Attached files
file | filename |
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EX-10.01 - EXHIBIT 10.01 - Federal Home Loan Bank of New York | c04666exv10w01.htm |
EX-31.01 - EXHIBIT 31.01 - Federal Home Loan Bank of New York | c04666exv31w01.htm |
EX-31.02 - EXHIBIT 31.02 - Federal Home Loan Bank of New York | c04666exv31w02.htm |
EX-32.01 - EXHIBIT 32.01 - Federal Home Loan Bank of New York | c04666exv32w01.htm |
EX-32.02 - EXHIBIT 32.02 - Federal Home Loan Bank of New York | c04666exv32w02.htm |
EX-10.02 - EXHIBIT 10.02 - Federal Home Loan Bank of New York | c04666exv10w02.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
o | 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)
Federal | 13-6400946 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
101 Park Avenue, New York, N.Y. | 10178 | |
(Address of principal executive offices) | (Zip Code) |
(212) 681-6000
(Registrants telephone number, including area code)
(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.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
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 July 31, 2010 was
46,115,774.
FEDERAL HOME LOAN BANK OF NEW YORK
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010
Table of Contents
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010
Table of Contents
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118 | ||||||||
119 | ||||||||
Exhibit 10.01 | ||||||||
Exhibit 10.02 | ||||||||
Exhibit 31.01 | ||||||||
Exhibit 31.02 | ||||||||
Exhibit 32.01 | ||||||||
Exhibit 32.02 |
Table of Contents
Federal Home Loan Bank of New York
Statements of Condition
Unaudited (in thousands, except par value of capital stock)
As of June 30, 2010 and December 31, 2009
June 30, 2010 | December 31, 2009 | |||||||
Assets |
||||||||
Cash and due from banks (Note 3) |
$ | 3,262,770 | $ | 2,189,252 | ||||
Federal funds sold |
3,125,000 | 3,450,000 | ||||||
Available-for-sale securities, net of unrealized gains (losses)
of $20,182 at June 30, 2010 and ($3,409) at December 31, 2009 (Note 5) |
2,914,432 | 2,253,153 | ||||||
Held-to-maturity securities (Note 4) |
||||||||
Long-term securities |
8,931,074 | 10,519,282 | ||||||
Advances (Note 6) |
85,285,877 | 94,348,751 | ||||||
Mortgage loans held-for-portfolio, net of allowance for credit losses
of $5,392 at June 30, 2010 and $4,498 at December 31, 2009 (Note 7) |
1,283,040 | 1,317,547 | ||||||
Accrued interest receivable |
310,792 | 340,510 | ||||||
Premises, software, and equipment |
14,112 | 14,792 | ||||||
Derivative assets (Note 16) |
39,444 | 8,280 | ||||||
Other assets |
16,790 | 19,339 | ||||||
Total assets |
$ | 105,183,331 | $ | 114,460,906 | ||||
Liabilities and capital |
||||||||
Liabilities |
||||||||
Deposits (Note 8) |
||||||||
Interest-bearing demand |
$ | 4,756,694 | $ | 2,616,812 | ||||
Non-interest bearing demand |
5,843 | 6,499 | ||||||
Term |
32,000 | 7,200 | ||||||
Total deposits |
4,794,537 | 2,630,511 | ||||||
Consolidated obligations, net (Note 10) |
||||||||
Bonds (Includes $9,763,246 at June 30, 2010 and $6,035,741 at December 31, 2009
at fair value under the fair value option) |
66,246,847 | 74,007,978 | ||||||
Discount notes (Includes $1,753,688 at June 30, 2010 and $0 at December 31, 2009
at fair value under the fair value option) |
27,480,949 | 30,827,639 | ||||||
Total consolidated obligations |
93,727,796 | 104,835,617 | ||||||
Mandatorily redeemable capital stock (Note 11) |
69,569 | 126,294 | ||||||
Accrued interest payable |
233,540 | 277,788 | ||||||
Affordable Housing Program (Note 12) |
144,074 | 144,489 | ||||||
Payable to REFCORP (Note 12) |
14,088 | 24,234 | ||||||
Derivative liabilities (Note 16) |
868,718 | 746,176 | ||||||
Other liabilities |
84,145 | 72,506 | ||||||
Total liabilities |
99,936,467 | 108,857,615 | ||||||
Commitments and Contingencies (Notes 10, 12, 16 and 18) |
||||||||
Capital (Note 11) |
||||||||
Capital stock ($100 par value), putable, issued and outstanding
shares: 46,795 at June 30, 2010 and 50,590 at December 31, 2009 |
4,679,522 | 5,058,956 | ||||||
Retained earnings |
676,528 | 688,874 | ||||||
Accumulated other comprehensive income (loss) (Note 13) |
||||||||
Net unrealized gain (loss) on available-for-sale securities |
20,182 | (3,409 | ) | |||||
Non-credit portion of OTTI on held-to-maturity securities, net of accretion |
(101,877 | ) | (110,570 | ) | ||||
Net unrealized loss on hedging activities |
(19,614 | ) | (22,683 | ) | ||||
Employee supplemental retirement plans (Note 15) |
(7,877 | ) | (7,877 | ) | ||||
Total capital |
5,246,864 | 5,603,291 | ||||||
Total liabilities and capital |
$ | 105,183,331 | $ | 114,460,906 | ||||
The accompanying notes are an integral part of these unaudited financial statements.
3
Table of Contents
Federal Home Loan Bank of New York
Statements of Income
Unaudited (in thousands, except per share data)
For the three and six months ended June 30, 2010 and 2009
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Interest income |
||||||||||||||||
Advances (Note 6) |
$ | 154,204 | $ | 351,295 | $ | 303,844 | $ | 853,517 | ||||||||
Interest-bearing deposits (Note 3) |
1,238 | 9,123 | 2,067 | 18,041 | ||||||||||||
Federal funds sold |
2,804 | 1 | 4,347 | 69 | ||||||||||||
Available-for-sale securities (Note 5) |
9,784 | 7,772 | 15,548 | 16,291 | ||||||||||||
Held-to-maturity securities (Note 4) |
||||||||||||||||
Long-term securities |
91,809 | 117,863 | 190,443 | 244,683 | ||||||||||||
Certificates of deposit |
| 33 | | 541 | ||||||||||||
Mortgage loans held-for-portfolio (Note 7) |
16,615 | 18,169 | 33,356 | 37,273 | ||||||||||||
Total interest income |
276,454 | 504,256 | 549,605 | 1,170,415 | ||||||||||||
Interest expense |
||||||||||||||||
Consolidated obligations-bonds (Note 10) |
146,659 | 248,280 | 301,572 | 591,987 | ||||||||||||
Consolidated obligations-discount notes (Note 10) |
11,956 | 52,203 | 21,613 | 141,581 | ||||||||||||
Deposits (Note 8) |
963 | 709 | 1,854 | 1,486 | ||||||||||||
Mandatorily redeemable capital stock (Note 11) |
676 | 2,794 | 2,171 | 3,672 | ||||||||||||
Cash collateral held and other borrowings (Note 19) |
| 11 | | 48 | ||||||||||||
Total interest expense |
160,254 | 303,997 | 327,210 | 738,774 | ||||||||||||
Net interest income before provision for credit
losses |
116,200 | 200,259 | 222,395 | 431,641 | ||||||||||||
Provision for credit losses on mortgage loans |
196 | 925 | 906 | 1,368 | ||||||||||||
Net interest income after provision for credit losses |
116,004 | 199,334 | 221,489 | 430,273 | ||||||||||||
Other income (loss) |
||||||||||||||||
Service fees |
1,129 | 1,096 | 2,174 | 2,080 | ||||||||||||
Instruments held at fair value Unrealized (loss) gain (Note 17) |
(4,248 | ) | (86 | ) | (12,667 | ) | 8,226 | |||||||||
Total OTTI losses |
(202 | ) | (72,789 | ) | (4,075 | ) | (87,991 | ) | ||||||||
Net amount
of impairment losses reclassified (from) to Accumulated other
comprehensive loss |
(1,068 | ) | 67,460 | (595 | ) | 77,398 | ||||||||||
Net impairment losses recognized in earnings |
(1,270 | ) | (5,329 | ) | (4,670 | ) | (10,593 | ) | ||||||||
Net realized
and unrealized (loss) gain
on derivatives and hedging activities (Note 16) |
(11,425 | ) | 78,640 | (11,788 | ) | 64,974 | ||||||||||
Net realized gain from sale of available-for-sale securities (Note 5) |
| 281 | 708 | 721 | ||||||||||||
Other |
(643 | ) | 52 | (869 | ) | 98 | ||||||||||
Total other income (loss) |
(16,457 | ) | 74,654 | (27,112 | ) | 65,506 | ||||||||||
Other expenses |
||||||||||||||||
Operating |
20,352 | 18,066 | 39,588 | 36,160 | ||||||||||||
Finance Agency and Office of Finance |
1,993 | 1,862 | 4,411 | 3,829 | ||||||||||||
Total other expenses |
22,345 | 19,928 | 43,999 | 39,989 | ||||||||||||
Income before assessments |
77,202 | 254,060 | 150,378 | 455,790 | ||||||||||||
Affordable Housing Program (Note 12) |
6,371 | 21,025 | 12,497 | 37,582 | ||||||||||||
REFCORP (Note 12) |
14,166 | 46,607 | 27,576 | 83,642 | ||||||||||||
Total assessments |
20,537 | 67,632 | 40,073 | 121,224 | ||||||||||||
Net income |
$ | 56,665 | $ | 186,428 | $ | 110,305 | $ | 334,566 | ||||||||
Basic earnings per share (Note 14) |
$ | 1.20 | $ | 3.52 | $ | 2.29 | $ | 6.22 | ||||||||
Cash dividends paid per share |
$ | 1.05 | $ | 1.38 | $ | 2.46 | $ | 2.14 | ||||||||
The accompanying notes are an integral part of these unaudited financial statements.
4
Table of Contents
Federal Home Loan Bank of New York
Statements of Capital
Unaudited (in thousands, except per share data)
For the six months ended June 30, 2010 and 2009
Accumulated | ||||||||||||||||||||||||
Capital Stock1 | 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 |
20,394 | 2,039,372 | | | 2,039,372 | |||||||||||||||||||
Redemption of capital stock |
(22,548 | ) | (2,254,793 | ) | | | (2,254,793 | ) | ||||||||||||||||
Cash dividends ($2.14 per share) on
capital stock |
| | (117,419 | ) | | (117,419 | ) | |||||||||||||||||
Net Income |
| | 334,566 | | 334,566 | $ | 334,566 | |||||||||||||||||
Net change in Accumulated other comprehensive income (loss): |
||||||||||||||||||||||||
Non-credit portion of OTTI on
held-to-maturity securities,
net of accretion |
| | | (77,159 | ) | (77,159 | ) | (77,159 | ) | |||||||||||||||
Net unrealized gains on
available-for-sale securities |
| | | 54,291 | 54,291 | 54,291 | ||||||||||||||||||
Hedging activities |
| | | 3,789 | 3,789 | 3,789 | ||||||||||||||||||
$ | 315,487 | |||||||||||||||||||||||
Balance, June 30, 2009 |
53,703 | $ | 5,370,279 | $ | 600,003 | $ | (120,240 | ) | $ | 5,850,042 | ||||||||||||||
Balance, December 31, 2009 |
50,590 | $ | 5,058,956 | $ | 688,874 | $ | (144,539 | ) | $ | 5,603,291 | ||||||||||||||
Proceeds from sale of capital stock |
8,592 | 859,266 | | | 859,266 | |||||||||||||||||||
Redemption of capital stock |
(12,084 | ) | (1,208,434 | ) | | | (1,208,434 | ) | ||||||||||||||||
Shares reclassified to mandatorily
redeemable capital stock |
(303 | ) | (30,266 | ) | | | (30,266 | ) | ||||||||||||||||
Cash dividends ($2.46 per share) on
capital stock |
| | (122,651 | ) | | (122,651 | ) | |||||||||||||||||
Net Income |
| | 110,305 | | 110,305 | $ | 110,305 | |||||||||||||||||
Net change in Accumulated other
comprehensive income (loss): |
||||||||||||||||||||||||
Non-credit portion of OTTI on
held-to-maturity securities,
net of accretion |
| | | 8,693 | 8,693 | 8,693 | ||||||||||||||||||
Net unrealized gains on
available-for-sale securities |
| | | 23,591 | 23,591 | 23,591 | ||||||||||||||||||
Hedging activities |
| | | 3,069 | 3,069 | 3,069 | ||||||||||||||||||
$ | 145,658 | |||||||||||||||||||||||
Balance, June 30, 2010 |
46,795 | $ | 4,679,522 | $ | 676,528 | $ | (109,186 | ) | $ | 5,246,864 | ||||||||||||||
1 | Putable stock |
The accompanying notes are an integral part of these unaudited financial statements.
5
Table of Contents
Federal Home Loan Bank of New York
Statements of Cash Flows
Unaudited (in thousands)
For the six months ended June 30, 2010 and 2009
Six months ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Operating activities |
||||||||
Net Income |
$ | 110,305 | $ | 334,566 | ||||
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 |
(30,921 | ) | (86,658 | ) | ||||
Concessions on consolidated obligations |
6,480 | 2,979 | ||||||
Premises, software, and equipment |
2,756 | 2,651 | ||||||
Provision for credit losses on mortgage loans |
906 | 1,368 | ||||||
Net realized (gains) from redemption of held-to-maturity securities |
| (281 | ) | |||||
Net realized (gains) from sale of available-for-sale securities |
(708 | ) | (440 | ) | ||||
Credit impairment losses on held-to-maturity securities |
4,670 | 10,593 | ||||||
Change in net fair value adjustments on derivatives and hedging activities |
297,536 | 11,210 | ||||||
Change in fair value adjustments on financial instruments held at fair value |
12,667 | (8,226 | ) | |||||
Net change in: |
||||||||
Accrued interest receivable |
29,718 | 125,398 | ||||||
Derivative assets due to accrued interest |
35,478 | 217,719 | ||||||
Derivative liabilities due to accrued interest |
(20,827 | ) | (206,376 | ) | ||||
Other assets |
2,411 | 2,400 | ||||||
Affordable Housing Program liability |
(415 | ) | 17,588 | |||||
Accrued interest payable |
(38,438 | ) | (152,667 | ) | ||||
REFCORP liability |
(10,146 | ) | 40,860 | |||||
Other liabilities |
5,277 | (3,176 | ) | |||||
Total adjustments |
296,444 | (25,058 | ) | |||||
Net cash provided
by operating
activities |
406,749 | 309,508 | ||||||
Investing activities |
||||||||
Net change in: |
||||||||
Interest-bearing deposits |
(829,488 | ) | (73,661 | ) | ||||
Federal funds sold |
325,000 | | ||||||
Deposits with other FHLBanks |
48 | (51 | ) | |||||
Premises, software, and equipment |
(2,076 | ) | (3,431 | ) | ||||
Held-to-maturity securities: |
||||||||
Long-term securities |
||||||||
Purchased |
(174,048 | ) | (1,957,079 | ) | ||||
Repayments |
1,769,425 | 1,495,990 | ||||||
In-substance maturities |
| 36,224 | ||||||
Net change in certificates of deposit |
| 1,203,000 | ||||||
Available-for-sale securities: |
||||||||
Purchased |
(1,295,992 | ) | (447 | ) | ||||
Proceeds |
630,879 | 280,545 | ||||||
Proceeds from sales |
33,216 | 131,859 | ||||||
Advances: |
||||||||
Principal collected |
116,284,319 | 244,561,800 | ||||||
Made |
(106,107,058 | ) | (237,878,829 | ) | ||||
Mortgage loans held-for-portfolio: |
||||||||
Principal collected |
92,530 | 146,148 | ||||||
Purchased and originated |
(58,967 | ) | (71,520 | ) | ||||
Loans to other FHLBanks |
||||||||
Loans made |
(27,000 | ) | | |||||
Principal collected |
27,000 | | ||||||
Net cash provided
by investing
activities |
10,667,788 | 7,870,548 | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
6
Table of Contents
Federal Home Loan Bank of New York
Statements of Cash Flows Unaudited (in thousands)
For the six months ended June 30, 2010 and 2009
Statements of Cash Flows Unaudited (in thousands)
For the six months ended June 30, 2010 and 2009
Six months ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Financing activities |
||||||||
Net change in: |
||||||||
Deposits and other borrowings 1 |
$ | 1,950,280 | $ | 680,915 | ||||
Consolidated obligation bonds: |
||||||||
Proceeds from issuance |
31,884,893 | 23,163,182 | ||||||
Payments for maturing and early retirement |
(39,936,236 | ) | (32,670,019 | ) | ||||
Consolidated obligation discount notes: |
||||||||
Proceeds from issuance |
62,940,272 | 736,175,377 | ||||||
Payments for maturing |
(66,281,418 | ) | (735,161,115 | ) | ||||
Capital stock: |
||||||||
Proceeds from issuance |
859,266 | 2,039,372 | ||||||
Payments for redemption / repurchase |
(1,208,434 | ) | (2,254,793 | ) | ||||
Redemption of Mandatorily redeemable capital stock |
(86,991 | ) | (14,867 | ) | ||||
Cash dividends paid 2 |
(122,651 | ) | (117,419 | ) | ||||
Net cash used by financing activities |
(10,001,019 | ) | (8,159,367 | ) | ||||
Net increase in cash and cash equivalents |
1,073,518 | 20,689 | ||||||
Cash and due from Banks at beginning of the period |
2,189,252 | 18,899 | ||||||
Cash and due from Banks at end of the period |
$ | 3,262,770 | $ | 39,588 | ||||
Supplemental disclosures: |
||||||||
Interest paid |
$ | 381,060 | $ | 972,345 | ||||
Affordable Housing Program payments 3 |
$ | 12,912 | $ | 19,994 | ||||
REFCORP payments |
$ | 37,722 | $ | 42,782 | ||||
Transfers of mortgage loans to real estate owned |
$ | 761 | $ | 491 | ||||
Portion of non-credit OTTI (gains) losses on held-to-maturity
securities |
$ | (595 | ) | $ | 77,398 |
1 | Cash flows from derivatives containing financing elements were considered as a financing activity $223,708 and $131,726 cash out-flows for the six 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
Table of Contents
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 because 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.
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.
Congress established REFCORP 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.
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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.
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 (1) interest expense related to mandatorily redeemable capital stock, and
(2) 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.
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 and Estimates 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 and estimates.
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. 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.
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). |
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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 June 30, 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 and discount notes that were designated under the fair value
option accounting (FVO). Held-to-maturity securities determined to be credit impaired or
other-than-temporarily impaired (OTTI) at June 30, 2010 and December 31, 2009 were measured and
recorded at their fair values on a non-recurring basis.
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-for-sale 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 June 30, 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 websites 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
June 30, 2010 and December 31, 2009.
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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 June 30, 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.
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 the fair value
option (FVO) allowing, but not requiring, an entity to irrevocably elect fair value as the
initial and subsequent measurement attribute for the selected 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
obligations. At June 30, 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.
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 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.
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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.
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.
For OTTI securities that were previously impaired and have
subsequently incurred additional credit losses, those credit losses
are reclassified out of non-credit losses in AOCI and charged to
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.
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 may be
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 and thereafter.
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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.
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. Up until March 31, 2010, both Ambac Assurance Corp
(Ambac), and MBIA Insurance Corp (MBIA), the two primary bond insurers for the FHLBNY, had been
paying claims in order to meet any 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. As a result, payments from Ambac
to trustees of certain insured bonds owned by the FHLBNY were also temporarily suspended. The
amounts suspended were not material as of June 30, 2010. MBIA is continuing to meet claims for
bonds owned by the FHLBNY.
Within the boundaries set in the methodology outlined above, which are re-assessed at each quarter,
the Bank believes it is appropriate to assert whether or not insurer credit support can be relied
upon over a certain period of time. For Ambac that support period ended at March 31, 2010
(no-reliance after that date) based on the FHLBNYs analysis of the temporary injunction by the
Commissioner and Ambac. As with all assumptions, changes to these assumptions (if bond insurers
are deemed fully viable and able to fulfil their insurance obligations for bonds owned by the
FHLBNY) may result in materially different outcomes.
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 and thereafter, 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 at June 30, 2010. 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.
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The internal process calculates the historical average of each bonds prepayments, defaults, and
loss severities, and considered other factors such as delinquencies and foreclosures. Managements
assumptions are 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 considers 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.
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 performs another analysis to assess
the financial strength of the monoline insurers. The results of the insurer financial analysis
(monoline burn-out period) are 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), is then input to the
cash flow model. The end date, also referred to as the burn-out date, provides 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 occur beyond the burn-out date are considered to be
not recoverable and the insured security is 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 are then
input into the specialized bond cash flow model that allocates 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 are derived from the presence of subordinate securities,
losses are generally allocated first to the subordinate securities until their principal balance is
reduced to zero.
Role and scope of the OTTI Governance Committee
Beginning 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 June 30, 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 Banks housing price forecast as of June 30, 2010
assumed current-to-trough home price declines ranging from 0 percent to 12 percent over the 3- to
9-month period beginning April 1, 2010. Thereafter, home prices are projected to increase 0
percent in the first six months, 0.5 percent in the next six months, 3 percent in the second year
and 4 percent in each subsequent year.
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-trough housing price forecast and a base case housing price
recovery path described in the prior paragraph.
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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 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 June 30, 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 $11.5 million and $13.9 million at June 30, 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. 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.
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 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 conventional mortgage loan (conventional loans do not include VA and FHA
insured loans) on non-accrual status when the collection of the contractual principal or interest
is 90 days or more past due. When a conventional 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 following summarizes (1) Nature of credit risk
inherent in the MPF portfolio, (2) How risk is analyzed and assessed in arriving at the allowance
for credit loss, and (3) Changes, if any, to the methodology to estimate allowance for credit
losses.
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 $5.4 million and $4.5 million as of June
30, 2010 and December 31, 2009. The Banks analysis of the MPF portfolio concluded that the risks
within the portfolio were materially the same for all MPF loans, and further segmentation and
disaggregation was not necessary.
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.
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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.
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 June 30, 2010 or December 31,
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 assume no ineffectiveness, the fair value
of the swap approximates zero on the date the FHLBNY designates the hedge.
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 for hedge accounting 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.
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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 June 30, 2010, June 30, 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.
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 June 30, 2010 and December 31, 2009.
Amortization of Premiums and Accretion of Discounts
The FHLBNY estimates prepayments for purposes of amortizing premiums and accreting discounts
associated with mortgage-backed securities. Because actual prepayments of MBS 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.
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Table of Contents
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 did not impact its financial
statements, results of operations and cash flows.
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.
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 June 30, 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
$35.7 million and $29.3 million as of June 30, 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 deposit issued by highly rated banks and financial institutions. At June 30, 2010
and December 31, 2009, the FHLBNY had pledged MBS of $3.2 million and $2.0 million (amortized cost
basis) to the FDIC in connection with deposits maintained by the FDIC at the FHLBNY.
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Table of Contents
Mortgage-backed securities The FHLBNYs investments in MBS are predominantly government sponsored
enterprise issued securities. The carrying value 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 June 30, 2010 was $7.2 billion, or 88.4% of the total MBS classified as held-to-maturity.
The comparable carrying value of GSE issued
MBS at December 31, 2009 was $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 June 30, 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 $741.2 million and $751.8 million at June 30,
2010 and December 31, 2009.
Major Security Types
The amortized cost basis, 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):
June 30, 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 |
$ | 1,008,820 | $ | | $ | 1,008,820 | $ | 61,500 | $ | | $ | 1,070,320 | ||||||||||||
Freddie Mac |
288,541 | | 288,541 | 17,328 | | 305,869 | ||||||||||||||||||
Total pools of mortgages |
1,297,361 | | 1,297,361 | 78,828 | | 1,376,189 | ||||||||||||||||||
Collateralized Mortgage Obligations/Real
Estate Mortgage Investment Conduits |
||||||||||||||||||||||||
Fannie Mae |
2,047,759 | | 2,047,759 | 67,738 | | 2,115,497 | ||||||||||||||||||
Freddie Mac |
3,527,512 | | 3,527,512 | 121,745 | | 3,649,257 | ||||||||||||||||||
Ginnie Mae |
139,621 | | 139,621 | 584 | | 140,205 | ||||||||||||||||||
Total CMOs/REMICs |
5,714,892 | | 5,714,892 | 190,067 | | 5,904,959 | ||||||||||||||||||
Commercial Mortgage-Backed Securities |
||||||||||||||||||||||||
Freddie Mac |
174,010 | | 174,010 | $ | 5,149 | | 179,159 | |||||||||||||||||
Ginnie Mae |
49,151 | | 49,151 | 1,347 | | 50,498 | ||||||||||||||||||
Total commercial
mortgage-backed securities |
223,161 | | 223,161 | 6,496 | | 229,657 | ||||||||||||||||||
Non-GSE MBS |
||||||||||||||||||||||||
CMOs/REMICs |
380,444 | (2,149 | ) | 378,295 | 4,142 | (2,814 | ) | 379,623 | ||||||||||||||||
Commercial MBS |
| | | | | | ||||||||||||||||||
Total non-federal-agency MBS |
380,444 | (2,149 | ) | 378,295 | 4,142 | (2,814 | ) | 379,623 | ||||||||||||||||
Asset-Backed Securities |
||||||||||||||||||||||||
Manufactured housing (insured) |
188,983 | | 188,983 | | (24,963 | ) | 164,020 | |||||||||||||||||
Home equity loans (insured) |
286,433 | (73,380 | ) | 213,053 | 24,656 | (9,286 | ) | 228,423 | ||||||||||||||||
Home equity loans (uninsured) |
199,994 | (26,348 | ) | 173,646 | 13,745 | (27,669 | ) | 159,722 | ||||||||||||||||
Total asset-backed securities |
675,410 | (99,728 | ) | 575,682 | 38,401 | (61,918 | ) | 552,165 | ||||||||||||||||
Total MBS |
$ | 8,291,268 | $ | (101,877 | ) | $ | 8,189,391 | $ | 317,934 | $ | (64,732 | ) | $ | 8,442,593 | ||||||||||
Other |
||||||||||||||||||||||||
State and local housing finance
agency obligations |
$ | 741,683 | $ | | $ | 741,683 | $ | 2,868 | $ | (83,309 | ) | $ | 661,242 | |||||||||||
Certificates of deposit |
| | | | | | ||||||||||||||||||
Total other |
$ | 741,683 | $ | | $ | 741,683 | $ | 2,868 | $ | (83,309 | ) | $ | 661,242 | |||||||||||
Total Held-to-maturity securities |
$ | 9,032,951 | $ | (101,877 | ) | $ | 8,931,074 | $ | 320,802 | $ | (148,041 | ) | $ | 9,103,835 | ||||||||||
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 | ||||||||||
19
Table of Contents
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):
June 30, 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 |
$ | 325,906 | $ | (83,309 | ) | $ | | $ | | $ | 325,906 | $ | (83,309 | ) | ||||||||||
Total Non-MBS |
325,906 | (83,309 | ) | | | 325,906 | (83,309 | ) | ||||||||||||||||
MBS Investment Securities |
||||||||||||||||||||||||
MBS Other US Obligations |
||||||||||||||||||||||||
Ginnie Mae |
| | | | | | ||||||||||||||||||
MBS-GSE |
||||||||||||||||||||||||
Fannie Mae |
| | | | | | ||||||||||||||||||
Freddie Mac |
| | | | | | ||||||||||||||||||
Total MBS-GSE |
| | | | | | ||||||||||||||||||
MBS-Private-Label |
| | 702,216 | (127,488 | ) | 702,216 | (127,488 | ) | ||||||||||||||||
Total MBS |
| | 702,216 | (127,488 | ) | 702,216 | (127,488 | ) | ||||||||||||||||
Total |
$ | 325,906 | $ | (83,309 | ) | $ | 702,216 | $ | (127,488 | ) | $ | 1,028,122 | $ | (210,797 | ) | |||||||||
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 | ) | |||||||||
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 thereafter, 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.
20
Table of Contents
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.
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 period in 2009 and the two
quarters ended June 30, 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.
Up until
March 31, 2010, both Ambac Assurance Corp. (Ambac) and MBIA Insurance Corp (MBIA), the two
primary bond insurers for the FHLBNY, had been paying claims in order to meet any current cash flow
deficiency within the structure of the insured securities. As of
June 30, 2010, MBIA is continuing
to meet claims. 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. As a result, payments from Ambac to trustees of
certain insured bonds owned by the FHLBNY were also temporarily suspended in the quarter ended June
30, 2010. The amounts suspended were not material. 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 June 30, 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 June 30, 2010. Cash flow assessments identified credit
impairment on four HTM private-label mortgage-backed securities, and $1.3 million as
other-than-temporary impairment (OTTI) was recorded as a charge to earnings. All four securities
had been previously determined to be OTTI, and the additional impairment (or re-impairment) in the
2010 second quarter was due to further deterioration in the credit default rates of the four
securities. The non-credit portion of OTTI recorded in AOCI was not significant. In the first
quarter, the FHLBNY had recorded a credit
impairment charge of $3.4 million.
The tables below contain summary analysis of securities1 that were deemed OTTI in the
two quarters of 2010 (in thousands):
Quarter Ended | Six Months Ended | |||||||||||||||||||||||||||||||
Quarter ended June 30, 2010 | June 30, 2010 | June 30, 2010 | ||||||||||||||||||||||||||||||
Insurer MBIA | Insurer Ambac | OTTI | OTTI | |||||||||||||||||||||||||||||
Security | Fair | Fair | Credit | Non-credit2 | Credit | Non-credit2 | ||||||||||||||||||||||||||
Classification | UPB | Value | UPB | Value | Loss | Loss | Loss | Loss | ||||||||||||||||||||||||
HEL Subprime* |
$ | 20,976 | $ | 9,044 | $ | 37,456 | $ | 22,564 | $ | (1,270 | ) | $ | 1,068 | $ | (4,670 | ) | $ | 595 | ||||||||||||||
Total |
$ | 20,976 | $ | 9,044 | $ | 37,456 | $ | 22,564 | $ | (1,270 | ) | $ | 1,068 | $ | (4,670 | ) | $ | 595 | ||||||||||||||
* | HEL Subprime MBS supported by home equity loans. |
Quarter ended March 31, 2010 | ||||||||||||||||||||||||
Insurer MBIA | Insurer Ambac | OTTI | ||||||||||||||||||||||
Security | Fair | Fair | Credit | Non-credit2 | ||||||||||||||||||||
Classification | UPB | Value | UPB | Value | Loss | Loss | ||||||||||||||||||
HEL Subprime* |
$ | 21,637 | $ | 9,730 | $ | 45,476 | $ | 26,015 | $ | (3,400 | ) | $ | (473 | ) | ||||||||||
Total |
$ | 21,637 | $ | 9,730 | $ | 45,476 | $ | 26,015 | $ | (3,400 | ) | $ | (473 | ) | ||||||||||
* | HEL Subprime MBS supported by home equity loans. | |
1 | At June 30, 2010, the total carrying value of the securities prior to OTTI was $28.7 million. The carrying values and fair values of OTTI securities in a loss position prior to OTTI were $11.5 million and $11.3 million. | |
2 | Represents net amount of impairment losses reclassified from (to) AOCI to earnings as a result of additional credit losses on securities that had been previously determined to be OTTI. |
Of the four credit impaired securities, three 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. 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.
21
Table of Contents
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; and the evaluation of the fundamentals of the
issuers financial condition. Management has not made a decision to sell such securities at June 30, 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 June 30, 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.
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 tables provide summary analysis of the securities that were deemed OTTI in the fourth quarter
of 2009 and cumulatively through December 31, 2009 (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 | UPB | Value | UPB | Value | UPB | Value | Loss | Loss | 12 months | 12 months | ||||||||||||||||||||||||||||||
HEL Subprime* |
$ | | $ | | $ | 89,092 | $ | 53,027 | $ | 20,118 | $ | 12,874 | $ | (6,540 | ) | $ | (16,212 | ) | $ | | $ | (2,663 | ) | |||||||||||||||||
Total |
$ | | $ | | $ | 89,092 | $ | 53,027 | $ | 20,118 | $ | 12,874 | $ | (6,540 | ) | $ | (16,212 | ) | $ | | $ | (2,663 | ) | |||||||||||||||||
* | HEL Subprime MBS supported by home equity loans. |
Year ended 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 | UPB | Value | UPB | Value | UPB | Value | Loss | Loss | 12 months | 12 months | ||||||||||||||||||||||||||||||
RMBS-Prime* |
$ | | $ | | $ | | $ | | $ | 54,295 | $ | 51,715 | $ | (438 | ) | $ | (2,766 | ) | $ | (1,187 | ) | $ | | |||||||||||||||||
HEL Subprime* |
34,425 | 17,161 | 198,532 | 127,470 | 80,774 | 53,783 | (20,378 | ) | (117,330 | ) | | (13,674 | ) | |||||||||||||||||||||||||||
Total |
$ | 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. |
June 30, 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 nine securities insured by Ambac concurrently with the
determination that Ambacs claim paying ability would not be sufficient in future periods,
management concluded that nine securities had become OTTI. The cumulative credit losses recognized
year-to-date June 30, 2009 on 12 OTTI securities was $10.6 million.
The table below summarizes the key characteristics of the securities that were deemed OTTI in the
second quarter of 2009 (in thousands):
June 30, 2009 | ||||||||||||||||||||||||||||||||||||||||
Insurer MBIA | Insurer AMBAC | Uninsured | OTTI | Gross OTTI Losses | ||||||||||||||||||||||||||||||||||||
Fair | Fair | Fair | Credit | Non-credit | Less than | More than | ||||||||||||||||||||||||||||||||||
Ratings | UPB | Value | UPB | Value | UPB | Value | Loss | Loss | 12 months | 12 months | ||||||||||||||||||||||||||||||
AAA |
$ | | $ | | $ | | $ | | $ | 61,277 | $ | 56,538 | $ | (438 | ) | $ | (2,766 | ) | $ | (3,204 | ) | $ | | |||||||||||||||||
A |
| | 55,780 | 32,388 | | | (2,038 | ) | (21,345 | ) | | (23,383 | ) | |||||||||||||||||||||||||||
BBB |
| | 54,303 | 32,475 | | | (679 | ) | (21,141 | ) | | (21,820 | ) | |||||||||||||||||||||||||||
BB |
13,559 | 7,918 | 69,672 | 45,180 | | | (4,099 | ) | (25,761 | ) | | (29,860 | ) | |||||||||||||||||||||||||||
B |
23,022 | 13,636 | | | | | (3,339 | ) | (6,385 | ) | | (9,724 | ) | |||||||||||||||||||||||||||
Total |
$ | 36,581 | $ | 21,554 | $ | 179,755 | $ | 110,043 | $ | 61,277 | $ | 56,538 | $ | (10,593 | ) | $ | (77,398 | ) | $ | (3,204 | ) | $ | (84,787 | ) | ||||||||||||||||
22
Table of Contents
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):
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Beginning balance |
$ | 24,216 | $ | 5,264 | $ | 20,816 | $ | | ||||||||
Additions to the credit component
for OTTI loss not previously recognized |
| 5,329 | | 10,593 | ||||||||||||
Additional credit losses for which an OTTI
charge was previously recognized |
1,270 | | 4,670 | | ||||||||||||
Increases in cash flows expected to be collected,
recognized over the remaining life of
the securities |
| | | | ||||||||||||
Ending balance |
$ | 25,486 | $ | 10,593 | $ | 25,486 | $ | 10,593 | ||||||||
Key Base Assumptions June 30, 2010
The table below summarizes the weighted average and range of Key Base Assumptions for securities
determined to be OTTI in the 2010 second quarter:
Key Base Assumption - OTTI Securities | ||||||||||||||||||||||||
CDR | CPR | Loss Severity % | ||||||||||||||||||||||
Security Classification | Range | Average | Range | Average | Range | Average | ||||||||||||||||||
HEL Subprime* |
6.00-6.43 | 6.3 | 2.00-6.22 | 3.7 | 68.9-100.0 | 88.9 |
* | 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.
Adverse case scenario June 30, 2010
The
FHLBNY evaluated its private-label MBS under a base case (or best
estimate) scenario, and under
more adverse external assumptions. 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 Base Case scenario
for the credit impaired securities (the base case) (in thousands):
Quarter ended June 30, 2010 | ||||||||||||||||
Actual Results - Base Case Scenario | Pro-forma Results - Adverse Case Scenario | |||||||||||||||
OTTI related to credit | OTTI related to credit | |||||||||||||||
UPB | loss | UPB | loss | |||||||||||||
RMBS Prime |
$ | | $ | | $ | 31,209 | (1,219 | ) | ||||||||
Alt-A |
| | | | ||||||||||||
HEL Subprime |
58,432 | (1,270 | ) | 62,685 | (1,966 | ) | ||||||||||
Total |
$ | 58,432 | (1,270 | ) | $ | 93,894 | (3,185 | ) | ||||||||
23
Table of Contents
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.
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.
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 coverage 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 Ambac and MBIA and their financial strength to perform with respect to their contractual
obligations for the securities owned by the FHLBNY. As of June 30, 2010, MBIA and FSA 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 Burnout Period time horizon dates for
Ambac and MBIA at June 30, 2010, December 31, 2009, and June 30, 2009:
Burnout Period | ||||||||
Ambac | MBIA | |||||||
June 30, 2010 |
||||||||
Burnout period (months) |
| 12 | ||||||
Coverage ignore date |
6/30/2010 | 6/30/2011 | ||||||
December 31, 2009 |
||||||||
Burnout period (months) |
18 | 18 | ||||||
Coverage ignore date |
6/30/2011 | 6/30/2011 | ||||||
June 30, 2009 |
||||||||
Burnout period (months) |
105 | 32 | ||||||
Coverage ignore date |
3/1/2018 | 2/1/2012 |
24
Table of Contents
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):
June 30, 2010 | ||||||||||||||||||||||||
Amortized | Gross | Gross | ||||||||||||||||||||||
Cost | OTTI | Carrying | Unrealized | Unrealized | Fair | |||||||||||||||||||
Basis | in OCI | Value | Gains | Losses | Value | |||||||||||||||||||
Cash equivalents |
$ | 1,050 | $ | | $ | 1,050 | $ | | $ | | $ | 1,050 | ||||||||||||
Equity funds |
8,765 | | 8,765 | 43 | (2,022 | ) | 6,786 | |||||||||||||||||
Fixed income funds |
3,793 | | 3,793 | 338 | | 4,131 | ||||||||||||||||||
Mortgage-backed securities
|
||||||||||||||||||||||||
CMO-Floating |
2,880,642 | | 2,880,642 | 21,823 | | 2,902,465 | ||||||||||||||||||
Total |
$ | 2,894,250 | $ | | $ | 2,894,250 | $ | 22,204 | $ | (2,022 | ) | $ | 2,914,432 | |||||||||||
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 June 30, 2010 and
December 31, 2009.
Unrealized Losses MBS securities classified as available-for-sale securities (in thousands):
June 30, 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 |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
Freddie Mac |
44,382 | | | | 44,382 | | ||||||||||||||||||
Total MBS-GSE |
44,382 | | | | 44,382 | | ||||||||||||||||||
Total Temporarily
Impaired |
$ | 44,382 | $ | | $ | | $ | | $ | 44,382 | $ | | ||||||||||||
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 June 30, 2010 and December 31, 2009. No AFS securities were hedged at June 30, 2010 and
December 31, 2009. Amortization of discounts recorded to income were $3.6 million and $1.4 million
for the second quarters ended 2010 and 2009, and $5.0 million and $2.5 million for the six months
ended June 30, 2010 and June 30, 2009.
Management of the FHLBNY has concluded that gross unrealized losses at June 30, 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 June 30, 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
June 30, 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 June 30, 2010 and December 31, 2009.
25
Table of Contents
Note 6. Advances.
Redemption terms
Contractual redemption terms and yields of advances were as follows (dollars in thousands):
June 30, 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 |
20,619,524 | 2.35 | 25.59 | 24,128,022 | 2.07 | 26.59 | ||||||||||||||||||
Due after one year through two years |
9,816,621 | 2.88 | 12.19 | 10,819,349 | 2.73 | 11.92 | ||||||||||||||||||
Due after two years through three years |
8,845,969 | 3.10 | 10.98 | 10,069,555 | 2.91 | 11.10 | ||||||||||||||||||
Due after three years through four years |
5,139,606 | 3.08 | 6.38 | 5,804,448 | 3.32 | 6.40 | ||||||||||||||||||
Due after four years through five years |
3,355,081 | 3.19 | 4.16 | 3,364,706 | 3.19 | 3.71 | ||||||||||||||||||
Due after five years through six years |
6,467,548 | 4.35 | 8.03 | 2,807,329 | 3.91 | 3.09 | ||||||||||||||||||
Thereafter |
26,316,091 | 3.78 | 32.67 | 33,742,269 | 3.78 | 37.19 | ||||||||||||||||||
Total par value |
80,560,440 | 3.20 | % | 100.00 | % | 90,737,700 | 3.06 | % | 100.00 | % | ||||||||||||||
Discount on AHP advances 1 |
(230 | ) | (260 | ) | ||||||||||||||||||||
Hedging adjustments |
4,725,667 | 3,611,311 | ||||||||||||||||||||||
Total |
$ | 85,285,877 | $ | 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 June 30, 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 June 30, 2010 and December 31, 2009 the Bank
had putable advances outstanding totaling $37.4 billion and $41.4 billion, representing 46.4% and
45.6% of par amounts of advances outstanding at those dates.
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):
June 30, 2010 | December 31, 2009 | |||||||||||||||
Percentage | Percentage | |||||||||||||||
Amount | of Total | Amount | of Total | |||||||||||||
Overdrawn demand deposit accounts |
$ | | | % | $ | 2,022 | | % | ||||||||
Due or putable in one year or less |
53,232,086 | 66.08 | 56,978,134 | 62.79 | ||||||||||||
Due or putable after one year through two years |
9,924,371 | 12.32 | 14,082,199 | 15.52 | ||||||||||||
Due or putable after two years through three years |
8,324,569 | 10.33 | 8,991,805 | 9.91 | ||||||||||||
Due or putable after three years through four years |
4,543,606 | 5.64 | 5,374,048 | 5.92 | ||||||||||||
Due or putable after four years through five years |
1,887,581 | 2.34 | 2,826,206 | 3.12 | ||||||||||||
Due or putable after five years through six years |
697,548 | 0.87 | 158,329 | 0.18 | ||||||||||||
Thereafter |
1,950,679 | 2.42 | 2,324,957 | 2.56 | ||||||||||||
Total par value |
80,560,440 | 100.00 | % | 90,737,700 | 100.00 | % | ||||||||||
Discount on AHP advances |
(230 | ) | (260 | ) | ||||||||||||
Hedging adjustments |
4,725,667 | 3,611,311 | ||||||||||||||
Total |
$ | 85,285,877 | $ | 94,348,751 | ||||||||||||
26
Table of Contents
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.
The following table presents information on mortgage loans held-for-portfolio (dollars in
thousands):
June 30, 2010 | December 31, 2009 | |||||||||||||||
Percentage | Percentage | |||||||||||||||
Amount | of Total | Amount | of Total | |||||||||||||
Real Estate: |
||||||||||||||||
Fixed medium-term single-family mortgages |
$ | 356,003 | 27.72 | % | $ | 388,072 | 29.43 | % | ||||||||
Fixed long-term single-family mortgages |
924,311 | 71.98 | 926,856 | 70.27 | ||||||||||||
Multi-family mortgages |
3,857 | 0.30 | 3,908 | 0.30 | ||||||||||||
Total par value |
1,284,171 | 100.00 | % | 1,318,836 | 100.00 | % | ||||||||||
Unamortized premiums |
9,344 | 9,095 | ||||||||||||||
Unamortized discounts |
(4,990 | ) | (5,425 | ) | ||||||||||||
Basis adjustment 1 |
(93 | ) | (461 | ) | ||||||||||||
Total mortgage loans held-for-portfolio |
1,288,432 | 1,322,045 | ||||||||||||||
Allowance for credit losses |
(5,392 | ) | (4,498 | ) | ||||||||||||
Total mortgage loans held-for-portfolio after
allowance for credit losses |
$ | 1,283,040 | $ | 1,317,547 | ||||||||||||
1 | Represents fair value basis of open and closed delivery commitments. |
The estimated fair values of the mortgage loans as of June 30, 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 $11.5 million and $13.9 million at June 30,
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 second quarters of 2010 and 2009,
and $0.7 million and $0.8 million for the six months ended June 30, 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 1 of the allowance for credit losses (in
thousands):
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Beginning balance |
$ | 5,179 | $ | 1,848 | $ | 4,498 | $ | 1,405 | ||||||||
Charge-offs |
| (14 | ) | (34 | ) | (14 | ) | |||||||||
Recoveries |
17 | | 22 | | ||||||||||||
Provision for credit losses on mortgage loans |
196 | 925 | 906 | 1,368 | ||||||||||||
Ending balance |
$ | 5,392 | $ | 2,759 | $ | 5,392 | $ | 2,759 | ||||||||
. | . |
1 | Disaggregation was deemed not necessary since the risk characteristics of loans within the MPF program are materially the same. |
As of June 30, 2010 and December 31, 2009, the FHLBNY had $22.1 million and $16.0 million of
non-accrual conventional 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
June 30, 2010 and December 31, 2009, the FHLBNY had no investment in impaired mortgage loans, other
than the non-accrual loans.
The following table summarizes mortgage loans held-for-portfolio past due 90 days or more and still
accruing interest (in thousands):
June 30, 2010 | December 31, 2009 | |||||||
Secured by 1-4 family |
$ | 618 | $ | 570 | ||||
The past due loans still accruing were VA and FHA insured loans.
27
Table of Contents
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):
June 30, 2010 | December 31, 2009 | |||||||
Due in one year or less |
$ | 32,000 | $ | 7,200 | ||||
Total term deposits |
$ | 32,000 | $ | 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 June 30, 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.
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 $0.8 trillion and $0.9 trillion as of June 30, 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:
June 30, 2010 | December 31, 2009 | |||||||
Percentage of
unpledged
qualifying assets
to consolidated
obligations |
112 | % | 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.
28
Table of Contents
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.
The following summarizes consolidated obligations issued by the FHLBNY and outstanding at June 30,
2010 and December 31, 2009 (in thousands):
June 30, 2010 | December 31, 2009 | |||||||
Consolidated obligation bonds-amortized cost |
$ | 65,379,081 | $ | 73,436,939 | ||||
Fair value basis adjustments |
853,017 | 572,537 | ||||||
Fair value basis on terminated hedges |
1,503 | 2,761 | ||||||
Fair value option valuation adjustments and accrued interest |
13,246 | (4,259 | ) | |||||
Total Consolidated obligation-bonds |
$ | 66,246,847 | $ | 74,007,978 | ||||
Discount notes-amortized cost |
$ | 27,479,446 | $ | 30,827,639 | ||||
Fair value option valuation
adjustments |
1,503 | | ||||||
Total Consolidated
obligation-discount notes |
$ | 27,480,949 | $ | 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):
June 30, 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 |
$ | 32,969,150 | 1.28 | % | 50.49 | % | $ | 40,896,550 | 1.34 | % | 55.75 | % | ||||||||||||
Over one year through two years |
13,914,445 | 1.55 | 21.31 | 15,912,200 | 1.69 | 21.69 | ||||||||||||||||||
Over two years through three years |
9,215,480 | 2.06 | 14.11 | 7,518,575 | 2.28 | 10.25 | ||||||||||||||||||
Over three years through four years |
4,225,750 | 3.32 | 6.47 | 3,961,250 | 3.49 | 5.40 | ||||||||||||||||||
Over four years through five years |
2,199,500 | 3.66 | 3.37 | 2,130,300 | 4.27 | 2.90 | ||||||||||||||||||
Over five years through six years |
576,350 | 4.30 | 0.88 | 644,350 | 5.15 | 0.88 | ||||||||||||||||||
Thereafter |
2,199,700 | 4.98 | 3.37 | 2,294,700 | 5.06 | 3.13 | ||||||||||||||||||
65,300,375 | 1.81 | % | 100.00 | % | 73,357,925 | 1.87 | % | 100.00 | % | |||||||||||||||
Bond premiums |
109,589 | 112,866 | ||||||||||||||||||||||
Bond discounts |
(30,883 | ) | (33,852 | ) | ||||||||||||||||||||
Fair value basis adjustments |
853,017 | 572,537 | ||||||||||||||||||||||
Fair value basis adjustments on terminated hedges |
1,503 | 2,761 | ||||||||||||||||||||||
Fair value option valuation adjustments and accrued interest |
13,246 | (4,259 | ) | |||||||||||||||||||||
$ | 66,246,847 | $ | 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 June 30, 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 $8.1 million for the 2010 second quarter and the same period in 2009, and $14.4 million
and $13.8 million for the six months ended June 30, 2010 and 2009. Amortization of basis
adjustments from terminated hedges were $1.6 million and $1.8 million, and were recorded as an
expense in the 2010 second quarter and the same period in 2009, and $3.2 million and $3.5 million
for the six months ended June 30, 2010 and 2009.
Debt extinguished
In the second quarter of 2010, the Bank transferred $250.0 million of consolidated obligation bond
to an unrelated financial institution at an insignificant gain. No debt was retired in the first
quarter of 2010 or in the comparable periods in 2009.
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 two
quarters and the same periods 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 June 30, 2010 and December 31, 2009, the Bank had callable
bonds totaling $12.2 billion and $11.7 billion, representing 18.8% and 15.9% of par amounts of
consolidated bonds outstanding at those dates.
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The following summarizes bonds outstanding by year of maturity or next call date (dollars in
thousands):
June 30, 2010 | December 31, 2009 | |||||||||||||||
Percentage | Percentage | |||||||||||||||
Amount | of total | Amount | of total | |||||||||||||
Year of Maturity or next call date |
||||||||||||||||
Due or callable in one year or less |
$ | 39,344,950 | 60.25 | % | $ | 50,481,350 | 68.82 | % | ||||||||
Due or callable after one year through two years |
12,218,445 | 18.71 | 11,352,200 | 15.48 | ||||||||||||
Due or callable after two years through three years |
6,475,480 | 9.92 | 4,073,575 | 5.55 | ||||||||||||
Due or callable after three years through four years |
3,415,750 | 5.23 | 3,606,250 | 4.91 | ||||||||||||
Due or callable after four years through five years |
1,685,000 | 2.58 | 1,325,800 | 1.81 | ||||||||||||
Due or callable after five years through six years |
331,050 | 0.51 | 529,050 | 0.72 | ||||||||||||
Thereafter |
1,829,700 | 2.80 | 1,989,700 | 2.71 | ||||||||||||
65,300,375 | 100.00 | % | 73,357,925 | 100.00 | % | |||||||||||
Bond premiums |
109,589 | 112,866 | ||||||||||||||
Bond discounts |
(30,883 | ) | (33,852 | ) | ||||||||||||
Fair value basis adjustments |
853,017 | 572,537 | ||||||||||||||
Fair value basis adjustments on terminated hedges |
1,503 | 2,761 | ||||||||||||||
Fair value option valuation adjustments and accrued interest |
13,246 | (4,259 | ) | |||||||||||||
$ | 66,246,847 | $ | 74,007,978 | |||||||||||||
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):
June 30, 2010 | December 31, 2009 | |||||||
Par value |
$ | 27,489,667 | $ | 30,838,104 | ||||
Amortized cost |
$ | 27,479,446 | $ | 30,827,639 | ||||
Fair value option valuation
adjustments |
1,503 | | ||||||
Total |
$ | 27,480,949 | $ | 30,827,639 | ||||
Weighted average interest rate |
0.19 | % | 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.
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).
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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 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):
The following table summarizes the Banks risk-based capital ratios (dollars in thousands):
June 30, 2010 | December 31, 2009 | |||||||||||||||
Required 4 | Actual | Required 4 | Actual | |||||||||||||
Regulatory capital requirements: |
||||||||||||||||
Risk-based capital1 |
$ | 497,880 | $ | 5,425,619 | $ | 606,716 | $ | 5,874,125 | ||||||||
Total capital-to-asset ratio |
4.00 | % | 5.16 | % | 4.00 | % | 5.14 | % | ||||||||
Total capital2 |
$ | 4,207,333 | $ | 5,431,011 | $ | 4,578,436 | $ | 5,878,623 | ||||||||
Leverage ratio |
5.00 | % | 7.74 | % | 5.00 | % | 7.70 | % | ||||||||
Leverage capital3 |
$ | 5,259,167 | $ | 8,143,821 | $ | 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).
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.
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.
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At June 30, 2010 and December 31, 2009, mandatorily redeemable capital stock of $69.6 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.
Anticipated redemptions of mandatorily redeemable capital stock were as follows (in thousands):
June 30, 2010 | December 31, 2009 | |||||||
Redemption less than one year |
$ | 46,648 | $ | 102,453 | ||||
Redemption from one year to less than three years |
15,858 | 16,766 | ||||||
Redemption from three years to less than five years |
2,109 | 2,118 | ||||||
Redemption after five years or greater |
4,954 | 4,957 | ||||||
Total |
$ | 69,569 | $ | 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 June 30, 2010 or 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 June 30, | Six months ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Beginning balance |
$ | 145,660 | $ | 128,368 | $ | 144,489 | $ | 122,449 | ||||||||
Additions from current periods assessments |
6,371 | 21,025 | 12,497 | 37,582 | ||||||||||||
Net disbursements for grants and programs |
(7,957 | ) | (9,356 | ) | (12,912 | ) | (19,994 | ) | ||||||||
Ending balance |
$ | 144,074 | $ | 140,037 | $ | 144,074 | $ | 140,037 | ||||||||
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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 and six months ended
June 30, 2010 and 2009 (in thousands):
Three months ended June 30, | ||||||||||||||||||||||||||||
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, March 31, 2009 |
$ | (33,994 | ) | $ | (9,938 | ) | $ | (28,312 | ) | $ | (6,550 | ) | $ | (78,794 | ) | |||||||||||||
Net change |
23,865 | (67,221 | ) | 1,910 | | (41,446 | ) | $ | 186,428 | $ | 144,982 | |||||||||||||||||
Balance, June 30, 2009 |
$ | (10,129 | ) | $ | (77,159 | ) | $ | (26,402 | ) | $ | (6,550 | ) | $ | (120,240 | ) | |||||||||||||
Balance, March 31, 2010 |
$ | 11,521 | $ | (106,612 | ) | $ | (20,551 | ) | $ | (7,877 | ) | $ | (123,519 | ) | ||||||||||||||
Net change |
8,661 | 4,735 | 937 | | 14,333 | $ | 56,665 | $ | 70,998 | |||||||||||||||||||
Balance, June 30, 2010 |
$ | 20,182 | $ | (101,877 | ) | $ | (19,614 | ) | $ | (7,877 | ) | $ | (109,186 | ) | ||||||||||||||
Six months ended June 30, | ||||||||||||||||||||||||||||
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 |
54,291 | (77,159 | ) | 3,789 | | (19,079 | ) | $ | 334,566 | $ | 315,487 | |||||||||||||||||
Balance, June 30, 2009 |
$ | (10,129 | ) | $ | (77,159 | ) | $ | (26,402 | ) | $ | (6,550 | ) | $ | (120,240 | ) | |||||||||||||
Balance, December 31, 2009 |
$ | (3,409 | ) | $ | (110,570 | ) | $ | (22,683 | ) | $ | (7,877 | ) | $ | (144,539 | ) | |||||||||||||
Net change |
23,591 | 8,693 | 3,069 | | 35,353 | $ | 110,305 | $ | 145,658 | |||||||||||||||||||
Balance, June 30, 2010 |
$ | 20,182 | $ | (101,877 | ) | $ | (19,614 | ) | $ | (7,877 | ) | $ | (109,186 | ) | ||||||||||||||
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 June 30, | Six months ended June 30, | |||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||
Net income |
$ | 56,665 | $ | 186,428 | $ | 110,305 | $ | 334,566 | ||||||||||||||||||||
Net income available to stockholders |
$ | 56,665 | $ | 186,428 | $ | 110,305 | $ | 334,566 | ||||||||||||||||||||
Weighted average shares of capital |
48,153 | 54,336 | 49,257 | 55,152 | ||||||||||||||||||||||||
Less: Mandatorily redeemable capital stock |
(964 | ) | (1,345 | ) | (1,024 | ) | (1,387 | ) | ||||||||||||||||||||
Average number of shares of capital used to calculate earnings per share |
47,189 | 52,991 | 48,233 | 53,765 | ||||||||||||||||||||||||
Net earnings per share of capital |
$ | 1.20 | $ | 3.52 | $ | 2.29 | $ | 6.22 | ||||||||||||||||||||
Basic and diluted earnings per share of capital are the same. The FHLBNY has no dilutive potential
common shares or other common stock equivalents.
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.
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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 June 30, | Six months ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Defined Benefit Plan |
$ | 1,311 | $ | 1,442 | $ | 2,623 | $ | 2,883 | ||||||||
Benefit Equalization Plan (defined benefit) |
570 | 514 | 1,140 | 1,029 | ||||||||||||
Defined Contribution Plan and BEP Thrift |
374 | 542 | 609 | 784 | ||||||||||||
Postretirement Health Benefit Plan |
281 | 251 | 562 | 502 | ||||||||||||
Total retirement plan expenses |
$ | 2,536 | $ | 2,749 | $ | 4,934 | $ | 5,198 | ||||||||
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 June 30, | Six months ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Service cost |
$ | 163 | $ | 152 | $ | 326 | $ | 305 | ||||||||
Interest cost |
279 | 263 | 558 | 526 | ||||||||||||
Amortization of unrecognized prior service cost |
(16 | ) | (36 | ) | (33 | ) | (72 | ) | ||||||||
Amortization of unrecognized net loss |
144 | 135 | 289 | 270 | ||||||||||||
Net periodic benefit cost |
$ | 570 | $ | 514 | $ | 1,140 | $ | 1,029 | ||||||||
Key assumptions and other information for the actuarial calculations to determine benefit
obligations for the FHLBNYs BEP plan were as follows (dollars in thousands):
June 30, 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 June 30, | Six months ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Service cost (benefits attributed to service during the period) |
$ | 156 | $ | 139 | $ | 313 | $ | 278 | ||||||||
Interest cost on accumulated postretirement health benefit obligation |
229 | 217 | 458 | 434 | ||||||||||||
Amortization of loss |
79 | 78 | 157 | 156 | ||||||||||||
Amortization of prior service cost/(credit) |
(183 | ) | (183 | ) | (366 | ) | (366 | ) | ||||||||
Net periodic postretirement health benefit cost |
$ | 281 | $ | 251 | $ | 562 | $ | 502 | ||||||||
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Key assumptions and other information to determine obligation for the FHLBNYs postretirement
health benefit plan were as follows:
June 30, 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
debt and executed interest rate swaps to offset the fair value changes of the bonds.
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. When such transactions qualify for hedge accounting
they are treated as fair value hedges under the accounting standards for derivatives and hedging.
The FHLBNY has also elected the Fair Value Option (FVO) for certain consolidated obligation bonds
and these were measured under the accounting standards for fair value measurements, as economic
hedges, and 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.
35
Table of Contents
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.
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 three and six months ended June 30, 2010, or in 2009.
Forward Settlements There were no forward settled securities at June 30, 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 AOCI 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.
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.
36
Table of Contents
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 $430.0
million and $320.0 million as of June 30, 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 June 30, 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 and six months ended June 30, 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.
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 June 30, 2010
and December 31, 2009, the Banks credit exposure, representing derivatives in a fair value net
gain position was approximately $39.4 million and $8.3 million after the recognition of any cash
collateral held by the FHLBNY. The credit exposure at June 30, 2010 and December 31, 2009 included
$23.7 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 June 30, 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 $868.7 million and $746.2 million after deducting $2.2
billion and $3.1 billion of cash collateral pledged by the FHLBNY at those dates to the exposed
counterparties. 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 June 30, 2010,
and based on credit analyses and collateral requirements, the management of the FHLBNY does not
anticipate any credit losses on its derivative agreements.
37
Table of Contents
The following tables represented outstanding notional balances and estimated fair values of the
derivatives outstanding at June 30, 2010 and December 31, 2009 (in thousands):
June 30, 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 |
$ | 94,714,369 | $ | 1,036,014 | $ | (4,987,568 | ) | |||||
Total derivatives in hedging instruments |
$ | 94,714,369 | $ | 1,036,014 | $ | (4,987,568 | ) | |||||
Derivatives not designated as hedging instruments |
||||||||||||
Interest rate swaps |
$ | 24,597,754 | $ | 35,478 | $ | (14,992 | ) | |||||
Interest rate caps or floors |
1,900,000 | 38,342 | (142 | ) | ||||||||
Mortgage delivery commitments |
11,869 | 162 | | |||||||||
Other* |
430,000 | 5,768 | (5,252 | ) | ||||||||
Total derivatives not designated as hedging instruments |
$ | 26,939,623 | $ | 79,750 | $ | (20,386 | ) | |||||
Total derivatives before netting and collateral adjustments |
$ | 121,653,992 | $ | 1,115,764 | $ | (5,007,954 | ) | |||||
Netting adjustments |
$ | (1,076,320 | ) | $ | 1,076,320 | |||||||
Cash collateral and related accrued interest |
| 3,062,916 | ||||||||||
Total collateral and netting adjustments |
$ | (1,076,320 | ) | $ | 4,139,236 | |||||||
Total reported on the Statements of Condition |
$ | 39,444 | $ | (868,718 | ) | |||||||
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 | ) | |||||
Total derivatives in hedging instruments |
$ | 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 1 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 AOCI. | ||
1 | None outstanding at June 30, 2010 and December 31, 2009. |
38
Table of Contents
Impact of derivatives and hedging activities on earnings
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.
The FHLBNY reported the following net gains (losses) from derivatives and hedging activities (in
thousands):
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Gain (Loss) | Gain (Loss) | Gain (Loss) | Gain (Loss) | |||||||||||||
Derivatives designated as hedging instruments |
||||||||||||||||
Interest rate swaps |
||||||||||||||||
Advances |
$ | (1,395 | ) | $ | 5,322 | $ | (776 | ) | $ | (5,289 | ) | |||||
Consolidated obligations-bonds |
(189 | ) | 5,138 | 3,815 | 18,020 | |||||||||||
Net gain (loss) related to fair value hedge ineffectiveness |
(1,584 | ) | 10,460 | 3,039 | 12,731 | |||||||||||
Derivatives not designated as hedging instruments |
||||||||||||||||
Economic hedges |
||||||||||||||||
Interest rate swaps |
||||||||||||||||
Advances |
(1,121 | ) | 1,022 | (1,961 | ) | 5,362 | ||||||||||
Consolidated obligations-bonds |
(23,205 | ) | 41,761 | (36,514 | ) | 73,242 | ||||||||||
Consolidated obligations-discount notes |
(1,768 | ) | 6,723 | (4,100 | ) | 6,120 | ||||||||||
Member intermediation |
158 | (20 | ) | 154 | (173 | ) | ||||||||||
Balance sheet-macro hedges swaps |
| 174 | 173 | 2,407 | ||||||||||||
Accrued interest-swaps |
15,050 | (9,912 | ) | 44,519 | (56,135 | ) | ||||||||||
Accrued interest-intermediation |
26 | 19 | 49 | 45 | ||||||||||||
Caps and floors |
||||||||||||||||
Advances |
(111 | ) | (321 | ) | (399 | ) | (750 | ) | ||||||||
Balance sheet |
(2,856 | ) | 29,766 | (33,283 | ) | 31,416 | ||||||||||
Accrued interest-options |
(609 | ) | (1,253 | ) | (2,598 | ) | (1,945 | ) | ||||||||
Mortgage delivery commitments |
405 | (156 | ) | 554 | (96 | ) | ||||||||||
Swaps economically hedging instruments designated under FVO |
||||||||||||||||
Consolidated obligations-bonds |
(4,281 | ) | 310 | 2,357 | (7,374 | ) | ||||||||||
Consolidated obligations-discount notes |
774 | | 774 | | ||||||||||||
Accrued interest on swaps |
7,697 | 67 | 15,448 | 124 | ||||||||||||
Net gain (loss) related to derivatives not designated as hedging instruments |
(9,841 | ) | 68,180 | (14,827 | ) | 52,243 | ||||||||||
Net
realized and unrealized (loss) gain on derivatives and hedging activities |
$ | (11,425 | ) | $ | 78,640 | $ | (11,788 | ) | $ | 64,974 | ||||||
39
Table of Contents
The components of hedging gains and losses for the three and six months ended June 30, 2010
and 2009 are summarized below (in thousands):
Three months ended June 30, | ||||||||||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||||||||||
Effect of | Effect of | |||||||||||||||||||||||||||||||
Derivatives on | Derivatives on | |||||||||||||||||||||||||||||||
Gain (Loss) on | Gain (Loss) on | Earnings | Net Interest | Gain (Loss) on | Gain (Loss) on | Earnings | Net Interest | |||||||||||||||||||||||||
Derivative | Hedged Item | Impact | Income 1 | Derivative | Hedged Item | Impact | Income 1 | |||||||||||||||||||||||||
Derivatives designated
as hedging instruments |
||||||||||||||||||||||||||||||||
Interest rate swaps |
||||||||||||||||||||||||||||||||
Advances |
$ | (988,013 | ) | $ | 986,618 | $ | (1,395 | ) | $ | (510,594 | ) | $ | 1,318,444 | $ | (1,313,122 | ) | $ | 5,322 | $ | (417,556 | ) | |||||||||||
Consolidated obligations-bonds |
233,268 | (233,457 | ) | (189 | ) | 172,447 | (353,207 | ) | 358,345 | 5,138 | 128,603 | |||||||||||||||||||||
Consolidated obligations-discount notes |
| | | | | | | 31 | ||||||||||||||||||||||||
Derivatives designated as
hedging
instruments-fair value hedges |
(754,745 | ) | 753,161 | (1,584 | ) | (338,147 | ) | 965,237 | (954,777 | ) | 10,460 | (288,922 | ) | |||||||||||||||||||
Derivatives not designated
as hedging instruments |
||||||||||||||||||||||||||||||||
Interest rate swaps |
||||||||||||||||||||||||||||||||
Advances |
(1,121 | ) | | (1,121 | ) | | 1,022 | | 1,022 | | ||||||||||||||||||||||
Consolidated obligations-bonds |
(23,205 | ) | | (23,205 | ) | | 41,761 | | 41,761 | | ||||||||||||||||||||||
Consolidated obligations-discount notes |
(1,768 | ) | | (1,768 | ) | | 6,723 | | 6,723 | | ||||||||||||||||||||||
Member intermediation |
158 | | 158 | | (20 | ) | | (20 | ) | | ||||||||||||||||||||||
Balance sheet-macro hedges swaps |
| | | | 174 | | 174 | | ||||||||||||||||||||||||
Accrued interest-swaps |
15,050 | | 15,050 | | (9,912 | ) | | (9,912 | ) | | ||||||||||||||||||||||
Accrued interest-intermediation |
26 | | 26 | | 19 | | 19 | | ||||||||||||||||||||||||
Caps and floors |
||||||||||||||||||||||||||||||||
Advances |
(111 | ) | | (111 | ) | | (321 | ) | | (321 | ) | | ||||||||||||||||||||
Balance sheet |
(2,856 | ) | | (2,856 | ) | | 29,766 | | 29,766 | | ||||||||||||||||||||||
Accrued interest-options |
(609 | ) | | (609 | ) | | (1,253 | ) | | (1,253 | ) | | ||||||||||||||||||||
Mortgage delivery commitments |
405 | | 405 | | (156 | ) | | (156 | ) | | ||||||||||||||||||||||
Swaps economically hedging instruments
designated under FVO |
||||||||||||||||||||||||||||||||
Consolidated obligations-bonds |
(4,281 | ) | | (4,281 | ) | | 310 | | 310 | | ||||||||||||||||||||||
Consolidated obligations-discount notes |
774 | | 774 | | | | | | ||||||||||||||||||||||||
Accrued interest on swaps |
7,697 | | 7,697 | | 67 | | 67 | | ||||||||||||||||||||||||
Derivatives not designated
as hedging instruments |
(9,841 | ) | | (9,841 | ) | | 68,180 | | 68,180 | | ||||||||||||||||||||||
Total |
$ | (764,586 | ) | $ | 753,161 | $ | (11,425 | ) | $ | (338,147 | ) | $ | 1,033,417 | $ | (954,777 | ) | $ | 78,640 | $ | (288,922 | ) | |||||||||||
Six months ended June 30, | ||||||||||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||||||||||
Effect of | Effect of | |||||||||||||||||||||||||||||||
Derivatives on | Derivatives on | |||||||||||||||||||||||||||||||
Gain (Loss) on | Gain (Loss) on | Earnings | Net Interest | Gain (Loss) on | Gain (Loss) on | Earnings | Net Interest | |||||||||||||||||||||||||
Derivative | Hedged Item | Impact | Income 1 | Derivative | Hedged Item | Impact | Income 1 | |||||||||||||||||||||||||
Derivatives designated
as hedging instruments |
||||||||||||||||||||||||||||||||
Interest rate swaps |
||||||||||||||||||||||||||||||||
Advances |
$ | (1,140,100 | ) | $ | 1,139,324 | $ | (776 | ) | $ | (1,040,971 | ) | $ | 2,002,002 | $ | (2,007,291 | ) | $ | (5,289 | ) | $ | (749,591 | ) | ||||||||||
Consolidated obligations-bonds |
285,503 | (281,688 | ) | 3,815 | 345,224 | (517,402 | ) | 535,422 | 18,020 | 232,683 | ||||||||||||||||||||||
Consolidated obligations-discount notes |
| | | | | | | 474 | ||||||||||||||||||||||||
Derivatives designated as
hedging
instruments-fair value hedges |
(854,597 | ) | 857,636 | 3,039 | (695,747 | ) | 1,484,600 | (1,471,869 | ) | 12,731 | (516,434 | ) | ||||||||||||||||||||
Derivatives not designated
as hedging instruments |
||||||||||||||||||||||||||||||||
Interest rate swaps |
||||||||||||||||||||||||||||||||
Advances |
(1,961 | ) | | (1,961 | ) | | 5,362 | | 5,362 | | ||||||||||||||||||||||
Consolidated obligations-bonds |
(36,514 | ) | | (36,514 | ) | | 73,242 | | 73,242 | | ||||||||||||||||||||||
Consolidated obligations-discount notes |
(4,100 | ) | | (4,100 | ) | | 6,120 | | 6,120 | | ||||||||||||||||||||||
Member intermediation |
154 | | 154 | | (173 | ) | | (173 | ) | | ||||||||||||||||||||||
Balance sheet-macro hedges swaps |
173 | | 173 | | 2,407 | | 2,407 | | ||||||||||||||||||||||||
Accrued interest-swaps |
44,519 | | 44,519 | | (56,135 | ) | | (56,135 | ) | | ||||||||||||||||||||||
Accrued interest-intermediation |
49 | | 49 | | 45 | | 45 | | ||||||||||||||||||||||||
Caps and floors |
||||||||||||||||||||||||||||||||
Advances |
(399 | ) | | (399 | ) | | (750 | ) | | (750 | ) | | ||||||||||||||||||||
Balance sheet |
(33,283 | ) | | (33,283 | ) | | 31,416 | | 31,416 | | ||||||||||||||||||||||
Accrued interest-options |
(2,598 | ) | | (2,598 | ) | | (1,945 | ) | | (1,945 | ) | | ||||||||||||||||||||
Mortgage delivery commitments |
554 | | 554 | | (96 | ) | | (96 | ) | | ||||||||||||||||||||||
Swaps economically hedging instruments
designated under FVO |
||||||||||||||||||||||||||||||||
Consolidated obligations-bonds |
2,357 | | 2,357 | | (7,374 | ) | | (7,374 | ) | | ||||||||||||||||||||||
Consolidated obligations-discount notes |
774 | | 774 | | | | | | ||||||||||||||||||||||||
Accrued interest on swaps |
15,448 | | 15,448 | | 124 | | 124 | | ||||||||||||||||||||||||
Derivatives not designated
as hedging instruments |
(14,827 | ) | | (14,827 | ) | | 52,243 | | 52,243 | | ||||||||||||||||||||||
Total |
$ | (869,424 | ) | $ | 857,636 | $ | (11,788 | ) | $ | (695,747 | ) | $ | 1,536,843 | $ | (1,471,869 | ) | $ | 64,974 | $ | (516,434 | ) | |||||||||||
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. |
40
Table of Contents
Cash Flow hedges
There were no material amounts for the three and six months ended June 30, 2010 and 2009 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. There were no derivatives designated as cash flow
hedges at June 30, 2010 and 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 $19.6 million and $22.7 million at
June 30, 2010 and December 31, 2009. At June 30, 2010, it is expected that over the next 12 months
about $6.0 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 and six months ended
June 30, 2010 and 2009 were as follows (in thousands):
Three months ended June 30, | ||||||||||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||||||||||
OCI | OCI | |||||||||||||||||||||||||||||||
Gains/(Losses) | Gains/(Losses) | |||||||||||||||||||||||||||||||
Location: | Amount | Ineffectiveness | Location: | Amount | Ineffectiveness | |||||||||||||||||||||||||||
Recognized | Reclassified to | Reclassified to | Recognized in | Recognized | Reclassified to | Reclassified to | Recognized in | |||||||||||||||||||||||||
in OCI 1, 2 | Earnings 1 | Earnings 1 | Earnings | in OCI 1, 2 | Earnings 1 | Earnings 1 | Earnings | |||||||||||||||||||||||||
The effect of cash flow hedge related to
Interest rate swaps |
||||||||||||||||||||||||||||||||
Advances |
$ | | Interest Income | $ | | $ | | $ | | Interest Income | $ | | $ | | ||||||||||||||||||
Consolidated obligations-bonds |
(864 | ) | Interest Expense | 1,801 | | | Interest Expense | 1,910 | ||||||||||||||||||||||||
Total |
$ | (864 | ) | $ | 1,801 | $ | | $ | | $ | 1,910 | $ | | |||||||||||||||||||
Six months ended June 30, | ||||||||||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||||||||||
OCI | OCI | |||||||||||||||||||||||||||||||
Gains/(Losses) | Gains/(Losses) | |||||||||||||||||||||||||||||||
Location: | Amount | Ineffectiveness | Location: | Amount | Ineffectiveness | |||||||||||||||||||||||||||
Recognized | Reclassified to | Reclassified to | Recognized in | Recognized | Reclassified to | Reclassified to | Recognized in | |||||||||||||||||||||||||
in OCI 1, 2 | Earnings 1 | Earnings 1 | Earnings | in OCI 1, 2 | Earnings 1 | Earnings 1 | Earnings | |||||||||||||||||||||||||
The effect of cash flow hedge related to
Interest rate swaps |
||||||||||||||||||||||||||||||||
Advances |
$ | | Interest Income | $ | | $ | | $ | | Interest Income | $ | | $ | | ||||||||||||||||||
Consolidated obligations-bonds |
(472 | ) | Interest Expense | 3,541 | | | Interest Expense | 3,789 | ||||||||||||||||||||||||
Total |
$ | (472 | ) | $ | 3,541 | $ | | $ | | $ | 3,789 | $ | | |||||||||||||||||||
1 | Effective portion | |
2 | Represents effective portion of basis adjustments to AOCI from cash flow hedging transactions. |
41
Table of Contents
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 June 30, 2010 and
December 31, 2009 (in thousands):
June 30, 2010 | ||||||||||||||||||||
Netting | ||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Adjustments | ||||||||||||||||
Assets |
||||||||||||||||||||
Available-for-sale securities |
||||||||||||||||||||
GSE issued MBS |
$ | 2,902,465 | $ | | $ | 2,902,465 | $ | | $ | | ||||||||||
Equity and bond funds |
11,967 | | 11,967 | | | |||||||||||||||
Derivative assets(a) |
||||||||||||||||||||
Interest-rate derivatives |
39,282 | | 1,115,602 | | (1,076,320 | ) | ||||||||||||||
Mortgage delivery commitments |
162 | | 162 | | | |||||||||||||||
Total assets at fair value |
$ | 2,953,876 | $ | | $ | 4,030,196 | $ | | $ | (1,076,320 | ) | |||||||||
Liabilities |
||||||||||||||||||||
Consolidated obligations: |
||||||||||||||||||||
Discount notes (to the extent SFAS 159 is elected) |
$ | (1,753,688 | ) | $ | | $ | (1,753,688 | ) | $ | | $ | | ||||||||
Bonds (to the extent SFAS 159 is elected) (b) |
(9,763,246 | ) | | (9,763,246 | ) | | | |||||||||||||
Derivative liabilities(a) |
||||||||||||||||||||
Interest-rate derivatives |
(868,718 | ) | | (5,007,954 | ) | | 4,139,236 | |||||||||||||
Mortgage delivery commitments |
| | | | | |||||||||||||||
Total liabilities at fair value |
$ | (12,385,652 | ) | $ | | $ | (16,524,888 | ) | $ | | $ | 4,139,236 | ||||||||
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: |
||||||||||||||||||||
Discount notes (to the extent SFAS 159 is elected) |
$ | | $ | | $ | | $ | | $ | | ||||||||||
Bonds (to the extent SFAS 159 is elected) (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. |
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, and real estate owned. At June 30, 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 determined to be
OTTI at June 30, 2010, and were recorded at
their fair values of $11.3 million and $42.9 million at June 30, 2010 and December 31, 2009. For
more information also see Note 4 Held-to-maturity securities.
42
Table of Contents
The following table summarizes the fair values of MBS for which a non-recurring change in fair
value was recorded at June 30, 2010 (in thousands):
June 30, 2010 | ||||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
Held-to-maturity securities |
||||||||||||||||
Home equity loans |
$ | 11,257 | $ | | $ | | $ | 11,257 | ||||||||
Total |
$ | 11,257 | $ | | $ | | $ | 11,257 | ||||||||
Note: | Certain OTTI securities were written down to their fair values ($11.3 million) when it was determined that their carrying values prior to write-down ($11.5 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 June 30, 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):
December 31, 2009 | ||||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
Held-to-maturity securities |
||||||||||||||||
Home equity loans |
$ | 42,922 | $ | | $ | | $ | 42,922 | ||||||||
Total |
$ | 42,922 | $ | | $ | | $ | 42,922 | ||||||||
The following table summarizes the fair values of MBS for which a non-recurring change in fair
value was recorded at June 30, 2009 (in thousands):
June 30, 2009 | ||||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
Held-to-maturity securities |
||||||||||||||||
Home equity loans |
$ | 188,135 | $ | | $ | | $ | 188,135 | ||||||||
Total |
$ | 188,135 | $ | | $ | | $ | 188,135 | ||||||||
Estimated fair values Summary Tables
The carrying value and estimated fair values of the FHLBNYs financial instruments as of June 30,
2010 and December 31, 2009 were as follows (in thousands):
June 30, 2010 | December 31, 2009 | |||||||||||||||
Carrying | Estimated | Carrying | Estimated | |||||||||||||
Financial Instruments | Value | Fair Value | Value | Fair Value | ||||||||||||
Assets |
||||||||||||||||
Cash and due from banks |
$ | 3,262,770 | $ | 3,262,770 | $ | 2,189,252 | $ | 2,189,252 | ||||||||
Federal funds sold |
3,125,000 | 3,124,993 | 3,450,000 | 3,449,997 | ||||||||||||
Available-for-sale securities |
2,914,432 | 2,914,432 | 2,253,153 | 2,253,153 | ||||||||||||
Held-to-maturity securities |
||||||||||||||||
Long-term securities |
8,931,074 | 9,103,835 | 10,519,282 | 10,669,252 | ||||||||||||
Advances |
85,285,877 | 85,584,072 | 94,348,751 | 94,624,708 | ||||||||||||
Mortgage loans held-for-portfolio, net |
1,283,040 | 1,363,600 | 1,317,547 | 1,366,538 | ||||||||||||
Accrued interest receivable |
310,792 | 310,792 | 340,510 | 340,510 | ||||||||||||
Derivative assets |
39,444 | 39,444 | 8,280 | 8,280 | ||||||||||||
Other financial assets |
3,373 | 3,373 | 3,412 | 3,412 | ||||||||||||
Liabilities |
||||||||||||||||
Deposits |
4,794,537 | 4,794,544 | 2,630,511 | 2,630,513 | ||||||||||||
Consolidated obligations: |
||||||||||||||||
Bonds |
66,246,847 | 66,611,534 | 74,007,978 | 74,279,737 | ||||||||||||
Discount notes |
27,480,949 | 27,481,394 | 30,827,639 | 30,831,201 | ||||||||||||
Mandatorily redeemable capital stock |
69,569 | 69,569 | 126,294 | 126,294 | ||||||||||||
Accrued interest payable |
233,540 | 233,540 | 277,788 | 277,788 | ||||||||||||
Derivative liabilities |
868,718 | 868,718 | 746,176 | 746,176 | ||||||||||||
Other financial liabilities |
40,097 | 40,097 | 38,832 | 38,832 |
43
Table of Contents
Fair Value Option Disclosures
The
following table summarizes the activity related to consolidated
obligation bonds and notes for which the
Bank elected the fair value option (in thousands):
Three months ended | Six months ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
2010 | 2009 | 2010 | 2010 | 2009 | 2010 | |||||||||||||||||||
Bonds | Discount notes | Bonds | Discount notes | |||||||||||||||||||||
Balance, beginning of the period |
$ | (6,780,613 | ) | $ | (25,377 | ) | $ | | $ | (6,035,741 | ) | $ | (998,942 | ) | $ | | ||||||||
New transaction elected for fair value option |
(6,750,000 | ) | (550,000 | ) | (1,752,185 | ) | (11,170,000 | ) | (550,000 | ) | (1,752,185 | ) | ||||||||||||
Maturities and terminations |
3,775,000 | 25,000 | | 7,460,000 | 983,000 | | ||||||||||||||||||
Change in fair value |
(3,275 | ) | (86 | ) | (973 | ) | (11,694 | ) | 8,226 | (973 | ) | |||||||||||||
Change in accrued interest |
(4,358 | ) | 160 | (530 | ) | (5,811 | ) | 7,413 | (530 | ) | ||||||||||||||
Balance, end of the period |
$ | (9,763,246 | ) | $ | (550,303 | ) | $ | (1,753,688 | ) | $ | (9,763,246 | ) | $ | (550,303 | ) | $ | (1,753,688 | ) | ||||||
The following table presents the change in fair value included in the Statements of Income for
the consolidated obligation bonds and notes designated in accordance with the accounting standards on the
fair value option for financial assets and liabilities (in thousands):
Three months ended June 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Net gain(loss) | Total change in | Net gain(loss) | Total change in | |||||||||||||||||||||
Interest expense | due to | fair value included | Interest expense | due to | fair value included | |||||||||||||||||||
on consolidated | changes in | in current period | on consolidated | changes in | in current period | |||||||||||||||||||
obligations | fair value | earnings | obligations | fair value | earnings | |||||||||||||||||||
Consolidated obligations-bonds |
$ | (10,563 | ) | $ | (3,275 | ) | $ | (13,838 | ) | $ | (215 | ) | $ | (86 | ) | $ | (301 | ) | ||||||
Consolidated
obligations-discount notes |
(530 | ) | (973 | ) | (1,503 | ) | | | | |||||||||||||||
$ | (11,093 | ) | $ | (4,248 | ) | $ | (15,341 | ) | $ | (215 | ) | $ | (86 | ) | $ | (301 | ) | |||||||
Six months ended June 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Net gain(loss) | Total change in | Net gain(loss) | Total change in | |||||||||||||||||||||
Interest expense | due to | fair value included | Interest expense | due to | fair value included | |||||||||||||||||||
on consolidated | changes in | in current period | on consolidated | changes in | in current period | |||||||||||||||||||
obligations | fair value | earnings | obligations | fair value | earnings | |||||||||||||||||||
Consolidated obligations-bonds |
$ | (19,085 | ) | $ | (11,694 | ) | $ | (30,779 | ) | $ | (1,289 | ) |