credit enhancements in the form of excess spread,
overcollateralization, and credit subordination, to determine the collectability of all amounts
due. If the embedded credit enhancement protections are deemed insufficient to make timely payment
of all amounts due, then the FHLBNY considers the capacity of the third-party bond insurer to cover
any shortfalls.
28
The two primary monoline insurers, Ambac and MBIA, have been subject to adverse ratings,
rating downgrades, and weakening financial performance measures. In estimating the insurers
capacity to provide credit protection in the future to cover any shortfall in cash flows expected
to be collected for securities deemed to be OTTI, the FHLBNY has developed a methodology to assess
the ability of the monoline insurers to meet future insurance obligations. Predicting when bond
insurers may no longer have the ability to perform under their contractual agreements is a key
impairment measurement parameter which the FHLBNY continually adjusts to factor the changing
operating conditions at Ambac and MBIA. In a series of rating actions in 2009, MBIA and Ambac had
been downgraded to below investment grade. Financial information, cash flows and results of
operations from the two monolines have been closely monitored and analyzed by the management of
FHLBNY. Based on on-going analysis of Ambac and MBIA at each interim periods in 2009 and at
March 31, 2010, the FHLBNY management has shortened the period it believes the two monolines can
continue to provide insurance support as a result of the changing operating conditions at Ambac and
MBIA. The FHLBNY performs this analysis and makes a re-evaluation of the bond insurance support
period quarterly.
As of March 31, 2010, the monolines that provide insurance for the Banks securities are going
concerns and are honoring claims with their existing capital resources. Up until March 31, 2010,
both Ambac Assurance Corp (Ambac). and MBIA Insurance Corp (MBIA), the two primary bond
insurers for the FHLBNY, have been paying claims in order to meet any current cash flow deficiency
within the structure of the insured securities. On March 24, 2010, Ambac, with the consent of the
Commissioner of Insurance for the State of Wisconsin (the Commissioner), entered into a temporary
injunction to suspend payments to bond holders and to create a segregated account for bond holders,
which had no effect on payments due from Ambac through March 31, 2010. MBIA is continuing to meet
claims. Changes to these and other key assumptions may result in materially different outcomes and
the realization of additional other-than-temporary impairment charges in the future.
OTTI at March 31, 2010 To assess whether the entire amortized cost basis of the Banks
private-label MBS will be recovered, the Bank performed cash flow analysis for 100 percent of the
FHLBNYs private-label MBS outstanding at March 31, 2010. Cash flow assessments identified credit
impairment on five HTM private-label mortgage-backed securities, and $3.4 million as
other-than-temporary impairment (OTTI) was recorded as a charge to earnings. All five securities
had been previously determined to be OTTI in 2009, and the additional impairment (or re-impairment)
in the 2010 first quarter was due to further deterioration in the credit default rates of the five
securities. The non-credit portion of OTTI recorded in AOCI was not significant.
29
The table below summarizes the key characteristics of the securities1 that were deemed
OTTI in the first quarter of 2010 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
|
|
|
|
|
At March 31, 2010 |
|
|
March 31, 2010 |
|
|
|
|
|
|
|
Insurer MBIA |
|
|
Insurer Ambac |
|
|
OTTI |
|
Security |
|
|
|
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
Credit |
|
|
Non-credit |
|
Classification |
|
Count |
|
|
UPB |
|
|
Value |
|
|
UPB |
|
|
Value |
|
|
Loss |
|
|
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS-Prime* |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
HEL Subprime* |
|
|
5 |
|
|
|
21,637 |
|
|
|
9,730 |
|
|
|
45,476 |
|
|
|
26,015 |
|
|
|
(3,400 |
) |
|
|
(473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5 |
|
|
$ |
21,637 |
|
|
$ |
9,730 |
|
|
$ |
45,476 |
|
|
$ |
26,015 |
|
|
$ |
(3,400 |
) |
|
$ |
(473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
RMBS-Prime Private-label MBS supported by prime residential loans; HEL Subprime MBS
supported by home equity loans. |
|
|
|
1 |
|
The total carrying value of the five securities prior to OTTI was $38.2 million.
The carrying values and fair values of OTTI securities in a loss position at March 31, 2010 prior
to OTTI were $27.0 million and $23.1 million. |
Of the five credit impaired securities, four securities are insured by bond insurer Ambac, and
one by MBIA. The Banks analysis of the Ambac concluded that the bond insurer could not be relied
upon to make whole future credit losses due to projected collateral shortfalls of the impaired
securities beyond March 31, 2010. Analysis of MBIA concluded that insurance support could be
relied upon for shortfalls up until June 30, 2011, beyond which date, MBIAs financial resources
would be such that insurance protection could not be relied upon.
OTTI at December 31, 2009 In the interim periods ended March 31, 2009 and June 30, 2009, the
FHLBNY had employed its screening procedures and identified private-label MBS with weak performance
measures. Bonds selected through the screening process were cash flow tested for credit
impairment. In the third quarter of 2009 and at December 31, 2009, the FHLBNY cash flow tested 100
percent of its private-label MBS to identify credit impairment.
Certain uninsured bonds were also determined to be credit impaired based on cash flow shortfall in
the interim periods of 2009. In many instances, the FHLBNYs cash flow analysis observed
additional credit impairment also referred to as credit re-impairments. Observed historical
performance parameters of certain securities had deteriorated in 2009, and these factors had
increased loss severities in the cash flow analyses of those private-label MBS.
The table below summarizes the key characteristics of the securities that were deemed OTTI in the
fourth quarter of 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 |
|
|
Quarter ended December 31, 2009 |
|
|
|
|
|
|
|
Insurer MBIA |
|
|
Insurer Ambac |
|
|
Uninsured |
|
|
OTTI |
|
|
Gross Unrecognized Losses |
|
Security |
|
|
|
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
Credit |
|
|
Non-credit |
|
|
Less than |
|
|
More than |
|
Classification |
|
Count |
|
|
UPB |
|
|
Value |
|
|
UPB |
|
|
Value |
|
|
UPB |
|
|
Value |
|
|
Loss |
|
|
Loss |
|
|
12 months |
|
|
12 months |
|
|
RMBS-Prime* |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
HEL Subprime* |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
89,092 |
|
|
|
53,027 |
|
|
|
20,118 |
|
|
|
12,874 |
|
|
|
(6,540 |
) |
|
|
(16,212 |
) |
|
|
|
|
|
|
(2,663 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
8 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
89,092 |
|
|
$ |
53,027 |
|
|
$ |
20,118 |
|
|
$ |
12,874 |
|
|
$ |
(6,540 |
) |
|
$ |
(16,212 |
) |
|
$ |
|
|
|
$ |
(2,663 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
RMBS-Prime Private-label MBS supported by prime residential loans; HEL Subprime MBS
supported by home equity loans. |
All eight securities determined to be OTTI were insured by Ambac. The Banks analysis at
December 31, 2009 of Ambac concluded that the bond insurer could not be relied upon to make whole
future credit losses due to projected collateral shortfalls of the impaired securities beyond June
30, 2011.
30
OTTI during year ended December 31, 2009 The table below summarizes the key characteristics
of the impact of securities determined to be OTTI during 2009, including securities determined to
be OTTI in the fourth quarter of 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 |
|
|
Year ended December 31, 2009 |
|
|
|
|
|
|
|
Insurer MBIA |
|
|
Insurer Ambac |
|
|
Uninsured |
|
|
OTTI |
|
|
Gross Unrecognized Losses |
|
Security |
|
|
|
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
Credit |
|
|
Non-credit |
|
|
Less than |
|
|
More than |
|
Classification |
|
Count |
|
|
UPB |
|
|
Value |
|
|
UPB |
|
|
Value |
|
|
UPB |
|
|
Value |
|
|
Loss |
|
|
Loss |
|
|
12 months |
|
|
12 months |
|
|
RMBS-Prime* |
|
|
1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
54,295 |
|
|
$ |
51,715 |
|
|
$ |
(438 |
) |
|
$ |
(2,766 |
) |
|
$ |
(1,187 |
) |
|
$ |
|
|
HEL Subprime* |
|
|
16 |
|
|
|
34,425 |
|
|
|
17,161 |
|
|
|
198,532 |
|
|
|
127,470 |
|
|
|
80,774 |
|
|
|
53,783 |
|
|
|
(20,378 |
) |
|
|
(117,330 |
) |
|
|
|
|
|
|
(13,674 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
17 |
|
|
$ |
34,425 |
|
|
$ |
17,161 |
|
|
$ |
198,532 |
|
|
$ |
127,470 |
|
|
$ |
135,069 |
|
|
$ |
105,498 |
|
|
$ |
(20,816 |
) |
|
$ |
(120,096 |
) |
|
$ |
(1,187 |
) |
|
$ |
(13,674 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
RMBS-Prime Private-label MBS supported by prime residential loans; HEL Subprime MBS
supported by home equity loans. |
March 31, 2009 To assess credit-related OTTI, the FHLBNY had employed its screening
procedures and identified private-label MBS with weak performance measures. Bonds selected through
the screening process were cash flow tested for credit impairment. Based on the managements
determination of expected cash flow shortfall of two securities insured by MBIA concurrently with
the determination that MBIAs claim paying ability would not be sufficient in future periods,
management concluded that two securities had become OTTI.
The table below summarizes the key characteristics of the securities that were deemed OTTI in the
first quarter of 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2009 |
|
|
Quarter ended March 31, 2009 |
|
|
|
|
|
|
|
Insurer MBIA |
|
|
OTTI |
|
Security |
|
|
|
|
|
Amortized |
|
|
Fair |
|
|
Credit |
|
|
Non-credit |
|
Classification |
|
Count |
|
|
Cost Basis |
|
|
Value |
|
|
Loss |
|
|
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL Subprime* |
|
|
2 |
|
|
$ |
37,011 |
|
|
$ |
21,808 |
|
|
$ |
(5,265 |
) |
|
$ |
(9,938 |
) |
|
|
|
* |
|
RMBS-Prime Private-label MBS supported by prime residential loans; HEL Subprime MBS supported
by home equity loans. |
The two credit impaired securities were insured by MBIA. The Banks analysis of MBIA had then
concluded that the bond insurer could not be relied upon to make whole future credit losses due to
projected collateral shortfalls of the impaired securities beyond May 31, 2018.
The following table provides rollforward information of the credit component of OTTI recognized as
a charge to earnings related to held-to-maturity securities for which a significant portion of the
OTTI (non-credit component) was recognized in AOCI (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31 |
|
|
|
2010 |
|
|
2009 |
|
Beginning balance |
|
$ |
20,816 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Additions to the credit component
for OTTI loss not previously recognized |
|
|
|
|
|
|
|
|
Additional credit losses for which an OTTI
charge was previously recognized |
|
|
3,400 |
|
|
|
5,265 |
|
Increases in cash flows expected to be collected,
recognized over the remaining life of the securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
24,216 |
|
|
$ |
5,265 |
|
|
|
|
|
|
|
|
31
With respect to the Banks remaining investments, the Bank believes no OTTI exists. The
Banks conclusion is based upon multiple factors: bond issuer MBIAs continued satisfaction its
obligations under the contractual terms of the securities; the estimated performance of the
underlying collateral; the evaluation of the fundamentals of the issuers financial condition; and
the estimated support from the monoline insurers under the contractual terms of insurance.
Management has not made a decision to sell such securities at March 31, 2010. Management has also
concluded that it is more likely than not that it will not be required to sell such securities
before recovery of the amortized cost basis of the securities. Based on factors outlined above,
the FHLBNY believes that the remaining securities classified as held-to-maturity were not
other-than-temporarily impaired as of March 31, 2010.
However, without recovery in the near term such that liquidity returns to the mortgage-backed
securities market and spreads return to levels that reflect underlying credit characteristics, or
if the credit losses of the underlying collateral within the mortgage-backed securities perform
worse than expected, or if the presumption of the ability of bond insurer MBIA to support certain
insured securities is further negatively impacted by the insurers future financial performance,
additional OTTI may be recognized in future periods.
Key Base Assumptions March 31, 2010
The table below summarizes the weighted average and range of Key Base Assumptions for securities
determined to be OTTI in the 2010 first quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Base Assumption OTTI Securities |
|
|
|
CDR |
|
|
CPR |
|
|
Loss Severity % |
|
Security Classification |
|
Range |
|
|
Average |
|
|
Range |
|
|
Average |
|
|
Range |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS-Prime* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL Subprime* |
|
|
6.06-7.80 |
|
|
|
6.7 |
|
|
|
2.00-7.54 |
|
|
|
4.8 |
|
|
|
72.6-100.0 |
|
|
|
91.5 |
|
|
|
|
* |
|
RMBS-Prime Private-label MBS supported by prime
residential loans; |
|
* |
|
HEL Subprime MBS supported by home equity loans. |
Conditional Prepayment Rate (CPR): 1-((1-SMM^12) where, SMM is defined as the Single Monthly
Mortality (SMM) = (Voluntary partial and full prepayments + repurchases + Liquidated
Balances)/Beginning Principal Balance Scheduled Principal). Voluntary prepayment excludes the
liquidated balances mentioned above.
Conditional Default Rate (CDR): 1-((1-MDR)^12) where, MDR is defined as the Monthly Default
Rate (MDR) = (Beginning Principal Balance of Liquidated Loans)/(Total Beginning Principal
Balance).
Loss Severity (Principal and interest in the current period) = Sum (Total Realized Loss
Amount)/Sum (Beginning Principal and interest Balance of Liquidated Loans).
If the present value of cash flows expected to be collected (discounted at the securitys effective
yield) is less than the amortized cost basis of the security, an other-than-temporary impairment is
considered to have occurred because the entire amortized cost basis of the security will not be
recovered. The Bank considers whether or not it will recover the entire amortized cost of the
security by comparing the present value of the cash flows expected to be collected from the
security (discounted at the securitys effective yield) with the amortized cost basis of the
security.
32
Adverse case scenario March 31, 2010
The FHLBNY evaluated its credit impaired private-label MBS under a base case (or best estimate)
scenario, and also performed a cash flow analysis for each of those securities under a more adverse
external assumption that forecasted a larger home price decline and a slower rate of housing price
recovery. The stress test scenario and associated results do not represent the Banks current
expectations and therefore should not be construed as a prediction of the Banks future results,
market conditions or the actual performance of these securities.
The results of the adverse case scenario are presented below alongside the FHLBNYs expected
outcome for the credit impaired securities (the base case) (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
Actual Results Base Case HPI Scenario |
|
|
Pro-forma Results Adverse HPI Scenario |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI related |
|
|
|
# of |
|
|
|
|
|
|
OTTI related |
|
|
to non-credit |
|
|
# of |
|
|
|
|
|
|
OTTI related |
|
|
to non-credit |
|
|
|
Securities |
|
|
UPB |
|
|
to credit loss |
|
|
loss |
|
|
Securities |
|
|
UPB |
|
|
to credit loss |
|
|
loss |
|
RMBS Prime |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL Subprime |
|
|
5 |
|
|
|
67,114 |
|
|
|
3,400 |
|
|
|
473 |
|
|
|
5 |
|
|
|
67,114 |
|
|
|
5,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5 |
|
|
$ |
67,114 |
|
|
$ |
3,400 |
|
|
$ |
473 |
|
|
|
5 |
|
|
$ |
67,114 |
|
|
$ |
5,028 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009 |
|
|
|
Actual Results Base Case HPI Scenario |
|
|
Pro-forma Results Adverse HPI Scenario |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI related |
|
|
|
# of |
|
|
|
|
|
|
OTTI related |
|
|
to non-credit |
|
|
# of |
|
|
|
|
|
|
OTTI related |
|
|
to non-credit |
|
|
|
Securities |
|
|
UPB |
|
|
to credit loss |
|
|
loss |
|
|
Securities |
|
|
UPB |
|
|
to credit loss |
|
|
loss |
|
RMBS Prime |
|
|
1 |
|
|
$ |
54,295 |
|
|
$ |
438 |
|
|
$ |
2,461 |
|
|
|
3 |
|
|
$ |
117,571 |
|
|
$ |
699 |
|
|
$ |
4,595 |
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL Subprime |
|
|
16 |
|
|
|
313,731 |
|
|
|
20,378 |
|
|
|
108,109 |
|
|
|
16 |
|
|
|
313,731 |
|
|
|
23,163 |
|
|
|
105,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
17 |
|
|
$ |
368,026 |
|
|
$ |
20,816 |
|
|
$ |
110,570 |
|
|
|
19 |
|
|
$ |
431,302 |
|
|
$ |
23,862 |
|
|
$ |
109,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party Bond Insurer (Monoline insurer support)
The FHLBNY has identified certain MBS that have been determined to be credit impaired despite
credit protection from Ambac and MBIA to meet scheduled payments in the future. Cash flows on
certain insured securities are currently experiencing cash flow shortfalls. As of March 31, 2010,
the monolines that provide insurance for the Banks securities are going concerns and were honoring
claims with their existing capital resources. Up until March 31, 2010, both Ambac and MBIA, the
two primary bond insurers for the FHLBNY, have been paying claims in order to meet any current cash
flow deficiency within the structure of the insured securities. On March 24, 2010, Ambac, with the
consent of the Commissioner of Insurance for the State of Wisconsin (the Commissioner), entered
into a temporary injunction to suspend payments to bond holders and to create a segregated account
for bond holders. MBIA is continuing to meet claims.
Monoline Analysis and Methodology The two monoline insurers have been subject to adverse
ratings, rating downgrades, and weakening financial performance measures. A rating downgrade
implies an increased risk that the insurer will fail to fulfill its obligations to reimburse the
investor for claims under the insurance policies. Monoline insurers are segmented into two
categories of claims paying ability (1) Adequate, and (2) At Risk. These categories represent
an assessment of an insurers ability to perform as a financial guarantor.
33
Adequate. Monolines determined to possess adequate claims paying ability are expected to provide
full protection on their insured private-label mortgage-backed securities. Accordingly, bonds
insured by monolines with adequate ability to cover written insurance are run with full financial
guarantee set to on in the cashflow model.
At Risk. For monolines with at risk coverage, further analysis is performed to establish an
expected case regarding the time horizon of the monolines ability to fulfill its financial
obligations and provide credit support. Accordingly, bonds insured by monolines in the at risk
category are run with a partial financial guarantee in the cashflow model. This partial claim
paying condition is expressed in the cashflow model by specifying a guarantee ignore date. The
ignore date is based on the burnout period calculation method.
Burnout Period. The projected time horizon of credit protection provided by an insurer is a
function of claims paying resources and anticipated claims in the future. This assumption is
referred to as the
burnout period and is expressed in months, and is computed by dividing each (a) insurers total
claims paying resources by the (b) burnout rate projection. This variable uses monthly or
aggregate dollar amount of claims each insurer has paid most recently, and additional qualitative
information pertinent to the financial guarantor.
Based on the methodology, the Bank has classified FSA (name changed in 2009 to Assured Guaranty
Municipal Corp.) as adequate, and MBIA and Ambac as at risk. The Bank analyzed the going-concern
basis of Ambac and MBIA and their financial strength to perform with respect to their contractual
obligations for the securities owned by the FHLBNY. As of March 31, 2010, the monolines were
performing under the terms of their contractual agreements with respect to the FHLBNYs insured
bonds. See discussions above about Ambac. However, estimation of an insurers financial strength
to remain viable over a long time horizon requires significant judgment and assumptions.
Predicting when the insurers may no longer have the ability to perform under their contractual
agreements, then comparing the timing and amounts of cash flow shortfalls of securities that are
credit impaired to when insurer protection may not be available, and determining credit impairment
requires significant judgment.
The monoline analysis methodology resulted in the following Protection time horizon dates for
Ambac and MBIA at March 31, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Burnout Period |
|
|
|
Ambac |
|
|
MBIA |
|
March 31, 2010 |
|
|
|
|
|
|
|
|
Burnout period (months) |
|
|
|
|
|
|
15 |
|
Coverage ignore date |
|
|
3/31/2010 |
|
|
|
6/30/2011 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
Burnout period (months) |
|
|
18 |
|
|
|
18 |
|
Coverage ignore date |
|
|
6/30/2011 |
|
|
|
6/30/2011 |
|
|
March 31, 2009 |
|
|
|
|
|
|
|
|
Burnout period (months) |
|
|
116 |
|
|
|
50 |
|
Coverage ignore date |
|
|
11/30/2018 |
|
|
|
5/31/2018 |
|
34
Note 5. Available-for-sale securities
Major Security types The unamortized cost, gross unrealized gains, losses, and
the fair value of investments classified as available-for-sale were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
Amortized |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Cost |
|
|
OTTI |
|
|
Carrying |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Basis |
|
|
in OCI |
|
|
Value |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
1,329 |
|
|
$ |
|
|
|
$ |
1,329 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,329 |
|
Equity funds |
|
|
8,979 |
|
|
|
|
|
|
|
8,979 |
|
|
|
72 |
|
|
|
(1,215 |
) |
|
|
7,836 |
|
Fixed income funds |
|
|
3,486 |
|
|
|
|
|
|
|
3,486 |
|
|
|
242 |
|
|
|
|
|
|
|
3,728 |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMO-Floating |
|
|
2,629,499 |
|
|
|
|
|
|
|
2,629,499 |
|
|
|
14,985 |
|
|
|
(2,563 |
) |
|
|
2,641,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,643,293 |
|
|
$ |
|
|
|
$ |
2,643,293 |
|
|
$ |
15,299 |
|
|
$ |
(3,778 |
) |
|
$ |
2,654,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Amortized |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Cost |
|
|
OTTI |
|
|
Carrying |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Basis |
|
|
in OCI |
|
|
Value |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
1,230 |
|
|
$ |
|
|
|
$ |
1,230 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,230 |
|
Equity funds |
|
|
8,995 |
|
|
|
|
|
|
|
8,995 |
|
|
|
57 |
|
|
|
(1,561 |
) |
|
|
7,491 |
|
Fixed income funds |
|
|
3,672 |
|
|
|
|
|
|
|
3,672 |
|
|
|
196 |
|
|
|
|
|
|
|
3,868 |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMO-Floating |
|
|
2,242,665 |
|
|
|
|
|
|
|
2,242,665 |
|
|
|
6,937 |
|
|
|
(9,038 |
) |
|
|
2,240,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,256,562 |
|
|
$ |
|
|
|
$ |
2,256,562 |
|
|
$ |
7,190 |
|
|
$ |
(10,599 |
) |
|
$ |
2,253,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no AFS mortgage-backed securities supported by commercial loans at March 31, 2010
and December 31, 2009.
35
Unrealized Losses MBS securities classified as available-for-sale securities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
269,287 |
|
|
$ |
(354 |
) |
|
$ |
362,038 |
|
|
$ |
(1,242 |
) |
|
$ |
631,325 |
|
|
$ |
(1,596 |
) |
Freddie Mac |
|
|
84,441 |
|
|
|
(121 |
) |
|
|
225,183 |
|
|
|
(846 |
) |
|
|
309,624 |
|
|
|
(967 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS-GSE |
|
|
353,728 |
|
|
|
(475 |
) |
|
|
587,221 |
|
|
|
(2,088 |
) |
|
|
940,949 |
|
|
|
(2,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Temporarily
Impaired |
|
$ |
353,728 |
|
|
$ |
(475 |
) |
|
$ |
587,221 |
|
|
$ |
(2,088 |
) |
|
$ |
940,949 |
|
|
$ |
(2,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,006,860 |
|
|
$ |
(6,394 |
) |
|
$ |
1,006,860 |
|
|
$ |
(6,394 |
) |
Freddie Mac |
|
|
|
|
|
|
|
|
|
|
662,237 |
|
|
|
(2,644 |
) |
|
|
662,237 |
|
|
|
(2,644 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS-GSE |
|
|
|
|
|
|
|
|
|
|
1,669,097 |
|
|
|
(9,038 |
) |
|
|
1,669,097 |
|
|
|
(9,038 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Temporarily
Impaired |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,669,097 |
|
|
$ |
(9,038 |
) |
|
$ |
1,669,097 |
|
|
$ |
(9,038 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost of available-for-sale securities includes adjustments made to the cost basis of
an investment for accretion, amortization, collection of cash, previous OTTI recognized in earnings
and/or fair value hedge accounting adjustments. There were no AFS securities determined to be OTTI
at March 31, 2010 and December 31, 2009. No AFS securities were hedged at March 31, 2010 and
December 31, 2009. Amortization of discounts recorded to income were $1.4 million and $1.1 million
for the quarters ended March 31, 2010 and March 31, 2009.
Management of the FHLBNY has concluded that gross unrealized losses at March 31, 2010 and December
31, 2009, as summarized in the table above, were caused by interest rate changes, credit spreads
widening and reduced liquidity in the applicable markets. The FHLBNY has reviewed the investment
security holdings and determined, based on creditworthiness of the securities and including any
underlying collateral and/or insurance provisions of the security, that unrealized losses in the
analysis above represent temporary impairment.
Impairment analysis on Available-for-sale securities The Banks portfolio of mortgage-backed
securities classified as available-for-sale (AFS) is comprised entirely of securities issued by
GSEs collateralized mortgage obligations which are pass through securities. The FHLBNY evaluates
its individual securities issued by Fannie Mae and Freddie Mac by considering the creditworthiness
and performance of the debt securities and the strength of the government-sponsored enterprises
guarantees of the securities. Based on the Banks analysis, GSE securities are performing in
accordance with their contractual agreements. The Housing Act contains provisions allowing the
U.S. Treasury to provide support to Fannie Mae and Freddie Mac. The U.S. Treasury and the Finance
Agency placed Fannie Mae and Freddie Mac into conservatorship in an attempt to stabilize their
financial conditions and their ability to support the secondary mortgage market. The FHLBNY
believes that it will recover its investments in GSE issued securities given the current levels of
collateral, credit enhancements, and guarantees that exist to protect the investments. Management
has not made a decision to sell such securities at March 31, 2010 or subsequently. Management also
concluded that it is more likely than not that it will not be required to sell such securities
before recovery of the amortized cost basis of the security. The FHLBNY believes that these
securities were not other-than-temporarily impaired as of March 31, 2010 and December 31, 2009.
The Bank established certain grantor trusts to fund current and future payments under certain
supplemental pension plans and these are classified as available-for-sale. The grantor trusts
invest in money market, equity and fixed-income and bond funds. Investments in equity and
fixed-income funds are redeemable at short notice, and realized gains and losses from investments
in the funds were not significant. No available-for-sale-securities had been pledged at March 31,
2010 and December 31, 2009.
36
Note 6. Advances
Redemption terms
Contractual redemption terms and yields of advances were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Weighted 2 |
|
|
|
|
|
|
|
|
|
|
Weighted 2 |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Percentage |
|
|
|
|
|
|
Average |
|
|
Percentage |
|
|
|
Amount |
|
|
Yield |
|
|
of Total |
|
|
Amount |
|
|
Yield |
|
|
of Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overdrawn demand deposit accounts |
|
$ |
|
|
|
|
|
% |
|
|
|
% |
|
$ |
2,022 |
|
|
|
1.20 |
% |
|
|
|
% |
Due in one year or less |
|
|
23,308,924 |
|
|
|
2.25 |
|
|
|
27.39 |
|
|
|
24,128,022 |
|
|
|
2.07 |
|
|
|
26.59 |
|
Due after one year through two years |
|
|
9,671,408 |
|
|
|
2.72 |
|
|
|
11.37 |
|
|
|
10,819,349 |
|
|
|
2.73 |
|
|
|
11.92 |
|
Due after two years through three years |
|
|
8,848,401 |
|
|
|
3.01 |
|
|
|
10.40 |
|
|
|
10,069,555 |
|
|
|
2.91 |
|
|
|
11.10 |
|
Due after three years through four years |
|
|
6,287,687 |
|
|
|
3.21 |
|
|
|
7.39 |
|
|
|
5,804,448 |
|
|
|
3.32 |
|
|
|
6.40 |
|
Due after four years through five years |
|
|
2,985,545 |
|
|
|
2.86 |
|
|
|
3.51 |
|
|
|
3,364,706 |
|
|
|
3.19 |
|
|
|
3.71 |
|
Due after five years through six years |
|
|
4,777,762 |
|
|
|
4.07 |
|
|
|
5.61 |
|
|
|
2,807,329 |
|
|
|
3.91 |
|
|
|
3.09 |
|
Thereafter |
|
|
29,215,449 |
|
|
|
3.85 |
|
|
|
34.33 |
|
|
|
33,742,269 |
|
|
|
3.78 |
|
|
|
37.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
85,095,176 |
|
|
|
3.13 |
% |
|
|
100.00 |
% |
|
|
90,737,700 |
|
|
|
3.06 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount on AHP advances 1 |
|
|
(244 |
) |
|
|
|
|
|
|
|
|
|
|
(260 |
) |
|
|
|
|
|
|
|
|
Hedging adjustments |
|
|
3,763,821 |
|
|
|
|
|
|
|
|
|
|
|
3,611,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
88,858,753 |
|
|
|
|
|
|
|
|
|
|
$ |
94,348,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Discounts on AHP advances were amortized to interest income using the level-yield method and were not significant for all periods reported.
Interest rates on AHP advances ranged from 1.25% to 4.00% at March 31, 2010 and December 31, 2009 |
|
2 |
|
The weighed average yield is the weighted average coupon rates for advances, unadjusted for swaps. For floating-rate advances, the weighted average
rate is the rate outstanding at the reporting dates. |
Impact of putable advances on advance maturities
The Bank offers putable advances to members. With a putable advance, the Bank effectively
purchases a put option from the member that allows the Bank to terminate the fixed-rate advance,
which is normally exercised when interest rates have increased from those prevailing at the time
the advance was made. When the Bank exercises the put option, it will offer to extend additional
credit to members at the then prevailing market rates and terms. Typically, the Bank will hedge
putable advances with cancellable interest rate swaps with matching terms and will sell the
exercise option that will allow swap counterparties to terminate the swaps at the same
predetermined exercise dates as the advances. As of March 31, 2010 and December 31, 2009 the Bank
had putable advances outstanding totaling $38.6 billion and $41.4 billion, representing 45.4% and
45.6% of par amounts of advances outstanding at those dates.
37
The table below offers a view of the advance portfolio with the possibility of the exercise of the
put option that is controlled by the FHLBNY, and put dates are summarized into similar maturity
tenors as the previous table that summarizes advances by contractual maturities (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
Percentage of |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overdrawn demand deposit accounts |
|
$ |
|
|
|
|
|
% |
|
$ |
2,022 |
|
|
|
|
% |
Due or putable in one year or less |
|
|
54,692,686 |
|
|
|
64.27 |
|
|
|
56,978,134 |
|
|
|
62.79 |
|
Due or putable after one year through two years |
|
|
11,552,958 |
|
|
|
13.58 |
|
|
|
14,082,199 |
|
|
|
15.52 |
|
Due or putable after two years through three years |
|
|
8,047,401 |
|
|
|
9.46 |
|
|
|
8,991,805 |
|
|
|
9.91 |
|
Due or putable after three years through four years |
|
|
5,739,037 |
|
|
|
6.74 |
|
|
|
5,374,048 |
|
|
|
5.92 |
|
Due or putable after four years through five years |
|
|
2,433,295 |
|
|
|
2.86 |
|
|
|
2,826,206 |
|
|
|
3.12 |
|
Due or putable after five years through six years |
|
|
380,762 |
|
|
|
0.45 |
|
|
|
158,329 |
|
|
|
0.18 |
|
Thereafter |
|
|
2,249,037 |
|
|
|
2.64 |
|
|
|
2,324,957 |
|
|
|
2.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
85,095,176 |
|
|
|
100.00 |
% |
|
|
90,737,700 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount on AHP advances |
|
|
(244 |
) |
|
|
|
|
|
|
(260 |
) |
|
|
|
|
Hedging adjustments |
|
|
3,763,821 |
|
|
|
|
|
|
|
3,611,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
88,858,753 |
|
|
|
|
|
|
$ |
94,348,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7. Mortgage loans held-for-portfolio
Mortgage Partnership Finance program loans, or (MPF) constitute the majority of the mortgage
loans held-for-portfolio. The MPF program involves investment by the FHLBNY in mortgage loans that
are purchased from or originated through its participating financial institutions (PFIs). The
members retain servicing rights and may credit-enhance the portion of the loans participated to the
FHLBNY. No intermediary trust is involved. Mortgage loans that are considered to have been
originated by the FHLBNY were $29.1 million and $30.5 million at March 31, 2010 and December 31,
2009. Mortgage loans also included loans in the Community Mortgage Asset program (CMA), which
has been inactive since 2001. In the CMA program, FHLBNY participated in residential, multi-family
and community economic development mortgage loans originated by its members. Outstanding balances
of CMA loans were $3.9 million at March 31, 2010 and December 31, 2009.
38
The following table presents information on mortgage loans held-for-portfolio (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
Percentage of |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed medium-term single-family mortgages |
|
$ |
370,316 |
|
|
|
28.72 |
% |
|
$ |
388,072 |
|
|
|
29.43 |
% |
Fixed long-term single-family mortgages |
|
|
915,447 |
|
|
|
70.98 |
|
|
|
926,856 |
|
|
|
70.27 |
|
Multi-family mortgages |
|
|
3,881 |
|
|
|
0.30 |
|
|
|
3,908 |
|
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
1,289,644 |
|
|
|
100.00 |
% |
|
|
1,318,836 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized premiums |
|
|
8,853 |
|
|
|
|
|
|
|
9,095 |
|
|
|
|
|
Unamortized discounts |
|
|
(5,209 |
) |
|
|
|
|
|
|
(5,425 |
) |
|
|
|
|
Basis adjustment 1 |
|
|
(339 |
) |
|
|
|
|
|
|
(461 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans held-for-portfolio |
|
|
1,292,949 |
|
|
|
|
|
|
|
1,322,045 |
|
|
|
|
|
Allowance for credit losses |
|
|
(5,179 |
) |
|
|
|
|
|
|
(4,498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans held-for-portfolio after
allowance for credit losses |
|
$ |
1,287,770 |
|
|
|
|
|
|
$ |
1,317,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Represents fair value basis of open and closed delivery commitments. |
The estimated fair values of the mortgage loans as of March 31, 2010 and December 31, 2009 are
reported in Note 17 Fair Values of financial instruments.
The FHLBNY and its members share the credit risk of MPF loans by structuring potential credit
losses into layers (See Note 1 Significant Accounting Policies and Estimates). The first layer
is typically 100 basis points but varies with the particular MPF program. The amount of the first
layer, or First Loss Account or FLA, was estimated as $13.8 million and $13.9 at March 31, 2010
and December 31, 2009. The FLA is not recorded or reported as a reserve for loan losses as it
serves as a memorandum or information account. The FHLBNY is responsible for absorbing the first
layer. The second layer is that amount of credit obligations that the Participating Financial
Institution (PFI) has taken on which will equate the loan to a double-A rating. The FHLBNY pays
a Credit Enhancement fee to the PFI for taking on this obligation. The FHLBNY assumes all residual
risk. Credit Enhancement fees accrued were $0.4 million for the quarterly periods ended March 31,
2010 and 2009, and reported as a reduction to mortgage loan interest income. The amount of
charge-offs in each period reported was insignificant and it was not necessary for the FHLBNY to
recoup any losses from the PFIs.
The following provides roll-forward analysis of the allowance for credit losses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
Beginning balance |
|
$ |
4,498 |
|
|
$ |
1,405 |
|
|
Charge-offs |
|
|
(33 |
) |
|
|
|
|
Recoveries |
|
|
5 |
|
|
|
|
|
Provision for credit losses on mortgage loans |
|
|
709 |
|
|
|
443 |
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
5,179 |
|
|
$ |
1,848 |
|
|
|
|
|
|
|
|
As of March 31, 2010 and December 31, 2009, the FHLBNY had $20.7 million and $16.0 million of
non-accrual loans. Mortgage loans are considered impaired when, based on current information and
events, it is probable that the FHLBNY will be unable to collect all principal and interest amounts
due according to the contractual terms of the mortgage loan agreements. As of March 31, 2010 and
December 31, 2009, the FHLBNY had no investment in impaired mortgage loans, other than the
non-accrual loans.
39
The following table summarizes mortgage loans held-for-portfolio, all Veterans Administrations
insured loans, past due 90 days or more and still accruing interest (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family |
|
$ |
470 |
|
|
$ |
570 |
|
|
|
|
|
|
|
|
Note 8. Deposits
The FHLBNY accepts demand, overnight and term deposits from its members, qualifying
non-members and U.S. government instrumentalities. A member that services mortgage loans may
deposit in the FHLBNY funds collected in connection with the mortgage loans, pending disbursement
of such funds to the owners of the mortgage loans.
The following table summarizes term deposits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
28,000 |
|
|
$ |
7,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total term deposits |
|
$ |
28,000 |
|
|
$ |
7,200 |
|
|
|
|
|
|
|
|
Note 9. Borrowings
Securities sold under agreements to repurchase
The FHLBNY did not have any securities sold under agreement to repurchase as of March 31, 2010 and
December 31, 2009. Terms, amounts and outstanding balances of borrowings from other Federal Home
Loan Banks are described under Note 19 Related party transactions.
Note 10. Consolidated obligations
Consolidated obligations are the joint and several obligations of the FHLBanks and consist of
bonds and discount notes. The FHLBanks issue consolidated obligations through the Office of
Finance as their fiscal agent. Consolidated bonds are issued primarily to raise intermediate- and
long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits on
maturity. Consolidated discount notes are issued primarily to raise short-term funds. Discount
notes sell at less than their face amount and are redeemed at par value when they mature.
The Finance Agency, at its discretion, may require any FHLBank to make principal or interest
payments due on any consolidated obligations. Although it has never occurred, to the extent that
an FHLBank would make a payment on a consolidated obligation on behalf of another FHLBank, the
paying FHLBank would be entitled to reimbursement from the non-complying FHLBank. However, if the
Finance Agency determines that the non-complying FHLBank is unable to satisfy its obligations, then
the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a pro
rata basis in proportion to each FHLBanks participation in all consolidated obligations
outstanding, or on any other basis the Finance Agency may determine.
40
Based on managements review, the FHLBNY has no reason to record actual or contingent liabilities
with respect to the occurrence of events or circumstances that would require the FHLBNY to assume
an obligation on behalf of other FHLBanks. The par amounts of the FHLBanks outstanding
consolidated obligations, including consolidated obligations held by the FHLBanks, were
approximately $0.9 trillion as of March 31, 2010 and December 31, 2009.
Finance Agency regulations require the FHLBanks to maintain, in the aggregate, unpledged qualifying
assets equal to the 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, participations, mortgages, or other
securities of or issued by the United States or an agency of the United States; and securities in
which fiduciary and trust funds may invest under the laws of the state in which the FHLBank is
located.
The FHLBNY met the qualifying unpledged asset requirements at each reporting dates as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Percentage of unpledged qualifying assets to
consolidated obligations |
|
|
116 |
% |
|
|
109 |
% |
|
|
|
|
|
|
|
General Terms
FHLBank consolidated obligations are issued with either fixed- or variable-rate coupon payment
terms that use a variety of indices for interest rate resets. These indices include the London
Interbank Offered Rate (LIBOR), Constant Maturity Treasury (CMT), 11th District Cost of Funds
Index (COFI), and others. In addition, to meet the expected specific needs of certain investors
in consolidated obligations, both fixed- and variable-rate bonds may also contain certain features
that may result in complex coupon payment terms and call options. When such consolidated
obligations are issued, the FHLBNY may enter into derivatives containing offsetting features that
effectively convert the terms of the bond to those of a simple variable- or fixed-rate bond.
Consolidated obligations, beyond having fixed-rate or simple variable-rate coupon payment terms,
may also include Optional Principal Redemption Bonds (callable bonds) that the FHLBNY may redeem in
whole or in part at its discretion on predetermined call dates, according to the terms of the bond
offerings.
With respect to interest payment terms, consolidated bonds may also have step-up, or step-down
terms. Step-up bonds generally pay interest at increasing fixed rates for specified intervals over
the life of the bond. Step-down bonds pay interest at decreasing fixed rates. These bonds
generally contain provisions enabling the FHLBNY to call bonds at its option on predetermined
exercise dates at par.
41
The following summarizes consolidated obligations issued by the FHLBNY and outstanding at March 31,
2010 and December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Consolidated obligation bonds-amortized cost |
|
$ |
71,779,834 |
|
|
$ |
73,436,939 |
|
Fair value basis adjustments |
|
|
619,530 |
|
|
|
572,537 |
|
Fair value basis on terminated hedges |
|
|
3,226 |
|
|
|
2,761 |
|
Fair value option valuation adjustments and accrued interest |
|
|
5,613 |
|
|
|
(4,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated obligation-bonds |
|
$ |
72,408,203 |
|
|
$ |
74,007,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount notes-amortized cost |
|
$ |
19,815,956 |
|
|
$ |
30,827,639 |
|
|
|
|
|
|
|
|
|
Fair value basis adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated
obligation-discount notes |
|
$ |
19,815,956 |
|
|
$ |
30,827,639 |
|
|
|
|
|
|
|
|
Redemption Terms of consolidated obligation bonds
The following is a summary of consolidated bonds outstanding by year of maturity (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Percentage |
|
|
|
|
|
|
Average |
|
|
Percentage |
|
Maturity |
|
Amount |
|
|
Rate 1 |
|
|
of total |
|
|
Amount |
|
|
Rate 1 |
|
|
of total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less |
|
$ |
36,813,050 |
|
|
|
1.28 |
% |
|
|
51.34 |
% |
|
$ |
40,896,550 |
|
|
|
1.34 |
% |
|
|
55.75 |
% |
Over one year through two years |
|
|
16,390,200 |
|
|
|
1.42 |
|
|
|
22.86 |
|
|
|
15,912,200 |
|
|
|
1.69 |
|
|
|
21.69 |
|
Over two years through three years |
|
|
8,771,575 |
|
|
|
2.12 |
|
|
|
12.23 |
|
|
|
7,518,575 |
|
|
|
2.28 |
|
|
|
10.25 |
|
Over three years through four years |
|
|
4,409,550 |
|
|
|
3.36 |
|
|
|
6.15 |
|
|
|
3,961,250 |
|
|
|
3.49 |
|
|
|
5.40 |
|
Over four years through five years |
|
|
2,441,000 |
|
|
|
4.00 |
|
|
|
3.40 |
|
|
|
2,130,300 |
|
|
|
4.27 |
|
|
|
2.90 |
|
Over five years through six years |
|
|
608,350 |
|
|
|
4.91 |
|
|
|
0.85 |
|
|
|
644,350 |
|
|
|
5.15 |
|
|
|
0.88 |
|
Thereafter |
|
|
2,269,700 |
|
|
|
5.07 |
|
|
|
3.17 |
|
|
|
2,294,700 |
|
|
|
5.06 |
|
|
|
3.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
71,703,425 |
|
|
|
1.79 |
% |
|
|
100.00 |
% |
|
|
73,357,925 |
|
|
|
1.87 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond premiums |
|
|
108,123 |
|
|
|
|
|
|
|
|
|
|
|
112,866 |
|
|
|
|
|
|
|
|
|
Bond discounts |
|
|
(31,714 |
) |
|
|
|
|
|
|
|
|
|
|
(33,852 |
) |
|
|
|
|
|
|
|
|
Fair value basis adjustments |
|
|
619,530 |
|
|
|
|
|
|
|
|
|
|
|
572,537 |
|
|
|
|
|
|
|
|
|
Fair value basis adjustments on terminated hedges |
|
|
3,226 |
|
|
|
|
|
|
|
|
|
|
|
2,761 |
|
|
|
|
|
|
|
|
|
Fair value option valuation adjustments and accrued interest |
|
|
5,613 |
|
|
|
|
|
|
|
|
|
|
|
(4,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds |
|
$ |
72,408,203 |
|
|
|
|
|
|
|
|
|
|
$ |
74,007,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Weighted average rate represents the weighted average coupons of bonds, unadjusted for
swaps. The weighted average coupon of bonds outstanding at March 31, 2010 and December 31, 2009
represent contractual coupons payable to investors. |
Amortization of bond premiums and discounts resulted in net reduction of interest expense of
$7.2 million and $5.7 million, for the 2010 first quarter and the same period in 2009.
Amortization of basis adjustments from terminated hedges were $1.6 million and $1.8 million, and
were recorded as an expense for the 2010 first quarter and the same period in 2009
Debt extinguished
No debt was retired during the 2010 first quarter and the same period in 2009.
42
Transfers of consolidated bonds to other FHLBanks
The Bank may transfer certain bonds at negotiated market rates to other FHLBanks to meet the
FHLBNYs asset and liability management objectives. There were no transfers in the 2010 first
quarter or the same period in 2009. For more information, also, see Note 19 Related party
transactions.
Impact of callable bonds on consolidated bond maturities
The Bank issues callable bonds to investors. With a callable bond, the Bank effectively purchases
an option from the investor that allows the Bank to terminate the consolidated obligation bond at
pre-determined option exercise dates, which is normally exercised when interest rates have
decreased from those prevailing at the time the bonds were issued. Typically, the Bank will hedge
callable bonds with cancellable interest rate swaps with matching terms and will sell the exercise
option that will allow swap counterparties to terminate the swaps at the same predetermined
exercise dates as the bonds. As of March 31, 2010 and December 31, 2009, the Bank had callable
bonds totaling $12.8 billion and $11.7 billion, representing 17.9% and 15.9% of par amounts of
consolidated bonds outstanding at those dates.
The following summarizes bonds outstanding by year of maturity or next call date (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
Percentage of |
|
|
|
Amount |
|
|
total |
|
|
Amount |
|
|
total |
|
Year of Maturity or next call date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due or callable in one year or less |
|
$ |
46,928,850 |
|
|
|
65.45 |
% |
|
$ |
50,481,350 |
|
|
|
68.82 |
% |
Due or callable after one year through two years |
|
|
11,914,200 |
|
|
|
16.62 |
|
|
|
11,352,200 |
|
|
|
15.48 |
|
Due or callable after two years through three years |
|
|
5,041,575 |
|
|
|
7.03 |
|
|
|
4,073,575 |
|
|
|
5.55 |
|
Due or callable after three years through four years |
|
|
3,709,550 |
|
|
|
5.17 |
|
|
|
3,606,250 |
|
|
|
4.91 |
|
Due or callable after four years through five years |
|
|
1,596,500 |
|
|
|
2.23 |
|
|
|
1,325,800 |
|
|
|
1.81 |
|
Due or callable after five years through six years |
|
|
523,050 |
|
|
|
0.73 |
|
|
|
529,050 |
|
|
|
0.72 |
|
Thereafter |
|
|
1,989,700 |
|
|
|
2.77 |
|
|
|
1,989,700 |
|
|
|
2.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
71,703,425 |
|
|
|
100.00 |
% |
|
|
73,357,925 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond premiums |
|
|
108,123 |
|
|
|
|
|
|
|
112,866 |
|
|
|
|
|
Bond discounts |
|
|
(31,714 |
) |
|
|
|
|
|
|
(33,852 |
) |
|
|
|
|
Fair value basis adjustments |
|
|
619,530 |
|
|
|
|
|
|
|
572,537 |
|
|
|
|
|
Fair value basis adjustments on terminated hedges |
|
|
3,226 |
|
|
|
|
|
|
|
2,761 |
|
|
|
|
|
Fair value option valuation adjustments and accrued interest |
|
|
5,613 |
|
|
|
|
|
|
|
(4,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds |
|
$ |
72,408,203 |
|
|
|
|
|
|
$ |
74,007,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
Discount notes
Consolidated discount notes are issued to raise short-term funds. Discount notes are consolidated
obligations with original maturities up to one year. These notes are issued at less than their
face amount and redeemed at par when they mature.
The FHLBNYs outstanding consolidated discount notes were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Par value |
|
$ |
19,821,867 |
|
|
$ |
30,838,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
19,815,956 |
|
|
$ |
30,827,639 |
|
Fair value basis adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
19,815,956 |
|
|
$ |
30,827,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate |
|
|
0.15 |
% |
|
|
0.15 |
% |
|
|
|
|
|
|
|
Note 11. Capital, Capital ratios, and Mandatorily redeemable capital stock
Capital
The FHLBanks, including the FHLBNY, have a cooperative structure. To access FHLBNYs products
and services, a financial institution must be approved for membership and purchase capital stock in
FHLBNY. The members stock requirement is generally based on its use of FHLBNY products, subject
to a minimum membership requirement, as prescribed by the FHLBank Act and the FHLBNY Capital Plan.
FHLBNY stock can be issued, exchanged, redeemed and repurchased only at its stated par value of
$100 per share. It is not publicly traded. An option to redeem capital stock that is greater than
a members minimum requirement is held by both the member and the FHLBNY.
Under the Gramm-Leach-Bliley Act of 1999 (GLB Act) and the Finance Agencys capital regulations,
the FHLBNYs Capital Plan offers two sub-classes of Class B capital stock, Class B1 and Class B2.
Class B1 stock is issued to meet membership stock purchase requirements. Class B2 stock is issued
to meet activity-based requirements. The FHLBNY requires member institutions to maintain Class B1
stock based on a percentage of the members mortgage-related assets and Class B2 stock-based on a
percentage of advances and acquired member assets outstanding with the FHLBank and certain
commitments outstanding with the FHLBank. Class B1 and Class B2 stockholders have the same voting
rights and dividend rates.
Members can redeem Class A stock by giving six months notice, and redeem Class B stock by giving
five years notice. Only permanent capital, defined as retained earnings and Class B stock,
satisfies the FHLBank risk-based capital requirement. In addition, the GLB Act specifies a 5.0
percent minimum leverage ratio based on total capital and a 4.0 percent minimum capital ratio that
does not include the 1.5 weighting factor applicable to the permanent capital that is used in
determining compliance with the 5.0 percent minimum leverage ratio.
Capital Plan under GLB Act
The FHLBNY implemented its current capital plan on December 1, 2005 through the issuance of Class B
stock. The conversion was considered a capital exchange and was accounted for at par value.
Members capital stock held immediately prior to the conversion date was automatically exchanged
for an equal amount of Class B Capital Stock, comprised of Membership Stock (referred to as
Subclass B1 Stock) and Activity-Based Stock (referred to as Subclass B2 Stock).
44
Any member that withdraws from membership must wait five years from the divestiture date for all
capital stock that is held as a condition of membership unless the institution has cancelled its
notice of withdrawal prior to that date and before being readmitted to membership in any FHLBank.
Commencing in 2008, the Bank at its discretion may repay a non-members membership stock before the
end of the five-year waiting period.
The FHLBNY is subject to risk-based capital rules. Specifically, the FHLBNY is subject to three
capital requirements under its capital plan. First, the FHLBNY must maintain at all times
permanent capital in an amount at least equal to the sum of its credit risk, its market risk, and
operations risk capital requirements calculated in accordance with the FHLBNY policy, rules, and
regulations of the Finance Agency. Only permanent capital, defined as Class B stock and retained
earnings, satisfies this risk-based capital requirement. The Finance Agency may require the FHLBNY
to maintain a greater amount of permanent capital than is required as defined by the risk-based
capital requirements. In addition, the FHLBNY is required to maintain at least a 4.0% total
capital-to-asset ratio and at least a 5.0% leverage ratio at all times. The leverage ratio is
defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0
time divided by total assets. The FHLBNY was in compliance with the aforementioned capital rules
and requirements for all periods presented.
On December 12, 2007 the Finance Board (predecessor to the Finance Agency) approved amendments
to the FHLBNYs s capital plan. The amendments allow the FHLBNY to recalculate the membership
stock purchase requirement any time after 30 days subsequent to a merger. The amendments also
permit the FHLBNY to use a zero mortgage asset base in performing the calculation, which recognizes
the fact that the corporate entity that was once its member no longer exists. As a result of these
amendments, the FHLBNY could determine that all of the membership stock formerly held by the member
becomes excess stock, which would give the FHLBNY the discretion, but not the obligation, to
repurchase that stock prior to the expiration of the five-year notice period.
Capital Ratios
The following table summarizes the Banks risk-based capital ratios (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Required 4 |
|
|
Actual |
|
|
Required 4 |
|
|
Actual |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory capital requirements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-based capital1 |
|
$ |
529,402 |
|
|
$ |
5,604,337 |
|
|
$ |
606,716 |
|
|
$ |
5,874,125 |
|
Total capital-to-asset ratio |
|
|
4.00 |
% |
|
|
5.23 |
% |
|
|
4.00 |
% |
|
|
5.14 |
% |
Total capital2 |
|
$ |
4,289,569 |
|
|
$ |
5,609,517 |
|
|
$ |
4,578,436 |
|
|
$ |
5,878,623 |
|
Leverage ratio |
|
|
5.00 |
% |
|
|
7.84 |
% |
|
|
5.00 |
% |
|
|
7.70 |
% |
Leverage capital3 |
|
$ |
5,361,961 |
|
|
$ |
8,411,685 |
|
|
$ |
5,723,045 |
|
|
$ |
8,815,685 |
|
|
|
|
1 |
|
Actual Risk-based capital is capital stock and retained
earnings plus mandatorily redeemable capital stock.
Section 932.2 of the Finance Agencys regulations also
refers to this amount as Permanent Capital. |
|
2 |
|
Required Total capital is 4% of total assets. Actual
Total capital is Actual Risk-based capital plus
allowance for credit losses. Does not include reserves
for the Lehman Brothers receivable which is a specific
reserve. |
|
3 |
|
Actual Leverage capital is Risk-based capital times 1.5
plus allowance for loan losses. |
|
4 |
|
Required minimum. |
The Finance Agency has indicated that the accounting treatment for certain shares determined
to be mandatorily redeemable will not be included in the definition of total capital for purposes
of determining the Banks compliance with regulatory capital requirements, calculating mortgage
securities investment authority (300 percent of total capital), calculating unsecured credit
exposure to other GSEs (100 percent of total capital), or calculating unsecured credit limits to
other counterparties (various percentages of total capital depending on the rating of the
counterparty).
45
Mandatorily Redeemable Capital Stock
Generally, the FHLBNYs capital stock is redeemable at the option of either the member or the
FHLBNY subject to certain conditions, and is subject to the provisions under the accounting
guidance for certain financial instruments with characteristics of both liabilities and equity.
The FHLBNY is a cooperative whose member financial institutions own almost all of the FHLBNYs
capital stock. Member shares cannot be purchased or sold except between the Bank and its members
at its $100 per share par value. Also, the FHLBNY does not have equity securities that trade in a
public market. Future filings with the SEC will not be in anticipation of the sale of equity
securities in a public market as the FHLBNY is prohibited by law from doing so, and the FHLBNY is
not controlled by an entity that has equity securities traded or contemplated to be traded in a
public market. Therefore, the FHLBNY is a nonpublic entity based on the definition given in the
accounting guidance for certain financial instruments with characteristics of both liabilities and
equity. In addition, although the FHLBNY is a nonpublic entity, the FHLBanks issue consolidated
obligations that are traded in the public market. Based on this factor, the FHLBNY complies with
the provisions of the accounting guidance for certain financial instruments with characteristics of
both liabilities and equity as a nonpublic SEC registrant.
In accordance with the accounting guidance, the FHLBNY reclassifies the stock subject to redemption
from equity to a liability once a member: irrevocably 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. Under such
circumstances, the member shares will then meet the definition of a mandatorily redeemable
financial instrument and are reclassified to a liability at fair value. Dividends on member shares
are accrued and also classified as a liability in the Statements of Condition and reported as
interest expense in the Statements of Income. The repayment of these mandatorily redeemable
financial instruments, once settled, is reflected as financing cash outflows in the Statements of
Cash Flows.
If a member cancels its notice of voluntary withdrawal, the FHLBNY will reclassify the mandatorily
redeemable capital stock from a liability to equity. After the reclassification, dividends on the
capital stock will no longer be classified as interest expense.
At March 31, 2010 and December 31, 2009, mandatorily redeemable capital stock of $105.2 million and
$126.3 million were held by former members who had attained non-member status by virtue of being
acquired by non-members. A small number of members had also become non-members by relocating their
charters to outside the FHLBNYs membership district.
46
Anticipated redemptions of mandatorily redeemable capital stock were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
Redemption less than one year |
|
$ |
81,360 |
|
|
$ |
102,453 |
|
Redemption from one year to less than three years |
|
|
16,762 |
|
|
|
16,766 |
|
Redemption from three years to less than five years |
|
|
2,114 |
|
|
|
2,118 |
|
Redemption after five years or greater |
|
|
4,956 |
|
|
|
4,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
105,192 |
|
|
$ |
126,294 |
|
|
|
|
|
|
|
|
Anticipated redemptions assume the Bank will follow its current practice of daily redemption
of capital in excess of the amount required to support advances. Commencing January 1, 2008, the
Bank may also redeem, at its discretion, non-members membership stock.
Note 12. Affordable Housing Program and REFCORP
The FHLBank Act requires each FHLBank to establish an AHP. Each FHLBank provides subsidies in
the form of direct grants and below-market interest rate advances to members who use the funds to
assist the purchase, construction, or rehabilitation of housing for very low-, low-, and
moderate-income households. Annually, the FHLBanks must set aside for the AHP the greater of $100
million or 10 percent of regulatory defined income for the specific purpose of calculating AHP and
REFCORP assessments. The FHLBNY charges the amount set aside for AHP to income and recognizes it
as a liability. The FHLBNY relieves the AHP liability as members use the subsidies. If the result
of the aggregate 10 percent calculation described above is less than $100 million for all twelve
FHLBanks, then the FHLBank Act requires the shortfall to be allocated among the FHLBanks based on
the ratio of each FHLBanks income before AHP and REFCORP to the sum of the income before AHP and
REFCORP of the twelve FHLBanks. There was no shortfall as of March 31, 2010 or 2009. The FHLBNY
had outstanding principal in AHP-related advances of $2.1 million as of March 31, 2010 and December
31, 2009.
Income for the purposes of calculating assessments is GAAP Net income before assessments, and
before interest expense related to mandatorily redeemable capital stock, but after the assessment
for REFCORP. The exclusion of interest expense related to mandatorily redeemable capital stock is
a regulatory interpretation by the Finance Agency. The AHP and REFCORP assessments are calculated
simultaneously because of their interdependence on each other. Each FHLBank accrues this expense
monthly based on its income before assessments. A FHLBank reduces its AHP liability as members use
subsidies.
The following provides roll-forward information with respect to changes in Affordable Housing
Program liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
Beginning balance |
|
$ |
144,489 |
|
|
$ |
122,449 |
|
Additions from current periods assessments |
|
|
6,126 |
|
|
|
16,557 |
|
Net disbursements for grants and programs |
|
|
(4,955 |
) |
|
|
(10,638 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
145,660 |
|
|
$ |
128,368 |
|
|
|
|
|
|
|
|
47
Note 13. Total comprehensive income
Total comprehensive income is comprised of Net income and Accumulated other comprehensive
income (loss) (AOCI), which includes unrealized gains and losses on available-for-sale
securities, cash flow hedging activities, employee supplemental retirement plans, and the
non-credit portion of OTTI on HTM securities. Changes in AOCI and total comprehensive income were
as follows for the three months ended March 31, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-credit |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Available- |
|
|
OTTI on HTM |
|
|
Cash |
|
|
Supplemental |
|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
for-sale |
|
|
securities, |
|
|
flow |
|
|
Retirement |
|
|
Comprehensive |
|
|
Net |
|
|
Comprehensive |
|
|
|
securities |
|
|
net of accretion |
|
|
hedges |
|
|
Plans |
|
|
Income (Loss) |
|
|
Income |
|
|
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
$ |
(64,420 |
) |
|
$ |
|
|
|
$ |
(30,191 |
) |
|
$ |
(6,550 |
) |
|
$ |
(101,161 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
30,426 |
|
|
|
(9,938 |
) |
|
|
1,879 |
|
|
|
|
|
|
|
22,367 |
|
|
$ |
148,139 |
|
|
$ |
170,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009 |
|
$ |
(33,994 |
) |
|
$ |
(9,938 |
) |
|
$ |
(28,312 |
) |
|
$ |
(6,550 |
) |
|
$ |
(78,794 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
$ |
(3,409 |
) |
|
$ |
(110,570 |
) |
|
$ |
(22,683 |
) |
|
$ |
(7,877 |
) |
|
$ |
(144,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
14,930 |
|
|
|
3,958 |
|
|
|
2,132 |
|
|
|
|
|
|
|
21,020 |
|
|
$ |
53,640 |
|
|
$ |
74,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010 |
|
$ |
11,521 |
|
|
$ |
(106,612 |
) |
|
$ |
(20,551 |
) |
|
$ |
(7,877 |
) |
|
$ |
(123,519 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 14. Earnings per share of capital
The following table sets forth the computation of earnings per share (dollars in thousands
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
Net income |
|
$ |
53,640 |
|
|
$ |
148,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to stockholders |
|
$ |
53,640 |
|
|
$ |
148,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of capital |
|
|
50,372 |
|
|
|
55,976 |
|
Less: Mandatorily redeemable capital stock |
|
|
(1,084 |
) |
|
|
(1,430 |
) |
|
|
|
|
|
|
|
Average number of shares of capital used
to calculate earnings per share |
|
|
49,288 |
|
|
|
54,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share of capital |
|
$ |
1.09 |
|
|
$ |
2.72 |
|
|
|
|
|
|
|
|
Basic and diluted earnings per share of capital are the same. The FHLBNY has no dilutive
potential common shares or other common stock equivalents.
48
Note 15. Employee retirement plans
The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (DB
Plan). The DB Plan is a tax-qualified multiple-employer defined benefit pension plan that covers
all officers and employees of the Bank. For accounting purposes, the DB Plan is a multi-employer
plan and does not segregate its assets, liabilities, or costs by participating employer. The Bank
also participates in the Pentegra Defined Contribution Plan for Financial Institutions, a
tax-qualified defined contribution plan. The Banks contributions are a matching contribution
equal to a percentage of voluntary employee contributions, subject to certain limitations.
In addition, the Bank maintains a Benefit Equalization Plan (BEP) that restores defined benefits
and contribution benefits to those employees who have had their qualified defined benefit and
defined contribution benefits limited by IRS regulations. The contribution component of the BEP is
a supplemental defined contribution plan. The plans liability consists of the accumulated
compensation deferrals and accrued interest on the deferrals. The BEP is an unfunded plan. The
Bank has established several grantor trusts to meet future benefit obligations and current payments
to beneficiaries in supplemental pension plans. The Bank also offers a Retiree Medical Benefit
Plan, which is a postretirement health benefit plan. There are no funded plan assets that have
been designated to provide postretirement health benefits. The Board of Directors of the FHLBNY
approved certain amendments to the Retiree Medical Benefit Plan effective as of January 1, 2008.
The amendments did not have a material impact on reported results of operations or financial
condition of the Bank.
On January 1, 2009, the Bank offered a Nonqualified Deferred Compensation Plan to certain officer
employees and to the members of the Board of Directors of the Bank. Participants in the plan would
elect to defer all or a portion of their compensation earned for a minimum period of five years.
This benefit plan and other nonqualified supplemental pension plans were terminated effective
November 10, 2009. Plan terminations had no material effect on the Banks financial results,
financial position or cash flows for all reported periods.
Retirement Plan Expenses Summary
The following table presents employee retirement plan expenses for the periods ended (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
Defined Benefit Plan |
|
$ |
1,312 |
|
|
$ |
1,441 |
|
Benefit Equalization Plan (defined benefit) |
|
|
570 |
|
|
|
515 |
|
Defined Contribution Plan and BEP Thrift |
|
|
235 |
|
|
|
242 |
|
Postretirement Health Benefit Plan |
|
|
281 |
|
|
|
251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retirement plan expenses |
|
$ |
2,398 |
|
|
$ |
2,449 |
|
|
|
|
|
|
|
|
49
Benefit Equalization Plan (BEP)
The plans liability consisted of the accumulated compensation deferrals and accrued interest on
the deferrals. There were no plan assets that have been designated for the BEP plan.
Components of the net periodic pension cost for the defined benefit component of the BEP, an
unfunded plan, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Service cost |
|
$ |
163 |
|
|
$ |
153 |
|
Interest cost |
|
|
279 |
|
|
|
263 |
|
Amortization of unrecognized prior service cost |
|
|
(17 |
) |
|
|
(36 |
) |
Amortization of unrecognized net loss |
|
|
145 |
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
570 |
|
|
$ |
515 |
|
|
|
|
|
|
|
|
Key assumptions and other information for the actuarial calculations to determine benefit
obligations for the FHLBNYs BEP plan were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Discount rate * |
|
|
5.87 |
% |
|
|
5.87 |
% |
Salary increases |
|
|
5.50 |
% |
|
|
5.50 |
% |
Amortization period (years) |
|
|
8 |
|
|
|
8 |
|
Benefits paid during the year |
|
$ |
(739 |
)** |
|
$ |
(537 |
) |
|
|
|
* |
|
The discount rate was based on the Citigroup Pension Liability Index at December 31, 2009 and adjusted for duration. |
|
** |
|
Forecast for the year. |
Postretirement Health Benefit Plan
The FHLBNY has a postretirement health benefit plan for retirees called the Retiree Medical Benefit
Plan. Employees over the age of 55 are eligible provided they have completed ten years of service
after age 45.
Components of the net periodic benefit cost for the postretirement health benefit plan were (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Service cost (benefits attributed to service during the period) |
|
$ |
157 |
|
|
$ |
139 |
|
Interest cost on accumulated postretirement health benefit obligation |
|
|
229 |
|
|
|
217 |
|
Amortization of loss |
|
|
78 |
|
|
|
78 |
|
Amortization of prior service cost/(credit) |
|
|
(183 |
) |
|
|
(183 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement health benefit cost |
|
$ |
281 |
|
|
$ |
251 |
|
|
|
|
|
|
|
|
50
Key assumptions and other information to determine obligation for the FHLBNYs postretirement
health benefit plan were as follows:
|
|
|
|
|
|
|
March 31, 2010 |
|
December 31, 2009 |
Weighted average discount rate
at the end of the year |
|
5.87% |
|
5.87% |
|
|
|
|
|
Health care cost trend rates: |
|
|
|
|
Assumed for next year |
|
10.00% |
|
10.00% |
Pre 65 Ultimate rate |
|
5.00% |
|
5.00% |
Pre 65 Year that ultimate rate is reached |
|
2016 |
|
2016 |
Post 65 Ultimate rate |
|
6.00% |
|
6.00% |
Post 65 Year that ultimate rate is reached |
|
2016 |
|
2016 |
Alternative amortization methods used to amortize |
|
|
|
|
Prior service cost |
|
Straight - line |
|
Straight - line |
Unrecognized net (gain) or loss |
|
Straight - line |
|
Straight - line |
The discount rate was based on the Citigroup Pension Liability Index at December 31, 2009 and
adjusted for duration.
Note 16. Derivatives and hedging activities
General The FHLBNY may enter into interest-rate swaps, swaptions, and interest-rate cap and
floor agreements to manage its exposure to changes in interest rates. The FHLBNY may also use
callable swaps to potentially adjust the effective maturity, repricing frequency, or option
characteristics of financial instruments to achieve risk management objectives. The FHLBNY uses
derivatives in three ways: by designating them as a fair value or cash flow hedge of an underlying
financial instrument or a forecasted transaction that qualifies for hedge accounting treatment; by
acting as an intermediary; or by designating the derivative as an asset-liability management hedge
(i.e., an economic hedge). For example, the FHLBNY uses derivatives in its overall interest-rate
risk management to adjust the interest-rate sensitivity of consolidated obligations to approximate
more closely the interest-rate sensitivity of assets (both advances and investments), and/or to
adjust the interest-rate sensitivity of advances, investments or mortgage loans to approximate more
closely the interest-rate sensitivity of liabilities. In addition to using derivatives to manage
mismatches of interest rates between assets and liabilities, the FHLBNY also uses derivatives: to
manage embedded options in assets and liabilities; to hedge the market value of existing assets and
liabilities and anticipated transactions; to hedge the duration risk of prepayable instruments; and
to reduce funding costs where possible.
In an economic hedge, a derivative hedges specific or non-specific underlying assets, liabilities
or firm commitments, but the hedge does not qualify for hedge accounting under the accounting
standards for derivatives and hedging; it is, however, an acceptable hedging strategy under the
FHLBNYs risk management program. These strategies also comply with the Finance Agencys
regulatory requirements prohibiting speculative use of derivatives. An economic hedge introduces
the potential for earnings variability due to the changes in fair value recorded on the derivatives
that are not offset by corresponding changes in the value of the economically hedged assets,
liabilities, or firm commitments. The FHLBNY will execute an interest rate swap to match the terms
of an asset or liability that is elected under the Fair Value Option and the swap is also
considered as an economic hedge to mitigate the volatility of the FVO designated asset or liability
due to change in the full fair value of the designated asset or liability. In the third quarter of
2008 and periodically thereafter, the FHLBNY elected the FVO for certain consolidated obligation
bonds and executed interest rate swaps to offset the fair value changes of the bonds.
51
The FHLBNY, consistent with Finance Agencys regulations, enters into derivatives to manage the
market risk exposures inherent in otherwise unhedged assets and funding positions. The FHLBNY
utilizes derivatives in the most cost efficient manner and may enter into derivatives as economic
hedges that do not qualify for hedge accounting under the accounting standards for derivatives and
hedging. As a result, when entering into such non-qualified hedges, the FHLBNY recognizes only the
change in fair value of these derivatives in Other income (loss) as a Net realized and unrealized
gain (loss) on derivatives and hedging activities with no offsetting fair value adjustments for the
hedged asset, liability, or firm commitment.
Hedging activities
Consolidated Obligations The FHLBNY manages the risk arising from changing market prices and
volatility of a consolidated obligation by matching the cash inflows on the derivative with the
cash outflow on the consolidated obligation. While consolidated obligations are the joint and
several obligations of the FHLBanks, one or more FHLBanks may individually serve as counterparties
to derivative agreements associated with specific debt issues. For instance, in a typical
transaction, fixed-rate consolidated obligations are issued for one or more FHLBanks, and each of
those FHLBanks could simultaneously enter into a matching derivative in which the counterparty pays
to the FHLBank fixed cash flows designed to mirror in timing and amount the cash outflows the
FHLBank pays on the consolidated obligations. Such transactions are treated as fair value hedges
under the accounting standards for derivatives and hedging. The FHLBNY has elected the Fair Value
Option (FVO) for certain consolidated obligation bonds and these were measured under the
accounting standards for fair value measurements. To mitigate the volatility resulting from
changes in fair values of bonds designated under the FVO, the Bank has also executed interest rate
swaps.
The FHLBNY had issued variable-rate consolidated obligations bonds indexed to 1 month-LIBOR, the
U.S. Prime rate, or Federal funds rate and simultaneously execute interest-rate swaps (basis
swaps) to hedge the basis risk of the variable rate debt to 3-month LIBOR, the FHLBNYs preferred
funding base. The interest rate basis swaps were accounted as economic hedges of the floating-rate
bonds because the FHLBNY deemed that the operational cost of designating the hedges under
accounting standards for derivatives and hedge accounting would outweigh the accounting benefits.
The issuance of the consolidated obligation fixed-rate bonds to investors and the execution of
interest rate swaps typically results in cash flow pattern in which the FHLBNY has effectively
converted the bonds cash flows to variable cash flows that closely match the interest payments it
receives on short-term or variable-rate advances. From time-to-time, this intermediation between
the capital and swap markets has permitted the FHLBNY to raise funds at a lower cost than would
otherwise be available through the issuance of simple fixed- or floating-rate consolidated
obligations in the capital markets. The FHLBNY does not issue consolidated obligations denominated
in currencies other than U.S. dollars.
Advances With a putable advance borrowed by a member, the FHLBNY may purchase from the member a
put option that enables the FHLBNY to effectively convert an advance from fixed-rate to
floating-rate by exercising the put option and terminating the advance at par on the pre-determined
put exercise dates. Typically, the FHLBNY will exercise the option in a rising interest rate
environment. The FHLBNY may hedge a putable advance by entering into a cancelable interest rate
swap in which the FHLBNY pays to the swap counterparty fixed-rate cash flows and receives
variable-rate cash flows. This type of hedge is treated as a fair value hedge under the accounting
standards for derivatives and hedging. The swap counterparty can cancel the swap on the put date,
which would normally occur in a rising rate environment, and the FHLBNY can terminate the advance
and extend additional credit to the member on new terms.
52
The optionality embedded in certain financial instruments held by the FHLBNY can create
interest-rate risk. When a member prepays an advance, the FHLBNY could suffer lower future income
if the principal
portion of the prepaid advance were reinvested in lower-yielding assets that would continue to be
funded by higher-cost debt. To protect against this risk, the FHLBNY generally charges a
prepayment fee that makes it financially indifferent to a borrowers decision to prepay an advance.
When the Bank offers advances (other than short-term) that members may prepay without a prepayment
fee, it usually finances such advances with callable debt. The Bank has not elected the FVO for
any advances.
Mortgage Loans The FHLBNY invests in mortgage assets. The prepayment options embedded in
mortgage assets can result in extensions or reductions in the expected maturities of these
investments, depending on changes in estimated prepayment speeds. Finance Agency regulations limit
this source of interest-rate risk by restricting the types of mortgage assets the Bank may own to
those with limited average life changes under certain interest-rate shock scenarios and by
establishing limitations on duration of equity and changes in market value of equity. The FHLBNY
may manage against prepayment and duration risk by funding some mortgage assets with consolidated
obligations that have call features. In addition, the FHLBNY may use derivatives to manage the
prepayment and duration variability of mortgage assets. Net income could be reduced if the FHLBNY
replaces the mortgages with lower yielding assets and if the Banks higher funding costs are not
reduced concomitantly.
The FHLBNY manages the interest rate and prepayment risks associated with mortgages through debt
issuance. The FHLBNY issues both callable and non-callable debt to achieve cash flow patterns and
liability durations similar to those expected on the mortgage loans. The FHLBNY analyzes the
duration, convexity and earnings risk of the mortgage portfolio on a regular basis under various
rate scenarios. The Bank has not elected the FVO for any mortgage loans.
Firm Commitment Strategies Mortgage delivery commitments are considered derivatives under the
accounting standards for derivatives and hedging, and the FHLBNY accounts for them as freestanding
derivatives, and records the fair values of mortgage loan delivery commitments on the balance sheet
with an offset to current period earnings. Fair values were de minimis for all periods reported.
The FHLBNY may also hedge 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 added to 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.
If a hedged firm commitment no longer qualified as a fair value hedge, the hedge would be
terminated and net gains and losses would be recognized in current period earnings. There were no
material amounts of gains and losses recognized due to disqualification of firm commitment hedges
for the period ended March 31, 2010, or in 2009.
Forward Settlements There were no forward settled securities at March 31, 2010 and December 31,
2009 that would settle outside the shortest period of time for the settlement of such securities.
Anticipated Debt Issuance The FHLBNY enters into interest-rate swaps on the anticipated issuance
of debt to lock in a spread between the earning asset and the cost of funding. The swap is
terminated upon issuance of the debt instrument, and amounts reported in Accumulated other
comprehensive income (loss) are reclassified to earnings in the periods in which earnings are
affected by the variability of the cash flows of the debt that was issued.
53
Intermediation To meet the hedging needs of its members, the FHLBNY acts as an intermediary
between the members and the other counterparties. This intermediation allows smaller members
access to the derivatives market. The derivatives used in intermediary activities do not qualify
for hedge
accounting under the accounting standards for derivatives and hedging, and are separately
marked-to-market through earnings. The net impact of the accounting for these derivatives does not
significantly affect the operating results of the FHLBNY.
Derivative agreements in which the FHLBNY is an intermediary may arise when the FHLBNY: (1) enters
into offsetting derivatives with members and other counterparties to meet the needs of its members,
and (2) enters into derivatives to offset the economic effect of other derivative agreements that
are no longer designated to either advances, investments, or consolidated obligations. The
notional principal of interest rate swaps in which the FHLBNY was an intermediary was $330.0
million and $320.0 million as of March 31, 2010 and December 31, 2009; fair values of the swaps
sold to members net of the fair values of swaps purchased from derivative counterparties were not
material at March 31, 2010 and December 31, 2009. Collateral with respect to derivatives with
member institutions includes collateral assigned to the FHLBNY as evidenced by a written security
agreement and held by the member institution for the benefit of the FHLBNY.
Economic hedges In the three month ended March 31, 2010 and in 2009 , economic hedges comprised
primarily of: (1) short- and medium-term interest rate swaps that hedged the basis risk (Prime
rate, Fed fund rate, and the 1-month LIBOR index) of variable-rate bonds issued by the FHLBNY.
These swaps were considered freestanding and changes in the fair values of the swaps were recorded
through income. The FHLBNY believes the operational cost of designating the basis hedges in a
qualifying hedge would outweigh the benefits of applying hedge accounting. (2) Interest rate caps
acquired in the second quarter of 2008 to hedge balance sheet risk, primarily certain capped
floating-rate investment securities, were considered freestanding derivatives with fair value
changes recorded through Other income (loss) as a Net realized and unrealized gain or loss on
derivatives and hedging activities. (3) Interest rate swaps hedging balance sheet risk. (4)
Interest rate swaps that had previously qualified as hedges under the accounting standards for
derivatives and hedging, but had been subsequently de-designated from hedge accounting as they were
assessed as being not highly effective hedges. (5) Interest rate swaps executed to offset the fair
value changes of bonds designated under the FVO.
The FHLBNY is not a derivatives dealer and does not trade derivatives for short-term profit.
Credit Risk The FHLBNY is subject to credit risk due to the risk of nonperformance by
counterparties to the derivative agreements. The FHLBNY 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 FHLBNY is also subject to operational
risks in the execution and servicing of derivative transactions. The degree of counterparty risk
on derivative agreements depends on the extent to which master netting arrangements are included in
such contracts to mitigate the risk. The FHLBNY manages counterparty credit risk through credit
analysis and collateral requirements and by following the requirements set forth in Finance
Agencys regulations. In determining credit risk, the FHLBNY considers accrued interest
receivables and payables, and the legal right to offset assets and liabilities by counterparty.
The contractual or notional amount of derivatives reflects the involvement of the FHLBNY in the
various classes of financial instruments, but it does not measure the credit risk exposure of the
FHLBNY, and the maximum credit exposure of the FHLBNY is substantially less than the notional
amount. The maximum credit risk is the estimated cost of replacing favorable interest-rate swaps,
forward agreements, mandatory delivery contracts for mortgage loans, and purchased caps and floors
(derivatives) if the counterparty defaults and the related collateral, if any, is of insufficient
value to the FHLBNY.
54
The FHLBNY uses collateral agreements to mitigate counterparty credit risk in derivatives. When
the FHLBNY has more than one derivative transaction outstanding with a counterparty, and a legally
enforceable master netting agreement exists with the counterparty, the exposure, less collateral
held, represents the appropriate measure of credit risk. Substantially all derivative contracts
are subject to master netting agreements or other right of offset arrangements. At March 31, 2010
and December 31, 2009, the Banks credit exposure, representing derivatives in a fair value net gain
position was approximately $9.2 million and $8.3 million after the recognition of any cash
collateral held by the FHLBNY. The credit exposure at March 31, 2010 and December 31, 2009 included
$2.4 million and $0.8 million in net interest receivable.
Derivative counterparties are also exposed to credit losses resulting from potential nonperformance
risk of FHLBNY with respect to derivative contracts. Exposure to counterparties is measured by
derivatives in a fair value loss position from the FHLBNYs perspective, which from the
counterparties perspective is a gain. At March 31, 2010 and December 31, 2009, derivatives in a
net unrealized loss position, which represented the counterparties exposure to the potential
non-performance risk of the FHLBNY, were $850.9 million and $746.2 million after deducting cash
collateral pledged by the FHLBNY. At the request of the exposed counterparties, the FHLBNY had
deposited $2.2 billion with derivative counterparties as cash collateral at March 31, 2010 and
December 31, 2009. The FHLBNY is exposed to the risk of derivative counterparties defaulting on
the terms of the derivative contracts and failing to return cash deposited with counterparties. If
such an event were to occur, the FHLBNY would be forced to replace derivatives by executing similar
derivative contracts with other counterparties. To the extent that the FHLBNY receives cash from
the replacement trades that is less than the amount of cash deposited with the defaulting
counterparty, the FHLBNYs cash pledged is exposed to credit risk. Derivative counterparties
holding the FHLBNYs cash as pledged collateral were rated Single A and better at March 31, 2010,
and based on credit analyses and collateral requirements, the management of the FHLBNY does not
anticipate any credit losses on its derivative agreements.
Impact of the bankruptcy of Lehman Brothers
On September 15, 2008, Lehman Brothers Holdings, Inc. (LBHI), the parent company of Lehman
Brothers Special Financing Inc. (LBSF) and a guarantor of LBSFs obligations filed for protection
under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in the
Southern District of New York. LBSF was a counterparty to FHLBNY on multiple derivative
transactions under International Swap Dealers Association, Inc. master agreements with a total
notional amount of $16.5 billion at the time of termination of the FHLBanks derivative
transactions with LBSF. The net amount that is due to the Bank after giving effect to
obligations that are due LBSF was approximately $65 million, and the Bank has fully reserved the
LBSF receivables as the bankruptcy of LBHI and LBSF make the timing and the amount of the recovery
uncertain. The loss was reported as a charge to Other income (loss) in the 2008 Statement of
Income as a Provision for derivative counterparty credit losses. The FHLBNY filed on September 22,
2009 a proof of claim of $64.5 million as a creditor in connection with the bankruptcy proceedings.
It is possible that, in the course of the bankruptcy proceedings, the FHLBNY will recover some
amount in a future period. However, because the timing and the amount of such recovery remains
uncertain, the FHLBNY has not recorded any estimated recovery in its financial statements. The
amount, if any that the Bank actually recovers will ultimately be decided in the course of the
bankruptcy proceedings.
55
The following tables represented outstanding notional balances and estimated fair values of the
derivatives outstanding at March 31, 2010 and December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
Notional Amount of |
|
|
Derivative |
|
|
Derivative |
|
|
|
Derivatives |
|
|
Assets |
|
|
Liabilities |
|
Fair value of derivatives instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated in hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps-fair value hedges |
|
$ |
96,121,663 |
|
|
$ |
845,852 |
|
|
$ |
(4,039,004 |
) |
Interest rate swaps-cash flow hedges |
|
|
150,000 |
|
|
|
324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives in hedging relationships |
|
$ |
96,271,663 |
|
|
$ |
846,176 |
|
|
$ |
(4,039,004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
28,103,821 |
|
|
$ |
79,088 |
|
|
$ |
(1,597 |
) |
Interest rate caps or floors |
|
|
2,170,000 |
|
|
|
46,276 |
|
|
|
(6,122 |
) |
Mortgage delivery commitments |
|
|
3,249 |
|
|
|
10 |
|
|
|
(1 |
) |
Other* |
|
|
330,000 |
|
|
|
1,920 |
|
|
|
(1,565 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments |
|
$ |
30,607,070 |
|
|
$ |
127,294 |
|
|
$ |
(9,285 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives before netting and collateral adjustments |
|
$ |
126,878,733 |
|
|
$ |
973,470 |
|
|
$ |
(4,048,289 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Netting adjustments |
|
|
|
|
|
$ |
(964,224 |
) |
|
$ |
964,224 |
|
Cash collateral and related accrued interest |
|
|
|
|
|
|
|
|
|
|
2,233,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total collateral and netting adjustments |
|
|
|
|
|
$ |
(964,224 |
) |
|
$ |
3,197,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reported on the Statements of Condition |
|
|
|
|
|
$ |
9,246 |
|
|
$ |
(850,911 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Other: Comprised of swaps intermediated for members. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Notional Amount of |
|
|
Derivative |
|
|
Derivative |
|
|
|
Derivatives |
|
|
Assets |
|
|
Liabilities |
|
Fair value of derivatives instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated in hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps-fair value hedges |
|
$ |
98,776,447 |
|
|
$ |
854,699 |
|
|
$ |
(3,974,207 |
) |
Interest rate swaps-cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives in hedging relationships |
|
$ |
98,776,447 |
|
|
$ |
854,699 |
|
|
$ |
(3,974,207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
33,144,963 |
|
|
$ |
147,239 |
|
|
$ |
(73,450 |
) |
Interest rate caps or floors |
|
|
2,282,000 |
|
|
|
77,999 |
|
|
|
(7,525 |
) |
Mortgage delivery commitments |
|
|
4,210 |
|
|
|
|
|
|
|
(39 |
) |
Other* |
|
|
320,000 |
|
|
|
1,316 |
|
|
|
(956 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments |
|
$ |
35,751,173 |
|
|
$ |
226,554 |
|
|
$ |
(81,970 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives before netting and collateral adjustments |
|
$ |
134,527,620 |
|
|
$ |
1,081,253 |
|
|
$ |
(4,056,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Netting adjustments |
|
|
|
|
|
$ |
(1,072,973 |
) |
|
$ |
1,072,973 |
|
Cash collateral and related accrued interest |
|
|
|
|
|
|
|
|
|
|
2,237,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total collateral and netting adjustments |
|
|
|
|
|
$ |
(1,072,973 |
) |
|
$ |
3,310,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reported on the Statements of Condition |
|
|
|
|
|
$ |
8,280 |
|
|
$ |
(746,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Other: Comprised of swaps intermediated for members. |
The categories Fair value, Mortgage delivery commitment, and Cash Flow hedges -
represent derivative transactions in hedging relationships. If any such hedges do not qualify for
hedge accounting under the accounting standards for derivatives and hedging, they are classified as
Economic hedges. Changes in fair values of economic hedges are recorded through the income
statement without the offset of corresponding changes in the fair value of the hedged item.
Changes in fair values of qualifying derivative transactions designated in fair value hedges are
recorded through the income statement with the offset of corresponding changes in the fair values
of the hedged items. The effective portion of changes in the fair values of derivatives designated
in a qualifying cash flow hedge is recorded in Accumulated other comprehensive income (loss).
56
Earnings Impact of derivatives and hedging activities
Net realized and unrealized gain (loss) on derivatives and hedging activities
The FHLBNY carries all derivative instruments on the Statements of Condition at fair value as
Derivative Assets and Derivative Liabilities.
If derivatives meet the hedging criteria under hedge accounting rules, including effectiveness
measures, changes in fair value of the associated hedged financial instrument attributable to the
risk being hedged (benchmark interest-rate risk, which is LIBOR for the FHLBNY) may also be
recorded so that some or all of the unrealized fair value gains or losses recognized on the
derivatives are offset by corresponding unrealized gains or losses on the associated hedged
financial assets and liabilities. The net differential between fair value changes of the
derivatives and the hedged items represent hedge ineffectiveness. Hedge ineffectiveness results
represents the amounts by which the changes in the fair value of the derivatives differ from the
changes in the fair values of the hedged items or the variability in the cash flows of forecasted
transactions. The net ineffectiveness from hedges that qualify under hedge accounting rules are
recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in
Other income (loss) in the Statements of Income.
If derivatives do not qualify for the hedging criteria under hedge accounting rules, but are
executed as economic hedges of financial assets or liabilities under a FHLBNY approved hedge
strategy, only the fair value changes of the derivatives are recorded as a Net realized and
unrealized gain (loss) on derivatives and hedging activities in Other income (loss) in the
Statements of Income.
When the FHLBNY elects to measure certain debt under the accounting designation for Fair Value
Option (FVO), the Bank will typically execute a derivative as an economic hedge of the debt.
Fair value changes of the derivatives are recorded as a Net realized and unrealized gain (loss) on
derivatives and hedging activities in Other income. Fair value changes of the debt designated under
the FVO is also recorded in Other income as an unrealized (loss) or gain from Instruments held at
fair value.
57
The FHLBNY reported the following net gains (losses) from derivatives and hedging activities (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Gain (Loss) |
|
|
Gain (Loss) |
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
Advances |
|
$ |
619 |
|
|
$ |
(10,611 |
) |
Consolidated obligations-bonds |
|
|
4,004 |
|
|
|
12,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain related to fair value hedge ineffectiveness |
|
|
4,623 |
|
|
|
2,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
Economic hedges |
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
Advances |
|
|
(840 |
) |
|
|
4,340 |
|
Consolidated obligations-bonds |
|
|
(13,309 |
) |
|
|
31,482 |
|
Consolidated obligations-discount notes |
|
|
(2,332 |
) |
|
|
(603 |
) |
Member intermediation |
|
|
(3 |
) |
|
|
(153 |
) |
Balance sheet-macro hedges swaps |
|
|
173 |
|
|
|
2,233 |
|
Accrued interest-swaps |
|
|
29,469 |
|
|
|
(46,222 |
) |
Accrued interest-intermediation |
|
|
23 |
|
|
|
25 |
|
|
Caps and floors |
|
|
|
|
|
|
|
|
Advances |
|
|
(289 |
) |
|
|
(429 |
) |
Balance sheet |
|
|
(30,427 |
) |
|
|
1,650 |
|
Accrued interest-options |
|
|
(1,989 |
) |
|
|
(692 |
) |
|
Mortgage delivery commitments |
|
|
149 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
Swaps matching instruments designated under FVO |
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
|
6,638 |
|
|
|
(7,684 |
) |
Accrued interest on FVO swaps |
|
|
7,751 |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
Net (loss) related to derivatives not designated as hedging instruments |
|
|
(4,986 |
) |
|
|
(15,937 |
) |
|
|
|
|
|
|
|
|
Net realized and unrealized (loss) on derivatives and hedging activities |
|
$ |
(363 |
) |
|
$ |
(13,666 |
) |
|
|
|
|
|
|
|
58
The components of hedging gains and losses for the three months ended March 31, 2010 are
summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives on |
|
|
|
Gain (Loss) on |
|
|
Gain (Loss) on |
|
|
Earnings |
|
|
Net Interest |
|
|
|
Derivative |
|
|
Hedged Item |
|
|
Impact |
|
|
Income 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated
as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
(152,087 |
) |
|
$ |
152,706 |
|
|
$ |
619 |
|
|
$ |
(530,377 |
) |
Consolidated obligations-bonds |
|
|
52,236 |
|
|
|
(48,232 |
) |
|
|
4,004 |
|
|
|
172,777 |
|
Consolidated obligations-notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges Net impact |
|
|
(99,851 |
) |
|
|
104,474 |
|
|
|
4,623 |
|
|
|
(357,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated
as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
(840 |
) |
|
|
|
|
|
|
(840 |
) |
|
|
|
|
Consolidated obligations-bonds |
|
|
(13,309 |
) |
|
|
|
|
|
|
(13,309 |
) |
|
|
|
|
Consolidated obligations-notes |
|
|
(2,332 |
) |
|
|
|
|
|
|
(2,332 |
) |
|
|
|
|
Member intermediation |
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
Balance sheet-macro hedges swaps |
|
|
173 |
|
|
|
|
|
|
|
173 |
|
|
|
|
|
Accrued interest-swaps |
|
|
29,469 |
|
|
|
|
|
|
|
29,469 |
|
|
|
|
|
Accrued interest-intermediation |
|
|
23 |
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caps and floors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
(289 |
) |
|
|
|
|
|
|
(289 |
) |
|
|
|
|
Balance sheet |
|
|
(30,427 |
) |
|
|
|
|
|
|
(30,427 |
) |
|
|
|
|
Accrued interest-options |
|
|
(1,989 |
) |
|
|
|
|
|
|
(1,989 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage delivery commitments |
|
|
149 |
|
|
|
|
|
|
|
149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps matching instruments designated
under FVO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
|
6,638 |
|
|
|
|
|
|
|
6,638 |
|
|
|
|
|
Accrued interest on FVO swaps |
|
|
7,751 |
|
|
|
|
|
|
|
7,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(104,837 |
) |
|
$ |
104,474 |
|
|
$ |
(363 |
) |
|
$ |
(357,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Represents interest expense and income generated from hedge qualifying
interest-rate swaps that were recorded with interest income and expense of the hedged bonds, discount notes, and advances. |
59
The components of hedging gains and losses for the three months ended March 31, 2009 are
summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives on |
|
|
|
Gain (Loss) on |
|
|
Gain (Loss) on |
|
|
Earnings |
|
|
Net Interest |
|
|
|
Derivative |
|
|
Hedged Item |
|
|
Impact |
|
|
Income 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated
as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
683,558 |
|
|
$ |
(694,169 |
) |
|
$ |
(10,611 |
) |
|
$ |
(332,035 |
) |
Consolidated obligations-bonds |
|
|
(164,195 |
) |
|
|
177,077 |
|
|
|
12,882 |
|
|
|
104,079 |
|
Consolidated obligations-notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges Net impact |
|
|
519,363 |
|
|
|
(517,092 |
) |
|
|
2,271 |
|
|
|
(227,513 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated
as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
4,340 |
|
|
|
|
|
|
|
4,340 |
|
|
|
|
|
Consolidated obligations-bonds |
|
|
31,482 |
|
|
|
|
|
|
|
31,482 |
|
|
|
|
|
Consolidated obligations-notes |
|
|
(603 |
) |
|
|
|
|
|
|
(603 |
) |
|
|
|
|
Member intermediation |
|
|
(153 |
) |
|
|
|
|
|
|
(153 |
) |
|
|
|
|
Balance sheet-macro hedges swaps |
|
|
2,233 |
|
|
|
|
|
|
|
2,233 |
|
|
|
|
|
Accrued interest-swaps |
|
|
(46,222 |
) |
|
|
|
|
|
|
(46,222 |
) |
|
|
|
|
Accrued interest-intermediation |
|
|
25 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caps and floors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
(429 |
) |
|
|
|
|
|
|
(429 |
) |
|
|
|
|
Balance sheet |
|
|
1,650 |
|
|
|
|
|
|
|
1,650 |
|
|
|
|
|
Accrued interest-options |
|
|
(692 |
) |
|
|
|
|
|
|
(692 |
) |
|
|
|
|
|
Mortgage delivery commitments |
|
|
59 |
|
|
|
|
|
|
|
59 |
|
|
|
|
|
|
Swaps matching instruments designated
under FVO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
|
(7,684 |
) |
|
|
|
|
|
|
(7,684 |
) |
|
|
|
|
Accrued interest on FVO swaps |
|
|
57 |
|
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
503,426 |
|
|
$ |
(517,092 |
) |
|
$ |
(13,666 |
) |
|
$ |
(227,513 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Represents interest expense and income generated from hedge qualifying
interest-rate swaps that were recorded with interest income and expense of the hedged bonds, discount notes, and advances. |
60
Cash Flow hedges
There were no material amounts for the current or prior year first quarters that were reclassified
into earnings as a result of the discontinuance of cash flow hedges because it became probable that
the original forecasted transactions would not occur by the end of the originally specified time
period or within a two-month period thereafter. The maximum length of time over which the Bank
typically hedges its exposure to the variability in future cash flows for forecasted transactions
is between three and six months. The notional amount of derivatives designated as cash flow hedges
at March 31, 2010 was $150.0 million. There were no derivatives designated as cash flow hedges at
December 31, 2009.
The effective portion of the gain or loss on swaps designated and qualifying as a cash flow hedging
instrument is reported as a component of AOCI and reclassified into earnings in the same period
during which the hedged forecasted bond expenses affect earnings. The balances in AOCI from
terminated cash flow hedges represented net realized losses of $20.6 million and $22.7 million at
March 31, 2010 and December 31, 2009. At March 31, 2010, it is expected that over the next 12
months about $6.6 million ($6.9 million at December 31, 2009) of net losses recorded in AOCI will
be recognized as a charge to earnings as a yield adjustment to interest expense of consolidated
bonds.
The effect of cash flow hedge related derivative instruments for the three months ended March 31,
2010 and 2009 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
OCI |
|
|
|
Gains/(Losses) |
|
|
|
|
|
|
|
Location: |
|
|
Amount |
|
|
Ineffectiveness |
|
|
|
Recognized |
|
|
Reclassified to |
|
|
Reclassified to |
|
|
Recognized in |
|
|
|
in OCI 1, 2 |
|
|
Earnings 1 |
|
|
Earnings 1 |
|
|
Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of cash flow hedge related to
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
|
|
|
Interest Income |
|
$ |
|
|
|
$ |
|
|
Consolidated obligations-bonds |
|
|
392 |
|
|
Interest Expense |
|
|
1,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
392 |
|
|
|
|
|
|
$ |
1,740 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
|
OCI |
|
|
|
Gains/(Losses) |
|
|
|
|
|
|
|
Location: |
|
|
Amount |
|
|
Ineffectiveness |
|
|
|
Recognized |
|
|
Reclassified to |
|
|
Reclassified to |
|
|
Recognized in |
|
|
|
in OCI 1, 2 |
|
|
Earnings 1 |
|
|
Earnings 1 |
|
|
Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of cash flow hedge related to
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
|
|
|
Interest Income |
|
$ |
|
|
|
$ |
|
|
Consolidated obligations-bonds |
|
|
|
|
|
Interest Expense |
|
|
1,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
|
|
|
|
$ |
1,879 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Effective portion |
|
2 |
|
Represents effective portion of basis adjustments to AOCI from cash flow hedging transactions. |
61
Note 17. Fair Values of financial instruments
Items Measured at Fair Value on a Recurring Basis
The following table presents for each hierarchy level (see note below), the FHLBNYs assets and
liabilities that were measured at fair value on its Statements of Condition at March 31, 2010 and
December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Netting |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Adjustments |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE issued MBS |
|
$ |
2,641,921 |
|
|
$ |
|
|
|
$ |
2,641,921 |
|
|
$ |
|
|
|
$ |
|
|
Equity and bond funds |
|
|
12,893 |
|
|
|
|
|
|
|
12,893 |
|
|
|
|
|
|
|
|
|
Derivative assets(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate derivatives |
|
|
9,236 |
|
|
|
|
|
|
|
973,460 |
|
|
|
|
|
|
|
(964,224 |
) |
Mortgage delivery commitments |
|
|
10 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
2,664,060 |
|
|
$ |
|
|
|
$ |
3,628,284 |
|
|
$ |
|
|
|
$ |
(964,224 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds(b) |
|
$ |
(6,780,613 |
) |
|
$ |
|
|
|
$ |
(6,780,613 |
) |
|
$ |
|
|
|
$ |
|
|
Derivative liabilities(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate derivatives |
|
|
(850,910 |
) |
|
|
|
|
|
|
(4,048,288 |
) |
|
|
|
|
|
|
3,197,378 |
|
Mortgage delivery commitments |
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
$ |
(7,631,524 |
) |
|
$ |
|
|
|
$ |
(10,828,902 |
) |
|
$ |
|
|
|
$ |
3,197,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Netting |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Adjustments |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE issued MBS |
|
$ |
2,240,564 |
|
|
$ |
|
|
|
$ |
2,240,564 |
|
|
$ |
|
|
|
$ |
|
|
Equity and bond funds |
|
|
12,589 |
|
|
|
|
|
|
|
12,589 |
|
|
|
|
|
|
|
|
|
Derivative assets(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate derivatives |
|
|
8,280 |
|
|
|
|
|
|
|
1,081,253 |
|
|
|
|
|
|
|
(1,072,973 |
) |
Mortgage delivery commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
2,261,433 |
|
|
$ |
|
|
|
$ |
3,334,406 |
|
|
$ |
|
|
|
$ |
(1,072,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds(b) |
|
$ |
(6,035,741 |
) |
|
$ |
|
|
|
$ |
(6,035,741 |
) |
|
$ |
|
|
|
$ |
|
|
Derivative liabilities(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate derivatives |
|
|
(746,137 |
) |
|
|
|
|
|
|
(4,056,138 |
) |
|
|
|
|
|
|
3,310,001 |
|
Mortgage delivery commitments |
|
|
(39 |
) |
|
|
|
|
|
|
(39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
$ |
(6,781,917 |
) |
|
$ |
|
|
|
$ |
(10,091,918 |
) |
|
$ |
|
|
|
$ |
3,310,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 Quoted prices in active markets for identical assets.
Level 2 Significant other observable inputs.
Level 3 Significant unobservable inputs.
|
|
|
(a) |
|
Derivative assets and liabilities were interest-rate contracts, except for de minimis amount of
mortgage delivery contracts. Based on an analysis of the nature of the risk, the presentation of
derivatives as a single class is appropriate. |
|
(b) |
|
Based on its analysis of the nature of risks of the FHLBNYs debt measured at fair value, the
FHLBNY has determined that presenting the debt as a single class is appropriate. |
62
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities would be measured at fair value on a nonrecurring basis, and for
the FHLBNY, such items may include mortgage loans in foreclosure, or mortgage loans and
held-to-maturity securities written down to fair value. At March 31, 2010, the Bank measured and
recorded the fair values on a nonrecurring basis of held-to-maturity investment securities deemed
to be OTTI; that is, they are not measured at fair value on an ongoing basis but are subject to
fair-value adjustments in certain circumstances (for example, when there is evidence of
other-than-temporary impairment OTTI) in accordance with the guidance on recognition and
presentation of other-than-temporary impairment. The nonrecurring measurement basis related to
certain private-label held-to-maturity mortgage-backed securities that were determined to be OTTI.
Certain held-to-maturity OTTI securities were recorded at their fair values of $23.1 million
and $42.9 million at March 31, 2010 and December 31, 2009. For more information also see Note 4
Held-to-maturity securities.
The following table summarizes the fair values of MBS for which a non-recurring change in fair
value was recorded at March 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans |
|
$ |
23,133 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
23,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
23,133 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
23,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Certain OTTI securities were written down to their fair values ($23.1 million) when it
was determined that their carrying values prior to write-down ($27.1 million) were in excess of
their fair values. For Held-to-maturity securities that were previously credit impaired but no
additional credit impairment were deemed necessary at March 31, 2010, the securities were recorded
at their carrying values and not re-adjusted to their fair values. |
The following table summarizes the fair values of MBS for which a non-recurring change in fair
value was recorded at December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans |
|
$ |
42,922 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
42,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
42,922 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
42,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: |
|
Cumulative credit losses of $20.8 million were recorded for the year ended December 31, 2009.
The FHLBNY also wrote down certain OTTI MBS to their fair values ($42.9 million) when it was
determined that the carrying values of the securities prior to write-down ($59.9 million) were in
excess of their fair values at December 31, 2009. |
The following table summarizes the fair values of MBS for which a non-recurring change in fair
value was recorded at March 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans |
|
$ |
21,808 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
21,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
21,808 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
21,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
Estimated fair values Summary Tables
The carrying value and estimated fair values of the FHLBNYs financial instruments as of March 31,
2010 and December 31, 2009 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
Financial Instruments |
|
Value |
|
|
Fair Value |
|
|
Value |
|
|
Fair Value |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
1,167,824 |
|
|
$ |
1,167,824 |
|
|
$ |
2,189,252 |
|
|
$ |
2,189,252 |
|
Interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
|
3,130,000 |
|
|
|
3,129,993 |
|
|
|
3,450,000 |
|
|
|
3,449,997 |
|
Available-for-sale securities |
|
|
2,654,814 |
|
|
|
2,654,814 |
|
|
|
2,253,153 |
|
|
|
2,253,153 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
9,776,282 |
|
|
|
9,934,261 |
|
|
|
10,519,282 |
|
|
|
10,669,252 |
|
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
88,858,753 |
|
|
|
89,013,787 |
|
|
|
94,348,751 |
|
|
|
94,624,708 |
|
Mortgage loans held-for-portfolio, net |
|
|
1,287,770 |
|
|
|
1,343,457 |
|
|
|
1,317,547 |
|
|
|
1,366,538 |
|
Accrued interest receivable |
|
|
320,730 |
|
|
|
320,730 |
|
|
|
340,510 |
|
|
|
340,510 |
|
Derivative assets |
|
|
9,246 |
|
|
|
9,246 |
|
|
|
8,280 |
|
|
|
8,280 |
|
Other financial assets |
|
|
6,445 |
|
|
|
6,445 |
|
|
|
3,412 |
|
|
|
3,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
7,976,922 |
|
|
|
7,976,923 |
|
|
|
2,630,511 |
|
|
|
2,630,513 |
|
Consolidated obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
|
72,408,203 |
|
|
|
72,656,044 |
|
|
|
74,007,978 |
|
|
|
74,279,737 |
|
Discount notes |
|
|
19,815,956 |
|
|
|
19,817,145 |
|
|
|
30,827,639 |
|
|
|
30,831,201 |
|
Mandatorily redeemable capital stock |
|
|
105,192 |
|
|
|
105,192 |
|
|
|
126,294 |
|
|
|
126,294 |
|
Accrued interest payable |
|
|
330,715 |
|
|
|
330,715 |
|
|
|
277,788 |
|
|
|
277,788 |
|
Derivative liabilities |
|
|
850,911 |
|
|
|
850,911 |
|
|
|
746,176 |
|
|
|
746,176 |
|
Other financial liabilities |
|
|
34,920 |
|
|
|
34,920 |
|
|
|
38,832 |
|
|
|
38,832 |
|
64
The following table summarizes the activity related to consolidated obligation bonds for which
the Bank elected the fair value option (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
March 31, 2009 |
|
Balance, beginning of the period |
|
$ |
(6,035,741 |
) |
|
$ |
(998,942 |
) |
|
$ |
(998,942 |
) |
New transaction elected for fair value option |
|
|
(4,420,000 |
) |
|
|
(10,100,000 |
) |
|
|
|
|
Maturities and terminations |
|
|
3,685,000 |
|
|
|
5,043,000 |
|
|
|
958,000 |
|
Change in fair value |
|
|
(8,419 |
) |
|
|
15,523 |
|
|
|
8,313 |
|
Change in accrued interest |
|
|
(1,453 |
) |
|
|
4,678 |
|
|
|
7,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the period |
|
$ |
(6,780,613 |
) |
|
$ |
(6,035,741 |
) |
|
$ |
(25,377 |
) |
|
|
|
|
|
|
|
|
|
|
The following table presents the change in fair value included in the Statements of Income for
the consolidated obligation bonds designated in accordance with the accounting standards on the
fair value option for financial assets and liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Interest expense on |
|
|
Net gain(loss) due |
|
|
Total change in fair value |
|
|
Interest expense on |
|
|
Net gain(loss) due |
|
|
Total change in fair value |
|
|
|
consolidated |
|
|
to changes in fair |
|
|
included in current period |
|
|
consolidated |
|
|
to changes in fair |
|
|
included in current period |
|
|
|
obligation bonds |
|
|
value |
|
|
earnings |
|
|
obligation bonds |
|
|
value |
|
|
earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
$ |
(8,522 |
) |
|
$ |
(8,419 |
) |
|
$ |
(16,941 |
) |
|
$ |
(1,074 |
) |
|
$ |
8,313 |
|
|
$ |
7,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table compares the aggregate fair value and aggregate remaining contractual fair
value and aggregate remaining contractual principal balance outstanding of consolidated obligation
bonds for which the fair value option has been elected (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Principal Balance |
|
|
Fair value |
|
|
Fair value over/(under) |
|
|
Principal Balance |
|
|
Fair value |
|
|
Fair value over/(under) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
obligations-bonds |
|
$ |
6,775,000 |
|
|
$ |
6,780,613 |
|
|
$ |
5,613 |
|
|
$ |
25,000 |
|
|
$ |
25,377 |
|
|
$ |
377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Estimated Fair Values of financial instruments
The fair value of financial instruments that is an asset is defined as the price FHLBNY would
receive to sell an asset in an orderly transaction between market participants at the measurement
date. A financial liabilitys fair value is defined as the amount that would be paid to transfer
the liability to a new obligor, not the amount that would be paid to settle the liability with the
creditor. Where available, fair values are based on observable market prices or parameters, or
derived from such prices or parameters. Where observable prices are not available, valuation
models and inputs are utilized. These valuation techniques involve some level of management
estimation and judgment, the degree of which is dependent on the price transparency for the
instruments or markets and the instruments complexity.
The fair values of financial assets and liabilities reported in the tables above are discussed
below. For additional information also see Significant Accounting Policies and Estimates in Note
1. The Fair Value Summary Tables above do not represent an estimate of the overall market value of
the FHLBNY as a going concern, which would take into account future business opportunities and the
net profitability of assets versus liabilities.
65
The estimated fair value amounts have been determined by the FHLBNY using procedures described
below. Because an active secondary market does not exist for a portion of the FHLBNYs 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.
Cash and due from banks
The estimated fair value approximates the recorded book balance.
Interest-bearing deposits and Federal funds sold
The FHLBNY determines estimated fair values of certain short-term investments by calculating the
present value of expected future cash flows from the investments. The discount rates used in these
calculations are the current coupons of investments with similar terms.
Investment securities
In an effort to achieve consistency among all of the FHLBanks on the pricing of investments in
mortgage-backed securities, in the third quarter of 2009 the FHLBanks formed the MBS Pricing
Governance Committee which was responsible for developing a fair value methodology for
mortgage-backed securities that all FHLBanks could adopt. Consistent with the guidance from the
Governance Committee, the FHLBNY changed the methodology used to estimate the fair value of
mortgage-backed securities as of September 30, 2009. Under the approved methodology, the Bank
requests prices for all mortgage-backed securities from four specified third-party vendors, and,
depending on the number of prices received for each security, selected a median or average price as
defined by the methodology. If four prices are received by the FHLBNY from the pricing vendors,
the average of the middle two prices is used; if three prices are received, the middle price is
used; if two prices are received, the average of the two prices is used; and if one price is
received, it is subject to additional validation.
The FHLBNY routinely performs a comparison analysis of pricing to understand pricing trends and to
establish a means of validating changes in pricing from period-to-period. The computed prices are
tested for reasonableness using tolerance thresholds. Prices within the established thresholds are
generally accepted unless strong evidence suggests that using the median pricing methodology as
described above would not be appropriate. Preliminary estimated fair values that are outside the
tolerance thresholds, or that management believes may not be appropriate based on all available
information (including those limited instances in which only one price is received), are subject to
further analysis of all relevant facts and circumstances that a market participant would consider.
The Bank also runs pricing through prepayment models to test the reasonability of pricing relative
to changes in the implied prepayment options of the bonds. Separately, the Bank performs
comprehensive credit analysis, including the analysis of underlying cash flows and collateral.
The FHLBNY believes such methodologies valuation comparison, review of changes in valuation
parameters, and credit analysis have been designed to identify the effects of the credit crisis,
which has tended to reduce the availability of certain observable market pricing or has caused the
widening of the bid/offer spread of certain securities.
Prior to the adoption of the new pricing methodology in the 2009 third quarter, the Bank used a
similar process that utilized three third-party vendors and similar variance thresholds. This
change in pricing methodology did not have a significant impact on the Banks estimated fair values
of its mortgage-backed securities.
66
As of March 31, 2010, four vendor prices were received for substantially all of the FHLBNYs MBS
holdings and substantially all of those prices fell within the specified thresholds. The relative
proximity of the prices received supported the FHLBNYs conclusion that the final computed prices
were reasonable estimates of fair value. While the FHLBNY adopted this common methodology, the
fair values of mortgage-backed investment securities are still estimated by FHLBNYs management
which remains responsible for the selection and application of its fair value methodology and the
reasonableness of assumptions and inputs used.
The four specialized pricing services use pricing models or quoted prices of securities with
similar characteristics. The valuation techniques used by pricing services employ cash flow
generators and option-adjusted spread models. Pricing spreads used as inputs in the models are
based on new issue and secondary market transactions if the securities are traded in sufficient
volumes in the secondary market.
These pricing vendors typically employ valuation techniques that incorporate benchmark yields,
recent trades, dealer estimates, valuation models, benchmarking of like securities, sector
groupings, and/or matrix pricing, as may be deemed appropriate for the security. Such inputs into
the pricing models employed by pricing services for most of the Banks investments are market based
and observable and are considered Level 2 of the fair value hierarchy.
The valuation of the FHLBNYs private-label securities, all designated as held-to-maturity, may
require pricing services to use significant inputs that are subjective and may be considered to be
Level 3 of the fair value hierarchy because of the current lack of significant market activity so
that the inputs may not be market based and observable. At March 31, 2010 and December 31, 2009,
all private-label mortgage-backed securities were classified as held-to-maturity and were recorded
in the balance sheet at their carrying values. Carrying value of a security is the same as its
amortized cost, unless the security is determined to be OTTI. In the period the security is
determined to be OTTI, its carrying value is generally adjusted down to its fair value.
In accordance with the amended guidance under the accounting standards for investments in debt and
equity securities, certain held-to-maturity private-label mortgage-backed securities were written
down to their fair value at March 31, 2010 and December 31, 2009 as a result of a recognition of
OTTI. The OTTI impaired securities are classified in the table of items measured at fair value on
a nonrecurring basis as Level 3 financial instruments under the valuation hierarchy. This
determination was made based on managements view that the private-label instruments may not have
an active market because of the specific vintage of the securities as well as inherent conditions
surrounding the trading of private-label mortgage-backed securities. Fair values of these
securities were determined by management using third party specialized vendor pricing services that
made appropriate adjustments to observed prices of comparable securities that were being transacted
in an orderly market.
The fair value of housing finance agency bonds is estimated by management using information
primarily from specialized dealers.
Advances
The fair values of advances are computed using standard option valuation models. The most
significant inputs to the valuation model are (1) consolidated obligation debt curve (the CO
Curve), published by the Office of Finance and available to the public, and (2) LIBOR swap curves
and volatilities. The Bank considers both these inputs to be market based and observable as they
can be directly corroborated by market participants.
67
Mortgage loans
The fair value of MPF loans and loans in the inactive CMA programs are priced using a valuation
technique referred to as the market approach. Loans are aggregated into synthetic pass-through
securities based on product type, loan origination year, gross coupon and loan term. Thereafter,
these are compared against closing TBA prices extracted from independent sources. All
significant inputs to the loan valuations are market based and observable.
Accrued interest receivable and payable
The estimated fair values approximate the recorded book value because of the relatively short
period of time between their origination and expected realization.
Derivative assets and liabilities
The FHLBNYs derivatives are traded in the over-the-counter market. Discounted cash flow analysis
is the primary methodology employed by the FHLBNYs valuation models to measure and record the fair
values of its interest rate swaps. The valuation technique is considered as an Income approach.
Interest rate swaps and interest rate caps and floors are valued using industry-standard option
adjusted valuation models that utilize market inputs, which can be corroborated, from widely
accepted third-party sources. The Banks valuation model utilizes a modified Black-Karasinski
model that assumes that rates are distributed log normally. The log-normal model precludes
interest rates turning negative in the model computations. Significant market based and observable
inputs into the valuation model include volatilities and interest rates. These derivative
positions are classified within Level 2 of the valuation hierarchy, and include interest rate
swaps, swaptions, interest rate caps and floors, and mortgage delivery commitments.
The FHLBNY employs control processes to validate the fair value of its financial instruments,
including those derived from valuation models. These control processes are designed to ensure that
the values used for financial reporting are based on observable inputs wherever possible. In the
event that observable inputs are not available, the control processes are designed to ensure that
the valuation approach utilized is appropriate and consistently applied and that the assumptions
are reasonable. These control processes include reviews of the pricing models theoretical
soundness and appropriateness by specialists with relevant expertise who are independent from the
trading desks or personnel who were involved in the design and selection of model inputs.
Additionally, groups that are independent from the trading desk, or personnel involved in the
design and selection of model inputs participate in the review and validation of the fair values
generated from the valuation model. The FHLBNY maintains an ongoing review of its valuation models
and has a formal model validation policy in addition to procedures for the approval and control of
data inputs.
The valuation of derivative assets and liabilities reflect the value of the instrument including
the values associated with counterparty risk and would also take into account the FHLBNYs own
credit standing and non-performance risk. The Bank has collateral agreements with all its
derivative counterparties and enforces collateral exchanges at least weekly. The computed fair
values of the FHLBNYs derivatives took into consideration the effects of legally enforceable
master netting agreements that allow the FHLBNY 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 Banks and
counterpartys credit ratings. As a result of these practices and agreements and the FHLBNYs
assessment of any change in its own credit spread, the Bank has concluded that the impact of the
credit differential between the Bank and its derivative counterparties was sufficiently mitigated
to an immaterial level that no credit adjustments were deemed necessary to the recorded fair value
of derivative assets and derivative liabilities in the Statements of Condition at March 31, 2010
and December 31, 2009.
68
Deposits
The FHLBNY determines estimated fair values of deposits by calculating the present value of
expected future cash flows from the deposits. The discount rates used in these calculations are
the current cost of deposits with similar terms.
Consolidated obligations
The FHLBNY estimates fair values based on the cost of raising comparable term debt and prices its
bonds and discount notes off of the current consolidated obligations market curve, which has a
daily active market. The fair values of consolidated obligation debt (bonds and discount notes)
are computed using a standard option valuation model using market based and observable inputs: (1)
consolidated obligation debt curve (the CO Curve) that is available to the public and published
by the Office of Finance, and (2) LIBOR curve and volatilities. Model adjustments that are not
market-observable are not considered significant.
Mandatorily redeemable capital stock
The FHLBNY considers the fair value of capital subject to mandatory redemption, as the redemption
value of the stock, which is generally par plus accrued estimated dividend. The FHLBNY has a
cooperative structure. Stock can only be acquired by members at par value and redeemed at par
value. Stock is not traded publicly and no market mechanism exists for the exchange of stock
outside the cooperative structure.
Note 18. Commitments and contingencies
The FHLBanks have joint and several liability for all the consolidated obligations issued on
their behalf. Accordingly, should one or more of the FHLBanks be unable to repay their
participation in the consolidated obligations, each of the other FHLBanks could be called upon to
repay all or part of such obligations, as determined or approved by the Finance Agency. Neither
the FHLBNY nor any other FHLBank has ever had to assume or pay the consolidated obligations of
another FHLBank. The FHLBNY does not believe that it will be called upon to pay the consolidated
obligations of another FHLBank in the future. Under the provisions of accounting standard for
guarantees, the Bank would have been required to recognize the fair value of the FHLBNYs joint and
several liability for all the consolidated obligations, as discussed above. However, the FHLBNY
considers the joint and several liabilities as similar to a related party guarantee, which meets
the scope exception under the accounting standard for guarantees. Accordingly, the FHLBNY has not
recognized the fair value of a liability for its joint and several obligations related to other
FHLBanks consolidated obligations at March 31, 2010 and December 31, 2009. The par amount of the
twelve FHLBanks outstanding consolidated obligations, including
the FHLBNYs, was approximately
$0.9 trillion at March 31, 2010 and December 31, 2009.
Standby letters of credit are executed for a fee on behalf of members to facilitate
residential housing, community lending, and members asset/liability management or to provide
liquidity. A standby letter of credit is a financing arrangement between the FHLBNY and its
member. Members assume an unconditional obligation to reimburse the FHLBNY for value given by the
FHLBNY to the beneficiary under the terms of the standby letter of credit. The FHLBNY may, in its
discretion, permit the member to finance repayment of their obligation by receiving a
collateralized advance. Outstanding standby letters of credit were approximately $804.1 million
and $697.9 million as of March 31, 2010 and December 31, 2009, respectively and had original terms
of up to 15 years, with a final expiration in 2019. Standby letters of credit are fully
collateralized. Unearned fees on standby letters of credit were recorded in Other liabilities and
were not significant as of March 31, 2010 and December 31, 2009. Based on managements credit
analyses and collateral requirements, the FHLBNY does not deem it necessary to have any provision
for credit losses on these commitments and letters of credit.
69
During the third quarter of 2008, each FHLBank, including the FHLBNY, entered into a Lending
Agreement with the U.S. Treasury in connection with the U.S. Treasurys establishment of the
Government Sponsored Enterprise Credit Facility (GSECF), as authorized by the Housing Act. The
GSECF was designed to serve as a contingent source of liquidity for the housing
government-sponsored enterprises, including each of the 12 FHLBanks. Any borrowings by one or more
of the FHLBanks under the GSECF would be considered consolidated obligations with the same joint
and several liability as all other consolidated obligations. The terms of any borrowings would be
agreed to at the time of issuance. Loans under the Lending Agreement are to be secured by
collateral acceptable to the U.S. Treasury, which consisted of FHLBank advances to members that had
been collateralized in accordance with regulatory standards and mortgage-backed securities issued
by Fannie Mae or Freddie Mac. Each FHLBank was required to submit to the Federal Reserve Bank of
New York, acting as fiscal agent of the U.S. Treasury, a list of eligible collateral updated on a
weekly basis. As of December 31, 2009, the FHLBNY had provided the U.S. Treasury listings of
advance collateral amounting to $10.3 billion, which provided for maximum borrowings of $9.0
billion at December 31, 2009. The amount of collateral can be increased or decreased (subject to
the approval of the U.S. Treasury) at any time through the delivery of an updated listing of
collateral. As of December 31, 2009, no FHLBank had drawn on this available source of liquidity.
This temporary authorization expired on December 31, 2009.
Under the MPF program, the Bank was unconditionally obligated to purchase $3.2 million and $4.2
million of mortgage loans at March 31, 2010 and December 31, 2009. Commitments are generally for
periods not to exceed 45 business days. Such commitments entered into after June 30, 2003 were
recorded as derivatives at their fair value under the accounting standards for derivatives and
hedging. In addition, the FHLBNY had entered into conditional agreements under Master
Commitments with its members in the MPF program to purchase mortgage loans in aggregate of $542.6
million and $484.6 million as of March 31, 2010 and December 31, 2009.
The FHLBNY executes derivatives with major banks and broker-dealers and enters into bilateral
collateral agreements. When counterparties are exposed, the Bank would typically pledge cash
collateral to mitigate the counterpartys credit exposure. To mitigate the counterparties
exposures, the FHLBNY deposited $2.2 billion in cash with derivative counterparties as pledged
collateral at March 31, 2010 and December 31, 2009, and these amounts were reported as a deduction
to Derivative liabilities.
The FHLBNY was also exposed to credit risk associated with outstanding derivative transactions
measured by the replacement cost of derivatives in net fair value gain positions of $9.2 million
and $8.3 million at March 31, 2010 and December 31, 2009. The Banks credit exposures at those
dates were below the threshold agreements with derivative counterparties and no collateral was
required to be pledged by counterparties to reduce the exposures.
The FHLBNY charged to operating expenses net rental costs of approximately $0.8 million for the
periods ended March 31, 2010 and 2009. Lease agreements for FHLBNY 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 FHLBNYs results of operations or
financial condition.
70
The following table summarizes contractual obligations and contingencies as of March 31, 2010 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
Payments due or expiration terms by period |
|
|
|
Less than |
|
|
One year |
|
|
Greater than three |
|
|
Greater than |
|
|
|
|
|
|
one year |
|
|
to three years |
|
|
years to five years |
|
|
five years |
|
|
Total |
|
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds at par 1 |
|
$ |
36,813,050 |
|
|
$ |
25,161,775 |
|
|
$ |
6,850,550 |
|
|
$ |
2,878,050 |
|
|
$ |
71,703,425 |
|
Mandatorily redeemable capital stock 1 |
|
|
81,360 |
|
|
|
16,762 |
|
|
|
2,114 |
|
|
|
4,956 |
|
|
|
105,192 |
|
Premises (lease obligations) 2 |
|
|
3,060 |
|
|
|
6,202 |
|
|
|
5,191 |
|
|
|
5,843 |
|
|
|
20,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
|
36,897,470 |
|
|
|
25,184,739 |
|
|
|
6,857,855 |
|
|
|
2,888,849 |
|
|
|
71,828,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit |
|
|
772,638 |
|
|
|
10,589 |
|
|
|
17,016 |
|
|
|
3,861 |
|
|
|
804,104 |
|
Consolidated obligations-bonds/
discount notes traded
not settled |
|
|
2,517,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,517,000 |
|
Firm commitment-advances |
|
|
160,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,228 |
|
MBS purchase |
|
|
174,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,048 |
|
Open delivery commitments (MPF) |
|
|
3,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other commitments |
|
|
3,627,163 |
|
|
|
10,589 |
|
|
|
17,016 |
|
|
|
3,861 |
|
|
|
3,658,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations and commitments |
|
$ |
40,524,633 |
|
|
$ |
25,195,328 |
|
|
$ |
6,874,871 |
|
|
$ |
2,892,710 |
|
|
$ |
75,487,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Callable bonds contain exercise date or a series of exercise dates that may
result in a shorter redemption period. Mandatorily redeemable capital stock is categorized by
the dates at which the corresponding advances outstanding mature. Excess capital stock is
redeemed at that time, and hence, these dates better represent the related commitments than
the put dates associated with capital stock, under which stock may not be redeemed until the
later of five years from the date the member becomes a nonmember or the related advance matures. |
|
2 |
|
Immaterial amount of commitments for equipment leases are not included. |
The FHLBNY does not anticipate any credit losses from its off-balance sheet commitments and
accordingly no provision for losses is required.
71
Note 19. Related party transactions
The FHLBNY is a cooperative and the members own almost all of the stock of the Bank. Stock
that is not owned by members is held by former members. The majority of the members of the Board
of Directors of the FHLBNY are elected by and from the membership. The FHLBNY conducts its advances
business almost exclusively with members. The Bank considers its transactions with its members and
non-member stockholders as related party transactions in addition to transactions with other
FHLBanks, the Office of Finance, and the Finance Agency. All transactions with all members,
including those whose officers may serve as directors of the FHLBNY, are at terms that are no more
favorable than comparable transactions with other members. The FHLBNY may from time to time borrow
or sell overnight and term Federal funds at market rates to members.
Debt Transfers
During the first quarter of 2010 or in the same period in 2009, there was no transfer of
consolidated obligation bonds to other FHLBanks. Generally, when debt is transferred in exchange
for a cash price that represents the fair market values of the debt. Additionally, no debt was
transferred to the FHLBNY from another FHLBank in the same periods. At trade date, the
transferring bank notifies the Office of Finance of a change in primary obligor for the transferred
debt.
Advances sold or transferred
No advances were transferred/sold to the FHLBNY or from the FHLBNY to another FHLBank in the first
quarter of 2010 or in 2009.
MPF Program
In the MPF program, the FHLBNY may participate out certain portions of its purchases of mortgage
loans from its members. Transactions are at market rates. The FHLBank of Chicago, the MPF
providers cumulative share of interest in the FHLBNYs MPF loans at March 31, 2010 and December
31, 2009 was $96.4 million and $101.2 million from inception of the program through mid-2004.
Since 2004, the FHLBNY has not shared its purchases with the FHLBank of Chicago. Fees paid to the
FHLBank of Chicago were $0.1 million in the first quarter of 2010 and 2009.
Mortgage-backed Securities
No mortgage-backed securities were acquired from other FHLBanks during the periods in this report.
Intermediation
Notional amounts of $330.0 million and $320.0 million were outstanding at March 31, 2010 and
December 31, 2009 in which the FHLBNY acted as an intermediary to sell derivatives to members. The
amounts include offsetting identical transactions with unrelated derivatives counterparties. Net
fair value exposures of these transactions at March 31, 2010 and December 31, 2009 were not
material. The intermediated derivative transactions were fully collateralized.
Loans to and borrowings from other Federal Home Loan Banks
In the current year first quarter, the FHLBNY extended one overnight loan of $27.0 million to
another FHLBank. There were no overnight loans made to other FHLBanks during the first quarter of
2009. Generally, loans made to other FHLBanks are uncollateralized. Interest income from such
loans were not significant in any period in this report.
72
In the current year first quarter or at December 31, 2009, the FHLBNY had not borrowed funds from
another FHLBank. The FHLBNY borrows from other FHLBanks, generally for a period of one day. Such
borrowings are uncollateralized.
The following tables summarize outstanding balances with related parties at March 31, 2010 and
December 31, 2009, and transactions for each of the periods ended March 31, 2010 and 2009 (in
thousands):
Related Party: Outstanding Assets, Liabilities and Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Related |
|
|
Unrelated |
|
|
Related |
|
|
Unrelated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
|
|
|
$ |
1,167,824 |
|
|
$ |
|
|
|
$ |
2,189,252 |
|
Federal funds sold |
|
|
|
|
|
|
3,130,000 |
|
|
|
|
|
|
|
3,450,000 |
|
Available-for-sale securities |
|
|
|
|
|
|
2,654,814 |
|
|
|
|
|
|
|
2,253,153 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
|
|
|
|
9,776,282 |
|
|
|
|
|
|
|
10,519,282 |
|
Advances |
|
|
88,858,753 |
|
|
|
|
|
|
|
94,348,751 |
|
|
|
|
|
Mortgage loans 1 |
|
|
|
|
|
|
1,287,770 |
|
|
|
|
|
|
|
1,317,547 |
|
Accrued interest receivable |
|
|
280,241 |
|
|
|
40,489 |
|
|
|
299,684 |
|
|
|
40,826 |
|
Premises, software, and equipment |
|
|
|
|
|
|
14,046 |
|
|
|
|
|
|
|
14,792 |
|
Derivative assets 2 |
|
|
|
|
|
|
9,246 |
|
|
|
|
|
|
|
8,280 |
|
Other assets 3 |
|
|
157 |
|
|
|
19,604 |
|
|
|
179 |
|
|
|
19,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
89,139,151 |
|
|
$ |
18,100,075 |
|
|
$ |
94,648,614 |
|
|
$ |
19,812,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
7,976,922 |
|
|
$ |
|
|
|
$ |
2,630,511 |
|
|
$ |
|
|
Consolidated obligations |
|
|
|
|
|
|
92,224,159 |
|
|
|
|
|
|
|
104,835,617 |
|
Mandatorily redeemable capital stock |
|
|
105,192 |
|
|
|
|
|
|
|
126,294 |
|
|
|
|
|
Accrued interest payable |
|
|
4 |
|
|
|
330,711 |
|
|
|
16 |
|
|
|
277,772 |
|
Affordable Housing Program 4 |
|
|
145,660 |
|
|
|
|
|
|
|
144,489 |
|
|
|
|
|
Payable to REFCORP |
|
|
|
|
|
|
13,873 |
|
|
|
|
|
|
|
24,234 |
|
Derivative liabilities 2 |
|
|
|
|
|
|
850,911 |
|
|
|
|
|
|
|
746,176 |
|
Other liabilities 5 |
|
|
31,200 |
|
|
|
184,968 |
|
|
|
29,330 |
|
|
|
43,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
8,258,978 |
|
|
$ |
93,604,622 |
|
|
$ |
2,930,640 |
|
|
$ |
105,926,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
5,375,626 |
|
|
|
|
|
|
|
5,603,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and capital |
|
$ |
13,634,604 |
|
|
$ |
93,604,622 |
|
|
$ |
8,533,931 |
|
|
$ |
105,926,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Includes insignificant amounts of mortgage loans purchased from members of another FHLBank. |
|
2 |
|
Derivative assets and liabilities include insignificant fair values due to intermediation activities on behalf of members. |
|
3 |
|
Includes insignificant amounts of miscellaneous assets that are considered related party. |
|
4 |
|
Represents funds not yet disbursed to eligible programs. |
|
5 |
|
Related column includes member pass-through reserves at the Federal Reserve Bank. |
73
Related Party: Income and Expense transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
|
|
Related |
|
|
Unrelated |
|
|
Related |
|
|
Unrelated |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
149,640 |
|
|
$ |
|
|
|
$ |
502,222 |
|
|
$ |
|
|
Interest-bearing deposits 1 |
|
|
|
|
|
|
830 |
|
|
|
|
|
|
|
8,918 |
|
Federal funds sold |
|
|
|
|
|
|
1,543 |
|
|
|
|
|
|
|
68 |
|
Available-for-sale securities |
|
|
|
|
|
|
5,764 |
|
|
|
|
|
|
|
8,519 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
|
|
|
|
98,634 |
|
|
|
|
|
|
|
126,820 |
|
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
508 |
|
Mortgage loans 2 |
|
|
|
|
|
|
16,741 |
|
|
|
|
|
|
|
19,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
149,640 |
|
|
$ |
123,512 |
|
|
$ |
502,222 |
|
|
$ |
163,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations |
|
$ |
|
|
|
$ |
164,570 |
|
|
$ |
|
|
|
$ |
433,085 |
|
Deposits |
|
|
892 |
|
|
|
|
|
|
|
777 |
|
|
|
|
|
Mandatorily redeemable capital stock |
|
|
1,495 |
|
|
|
|
|
|
|
878 |
|
|
|
|
|
Cash collateral held and other
borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
2,387 |
|
|
$ |
164,570 |
|
|
$ |
1,655 |
|
|
$ |
433,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fees |
|
$ |
1,045 |
|
|
$ |
|
|
|
$ |
985 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Includes de minimis amounts of interest income from MPF service provider. |
|
2 |
|
Includes de minimis amounts of mortgage interest income from loans purchased from
members of another FHLBank. |
Note 20. Segment information and concentration
The FHLBNY manages its operations as a single business segment. Management and the FHLBNYs
Board of Directors review enterprise-wide financial information in order to make operating
decisions and assess performance. Advances to large members constitute a significant percentage of
FHLBNYs advance portfolio and its source of revenues.
The FHLBNY has a unique cooperative structure and is owned by member institutions located within a
defined geographic district. The Banks market is the same as its membership district which
includes New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. Institutions that are
members of the FHLBNY must have their principal places of business within this market, but may also
operate elsewhere. The FHLBNYs primary business is making low-cost, collateralized loans, known as advances, to its
members. Members use advances as a source of funding to supplement their deposit-gathering
activities. As a cooperative, the FHLBNY prices advances at minimal net spreads above the cost of
its funding to deliver maximum value to members. Advances to large members constitute a
significant percentage of FHLBNYs advance portfolio and its source of revenues.
The FHLBNYs total assets and capital could significantly decrease if one or more large members
were to withdraw from membership or decrease business with the Bank. Members might withdraw or
reduce their business as a result of consolidating with an institution that was a member of another
FHLBank, or for other reasons. The FHLBNY has considered the impact of losing one or more large
members. In general, a withdrawing member would be required to repay all indebtedness prior to the
redemption of its capital stock. Under current conditions, the FHLBNY does not expect the loss of
a large member to impair its operations, since the FHLBank Act of 1999 does not allow the FHLBNY to
redeem the capital of an existing member if the redemption would cause the FHLBNY to fall below its
capital requirements. Consequently, the loss of a large member should not result in an inadequate
capital position for the FHLBNY. However, such an event could reduce the amount of capital that
the FHLBNY has available for continued growth. This could have various ramifications for the
FHLBNY, including a possible reduction in net income and dividends, and a lower return on capital
stock for remaining members.
74
The top ten advance holders at March 31, 2010, December 31, 2009 and March 31, 2009, and associated
interest income for the periods then ended are summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Total Par Value |
|
|
|
|
|
|
City |
|
State |
|
Advances |
|
|
of Advances |
|
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hudson City Savings Bank, FSB* |
|
Paramus |
|
NJ |
|
$ |
17,275,000 |
|
|
|
20.3 |
% |
|
$ |
174,759 |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
|
13,555,000 |
|
|
|
15.9 |
|
|
|
72,407 |
|
New York Community Bank* |
|
Westbury |
|
NY |
|
|
7,343,172 |
|
|
|
8.6 |
|
|
|
75,913 |
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
|
4,755,523 |
|
|
|
5.6 |
|
|
|
11,754 |
|
The Prudential Insurance Company of America |
|
Newark |
|
NJ |
|
|
3,500,000 |
|
|
|
4.1 |
|
|
|
21,577 |
|
Astoria Federal Savings and Loan Assn. |
|
Lake Success |
|
NY |
|
|
2,984,000 |
|
|
|
3.5 |
|
|
|
28,487 |
|
Valley National Bank |
|
Wayne |
|
NJ |
|
|
2,271,500 |
|
|
|
2.7 |
|
|
|
24,716 |
|
Doral Bank |
|
San Juan |
|
PR |
|
|
2,119,420 |
|
|
|
2.5 |
|
|
|
19,258 |
|
New York Life Insurance Company |
|
New York |
|
NY |
|
|
2,000,000 |
|
|
|
2.4 |
|
|
|
3,075 |
|
MetLife Bank, N.A. |
|
Bridgewater |
|
NJ |
|
|
1,894,500 |
|
|
|
2.2 |
|
|
|
11,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
57,698,115 |
|
|
|
67.8 |
% |
|
$ |
443,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Officer of member bank also served on the Board of Directors of the FHLBNY. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Total Par Value |
|
|
|
|
|
|
City |
|
State |
|
Advances |
|
|
of Advances |
|
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hudson City Savings Bank, FSB* |
|
Paramus |
|
NJ |
|
$ |
17,275,000 |
|
|
|
19.0 |
% |
|
$ |
710,900 |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
|
13,680,000 |
|
|
|
15.1 |
|
|
|
356,120 |
|
New York Community Bank* |
|
Westbury |
|
NY |
|
|
7,343,174 |
|
|
|
8.1 |
|
|
|
310,991 |
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
|
5,005,641 |
|
|
|
5.5 |
|
|
|
97,628 |
|
The Prudential Insurance Company of America |
|
Newark |
|
NJ |
|
|
3,500,000 |
|
|
|
3.9 |
|
|
|
93,601 |
|
Astoria Federal Savings and Loan Assn. |
|
Lake Success |
|
NY |
|
|
3,000,000 |
|
|
|
3.3 |
|
|
|
120,870 |
|
Emigrant Bank |
|
New York |
|
NY |
|
|
2,475,000 |
|
|
|
2.7 |
|
|
|
64,131 |
|
Doral Bank |
|
San Juan |
|
PR |
|
|
2,473,420 |
|
|
|
2.7 |
|
|
|
86,389 |
|
MetLife Bank, N.A. |
|
Bridgewater |
|
NJ |
|
|
2,430,500 |
|
|
|
2.7 |
|
|
|
46,142 |
|
Valley National Bank |
|
Wayne |
|
NJ |
|
|
2,322,500 |
|
|
|
2.6 |
|
|
|
103,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
59,505,235 |
|
|
|
65.6 |
% |
|
$ |
1,990,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
At December 31, 2009, officer of member bank also served on the Board of Directors of the FHLBNY. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Total Par Value |
|
|
|
|
|
|
City |
|
State |
|
Advances |
|
|
of Advances |
|
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hudson City Savings Bank, FSB* |
|
Paramus |
|
NJ |
|
$ |
17,575,000 |
|
|
|
17.7 |
% |
|
$ |
176,070 |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
|
15,105,000 |
|
|
|
15.2 |
|
|
|
103,306 |
|
New York Community Bank* |
|
Westbury |
|
NY |
|
|
8,143,214 |
|
|
|
8.2 |
|
|
|
77,380 |
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
|
7,479,282 |
|
|
|
7.5 |
|
|
|
36,499 |
|
The Prudential Insurance Company of America |
|
Newark |
|
NJ |
|
|
4,500,000 |
|
|
|
4.5 |
|
|
|
24,618 |
|
MetLife Bank, N.A. |
|
Bridgewater |
|
NJ |
|
|
3,812,000 |
|
|
|
3.8 |
|
|
|
10,811 |
|
Astoria Federal Savings and Loan Assn. |
|
Lake Success |
|
NY |
|
|
3,110,000 |
|
|
|
3.1 |
|
|
|
31,667 |
|
Emigrant Bank |
|
New York |
|
NY |
|
|
2,475,000 |
|
|
|
2.5 |
|
|
|
15,925 |
|
Valley National Bank |
|
Wayne |
|
NJ |
|
|
2,445,500 |
|
|
|
2.5 |
|
|
|
27,178 |
|
Doral Bank |
|
San Juan |
|
PR |
|
|
2,334,500 |
|
|
|
2.3 |
|
|
|
22,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
66,979,496 |
|
|
|
67.3 |
% |
|
$ |
525,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
At March 31, 2009, officer of member bank also served on the Board of Directors of the FHLBNY. |
75
The following table summarizes capital stock held by members who were beneficial owners of
more than 5 percent of the FHLBNYs outstanding capital stock as of March 31, 2010 and December 31,
2009 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Percent |
|
|
|
March 31, 2010 |
|
of shares |
|
|
of total |
|
Name of beneficial owner |
|
Principal Executive Office Address |
|
owned |
|
|
capital stock |
|
|
|
|
|
|
|
|
|
|
|
|
Hudson City Savings Bank * |
|
West 80 Century Road, Paramus, NJ 07652 |
|
|
8,748 |
|
|
|
17.73 |
% |
Metropolitan Life Insurance Company |
|
200 Park Avenue, New York, NY 10166 |
|
|
7,363 |
|
|
|
14.93 |
|
New York Community Bank * |
|
615 Merrick Avenue, Westbury, NY 11590 |
|
|
3,777 |
|
|
|
7.66 |
|
Manufacturers and Traders Trust Company |
|
One M&T Plaza, Buffalo, NY 14203 |
|
|
2,837 |
|
|
|
5.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,725 |
|
|
|
46.07 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Percent |
|
|
|
December 31, 2009 |
|
of shares |
|
|
of total |
|
Name of beneficial owner |
|
Principal Executive Office Address |
|
owned |
|
|
capital stock |
|
|
|
|
|
|
|
|
|
|
|
|
Hudson City Savings Bank* |
|
West 80 Century Road, Paramus, NJ 07652 |
|
|
8,748 |
|
|
|
16.87 |
% |
Metropolitan Life Insurance Company |
|
200 Park Avenue, New York, NY 10166 |
|
|
7,419 |
|
|
|
14.31 |
|
New York Community Bank* |
|
615 Merrick Avenue, Westbury, NY 11590 |
|
|
3,777 |
|
|
|
7.28 |
|
Manufacturers and Traders Trust Company |
|
One M&T Plaza, Buffalo, NY 14203 |
|
|
2,952 |
|
|
|
5.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,896 |
|
|
|
44.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Officer of member bank also serves on the Board of Directors of the FHLBNY. |
Note 21. Subsequent events
Under the final guidance issued by the FASB in February 2010, subsequent events for the FHLBNY
are events or transactions that occur after the balance sheet date but before financial statements
are issued. There are two types of subsequent events:
a. The first type consists of events or transactions that provide additional evidence about
conditions that existed at the date of the balance sheet, including the estimates inherent in
the process of preparing financial statements (that is, recognized subsequent events).
b. The second type consists of events that provide evidence about conditions that did not
exist at the date of the balance sheet but arose after that date (that is, nonrecognized
subsequent events).
The FHLBNY has evaluated subsequent events through the date of this report and no significant
subsequent events were identified.
76
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Forward-Looking Statements
Statements contained in this report, including statements describing the objectives,
projections, estimates, or predictions of the Federal Home Loan Bank of New York (FHLBNY or
Bank), may be forward-looking statements. All statements other than statements of historical
fact are statements that could potentially be forward-looking statements. These statements may use
forward-looking terminology, such as anticipates, believes, could, estimates, may,
should, will, or other variations on these terms or their negatives. These statements may
involve matters pertaining to, but not limited to: projections regarding revenue, income, earnings,
capital expenditures, dividends, the capital structure and other financial items; statements of
plans or objectives for future operations; expectations of future economic performance; and
statements of assumptions underlying certain of the foregoing types of statements.
The Bank cautions that, by their nature, forward-looking statements involve risks or uncertainties,
and actual results could differ materially from those expressed or implied in these forward-looking
statements or could affect the extent to which a particular objective, projection, estimate, or
prediction is realized. As a result, readers are cautioned not to place undue reliance on such
statements, which are current only as of the date thereof. The Bank will not undertake to update
any forward-looking statement herein or that may be made from time to time on behalf of the Bank.
These forward-looking statements may not be realized due to a variety of risks and uncertainties
including, but not limited, to risks and uncertainties relating to economic, competitive,
governmental, technological and marketing factors, as well as other factors identified in the
Banks filings with the Securities and Exchange Commission.
77
Organization of Managements Discussion and Analysis (MD&A).
The FHLBNYs MD&A is designed to provide information that will assist the readers in better
understanding the FHLBNYs financial statements, the changes in key items in the Banks financial
statements from year to year, the primary factors driving those changes as well as how accounting
principles affect the FHLBNYs financial statements. The MD&A is organized as follows:
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Page |
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80 |
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81 |
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84 |
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86 |
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88 |
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88 |
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90 |
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92 |
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93 |
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99 |
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102 |
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106 |
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107 |
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110 |
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116 |
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123 |
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124 |
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125 |
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134 |
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136 |
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140 |
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164 |
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167 |
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171 |
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172 |
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78
MD&A TABLE REFERENCE
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Table |
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Description |
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Page |
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Selected Financial Data |
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86 |
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1 |
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Interest Income Principal Sources |
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90 |
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2 |
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Impact of Interest Rate Swaps on Interest Income Earned from Advances |
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90 |
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3 |
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Interest Expenses Principal Categories |
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92 |
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4 |
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Impact of Interest Rate Swaps on Consolidated Obligation Interest Expense |
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93 |
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5 |
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Components of Net Interest Income |
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94 |
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6 |
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Net Interest Adjustments from Hedge Qualifying Interest-Rate Swaps |
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96 |
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7 |
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GAAP Versus Economic Basis Contrasting Net Interest Income, Net Income Spread and Return on Earning Assets |
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96 |
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8 |
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Spread and Yield Analysis |
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97 |
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9 |
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Rate and Volume Analysis |
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98 |
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10 |
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Other Income |
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100 |
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11 |
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Earnings Impact of Derivatives By Hedge Type |
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102 |
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12 |
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Gains/(Losses) Reclassified from AOCI to Current Period Income from Cash Flow Hedges |
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105 |
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13 |
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Other Expenses |
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106 |
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14 |
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Operating Expenses |
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106 |
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15 |
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Statements of Condition |
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107 |
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16 |
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Advances by Product Type |
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111 |
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17 |
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Investments by Categories |
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117 |
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18 |
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Mortgage-Backed Securities By Issuer |
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117 |
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19 |
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Available-for-Sale Securities Composition |
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118 |
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20 |
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External Rating of the Held-to-Maturity Portfolio |
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119 |
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21 |
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External Rating of the Available-for-Sale Portfolio |
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119 |
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22 |
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Mortgage-Backed Securities Weighted Average Rates by Contractual Maturities |
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120 |
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23 |
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Mortgage Loans by Loan Type |
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123 |
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24 |
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Consolidated Obligation Bonds by Type |
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128 |
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25 |
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Discount Notes Outstanding |
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133 |
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26 |
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Roll-Forward Mandatorily Redeemable Capital Stock
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135 |
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27 |
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Derivative Hedging Strategies |
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137 |
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28 |
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Derivatives Financial Instruments by Hedge Designation |
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138 |
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29 |
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Derivative Financial Instruments by Product |
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139 |
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30 |
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Advances and Mortgage Loan Portfolios |
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140 |
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31 |
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Collateral Supporting Advances to Members |
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143 |
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32 |
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Collateral Supporting Member Obligations Other Than Advances |
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143 |
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33 |
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Location of Collateral Held |
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144 |
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34 |
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Concentration analysis Top Ten Advance Holders |
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145 |
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35 |
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Period-Over-Period Change in Investments |
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146 |
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36 |
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NRSRO Held-to-Maturity Securities |
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147 |
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37 |
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NRSRO Available-for-Sale Securities |
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149 |
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38 |
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Carrying Value Basis of Held-to-Maturity Mortgage-Backed Securities by Issuer |
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151 |
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39 |
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Non-Agency Private Label Mortgage Securities |
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152 |
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40 |
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OTTI 2010 First Quarter |
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153 |
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41 |
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Monoline Insurance of PLMBS |
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153 |
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42 |
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PLMBS by Year of Securitization and External Rating |
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154 |
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43 |
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Weighted-Average Market Price of MBS |
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156 |
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44 |
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PLMBS Security Types Delinquencies |
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157 |
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45 |
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Roll-Forward First Loss Account |
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158 |
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46 |
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Mortgage Loans Past Due |
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159 |
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47 |
|
Mortgage Loans Interest Short-Fall |
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159 |
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48 |
|
Mortgage Loans Allowance for Credit Losses |
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159 |
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49 |
|
Top Five Participating Financial Institutions Concentration |
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160 |
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50 |
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Credit Exposure by Counterparty Credit Rating |
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162 |
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51 |
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Contractual Obligations and Other Commitments |
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166 |
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52 |
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Deposit Liquidity |
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168 |
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53 |
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Operational Liquidity |
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168 |
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54 |
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Contingency Liquidity |
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169 |
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55 |
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Unpledged Asset |
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170 |
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56 |
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FHFA MBS Limits |
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170 |
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57 |
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FHLBNY Ratings |
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171 |
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79
Executive Overview
This overview of managements discussion and analysis highlights selected information and may
not contain all of the information that is important to readers of this Form 10-Q. For a more
complete understanding of events, trends and uncertainties, as well as the liquidity, capital,
credit and market risks, and critical accounting estimates, affecting the Federal Home Loan Bank of
New York (FHLBNY or Bank), this Form 10-Q should be read in its entirety and in conjunction
with the Banks most recent Form 10-K filed on March 25, 2010.
80
Cooperative business model. As a cooperative, the FHLBNY seeks to maintain a balance
between its public policy mission and its ability to provide adequate returns on the capital
supplied by its members. The FHLBNY achieves this balance by delivering low-cost financing to
members to help them meet the credit needs of their communities and by paying a dividend on the
members capital stock. Reflecting the FHLBNYs cooperative nature, the FHLBNYs financial
strategies are designed to enable the FHLBNY to expand and contract in response to member credit
needs. The FHLBNY invests its capital in high quality, short- and medium-term financial
instruments. This strategy allows the FHLBNY to maintain sufficient liquidity to satisfy member
demand for short- and long-term funds, repay maturing consolidated obligations, and meet other
obligations. The dividends paid by FHLBNY are largely the result of the FHLBNYs earnings on
invested member capital, net earnings on advances to members, mortgage loans and investments,
offset in part by the FHLBNYs operating expenses and assessments. FHLBNYs board of directors and
management determine the pricing of member credit and dividend policies based on the needs of its
members and the cooperative.
Historical Perspective. The fundamental business of the FHLBNY is to provide member
institutions and housing associates with advances and other credit products in a wide range of
maturities to meet their needs. Congress created the FHLBanks in 1932 to improve the availability
of funds to support home ownership. Although the FHLBanks were initially capitalized with
government funds, members have provided all of the FHLBanks capital for over 50 years.
To accomplish its public purpose, the FHLBanks, including the FHLBNY, offer a readily available,
low-cost source of funds, called advances, to member institutions and certain housing associates.
Congress originally granted access to advances only to those institutions with the potential to
make and hold long-term, amortizing home mortgage loans. Such institutions were primarily
federally and state chartered savings and loan associations, cooperative banks, and state-chartered
savings banks (thrift institutions). FHLBanks and its member thrift institutions are an integral
part of the home mortgage financing system in the United States.
However, a variety of factors, including a severe recession, record-high interest rates, and
deregulation, resulted in significant financial losses for thrift institutions in the 1980s. In
response to the significant cost borne by the American taxpayer to resolve the failed thrift
institutions, Congress restructured the home mortgage financing system in 1989 with the passage of
the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). Through this
legislation, Congress reaffirmed the housing finance mission of the FHLBanks and expanded
membership eligibility in the FHLBanks to include commercial banks and credit unions with a
commitment to housing finance.
Different FHLBank Business Strategies. Each FHLBank is operated as a separate entity
with its own management, employees and board of directors. In addition, all FHLBanks operate under
the Finance Agencys supervisory and regulatory framework. However, each FHLBanks management and
board of directors determine the best approach for meeting its business objectives and serving its
members. As such, the management and board of directors of each FHLBank have developed different
business strategies and initiatives to fulfill that FHLBanks mission, and they re-evaluate these
strategies and initiatives from time to time.
Business segment. The FHLBNY manages its operations as a single business segment.
Advances to members are the primary focus of the FHLBNYs operations and the principal factor that
impacts its operating results. The FHLBNY is exempt from ordinary federal, state, and local
taxation except for local real estate tax. It is required to make payments to Resolution Funding
Corporation (REFCORP), and set aside a percentage of its income towards an Affordable Housing
Program (AHP). Together they are referred to as assessments.
80
Explanation of the use of certain non-GAAP measures of Interest Income and Expense, Net
Interest income and margin. The FHLBNY has presented its results of operations in accordance
with U.S. generally accepted accounting principles. The FHLBNY has also presented certain
information regarding its Interest Income and Expense, Net Interest income and Net Interest spread
that combines interest expense on debt with net interest paid on interest rate swaps associated
with debt that were hedged on an economic basis. These are non-GAAP financial measures used by
management that the FHLBNY believes are useful to investors and members of the FHLBNY in
understanding the Banks operational performance and business and performance trends. Although the
FHLBNY believes these non-GAAP financial measures enhance investor and members understanding of
the Banks business and performance, these non-GAAP financial measures should not be considered an
alternative to GAAP. When discussing non-GAAP measures, the Bank has provided GAAP measures in
parallel.
First Quarter 2010 Highlights
The FHLBNY reported Net income of $53.6 million, or $1.09 per share for the 2010 first quarter
compared with Net income of $148.1 million or $2.72 per share for the same period in 2009. The
return on average equity, which is Net income divided by average Capital stock, Retained earnings,
and Accumulated other comprehensive income (loss) (AOCI), was 3.99% for the 2010 first quarter
compared with 10.37% for the same period in 2009.
Net income contracted due to significant decline in Net interest income. Net interest income was
$106.2 million in the 2010 first quarter, down from $231.4 million, or a decline of 54.1% from the
same period in 2009. Net interest spread, which is the difference between yields on
interest-earning assets and yields on interest-costing liabilities, contracted by 27 basis points
in the 2010 first quarter over the same period in 2009. Net interest income and net interest
margin contracted to levels more typical of the years before 2009, primarily because the Banks
funding advantage weakened in the 2010 first quarter. Weighted-average bond funding costs
deteriorated, with March 2010 witnessing the lowest weighted-average monthly bond pricing spreads.
For the FHLBank discount notes, spreads to LIBOR have narrowed considerably and its relative
funding advantage ended in the 2010 first quarter. In much of 2009, discount notes had been
successfully utilized when such debt could be issued at wide advantageous spreads to LIBOR, and was
one source of the funding advantage in 2009.
Another factor that contributed to the decline in Net interest income was the compression of
swapped funding levels of FHLBank consolidate bonds to LIBOR. The FHLBNY uses interest rate swaps
to effectively change the repricing characteristics of a significant portion of its fixed-rate
advances and consolidated obligation debt to match shorter-term LIBOR rates that reprice at
intervals of three-month or less. When the Bank executes an interest rate swap to change the fixed
payments on its debt to a LIBOR indexed floating rate, the spread between the fixed payments and
the LIBOR floating cash receipts results in the FHLBNYs effective funding cost. Consequently, the
current level of spread between the 3-month LIBOR rate and the swap rate for a fixed-rate FHLBank
debt has an impact on the FHLBNYs profitability. This spread differential has contracted
adversely for the Bank and the impact has been to increase the funding cost for the FHLBNY in the
2010 first quarter.
Further spread compression was caused by decline in short-term interest rates in the 2010 first
quarter. and had an adverse impact on interest income earned from the deployment of members
capital and net non-interest bearing liabilities (deployed capital). Deployed capital is
typically utilized to fund short-term, liquid investments, and the yields from such assets declined
steeply in the 2010 first quarter compared to the same period in 2009. As an illustration, the
3-month LIBOR was 29.2 basis points at March 31, 2010, significantly lower than 119.2 basis points
at March 31, 2009.
81
Decline in business volume as measured by average member advances outstanding was yet another
factor contributing to lower Net interest income in the 2010 first quarter. Average outstanding
advances in the 2010 first quarter was $91.4 billion down from $105.3 billion in the same period in
2009.
In the 2010 first quarter, the FHLBNY identified credit impairment on five of its private-label
mortgage-backed securities. Cash flow assessments of the expected credit performance of the five
securities resulted in the recognition of $3.4 million as other-than-temporary impairment (OTTI)
and was a charge to earnings. All five securities had been previously determined to be OTTI in
2009, and the re-impairment in the 2010 first quarter was due to further deterioration in the
performance parameters of the five securities. Although all five securities are insured by bond
insurers, Ambac (four securities) and MBIA (one security), the Banks analysis of the two bond
insurers concluded that for the five insured securities, future credit losses due to projected
collateral shortfalls would not be fully supported by the two bond insurers. In the same period in
2009, OTTI of $5.3 million in credit impairment was charged to earnings. For more information about
impairment methodology and bond insurer analysis, see Note 1 Significant Accounting Policies and
Estimates and Note 4 Held-to-maturity securities.
The 2010 first quarter Net income benefited from lower net losses from derivative and hedging
activities. The FHLBNY recorded $0.4 million of net losses in the 2010 first quarter, in contrast
to net losses of $13.7 million in the same period in 2009. Almost all changes between the two
periods were unrealized market value adjustments that resulted from (1) hedge ineffectiveness -
interest rate changes that affected the market values of interest rate swaps differently than the
market values of the hedged risk, and (2) derivative designated as economic hedges When
derivatives are designated as economic hedges, changes in the fair values of the derivatives are
marked to fair value through earnings with no offsetting changes in fair values of the hedged
financial instruments (sometimes referred to as one-sided marks). In the 2010 first quarter, the
Bank recorded fair value net losses of $8.4 million on $6.8 billion of consolidated obligation debt
that were designated under the Fair Value Option (FVO), compared to net gains of $8.3 million in
the 2009 first quarter. Fair values of such fixed-rate consolidated bonds declined as market
interest rates for the debt declined relative to the actual coupon rates of the debt. The bonds
were economically hedged by interest rate swaps, and were largely offset by recorded fair value
gains on the swaps.
In general, the FHLBNY holds derivatives and associated hedged instruments, and consolidated
obligation debt at fair values under the FVO, to the maturity, call, or put dates. When such
financial instruments are held to their contractual maturity (or put/call dates), nearly all of the
cumulative net fair value gains and losses that are unrealized will generally reverse over time,
and fair value changes will sum to zero. In limited instances, the FHLBNY may terminate these
instruments prior to maturity or prior to call or put dates, which would result in a realized gain
or loss.
Operating Expenses of the FHLBNY were $19.2 million for the 2010 first quarter, up from $18.1
million in the same period in 2009. The FHLBNY was also assessed for its share of the operating
expenses for the Finance Agency and the Office of Finance, and those totaled $2.4 million for the
2010 first quarter, up from $2.0 million in the same period in 2009.
REFCORP assessment payments totaled $13.4 million in the 2010 first quarter, down from $37.0
million in the same period in 2009. Affordable Housing Program (AHP) assessments set aside from
income totaled $6.1 million in the 2010 first quarter, down from $16.6 million in the same period
in 2009. Assessments are calculated on Net income before assessments and the decreases were due to
the significant decrease in the 2010 first quarter Net income as compared to same period in 2009.
For more information about REFCORP and AHP assessments see the section Assessments in this Form
10-Q.
82
Cash dividends of $1.41 per share of capital stock (5.6% annualized return on capital stock) were
paid to stockholders in the 2010 first quarter. In the 2009 first quarter, cash dividends paid were
$0.75 per share of capital stock (3.0% annualized return on capital stock).
The FHLBNY continued to experience balance sheet contraction, as both its lending and funding
declined in the 2010 first quarter. Advances to member banks declined to $88.9 billion, a level
more typical of that before the credit crisis from a peak of approximately $109.1 billion in 2008.
The decline has occurred gradually as member banks have taken advantage of improved availability of
alternate funding sources such as deposits and senior unsecured borrowings in a more liquid market.
Member demand for advances have also declined as loan demand from customers may have stayed
lukewarm due to nationally weak economic conditions.
Aside from advances, the FHLBNYs primary earning assets are investment securities portfolios,
comprising mainly of GSE and U.S. agency issued mortgage-backed securities (MBS). The Banks two
long-term investment portfolios, comprising of held-to-maturity securities and available-for-sale
securities, together totaled $12.4 billion, or 11.6% of Total assets at March 31, 2010.
Investments in MBS in the two portfolios totaled $11.7 billion at March 31, 2010. GSE and agency
issued MBS were $10.7 billion, or 91.4% of total investments in MBS at March 31, 2010. Only $1.0
billion of private-label MBS remained outstanding. The FHLBNY also has investments in
housing-related obligations of state and local governments and their housing finance agencies,
which are required to carry ratings of AA or higher at time of acquisition. Such investments
totaled $0.7 billion at March 31, 2010. Investment security values have continued to improve, and
previously recorded unrealized fair value losses in AOCI on GSE issued MBS reversed, and fair
values were a net unrealized gains, albeit small, as liquidity has gradually returned to the
market.
The FHLBNYs capital remains strong. At March 31, 2010, actual risk based capital was $5.6
billion, compared to required risk based capital of $0.5 billion. To support $107.2 billion of
Total assets at March 31, 2010, the required minimum regulatory capital was $4.3 billion. The
FHLBNYs actual regulatory capital was $5.6 billion at March 31, 2010. Aggregate capital ratios
were at 5.23%, more than the 4.0% regulatory minimum. The FHLBNY has prudently retained capital
through the period of credit turmoil. Retained earnings, excluding losses in AOCI, has grown to
$671.5 million at March 31, 2010.
Shareholders equity, the sum of Capital stock, Retained earnings, and AOCI was $5.4 billion at
March 31, 2010, a decline of $227.7 million from December 31, 2009, primarily as a result of the
decline in members Capital stock. The decrease in Capital stock was consistent with the decrease
in advances borrowed by members since members are required to purchase stock as a prerequisite to
membership and to hold FHLBNY stock as a percentage of advances borrowed from the FHLBNY. The
Banks current practice is to redeem stock in excess of the amount necessary to support advance
activity on a daily basis. As a result, the amount of capital stock outstanding varies in line
with members outstanding advance borrowings. Retained earning was $671.5 million at March 31,
2010, slightly lower by $17.4 million from December 31, 2009. Dividends paid out of retained
earnings amounted to $71.0 million in the 2010 first quarter, compared to $42.1 million in the same
period in 2009. In aggregate, AOCI was a loss of $123.5 million at March 31, 2010 compared to a
loss of $144.5 million at December 31, 2009. The non-credit loss component of OTTI of $106.6
million and $110.6 million made up most of the losses in AOCI at March 31, 2010 and December 31,
2009. Unrecognized losses from cash flow hedging activities and additional liabilities on employee
pension plans were also reported in AOCI at March 31, 2010 and December 31, 2009. For more
information about changes in AOCI, see Note 13 to the unaudited financial statements in this
report.
83
2010 Business Outlook
The following forward-looking statements are based upon the current beliefs and expectations
of the FHLBNYs management and are subject to risks and uncertainties which could cause the
FHLBNYs actual results to differ materially from those set forth in such forward-looking
statements.
The FHLBNY expects its earnings to decline in 2010 to levels more typical of the years before 2009,
primarily as a result of lower net interest margins on the Banks earnings from core assets,
primarily advances and investments in mortgage-backed securities, as the Bank expects continued
erosion of its funding advantages.
Advances Management is unable to predict the timing and extent of the expected recovery in the
U.S. economy, particularly the recovery in the housing market, or an expectation of continued
stability in the financial markets. Against that backdrop, the management of the Bank believes it
is also difficult to predict member demand for advances, which is the primary focus of the FHLBNYs
operations and the principal factor that impacts its operating results.
Generally, the growth or decline in advances is reflective of demand by members for both short-term
liquidity and long-term funding driven by economic factors such as availability to the Banks
members of alternative funding sources that are more attractive, the interest rate environment, and
the outlook for the economy. Members may choose to prepay advances, which may require prepayment
fees, based on their expectations of interest rate changes and demand for liquidity. Demand for
advances may also be influenced by the dividend payout rate to members on their capital stock
investment in the FHLBNY. Members are required to invest in FHLBNYs capital stock in the form of
membership stock and activity-based stock. Members are required to purchase activity stock in
order to borrow advances. Advance volume is also influenced by merger activity where members are
either acquired by non-members or acquired by members of another FHLBank. When FHLBNY members are
acquired by members of another FHLBank or a non-member, they no longer qualify for membership in
the FHLBNY, which cannot renew outstanding advances or provide new advances to non-members.
Subsequent to the merger, maturing advances may not be replaced, which has an immediate impact on
short-term and overnight advance lending if the former member borrowed such advances.
Based on business results thus far in 2010, the FHLBNY believes that its members are being cautious
in their lending policies despite the relative easing of liquidity and availability of alternative
funding sources. If such sentiments continue, the FHLBNYs book of advance business will continue
to decline.
Earnings In 2010, existing high-yielding fixed-rate MBS and some intermediate-term advances will
pay down or mature, and it is unlikely they will be replaced by equivalent high yielding assets,
and this will tend lower the overall yield on total assets. The FHLBNY expects general advance
demand from members to continue to decline, and specifically, the Bank expects limited demand for
large intermediate-term advances because many members have previously filled their needs with the
FHLBNY, and other members have significant amounts of intermediate-term advances that were borrowed
from the FHLBNY several years ago. The FHLBNY anticipates that such members are probably
considering prepaying those borrowings, or to not replacing them at maturity. Members that have
expressed interest in intermediate-term borrowing have not been significant borrowers in the past.
Members appear to be hesitant to act early in 2010 to offer up their borrowing plans, and without
the ability to make funding decisions early in the 2010, the FHLBNY is losing the potential
opportunities to profitably fund these advance types early in the year before funding spreads
become even more unfavorable.
84
The FHLBNY earns income from investing its members capital and non-interest bearing liabilities,
together referred to as deployed capital, to fund interest-earning assets. The two principal
factors that
impact earnings from deployed capital are the average amount of capital outstanding in a period and
the interest rate environment in the period, which in turn impacts yields on earning assets. These
factors determine the potential earnings from deployed capital, and both factors are subject to
change. The Bank cannot predict with certainty the level of earnings from capital. In a lower
interest rate environment, deployed capital, which consists of capital stock, retained earnings,
and net non-interest bearing liabilities, will provide relatively lower income.
As result of these factors, the FHLBNY expects net margins from new advances to narrow and Net
income to contract to the pre-2009 levels.
Demand for FHLBank debt The FHLBNYs primary source of funds is the sale of consolidated
obligations in the capital markets, and the FHLBNYs ability to obtain funds through the sale of
consolidated obligations depends in part on prevailing conditions in the capital markets, which are
beyond the FHLBNYs control. The FHLBNY may not be able to obtain funding on acceptable terms
given the extraordinary market conditions and structural changes in the debt market. If the FHLBNY
cannot access funding when needed on acceptable terms, its ability to support and continue
operations could be adversely affected, which could negatively affect its financial condition and
results of operations. The pricing of the FHLBanks longer-term debt remains at levels that are
still sub-optimal, relative to LIBOR. To the extent the FHLBanks receive sub-optimal funding, the
Banks member institutions in turn may experience higher costs for advance borrowings. To the
extent the FHLBanks may not be able to issue long-term debt at economical spreads relative to the
3-month LIBOR rate; the Banks member institutions borrowing choices may also be limited.
In 2010, the refunding needs to replace maturing FHLBank bonds will again be significant. If the
bond market cannot support the refunding volumes, it will put greater pressure on the FHLBank bonds
and investors may demand higher yields. Alternatively, the FHLBanks may resort to the issuance of
discount notes, which have maturities of up to a year only, to fill any refunding gap. Discount
notes may itself face increased challenges as competition increases from Treasury bills and the
multiple programs implemented by the U.S. Treasury for the current crises. On the other hand, the
impact of the recession may reduce member demand for liquidity and may reduce pressure on the
FHLBanks to refinance maturing bonds in 2010.
Credit Impairment of Mortgage-backed securities Other-than-temporary credit impairment (OTTI)
charges of $3.4 million were recorded for the FHLBNYs MBS portfolios in the 2010 first quarter.
However, without recovery in the near term such that liquidity returns to the mortgage-backed
securities market, or if the credit losses of the underlying collateral within the mortgage-backed
securities perform worse than expected, the FHLBNY could face additional credit losses. Certain
private-label MBS owned by the FHLBNY are insured by bond insurers for timely payments of principal
and interest if these payments cannot be satisfied from the cash flows of the underlying mortgage
pool supporting the securities. The Bank performs an analysis of Ambac and MBIA, the two primary
bond insurers, to estimate the capacity of the insurers to provide on-going credit protection. The
Bank has determined that insurance support by Ambac is not assured beyond March 31, 2010, and by
MBIA to be no greater than 15 months. If the ability of MBIA to support the insured securities
that are dependent on insurance is negatively impacted by its future financial performance,
additional OTTI would have to be recognized, which would negatively impact the FHLBNYs Net income.
In addition, certain private-label MBS may be undergoing loan modification and forbearance
proceedings at the loan level and such processes may have an adverse impact on the amounts and
timing of expected cash flows.
85
SELECTED FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Condition |
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
(dollars in millions) |
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments (1) |
|
$ |
15,561 |
|
|
$ |
16,222 |
|
|
$ |
18,741 |
|
|
$ |
12,979 |
|
|
$ |
13,377 |
|
Interest bearing balance at FRB ** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,865 |
|
|
|
8,602 |
|
Advances |
|
|
88,859 |
|
|
|
94,349 |
|
|
|
95,945 |
|
|
|
100,458 |
|
|
|
104,464 |
|
Mortgage loans held-for-portfolio, net of allowance for
credit losses (2) |
|
|
1,288 |
|
|
|
1,318 |
|
|
|
1,336 |
|
|
|
1,381 |
|
|
|
1,431 |
|
Total assets |
|
|
107,239 |
|
|
|
114,461 |
|
|
|
117,604 |
|
|
|
129,129 |
|
|
|
128,359 |
|
Deposits and borrowings |
|
|
7,977 |
|
|
|
2,631 |
|
|
|
2,276 |
|
|
|
2,278 |
|
|
|
2,372 |
|
Consolidated obligations, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
|
72,408 |
|
|
|
74,008 |
|
|
|
69,671 |
|
|
|
72,184 |
|
|
|
69,582 |
|
Discount notes |
|
|
19,816 |
|
|
|
30,828 |
|
|
|
38,385 |
|
|
|
47,276 |
|
|
|
48,722 |
|
Total consolidated obligations |
|
|
92,224 |
|
|
|
104,836 |
|
|
|
108,056 |
|
|
|
119,460 |
|
|
|
118,304 |
|
Mandatorily redeemable capital stock |
|
|
105 |
|
|
|
126 |
|
|
|
128 |
|
|
|
128 |
|
|
|
140 |
|
AHP liability |
|
|
146 |
|
|
|
144 |
|
|
|
145 |
|
|
|
140 |
|
|
|
128 |
|
REFCORP liability |
|
|
14 |
|
|
|
24 |
|
|
|
39 |
|
|
|
46 |
|
|
|
42 |
|
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock |
|
|
4,828 |
|
|
|
5,059 |
|
|
|
5,142 |
|
|
|
5,370 |
|
|
|
5,413 |
|
Retained earnings |
|
|
672 |
|
|
|
689 |
|
|
|
666 |
|
|
|
600 |
|
|
|
489 |
|
Accumulated other comprehensive income (loss) |
|
|
(124 |
) |
|
|
(145 |
) |
|
|
(147 |
) |
|
|
(120 |
) |
|
|
(79 |
) |
Total capital |
|
|
5,376 |
|
|
|
5,603 |
|
|
|
5,661 |
|
|
|
5,850 |
|
|
|
5,823 |
|
Equity to asset ratio (3) |
|
|
5.01 |
% |
|
|
4.90 |
% |
|
|
4.81 |
% |
|
|
4.53 |
% |
|
|
4.54 |
% |
86
SELECTED FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Statements of Condition Averages |
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
(dollars in millions) |
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments (1) |
|
$ |
17,711 |
|
|
$ |
18,650 |
|
|
$ |
19,764 |
|
|
$ |
12,369 |
|
|
$ |
12,963 |
|
Interest-bearing balance at FRB ** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,647 |
|
|
|
11,538 |
|
Advances |
|
|
91,415 |
|
|
|
94,193 |
|
|
|
96,704 |
|
|
|
99,769 |
|
|
|
105,344 |
|
Mortgage loans |
|
|
1,299 |
|
|
|
1,333 |
|
|
|
1,357 |
|
|
|
1,405 |
|
|
|
1,450 |
|
Total assets |
|
|
113,116 |
|
|
|
117,289 |
|
|
|
120,754 |
|
|
|
129,133 |
|
|
|
134,915 |
|
Interest-bearing deposits and other
borrowings |
|
|
5,050 |
|
|
|
2,361 |
|
|
|
2,083 |
|
|
|
2,181 |
|
|
|
1,749 |
|
Consolidated obligations, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
|
74,297 |
|
|
|
73,264 |
|
|
|
69,604 |
|
|
|
68,091 |
|
|
|
76,543 |
|
Discount notes |
|
|
24,555 |
|
|
|
31,741 |
|
|
|
39,521 |
|
|
|
48,747 |
|
|
|
46,155 |
|
Total consolidated
obligations |
|
|
98,852 |
|
|
|
105,005 |
|
|
|
109,125 |
|
|
|
116,838 |
|
|
|
122,698 |
|
Mandatorily redeemable capital stock |
|
|
108 |
|
|
|
143 |
|
|
|
128 |
|
|
|
134 |
|
|
|
143 |
|
AHP liability |
|
|
144 |
|
|
|
144 |
|
|
|
139 |
|
|
|
132 |
|
|
|
125 |
|
REFCORP liability |
|
|
9 |
|
|
|
15 |
|
|
|
23 |
|
|
|
22 |
|
|
|
22 |
|
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock |
|
|
4,929 |
|
|
|
5,030 |
|
|
|
5,195 |
|
|
|
5,299 |
|
|
|
5,455 |
|
Retained earnings |
|
|
658 |
|
|
|
666 |
|
|
|
611 |
|
|
|
522 |
|
|
|
429 |
|
Accumulated other
comprehensive
income (loss) |
|
|
(141 |
) |
|
|
(136 |
) |
|
|
(125 |
) |
|
|
(69 |
) |
|
|
(91 |
) |
Total capital |
|
|
5,446 |
|
|
|
5,560 |
|
|
|
5,681 |
|
|
|
5,752 |
|
|
|
5,793 |
|
|
Operating Results and other data |
|
Three months ended |
|
(dollars in millions) |
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
(except earnings, headcount, and dividends per share) |
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (4) |
|
$ |
106 |
|
|
$ |
116 |
|
|
$ |
154 |
|
|
$ |
200 |
|
|
$ |
231 |
|
Net income |
|
|
54 |
|
|
|
97 |
|
|
|
140 |
|
|
|
186 |
|
|
|
148 |
|
Dividends paid in cash (7) |
|
|
71 |
|
|
|
74 |
|
|
|
74 |
|
|
|
75 |
|
|
|
42 |
|
AHP expense |
|
|
6 |
|
|
|
10 |
|
|
|
16 |
|
|
|
21 |
|
|
|
17 |
|
REFCORP expense |
|
|
13 |
|
|
|
24 |
|
|
|
35 |
|
|
|
47 |
|
|
|
37 |
|
Return on average equity* (5) |
|
|
3.99 |
% |
|
|
6.85 |
% |
|
|
9.79 |
% |
|
|
13.00 |
% |
|
|
10.37 |
% |
Return on average assets* |
|
|
0.19 |
% |
|
|
0.32 |
% |
|
|
0.46 |
% |
|
|
0.58 |
% |
|
|
0.45 |
% |
Net OTTI impairment losses |
|
$ |
(3 |
) |
|
$ |
(7 |
) |
|
$ |
(4 |
) |
|
$ |
(5 |
) |
|
$ |
(5 |
) |
Other non-interest income (loss) |
|
|
(8 |
) |
|
|
48 |
|
|
|
61 |
|
|
|
80 |
|
|
|
(4 |
) |
Total other income (loss) |
|
|
(11 |
) |
|
|
41 |
|
|
|
57 |
|
|
|
75 |
|
|
|
(9 |
) |
Operating expenses |
|
|
19 |
|
|
|
22 |
|
|
|
18 |
|
|
|
18 |
|
|
|
18 |
|
Finance Agency and Office of Finance |
|
|
3 |
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
Total other expenses |
|
|
22 |
|
|
|
24 |
|
|
|
20 |
|
|
|
20 |
|
|
|
20 |
|
Operating expenses ratio* (6) |
|
|
0.07 |
% |
|
|
0.07 |
% |
|
|
0.06 |
% |
|
|
0.06 |
% |
|
|
0.05 |
% |
Earnings per share |
|
$ |
1.09 |
|
|
$ |
1.94 |
|
|
$ |
2.70 |
|
|
$ |
3.52 |
|
|
$ |
2.72 |
|
Dividend per share |
|
$ |
1.41 |
|
|
$ |
1.42 |
|
|
$ |
1.40 |
|
|
$ |
1.38 |
|
|
$ |
0.75 |
|
Headcount (Full/part time) |
|
|
266 |
|
|
|
264 |
|
|
|
259 |
|
|
|
264 |
|
|
|
256 |
|
|
|
|
(1) |
|
Investments include held-to-maturity securities, available for-sale securities, Federal
funds, loans to other FHLBanks, and other interest bearing deposits. |
|
(2) |
|
Allowances for credit losses were $5.2 million, $4.5 million, $3.4 million, $2.8 million, and
$1.8 million at the periods ended March 31, 2010, December 31, 2009, September 30, 2009, June
30, 2009, and March 31, 2009. |
|
(3) |
|
Equity to asset ratio is capital stock plus retained earnings and Accumulated other
comprehensive income (loss) as a percentage of total assets. |
|
(4) |
|
Net interest income is net interest income before the provision for credit losses on mortgage
loans. |
|
(5) |
|
Return on average equity is net income as a percentage of average capital stock plus average
retained earnings and average Accumulated other comprehensive income (loss). |
|
(6) |
|
Operating expenses as a percentage of total average assets. |
|
(7) |
|
Excludes dividends accrued to non-members classified as interest expense under the accounting
standards for certain financial instruments with characteristics of both liabilities and
equity. |
|
* |
|
Annualized. |
|
** |
|
FRB program commenced in October 2008. On July 2, 2009, the Bank was no longer eligible to
collect interest on excess balances. |
87
Results of Operations
The following section provides a comparative discussion of the FHLBNYs results of operations
for the first quarters of 2010 and 2009. For a discussion of the significant accounting estimates
used by the FHLBNY that affect the results of operations, see Significant Accounting Policies and
Estimates in Note 1 to this Form 10-Q and Significant Accounting Policies and Estimates in the
Banks most recently filed Form 10-K on March 25, 2010.
Net Income
The FHLBNY manages its operations as a single business segment. Advances to members are the
primary focus of the FHLBNYs operations, and are the principal factor that impacts its operating
results. Interest income from advances is the principal source of revenue. The primary expenses
are interest paid on consolidated obligations debt, operating expenses, principally administrative
and overhead expenses, and assessments on net income. The FHLBNY is exempt from ordinary
federal, state, and local taxation except for local real estate tax. It is required to make
payments to REFCORP and set aside funds from its income towards an Affordable Housing Program
(AHP), together referred to as assessments. Other significant factors affecting the Banks Net
income include the volume and timing of investments in mortgage-backed securities, debt repurchases
and associated losses, and earnings from shareholders capital.
Net income First Quarter 2010 versus first Quarter 2009.
The FHLBNY reported Net income of $53.6 million, or $1.09 per share for the 2010 first quarter
compared with Net income of $148.1 million or $2.72 per share for the same period in 2009. The
return on average equity, which is Net income divided by average Capital stock, Retained earnings,
and Accumulated other comprehensive income (loss) (AOCI), was 3.99% for the 2010 first quarter
compared with 10.37% for the same period in 2009.
Net interest income, a key metric for the FHLBNY and the primary contributor to Net income, was
adversely affected in the 2010 first quarter, declined 54.1% to $106.2 million from the same period
in 2009. Net interest income was $231.4 million in the 2009 first quarter.
The Banks cost of debt has become more expensive in the 2010 first quarter. Additionally, the
volume of advance business has contracted. The lower interest rate for short-term investments has
also resulted in lower earnings from deploying members interest-free capital to fund
interest-earning investments, which are typically short-term.
Credit-related OTTI charges in the 2010 first quarter were $3.4 million, and resulted due to the
recognition of additional (credit re-impairment) impairment of five private-label mortgage-backed
securities collateralized by sub-prime home equity loans (sub-prime PLMBS) that had been
determined to be OTTI in 2009. The non-credit losses recorded in AOCI were $0.5 million. In the
2009 first quarter, the Bank had recognized credit related OTTI losses of $5.3 million on sub-prime
PLMBS, and fair value losses recorded in AOCI were $9.9 million.
88
The 2010 first quarter Net income benefited from lower net losses from derivative and hedging
activities compared to the same period in 2009. The FHLBNY recorded $0.4 million of net losses in
2010 first quarter, in contrast to a net loss of $13.7 million in the 2009 first quarter. The Bank
recorded fair value net losses of $8.4 million on $6.8 billion of consolidated obligation debt that
were designated under the Fair Value Option (FVO) in contrast to net gains of $8.3 million in the
same period in 2009. Fair
values of such fixed-rate consolidated bonds declined as market interest rates for the debt
declined relative to the actual coupon rates of the debt. The bonds were economically hedged by
interest rate swaps, and the losses were largely offset by recorded fair value gains on the swaps.
In general, the FHLBNY holds derivatives and associated hedged instruments, and consolidated
obligation debt at fair values under the FVO, to the maturity, call, or put dates. When such
financial instruments are held to their contractual maturity (or put/call dates), nearly all of the
cumulative net fair value gains and losses that are unrealized will generally reverse over time,
and fair value changes will sum to zero. In limited instances, the FHLBNY may terminate these
instruments prior to maturity or prior to call or put dates, which would result in a realized gain
or loss.
Operating expenses grew to $19.2 million in the 2010 first quarter, an increase of 6.3% over the
same period in 2009.
REFCORP assessment and funds set aside for the Affordable Housing Program (AHP) assessments,
together referred to as assessments, declined by $34.1 million, or 63.5% in the 2010 from the same
period in 2009. Assessments, which are calculated as a percentage (after certain adjustments) on
Net income before assessments, varies in line with changes in earnings.
89
Interest Income
Interest income from advances and investments in mortgage-backed securities are the principal
sources of income for the FHLBNY. Changes in both rate and intermediation volume (average
interest-yielding assets) explain the change in the current year from the prior year. The
principal categories of Interest Income are summarized below (dollars in thousands):
Table 1: Interest Income Principal Sources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
Variance |
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
149,640 |
|
|
$ |
502,222 |
|
|
|
(70.20 |
)% |
Interest-bearing deposits |
|
|
830 |
|
|
|
8,918 |
|
|
|
(90.69 |
) |
Federal funds sold |
|
|
1,543 |
|
|
|
68 |
|
|
NM |
|
Available-for-sale securities |
|
|
5,764 |
|
|
|
8,519 |
|
|
|
(32.34 |
) |
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
98,634 |
|
|
|
126,820 |
|
|
|
(22.23 |
) |
Certificates of deposit |
|
|
|
|
|
|
508 |
|
|
|
(100.00 |
) |
Mortgage loans held-for-portfolio |
|
|
16,741 |
|
|
|
19,104 |
|
|
|
(12.37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
273,152 |
|
|
$ |
666,159 |
|
|
|
(59.00 |
)% |
|
|
|
|
|
|
|
|
|
|
Reported Interest income in the Statements of Income was adjusted for the cash flows
associated with interest rate swaps in which the Bank generally pays fixed-rate cash flows to
derivative counterparties, which typically mirrors the fixed-rate coupons received from advances
borrowed by members. In exchange, the Bank receives variable-rate LIBOR-indexed cash flows.
Impact of hedging advances The FHLBNY executes interest rate swaps to modify the effective
interest rate terms of many of its fixed-rate advance products and typically all of its putable
advances. In these swaps, the FHLBNY effectively converts a fixed-rate stream of cash flows from
its fixed-rate advances to a floating-rate stream of cash flows, typically indexed to LIBOR. These
cash flow patterns from derivatives were in line with the Banks interest rate risk management
practices and effectively converted fixed-rate cash flows of hedged advances to LIBOR indexed cash
flows. Derivative strategies are used to manage the interest rate risk inherent in fixed-rate
advances and are designed to protect future interest income.
The table below summarizes interest income earned from advances and the impact of interest rate
derivatives (in thousands):
Table 2: Impact of Interest Rate Swaps on Interest Income Earned from Advances
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Advance Interest Income |
|
|
|
|
|
|
|
|
Advance interest income before adjustment
for interest rate swaps |
|
$ |
679,921 |
|
|
$ |
833,388 |
|
Net interest adjustment from interest rate swaps 1 |
|
|
(530,281 |
) |
|
|
(331,166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Advance interest income reported |
|
$ |
149,640 |
|
|
$ |
502,222 |
|
|
|
|
|
|
|
|
90
In compliance with the terms of the swap agreement, the FHLBNY pays the swap counterparty
fixed-rate cash flows, which typically mirrors the coupon on the advance. In return, the swap
counterparty pays the FHLBNY a pre-determined spread plus the prevailing LIBOR, which by agreement
resets generally every three months. In the table above, the unfavorable cash flow patterns of the
interest rate swaps are indicative of the declining LIBOR rates (obligation of the swap
counterparty) compared to fixed-rate obligation of the FHLBNY. The Bank is generally indifferent
to changes in the cash flow patterns as it typically hedges its fixed-rate consolidated obligation
debt, which is the Banks primary funding base, and achieves its overall net interest spread
objective.
Under GAAP, net interest adjustments from derivatives as reported in the table above may be offset
against the net interest accruals of the hedged financial instrument (e.g. advance) only if the
derivative is in a hedge qualifying relationship. If the hedge does not qualify for hedge
accounting, and the Bank designates the hedge as an economic hedge, the net interest adjustments
from derivatives would not recorded with the advance interest revenues. Instead, the net interest
adjustments from swaps would be recorded in Other income (loss) as a Net realized and unrealized
gain (loss) from derivatives and hedging activities. Thus, the accounting designation of a hedge
may have a significant impact on reported Interest income from advances. There were no material
amounts of net interest adjustments from interest rate swaps designated as economic hedges of
advances that were reported in Other income in the current year or prior years related to swaps
associated with advances.
91
Interest Expense
The FHLBNYs primary source of funding is through the issuance of consolidated obligation
bonds and discount notes in the global debt markets. Consolidated obligation bonds are medium- and
long-term, while discount notes are short-term instruments. To fund its assets, the FHLBNY
considers its interest rate risk and liquidity requirements in conjunction with consolidated
obligation buyers preferences and capital market conditions when determining the characteristics
of debt to be issued. Typically, the Bank has used fixed-rate callable and non-callable bonds to
fund mortgage-related assets and advances. Discount notes are issued to fund advances and
investments with shorter-interest rate reset characteristics.
The principal categories of Interest expense are summarized below. Changes in both rate and
intermediation volume (average interest-costing liabilities), the mix of debt issuances between
bonds and discount notes, and the impact of hedging strategies explain the changes in interest
expense (dollars in thousands):
Table 3: Interest Expenses Principal Categories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
Variance |
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
$ |
154,913 |
|
|
$ |
343,707 |
|
|
|
(54.93 |
)% |
Consolidated obligations-discount notes |
|
|
9,657 |
|
|
|
89,378 |
|
|
|
(89.20 |
) |
Deposits |
|
|
892 |
|
|
|
777 |
|
|
|
14.80 |
|
Mandatorily redeemable capital stock |
|
|
1,495 |
|
|
|
878 |
|
|
|
70.27 |
|
Cash collateral held and other borrowings |
|
|
|
|
|
|
37 |
|
|
|
(100.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
166,957 |
|
|
$ |
434,777 |
|
|
|
(61.60 |
)% |
|
|
|
|
|
|
|
|
|
|
Reported Interest expense in the Statements of Income is adjusted for the cash flows
associated with interest rate swaps in which the Bank generally pays variable-rate LIBOR-indexed
cash flows to derivative counterparties and, in exchange, the Bank receives fixed-rate cash flows,
which typically mirror the fixed-rate coupon payments to investors holding the debt. The Bank
generally hedges its long-term fixed-rate bonds and almost all fixed-rate callable bonds with
swaps that generally qualify for hedge accounting. In the 2010 first quarter and the same period
in 2009, the Bank economically hedged certain floating-rate bonds that were not indexed to 3-month
LIBOR, and certain short-term fixed-rate debt and discount notes because it believed that the
hedges would not be highly effective in offsetting changes in the fair values of the debt and the
swap, and would not therefore qualify for hedge accounting.
Impact of hedging debt The FHLBNY issues both fixed-rate callable and non-callable debt.
Typically, the Bank issues callable debt with the simultaneous execution of cancellable interest
rate swaps to modify the effective interest rate terms and the effective durations of its
fixed-rate callable debt. A substantial percentage of non-callable fixed-rate debt is also swapped
to plain vanilla LIBOR-indexed cash flows.
These hedging strategies benefit the Bank in two principal ways: (1) fixed-rate callable bond in
conjunction with interest rate swap containing a call feature that mirrors the option embedded in
the callable bond enables the FHLBNY to meet its funding needs at yields not otherwise directly
attainable through the issuance of callable debt; and, (2) the issuance of fixed-rate debt and the
simultaneous execution of an interest rate swap converts the debt to an adjustable-rate instrument
tied to an index,
typically 3-month LIBOR. Derivative strategies are used to manage the interest rate risk inherent
in fixed-rate debt and certain floating-rate debt that are not indexed to 3-month LIBOR rates.
92
The strategies are designed to protect future interest income. The economic hedge of debt tied to
indices other than 3-month LIBOR (Prime, Federal funds, and 1-month LIBOR) is designed to
effectively convert the cash flows of the debt to 3-month LIBOR.
The table below summarizes interest expense paid on consolidated obligation bonds and discount
notes and the impact of interest rate swaps (in thousands):
Table 4: Impact of Interest Rate Swaps on Consolidated Obligation Interest Expense
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Consolidated bonds and discount notes-Interest expense |
|
|
|
|
|
|
|
|
Bonds-Interest expense before adjustment for swaps |
|
$ |
328,657 |
|
|
$ |
448,460 |
|
Discount notes-Interest expense before adjustment for swaps |
|
|
9,657 |
|
|
|
89,618 |
|
Net interest adjustment for interest rate swaps 1 |
|
|
(173,744 |
) |
|
|
(104,993 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated bonds and discount notes-interest expense reported |
|
$ |
164,570 |
|
|
$ |
433,085 |
|
|
|
|
|
|
|
|
Net interest income
Net interest income is the principal source of revenue for the Bank, and represents the
difference between interest income from interest-earning assets and interest expense paid on
interest-costing liabilities. Net interest income is impacted by a variety of factors:
|
|
|
Member demand for advances and investment activity, the yields from advances and
investments, and the cost of consolidated obligation debt that is issued by the Bank to
fund advances and investments. |
|
|
|
|
The execution of interest rate swaps in the derivative market at a constant spread
to LIBOR, in effect converting fixed-rate advances and fixed-rate debt to conventional
adjustable-rate instruments indexed to LIBOR, results in an important intermediation
for the Bank between the capital markets and the swap market. The intermediation has
typically permitted the Bank to raise funds at lower costs than would otherwise be
available through the issuance of simple fixed- or floating-rate debt in the capital
markets. The FHLBNY deploys hedging strategies to protect future net interest income,
but may reduce income in the short-run, although the FHLBNY expects them to benefit
future periods. |
|
|
|
|
Income earned from assets funded by member capital and retained earnings, referred
to as deployed capital, which are non-interest bearing, is another important
contributor for the FHLBNY. |
All of these factors may fluctuate based on changes in interest rates, demand by members for
advances, investor demand for debt issued by the FHLBNY, the change in the spread between the
yields on advances and investments, and the cost of financing these assets by the issuance of debt
to investors.
93
The following table summarizes key changes in the components of Net interest income for the three
months ended March 31, 2010 and 2009 (dollars in thousands):
Table 5: Components of Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
Variance |
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
149,640 |
|
|
$ |
502,222 |
|
|
|
(70.20 |
)% |
Interest-bearing deposits |
|
|
830 |
|
|
|
8,918 |
|
|
|
(90.69 |
) |
Federal funds sold |
|
|
1,543 |
|
|
|
68 |
|
|
NM |
|
Available-for-sale securities |
|
|
5,764 |
|
|
|
8,519 |
|
|
|
(32.34 |
) |
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
98,634 |
|
|
|
126,820 |
|
|
|
(22.23 |
) |
Certificates of deposit |
|
|
|
|
|
|
508 |
|
|
|
(100.00 |
) |
Mortgage loans held-for-portfolio |
|
|
16,741 |
|
|
|
19,104 |
|
|
|
(12.37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
273,152 |
|
|
|
666,159 |
|
|
|
(59.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
|
154,913 |
|
|
|
343,707 |
|
|
|
(54.93 |
) |
Consolidated obligations-discount notes |
|
|
9,657 |
|
|
|
89,378 |
|
|
|
(89.20 |
) |
Deposits |
|
|
892 |
|
|
|
777 |
|
|
|
14.80 |
|
Mandatorily redeemable capital stock |
|
|
1,495 |
|
|
|
878 |
|
|
|
70.27 |
|
Cash collateral held and other borrowings |
|
|
|
|
|
|
37 |
|
|
|
(100.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
166,957 |
|
|
|
434,777 |
|
|
|
(61.60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income before provision for credit losses |
|
$ |
106,195 |
|
|
$ |
231,382 |
|
|
|
(54.10 |
)% |
|
|
|
|
|
|
|
|
|
|
Net interest income
The 2010 first quarter Net interest income declined by $125.2 million, or 54.1% from the same
period in 2009. Net interest income is directly impacted by transaction volumes, as measured by
average balances of interest earning assets, and by the prevailing balance sheet yields, as
measured by coupons on earning assets minus yields paid on interest costing liabilities net of the
cash flows paid or received on interest rate derivatives that qualified under hedge accounting
rules.
Net interest spread, which is the difference between yields on interest-earning assets and yields
on interest-costing liabilities, contracted by 27 basis points in the 2010 first quarter over the
same period in 2009. Net interest income and net interest margin contracted to levels more typical
of the years before 2009, primarily because the Banks funding advantages experienced in 2009
weakened in the 2010 first quarter. Weighted-average bond funding costs deteriorated, with March
2010 witnessing the lowest weighted-average monthly bond pricing spreads. Spreads to LIBOR have
narrowed considerably. In the 2010 first quarter, the
FHLBNY shifted its funding mix as discount note spreads to LIBOR narrowed considerably and its
relative funding advantage ended, and the Bank reduced its utilization of discount notes. In much
of 2009, discount notes had been successfully utilized when such debt could be issued at wide
advantageous spreads to LIBOR, and was one source of the funding advantage in 2009.
Decline in business volume, as measured by average advances outstanding, was a contributing factor
to the decline of Net interest income in the 2010 first quarter. Average outstanding advances in 2010
first quarter was $91.4 billion down from $105.3 billion in the same period in 2009.
94
Another factor that contributed to the decline in Net interest income was the compression of
swapped funding levels of FHLBank consolidated bonds to LIBOR. The FHLBNY uses interest rate swaps
to effectively change the repricing characteristics of a significant portion of its fixed-rate
advances and consolidated obligation debt to match shorter-term LIBOR rates that reprice at
intervals of three-month or less. When the Bank executes an interest rate swap to change the fixed
payments on its debt to a LIBOR indexed floating rate, the spread between the fixed payments and
the LIBOR floating cash receipts results in the FHLBNYs effective funding cost. Consequently, the
current level of spread between the 3-month LIBOR rate and the swap rate for a fixed-rate FHLBank
debt has an impact on the FHLBNYs profitability. This spread differential has contracted
adversely for the Bank and the impact has been to increase the funding cost for the FHLBNY in the
2010 first quarter.
The FHLBNY earns significant interest income from investing its members capital to fund
interest-earning assets. Such earnings are sensitive to the changes in short-term interest rates
(rate effects), as well as the average outstanding capital and non-interest bearing liabilities
(Volume effects). Additional compression of Net interest spread in the 2010 first quarter was
caused by:
|
|
|
Decline in short-term interest rates, which had an adverse impact on interest income
earned from the deployment of members capital and net non-interest bearing liabilities
(deployed capital). Earnings from deployed capital are sensitive to changes in
short-term interest rate as deployed capital is typically utilized to fund short-term,
liquid investments. As an illustration, the 3-month LIBOR was 29.2 basis points at March
31, 2010, significantly lower than 119.2 basis points at March 31, 2009. Typically, the
Bank earns relatively lower income in a lower interest rate environment on a given amount
of average deployed capital. |
|
|
|
Decrease in member capital in line with reduced demand for advances borrowed by members
as members are required to purchase stock as a percentage of advances borrowed, and the
FHLBNYs existing policy is to redeem stock in excess of those required to be purchased by
the member. Average deployed capital in the 2010 first quarter declined by $0.9 billion
over the same period in 2009. |
For more information, see Table 8: Spread and Yield Analysis and Table 9: Rate and Volume Analysis.
The Bank deploys hedging strategies to protect future net interest income that may reduce income in
the short-term. On a GAAP basis, the impact of derivatives was to reduce the 2010 first quarter
Net interest income by $356.5 million, compared to also an unfavorable impact of $226.2 million in
the same period in 2009. For more information, see Table 6: Net Interest Adjustments from Hedge
Qualifying Interest-Rate Swaps.
The FHLBNY executes certain hedging strategies designated as economic hedges, primarily as hedges
of FHLBNY debt. Under existing accounting rules, the interest income or expense generated from the
derivatives designated as economic hedges are not reported as a component of Net interest income
although they have an economic impact on Net interest income. Under GAAP, interest income or
expense from such derivatives are recorded as derivative gains and losses in Other income (loss).
In the 2010 first quarter, on an economic basis, the economic impact of derivatives would have been
to increase GAAP Net interest income by $37.2 million. In the same period in 2009, on an economic
basis, the impact would have been to decrease GAAP Net interest expense by $46.2 million. The
reporting classification of interest income or expense associated with swaps designated as economic
hedges has no impact on Net income as these adjustments are either reported as a component of Net
interest income or
as a component of Other income as gains or losses from hedging activities. See Table 7 for
additional information.
95
The following table summarizes the impact of net interest adjustments from hedge qualifying
interest-rate swaps (in thousands):
Table 6: Net Interest Adjustments from Hedge Qualifying Interest-Rate Swaps 1
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Interest Income |
|
$ |
803,433 |
|
|
$ |
997,325 |
|
Net interest adjustment from interest rate swaps |
|
|
(530,281 |
) |
|
|
(331,166 |
) |
|
|
|
|
|
|
|
Reported interest income |
|
|
273,152 |
|
|
|
666,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
340,701 |
|
|
|
539,770 |
|
Net interest adjustment from interest rate swaps |
|
|
(173,744 |
) |
|
|
(104,993 |
) |
|
|
|
|
|
|
|
Reported interest expense |
|
|
166,957 |
|
|
|
434,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (Margin) |
|
$ |
106,195 |
|
|
$ |
231,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest adjustment interest rate swaps |
|
$ |
(356,537 |
) |
|
$ |
(226,173 |
) |
|
|
|
|
|
|
|
|
|
|
1 |
|
Net interest accruals of derivatives designated in a fair value or cash flow hedge
qualifying under the derivatives and hedge accounting rules were recorded as adjustments to the
interest income or interest expense of the hedged assets or liabilities, and had a significant
impact on Net interest income. |
The following table contrasts Net interest income, Net income spread and Return on earning assets
between GAAP and economic basis (dollar amounts in thousands):
Table 7: GAAP Versus Economic Basis Contrasting Net Interest Income, Net Income Spread and
Return on Earning Assets 2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2010 |
|
|
Three months ended March 31, 2009 |
|
|
|
Amount |
|
|
ROA |
|
|
Net Spread |
|
|
Amount |
|
|
ROA |
|
|
Net Spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net interest income |
|
$ |
106,195 |
|
|
|
0.38 |
% |
|
|
0.33 |
% |
|
$ |
231,382 |
|
|
|
0.70 |
% |
|
|
0.60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps not designated in a
hedging relationship |
|
|
37,220 |
|
|
|
0.14 |
|
|
|
0.15 |
|
|
|
(46,165 |
) |
|
|
(0.14 |
) |
|
|
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic net interest income |
|
$ |
143,415 |
|
|
|
0.52 |
% |
|
|
0.48 |
% |
|
$ |
185,217 |
|
|
|
0.56 |
% |
|
|
0.45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Explanation of the use of certain non-GAAP measures of Interest Income and Expense, Net
Interest income and margin. The FHLBNY has presented its results of operations in accordance with
U.S. generally accepted accounting principles. The FHLBNY has also presented certain information
regarding its Interest Income and Expense, Net Interest income and Net Interest spread that
combines interest expense on debt with net interest paid on interest rate swaps associated with
debt that were hedged on an economic basis. These are non-GAAP financial measures used by
management that the FHLBNY believes are useful to investors and members of the FHLBNY in
understanding the Banks operational performance as well as business and performance trends.
Although the FHLBNY believes these non-GAAP financial measures enhance investor and members
understanding of the Banks business and performance, these non-GAAP financial measures should not
be considered an alternative to GAAP. When discussing non-GAAP measures, the Bank has provided
GAAP measures in parallel.
|
|
|
2 |
|
In the 2010 first quarter and the same period in 2009, significant amounts of
swaps were designated as economic hedges of consolidated obligation debt in a hedging strategy that
converted floating-rate debt indexed to 1-month LIBOR, the Prime rate, and the Federal Funds
Effective rate to 3-month LIBOR cash flows. The Bank also economically hedged certain short-term
fixed-rate debt and discount notes that it also believed would not be highly effective in
offsetting changes in the fair values of the debt and the swap. Aggregate swap accruals for all
economic hedges in the 2010 first quarter was a net positive contribution of $37.2 million
representing cash in-flows, compared to cash out-flows of $46.1 million the same period in 2009.
In compliance with accounting standards for derivatives and hedging, interest income and expense
from such derivatives were recorded as derivative gains and losses in Other income (loss) as a Net
realized and unrealized gain (loss) from derivatives and hedging activities. |
96
Spread and Yield Analysis
Average balance sheet information is presented below as it is more representative of activity
throughout the periods presented. For most components of the average balances, a daily weighted
average was calculated for the period. When daily weighted average balance information was not
available, a simple monthly average balance was calculated. Average yields were derived by
dividing income by the average balances of the related assets and average costs are derived by
dividing expenses by the average balances of the related liabilities.
Table 8: Spread and Yield Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
Average |
|
|
Income/ |
|
|
|
|
|
|
Average |
|
|
Income/ |
|
|
|
|
(dollars in thousands) |
|
Balance |
|
|
Expense |
|
|
Rate 1 |
|
|
Balance |
|
|
Expense |
|
|
Rate 1 |
|
Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
91,414,698 |
|
|
$ |
149,640 |
|
|
|
0.66 |
% |
|
$ |
105,343,748 |
|
|
$ |
502,222 |
|
|
|
1.93 |
% |
Certificates of deposit and other |
|
|
2,261,163 |
|
|
|
830 |
|
|
|
0.15 |
|
|
|
3,193,686 |
|
|
|
2,062 |
|
|
|
0.26 |
|
Federal funds sold and other overnight funds |
|
|
5,371,946 |
|
|
|
1,543 |
|
|
|
0.12 |
|
|
|
11,584,490 |
|
|
|
7,432 |
|
|
|
0.26 |
|
Investments |
|
|
12,412,612 |
|
|
|
104,398 |
|
|
|
3.41 |
|
|
|
12,721,259 |
|
|
|
135,339 |
|
|
|
4.31 |
|
Mortgage and other loans |
|
|
1,299,588 |
|
|
|
16,741 |
|
|
|
5.22 |
|
|
|
1,449,902 |
|
|
|
19,104 |
|
|
|
5.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
112,760,007 |
|
|
$ |
273,152 |
|
|
|
0.98 |
% |
|
$ |
134,293,085 |
|
|
$ |
666,159 |
|
|
|
2.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded By: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
$ |
74,296,820 |
|
|
$ |
154,913 |
|
|
|
0.85 |
|
|
$ |
76,543,358 |
|
|
$ |
343,707 |
|
|
|
1.82 |
|
Consolidated obligations-discount notes |
|
|
24,555,640 |
|
|
|
9,657 |
|
|
|
0.16 |
|
|
|
46,154,843 |
|
|
|
89,378 |
|
|
|
0.79 |
|
Interest-bearing deposits and
other borrowings |
|
|
5,051,351 |
|
|
|
892 |
|
|
|
0.07 |
|
|
|
1,823,898 |
|
|
|
814 |
|
|
|
0.18 |
|
Mandatorily redeemable capital stock |
|
|
108,396 |
|
|
|
1,495 |
|
|
|
5.59 |
|
|
|
142,971 |
|
|
|
878 |
|
|
|
2.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
104,012,207 |
|
|
|
166,957 |
|
|
|
0.65 |
% |
|
|
124,665,070 |
|
|
|
434,777 |
|
|
|
1.41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and other non-interest-bearing funds |
|
|
8,747,800 |
|
|
|
|
|
|
|
|
|
|
|
9,628,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Funding |
|
$ |
112,760,007 |
|
|
$ |
166,957 |
|
|
|
|
|
|
$ |
134,293,085 |
|
|
$ |
434,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income/Spread |
|
|
|
|
|
$ |
106,195 |
|
|
|
0.33 |
% |
|
|
|
|
|
$ |
231,382 |
|
|
|
0.60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Net interest income/Earning Assets) |
|
|
|
|
|
|
|
|
|
|
0.38 |
% |
|
|
|
|
|
|
|
|
|
|
0.70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Reported yields with respect to advances and debt may not necessarily equal the
coupons on the instruments as derivatives are extensively used to change the yield and
optionality characteristics of the underlying hedged items. When fixed-rate debt is issued
by the Bank and hedged with an interest rate derivative, it effectively converts the debt
into a simple floating-rate bond. Similarly, the Bank makes fixed-rate advances to members
and hedges the advance with a pay-fixed, receive-variable interest rate derivative that
effectively converts the fixed-rate asset to one that floats with prevailing LIBOR rates.
Average balance sheet information is presented as it is more representative of activity
throughout the periods presented. For most components of the average balances, a daily
weighted average balance is calculated for the period. When daily weighted average balance
information is not available, a simple monthly average balance is calculated. Average yields
are derived by dividing income by the average balances of the related assets and average
costs are derived by dividing expenses by the average balances of the related liabilities.
Yields and rates are annualized. |
97
Rate and Volume Analysis
The Rate and Volume Analysis presents changes in interest income, interest expense, and net
interest income that are due to changes in volumes and rates. The following tables present the
extent to which changes in interest rates and changes in the volume of interest-earning assets and
interest-bearing liabilities affected the FHLBNYs interest income and interest expense (in
thousands).
Table 9: Rate and Volume Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
|
March 31, 2010 vs. March 31, 2009 |
|
|
|
Increase (decrease) |
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
(59,098 |
) |
|
$ |
(293,484 |
) |
|
$ |
(352,582 |
) |
Certificates of deposit and other |
|
|
(497 |
) |
|
|
(735 |
) |
|
|
(1,232 |
) |
Federal funds sold and other overnight funds |
|
|
(2,902 |
) |
|
|
(2,987 |
) |
|
|
(5,889 |
) |
Investments |
|
|
(3,212 |
) |
|
|
(27,729 |
) |
|
|
(30,941 |
) |
Mortgage loans and other loans |
|
|
(1,944 |
) |
|
|
(419 |
) |
|
|
(2,363 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
(67,653 |
) |
|
|
(325,354 |
) |
|
|
(393,007 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
|
(9,808 |
) |
|
|
(178,986 |
) |
|
|
(188,794 |
) |
Consolidated obligations-discount notes |
|
|
(29,495 |
) |
|
|
(50,226 |
) |
|
|
(79,721 |
) |
Deposits and borrowings |
|
|
792 |
|
|
|
(714 |
) |
|
|
78 |
|
Mandatorily redeemable capital stock |
|
|
(256 |
) |
|
|
873 |
|
|
|
617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(38,767 |
) |
|
|
(229,053 |
) |
|
|
(267,820 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Net Interest Income |
|
$ |
(28,886 |
) |
|
$ |
(96,301 |
) |
|
$ |
(125,187 |
) |
|
|
|
|
|
|
|
|
|
|
98
Allowance for Credit Losses
Mortgage loans held-for-portfolio The Bank recorded a provision of $0.7 million in the 2010
first quarter and $0.4 million in the same period in 2009 in the Statements of Income based on
identification of inherent losses under a policy described more fully in the Note 1 Significant
Accounting Policies and Estimates to the unaudited financial statements in this report. Charge
offs were insignificant in all periods, and were substantially recovered through the credit
enhancement provisions of MPF loans. Cumulatively, the allowance for credit losses has grown to
$5.2 million at March 31, 2010, compared to $4.5 million at December 31, 2009, and were recorded as
a reduction in the carrying value of Mortgage-loans held-for-portfolio in the Statements of
Condition. The FHLBNY believes the allowance for loan losses is adequate to reflect the losses
inherent in the FHLBNYs mortgage loan portfolio at March 31, 2010 and December 31, 2009.
Advances The FHLBNYs credit risk from advances at March 31, 2010 and December 31, 2009 were
concentrated in commercial banks, savings institutions and insurance companies. All advances were
fully collateralized during their entire term. In addition, borrowing members pledged their stock
in the FHLBNY as additional collateral for advances. The FHLBNY has not experienced any losses on
credit extended to any member since its inception. Based on the collateral held as security and
prior repayment history, no allowance for losses is currently deemed necessary.
Non-Interest Income (Loss)
The principal components of non-interest income are described below:
Service fees Service fees are derived primarily from providing correspondent banking services to
members and fees earned on standby letters of credit. Service fees have declined over
the years due to declining demand for such services. The Bank does not consider income from such
services as a significant element of its operations.
Net realized and unrealized gain (loss) on derivatives and hedging activities The Bank may
designate a derivative as either a hedge of: the fair value of a recognized fixed-rate asset or
liability or an unrecognized firm commitment (fair value hedge); a forecasted transaction; or the
variability of future cash flows of a floating-rate asset or liability (cash flow hedge). The Bank
may also designate a derivative as an economic hedge, which does not qualify for hedge accounting
under the accounting standards for derivatives and hedging.
Changes in the fair value of a derivative that qualifies as a fair value hedge under the accounting
standards for derivatives and hedging and the offsetting gain or loss on the hedged asset or
liability that is attributable to the hedged risk are recorded in Other income (loss) as a Net
realized and unrealized gain (loss) on derivatives and hedging activities. To the extent that
changes in the fair value of the derivative is not entirely offset by changes in the fair value of
the hedged asset or liability, the net impact from hedging activities represents hedge
ineffectiveness.
Net interest accruals of derivatives designated in qualifying fair value or cash flow hedges under
the accounting standards for derivatives and hedging are recorded as adjustments to the interest
income or interest expense of the hedged assets or liabilities. Net interest accruals of
derivatives that do not qualify for hedge accounting under the accounting standards for derivatives
and hedging and interest received from in-the-money options are recorded in Other income (loss) as
a Net realized and unrealized gain (loss) on derivatives and hedging activities.
99
The effective portion of changes in the fair value of a derivative that is designated and qualifies
as a cash flow hedge under the accounting standards for derivatives and hedging are recorded in
AOCI.
For all qualifying hedge relationships under the accounting standards for derivatives and hedging,
hedge ineffectiveness resulting from differences between changes in fair values or cash flows of
the hedged item and changes in fair value of the derivatives are recognized in Other income (loss)
as a Net realized and unrealized gain (loss) on derivatives and hedging activities.
Net realized and unrealized gains and losses from qualifying hedging activities under the
accounting standards for derivatives and hedging are typically impacted by changes in the benchmark
interest rate (designated as LIBOR by the FHLBNY) and the degree of ineffectiveness of hedging
relationships between the change in the fair value of derivatives and the change in the fair value
of the hedged assets and liabilities attributable to changes in benchmark interest rate.
Typically, such gains and losses represent hedge ineffectiveness between changes in the fair value
of the hedged item and changes in the fair value of the derivative.
Redemption of financial instruments and extinguishment of debt The Bank retires debt principally
to reduce future debt costs when the associated asset is either prepaid or terminated early, and
less frequently from prepayments of mortgage-backed securities. The Bank typically receives
prepayment fees to make the FHLBNY economically indifferent to the prepayment. When assets are
prepaid ahead of their expected or contractual maturities, the Bank also attempts to extinguish
debt (consolidated obligation bonds) in order to realign asset and liability cash flow patterns.
Bond retirement typically requires a payment of a premium resulting in a loss.
The following table sets forth the main components of Other income (loss) (in thousands):
Table 10: Other Income
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Other income (loss): |
|
|
|
|
|
|
|
|
Service fees |
|
$ |
1,045 |
|
|
$ |
985 |
|
Instruments held at fair value-Unrealized (loss) gain |
|
|
(8,419 |
) |
|
|
8,313 |
|
Total OTTI losses |
|
|
(3,873 |
) |
|
|
(15,203 |
) |
Portion of loss recognized in other comprehensive income |
|
|
473 |
|
|
|
9,938 |
|
|
|
|
|
|
|
|
Net impairment losses recognized in earnings |
|
|
(3,400 |
) |
|
|
(5,265 |
) |
|
|
|
|
|
|
|
Net realized and unrealized (loss) on derivatives and hedging activities |
|
|
(363 |
) |
|
|
(13,666 |
) |
Net realized gain from sale of available-for-sale securities |
|
|
708 |
|
|
|
440 |
|
Other |
|
|
(227 |
) |
|
|
46 |
|
|
|
|
|
|
|
|
Total other income (loss) |
|
$ |
(10,656 |
) |
|
$ |
(9,147 |
) |
|
|
|
|
|
|
|
Earnings impact of Instruments held at fair value
Under the accounting standards for the fair value option (FVO) for financial assets and
liabilities, the FHLBNY elected to carry certain consolidated obligation bonds at fair value in
the Statements of Condition. The Bank records changes in the
unrealized fair value gains and losses
on these liabilities in Other income. In general, transactions elected for the fair value option are in economic hedge
relationships. The notional amounts of interest
rate swaps executed and outstanding at March 31, 2010 and December 31, 2009 were $6.8 billion and
$6.0 billion, and were executed to offset the fair value volatility of consolidated obligation
bonds elected under the FVO.
100
The fair value adjustments on consolidated obligation bonds carried at fair value in the 2010 first
quarter resulted in net unrealized fair value losses of $8.4 million. In a declining interest rate
environment at March 31, 2010, the fair values of fixed-rate
debt declined. In the same period in
2009, the Bank recorded a fair value gain of $8.3 million, as almost all debt designated under the
FVO matured and previously recorded unrealized losses reversed in that period. When bonds recorded
at fair value are held to maturity, their cumulative fair value changes sum to zero at maturity.
The Bank hedges debt designated under the FVO on an economic basis by executing interest-rate swaps
with terms that matches such debt. Unrealized losses in 2010 first quarter, and gains in the same
period in 2009 were almost entirely offset by fair value changes on derivatives that economically
hedged the debt. For more information, see Note 17 Fair Values of financial instruments to the
unaudited financial statements in this report.
Net impairment losses recognized in earnings on held-to-maturity securities Other-than-temporary
impairment
In the 2010 first quarter, the FHLBNY identified credit impairment on five of its private-label
mortgage-backed securities. Cash flow assessments of the expected credit performance of the five
securities resulted in the recognition of $3.4 million as other-than-temporary impairment (OTTI)
which was a charge to earnings. All five securities had been previously determined to be OTTI in
2009, and the additional impairment or re-impairment in the 2010 first quarter was due to further
deterioration in the credit default rates of the five securities. In the 2009 first quarter, the
Banks cash flow impairment analysis determined two private-label MBS were credit impaired and
credit related OTTI of $5.3 million were charged to earnings. In the 2009 first quarter, the
FHLBNY early adopted the amended OTTI guidance, that resulted in only the credit portion of the
OTTI incurred on a security to be recognized in earnings and the non-credit portion of OTTI (market
value or fair value losses) incurred to be recognized in AOCI. Prior to 2009, if an impairment was
determined to be other-than-temporary, the impairment loss recognized in earnings was equal to the
entire difference between the securitys amortized cost basis and its fair value. The FHLBNY had
not determined any security as impaired prior to 2009 first quarter.
101
Earnings impact of derivatives and hedging activities
Net realized and unrealized gain (loss) from derivatives and hedging activities The FHLBNY
reported the following net gains (losses) from derivatives and hedging activities (in thousands):
Table 11: Earnings Impact of Derivatives By Hedge Type
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Earnings impact of derivatives and hedging activities gain (loss): |
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments 2 |
|
|
|
|
|
|
|
|
Cash flow hedges-ineffectiveness |
|
$ |
|
|
|
$ |
|
|
Fair value hedges-ineffectiveness |
|
|
4,623 |
|
|
|
2,271 |
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
Economic hedges-fair value changes-options |
|
|
(30,716 |
) |
|
|
1,221 |
|
Net interest income-options |
|
|
(1,989 |
) |
|
|
(692 |
) |
Economic hedges-fair value changes-MPF delivery commitments |
|
|
149 |
|
|
|
59 |
|
Fair value changes-economic hedges 1 |
|
|
(16,484 |
) |
|
|
35,065 |
|
Net interest expense-economic hedges 1 |
|
|
29,492 |
|
|
|
(46,196 |
) |
Balance sheet Macro hedges swaps |
|
|
173 |
|
|
|
2,233 |
|
Derivatives matched to bonds designated under FVO |
|
|
|
|
|
|
|
|
Fair value changes-interest rate swaps/bonds |
|
|
14,389 |
|
|
|
(7,627 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized (loss) on derivatives and hedging activities |
|
$ |
(363 |
) |
|
$ |
(13,666 |
) |
|
|
|
|
|
|
|
|
|
|
1 |
|
Includes de minimis amount of net gains on member intermediated swaps. |
|
2 |
|
Net interest settlements from interest rate swaps hedging advances and consolidated
obligations in a designated
accounting relationship are recorded in interest income and interest expense. |
Key components of hedging gains and losses recorded in the Statements of Income as a Net
realized and unrealized gain (loss) from hedging activities were primarily due to:
|
|
|
Hedge ineffectiveness from fair value hedges of advances and consolidated obligation
liabilities that qualified for hedge accounting treatment. Hedge ineffectiveness is
typically the difference between changes in fair values of hedged consolidated obligation
bonds and advances due to changes in the benchmark rate (adopted as the 3-month LIBOR rate)
and changes in the fair value of the associated derivatives. |
|
|
|
|
Fair value changes of interest rate swaps designated in economic hedges of consolidated
obligation debt, without the offsetting benefit of fair value changes of the hedged debt. |
|
|
|
|
Fair value changes of interest rate caps designated in economic hedges of GSE issued
capped floating-rate MBS. Market pricing of the tenor and strikes of caps owned by the
FHLBNY has fallen steeply at March 31, 2010, relative to December 31, 2009 primarily
because of lower volatilities for such caps. As result, purchased caps are exhibiting fair
value losses. The fair values of the caps, which stood at $41.1 million at March 31, 2010,
will ultimately decline to zero if the caps are held to their contractual maturities. |
|
|
|
|
Swap income or expense, primarily swap interest accruals, associated with swaps
designated as economic hedges. |
Qualifying hedges under the accounting standards for derivatives and hedging Hedge
ineffectiveness occurs when changes in the fair value of the derivative and the associated hedged
financial
instrument, generally debt or an advance, do not perfectly offset each other. Hedge
ineffectiveness is associated with changes in the benchmark interest rate and volatility, and the
extent of the mismatch of the structures of the derivative and the hedged financial instrument.
102
In the 2010 first quarter, hedge ineffectiveness was a net fair value gain of $4.6 million. Fair
value hedges of fixed-rate consolidated obligation bonds resulted in fair value gains of $4.0
million, and hedges of fixed-rate advances resulted in a small gain of $0.6 million. Hedging gains
in part were due to the reversal of 2009 fair value losses of debt hedges that matured in 2010 or
were effectively matured when call options were exercised, and in part as a result of market
volatility of interest rates causing fair values of hedged bonds to diverge from the swap fair
values.
In the 2009 first quarter, net fair value gains were $2.3 million, comprising of $12.9 million in
fair value gains from hedges of fixed-rate debt, partly offset by fair value losses of $10.6
million from hedges of fixed-rate advances. Such gains and losses represented hedge
ineffectiveness caused by the asymmetrical impact of interest rate volatility on hedged debt and
advances and associated swaps.
Economic hedges An economic hedge represents derivative transactions that are an
approved risk management hedge but may not qualify for hedge accounting treatment under the
accounting standards for derivatives and hedging. When derivatives are designated as economic
hedges, the fair value changes due to changes in the interest rate and volatility of rates are
recorded through earnings without the offsetting change in the fair values of the hedged advances
and debt as would be afforded under the derivatives and hedge accounting rules. In general, the
FHLBNYs derivatives are held to maturity or to their call or put dates. At inception, the fair
value is at market and is generally zero. Until the derivative matures or is called or put on
pre-determined dates, fair values will fluctuate with changes in the interest rate environment and
volatility observed in the swap market. At maturity or scheduled call or put dates, the fair value
will generally reverse to zero as the Banks derivatives settle at par. Therefore, nearly all of
the cumulative net gains and losses that are unrealized at a point in time will reverse over the
remaining contractual terms so that the cumulative gains or losses will sum to zero over the
contractual maturity, scheduled call, or put dates.
However, interest income and expense have economic consequences since they result in exchanges of
cash payments or receipts. If a derivative is prepaid prior to maturity or at predetermined call
and put dates, they are settled at the then existing fair values in cash. Under hedge accounting
rules, net swap interest expense and income associated with swaps in economic hedges of assets and
liabilities are recorded as hedging losses and gains. On the other hand, when swaps qualify for
hedge accounting treatment, interest income and interest expense from interest rate swaps are
reported as a component of Net interest income together with interest on the instrument being
hedged.
Economic hedges
Interest rate swaps Fair value changes At March 31, 2010, the notional amounts of swap and
caps designated as economic hedges declined by $10.2 billion ($30.6 billion at March 31, 2010 and
$40.8 billion at March 31, 2009) from the amounts outstanding at March 31, 2009. During the 2010 first
quarter and in the same period in 2009, the primary economic hedges were:
|
|
|
Interest rate Basis swaps that synthetically converted floating-rate funding based on
non-Prime rate, Federal funds rate, and the 1-month LIBOR rate to 3-month LIBOR rate. |
|
|
|
|
Interest rate swaps hedging balance sheet risk. |
|
|
|
|
Interest rate swaps hedging discount notes and short-term fixed-rate consolidated
obligation bonds. |
|
|
|
|
Interest rate swaps that had been de-designated as economic hedges of advances and bonds
because the hedges had became ineffective. |
103
Changes in the fair values of interest rate swaps in economic hedges, often referred to as
one-sided marks, resulted in net fair value losses of $5.0 million in the 2010 first quarter,
compared to net losses of $15.9 million in the same period in 2009. The principal components were:
|
|
|
Consolidated bond economic hedges In the 2010 first quarter, a significant portion of
basis swaps matured and almost all previously recorded fair value gains reversed and net
unrealized losses were recorded in the period. The fair value basis changes of the
remaining basis swaps were not significant as the swaps were nearing maturity. In the same
period in 2009, net unrealized gains were recorded. |
|
|
|
Consolidated discount note economic hedges In the 2010 first quarter, unrealized
losses were primarily due to the reversal of gains at the beginning of the period as swaps
executed to hedge value risk of discount notes were nearing maturity at March 31, 2010. |
Cash flows (Net interest accruals) Swap interest accruals are recorded as interest income or
interest expense as a Net realized and unrealized gain (loss) on derivatives and hedging activities
if the swap is designated as an economic hedge. If the swap qualifies for hedge accounting
treatment, cash flows are recorded as a component of Net interest income. The classification of
swap accruals, either as a component of Net interest income or derivatives and hedging activities,
has no impact on Net income.
|
|
|
In the 2010 first quarter, net interest accrual income of $29.5 million were recorded as
a component of derivatives and hedging activities. They represented the net cash in-flows
from swaps that were designated as economic hedges of consolidated obligation bonds,
discount notes, and a handful of advances. |
|
|
|
In the 2009 first quarter, net cash flow accrual was an expense of $46.2 million from
swaps, primarily basis swaps hedging the basis risk of changes in floating-rate debt that
were indexed to rates other than 3-month LIBOR. Under the contractual terms of the
basis swaps the FHLBNY was receiving cash flows indexed to an agreed upon spread to the
daily Federal funds effective rate, the 1-month LIBOR rate, and the Prime rate, and in
return paying cash flows indexed to an agreed upon spread to the 3-month LIBOR rate. The
daily Federal funds rates and the 1-month LIBOR rates (cash received by the Bank) were
considerably lower in the 2009 first quarter than the 3-month LIBOR rates (Cash paid by the
Bank), and resulted in net cash outflows. The formula for computing the cash flows of
swaps indexed to the Prime rate also resulted in net cash outflows. These factors explain
the significant net interest expenses recorded in the 2009 first quarter in Other income
as a component of derivatives and hedging activities. |
Interest rate caps Unfavorable fair values of purchased caps resulted in net unrealized fair
value losses of $30.4 million in the 2010 first quarter. The purchased caps have been losing fair
value gains recorded at the beginning of 2010 first quarter. Fair values of interest rate caps
were $41.1 million at March 31, 2010 and will reverse to zero over the contractual life of the caps
if held to maturity. In the 2009 first quarter, the aggregate fair values of purchased caps
improved only marginally from its fair value basis at the beginning of the period in 2009, and
unrealized gains of $1.2 million were recorded.
104
Derivative gains and losses reclassified from Accumulated other comprehensive income (loss) to
current period income The following table summarizes changes in derivative gains and (losses) and
reclassifications into earnings from AOCI in the Statements of Condition (in thousands):
Table
12: Gains/(Losses) Reclassified from AOCI to Current Period Income from Cash Flow
Hedges
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
Accumulated other comprehensive income/(loss) from cash flow hedges |
|
2010 |
|
|
2009 |
|
Beginning of period |
|
$ |
(22,683 |
) |
|
$ |
(30,191 |
) |
Net hedging transactions |
|
|
392 |
|
|
|
|
|
Reclassified into earnings |
|
|
1,740 |
|
|
|
1,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
(20,551 |
) |
|
$ |
(28,312 |
) |
|
|
|
|
|
|
|
Cash Flow Hedges
In the 2010 first quarter, $1.7 million was reclassified from AOCI as an interest expense at the
same time as the recognition of interest expense of the debt that had been hedged by the cash flow
hedges in prior years.
There were no material amounts for the first quarter of 2010 or 2009 that were reclassified from
AOCI into earnings as a result of the discontinuance of cash flow hedges because it became probable
that the original forecasted transactions would not occur by the end of the originally specified
time period or within a two-month period thereafter. Ineffectiveness from hedges designated as
cash flow hedges was not material in any periods reported in this Form 10-Q. Over the next twelve
months, it is expected that $6.6 million of net losses recorded in AOCI will be recognized as an
interest expense.
Debt extinguishment and sales of available-for-sale securities
No debt was retired or transferred in 2010 first quarter or in the same period in 2009.
In the first quarter of 2010, the Bank sold mortgage-backed securities from its AFS portfolio
at a gain of $0.7 million. In the same period in 2009, the Bank also sold mortgage-backed
securities designated as AFS for a gain of $0.4 million.
105
Non-Interest Expense
Operating expenses included the administrative and overhead costs of operating the Bank and
the operating costs of providing advances and managing collateral associated with the advances,
managing the investment portfolios, and providing correspondent banking services to members.
The FHLBanks, including the FHLBNY, fund the cost of the Office of Finance, a joint office of the
FHLBanks that facilitates issuing and servicing the consolidated obligations of the FHLBanks,
preparation of the combined quarterly and annual financial reports, and certain other functions.
The FHLBanks are also assessed the operating expenses of the Finance Agency, the regulator of the
FHLBanks.
The following table sets forth the main components of Other expenses (in thousands):
Table 13: Other Expenses
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Other expenses: |
|
|
|
|
|
|
|
|
Operating |
|
$ |
19,236 |
|
|
$ |
18,094 |
|
Finance Agency and Office of Finance |
|
|
2,418 |
|
|
|
1,967 |
|
|
|
|
|
|
|
|
Total other expenses |
|
$ |
21,654 |
|
|
$ |
20,061 |
|
|
|
|
|
|
|
|
Operating expenses rose 6.3% in the 2010 first quarter, compared to the same period in 2009.
Consulting costs were higher, and they ranged from strategic to information systems planning and
implementation. Consulting cost with respect to the implementation of OTTI caused increases in
audit and audit related expenses. The cost of compliance remains a very significant overhead
expense for the Bank.
Operating Expenses
The following table sets forth the major categories of operating expenses (dollars in
thousands):
Table 14: Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
Percentage of |
|
|
|
2010 |
|
|
total |
|
|
2009 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
12,894 |
|
|
|
67.03 |
% |
|
$ |
12,088 |
|
|
|
66.81 |
% |
Temporary workers |
|
|
39 |
|
|
|
0.20 |
|
|
|
103 |
|
|
|
0.57 |
|
Occupancy |
|
|
1,062 |
|
|
|
5.52 |
|
|
|
1,056 |
|
|
|
5.83 |
|
Depreciation and leasehold amortization |
|
|
1,366 |
|
|
|
7.10 |
|
|
|
1,324 |
|
|
|
7.32 |
|
Computer service agreements and contractual
services |
|
|
1,901 |
|
|
|
9.88 |
|
|
|
1,462 |
|
|
|
8.08 |
|
Professional and legal fees |
|
|
542 |
|
|
|
2.82 |
|
|
|
449 |
|
|
|
2.48 |
|
Other * |
|
|
1,432 |
|
|
|
7.45 |
|
|
|
1,612 |
|
|
|
8.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
19,236 |
|
|
|
100.00 |
% |
|
$ |
18,094 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Other primarily represents- audit fees, director fees and expenses, insurance and
telecommunications. |
106
Financial Condition: Assets, Liabilities, Capital, Commitments and Contingencies:
Table 15: Statements of Condition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in |
|
|
Net change in |
|
(Dollars in thousands) |
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
dollar amount |
|
|
percentage |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
1,167,824 |
|
|
$ |
2,189,252 |
|
|
$ |
(1,021,428 |
) |
|
|
(46.66 |
)% |
Federal funds sold |
|
|
3,130,000 |
|
|
|
3,450,000 |
|
|
|
(320,000 |
) |
|
|
(9.28 |
) |
Available-for-sale securities |
|
|
2,654,814 |
|
|
|
2,253,153 |
|
|
|
401,661 |
|
|
|
17.83 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
9,776,282 |
|
|
|
10,519,282 |
|
|
|
(743,000 |
) |
|
|
(7.06 |
) |
Advances |
|
|
88,858,753 |
|
|
|
94,348,751 |
|
|
|
(5,489,998 |
) |
|
|
(5.82 |
) |
Mortgage loans held-for-portfolio |
|
|
1,287,770 |
|
|
|
1,317,547 |
|
|
|
(29,777 |
) |
|
|
(2.26 |
) |
Accrued interest receivable |
|
|
320,730 |
|
|
|
340,510 |
|
|
|
(19,780 |
) |
|
|
(5.81 |
) |
Premises, software, and equipment |
|
|
14,046 |
|
|
|
14,792 |
|
|
|
(746 |
) |
|
|
(5.04 |
) |
Derivative assets |
|
|
9,246 |
|
|
|
8,280 |
|
|
|
966 |
|
|
|
11.67 |
|
Other assets |
|
|
19,761 |
|
|
|
19,339 |
|
|
|
422 |
|
|
|
2.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
107,239,226 |
|
|
$ |
114,460,906 |
|
|
$ |
(7,221,680 |
) |
|
|
(6.31 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand |
|
$ |
7,942,668 |
|
|
$ |
2,616,812 |
|
|
$ |
5,325,856 |
|
|
NM |
% |
Non-interest bearing demand |
|
|
6,254 |
|
|
|
6,499 |
|
|
|
(245 |
) |
|
|
(3.77 |
) |
Term |
|
|
28,000 |
|
|
|
7,200 |
|
|
|
20,800 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
7,976,922 |
|
|
|
2,630,511 |
|
|
|
5,346,411 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
|
72,408,203 |
|
|
|
74,007,978 |
|
|
|
(1,599,775 |
) |
|
|
(2.16 |
) |
Discount notes |
|
|
19,815,956 |
|
|
|
30,827,639 |
|
|
|
(11,011,683 |
) |
|
|
(35.72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated obligations |
|
|
92,224,159 |
|
|
|
104,835,617 |
|
|
|
(12,611,458 |
) |
|
|
(12.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandatorily redeemable capital stock |
|
|
105,192 |
|
|
|
126,294 |
|
|
|
(21,102 |
) |
|
|
(16.71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest payable |
|
|
330,715 |
|
|
|
277,788 |
|
|
|
52,927 |
|
|
|
19.05 |
|
Affordable Housing Program |
|
|
145,660 |
|
|
|
144,489 |
|
|
|
1,171 |
|
|
|
0.81 |
|
Payable to REFCORP |
|
|
13,873 |
|
|
|
24,234 |
|
|
|
(10,361 |
) |
|
|
(42.75 |
) |
Derivative liabilities |
|
|
850,911 |
|
|
|
746,176 |
|
|
|
104,735 |
|
|
|
14.04 |
|
Other liabilities |
|
|
216,168 |
|
|
|
72,506 |
|
|
|
143,662 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
101,863,600 |
|
|
|
108,857,615 |
|
|
|
(6,994,015 |
) |
|
|
(6.42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
5,375,626 |
|
|
|
5,603,291 |
|
|
|
(227,665 |
) |
|
|
(4.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and capital |
|
$ |
107,239,226 |
|
|
$ |
114,460,906 |
|
|
$ |
(7,221,680 |
) |
|
|
(6.31 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet overview
The FHLBNY continued to experience balance sheet contraction in the 2010 first quarter, as
both its lending and funding declined. Advances to member banks declined to a level more typical
of that before the credit crisis to $88.9 billion from a peak of approximately $109.1 billion in
2008. The decline has occurred as member banks have taken advantage of improved availability of
alternate funding sources such as deposits and senior unsecured borrowings in a more liquid market.
Member demand for borrowed advances have also declined as loan demand from member customers may
have stayed lukewarm due to nationally weak economic conditions.
107
At March 31, 2010, the FHLBNYs Total assets were $107.2 billion, a decrease of 6.3%, or $7.2
billion from December 31, 2009. The Banks balance sheet management strategy has been to keep
balance sheet growth or decline in line with the changes in member demand for advances, which
declined 5.8%.
The FHLBNYs investment strategy continues to be restrained, and were limited to investments in
mortgage-backed securities issued by GSEs and U.S. government agencies. Acquisitions even in such
securities have been made when they justified the Banks risk-reward preferences. No acquisitions
were made to its held-to-maturity (HTM) securities portfolio in the 2010 first quarter.
Floating-rate GSE and U.S. government issued MBS were acquired for the Banks available-for-sale
(AFS) portfolio in this period that kept acquisitions ahead of paydowns. Market pricing of GSE
issued MBS improved at March 31, 2010 as liquidity appeared to return to the market place, and
substantially all of MBS in the AFS portfolio were in net unrealized fair value gain positions.
Fair values of the Banks private-label securities continue to be depressed as market conditions
for such securities remained uncertain. For more information about fair values of AFS and HTM
securities, see Note 17 to the unaudited financial statements in this report.
108
At March 31, 2010, balance sheet leverage was 19.9 times shareholders equity, lower than 20.4
times capital at December 31, 2009. The change in leverage reflects the Banks balance sheet
management strategy of keeping the balance sheet change in line with the changes in member demand
for advances. Increases or decreases in investments have a direct impact on leverage, but
generally, growth in or shrinkage of advances does not significantly impact balance sheet leverage
under existing capital stock management practices. This is because changes in shareholders
capital are in line with changes in advances, and the ratio of assets to capital generally remains
unchanged. Under existing capital management practices, members are required to purchase capital
stock to support their borrowings from the Bank, and when capital stock is in excess of the amount
that is required to support advance borrowings, the Bank redeems the excess capital stock
immediately. Therefore, stockholders capital
increases and decreases with members advance borrowings, and the capital to asset ratios remains
relatively unchanged. As capital increases or declines in line with higher or lower volumes of
advances, the Bank may also adjust its assets by increasing or decreasing holdings of short-term
investments in certificates of deposit, and, to some extent, its positions in Federal funds sold,
which it inventories to accommodate unexpected member needs for liquidity.
In the 2010 first quarter as in the same period in 2009, the primary source of funds for the FHLBNY
continued to be through issuance of consolidated obligation bonds and discount notes. Discount
notes are consolidated obligations with maturities up to one year, and consolidated bonds have
maturities of one year or longer. The mix between the use of discount notes and bonds has
fluctuated during the 2010 first quarter and through 2009, partly because of fluctuations in the
market pricing of discount notes relative to the pricing of fixed-rate bonds with similar
maturities, and partly because of the price attractiveness of short-term callable and non-callable
bonds that could be swapped back to 3-month LIBOR rates, as an alternative to discount notes. In
the 2010 first quarter, the Bank decreased its issuances of discount notes mainly because of
unfavorable pricing relative to alternative funding, primarily through the use of short-term
callable bonds. On an option adjusted basis the effective duration of such callable bonds was
shorter than its contractual maturities and achieved the Banks asset/liability management profile.
109
Advances
The FHLBNYs primary business is making collateralized loans, known as advances, to members.
Reported book value of advances was $88.9 billion at March 31, 2010, compared to $94.3 billion at
December 31, 2009. Advance book value included fair value basis adjustments of $3.8 billion at
March 31, 2010, almost unchanged from $3.6 billion at December 31, 2009. Fair value basis
adjustments of hedged advances were recorded under the hedge accounting provisions. When medium-
and long-term interest rates rise or fall, the fair values of fixed-rate advances move in the
opposite direction.
Par amounts of advances outstanding have been steadily declining through the four quarters in 2009
and that trend continued through the 2010 first quarter.
Generally, the growth or decline in advances is reflective of demand by members for both short-term
liquidity and term funding driven by economic factors, such as availability to the Banks members
of alternative funding sources that are more attractive, or by the interest rate environment, and
the outlook for the economy. Members may choose to prepay advances (which may incur prepayment
penalty fees) based on their expectations of interest rate changes and demand for liquidity.
Demand may also be influenced by the dividend payout to members on their capital stock investment
in the FHLBNY. Members are required to invest in FHLBNYs capital stock in the form of membership
and activity stock. Advance volume is also influenced by merger activity where members are either
acquired by non-members or acquired by members of another FHLBank. When FHLBNY members are
acquired by members of another FHLBank or a non-member, they no longer qualify for membership and
the FHLBNY may not offer renewals or additional advances to non-members. Subsequent to the merger,
maturing advances may not be replaced, which has an immediate impact on short-term and overnight
lending if the former member borrowed short-term and overnight advances.
The FHLBNYs readiness to be a reliable provider of well-priced funds to our members reflects the
FHLBNYs ability to raise funding in the marketplace through the issuance of consolidated
obligation bonds and discount notes to domestic and global investors.
110
Advances Product Types
The following table summarizes par values of advances by product type (dollars in thousands):
Table 16: Advances by Product Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
Amounts |
|
|
of total |
|
|
Amounts |
|
|
of total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable Rate Credit ARCs |
|
$ |
12,838,850 |
|
|
|
15.09 |
% |
|
$ |
14,100,850 |
|
|
|
15.54 |
% |
Fixed Rate Advances |
|
|
67,956,476 |
|
|
|
79.86 |
|
|
|
71,943,468 |
|
|
|
79.29 |
|
Short-Term Advances |
|
|
1,979,178 |
|
|
|
2.33 |
|
|
|
2,173,321 |
|
|
|
2.39 |
|
Mortgage Matched Advances |
|
|
583,597 |
|
|
|
0.68 |
|
|
|
606,883 |
|
|
|
0.67 |
|
Overnight Line of Credit (OLOC)
Advances |
|
|
734,835 |
|
|
|
0.86 |
|
|
|
926,517 |
|
|
|
1.02 |
|
All other categories |
|
|
1,002,240 |
|
|
|
1.18 |
|
|
|
986,661 |
|
|
|
1.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
85,095,176 |
|
|
|
100.00 |
% |
|
|
90,737,700 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount on AHP Advances |
|
|
(244 |
) |
|
|
|
|
|
|
(260 |
) |
|
|
|
|
Hedging adjustments |
|
|
3,763,821 |
|
|
|
|
|
|
|
3,611,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
88,858,753 |
|
|
|
|
|
|
$ |
94,348,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate advances and Adjustable-rate advances (ARCs) have been the more significant
products that have declined at March 31, 2010 relative to December 31, 2009.
Member demand for advance products
|
|
Adjustable Rate Advances (ARC Advances) ARC advances have declined steadily
through 2009 and that trend has continued into the 2010 first quarter, as demand has remained
weak. Generally, the FHLBNYs larger members have been the more significant borrowers of ARCs. |
|
|
ARC advances are medium- and long-term loans that can be linked to a variety of indices, such
as 1-month LIBOR, 3-month LIBOR, the Federal funds rate, or Prime. Members use ARC advances to
manage interest rate and basis risks by efficiently matching the interest rate index and
repricing characteristics of floating-rate assets. The interest rate is set and reset
(depending upon the maturity of the advance and the type of index) at a spread to that
designated index. Principal is due at maturity and interest payments are due at each reset
date, including the final payment date. |
|
|
Fixed-rate Advances Fixed-rate advances, comprising putable and non-putable
advances, were the largest category of advances. |
|
|
Member demand for fixed-rate advance was very soft in the 2010 first quarter, and it appears
that members are uncertain about locking into long-term advances perhaps because of unfavorable
pricing of longer-term advances, or an uncertain outlook over the direction and timing of
interest rate changes, or lukewarm demand from members customer base for fixed-rate loans.
The decline in demand for fixed-rate advances has been a trend over the past several quarters. |
111
|
|
A significant component of Fixed-rate advances is putable advances. Historically, Fixed-rate
putable advances have been more competitively priced relative to fixed-rate bullet advances
because of the put feature that the Bank purchases from the member, driving down the coupon
on the advance. With a putable advance, the FHLBNY has the right to exercise the put option
and terminate the advance at predetermined exercise date (s), which the FHLBNY normally would
exercise when interest rates rise, and the borrower may then apply for a new advance at the
then prevailing coupon and terms. In the present interest rate environment, the price
advantage has not been significant because of constraints in offering longer-term-advances.
The price advantage of a putable advance increases with the numbers of puts sold and the
length of the term of a putable advance. |
|
|
Fixed-rate advances are flexible funding tools that can be used by members to meet short- to
long-term liquidity needs. Terms vary from two days to 30 years. |
|
|
Member demand for the competitively priced putable advances had remained steady through the
third quarter in 2009, contracted somewhat in the fourth quarter of 2009, and declined in the
2010 first quarter as maturing putable advances were either not replaced, or replaced by bullet
advance (without the put feature). Putable advances stood at $38.6 billion at March 31, 2010,
compared to $41.4 billion at December 31, 2009. |
|
|
Short-term Advances Demand for Short-term fixed-rate advances has remained very
weak in the 2010 first quarter, a continuing trend from 2009. By way of contrast, the
outstanding balance was $7.8 billion at December 31, 2008. |
|
|
Overnight Line of Credit (OLOC Advances) Overnight borrowings also remained lackluster in
2010 a continuation of the trend seen in 2009. Member demand for the OLOC Advances may also
reflect the seasonal needs of certain member banks for their short-term liquidity requirements.
Some large members also use OLOC advances to adjust their balance sheet in line with their own
leverage targets. |
|
|
The OLOC program gives members a short-term, flexible, readily accessible revolving line of
credit for immediate liquidity needs. OLOC Advances mature on the next business day, at which
time the advance is repaid. |
Merger Activity
Merger activity is an important factor and, if significant, would contribute to an uneven pattern
in advance balances. Merger activity may result in the loss of new business if the member is
acquired by a non-member. The FHLBank Act does not permit new advances to replace maturing
advances to former members. Advances held by members who are acquired by non-members may remain
outstanding until their contractual maturities. Merger activity may also result in a decline in
the advance book if the acquired member decides to prepay existing advances partially or in full
depending on the post-merger liquidity needs.
One member was acquired by a non-member financial institution in the 2010 first quarter. The
former member is not considered to have a significant borrowing potential. There were no members
acquired by non-members in the same period in 2009.
112
Early Prepayment of Advances
Early prepayment initiated by members and former members is another important factor that impacts
advances to members. The FHLBNY charges a member a prepayment fee when the member prepays certain
advances before the original maturity. Member initiated prepayments in the 2010 first quarter were
not significant ($0.2 billion in par amounts of advances), compared to $3.0 billion in the same
period in 2009. As a result, prepayment fees were not significant in the 2010 first quarter. In
contrast, prepayment fees in the same period in 2009 totaled $19.1 million. For advances that are
prepaid and hedged under hedge accounting rules, the FHLBNY generally terminates the hedging
relationship upon
prepayment and adjusts the prepayments fees received for the associated fair value basis of the
hedged prepaid advance.
Impact of Derivatives and hedging activities to the balance sheet carrying values of Advances
The Bank hedges certain advances by the use of both cancellable and non-cancellable interest rate
swaps. These qualify as fair value hedges under the derivatives and hedge accounting rules.
Recorded fair value basis adjustments to advances in the Statements of Condition were a result of
these hedging activities. The Bank hedges the risk of changes in the benchmark rate, which the
FHLBNY has adopted as LIBOR and is also the discounting basis for computing changes in fair values
of hedged advances. Fair value changes of qualifying hedged advances under the derivatives and
hedge accounting rules are recorded in the Statements of Income as a Net realized and unrealized
gain (loss) on derivative and hedging activities, a component of Other income (loss). An offset is
recorded as a fair value basis adjustment to the carrying amount of the advances in the Statements
of Condition.
Derivative transactions are employed to hedge fixed-rate advances in the following manner and to
achieve the following principal objectives:
The FHLBNY:
|
|
Makes extensive use of the derivatives to restructure interest rates on fixed-rate
advances, both putable and non-putable (bullet), to better match the FHLBNYs cash flows, to
enhance yields, and to manage risk from a changing interest rate environment. |
|
|
Converts at the time of issuance, certain simple fixed-rate bullet and putable fixed-rate
advances into synthetic floating-rate advances by the simultaneous execution of interest rate
swaps that convert the cash flows of the fixed-rate advances to conventional adjustable rate
instruments tied to an index, typically 3-month LIBOR. |
|
|
Uses derivatives to manage the risks arising from changing market prices and volatility of
a fixed coupon advance by matching the cash flows of the advance to the cash flows of the
derivative, and making the FHLBNY indifferent to changes in market conditions. Putable
advances are typically hedged by an offsetting derivative with a mirror-image call option with
identical terms. |
|
|
Adjusts the reported carrying value of hedged fixed-rate advances for changes in their fair
value (fair value basis or fair value) that are attributable to the risk being hedged in
accordance with hedge accounting rules. Amounts reported for advances in the Statements of
Condition include fair value hedge basis adjustments. |
113
The most significant element that impacts balance sheet reporting of advances is the recording of
fair value basis adjustments to the carrying value of advances in the Statements of Condition. In
addition, when putable advances are hedged by cancellable swaps, the possibility of exercise of the
call shortens the expected maturity of the advance. The impact of derivatives to the Banks income
is discussed in this MD&A under Results of Operations. Fair value basis adjustments as measured
under the hedging rules are impacted by hedge volume, the interest rate environment, and the
volatility of the interest rates.
Hedge volume The Bank primarily hedges putable advances and certain bullet fixed-rate advances
that qualify under the hedging provisions of the accounting standards for derivatives and hedging,
and as economic hedges when the hedge accounting provisions are operationally difficult to
establish, or a high degree of hedge effectiveness cannot be asserted.
At March 31, 2010, $63.3 billion of interest rate swaps hedged fixed-rate advances, compared to
$66.0 billion at December 31, 2009. Except for an insignificant notional amount of derivatives
that were designated as economic hedges of advances, the swaps were in a qualifying hedging
relationship under the accounting standards for derivatives and hedging. Decline in the use of
derivatives was consistent with the contraction of fixed-rate advances, which the FHLBNY typically
hedges to convert fixed-rate cash flows to LIBOR-indexed cash flows through the use of interest
rate swaps.
The largest component of interest rate swaps hedging advances at March 31, 2010 and December 31,
2009 was comprised of cancellable swaps that hedged $37.4 billion and $41.4 billion in putable
advances at those dates, and the change is in line with the decline in putable advances.
Generally, the Bank hedges almost all putable advances with a cancellable interest rate swap. The
put option in the advance is owned by the FHLBNY and mirrors the cancellable swap option terms
owned by the swap counterparty. The Banks putable advance contains a put option purchased by the
Bank from the member. Under the terms of the put option, the Bank has the right to terminate the
advance at agreed upon dates. The period until the option is exercisable is known as the lockout
period. If the advance is put by the FHLBNY at the end of the lockout period, the member can
borrow an advance product of the members choice at the then prevailing market rates and at the
then existing terms and conditions. Non-cancellable swaps were $26.0 billion at March 31, 2010,
almost unchanged from December 31, 2009.
In addition, certain LIBOR-indexed advances have capped coupons that are in effect sold to
borrowers. The fair value changes of the sold caps are offset by fair value changes of purchased
options (caps) with mirror-image terms. Fair value changes of caps due to changes in the benchmark
rate and option volatilities are recorded in Other income (loss) as a Net realized and unrealized
gain (loss) on derivatives and hedging activities in the Statements of Income. Notional amounts of
purchased interest rate caps to hedge embedded caps were $0.3 billion and $0.4 billion at March
31, 2010 and December 31, 2009, and were designated as economic hedges of caps embedded in the
variable-rate advances borrowed by members.
114
Fair value basis adjustments The Bank uses interest rate derivatives to hedge the risk of changes
in the benchmark rate, which the FHLBNY has adopted as LIBOR, and is also the discounting basis for
computing changes in fair values of hedged advances. Recorded fair value basis adjustments in the
Statements of Condition were associated with hedging activities under the hedge accounting
provisions. Advances designated at inception as economic hedges do not have any basis adjustments
and these were insignificant. The reported carrying values of advances at March 31, 2010 included
net unrealized fair value basis gains of $3.8 billion slightly up from $3.6 billion at December 31,
2009. Such unrealized gains were consistent with the forward yield curve at March 31, 2010 and
December 31, 2009 that were projecting forward rates below the contractual coupons of hedged
fixed-rate advances. Hedged-fixed rate advances had been issued in prior periods at the then
prevailing higher interest-rate environment, and since hedged advances are typically fixed-rate, in
a lower interest rate environment relative to the coupons of the advances, fixed-rate advances will
exhibit net unrealized fair value basis gains.
Unrealized gains from fair value basis adjustments to advances were almost entirely offset by net
fair value unrealized losses of the derivatives associated with the fair value hedges of advances,
thereby achieving the Banks hedging objectives of mitigating fair value basis risk.
The fair value basis gains of $3.8 billion were generated from $63.3 billion of interest rate swaps
that qualified under hedge accounting rules at March 31, 2010. At December 31, 2009, fair value
basis gains were $3.6 billion and the notional amounts of swaps in hedge qualifying relationships
were $66.0 billion.
The relatively small increase in net fair value basis adjustments of hedged Advances was primarily
caused by the flattening of forward interest rates at March 31, 2010, relative to December 31,
2009, with the 5-year and 7-year forward rates a little below the same yields projected at December
31, 2009. At March
31, 2010, the yield curve was forecasting 2.56% and 3.28% on the 5-year and 7-year swap curves,
compared to 2.68% and 3.38% at December 31, 2009. Fair values of hedged fixed-rate advances
typically gain value when interest rates decline.
115
Investments
The FHLBNY maintains investments for liquidity purposes, to manage capital stock repurchases
and redemptions, to provide additional earnings, and to ensure the availability of funds to meet
the credit needs of its members. The FHLBNY also maintains longer-term investment portfolios,
which are principally mortgage-backed securities issued by government-sponsored mortgage agencies,
a smaller portfolio of MBS issued by private enterprises, and securities issued by state or local
housing finance agencies. Finance Agency regulations prohibit the FHLBanks, including the FHLBNY,
from investing in certain types of securities and limit the investment in mortgage- and
asset-backed securities.
Investments Policies and practices
Finance Agency regulations limit investment in housing-related obligations of state and local
governments and their housing finance agencies to obligations that carry ratings of double-A or
higher. Mortgage- and asset-backed securities acquired must carry the highest ratings from Moodys
Investors Service (Moodys) or Standard & Poors Rating Services (S&P) at the time of purchase.
Finance Agency regulations further limit the mortgage- and asset-backed investments of each
FHLBank to 300% of that FHLBanks capital. The FHLBNY was within the 300% limit for all periods
reported. The FHLBNYs investment in mortgage-backed securities during all periods reported
complied with FHLBNYs Board-approved policy of acquiring mortgage-backed securities issued or
guaranteed by the government-sponsored housing enterprises, or prime residential mortgages rated
triple-A by both Moodys and Standard & Poors rating services at acquisition.
The FHLBNYs practice is not to lend unsecured funds to members, including overnight Federal funds
sold and certificates of deposits. The FHLBNY does not preclude or specifically seek out
investments any differently than it would in the normal course of acquiring securities for
investments, unless it is prohibited by existing regulations. Unsecured lending to members is not
prohibited by Finance Agency regulations or Board of Directors policy. The FHLBNY is prohibited
from purchasing a consolidated obligation issued directly by another FHLBank, but may acquire
consolidated obligations for investment in the secondary market after the bond settles. There were
no investments in consolidated obligations by the FHLBNY at March 31, 2010 or December 31, 2009.
On March 24, 2008, the Board of Directors of the Federal Housing Finance Board, predecessor to the
Finance Agency adopted Resolution 2008-08, which temporarily expanded the authority of a FHLBank to
purchase mortgage-backed securities (MBS) under certain conditions. The resolution allowed a
FHLBank to increase its investments in MBS issued by Fannie Mae and Freddie Mac by an amount equal
to three times its capital, which is to be calculated in addition to the existing limit. The
expanded authority permitted MBS investments to be as much as 600% of the FHLBNYs capital. The
FHLBNY has not exercised the expanded authority provided under the temporary regulations to
purchase MBS issued by Fannie Mae and Freddie Mac.
116
The following table summarizes changes in investments by categories (including held-to-maturity
securities, available-for-sale securities, and money market investments) between March 31, 2010 and
December 31, 2009. Amounts are after writing down (at the time of credit related OTTI)
held-to-maturity impaired securities to fair values. No securities classified as
available-for-sale were OTTI. (dollars in thousands):
Table 17: Investments by Categories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
Dollar |
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
Variance |
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local housing finance agency obligations 1 |
|
$ |
749,841 |
|
|
$ |
751,751 |
|
|
$ |
(1,910 |
) |
|
|
(0.25 |
)% |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities, at fair value |
|
|
2,641,921 |
|
|
|
2,240,564 |
|
|
|
401,357 |
|
|
|
17.91 |
|
Held-to-maturity securities, at carrying value |
|
|
9,026,441 |
|
|
|
9,767,531 |
|
|
|
(741,090 |
) |
|
|
(7.59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,418,203 |
|
|
|
12,759,846 |
|
|
|
(341,643 |
) |
|
|
(2.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grantor trusts 2 |
|
|
12,893 |
|
|
|
12,589 |
|
|
|
304 |
|
|
|
2.41 |
|
Federal funds sold |
|
|
3,130,000 |
|
|
|
3,450,000 |
|
|
|
(320,000 |
) |
|
|
(9.28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
15,561,096 |
|
|
$ |
16,222,435 |
|
|
$ |
(661,339 |
) |
|
|
(4.08 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Classified as held-to-maturity securities, at carrying value |
|
2 |
|
Classified as available-for-sale securities, at fair value and represents investments
in registered mutual funds and other fixed-income securities maintained under the grantor trusts |
Long-term investments
At March 31, 2010 and December 31, 2009, investments with original long-term contractual
maturities were comprised of mortgage- and asset-backed securities, and investment in securities
issued by state and local housing agencies. These investments were classified as either
held-to-maturity or available-for-sale securities in accordance with accounting standard on
investments in debt and equity securities as amended by the guidance on recognition and
presentation of other-than-temporary impairments. Several grantor trusts have been established and
owned by the FHLBNY to fund current and potential future payments to retirees for supplemental
pension plan obligations. The trust funds are invested in fixed-income and equity funds, which
were classified as available-for-sale.
Mortgage-backed securities By issuer
Issuer composition of held-to-maturity mortgage-backed securities was as follows (carrying
values; dollars in thousands):
Table 18: Mortgage-Backed Securities By Issuer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Percentage |
|
|
December 31, |
|
|
Percentage |
|
|
|
2010 |
|
|
of total |
|
|
2009 |
|
|
of total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored enterprise residential
mortgage-backed securities |
|
$ |
7,648,745 |
|
|
|
84.73 |
% |
|
$ |
8,482,139 |
|
|
|
86.84 |
% |
U.S. agency residential mortgage-backed securities |
|
|
150,882 |
|
|
|
1.67 |
|
|
|
171,531 |
|
|
|
1.76 |
|
U.S. government sponsored enterprise commercial
mortgage-backed securities |
|
|
174,048 |
|
|
|
1.93 |
|
|
|
|
|
|
|
|
|
U.S. agency commercial mortgage-backed securities |
|
|
49,342 |
|
|
|
0.55 |
|
|
|
49,526 |
|
|
|
0.51 |
|
Private-label issued securities backed by home equity loans |
|
|
400,172 |
|
|
|
4.43 |
|
|
|
417,151 |
|
|
|
4.27 |
|
Private-label issued residential mortgage-backed securities |
|
|
407,552 |
|
|
|
4.52 |
|
|
|
444,906 |
|
|
|
4.55 |
|
Private-label issued securities backed by manufactured housing loans |
|
|
195,700 |
|
|
|
2.17 |
|
|
|
202,278 |
|
|
|
2.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-maturity
securities-mortgage-backed
securities |
|
$ |
9,026,441 |
|
|
|
100.00 |
% |
|
$ |
9,767,531 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
117
Held-to-maturity mortgage and asset-backed securities (MBS) Government sponsored
enterprise (GSE) and U.S. government agency issued MBS totaled $8.0 billion and $8.7 billion at
March 31, 2010 and December 31, 2009. They represented 88.9% and 89.1% of total MBS classified as
held-to-maturity (HTM) at those dates. Privately issued mortgage-backed securities made up the
remaining 11.1% and 10.9% at March 31, 2010 and December 31, 2009. The Banks conservative
purchasing practice over the years is evidenced by the high concentration of MBS issued by the
GSEs.
Local and housing finance agency bonds The FHLBNY had investments in primary public and private
placements of taxable obligations of state and local housing finance authorities (HFA) classified
as held-to-maturity. Investments in state and local housing finance bonds help to fund mortgages
that finance low- and moderate-income housing. No additions were made in the 2010 first quarter.
Available-for-sale securities The FHLBNY classifies investments that it may sell before maturity
as available-for-sale (AFS) and carries them at fair value. Fair value changes are recorded in
AOCI until the security is sold or is anticipated to be sold. Composition of FHLBNYs
available-for-sale securities was as follows (dollars in thousands):
Table 19: Available-for-Sale Securities Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Percentage |
|
|
December 31, |
|
|
Percentage |
|
|
|
2010 |
|
|
of total |
|
|
2009 |
|
|
of total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
1,949,487 |
|
|
|
73.79 |
% |
|
$ |
1,544,500 |
|
|
|
68.93 |
% |
Freddie Mac |
|
|
692,434 |
|
|
|
26.21 |
|
|
|
696,064 |
|
|
|
31.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS mortgage-backed securities |
|
|
2,641,921 |
|
|
|
100.00 |
% |
|
|
2,240,564 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grantor Trusts Mutual funds |
|
|
12,893 |
|
|
|
|
|
|
|
12,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Available-for-sale
portfolio |
|
$ |
2,654,814 |
|
|
|
|
|
|
$ |
2,253,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2010 and December 31, 2009, all 100 percent of AFS portfolio of mortgage-backed
securities was comprised of securities issued by Fannie Mae and Freddie Mac. The Bank acquired
several GSE issued, triple-A rated MBS in the 2010 first quarter with a total book value of $581.9
million. Two grantor trusts, established to fund current and potential future payments to retirees
for supplemental pension plan obligations, were invested in money market funds, fixed-income and
equity funds, which are also designated as available-for-sale.
For more information and analysis with respect to investment securities, see Investment Quality in
the section captioned Asset Quality and Concentration Advances, Investment securities, Mortgage
loans, and Counterparty risks in this MD&A. Also see Notes 4 and 5 to the unaudited financial
statements in this report.
118
External rating information of the held-to-maturity portfolio was as follows. (Carrying values; in
thousands):
Table 20: External Rating of the Held-to-Maturity Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
AAA-rated |
|
|
AA-rated |
|
|
A-rated |
|
|
BBB-rated |
|
|
Grade |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
8,488,404 |
|
|
$ |
198,230 |
|
|
$ |
153,756 |
|
|
$ |
29,719 |
|
|
$ |
156,332 |
|
|
$ |
9,026,441 |
|
State and local housing finance agency
obligations |
|
|
72,172 |
|
|
|
600,019 |
|
|
|
21,430 |
|
|
|
56,220 |
|
|
|
|
|
|
|
749,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term securities |
|
|
8,560,576 |
|
|
|
798,249 |
|
|
|
175,186 |
|
|
|
85,939 |
|
|
|
156,332 |
|
|
|
9,776,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,560,576 |
|
|
$ |
798,249 |
|
|
$ |
175,186 |
|
|
$ |
85,939 |
|
|
$ |
156,332 |
|
|
$ |
9,776,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
AAA-rated |
|
|
AA-rated |
|
|
A-rated |
|
|
BBB-rated |
|
|
Grade |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
9,205,018 |
|
|
$ |
299,314 |
|
|
$ |
65,921 |
|
|
$ |
31,261 |
|
|
$ |
166,017 |
|
|
$ |
9,767,531 |
|
State and local housing finance agency
obligations |
|
|
72,992 |
|
|
|
601,109 |
|
|
|
21,430 |
|
|
|
56,220 |
|
|
|
|
|
|
|
751,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term securities |
|
|
9,278,010 |
|
|
|
900,423 |
|
|
|
87,351 |
|
|
|
87,481 |
|
|
|
166,017 |
|
|
|
10,519,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,278,010 |
|
|
$ |
900,423 |
|
|
$ |
87,351 |
|
|
$ |
87,481 |
|
|
$ |
166,017 |
|
|
$ |
10,519,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External rating information of the available-for-sale portfolio was as follows (Carrying
values of AFS investments are at fair values; in thousands):
Table 21: External Rating of the Available-for-Sale Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
AAA-rated |
|
|
AA-rated |
|
|
A-rated |
|
|
BBB-rated |
|
|
Unrated |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
2,641,921 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,641,921 |
|
Other Grantor trusts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,893 |
|
|
|
12,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,641,921 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,893 |
|
|
$ |
2,654,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
AAA-rated |
|
|
AA-rated |
|
|
A-rated |
|
|
BBB-rated |
|
|
Unrated |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
2,240,564 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,240,564 |
|
Other Grantor trusts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,589 |
|
|
|
12,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,240,564 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,589 |
|
|
$ |
2,253,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
Weighted average rates Mortgage-backed securities
The following table summarizes weighted average rates and amounts by contractual maturities.
A significant portion of the MBS portfolio consisted of floating-rate securities and the weighted
average rates will change with changes in the indexed LIBOR rate (dollars in thousands):
Table 22: Mortgage-Backed Securities Weighted Average Rates by Contractual Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Amortized |
|
|
Weighted |
|
|
Amortized |
|
|
Weighted |
|
|
|
Cost |
|
|
Average rate |
|
|
Cost |
|
|
Average rate |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Due after one year through five years |
|
|
2,380 |
|
|
|
6.25 |
|
|
|
2,663 |
|
|
|
6.25 |
|
Due after five years through ten years |
|
|
1,236,112 |
|
|
|
4.69 |
|
|
|
1,140,153 |
|
|
|
4.78 |
|
Due after ten years |
|
|
10,524,060 |
|
|
|
3.08 |
|
|
|
10,977,950 |
|
|
|
3.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
mortgage-backed
securities |
|
$ |
11,762,552 |
|
|
|
3.25 |
% |
|
$ |
12,120,766 |
|
|
|
3.36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Impairment analysis (Other-than-temporary Impairment OTTI)
Management evaluates its investments for OTTI on a quarterly basis, under amended OTTI guidance
issued by the Financial Accounting Standards Board (FASB) in the first quarter of 2009. This
amended OTTI guidance, which the FHLBNY early adopted in the 2009 first quarter, results in only
the credit portion of OTTI securities being recognized in earnings. The noncredit portion of OTTI,
which represent fair value losses of OTTI securities is recognized in AOCI. Prior to the adoption
of the amended guidance, if an impairment was determined to be other-than-temporary, the impairment
loss recognized in earnings was equal to the entire difference between the securitys amortized
cost basis and its fair value. The FHLBNY had not determined any security as impaired prior to
2009. Beginning with the quarter ended September 30, 2009, and at December 31, 2009 and March 31,
2010, the FHLBNY performed its OTTI analysis by cash flow testing 100% of it private-label MBS. At
December 31, 2008, and at the two interim quarters ended June 30, 2009, the FHLBNYs methodology
was to analyze all of its private-label MBS to isolate securities that were considered to be at
risk of OTTI and to perform cash flow analysis on securities at risk of OTTI.
In the 2010 first quarter, the FHLBNY identified credit impairment on five HTM private-label
mortgage-backed securities. Cash flow assessments of the expected credit performance of the five
securities resulted in the recognition of $3.4 million as other-than-temporary impairment (OTTI)
and was a charge to earnings. All five securities had been previously determined to be OTTI in
2009, and the additional impairment (re-impairment) in the 2010 first quarter was due to further
deterioration in the credit default rates of the five securities. The non-credit portion of OTTI
recorded in AOCI was not significant.
In the 2009 first quarter, the Banks cash flow impairment analysis determined two private-label
MBS were credit impaired and credit related OTTI of $5.3 million were charged to earnings. The
non-credit portion of OTTI recorded in AOCI was $9.9 million.
Of the five credit impaired securities, four securities are insured by bond insurer Ambac, and one
by MBIA. The Banks analysis of Ambac concluded that the bond insurer could not be relied upon to
make whole future credit losses due to projected collateral shortfalls of the impaired securities
beyond March 31, 2010. Analysis of MBIA concluded that insurance support could be relied upon for
shortfalls up until June 30, 2011, beyond which date, MBIAs financial resources would be such that
insurance protection could not be relied upon.
120
Based on detailed cash flow credit analysis on a security level at March 31, 2010, the Bank has
concluded that other than the five securities determined to be credit impaired in the 2010 first
quarter, the gross unrealized losses for the remainder of Banks investment securities were
primarily caused by interest rate changes, credit spread widening and reduced liquidity, and the
securities were temporarily impaired as defined under the new guidance for recognition and
presentation of other-than-temporary impairment.
Fair values of investment securities
In an effort to achieve consistency among all of the FHLBanks on the pricing of investments in
mortgage-backed securities, in the third quarter of 2009 the FHLBanks formed the MBS Pricing
Governance Committee which was responsible for developing a fair value methodology for
mortgage-backed securities that all FHLBanks could adopt. Consistent with the guidance from the
Governance Committee, the FHLBNY changed the methodology used to estimate the fair value of
mortgage-backed securities as of September 30, 2009. Under the approved methodology, the Bank
requests prices for all mortgage-backed securities from four specified third-party vendors, and,
depending on the number of prices received for each security, selected a median or average price as
defined by the methodology. If four prices are received by the FHLBNY from the pricing vendors,
the average of the middle two prices is used; if three prices are received, the middle price is
used; if two prices are received, the average of the two prices is used; and if one price is
received, it is used subject to additional validation. The computed prices are tested for
reasonableness using tolerance thresholds. Prices within the established thresholds are generally
accepted unless strong evidence suggests that using the median pricing methodology as described
above would not be appropriate. Preliminary estimated fair values that are outside the tolerance
thresholds, or that management believes may not be appropriate based on all available information
(including those limited instances in which only one price is received), are subject to further
analysis of all relevant facts and circumstances that a market participant would consider.
As of March 31, 2010, four vendor prices were received for substantially all of the FHLBNYs MBS
holdings and substantially all of those prices fell within the specified thresholds. The relative
proximity of the prices received supported the FHLBNYs conclusion that the final computed prices
were reasonable estimates of fair value. While the FHLBNY adopted this common methodology, the
fair values of mortgage-backed investment securities are still estimated by FHLBNYs management
which remains responsible for the selection and application of its fair value methodology and the
reasonableness of assumptions and inputs used.
The four specialized pricing services use pricing models or quoted prices of securities with
similar characteristics. The valuation techniques used by pricing services employ cash flow
generators and option-adjusted spread models. Pricing spreads used as inputs in the models are
based on new issue and secondary market transactions if the securities are traded in sufficient
volumes in the secondary market.
These pricing vendors typically employ valuation techniques that incorporate benchmark yields,
recent trades, dealer estimates, valuation models, benchmarking of like securities, sector
groupings, and/or matrix pricing, as may be deemed appropriate for the security. Such inputs into
the pricing models employed by pricing services for most of the Banks investments are market based
and observable and are considered Level 2 of the fair value hierarchy.
The valuation of the FHLBNYs private-label securities, all designated as held-to-maturity, may
require pricing services to use significant inputs that are subjective and may be considered to be
Level 3 of the fair value hierarchy because of the current lack of significant market activity so
that the inputs may not be market based and observable. At March 31, 2010 and December 31, 2009,
all private-label mortgage-backed securities were classified as held-to-maturity and were recorded
in the balance sheet at their carrying values. Carrying value of a security is the same as its
amortized cost, unless the security is
determined to be OTTI. In the period the security is determined to be OTTI, its carrying value is
generally adjusted down to its fair value.
121
Prior to the adoption of the new pricing methodology in the 2009 third quarter, the Bank used a
similar process that utilized three third-party vendors and similar variance thresholds. This
change in pricing methodology did not have a significant impact on the Banks estimated fair values
of its mortgage-backed securities.
For a comparison of carrying values and fair values of mortgage-backed securities, see Notes 4 and
5 to the unaudited financial statements in this report.
In the 2010 first quarter, five held-to-maturity private-label mortgage-backed securities were
deemed to be OTTI. All five securities were previously determined to be credit impaired. In the
Statement of Condition at March 31, 2010, the carrying values of certain of the held-to-maturity
securities determined to be OTTI were written down to $23.1 million, their fair values, which were
classified as Level 3 financial instruments within the fair value hierarchy. This determination
was made based on managements view that the private-label instruments may not have an active
market because of the specific vintage of the impaired securities as well as inherent conditions
surrounding the trading of private-label mortgage-backed securities.
For more information about the corroboration and other analytical procedures performed by the
FHLBNY, see Note 1 Significant Accounting Policies and Estimates, and Note 17 Fair values of
financial instruments to the financial statements accompanying this report. Examples of securities
priced under such a valuation technique, which are classified within Level 2 of the valuation
hierarchy and valued using the market approach as defined in the accounting standards for fair
value measurements and disclosures, include GSE issued collateralized mortgage obligations and
money market funds.
Short-term investments
The FHLBNY typically maintains substantial investments in high quality, short- and
intermediate-term financial instruments, such as certificates of deposits as well as overnight and
term Federal funds sold to highly rated financial institutions. These investments provide the
liquidity necessary to meet members credit needs. Short-term investments also provide a flexible
means of implementing the asset/liability management decisions to increase liquidity. The Bank
invests in certificates of deposits with maturities not exceeding 270 days and issued by major
financial institutions. Certificates of deposit are recorded at amortized cost basis and
designated as held-to maturity investment.
Federal funds sold Historically, the FHLBNY has been a provider of Federal funds to its members,
allowing the FHLBNY to warehouse and provide balance sheet liquidity to meet unexpected member
borrowing demands. At March 31, 2010 and December 31, 2009, Federal funds sold totaled $3.1
billion and $3.5 billion.
Cash collateral pledged Cash deposited by the FHLBNY as pledged collateral to derivative
counterparties is reported as a deduction to Derivative liabilities in the Statements of Condition.
The FHLBNY generally executes derivatives with major banks and broker-dealers and typically enters
into bilateral collateral agreements. When the FHLBNYs derivatives are in a net unrealized loss
position as a liability from the FHLBNYs perspective, counterparties are exposed and the Bank
would be called upon to pledge cash collateral to mitigate the counterparties credit exposure.
Collateral agreements include certain thresholds and pledge requirements that are generally
triggered if exposures exceed the agreed upon thresholds. At March 31, 2010 and December 31, 2009,
the Bank had deposited $2.2 billion in
interest-earning cash as pledged collateral to derivative counterparties. Typically, such pledges
earn interest at the overnight Federal funds rate.
122
Mortgage Loans held-for-portfolio
At March 31, 2010 and December 31, 2009, the portfolio of mortgage loans was comprised of
investments in Mortgage Partnership Finance loans (MPF or MPF Program) and Community Mortgage
Asset loans (CMA). More details about the MPF program can be found in Mortgage Partnership
Finance Program under the caption Acquired Member Assets Program in this MD&A. In the CMA program,
the FHLBNY holds participation interests in residential and community development mortgage loans.
Acquisition of participations under the CMA program was suspended indefinitely in November 2001 and
the loans are being paid down under their contractual terms.
MPF Program Paydowns slightly outpaced acquisitions at March 31, 2010. The FHLBNY does not
expect the MPF loans to increase substantially, and the Bank provides this product to its members
as another alternative for them to sell their mortgage production.
CMA Program The amortized cost basis of loans in the CMA program, which has not been active since
2001, has been declining steadily over time, and were not material.
Mortgage loans by loan type
The following table presents information on mortgage loans held-for-portfolio (dollars in
thousands):
Table 23: Mortgage Loans by Loan Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed medium-term single-family mortgages |
|
$ |
370,316 |
|
|
|
28.72 |
% |
|
$ |
388,072 |
|
|
|
29.43 |
% |
Fixed long-term single-family mortgages |
|
|
915,447 |
|
|
|
70.98 |
|
|
|
926,856 |
|
|
|
70.27 |
|
Multi-family mortgages |
|
|
3,881 |
|
|
|
0.30 |
|
|
|
3,908 |
|
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
1,289,644 |
|
|
|
100.00 |
% |
|
|
1,318,836 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized premiums |
|
|
8,853 |
|
|
|
|
|
|
|
9,095 |
|
|
|
|
|
Unamortized discounts |
|
|
(5,209 |
) |
|
|
|
|
|
|
(5,425 |
) |
|
|
|
|
Basis adjustment 1 |
|
|
(339 |
) |
|
|
|
|
|
|
(461 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans held-for-portfolio |
|
|
1,292,949 |
|
|
|
|
|
|
|
1,322,045 |
|
|
|
|
|
Allowance for credit losses |
|
|
(5,179 |
) |
|
|
|
|
|
|
(4,498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans held-for-portfolio after
allowance for credit losses |
|
$ |
1,287,770 |
|
|
|
|
|
|
$ |
1,317,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Represents fair value basis of open and closed delivery commitments. |
123
Deposit Liabilities
Deposit liabilities comprised of member deposits and, from time-to-time, may also include
unsecured overnight borrowings from other FHLBanks.
Member deposits The FHLBNY operates deposit programs for the benefit of its members.
Deposits are primarily short-term in nature with the majority maintained in demand accounts that
reprice daily based upon rates prevailing in the overnight Federal funds market. Members
liquidity preferences are the primary determinant of the level of deposits. Deposits at March 31,
2010 grew to $7.9 billion, an increase of $5.3 billion, primarily due to deposits placed by a U.S.
government agency in the 2010 first quarter. The Bank may accept deposits from governmental and
semi-governmental institutions in addition to member deposit. Fluctuations in member deposits have
little impact on the Bank and are not a significant source of liquidity for the Bank.
Borrowings from other FHLBanks The Bank borrows from other FHLBanks, generally for a period of
one day and at market terms. There were no borrowings in the 2010 first quarter or in the same
period in 2009.
124
Debt Financing Activity and Consolidated Obligations
Consolidated obligations, which are the joint and several obligations of the FHLBanks, are the
principal funding source for the FHLBNYs operations and consist of consolidated bonds and
consolidated discount notes. Discount notes are consolidated obligations with maturities of up to
365 days, and consolidated bonds have maturities of one year or longer. Member deposits, capital,
and to a lesser extent borrowings from other FHLBanks, are also funding sources.
Consolidated Obligation Liabilities
The issuance and servicing of consolidated obligations debt are performed by the Office of
Finance, a joint office of the FHLBanks established by the Finance Agency. Each FHLBank
independently determines its participation in each issuance of consolidated obligations based on,
among other factors, its own funding and operating requirements, maturities, interest rates, and
other terms available for consolidated obligations in the market place. Although the FHLBNY is
primarily liable for its portion of consolidated obligations (i.e., those issued on its behalf),
the FHLBNY is also jointly and severally liable with the other FHLBanks for the payment of
principal and interest on the consolidated obligations of all the FHLBanks. The FHLBanks,
including the FHLBNY, have emphasized diversification of funding sources and channels as the need
for funding from the capital markets has grown.
The two major debt programs offered by the Office of Finance are the Global Debt Program and the
TAP issue programs as described below. The FHLBNY participates in both programs.
The Global Debt Program provides the FHLBanks with the ability to distribute debt into multiple
primary markets across the globe. The FHLBank global debt issuance facility has been in place
since July 1994. FHLBank global bonds are known for their variety and flexibility; all can be
customized to meet changing market demand with different structures, terms and currencies. Global
Debt Program bonds are available in maturities ranging from one year to 30 years with the majority
of global issues between one and five years. The most common Global Debt Program structures are
bullets, floaters and fixed-rate callable bonds with maturities of one through ten years. Issue
sizes are typically from $500 million to $5 billion and individual bonds can be reopened to meet
additional demand. Bullets are the most common global bonds, particularly in sizes of $3 billion
or larger.
In mid-1999, the Office of Finance implemented the TAP issue program on behalf of the FHLBanks.
This program consolidates domestic bullet bond issuance through daily auctions of common maturities
by reopening previously issued bonds. Effectively, the program has reduced the number of separate
FHLBanks bullet issues and individual issues have grown as large as $1.0 billion. The increased
issue sizes have a number of market benefits for investors, dealers and the 12 FHLBanks. TAP
issues have improved market awareness, expanded secondary market trading opportunities, improved
liquidity and stimulated greater demand from investors and dealers seeking high-quality Government
Sponsored Enterprises securities with U.S. Treasury-like characteristics. The TAP issues follow
the same 3-month quarterly cycles used for the issuance of on-the-run Treasury securities and
also have semi-annual coupon payment dates (March, June, September and December). The coupons for
new issues are determined by the timing of the first auction during a given quarter.
The FHLBanks also issue global consolidated obligations-bonds. Effective in January 2009, a debt
issuance process was implemented by the FHLBanks and the Office of Finance to provide a scheduled
monthly issuance of global bullet consolidated obligations-bonds. As part of this process,
management from each of the FHLBanks will determine and communicate a firm commitment to the Office
of Finance for an amount of scheduled global debt to be issued on its behalf. If the FHLBanks
orders do not meet
the minimum debt issue size, the proceeds are allocated to all FHLBanks based on the larger of the
FHLBanks commitment or allocated proceeds based on the individual FHLBanks capital to total
system capital. If the FHLBanks commitments exceed the minimum debt issue size, the proceeds are
allocated based on relative capital of the FHLBanks with the allocation limited to the lesser of
the allocation amount or actual commitment amount. The Finance Agency and the U.S. Secretary of
the Treasury have oversight over the issuance of FHLBank debt through the Office of Finance. The
FHLBanks can, however, pass on any scheduled calendar slot and not issue any global bullet
consolidated obligation bonds upon agreement of eight of the 12 FHLBanks.
125
In the third quarter of 2008, each FHLBank, including the FHLBNY, entered into a Lending Agreement
with the U.S. Treasury in connection with the U.S. Treasurys establishment of the Government
Sponsored Enterprise Credit Facility (GSECF), as authorized by the Housing Act. The GSECF was
designed to serve as a contingent source of liquidity for the housing government-sponsored
enterprises, including each of the 12 FHLBanks. Any borrowings by one or more of the FHLBanks
under the GSECF would be considered consolidated obligations with the same joint and several
liability as all other consolidated obligations. The terms of any borrowings would be agreed to at
the time of issuance. Loans under the Lending Agreement were to be secured by collateral
acceptable to the U.S. Treasury, which consisted of FHLBank advances to members that had been
collateralized in accordance with regulatory standards and mortgage-backed securities issued by
Fannie Mae or Freddie Mac. Each FHLBank was required to submit to the Federal Reserve Bank of New
York, acting as fiscal agent of the U.S. Treasury, a list of eligible collateral updated on a
weekly basis. As of December 31, 2009, the FHLBNY had provided the U.S. Treasury listings of
advance collateral amounting to $10.3 billion, which provided for maximum borrowings of $9.0
billion at December 31, 2009. As of December 31, 2009, no FHLBank had drawn on this available
source of liquidity. The GSECF authorization expired on December 31, 2009.
The FHLBanks, including the FHLBNY, continue to issue debt that is both competitive and attractive
in the marketplace. In addition, the FHLBanks continuously monitor and evaluate their debt
issuance practices to ensure that consolidated obligations are efficiently and competitively
priced.
Consolidated obligations are issued with either fixed- or variable-rate coupon payment terms that
use a variety of indices for interest rate resets. These indices include the London Interbank
Offered Rate (LIBOR), Constant Maturity Treasury (CMT), 11th District Cost of Funds Index
(COFI), Prime rate, the Federal funds rate, and others. In addition, to meet the expected
specific needs of certain investors in consolidated obligations, both fixed- and variable-rate
bonds may also contain certain features that will result in complex coupon payment terms and call
options. When the FHLBNY cannot use such complex coupons to hedge its assets, FHLBNY enters into
derivative transactions containing offsetting features that effectively convert the terms of the
bond to those of a simple variable-rate bond.
The consolidated obligations, beyond having fixed- or variable-rate coupon payment terms, may also
be Optional Principal Redemption Bonds (callable bonds) that the FHLBNY may redeem in whole or in
part at its discretion on predetermined call dates according to the terms of the bond offerings.
Highlights Debt issuance and funding management
The Banks consolidated obligations outstanding continued to shrink in the 2010 first quarter,
dropping an additional $12.6 billion from December 31, 2009, in part due to the contraction of the
Banks advance business, and in part due to lower balance sheet leverage, and reduction in overall
funding requirements.
The primary source of funds for the FHLBNY continued to be through issuance of consolidated bonds
and discount notes. Reported amounts of consolidated obligations outstanding, comprising of bonds
and discount notes, at March 31, 2010 and December 31, 2009, were $92.2 billion and $104.8 billion,
and funded 86.0% and 91.6% of Total assets at those dates. These financing ratios have remained
substantially unchanged over the years at around 90 percent, indicative of the stable funding
strategy pursued by the FHLBNY. Fixed-rate non-callable debt remains the largest component of
consolidated obligation debt at March 31, 2010. In the 2010 first quarter, in response to market
conditions for FHLBank debt, the FHLBNY shifted its funding strategy, reducing its issuance of
discount notes while increasing the utilization of callable debt.
126
Market trends for FHLBank debt The cost of term debt issuance has continued to be under pressure
in the 2010 first quarter. In 2009, key investors from Asia and central banks had reduced
acquisitions of FHLBank debt and limited their participation in debt issuances. Towards the latter
part of the 2010 first quarter, there was encouraging signs of the return of central banks from
Asia to FHLBank debt issuances and increased participation in the debt offerings.
During the 2010 first quarter, the FHLBanks priced $154 billion of consolidated bonds, just $2.4
billion more than during the fourth quarter of 2009. However, weighted-average bond funding costs
deteriorated significantly during the 2010 first quarter, with March 2010 witnessing the lowest
weighted-average monthly bond pricing spreads since February 2009. The compression of swapped
funding levels of FHLBank consolidated bonds to LIBOR has effectively driven up the cost of funding
for the FHLBank debt as much of FHLBank fixed-rate debt is swapped back to LIBOR.
With credit markets returning to normalcy, money market fund balances have been in decline, and
resulted in lower volumes of issuances of discount notes. In 2009, the money market funds and
other domestic fund had become key drivers of the increased demand for FHLBank discount notes and
short-term debt. In the 2010 first quarter, money market funds were experiencing a steady outflow
of funds, limiting additional demand for discount notes longer than 2-months.
Over the next several months, the money market funds, a significant investor base for FHLBank
short-term debt and discount notes, will face two major changes. First, the newly released
amendments to SECs Rule 2a-7, which governs money market funds, is expected to impact FHLBank
discount notes as well as FHLBank issued short maturity callable and floating-rate bonds. Second,
the initiation of the Federal Reserve Boards short-term reverse repurchase program may lead to
higher yields demanded by investors for shorter term paper, including FHLBank issued discount
notes.
Amendment to Rule 2a-7, effective in May 2010, tightens the credit restrictions on money funds, who
will be required to purchase a greater percentage of first tier securities, and is likely to
benefit FHLBank issued discount notes due to the triple A rating ascribed to the debt. However,
the FRBs reverse repurchase program is likely to create new challenges for short-term funding. In
this program, the Fed will lend securities for up to 65 days in exchange for cash, a move that
could lead to less liquidity in the debt markets, higher repo rates, and higher U.S. Treasury
bill rates. In summary, these changes would result in higher yields demanded by investors for
FHLBank issued discount notes.
Beginning with the fourth quarter of 2009 and continuing into the 2010 first quarter, FHLBank
issuances of short-term bullet debt were scaled back as investor interest was much more in the
comparable callable FHLBank debt and callable step-up bonds. With the gradual steepening of the
yield curve, step-up bond coupons have become more attractive, and investors saw opportunities to
hedge their yields in a rising rate environment.
The outlook for the issuances of longer-term debt is still uncertain. It remains uneconomical for
the FHLBanks to issue longer-term debt. Yields demanded by investors for longer-term FHLBank debt
and spreads between 3-month LIBOR and FHLBank long-term debt yield have remained at levels that
make it expensive for the FHLBNY to issue term debt and offer longer-term advances to members even
if there was sufficient investor demand for such debt.
127
Debt extinguishment No debt was transferred to another FHLBank in the 2010 first quarter and the
same period in 2009.
Consolidated obligation bonds
The following summarizes types of bonds issued and outstanding (dollars in thousands):
Table 24: Consolidated Obligation Bonds by Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
Percentage of |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate,
non-callable |
|
$ |
46,480,125 |
|
|
|
64.82 |
% |
|
$ |
48,647,625 |
|
|
|
66.31 |
% |
Fixed-rate, callable |
|
|
9,959,800 |
|
|
|
13.89 |
|
|
|
8,374,800 |
|
|
|
11.42 |
|
Step Up, non-callable |
|
|
|
|
|
|
|
|
|
|
53,000 |
|
|
|
0.07 |
|
Step Up, callable |
|
|
2,871,000 |
|
|
|
4.01 |
|
|
|
3,305,000 |
|
|
|
4.51 |
|
Single-index floating rate |
|
|
12,392,500 |
|
|
|
17.28 |
|
|
|
12,977,500 |
|
|
|
17.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
71,703,425 |
|
|
|
100.00 |
% |
|
|
73,357,925 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond premiums |
|
|
108,123 |
|
|
|
|
|
|
|
112,866 |
|
|
|
|
|
Bond discounts |
|
|
(31,714 |
) |
|
|
|
|
|
|
(33,852 |
) |
|
|
|
|
Fair value basis adjustments |
|
|
619,530 |
|
|
|
|
|
|
|
572,537 |
|
|
|
|
|
Fair value basis adjustments on
terminated hedges |
|
|
3,226 |
|
|
|
|
|
|
|
2,761 |
|
|
|
|
|
Fair value option valuation adjustments
and accrued interest |
|
|
5,613 |
|
|
|
|
|
|
|
(4,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds |
|
$ |
72,408,203 |
|
|
|
|
|
|
$ |
74,007,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tactical changes in the funding mix
In the 2010 first quarter, the FHLBNY issued fixed-rate and floating-rate bonds, and discount
notes in a mix of issuances to achieve its asset/liability management goals and be responsive to
the changing market dynamics. The issuance of bonds has been the primary financing vehicle for the
Bank, although the use of term and overnight discount notes remain vital sources of funding because
of the ease of issuance of discount notes as a flexible funding tool for day-to-day operations.
As investor demand in the 2010 first quarter shifted away from discount notes to callable debt, the
FHLBNY has also been opportunistic in pursuing the debt structure most in demand at a reasonable
price consistent with the Banks asset/liability match. In the 2010 first quarter, the Bank
shifted its funding mix between bonds and discount notes, reducing its issuance of discount notes.
The money-market sector, which had become a significant investor segment for FHLBank discount notes
during much of the credit crisis, was seeking short-term investments that offered a higher rate of
return. As a result, discount note pricing has been adversely impacted, spreads to LIBOR have
narrowed, and as a funding tool, discount notes are no longer as attractive as they had been in
2009.
Spread deterioration has not been isolated just to FHLBank discounts notes but across to
short-callable bonds as well, although not as significantly. The spread compression to 3-month
LIBOR has been a challenge for the FHLBNY as a significant percentage of its fixed-rate debt is
swapped to 3-month LIBOR. Since December 31, 2009, the weighted-average bond funding costs have
also deteriorated relative 3-month LIBOR and have resulted in increased funding costs on debt
swapped to 3-month LIBOR. As a result, the FHLBNYs net bond funding costs have also deteriorated,
with March 2010 witnessing the lowest weighted-average monthly bond spreads to 3-month LIBOR.
128
While short-term callable bond spreads to LIBOR have also worsened, the spread compression has been
relatively small compared to other FHLBank debt structures. Callable bonds became an attractive
funding alternative in the 2010 first quarter. Investor demand for short and medium-term callable
bonds with call lock-outs of 1-year or less have been encouraging and the FHLBNY has increased
issuance of callable bonds. These structures have tended to fill in as a substitute for discount
notes. Swapped short-lockout callable bonds offer effective durations that could be as short as a
term discount note. In a steepening interest rate environment, the swap counterparty would likely
exercise its rights to terminate the swap at the first exercise opportunity, and the FHLBNY would
also exercise its right and terminate the debt.
The principal tactical funding strategy changes employed in executing issuances of debt are
outlined below:
|
|
|
Discount notes Discount notes outstanding at March 31, 2010 stood at $19.8 billion,
averaging $24.6 billion in the 2010 first quarter. In contrast, at December 31, 2009,
discount notes totaled $30.8 billion, averaging $41.5 billion in 2009. |
|
|
|
|
The FHLBNY has also stopped its issuance of overnight discount notes, in part because of
shortage of a ready source of a risk-free overnight asset to fund profitably, in part as a
result of worsening pricing of overnight discount note, and in part because the FHLBNY has
determined that term discount notes would better match its regulatory liquidity profile. |
|
|
|
|
Floating rate bonds Floating-rate bonds have declined steadily through the four
quarters in 2009 and in the 2010 first quarter. Generally, maturing bonds were not
replaced because of marketplace perception of a pricing advantage of comparable GSE issued
LIBOR-indexed floaters. FHLBank floating-rate bonds outstanding at March 31, 2010 totaled
$12.4 billion, consisting primarily of LIBOR-indexed bonds. Outstanding amounts also
included $4.6 billion of bonds indexed to the Prime and the Federal funds effective rates.
By executing interest rate swaps concurrently with the issuances of the floating-rate bonds
and swapping the non 3-month LIBOR indices for 3-month LIBOR, the Bank effectively created
variable funding that was indexed to 3-month LIBOR. |
|
|
|
|
Non-callable bonds Non-callable bonds were the primary funding vehicle for the FHLBNY
in the 2010 first quarter and in 2009. Issuances of non-callable debt are predicated
partly on pricing of such debt and investor demand, and partly on the need to achieve
asset/liability management goals. The Bank has made a strong effort to issue fixed-rate
longer-term debt and lock-in the relative low rates in the current interest-rate
environment. This has been a challenge as investor appetite for term debt has continued to
be lukewarm, given investor preference for discount notes, short-term bullets and short
lock-out callable debt. |
|
|
|
|
Callable-bonds In the 2010 first quarter, investors were receptive to the FHLBank
callable bonds as an alternative to comparable debt available in the capital markets.
Execution pricing of short duration callable bonds, relative to 3-month LIBOR, did not fare
as poorly as discount notes with equivalent term to maturity. Fixed-rate callable bonds
with a one-year maturity and a short lockout call option has been the more popular FHLBank
bond structure in the 2010 first quarter. Responding to investor preference, the FHLBNY
has issued short lockout callables, with call dates as short as 3 months from issue date.
Such debt structures offer an alternative at an attractive pricing to similar maturity
discount notes. FHLBank longer-term fixed-rate callable-bonds have not been an attractive
investment asset for investors over the last several years, and continued to be under price
pressure in the 2010 first quarter. |
With a callable bond, the Bank purchases a call option from the investor and the option
allows the Bank to terminate the bond at predetermined call dates at par. When the Bank
purchases the call
option from investors, it typically lowers the cost to the investor, who has traditionally
been receptive to callable-bond yields offered by the FHLBNY.
129
Impact of hedging fixed-rate consolidated obligation bonds
The Bank hedges certain fixed-rate debt by the use of both cancellable and non-cancellable interest
rate swaps in fair value hedges under the accounting standards for derivatives and hedging. The
Bank may also hedges the anticipatory issuance of bonds under the provisions of cash flow hedging
rules as provided in the accounting standards for derivatives and hedging.
Net interest accruals from qualifying interest rate swaps under the derivatives and hedge
accounting rules are recorded together with interest expense of consolidated obligation bonds in
the Statements of Income. Fair value changes of debt in a qualifying fair value hedge are recorded
in Other income (loss) as a Net realized and unrealized gain (loss) on derivative and hedging
activities. An offset is recorded as a fair value basis adjustment to the carrying amount of the
debt in the balance sheet. Net interest accruals associated with derivatives not qualifying under
derivatives and hedge accounting rules are recorded in Other income (loss) as a Net realized and
unrealized gain (loss) on derivatives and hedging activities.
Derivatives are employed to hedge consolidated bonds in the following manner to achieve the
indicated principal objectives:
The FHLBNY:
|
|
Makes extensive use of the derivatives to restructure interest rates on consolidated
obligation bonds, both callable and non-callable, to better meet its members funding needs,
to reduce funding costs, and to manage risk in a changing market environment. |
|
|
Converts, at the time of issuance, certain simple fixed-rate bullet and callable bonds into
synthetic floating-rate bonds by the simultaneous execution of interest rate swaps that
convert the cash flows of the fixed-rate bonds to conventional adjustable rate instruments
tied to an index, typically 3-month LIBOR. |
|
|
Uses derivatives to manage the risk arising from changing market prices and volatility of a
fixed coupon bond by matching the cash flows of the bond to the cash flows of the derivative
and making the FHLBNY indifferent to changes in market conditions. Except when issued to fund
MBS and MPF loans, callable bonds are typically hedged by an offsetting derivative with a
mirror-image call option and identical terms. |
|
|
Adjusts the reported carrying value of hedged consolidated bonds for changes in their fair
value (fair value basis adjustments or fair value) that are attributable to the risk being
hedged in accordance with hedge accounting rules. Amounts reported for consolidated
obligation bonds in the Statements of Condition include fair value basis adjustments. |
|
|
Lowers its funding cost by the issuance of a callable bond and the execution of an
associated interest rate swap with mirrored call options, which results in funding at a lower
cost than the FHLBNY would otherwise have achieved. The issuance of callable bonds and the
simultaneous swapping with a derivative instrument depends on the price relationships in both
the bond and the derivatives markets. |
130
The most significant element that impacts balance sheet reporting of debt is the recording of fair
value basis and valuation adjustments. In addition, when callable bonds are hedged by cancellable
swaps, the
possibility of exercise of the call shortens the expected maturity of the bond. The impact of
hedging debt on recorded interest expense is discussed in this MD&A under Results of Operations.
Its impact as a risk management tool is discussed under Item 3. Quantitative and Qualitative
Disclosures about Market Risk.
Fair value basis and valuation adjustments The Bank uses interest rate derivatives to hedge the
risk of changes in the benchmark rate, which the FHLBNY has adopted as LIBOR, and is also the
discounting basis for computing changes in fair values of hedged bonds. The Bank recorded net
unrealized fair value basis losses of $0.6 billion as part of the carrying values of consolidated
obligation bonds in the Statements of Condition at March 31, 2010 and December 31, 2009.
Carrying values of bonds designated under the fair value option
are also adjusted for valuation
adjustments to recognize changes in the full fair value of the bonds
elected. At March
31, 2010 and December 31, 2009, the unrealized fair value basis recorded was a gain of $5.6 million
and $4.3 million for bonds designated under the FVO.
Changes in fair value basis reflect changes in the term structure of interest rates, the shape of
the yield curve at the measurement dates, the value and implied volatility of call options of
callable bonds, and from the growth or decline in hedge volume.
Hedge volume As of March 31, 2010 and December 31, 2009, the Bank had hedged fixed-rate
consolidated bonds with interest rate swaps. Notional amounts of swaps outstanding were $32.9
billion at March 31, 2010 ($24.9 billion non-callable; $8.0 billion callable), almost unchanged
at December 31, 2009 ($26.1 billion non-callable; $6.8 billion callable). The swaps hedged the
fair value risk from changes in the benchmark rate, and were in hedge relationships that qualified
under derivatives and hedge accounting rules. These hedges effectively converted the fixed-rate
exposure of the bonds to a variable-rate exposure, generally indexed to 3-month LIBOR. The Banks
callable bonds contain a call option purchased by the Bank from the investor. Generally, the call
option terms mirror the call option terms embedded in a cancellable swap. Under the terms of the
call option, the Bank has the right to terminate the bond at agreed upon dates, and the swap
counterparty has the right to cancel the swap.
At March 31, 2010 and December 31, 2009, outstanding par value of consolidated obligation bonds
elected under the FVO was $6.8 billion and $6.0 billion. These bonds were also hedged by interest
rate swaps in hedges designated as economic and discussed below.
131
Economic hedges At inception of the hedges, the Bank did not believe that the hedges would be
highly effective in offsetting fair value changes between the derivative and the bonds (hedged
item), and the FHLBNY accounted for the derivatives as freestanding (economic hedge). Unless
designated as an FVO, economic hedges of debt do not generate basis adjustments for the hedged
instruments since their carrying values are not adjusted for fair value changes. The carrying
values of debt designated under the FVO are adjusted for changes in the full fair values of the
debt, not just for changes in the benchmark rate.
Principal economic hedges are summarized below. At March 31, 2010 and December 31, 2009,
outstanding notional amounts of swaps designated as economic hedges of consolidated obligation
bonds were $26.4 billion and $27.1 billion.
|
|
Floating-rate debt At March 31, 2010 and at December 31, 2009, the FHLBNY had hedged $6.1
billion and $8.0 billion of floating-rate bonds that were indexed to interest rates other than
3-month LIBOR by entering into swap agreements with derivative counterparties that
synthetically converted the floating rate debt cash flows to 3-month LIBOR. |
|
|
Fixed-rate debt At March 31, 2010 and December 31, 2009, the FHLBNY had hedged $13.5
billion and $13.1 billion of short-term fixed-rate debt compared. |
|
|
FVO economic hedge At March 31, 2010 and December 31, 2009, the FHLBNY had hedged $6.8
billion and $6.0 billion of short-term bonds designated under the FVO. |
Impact of changes in interest rate to the balance sheet carrying values of hedged bonds The
carrying amounts of consolidated obligation bonds included fair value basis losses of $0.6 billion
at March 31, 2010 and December 31, 2009. Changes in fair value basis reflect changes in the term
structure of interest rates, the shape of the yield curve at the two measurement dates, and the
value and implied volatility of call options of callable bonds.
Unrealized fair value basis losses at March 31, 2010 and December 31, 2009 were consistent with the
forward yield curves at those dates that were projecting forward rates below the fixed-rate coupons
of hedge qualifying bonds and bonds designated under the FVO. Most of the hedged bonds had been
issued in prior years at the then prevailing higher interest-rate environment. Since such bonds
are typically fixed-rate, in a declining interest rate environment fixed-rate bonds exhibit
unrealized fair value basis losses, which were recorded as part of the balance sheet carrying
values of the hedged debt. In the Statements of Income, such unrealized losses from fair value
basis adjustments on hedged bonds were almost entirely offset by net fair value unrealized gains
from derivatives associated with the hedged bonds, thereby achieving the Banks hedging objectives
of mitigating fair value basis risk.
The net fair value basis was an unrealized loss of $0.6 billion at March 31, 2010 and were
associated with $32.9 billion of hedged bonds that qualified under hedge accounting rules. The
fair value basis
amount was almost unchanged from December 31, 2009, primarily because the amount of hedged bond was
almost unchanged at the two dates. The forward rates were relatively flat between those two dates.
While short-term rates, as illustrated by the 3-month LIBOR rate inched up by about 4 basis points
to 29.15 basis points at March 31, 2010, long-term rates moved just slightly down as the yield
curve flattened at March 31, 2010 relative to December 31, 2009, as illustrated by the yields of
2.56% and 3.28% on the 5-year and 7-year swap curves at March 31, 2010, compared to 2.68% and 3.38%
at December 31, 2009.
132
Discount Notes
Consolidated obligation discount notes provide the FHLBNY with short-term and overnight funds.
Discount notes have maturities of up to one year and are offered daily through a dealer-selling
group; the notes are sold at a discount from their face amount and mature at par. Through a
sixteen-member selling group, the Office of Finance, acting on behalf of the twelve Federal Home
Loan Banks, offers discount notes. In addition, the Office of Finance offers discount notes in
four standard maturities in two auctions each week.
The FHLBNY typically uses discount notes to fund short-term advances, longer-term advances with
short repricing intervals, putable advances and money market investments.
In March 2010, the SEC published its final rule on money market fund reform, and the rule
specifically included FHLBank discount notes with remaining maturities of 60 days or less in its
definition of weekly liquid assets. The rule, which will become fully effective mid-year 2010,
should help maintain investor demand for shorter-term FHLBank discount notes as the rule also
requires money market funds to purchase a greater percentage of first tier securities. On the
other hand, the Federal Reserve Boards reverse repo program is likely to reduce liquidity for
fund managers who might demand higher yields from their short-term investments, including FHLBank
issued discount notes.
The following summarizes discount notes issued and outstanding (dollars in thousands):
Table 25: Discount Notes Outstanding
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Par value |
|
$ |
19,821,867 |
|
|
$ |
30,838,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
19,815,956 |
|
|
$ |
30,827,639 |
|
Fair value basis adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
19,815,956 |
|
|
$ |
30,827,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate |
|
|
0.15 |
% |
|
|
0.15 |
% |
|
|
|
|
|
|
|
In the 2010 first quarter, the Bank shifted its funding mix between bonds and discount notes,
reducing its issuance of discount notes. The money-market sector, which had become a significant
investor segment for FHLBank discount notes during much of the credit crisis, was seeking
short-term investments that offered a higher rate of return. Discount note pricing has been
adversely impacted, and the spreads to LIBOR have narrowed, and as a funding tool, discount notes
are no longer as attractive as they had been in 2009. With limited overnight investment choices to
profitably fund using overnight discount notes, the Bank has curtailed the issuance of overnight
discount notes.
Because of all the factors outlined above, issuance volume of discount notes declined. In the 2010
first quarter, the Bank issued $27.2 billion of discount notes. In contrast, in the same period in
2009, the Bank issued $190.1 billion.
However, the efficiency of issuing discount notes continues to be a factor in its use as a popular
funding vehicle as discount notes can be issued any time and in a variety of amounts and maturities
in contrast to other short-term funding sources, such as the issuance of callable debt with an
associated interest rate derivative with matching terms.
133
As of March 31, 2010 and December 31, 2009, no discount notes were hedged under the accounting
standards for derivatives and hedging. The Bank generally hedges discount notes in economic hedges
to convert the fixed-rate exposure of the discount notes to a variable-rate exposure, generally
indexed LIBOR. At March 31, 2010 and December 31, 2009, the Bank had $1.7 billion and $3.8
billion of notional amounts of interest rate swaps outstanding that were designated as economic
hedges of discount notes to mitigate fair value risk due to changes in LIBOR.
Stockholders Capital and Mandatorily Redeemable Capital Stock
Capital Resources Stockholders Capital
The FHLBanks, including FHLBNY, have a unique cooperative structure. To access FHLBNYs
products and services, a financial institution must be approved for membership and purchase capital
stock in FHLBNY. The members stock requirement is based on the amount of mortgage-related assets
on the members balance sheet and its use of FHLBNY advances, as prescribed by the FHLBank Act,
which reflects the value of having ready access to FHLBNY as a reliable source of low-cost funds.
FHLBNY stock can be issued, exchanged, redeemed and repurchased only at its stated par value of
$100 per share. The shares are not publicly traded.
At March 31, 2010 and December 31, 2009, total capital stock $100 par value, putable and issued and
held by members was 48,276,000 shares compared to 50,590,000 shares. Members are required to
purchase FHLBNY stock in proportion to the volume of advances borrowed. Decrease in capital stock
is in line with the decrease in advances borrowed by members.
Stockholders Capital Stockholders Capital comprised of capital stock, retained earnings and
Accumulated other comprehensive income (loss) decreased by $227.7 million at March 31, 2010 from
December 31, 2009.
Capital stock Capital stock, par value $100, was $4.8 billion at March 31, 2010, down from $5.1
billion at December 31, 2009. The decrease in capital stock was consistent with decreases in
advances borrowed by members. Since members are required to purchase stock as a percentage of
advances borrowed from the FHLBNY, a decline in advances will typically result in a decline in
capital stock. In addition, under the Banks present practice, stock in excess of the amount
necessary to support advance activity is redeemed daily by the FHLBNY. Therefore, the amount of
capital stock outstanding varies directly with members outstanding borrowings under the provisions
requiring members to purchase stock to support borrowings and its practice of redeeming excess
capital stock.
Retained earnings Retained earnings declined to $671.5 million at March 31, 2010 from $688.9
million at December 31, 2009. Net income in the 2010 first quarter was $53.6 million, and $71.0
million in dividend payments were made to members. For more information about the Banks retained
earnings policy, refer to the section Retained Earnings and Dividend in the Banks Form 10-K filed
on March 25, 2010.
Accumulated other comprehensive income (loss) Accumulated other comprehensive income (loss) was a
net loss of $123.5 million at March 31, 2010, compared to a net loss of $144.5 million at December
31, 2009. The principal components are summarized in Note 13 to the unaudited financial statements
accompanying this report.
134
Mandatorily Redeemable Capital Stock
The FHLBNYs capital stock is redeemable at the option of both the member and the FHLBNY
subject to certain conditions. Such capital is considered to be mandatorily redeemable and a
liability under the accounting guidance for certain financial instruments with characteristics of
both liabilities and equity. Dividends related to capital stock classified as mandatorily
redeemable are accrued at an estimated dividend rate and reported as interest expense in the
Statements of Income. Mandatorily redeemable capital stock at March 31, 2010 and December 31, 2009
represented stock held primarily by former members who were no longer members by virtue of being
acquired by members of other FHLBanks. Under existing practice, such stock will be repurchased
when the stock is no longer required to support outstanding transactions with the FHLBNY.
The FHLBNY reclassifies the stock subject to redemption from equity to liability once a member:
irrevocably 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.
At March 31, 2010 and December 31, 2009, the amounts of mandatorily redeemable stock classified as
a liability stood at $105.2 million and $126.3 million. One member was acquired by a non-member
financial institution in the 2010 first quarter. There were no members acquired by non-members in
the same period in 2009.
Under existing practice, capital stock held by non-members is repurchased at maturity of the
advances borrowed by former members. In accordance with Finance Agency regulations, former members
and non-members cannot renew their advance borrowings at maturity. Such capital is considered to
be a liability and mandatorily redeemable and subject to the provisions under the accounting
guidance for certain financial instruments with characteristics of both liabilities and equity.
The following table provides roll-forward information with respect to changes in mandatorily
redeemable capital stock liabilities (in thousands):
Table 26: Roll-Forward Mandatorily Redeemable Capital Stock
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
126,294 |
|
|
$ |
143,121 |
|
Capital stock subject to mandatory redemption
reclassified from equity |
|
|
1,410 |
|
|
|
|
|
Redemption of mandatorily redeemable capital stock
1 |
|
|
(22,512 |
) |
|
|
(3,160 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
105,192 |
|
|
$ |
139,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest payable |
|
$ |
1,495 |
|
|
$ |
1,058 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Redemption includes repayment of excess stock.
(The annualized accrual rates were 5.60% for March 31, 2010 and 3.00% for March 31, 2009.) |
135
Derivative Instruments and Hedging Activities
Interest rate swaps, swaptions, and cap and floor agreements (collectively, derivatives)
enable the FHLBNY to manage its exposure to changes in interest rates by adjusting the effective
maturity, repricing frequency, or option characteristics of financial instruments. The FHLBNY, to
a limited extent, also uses interest rate swaps to hedge changes in interest rates prior to debt
issuance and essentially lock in the FHLBNYs funding cost.
Finance Agency regulations prohibit the speculative use of derivatives. The FHLBNY does not take
speculative positions with derivatives or any other financial instruments, or trade derivatives for
short-term profits. The FHLBNY does not have any special purpose entities or any other types of
off-balance sheet conduits.
The notional amounts of derivatives are not recorded as assets or liabilities in the Statements of
Condition, rather the fair values of all derivatives are recorded as either a derivative asset or a
derivative liability. Although notional principal is a commonly used measure of volume in the
derivatives market, it is not a meaningful measure of market or credit risk since the notional
amount does not change hands (other than in the case of currency swaps, of which the FHLBNY has
none).
All derivatives are recorded on the Statements of Condition at their estimated fair values and
designated as either fair value or cash flow hedges for qualifying hedges, or as non-qualifying
hedges (economic hedges or customer intermediations) under the accounting standards for derivatives
and hedging. In an economic hedge, the Bank retains or executes derivative contracts, which are
economically effective in reducing risk. Such derivatives are designated as economic hedges either
because a qualifying hedge is not available, the difficulty to demonstrate that the hedge would be
effective on an ongoing basis as a qualifying hedge, or the cost of a qualifying hedge is not
economical. Changes in the fair value of a derivative are recorded in current period earnings for
a fair value hedge, or in AOCI for the effective portion of fair value changes of a cash flow
hedge.
Interest income and interest expense from interest rate swaps used for hedging are reported
together with interest on the instrument being hedged if the swap qualifies for hedge accounting.
If the swap is designated as an economic hedge, interest accruals are recorded in Other income
(loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.
The FHLBNY uses derivatives in three ways: (1) as a fair value or cash flow hedge of an underlying
financial instrument or as a cash flow hedge of a forecasted transaction; (2) as intermediation
hedges to offset derivative positions (e.g., caps) sold to members; and (3) as an economic hedge,
defined as a non-qualifying hedge of an asset or liability and used as an asset/liability
management tool. The FHLBNY uses derivatives to adjust the interest rate sensitivity of
consolidated obligations to more closely approximate the sensitivity of assets or to adjust the
interest rate sensitivity of advances to more closely approximate the sensitivity of liabilities.
In addition, the FHLBNY uses derivatives to: offset embedded options in assets and liabilities to
hedge the market value of existing assets, liabilities, and anticipated transactions; or to reduce
funding costs. For additional information see Note 16 Derivatives and hedging activities to the
financial statements accompanying this report.
136
The following table summarizes the principal derivatives hedging strategies as of March 31, 2010
and December 31, 2009:
Table 27: Derivative Hedging Strategies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
March 31, 2010 Notional |
|
|
Notional Amount |
|
Derivatives/Terms |
|
Hedging Strategy |
|
Accounting Designation |
|
Amount (in millions) |
|
|
(in millions) |
|
Pay fixed, receive floating interest rate swap |
|
To convert fixed rate on a fixed rate advance to a LIBOR floating rate |
|
Economic Hedge of fair value risk |
|
$ |
107 |
|
|
$ |
123 |
|
Pay fixed, receive floating interest rate swap cancelable by counterparty |
|
To convert fixed rate on a fixed rate advance to a LIBOR floating rate putable advance |
|
Fair Value Hedge |
|
$ |
37,361 |
|
|
$ |
40,252 |
|
Pay fixed, receive floating interest rate swap no longer cancelable by counterparty |
|
To convert fixed rate on a fixed rate advance to a LIBOR floating rate no-longer putable |
|
Fair Value Hedge |
|
$ |
2,533 |
|
|
$ |
2,283 |
|
Pay fixed, receive floating interest rate swap non-cancelable |
|
To convert fixed rate on a fixed rate advance to a LIBOR floating rate non-putable |
|
Fair Value Hedge |
|
$ |
23,387 |
|
|
$ |
23,367 |
|
Purchased interest rate cap |
|
To offset the cap embedded in the variable rate advance |
|
Economic Hedge of fair value risk |
|
$ |
278 |
|
|
$ |
390 |
|
Receive fixed, pay floating interest rate swap |
|
To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate |
|
Economic Hedge of fair value risk |
|
$ |
13,483 |
|
|
$ |
13,113 |
|
Receive fixed, pay floating interest rate swap cancelable by counterparty |
|
To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate callable bond |
|
Fair Value Hedge |
|
$ |
7,996 |
|
|
$ |
6,785 |
|
Receive fixed, pay floating interest rate swap no longer cancelable |
|
To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate no-longer callable |
|
Fair Value Hedge |
|
$ |
290 |
|
|
$ |
108 |
|
Receive fixed, pay floating interest rate swap non-cancelable |
|
To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate non-callable |
|
Fair Value Hedge |
|
$ |
24,554 |
|
|
$ |
25,982 |
|
Receive fixed, pay floating interest rate swap (non-callable) |
|
To convert the fixed rate consolidated obligation discount note debt to a LIBOR floating rate |
|
Economic Hedge of fair value risk |
|
$ |
1,664 |
|
|
$ |
3,784 |
|
Pay fixed, receive LIBOR interest rate swap |
|
To offset the variability of cash flows associated with interest payments on forecasted issuance of fixed rate consolidated obligation debt |
|
Cash flow hedge |
|
$ |
150 |
|
|
$ |
|
|
Basis swap |
|
To convert non-LIBOR index to LIBOR to reduce interest rate sensitivity and repricing gaps |
|
Economic Hedge of cash flows |
|
$ |
4,625 |
|
|
$ |
6,035 |
|
Basis swap |
|
To convert 1M LIBOR index to 3M LIBOR to reduce interest rate sensitivity and repricing gaps |
|
Economic Hedge of cash flows |
|
$ |
1,450 |
|
|
$ |
1,950 |
|
Receive fixed, pay floating interest rate swap cancelable by counterparty |
|
Fixed rate callable bond converted to a LIBOR floating rate; matched to callable bond accounted for under fair value option |
|
Fair Value Option |
|
$ |
6,425 |
|
|
$ |
5,690 |
|
Receive fixed, pay floating interest rate swap non-cancelable |
|
Fixed rate callable bond converted to a LIBOR floating rate; matched to non-callable bond accounted for under fair value option |
|
Fair Value Option |
|
$ |
350 |
|
|
$ |
350 |
|
Pay fixed, receive floating interest rate swap |
|
Economic hedge on the Balance Sheet |
|
Economic Hedge |
|
$ |
|
|
|
$ |
1,050 |
|
Receive fixed, pay floating interest rate swap |
|
Economic hedge on the Balance Sheet |
|
Economic Hedge |
|
$ |
|
|
|
$ |
1,050 |
|
Purchased interest rate cap |
|
Economic hedge on the Balance Sheet |
|
Economic Hedge |
|
$ |
1,892 |
|
|
$ |
1,892 |
|
Intermediary positions Interest rate swaps and caps |
|
To offset interest rate swaps and caps executed with members by executing offsetting derivatives with counterparties |
|
Economic Hedge of fair value risk |
|
$ |
330 |
|
|
$ |
320 |
|
The accounting designation economic hedges represented derivative transactions under hedge
strategies that do not qualify for hedge accounting but are an approved risk management hedge.
137
Derivatives Financial Instruments by hedge designation
The following table summarizes the notional amounts and estimated fair values of derivative
financial instruments (excluding accrued interest) by hedge designation.
The table also provides a reconciliation of fair value basis gains and (losses) of derivatives to
the Statements of Condition (in thousands):
Table 28: Derivatives Financial Instruments by Hedge Designation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
Estimated |
|
|
|
Notional |
|
|
Fair Value |
|
|
Notional |
|
|
Fair Value |
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in fair value hedging relationships |
|
$ |
96,121,663 |
|
|
$ |
(3,159,736 |
) |
|
$ |
98,776,447 |
|
|
$ |
(3,056,718 |
) |
Derivatives in cash flow hedging relationships |
|
|
150,000 |
|
|
|
324 |
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments |
|
|
21,328,821 |
|
|
|
21,284 |
|
|
|
27,104,963 |
|
|
|
31,723 |
|
Derivatives matching bonds designated under FVO |
|
|
6,775,000 |
|
|
|
4,006 |
|
|
|
6,040,000 |
|
|
|
(2,632 |
) |
Interest rate caps/floors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic-fair value changes |
|
|
2,170,000 |
|
|
|
41,067 |
|
|
|
2,282,000 |
|
|
|
71,494 |
|
Mortgage delivery commitments (MPF) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic-fair value changes |
|
|
3,249 |
|
|
|
9 |
|
|
|
4,210 |
|
|
|
(39 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermediation |
|
|
330,000 |
|
|
|
349 |
|
|
|
320,000 |
|
|
|
352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
126,878,733 |
|
|
$ |
(3,092,697 |
) |
|
$ |
134,527,620 |
|
|
$ |
(2,955,820 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives, excluding accrued interest |
|
|
|
|
|
$ |
(3,092,697 |
) |
|
|
|
|
|
$ |
(2,955,820 |
) |
Cash collateral pledged to counterparties |
|
|
|
|
|
|
2,233,154 |
|
|
|
|
|
|
|
2,237,028 |
|
Cash collateral received from counterparties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest |
|
|
|
|
|
|
17,878 |
|
|
|
|
|
|
|
(19,104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative balance |
|
|
|
|
|
$ |
(841,665 |
) |
|
|
|
|
|
$ |
(737,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative asset balance |
|
|
|
|
|
$ |
9,246 |
|
|
|
|
|
|
$ |
8,280 |
|
Net derivative liability balance |
|
|
|
|
|
|
(850,911 |
) |
|
|
|
|
|
|
(746,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative balance |
|
|
|
|
|
$ |
(841,665 |
) |
|
|
|
|
|
$ |
(737,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138
Derivative Financial Instruments by Product
The following table summarizes the notional amounts and estimated fair values of derivative
financial instruments (excluding accrued interest) by product and type of accounting treatment.
The categories of Fair value, Commitment, and Cash flow hedges represented derivative
transactions accounted for as hedges. The category of Economic hedges represented derivative
transactions under hedge strategies that did not qualify for hedge accounting treatment but were an
approved risk management strategy.
The table also provides a reconciliation of fair value basis gains and (losses) of derivatives to
the Statements of Condition (in thousands):
Table 29: Derivative Financial Instruments by Product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Total estimated |
|
|
|
|
|
|
Total estimated |
|
|
|
|
|
|
|
fair value |
|
|
|
|
|
|
fair value |
|
|
|
|
|
|
|
(excluding |
|
|
|
|
|
|
(excluding |
|
|
|
Total notional |
|
|
accrued |
|
|
Total notional |
|
|
accrued |
|
|
|
amount |
|
|
interest) |
|
|
amount |
|
|
interest) |
|
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances-fair value hedges |
|
$ |
63,281,383 |
|
|
$ |
(3,774,203 |
) |
|
$ |
65,901,667 |
|
|
$ |
(3,622,141 |
) |
Consolidated obligations-fair value hedges |
|
|
32,840,280 |
|
|
|
614,467 |
|
|
|
32,874,780 |
|
|
|
565,423 |
|
Cash Flow-anticipated transactions |
|
|
150,000 |
|
|
|
324 |
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances-economic hedges |
|
|
385,308 |
|
|
|
(960 |
) |
|
|
513,089 |
|
|
|
(196 |
) |
Consolidated obligations-economic hedges |
|
|
21,221,513 |
|
|
|
22,244 |
|
|
|
24,881,874 |
|
|
|
36,954 |
|
MPF loan-commitments |
|
|
3,249 |
|
|
|
9 |
|
|
|
4,210 |
|
|
|
(39 |
) |
Balance sheet |
|
|
1,892,000 |
|
|
|
41,067 |
|
|
|
1,892,000 |
|
|
|
71,494 |
|
Intermediary positions-economic hedges |
|
|
330,000 |
|
|
|
349 |
|
|
|
320,000 |
|
|
|
352 |
|
Balance sheet-macro hedges swaps |
|
|
|
|
|
|
|
|
|
|
2,100,000 |
|
|
|
(5,035 |
) |
Derivatives matching bonds designated under FVO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps-consolidated obligations-bonds |
|
|
6,775,000 |
|
|
|
4,006 |
|
|
|
6,040,000 |
|
|
|
(2,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notional and fair value |
|
$ |
126,878,733 |
|
|
$ |
(3,092,697 |
) |
|
$ |
134,527,620 |
|
|
$ |
(2,955,820 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives, excluding accrued interest |
|
|
|
|
|
$ |
(3,092,697 |
) |
|
|
|
|
|
$ |
(2,955,820 |
) |
Cash collateral pledged to counterparties |
|
|
|
|
|
|
2,233,154 |
|
|
|
|
|
|
|
2,237,028 |
|
Cash collateral received from counterparties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest |
|
|
|
|
|
|
17,878 |
|
|
|
|
|
|
|
(19,104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative balance |
|
|
|
|
|
$ |
(841,665 |
) |
|
|
|
|
|
$ |
(737,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative asset balance |
|
|
|
|
|
$ |
9,246 |
|
|
|
|
|
|
$ |
8,280 |
|
Net derivative liability balance |
|
|
|
|
|
|
(850,911 |
) |
|
|
|
|
|
|
(746,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative balance |
|
|
|
|
|
$ |
(841,665 |
) |
|
|
|
|
|
$ |
(737,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139
Asset Quality and Concentration Advances, Investment securities, Mortgage loans, and Counterparty
risks
The FHLBNY incurs credit risk the risk of loss due to default in its lending, investing, and
hedging activities. It has instituted processes to help manage and mitigate this risk. Despite
such processes, some amount of credit risk will always exist. External events, such as severe
economic downturns, declining real estate values (both residential and non-residential), changes in
monetary policy, adverse events in the capital markets, and other developments, could lead to
member or counterparty default or impact the creditworthiness of investments. Such events would
have a negative impact upon the FHLBNYs income and financial performance.
The following table sets forth five year history of the FHLBNYs advances and mortgage loan
portfolios as of March 31, 2010 and December 31, 2009 (in thousands):
Table 30: Advances and Mortgage Loan Portfolios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
88,858,753 |
|
|
$ |
94,348,751 |
|
|
$ |
109,152,876 |
|
|
$ |
82,089,667 |
|
|
$ |
59,012,394 |
|
|
$ |
61,901,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans before
allowance for credit losses |
|
$ |
1,292,949 |
|
|
$ |
1,322,045 |
|
|
$ |
1,459,291 |
|
|
$ |
1,492,261 |
|
|
$ |
1,484,012 |
|
|
$ |
1,467,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances
The FHLBNY closely monitors the creditworthiness of the institutions to which it lends. The FHLBNY
also closely monitors the quality and value of the assets that are pledged as collateral by its
members. The FHLBNY periodically assesses the mortgage underwriting and documentation standards of
its borrowing members. In addition, the FHLBNY has collateral policies and restricted lending
procedures in place to manage its exposure to those members experiencing difficulty in meeting
their capital requirements or other standards of creditworthiness.
The FHLBNY has not experienced any losses on advances extended to any member since its inception.
The FHLBank Act affords any security interest granted to the FHLBNY by a member, or any affiliate
of such member, priority over the claims and rights of any party (including any receiver,
conservator, trustee, or similar party) having the rights of a lien creditor. However, the
FHLBNYs security interest is not entitled to priority over claims and rights that (1) would be
entitled to priority under applicable law, or (2) are held by a bona fide purchaser for value or by
parties that are secured by actual perfected security interests.
The FHLBNYs members are required to pledge collateral to secure advances. Eligible collateral
includes: (1) one-to-four-family and multi-family mortgages; (2) U.S. Treasury and
government-agency securities; (3) mortgage-backed securities; and (4) certain other collateral
which is real estate-related and has a readily ascertainable value, and in which the FHLBNY can
perfect a security interest. The FHLBNY has the right to take such steps, as it deems necessary,
to protect its secured position on outstanding advances, including requiring additional collateral
(whether or not such additional collateral would otherwise be eligible to secure a loan). The
FHLBNY also has a statutory lien under the FHLBank Act on the capital stock of its members, which
serves as further collateral for members indebtedness to the FHLBNY.
140
The FHLBNY has established asset classification and reserve policies. All adversely classified
assets of the FHLBNY will have a reserve established for probable losses. Based upon the
collateral held as security and prior repayment histories, no allowance for losses on advances is
currently deemed necessary by management.
The FHLBNY uses methodologies to identify and measure credit risk arising from: creditworthiness
risk arising from members, counterparties, and other entities; collateral risk arising from type,
quality, and lien status; and concentration risk arising from borrower, portfolio, geographic area,
industry, or product type.
Creditworthiness Risk Advances
The FHLBNYs potential exposure to creditworthiness risk arises from the deterioration of the
financial health of FHLBNY members. The FHLBNY manages its exposure to the creditworthiness of
members by monitoring their collateral and advance levels daily and by analyzing their financial
health each quarter.
Collateral Risk Advances
The FHLBNY is exposed to collateral risk if it is unable to perfect its interest in pledged
collateral, or when the liquidation value of pledged collateral does not fully cover the FHLBNYs
exposure. The FHLBNY manages this risk by pricing collateral on a weekly basis, performing on-site
reviews of pledged mortgage collateral from time to time, and reviewing pledged portfolio
concentrations on a quarterly basis. The FHLBNY requires that members pledge a specific amount of
excess collateral above the par amount of their outstanding obligations. Members provide the
FHLBNY with reports of pledged collateral and the FHLBNY evaluates the eligibility and value of the
pledged collateral.
The FHLBNYs loan and collateral agreements give the FHLBNY a security interest in assets held by
borrowers that is sufficient to cover their obligations to the FHLBNY. The FHLBNY may supplement
this security interest by imposing additional reporting, segregation or delivery requirements on
the borrower. The FHLBNY assigns specific collateral requirements to a borrower, based on a number
of factors. These include, but are not limited to: (1) the borrowers overall financial condition;
(2) the degree of complexity involved in the pledging, verifying, and reporting of collateral
between the borrower and the FHLBNY, especially when third-party pledges, custodians, outside
service providers and pledges to other entities are involved; and (3) the type of collateral
pledged.
The FHLBNY has also established collateral maintenance levels for borrower collateral that are
intended to help ensure that the FHLBNY has sufficient collateral to cover credit extensions and
reasonable expenses arising from potential collateral liquidation and other unknown factors.
Collateral maintenance levels are designated by collateral type and are periodically adjusted to
reflect current market and business conditions. Maintenance levels for individual borrowers may
also be adjusted, based on the overall financial condition of the borrower or another, third-party
entity involved in the collateral relationship with the FHLBNY. Borrowers are required to maintain
an amount of eligible collateral with a liquidation value at least equal to the borrowers current
collateral maintenance level. All borrowers that pledge mortgage loans as collateral are also
required to provide, on a monthly or quarterly basis, a detailed listing of mortgage loans pledged.
The FHLBNY uses this detailed reporting to monitor and track payment performance of the collateral
and to assess the risk profile of the pledged collateral based on mortgage characteristics,
geographic concentrations and other pertinent risk factors.
Drawing on current industry standards, the FHLBNY establishes collateral valuation methodologies
for each collateral type and calculates the estimated liquidation value of the pledged collateral
to determine whether a borrower has satisfied its collateral maintenance requirement. The FHLBNY
evaluates liquidation values on a weekly basis.
141
The FHLBNY makes on-site review of borrowers in connection with the evaluation of the borrowers
pledged mortgage collateral. This review involves a qualitative assessment of risk factors that
includes an examination of legal documentation, credit underwriting, and loan-servicing practices
on mortgage collateral. The FHLBNY has developed the on-site review process to more accurately
value each borrowers pledged mortgage portfolio based on current secondary-market standards. The
results of the review may lead to adjustments in the estimated liquidation value of pledged
collateral. The FHLBNY may also make additional market value adjustments to a borrowers pledged
mortgage collateral based on the quality and accuracy of the automated data provided to the FHLBNY.
See Tables 31-33 for more information.
Credit Risk and Concentration Risk Advances
While the FHLBNY has never experienced a credit loss on an advance, the expanded eligible
collateral for Community Financial Institutions and non-member housing associates permitted, but
not required, by the Finance Agency provides the potential for additional credit risk for the
FHLBNY. It is the FHLBNYs current policy not to accept expanded eligible collateral from
Community Financial Institutions. The management of the FHLBNY has the policies and procedures in
place to appropriately manage credit risk associated with the advance business. In extending
credit to a member, the FHLBNY adheres to specific credit policy limits approved by its Board of
Directors. The FHLBNY has not established limits for the concentrations of specific types of
advances, but management reports the activity in advances to the Board each month. Each quarter,
management reports the concentrations of putable advances made to individual members. There were
no past due advances and all advances were current at March 31, 2010 or December 31, 2009.
Management does not anticipate any credit losses, and accordingly, the FHLBNY has not provided an
allowance for credit losses on advances. The FHLBNYs potential credit risk from advances is
concentrated in commercial banks, savings institutions and insurance companies. At March 31, 2010
and December 31, 2009, the Bank had advances of $57.7 billion and $59.5 billion outstanding to ten
member institutions, representing 67.8% and 65.6% of total advances outstanding, and sufficient
collateral was held to cover the advances to these institutions.
Collateral Coverage of Advances
The FHLBNY lends to financial institutions involved in housing finance within its district. In
addition, the FHLBNY is permitted, but not required, to accept collateral in the form of small
business or agricultural loans (expanded collateral) from Community Financial Institutions
(CFIs). Borrowing members pledge their capital stock of the FHLBNY as additional collateral for
advances. All member obligations with the FHLBNY must be fully collateralized throughout their
entire term.
As of March 31, 2010 and December 31, 2009, the FHLBNY had rights to collateral with an estimated
value greater than outstanding advances. Based upon the financial condition of the member, the
FHLBNY:
|
|
|
Allows a member to retain possession of the collateral assigned to the FHLBNY, if the
member executes a written security agreement and agrees to hold such collateral for the
benefit of the FHLBNY; or |
|
|
|
Requires the member specifically to assign or place physical possession of such
collateral with the FHLBNY or its safekeeping agent. |
142
The following table summarizes pledged collateral in support of advances at March 31, 2010 and
December 31, 2009 (in thousands):
Table 31: Collateral Supporting Advances to Members
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying Collateral for Advances |
|
|
|
|
|
|
|
|
|
|
|
Securities and |
|
|
|
|
|
|
Advances1 |
|
|
Mortgage Loans2 |
|
|
Deposits2 |
|
|
Total2 |
|
March 31, 2010 |
|
$ |
85,095,176 |
|
|
$ |
113,332,385 |
|
|
$ |
45,498,603 |
|
|
$ |
158,830,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
$ |
90,737,700 |
|
|
$ |
111,346,235 |
|
|
$ |
49,564,456 |
|
|
$ |
160,910,691 |
|
|
|
|
Note1 |
|
Par value |
|
Note2 |
|
Estimate market value |
The level of over-collateralization is on an aggregate basis and may not necessarily be indicative
of a similar level of over-collateralization on an individual transaction basis. At a minimum,
each member pledged sufficient collateral to adequately secure the members outstanding obligation
with the FHLBNY. In addition, most members maintain an excess amount of pledged collateral with
the FHLBNY to secure future liquidity needs.
The following table summarizes pledged collateral in support of other member obligations (other
than advances) at March 31, 2010 and December 31, 2009 (in thousands):
Table 32: Collateral Supporting Member Obligations Other Than Advances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying Collateral for Other Obligations |
|
|
|
Other |
|
|
|
|
|
|
Securities and |
|
|
|
|
|
|
Obligations1 |
|
|
Mortgage Loans2 |
|
|
Deposits2 |
|
|
Total 2 |
|
March 31, 2010 |
|
$ |
828,455 |
|
|
$ |
2,356,438 |
|
|
$ |
228,683 |
|
|
$ |
2,585,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
$ |
720,622 |
|
|
$ |
2,257,204 |
|
|
$ |
126,970 |
|
|
$ |
2,384,174 |
|
|
|
|
Note1 |
|
Standby financial letters of credit, derivatives and members credit enhancement guarantee amount (MPFCE) |
|
Note2 |
|
Estimated market value |
The outstanding member obligations consisted principally of standby letters of credit, and a small
amount of collateralized value of outstanding derivatives, and members credit enhancement
guarantee amount (MPFCE) on loans sold to the FHLBNY through the Mortgage Partnership Finance
program. The FHLBNYs underwriting and collateral requirements for securing Letters of Credit are
the same as its requirements for securing advances.
143
The following table shows the breakdown of collateral pledged by members between those that were
specifically listed and those in the physical possession or that of its safekeeping agent (in
thousands):
Table 33: Location of Collateral Held
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Market Values |
|
|
|
Collateral in |
|
|
Collateral |
|
|
|
|
|
|
|
|
|
Physical |
|
|
Specifically |
|
|
Collateral |
|
|
Total Collateral |
|
|
|
Possession |
|
|
Listed |
|
|
Pledged for AHP |
|
|
Received |
|
March 31, 2010 |
|
$ |
53,776,322 |
|
|
$ |
107,716,374 |
|
|
$ |
(76,587 |
) |
|
$ |
161,416,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
$ |
57,660,864 |
|
|
$ |
105,714,763 |
|
|
$ |
(80,762 |
) |
|
$ |
163,294,865 |
|
The total of collateral pledged to the FHLBNY includes excess collateral pledged above the FHLBNYs
minimum collateral requirements. These minimum requirements range from 103% to 125% of outstanding
advances, based on the collateral type. It is common for members to maintain excess collateral
positions with the FHLBNY for future liquidity needs. Based on several factors (e.g. advance type,
collateral type or member financial condition) members are required to comply with specified
collateral requirements, including but not limited to, a detailed listing of pledged mortgage
collateral and/or delivery of pledged collateral to FHLBNY or its designated collateral
custodian(s). For example, all pledged securities collateral must be delivered to the FHLBNYs
nominee name at Citibank, N.A., the FHLBNYs securities safekeeping custodian. Mortgage collateral
that is required to be in the FHLBNYs possession is typically delivered to the FHLBNYs Jersey
City, N.J. facility. However, in certain instances, delivery to an FHLBNY approved custodian may
be allowed.
144
Table 34: Concentration analysis Top Ten Advance Holders
The following table summarizes the top ten advance holders (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Total Par Value |
|
|
|
|
|
|
City |
|
State |
|
Advances |
|
|
of Advances |
|
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hudson City Savings Bank, FSB* |
|
Paramus |
|
NJ |
|
$ |
17,275,000 |
|
|
|
20.3 |
% |
|
$ |
174,759 |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
|
13,555,000 |
|
|
|
15.9 |
|
|
|
72,407 |
|
New York Community Bank* |
|
Westbury |
|
NY |
|
|
7,343,172 |
|
|
|
8.6 |
|
|
|
75,913 |
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
|
4,755,523 |
|
|
|
5.6 |
|
|
|
11,754 |
|
The Prudential Insurance Company of America |
|
Newark |
|
NJ |
|
|
3,500,000 |
|
|
|
4.1 |
|
|
|
21,577 |
|
Astoria Federal Savings and Loan Assn. |
|
Lake Success |
|
NY |
|
|
2,984,000 |
|
|
|
3.5 |
|
|
|
28,487 |
|
Valley National Bank |
|
Wayne |
|
NJ |
|
|
2,271,500 |
|
|
|
2.7 |
|
|
|
24,716 |
|
Doral Bank |
|
San Juan |
|
PR |
|
|
2,119,420 |
|
|
|
2.5 |
|
|
|
19,258 |
|
New York Life Insurance Company |
|
New York |
|
NY |
|
|
2,000,000 |
|
|
|
2.4 |
|
|
|
3,075 |
|
MetLife Bank, N.A. |
|
Bridgewater |
|
NJ |
|
|
1,894,500 |
|
|
|
2.2 |
|
|
|
11,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
57,698,115 |
|
|
|
67.8 |
% |
|
$ |
443,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Officer of member bank also served on the Board of Directors of the FHLBNY. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Total Par Value |
|
|
|
|
|
|
City |
|
State |
|
Advances |
|
|
of Advances |
|
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hudson City Savings Bank, FSB* |
|
Paramus |
|
NJ |
|
$ |
17,275,000 |
|
|
|
19.0 |
% |
|
$ |
710,900 |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
|
13,680,000 |
|
|
|
15.1 |
|
|
|
356,120 |
|
New York Community Bank* |
|
Westbury |
|
NY |
|
|
7,343,174 |
|
|
|
8.1 |
|
|
|
310,991 |
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
|
5,005,641 |
|
|
|
5.5 |
|
|
|
97,628 |
|
The Prudential Insurance Company of America |
|
Newark |
|
NJ |
|
|
3,500,000 |
|
|
|
3.9 |
|
|
|
93,601 |
|
Astoria Federal Savings and Loan Assn. |
|
Lake Success |
|
NY |
|
|
3,000,000 |
|
|
|
3.3 |
|
|
|
120,870 |
|
Emigrant Bank |
|
New York |
|
NY |
|
|
2,475,000 |
|
|
|
2.7 |
|
|
|
64,131 |
|
Doral Bank |
|
San Juan |
|
PR |
|
|
2,473,420 |
|
|
|
2.7 |
|
|
|
86,389 |
|
MetLife Bank, N.A. |
|
Bridgewater |
|
NJ |
|
|
2,430,500 |
|
|
|
2.7 |
|
|
|
46,142 |
|
Valley National Bank |
|
Wayne |
|
NJ |
|
|
2,322,500 |
|
|
|
2.6 |
|
|
|
103,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
59,505,235 |
|
|
|
65.6 |
% |
|
$ |
1,990,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
At December 31, 2009, officer of member bank also served on the Board of Directors of the
FHLBNY. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Total Par Value |
|
|
|
|
|
|
City |
|
State |
|
Advances |
|
|
of Advances |
|
|
Interest Income |
|
Hudson City Savings Bank, FSB* |
|
Paramus |
|
NJ |
|
$ |
17,575,000 |
|
|
|
17.7 |
% |
|
$ |
176,070 |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
|
15,105,000 |
|
|
|
15.2 |
|
|
|
103,306 |
|
New York Community Bank* |
|
Westbury |
|
NY |
|
|
8,143,214 |
|
|
|
8.2 |
|
|
|
77,380 |
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
|
7,479,282 |
|
|
|
7.5 |
|
|
|
36,499 |
|
The Prudential Insurance Company of America |
|
Newark |
|
NJ |
|
|
4,500,000 |
|
|
|
4.5 |
|
|
|
24,618 |
|
MetLife Bank, N.A. |
|
Bridgewater |
|
NJ |
|
|
3,812,000 |
|
|
|
3.8 |
|
|
|
10,811 |
|
Astoria Federal Savings and Loan Assn. |
|
Lake Success |
|
NY |
|
|
3,110,000 |
|
|
|
3.1 |
|
|
|
31,667 |
|
Emigrant Bank |
|
New York |
|
NY |
|
|
2,475,000 |
|
|
|
2.5 |
|
|
|
15,925 |
|
Valley National Bank |
|
Wayne |
|
NJ |
|
|
2,445,500 |
|
|
|
2.5 |
|
|
|
27,178 |
|
Doral Bank |
|
San Juan |
|
PR |
|
|
2,334,500 |
|
|
|
2.3 |
|
|
|
22,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
66,979,496 |
|
|
|
67.3 |
% |
|
$ |
525,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
At March 31, 2009, officer of member bank also served on the Board of Directors of the FHLBNY. |
145
Investment quality
At March 31, 2010, long-term investments were principally comprised of (1) Mortgage-backed
securities classified as held-to-maturity at a carrying value of $9.0 billion, of which 88.9%
comprised of securities issued by government sponsored enterprises and a U.S. government agency,
(2) Mortgage-backed securities classified as available-for-sale securities at fair value basis of
$2.6 billion, entirely GSE issued mortgage-backed securities. In addition, the FHLBNY had
investments of $749.8 million in primary public and private placements of taxable obligations of
state and local housing finance authorities classified as held-to-maturity.
At March 31, 2010 and December 31, 2009, short-term investments consisted of Federal funds sold.
The FHLBNYs investments are summarized below (dollars in thousands):
Table 35: Period-Over-Period Change in Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
Dollar |
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
Variance |
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local housing finance agency obligations 1 |
|
$ |
749,841 |
|
|
$ |
751,751 |
|
|
$ |
(1,910 |
) |
|
|
(0.25 |
)% |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities, at fair value |
|
|
2,641,921 |
|
|
|
2,240,564 |
|
|
|
401,357 |
|
|
|
17.91 |
|
Held-to-maturity securities, at carrying value |
|
|
9,026,441 |
|
|
|
9,767,531 |
|
|
|
(741,090 |
) |
|
|
(7.59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,418,203 |
|
|
|
12,759,846 |
|
|
|
(341,643 |
) |
|
|
(2.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grantor trusts 2 |
|
|
12,893 |
|
|
|
12,589 |
|
|
|
304 |
|
|
|
2.41 |
|
Federal funds sold |
|
|
3,130,000 |
|
|
|
3,450,000 |
|
|
|
(320,000 |
) |
|
|
(9.28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
15,561,096 |
|
|
$ |
16,222,435 |
|
|
$ |
(661,339 |
) |
|
|
(4.08 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Classified as held-to-maturity securities, at carrying value |
|
2 |
|
Classified as available-for-sale securities, at fair value and represents investments
in registered mutual funds and other fixed-income securities maintained under the grantor trusts |
Investment rating
External ratings and the changes in a securitys external rating are factors in the FHLBNYs
assessment of impairment; a rating or a rating change alone is not necessarily indicative of
impairment or absence of impairment.
Mortgage-backed securities Mortgage-backed securities were classified as either
Available-for-sale or Held-to-maturity.
Available-for-sale At March 31, 2010 and December 31, 2009, all MBS classified as
available-for-sale were rated triple-A by a Nationally Recognized Statistical Rating Organization
(NRSRO). All available-for-sale securities were securities issued by Federal National Mortgage
Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac).
146
The following tables contain information about credit ratings of the Banks investments in
Held-to-maturity and Available-for-sale securities at March 31, 2010 and December 31, 2009 (in
thousands):
Table 36: NRSRO Held-to-Maturity Securities
External ratings Held-to-maturity securities March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NRSRO Ratings March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below |
|
|
|
Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
Issued, guaranteed or insured: |
|
Value |
|
|
AAA |
|
|
AA |
|
|
A |
|
|
BBB |
|
|
Grade |
|
Pools of Mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
1,081,039 |
|
|
$ |
1,081,039 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Freddie Mac |
|
|
307,168 |
|
|
|
307,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pools of mortgages |
|
|
1,388,207 |
|
|
|
1,388,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage Obligations/Real
Estate Mortgage Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
|
2,406,059 |
|
|
|
2,406,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac |
|
|
3,854,479 |
|
|
|
3,854,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ginnie Mae |
|
|
150,882 |
|
|
|
150,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CMOs/REMICs |
|
|
6,411,420 |
|
|
|
6,411,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac |
|
|
174,048 |
|
|
|
174,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ginnie Mae |
|
|
49,342 |
|
|
|
49,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage-backed securities |
|
|
223,390 |
|
|
|
223,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GSE MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMOs/REMICs |
|
|
407,552 |
|
|
|
291,168 |
|
|
|
11,664 |
|
|
|
34,219 |
|
|
|
|
|
|
|
70,501 |
|
Asset-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing loans (insured) |
|
|
195,700 |
|
|
|
|
|
|
|
103,020 |
|
|
|
92,680 |
|
|
|
|
|
|
|
|
|
Home equity loans (insured) |
|
|
219,345 |
|
|
|
10,297 |
|
|
|
71,014 |
|
|
|
26,857 |
|
|
|
25,346 |
|
|
|
85,831 |
|
Home equity loans (uninsured) |
|
|
180,827 |
|
|
|
163,922 |
|
|
|
12,532 |
|
|
|
|
|
|
|
4,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset-backed securities |
|
|
595,872 |
|
|
|
174,219 |
|
|
|
186,566 |
|
|
|
119,537 |
|
|
|
29,719 |
|
|
|
85,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
$ |
9,026,441 |
|
|
$ |
8,488,404 |
|
|
$ |
198,230 |
|
|
$ |
153,756 |
|
|
$ |
29,719 |
|
|
$ |
156,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local housing finance
agency obligations |
|
$ |
749,841 |
|
|
$ |
72,172 |
|
|
$ |
600,019 |
|
|
$ |
21,430 |
|
|
$ |
56,220 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other |
|
$ |
749,841 |
|
|
$ |
72,172 |
|
|
$ |
600,019 |
|
|
$ |
21,430 |
|
|
$ |
56,220 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-maturity securities |
|
$ |
9,776,282 |
|
|
$ |
8,560,576 |
|
|
$ |
798,249 |
|
|
$ |
175,186 |
|
|
$ |
85,939 |
|
|
$ |
156,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
External ratings Held-to-maturity securities December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NRSRO Ratings December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below |
|
|
|
Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
Issued, guaranteed or insured: |
|
Value |
|
|
AAA |
|
|
AA |
|
|
A |
|
|
BBB |
|
|
Grade |
|
Pools of Mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
1,137,514 |
|
|
$ |
1,137,514 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Freddie Mac |
|
|
335,369 |
|
|
|
335,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pools of mortgages |
|
|
1,472,883 |
|
|
|
1,472,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage Obligations/Real
Estate Mortgage Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
|
2,609,254 |
|
|
|
2,609,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac |
|
|
4,400,002 |
|
|
|
4,400,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ginnie Mae |
|
|
171,531 |
|
|
|
171,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CMOs/REMICs |
|
|
7,180,787 |
|
|
|
7,180,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ginnie Mae-CMBS |
|
|
49,526 |
|
|
|
49,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GSE MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMOs/REMICs |
|
|
444,906 |
|
|
|
319,583 |
|
|
|
12,510 |
|
|
|
38,332 |
|
|
|
|
|
|
|
74,481 |
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-federal-agency MBS |
|
|
444,906 |
|
|
|
319,583 |
|
|
|
12,510 |
|
|
|
38,332 |
|
|
|
|
|
|
|
74,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing loans (insured) |
|
|
202,278 |
|
|
|
|
|
|
|
202,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans (insured) |
|
|
227,834 |
|
|
|
10,399 |
|
|
|
71,653 |
|
|
|
27,589 |
|
|
|
26,657 |
|
|
|
91,536 |
|
Home equity loans (uninsured) |
|
|
189,317 |
|
|
|
171,840 |
|
|
|
12,873 |
|
|
|
|
|
|
|
4,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset-backed securities |
|
|
619,429 |
|
|
|
182,239 |
|
|
|
286,804 |
|
|
|
27,589 |
|
|
|
31,261 |
|
|
|
91,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
$ |
9,767,531 |
|
|
$ |
9,205,018 |
|
|
$ |
299,314 |
|
|
$ |
65,921 |
|
|
$ |
31,261 |
|
|
$ |
166,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local housing finance
agency obligations |
|
$ |
751,751 |
|
|
$ |
72,992 |
|
|
$ |
601,109 |
|
|
$ |
21,430 |
|
|
$ |
56,220 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other |
|
$ |
751,751 |
|
|
$ |
72,992 |
|
|
$ |
601,109 |
|
|
$ |
21,430 |
|
|
$ |
56,220 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-maturity securities |
|
$ |
10,519,282 |
|
|
$ |
9,278,010 |
|
|
$ |
900,423 |
|
|
$ |
87,351 |
|
|
$ |
87,481 |
|
|
$ |
166,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148
External ratings Available-for-sale securities March 31, 2010:
Table 37: NRSRO Available-for-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NRSRO Ratings March 31, 2010 |
|
Issued, guaranteed or insured: |
|
Fair Value |
|
|
AAA |
|
|
AA |
|
|
A |
|
Pools of Mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Freddie Mac |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pools of mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage Obligations/Real
Estate Mortgage Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
|
1,949,487 |
|
|
|
1,949,487 |
|
|
|
|
|
|
|
|
|
Freddie Mac |
|
|
692,434 |
|
|
|
692,434 |
|
|
|
|
|
|
|
|
|
Ginnie Mae |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CMOs/REMICs |
|
|
2,641,921 |
|
|
|
2,641,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GSE MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMOs/REMICs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-federal-agency MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing loans (insured) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans (insured) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans (uninsured) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS mortgage-backed securities |
|
$ |
2,641,921 |
|
|
$ |
2,641,921 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income funds, equity funds
and cash equivalents * |
|
$ |
12,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available-for-sale securities |
|
$ |
2,654,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149
External ratings Available-for-sale securities December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NRSRO Ratings December 31, 2009 |
|
Issued, guaranteed or insured: |
|
Fair Value |
|
|
AAA |
|
|
AA |
|
|
A |
|
Pools of Mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Freddie Mac |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pools of mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage Obligations/Real
Estate Mortgage Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
|
1,544,500 |
|
|
|
1,544,500 |
|
|
|
|
|
|
|
|
|
Freddie Mac |
|
|
696,064 |
|
|
|
696,064 |
|
|
|
|
|
|
|
|
|
Ginnie Mae |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CMOs/REMICs |
|
|
2,240,564 |
|
|
|
2,240,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GSE MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMOs/REMICs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-federal-agency MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing loans (insured) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans (insured) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans (uninsured) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS mortgage-backed securities |
|
$ |
2,240,564 |
|
|
$ |
2,240,564 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income funds, equity funds and cash
equivalents * |
|
$ |
12,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available-for-sale securities |
|
$ |
2,253,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
Fannie Mae and Freddie Mac Securities
The FHLBNYs mortgage-backed securities were predominantly issued by Fannie Mae and Freddie Mac.
The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and
Freddie Mac. Fannie Mae and Freddie Mac are in conservatorship, with the Finance Agency named as
conservator, who will manage Fannie Mae and Freddie Mac in an attempt to stabilize their financial
conditions and their ability to support the secondary mortgage market.
Available-for-sale securities 100 percent of MBS outstanding at March 31, 2010 and December 31,
2009 and classified as AFS were issued by Fannie Mae and Freddie Mac.
Held-to-maturity securities Comprised of 88.9% and 89.1% of MBS also issued by Fannie Mae,
Freddie Mac and a U.S. government agency at March 31, 2010 and December 31, 2009.
The following table summarizes the carrying value basis of held-to-maturity mortgage-backed
securities by issuer (dollars in thousands):
Table 38: Carrying Value Basis of Held-to-Maturity Mortgage-Backed Securities by Issuer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Percentage |
|
|
December 31, |
|
|
Percentage |
|
|
|
2010 |
|
|
of total |
|
|
2009 |
|
|
of total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored enterprise residential
mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
3,487,098 |
|
|
|
38.63 |
% |
|
$ |
3,746,768 |
|
|
|
38.36 |
% |
Freddie Mac |
|
|
4,161,647 |
|
|
|
46.10 |
|
|
|
4,735,371 |
|
|
|
48.48 |
|
U.S. agency residential mortgage-backed securities |
|
|
150,882 |
|
|
|
1.67 |
|
|
|
171,531 |
|
|
|
1.76 |
|
U.S. government sponsored enterprise commercial
mortgage-backed securities |
|
|
174,048 |
|
|
|
1.93 |
|
|
|
|
|
|
|
|
|
U.S. agency commercial mortgage-backed securities |
|
|
49,342 |
|
|
|
0.55 |
|
|
|
49,526 |
|
|
|
0.51 |
|
Private-label issued securities |
|
|
1,003,424 |
|
|
|
11.12 |
|
|
|
1,064,335 |
|
|
|
10.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-maturity securities-mortgage-backed securities |
|
$ |
9,026,441 |
|
|
|
100.00 |
% |
|
$ |
9,767,531 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
151
Non-Agency Private label mortgage and asset-backed securities
At March 31, 2010 and December 31, 2009, the Bank also held MBS that were privately issued. All
private-label MBS were classified as held-to-maturity. The following table summarizes
private-label mortgage- and asset-backed securities by fixed- or variable-rate coupon types (Unpaid
principal balance; in thousands):
Table 39: Non-Agency Private Label Mortgage Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Variable |
|
|
|
|
|
|
|
|
|
|
Variable |
|
|
|
|
Private-label MBS |
|
Fixed Rate |
|
|
Rate |
|
|
Total |
|
|
Fixed Rate |
|
|
Rate |
|
|
Total |
|
Private-label RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
$ |
398,651 |
|
|
$ |
4,259 |
|
|
$ |
402,910 |
|
|
$ |
435,913 |
|
|
$ |
4,359 |
|
|
$ |
440,272 |
|
Alt-A |
|
|
6,915 |
|
|
|
3,584 |
|
|
|
10,499 |
|
|
|
7,229 |
|
|
|
3,713 |
|
|
|
10,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total PL RMBS |
|
|
405,566 |
|
|
|
7,843 |
|
|
|
413,409 |
|
|
|
443,142 |
|
|
|
8,072 |
|
|
|
451,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private-label CMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total PL CMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
425,381 |
|
|
|
103,087 |
|
|
|
528,468 |
|
|
|
437,042 |
|
|
|
108,801 |
|
|
|
545,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Home Equity Loans |
|
|
425,381 |
|
|
|
103,087 |
|
|
|
528,468 |
|
|
|
437,042 |
|
|
|
108,801 |
|
|
|
545,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
195,721 |
|
|
|
|
|
|
|
195,721 |
|
|
|
202,299 |
|
|
|
|
|
|
|
202,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Manufactured Housing Loans |
|
|
195,721 |
|
|
|
|
|
|
|
195,721 |
|
|
|
202,299 |
|
|
|
|
|
|
|
202,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPB of private-label MBS |
|
$ |
1,026,668 |
|
|
$ |
110,930 |
|
|
$ |
1,137,598 |
|
|
$ |
1,082,483 |
|
|
$ |
116,873 |
|
|
$ |
1,199,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance (UPB) is also known as the current face or par amount of a mortgage-backed
security.
Other-Than-Temporarily Impaired Securities
OTTI at March 31, 2010 To assess whether the entire amortized cost basis of the Banks
private-label MBS will be recovered, the Bank performed cash flow analysis for 100 percent of the
FHLBNYs private-label MBS outstanding at March 31, 2010. Cash flow assessments identified credit
impairment on five HTM private-label mortgage-backed securities, and $3.4 million as
other-than-temporary impairment (OTTI) was recorded as a charge to earnings. All five securities
had been previously determined to be OTTI in 2009, and the additional impairment or re-impairment
in the 2010 first quarter was due to further deterioration in the credit default rates of the five
securities. The non-credit portion of OTTI recorded in AOCI was not significant.
The total carrying value of the five securities prior to OTTI was $38.2 million.
152
The table below summarizes the key characteristics of the securities that were deemed OTTI in the
2010 first quarter (dollars in thousands):
Table 40: OTTI 2010 First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
Insurer MBIA |
|
|
Insurer Ambac |
|
|
OTTI |
|
Security |
|
|
|
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
Credit |
|
|
Non-credit |
|
Classification |
|
Count |
|
|
UPB |
|
|
Value |
|
|
UPB |
|
|
Value |
|
|
Loss |
|
|
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS-Prime* |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
HEL Subprime* |
|
|
5 |
|
|
|
21,637 |
|
|
|
9,730 |
|
|
|
45,476 |
|
|
|
26,015 |
|
|
|
(3,400 |
) |
|
|
(473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5 |
|
|
$ |
21,637 |
|
|
$ |
9,730 |
|
|
$ |
45,476 |
|
|
$ |
26,015 |
|
|
$ |
(3,400 |
) |
|
$ |
(473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
RMBS-Prime Private-label MBS supported by prime residential loans; HEL Subprime MBS
supported by home equity loans. |
Of the five credit impaired securities, four securities are insured by bond insurer Ambac, and one
by MBIA. The Banks analysis of the Ambac concluded that the bond insurer could not be relied upon
to make whole credit losses beyond March 31, 2010. Analysis of MBIA concluded that insurance
support could be relied upon for shortfalls up until June 30, 2011, beyond which date, MBIAs
financial resources would be such that insurance protection could not be relied upon.
The following table summarizes the key characteristics of securities insured by MBIA, Ambac, and
Assured Guaranty Municipal Trust (formerly FSA) at March 31, 2010 (in thousand):
Table 41: Monoline Insurance of PLMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMBAC |
|
|
MBIA |
|
|
FSA* |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
Private-label MBS |
|
UPB |
|
|
Losses |
|
|
UPB |
|
|
Losses |
|
|
UPB |
|
|
Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
$ |
203,201 |
|
|
$ |
(51,513 |
) |
|
$ |
36,666 |
|
|
$ |
(10,881 |
) |
|
$ |
78,568 |
|
|
$ |
(7,373 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195,721 |
|
|
|
(35,830 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of all Private-label MBS |
|
$ |
203,201 |
|
|
$ |
(51,513 |
) |
|
$ |
36,666 |
|
|
$ |
(10,881 |
) |
|
$ |
274,289 |
|
|
$ |
(43,203 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Assured Guaranty Municipal Trust (formerly FSA) |
153
The following table presents additional information of the fair values and gross unrealized losses
of PLMBS by year of securitization and external rating at March 31, 2010 (in thousands):
Table 42: PLMBS by Year of Securitization and External Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid Principal Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Ratings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
Amortized |
|
|
Unrealized |
|
|
|
|
|
|
Total OTTI |
|
Private-label MBS |
|
Subtotal |
|
|
Triple-A |
|
|
Double-A |
|
|
Single-A |
|
|
Triple-B |
|
|
Grade |
|
|
Cost |
|
|
(Losses) |
|
|
Fair Value |
|
|
Losses |
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
$ |
58,353 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
34,537 |
|
|
$ |
|
|
|
$ |
23,816 |
|
|
$ |
57,804 |
|
|
$ |
(2,003 |
) |
|
$ |
55,801 |
|
|
$ |
|
|
2005 |
|
|
77,611 |
|
|
|
26,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,829 |
|
|
|
75,717 |
|
|
|
(1,047 |
) |
|
|
74,670 |
|
|
|
|
|
2004 and earlier |
|
|
266,946 |
|
|
|
255,046 |
|
|
|
11,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265,817 |
|
|
|
(2,126 |
) |
|
|
264,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS Prime |
|
|
402,910 |
|
|
|
281,828 |
|
|
|
11,900 |
|
|
|
34,537 |
|
|
|
|
|
|
|
74,645 |
|
|
|
399,338 |
|
|
|
(5,176 |
) |
|
|
395,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
10,499 |
|
|
|
10,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,501 |
|
|
|
(838 |
) |
|
|
9,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS |
|
|
413,409 |
|
|
|
292,327 |
|
|
|
11,900 |
|
|
|
34,537 |
|
|
|
|
|
|
|
74,645 |
|
|
|
409,839 |
|
|
|
(6,014 |
) |
|
|
404,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
528,468 |
|
|
|
196,435 |
|
|
|
90,545 |
|
|
|
47,357 |
|
|
|
41,153 |
|
|
|
152,978 |
|
|
|
504,497 |
|
|
|
(116,722 |
) |
|
|
387,775 |
|
|
|
(3,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured
Housing Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
195,721 |
|
|
|
|
|
|
|
103,041 |
|
|
|
92,680 |
|
|
|
|
|
|
|
|
|
|
|
195,700 |
|
|
|
(35,830 |
) |
|
|
159,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total PLMBS |
|
$ |
1,137,598 |
|
|
$ |
488,762 |
|
|
$ |
205,486 |
|
|
$ |
174,574 |
|
|
$ |
41,153 |
|
|
$ |
227,623 |
|
|
$ |
1,110,036 |
|
|
$ |
(158,566 |
) |
|
$ |
952,571 |
|
|
$ |
(3,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154
The following table presents additional information of the fair values and gross unrealized losses
of PLMBS by year of securitization and external rating at December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid Principal Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Ratings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
Amortized |
|
|
Unrealized |
|
|
|
|
|
|
Total OTTI |
|
Private-label MBS |
|
Subtotal |
|
|
Triple-A |
|
|
Double-A |
|
|
Single-A |
|
|
Triple-B |
|
|
Grade |
|
|
Cost |
|
|
(Losses) |
|
|
Fair Value |
|
|
Losses |
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
$ |
63,276 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
38,689 |
|
|
$ |
|
|
|
$ |
24,587 |
|
|
$ |
62,654 |
|
|
$ |
(2,396 |
) |
|
$ |
60,258 |
|
|
$ |
|
|
2005 |
|
|
82,982 |
|
|
|
28,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,295 |
|
|
|
80,996 |
|
|
|
(1,708 |
) |
|
|
79,288 |
|
|
|
(3,204 |
) |
2004 and earlier |
|
|
294,014 |
|
|
|
281,240 |
|
|
|
12,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292,773 |
|
|
|
(3,696 |
) |
|
|
289,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS Prime |
|
|
440,272 |
|
|
|
309,927 |
|
|
|
12,774 |
|
|
|
38,689 |
|
|
|
|
|
|
|
78,882 |
|
|
|
436,423 |
|
|
|
(7,800 |
) |
|
|
429,504 |
|
|
|
(3,204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
10,942 |
|
|
|
10,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,944 |
|
|
|
(938 |
) |
|
|
10,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS |
|
|
451,214 |
|
|
|
320,869 |
|
|
|
12,774 |
|
|
|
38,689 |
|
|
|
|
|
|
|
78,882 |
|
|
|
447,367 |
|
|
|
(8,738 |
) |
|
|
439,510 |
|
|
|
(3,204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
545,843 |
|
|
|
205,480 |
|
|
|
91,782 |
|
|
|
48,838 |
|
|
|
43,035 |
|
|
|
156,708 |
|
|
|
525,260 |
|
|
|
(151,818 |
) |
|
|
373,442 |
|
|
|
(137,708 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured
Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
202,299 |
|
|
|
|
|
|
|
202,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202,278 |
|
|
|
(37,101 |
) |
|
|
165,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total PLMBS |
|
$ |
1,199,356 |
|
|
$ |
526,349 |
|
|
$ |
306,855 |
|
|
$ |
87,527 |
|
|
$ |
43,035 |
|
|
$ |
235,590 |
|
|
$ |
1,174,905 |
|
|
$ |
(197,657 |
) |
|
$ |
978,129 |
|
|
$ |
(140,912 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155
Weighted-average market price offers an analysis of unrealized loss percentage; a comparison of the
weighted-average credit support to weighted-average collateral delinquency percentage is another
indicator of the credit support available to absorb potential cash flow shortfalls.
Table 43: Weighted-Average Market Price of MBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
Original |
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Weighted- |
|
|
Weighted-Average |
|
|
|
Average Credit |
|
|
Average Credit |
|
|
Collateral |
|
Private-label MBS |
|
Support % |
|
|
Support % |
|
|
Delinquency % |
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
3.84 |
% |
|
|
5.41 |
% |
|
|
6.38 |
% |
2005 |
|
|
2.67 |
|
|
|
3.95 |
|
|
|
3.45 |
|
2004 and earlier |
|
|
1.56 |
|
|
|
2.93 |
|
|
|
0.82 |
|
|
|
|
|
|
|
|
|
|
|
Total RMBS Prime |
|
|
2.11 |
|
|
|
3.49 |
|
|
|
2.14 |
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
10.97 |
|
|
|
32.68 |
|
|
|
12.55 |
|
|
|
|
|
|
|
|
|
|
|
Total RMBS |
|
|
2.33 |
|
|
|
4.23 |
|
|
|
2.40 |
|
|
|
|
|
|
|
|
|
|
|
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
58.06 |
|
|
|
65.44 |
|
|
|
17.76 |
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
100.00 |
|
|
|
100.00 |
|
|
|
3.22 |
|
|
|
|
|
|
|
|
|
|
|
Total Private-label MBS |
|
|
45.02 |
% |
|
|
49.14 |
% |
|
|
9.67 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Original |
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Weighted- |
|
|
Weighted-Average |
|
|
|
Average Credit |
|
|
Average |
|
|
Collateral |
|
Private-label MBS |
|
Support % |
|
|
Credit Support % |
|
|
Delinquency % |
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
3.74 |
% |
|
|
5.16 |
% |
|
|
5.47 |
% |
2005 |
|
|
2.67 |
|
|
|
3.82 |
|
|
|
2.32 |
|
2004 and earlier |
|
|
1.58 |
|
|
|
2.82 |
|
|
|
0.79 |
|
|
|
|
|
|
|
|
|
|
|
Total RMBS Prime |
|
|
2.10 |
|
|
|
3.35 |
|
|
|
1.75 |
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
10.73 |
|
|
|
32.35 |
|
|
|
11.22 |
|
|
|
|
|
|
|
|
|
|
|
Total RMBS |
|
|
2.30 |
|
|
|
4.05 |
|
|
|
1.98 |
|
|
|
|
|
|
|
|
|
|
|
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
57.86 |
|
|
|
65.34 |
|
|
|
17.40 |
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
57.78 |
|
|
|
55.56 |
|
|
|
3.64 |
|
|
|
|
|
|
|
|
|
|
|
Total Private-label MBS |
|
|
36.95 |
% |
|
|
40.63 |
% |
|
|
9.28 |
% |
|
|
|
|
|
|
|
|
|
|
Definitions:
Original Weighted-Average Credit Support percentage represents the arithmetic mean of a cohort of
securities by vintage; credit support is defined as the credit protection level at the time
the mortgage-backed securities closed. Support is expressed as a percentage of the sum of:
subordinate bonds, reserve funds, guarantees, overcollateralization, divided by the original
collateral balance.
Weighted-Average Credit Support percentage represents the arithmetic mean of a cohort of securities
by vintage; credit support is defined as the credit protection level as of the mortgage-backed
securities most current payment date. Support is expressed as a percentage of the sum of:
subordinate bonds, reserve funds, guarantees, overcollateralization, divided by the most current
unpaid collateral balance.
Weighted-average collateral delinquency percentage represents the arithmetic mean of a cohort of
securities by vintage: collateral delinquency is defined as the sum of the unpaid principal balance
of loans underlying the mortgage-backed security where the borrower is 60 or more days past due, or
in bankruptcy proceedings, or the loan is in foreclosure, or has become real estate owned divided
by the aggregate unpaid collateral balance.
156
External ratings are just one factor that is considered in analyzing if a security is
other-than-temporarily impaired. The table below compares delinquency percentage across PLMBS
security types, ratings and gross unrealized losses (dollars in thousands):
Table 44: PLMBS Security Types Delinquencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
Weighted-Average |
|
|
|
|
|
|
Gross |
|
|
Weighted-Average |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Collateral |
|
|
Amortized |
|
|
Unrealized |
|
|
Collateral |
|
Private-label MBS |
|
Cost |
|
|
(Losses) |
|
|
Delinquency %1 |
|
|
Cost |
|
|
(Losses) |
|
|
Delinquency %1 |
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rated Triple A |
|
$ |
280,667 |
|
|
$ |
(2,557 |
) |
|
|
0.72 |
% |
|
$ |
308,639 |
|
|
$ |
(4,499 |
) |
|
|
0.69 |
% |
Rated Double A |
|
|
11,664 |
|
|
|
|
|
|
|
1.44 |
|
|
|
12,510 |
|
|
|
|
|
|
|
1.38 |
|
Rated Single A |
|
|
34,219 |
|
|
|
(773 |
) |
|
|
6.05 |
|
|
|
38,332 |
|
|
|
(1,000 |
) |
|
|
4.64 |
|
Below Investment Grade |
|
|
72,788 |
|
|
|
(1,846 |
) |
|
|
5.78 |
|
|
|
76,942 |
|
|
|
(2,301 |
) |
|
|
4.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of RMBS Prime |
|
|
399,338 |
|
|
|
(5,176 |
) |
|
|
2.14 |
|
|
|
436,423 |
|
|
|
(7,800 |
) |
|
|
1.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rated Triple A |
|
|
10,501 |
|
|
|
(838 |
) |
|
|
12.55 |
|
|
|
10,944 |
|
|
|
(938 |
) |
|
|
11.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of RMBS |
|
|
409,839 |
|
|
|
(6,014 |
) |
|
|
2.40 |
|
|
|
447,367 |
|
|
|
(8,738 |
) |
|
|
1.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rated Triple A |
|
|
195,317 |
|
|
|
(43,068 |
) |
|
|
19.21 |
|
|
|
204,356 |
|
|
|
(54,224 |
) |
|
|
18.26 |
|
Rated Double A |
|
|
89,837 |
|
|
|
(11,192 |
) |
|
|
6.45 |
|
|
|
91,074 |
|
|
|
(22,534 |
) |
|
|
10.96 |
|
Rated Single A |
|
|
45,312 |
|
|
|
(11,349 |
) |
|
|
16.65 |
|
|
|
46,792 |
|
|
|
(15,930 |
) |
|
|
16.32 |
|
Rated Triple B |
|
|
39,374 |
|
|
|
(12,177 |
) |
|
|
15.22 |
|
|
|
41,902 |
|
|
|
(15,798 |
) |
|
|
13.18 |
|
Below Investment Grade |
|
|
134,657 |
|
|
|
(38,936 |
) |
|
|
21.81 |
|
|
|
141,136 |
|
|
|
(43,332 |
) |
|
|
21.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of HEL Subprime |
|
|
504,497 |
|
|
|
(116,722 |
) |
|
|
17.76 |
|
|
|
525,260 |
|
|
|
(151,818 |
) |
|
|
17.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured
Housing Loans
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rated Double A |
|
|
103,020 |
|
|
|
(14,273 |
) |
|
|
2.09 |
|
|
|
202,278 |
|
|
|
(37,101 |
) |
|
|
3.64 |
|
Rated Single A |
|
|
92,680 |
|
|
|
(21,557 |
) |
|
|
4.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of Manufactured
Housing Loans Subprime |
|
|
195,700 |
|
|
|
(35,830 |
) |
|
|
3.22 |
|
|
|
202,278 |
|
|
|
(37,101 |
) |
|
|
3.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total |
|
$ |
1,110,036 |
|
|
$ |
(158,566 |
) |
|
|
9.67 |
% |
|
$ |
1,174,905 |
|
|
$ |
(197,657 |
) |
|
|
9.28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Weighted-average collateral delinquency rate is determined based on the underlying
loans that are 60 days or more past due. The reported
delinquency percentage represents weighted-average based on the dollar amounts of the
individual securities in the category and their respective
delinquencies. Combined weighted-average collateral delinquency rates are calculated based on
UPB amount. |
157
Mortgage Loans Held-for-portfolio
Through the Mortgage Partnership Finance Program or MPF program, the FHLBNY invests in home
mortgage loans originated by or through members or approved state and local housing finance
agencies (housing associates). The FHLBNY purchases these mortgages loans under the Finance
Agencys Acquired Member Assets (AMA) regulation. These assets may include: whole loans eligible
to secure advances (excluding mortgages above the conforming-loan limit); whole loans secured by
manufactured housing; or bonds issued by housing associates.
Underwriting standards Summarized below are the principal underwriting criteria for the Banks
Mortgage Partnership Finance Program or MPF through which the Bank acquires mortgage loans for its
own portfolio. For a fuller description of the MPF loan mortgage loan standards, refer to pages 8
through 19 of the Banks most recent Form 10-K filed on March 25, 2010.
Mortgage loans delivered under the MPF Program must meet certain underwriting and eligibility
requirements. Loans must be qualifying 5- to 30-year conforming conventional or Government
fixed-rate, fully amortizing mortgage loans, secured by first liens on owner-occupied one-to-four
family residential properties and single unit second homes. Not eligible for delivery under the
MPF Program are mortgage loans that are not ratable by S&P, or loans that are classified as high
cost, high rate, or high risk. Collectability of mortgage loans is supported by liens on real
estate securing the loan. For conventional loans, defined as mortgage loans other than VA and FHA
insured loans, additional loss protection is provided by private mortgage insurance required for
MPF loans with a loan-to-value ratio of more than 80% at origination, which is paid for by the
borrower. The FHLBNY is responsible for losses up to the first loss level. Losses beyond this
layer are absorbed through credit enhancement provided by the member participating in the Mortgage
Partnership Program. All residual credit exposure is FHLBNYs responsibility. The amount of
credit enhancement is computed with the use of a Standard & Poors model to bring a pool of
uninsured loans to AA credit risk. The credit enhancement is an obligation of the member.
The following table provides roll-forward information with respect to the First Loss Account (in
thousands):
Table 45: Roll-Forward First Loss Account
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
13,934 |
|
|
$ |
13,765 |
|
Additions |
|
|
27 |
|
|
|
83 |
|
Resets* |
|
|
(161 |
) |
|
|
|
|
Charge-offs |
|
|
(33 |
) |
|
|
|
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
13,767 |
|
|
$ |
13,848 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
For the Original MPF, MPF 100, MPF 125 and MPF Plus products, the Credit Enhancement is
periodically recalculated. If the recalculated Credit Enhancement would result in a PFI Credit
Enhancement obligation lower than the remaining obligation, the PFIs Credit Enhancement obligation
will be reset to the new, lower level. |
The aggregate amount of the First Loss Account is memorialized and tracked but is neither recorded
nor reported as a credit loss reserve in the FHLBNYs financial statements. If second losses
beyond this layer are incurred, they are absorbed through a credit enhancement provided by the
Participating Financial Institutions. The credit enhancement held by PFIs ensures that the lender
retains a credit stake in the loans it originates. For managing this risk, Participating Financial
Institutions receive monthly credit enhancement fees from the FHLBNY.
158
Mortgage loans Past due
In the FHLBNYs outstanding mortgage loans held-for-portfolio, non-performing loans and loans 90
days or more past due and accruing interest were as follows (in thousands):
Table 46: Mortgage Loans Past Due
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net of provisions for credit losses |
|
$ |
1,287,770 |
|
|
$ |
1,317,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing mortgage loans held-for-portfolio |
|
$ |
20,706 |
|
|
$ |
16,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans past due 90 days or more and still accruing interest |
|
$ |
470 |
|
|
$ |
570 |
|
|
|
|
|
|
|
|
Non-performing mortgage loans were conventional mortgage loans that were placed on
non-accrual/non-performing status when the collection of the contractual principal or interest from
the borrower was 90 days or more past due. FHLBNY considers conventional loans (excluding Federal
Housing Administration (FHA) and Veteran Administration (VA) insured loans) that are 90 days or
more past due as non-accrual loans. FHA and VA insured loans that were past due 90 days or more
were not significant at any period reported, and interest was still being accrued because of VA and
FHA insurance. No loans were impaired at March 31, 2010 or December 31, 2009, other than the
non-accrual loans.
Mortgage loans Interest on Non-performing loans
The FHLBNYs interest contractually due and actually received for non-performing loans were as
follows (in thousands):
Table 47: Mortgage Loans Interest Short-Fall
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Interest contractually due 1 |
|
$ |
310 |
|
|
$ |
112 |
|
Interest actually received |
|
|
279 |
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shortfall |
|
$ |
31 |
|
|
$ |
14 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The Bank does not recognize interest received as income from uninsured loans past due
90-days or greater. |
Table 48: Mortgage Loans Allowance for Credit Losses
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
4,498 |
|
|
$ |
1,405 |
|
Charge-offs |
|
|
(33 |
) |
|
|
|
|
Recoveries |
|
|
5 |
|
|
|
|
|
Provision for credit losses on mortgage loans |
|
|
709 |
|
|
|
443 |
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
5,179 |
|
|
$ |
1,848 |
|
|
|
|
|
|
|
|
159
Participating Financial Institution Risk
The members or housing associates that are approved as Participating Financial Institutions
continue to bear a significant portion of the credit risk through credit enhancements that they
provide to the FHLBNY. The Acquired Member Assets regulation requires that these credit
enhancements be sufficient to protect the FHLBNY from excess credit risk exposure. Specifically,
the FHLBNY exposure must be no greater than it would be with an asset rated in the fourth-highest
credit rating category by a Nationally Recognized Statistical Rating Organization, or such higher
rating category as the FHLBNY may require. The MPF program is constructed to provide the Bank with
assets that are credit-enhanced to the second-highest credit rating category (double-A).
The top five Participating Financial Institutions (PFI) and the outstanding MPF loan balances are
listed below (dollars in thousands):
Table 49: Top Five Participating Financial Institutions Concentration
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
Mortgage |
|
|
Percent of Total |
|
|
|
Loans |
|
|
Mortgage Loans |
|
|
|
|
|
|
|
|
|
|
Manufacturers and Traders Trust Company |
|
$ |
585,317 |
|
|
|
45.52 |
% |
Astoria Federal Savings and Loan Association |
|
|
210,457 |
|
|
|
16.37 |
|
Elmira Savings and Loan F.A. |
|
|
58,782 |
|
|
|
4.57 |
|
Ocean First Bank |
|
|
50,053 |
|
|
|
3.89 |
|
CFCU Community Credit Union |
|
|
41,830 |
|
|
|
3.26 |
|
All Others |
|
|
339,325 |
|
|
|
26.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 1 |
|
$ |
1,285,764 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Mortgage |
|
|
Percent of Total |
|
|
|
Loans |
|
|
Mortgage Loans |
|
|
|
|
|
|
|
|
|
|
Manufacturers and Traders Trust Company |
|
$ |
607,072 |
|
|
|
46.17 |
% |
Astoria Federal Savings and Loan Association |
|
|
220,268 |
|
|
|
16.75 |
|
Elmira Savings and Loan F.A. |
|
|
61,663 |
|
|
|
4.69 |
|
Ocean First Bank |
|
|
51,277 |
|
|
|
3.90 |
|
CFCU Community Credit Union |
|
|
42,344 |
|
|
|
3.22 |
|
All Others |
|
|
332,304 |
|
|
|
25.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 1 |
|
$ |
1,314,928 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
Note1 |
|
Totals do not include CMA loans. |
Credit Risk Exposure on MPF Loans Mortgage insurer default risk
Credit risk on MPF loans is the potential for financial loss due to borrower default or
depreciation in the value of the real estate collateral securing the MPF Loan, offset by the PFIs
credit enhancement protection, which may take the form of a contingent performance based credit
enhancement fees as well as the credit enhancement amount. The credit enhancement amount is a
direct liability of the PFI to pay credit losses; the PFI may also arrange with an insurer for a
SMI policy insuring a portion of the credit losses. To the extent credit losses are not
recoverable from PMI, the FHLBNY has potential credit exposure should the loan default and the PFI
directly or indirectly is unable to recover credit losses.
160
The MPF Program uses certain mortgage insurance companies to provide both primary mortgage
insurance (PMI) and supplemental mortgage insurance (SMI) for MPF loans. The FHLBNY is exposed
to the performance of mortgage insurers to the extent PFIs rely on insurer credit protection.
Credit exposure is defined as the total of PMI and SMI coverage written by a mortgage insurer on
MPF loans held by FHLBNY that are delinquent.
All mortgage insurance providers have had their external ratings for insurer financial strength
downgraded below AA- by one or more NRSROs since December 31, 2008. If a mortgage insurer fails to
fulfill its obligations, the FHLBNY may bear any remaining loss of the borrowers default on the
related mortgage loans not covered by the PFI.
The FHLBNY has stopped accepting new loans under master commitments with SMI from mortgage insurers
that no longer meet MPF insurer requirements. If an SMI provider is downgraded below an AA-
rating under the MPF Plus product, the PFI has six months to either replace the SMI policy or
provide its own undertaking; or it may forfeit its performance based CE Fees. If a PMI provider is
downgraded, the FHLBNY may request the servicer to obtain replacement PMI coverage with a different
provider. However, it is possible that replacement coverage may be unavailable or result in
additional cost to the FHLBNY.
Derivative counterparty ratings
The FHLBNY is subject to credit risk due to the risk of nonperformance by counterparties to the
derivative agreements. The FHLBNY 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 FHLBNY is also subject to operational risks in the
execution and servicing of derivative transactions. The degree of counterparty credit risk may
depend, among other factors, on the extent to which netting procedures and/or the provision of
collateral are used to mitigate the risk. The FHLBNY manages counterparty credit risk through
credit analysis and collateral requirements and by following the requirements set forth in Finance
Agencys regulations. The contractual or notional amount of derivatives reflects the involvement
of the FHLBNY in the various classes of financial instruments, but it does not measure the credit
risk exposure of the FHLBNY, and the maximum credit exposure of the FHLBNY is substantially less
than the notional amount. The maximum credit risk is the estimated cost of replacing derivatives
in favorable fair value gain positions if the counterparty defaults and the related collateral, if
any, is of insufficient value to the FHLBNY.
The FHLBNY uses collateral agreements to mitigate counterparty credit risk in derivatives. When
the FHLBNY has more than one derivative transaction outstanding with a counterparty, and a legally
enforceable master netting agreement exists with the counterparty, the exposure, less collateral
held, represents the appropriate measure of credit risk. Substantially all derivative contracts
are subject to master netting agreements or other right of offset arrangements.
161
The following table summarizes the FHLBNYs credit exposure by counterparty credit rating (in
thousands, except number of counterparties).
Table 50: Credit Exposure by Counterparty Credit Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Total Net |
|
|
|
|
|
|
Number of |
|
|
Notional |
|
|
Exposure at |
|
|
Net Exposure after |
|
Credit Rating |
|
Counterparties |
|
|
Balance |
|
|
Fair Value |
|
|
Cash Collateral 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
AA |
|
|
8 |
|
|
|
47,643,192 |
|
|
|
2,173 |
|
|
|
2,173 |
|
A |
|
|
8 |
|
|
|
79,067,292 |
|
|
|
|
|
|
|
|
|
Members (Note1 and Note2) |
|
|
2 |
|
|
|
165,000 |
|
|
|
7,073 |
|
|
|
7,073 |
|
Delivery Commitments |
|
|
|
|
|
|
3,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
18 |
|
|
$ |
126,878,733 |
|
|
$ |
9,246 |
|
|
$ |
9,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Total Net |
|
|
|
|
|
|
Number of |
|
|
Notional |
|
|
Exposure at |
|
|
Net Exposure after |
|
Credit Rating |
|
Counterparties |
|
|
Balance |
|
|
Fair Value |
|
|
Cash Collateral 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
AA |
|
|
7 |
|
|
|
45,652,167 |
|
|
|
684 |
|
|
|
684 |
|
A |
|
|
8 |
|
|
|
88,711,243 |
|
|
|
|
|
|
|
|
|
Members (Note1 and Note2) |
|
|
2 |
|
|
|
160,000 |
|
|
|
7,596 |
|
|
|
7,596 |
|
Delivery Commitments |
|
|
|
|
|
|
4,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
17 |
|
|
$ |
134,527,620 |
|
|
$ |
8,280 |
|
|
$ |
8,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note1: |
|
Fair values of $7.1 million and $7.6 million comprising of intermediated
transactions with members and interest-rate caps sold to members (with capped floating-rate
advances) were collateralized at March 31, 2010 and December 31, 2009. |
|
Note2: |
|
Members are required to pledge collateral to secure derivatives purchased by the
FHLBNY as an intermediary on behalf of its members. Eligible collateral includes: (1)
one-to-four-family and multi-family mortgages; (2) U.S. Treasury and government-agency securities;
(3) mortgage-backed securities; and (4) certain other collateral which is real estate-related and
has a readily ascertainable value, and in which the FHLBNY can perfect a security interest. As a
result of the collateral agreements with its members, the FHLBNY believes that its maximum credit
exposure due to the intermediated transactions was $0 at March 31, 2010 and December 31, 2009. |
|
Note3: |
|
As reported in the Statements of Condition. |
Risk measurement Although notional amount is a commonly used measure of volume in the derivatives
market, it is not a meaningful measure of market or credit risk since derivative counterparties do
not exchange the notional amount (except in the case of foreign currency swaps of which the FHLBNY
has none). Counterparties use the notional amounts of derivative instruments to calculate
contractual cash flows to be exchanged. The fair value of a derivative in a gain position is a
more meaningful measure of the FHLBNYs current market exposure on derivatives. The FHLBNY
estimates exposure to credit loss on derivative instruments by calculating the replacement cost, on
a present value basis, to settle at current market prices all outstanding derivative contracts in a
gain position, net of collateral pledged by the counterparty to mitigate the FHLBNYs exposure.
All derivative contracts with non-members are also subject to master netting agreements or other
right of offset arrangements.
Exposure In determining credit risk, the FHLBNY considers accrued interest receivable and
payable, and the legal right to offset assets and liabilities by counterparty. The FHLBNY attempts
to mitigate its exposure by requiring derivative counterparties to pledge cash collateral, if the
amount of exposure is above the collateral threshold agreements. At March 31, 2010 and December
31, 2009, the fair values of derivatives in a gain position were below the threshold and derivative
counterparties pledged no cash to the FHLBNY.
162
At March 31, 2010 and December 31, 2009, the FHLBNY had posted $2.2 billion in cash as collateral
to derivative counterparties to mitigate derivatives in a net fair value liability (unfavorable)
position. The FHLBNY is exposed to the extent that a counterparty may not re-pay the posted cash
collateral to the FHLBNY under unforeseen circumstances, such as bankruptcy; in such an event the
FHLBNY would then exercise its rights under the International Swaps and Derivatives Association
agreement (ISDA) to replace the derivatives in a liability position (gain position for the
acquiring counterparty) with another available counterparty in exchange for cash delivered to the
FHLBNY. To the extent that the fair values of the replacement derivatives are less than the cash
collateral posted, the FHLBNY may not receive cash equal to the amount posted.
Derivative counterparty ratings The Banks credit exposures at March 31, 2010 and December 31,
2009, in a gain position, were primarily to member institutions on whose behalf the FHLBNY had
acted as an intermediary or had sold interest rate caps, at the request of members, to create
capped floating rate advance borrowings. The exposures were collateralized under standard
collateral agreements with the FHLBNYs member. Acting as an intermediary, the Bank had also
purchased equivalent notional amounts of derivatives from unrelated derivative counterparties.
Risk mitigation The FHLBNY attempts to mitigate derivative counterparty credit risk by
contracting only with experienced counterparties with investment-grade credit ratings. Annually,
the FHLBNYs management and Board of Directors review and approve all non-member derivative
counterparties. Management monitors counterparties on an ongoing basis for significant business
events, including ratings actions taken by nationally recognized statistical rating organizations.
All approved derivatives counterparties must enter into a master ISDA agreement with the FHLBNY
and, in addition, execute the Credit Support Annex to the ISDA agreement that provides for
collateral support at predetermined thresholds. These annexes contain enforceable provisions for
requiring collateral on certain derivative contracts that are in gain positions. The annexes also
define the maximum net unsecured credit exposure amounts that may exist before collateral delivery
is required. Typically, the maximum amount is based upon an analysis of individual counterpartys
rating and exposure. The FHLBNY also attempts to manage counterparty credit risk through credit
analysis, collateral management and other credit enhancements, such as guarantees, and by following
the requirements set forth in the Finance Agencys regulations.
Despite these risk mitigating policies and processes, on September 15, 2008, an event of default
occurred under outstanding derivative contracts with total notional amounts of $16.5 billion
between Lehman Brothers Special Financing Inc. (LBSF) and the FHLBNY when credit support provider
Lehman Brothers Holdings Inc. commenced a filing under Chapter 11 of the U.S. Bankruptcy Code on
September 15, 2008. Since the default, the FHLBNY has replaced most of the derivatives that had
been executed between LBSF and the FHLBNY through new agreements with other derivative
counterparties. The Lehman bankruptcy proceedings are ongoing.
163
Commitments, Contingencies and Off-Balance Sheet Arrangements
Consolidated obligations Joint and several liability
Although the Bank is primarily liable only for its portion of consolidated obligations (i.e., those
consolidated obligations issued on its behalf and those that have been transferred/assumed from
other FHLBanks), it is also jointly and severally liable with the other FHLBanks for the payment of
principal and interest on all of the consolidated obligations issued by the FHLBanks.
The Finance Agency, in its discretion, may require any FHLBank to make principal or interest
payments due on any consolidated obligation, regardless of whether there has been a default by a
FHLBank having primary liability. To the extent that a FHLBank makes any payment on a consolidated
obligation on behalf of another FHLBank, the paying FHLBank shall be entitled to reimbursement from
the FHLBank with primary liability. The FHLBank with primary liability would have a corresponding
liability to reimburse the FHLBank providing assistance to the extent of such payment and other
associated costs (including interest to be determined by the Finance Agency). However, if the
Finance Agency determines that the primarily liable FHLBank is unable to satisfy its obligations,
then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a
pro rata basis in proportion to each FHLBanks participation in all consolidated obligations
outstanding, or on any other basis that the Finance Agency may determine. No FHLBank has ever
failed to make a payment on a consolidated obligation for which it was the primary obligor; as a
result, the regulatory provisions for directing other FHLBanks to make payments on behalf of
another FHLBank or allocating the liability among other FHLBanks have never been invoked.
Consequently, the Bank has no means to determine how the Finance Agency might allocate among the
other FHLBanks the obligations of a FHLBank that is unable to pay consolidated obligations for
which such FHLBank is primarily liable. In the event the Bank is holding a consolidated obligation
as an investment for which the Finance Agency would allocate liability among the 12 FHLBanks, the
Bank might be exposed to a credit loss to the extent of its share of the assigned liability for
that particular consolidated obligation (the Bank did not hold any consolidated obligations of
other FHLBanks as investments at March 31, 2010 and December 31, 2009). If principal or interest
on any consolidated obligation issued by the FHLBank System is not paid in full when due, the Bank
may not pay dividends to, or repurchase shares of stock from, any shareholder of the Bank.
Although the FHLBNY is primarily liable for those consolidated obligations issued on its behalf, it
is also jointly and severally liable with the other FHLBanks for the payment of principal and
interest on the consolidated obligations of all the FHLBanks. If the principal or interest on any
consolidated obligation issued on behalf of the FHLBNY is not paid in full when due, the FHLBNY may
not pay dividends to, or redeem or repurchase shares of stock from, any member or non-member
stockholder until the Finance Agency approves the FHLBNYs consolidated obligation payment plan or
another remedy, and until the FHLBNY pays all the interest and principal currently due under all
its consolidated obligations. The par amounts of the outstanding consolidated obligations of all
12 FHLBanks were $0.9 trillion at March 31, 2010 and December 31, 2009.
164
Because the FHLBNY is jointly and severally liable for debt issued by other FHLBanks, the FHLBNY
has not identified consolidated obligations outstanding by primary obligor. The FHLBNY does not
believe that the identification of particular banks as the primary obligors on these consolidated
obligations is relevant because all FHLBanks are jointly and severally obligated to pay all
consolidated obligations. The identity of the primary obligor does not affect the FHLBNYs
investment decisions. The FHLBNYs ownership of consolidated obligations in which other FHLBanks
are primary obligors does not affect the FHLBNYs guarantee on consolidated obligations as there
is no automatic legal right of offset. Even if the FHLBNY were to claim an offset, the FHLBNY
would still be jointly and severally obligated for any debt service shortfall caused by the
FHLBanks failure to pay.
Off-balance sheet arrangements with respect to derivatives are discussed in detail in Note 16 to
the unaudited financial statements in this report.
165
The following table summarizes contractual obligations and other commitments as of March 31, 2010
(in thousands):
Table 51: Contractual Obligations and Other Commitments
(For more information, see Note 18 to the unaudited financial statements in this report.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
Payments due or expiration terms by period |
|
|
|
Less than |
|
|
One year |
|
|
Greater than three |
|
|
Greater than |
|
|
|
|
|
|
one year |
|
|
to three years |
|
|
years to five years |
|
|
five years |
|
|
Total |
|
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds at par 1 |
|
$ |
36,813,050 |
|
|
$ |
25,161,775 |
|
|
$ |
6,850,550 |
|
|
$ |
2,878,050 |
|
|
$ |
71,703,425 |
|
Mandatorily redeemable capital stock 1 |
|
|
81,360 |
|
|
|
16,762 |
|
|
|
2,114 |
|
|
|
4,956 |
|
|
|
105,192 |
|
Premises (lease obligations) 2 |
|
|
3,060 |
|
|
|
6,202 |
|
|
|
5,191 |
|
|
|
5,843 |
|
|
|
20,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
|
36,897,470 |
|
|
|
25,184,739 |
|
|
|
6,857,855 |
|
|
|
2,888,849 |
|
|
|
71,828,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit |
|
|
772,638 |
|
|
|
10,589 |
|
|
|
17,016 |
|
|
|
3,861 |
|
|
|
804,104 |
|
Consolidated obligations-bonds/
discount notes traded not settled |
|
|
2,517,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,517,000 |
|
Firm commitment-advances |
|
|
160,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,228 |
|
MBS purchase |
|
|
174,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,048 |
|
Open delivery commitments (MPF) |
|
|
3,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other commitments |
|
|
3,627,163 |
|
|
|
10,589 |
|
|
|
17,016 |
|
|
|
3,861 |
|
|
|
3,658,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations and commitments |
|
$ |
40,524,633 |
|
|
$ |
25,195,328 |
|
|
$ |
6,874,871 |
|
|
$ |
2,892,710 |
|
|
$ |
75,487,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Callable bonds contain exercise date or a series of exercise dates that may result in
a shorter redemption period. Mandatorily redeemable capital stock is categorized by the dates at
which the corresponding advances outstanding mature. Excess capital stock is redeemed at that
time, and hence, these dates better represent the related commitments than the put dates
associated with capital stock, under which stock may not be redeemed until the later of five years
from the date the member becomes a nonmember or the related advance matures. |
|
2 |
|
Immaterial amount of commitments for equipment leases are not included. |
166
Liquidity
The FHLBNYs primary source of liquidity is the issuance of consolidated obligation bonds and
discount notes. To refinance maturing consolidated obligations, the Bank relies on the willingness
of the investors to purchase new issuances. The FHLBNY has access to the discount note market and
the efficiency of issuing discount notes is an important factor as a source of liquidity since
discount notes can be issued any time and in a variety of amounts and maturities. Member deposits
and capital stock purchased by members are another source of funds. Short-term unsecured
borrowings from other FHLBanks and in the Federal funds market provide additional sources of
liquidity. With the passage of the Housing Act on July 30, 2008, the U.S. Treasury is authorized
to purchase obligations issued by the FHLBanks, in any amount deemed appropriate by the U.S.
Treasury. This temporary authorization expired December 31, 2009 and supplemented the existing
limit of $4 billion. See Note 18 to the unaudited financial statements accompanying this report
for discussion of the U.S. Treasurys establishment of the Government Sponsored Enterprise Credit
Facility (GSECF), which was designed to serve as a contingent source of liquidity for the FHLBanks
via issuance of consolidated obligations to the U.S. Treasury.
The FHLBNYs liquidity position remains in compliance with all regulatory requirements and
management does not foresee any changes to that position.
Finance Agency Regulations Liquidity
Beginning December 1, 2005, with the implementation of the Capital Plan, the Financial
Management Policy rules of the Finance Agency with respect to liquidity were superseded by
regulatory requirements that are specified in Parts 917 and 965 of Finance Agency regulations and
are summarized below.
Each FHLBank shall at all times have at least an amount of liquidity equal to the current
deposits received from its members that may be invested in:
|
|
Obligations of the United States; |
|
|
|
Deposits in banks or trust companies; or |
|
|
|
Advances with a maturity not to exceed five years. |
In addition, each FHLBank shall provide for contingency liquidity which is defined as the
sources of cash an FHLBank may use to meet its operational requirements when its access to the
capital markets is impeded. The FHLBNY met its contingency liquidity requirements and liquidity in
excess of requirements is summarized in the table titled Contingency Liquidity.
Violations of the liquidity requirements would result in non-compliance penalties under
discretionary powers given to the Finance Agency under applicable regulations, which include other
corrective actions.
167
Liquidity Management
The FHLBNY actively manages its liquidity position to maintain stable, reliable, and cost-effective
sources of funds, while taking into account market conditions, member demand, and the maturity
profile of the FHLBNYs assets and liabilities. The FHLBNY recognizes that managing liquidity is
critical to achieving its statutory mission of providing low-cost funding to its members. In
managing liquidity risk, the FHLBNY is required to maintain certain liquidity measures in
accordance with the FHLBank Act and policies developed by the FHLBNY management and approved by the
FHLBNYs Board of Directors. The specific liquidity requirements applicable to the FHLBNY are
described in the next four sections:
Deposit Liquidity. The FHLBNY is required to invest an aggregate amount at least equal to the
amount of current deposits received from the FHLBNYs members in: (1) obligations of the U.S.
government; (2) deposits in banks or trust companies; or (3) advances to members with maturities
not exceeding five years. In addition to accepting deposits from its members, the FHLBNY may
accept deposits from other FHLBank or from any other governmental instrumentality.
Deposit liquidity is calculated daily. Quarterly average reserve requirements and actual reserves
are summarized below (in millions). The FHLBNY met its requirements at all times.
Table 52: Deposit Liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Deposit |
|
|
Average Actual |
|
|
|
|
For the quarters ended |
|
Reserve Required |
|
|
Deposit Liquidity |
|
|
Excess |
|
March 31, 2010 |
|
$ |
5,032 |
|
|
$ |
51,987 |
|
|
$ |
46,955 |
|
December 31, 2009 |
|
|
2,364 |
|
|
|
53,089 |
|
|
|
50,725 |
|
Operational Liquidity. The FHLBNY must be able to fund its activities as its balance sheet changes
from day to day. The FHLBNY maintains the capacity to fund balance sheet growth through its
regular money market and capital market funding activities. Management monitors the Banks
operational liquidity needs by regularly comparing the Banks demonstrated funding capacity with
its potential balance sheet growth. Management then takes such actions as may be necessary to
maintain adequate sources of funding for such growth.
Operational liquidity is measured daily. The FHLBNY met the requirements at all times. The
following table summarizes excess operational liquidity (in millions):
Table 53: Operational Liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance Sheet |
|
|
Average Actual |
|
|
|
|
For the quarters ended |
|
Liquidity Requirement |
|
|
Operational Liquidity |
|
|
Excess |
|
March 31, 2010 |
|
$ |
2,283 |
|
|
$ |
15,796 |
|
|
$ |
13,513 |
|
December 31, 2009 |
|
|
6,710 |
|
|
|
16,388 |
|
|
|
9,678 |
|
Contingency Liquidity. The FHLBNY is required by Finance Agency regulations to hold
contingency liquidity in an amount sufficient to meet its liquidity needs if it is unable,
by virtue of a disaster, to access the consolidated obligation debt markets for at least five
business days. Contingency liquidity includes (1) marketable assets with a maturity of one
year or less; (2) self-liquidating assets with a maturity of one year or less; (3) assets that
are generally acceptable as collateral in the repurchase market; and (4) irrevocable lines of
credit from financial institutions receiving not less than the second-highest credit rating
from a nationally recognized statistical rating organization. The FHLBNY consistently
exceeded the regulatory minimum requirements for contingency liquidity.
168
Contingency liquidity is reported daily. The FHLBNY met the requirements at all times. The
following table summarizes excess contingency liquidity (in millions):
Table 54: Contingency Liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Five Day |
|
|
Average Actual |
|
|
|
|
For the quarters ended |
|
Requirement |
|
|
Contingency Liquidity |
|
|
Excess |
|
March 31, 2010 |
|
$ |
2,424 |
|
|
$ |
15,463 |
|
|
$ |
13,039 |
|
December 31, 2009 |
|
|
2,188 |
|
|
|
15,309 |
|
|
|
13,121 |
|
The FHLBNY sets standards in its risk management policy that address its day-to-day
operational and contingency liquidity needs. These standards enumerate the specific types of
investments to be held by the FHLBNY to satisfy such liquidity needs and are outlined above.
These standards also establish the methodology to be used by the FHLBNY in determining the
FHLBNYs operational and contingency needs. Management continually monitors and projects the
FHLBNYs cash needs, daily debt issuance capacity, and the amount and value of investments
available for use in the market for repurchase agreements. Management uses this information
to determine the FHLBNYs liquidity needs and to develop appropriate liquidity plans.
Other Liquidity Contingencies. As discussed more fully under the section Debt Financing -
Consolidated Obligations, the FHLBNY is primarily liable for consolidated obligations issued on its
behalf. The FHLBNY is also jointly and severally liable with the other FHLBanks for the payment of
principal and interest on the consolidated obligations of all the FHLBanks. If the principal or
interest on any consolidated obligation issued on behalf of the FHLBNY is not paid in full when
due, the following rules apply: the FHLBNY may not pay dividends to, or redeem or repurchase shares
of stock of any member or non-member stockholder until the Finance Agency approves the FHLBNYs
consolidated obligation payment plan or other remedy and until the FHLBNY pays all the interest or
principal currently due on all its consolidated obligations. The Finance Agency, at its
discretion, may require any FHLBank to make principal or interest payments due on any consolidated
obligations. The par amount of the outstanding consolidated obligations of all 12 FHLBanks was
$0.9 trillion at March 31, 2010 and December 31, 2009. The FHLBNY does not believe that it will be
called upon to pay the consolidated obligations of another FHLBank in the future.
Finance Agency regulations also state that the FHLBanks must maintain, free from any lien or
pledge, the following types of assets in an amount at least equal to the amount of consolidated
obligations outstanding:
|
|
|
Cash; |
|
|
|
|
Obligations of, or fully guaranteed by, the United States; |
|
|
|
|
Secured advances; |
|
|
|
|
Mortgages that have any guaranty, insurance, or commitment from the United States
or any agency of the United States; |
|
|
|
|
Investments described in section 16(a) of the FHLBank Act, including 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 are rated Aaa by Moodys or AAA by Standard & Poors. |
169
Leverage Limits and Unpledged Asset Requirements
The FHLBNY met the Finance Agencys requirement that unpledged assets, as defined under
regulations, exceed the total of consolidated obligations as follows (in thousands):
Table 55: Unpledged Assets
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
Consolidated Obligations: |
|
|
|
|
|
|
|
|
Bonds |
|
$ |
72,408,203 |
|
|
$ |
74,007,978 |
|
Discount Notes |
|
|
19,815,956 |
|
|
|
30,827,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated obligations |
|
|
92,224,159 |
|
|
|
104,835,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpledged assets |
|
|
|
|
|
|
|
|
Cash |
|
|
1,167,824 |
|
|
|
2,189,252 |
|
Less: Member pass-through reserves at the FRB |
|
|
(31,200 |
) |
|
|
(29,331 |
) |
Secured Advances 2 |
|
|
88,858,753 |
|
|
|
94,348,751 |
|
Investments 1 |
|
|
15,561,254 |
|
|
|
16,222,615 |
|
Mortgage loans |
|
|
1,287,770 |
|
|
|
1,317,547 |
|
Accrued interest receivable on advances and investments |
|
|
320,730 |
|
|
|
340,510 |
|
Less: Pledged Assets |
|
|
(3,497 |
) |
|
|
(2,045 |
) |
|
|
|
|
|
|
|
|
|
|
107,161,634 |
|
|
|
114,387,299 |
|
|
|
|
|
|
|
|
Excess unpledged assets |
|
$ |
14,937,475 |
|
|
$ |
9,551,682 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The Bank pledged $3.5 million and $2.0 million at March 31, 2010 and December 31,
2009 to the FDIC. See Note 4- Held-to-maturity securities. |
|
2 |
|
The Bank also provided to the U.S. Treasury a listing of $0 and $10.3 billion in
advances with respect to a lending agreement at March 31, 2010 and December 31, 2009. See Note 18-
Commitments and Contingencies. |
Finance Agency regulations require the FHLBanks to maintain, in the aggregate, unpledged
qualifying assets equal to the 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, participations,
mortgages, or other securities of or issued by the United States or an agency of the United
States; and such securities in which fiduciary and trust funds may invest under the laws of the
state in which the FHLBank is located.
Purchases of MBS. Finance Agency investment regulations limit the purchase of mortgage-backed
securities to 300% of capital. The FHLBNY was in compliance with the regulation at all times.
Table 56: FHFA MBS Limits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Actual |
|
|
Limits |
|
|
Actual |
|
|
Limits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage securities investment authority 1 |
|
|
213 |
% |
|
|
300 |
% |
|
|
213 |
% |
|
|
300 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The measurement date is on a one-month look-back basis. |
On March 24, 2008, the Board of Directors of the Federal Housing Finance Board (Finance Board),
predecessor to the Finance Agency, adopted Resolution 2008-08, which temporarily expands the
authority of a FHLBank to purchase mortgage-backed securities (MBS) under certain conditions.
The resolution allows an FHLBank to increase its investments in MBS issued by Fannie Mae and
Freddie Mac by an amount equal to three times its capital, which is to be calculated in addition to
the existing regulatory limit. The expanded authority would permit MBS to be as much as 600% of
the FHLBNYs capital.
170
All mortgage loans underlying any securities purchased under this expanded authority must be
originated after January 1, 2008. The Finance Board believed that such loans are generally of
higher credit quality than loans originated at an earlier time, particularly in 2005 and 2006. The
loans underlying any Fannie Mae and Freddie Mac issued MBS acquired pursuant to the new authority
must be underwritten to conform to standards imposed by the federal banking agencies in the
Interagency Guidance on Nontraditional Mortgage Product Risks dated October 4, 2006 and the
Statement on Subprime Mortgage Lending dated July 10, 2007.
The FHLBank must notify the Finance Agency of its intention to exercise the new authority
(Resolution 2008-08) at least 10 business days in advance of its first commitment to purchase
additional Agency MBS. Currently, the Bank has not notified or exercised Resolution 2008-08,
therefore no separate calculation was required.
Rating actions with respect to the FHLBNY are outlined below:
Table 57: FHLBNY Ratings
Short-Term Ratings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Moodys Investors Service |
|
S & P |
Year |
|
Outlook |
|
Rating |
|
Short-Term Outlook |
|
Rating |
2009 |
|
June 19, 2009 - Affirmed |
|
P-1 |
|
July 13, 2009 |
|
Short-Term rating affirmed |
|
A-1+ |
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2009 - Affirmed |
|
P-1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
October 29, 2008 - Affirmed |
|
P-1 |
|
June 16, 2008 |
|
Short-Term rating affirmed |
|
A-1+ |
|
|
April 17, 2008 - Affirmed |
|
P-1 |
|
|
|
|
|
|
Long-Term Ratings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moodys Investors Service |
|
S & P |
Year |
|
Outlook |
|
Rating |
|
Long-Term Outlook |
|
Rating |
2009 |
|
June 19, 2009 - Affirmed |
|
Aaa/Stable |
|
July 13, 2009 |
|
Long-Term rating affirmed |
|
outlook stable |
|
AAA/Stable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2009 - Affirmed |
|
Aaa/Stable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
October 29, 2008 - Affirmed |
|
Aaa/Stable |
|
June 16, 2008 |
|
Long-Term rating affirmed |
|
outlook stable |
|
AAA/Stable |
|
|
April 17, 2008 - Affirmed |
|
Aaa/Stable |
|
|
|
|
|
|
|
|
171
Legislative and Regulatory Developments
Limits on Investments in Mortgage-backed securities. On May 4, 2010, the Federal Housing
Finance Agency (Finance Agency) issued a proposed rule to re-organize and re-adopt existing
investment regulations that apply to the Federal Home Loan Banks. The proposed rule seeks to
consolidate all authority for investments and other transactions into a single section. Comments
on this proposed rule are due on or before July 6, 2010.
Board of Directors of FHLBank System Office of Finance. On May 3, 2010, the Finance Agency
issued a final rule which reconstitutes the board of directors of the FHLBank Systems (System)
Office of Finance (OF) and enhances the responsibility of the OF audit committee for the Systems
combined financial reports. Under the new rule, the OF board of directors will expand from the
current three members to 17 members. The composition of the new board of directors will include
the president of each FHLBank, as well as five independent directors. Each independent director
must be a United States citizen with no material financial relationship to the System. The final
rule also provides that the five independent directors will serve as the OF audit committee and
gives the OF audit committee increased authority over the form and content of the information that
the FHLBanks provide to the OF for use in the combined financial reports. The rule will be
effective on June 2, 2010.
FHLBank Directors Eligibility, Elections, Compensation and Expenses. On April 5, 2010,
the Finance Agency issued a final rule that implements two separate proposed rules which relate to
an FHLBanks election of directors and director compensation. Amendments to director elections
relate to the process by which an FHLBanks successor directors are chosen after a directorship is
redesignated to a new state prior to the end of the term as a result of the annual designation of
an FHLBanks directorships. Under this rule, the redesignation causes the original directorship to
terminate and creates a new directorship that will be filled by an election of the members. As to
director compensation and expenses, Finance Agency is implementing section 1202 of the Housing Act
by repealing the statutory caps on the annual compensation that can be paid to FHLBank directors.
This amendment allows each FHLBank to pay its directors reasonable compensation and expenses,
subject to the authority of the Director of the Finance Agency. As such, the Director of the
Finance Agency may object to, and prohibit prospectively, compensation and/or expenses if
determined to be unreasonable. This rule became effective on May 5, 2010.
Money Market Fund Reform. On March 4, 2010, the SEC published a final rule, amending the
rules governing money market funds under the Investment Company Act. These amendments will result
in tightened liquidity requirements, such as: maintaining certain financial instruments for
short-term liquidity; reducing the maximum weighted-average maturity of portfolio holdings and
improving the quality of portfolio holdings. The final rule includes overnight FHLBank
consolidated discount notes in the definition of daily liquid assets and weekly liquid assets
and will encompass FHLBank consolidated discount notes with remaining maturities of up to 60 days
in the definition of weekly liquid assets. These provisions reflect changes to the SECs
proposed rule that would have excluded certain FHLBank consolidated discount notes, other than
overnight FHLBank consolidated discount notes, from the definition of both daily liquid assets
and weekly liquid assets. The final rules requirements become effective on May 5, 2010 unless
another compliance date is specified for a requirement (e.g., daily and weekly liquidity
requirements become effective on May 28, 2010).
172
FHLBank Membership for Community Development Financial Institutions (CDFIs). On January 5,
2010, the Finance Agency issued a final rule to amend its membership regulations to implement
provisions of the Housing Act that authorized CDFIs that have been certified by the CDFI Fund of
the U.S. Treasury Department to become members of an FHLBank. CDFIs are private institutions that
provide financial services dedicated to economic development and community revitalization in
underserved markets. The newly-eligible CDFIs include community development loan funds, venture
capital funds, and State-chartered credit unions without Federal insurance. This final rule sets
out the eligibility and procedural requirements that will enable CDFIs to become members of an
FHLBank. The Finance Agency also amended its community support regulations to provide that
certified CDFIs may be presumed to be in compliance with the statutory community support
requirements by virtue of their certification by the CDFI Fund. This rule became effective on
February 4, 2010.
Pending Legislation on Financial System Reform. On December 11, 2009, the U.S. House of
Representatives passed the Wall Street Reform and Consumer Protection Act (Reform Act), which, if
passed by the U.S. Senate and signed into law by the President of the United States, would, among
other things: (1) create a consumer financial protection agency; (2) create an inter-agency
oversight council that will identify and regulate systemically-important financial institutions;
(3) regulate the over-the-counter derivatives market; (4) reform the credit rating agencies;
(5) provide shareholders with an advisory vote on the compensation practices of the entity in which
they invest, including for executive compensation and golden parachutes; and (6) create a federal
insurance office that will monitor the insurance industry.
On March 22, 2010, the Senate Committee on Banking, Housing, and Urban Affairs (Senate Banking
Committee) approved the Restoring American Financial Stability Act of 2010 (Financial Stability
Act). The Financial Stability Act, would, among other things: (1) create a consumer financial
protection agency, housed within the Federal Reserve; (2) create an inter-agency oversight council
that will identify and regulate systemically-important financial institutions; (3) end too big to
fail by: creating a safe way to liquidate failed financial firms, imposing new capital and
leverage requirements, updating the Federal Reserves authority to allow system-wide support but no
longer prop up individual firms, and establishing rigorous standards and supervision to protect the
economy and American consumers, investors and businesses; (4) eliminate loopholes and abusive
practices for over-the-counter derivatives, asset-backed securities, hedge funds, mortgage brokers
and payday lenders; (5) streamline bank supervision to create clarity and accountability, while
protecting the dual banking system that supports community banks; (6) provide shareholders with a
say on pay and corporate affairs with a non-binding vote on executive compensation; (7) provide for
tougher rules for transparency and accountability for credit rating agencies to protect investors
and businesses; and (8) strengthen regulatory oversight and empower regulators to aggressively
pursue financial fraud, conflicts of interest and manipulation of the financial system.
Depending on whether the Reform Act, or similar legislation, is signed into law and the final
content of any such legislation, the FHLBanks business operations, funding costs, rights,
obligations, and/or the manner in which FHLBanks carry out their housing-finance mission may be
affected. For example, regulations on the over-the-counter derivatives market that may be issued
under the Reform Act could materially affect an FHLBanks ability to hedge its interest-rate risk
exposure from advances, achieve the FHLBanks risk management objectives, and act as an
intermediary between its members and counterparties. In addition, the proposed Financial Stability
Act pending in the U.S. Senate has a provision that would prohibit the FHLBanks from lending an
amount that exceeds 25 percent of capital stock and surplus to a member financial institution.
These limitations outlined in the proposed legislation may cause a significant decrease in the
aggregate amount of FHLBank advances, affect the ability of the FHLBanks to raise funds in the
capital markets and increase advance rates for FHLBanks member financial institutions. However,
FHLBanks cannot predict whether any such legislation will be enacted and what the content of any
such legislation or regulations issued under any such legislation would be, and therefore, cannot
predict the effects of the Reform Act or similar legislation.
173
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Management. Market risk or interest rate risk (IRR) is the risk of loss to market
value or future earnings that may result from changes in the interest rate environment. Embedded in
IRR is a tradeoff of risk versus reward wherein the FHLBNY could earn higher income by having
higher IRR through greater mismatches between its assets and liabilities at the cost of potentially
significant declines in market value and future income if the interest rate environment turned
against the FHLBNYs expectations. The FHLBNY has opted to retain a modest level of IRR which
allows it to preserve its capital value while generating steady and predictable income. In keeping
with that philosophy, the FHLBNYs balance sheet consists of predominantly short-term and
LIBOR-based assets and liabilities. More than 80 percent of the FHLBNYs financial assets are
either short-term or LIBOR-based, and a similar percentage of its liabilities are also either
short-term or LIBOR based. These positions protect the FHLBNYs capital from large changes in value
arising from interest rate or volatility changes.
The primary tool used by management to achieve the desired risk profile is the use of interest rate
exchange agreements (Swaps). All the LIBOR-based advances are long-term advances that are swapped
to 3- or 1-month LIBOR or possess adjustable rates which periodically reset to a LIBOR index.
Similarly, a majority of the long-term consolidated obligations are swapped to 3- or 1-month LIBOR.
These features create a relatively steady income that changes in concert with prevailing interest
rate changes to maintain a spread to short-term rates.
Despite its conservative philosophy, IRR does arise from a number of aspects of the FHLBNYs
portfolio. These include the embedded prepayment rights, refunding needs, rate resets between the
FHLBNYs short-term assets and liabilities, and basis risks arising from differences between the
yield curves associated with the FHLBNYs assets and its liabilities. To address these risks, the
FHLBNY uses certain key IRR measures including re-pricing gaps, duration of equity (DOE), value
at risk (VaR), net interest income (NII) at risk, key rate durations (KRD), and forecasted
dividend rates.
Risk Measurements. The FHLBNYs Risk Management Policy sets up a series of risk limits that the
FHLBNY calculates on a regular basis. The risk limits are as follows:
|
|
|
The option-adjusted DOE is limited to a range of +/- four years in the rates
unchanged case and to a range of +/- six years in the +/-200bps shock cases.
Due to the low interest rate environment beginning in early 2008, the
March 2009, June 2009, September 2009, December 2009, and March 2010 rates were
too low for a meaningful parallel down-shock measurement. |
|
|
|
|
The one-year cumulative re-pricing gap is limited to 10 percent of total assets. |
|
|
|
|
The sensitivity of expected net interest income over a one-year period is limited to a -15 percent change under both the +/-200bps shocks compared to the rates unchanged case. |
|
|
|
|
The potential decline in the market value of equity is limited to a 10 percent change under the +/-200bps shocks. |
|
|
|
|
KRD exposure at any of nine term points (3-month, 1-year, 2-year, 3-year, 5-year, 7-year, 10-year, 15-year, and 30-year) is limited to between +/-12 months. |
174
The FHLBNYs portfolio, including its derivatives, is tracked and the overall mismatch between
assets and liabilities is summarized by using a DOE measure. The FHLBNYs last five quarterly DOE
results are shown in years in the table below (note that, due to the on-going low interest rate
environment, there were no down-shock measurements performed between the first quarter of 2009 and
the first quarter of 2010):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Case DOE |
|
|
-200bps DOE |
|
|
+200bps DOE |
|
March 31, 2009 |
|
|
-2.24 |
|
|
|
N/A |
|
|
|
1.23 |
|
June 30, 2009 |
|
|
-0.83 |
|
|
|
N/A |
|
|
|
1.67 |
|
September 30, 2009 |
|
|
-0.39 |
|
|
|
N/A |
|
|
|
3.88 |
|
December 31, 2009 |
|
|
0.42 |
|
|
|
N/A |
|
|
|
3.68 |
|
March 31, 2010 |
|
|
-0.51 |
|
|
|
N/A |
|
|
|
3.81 |
|
The DOE has remained within its limits. Duration indicates any cumulative re-pricing/maturity
imbalance in the FHLBNYs financial assets and liabilities. A positive DOE indicates that, on
average, the liabilities will re-price or mature sooner than the assets while a negative DOE
indicates that, on average, the assets will re-price or mature earlier than the liabilities. The
FHLBNY measures its DOE using software that incorporates any optionality within the FHLBNYs
portfolio using well-known and tested financial pricing theoretical models.
The FHLBNY does not solely rely on the DOE measure as a mismatch measure between its assets and
liabilities. It also performs the more traditional gap measure that subtracts re-pricing/maturing
liabilities from re-pricing/maturing assets over time. The FHLBNY observes the differences over
various horizons, but has set a 10 percent of assets limit on cumulative re-pricings at the
one-year point. This quarterly observation of the one-year cumulative re-pricing gap is provided in
the table below and all values are below 10 percent of assets; well within the limit:
|
|
|
|
|
One Year Re- |
|
|
pricing Gap |
March 31, 2009
|
|
$7.593 Billion |
June 30, 2009
|
|
$5.936 Billion |
September 30, 2009
|
|
$5.480 Billion |
December 31, 2009
|
|
$4.626 Billion |
March 31, 2010
|
|
$4.753 Billion |
175
The FHLBNYs review of potential interest rate risk issues also includes the effect of changes in
interest rates on expected net income. The FHLBNY projects asset and liability volumes and spreads
over a one-year horizon and then simulates expected income and expenses from those volumes and
other inputs. The effects of changes in interest rates are measured to test whether the FHLBNY has
too much exposure in its net interest income over the coming twelve-month period. To measure the
effect, the change to the spread in the shocks is calculated and compared against the base case and
subjected to a -15 percent limit. The quarterly sensitivity of the FHLBNYs expected net interest
income under both +/-200bps shocks over the next twelve months is provided in the table below (note
that, due to the on-going low interest rate environment, the down-shock measurements were not
performed between the first quarter of 2009 and the first quarter of 2010):
|
|
|
|
|
|
|
|
|
|
|
Sensitivity in |
|
|
Sensitivity in |
|
|
|
the -200bps |
|
|
the +200bps |
|
|
|
Shock |
|
|
Shock |
|
March 31, 2009 |
|
|
N/A |
|
|
|
13.11 |
% |
June 30, 2009 |
|
|
N/A |
|
|
|
0.43 |
% |
September 30, 2009 |
|
|
N/A |
|
|
|
9.23 |
% |
December 31, 2009 |
|
|
N/A |
|
|
|
4.53 |
% |
March 31, 2010 |
|
|
N/A |
|
|
|
3.13 |
% |
Aside from net interest income, the other significant impact on changes in the interest rate
environment is the potential impact on the value of the portfolio. These calculated and quoted
market values are estimated based upon their financial attributes including optionality and then
re-estimated under the assumption that interest rates suddenly rise or fall by 200bps. The worst
effect, whether it is the up or the down shock, is compared to the internal limit of 10 percent.
The quarterly potential maximum decline in the market value of equity under these 200bps shocks is
provided below (note that, due to the on-going low interest rate environment the down-shock
measurements were not performed between the first quarter of 2009 and the first quarter of 2010):
|
|
|
|
|
|
|
|
|
|
|
Down-shock |
|
|
+200bps Change in |
|
|
|
Change in MVE |
|
|
MVE |
|
March 31, 2009 |
|
|
N/A |
|
|
|
1.01 |
% |
June 30, 2009 |
|
|
N/A |
|
|
|
-1.81 |
% |
September 30, 2009 |
|
|
N/A |
|
|
|
-4.68 |
% |
December 31, 2009 |
|
|
N/A |
|
|
|
-5.08 |
% |
March 31, 2010 |
|
|
N/A |
|
|
|
-4.53 |
% |
As noted, the potential declines under these shocks are within the FHLBNYs limits of a maximum 10
percent.
176
The following table displays the FHLBNYs maturity/re-pricing gaps as of March 31, 2010 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Sensitivity |
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
More than |
|
|
More than |
|
|
More than |
|
|
|
|
|
|
Six months |
|
|
six months to |
|
|
one year to |
|
|
three years to |
|
|
More than |
|
|
|
or less |
|
|
one year |
|
|
three years |
|
|
five years |
|
|
five years |
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-MBS Investments |
|
$ |
7,324 |
|
|
$ |
182 |
|
|
$ |
388 |
|
|
$ |
259 |
|
|
$ |
447 |
|
MBS Investments |
|
|
6,802 |
|
|
|
869 |
|
|
|
2,242 |
|
|
|
960 |
|
|
|
739 |
|
Adjustable-rate loans and advances |
|
|
12,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unswapped |
|
|
26,965 |
|
|
|
1,051 |
|
|
|
2,630 |
|
|
|
1,219 |
|
|
|
1,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate loans and advances |
|
|
9,764 |
|
|
|
7,927 |
|
|
|
14,428 |
|
|
|
7,865 |
|
|
|
32,273 |
|
Swaps hedging advances |
|
|
59,911 |
|
|
|
(6,708 |
) |
|
|
(13,635 |
) |
|
|
(7,319 |
) |
|
|
(32,250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fixed-rate loans and advances |
|
|
69,675 |
|
|
|
1,219 |
|
|
|
793 |
|
|
|
547 |
|
|
|
23 |
|
Loans to other FHLBanks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
96,640 |
|
|
$ |
2,270 |
|
|
$ |
3,423 |
|
|
$ |
1,765 |
|
|
$ |
1,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
8,010 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount notes |
|
|
19,565 |
|
|
|
251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Swapped discount notes |
|
|
87 |
|
|
|
(87 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net discount notes |
|
|
19,652 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Obligation Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB bonds |
|
|
23,450 |
|
|
|
17,060 |
|
|
|
21,654 |
|
|
|
6,793 |
|
|
|
2,823 |
|
Swaps hedging bonds |
|
|
41,133 |
|
|
|
(15,311 |
) |
|
|
(18,946 |
) |
|
|
(5,356 |
) |
|
|
(1,520 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net FHLB bonds |
|
|
64,583 |
|
|
|
1,749 |
|
|
|
2,708 |
|
|
|
1,437 |
|
|
|
1,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
92,245 |
|
|
$ |
1,913 |
|
|
$ |
2,708 |
|
|
$ |
1,437 |
|
|
$ |
1,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post hedge gaps1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodic gap |
|
$ |
4,395 |
|
|
$ |
358 |
|
|
$ |
715 |
|
|
$ |
328 |
|
|
$ |
(94 |
) |
Cumulative gaps |
|
$ |
4,395 |
|
|
$ |
4,753 |
|
|
$ |
5,468 |
|
|
$ |
5,796 |
|
|
$ |
5,702 |
|
|
|
|
Note: |
|
Numbers may not add due to rounding. |
|
|
|
1 |
|
Repricing gaps are estimated at the scheduled rate reset dates for floating rate instruments, and
at maturity for fixed rate instruments. For callable instruments, the repricing period is
estimated by the earlier of the estimated call date under the current interest rate environment or
the instruments contractual maturity. |
177
The following tables display the FHLBNYs maturity/re-pricing gaps as of December 31, 2009 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Sensitivity |
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
More than |
|
|
More than |
|
|
More than |
|
|
|
|
|
|
Six months |
|
|
six months to |
|
|
one year to |
|
|
three years to |
|
|
More than |
|
|
|
or less |
|
|
one year |
|
|
three years |
|
|
five years |
|
|
five years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-MBS Investments |
|
$ |
8,621 |
|
|
$ |
124 |
|
|
$ |
371 |
|
|
$ |
249 |
|
|
$ |
587 |
|
MBS Investments |
|
|
6,773 |
|
|
|
903 |
|
|
|
2,420 |
|
|
|
1,167 |
|
|
|
879 |
|
Adjustable-rate loans and advances |
|
|
14,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unswapped |
|
|
29,495 |
|
|
|
1,027 |
|
|
|
2,791 |
|
|
|
1,416 |
|
|
|
1,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate loans and advances |
|
|
9,588 |
|
|
|
7,853 |
|
|
|
16,124 |
|
|
|
8,254 |
|
|
|
34,814 |
|
Swaps hedging advances |
|
|
63,852 |
|
|
|
(6,722 |
) |
|
|
(14,389 |
) |
|
|
(7,950 |
) |
|
|
(34,791 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fixed-rate loans and advances |
|
|
73,441 |
|
|
|
1,131 |
|
|
|
1,735 |
|
|
|
304 |
|
|
|
23 |
|
Loans to other FHLBanks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
102,935 |
|
|
$ |
2,158 |
|
|
$ |
4,526 |
|
|
$ |
1,720 |
|
|
$ |
1,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
2,590 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount notes |
|
|
28,770 |
|
|
|
2,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Swapped discount notes |
|
|
1,422 |
|
|
|
(1,422 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net discount notes |
|
|
30,193 |
|
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Obligation Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB bonds |
|
|
25,717 |
|
|
|
16,014 |
|
|
|
22,829 |
|
|
|
6,033 |
|
|
|
2,844 |
|
Swaps hedging bonds |
|
|
39,617 |
|
|
|
(14,298 |
) |
|
|
(19,513 |
) |
|
|
(4,501 |
) |
|
|
(1,305 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net FHLB bonds |
|
|
65,334 |
|
|
|
1,716 |
|
|
|
3,316 |
|
|
|
1,532 |
|
|
|
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
98,117 |
|
|
$ |
2,351 |
|
|
$ |
3,316 |
|
|
$ |
1,532 |
|
|
$ |
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post hedge gaps1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodic gap |
|
$ |
4,819 |
|
|
$ |
(193 |
) |
|
$ |
1,210 |
|
|
$ |
188 |
|
|
$ |
(50 |
) |
Cumulative gaps |
|
$ |
4,819 |
|
|
$ |
4,626 |
|
|
$ |
5,837 |
|
|
$ |
6,024 |
|
|
$ |
5,974 |
|
Note: Numbers may not add due to rounding.
|
|
|
1 |
|
Repricing gaps are estimated at the scheduled rate reset dates for floating rate instruments,
and at maturity for fixed rate instruments. For callable instruments, the repricing period is
estimated by the earlier of the estimated call date under the current interest rate environment or
the instruments contractual maturity. |
178
Operational Risk Management. Operational risk is the risk of loss resulting from the failures or
inadequacies of internal processes, people, and systems, or resulting from external events.
Operational risks include those arising from fraud, human error, computer system failures and a
wide range of external events from adverse weather to terrorist attacks. The management of these
risks is the responsibility of the senior managers at the operating level. To assist them in
discharging this responsibility and to ensure that operational risk is managed consistently
throughout the organization, the FHLBNY has developed an operational risk management framework,
which evolves as warranted by circumstances and changing conditions. The FHLBNYs Operational Risk
Management framework defines the core governing principles for operational risk management and
provides the framework to identify, control, monitor, measure, and report operational risks in a
consistent manner across the FHLBNY.
Risk and Control Self-Assessment. FHLBNYs Risk and Control Self-Assessment incorporates standards
for risk and control self-assessment which apply to all businesses and establish Risk and Control
Self-Assessment as the process for identifying the risks inherent in a business activities and for
evaluating and monitoring the effectiveness of the controls over those risks. It is the policy of
the FHLBNY to require businesses and staff functions to perform a Risk and Control Self-Assessment
on a periodic basis. The Risk and Control Self-Assessment must include documentation of the control
environment as well as policies for assessing risks and controls, testing commensurate with risk
level and tracking corrective action for control breakdowns or deficiencies. The Risk and Control
Self-Assessment also must require periodic reporting to senior management and to the Boards Audit
Committee.
179
Item 4T. CONTROLS AND PROCEDURES
|
(a) |
|
Evaluation of Disclosure Controls and Procedures: An evaluation of the Banks disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the Act)) was carried out under the supervision and with
the participation of the Banks President and Chief Executive Officer, Alfred A. DelliBovi,
and Senior Vice President and Chief Financial Officer, Patrick A. Morgan, at March 31, 2010.
Based on this evaluation, they concluded that as of March 31, 2010, the Banks disclosure
controls and procedures were effective, at a reasonable level of assurance, in ensuring that
the information required to be disclosed by the Bank in the reports it files or submits
under the Act is (i) accumulated and communicated to the Banks management (including the
President and Chief Executive Officer and Senior Vice President and Chief Financial Officer)
in a timely manner, and (ii) recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms. |
|
|
(b) |
|
Changes in Internal Control Over Financial Reporting: There were no changes in the Banks
internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under
the Act) during the Banks last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Banks internal control over financial
reporting. |
180
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, the Federal Home Loan Bank of New York is involved in disputes or
regulatory inquiries that arise in the ordinary course of business. At the present time, there are
no material pending legal proceedings against the Bank. Information about a continuing legal
proceeding involving property of the FHLBNY was previously disclosed in Part 1, Item 3 of the
FHLBNYs 2009 Annual Report on Form 10-K filed on March 25, 2010.
Item 1A. RISK FACTORS
There have been no material changes from risk factors included in the FHLBNYs Form 10-K for the
fiscal year ended December 31, 2009.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. (REMOVED AND RESERVED)
Item 5. OTHER INFORMATION
None.
181
Item 6. Exhibits
|
|
|
|
|
Exhibit No. |
|
Identification of Exhibit |
|
|
|
|
|
|
10.01 |
|
|
Bank 2010 Incentive Compensation Plan* ** |
|
|
|
|
|
|
31.01 |
|
|
Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer |
|
|
|
|
|
|
31.02 |
|
|
Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer |
|
|
|
|
|
|
32.01 |
|
|
Certification of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act 2002, 18 U.S.C. Section 1350 |
|
|
|
|
|
|
32.02 |
|
|
Certification of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act 2002, 18 U.S.C. Section 1350 |
|
|
|
* |
|
This exhibit includes a management contract, compensatory plan or arrangement required to be noted herein. |
|
** |
|
Portions of the exhibit have been omitted and separately filed with the U.S. Securities and Exchange Commission with a request for confidential treatment. |
182
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 New York
|
|
|
(Registrant)
|
|
|
By: |
/s/ Patrick A. Morgan
|
|
|
|
Patrick A. Morgan |
|
|
|
Senior Vice President and Chief Financial Officer
Federal Home Loan bank of New York
(on behalf of the
registrant and as the Principal
Financial Officer) |
|
Date: May 12, 2010
183