UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-51397
Federal Home Loan Bank of New York
(Exact name of registrant as specified in its charter)
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Federal
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13-6400946 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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101 Park Avenue, New York, N.Y.
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10178 |
(Address of principal executive offices)
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(Zip Code) |
(212) 681-6000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares outstanding of the issuers common stock as of October 31, 2010 was
45,957,753.
FEDERAL HOME LOAN BANK OF NEW YORK
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010
Table of Contents
Federal Home Loan Bank of New York
Statements of Condition
Unaudited (in thousands, except par value of capital stock)
As of September 30, 2010 and December 31, 2009
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September 30, 2010 |
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December 31, 2009 |
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Assets |
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Cash and due from banks (Note 3) |
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$ |
69,471 |
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$ |
2,189,252 |
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Federal funds sold |
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4,095,000 |
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3,450,000 |
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Available-for-sale securities, net of unrealized gains (losses)
of $23,816 at September 30, 2010 and ($3,409) at December 31, 2009 (Note 5) |
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3,373,781 |
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2,253,153 |
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Held-to-maturity securities (Note 4) |
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Long-term securities |
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8,221,246 |
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10,519,282 |
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Advances (Note 6) |
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85,697,171 |
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94,348,751 |
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Mortgage loans held-for-portfolio, net of allowance for credit losses
of $5,537 at September 30, 2010 and $4,498 at December 31, 2009 (Note 7) |
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1,267,687 |
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1,317,547 |
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Accrued interest receivable |
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305,763 |
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340,510 |
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Premises, software, and equipment |
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14,550 |
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14,792 |
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Derivative assets (Note 16) |
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32,425 |
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|
8,280 |
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Other assets |
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16,444 |
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19,339 |
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Total assets |
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$ |
103,093,538 |
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$ |
114,460,906 |
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Liabilities and capital |
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Liabilities |
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Deposits (Note 8) |
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Interest-bearing demand |
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$ |
3,660,132 |
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$ |
2,616,812 |
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Non-interest bearing demand |
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9,725 |
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6,499 |
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Term |
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60,400 |
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7,200 |
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Total deposits |
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3,730,257 |
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2,630,511 |
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Consolidated obligations, net (Note 10) |
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Bonds (Includes $10,761,236 at September 30, 2010 and $6,035,741 at December 31, 2009
at fair value under the fair value option) |
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74,918,893 |
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74,007,978 |
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Discount notes (Includes $1,755,901 at September 30, 2010 and $0 at December 31, 2009
at fair value under the fair value option) |
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17,787,908 |
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30,827,639 |
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Total consolidated obligations |
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92,706,801 |
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104,835,617 |
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Mandatorily redeemable capital stock (Note 11) |
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67,348 |
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126,294 |
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Accrued interest payable |
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277,647 |
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277,788 |
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Affordable Housing Program (Note 12) |
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137,995 |
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144,489 |
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Payable to REFCORP (Note 12) |
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20,560 |
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24,234 |
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Derivative liabilities (Note 16) |
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784,498 |
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746,176 |
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Other liabilities |
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101,448 |
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72,506 |
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Total liabilities |
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97,826,554 |
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108,857,615 |
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Commitments and Contingencies (Notes 10, 12, 16 and 18) |
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Capital (Note 11) |
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Capital stock ($100 par value), putable, issued and outstanding shares: |
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46,636 at September 30, 2010 and 50,590 at December 31, 2009 |
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4,663,606 |
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5,058,956 |
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Retained earnings |
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701,215 |
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688,874 |
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Accumulated other comprehensive income (loss) (Note 13) |
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Net unrealized gain (loss) on available-for-sale securities |
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23,815 |
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(3,409 |
) |
Non-credit portion of OTTI on held-to-maturity securities, net of accretion |
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(96,043 |
) |
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(110,570 |
) |
Net unrealized loss on hedging activities |
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(17,732 |
) |
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(22,683 |
) |
Employee supplemental retirement plans (Note 15) |
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(7,877 |
) |
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(7,877 |
) |
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Total capital |
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5,266,984 |
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5,603,291 |
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Total liabilities and capital |
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$ |
103,093,538 |
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$ |
114,460,906 |
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The accompanying notes are an integral part of these unaudited financial statements.
3
Federal Home Loan Bank of New York
Statements of Income
Unaudited (in thousands, except per share data)
For the three and nine months ended September 30, 2010 and 2009
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Three months ended |
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Nine months ended |
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September 30, |
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September 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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Interest income |
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Advances (Note 6) |
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$ |
173,459 |
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$ |
240,573 |
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$ |
477,303 |
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$ |
1,094,089 |
|
Interest-bearing deposits (Note 3) |
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1,699 |
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1,014 |
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3,766 |
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19,054 |
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Federal funds sold |
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2,253 |
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1,864 |
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6,600 |
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1,933 |
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Available-for-sale securities (Note 5) |
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7,580 |
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6,590 |
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23,128 |
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22,881 |
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Held-to-maturity securities (Note 4) |
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Long-term securities |
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84,242 |
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111,232 |
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|
274,686 |
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|
355,916 |
|
Certificates of deposit |
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|
851 |
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1,392 |
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Mortgage loans held-for-portfolio (Note 7) |
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|
16,333 |
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|
17,405 |
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|
49,689 |
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|
54,679 |
|
Loans to other FHLBanks and other |
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1 |
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|
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|
1 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total interest income |
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|
285,566 |
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|
|
379,530 |
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|
835,172 |
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|
1,549,945 |
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|
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|
|
|
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|
|
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|
|
|
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|
|
|
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Interest expense |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Consolidated obligations-bonds (Note 10) |
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|
147,097 |
|
|
|
191,708 |
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|
|
448,669 |
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|
783,695 |
|
Consolidated obligations-discount notes (Note 10) |
|
|
11,456 |
|
|
|
31,647 |
|
|
|
33,069 |
|
|
|
173,228 |
|
Deposits (Note 8) |
|
|
959 |
|
|
|
516 |
|
|
|
2,813 |
|
|
|
2,002 |
|
Mandatorily redeemable capital stock (Note 11) |
|
|
879 |
|
|
|
1,807 |
|
|
|
3,051 |
|
|
|
5,478 |
|
Cash collateral held and other borrowings (Note 19) |
|
|
14 |
|
|
|
|
|
|
|
14 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total interest expense |
|
|
160,405 |
|
|
|
225,678 |
|
|
|
487,616 |
|
|
|
964,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income before provision for credit losses |
|
|
125,161 |
|
|
|
153,852 |
|
|
|
347,556 |
|
|
|
585,493 |
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|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
Provision for credit losses on mortgage loans |
|
|
231 |
|
|
|
598 |
|
|
|
1,137 |
|
|
|
1,966 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net interest income after provision for credit losses |
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|
124,930 |
|
|
|
153,254 |
|
|
|
346,419 |
|
|
|
583,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Other income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fees |
|
|
1,297 |
|
|
|
1,101 |
|
|
|
3,472 |
|
|
|
3,181 |
|
Instruments held at fair value Unrealized (loss) gain (Note 17) |
|
|
55 |
|
|
|
426 |
|
|
|
(12,612 |
) |
|
|
8,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses |
|
|
(498 |
) |
|
|
(30,169 |
) |
|
|
(4,573 |
) |
|
|
(118,160 |
) |
Net amount of impairment losses reclassified (from) to
Accumulated other comprehensive loss |
|
|
(2,569 |
) |
|
|
26,486 |
|
|
|
(3,164 |
) |
|
|
103,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses recognized in earnings |
|
|
(3,067 |
) |
|
|
(3,683 |
) |
|
|
(7,737 |
) |
|
|
(14,276 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized (loss) gain
on derivatives and hedging activities (Note 16) |
|
|
8,444 |
|
|
|
59,639 |
|
|
|
(3,344 |
) |
|
|
124,613 |
|
Net realized gain from sale of available-for-sale securities (Note 5) |
|
|
|
|
|
|
|
|
|
|
708 |
|
|
|
721 |
|
Other |
|
|
(624 |
) |
|
|
(39 |
) |
|
|
(1,493 |
) |
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss) |
|
|
6,105 |
|
|
|
57,444 |
|
|
|
(21,006 |
) |
|
|
122,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
21,657 |
|
|
|
17,810 |
|
|
|
61,245 |
|
|
|
53,970 |
|
Finance Agency and Office of Finance |
|
|
2,036 |
|
|
|
1,834 |
|
|
|
6,447 |
|
|
|
5,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
|
23,693 |
|
|
|
19,644 |
|
|
|
67,692 |
|
|
|
59,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before assessments |
|
|
107,342 |
|
|
|
191,054 |
|
|
|
257,721 |
|
|
|
646,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affordable Housing Program (Note 12) |
|
|
8,852 |
|
|
|
15,780 |
|
|
|
21,350 |
|
|
|
53,363 |
|
REFCORP (Note 12) |
|
|
19,698 |
|
|
|
35,055 |
|
|
|
47,274 |
|
|
|
118,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assessments |
|
|
28,550 |
|
|
|
50,835 |
|
|
|
68,624 |
|
|
|
172,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
78,792 |
|
|
$ |
140,219 |
|
|
$ |
189,097 |
|
|
$ |
474,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (Note 14) |
|
$ |
1.71 |
|
|
$ |
2.70 |
|
|
$ |
3.98 |
|
|
$ |
8.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid per share |
|
$ |
1.15 |
|
|
$ |
1.40 |
|
|
$ |
3.60 |
|
|
$ |
3.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
4
Federal Home Loan Bank of New York
Statements of Capital
Unaudited (in thousands, except per share data)
For the nine months ended September 30, 2010 and 2009
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Accumulated |
|
|
|
|
|
|
|
|
|
|
Capital Stock1 |
|
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|
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|
|
Other |
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|
|
|
|
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 |
|
|
26,932 |
|
|
|
2,693,233 |
|
|
|
|
|
|
|
|
|
|
|
2,693,233 |
|
|
|
|
|
Redemption of capital stock |
|
|
(31,363 |
) |
|
|
(3,136,345 |
) |
|
|
|
|
|
|
|
|
|
|
(3,136,345 |
) |
|
|
|
|
Shares reclassified to mandatorily
redeemable capital stock |
|
|
(4 |
) |
|
|
(434 |
) |
|
|
|
|
|
|
|
|
|
|
(434 |
) |
|
|
|
|
Cash dividends ($3.54 per share) on
capital stock |
|
|
|
|
|
|
|
|
|
|
(191,405 |
) |
|
|
|
|
|
|
(191,405 |
) |
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
474,786 |
|
|
|
|
|
|
|
474,786 |
|
|
$ |
474,786 |
|
Net change in Accumulated other
comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-credit portion of OTTI on
held-to-maturity securities,
net of accretion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,463 |
) |
|
|
(100,463 |
) |
|
|
(100,463 |
) |
Net unrealized gains on
available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,335 |
|
|
|
48,335 |
|
|
|
48,335 |
|
Hedging activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,687 |
|
|
|
5,687 |
|
|
|
5,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
428,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009 |
|
|
51,422 |
|
|
$ |
5,142,154 |
|
|
$ |
666,237 |
|
|
$ |
(147,602 |
) |
|
$ |
5,660,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
50,590 |
|
|
$ |
5,058,956 |
|
|
$ |
688,874 |
|
|
$ |
(144,539 |
) |
|
$ |
5,603,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of capital stock |
|
|
13,902 |
|
|
|
1,390,257 |
|
|
|
|
|
|
|
|
|
|
|
1,390,257 |
|
|
|
|
|
Redemption of capital stock |
|
|
(17,553 |
) |
|
|
(1,755,299 |
) |
|
|
|
|
|
|
|
|
|
|
(1,755,299 |
) |
|
|
|
|
Shares reclassified to mandatorily
redeemable capital stock |
|
|
(303 |
) |
|
|
(30,308 |
) |
|
|
|
|
|
|
|
|
|
|
(30,308 |
) |
|
|
|
|
Cash dividends ($3.60 per share) on
capital stock |
|
|
|
|
|
|
|
|
|
|
(176,756 |
) |
|
|
|
|
|
|
(176,756 |
) |
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
189,097 |
|
|
|
|
|
|
|
189,097 |
|
|
$ |
189,097 |
|
Net change in Accumulated other
comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-credit portion of OTTI on
held-to-maturity securities,
net of accretion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,527 |
|
|
|
14,527 |
|
|
|
14,527 |
|
Net unrealized gains on
available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,224 |
|
|
|
27,224 |
|
|
|
27,224 |
|
Hedging activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,951 |
|
|
|
4,951 |
|
|
|
4,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
235,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010 |
|
|
46,636 |
|
|
$ |
4,663,606 |
|
|
$ |
701,215 |
|
|
$ |
(97,837 |
) |
|
$ |
5,266,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
5
Federal Home Loan Bank of New York
Statements of Cash Flows
Unaudited (in thousands)
For the nine months ended September 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
189,097 |
|
|
$ |
474,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
(45,715 |
) |
|
|
(95,490 |
) |
Concessions on consolidated obligations |
|
|
9,666 |
|
|
|
4,977 |
|
Premises, software, and equipment |
|
|
4,201 |
|
|
|
4,020 |
|
Provision for credit losses on mortgage loans |
|
|
1,137 |
|
|
|
1,966 |
|
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 |
|
|
7,737 |
|
|
|
14,276 |
|
Change in net fair value adjustments on derivatives and hedging activities |
|
|
406,975 |
|
|
|
68,323 |
|
Change in fair value adjustments on financial instruments held at fair value |
|
|
12,612 |
|
|
|
(8,653 |
) |
Net change in: |
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
|
34,747 |
|
|
|
137,921 |
|
Derivative assets due to accrued interest |
|
|
23,230 |
|
|
|
184,842 |
|
Derivative liabilities due to accrued interest |
|
|
(21,895 |
) |
|
|
(250,161 |
) |
Other assets |
|
|
2,856 |
|
|
|
4,830 |
|
Affordable Housing Program liability |
|
|
(6,494 |
) |
|
|
22,373 |
|
Accrued interest payable |
|
|
3,235 |
|
|
|
(95,244 |
) |
REFCORP liability |
|
|
(3,674 |
) |
|
|
33,912 |
|
Other liabilities |
|
|
7,933 |
|
|
|
(5,759 |
) |
|
|
|
|
|
|
|
Total adjustments |
|
|
435,843 |
|
|
|
21,412 |
|
|
|
|
|
|
|
|
Net cash provided
by operating
activities |
|
|
624,940 |
|
|
|
496,198 |
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
(1,607,030 |
) |
|
|
13,471,204 |
|
Federal funds sold |
|
|
(645,000 |
) |
|
|
(3,900,000 |
) |
Deposits with other FHLBanks |
|
|
(29 |
) |
|
|
(84 |
) |
Premises, software, and equipment |
|
|
(3,959 |
) |
|
|
(4,823 |
) |
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
Long-term securities |
|
|
|
|
|
|
|
|
Purchased |
|
|
(174,048 |
) |
|
|
(2,754,476 |
) |
Repayments |
|
|
2,482,959 |
|
|
|
2,283,149 |
|
In-substance maturities |
|
|
|
|
|
|
38,251 |
|
Net change in certificates of deposit |
|
|
|
|
|
|
(797,000 |
) |
Available-for-sale securities: |
|
|
|
|
|
|
|
|
Purchased |
|
|
(1,957,867 |
) |
|
|
(613 |
) |
Proceeds |
|
|
838,129 |
|
|
|
420,607 |
|
Proceeds from sales |
|
|
33,398 |
|
|
|
132,095 |
|
Advances: |
|
|
|
|
|
|
|
|
Principal collected |
|
|
165,792,738 |
|
|
|
320,102,436 |
|
Made |
|
|
(155,157,849 |
) |
|
|
(308,324,718 |
) |
Mortgage loans held-for-portfolio: |
|
|
|
|
|
|
|
|
Principal collected |
|
|
155,621 |
|
|
|
235,596 |
|
Purchased and originated |
|
|
(106,769 |
) |
|
|
(117,152 |
) |
Loans to other FHLBanks |
|
|
|
|
|
|
|
|
Loans made |
|
|
(27,000 |
) |
|
|
(400,000 |
) |
Principal collected |
|
|
27,000 |
|
|
|
400,000 |
|
|
|
|
|
|
|
|
Net cash provided
by investing
activities |
|
|
9,650,294 |
|
|
|
20,784,472 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
6
Federal Home Loan Bank of New York
Statements of Cash Flows Unaudited (in thousands)
For the nine months ended September 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
Financing activities |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Deposits and other borrowings 1 |
|
$ |
844,546 |
|
|
$ |
531,109 |
|
Consolidated obligation bonds: |
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
52,284,617 |
|
|
|
35,112,667 |
|
Payments for maturing and early retirement |
|
|
(52,088,457 |
) |
|
|
(47,224,995 |
) |
Net proceeds on bonds transferred from other FHLBanks |
|
|
224,664 |
|
|
|
|
|
Consolidated obligation discount notes: |
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
89,819,657 |
|
|
|
814,559,648 |
|
Payments for maturing |
|
|
(102,848,990 |
) |
|
|
(822,438,650 |
) |
Capital stock: |
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
1,390,257 |
|
|
|
2,693,233 |
|
Payments for redemption / repurchase |
|
|
(1,755,299 |
) |
|
|
(3,136,345 |
) |
Redemption of Mandatorily redeemable capital stock |
|
|
(89,254 |
) |
|
|
(15,673 |
) |
Cash dividends paid 2 |
|
|
(176,756 |
) |
|
|
(191,405 |
) |
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(12,395,015 |
) |
|
|
(20,110,411 |
) |
|
|
|
|
|
|
|
Net (decrease) increase in cash and due from banks |
|
|
(2,119,781 |
) |
|
|
1,170,259 |
|
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 |
|
$ |
69,471 |
|
|
$ |
1,189,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
492,994 |
|
|
$ |
1,161,678 |
|
Affordable Housing Program payments 3 |
|
$ |
27,844 |
|
|
$ |
30,990 |
|
REFCORP payments |
|
$ |
50,948 |
|
|
$ |
84,784 |
|
Transfers of mortgage loans to real estate owned |
|
$ |
970 |
|
|
$ |
1,091 |
|
Portion of non-credit OTTI (gains) losses on held-to-maturity securities |
|
$ |
(3,164 |
) |
|
$ |
103,884 |
|
|
|
|
1 |
|
Cash flows from derivatives containing financing elements were considered as a financing activity $330,004 and $227,796 cash out-flows for the nine months ended 2010 and 2009. |
|
2 |
|
Does not include payments to holders of mandatorily redeemable capital stock. |
|
3 |
|
AHP payments = (beginning accrual ending accrual) + AHP assessment for the period; payments represent funds released to the Affordable Housing Program. |
The accompanying notes are an integral part of these unaudited financial statements.
7
Background
The Federal Home Loan Bank of New York (FHLBNY or the Bank) is a federally chartered
corporation, exempt from federal, state and local taxes except real estate taxes. It is one of
twelve district Federal Home Loan Banks (FHLBanks). The FHLBanks are U.S. government-sponsored
enterprises (GSEs), organized under the authority of the Federal Home Loan Bank Act of 1932, as
amended (FHLBank Act). Each FHLBank is a cooperative owned by member institutions located within
a defined geographic district. The members purchase capital stock in the FHLBank and receive
dividends on their capital stock investment. The FHLBNYs defined geographic district is New
Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. The FHLBNY provides a readily
available, low-cost source of funds for its member institutions. The FHLBNY does not have any
wholly or partially owned subsidiaries, nor does it have an equity position in any partnerships,
corporations, or off-balance-sheet special purpose entities.
The FHLBNY obtains its funds from several sources. A primary source is the issuance of FHLBank
debt instruments, called consolidated obligations, to the public. The issuances and servicing of
consolidated obligations are performed by the Office of Finance, a joint office of the FHLBanks.
These debt instruments represent the joint and several obligations of all the FHLBanks. Additional
sources of FHLBNY funding are member deposits and the issuance of capital stock. Deposits may be
accepted from member financial institutions and federal instrumentalities.
Members of the cooperative must purchase FHLBNY stock according to regulatory requirements (For
more information, see Note 11 Capital, Capital ratios, and Mandatorily redeemable capital stock).
The business of the cooperative is to provide liquidity for the members (primarily in the form of
loans referred to as advances) and to provide a return on members investment in FHLBNY stock in
the form of a dividend. Since the members are both stockholders and customers, the Bank operates
such that there is a trade-off between providing value to them via low pricing for advances with a
relatively lower dividend versus higher advances pricing with a relatively higher dividend. The
FHLBNY is managed to deliver balanced value to members, rather than to maximize profitability or
advance volume through low pricing.
All federally insured depository institutions, insured credit unions and insurance companies
engaged in residential housing finance can apply for membership in the FHLBank in their district.
All members are required to purchase capital stock in the FHLBNY as a condition of membership. A
member of another FHLBank or a financial institution that is not a member of any FHLBank may also
hold FHLBNY stock 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 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.
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Market approach This technique uses prices and other relevant information generated by
market transactions involving identical or comparable assets or liabilities. |
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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. |
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Cost approach This approach is based on the amount that currently would be required to
replace the service capacity of an asset (often referred to as current replacement cost). |
The accounting guidance on fair value measurements and disclosures establishes a hierarchy for
inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the
use of unobservable inputs by requiring that the most observable inputs be used when available.
Observable inputs are inputs that market participants would use in pricing the asset or liability,
and would be based on market data obtained from sources independent of FHLBNY. Unobservable inputs
are inputs that reflect FHLBNYs assumptions about the parameters market participants would use in
pricing the asset or liability, and would be based on the best information available in the
circumstances.
The fair value hierarchy is broken down into three levels based on the reliability of inputs as
follows:
Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or
similar instruments in markets that are not active; and model-based valuations in which all
significant inputs and significant parameters are observable in active markets.
Level 3 - Valuations based upon valuation techniques in which significant inputs and significant
parameters are unobservable.
The availability of observable inputs can vary from product to product and is affected by a wide
variety of factors including, for example, the characteristics peculiar to the transaction. To the
extent that valuation is based on models or inputs that are less observable or unobservable in the
market, the determination of fair value requires more judgment. Accordingly, the degree of
judgment exercised by FHLBNY in determining fair value is greatest for instruments categorized as
Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, for disclosure purpose the level in the fair value
hierarchy within which the fair value measurement falls is determined based on the lowest level
input that is significant to the fair value measurement in its entirety.
In its Statements of Condition at September 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). Certain held-to-maturity securities determined to be credit impaired or
other-than-temporarily impaired (OTTI) at September 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 September 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
September 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 September 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 September 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.
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 bondholders. 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 significant as of
September 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 reassessed 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. In March 2010, S&P revised its counterparty credit rating on Ambac to R from below
investment grade. S&Ps rating action was consistent with the level of regulatory intervention at
Ambac. MBIA is currently rated below investment grade. As with all assumptions, changes to these
assumptions (if bond insurers are deemed fully viable and able to
fulfill their insurance
obligations for bonds owned by the FHLBNY) may result in materially different outcomes.
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 in future
periods. 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.
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 private-label MBS. In the first two quarters of
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.
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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 53 private-label MBS at September 30, 2010. These assumptions and performance measures were
benchmarked by comparing to (1) performance parameters from market consensus, and (2) the
assumptions and parameters provided by the OTTI Committee for the FHLBNYs private-label MBS, which
represented about 50 percent of the FHLBNYs private-label MBS portfolio.
The internal process 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 burnout period (an end date for credit support), is then input to the cash
flow model. The end date, also referred to as the burnout date, provides the necessary information
as an input to the cash flow model for the continuation of cash flows up until the burnout 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 53 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 September 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 September 30,
2010 assumed current-to-trough home price declines ranging from 0 percent to 10 percent over the 3-
to 9-month period beginning July 1, 2010. Thereafter, home prices are projected to remain flat in
the first year, and increase 1 percent in the second year, 3 percent in the third year, 4 percent
in the fourth year, 5 percent in the fifth year, 6 percent in the sixth 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.
14
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.
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 September 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 was estimated to be $11.6 million and $13.9 million at September 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
classified either 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 $5.5 million and $4.5 million as of
September 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.
15
If adversely classified, or on non-accrual status, reserves for conventional mortgage loans, except
FHA and VA insured loans, are analyzed under liquidation scenarios on a loan level basis, and
identified losses are reserved. FHA and VA insured mortgage loans have minimal inherent credit
risk; risk generally arises mainly from the servicers defaulting on their obligations. FHA and VA
insured mortgage loans, if adversely classified, would have reserves established only in the event
of a default of a PFI, and would be based on aging, collateral value and estimated costs to recover
any uninsured portion of the MPF loan.
Derivatives
The contractual or notional amount of derivatives reflects the involvement of the FHLBNY in the
various classes of financial instruments. The notional amount of derivatives does not measure the
credit risk exposure of the FHLBNY, and the maximum credit exposure of the FHLBNY is substantially
less than the notional amount. The maximum credit risk is the estimated cost of replacing
favorable interest-rate swaps, forward agreements, mandatory delivery contracts for mortgage loans,
and purchased caps and floors if the derivative counterparties default and the related collateral,
if any, is of insufficient value to the FHLBNY. Accounting for derivatives is addressed under
accounting standards for derivatives and hedging. All derivatives are recognized on the balance
sheet at their estimated fair values, including accrued unpaid interest as either a derivative
asset or a derivative liability net of cash collateral received from and pledged to derivative
counterparties.
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 September 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.
16
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.
The FHLBNY routinely issues debt to investors and makes advances to members 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 September 30, 2010, September 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 September 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.
17
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 sales
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.
18
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 September 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
$50.3 million and $29.3 million as of September 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 (none at September
30, 2010 and December 31, 2009). At September 30, 2010 and December 31, 2009, the FHLBNY had
pledged MBS of $3.0 million and $2.0 million (amortized cost basis) to the FDIC in connection with
deposits maintained by the FDIC at the FHLBNY.
Mortgage-backed securities - The FHLBNYs investments in MBS are predominantly government sponsored
enterprise issued securities. The carrying 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 September 30, 2010 was $6.6 billion, or 88.2% 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 September 30, 2010 and December 31, 2009 were $0.9 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 $740.3 million and $751.8 million at September
30, 2010 and December 31, 2009.
19
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 |
|
$ |
939,289 |
|
|
$ |
|
|
|
$ |
939,289 |
|
|
$ |
54,613 |
|
|
$ |
|
|
|
$ |
993,902 |
|
Freddie Mac |
|
|
269,514 |
|
|
|
|
|
|
|
269,514 |
|
|
|
15,240 |
|
|
|
|
|
|
|
284,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pools of mortgages |
|
|
1,208,803 |
|
|
|
|
|
|
|
1,208,803 |
|
|
|
69,853 |
|
|
|
|
|
|
|
1,278,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage Obligations/Real
Estate Mortgage Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
|
1,854,693 |
|
|
|
|
|
|
|
1,854,693 |
|
|
|
58,691 |
|
|
|
|
|
|
|
1,913,384 |
|
Freddie Mac |
|
|
3,184,866 |
|
|
|
|
|
|
|
3,184,866 |
|
|
|
106,422 |
|
|
|
|
|
|
|
3,291,288 |
|
Ginnie Mae |
|
|
127,167 |
|
|
|
|
|
|
|
127,167 |
|
|
|
751 |
|
|
|
|
|
|
|
127,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CMOs/REMICs |
|
|
5,166,726 |
|
|
|
|
|
|
|
5,166,726 |
|
|
|
165,864 |
|
|
|
|
|
|
|
5,332,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac |
|
|
173,969 |
|
|
|
|
|
|
|
173,969 |
|
|
|
12,556 |
|
|
|
|
|
|
|
186,525 |
|
Ginnie Mae |
|
|
48,953 |
|
|
|
|
|
|
|
48,953 |
|
|
|
2,152 |
|
|
|
|
|
|
|
51,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage-backed securities |
|
|
222,922 |
|
|
|
|
|
|
|
222,922 |
|
|
|
14,708 |
|
|
|
|
|
|
|
237,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GSE MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMOs/REMICs |
|
|
338,995 |
|
|
|
(2,014 |
) |
|
|
336,981 |
|
|
|
7,464 |
|
|
|
(1,618 |
) |
|
|
342,827 |
|
Commercial MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-federal-agency MBS |
|
|
338,995 |
|
|
|
(2,014 |
) |
|
|
336,981 |
|
|
|
7,464 |
|
|
|
(1,618 |
) |
|
|
342,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing (insured) |
|
|
182,711 |
|
|
|
|
|
|
|
182,711 |
|
|
|
|
|
|
|
(22,141 |
) |
|
|
160,570 |
|
Home equity loans (insured) |
|
|
265,230 |
|
|
|
(68,589 |
) |
|
|
196,641 |
|
|
|
30,217 |
|
|
|
(3,064 |
) |
|
|
223,794 |
|
Home equity loans (uninsured) |
|
|
191,646 |
|
|
|
(25,440 |
) |
|
|
166,206 |
|
|
|
15,665 |
|
|
|
(24,451 |
) |
|
|
157,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset-backed securities |
|
|
639,587 |
|
|
|
(94,029 |
) |
|
|
545,558 |
|
|
|
45,882 |
|
|
|
(49,656 |
) |
|
|
541,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
$ |
7,577,033 |
|
|
$ |
(96,043 |
) |
|
$ |
7,480,990 |
|
|
$ |
303,771 |
|
|
$ |
(51,274 |
) |
|
$ |
7,733,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local housing finance
agency obligations |
|
$ |
740,256 |
|
|
$ |
|
|
|
$ |
740,256 |
|
|
$ |
2,537 |
|
|
$ |
(86,326 |
) |
|
$ |
656,466 |
|
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other |
|
$ |
740,256 |
|
|
$ |
|
|
|
$ |
740,256 |
|
|
$ |
2,537 |
|
|
$ |
(86,326 |
) |
|
$ |
656,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-maturity securities |
|
$ |
8,317,289 |
|
|
$ |
(96,043 |
) |
|
$ |
8,221,246 |
|
|
$ |
306,308 |
|
|
$ |
(137,600 |
) |
|
$ |
8,389,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 |
|
$ |
140,035 |
|
|
$ |
(13,210 |
) |
|
$ |
181,819 |
|
|
$ |
(73,116 |
) |
|
$ |
321,854 |
|
|
$ |
(86,326 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-MBS |
|
|
140,035 |
|
|
|
(13,210 |
) |
|
|
181,819 |
|
|
|
(73,116 |
) |
|
|
321,854 |
|
|
|
(86,326 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS Other US Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ginnie Mae |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS-Private-Label |
|
|
|
|
|
|
|
|
|
|
606,453 |
|
|
|
(100,911 |
) |
|
|
606,453 |
|
|
|
(100,911 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
|
|
|
|
|
|
|
|
606,453 |
|
|
|
(100,911 |
) |
|
|
606,453 |
|
|
|
(100,911 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
140,035 |
|
|
$ |
(13,210 |
) |
|
$ |
788,272 |
|
|
$ |
(174,027 |
) |
|
$ |
928,307 |
|
|
$ |
(187,237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
21
2009, and thereafter, the FHLBNY performed its OTTI analysis by cash flow testing 100 percent
of it private-label MBS.
Base case (best estimate) assumptions and adverse case scenarios In evaluating its private-label
MBS for OTTI, the FHLBNY develops a base case assumption about future changes in home prices,
prepayments, default and loss severities. The base case assumptions are the Banks best estimate
of the performance parameters of its private-label MBS. The assumptions are then input to an
industry standard bond cash flow model that generates expected cash flows based on various security
classes in the securitization structure of each private-label MBS. See Note 1 for information with
respect to critical estimates and assumptions about the Banks impairment methodologies. In
addition to evaluating its private-label MBS under a base case scenario, the FHLBNY also performs a
cash flow analysis for each security determined to be OTTI under a more stressful performance
scenario. For more information, see Table: Adverse case scenario September 30, 2010 that
summarizes 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. MBIA is currently rated below investment grade. Ambacs
rating was recently updated from below investment grade to R, which is indicative of regulatory
intervention, as Ambac is under conservatorship. Financial information, cash flows and results of
operations from the two monolines are 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 three quarters
ended September 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 September 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 suspended. 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 September 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 September 30, 2010. Cash flow assessments identified
credit impairment on four HTM private-label mortgage-backed securities, and $3.1 million of
other-than-temporary impairment (OTTI) was recorded as a charge to earnings in the 2010 third
quarter. All four securities had been previously determined to be OTTI, and the additional
impairment (or re-impairment) in the 2010 third quarter was due to further deterioration in the
credit performance metrics of the securities. The non-credit portion of OTTI recorded in AOCI was
not significant. In the 2010 first two quarters, the FHLBNY had recorded a credit impairment
charge of $4.6 million.
22
The tables below contain summary analysis of securities1 that were deemed OTTI in
the three quarters of 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Nine Months Ended |
|
|
|
Quarter ended September 30, 2010 |
|
|
September 30, 2010 |
|
|
September 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* |
|
$ |
31,876 |
|
|
$ |
15,050 |
|
|
$ |
16,341 |
|
|
$ |
8,233 |
|
|
$ |
(3,067 |
) |
|
$ |
(2,569 |
) |
|
$ |
(7,737 |
) |
|
$ |
(3,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
31,876 |
|
|
$ |
15,050 |
|
|
$ |
16,341 |
|
|
$ |
8,233 |
|
|
$ |
(3,067 |
) |
|
$ |
(2,569 |
) |
|
$ |
(7,737 |
) |
|
$ |
(3,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
HEL Subprime MBS supported by home equity loans. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30, 2010 |
|
|
|
Insurer MBIA |
|
|
Insurer Ambac |
|
|
OTTI |
|
Security |
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
Credit |
|
|
Non-credit2 |
|
Classification |
|
UPB |
|
|
Value |
|
|
UPB |
|
|
Value |
|
|
Loss |
|
|
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL Subprime* |
|
$ |
20,976 |
|
|
$ |
9,044 |
|
|
$ |
37,456 |
|
|
$ |
22,564 |
|
|
$ |
(1,270 |
) |
|
$ |
(1,068 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
20,976 |
|
|
$ |
9,044 |
|
|
$ |
37,456 |
|
|
$ |
22,564 |
|
|
$ |
(1,270 |
) |
|
$ |
(1,068 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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 September 30, 2010, the total carrying value of the securities prior to OTTI was
$22.7 million. The carrying values and fair values of OTTI securities in a loss position prior to
OTTI were $8.6 million and $8.1 million also at September 30, 2010. |
|
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. |
With respect to the Banks remaining investments, the Bank believes no OTTI exists, other than
those already recognized. 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
September 30, 2010. Management also has 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 September 30, 2010.
However, without continued recovery in the mortgage-backed securities market, 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.
23
OTTI at December 31, 2009 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. |
September 30, 2009 Based on the managements determination of expected cash flow shortfall
of certain securities insured by Ambac concurrently with the determination that Ambacs claim
paying ability would not be sufficient in future periods, management concluded that the securities
had become OTTI. The cumulative credit losses recognized year-to-date September 30, 2009 was $14.3
million.
The table below summarizes the key characteristics of the securities that were deemed OTTI in
the third quarter of 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q3 2009 activity |
|
|
|
Insurer MBIA |
|
|
Insurer Ambac |
|
|
Uninsured |
|
|
OTTI |
|
|
Gross OTTI 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* |
|
$ |
13,304 |
|
|
$ |
7,680 |
|
|
$ |
121,435 |
|
|
$ |
79,700 |
|
|
$ |
62,460 |
|
|
$ |
38,392 |
|
|
$ |
(3,683 |
) |
|
$ |
(26,486 |
) |
|
$ |
|
|
|
$ |
(30,169 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,304 |
|
|
$ |
7,680 |
|
|
$ |
121,435 |
|
|
$ |
79,700 |
|
|
$ |
62,460 |
|
|
$ |
38,392 |
|
|
$ |
(3,683 |
) |
|
$ |
(26,486 |
) |
|
$ |
|
|
|
$ |
(30,169 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
HEL Subprime MBS supported by home equity loans. |
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 September 30, |
|
|
Nine months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Beginning balance |
|
$ |
25,486 |
|
|
$ |
10,593 |
|
|
$ |
20,816 |
|
|
$ |
|
|
Additions to the credit component
for OTTI loss not previously recognized |
|
|
|
|
|
|
1,459 |
|
|
|
|
|
|
|
14,276 |
|
Additional credit losses for which an OTTI
charge was previously recognized |
|
|
3,067 |
|
|
|
2,224 |
|
|
|
7,737 |
|
|
|
|
|
Increases in cash flows expected to be collected,
recognized over the remaining life of the securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
28,553 |
|
|
$ |
14,276 |
|
|
$ |
28,553 |
|
|
$ |
14,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Key Base Assumptions September 30, 2010
The table below summarizes the weighted average and range of Key Base Assumptions for securities
determined to be OTTI in the 2010 third quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Base Assumption - OTTI Securities |
|
|
|
CDR |
|
|
CPR |
|
|
Loss Severity % |
|
Security Classification |
|
Range |
|
|
Average |
|
|
Range |
|
|
Average |
|
|
Range |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL Subprime* |
|
|
5.8-6.5 |
|
|
|
6.3 |
|
|
|
2.0-3.0 |
|
|
|
2.3 |
|
|
|
100.0-100.0 |
|
|
|
100.0 |
|
|
|
|
* |
|
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 September 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 September 30, 2010 |
|
|
|
Actual Results - Base Case Scenario |
|
|
Pro-forma Results - Adverse Case Scenario |
|
|
|
|
|
|
|
OTTI related to |
|
|
|
|
|
|
OTTI related to |
|
|
|
UPB |
|
|
credit loss |
|
|
UPB |
|
|
credit loss |
|
RMBS Prime |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
3,338 |
|
|
|
(76 |
) |
HEL Subprime |
|
|
48,217 |
|
|
|
(3,067 |
) |
|
|
145,758 |
|
|
|
(7,228 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
48,217 |
|
|
|
(3,067 |
) |
|
$ |
149,096 |
|
|
|
(7,304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2010, MBIA and Assured Guaranty Municipal
AGM were performing under the terms of their contractual agreements with respect to the FHLBNYs
insured bonds. As discussed previously, Ambac has suspended payments under regulatory orders, and
the FHLBNY believes the suspension is temporary. 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.
25
The monoline analysis methodology resulted in the following Burnout Period time horizon dates for
Ambac and MBIA:
|
|
|
|
|
|
|
|
|
|
|
Burnout Period |
|
|
|
Ambac |
|
|
MBIA |
|
September 30, 2010 |
|
|
|
|
|
|
|
|
Burnout period (months) |
|
|
|
|
|
|
9 |
|
Coverage ignore date |
|
|
9/30/2010 |
|
|
|
6/30/2011 |
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
Burnout period (months) |
|
|
18 |
|
|
|
18 |
|
Coverage ignore date |
|
|
6/30/2011 |
|
|
|
6/30/2011 |
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
|
Burnout period (months) |
|
|
83 |
|
|
|
31 |
|
Coverage ignore date |
|
|
7/31/2016 |
|
|
|
3/31/2012 |
|
Note 5. Available-for-sale securities.
Major Security types - The amortized cost basis, gross unrealized gains, losses, and the fair value
of investments classified as available-for-sale were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
Amortized |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Cost |
|
|
OTTI |
|
|
Carrying |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Basis |
|
|
in OCI |
|
|
Value |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
1,174 |
|
|
$ |
|
|
|
$ |
1,174 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,174 |
|
Equity funds |
|
|
8,361 |
|
|
|
|
|
|
|
8,361 |
|
|
|
75 |
|
|
|
(1,136 |
) |
|
|
7,300 |
|
Fixed income funds |
|
|
3,928 |
|
|
|
|
|
|
|
3,928 |
|
|
|
420 |
|
|
|
|
|
|
|
4,348 |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMO-Floating |
|
|
3,336,502 |
|
|
|
|
|
|
|
3,336,502 |
|
|
|
24,675 |
|
|
|
(218 |
) |
|
|
3,360,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,349,965 |
|
|
$ |
|
|
|
$ |
3,349,965 |
|
|
$ |
25,170 |
|
|
$ |
(1,354 |
) |
|
$ |
3,373,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30,
2010 and December 31, 2009.
26
Unrealized Losses MBS securities classified as available-for-sale securities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 |
|
$ |
68,494 |
|
|
$ |
(83 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
68,494 |
|
|
$ |
(83 |
) |
Freddie Mac |
|
|
79,386 |
|
|
|
(135 |
) |
|
|
|
|
|
|
|
|
|
|
79,386 |
|
|
|
(135 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS-GSE |
|
|
147,880 |
|
|
|
(218 |
) |
|
|
|
|
|
|
|
|
|
|
147,880 |
|
|
|
(218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Temporarily Impaired |
|
$ |
147,880 |
|
|
$ |
(218 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
147,880 |
|
|
$ |
(218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 AFS 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
September 30, 2010 and December 31, 2009. No AFS securities were hedged at September 30, 2010 and
December 31, 2009. Amortization of discounts recorded to income were $1.2 million and $1.4 million
for the third quarters ended 2010 and 2009, and $6.3 million and $3.9 million for the nine months
ended September 30, 2010 and September 30, 2009.
Management of the FHLBNY has concluded that gross unrealized losses at September 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 September 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 September 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 September
30, 2010 and December 31, 2009.
27
Note 6. Advances.
Redemption terms
Contractual redemption terms and yields of advances were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Weighted2 |
|
|
|
|
|
|
|
|
|
|
Weighted2 |
|
|
|
|
|
|
|
|
|
|
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 |
|
|
21,921,391 |
|
|
|
2.11 |
|
|
|
27.37 |
|
|
|
24,128,022 |
|
|
|
2.07 |
|
|
|
26.59 |
|
Due after one year through two years |
|
|
8,986,235 |
|
|
|
2.93 |
|
|
|
11.22 |
|
|
|
10,819,349 |
|
|
|
2.73 |
|
|
|
11.92 |
|
Due after two years through three years |
|
|
7,713,074 |
|
|
|
2.95 |
|
|
|
9.63 |
|
|
|
10,069,555 |
|
|
|
2.91 |
|
|
|
11.10 |
|
Due after three years through four years |
|
|
4,767,042 |
|
|
|
3.01 |
|
|
|
5.95 |
|
|
|
5,804,448 |
|
|
|
3.32 |
|
|
|
6.40 |
|
Due after four years through five years |
|
|
4,081,962 |
|
|
|
3.00 |
|
|
|
5.10 |
|
|
|
3,364,706 |
|
|
|
3.19 |
|
|
|
3.71 |
|
Due after five years through six years |
|
|
8,590,664 |
|
|
|
4.34 |
|
|
|
10.72 |
|
|
|
2,807,329 |
|
|
|
3.91 |
|
|
|
3.09 |
|
Thereafter |
|
|
24,042,443 |
|
|
|
3.74 |
|
|
|
30.01 |
|
|
|
33,742,269 |
|
|
|
3.78 |
|
|
|
37.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
80,102,811 |
|
|
|
3.11 |
% |
|
|
100.00 |
% |
|
|
90,737,700 |
|
|
|
3.06 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount on AHP advances 1 |
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
(260 |
) |
|
|
|
|
|
|
|
|
Hedging adjustments |
|
|
5,594,410 |
|
|
|
|
|
|
|
|
|
|
|
3,611,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
85,697,171 |
|
|
|
|
|
|
|
|
|
|
$ |
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 September 30, 2010 and December 31, 2009. |
|
2 |
|
The weighted 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 September 30, 2010 and December 31, 2009, the
Bank had putable advances outstanding totaling $36.7 billion and $41.4 billion, representing 45.8%
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 less1 |
|
|
54,584,453 |
|
|
|
68.14 |
|
|
|
56,978,134 |
|
|
|
62.79 |
|
Due or putable after one year through two years |
|
|
8,609,985 |
|
|
|
10.75 |
|
|
|
14,082,199 |
|
|
|
15.52 |
|
Due or putable after two years through three years |
|
|
7,276,674 |
|
|
|
9.08 |
|
|
|
8,991,805 |
|
|
|
9.91 |
|
Due or putable after three years through four years |
|
|
4,532,542 |
|
|
|
5.66 |
|
|
|
5,374,048 |
|
|
|
5.92 |
|
Due or putable after four years through five years |
|
|
2,474,462 |
|
|
|
3.09 |
|
|
|
2,826,206 |
|
|
|
3.12 |
|
Due or putable after five years through six years |
|
|
777,664 |
|
|
|
0.97 |
|
|
|
158,329 |
|
|
|
0.18 |
|
Thereafter |
|
|
1,847,031 |
|
|
|
2.31 |
|
|
|
2,324,957 |
|
|
|
2.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
80,102,811 |
|
|
|
100.00 |
% |
|
|
90,737,700 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount on AHP advances |
|
|
(50 |
) |
|
|
|
|
|
|
(260 |
) |
|
|
|
|
Hedging adjustments |
|
|
5,594,410 |
|
|
|
|
|
|
|
3,611,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
85,697,171 |
|
|
|
|
|
|
$ |
94,348,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Due or putable in one year or less includes two callable advances. |
28
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed medium-term single-family mortgages |
|
$ |
344,781 |
|
|
|
27.20 |
% |
|
$ |
388,072 |
|
|
|
29.43 |
% |
Fixed long-term single-family mortgages |
|
|
918,967 |
|
|
|
72.50 |
|
|
|
926,856 |
|
|
|
70.27 |
|
Multi-family mortgages |
|
|
3,827 |
|
|
|
0.30 |
|
|
|
3,908 |
|
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
1,267,575 |
|
|
|
100.00 |
% |
|
|
1,318,836 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized premiums |
|
|
10,027 |
|
|
|
|
|
|
|
9,095 |
|
|
|
|
|
Unamortized discounts |
|
|
(4,700 |
) |
|
|
|
|
|
|
(5,425 |
) |
|
|
|
|
Basis adjustment 1 |
|
|
322 |
|
|
|
|
|
|
|
(461 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans held-for-portfolio |
|
|
1,273,224 |
|
|
|
|
|
|
|
1,322,045 |
|
|
|
|
|
Allowance for credit losses |
|
|
(5,537 |
) |
|
|
|
|
|
|
(4,498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans held-for-portfolio after
allowance for credit losses |
|
$ |
1,267,687 |
|
|
|
|
|
|
$ |
1,317,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Represents fair value basis of open and closed delivery commitments. |
The estimated fair values of the mortgage loans as of September 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 $11.6 million and $13.9 million at
September 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 third
quarters of 2010 and 2009, and $1.1 million and $1.2 million for the nine months ended September
30, 2010 and 2009, and were 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 September 30, |
|
|
Nine months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
5,392 |
|
|
$ |
2,760 |
|
|
$ |
4,498 |
|
|
$ |
1,406 |
|
Charge-offs |
|
|
(97 |
) |
|
|
|
|
|
|
(131 |
) |
|
|
(14 |
) |
Recoveries |
|
|
11 |
|
|
|
|
|
|
|
33 |
|
|
|
|
|
Provision for credit losses on mortgage loans |
|
|
231 |
|
|
|
598 |
|
|
|
1,137 |
|
|
|
1,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
5,537 |
|
|
$ |
3,358 |
|
|
$ |
5,537 |
|
|
$ |
3,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Disaggregation was deemed not necessary since the risk characteristics of
loans within the MPF program are materially the same. |
As of September 30, 2010 and December 31, 2009, the FHLBNY had $25.1 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
September 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):
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family |
|
$ |
668 |
|
|
$ |
570 |
|
|
|
|
|
|
|
|
The past due loans still accruing were VA and FHA insured loans.
29
Note 8. Deposits.
The FHLBNY accepts demand, overnight and term deposits from its members, qualifying non-members and
U.S. government instrumentalities.
The following table summarizes term deposits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
60,400 |
|
|
$ |
7,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total term deposits |
|
$ |
60,400 |
|
|
$ |
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 September 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 September 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:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Percentage of unpledged qualifying assets to consolidated obligations |
|
|
111 |
% |
|
|
109 |
% |
|
|
|
|
|
|
|
General Terms
FHLBank consolidated obligations are issued with either fixed- or variable-rate coupon payment
terms that use a variety of indices for interest rate resets. These indices include the London
Interbank Offered Rate (LIBOR), Constant Maturity Treasury (CMT), 11th District Cost of Funds
Index (COFI), and others. In addition, to meet the expected specific needs of certain investors
in consolidated obligations, both fixed- and variable-rate bonds may also contain certain features
that may result in complex coupon payment terms and call options.
When such consolidated obligations are issued, the FHLBNY may enter into derivatives containing
offsetting features that effectively convert the terms of the bond to those of a simple variable-
or fixed-rate bond. Consolidated obligations, beyond having fixed-rate or simple variable-rate
coupon payment terms, may also include Optional Principal Redemption Bonds (callable bonds) that
the FHLBNY may redeem in whole or in part at its discretion on predetermined call dates, according
to the terms of the bond offerings.
With respect to interest payment terms, consolidated bonds may also have step-up, or step-down
terms. Step-up bonds generally pay interest at increasing fixed rates for specified intervals over
the life of the bond. Step-down bonds pay interest at decreasing fixed rates. These bonds
generally contain provisions enabling the FHLBNY to call bonds at its option on predetermined
exercise dates at par.
30
The following summarizes consolidated obligations issued by the FHLBNY and outstanding (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Consolidated obligation bonds-amortized cost |
|
$ |
73,847,021 |
|
|
$ |
73,436,939 |
|
Fair value basis adjustments |
|
|
1,060,537 |
|
|
|
572,537 |
|
Fair value basis on terminated hedges |
|
|
1,099 |
|
|
|
2,761 |
|
Fair value option valuation adjustments and accrued interest |
|
|
10,236 |
|
|
|
(4,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated obligation-bonds |
|
$ |
74,918,893 |
|
|
$ |
74,007,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount notes-amortized cost |
|
$ |
17,784,192 |
|
|
$ |
30,827,639 |
|
Fair value option valuation adjustments |
|
|
3,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated obligation-discount notes |
|
$ |
17,787,908 |
|
|
$ |
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 |
|
$ |
38,972,100 |
|
|
|
1.10 |
% |
|
|
52.86 |
% |
|
$ |
40,896,550 |
|
|
|
1.34 |
% |
|
|
55.75 |
% |
Over one year through two years |
|
|
15,731,695 |
|
|
|
1.13 |
|
|
|
21.34 |
|
|
|
15,912,200 |
|
|
|
1.69 |
|
|
|
21.69 |
|
Over two years through three years |
|
|
9,337,130 |
|
|
|
2.24 |
|
|
|
12.66 |
|
|
|
7,518,575 |
|
|
|
2.28 |
|
|
|
10.25 |
|
Over three years through four years |
|
|
3,409,600 |
|
|
|
2.99 |
|
|
|
4.62 |
|
|
|
3,961,250 |
|
|
|
3.49 |
|
|
|
5.40 |
|
Over four years through five years |
|
|
3,224,775 |
|
|
|
3.12 |
|
|
|
4.37 |
|
|
|
2,130,300 |
|
|
|
4.27 |
|
|
|
2.90 |
|
Over five years through six years |
|
|
498,000 |
|
|
|
3.71 |
|
|
|
0.68 |
|
|
|
644,350 |
|
|
|
5.15 |
|
|
|
0.88 |
|
Thereafter |
|
|
2,556,200 |
|
|
|
4.33 |
|
|
|
3.47 |
|
|
|
2,294,700 |
|
|
|
5.06 |
|
|
|
3.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,729,500 |
|
|
|
1.56 |
% |
|
|
100.00 |
% |
|
|
73,357,925 |
|
|
|
1.87 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond premiums |
|
|
145,239 |
|
|
|
|
|
|
|
|
|
|
|
112,866 |
|
|
|
|
|
|
|
|
|
Bond discounts |
|
|
(27,718 |
) |
|
|
|
|
|
|
|
|
|
|
(33,852 |
) |
|
|
|
|
|
|
|
|
Fair value basis adjustments |
|
|
1,060,537 |
|
|
|
|
|
|
|
|
|
|
|
572,537 |
|
|
|
|
|
|
|
|
|
Fair value basis adjustments on terminated hedges |
|
|
1,099 |
|
|
|
|
|
|
|
|
|
|
|
2,761 |
|
|
|
|
|
|
|
|
|
Fair value option valuation adjustments and accrued interest |
|
|
10,236 |
|
|
|
|
|
|
|
|
|
|
|
(4,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
74,918,893 |
|
|
|
|
|
|
|
|
|
|
$ |
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 September 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
$8.3 million and $8.7 million for the 2010 third quarter and the same period in 2009, and $22.6
million and $22.5 million for the nine months ended September 30, 2010 and 2009. Amortization of
basis adjustments from terminated hedges were $1.7 million and $1.8 million, and were recorded as
an expense in the 2010 third quarter and the same period in 2009, and $4.9 million and $5.3 million
for the nine months ended September 30, 2010 and 2009.
Debt extinguished
No debt was retired in the first or third quarter of 2010 or in all quarters in 2009. In the
second quarter of 2010, the Bank extinguished $250.0 million of consolidated obligation bond at an
insignificant gain.
Transfers of consolidated obligation 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. During the 2010 third quarter, the bank
assumed debt from another FHLBank totaling $193.9 million (par
amounts). There was no transfer of consolidated
obligation bonds to other FHLBanks or assumption of debt in the prior two quarters of 2010.
Generally, when debt is transferred in exchange for a cash price that represents the fair market
values of the debt. No debt was transferred to the FHLBNY or assumed from another FHLBank for the
first three quarters of 2009. For more information, also, see Note 19 Related party
transactions.
When debt is transferred, at trade date, the transferring bank notifies the Office of Finance of a
change in primary obligor for the transferred debt.
Impact of callable bonds on consolidated obligation 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 September 30, 2010 and December 31, 2009, the Bank had callable
bonds totaling $8.5 billion and $11.7 billion, representing 11.5% and 15.9% of par amounts of
consolidated bonds outstanding at those dates.
31
The following summarizes bonds outstanding by year of maturity or next call date (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 |
|
$ |
45,488,400 |
|
|
|
61.70 |
% |
|
$ |
50,481,350 |
|
|
|
68.82 |
% |
Due or callable after one year through two years |
|
|
14,465,695 |
|
|
|
19.62 |
|
|
|
11,352,200 |
|
|
|
15.48 |
|
Due or callable after two years through three years |
|
|
6,537,130 |
|
|
|
8.87 |
|
|
|
4,073,575 |
|
|
|
5.55 |
|
Due or callable after three years through four years |
|
|
2,659,600 |
|
|
|
3.61 |
|
|
|
3,606,250 |
|
|
|
4.91 |
|
Due or callable after four years through five years |
|
|
2,579,775 |
|
|
|
3.50 |
|
|
|
1,325,800 |
|
|
|
1.81 |
|
Due or callable after five years through six years |
|
|
232,700 |
|
|
|
0.31 |
|
|
|
529,050 |
|
|
|
0.72 |
|
Thereafter |
|
|
1,766,200 |
|
|
|
2.39 |
|
|
|
1,989,700 |
|
|
|
2.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,729,500 |
|
|
|
100.00 |
% |
|
|
73,357,925 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond premiums |
|
|
145,239 |
|
|
|
|
|
|
|
112,866 |
|
|
|
|
|
Bond discounts |
|
|
(27,718 |
) |
|
|
|
|
|
|
(33,852 |
) |
|
|
|
|
Fair value basis adjustments |
|
|
1,060,537 |
|
|
|
|
|
|
|
572,537 |
|
|
|
|
|
Fair value basis adjustments on terminated hedges |
|
|
1,099 |
|
|
|
|
|
|
|
2,761 |
|
|
|
|
|
Fair value option valuation adjustments and accrued interest |
|
|
10,236 |
|
|
|
|
|
|
|
(4,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
74,918,893 |
|
|
|
|
|
|
$ |
74,007,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount notes
Consolidated obligation 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):
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Par value |
|
$ |
17,791,522 |
|
|
$ |
30,838,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
17,784,192 |
|
|
$ |
30,827,639 |
|
Fair value option valuation adjustments |
|
|
3,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
17,787,908 |
|
|
$ |
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.
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.
32
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).
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.
The FHLBNYs capital plan allows the FHLBNY to recalculate the membership stock purchase
requirement any time after 30 days subsequent to a merger. The plan also permits 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. Under the plan, the FHLBNY could
determine that all of the membership stock formerly held by the member becomes excess stock, which
gives 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Required 4 |
|
|
Actual |
|
|
Required 4 |
|
|
Actual |
|
Regulatory capital requirements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-based capital1 |
|
$ |
473,275 |
|
|
$ |
5,432,169 |
|
|
$ |
606,716 |
|
|
$ |
5,874,125 |
|
Total capital-to-asset ratio |
|
|
4.00 |
% |
|
|
5.27 |
% |
|
|
4.00 |
% |
|
|
5.14 |
% |
Total capital2 |
|
$ |
4,123,742 |
|
|
$ |
5,437,706 |
|
|
$ |
4,578,436 |
|
|
$ |
5,878,623 |
|
Leverage ratio |
|
|
5.00 |
% |
|
|
7.91 |
% |
|
|
5.00 |
% |
|
|
7.70 |
% |
Leverage capital3 |
|
$ |
5,154,677 |
|
|
$ |
8,153,790 |
|
|
$ |
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 Actual 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.
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.
33
If a member cancels its notice of voluntary withdrawal, the FHLBNY will reclassify the mandatorily
redeemable capital stock from a liability to equity. After the reclassification, dividends on the
capital stock will no longer be classified as interest expense.
At September 30, 2010 and December 31, 2009, mandatorily redeemable capital stock of $67.3 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):
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Redemption less than one year |
|
$ |
45,708 |
|
|
$ |
102,453 |
|
Redemption from one year to less than three years |
|
|
14,650 |
|
|
|
16,766 |
|
Redemption from three years to less than five years |
|
|
2,037 |
|
|
|
2,118 |
|
Redemption after five years or greater |
|
|
4,953 |
|
|
|
4,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
67,348 |
|
|
$ |
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 September 30, 2010 or at December 31,
2009.
Income for the purposes of calculating assessments is GAAP Net income before assessments, and
before interest expense related to mandatorily redeemable capital stock, but after the assessment
for REFCORP. The exclusion of interest expense related to mandatorily redeemable capital stock is
a regulatory interpretation by the Finance Agency. The AHP and REFCORP assessments are calculated
simultaneously because of their interdependence on each other. Each FHLBank accrues this expense
monthly based on its income before assessments. A FHLBank reduces its AHP liability as members use
subsidies.
The following table provides roll-forward information with respect to changes in Affordable Housing
Program liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
144,074 |
|
|
$ |
140,037 |
|
|
$ |
144,489 |
|
|
$ |
122,449 |
|
Additions from current periods assessments |
|
|
8,852 |
|
|
|
15,780 |
|
|
|
21,350 |
|
|
|
53,363 |
|
Net disbursements for grants and programs |
|
|
(14,931 |
) |
|
|
(10,995 |
) |
|
|
(27,844 |
) |
|
|
(30,990 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
137,995 |
|
|
$ |
144,822 |
|
|
$ |
137,995 |
|
|
$ |
144,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
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 nine months ended
September 30, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 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, June 30, 2009 |
|
$ |
(10,129 |
) |
|
$ |
(77,159 |
) |
|
$ |
(26,402 |
) |
|
$ |
(6,550 |
) |
|
$ |
(120,240 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
(5,956 |
) |
|
|
(23,304 |
) |
|
|
1,898 |
|
|
|
|
|
|
|
(27,362 |
) |
|
$ |
140,219 |
|
|
$ |
112,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009 |
|
$ |
(16,085 |
) |
|
$ |
(100,463 |
) |
|
$ |
(24,504 |
) |
|
$ |
(6,550 |
) |
|
$ |
(147,602 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2010 |
|
$ |
20,182 |
|
|
$ |
(101,877 |
) |
|
$ |
(19,614 |
) |
|
$ |
(7,877 |
) |
|
$ |
(109,186 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
3,633 |
|
|
|
5,834 |
|
|
|
1,882 |
|
|
|
|
|
|
|
11,349 |
|
|
$ |
78,792 |
|
|
$ |
90,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010 |
|
$ |
23,815 |
|
|
$ |
(96,043 |
) |
|
$ |
(17,732 |
) |
|
$ |
(7,877 |
) |
|
$ |
(97,837 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 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 |
|
|
48,335 |
|
|
|
(100,463 |
) |
|
|
5,687 |
|
|
|
|
|
|
|
(46,441 |
) |
|
$ |
474,786 |
|
|
$ |
428,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009 |
|
$ |
(16,085 |
) |
|
$ |
(100,463 |
) |
|
$ |
(24,504 |
) |
|
$ |
(6,550 |
) |
|
$ |
(147,602 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
$ |
(3,409 |
) |
|
$ |
(110,570 |
) |
|
$ |
(22,683 |
) |
|
$ |
(7,877 |
) |
|
$ |
(144,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
27,224 |
|
|
|
14,527 |
|
|
|
4,951 |
|
|
|
|
|
|
|
46,702 |
|
|
$ |
189,097 |
|
|
$ |
235,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010 |
|
$ |
23,815 |
|
|
$ |
(96,043 |
) |
|
$ |
(17,732 |
) |
|
$ |
(7,877 |
) |
|
$ |
(97,837 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, |
|
|
Nine months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
78,792 |
|
|
$ |
140,219 |
|
|
$ |
189,097 |
|
|
$ |
474,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to stockholders |
|
$ |
78,792 |
|
|
$ |
140,219 |
|
|
$ |
189,097 |
|
|
$ |
474,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of capital |
|
|
46,800 |
|
|
|
53,233 |
|
|
|
48,429 |
|
|
|
54,505 |
|
Less: Mandatorily redeemable capital stock |
|
|
(685 |
) |
|
|
(1,280 |
) |
|
|
(910 |
) |
|
|
(1,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of shares of capital used to calculate earnings per share |
|
|
46,115 |
|
|
|
51,953 |
|
|
|
47,519 |
|
|
|
53,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share of capital |
|
$ |
1.71 |
|
|
$ |
2.70 |
|
|
$ |
3.98 |
|
|
$ |
8.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share of capital are the same. The FHLBNY has no dilutive
potential common shares or other common stock equivalents.
35
Note 15. Employee retirement plans.
The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (DB Plan).
The DB Plan is a tax-qualified multiple-employer defined benefit pension plan that covers all
officers and employees of the Bank. For accounting purposes, the DB Plan is a multi-employer plan
and does not segregate its assets, liabilities, or costs by participating employer. The Bank also
participates in the Pentegra Defined Contribution Plan for Financial Institutions, a tax-qualified
defined contribution plan. The Banks contributions are a matching contribution equal to a
percentage of voluntary employee contributions, subject to certain limitations.
In addition, the Bank maintains a Benefit Equalization Plan (BEP) that restores defined benefits
and contribution benefits to those employees who have had their qualified defined benefit and
defined contribution benefits limited by IRS regulations. The contribution component of the BEP is
a supplemental defined contribution plan. The plans liability consists of the accumulated
compensation deferrals and accrued interest on the deferrals. The BEP is an unfunded plan. The
Bank has established several grantor trusts to meet future benefit obligations and current payments
to beneficiaries in supplemental pension plans. The Bank also offers a Retiree Medical Benefit
Plan, which is a postretirement health benefit plan. There are no funded plan assets that have
been designated to provide postretirement health benefits.
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 September 30, |
|
|
Nine months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plan |
|
$ |
4,000 |
|
|
$ |
1,441 |
|
|
$ |
6,623 |
|
|
$ |
4,324 |
|
Benefit Equalization Plan (defined benefit) |
|
|
570 |
|
|
|
515 |
|
|
|
1,710 |
|
|
|
1,544 |
|
Defined Contribution Plan and BEP Thrift |
|
|
528 |
|
|
|
582 |
|
|
|
1,137 |
|
|
|
1,366 |
|
Postretirement Health Benefit Plan |
|
|
281 |
|
|
|
251 |
|
|
|
843 |
|
|
|
753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retirement plan expenses |
|
$ |
5,379 |
|
|
$ |
2,789 |
|
|
$ |
10,313 |
|
|
$ |
7,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in 2010 expenses was primarily due to a short fall payment on the Defined Benefit
Plan.
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 September 30, |
|
|
Nine months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Service cost |
|
$ |
163 |
|
|
$ |
153 |
|
|
$ |
489 |
|
|
$ |
458 |
|
Interest cost |
|
|
279 |
|
|
|
263 |
|
|
|
837 |
|
|
|
789 |
|
Amortization of unrecognized prior service cost |
|
|
(17 |
) |
|
|
(36 |
) |
|
|
(50 |
) |
|
|
(108 |
) |
Amortization of unrecognized net loss |
|
|
145 |
|
|
|
135 |
|
|
|
434 |
|
|
|
405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
570 |
|
|
$ |
515 |
|
|
$ |
1,710 |
|
|
$ |
1,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key assumptions and other information for the actuarial calculations to determine benefit
obligations for the FHLBNYs BEP plan were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 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. |
36
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 September 30, |
|
|
Nine months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost (benefits attributed to service during the period) |
|
$ |
157 |
|
|
$ |
139 |
|
|
$ |
470 |
|
|
$ |
417 |
|
Interest cost on accumulated postretirement health benefit obligation |
|
|
229 |
|
|
|
217 |
|
|
|
687 |
|
|
|
651 |
|
Amortization of loss |
|
|
78 |
|
|
|
78 |
|
|
|
235 |
|
|
|
234 |
|
Amortization of prior service cost/(credit) |
|
|
(183 |
) |
|
|
(183 |
) |
|
|
(549 |
) |
|
|
(549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement health benefit cost |
|
$ |
281 |
|
|
$ |
251 |
|
|
$ |
843 |
|
|
$ |
753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key assumptions and other information to determine obligation for the FHLBNYs postretirement
health benefit plan were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 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.
37
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.
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 fixed 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
38
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 nine months ended September 30, 2010, or in 2009.
Forward Settlements - There were no forward settled securities at September 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.
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 $550.0
million and $320.0 million as of September 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 September 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 nine months ended September 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.
39
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
major financial institutions. Some of these institutions 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 September 30,
2010 and December 31, 2009, the Banks credit exposure, representing derivatives in a fair value
net gain position was approximately $32.4 million and $8.3 million after the recognition of any
cash collateral held by the FHLBNY. The credit exposure at September 30, 2010 and December 31,
2009 included $25.0 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 September 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 $784.5 million and $746.2 million after deducting $3.8
billion and $2.2 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 or better at September 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.
40
The following tables represented outstanding notional balances and estimated fair values of
the derivatives outstanding at September 30, 2010 and December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
Notional Amount of |
|
|
|
|
|
|
Derivative |
|
|
|
Derivatives |
|
|
Derivative Assets |
|
|
Liabilities |
|
Fair value of derivatives instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated in hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps-fair value hedges |
|
$ |
93,872,212 |
|
|
$ |
1,260,136 |
|
|
$ |
(5,856,880 |
) |
|
|
|
|
|
|
|
|
|
|
Total derivatives in hedging instruments |
|
$ |
93,872,212 |
|
|
$ |
1,260,136 |
|
|
$ |
(5,856,880 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
27,582,914 |
|
|
$ |
39,722 |
|
|
$ |
(9,624 |
) |
Interest rate caps or floors |
|
|
1,900,000 |
|
|
|
23,650 |
|
|
|
(69 |
) |
Mortgage delivery commitments |
|
|
20,675 |
|
|
|
28 |
|
|
|
(24 |
) |
Other* |
|
|
550,000 |
|
|
|
10,726 |
|
|
|
(10,000 |
) |
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments |
|
$ |
30,053,589 |
|
|
$ |
74,126 |
|
|
$ |
(19,717 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives before netting and collateral
adjustments |
|
$ |
123,925,801 |
|
|
$ |
1,334,262 |
|
|
$ |
(5,876,597 |
) |
|
|
|
|
|
|
|
|
|
|
Netting adjustments |
|
|
|
|
|
$ |
(1,301,837 |
) |
|
$ |
1,301,837 |
|
Cash collateral and related accrued interest |
|
|
|
|
|
|
|
|
|
|
3,790,262 |
|
|
|
|
|
|
|
|
|
|
|
Total collateral and netting adjustments |
|
|
|
|
|
$ |
(1,301,837 |
) |
|
$ |
5,092,099 |
|
|
|
|
|
|
|
|
|
|
|
|
Total reported on the Statements of Condition |
|
|
|
|
|
$ |
32,425 |
|
|
$ |
(784,498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Notional Amount of |
|
|
|
|
|
|
Derivative |
|
|
|
Derivatives |
|
|
Derivative 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 September 30, 2010 and December 31, 2009. |
41
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 components of hedging gains and losses for the three months ended September 30, 2010 and 2009
are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 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 |
|
$ |
(880,233 |
) |
|
$ |
881,448 |
|
|
$ |
1,215 |
|
|
$ |
(478,422 |
) |
|
$ |
(582,983 |
) |
|
$ |
583,165 |
|
|
$ |
182 |
|
|
$ |
(503,185 |
) |
Consolidated obligations-bonds |
|
|
206,540 |
|
|
|
(208,047 |
) |
|
|
(1,507 |
) |
|
|
137,824 |
|
|
|
98,668 |
|
|
|
(98,501 |
) |
|
|
167 |
|
|
|
151,467 |
|
Consolidated obligations-discount notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain
(loss) related to fair value hedge ineffectiveness |
|
|
(673,693 |
) |
|
|
673,401 |
|
|
|
(292 |
) |
|
|
(340,598 |
) |
|
|
(484,315 |
) |
|
|
484,664 |
|
|
|
349 |
|
|
|
(351,718 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated
as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
(1,203 |
) |
|
|
|
|
|
|
(1,203 |
) |
|
|
|
|
|
|
(1,475 |
) |
|
|
|
|
|
|
(1,475 |
) |
|
|
|
|
Consolidated obligations-bonds |
|
|
6,753 |
|
|
|
|
|
|
|
6,753 |
|
|
|
|
|
|
|
28,420 |
|
|
|
|
|
|
|
28,420 |
|
|
|
|
|
Consolidated obligations-discount notes |
|
|
(231 |
) |
|
|
|
|
|
|
(231 |
) |
|
|
|
|
|
|
(5,711 |
) |
|
|
|
|
|
|
(5,711 |
) |
|
|
|
|
Member intermediation |
|
|
202 |
|
|
|
|
|
|
|
202 |
|
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
(16 |
) |
|
|
|
|
Balance sheet-macro hedges swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210 |
|
|
|
|
|
|
|
210 |
|
|
|
|
|
Accrued interest-swaps |
|
|
2,381 |
|
|
|
|
|
|
|
2,381 |
|
|
|
|
|
|
|
18,362 |
|
|
|
|
|
|
|
18,362 |
|
|
|
|
|
Accrued interest-intermediation |
|
|
42 |
|
|
|
|
|
|
|
42 |
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
20 |
|
|
|
|
|
Caps and floors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
(19 |
) |
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
(305 |
) |
|
|
|
|
|
|
(305 |
) |
|
|
|
|
Balance sheet |
|
|
(14,618 |
) |
|
|
|
|
|
|
(14,618 |
) |
|
|
|
|
|
|
19,196 |
|
|
|
|
|
|
|
19,196 |
|
|
|
|
|
Accrued interest-options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,786 |
) |
|
|
|
|
|
|
(1,786 |
) |
|
|
|
|
Mortgage delivery commitments |
|
|
257 |
|
|
|
|
|
|
|
257 |
|
|
|
|
|
|
|
47 |
|
|
|
|
|
|
|
47 |
|
|
|
|
|
Swaps economically hedging
instruments designated under FVO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
|
8,025 |
|
|
|
|
|
|
|
8,025 |
|
|
|
|
|
|
|
1,549 |
|
|
|
|
|
|
|
1,549 |
|
|
|
|
|
Consolidated obligations-discount notes |
|
|
1,674 |
|
|
|
|
|
|
|
1,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest on swaps |
|
|
5,473 |
|
|
|
|
|
|
|
5,473 |
|
|
|
|
|
|
|
779 |
|
|
|
|
|
|
|
779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) related to derivatives
not designated as hedging instruments |
|
|
8,736 |
|
|
|
|
|
|
|
8,736 |
|
|
|
|
|
|
|
59,290 |
|
|
|
|
|
|
|
59,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(664,957 |
) |
|
$ |
673,401 |
|
|
$ |
8,444 |
|
|
$ |
(340,598 |
) |
|
$ |
(425,025 |
) |
|
$ |
484,664 |
|
|
$ |
59,639 |
|
|
$ |
(351,718 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
42
The components of hedging gains and losses for the nine months ended September 30, 2010 and
2009 are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 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 |
|
$ |
(2,020,332 |
) |
|
$ |
2,020,771 |
|
|
$ |
439 |
|
|
$ |
(1,519,392 |
) |
|
$ |
1,419,019 |
|
|
$ |
(1,424,126 |
) |
|
$ |
(5,107 |
) |
|
$ |
(1,252,775 |
) |
Consolidated obligations-bonds |
|
|
492,043 |
|
|
|
(489,735 |
) |
|
|
2,308 |
|
|
|
483,049 |
|
|
|
(418,734 |
) |
|
|
436,921 |
|
|
|
18,187 |
|
|
|
384,150 |
|
Consolidated obligations-discount notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) related to fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
hedge ineffectiveness |
|
|
(1,528,289 |
) |
|
|
1,531,036 |
|
|
|
2,747 |
|
|
|
(1,036,343 |
) |
|
|
1,000,285 |
|
|
|
(987,205 |
) |
|
|
13,080 |
|
|
|
(868,151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated
as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
(3,164 |
) |
|
|
|
|
|
|
(3,164 |
) |
|
|
|
|
|
|
3,887 |
|
|
|
|
|
|
|
3,887 |
|
|
|
|
|
Consolidated obligations-bonds |
|
|
(29,762 |
) |
|
|
|
|
|
|
(29,762 |
) |
|
|
|
|
|
|
101,662 |
|
|
|
|
|
|
|
101,662 |
|
|
|
|
|
Consolidated obligations-discount notes |
|
|
(4,331 |
) |
|
|
|
|
|
|
(4,331 |
) |
|
|
|
|
|
|
409 |
|
|
|
|
|
|
|
409 |
|
|
|
|
|
Member intermediation |
|
|
357 |
|
|
|
|
|
|
|
357 |
|
|
|
|
|
|
|
(189 |
) |
|
|
|
|
|
|
(189 |
) |
|
|
|
|
Balance sheet-macro hedges swaps |
|
|
173 |
|
|
|
|
|
|
|
173 |
|
|
|
|
|
|
|
2,617 |
|
|
|
|
|
|
|
2,617 |
|
|
|
|
|
Accrued interest-swaps |
|
|
46,900 |
|
|
|
|
|
|
|
46,900 |
|
|
|
|
|
|
|
(37,772 |
) |
|
|
|
|
|
|
(37,772 |
) |
|
|
|
|
Accrued interest-intermediation |
|
|
91 |
|
|
|
|
|
|
|
91 |
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
64 |
|
|
|
|
|
Caps and floors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
(418 |
) |
|
|
|
|
|
|
(418 |
) |
|
|
|
|
|
|
(1,056 |
) |
|
|
|
|
|
|
(1,056 |
) |
|
|
|
|
Balance sheet |
|
|
(47,901 |
) |
|
|
|
|
|
|
(47,901 |
) |
|
|
|
|
|
|
50,613 |
|
|
|
|
|
|
|
50,613 |
|
|
|
|
|
Accrued interest-options |
|
|
(2,598 |
) |
|
|
|
|
|
|
(2,598 |
) |
|
|
|
|
|
|
(3,731 |
) |
|
|
|
|
|
|
(3,731 |
) |
|
|
|
|
Mortgage delivery commitments |
|
|
811 |
|
|
|
|
|
|
|
811 |
|
|
|
|
|
|
|
(49 |
) |
|
|
|
|
|
|
(49 |
) |
|
|
|
|
Swaps economically hedging
instruments designated under FVO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
|
10,381 |
|
|
|
|
|
|
|
10,381 |
|
|
|
|
|
|
|
(5,825 |
) |
|
|
|
|
|
|
(5,825 |
) |
|
|
|
|
Consolidated obligations-discount notes |
|
|
2,448 |
|
|
|
|
|
|
|
2,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest on swaps |
|
|
20,922 |
|
|
|
|
|
|
|
20,922 |
|
|
|
|
|
|
|
903 |
|
|
|
|
|
|
|
903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) related to derivatives
not designated as hedging instruments |
|
|
(6,091 |
) |
|
|
|
|
|
|
(6,091 |
) |
|
|
|
|
|
|
111,533 |
|
|
|
|
|
|
|
111,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(1,534,380 |
) |
|
$ |
1,531,036 |
|
|
$ |
(3,344 |
) |
|
$ |
(1,036,343 |
) |
|
$ |
1,111,818 |
|
|
$ |
(987,205 |
) |
|
$ |
124,613 |
|
|
$ |
(868,151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
Cash Flow hedges
There were no material amounts for the three and nine months ended September 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 September 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 $17.7 million and $22.7 million at
September 30, 2010 and December 31, 2009. At September 30, 2010, it is expected that over the next
12 months about $5.3 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.
43
The effect of cash flow hedge related derivative instruments for the three and nine months ended
September 30, 2010 and 2009 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
OCI |
|
|
OCI |
|
|
|
Gains/(Losses) |
|
|
Gains/(Losses) |
|
|
|
|
|
|
|
Location: |
|
|
Amount |
|
|
Ineffectiveness |
|
|
|
|
|
|
Location: |
|
|
Amount |
|
|
Ineffectiveness |
|
|
|
Recorded in |
|
|
Reclassified to |
|
|
Reclassified to |
|
|
Recognized in |
|
|
Recorded in |
|
|
Reclassified to |
|
|
Reclassified to |
|
|
Recognized in |
|
|
|
OCI 1, 2 |
|
|
Earnings 1 |
|
|
Earnings 1 |
|
|
Earnings |
|
|
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 |
|
|
|
|
|
Interest Expense |
|
|
|
1,882 |
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
1,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
|
|
|
|
$ |
1,882 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
1,898 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
OCI |
|
|
OCI |
|
|
|
Gains/(Losses) |
|
|
Gains/(Losses) |
|
|
|
|
|
|
|
Location: |
|
|
Amount |
|
|
Ineffectiveness |
|
|
|
|
|
|
Location: |
|
|
Amount |
|
|
Ineffectiveness |
|
|
|
Recorded in |
|
|
Reclassified to |
|
|
Reclassified to |
|
|
Recognized in |
|
|
Recorded in |
|
|
Reclassified to |
|
|
Reclassified to |
|
|
Recognized in |
|
|
|
OCI 1, 2 |
|
|
Earnings 1 |
|
|
Earnings 1 |
|
|
Earnings |
|
|
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 |
| |
|
5,423 |
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
5,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(472 |
) |
|
|
|
|
|
$ |
5,423 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
5,687 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Effective portion |
|
2 |
|
Represents effective portion of basis adjustments to AOCI from cash flow hedging
transactions. |
44
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 September 30, 2010
and December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Netting |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Adjustments |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE issued MBS |
|
$ |
3,360,959 |
|
|
$ |
|
|
|
$ |
3,360,959 |
|
|
$ |
|
|
|
$ |
|
|
Equity and bond funds |
|
|
12,822 |
|
|
|
|
|
|
|
12,822 |
|
|
|
|
|
|
|
|
|
Derivative assets(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate derivatives |
|
|
32,397 |
|
|
|
|
|
|
|
1,334,234 |
|
|
|
|
|
|
|
(1,301,837 |
) |
Mortgage delivery commitments |
|
|
28 |
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
3,406,206 |
|
|
$ |
|
|
|
$ |
4,708,043 |
|
|
$ |
|
|
|
$ |
(1,301,837 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount notes (to the extent SFAS 159 is elected) |
|
$ |
(1,755,901 |
) |
|
$ |
|
|
|
$ |
(1,755,901 |
) |
|
$ |
|
|
|
$ |
|
|
Bonds (to the extent SFAS 159 is elected) (b) |
|
|
(10,761,236 |
) |
|
|
|
|
|
|
(10,761,236 |
) |
|
|
|
|
|
|
|
|
Derivative liabilities(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate derivatives |
|
|
(784,474 |
) |
|
|
|
|
|
|
(5,876,573 |
) |
|
|
|
|
|
|
5,092,099 |
|
Mortgage delivery commitments |
|
|
(24 |
) |
|
|
|
|
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
$ |
(13,301,635 |
) |
|
$ |
|
|
|
$ |
(18,393,734 |
) |
|
$ |
|
|
|
$ |
5,092,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30,
2010, the Bank measured and recorded the fair values on a nonrecurring basis of HTM 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 HTM mortgage-backed securities determined to be OTTI at September 30, 2010,
and were recorded at their fair values of $8.1 million and $42.9 million at September 30, 2010 and
December 31, 2009. For more information also see Note 4 Held-to-maturity securities.
45
The following table summarizes the fair values of MBS for which a non-recurring change in fair
value was recorded at September 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans |
|
$ |
8,063 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,063 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Certain OTTI securities were written down to their fair values ($8.1 million) when it was
determined that their carrying values prior to write-down ($8.6 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 September 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 September 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans |
|
$ |
125,771 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
125,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
125,771 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
125,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair values Summary Tables
The carrying value and estimated fair values of the FHLBNYs financial instruments as of September
30, 2010 and December 31, 2009 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
Financial Instruments |
|
Value |
|
|
Fair Value |
|
|
Value |
|
|
Fair Value |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
69,471 |
|
|
$ |
69,471 |
|
|
$ |
2,189,252 |
|
|
$ |
2,189,252 |
|
Federal funds sold |
|
|
4,095,000 |
|
|
|
4,094,993 |
|
|
|
3,450,000 |
|
|
|
3,449,997 |
|
Available-for-sale securities |
|
|
3,373,781 |
|
|
|
3,373,781 |
|
|
|
2,253,153 |
|
|
|
2,253,153 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
8,221,246 |
|
|
|
8,389,954 |
|
|
|
10,519,282 |
|
|
|
10,669,252 |
|
Advances |
|
|
85,697,171 |
|
|
|
85,949,019 |
|
|
|
94,348,751 |
|
|
|
94,624,708 |
|
Mortgage loans held-for-portfolio, net |
|
|
1,267,687 |
|
|
|
1,341,140 |
|
|
|
1,317,547 |
|
|
|
1,366,538 |
|
Accrued interest receivable |
|
|
305,763 |
|
|
|
305,763 |
|
|
|
340,510 |
|
|
|
340,510 |
|
Derivative assets |
|
|
32,425 |
|
|
|
32,425 |
|
|
|
8,280 |
|
|
|
8,280 |
|
Other financial assets |
|
|
3,390 |
|
|
|
3,390 |
|
|
|
3,412 |
|
|
|
3,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
3,730,257 |
|
|
|
3,730,263 |
|
|
|
2,630,511 |
|
|
|
2,630,513 |
|
Consolidated obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
|
74,918,893 |
|
|
|
75,261,195 |
|
|
|
74,007,978 |
|
|
|
74,279,737 |
|
Discount notes |
|
|
17,787,908 |
|
|
|
17,788,224 |
|
|
|
30,827,639 |
|
|
|
30,831,201 |
|
Mandatorily redeemable capital stock |
|
|
67,348 |
|
|
|
67,348 |
|
|
|
126,294 |
|
|
|
126,294 |
|
Accrued interest payable |
|
|
277,647 |
|
|
|
277,647 |
|
|
|
277,788 |
|
|
|
277,788 |
|
Derivative liabilities |
|
|
784,498 |
|
|
|
784,498 |
|
|
|
746,176 |
|
|
|
746,176 |
|
Other financial liabilities |
|
|
57,242 |
|
|
|
57,242 |
|
|
|
38,832 |
|
|
|
38,832 |
|
46
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 |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
|
Bonds |
|
|
Discount notes* |
|
|
Bonds |
|
|
Discount notes* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of the period |
|
$ |
(9,763,246 |
) |
|
$ |
(550,303 |
) |
|
$ |
(1,753,688 |
) |
|
$ |
(6,035,741 |
) |
|
$ |
(998,942 |
) |
|
$ |
|
|
New transaction elected
for fair value option |
|
|
(6,601,000 |
) |
|
|
(1,835,000 |
) |
|
|
|
|
|
|
(17,771,000 |
) |
|
|
(2,385,000 |
) |
|
|
(1,752,185 |
) |
Maturities and terminations |
|
|
5,600,000 |
|
|
|
|
|
|
|
|
|
|
|
13,060,000 |
|
|
|
983,000 |
|
|
|
|
|
Change in fair value |
|
|
576 |
|
|
|
426 |
|
|
|
(521 |
) |
|
|
(11,118 |
) |
|
|
8,653 |
|
|
|
(1,494 |
) |
Change in accrued interest |
|
|
2,434 |
|
|
|
(1,091 |
) |
|
|
(1,692 |
) |
|
|
(3,377 |
) |
|
|
6,321 |
|
|
|
(2,222 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the period |
|
$ |
(10,761,236 |
) |
|
$ |
(2,385,968 |
) |
|
$ |
(1,755,901 |
) |
|
$ |
(10,761,236 |
) |
|
$ |
(2,385,968 |
) |
|
$ |
(1,755,901 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Note: Discount notes were not designated under FVO at December 31, 2009 |
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 September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Interest |
|
|
|
|
|
|
Total change in fair |
|
|
|
|
|
|
Net gain(loss) |
|
|
Total change in |
|
|
|
expense on |
|
|
Net gain(loss) |
|
|
value included in |
|
|
Interest expense |
|
|
due to |
|
|
fair value included |
|
|
|
consolidated |
|
|
due to changes in |
|
|
current period |
|
|
on consolidated |
|
|
changes in |
|
|
in current period |
|
|
|
obligations |
|
|
fair value |
|
|
earnings |
|
|
obligations |
|
|
fair value |
|
|
earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
$ |
(10,926 |
) |
|
$ |
576 |
|
|
$ |
(10,350 |
) |
|
$ |
(1,091 |
) |
|
$ |
426 |
|
|
$ |
(665 |
) |
Consolidated
obligations-discount notes |
|
|
(1,692 |
) |
|
|
(521 |
) |
|
|
(2,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(12,618 |
) |
|
$ |
55 |
|
|
$ |
(12,563 |
) |
|
$ |
(1,091 |
) |
|
$ |
426 |
|
|
$ |
(665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain(loss) |
|
|
Total change in |
|
|
|
expense on |
|
|
Net gain(loss) |
|
|
Total change in |
|
|
Interest expense |
|
|
due to |
|
|
fair value included |
|
|
|
consolidated |
|
|
due to changes in |
|
|
fair value included in |
|
|
on consolidated |
|
|
changes in |
|
|
in current period |
|
|
|
obligations |
|
|
fair value |
|
|
current period earnings |
|
|
obligations |
|
|
fair value |
|
|
earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
$ |
(30,011 |
) |
|
$ |
(11,118 |
) |
|
$ |
(41,129 |
) |
|
$ |
(2,380 |
) |
|
$ |
8,653 |
|
|
$ |
6,273 |
|
Consolidated
obligations-discount notes |
|
|
(2,222 |
) |
|
|
(1,494 |
) |
|
|
(3,716 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(32,233 |
) |
|
$ |
(12,612 |
) |
|
$ |
(44,845 |
) |
|
$ |
(2,380 |
) |
|
$ |
8,653 |
|
|
$ |
6,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
The following table compares the aggregate fair value and aggregate remaining contractual
principal balance outstanding of consolidated obligation bonds and notes for which the fair value
option has been elected (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
Principal |
|
|
|
|
|
|
Fair value |
|
|
|
Balance |
|
|
Fair value |
|
|
over/(under) |
|
Consolidated obligations-bonds |
|
$ |
10,751,000 |
|
|
$ |
10,761,236 |
|
|
$ |
10,236 |
|
Consolidated
obligations-discount notes |
|
|
1,752,185 |
|
|
|
1,755,901 |
|
|
|
3,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,503,185 |
|
|
$ |
12,517,137 |
|
|
$ |
13,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Principal |
|
|
|
|
|
|
Fair value |
|
|
|
Balance |
|
|
Fair value |
|
|
over/(under) |
|
Consolidated obligations-bonds |
|
$ |
6,040,000 |
|
|
$ |
6,035,741 |
|
|
$ |
(4,259 |
) |
Consolidated
obligations-discount notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,040,000 |
|
|
$ |
6,035,741 |
|
|
$ |
(4,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
Principal |
|
|
|
|
|
|
Fair value |
|
|
|
Balance |
|
|
Fair value |
|
|
over/(under) |
|
Consolidated obligations-bonds |
|
$ |
2,385,000 |
|
|
$ |
2,385,968 |
|
|
$ |
968 |
|
Consolidated
obligations-discount notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,385,000 |
|
|
$ |
2,385,968 |
|
|
$ |
968 |
|
|
|
|
|
|
|
|
|
|
|
Notes to Estimated Fair Values of financial instruments
The fair value of financial instruments that is an asset is defined as the price FHLBNY would
receive to sell an asset in an orderly transaction between market participants at the measurement
date. A financial liabilitys fair value is defined as the amount that would be paid to transfer
the liability to a new obligor, not the amount that would be paid to settle the liability with the
creditor. Where available, fair values are based on observable market prices or parameters, or
derived from such prices or parameters. Where observable prices are not available, valuation
models and inputs are utilized. These valuation techniques involve some level of management
estimation and judgment, the degree of which is dependent on the price transparency for the
instruments or markets and the instruments complexity.
The fair values of financial assets and liabilities reported in the tables above are discussed
below. For additional information also see Significant Accounting Policies and Estimates in Note
1. The Fair Value Summary Tables above do not represent an estimate of the overall market value of
the FHLBNY as a going concern, which would take into account future business opportunities and the
net profitability of assets versus liabilities.
The estimated fair value amounts have been determined by the FHLBNY using procedures described
below. Because an active secondary market does not exist for a portion of the FHLBNYs financial
instruments, in certain cases, fair values are not subject to precise quantification or
verification and may change as economic and market factors and evaluation of those factors change.
Cash and due from banks
The estimated fair value approximates the recorded book balance.
Interest-bearing deposits and Federal funds sold
The FHLBNY determines estimated fair values of certain short-term investments by calculating the
present value of expected future cash flows from the investments. The discount rates used in these
calculations are the current coupons of investments with similar terms.
Investment securities
In an effort to achieve consistency among all of the FHLBanks on the pricing of investments in
mortgage-backed securities, in the third quarter of 2009 the FHLBanks formed the MBS Pricing
Governance Committee, which was responsible for developing a fair value methodology for
mortgage-backed securities that all FHLBanks could adopt. Consistent with the guidance from the
Governance Committee, the FHLBNY changed the methodology used to estimate the fair value of
mortgage-backed securities as of September 30, 2009. Under the approved methodology, the Bank
requests prices for all mortgage-backed securities from four specified third-party vendors, and
depending on the number of prices received for each security, selected a median or average price as
defined by the methodology. If four prices are received by the FHLBNY from the pricing vendors,
the average of the middle two prices is used; if three prices are received, the middle price is used; if two prices are received,
the average of the two prices is used; and if one price is received, it is subject to additional
validation.
48
The FHLBNY routinely performs a comparison analysis of pricing to understand pricing trends and to
establish a means of validating changes in pricing from period-to-period. The computed prices are
tested for reasonableness using tolerance thresholds. Prices within the established thresholds are
generally accepted unless strong evidence suggests that using the median pricing methodology as
described above would not be appropriate. Preliminary estimated fair values that are outside the
tolerance thresholds, or that management believes may not be appropriate based on all available
information (including those limited instances in which only one price is received), are subject to
further analysis of all relevant facts and circumstances that a market participant would consider.
The Bank also runs pricing through prepayment models to test the reasonability of pricing relative
to changes in the implied prepayment options of the bonds. Separately, the Bank performs
comprehensive credit analysis, including the analysis of underlying cash flows and collateral.
The FHLBNY believes such methodologies valuation comparison, review of changes in valuation
parameters, and credit analysis have been designed to identify the effects of the credit crisis,
which has tended to reduce the availability of certain observable market pricing or has caused the
widening of the bid/offer spread of certain securities.
Prior to the adoption of the new pricing methodology in the 2009 third quarter, the Bank used a
similar process that utilized three third-party vendors and similar variance thresholds. This
change in pricing methodology did not have a significant impact on the Banks estimated fair values
of its mortgage-backed securities.
As of September 30, 2010, four vendor prices were received for substantially all of the FHLBNYs
MBS holdings and substantially all of those prices fell within the specified thresholds. The
relative proximity of the prices received supported the FHLBNYs conclusion that the final computed
prices were reasonable estimates of fair value. While the FHLBNY adopted this common methodology,
the fair values of mortgage-backed investment securities are still estimated by FHLBNYs management
which remains responsible for the selection and application of its fair value methodology and the
reasonableness of assumptions and inputs used.
The four specialized pricing services use pricing models or quoted prices of securities with
similar characteristics. The valuation techniques used by pricing services employ cash flow
generators and option-adjusted spread models. Pricing spreads used as inputs in the models are
based on new issue and secondary market transactions if the securities are traded in sufficient
volumes in the secondary market. These pricing vendors typically employ valuation techniques that
incorporate benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of
like securities, sector groupings, and/or matrix pricing, as may be deemed appropriate for the
security. Such inputs into the pricing models employed by pricing services for most of the Banks
investments are market based and observable and are considered Level 2 of the fair value hierarchy.
The valuation of the FHLBNYs private-label securities, all designated as held-to-maturity, may
require pricing services to use significant inputs that are subjective and may be considered to be
Level 3 of the fair value hierarchy because of the current lack of significant market activity so
that the inputs may not be market based and observable. At September 30, 2010 and December 31,
2009, all private-label mortgage-backed securities were classified as held-to-maturity and were
recorded in the balance sheet at their carrying values. Carrying value of a security is the same
as its amortized cost, unless the security is determined to be OTTI. In the period the security is
determined to be OTTI, its carrying value is generally adjusted down to its fair value.
In accordance with the amended guidance under the accounting standards for investments in debt and
equity securities, certain held-to-maturity private-label mortgage-backed securities were written
down to their fair value at September 30, 2010 and December 31, 2009 as a result of a recognition
of OTTI. For such HTM securities, their carrying values are recorded in the balance sheet at their
fair values. The fair values and securities are classified on a nonrecurring basis as Level 3
financial instruments under the valuation hierarchy. This determination was made based on
managements view that the private-label instruments may not have an active market because of the
specific vintage of the securities as well as inherent conditions surrounding the trading of
private-label mortgage-backed securities.
The fair value of housing finance agency bonds is estimated by management using information
primarily from pricing services.
Advances
The fair values of advances are computed using standard option valuation models. The most
significant inputs to the valuation model are (1) consolidated obligation debt curve (the CO
Curve), published by the Office of Finance and available to the public, and (2) LIBOR swap curves
and volatilities. The Bank considers both these inputs to be market based and observable as they
can be directly corroborated by market participants.
Mortgage loans
The fair value of MPF loans and loans in the inactive CMA programs are priced using a valuation
technique referred to as the market approach. Loans are aggregated into synthetic pass-through
securities based on product type, loan origination year, gross coupon and loan term. Thereafter,
these are compared against closing TBA prices extracted from independent sources. All
significant inputs to the loan valuations are market based and observable.
Accrued interest receivable and payable
The estimated fair values approximate the recorded book value because of the relatively short
period of time between their origination and expected realization.
49
Derivative assets and liabilities
The FHLBNYs derivatives are traded in the over-the-counter market. Discounted cash flow analysis
is the primary methodology employed by the FHLBNYs valuation models to measure and record the fair
values of its interest rate swaps. The valuation technique is considered as an Income approach.
Interest rate caps and floors are valued under the Market approach. Interest rate swaps and
interest rate caps and floors are valued in an industry-standard option adjusted valuation models
that utilize market inputs, which can be corroborated, from widely accepted third-party sources.
The Banks valuation model utilizes a modified Black-Karasinski model that assumes that rates are
distributed log normally. The log-normal model precludes interest rates turning negative in the
model computations. Significant market based and observable inputs into the valuation model
include volatilities and interest rates. These derivative positions are classified within Level 2
of the valuation hierarchy, and include interest rate swaps, swaptions, interest rate caps and
floors, and mortgage delivery commitments.
The FHLBNY employs control processes to validate the fair value of its financial instruments,
including those derived from valuation models. These control processes are designed to ensure that
the values used for financial reporting are based on observable inputs wherever possible. In the
event that observable inputs are not available, the control processes are designed to ensure that
the valuation approach utilized is appropriate and consistently applied and that the assumptions
are reasonable. These control processes include reviews of the pricing models theoretical
soundness and appropriateness by specialists with relevant expertise who are independent from the
trading desks or personnel who were involved in the design and selection of model inputs.
Additionally, groups that are independent from the trading desk, or personnel involved in the
design and selection of model inputs participate in the review and validation of the fair values
generated from the valuation model. The FHLBNY maintains an ongoing review of its valuation models
and has a formal model validation policy in addition to procedures for the approval and control of
data inputs.
The valuation of derivative assets and liabilities reflect the value of the instrument including
the values associated with counterparty risk and would also take into account the FHLBNYs own
credit standing and non-performance risk. The Bank has collateral agreements with all its
derivative counterparties and enforces collateral exchanges at least weekly. The computed fair
values of the FHLBNYs derivatives took into consideration the effects of legally enforceable
master netting agreements that allow the FHLBNY to settle positive and negative positions and
offset cash collateral with the same counterparty on a net basis. The Bank and each derivative
counterparty have bilateral collateral thresholds that take into account both the Banks and
counterpartys credit ratings. As a result of these practices and agreements and the FHLBNYs
assessment of any change in its own credit spread, the Bank has concluded that the impact of the
credit differential between the Bank and its derivative counterparties was sufficiently mitigated
to an immaterial level that no credit adjustments were deemed necessary to the recorded fair value
of derivative assets and derivative liabilities in the Statements of Condition at September 30,
2010 and December 31, 2009.
Deposits
The FHLBNY determines estimated fair values of deposits by calculating the present value of
expected future cash flows from the deposits. The discount rates used in these calculations are
the current cost of deposits with similar terms.
Consolidated obligations
The FHLBNY estimates fair values based on the cost of raising comparable term debt and prices its
bonds and discount notes off of the current consolidated obligations market curve, which has a
daily active market. The fair values of consolidated obligation debt (bonds and discount notes)
are computed using a standard option valuation model using market based and observable inputs: (1)
consolidated obligation debt curve (the CO Curve) that is available to the public and published
by the Office of Finance, and (2) LIBOR curve and volatilities. Model adjustments that are not
observable are not considered significant.
Mandatorily redeemable capital stock
The FHLBNY considers the fair value of capital subject to mandatory redemption, as the redemption
value of the stock, which is generally par plus accrued estimated dividend. The FHLBNY has a
cooperative structure. Stock can only be acquired by members at par value and redeemed at par
value. Stock is not traded publicly and no market mechanism exists for the exchange of stock
outside the cooperative structure.
Note 18. Commitments and contingencies.
The FHLBanks have joint and several liability for all the consolidated obligations issued on their
behalf. Accordingly, should one or more of the FHLBanks be unable to repay their participation in
the consolidated obligations, each of the other FHLBanks could be called upon to repay all or part
of such obligations, as determined or approved by the Finance Agency. Neither the FHLBNY nor any
other FHLBank has ever had to assume or pay the consolidated obligations of another FHLBank. The
FHLBNY does not believe that it will be called upon to pay the consolidated obligations of another
FHLBank in the future. Under the provisions of accounting standard for guarantees, the Bank would
have been required to recognize the fair value of the FHLBNYs joint and several liability for all
the consolidated obligations, as discussed above. However, the FHLBNY considers the joint and
several liabilities as similar to a related party guarantee, which meets the scope exception under
the accounting standard for guarantees. Accordingly, the FHLBNY has not recognized the fair value
of a liability for its joint and several obligations related to other FHLBanks consolidated
obligations at September 30, 2010 and December 31, 2009. The par amount of the twelve FHLBanks
outstanding consolidated obligations, including the FHLBNYs,
was approximately $0.8 trillion and
$0.9 trillion at September 30, 2010 and December 31, 2009.
Standby letters of credit are executed for a fee on behalf of members to facilitate residential
housing, community lending, and members asset/liability management or to provide liquidity. A
standby letter of credit is a financing arrangement between the FHLBNY and its member. Members assume an unconditional obligation to
reimburse the FHLBNY for value given by the FHLBNY to the beneficiary under the terms of the
standby letter of credit. The FHLBNY may, in its discretion, permit the member to finance
repayment of their obligation by receiving a collateralized advance. Outstanding standby letters
of credit were approximately $1,865.4 million and $697.9 million as of September 30, 2010 and December 31, 2009,
and had original terms of up to 15 years, with a final expiration in 2019. Standby letters of credit are
fully collateralized. Unearned fees on standby letters of credit were recorded in Other
liabilities and were not significant as of September 30, 2010 and December 31, 2009. Based on
managements credit analyses and collateral requirements, the FHLBNY does not deem it necessary to
have any provision for credit losses on these commitments and letters of credit.
50
Under the
MPF program, the Bank was unconditionally obligated to purchase $20.7
million and $4.2 million of
mortgage loans at September 30, 2010 and December 31, 2009. Commitments are generally for periods
not to exceed 45 business days. Such commitments were recorded as derivatives at their fair value
under the accounting standards for derivatives and hedging. In addition, the FHLBNY had entered
into conditional agreements under Master Commitments with its members in the MPF program to
purchase mortgage loans in aggregate of $605.9 million and $484.6 million as of September 30, 2010 and December
31, 2009.
The FHLBNY executes derivatives with major financial institutions and enters into bilateral
collateral agreements. When counterparties are exposed, the Bank would typically pledge cash
collateral to mitigate the counterpartys credit exposure. To mitigate the counterparties
exposures, the FHLBNY deposited $3.8 billion and $2.2 billion in cash with derivative counterparties as
pledged collateral at September 30, 2010 and December 31, 2009, and these amounts were reported as
a deduction to Derivative liabilities.
The FHLBNY was also exposed to credit risk associated with outstanding derivative transactions
measured by the replacement cost of derivatives in net fair value
gain positions of $32.4 million and
$8.3 million at September 30, 2010 and December 31, 2009. At September 30, 2010, counterparties
had deposited $53.8 million in cash as collateral to mitigate such an exposure. At December 31, 2009,
the fair values of derivatives in a gain position were below the threshold and derivative
counterparties pledged no cash to the FHLBNY.
The
FHLBNY charged to operating expenses net rental costs of
approximately $0.8 million for the three
months ended September 30, 2010 and 2009. The net rental cost for the nine months ended September
30, 2010 and 2009 was $2.5 million. Lease agreements for FHLBNY premises generally provide for
increases in the basic rentals resulting from increases in property taxes and maintenance expenses.
Such increases are not expected to have a material effect on the FHLBNYs results of operations or
financial condition.
The following table summarizes contractual obligations and contingencies as of September 30, 2010
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
Payments due or expiration terms by period |
|
|
|
Less than |
|
|
One year |
|
|
Greater than three |
|
|
Greater than |
|
|
|
|
|
|
one year |
|
|
to three years |
|
|
years to five years |
|
|
five years |
|
|
Total |
|
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds at par 1 |
|
$ |
38,972,100 |
|
|
$ |
25,068,825 |
|
|
$ |
6,634,375 |
|
|
$ |
3,054,200 |
|
|
$ |
73,729,500 |
|
Mandatorily redeemable capital stock 1 |
|
|
45,708 |
|
|
|
14,650 |
|
|
|
2,037 |
|
|
|
4,953 |
|
|
|
67,348 |
|
Premises (lease obligations) 2 |
|
|
3,060 |
|
|
|
6,284 |
|
|
|
4,748 |
|
|
|
4,674 |
|
|
|
18,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
|
39,020,868 |
|
|
|
25,089,759 |
|
|
|
6,641,160 |
|
|
|
3,063,827 |
|
|
|
73,815,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit |
|
|
1,824,089 |
|
|
|
20,012 |
|
|
|
17,472 |
|
|
|
3,861 |
|
|
|
1,865,434 |
|
Consolidated obligations-bonds/
discount notes traded not settled |
|
|
774,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
774,322 |
|
Open delivery commitments (MPF) |
|
|
20,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other commitments |
|
|
2,619,086 |
|
|
|
20,012 |
|
|
|
17,472 |
|
|
|
3,861 |
|
|
|
2,660,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations and commitments |
|
$ |
41,639,954 |
|
|
$ |
25,109,771 |
|
|
$ |
6,658,632 |
|
|
$ |
3,067,688 |
|
|
$ |
76,476,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Callable bonds contain exercise date or a series of exercise dates that may result
in a shorter redemption period. Mandatorily redeemable capital stock is categorized by the
dates at which the corresponding advances outstanding mature. Excess capital stock is
redeemed at that time, and hence, these dates better represent the related commitments than
the put dates associated with capital stock, under which stock may not be redeemed until the
later of five years from the date the member becomes a nonmember or the related advance
matures. |
|
2 |
|
Immaterial amount of commitments for equipment leases are not included. |
Impact of the bankruptcy of Lehman Brothers
As previously reported, on September 15, 2008, Lehman Brothers Holdings, Inc. (LBHI), the parent
company of Lehman Brothers Special Financing Inc. (LBSF) and a guarantor of LBSFs obligations,
filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court in the Southern District of New York. LBSF filed for protection under Chapter 11
in the same court on October 3, 2008. LBSF was a counterparty to FHLBNY on multiple derivative
transactions under an International Swap Dealers Association, Inc. master agreement with a total
notional amount of $16.5 billion at the time of termination of the Banks derivative transactions
with LBSF. The net amount that was due to the Bank after giving effect to obligations that were
due
51
LBSF was approximately $65 million. The FHLBNY timely filed proofs of claim in the amount of
approximately $65 million as creditors of LBSF and LBHI in connection with the bankruptcy
proceedings. The Bank fully reserved the LBSF receivables as the bankruptcies of LBHI and LBSF
make the timing and the amount of any recovery uncertain.
As previously reported, the Bank received a Derivatives ADR Notice from LBSF dated July 23, 2010
making a Demand as of the date of the Notice of approximately $268 million owed to LBSF by the
Bank. Subsequently, in accordance with the Alternative Dispute Resolution Procedure Order entered
by the Bankruptcy Court dated September 17, 2009 (Order), the Bank responded to LBSF on August
23, 2010, denying LBSFs Demand. LBSF served a reply on September 7, 2010, effectively reiterating
its position. A mediation has been scheduled pursuant to the Order for December 8, 2010. While
the Bank believes that LBSFs position is without merit, the amount the Bank actually recovers or
pays will ultimately be decided in the course of the bankruptcy proceedings.
The FHLBNY does not anticipate any credit losses from its off-balance sheet commitments and
accordingly no provision for losses is required.
Note 19. Related party transactions.
The FHLBNY is a cooperative and the members own almost all of the stock of the Bank. Stock that is
not owned by members is held by former members. The majority of the members of the Board of
Directors of the FHLBNY are elected by and from the membership. The FHLBNY conducts its advances
business almost exclusively with members. The Bank considers its transactions with its members and
non-member stockholders as related party transactions in addition to transactions with other
FHLBanks, the Office of Finance, and the Finance Agency. All transactions with all members,
including those whose officers may serve as directors of the FHLBNY, are at terms that are no more
favorable than comparable transactions with other members. The FHLBNY may from time to time borrow
or sell overnight and term Federal funds at market rates to members.
Debt Transfers
During
the 2010 third quarter, the bank assumed debt from another FHLBank
totaling $193.9 million (par amounts).
There was no transfer of consolidated obligation bonds to other FHLBanks or assumption of debt in the
prior two quarters of 2010. Generally, when debt is transferred in exchange for a cash price that
represents the fair market values of the debt. No debt was transferred to the FHLBNY or assumed
from another FHLBank for the first three quarters of 2009.
When debt is transferred, at trade date, the transferring bank notifies the Office of Finance of a
change in primary obligor for the transferred debt.
Advances sold or transferred
No advances were transferred/sold to the FHLBNY or from the FHLBNY to another FHLBank in the first
three quarters of 2010 or in 2009.
MPF Program
In the MPF program, the FHLBNY may participate out certain portions of its purchases of mortgage
loans from its members. Transactions are at market rates. The FHLBank of Chicago, the MPF
providers cumulative share of interest in the FHLBNYs MPF loans at September 30, 2010 and
December 31, 2009 was $87.8 million and $101.2 million from inception of the program through mid-2004. Since
2004, the FHLBNY has not shared its purchases with the FHLBank of Chicago. Fees paid to the
FHLBank of Chicago were $0.1 million in the third quarters of 2010 and 2009, and $0.4 million for the nine
months end September 30, 2010 and 2009.
Mortgage-backed Securities
No mortgage-backed securities were acquired from other FHLBanks during the first three quarters of
2010 and 2009.
Intermediation
Notional amounts of $550.0 million and $320.0 million were outstanding at September 30, 2010 and December
31, 2009 in which the FHLBNY acted as an intermediary to sell derivatives to members. The amounts
include offsetting identical transactions with unrelated derivatives counterparties. Net fair
value exposures of these transactions at September 30, 2010 and December 31, 2009 were not
material. The intermediated derivative transactions were fully collateralized.
Loans to and borrowings from other Federal Home Loan Banks
In the current year first three quarters, the FHLBNY extended one
overnight loan for a total of $27.0 million to other FHLBanks and none in the same period of 2009. Generally, loans made to other
FHLBanks are uncollateralized. There was no outstanding balance as of September 30, 2010 or
December 31, 2009. Interest income from such loans were not significant in any period in this
report.
52
The following tables summarize outstanding balances with related parties at September 30, 2010 and
December 31, 2009, and transactions for the three and nine months ended September 30, 2010 and 2009
(in thousands):
Related Party: Outstanding Assets, Liabilities and Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Related |
|
|
Unrelated |
|
|
Related |
|
|
Unrelated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
|
|
|
$ |
69,471 |
|
|
$ |
|
|
|
$ |
2,189,252 |
|
Federal funds sold |
|
|
|
|
|
|
4,095,000 |
|
|
|
|
|
|
|
3,450,000 |
|
Available-for-sale securities |
|
|
|
|
|
|
3,373,781 |
|
|
|
|
|
|
|
2,253,153 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
|
|
|
|
8,221,246 |
|
|
|
|
|
|
|
10,519,282 |
|
Advances |
|
|
85,697,171 |
|
|
|
|
|
|
|
94,348,751 |
|
|
|
|
|
Mortgage loans 1 |
|
|
|
|
|
|
1,267,687 |
|
|
|
|
|
|
|
1,317,547 |
|
Accrued interest receivable |
|
|
269,988 |
|
|
|
35,775 |
|
|
|
299,684 |
|
|
|
40,826 |
|
Premises, software, and equipment |
|
|
|
|
|
|
14,550 |
|
|
|
|
|
|
|
14,792 |
|
Derivative assets 2 |
|
|
|
|
|
|
32,425 |
|
|
|
|
|
|
|
8,280 |
|
Other assets 3 |
|
|
208 |
|
|
|
16,236 |
|
|
|
179 |
|
|
|
19,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
85,967,367 |
|
|
$ |
17,126,171 |
|
|
$ |
94,648,614 |
|
|
$ |
19,812,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
3,730,257 |
|
|
$ |
|
|
|
$ |
2,630,511 |
|
|
$ |
|
|
Consolidated obligations |
|
|
|
|
|
|
92,706,801 |
|
|
|
|
|
|
|
104,835,617 |
|
Mandatorily redeemable capital stock |
|
|
67,348 |
|
|
|
|
|
|
|
126,294 |
|
|
|
|
|
Accrued interest payable |
|
|
15 |
|
|
|
277,632 |
|
|
|
16 |
|
|
|
277,772 |
|
Affordable Housing Program 4 |
|
|
137,995 |
|
|
|
|
|
|
|
144,489 |
|
|
|
|
|
Payable to REFCORP |
|
|
|
|
|
|
20,560 |
|
|
|
|
|
|
|
24,234 |
|
Derivative liabilities 2 |
|
|
|
|
|
|
784,498 |
|
|
|
|
|
|
|
746,176 |
|
Other liabilities 5 |
|
|
50,339 |
|
|
|
51,109 |
|
|
|
29,330 |
|
|
|
43,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
3,985,954 |
|
|
$ |
93,840,600 |
|
|
$ |
2,930,640 |
|
|
$ |
105,926,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
5,266,984 |
|
|
|
|
|
|
|
5,603,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and capital |
|
$ |
9,252,938 |
|
|
$ |
93,840,600 |
|
|
$ |
8,533,931 |
|
|
$ |
105,926,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Includes insignificant amounts of mortgage loans purchased from members of another FHLBank. |
|
2 |
|
Derivative assets and liabilities include insignificant fair values due to intermediation activities on behalf of members. |
|
3 |
|
Includes insignificant amounts of miscellaneous assets that are considered related party. |
|
4 |
|
Represents funds not yet disbursed to eligible programs. |
|
5 |
|
Related column includes member pass-through reserves at the Federal Reserve Bank. |
53
Related Party: Income and Expense transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
Related |
|
|
Unrelated |
|
|
Related |
|
|
Unrelated |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
173,459 |
|
|
$ |
|
|
|
$ |
240,573 |
|
|
$ |
|
|
Interest-bearing deposits 1 |
|
|
|
|
|
|
1,699 |
|
|
|
|
|
|
|
1,014 |
|
Federal funds sold |
|
|
|
|
|
|
2,253 |
|
|
|
|
|
|
|
1,864 |
|
Available-for-sale securities |
|
|
|
|
|
|
7,580 |
|
|
|
|
|
|
|
6,590 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
|
|
|
|
84,242 |
|
|
|
|
|
|
|
111,232 |
|
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
851 |
|
Mortgage loans 2 |
|
|
|
|
|
|
16,333 |
|
|
|
|
|
|
|
17,405 |
|
Loans to other FHLBanks and other |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
173,459 |
|
|
$ |
112,107 |
|
|
$ |
240,574 |
|
|
$ |
138,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations |
|
$ |
|
|
|
$ |
158,553 |
|
|
$ |
|
|
|
$ |
223,355 |
|
Deposits |
|
|
959 |
|
|
|
|
|
|
|
516 |
|
|
|
|
|
Mandatorily redeemable capital stock |
|
|
879 |
|
|
|
|
|
|
|
1,807 |
|
|
|
|
|
Cash collateral held and other
borrowings |
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
1,838 |
|
|
$ |
158,567 |
|
|
$ |
2,323 |
|
|
$ |
223,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fees |
|
$ |
1,297 |
|
|
$ |
|
|
|
$ |
1,101 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Includes de minimis amounts of interest income from MPF service provider. |
|
2 |
|
Includes de minimis amounts of mortgage interest income from loans purchased from
members of another FHLBank. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
Related |
|
|
Unrelated |
|
|
Related |
|
|
Unrelated |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
477,303 |
|
|
$ |
|
|
|
$ |
1,094,089 |
|
|
$ |
|
|
Interest-bearing deposits 1 |
|
|
|
|
|
|
3,766 |
|
|
|
|
|
|
|
19,054 |
|
Federal funds sold |
|
|
|
|
|
|
6,600 |
|
|
|
|
|
|
|
1,933 |
|
Available-for-sale securities |
|
|
|
|
|
|
23,128 |
|
|
|
|
|
|
|
22,881 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
|
|
|
|
274,686 |
|
|
|
|
|
|
|
355,916 |
|
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,392 |
|
Mortgage loans 2 |
|
|
|
|
|
|
49,689 |
|
|
|
|
|
|
|
54,679 |
|
Loans to other FHLBanks and other |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
477,303 |
|
|
$ |
357,869 |
|
|
$ |
1,094,090 |
|
|
$ |
455,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations |
|
$ |
|
|
|
$ |
481,738 |
|
|
$ |
|
|
|
$ |
956,923 |
|
Deposits |
|
|
2,813 |
|
|
|
|
|
|
|
2,002 |
|
|
|
|
|
Mandatorily redeemable capital stock |
|
|
3,051 |
|
|
|
|
|
|
|
5,478 |
|
|
|
|
|
Cash collateral held and other borrowings |
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
5,864 |
|
|
$ |
481,752 |
|
|
$ |
7,480 |
|
|
$ |
956,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fees |
|
$ |
3,472 |
|
|
$ |
|
|
|
$ |
3,181 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Includes de minimis amounts of interest income from MPF service provider. |
|
2 |
|
Includes de minimis amounts of mortgage interest income from loans purchased from
members of another FHLBank. |
Note 20. Segment information and concentration.
The FHLBNY manages its operations as a single business segment. Management and the FHLBNYs Board
of Directors review enterprise-wide financial information in order to make operating decisions and
assess performance. Advances to large members constitute a significant percentage of FHLBNYs
advance portfolio and its source of revenues.
The FHLBNY has a unique cooperative structure and is owned by member institutions located within a
defined geographic district. The Banks market is the same as its membership district which
includes New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. Institutions that are
members of the FHLBNY must have their principal places of business within this market, but may also
operate elsewhere.
The FHLBNYs primary business is making low-cost, collateralized loans, known as advances, to its
members. Members use advances as a source of funding to supplement their deposit-gathering
activities. As a cooperative, the FHLBNY prices advances at minimal net spreads above the cost of
its funding to deliver maximum value to members. Advances to large members constitute a significant percentage of FHLBNYs advance
portfolio and its source of revenues.
54
The FHLBNYs total assets and capital could significantly decrease if one or more large members
were to withdraw from membership or decrease business with the Bank. Members might withdraw or
reduce their business as a result of consolidating with an institution that was a member of another
FHLBank, or for other reasons. The FHLBNY has considered the impact of losing one or more large
members. In general, a withdrawing member would be required to repay all indebtedness prior to the
redemption of its capital stock. Under current conditions, the FHLBNY does not expect the loss of
a large member to impair its operations, since the FHLBank Act of 1999 does not allow the FHLBNY to
redeem the capital of an existing member if the redemption would cause the FHLBNY to fall below its
capital requirements. Consequently, the loss of a large member should not result in an inadequate
capital position for the FHLBNY. However, such an event could reduce the amount of capital that
the FHLBNY has available for continued growth. This could have various ramifications for the
FHLBNY, including a possible reduction in net income and dividends, and a lower return on capital
stock for remaining members.
The top ten advance holders at September 30, 2010, December 31, 2009 and September 30, 2009, and
associated interest income for the periods then ended are summarized as follows (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Total Par Value |
|
|
Interest Income |
|
|
|
City |
|
State |
|
Advances |
|
|
of Advances |
|
|
Three months |
|
|
Nine months |
|
Hudson City Savings Bank, FSB* |
|
Paramus |
|
NJ |
|
$ |
17,175,000 |
|
|
|
21.4 |
% |
|
$ |
178,029 |
|
|
$ |
529,488 |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
|
13,230,000 |
|
|
|
16.5 |
|
|
|
75,674 |
|
|
|
222,705 |
|
New York Community Bank* |
|
Westbury |
|
NY |
|
|
7,593,167 |
|
|
|
9.5 |
|
|
|
77,416 |
|
|
|
230,083 |
|
MetLife Bank, N.A. |
|
Bridgewater |
|
NJ |
|
|
4,969,500 |
|
|
|
6.2 |
|
|
|
16,368 |
|
|
|
40,514 |
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
|
3,709,163 |
|
|
|
4.6 |
|
|
|
11,607 |
|
|
|
34,369 |
|
Astoria Federal Savings and Loan Assn. |
|
Lake Success |
|
NY |
|
|
2,735,000 |
|
|
|
3.4 |
|
|
|
27,463 |
|
|
|
83,763 |
|
The Prudential Insurance Co. of America |
|
Newark |
|
NJ |
|
|
2,500,000 |
|
|
|
3.1 |
|
|
|
17,971 |
|
|
|
60,244 |
|
Valley National Bank |
|
Wayne |
|
NJ |
|
|
2,361,500 |
|
|
|
2.9 |
|
|
|
24,677 |
|
|
|
73,885 |
|
Doral Bank |
|
San Juan |
|
PR |
|
|
1,531,420 |
|
|
|
1.9 |
|
|
|
16,471 |
|
|
|
53,041 |
|
New York Life Insurance Company |
|
New York |
|
NY |
|
|
1,500,000 |
|
|
|
1.9 |
|
|
|
4,274 |
|
|
|
11,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
57,304,750 |
|
|
|
71.4 |
% |
|
$ |
449,950 |
|
|
$ |
1,339,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Officer of member bank also served on the Board of Directors of the FHLBNY. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Total Par Value |
|
|
12-months |
|
|
|
City |
|
State |
|
Advances |
|
|
of Advances |
|
|
Interest Income |
|
Hudson City Savings Bank, FSB* |
|
Paramus |
|
NJ |
|
$ |
17,275,000 |
|
|
|
19.0 |
% |
|
$ |
710,900 |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
|
13,680,000 |
|
|
|
15.1 |
|
|
|
356,120 |
|
New York Community Bank* |
|
Westbury |
|
NY |
|
|
7,343,174 |
|
|
|
8.1 |
|
|
|
310,991 |
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
|
5,005,641 |
|
|
|
5.5 |
|
|
|
97,628 |
|
The Prudential Insurance Co. of America |
|
Newark |
|
NJ |
|
|
3,500,000 |
|
|
|
3.9 |
|
|
|
93,601 |
|
Astoria Federal Savings and Loan Assn. |
|
Lake Success |
|
NY |
|
|
3,000,000 |
|
|
|
3.3 |
|
|
|
120,870 |
|
Emigrant Bank |
|
New York |
|
NY |
|
|
2,475,000 |
|
|
|
2.7 |
|
|
|
64,131 |
|
Doral Bank |
|
San Juan |
|
PR |
|
|
2,473,420 |
|
|
|
2.7 |
|
|
|
86,389 |
|
MetLife Bank, N.A. |
|
Bridgewater |
|
NJ |
|
|
2,430,500 |
|
|
|
2.7 |
|
|
|
46,142 |
|
Valley National Bank |
|
Wayne |
|
NJ |
|
|
2,322,500 |
|
|
|
2.6 |
|
|
|
103,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
59,505,235 |
|
|
|
65.6 |
% |
|
$ |
1,990,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
At December 31, 2009, officer of member bank also served on the Board of Directors of the
FHLBNY. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Total Par Value |
|
|
Interest Income |
|
|
|
City |
|
State |
|
Advances |
|
|
of Advances |
|
|
Three months |
|
|
Nine months |
|
Hudson City Savings Bank, FSB* |
|
Paramus |
|
NJ |
|
$ |
17,325,000 |
|
|
|
18.9 |
% |
|
$ |
178,896 |
|
|
$ |
532,100 |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
|
14,280,000 |
|
|
|
15.6 |
|
|
|
84,277 |
|
|
|
279,360 |
|
New York Community Bank* |
|
Westbury |
|
NY |
|
|
8,148,476 |
|
|
|
8.9 |
|
|
|
78,413 |
|
|
|
233,129 |
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
|
5,493,756 |
|
|
|
6.0 |
|
|
|
19,133 |
|
|
|
83,856 |
|
The Prudential Insurance Co. of America |
|
Newark |
|
NJ |
|
|
3,500,000 |
|
|
|
3.8 |
|
|
|
22,448 |
|
|
|
71,473 |
|
Astoria Federal Savings and Loan Assn. |
|
Lake Success |
|
NY |
|
|
2,960,000 |
|
|
|
3.2 |
|
|
|
29,824 |
|
|
|
91,226 |
|
Emigrant Bank |
|
New York |
|
NY |
|
|
2,475,000 |
|
|
|
2.7 |
|
|
|
16,127 |
|
|
|
48,004 |
|
Doral Bank |
|
San Juan |
|
PR |
|
|
2,473,420 |
|
|
|
2.7 |
|
|
|
21,513 |
|
|
|
65,825 |
|
MetLife Bank, N.A. |
|
Bridgewater |
|
NJ |
|
|
2,382,000 |
|
|
|
2.6 |
|
|
|
12,854 |
|
|
|
34,658 |
|
Valley National Bank |
|
Wayne |
|
NJ |
|
|
2,338,500 |
|
|
|
2.6 |
|
|
|
25,608 |
|
|
|
78,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
61,376,152 |
|
|
|
67.0 |
% |
|
$ |
489,093 |
|
|
$ |
1,517,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
At September 30, 2009, officer of member bank also served on the Board of Directors of the
FHLBNY. |
55
The following table summarizes capital stock held by members who were beneficial owners of
more than 5 percent of the FHLBNYs outstanding capital stock as of September 30, 2010 and December
31, 2009 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Percent |
|
|
|
September 30, 2010 |
|
of shares |
|
|
of total |
|
Name of beneficial owner |
|
Principal Executive Office Address |
|
owned |
|
|
capital stock |
|
Hudson City Savings Bank, FSB* |
|
West 80 Century Road, Paramus, NJ 07652 |
|
|
8,787 |
|
|
|
18.57 |
% |
Metropolitan Life Insurance Company |
|
200 Park Avenue, New York, NY 10166 |
|
|
7,339 |
|
|
|
15.51 |
|
New York Community Bank* |
|
615 Merrick Avenue, Westbury, NY 11590 |
|
|
4,002 |
|
|
|
8.46 |
|
Manufacturers and Traders Trust Company |
|
One M&T Plaza, Buffalo, NY 14203 |
|
|
2,415 |
|
|
|
5.10 |
|
MetLife Bank N.A |
|
501 Route 22 Bridgewater, NJ 08807 |
|
|
2,398 |
|
|
|
5.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,941 |
|
|
|
52.71 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Percent |
|
|
|
December 31, 2009 |
|
of shares |
|
|
of total |
|
Name of beneficial owner |
|
Principal Executive Office Address |
|
owned |
|
|
capital stock |
|
Hudson City Savings Bank, FSB* |
|
West 80 Century Road, Paramus, NJ 07652 |
|
|
8,748 |
|
|
|
16.87 |
% |
Metropolitan Life Insurance Company |
|
200 Park Avenue, New York, NY 10166 |
|
|
7,419 |
|
|
|
14.31 |
|
New York Community Bank* |
|
615 Merrick Avenue, Westbury, NY 11590 |
|
|
3,777 |
|
|
|
7.28 |
|
Manufacturers and Traders Trust Company |
|
One M&T Plaza, Buffalo, NY 14203 |
|
|
2,952 |
|
|
|
5.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,896 |
|
|
|
44.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Officer of member bank also served on the Board of Directors of the FHLBNY. |
Note 21. Subsequent events.
Under the final guidance issued by the FASB in February 2010, subsequent events for the FHLBNY are
events or transactions that occur after the balance sheet date but before financial statements are
issued. There are two types of subsequent events:
a. The first type consists of events or transactions that provide additional evidence about
conditions that existed at the date of the balance sheet, including the estimates inherent in
the process of preparing financial statements (that is, recognized subsequent events).
b. The second type consists of events that provide evidence about conditions that did not
exist at the date of the balance sheet but arose after that date (that is, nonrecognized
subsequent events).
The FHLBNY has evaluated subsequent events through the date of this report and no significant
subsequent events were identified.
56
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Forward-Looking Statements
Statements contained in this report, including statements describing the objectives, projections,
estimates, or predictions of the Federal Home Loan Bank of New York (FHLBNY or Bank), may be
forward-looking statements. All statements other than statements of historical fact are
statements that could potentially be forward-looking statements. These statements may use
forward-looking terminology, such as anticipates, believes, could, estimates, may,
should, will, or other variations on these terms or their negatives. These statements may
involve matters pertaining to, but not limited to: projections regarding revenue, income, earnings,
capital expenditures, dividends, the capital structure and other financial items; statements of
plans or objectives for future operations; expectations of future economic performance; and
statements of assumptions underlying certain of the foregoing types of statements.
The Bank cautions that, by their nature, forward-looking statements involve risks or uncertainties,
and actual results could differ materially from those expressed or implied in these forward-looking
statements or could affect the extent to which a particular objective, projection, estimate, or
prediction is realized. As a result, readers are cautioned not to place undue reliance on such
statements, which are current only as of the date thereof. The Bank will not undertake to update
any forward-looking statement herein or that may be made from time to time on behalf of the Bank.
These forward-looking statements may not be realized due to a variety of risks and uncertainties
including, but not limited to risks and uncertainties relating to economic, competitive,
governmental, technological and marketing factors, as well as other factors identified in the
Banks filings with the Securities and Exchange Commission.
57
Organization of Managements Discussion and Analysis (MD&A).
The FHLBNYs MD&A is designed to provide information that will assist the readers in better
understanding the FHLBNYs financial statements, the changes in key items in the Banks financial
statements from period to period, the primary factors driving those changes as well as how
accounting principles affect the FHLBNYs financial statements. The MD&A is organized as follows:
|
|
|
|
|
|
|
Page |
|
|
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
66 |
|
|
|
|
|
|
|
|
|
66 |
|
|
|
|
|
|
|
|
|
67 |
|
|
|
|
|
|
|
|
|
68 |
|
|
|
|
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|
|
|
|
69 |
|
|
|
|
|
|
|
|
|
75 |
|
|
|
|
|
|
|
|
|
77 |
|
|
|
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
83 |
|
|
|
|
|
|
|
|
|
86 |
|
|
|
|
|
|
|
|
|
90 |
|
|
|
|
|
|
|
|
|
91 |
|
|
|
|
|
|
|
|
|
91 |
|
|
|
|
|
|
|
|
|
97 |
|
|
|
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
|
|
102 |
|
|
|
|
|
|
|
|
|
115 |
|
|
|
|
|
|
|
|
|
116 |
|
|
|
|
|
|
|
|
|
120 |
|
|
|
|
|
|
|
|
|
120 |
|
|
|
|
|
|
58
MD&A TABLE REFERENCE
|
|
|
|
|
|
|
|
|
Table |
|
Description |
|
Page |
|
|
|
|
|
Selected Financial Data |
|
|
64 |
|
|
1 |
|
|
Interest Income Principal Sources |
|
|
67 |
|
|
2 |
|
|
Impact of Interest Rate Swaps on Interest Income Earned from Advances |
|
|
67 |
|
|
3 |
|
|
Interest Expenses Principal Categories |
|
|
68 |
|
|
4 |
|
|
Impact of Interest Rate Swaps on Consolidated Obligation Interest Expense |
|
|
68 |
|
|
5 |
|
|
Components of Net Interest Income |
|
|
69 |
|
|
6 |
|
|
Net Interest Adjustments from Hedge Qualifying Interest-Rate Swaps |
|
|
71 |
|
|
7 |
|
|
GAAP Versus Economic Basis Contrasting Net Interest Income, Net Income Spread and Return on Earning Assets |
|
|
72 |
|
|
8 |
|
|
Spread and Yield Analysis |
|
|
73 |
|
|
9 |
|
|
Rate and Volume Analysis |
|
|
74 |
|
|
10 |
|
|
Provision for Credit Losses on Mortgage Loans and Other Income |
|
|
75 |
|
|
11 |
|
|
Net Gains (Losses) from Derivatives and Hedging Activities |
|
|
77 |
|
|
12 |
|
|
Gain/(Losses) Reclassified from AOCI to Current Period Income from Cash Flow Hedges |
|
|
79 |
|
|
13 |
|
|
Operating Expenses |
|
|
80 |
|
|
14 |
|
|
Statements of Condition |
|
|
81 |
|
|
15 |
|
|
Advances by Product Type |
|
|
83 |
|
|
16 |
|
|
Investments by Categories |
|
|
86 |
|
|
17 |
|
|
Mortgage-Backed Securities Held-to-Maturity by Issuer |
|
|
87 |
|
|
18 |
|
|
Available-for-Sale Securities Composition |
|
|
87 |
|
|
19 |
|
|
External Rating of the Held-to-Maturity Portfolio |
|
|
88 |
|
|
20 |
|
|
External Rating of the Available-for-Sale Portfolio |
|
|
88 |
|
|
21 |
|
|
Mortgage-Backed Securities Weighted Average Rates by Contractual Maturities |
|
|
88 |
|
|
22 |
|
|
Mortgage Loans by Loan Type |
|
|
91 |
|
|
23 |
|
|
Consolidated Obligation Bonds by Type |
|
|
94 |
|
|
24 |
|
|
Discount Notes Outstanding |
|
|
97 |
|
|
25 |
|
|
Roll-Forward Mandatorily Redeemable Capital Stock |
|
|
98 |
|
|
26 |
|
|
Derivative Hedging Strategies |
|
|
100 |
|
|
27 |
|
|
Derivatives Financial Instruments by Hedge Designation |
|
|
101 |
|
|
28 |
|
|
Derivative Financial Instruments by Product |
|
|
101 |
|
|
29 |
|
|
Advances and Mortgage Loan Portfolios |
|
|
102 |
|
|
30 |
|
|
Collateral Supporting Advances to Members |
|
|
103 |
|
|
31 |
|
|
Collateral Supporting Member Obligations Other Than Advances |
|
|
104 |
|
|
32 |
|
|
Location of Collateral Held |
|
|
104 |
|
|
33 |
|
|
Concentration analysis Top Ten Advance Holders |
|
|
105 |
|
|
34 |
|
|
Period-Over-Period Change in Investments |
|
|
105 |
|
|
35 |
|
|
NRSRO Held-to-Maturity Securities |
|
|
106 |
|
|
36 |
|
|
NRSRO Available-for-Sale Securities |
|
|
106 |
|
|
37 |
|
|
Carrying Value Basis of Held-to-Maturity Mortgage-Backed Securities by Issuer |
|
|
107 |
|
|
38 |
|
|
Non-Agency Private Label Mortgage Securities |
|
|
107 |
|
|
39 |
|
|
OTTI in 2010 |
|
|
108 |
|
|
40 |
|
|
Monoline Insurance of PLMBS |
|
|
108 |
|
|
41 |
|
|
PLMBS by Year of Securitization and External Rating |
|
|
109 |
|
|
42 |
|
|
Weighted-Average Market Price of MBS |
|
|
110 |
|
|
43 |
|
|
Roll-Forward First Loss Account |
|
|
111 |
|
|
44 |
|
|
Mortgage Loans Past Due |
|
|
111 |
|
|
45 |
|
|
Mortgage Loans Interest Short-Fall |
|
|
112 |
|
|
46 |
|
|
Mortgage Loans Allowance for Credit Losses |
|
|
112 |
|
|
47 |
|
|
Top Five Participating Financial Institutions Concentration |
|
|
112 |
|
|
48 |
|
|
Credit Exposure by Counterparty Credit Rating |
|
|
114 |
|
|
49 |
|
|
Contractual Obligations and Other Commitments |
|
|
116 |
|
|
50 |
|
|
Deposit Liquidity |
|
|
117 |
|
|
51 |
|
|
Operational Liquidity |
|
|
117 |
|
|
52 |
|
|
Contingency Liquidity |
|
|
118 |
|
|
53 |
|
|
Consolidated Obligation Original Maturities Less Than One Year |
|
|
119 |
|
|
54 |
|
|
Unpledged Assets |
|
|
119 |
|
|
55 |
|
|
FHFA MBS Limits |
|
|
119 |
|
|
56 |
|
|
FHLBNY Ratings |
|
|
120 |
|
59
Executive Overview
This overview of managements discussion and analysis highlights selected information and may
not contain all of the information that is important to readers of this Form 10-Q. For a more
complete understanding of events, trends and uncertainties, as well as the liquidity, capital,
credit and market risks, and critical accounting estimates, affecting the Federal Home Loan Bank of
New York (FHLBNY or Bank), this Form 10-Q should be read in its entirety and in conjunction
with the Banks most recent Form 10-K filed on March 25, 2010.
Cooperative business model. As a cooperative, the FHLBNY seeks to maintain a balance between its
public policy mission and its ability to provide adequate returns on the capital supplied by its
members. The FHLBNY achieves this balance by delivering low-cost financing to members to help them
meet the credit needs of their communities and by paying a dividend on the members capital stock.
Reflecting the FHLBNYs cooperative nature, the FHLBNYs financial strategies are designed to
enable the FHLBNY to expand and contract in response to member credit needs. The FHLBNY invests
its capital in high quality, short- and medium-term financial instruments. This strategy allows
the FHLBNY to maintain sufficient liquidity to satisfy member demand for short- and long-term
funds, repay maturing consolidated obligations, and meet other obligations. The dividends paid by
FHLBNY are largely the result of the FHLBNYs earnings on invested member capital, net earnings on
advances to members, mortgage loans and investments, offset in part by the FHLBNYs operating
expenses and assessments. FHLBNYs board of directors and management determine the pricing of
member credit and dividend policies based on the needs of its members and the cooperative.
Historical Perspective. The fundamental business of the FHLBNY is to provide member institutions
and housing associates with advances and other credit products in a wide range of maturities to
meet their needs. Congress created the FHLBanks in 1932 to improve the availability of funds to
support home ownership. Although the FHLBanks were initially capitalized with government funds,
members have provided all of the FHLBanks capital for over 50 years.
To accomplish its public purpose, the FHLBanks, including the FHLBNY, offer a readily available,
low-cost source of funds, called advances, to member institutions and certain housing associates.
Congress originally granted access to advances only to those institutions with the potential to
make and hold long-term, amortizing home mortgage loans. Such institutions were primarily
federally and state chartered savings and loan associations, cooperative banks, and state-chartered
savings banks (thrift institutions). FHLBanks and its member thrift institutions are an integral
part of the home mortgage financing system in the United States.
However, a variety of factors, including a severe recession, record-high interest rates, and
deregulation, resulted in significant financial losses for thrift institutions in the 1980s. In
response to the significant cost borne by the American taxpayer to resolve the failed thrift
institutions, Congress restructured the home mortgage financing system in 1989 with the passage of
the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). Through this
legislation, Congress reaffirmed the housing finance mission of the FHLBanks and expanded
membership eligibility in the FHLBanks to include commercial banks and credit unions with a
commitment to housing finance.
Different FHLBank Business Strategies. Each FHLBank is operated as a separate entity with its own
management, employees and board of directors. In addition, all FHLBanks operate under the Finance
Agencys supervisory and regulatory framework. However, each FHLBanks management and board of
directors determine the best approach for meeting its business objectives and serving its members.
As such, the management and board of directors of each FHLBank have developed different business
strategies and initiatives to fulfill that FHLBanks mission, and they re-evaluate these strategies
and initiatives from time to time.
Business segment. The FHLBNY manages its operations as a single business segment. Advances to
members are the primary focus of the FHLBNYs operations and the principal factor that impacts its
operating results. The FHLBNY is exempt from ordinary federal, state, and local taxation except
for local real estate tax. It is required to make payments to Resolution Funding Corporation
(REFCORP), and set aside a percentage of its income towards an Affordable Housing Program
(AHP). Together they are referred to as assessments.
Explanation of the use of certain non-GAAP measures of Interest Income and Expense, Net Interest
income and margin. The FHLBNY has presented its results of operations in accordance with U.S.
generally accepted accounting principles. The FHLBNY has also presented certain information
regarding its Interest Income and Expense, Net Interest income and Net Interest spread that
combines interest expense on debt with net interest paid on interest rate swaps associated with
debt that were hedged on an economic basis. These are non-GAAP financial measures used by
management that the FHLBNY believes are useful to investors and members of the FHLBNY in
understanding the Banks operational performance and business and performance trends. Although the
FHLBNY believes these non-GAAP financial measures enhance investor and members understanding of
the Banks business and performance, these non-GAAP financial measures should not be considered an
alternative to GAAP. When discussing non-GAAP measures, the Bank has provided GAAP measures in
parallel.
Third Quarter 2010 Highlights
The FHLBNY reported Net income of $78.8 million, or $1.71 per share for the 2010 third quarter
compared with Net income of $140.2 million or $2.70 per share for the same period in 2009. The
return on average equity, which is Net income divided by average Capital stock, Retained earnings,
and Accumulated other comprehensive income (loss) (AOCI), was 6.03% for the 2010 third quarter
compared with 9.79% for the same period in 2009.
60
Net income contracted due to the significant decline in Net interest income. Net interest income
was $125.2 million in the 2010 third quarter, down from $153.9 million, or a decline of 18.6% from
the same period in 2009.
The primary cause of the lower Net interest income was the decline in business volume as measured
by average member advances outstanding. Average outstanding advances in the 2010 third quarter was
$84.2 billion down from $96.7 billion in the same period in 2009. This adverse change in volume
caused Net interest income to decline by $29.9 million over the same period in 2009.
Net interest spread, which is the difference between yields on interest-earning assets and yields
on interest-costing liabilities, contracted by 4 basis points in the 2010 third quarter over the
same period in 2009. Net interest income and net interest spread contracted to levels more typical
of the years before 2009, primarily because the Banks funding advantage weakened in 2010.
While FHLBank discount note yield volatility may have stabilized in the current quarter, discount
note spreads to LIBOR have narrowed, adversely impacting FHLBNYs interest margins. In a declining
interest rate environment, the Federal Reserve Boards bill issuance strategy has been to create a
steady supply of bills that prevented yields from falling further, appears to have created a
floor for further declines in Treasury bill yields. In turn, it has also stabilized the FHLBank
discount note yields but that has not prevented discount note spreads from narrowing. As a result
of the spread compression in the current quarter, discount note issuances were further reduced, and
maturing notes were replaced by floating-rate debt and short lockout callable bonds with short
maturities. In much of 2009, FHLBank discount notes were issued at wide advantageous spreads to
LIBOR, and was one source of the funding advantage in 2009.
Earnings from investing members capital and net non-interest bearing liabilities in short-term
interest-yielding assets were an important contributor to FHLBNY earnings. In the 2010 third
quarter, $9.4 billion of deployed capital potentially could have earned a yield of 17-20 basis
points, the weighted average yield on money market instruments in that period. In the same period
in 2009, $8.8 billion in deployed capital could potentially have earned also about 17 basis points.
Short-term rates were comparable in the current and prior year quarters. Relative contribution
from deployed capital depends on (1) the absolute volume of deployed capital as measured by average
capital stock, retained earnings, and net non-interest bearing liabilities, and, (2) the short-term
investment yields.
In the 2010 third quarter, the FHLBNY increased the impairment of four private-label
mortgage-backed securities. Cash flow assessments of the expected credit performance of the
securities resulted in the recognition of $3.1 million as other-than-temporary impairment (OTTI)
with a charge to earnings. All four securities had been previously determined to be OTTI, and the
additional impairment in the 2010 third quarter was due to further deterioration in the performance
parameters of the securities. Although all four securities are insured by bond insurers, Ambac and
MBIA, the Banks analysis of the two bond insurers concluded that future credit losses due to
projected collateral shortfalls of the insured securities would not be fully supported by the bond
insurers. In the same period in 2009, OTTI of $3.7 million in credit impairment was charged to
earnings. For more information about impairment methodology and bond insurer analysis, see Note 1
Significant Accounting Policies and Estimates and Note 4 Held-to-maturity securities.
In the 2010 third quarter, the FHLBNY recognized $8.4 million of net gains from derivative and
hedging activities. In contrast, in the same period in 2009, net gains of $59.6 million were
recognized. Net hedging gains were primarily unrealized market value adjustments that resulted
from (1) hedge ineffectiveness interest rate changes that affected the market values of interest
rate swaps differently than the market values of the hedged risk, and (2) derivatives designated as
economic hedges. When derivatives are designated as economic hedges, changes in the fair values of
the derivatives are marked to fair value through earnings with no offsetting changes in fair values
of the hedged financial instruments. This effect is sometimes referred to as one-sided marks.
Hedging gains and losses included interest income or expense paid on swaps designated as economic
hedges, in compliance with hedge accounting reporting guidance, which prescribes that such interest
be included in the income statement as part of derivatives and hedging activities. Interest income
or expense from swaps that qualify for hedge accounting are also included in the income statement
but are reported as part of the income or expense of the hedged asset or liability as part of
interest margin. See Note 16 to the unaudited financial statements and Table 11 in this MD&A for
more information. In general, the FHLBNY holds derivatives and associated hedged instruments and
consolidated obligation debt under the Fair Value Option accounting (FVO), to their maturity,
call, or put dates. When such financial instruments are held to their contractual maturity (or
put/call dates), nearly all of the cumulative net fair value gains and losses that are recorded as
unrealized will generally reverse over time, and fair value changes will sum to zero over time. In
limited instances, the FHLBNY may terminate these instruments prior to maturity or prior to call or
put dates, which would result in a realized gain or loss.
Operating Expenses of the FHLBNY were $21.7 million for the 2010 third quarter, up from $17.8
million in the same period in 2009. The FHLBNY was also assessed for its share of the operating
expenses for the Finance Agency and the Office of Finance, and those totaled $2.0 million for the
2010 third quarter, up slightly from $1.8 million in the same period in 2009. The 12 FHLBanks and
two other GSEs share the administrative cost of the Finance Agency.
REFCORP assessment payments totaled $19.7 million in the 2010 third quarter, down from $35.1
million in the same period in 2009. Affordable Housing Program (AHP) assessment set aside from
income totaled $8.9 million in the 2010 third quarter, down from $15.8 million in the same period
in 2009. Assessments are calculated on Net income before assessments and the decreases were due to
the significant decrease in the 2010 third quarter Net income as
compared to the same period in 2009.
For more information about REFCORP and AHP assessments see the section Assessments under Background
in this Form 10-Q, and Note 12 to the unaudited financial statements.
61
Cash dividend of $1.15 per share of capital stock (4.60% annualized return on capital stock) was
paid to stockholders in the 2010 third quarter. In the 2009 third quarter, cash dividend of $1.40
per share (5.60% annualized return on capital stock) was paid.
The FHLBNY continued to experience balance sheet contraction as both its lending and funding
steadily declined through the 2010 third quarter. Advances to member banks declined to $85.7
billion at September 30, 2010, a level more typical of that before the credit crisis, from a peak
of approximately $109.2 billion in 2008 and $94.3 billion at December 31, 2009. The decline has
occurred gradually as member banks have taken advantage of the improved availability of alternate
funding sources such as deposits and senior unsecured borrowings in a more liquid market. Member
demand for advances has also declined, as loan demand from their customers may have stayed lukewarm
due to nationally weak economic conditions.
Aside from advances, the FHLBNYs primary earning assets are its investment securities portfolios,
comprising mainly of GSE and U.S. agency issued mortgage-backed securities (MBS), and state and
local government housing agency bonds. Such investment securities, classified as long-term
investment portfolios, totaled $11.6 billion, or 11.2% of Total assets at September 30, 2010, and
included $10.0 billion of GSE and agency issued MBS. Only $0.9 billion of private-label MBS
remained outstanding. Investment security values have continued to improve, and previously
recorded unrealized fair value losses in AOCI on GSE issued MBS reversed, and fair values were in a
net unrealized gain position, as liquidity has gradually returned to the market.
The FHLBNYs capital remains strong. At September 30, 2010, actual risk based capital was $5.4
billion, compared to required risk based capital of $0.5 billion. To support $103.1 billion of
Total assets at September 30, 2010, the required minimum regulatory capital was $4.1 billion, or
4.0% of assets. The FHLBNYs actual regulatory capital was $5.4 billion, exceeding required
capital by $1.3 billion at September 30, 2010. Aggregate capital ratio was at 5.27%, or 1.27% more
than the 4.0% regulatory minimum. The FHLBNY has prudently retained capital through the period of
credit turmoil. Retained earnings, excluding losses in AOCI, have grown to $701.2 million at
September 30, 2010. AOCI losses declined to $97.8 million at September 30, 2010 from $144.5
million at December 31, 2009 primarily because of the improvement in the pricing of mortgage-backed
securities designated as available-for-sale.
Shareholders equity, the sum of Capital stock, Retained earnings, and AOCI, was $5.3 billion at
September 30, 2010, a decline of $336.3 million from December 31, 2009, primarily because of the
decline in members Capital stock, which declined by $395.4 million. The decrease in Capital stock
was consistent with the decrease in advances borrowed by members since members are required to
purchase stock as a prerequisite to membership and to hold FHLBNY stock as a percentage of advances
borrowed from the FHLBNY. The Banks current practice is to redeem stock in excess of the amount
necessary to support advance activity on a daily basis. As a result, the amount of capital stock
outstanding varies in line with members outstanding advance borrowings. For more information
about changes in Capital, Retained earnings and AOCI, see Note 13 to the unaudited financial
statements in this report.
Year-to-date 2010 Highlights
The FHLBNY reported year-to-date Net income of $189.1 million, or $3.98 per share, compared
with $474.8 million, or $8.93 per share for the prior year period.
Net interest income was $347.6 million for the current year period, down $585.5 million from the
prior year period. The primary causes were (1) decline in transaction volume in the current year
period, (2) increases in debt costs relative to earnings from advances to members and investments,
and (3) lower earnings from the deployment of members capital to fund interest earning-assets
because of decline in member capital due to lower money-market investment yields.
Net realized and unrealized gain (loss) from derivatives and hedging activities was a loss of $3.3
million in the current year period. In contrast, the Bank recorded a gain of $124.6 million from
derivatives and hedging activities in the prior year period.
Cash flow assessments of the expected credit performance of the securities resulted in the
recognition of $7.7 million as OTTI charges to earnings. The non-credit component of OTTI recorded
in AOCI through the third quarter was not significant. In the prior year period, credit related
OTTI was $14.3 million. The non-credit component of OTTI recorded in AOCI through the prior year
third quarter was $103.9 million.
Business Outlook
The following forward-looking statements are based upon the current beliefs and expectations
of the FHLBNYs management and are subject to risks and uncertainties which could cause the
FHLBNYs actual results to differ materially from those set forth in such forward-looking
statements.
The FHLBNY expects its full year earnings to continue to decline to ultimately reach levels more
typical of the years before 2009, primarily as a result of lower net interest margins on the Banks
core assets, primarily advances and investments in mortgage-backed securities, as the Bank expects
continued erosion of its funding advantages.
The Banks earnings will continue to be adversely impacted in 2011 in a low interest rate
environment as opportunities to invest in high-quality assets and earn a reasonable spread will be
limited.
62
Advances - Management is unable to predict the timing and extent of the expected recovery in the
U.S. economy, particularly the recovery in the housing market, or an expectation of continued
stability in the financial markets. Against that backdrop, the management of the Bank believes it
is also difficult to predict member demand for advances, which is the primary focus of the FHLBNYs
operations and the principal factor that impacts its operating results.
Generally, the growth or decline in advances is reflective of demand by members for both short-term
liquidity and long-term funding driven by economic factors such as availability to the Banks
members of alternative funding sources that are more attractive, such as consumer deposits, the
interest rate environment, and the outlook for the economy. Members may choose to prepay advances,
which may require prepayment fees, based on their expectations of interest rate changes and demand
for liquidity. Demand for advances may also be influenced by the dividend payout rate to members
on their capital stock investment in the FHLBNY. Members are required to invest in FHLBNYs
capital stock in the form of membership stock and activity-based stock. Members are required to
purchase activity stock in order to borrow advances. Advance volume is also influenced by merger
activity where members are either acquired by non-members or acquired by members of another
FHLBank. When FHLBNY members are acquired by members of another FHLBank or a non-member, they no
longer qualify for membership in the FHLBNY, which cannot renew outstanding advances or provide new
advances to non-members. Subsequent to the merger, maturing advances may not be replaced, which
has an immediate impact on short-term and overnight advance lending if the former member borrowed
such advances.
Earnings As existing high-yielding fixed-rate MBS and some intermediate-term advances continue to
pay down or mature, it is unlikely they will be replaced by equivalent high yielding assets due to
the low interest rate environment, and this will tend to lower the overall yield on total assets.
The FHLBNY expects general advance demand from members to continue to decline, and specifically,
the Bank expects limited demand for large intermediate-term advances because many members have
adequate liquidity, and other members have significant amounts of intermediate-term advances that
were borrowed from the FHLBNY several years ago. The FHLBNY anticipates that such members may be
considering prepaying those borrowings, or to not replacing them at maturity. Members that have
expressed interest in intermediate-term borrowing have not been significant borrowers in the past.
The FHLBNY earns income from investing its members capital and non-interest bearing liabilities,
together referred to as deployed capital, to fund interest-earning assets. The two principal
factors that impact earnings from deployed capital are the average amount of capital outstanding in
a period and the interest rate environment in the period, which in turn impacts yields on earning
assets. These factors determine the potential earnings from deployed capital, and both factors are
subject to change. The Bank cannot predict with certainty the level of earnings from capital. In
a lower interest rate environment, deployed capital, which consists of capital stock, retained
earnings, and net non-interest bearing liabilities, will provide relatively lower income.
The Banks earnings will be adversely impacted in 2011 in the low interest rate environment as
opportunities to invest in high-quality assets and to earn a reasonable spread may be limited.
Demand for FHLBank debt - The FHLBNYs primary source of funds is the sale of consolidated
obligations in the capital markets, and the FHLBNYs ability to obtain funds through the sale of
consolidated obligations depends in part on prevailing conditions in the capital markets, which are
beyond the FHLBNYs control. The FHLBNY may not be able to obtain funding on acceptable terms
given the extraordinary market conditions and structural changes in the debt market. If the FHLBNY
cannot access funding when needed on acceptable terms, its ability to support and continue
operations could be adversely affected, which could negatively affect its financial condition and
results of operations. The pricing of the FHLBanks longer-term debt remains at levels that are
still higher than historical levels, relative to LIBOR. To the extent the FHLBanks receive
sub-optimal funding, the Banks member institutions in turn may experience higher costs for advance
borrowings. To the extent the FHLBanks may not be able to issue long-term debt at economical
spreads relative to the 3-month LIBOR rate, the FHLBNYs members borrowing choices may also be
limited.
Credit Impairment of Mortgage-backed securities - OTTI charges of $7.7 million were recorded for
the FHLBNYs MBS portfolios through the current year quarter. However, without recovery in the
near term such that liquidity returns to the mortgage-backed securities market, or if the credit
losses of the underlying collateral within the mortgage-backed securities perform worse than
expected, the FHLBNY could face additional credit losses. In addition, certain private-label MBS
may be undergoing loan modification and forbearance proceedings at the loan level and such
processes may have an adverse impact on the amounts and timing of expected cash flows.
63
SELECTED FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Condition |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
(dollars in millions) |
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments (1) |
|
$ |
15,690 |
|
|
$ |
14,971 |
|
|
$ |
15,561 |
|
|
$ |
16,222 |
|
|
$ |
18,741 |
|
Interest bearing balance at FRB ** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
85,697 |
|
|
|
85,286 |
|
|
|
88,859 |
|
|
|
94,349 |
|
|
|
95,945 |
|
Mortgage loans held-for-portfolio, net of
allowance for credit losses (2) |
|
|
1,268 |
|
|
|
1,283 |
|
|
|
1,288 |
|
|
|
1,318 |
|
|
|
1,336 |
|
Total assets |
|
|
103,094 |
|
|
|
105,183 |
|
|
|
107,239 |
|
|
|
114,461 |
|
|
|
117,604 |
|
Deposits and borrowings |
|
|
3,730 |
|
|
|
4,795 |
|
|
|
7,977 |
|
|
|
2,631 |
|
|
|
2,276 |
|
Consolidated obligations, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
|
74,919 |
|
|
|
66,247 |
|
|
|
72,408 |
|
|
|
74,008 |
|
|
|
69,671 |
|
Discount notes |
|
|
17,788 |
|
|
|
27,481 |
|
|
|
19,816 |
|
|
|
30,828 |
|
|
|
38,385 |
|
Total consolidated obligations |
|
|
92,707 |
|
|
|
93,728 |
|
|
|
92,224 |
|
|
|
104,836 |
|
|
|
108,056 |
|
Mandatorily redeemable capital stock |
|
|
67 |
|
|
|
70 |
|
|
|
105 |
|
|
|
126 |
|
|
|
128 |
|
AHP liability |
|
|
138 |
|
|
|
144 |
|
|
|
146 |
|
|
|
144 |
|
|
|
145 |
|
REFCORP liability |
|
|
21 |
|
|
|
14 |
|
|
|
14 |
|
|
|
24 |
|
|
|
39 |
|
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock |
|
|
4,664 |
|
|
|
4,680 |
|
|
|
4,828 |
|
|
|
5,059 |
|
|
|
5,142 |
|
Retained earnings |
|
|
701 |
|
|
|
676 |
|
|
|
672 |
|
|
|
689 |
|
|
|
666 |
|
Accumulated other comprehensive income (loss) |
|
|
(98 |
) |
|
|
(109 |
) |
|
|
(124 |
) |
|
|
(145 |
) |
|
|
(147 |
) |
Total capital |
|
|
5,267 |
|
|
|
5,247 |
|
|
|
5,376 |
|
|
|
5,603 |
|
|
|
5,661 |
|
Equity to asset ratio (3) |
|
|
5.11 |
% |
|
|
4.99 |
% |
|
|
5.01 |
% |
|
|
4.90 |
% |
|
|
4.81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
Statements of Condition |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
Averages(dollars in millions) |
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments (1) |
|
$ |
16,996 |
|
|
$ |
18,757 |
|
|
$ |
17,711 |
|
|
$ |
18,650 |
|
|
$ |
19,764 |
|
|
$ |
17,811 |
|
|
$ |
5,053 |
|
Interest-bearing balance at FRB ** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,062 |
|
Advances |
|
|
84,164 |
|
|
|
85,609 |
|
|
|
91,415 |
|
|
|
94,193 |
|
|
|
96,704 |
|
|
|
87,036 |
|
|
|
100,574 |
|
Mortgage loans |
|
|
1,274 |
|
|
|
1,281 |
|
|
|
1,299 |
|
|
|
1,333 |
|
|
|
1,357 |
|
|
|
1,285 |
|
|
|
1,403 |
|
Total assets |
|
|
106,179 |
|
|
|
108,325 |
|
|
|
113,116 |
|
|
|
117,289 |
|
|
|
120,754 |
|
|
|
109,181 |
|
|
|
128,215 |
|
Interest-bearing deposits and other borrowings |
|
|
5,062 |
|
|
|
5,212 |
|
|
|
5,050 |
|
|
|
2,361 |
|
|
|
2,083 |
|
|
|
5,108 |
|
|
|
2,006 |
|
Consolidated obligations, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
|
69,817 |
|
|
|
71,738 |
|
|
|
74,297 |
|
|
|
73,264 |
|
|
|
69,604 |
|
|
|
71,934 |
|
|
|
71,388 |
|
Discount notes |
|
|
21,317 |
|
|
|
22,354 |
|
|
|
24,555 |
|
|
|
31,741 |
|
|
|
39,521 |
|
|
|
22,730 |
|
|
|
44,783 |
|
Total consolidated obligations |
|
|
91,134 |
|
|
|
94,092 |
|
|
|
98,852 |
|
|
|
105,005 |
|
|
|
109,125 |
|
|
|
94,664 |
|
|
|
116,171 |
|
Mandatorily redeemable capital stock |
|
|
68 |
|
|
|
96 |
|
|
|
108 |
|
|
|
143 |
|
|
|
128 |
|
|
|
91 |
|
|
|
135 |
|
AHP liability |
|
|
141 |
|
|
|
144 |
|
|
|
144 |
|
|
|
144 |
|
|
|
139 |
|
|
|
143 |
|
|
|
132 |
|
REFCORP liability |
|
|
10 |
|
|
|
7 |
|
|
|
9 |
|
|
|
15 |
|
|
|
23 |
|
|
|
9 |
|
|
|
23 |
|
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock |
|
|
4,611 |
|
|
|
4,719 |
|
|
|
4,929 |
|
|
|
5,030 |
|
|
|
5,195 |
|
|
|
4,752 |
|
|
|
5,315 |
|
Retained earnings |
|
|
679 |
|
|
|
661 |
|
|
|
658 |
|
|
|
666 |
|
|
|
611 |
|
|
|
666 |
|
|
|
522 |
|
Accumulated other comprehensive income (loss) |
|
|
(106 |
) |
|
|
(120 |
) |
|
|
(141 |
) |
|
|
(136 |
) |
|
|
(125 |
) |
|
|
(122 |
) |
|
|
(95 |
) |
Total capital |
|
|
5,184 |
|
|
|
5,260 |
|
|
|
5,446 |
|
|
|
5,560 |
|
|
|
5,681 |
|
|
|
5,296 |
|
|
|
5,742 |
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results and other data |
|
|
|
|
|
|
(dollars in millions) |
|
Three months ended |
|
|
Nine months ended |
|
(except earnings, headcount, |
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
and dividends per share) |
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (4) |
|
$ |
125 |
|
|
$ |
116 |
|
|
$ |
106 |
|
|
$ |
116 |
|
|
$ |
154 |
|
|
$ |
348 |
|
|
$ |
585 |
|
Net income |
|
|
79 |
|
|
|
57 |
|
|
|
54 |
|
|
|
97 |
|
|
|
140 |
|
|
|
189 |
|
|
|
475 |
|
Dividends paid in cash (7) |
|
|
54 |
|
|
|
52 |
|
|
|
71 |
|
|
|
74 |
|
|
|
74 |
|
|
|
177 |
|
|
|
191 |
|
AHP expense |
|
|
9 |
|
|
|
6 |
|
|
|
6 |
|
|
|
10 |
|
|
|
16 |
|
|
|
21 |
|
|
|
53 |
|
REFCORP expense |
|
|
20 |
|
|
|
14 |
|
|
|
13 |
|
|
|
24 |
|
|
|
35 |
|
|
|
47 |
|
|
|
119 |
|
Return on average equity* (5) |
|
|
6.03 |
% |
|
|
4.32 |
% |
|
|
3.99 |
% |
|
|
6.85 |
% |
|
|
9.79 |
% |
|
|
4.77 |
% |
|
|
11.06 |
% |
Return on average assets* |
|
|
0.29 |
% |
|
|
0.21 |
% |
|
|
0.19 |
% |
|
|
0.32 |
% |
|
|
0.46 |
% |
|
|
0.23 |
% |
|
|
0.50 |
% |
Net OTTI impairment losses |
|
|
(3 |
) |
|
$ |
(1 |
) |
|
$ |
(3 |
) |
|
$ |
(7 |
) |
|
$ |
(4 |
) |
|
|
(8 |
) |
|
$ |
(14 |
) |
Other non-interest income (loss) |
|
|
9 |
|
|
|
(15 |
) |
|
|
(8 |
) |
|
|
48 |
|
|
|
61 |
|
|
|
(13 |
) |
|
|
137 |
|
Total other income (loss) |
|
|
6 |
|
|
|
(16 |
) |
|
|
(11 |
) |
|
|
41 |
|
|
|
57 |
|
|
|
(21 |
) |
|
|
123 |
|
Operating expenses |
|
|
22 |
|
|
|
20 |
|
|
|
19 |
|
|
|
22 |
|
|
|
18 |
|
|
|
61 |
|
|
|
54 |
|
Finance Agency and Office of Finance |
|
|
2 |
|
|
|
2 |
|
|
|
3 |
|
|
|
2 |
|
|
|
2 |
|
|
|
6 |
|
|
|
6 |
|
Total other expenses |
|
|
24 |
|
|
|
22 |
|
|
|
22 |
|
|
|
24 |
|
|
|
20 |
|
|
|
67 |
|
|
|
60 |
|
Operating expenses ratio* (6) |
|
|
0.08 |
% |
|
|
0.08 |
% |
|
|
0.07 |
% |
|
|
0.07 |
% |
|
|
0.06 |
% |
|
|
0.07 |
% |
|
|
0.06 |
% |
Earnings per share |
|
$ |
1.71 |
|
|
$ |
1.20 |
|
|
$ |
1.09 |
|
|
$ |
1.94 |
|
|
$ |
2.70 |
|
|
$ |
3.98 |
|
|
$ |
8.93 |
|
Dividend per share |
|
$ |
1.15 |
|
|
$ |
1.05 |
|
|
$ |
1.41 |
|
|
$ |
1.42 |
|
|
$ |
1.40 |
|
|
$ |
3.60 |
|
|
$ |
3.54 |
|
Headcount (Full/part time) |
|
|
269 |
|
|
|
270 |
|
|
|
266 |
|
|
|
264 |
|
|
|
259 |
|
|
|
269 |
|
|
|
259 |
|
|
|
|
(1) |
|
Investments include held-to-maturity securities, available for-sale securities, Federal
funds, loans to other FHLBanks, and other interest bearing deposits. |
|
(2) |
|
Allowances for credit losses were $5.5 million, $5.4 million, $5.2 million, $4.5 million, and
$3.4 million at the periods ended September 30, 2010, June 30, 2010, March 31, 2010, December
31, 2009 and September 30, 2009. |
|
(3) |
|
Equity to asset ratio is capital stock plus retained earnings and Accumulated other
comprehensive income (loss) as a percentage of total assets. |
|
(4) |
|
Net interest income is net interest income before the provision for credit losses on mortgage
loans. |
|
(5) |
|
Return on average equity is net income as a percentage of average capital stock plus average
retained earnings and average Accumulated other comprehensive income (loss). |
|
(6) |
|
Operating expenses as a percentage of total average assets. |
|
(7) |
|
Excludes dividends accrued to non-members classified as interest expense under the accounting
standards for certain financial instruments with characteristics of both liabilities and
equity. |
|
* |
|
Annualized. |
|
** |
|
FRB program commenced in October 2008. On July 2, 2009, the Bank was no longer eligible to
collect interest on excess balances. |
65
Results of Operations
The following section provides a comparative discussion of the FHLBNYs results of operations
for the current year and prior year third quarter and year-to-date periods. For a discussion of
the significant accounting estimates used by the FHLBNY that affect the results of operations, see
Significant Accounting Policies and Estimates in Note 1 to this Form 10-Q and in the Banks most
recent Form 10-K filed on March 25, 2010.
The FHLBNY manages its operations as a single business segment. Advances to members are the
primary focus of the FHLBNYs operations, and are the principal factor that impacts its operating
results. Interest income from advances is the principal source of revenue. The primary expenses
are interest paid on consolidated obligations debt, operating expenses, principally administrative
and overhead expenses, and assessments on net income. The FHLBNY is exempt from ordinary
federal, state, and local taxation except for local real estate tax. It is required to make
payments to REFCORP and set aside funds from its income towards an Affordable Housing Program
(AHP), together referred to as assessments. Other significant factors affecting the Banks Net
income include the volume and timing of investments in mortgage-backed securities, debt repurchases
and associated losses, and earnings from shareholders capital.
Net Income
The FHLBNY reported current year third quarter Net income of $78.8 million, or $1.71 per
share, compared to prior year period Net income of $140.2 million, or $2.70 per share. Current
year-to-date Net income was $189.1 million, or $3.98 per share, compared to prior year period Net
income of $474.8 million, or $8.93 per share.
Net interest income, a key metric for the FHLBNY and the primary contributor to Net income, was
adversely affected in 2010. Net interest income in the current year quarter was $125.2
million, down by $28.7 million from the prior year period, and was the primary cause of the decline in
Net income. Net interest income was $347.6 million for the current year-to-date period, down by
$237.9 million from the prior year period. The Banks cost of debt has become more expensive in
2010 relative to prior year periods. Additionally, the volume of advance business has contracted.
Another factor was the decline in member capital stock, which declined in line with advances
borrowed by members. The FHLBNY typically invests member capital to fund short-term
interest-earning investments and decline in capital stock reduced the potential for earning
additional interest income. Hedging activities resulted in a small loss in 2010, in contrast to
significant gains, mainly unrealized, that enhanced earnings in the prior year periods.
In the current year quarter, four held-to-maturity private-label MBS were credit impaired and to
deemed to be OTTI and $3.1 million was recorded as a charge to Other income (loss), compared to
$3.7 million in the prior year period. On a year-to-date basis, credit impairment charge of $7.7
million was recorded in the current year, compared to $14.3 million in the prior year.
Reported Net realized and unrealized loss from hedging activities was a gain of $8.4 million in the
current year quarter compared to gain of $59.6 million in the prior year period. On a year-to-date
basis, the Bank recorded a loss of $3.3 million in the current year period, in contrast to a gain
of $124.6 million in the prior year period. In order to manage the FHLBNYs interest rate risk
profile, the FHLBNY routinely uses derivatives to manage the interest rate risk inherent in the
Banks assets and liabilities. The hedging losses and gains were primarily due to (1) Fair value
changes of interest rate swaps and options designated as economic hedges of debt issued by the
FHLBNY, and (2) Reversal of fair value changes recorded in the prior year periods. Hedging losses
are net of interest received or paid on swaps designated as economic hedges, in compliance with
hedge accounting reporting guidance, which prescribes that such interest is included in the income
statement as part of derivatives, and hedging activities. Interest income or expense from swaps
that qualify under hedge accounting are also included in the income statement but are reported as
part of the income or expense of the hedged asset or liability. See Note 16 to the unaudited
financial statements and Table 11 in this MD&A for more information.
The Bank recorded fair value net losses of $12.6 million on consolidated obligation debt that were
designated under the Fair Value Option (FVO) in the 2010 year-to-date period, compared to a gain
of $8.7 million in the prior year period. The debt was economically hedged by interest rate swaps,
and gains and losses were largely offset by recorded fair value
changes on the swaps by $12.8
million in the 2010 year-to-date period, and $5.8 million in the prior year period. In the current
and prior year third quarters, gains were de minimis.
In general, the FHLBNY holds derivatives and associated hedged instruments, and consolidated
obligation debt at fair values under the FVO, to the maturity, call, or put dates. When such
financial instruments are held to their contractual maturity (or put/call dates), nearly all of the
cumulative net fair value gains and losses that are unrealized will generally reverse over time,
and fair value changes will sum to zero. In limited instances, the FHLBNY may terminate these
instruments prior to maturity or prior to call or put dates, which would result in a realized gain
or loss.
Total Other expenses, comprised of Operating expenses and Assessments paid to the Finance Agency
and the Office of finance, were $23.7 million for the current year quarter, up by $4.0 million from
the prior year period. On a year-to-date basis, Other expenses were $67.7 million, up by $8.1
million from the prior year period.
REFCORP assessments were $19.7 million in current year quarter, down $15.4 million from the prior
year period. AHP assessments were $21.4 million, down $32.0 million from the prior year period.
On a year-to-date basis, the combined REFCORP and AHP assessment was $68.6 million in the current
year period, down $103.4 million from the prior year period. Assessments are calculated on Net income before assessments and the
decreases were due to lower Net income in current year periods compared to prior year periods.
66
Interest Income
Interest income from advances and investments in mortgage-backed securities are the principal
sources of income for the FHLBNY. Changes in both rate and intermediation volume (average
interest-yielding assets) explain the change in the current year periods from the prior year
periods. The principal categories of Interest Income are summarized below (dollars in thousands):
Table
1: Interest Income Principal Sources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
Variance |
|
|
2010 |
|
|
2009 |
|
|
Variance |
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
173,459 |
|
|
$ |
240,573 |
|
|
|
(27.90 |
)% |
|
$ |
477,303 |
|
|
$ |
1,094,089 |
|
|
|
(56.37 |
)% |
Interest-bearing deposits |
|
|
1,699 |
|
|
|
1,014 |
|
|
|
67.55 |
|
|
|
3,766 |
|
|
|
19,054 |
|
|
|
(80.24 |
) |
Federal funds sold |
|
|
2,253 |
|
|
|
1,864 |
|
|
|
20.87 |
|
|
|
6,600 |
|
|
|
1,933 |
|
|
|
NM |
|
Available-for-sale securities |
|
|
7,580 |
|
|
|
6,590 |
|
|
|
15.02 |
|
|
|
23,128 |
|
|
|
22,881 |
|
|
|
1.08 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
84,242 |
|
|
|
111,232 |
|
|
|
(24.26 |
) |
|
|
274,686 |
|
|
|
355,916 |
|
|
|
(22.82 |
) |
Certificates of
deposit |
|
|
|
|
|
|
851 |
|
|
|
(100.00 |
) |
|
|
|
|
|
|
1,392 |
|
|
|
(100.00 |
) |
Mortgage loans held-for-portfolio |
|
|
16,333 |
|
|
|
17,405 |
|
|
|
(6.16 |
) |
|
|
49,689 |
|
|
|
54,679 |
|
|
|
(9.13 |
) |
Loans to other FHLBanks and other |
|
|
|
|
|
|
1 |
|
|
|
(100.00 |
) |
|
|
|
|
|
|
1 |
|
|
|
(100.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest
income |
|
$ |
285,566 |
|
|
$ |
379,530 |
|
|
|
(24.76 |
)% |
|
$ |
835,172 |
|
|
$ |
1,549,945 |
|
|
|
(46.12 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported Interest income in the Statements of Income was adjusted for the cash flows
associated with interest rate swaps (designated in accounting hedges) in which the Bank generally
pays fixed-rate cash flows to derivative counterparties, which typically mirrors the fixed-rate
coupons received from advances borrowed by members. In exchange, the Bank receives variable-rate
LIBOR-indexed cash flows.
Impact of hedging advances - The FHLBNY executes interest rate swaps to modify the effective
interest rate terms of many of its fixed-rate advance products and typically all of its putable
advances. In these swaps, the FHLBNY effectively converts a fixed-rate stream of cash flows from
its fixed-rate advances to a floating-rate stream of cash flows, typically indexed to LIBOR. These
cash flow patterns from derivatives were in line with the Banks interest rate risk management
practices and effectively converted fixed-rate cash flows of hedged advances to LIBOR indexed cash
flows. Derivative strategies are used to manage the interest rate risk inherent in fixed-rate
advances and are designed to protect future interest income.
The table below summarizes interest income earned from advances and the impact of interest rate
derivatives (in thousands):
Table 2: Impact of Interest Rate Swaps on Interest Income Earned from Advances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Advance Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance interest income before adjustment
for interest rate swaps |
|
$ |
651,672 |
|
|
$ |
743,687 |
|
|
$ |
1,996,172 |
|
|
$ |
2,345,699 |
|
Net interest adjustment from interest rate swaps 1 |
|
|
(478,213 |
) |
|
|
(503,114 |
) |
|
|
(1,518,869 |
) |
|
|
(1,251,610 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Advance interest income reported |
|
$ |
173,459 |
|
|
$ |
240,573 |
|
|
$ |
477,303 |
|
|
$ |
1,094,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the current year periods, the FHLBNY paid swap counterparties fixed-rate cash flows, which
typically mirrored the coupons on hedged advance. In return, the swap counterparties paid the
FHLBNY a pre-determined spread plus the prevailing LIBOR, which resets generally every three months.
In the table above, the unfavorable cash flow patterns of the interest rate swaps were indicative
of the declining LIBOR rates (obligation of the swap counterparty) compared to fixed-rate
obligation of the FHLBNY. The Bank is generally indifferent to changes in the cash flow patterns
as it typically hedges its fixed-rate consolidated obligation debt, which is the Banks primary
funding base, and achieves its overall net interest spread objective.
Under GAAP, net interest adjustments from derivatives (as described in Table 2 above) may be offset
against the net interest accruals of the hedged financial instrument (e.g. advance) only if the
derivative is in a hedge qualifying relationship. If the hedge does not qualify for hedge
accounting, and the Bank designates the hedge as an economic hedge, the net interest adjustments
from derivatives would not be recorded with the advance interest revenues. Instead, the net
interest adjustments from swaps would be recorded in Other income (loss) as a Net realized and unrealized gain (loss) from derivatives and hedging activities. Thus, the accounting designation
of a hedge may have a significant impact on reported Interest income from advances. There were no
material amounts of net interest adjustments from interest rate swaps designated as economic hedges
of advances that were reported in Other income in the current year or prior year periods related to
swaps associated with advances.
67
Interest Expense
The FHLBNYs primary source of funding is through the issuance of consolidated obligation
bonds and discount notes in the global debt markets. Consolidated obligation bonds are medium- and
long-term, while discount notes are short-term instruments. To fund its assets, the FHLBNY
considers its interest rate risk and liquidity requirements in conjunction with consolidated
obligation buyers preferences and capital market conditions when determining the characteristics
of debt to be issued. Typically, the Bank has used fixed-rate callable and non-callable bonds to
fund mortgage-related assets and advances. Discount notes are issued to fund advances and
investments with shorter-interest rate reset characteristics.
The principal categories of Interest expense are summarized below. Changes in both rate and
intermediation volume (average interest-costing liabilities), the mix of debt issuances between
bonds and discount notes, and the impact of hedging strategies explain the changes in interest
expense (dollars in thousands):
Table 3: Interest Expenses Principal Categories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
Variance |
|
|
2010 |
|
|
2009 |
|
|
Variance |
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
$ |
147,097 |
|
|
$ |
191,708 |
|
|
|
(23.27 |
)% |
|
$ |
448,669 |
|
|
$ |
783,695 |
|
|
|
(42.75 |
)% |
Consolidated obligations-discount notes |
|
|
11,456 |
|
|
|
31,647 |
|
|
|
(63.80 |
) |
|
|
33,069 |
|
|
|
173,228 |
|
|
|
(80.91 |
) |
Deposits |
|
|
959 |
|
|
|
516 |
|
|
|
85.85 |
|
|
|
2,813 |
|
|
|
2,002 |
|
|
|
40.51 |
|
Mandatorily redeemable capital stock |
|
|
879 |
|
|
|
1,807 |
|
|
|
(51.36 |
) |
|
|
3,051 |
|
|
|
5,478 |
|
|
|
(44.30 |
) |
Cash collateral held and other borrowings |
|
|
14 |
|
|
|
|
|
|
NM |
| |
|
14 |
|
|
|
49 |
|
|
|
(71.43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
160,405 |
|
|
$ |
225,678 |
|
|
|
(28.92 |
)% |
|
$ |
487,616 |
|
|
$ |
964,452 |
|
|
|
(49.44 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported Interest expense in the Statements of Income is adjusted for the cash flows
associated with interest rate swaps in which the Bank generally pays variable-rate LIBOR-indexed
cash flows to derivative counterparties and, in exchange, the Bank receives fixed-rate cash flows,
which typically mirror the fixed-rate coupon payments to investors holding the debt. The Bank
generally hedges its long-term fixed-rate bonds and almost all fixed-rate callable bonds with swaps
that generally qualify for hedge accounting. In the current year periods and the same periods in
the prior year, the Bank economically hedged certain floating-rate bonds that were not indexed to
3-month LIBOR, and certain short-term fixed-rate debt and discount notes because it believed that
the hedges would not be highly effective in offsetting changes in the fair values of the debt and
the swap, and would not therefore qualify for hedge accounting.
Impact of hedging debt - The FHLBNY issues both fixed-rate callable and non-callable debt.
Typically, the Bank issues callable debt with the simultaneous execution of cancellable interest
rate swaps to modify the effective interest rate terms and the effective durations of its
fixed-rate callable debt. A substantial percentage of non-callable fixed-rate debt is also swapped
to plain vanilla LIBOR-indexed cash flows.
These hedging strategies benefit the Bank in two principal ways: (1) fixed-rate callable bond in
conjunction with interest rate swap containing a call feature that mirrors the option embedded in
the callable bond enables the FHLBNY to meet its funding needs at yields not otherwise directly
attainable through the issuance of callable debt; and, (2) the issuance of fixed-rate debt and the
simultaneous execution of an interest rate swap converts the debt to an adjustable-rate instrument
tied to an index, typically 3-month LIBOR. Derivative strategies are used to manage the interest
rate risk inherent in fixed-rate debt and certain floating-rate debt that are not indexed to
3-month LIBOR rates. The strategies are designed to protect future interest income. The economic
hedge of debt tied to indices other than 3-month LIBOR (Prime, Federal funds, and 1-month LIBOR) is
designed to effectively convert the cash flows of the debt to 3-month LIBOR.
The table below summarizes interest expense paid on consolidated obligation bonds and discount
notes and the impact of interest rate swaps (in thousands):
Table 4: Impact of Interest Rate Swaps on Consolidated Obligation Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Consolidated bonds and discount notes-Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds-Interest expense before adjustment for swaps |
|
$ |
285,874 |
|
|
$ |
343,175 |
|
|
$ |
933,744 |
|
|
$ |
1,167,845 |
|
Discount notes-Interest expense before adjustment for swaps |
|
|
11,456 |
|
|
|
31,647 |
|
|
|
33,069 |
|
|
|
173,702 |
|
Net interest adjustment for interest rate swaps 1 |
|
|
(138,777 |
) |
|
|
(151,467 |
) |
|
|
(485,075 |
) |
|
|
(384,624 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated bonds and discount notes-interest expense reported |
|
$ |
158,553 |
|
|
$ |
223,355 |
|
|
$ |
481,738 |
|
|
$ |
956,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
Net Interest Income
Net interest income is the principal source of revenue for the Bank, and represents the
difference between interest income from interest-earning assets and interest expense paid on
interest-costing liabilities. Net interest income is impacted by a variety of factors:
|
|
Member demand for advances and investment activity, the yields from advances and
investments, and the cost of consolidated obligation debt that is issued by the Bank to fund
advances and investments. |
|
|
The execution of interest rate swaps in the derivative market at a constant
spread to LIBOR, in effect converting fixed-rate advances and fixed-rate debt to conventional
adjustable-rate instruments indexed to LIBOR, results in an important intermediation for the
Bank between the capital markets and the swap market. The intermediation has typically
permitted the Bank to raise funds at lower costs than would otherwise be available through the
issuance of simple fixed- or floating-rate debt in the capital markets. The FHLBNY deploys
hedging strategies to protect future net interest income, but may reduce income in the
short-run, although the FHLBNY expects them to benefit future periods. |
|
|
Income earned from assets funded by member capital and retained earnings,
referred to as deployed capital, which are non-interest bearing, is another important
contributor for the FHLBNY. |
All of these factors may fluctuate based on changes in interest rates, demand by members for
advances, investor demand for debt issued by the FHLBNY, the change in the spread between the
yields on advances and investments, and the cost of financing these assets by the issuance of debt
to investors.
The following table summarizes key changes in the components of Net interest income (dollars in
thousands):
Table 5: Components of Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
Variance |
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
173,459 |
|
|
$ |
240,573 |
|
|
|
(27.90 |
)% |
Interest-bearing deposits |
|
|
1,699 |
|
|
|
1,014 |
|
|
|
67.55 |
|
Federal funds sold |
|
|
2,253 |
|
|
|
1,864 |
|
|
|
20.87 |
|
Available-for-sale securities |
|
|
7,580 |
|
|
|
6,590 |
|
|
|
15.02 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
84,242 |
|
|
|
111,232 |
|
|
|
(24.26 |
) |
Certificates of
deposit |
|
|
|
|
|
|
851 |
|
|
|
(100.00 |
) |
Mortgage loans held-for-portfolio |
|
|
16,333 |
|
|
|
17,405 |
|
|
|
(6.16 |
) |
Loans to other FHLBanks and other |
|
|
|
|
|
|
1 |
|
|
|
(100.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
285,566 |
|
|
|
379,530 |
|
|
|
(24.76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
|
147,097 |
|
|
|
191,708 |
|
|
|
(23.27 |
) |
Consolidated obligations-discount notes |
|
|
11,456 |
|
|
|
31,647 |
|
|
|
(63.80 |
) |
Deposits |
|
|
959 |
|
|
|
516 |
|
|
|
85.85 |
|
Mandatorily redeemable capital stock |
|
|
879 |
|
|
|
1,807 |
|
|
|
(51.36 |
) |
Cash collateral held and other borrowings |
|
|
14 |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
160,405 |
|
|
|
225,678 |
|
|
|
(28.92 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income before provision for
credit losses |
|
$ |
125,161 |
|
|
$ |
153,852 |
|
|
|
(18.65 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
Variance |
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
477,303 |
|
|
$ |
1,094,089 |
|
|
|
(56.37 |
)% |
Interest-bearing deposits |
|
|
3,766 |
|
|
|
19,054 |
|
|
|
(80.24 |
) |
Federal funds sold |
|
|
6,600 |
|
|
|
1,933 |
|
|
|
241.44 |
|
Available-for-sale securities |
|
|
23,128 |
|
|
|
22,881 |
|
|
|
1.08 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
274,686 |
|
|
|
355,916 |
|
|
|
(22.82 |
) |
Certificates of deposit |
|
|
|
|
|
|
1,392 |
|
|
|
(100.00 |
) |
Mortgage loans held-for-portfolio |
|
|
49,689 |
|
|
|
54,679 |
|
|
|
(9.13 |
) |
Loans to other FHLBanks and other |
|
|
|
|
|
|
1 |
|
|
|
(100.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
835,172 |
|
|
|
1,549,945 |
|
|
|
(46.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
|
448,669 |
|
|
|
783,695 |
|
|
|
(42.75 |
) |
Consolidated obligations-discount notes |
|
|
33,069 |
|
|
|
173,228 |
|
|
|
(80.91 |
) |
Deposits |
|
|
2,813 |
|
|
|
2,002 |
|
|
|
40.51 |
|
Mandatorily redeemable capital stock |
|
|
3,051 |
|
|
|
5,478 |
|
|
|
(44.30 |
) |
Cash collateral held and other borrowings |
|
|
14 |
|
|
|
49 |
|
|
|
(71.43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
487,616 |
|
|
|
964,452 |
|
|
|
(49.44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income before provision for credit
losses |
|
$ |
347,556 |
|
|
$ |
585,493 |
|
|
|
(40.64 |
)% |
|
|
|
|
|
|
|
|
|
|
69
In the 2010 current quarter and year-to-date periods, Net interest income declined from the
same periods in 2009. Net interest income is directly impacted by transaction volumes, as measured
by average balances of interest earning assets, and by the prevailing balance sheet yields, as
measured by coupons on earning assets minus yields paid on interest costing liabilities net of the
cash flows paid or received on interest rate derivatives that qualified under hedge accounting
rules.
Net interest income, a key metric for the FHLBNY and the primary contributor to Net income, was
adversely affected in 2010, and contracted to levels more typical of the years before 2009,
primarily because (1) business volume as measured by advances to members declined in the current
year relative to 2009, and (2) the Banks funding advantages experienced in 2009 weakened in 2010.
Funding environment Pricing of FHLBank issued discount notes has deteriorated in 2010, relative
to 2009. In much of 2009, discount notes had been successfully utilized when such debt could be
issued at wide advantageous spreads to LIBOR, and was one source of the funding advantage in 2009.
With the easing of the credit crises and market normalization appearing to have set in, FHLBank
discount note spread advantage to LIBOR seems to have returned to pre-crises ranges. At those
levels, as a funding tool, discount notes were not as attractive as short-term callable bonds or
floating rate debt and the FHLBNY reduced its reliance on discount notes in 2010. Discount note
pricing has been relatively stable, driven by (1) increased investor demand (primarily from the
money market funds) for the 60-day maturity discount notes. Demand for this particular maturity
notes was due to the amendment to SECs Rule 2a-7 that impacted the money market industry, a major
investor group for the FHLBank discount notes, and (2) Federal Reserve Boards (FRB) action to
support Treasury bills by issuing enough Treasury bills each week to replace maturing bills, and
has tended to stabilize yield volatility, or yields to collapse to zero for bills, and has also
reduced yield volatility for FHLB discount notes.
The 3-month LIBOR index is a vital indicator as the FHLBNY attempts to execute interest rate swaps
to synthetically convert fixed-rate cash flows to sub-LIBOR cash flows, earning the FHLBNY a
spread. The FHLBNY uses interest rate swaps to effectively change the repricing characteristics of
a significant portion of its fixed-rate advances and consolidated obligation debt to match
shorter-term LIBOR rates that reprice at intervals of three-months or less. When the Bank executes
an interest rate swap to change the fixed payments on its debt to a LIBOR rate, the spread between
the fixed payments and the LIBOR cash receipts results in the FHLBNYs effective funding cost.
Consequently, the current level of spread between the 3-month LIBOR rate and the swap rate for a
fixed-rate FHLBank debt has an impact on the FHLBNYs profitability. Also, the change in the
absolute level of the index tends to impact the sub-LIBOR spread, which in turn, impacts interest
margin and profitability.
Both the absolute level of the 3-month LIBOR index and the discount note spreads to swap rates have
been uneven during 2010, and have caused the FHLBNY to shift its funding mix to accommodate changing
circumstances. The 3-month LIBOR index declined to 29 basis points at September 30, 2010, down
from 53 basis points at June 30, 2010, causing adverse spread compression in the 2010 third
quarter. In response to changing interest rate market conditions, the FHLBNY made tactical changes
to its funding mix by reducing issuances of discount notes in the 2010 third quarter. In mid-2010
second quarter, the increase in the 3-month LIBOR had benefited the pricing of short- and
intermediate-term FHLBank bonds as well as discount notes. In the 2010 first quarter, the very low
LIBOR level provided very little opportunity for FHLBank bonds and discount notes to yield their
historic sub-LIBOR spreads.
Spreads on intermediate-term FHLBank issued bonds have improved in 2010 from the height of the
credit crises and appear to have stabilized, although spreads have not returned to the pre-crises
levels. Spreads on longer-term bonds have remained at disadvantageous levels well above the
historic ranges.
Callable FHLBank issued bonds have declined to their all time lows as the low interest rate
environment is fueling increased redemption, which has driven up investor liquidity in an
environment in which there is already a shortage of high quality, high yielding assets. This has
caused further tightening of spreads for the FHLBank callable debt. Short lockout callable bonds
are an exception and have benefited from the relatively attractive funding afforded by inexpensive
optionality.
Impact of business volume - Decline in member driven advance business volume, as measured by
average advances outstanding, was the contributing factor to the decline of Net interest income in
the 2010 third quarter and year-to-date periods. Average outstanding advances in the 2010 third
quarter was $84.2 billion down from $96.7 billion in the same period in 2009. Balance sheet
contraction caused Net interest income to decline by $29.9 million over the same period in 2009.
The impact of balance sheet contraction was even more significant on a year-to-date basis, and
caused Net interest income to compress by $101.0 million in 2010 relative to the same period in
2009. For more information, see Table 9, Rate & Volume Analysis.
Additionally, in 2010, certain higher-yielding intermediate-term advances matured, and were
replaced by lower yielding advances, and that too has tended to lower Net interest income.
Impact of lower interest income from investing member capital The FHLBNY earns significant
interest income from investing its members capital to fund interest-earning assets. Such earnings
are sensitive to the changes in short-term interest rates (Rate effects), as well as the average
outstanding capital and non-interest bearing liabilities (Volume effects). In the 2010
year-to-date period, the FHLBNY earned less interest income from investing members capital and net
non-interest assets compared to the same period in the prior year. The primary cause was the
decline in stockholders capital stock which has declined in parallel with the lower volume of
advances borrowed by members. As capital declines, the FHLBNY has lower amounts of deployed
capital to invest and enhance interest income. For more information, see Table 8: Spread and Yield
Analysis and Table 9: Rate and Volume Analysis.
70
Impact of qualifying hedges on Net interest income - The Bank deploys hedging strategies to protect
future net interest income that may reduce income in the short-term. On a GAAP basis, the impact
of derivatives was to reduce Net interest income for the current quarter and year-to-date basis
over the same periods in 2009. For more information, see Table 6, below:
The following table summarizes the impact of net interest adjustments from hedge qualifying
interest-rate swaps (in thousands):
Table 6: Net Interest Adjustments from Hedge Qualifying Interest-Rate Swaps 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income |
|
$ |
763,779 |
|
|
$ |
882,644 |
|
|
$ |
2,354,041 |
|
|
$ |
2,801,555 |
|
Net interest adjustment from interest rate swaps |
|
|
(478,213 |
) |
|
|
(503,114 |
) |
|
|
(1,518,869 |
) |
|
|
(1,251,610 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported interest income |
|
|
285,566 |
|
|
|
379,530 |
|
|
|
835,172 |
|
|
|
1,549,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
299,182 |
|
|
|
377,145 |
|
|
|
972,691 |
|
|
|
1,349,076 |
|
Net interest adjustment from interest rate swaps |
|
|
(138,777 |
) |
|
|
(151,467 |
) |
|
|
(485,075 |
) |
|
|
(384,624 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported interest expense |
|
|
160,405 |
|
|
|
225,678 |
|
|
|
487,616 |
|
|
|
964,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (Margin) |
|
$ |
125,161 |
|
|
$ |
153,852 |
|
|
$ |
347,556 |
|
|
$ |
585,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest adjustment interest rate swaps |
|
$ |
(339,436 |
) |
|
$ |
(351,647 |
) |
|
$ |
(1,033,794 |
) |
|
$ |
(866,986 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Net interest accruals of derivatives designated in a fair value or cash flow hedge
qualifying under the derivatives and hedge accounting rules were recorded as adjustments to the
interest income or interest expense of the hedged assets or liabilities, and had a significant
impact on Net interest income. |
Impact of economic hedges on Net interest income The FHLBNY executes certain transactions
designated as economic hedges, primarily as hedges of FHLBNY debt. Under existing accounting
rules, the interest income or expense generated from the derivatives designated as economic hedges
are not reported as a component of Net interest income although they have an economic impact on Net
interest income. Under GAAP, interest income or expense from such derivatives are recorded as
derivative gains and losses in Other income (loss).
In the 2010 current quarter, on an economic basis, the economic impact of derivatives would have
been to increase GAAP Net interest income by $7.9 million. In the same period in 2009, on an
economic basis, the impact would have been to decrease GAAP Net interest expense by $19.1 million.
On a year-to-date basis, 2010 GAAP Net interest income would have increased by $67.8 million. In
contrast, 2009 GAAP Net interest income would have declined by $36.9 million. The reporting
classification of interest income or expense associated with swaps designated as economic hedges
has no impact on Net income as these adjustments are either reported as a component of Net interest
income or as a component of Other income as gains or losses from hedging activities. See Table 7
for additional information.
71
The following table contrasts Net interest income, Net income spread and Return on earning assets
between GAAP and economic basis (dollar amounts in thousands):
Table
7: GAAP Versus Economic Basis Contrasting Net Interest Income, Net Income
Spread and Return on Earning Assets 2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2010 |
|
|
Three months ended September 30, 2009 |
|
|
|
Amount |
|
|
ROA |
|
|
Net Spread |
|
|
Amount |
|
|
ROA |
|
|
Net Spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net interest income |
|
$ |
125,161 |
|
|
|
0.47 |
% |
|
|
0.41 |
% |
|
$ |
153,852 |
|
|
|
0.51 |
% |
|
|
0.45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps not designated in a
hedging relationship |
|
|
7,854 |
|
|
|
0.03 |
|
|
|
0.03 |
|
|
|
19,141 |
|
|
|
0.06 |
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic net interest income |
|
$ |
133,015 |
|
|
|
0.50 |
% |
|
|
0.44 |
% |
|
$ |
172,993 |
|
|
|
0.57 |
% |
|
|
0.52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2010 |
|
|
Nine months ended September 30, 2009 |
|
|
|
Amount |
|
|
ROA |
|
|
Net Spread |
|
|
Amount |
|
|
ROA |
|
|
Net Spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net interest income |
|
$ |
347,556 |
|
|
|
0.43 |
% |
|
|
0.38 |
% |
|
$ |
585,493 |
|
|
|
0.61 |
% |
|
|
0.53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps not designated in a
hedging relationship |
|
|
67,822 |
|
|
|
0.08 |
|
|
|
0.09 |
|
|
|
(36,869 |
) |
|
|
(0.03 |
) |
|
|
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic net interest income |
|
$ |
415,378 |
|
|
|
0.51 |
% |
|
|
0.47 |
% |
|
$ |
548,624 |
|
|
|
0.58 |
% |
|
|
0.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Explanation of the use of certain non-GAAP measures of Interest Income and Expense, Net
Interest income and margin. The FHLBNY has presented its results of operations in accordance with
U.S. generally accepted accounting principles. The FHLBNY has also presented certain information
regarding its Interest Income and Expense, Net Interest income and Net Interest spread that
combines interest expense on debt with net interest paid on interest rate swaps associated with
debt that were hedged on an economic basis. These are non-GAAP financial measures used by
management that the FHLBNY believes are useful to investors and members of the FHLBNY in
understanding the Banks operational performance as well as business and performance trends.
Although the FHLBNY believes these non-GAAP financial measures enhance investor and members
understanding of the Banks business and performance, these non-GAAP financial measures should not
be considered an alternative to GAAP. When discussing non-GAAP measures, the Bank has provided
GAAP measures in parallel.
|
|
|
2 |
|
In the 2010 quarters and in the same periods in 2009, significant amounts of swaps
were designated as economic hedges of consolidated obligation debt in a hedging strategy that
converted floating-rate debt indexed to 1-month LIBOR, the Prime rate, and the Federal Funds
Effective rate to 3-month LIBOR cash flows. The Bank also economically hedged certain short-term
fixed-rate debt and discount notes that it also believed would not be highly effective in
offsetting changes in the fair values of the debt and the swap. Aggregate swap accruals for
economic hedges represented cash in-flows and out-flows. In compliance with accounting standards
for derivatives and hedging, interest income and expense from derivatives that did not qualify
under hedge accounting were recorded as derivative gains and losses in Other income (loss) as a Net
realized and unrealized gain (loss) from derivatives and hedging activities. |
72
Spread and Yield Analysis
Average balance sheet information is presented below as it is more representative of activity
throughout the periods presented. For most components of the average balances, a daily weighted
average was calculated for the period. When daily weighted average balance information was not
available, a simple monthly average balance was calculated. Average yields were derived by
dividing income by the average balances of the related assets and average costs are derived by
dividing expenses by the average balances of the related liabilities.
Table 8: Spread and Yield Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
Average |
|
|
Income/ |
|
|
|
|
|
|
Average |
|
|
Income/ |
|
|
|
|
(Dollars in thousands) |
|
Balance |
|
|
Expense |
|
|
Rate 1 |
|
|
Balance |
|
|
Expense |
|
|
Rate 1 |
|
Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
84,163,767 |
|
|
$ |
173,459 |
|
|
|
0.82 |
% |
|
$ |
96,703,710 |
|
|
$ |
240,573 |
|
|
|
0.99 |
% |
Certificates of deposit and other |
|
|
3,297,811 |
|
|
|
1,699 |
|
|
|
0.20 |
|
|
|
4,105,978 |
|
|
|
1,866 |
|
|
|
0.18 |
|
Federal funds sold and other overnight funds |
|
|
5,339,728 |
|
|
|
2,253 |
|
|
|
0.17 |
|
|
|
5,105,043 |
|
|
|
1,864 |
|
|
|
0.14 |
|
Investments |
|
|
11,633,953 |
|
|
|
91,822 |
|
|
|
3.13 |
|
|
|
12,907,450 |
|
|
|
117,822 |
|
|
|
3.62 |
|
Mortgage and other loans |
|
|
1,273,893 |
|
|
|
16,333 |
|
|
|
5.09 |
|
|
|
1,360,907 |
|
|
|
17,405 |
|
|
|
5.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
105,709,152 |
|
|
$ |
285,566 |
|
|
|
1.07 |
% |
|
$ |
120,183,088 |
|
|
$ |
379,530 |
|
|
|
1.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded By: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
$ |
69,817,290 |
|
|
$ |
147,097 |
|
|
|
0.84 |
|
|
$ |
69,604,012 |
|
|
$ |
191,708 |
|
|
|
1.09 |
|
Consolidated obligations-discount notes |
|
|
21,316,412 |
|
|
|
11,456 |
|
|
|
0.21 |
|
|
|
39,520,933 |
|
|
|
31,647 |
|
|
|
0.32 |
|
Interest-bearing deposits and
other borrowings |
|
|
5,089,995 |
|
|
|
973 |
|
|
|
0.08 |
|
|
|
2,084,189 |
|
|
|
516 |
|
|
|
0.10 |
|
Mandatorily redeemable capital stock |
|
|
68,498 |
|
|
|
879 |
|
|
|
5.09 |
|
|
|
127,964 |
|
|
|
1,807 |
|
|
|
5.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
96,292,195 |
|
|
|
160,405 |
|
|
|
0.66 |
% |
|
|
111,337,098 |
|
|
|
225,678 |
|
|
|
0.80 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and other non-interest-
bearing funds |
|
|
9,416,957 |
|
|
|
|
|
|
|
|
|
|
|
8,845,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Funding |
|
$ |
105,709,152 |
|
|
$ |
160,405 |
|
|
|
|
|
|
$ |
120,183,088 |
|
|
$ |
225,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income/Spread |
|
|
|
|
|
$ |
125,161 |
|
|
|
0.41 |
% |
|
|
|
|
|
$ |
153,852 |
|
|
|
0.45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin
(Net interest income/Earning Assets) |
|
|
|
|
|
|
|
|
|
|
0.47 |
% |
|
|
|
|
|
|
|
|
|
|
0.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Reported yields with respect to advances and debt may not necessarily equal the coupons on
the instruments as derivatives are extensively used to change the yield and optionality
characteristics of the underlying hedged items. When fixed-rate debt is issued by the Bank and
hedged with an interest rate derivative, it effectively converts the debt into a simple
floating-rate bond. Similarly, the Bank makes fixed-rate advances to members and hedges the advance
with a pay-fixed, receive-variable interest rate derivative that effectively converts the
fixed-rate asset to one that floats with prevailing LIBOR rates. Average balance sheet information
is presented as it is more representative of activity throughout the periods presented. For most
components of the average balances, a daily weighted average balance is calculated for the period.
When daily weighted average balance information is not available, a simple monthly average balance
is calculated. Average yields are derived by dividing income by the average balances of the
related assets and average costs are derived by dividing expenses by the average balances of the
related liabilities. Yields and rates are annualized. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
Average |
|
|
Income/ |
|
|
|
|
|
|
Average |
|
|
Income/ |
|
|
|
|
(Dollars in thousands) |
|
Balance |
|
|
Expense |
|
|
Rate 1 |
|
|
Balance |
|
|
Expense |
|
|
Rate 1 |
|
Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
87,036,068 |
|
|
$ |
477,303 |
|
|
|
0.73 |
% |
|
$ |
100,573,968 |
|
|
$ |
1,094,089 |
|
|
|
1.45 |
% |
Certificates of deposit and other |
|
|
2,619,259 |
|
|
|
3,766 |
|
|
|
0.19 |
|
|
|
3,244,842 |
|
|
|
20,447 |
|
|
|
0.84 |
|
Federal funds sold and other overnight funds |
|
|
5,682,315 |
|
|
|
6,600 |
|
|
|
0.16 |
|
|
|
9,640,541 |
|
|
|
1,933 |
|
|
|
0.03 |
|
Investments |
|
|
12,116,261 |
|
|
|
297,814 |
|
|
|
3.29 |
|
|
|
12,660,109 |
|
|
|
378,797 |
|
|
|
4.00 |
|
Mortgage and other loans |
|
|
1,284,879 |
|
|
|
49,689 |
|
|
|
5.17 |
|
|
|
1,404,958 |
|
|
|
54,679 |
|
|
|
5.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
108,738,782 |
|
|
$ |
835,172 |
|
|
|
1.03 |
% |
|
$ |
127,524,418 |
|
|
$ |
1,549,945 |
|
|
|
1.62 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded By: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
$ |
71,934,296 |
|
|
$ |
448,669 |
|
|
|
0.83 |
|
|
$ |
71,387,598 |
|
|
$ |
783,695 |
|
|
|
1.47 |
|
Consolidated obligations-discount notes |
|
|
22,730,205 |
|
|
|
33,069 |
|
|
|
0.19 |
|
|
|
44,783,185 |
|
|
|
173,228 |
|
|
|
0.52 |
|
Interest-bearing deposits and
other borrowings |
|
|
5,119,117 |
|
|
|
2,827 |
|
|
|
0.07 |
|
|
|
2,040,807 |
|
|
|
2,051 |
|
|
|
0.13 |
|
Mandatorily redeemable capital stock |
|
|
90,964 |
|
|
|
3,051 |
|
|
|
4.48 |
|
|
|
135,084 |
|
|
|
5,478 |
|
|
|
5.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
99,874,582 |
|
|
|
487,616 |
|
|
|
0.65 |
% |
|
|
118,346,674 |
|
|
|
964,452 |
|
|
|
1.09 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and other non-interest-
bearing funds |
|
|
8,864,200 |
|
|
|
|
|
|
|
|
|
|
|
9,177,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Funding |
|
$ |
108,738,782 |
|
|
$ |
487,616 |
|
|
|
|
|
|
$ |
127,524,418 |
|
|
$ |
964,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income/Spread |
|
|
|
|
|
$ |
347,556 |
|
|
|
0.38 |
% |
|
|
|
|
|
$ |
585,493 |
|
|
|
0.53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin
(Net interest income/Earning Assets) |
|
|
|
|
|
|
|
|
|
|
0.43 |
% |
|
|
|
|
|
|
|
|
|
|
0.61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
Rate and Volume Analysis
The Rate and Volume Analysis presents changes in interest income, interest expense, and net
interest income that are due to changes in volumes and rates. The following tables present the
extent to which changes in interest rates and changes in the volume of interest-earning assets and
interest-bearing liabilities affected the FHLBNYs interest income and interest expense (in
thousands).
Table 9: Rate and Volume Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
|
September 30, 2010 vs. September 30, 2009 |
|
|
|
Increase (decrease) |
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
(28,893 |
) |
|
$ |
(38,221 |
) |
|
$ |
(67,114 |
) |
Certificates of deposit and other |
|
|
(397 |
) |
|
|
230 |
|
|
|
(167 |
) |
Federal funds sold and other overnight funds |
|
|
89 |
|
|
|
300 |
|
|
|
389 |
|
Investments |
|
|
(10,962 |
) |
|
|
(15,038 |
) |
|
|
(26,000 |
) |
Mortgage loans and other loans |
|
|
(1,115 |
) |
|
|
43 |
|
|
|
(1,072 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
(41,278 |
) |
|
|
(52,686 |
) |
|
|
(93,964 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
|
586 |
|
|
|
(45,197 |
) |
|
|
(44,611 |
) |
Consolidated obligations-discount notes |
|
|
(11,780 |
) |
|
|
(8,411 |
) |
|
|
(20,191 |
) |
Deposits and borrowings |
|
|
597 |
|
|
|
(140 |
) |
|
|
457 |
|
Mandatorily redeemable capital stock |
|
|
(777 |
) |
|
|
(151 |
) |
|
|
(928 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(11,374 |
) |
|
|
(53,899 |
) |
|
|
(65,273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Net Interest Income |
|
$ |
(29,904 |
) |
|
$ |
1,213 |
|
|
$ |
(28,691 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended |
|
|
|
September 30, 2010 vs. September 30, 2009 |
|
|
|
Increase (decrease) |
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
(131,680 |
) |
|
$ |
(485,106 |
) |
|
$ |
(616,786 |
) |
Certificates of deposit and other |
|
|
(3,334 |
) |
|
|
(13,347 |
) |
|
|
(16,681 |
) |
Federal funds sold and other overnight funds |
|
|
(1,094 |
) |
|
|
5,761 |
|
|
|
4,667 |
|
Investments |
|
|
(15,709 |
) |
|
|
(65,274 |
) |
|
|
(80,983 |
) |
Mortgage loans and other loans |
|
|
(4,645 |
) |
|
|
(345 |
) |
|
|
(4,990 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
(156,462 |
) |
|
|
(558,311 |
) |
|
|
(714,773 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
|
5,957 |
|
|
|
(340,983 |
) |
|
|
(335,026 |
) |
Consolidated obligations-discount notes |
|
|
(61,827 |
) |
|
|
(78,332 |
) |
|
|
(140,159 |
) |
Deposits and borrowings |
|
|
2,019 |
|
|
|
(1,243 |
) |
|
|
776 |
|
Mandatorily redeemable capital stock |
|
|
(1,586 |
) |
|
|
(841 |
) |
|
|
(2,427 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(55,437 |
) |
|
|
(421,399 |
) |
|
|
(476,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Net Interest Income |
|
$ |
(101,025 |
) |
|
$ |
(136,912 |
) |
|
$ |
(237,937 |
) |
|
|
|
|
|
|
|
|
|
|
74
Provision for Credit Losses and Analysis of Other Income (Loss)
The following table sets forth (1) changes in Provisions for credit losses, and (2) the main
components of Other income (loss) (in thousands):
Table 10: Provision for Credit Losses on Mortgage Loans and Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Provision for credit losses on mortgage loans |
|
$ |
(231 |
) |
|
$ |
(598 |
) |
|
$ |
(1,137 |
) |
|
$ |
(1,966 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fees |
|
$ |
1,297 |
|
|
$ |
1,101 |
|
|
$ |
3,472 |
|
|
$ |
3,181 |
|
Instruments held at fair value-Unrealized (loss) gain |
|
|
55 |
|
|
|
426 |
|
|
|
(12,612 |
) |
|
|
8,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI losses |
|
|
(498 |
) |
|
|
(30,169 |
) |
|
|
(4,573 |
) |
|
|
(118,160 |
) |
Net amount of impairment losses reclassified (from) to
Accumulated other comprehensive loss |
|
|
(2,569 |
) |
|
|
26,486 |
|
|
|
(3,164 |
) |
|
|
103,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses recognized in earnings |
|
|
(3,067 |
) |
|
|
(3,683 |
) |
|
|
(7,737 |
) |
|
|
(14,276 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized (loss) gain on derivatives and
hedging activities |
|
|
8,444 |
|
|
|
59,639 |
|
|
|
(3,344 |
) |
|
|
124,613 |
|
Net realized gain from sale of available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
708 |
|
|
|
721 |
|
Other |
|
|
(624 |
) |
|
|
(39 |
) |
|
|
(1,493 |
) |
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss) |
|
$ |
6,105 |
|
|
$ |
57,444 |
|
|
$ |
(21,006 |
) |
|
$ |
122,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of Allowances for Credit Losses, and Non-Interest Income (Loss)
The principal components are described below:
Allowance for Credit Losses
|
|
Mortgage loans held-for-portfolio - The Bank recorded a provision of $0.2 million in the
2010 third quarter and $0.6 million in the same period in 2009 in the Statements of Income
based on identification of inherent losses under a policy described more fully in Note 1
Significant Accounting Policies and Estimates to the unaudited financial statements in this
report. Charge offs were insignificant in all periods, and were substantially recovered
through the credit enhancement provisions of MPF loans. Cumulatively, the allowance for
credit losses recorded in the Statements of Condition have grown to $5.5 million at September
30, 2010, compared to $4.5 million at December 31, 2009. The FHLBNY believes the allowance
for loan losses is adequate to cover the losses inherent in the FHLBNYs mortgage loan
portfolio at September 30, 2010 and December 31, 2009. |
|
|
Advances - The FHLBNYs credit risk from advances at September 30, 2010 and December 31,
2009 were concentrated in commercial banks, savings institutions and insurance companies. All
advances were fully collateralized during their entire term. In addition, borrowing members
pledged their stock in the FHLBNY as additional collateral for advances. The FHLBNY has not
experienced any losses on credit extended to any member since its inception. Based on the
collateral held as security and prior repayment history, no allowance for losses is currently
deemed necessary. |
Service fees
Service fees are derived primarily from providing correspondent banking services to members and
fees earned on standby letters of credit. The Bank does not consider income from such services as
a significant element of its operations.
Redemption of financial instruments and extinguishment of debt
The Bank retires debt principally to reduce future debt costs when the associated asset is either
prepaid or terminated early, and less frequently from prepayments of mortgage-backed securities.
When assets are prepaid ahead of their expected or contractual maturities, the Bank also attempts
to extinguish debt (consolidated obligation bonds) in order to realign asset and liability cash
flow patterns. Bond retirement typically requires a payment of a premium resulting in a loss. The
Bank typically receives prepayment fees when assets are prepaid, and the FHLBNY typically remains
economically indifferent.
Net impairment losses recognized in earnings on held-to-maturity securities Other-than-temporary
impairment (OTTI)
In the 2010 third quarter, the FHLBNY identified credit re-impairment on four of its private-label
mortgage-backed securities that had been previously impaired. Cash flow assessments of the
expected credit performance of the securities resulted in the recognition of $3.1 million ($3.7
million in the prior year period) as credit OTTI which was a charge to earnings. The re-impairment
in the 2010 third quarter was due to further deterioration in certain credit parameters of the
securities. On a year-to-date basis, credit related OTTI of $7.7 million was charged to earnings,
compared to $14.3 million in the prior year period.
75
Net realized and unrealized gain (loss) on derivatives and hedging activities and Earnings impact
of derivatives and hedging activities
The Bank may designate a derivative as either a hedge of (1) the fair value of a recognized
fixed-rate asset or liability or an unrecognized firm commitment (fair value hedge); (2) a
forecasted transaction; or (3) the variability of future cash flows of a floating-rate asset or
liability (cash flow hedge). The Bank may also designate a derivative as an economic hedge, which
does not qualify for hedge accounting under the accounting standards for derivatives and hedging.
Changes in the fair value of a derivative that qualifies as a fair value hedge under the accounting
standards for derivatives and hedging and the offsetting gain or loss on the hedged asset or
liability that is attributable to the hedged risk are recorded in Other income (loss) as a Net
realized and unrealized gain (loss) on derivatives and hedging activities. To the extent that
changes in the fair value of the derivative is not entirely offset by changes in the fair value of
the hedged asset or liability, the net impact from hedging activities represents hedge
ineffectiveness.
Net interest accruals of derivatives designated in qualifying fair value or cash flow hedges under
the accounting standards for derivatives and hedging are recorded as adjustments to the interest
income or interest expense of the hedged assets or liabilities. Net interest accruals of
derivatives that do not qualify for hedge accounting under the accounting standards for derivatives
and hedging and interest received from in-the-money options are recorded in Other income (loss)
as a Net realized and unrealized gain (loss) on derivatives and hedging activities. The effective
portion of changes in the fair value of a derivative that is designated and qualifies as a cash
flow hedge under the accounting standards for derivatives and hedging are recorded in AOCI.
For all qualifying hedge relationships under the accounting standards for derivatives and hedging,
hedge ineffectiveness resulting from differences between changes in fair values or cash flows of
the hedged item and changes in fair value of the derivatives are recognized in Other income (loss)
as a Net realized and unrealized gain (loss) on derivatives and hedging activities.
Net realized and unrealized gains and losses from qualifying hedging activities under the
accounting standards for derivatives and hedging are typically impacted by changes in the benchmark
interest rate (designated as LIBOR by the FHLBNY) and the degree of ineffectiveness of hedging
relationships between the change in the fair value of derivatives and the change in the fair value
of the hedged assets and liabilities attributable to changes in benchmark interest rate.
Typically, such gains and losses represent hedge ineffectiveness between changes in the fair value
of the hedged item and changes in the fair value of the derivative.
Earnings impact of Instruments held at fair value under the Fair Value Option
Under the accounting standards for the fair value option (FVO) for financial assets and
liabilities, the FHLBNY elected to carry certain consolidated obligation bonds at fair value in the
Statements of Condition. The Bank records changes in the unrealized fair value gains and losses on
these liabilities in Other income. In general, transactions elected for the fair value option are
in economic hedge relationships by the execution of interest rate swaps to offset the fair value
volatility of consolidated obligation debt elected under the FVO.
The fair value adjustments on consolidated obligation debt carried at fair value in the 2010 third
quarter and year-to-date period resulted in net unrealized fair value gains and losses as reported
in Table 10 above. Such debt was primarily intermediate term bonds and discount notes. Gains are
recorded when the debts market observable yields are higher then the contractual coupons or yields
of the designated debt. Conversely, if market interest rates fall below the contractual coupons or
yields, a fair value loss is recorded. Losses and gains would also result in the quarter when
designated debt under the FVO matures and previously recorded unrealized gains and losses reverse
in that period. When bonds and discount notes are recorded at fair value and are held to maturity,
their cumulative fair value changes sum to zero at maturity.
The Bank hedges debt designated under the FVO on an economic basis by executing interest rate swaps
with terms that match such debt. Unrealized gains and losses in the 2010 quarters and in the same
periods in 2009 were almost entirely offset by fair value changes on derivatives that economically
hedged the debt. For more information, see Table 11 below and Note 17 Fair Values of financial
instruments to the unaudited financial statements in this report.
76
Earnings Impact of Derivatives and Hedging Activities
The FHLBNY reported the following net gains (losses) from derivatives and hedging activities (in thousands):
Table 11: Net Gains (Losses) from Derivatives and Hedging Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
Gain (Loss) |
|
|
Gain (Loss) |
|
|
Gain (Loss) |
|
|
Gain (Loss) |
|
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
1,215 |
|
|
$ |
182 |
|
|
$ |
439 |
|
|
$ |
(5,107 |
) |
Consolidated obligations-bonds |
|
|
(1,507 |
) |
|
|
167 |
|
|
|
2,308 |
|
|
|
18,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) related to fair value hedge ineffectiveness |
|
|
(292 |
) |
|
|
349 |
|
|
|
2,747 |
|
|
|
13,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
(1,203 |
) |
|
|
(1,475 |
) |
|
|
(3,164 |
) |
|
|
3,887 |
|
Consolidated obligations-bonds |
|
|
6,753 |
|
|
|
28,420 |
|
|
|
(29,762 |
) |
|
|
101,662 |
|
Consolidated obligations-discount notes |
|
|
(231 |
) |
|
|
(5,711 |
) |
|
|
(4,331 |
) |
|
|
409 |
|
Member intermediation |
|
|
202 |
|
|
|
(16 |
) |
|
|
357 |
|
|
|
(189 |
) |
Balance sheet-macro hedges swaps |
|
|
|
|
|
|
210 |
|
|
|
173 |
|
|
|
2,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values |
|
|
5,521 |
|
|
|
21,428 |
|
|
|
(36,727 |
) |
|
|
108,386 |
|
Accrued interest-swaps |
|
|
2,381 |
|
|
|
18,362 |
|
|
|
46,900 |
|
|
|
(37,772 |
) |
Accrued interest-intermediation |
|
|
42 |
|
|
|
20 |
|
|
|
91 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrual |
|
|
2,423 |
|
|
|
18,382 |
|
|
|
46,991 |
|
|
|
(37,708 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total swaps |
|
|
7,944 |
|
|
|
39,810 |
|
|
|
10,264 |
|
|
|
70,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caps and floors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
(19 |
) |
|
|
(305 |
) |
|
|
(418 |
) |
|
|
(1,056 |
) |
Balance sheet |
|
|
(14,618 |
) |
|
|
19,196 |
|
|
|
(47,901 |
) |
|
|
50,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values |
|
|
(14,637 |
) |
|
|
18,891 |
|
|
|
(48,319 |
) |
|
|
49,557 |
|
Accrued interest-options |
|
|
|
|
|
|
(1,786 |
) |
|
|
(2,598 |
) |
|
|
(3,731 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total caps and floors |
|
|
(14,637 |
) |
|
|
17,105 |
|
|
|
(50,917 |
) |
|
|
45,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage delivery commitments |
|
|
257 |
|
|
|
47 |
|
|
|
811 |
|
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps economically hedging instruments designated under FVO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
|
8,025 |
|
|
|
1,549 |
|
|
|
10,381 |
|
|
|
(5,825 |
) |
Consolidated obligations-discount notes |
|
|
1,674 |
|
|
|
|
|
|
|
2,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair values |
|
|
9,699 |
|
|
|
1,549 |
|
|
|
12,829 |
|
|
|
(5,825 |
) |
Accrued interest on swaps |
|
|
5,473 |
|
|
|
779 |
|
|
|
20,922 |
|
|
|
903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps hedging insturments designated under FVO |
|
|
15,172 |
|
|
|
2,328 |
|
|
|
33,751 |
|
|
|
(4,922 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) related to derivatives not designated as hedging instruments |
|
|
8,736 |
|
|
|
59,290 |
|
|
|
(6,091 |
) |
|
|
111,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized (loss) gain on derivatives and hedging activities |
|
$ |
8,444 |
|
|
$ |
59,639 |
|
|
$ |
(3,344 |
) |
|
$ |
124,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key components of hedging gains and losses were primarily due to:
|
|
Hedge ineffectiveness from fair value hedges of advances and consolidated obligation
liabilities that qualified for hedge accounting treatment. Hedge ineffectiveness is typically
the difference between changes in fair values of hedged consolidated obligation bonds and
advances due to changes in the benchmark rate (adopted as the 3-month LIBOR rate) and changes
in the fair value of the associated derivatives. |
|
|
Fair value changes of interest rate swaps designated in economic hedges of consolidated
obligation debt, without the offsetting benefit of fair value changes of the hedged debt. |
|
|
Fair value changes of interest rate caps designated in economic hedges of GSE issued capped
floating-rate MBS. Market pricing of the tenor and strikes of caps owned by the FHLBNY has
fallen steeply since December 31, 2009 primarily because of lower volatilities for such caps.
As a result, purchased caps are exhibiting fair value losses. The fair values of the caps,
which stood at $23.6 million at September 30, 2010, will ultimately decline to zero if the
caps are held to their contractual maturities. |
|
|
Swap income or expense, primarily swap interest accruals, associated with swaps designated
as economic hedges. |
Qualifying hedges under the accounting standards for derivatives and hedging - Hedge
ineffectiveness occurs when changes in the fair value of the derivative and the associated hedged
financial instrument, generally debt or an advance, do not perfectly offset each other. Hedge
ineffectiveness is associated with changes in the benchmark interest rate and volatility, and the
extent of the mismatch of the structures of the derivative and the hedged financial instrument.
77
Relatively stable interest rates and volatilities in the 2010 third quarter and in the same period
in 2009 kept hedge ineffectiveness to insignificant levels. On a year-to-date basis, in 2010 net
ineffectiveness from qualifying hedges resulted in a gain of $2.7 million. In the same period in
2009, fair value ineffectiveness resulted in significant net gains of $13.1 million, in part due to
the reversal of fair value losses of debt hedges that had matured in the prior year first two
quarters (or were effectively matured when call options were exercised), and in part as a result of
market volatility of interest rates causing fair values of hedged bonds to diverge from the swap
fair values. Typically, the FHLBNY hedges its advances and bonds with structures that are almost
identical, and gains and losses represented hedge ineffectiveness caused by the asymmetrical impact
of interest rate volatility on hedged debt and advances and associated swaps.
Economic hedges An economic hedge represents derivative transactions that are an approved risk
management hedge but may not qualify for hedge accounting treatment under the accounting standards
for derivatives and hedging. When derivatives are designated as economic hedges, the fair value
changes due to changes in the interest rate and volatility of rates are recorded through earnings
without the offsetting change in the fair values of the hedged advances and debt as would be
afforded under the derivatives and hedge accounting rules. In general, the FHLBNYs derivatives
are held to maturity or to their call or put dates. At inception, the fair value is at market
and is generally zero. Until the derivative matures or is called or put on pre-determined dates,
fair values will fluctuate with changes in the interest rate environment and volatility observed in
the swap market. At maturity or scheduled call or put dates, the fair value will generally reverse
to zero as the Banks derivatives settle at par. Therefore, nearly all of the cumulative net gains
and losses that are unrealized at a point in time will reverse over the remaining contractual terms
so that the cumulative gains or losses will sum to zero over the contractual maturity, scheduled
call, or put dates.
However, interest income and expense have economic consequences since they are the result of
exchanges of cash payments or receipts. Additionally, if a derivative is prepaid prior to maturity
or at predetermined call and put dates, they are settled at the then existing fair values in cash.
Under hedge accounting rules, net swap interest expense and income associated with swaps in
economic hedges of assets and liabilities are recorded as hedging losses and gains. On the other
hand, when swaps qualify for hedge accounting treatment, interest income and interest expense from
interest rate swaps are reported as a component of Net interest income together with interest on
the instrument being hedged.
Economic hedges
Interest rate swaps Fair value changes The principal components of changes in the fair values
of interest rate swaps in economic hedges, often referred to as one-sided marks were:
|
|
Consolidated bond economic hedges Unrealized gains and losses were generated primarily
by: (1) Basis swaps that synthetically converted floating-rate debt (based on non- 3-month
LIBOR: Prime rate, Federal funds rate, and 1-month LIBOR rate) to 3-month LIBOR cash flows,
and (2) Short-term callable debt swapped by mirror image interest rate swaps. The pay-leg
of the basis swaps floats with changes to the 3-month LIBOR index. The receive-leg floats
with changes to indices other than 3-month LIBOR. In 2010, a significant percentage of basis
swaps matured, or the swaps were nearing maturity and unrealized gains at December 31, 2009
reversed. When swaps mature, all previously recorded fair value gains and losses reverse. In
the 2010 third quarter, recorded gains were reversal of previously recorded net unrealized
losses, primarily due to maturing short-term cancellable swaps in economic hedges of callable
bonds. |
|
|
Consolidated discount note economic hedges The FHLBNY hedges the principal amounts of
certain term discount notes to convert fixed cash flows to LIBOR indexed cash flows. Fair
value losses are all unrealized and will reverse over time. In a declining interest rate
environment, the pay-fixed, receive floating swaps are exhibiting fair value losses. |
Interest rate swaps Cash flows (Net interest accruals) Swap interest accruals are recorded as a
Net realized and unrealized gain (loss) on derivatives and hedging activities if the swap is
designated as an economic hedge. If the swap qualifies for hedge accounting treatment, cash flows
are recorded as a component of Net interest income. The classification of swap accruals, either as
a component of Net interest income or derivatives and hedging activities, has no impact on Net
income.
In the 2010 third quarter and year-to-date period, net interest accrual income represented the net
cash in-flows primarily from basis swaps hedging the basis risk of changes in floating-rate debt
that were indexed to rates other than 3-month LIBOR. Under the contractual terms of the basis
swaps the FHLBNY is receiving cash flows indexed to an agreed upon spread to the daily Federal
funds effective rate, the 1-month LIBOR rate, and the Prime rate, and in return paying cash flows
indexed to an agreed upon spread to the 3-month LIBOR rate.
Interest rate caps Unfavorable fair values changes of purchased caps resulted in net unrealized
fair value losses in 2010. In a declining interest rate environment at September 30, 2010,
relative to December 31, 2009 and June 30, 2010, fair values of purchased caps are exhibiting fair
value losses. Fair values of interest rate caps were $23.6 million, down from $38.2 million at
June 30, 2010, and $71.0 million at December 31, 2009. The fair values of the caps will decline to
zero over the contractual life of the caps if held to maturity.
Swaps economically hedging instruments designated under the FVO In a declining interest rate
environment, the receive fixed, pay float (indexed to LIBOR) were in an unrealized fair value gain
position. Such gains will also decline to zero if held to maturity or to their call dates.
78
Derivative gains and losses reclassified from Accumulated other comprehensive income (loss) to
current period income The following table summarizes changes in derivative gains and (losses) and
reclassifications into earnings from AOCI in the Statements of Condition (in thousands):
Table 12: Gains/(Losses) Reclassified from AOCI to Current Period Income from Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
Accumulated other comprehensive income/(loss) from cash flow hedges |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
$ |
(19,614 |
) |
|
$ |
(26,402 |
) |
|
$ |
(22,683 |
) |
|
$ |
(30,191 |
) |
Net hedging transactions |
|
|
|
|
|
|
|
|
|
|
(472 |
) |
|
|
|
|
Reclassified into earnings |
|
|
1,882 |
|
|
|
1,898 |
|
|
|
5,423 |
|
|
|
5,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
(17,732 |
) |
|
$ |
(24,504 |
) |
|
$ |
(17,732 |
) |
|
$ |
(24,504 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges
In the 2010 current quarter and year-to-date period, fair value basis were reclassified from AOCI
as interest expense in parallel with the recognition of interest expense of the debt that had been
hedged by cash flow hedges in prior years. Fair value basis from settled hedges in the 2010
current quarter and year-to-date periods were not material.
In 2010 and 2009 no material amounts were reclassified from AOCI into earnings as a result of the
discontinuance of cash flow hedges because it became probable that the original forecasted
transactions would not occur by the end of the originally specified time period or within a
two-month period thereafter. Ineffectiveness from hedges designated as cash flow hedges was not
material in any periods reported in this Form 10-Q. Over the next twelve months, it is expected
that $5.3 million of net losses recorded in AOCI will be recognized as an interest expense.
There were no open anticipatory cash flow hedges at the current quarter end.
Debt extinguishment and sales of available-for-sale securities
In the second quarter of 2010, the Bank retired $250.0 million of consolidated obligation bond at
an insignificant gain. No debt was retired in the first quarter or the third quarter of 2010. In
the first quarter of 2010, the Bank sold mortgage-backed securities from its AFS portfolio at a
gain of $0.7 million. No securities were sold in the 2010 second and third quarters.
Non-Interest Expense
Operating expenses included the administrative and overhead costs of operating the Bank and the
operating costs of providing advances and managing collateral associated with the advances,
managing the investment portfolios, and providing correspondent banking services to members.
79
Operating Expenses
The following table sets forth the major categories of operating expenses (dollars in thousands):
Table 13: Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
Percentage of |
|
|
|
2010 |
|
|
total |
|
|
2009 |
|
|
total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
15,648 |
|
|
|
72.25 |
% |
|
$ |
12,075 |
|
|
|
67.80 |
% |
Temporary workers |
|
|
30 |
|
|
|
0.14 |
|
|
|
3 |
|
|
|
0.02 |
|
Occupancy |
|
|
1,131 |
|
|
|
5.22 |
|
|
|
1,128 |
|
|
|
6.33 |
|
Depreciation and leasehold amortization |
|
|
1,444 |
|
|
|
6.67 |
|
|
|
1,369 |
|
|
|
7.69 |
|
Computer service agreements and contractual
services |
|
|
1,666 |
|
|
|
7.69 |
|
|
|
1,395 |
|
|
|
7.83 |
|
Professional and legal fees |
|
|
385 |
|
|
|
1.78 |
|
|
|
356 |
|
|
|
2.00 |
|
Other * |
|
|
1,353 |
|
|
|
6.25 |
|
|
|
1,484 |
|
|
|
8.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
21,657 |
|
|
|
100.00 |
% |
|
$ |
17,810 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Agency and Office of Finance |
|
$ |
2,036 |
|
|
|
|
|
|
$ |
1,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
Percentage of |
|
|
|
2010 |
|
|
total |
|
|
2009 |
|
|
total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
41,458 |
|
|
|
67.69 |
% |
|
$ |
36,036 |
|
|
|
66.77 |
% |
Temporary workers |
|
|
86 |
|
|
|
0.14 |
|
|
|
128 |
|
|
|
0.24 |
|
Occupancy |
|
|
3,270 |
|
|
|
5.34 |
|
|
|
3,273 |
|
|
|
6.06 |
|
Depreciation and leasehold amortization |
|
|
4,201 |
|
|
|
6.86 |
|
|
|
4,020 |
|
|
|
7.45 |
|
Computer service agreements and contractual
services |
|
|
6,018 |
|
|
|
9.83 |
|
|
|
4,670 |
|
|
|
8.65 |
|
Professional and legal fees |
|
|
1,983 |
|
|
|
3.24 |
|
|
|
1,144 |
|
|
|
2.12 |
|
Other * |
|
|
4,229 |
|
|
|
6.90 |
|
|
|
4,699 |
|
|
|
8.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
61,245 |
|
|
|
100.00 |
% |
|
$ |
53,970 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Agency and Office of Finance |
|
$ |
6,447 |
|
|
|
|
|
|
$ |
5,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Other primarily represents audit fees, director fees and expenses, insurance and
telecommunications. |
Staff increases and additional payments towards the Banks Defined Benefit Pension plan caused
increases in operating expenses in 2010.
80
Financial Condition: Assets, Liabilities, Capital, Commitments and Contingencies:
Table 14: Statements of Condition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in |
|
|
Net change in |
|
(Dollars in thousands) |
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
dollar amount |
|
|
percentage |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
69,471 |
|
|
$ |
2,189,252 |
|
|
$ |
(2,119,781 |
) |
|
|
(96.83) |
% |
Federal funds sold |
|
|
4,095,000 |
|
|
|
3,450,000 |
|
|
|
645,000 |
|
|
|
18.70 |
|
Available-for-sale securities |
|
|
3,373,781 |
|
|
|
2,253,153 |
|
|
|
1,120,628 |
|
|
|
49.74 |
|
Held-to-maturity securities
Long-term securities |
|
|
8,221,246 |
|
|
|
10,519,282 |
|
|
|
(2,298,036 |
) |
|
|
(21.85 |
) |
Advances |
|
|
85,697,171 |
|
|
|
94,348,751 |
|
|
|
(8,651,580 |
) |
|
|
(9.17 |
) |
Mortgage loans held-for-portfolio |
|
|
1,267,687 |
|
|
|
1,317,547 |
|
|
|
(49,860 |
) |
|
|
(3.78 |
) |
Accrued interest receivable |
|
|
305,763 |
|
|
|
340,510 |
|
|
|
(34,747 |
) |
|
|
(10.20 |
) |
Premises, software, and equipment |
|
|
14,550 |
|
|
|
14,792 |
|
|
|
(242 |
) |
|
|
(1.64 |
) |
Derivative assets |
|
|
32,425 |
|
|
|
8,280 |
|
|
|
24,145 |
|
|
NM |
|
Other assets |
|
|
16,444 |
|
|
|
19,339 |
|
|
|
(2,895 |
) |
|
|
(14.97 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
103,093,538 |
|
|
$ |
114,460,906 |
|
|
$ |
(11,367,368 |
) |
|
|
(9.93) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand |
|
$ |
3,660,132 |
|
|
$ |
2,616,812 |
|
|
$ |
1,043,320 |
|
|
|
39.87 |
% |
Non-interest bearing demand |
|
|
9,725 |
|
|
|
6,499 |
|
|
|
3,226 |
|
|
|
49.64 |
|
Term |
|
|
60,400 |
|
|
|
7,200 |
|
|
|
53,200 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
3,730,257 |
|
|
|
2,630,511 |
|
|
|
1,099,746 |
|
|
|
41.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
|
74,918,893 |
|
|
|
74,007,978 |
|
|
|
910,915 |
|
|
|
1.23 |
|
Discount notes |
|
|
17,787,908 |
|
|
|
30,827,639 |
|
|
|
(13,039,731 |
) |
|
|
(42.30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated obligations |
|
|
92,706,801 |
|
|
|
104,835,617 |
|
|
|
(12,128,816 |
) |
|
|
(11.57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandatorily redeemable capital stock |
|
|
67,348 |
|
|
|
126,294 |
|
|
|
(58,946 |
) |
|
|
(46.67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest payable |
|
|
277,647 |
|
|
|
277,788 |
|
|
|
(141 |
) |
|
|
(0.05 |
) |
Affordable Housing Program |
|
|
137,995 |
|
|
|
144,489 |
|
|
|
(6,494 |
) |
|
|
(4.49 |
) |
Payable to REFCORP |
|
|
20,560 |
|
|
|
24,234 |
|
|
|
(3,674 |
) |
|
|
(15.16 |
) |
Derivative liabilities |
|
|
784,498 |
|
|
|
746,176 |
|
|
|
38,322 |
|
|
|
5.14 |
|
Other liabilities |
|
|
101,448 |
|
|
|
72,506 |
|
|
|
28,942 |
|
|
|
39.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
97,826,554 |
|
|
|
108,857,615 |
|
|
|
(11,031,061 |
) |
|
|
(10.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
5,266,984 |
|
|
|
5,603,291 |
|
|
|
(336,307 |
) |
|
|
(6.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and capital |
|
$ |
103,093,538 |
|
|
$ |
114,460,906 |
|
|
$ |
(11,367,368 |
) |
|
|
(9.93) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet overview
The FHLBNY continued to experience balance sheet contraction in the 2010 third quarter. Advances
to member banks have remained steady at September 30, 2010, after two quarters of decline.
Reported Advances stood at $85.7 billion at September 30, 2010, compared to $85.3 billion at June
30, 2010, and $94.3 billion at December 31, 2009, from a peak of approximately $109.1 billion in
2008. Reported balances include fair value basis of hedged advances. The decline from the
balances at December 31, 2009 has occurred as member banks have taken advantage of improved
availability of alternate funding sources such as deposits and senior unsecured borrowings in a
more liquid market. Member demand for borrowed advances have also declined as loan demand from
members customers may have stayed lukewarm due to nationally weak economic conditions.
81
Advances - At September 30, 2010, the FHLBNYs Total assets were $103.1 billion, a decrease of
9.9%, or $11.4 billion from December 31, 2009. The Banks balance sheet management strategy has
been to keep balance sheet growth or decline in line with the changes in member demand for
advances, which declined 9.2%.
Investments
- The FHLBNYs investment strategies continue to be restrained, and were limited to
investments in mortgage-backed securities (MBS) issued by GSEs and U.S. government agencies.
Acquisitions even in such securities have been made when they justified the Banks risk-reward
preferences. No MBS acquisitions were made in the held-to-maturity (HTM) securities portfolio in
the 2010-second and third quarters. In the 2010 first quarter, the Bank added $174.0 million of
GSE issued fixed-rate MBS.
Floating-rate GSE and U.S. government issued MBS were acquired for the Banks available-for-sale
(AFS) portfolio in 2010 that kept acquisitions ahead of paydowns. Market pricing of GSE issued
MBS improved at September 30, 2010 as liquidity appeared to return to the market place, and
substantially all of MBS in the AFS portfolio were in net unrealized fair value gain positions.
Fair values of the Banks private-label securities continue to be depressed, as market conditions
for such securities remained uncertain. For more information about fair values of AFS and HTM
securities, see Note 17 to the unaudited financial statements in this report.
Leverage - At September 30, 2010, balance sheet leverage was 19.6 times shareholders equity,
compared to 20.4 times capital at December 31, 2009. The Banks balance sheet management strategy
is to keep the balance sheet change in line with the changes in member demand for advances,
although from time-to-time the Bank may maintain excess liquid investments to meet unexpected
member demand for funds. Increases or decreases in investments have a direct impact on leverage,
but generally, growth in or shrinkage of advances does not significantly impact balance sheet
leverage under existing capital stock management practices. This is because changes in
shareholders capital are in line with changes in advances, and the ratio of assets to capital
generally remains unchanged. Under existing capital management practices, members are required to
purchase capital stock to support their borrowings from the Bank, and when capital stock is in
excess of the amount that is required to support advance borrowings, the Bank redeems the excess
capital stock immediately. Therefore, stockholders capital increases and decreases with members
advance borrowings, and the capital to asset ratios remains relatively unchanged. As capital
increases or declines in line with higher or lower volumes of advances, the Bank may also adjust
its assets by increasing or decreasing holdings of short-term investments in certificates of
deposit, and, to some extent, its positions in Federal funds sold, which it inventories to
accommodate unexpected member needs for liquidity.
Debt - In the 2010 third quarter and in the same period in 2009, the primary source of funds for
the FHLBNY continued to be from issuance of consolidated obligation bonds and discount notes.
Discount notes are consolidated obligations with maturities up to one year, and consolidated bonds
have maturities of one year or longer. The mix between the use of discount notes and bonds has
fluctuated during the 2010 first three quarters and through 2009, partly because of fluctuations in
the market pricing of discount notes relative to the pricing of fixed-rate bonds with similar
maturities, and partly because of the price attractiveness of short-term callable and non-callable
bonds that could be swapped back to 3-month LIBOR rates, as an alternative to discount notes. In
the 2010 first quarter, the Bank decreased its issuances of discount notes mainly because of
unfavorable pricing relative to alternative funding, primarily short-term callable bonds. On an
option adjusted basis, the effective duration of such callable bonds was shorter than its
contractual maturities and achieved the Banks asset/liability management profile. In the second
quarter, discount note pricing became favorable with the rise in the 3-month LIBOR index, and the
Bank increased its usage of discount notes, which replaced maturing/called bonds. In the 2010
third quarter, the 3-month LIBOR index declined, spreads narrowed, and the FHLBNY reduced issuances
of discount notes.
82
Advances
The FHLBNYs primary business is making collateralized loans, known as advances, to members.
Par amounts of advances outstanding had been steadily declining through the four quarters in 2009
and through to the 2010 second quarter. That trend was halted in the 2010 third quarter as
borrowed advances held steady, with new borrowings that replaced maturing advances, and outstanding
member advances at September 30, 2010 remained almost unchanged from the balance at June 30,
2010.
Reported book value of advances was $85.7 billion at September 30, 2010, slightly up from $85.3
billion at June 30, 2010, compared to $94.3 billion at December 31, 2009. Advance book value
included fair value basis adjustments of $5.6 billion at September 30, 2010, compared to $4.7
billion at June 30, 2010 and $3.6 billion at December 31, 2009. Fair value basis adjustments of
hedged advances are recorded under the hedge accounting provisions. When medium- and long-term
interest rates rise or fall, the fair values of fixed-rate advances move in the opposite direction.
Generally, the growth or decline in advances is reflective of demand by members for both short-term
liquidity and term funding driven by economic factors, such as availability to the Banks members
of alternative funding sources that are more attractive, or by the interest rate environment, and
the outlook for the economy. Members may choose to prepay advances (which may generate prepayment
penalty fees) based on their expectations of interest rate changes and demand for liquidity.
Demand may also be influenced by the dividend payout to members on their capital stock investment
in the FHLBNY. Members are required to invest in FHLBNYs capital stock in the form of membership
and activity stock. Advance volume is also influenced by merger activity where members are either
acquired by non-members or acquired by members of another FHLBank. When FHLBNY members are
acquired by members of another FHLBank or a non-member, the former members no longer qualify for
membership and the FHLBNY may not offer renewals or additional advances to the former members.
Subsequent to the merger, maturing advances may not be replaced, which has an immediate impact on
short-term and overnight lending if the former member borrowed short-term and overnight advances.
Advances Product Types
The following table summarizes par values of advances by product type (dollars in thousands):
Table 15: Advances by Product Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
Amounts |
|
|
of total |
|
|
Amounts |
|
|
of total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable Rate Credit ARCs |
|
$ |
9,190,500 |
|
|
|
11.47 |
% |
|
$ |
14,100,850 |
|
|
|
15.54 |
% |
Fixed Rate Advances |
|
|
67,148,859 |
|
|
|
83.83 |
|
|
|
71,943,468 |
|
|
|
79.29 |
|
Short-Term Advances |
|
|
1,343,150 |
|
|
|
1.68 |
|
|
|
2,173,321 |
|
|
|
2.39 |
|
Mortgage Matched Advances |
|
|
539,479 |
|
|
|
0.67 |
|
|
|
606,883 |
|
|
|
0.67 |
|
Overnight & Line of Credit (OLOC)
Advances |
|
|
905,786 |
|
|
|
1.13 |
|
|
|
926,517 |
|
|
|
1.02 |
|
All other categories |
|
|
975,037 |
|
|
|
1.22 |
|
|
|
986,661 |
|
|
|
1.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
80,102,811 |
|
|
|
100.00 |
% |
|
|
90,737,700 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount on AHP Advances |
|
|
(50 |
) |
|
|
|
|
|
|
(260 |
) |
|
|
|
|
Hedging adjustments |
|
|
5,594,410 |
|
|
|
|
|
|
|
3,611,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
85,697,171 |
|
|
|
|
|
|
$ |
94,348,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Member demand for advance products
Fixed-rate advances and Adjustable-rate advances (ARCs) have been the more significant products
that have declined in 2010 relative to the balances at December 31, 2009.
Adjustable Rate Advances (ARC Advances) - ARC advances declined steadily in 2009 and that trend
has continued through the 2010 third quarter, as demand has remained weak. Generally, the FHLBNYs
larger members have been the more significant borrowers of ARCs.
ARC advances are medium- and long-term loans that can be linked to a variety of indices, such as
1-month LIBOR, 3-month LIBOR, the Federal funds rate, or Prime. Members use ARC advances to manage
interest rate and basis risks by efficiently matching the interest rate index and repricing
characteristics of floating-rate assets. The interest rate is set and reset (depending upon the
maturity of the advance and the type of index) at a spread to that designated index. Principal is
due at maturity and interest payments are due at each reset date, including the final payment date.
83
Fixed-rate Advances - Fixed-rate advances, comprising putable and non-putable advances, remain the
largest category of advances.
Member demand for fixed-rate advances has remained steady thus far in 2010. On aggregate, maturing
advances have been replaced by new borrowings. Demand has been concentrated around medium-term
advances, as members remain uncertain about locking into long-term advances perhaps because of
unfavorable pricing of longer-term advances, or an uncertain outlook over the direction and timing
of interest rate changes, or lukewarm demand from members customer base for longer-term fixed-rate
loans.
A significant component of Fixed-rate advances is putable advances. Historically, Fixed-rate
putable advances have been more competitively priced relative to fixed-rate bullet advances
because of the put feature that the Bank purchases from the member, driving down the coupon on
the advance. With a putable advance, the FHLBNY has the right to exercise the put option and
terminate the advance at predetermined exercise date (s), which the FHLBNY normally would exercise
when interest rates rise, and the borrower may then apply for a new advance at the then prevailing
coupon and terms. In the present interest rate environment, the price advantage has not been
significant because of constraints in offering longer-term-advances. The price advantage of a
putable advance increases with the numbers of puts sold and the length of the term of a putable
advance.
Fixed-rate advances are flexible funding tools that can be used by members to meet short- to
long-term liquidity needs. Terms vary from two days to 30 years.
Member demand for the competitively priced putable advances had remained steady through the third
quarter in 2009, contracted somewhat in the fourth quarter of 2009, and declined steadily through
the 2010 second quarter as maturing putable advances were either not replaced, or replaced by
bullet advance (without the put feature). Putable advances stood at $36.7 billion at September 30,
2010, slightly below $37.4 billion at June 30, 2010 and $38.6 billion at March 31, 2010. The
amount outstanding at December 31, 2009 was $41.4 billion.
Short-term Advances - Demand for Short-term fixed-rate advances has remained very weak in the 2010
three quarters, a continuing trend from 2009. Borrowed amounts stood at $1.3 billion, slightly up
from $1.0 billion at June 30, 2010, but down from $2.2 billion at December 31, 2009. By way of
contrast, the outstanding balance was $7.8 billion at December 31, 2008.
Overnight
advances - Overnight borrowings also remained lackluster in 2010, a continuation of the
trend seen in 2009. Member demand for the overnight Advances may also reflect the seasonal needs
of certain member banks for their short-term liquidity requirements. Some large members also use
overnight advances to adjust their balance sheet in line with their own leverage targets.
The overnight advances program gives members a short-term, flexible, readily accessible revolving
line of credit for immediate liquidity needs. Overnight Advances mature on the next business day,
at which time the advance is repaid.
Merger Activity
Merger activity is an important factor and, if significant, would contribute to an uneven pattern
in advance balances. Merger activity may result in the loss of new business if the member is
acquired by a non-member. The FHLBank Act does not permit new advances to replace maturing
advances to former members. Advances held by members who are acquired by non-members may remain
outstanding until their contractual maturities. Merger activity may also result in a decline in
the advance book if the acquired member decides to prepay existing advances partially or in full
depending on the post-merger liquidity needs. One member was acquired
by a non-member financial
institution thus far in 2010. The former member is not considered to have a significant
borrowing potential.
Early Prepayment of Advances
Early prepayment initiated by members and former members is another important factor that impacts
advances to members. The FHLBNY charges a member a prepayment fee when the member prepays certain
advances before the original maturity. Member initiated prepayments in the 2010 third quarter was
$0.5 billion (par amount of advances). In the prior year third quarter, prepayments were only
$92.0 million. On a year-to-date basis, prepayments totaled $3.0 billion in 2010, compared to $3.2
billion in the same period in 2009.
Prepayment fees recorded to Interest income were $3.7 million in the 2010 third quarter, compared
to $0.2 million in the same period in 2009. On a year-to-date basis, prepayment fees were $9.7
million in 2010, compared to $21.2 million in the same period in 2009.
For advances that are prepaid and hedged under hedge accounting rules, the FHLBNY generally
terminates the hedging relationship upon prepayment and adjusts the prepayment fees received for
the associated fair value basis of the hedged prepaid advance.
Impact of Derivatives and hedging activities to the balance sheet carrying values of Advances
The Bank hedges certain advances by the use of both cancellable and non-cancellable interest rate
swaps. These qualify as fair value hedges under the derivatives and hedge accounting rules.
Recorded fair value basis adjustments to advances in the Statements of Condition were a result of
these hedging activities. The Bank hedges the risk of changes in the benchmark rate, which the
FHLBNY has adopted as LIBOR and is also the discounting basis for computing changes in fair values
of hedged advances. Fair value changes of qualifying hedged advances under the derivatives and
hedge accounting rules are recorded in the Statements of Income as a
Net realized and unrealized gain (loss) on derivative and hedging activities, a component of Other income (loss). An offset is
recorded as a fair value basis adjustment to the carrying amount of the advances in the Statements
of Condition.
84
Derivative transactions are employed to hedge fixed-rate advances in the following manner and to
achieve the following principal objectives:
The FHLBNY:
|
|
Makes extensive use of the derivatives to restructure interest rates on fixed-rate
advances, both putable and non-putable (bullet), to better match the FHLBNYs cash flows, to
enhance yields, and to manage risk from a changing interest rate environment. |
|
|
Converts at the time of issuance, certain simple fixed-rate bullet and putable fixed-rate
advances into synthetic floating-rate advances by the simultaneous execution of interest rate
swaps that convert the cash flows of the fixed-rate advances to conventional adjustable rate
instruments tied to an index, typically 3-month LIBOR. |
|
|
Uses derivatives to manage the risks arising from changing market prices and volatility of
a fixed coupon advance by matching the cash flows of the advance to the cash flows of the
derivative, and making the FHLBNY indifferent to changes in market conditions. Putable
advances are typically hedged by an offsetting derivative with a mirror-image call option with
identical terms. |
|
|
Adjusts the reported carrying value of hedged fixed-rate advances for changes in their fair
value (fair value basis or fair value) that are attributable to the risk being hedged in
accordance with hedge accounting rules. Amounts reported for advances in the Statements of
Condition include fair value hedge basis adjustments. |
The most significant element that impacts balance sheet reporting of advances is the recording of
fair value basis adjustments to the carrying value of advances in the Statements of Condition. In
addition, when putable advances are hedged by cancellable swaps, the possibility of exercise of the
call shortens the expected maturity of the advance. The impact of derivatives to the Banks income
is discussed in this MD&A under Results of Operations. Fair value basis adjustments as measured
under the hedging rules are impacted by hedge volume, the interest rate environment, and the
volatility of the interest rates.
Hedge volume - The Bank primarily hedges putable advances and certain bullet fixed-rate advances
that qualify under the hedging provisions of the accounting standards for derivatives and hedging,
and as economic hedges when the hedge accounting provisions are operationally difficult to
establish, or a high degree of hedge effectiveness cannot be asserted.
At September 30, 2010, $61.6 billion of interest rate swaps hedged fixed-rate advances, compared to
$66.0 billion at December 31, 2009 (See Table 28: Derivative Financial Instruments by Product).
Except for an insignificant notional amount of derivatives that were designated as economic hedges
of advances, the swaps were in a qualifying hedging relationship under the accounting standards for
derivatives and hedging. Decline in the use of derivatives was consistent with the contraction of
fixed-rate advances, which the FHLBNY typically hedges to convert fixed-rate cash flows to
LIBOR-indexed cash flows through the use of interest rate swaps.
The largest component of interest rate swaps hedging advances at September 30, 2010 and December
31, 2009 was comprised of cancellable swaps that hedged a significant percentage of the $36.7
billion and $41.4 billion of putable advances at those dates (See Table 26: Derivative Hedging
Strategies). Typically, the Bank hedges almost all putable advances with a cancellable interest
rate swap. The put option in the advance is owned by the FHLBNY and mirrors the cancellable swap
option terms owned by the swap counterparty. The Banks putable advance contains a put option
purchased by the Bank from the member. Under the terms of the put option, the Bank has the right
to terminate the advance at agreed upon dates. The period until the option is exercisable is known
as the lockout period. If the advance is put by the FHLBNY at the end of the lockout period, the
member can borrow an advance product of the members choice at the then prevailing market rates and
at the then existing terms and conditions. Notional amounts of non-cancellable swaps were $27.1
billion at September 30, 2010, compared to $26.0 billion at December 31, 2009.
Fair value basis adjustments - The Bank uses interest rate derivatives to hedge the risk of changes
in the benchmark rate, which the FHLBNY has adopted as LIBOR, and is also the discounting basis for
computing changes in fair values of hedged advances. Recorded fair value basis adjustments in the
Statements of Condition were associated with hedging activities under the hedge accounting
provisions. Advances designated at inception as economic hedges do not have any basis adjustments,
and were insignificant. The reported carrying values of advances at September 30, 2010 included
net unrealized fair value basis gains of $5.6 billion up from $3.6 billion at December 31, 2009
associated with hedged advances that qualified under hedge accounting rules at those dates. Fair
value gains were consistent with the downward sloping forward yield curve at September 30, 2010 and
December 31, 2009 that were projecting forward rates below the contractual coupons of hedged
fixed-rate advances. Hedged-fixed rate advances had been issued in prior periods at the then
prevailing higher interest-rate environment, and since hedged advances are typically fixed-rate, in
a lower interest rate environment relative to the coupons of the advances, fixed-rate advances will
exhibit net unrealized fair value basis gains.
The increase in net fair value basis adjustments of hedged Advances was primarily caused by the
flattening of forward interest rates at September 30, 2010, relative to December 31, 2009, with the
forward rates well below the same yields projected at December 31, 2009. At September 30, 2010,
the yield curve was forecasting 0.64%, 1.29%, and 1.92% on the 3-year, 5-year and 7-year swap
curves, compared to 1.67%, 2.68% and 3.38% at December 31, 2009. Fair values of hedged fixed-rate
advances typically gain value when interest rates decline.
85
Unrealized gains from fair value basis adjustments to advances were almost entirely offset by net
fair value unrealized losses of the derivatives associated with the fair value hedges of advances,
thereby achieving the Banks hedging objectives of mitigating fair value basis risk.
Investments
The FHLBNY maintains investments for liquidity purposes, to manage capital stock repurchases and
redemptions, to provide additional earnings, and to ensure the availability of funds to meet the
credit needs of its members. The FHLBNY also maintains longer-term investment portfolios, which
are principally mortgage-backed securities issued by government-sponsored mortgage agencies, a
smaller portfolio of MBS issued by private enterprises, and securities issued by state or local
housing finance agencies. Finance Agency regulations prohibit the FHLBanks, including the FHLBNY,
from investing in certain types of securities and limit the investment in mortgage- and
asset-backed securities.
Investments -Policies and practices
Finance Agency regulations limit investment in housing-related obligations of state and local
governments and their housing finance agencies to obligations that carry ratings of double-A or
higher. Mortgage- and asset-backed securities acquired must carry the highest ratings from Moodys
Investors Service (Moodys) or Standard & Poors Rating Services (S&P) at the time of purchase.
Finance Agency regulations further limit the mortgage- and asset-backed investments of each
FHLBank to 300 percent of that FHLBanks capital. The FHLBNY was within the 300 percent limit for
all periods reported. The FHLBNYs investment in mortgage-backed securities during all periods
reported complied with FHLBNYs Board-approved policy of acquiring mortgage-backed securities
issued or guaranteed by the government-sponsored housing enterprises, or prime residential
mortgages rated triple-A by both Moodys and Standard & Poors rating services at acquisition.
The FHLBNYs practice is not to lend unsecured funds to members, including overnight Federal funds
and certificates of deposit. The FHLBNY does not preclude or specifically seek out investments any
differently than it would in the normal course of acquiring securities for investments, unless it
is prohibited by existing regulations. Unsecured lending to members is not prohibited by Finance
Agency regulations or Board of Directors policy. The FHLBNY is prohibited from purchasing a
consolidated obligation issued directly by another FHLBank, but may acquire consolidated
obligations for investment in the secondary market after the bond settles. There were no
investments in consolidated obligations by the FHLBNY at September 30, 2010 or December 31, 2009.
On March 24, 2008, the Board of Directors of the Federal Housing Finance Board, predecessor to the
Finance Agency adopted Resolution 2008-08, which temporarily expanded the authority of a FHLBank to
purchase mortgage-backed securities (MBS) under certain conditions. The resolution allowed a
FHLBank to increase its investments in MBS issued by Fannie Mae and Freddie Mac by an amount equal
to three times its capital, which is to be calculated in addition to the existing limit. The
expanded authority permitted MBS investments to be as much as 600 percent of the FHLBNYs capital.
The FHLBNY did not exercise the expanded authority provided under the temporary regulations to
purchase MBS issued by Fannie Mae and Freddie Mac. The expanded authority expired in March 2010.
The following table summarizes changes in investments by categories (including held-to-maturity
securities, available-for-sale securities, and money market investments). Amounts are after
writing down (at the time of credit related OTTI) held-to-maturity impaired securities to fair
values. No securities classified as available-for-sale were OTTI (dollars in thousands):
Table 16: Investments by Categories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
Dollar |
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
Variance |
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local housing finance agency obligations 1 |
|
$ |
740,256 |
|
|
$ |
751,751 |
|
|
$ |
(11,495 |
) |
|
|
(1.53) |
% |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities, at fair value |
|
|
3,360,959 |
|
|
|
2,240,564 |
|
|
|
1,120,395 |
|
|
|
50.01 |
|
Held-to-maturity securities, at carrying value |
|
|
7,480,990 |
|
|
|
9,767,531 |
|
|
|
(2,286,541 |
) |
|
|
(23.41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
|
11,582,205 |
|
|
|
12,759,846 |
|
|
|
(1,177,641 |
) |
|
|
(9.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grantor trusts 2 |
|
|
12,822 |
|
|
|
12,589 |
|
|
|
233 |
|
|
|
1.85 |
|
Federal funds sold |
|
|
4,095,000 |
|
|
|
3,450,000 |
|
|
|
645,000 |
|
|
|
18.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
15,690,027 |
|
|
$ |
16,222,435 |
|
|
$ |
(532,408 |
) |
|
|
(3.28) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Classified as held-to-maturity securities, at carrying value. |
|
2 |
|
Classified as available-for-sale securities, at fair value and represents investments
in registered mutual funds and other fixed-income securities maintained under the grantor trusts. |
86
Long-term investments
Investments with original long-term contractual maturities were comprised of mortgage- and
asset-backed securities, and investment in securities issued by state and local housing agencies.
These investments were classified either as Held-to-maturity or as Available-for-sale
securities in accordance with accounting standard on investments in debt and equity securities as
amended by the guidance on recognition and presentation of other-than-temporary impairments.
Several grantor trusts have been established and owned by the FHLBNY to fund current and potential
future payments to retirees for supplemental pension plan obligations. The trust funds are
invested in fixed-income and equity funds, which were classified as available-for-sale.
Mortgage-backed securities By issuer
Issuer composition of held-to-maturity mortgage-backed securities was as follows (carrying values;
dollars in thousands):
Table 17: Mortgage-Backed Securities Held-to-Maturity by Issuer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
Percentage |
|
|
December 31, |
|
|
Percentage |
|
|
|
2010 |
|
|
of total |
|
|
2009 |
|
|
of total |
|
|
|
U.S. government sponsored enterprise residential
mortgage-backed securities |
|
$ |
6,248,361 |
|
|
|
83.52 |
% |
|
$ |
8,482,139 |
|
|
|
86.84 |
% |
U.S. agency residential mortgage-backed securities |
|
|
127,168 |
|
|
|
1.70 |
|
|
|
171,531 |
|
|
|
1.76 |
|
U.S. government sponsored enterprise commercial
mortgage-backed securities |
|
|
173,969 |
|
|
|
2.33 |
|
|
|
|
|
|
|
|
|
U.S. agency commercial mortgage-backed securities |
|
|
48,953 |
|
|
|
0.65 |
|
|
|
49,526 |
|
|
|
0.51 |
|
Private-label issued securities backed by home equity loans |
|
|
362,847 |
|
|
|
4.85 |
|
|
|
417,151 |
|
|
|
4.27 |
|
Private-label issued residential mortgage-backed securities |
|
|
336,981 |
|
|
|
4.51 |
|
|
|
444,906 |
|
|
|
4.55 |
|
Private-label issued securities backed by manufactured housing loans |
|
|
182,711 |
|
|
|
2.44 |
|
|
|
202,278 |
|
|
|
2.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-maturity securities-mortgage-backed securities |
|
$ |
7,480,990 |
|
|
|
100.00 |
% |
|
$ |
9,767,531 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity mortgage- and asset-backed securities (MBS) - The Banks conservative purchasing
practice over the years is evidenced by the high concentration of MBS issued by the GSEs.
Privately issued mortgage-backed securities made up the remaining 11.8% and 10.9% at September 30,
2010 and December 31, 2009.
Local and housing finance agency bonds - The FHLBNY had investments in primary public and private
placements of taxable obligations of state and local housing finance authorities (HFA) classified
as held-to-maturity. Investments in state and local housing finance bonds help to fund mortgages
that finance low- and moderate-income housing. No additions were made in the 2010 three quarters.
Available-for-sale securities - The FHLBNY classifies investments that it may sell before maturity
as available-for-sale (AFS) and carries them at fair value. Fair value changes are recorded in
AOCI until the security is sold or is anticipated to be sold. Composition of FHLBNYs
available-for-sale securities was as follows (dollars in thousands):
Table 18: Available-for-Sale Securities Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
Percentage |
|
|
December 31, |
|
|
Percentage |
|
|
|
2010 |
|
|
of total |
|
|
2009 |
|
|
of total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
2,275,326 |
|
|
|
67.70 |
% |
|
$ |
1,544,500 |
|
|
|
68.93 |
% |
Freddie Mac |
|
|
1,085,633 |
|
|
|
32.30 |
|
|
|
696,064 |
|
|
|
31.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS mortgage-backed securities |
|
|
3,360,959 |
|
|
|
100.00 |
% |
|
|
2,240,564 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grantor Trusts Mutual funds |
|
|
12,822 |
|
|
|
|
|
|
|
12,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available-for-sale portfolio |
|
$ |
3,373,781 |
|
|
|
|
|
|
$ |
2,253,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
hundred percent of AFS portfolio of mortgage-backed securities was comprised of securities issued
by Fannie Mae and Freddie Mac. The Bank acquired $2.0 billion of GSE issued, triple-A rated MBS in
the 2010 first three quarters. The Bank also has grantor trusts designed to fund current and
potential future payments to retirees for supplemental pension plan obligations. The trusts are
invested in money market funds, fixed-income and equity funds, and are designated as
available-for-sale.
For more information and analysis with respect to investment securities, see Investment Quality in
the section captioned Asset Quality and Concentration Advances, Investment securities, Mortgage
loans, and Counterparty risks in this MD&A. Also, see Notes 4 and 5 to the unaudited financial
statements in this report.
87
External rating information of the held-to-maturity portfolio was as follows. (Carrying values; in
thousands):
Table 19: External Rating of the Held-to-Maturity Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
AAA-rated |
|
|
AA-rated |
|
|
A-rated |
|
|
BBB-rated |
|
|
Grade |
|
|
Total |
|
Long-term securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
6,977,063 |
|
|
$ |
275,025 |
|
|
$ |
44,215 |
|
|
$ |
18,129 |
|
|
$ |
166,557 |
|
|
$ |
7,480,990 |
|
State and local housing finance agency
obligations |
|
|
71,596 |
|
|
|
592,594 |
|
|
|
19,845 |
|
|
|
56,221 |
|
|
|
|
|
|
|
740,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term securities |
|
|
7,048,660 |
|
|
|
867,619 |
|
|
|
64,060 |
|
|
|
74,350 |
|
|
|
166,557 |
|
|
|
8,221,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,048,660 |
|
|
$ |
867,619 |
|
|
$ |
64,060 |
|
|
$ |
74,350 |
|
|
$ |
166,557 |
|
|
$ |
8,221,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
AAA-rated |
|
|
AA-rated |
|
|
A-rated |
|
|
BBB-rated |
|
|
Grade |
|
|
Total |
|
Long-term securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
9,205,018 |
|
|
$ |
299,314 |
|
|
$ |
65,921 |
|
|
$ |
31,261 |
|
|
$ |
166,017 |
|
|
$ |
9,767,531 |
|
State and local housing finance agency
obligations |
|
|
72,992 |
|
|
|
601,109 |
|
|
|
21,430 |
|
|
|
56,220 |
|
|
|
|
|
|
|
751,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term securities |
|
|
9,278,010 |
|
|
|
900,423 |
|
|
|
87,351 |
|
|
|
87,481 |
|
|
|
166,017 |
|
|
|
10,519,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,278,010 |
|
|
$ |
900,423 |
|
|
$ |
87,351 |
|
|
$ |
87,481 |
|
|
$ |
166,017 |
|
|
$ |
10,519,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External rating information of the available-for-sale portfolio was as follows (Carrying values of
AFS investments are at fair values; in thousands):
Table 20: External Rating of the Available-for-Sale Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
AAA-rated |
|
|
AA-rated |
|
|
A-rated |
|
|
BBB-rated |
|
|
Unrated |
|
|
Total |
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
3,360,959 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,360,959 |
|
Other Grantor trusts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,822 |
|
|
|
12,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,360,959 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,822 |
|
|
$ |
3,373,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
AAA-rated |
|
|
AA-rated |
|
|
A-rated |
|
|
BBB-rated |
|
|
Unrated |
|
|
Total |
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
2,240,564 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,240,564 |
|
Other Grantor trusts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,589 |
|
|
|
12,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,240,564 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,589 |
|
|
$ |
2,253,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average rates Mortgage-backed securities
The following table summarizes weighted average rates and amounts by contractual maturities. A
significant portion of the MBS portfolio consisted of floating-rate securities and the weighted
average rates will change with changes in the indexed LIBOR rate (dollars in thousands):
Table 21: Mortgage-Backed Securities Weighted Average Rates by Contractual Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Amortized |
|
|
Weighted |
|
|
Amortized |
|
|
Weighted |
|
|
|
Cost |
|
|
Average rate |
|
|
Cost |
|
|
Average rate |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Due after one year through five years |
|
|
1,927 |
|
|
|
6.25 |
|
|
|
2,663 |
|
|
|
6.25 |
|
Due after five years through ten years |
|
|
1,096,896 |
|
|
|
4.69 |
|
|
|
1,140,153 |
|
|
|
4.78 |
|
Due after ten years |
|
|
9,814,713 |
|
|
|
2.79 |
|
|
|
10,977,950 |
|
|
|
3.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
$ |
10,913,536 |
|
|
|
2.98 |
% |
|
$ |
12,120,766 |
|
|
|
3.36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
88
Credit Impairment analysis (Other-than-temporary Impairment OTTI)
Management evaluates its investments for OTTI on a quarterly basis, under amended OTTI guidance
issued in the prior year first quarter by the Financial Accounting Standards Board (FASB). 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 non-credit portion of
OTTI, which represent fair value losses of OTTI securities, is recognized in AOCI. Prior to the
adoption of the amended guidance, if an impairment was determined to be other-than-temporary, the
impairment loss recognized in earnings was equal to the entire difference between the securitys
amortized cost basis and its fair value. The FHLBNY had not determined any security as impaired
prior to 2009. Beginning with the quarter ended September 30, 2009, at each subsequent quarter,
the FHLBNY performed its OTTI analysis by cash flow testing 100 percent of it private-label MBS.
At December 31, 2008, and at the two interim quarters ended June 30, 2009, the FHLBNYs methodology
was to analyze all of its private-label MBS to isolate securities that were considered to be at
risk of OTTI and to perform cash flow analysis on securities at risk of OTTI.
2010 vs. 2009 current quarter - In 2010, the FHLBNY identified credit re-impairment on four HTM
private-label MBS. Cash flow assessments of the expected credit performance of the four securities
resulted in the recognition of $3.1 million as credit related OTTI and was a charge to earnings.
All four securities had been previously determined to be OTTI, and the additional impairment
(re-impairment) was due to further deterioration in the credit performance measures of the impaired
securities. The non-credit portion of OTTI recorded in AOCI was not significant. In the prior
year current quarter, the Banks cash flow impairment analysis resulted in credit related OTTI of
$3.7 million, and the non-credit portion of OTTI recorded in AOCI was $26.5 million.
2010 vs. 2009 year-to-date - In 2010, cumulative credit impairment charged to income was $7.7
million. Non-credit OTTI was not significant. In the same period in the prior year, cumulative
credit impairment was $14.3 million and non-credit OTTI was a loss of $103.9 million.
Bond insurers Ambac and MBIA insure the four MBS credit securities impaired in the 2010 current
quarter. The Banks analysis of Ambac concluded that the bond insurer could not be relied upon to
pay 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.
Based on detailed cash flow credit analysis on a security level at the current quarter-end, the
Bank has concluded the gross unrealized losses for the remainder of the Banks investment
securities (other than the four securities credit impaired) were primarily caused by interest rate
changes, credit spread widening and reduced liquidity, and the securities were temporarily impaired
as defined under the new guidance for recognition and presentation of other-than-temporary
impairment.
Fair values of investment securities
In an effort to achieve consistency among all of the FHLBanks on the pricing of investments in
mortgage-backed securities, in the third quarter of 2009 the FHLBanks formed the MBS Pricing
Governance Committee, which was responsible for developing a fair value methodology for
mortgage-backed securities that all FHLBanks could adopt. Consistent with the guidance from the
Governance Committee, the FHLBNY changed the methodology used to estimate the fair value of
mortgage-backed securities starting as of September 30, 2009. Under the approved methodology, the
Bank requests prices for all mortgage-backed securities from four specified third-party vendors,
and, depending on the number of prices received for each security, selected a median or average
price as defined by the methodology. If four prices are received by the FHLBNY from the pricing
vendors, the average of the middle two prices is used; if three prices are received, the middle
price is used; if two prices are received, the average of the two prices is used; and if one price
is received, it is used subject to additional validation. The computed prices are tested for
reasonableness using tolerance thresholds. Prices within the established thresholds are generally
accepted unless strong evidence suggests that using the median pricing methodology as described
above would not be appropriate. Preliminary estimated fair values that are outside the tolerance
thresholds, or that management believes may not be appropriate based on all available information
(including those limited instances in which only one price is received), are subject to further
analysis of all relevant facts and circumstances that a market participant would consider.
To compute fair values at September 30, 2010, four vendor prices were received for substantially
all of the FHLBNYs MBS holdings and substantially all of those prices fell within the specified
thresholds. The relative proximity of the prices received supported the FHLBNYs conclusion that
the final computed prices were reasonable estimates of fair value. While the FHLBNY adopted this
common methodology, the fair values of mortgage-backed investment securities are estimated by
FHLBNYs management which remains responsible for the selection and application of its fair value
methodology and the reasonableness of assumptions and inputs used.
The four specialized pricing services use pricing models or quoted prices of securities with
similar characteristics. The valuation techniques used by pricing services employ cash flow
generators and option-adjusted spread models. Pricing spreads used as inputs in the models are
based on new issue and secondary market transactions if the securities are traded in sufficient
volumes in the secondary market.
These pricing vendors typically employ valuation techniques that incorporate benchmark yields,
recent trades, dealer estimates, valuation models, benchmarking of like securities, sector
groupings, and/or matrix pricing, as may be deemed appropriate for the security. Such inputs into
the pricing models employed by pricing services for most of the Banks investments are market based
and observable and are considered Level 2 of the fair value hierarchy.
89
The valuation of the FHLBNYs private-label mortgage-backed securities, all designated as
held-to-maturity, may require pricing services to use significant inputs that are subjective and
may be considered to be Level 3 of the fair value hierarchy because of the current lack of
significant market activity so that the inputs may not be market based and observable. All
private-label mortgage-backed securities were classified as held-to-maturity and were recorded in
the balance sheet at their carrying values. Carrying value of a security is the same as its
amortized cost, unless the security is determined to be OTTI. In the period the security is
determined to be OTTI, its carrying value is generally adjusted down to its fair value.
Prior to the adoption of the new pricing methodology in the prior year third quarter, the Bank used
a similar process that utilized three third-party vendors and similar variance thresholds. This
change in pricing methodology did not have a significant impact on the Banks estimated fair values
of its mortgage-backed securities.
For a comparison of carrying values and fair values of mortgage-backed securities, see Notes 4 and
5 to the unaudited financial statements in this report.
In the Statement of Conditions in this Form 10Q, the carrying values of certain HTM securities
determined to be OTTI were written down to $8.1 million, their fair values, which were classified
as Level 3 financial instruments within the fair value hierarchy. This determination was made
based on managements view that the private-label instruments may not have an active market because
of the specific vintage of the impaired securities as well as inherent conditions surrounding the
trading of private-label mortgage-backed securities.
For more information about the corroboration and other analytical procedures performed by the
FHLBNY, see Note 1 Significant Accounting Policies and Estimates, and Note 17 Fair values of
financial instruments to the financial statements accompanying this report. Examples of securities
priced under such a valuation technique, which are classified within Level 2 of the valuation
hierarchy and valued using the market approach as defined in the accounting standards for fair
value measurements and disclosures, include GSE issued collateralized mortgage obligations and
money market funds.
Short-term investments
The FHLBNY typically maintains substantial investments in high quality, short- and
intermediate-term financial instruments, such as certificates of deposit as well as overnight and
term Federal funds sold to highly rated financial institutions. These investments provide the
liquidity necessary to meet members credit needs. Short-term investments also provide a flexible
means of implementing the asset/liability management decisions to increase liquidity. The Bank
invests in certificates of deposit with maturities not exceeding 270 days and issued by major
financial institutions. Certificates of deposit are recorded at amortized cost basis and
designated as held-to maturity investment. No certificates of deposit were outstanding at the
current quarter-end or at December 31, 2009.
Federal funds sold - Historically, the FHLBNY has been a provider of Federal funds to its members,
allowing the FHLBNY to warehouse and provide balance sheet liquidity to meet unexpected member
borrowing demands. See Table 16, Investment by Categories, for more details.
Cash collateral pledged - Cash deposited by the FHLBNY as pledged collateral to derivative
counterparties is reported as a deduction to Derivative liabilities in the Statements of Condition.
The FHLBNY generally executes derivatives with major financial institutions and typically enters
into bilateral collateral agreements. When the FHLBNYs derivatives are in a net unrealized loss
position, as a liability from the FHLBNYs perspective, counterparties are exposed and the FHLBNY
would be called upon to pledge cash collateral to mitigate the counterparties credit exposure.
Collateral agreements include certain thresholds and pledge requirements that are generally
triggered if exposures exceed the agreed upon thresholds. At the current quarter-end and at
December 31, 2009, the Bank had deposited $3.8 billion and $2.2 billion in interest-earning cash as
pledged collateral to derivative counterparties. Typically, such cash deposit pledges earn
interest at the overnight Federal funds rate. For more information, see Table 27: Derivative
Financial Instruments by Hedge Designation.
Mortgage Loans Held-for-Portfolio
The portfolio of mortgage loans was comprised of investments in Mortgage Partnership Finance loans
(MPF or MPF Program) and Community Mortgage Asset loans (CMA). More details about the MPF
program can be found in Mortgage Partnership Finance Program under the caption Acquired Member
Assets Program in the Banks most recent Form 10-K filed on March 25, 2010. In the CMA program,
the FHLBNY holds participation interests in residential and community development mortgage loans.
Acquisition of participations under the CMA program was suspended indefinitely in November 2001 and
the loans are being paid down under their contractual terms.
MPF Program - Paydowns slightly outpaced acquisitions in 2010. The FHLBNY does not expect the MPF
loans to increase substantially, and the Bank provides this product to its members as another
alternative for them to sell their mortgage production.
CMA Program - The amortized cost basis of loans in the CMA program, which has not been active since
2001, has been declining steadily over time, and was not material.
90
Mortgage loans by loan type
The following table presents information on mortgage loans held-for-portfolio (dollars in
thousands):
Table 22: Mortgage Loans by Loan Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed medium-term single-family mortgages |
|
$ |
344,781 |
|
|
|
27.20 |
% |
|
$ |
388,072 |
|
|
|
29.43 |
% |
Fixed long-term single-family mortgages |
|
|
918,967 |
|
|
|
72.50 |
|
|
|
926,856 |
|
|
|
70.27 |
|
Multi-family mortgages |
|
|
3,827 |
|
|
|
0.30 |
|
|
|
3,908 |
|
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
1,267,575 |
|
|
|
100.00 |
% |
|
|
1,318,836 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized premiums |
|
|
10,027 |
|
|
|
|
|
|
|
9,095 |
|
|
|
|
|
Unamortized discounts |
|
|
(4,700 |
) |
|
|
|
|
|
|
(5,425 |
) |
|
|
|
|
Basis adjustment 1 |
|
|
322 |
|
|
|
|
|
|
|
(461 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans held-for-portfolio |
|
|
1,273,224 |
|
|
|
|
|
|
|
1,322,045 |
|
|
|
|
|
Allowance for credit losses |
|
|
(5,537 |
) |
|
|
|
|
|
|
(4,498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans held-for-portfolio after
allowance for credit losses |
|
$ |
1,267,687 |
|
|
|
|
|
|
$ |
1,317,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Represents fair value basis of open and closed delivery commitments. |
Deposit Liabilities
Deposit liabilities comprised of member deposits and, from time-to-time, may also include unsecured
overnight borrowings from other FHLBanks.
Member deposits - The FHLBNY operates deposit programs for the benefit of its members. Deposits
are primarily short-term in nature with the majority maintained in demand accounts that reprice
daily based upon rates prevailing in the overnight Federal funds market. Members liquidity
preferences are the primary determinant of the level of deposits. Deposits at current quarter-end
stood at $3.7 billion, an increase of $1.0 billion from the balance at December 31, 2009, primarily
due to deposits placed by a U.S. government agency. The Bank may accept deposits from governmental
and semi-governmental institutions in addition to member deposit. Fluctuations in member deposits
have little impact on the Bank and are not a significant source of liquidity for the Bank.
Borrowings from other FHLBanks The Bank borrows from other FHLBanks, generally for a period of
one day and at market terms. There were no borrowings in the 2010 three quarters.
Debt Financing Activity and Consolidated Obligations
Consolidated obligations, which are the joint and several obligations of the FHLBanks, are the
principal funding source for the FHLBNYs operations and consist of consolidated bonds and
consolidated discount notes. Discount notes are consolidated obligations with maturities of up to
365 days, and consolidated bonds have maturities of one year or longer. Member deposits, capital,
and to a lesser extent borrowings from other FHLBanks, are also funding sources.
Consolidated Obligation Liabilities
The issuance and servicing of consolidated obligations debt are performed by the Office of Finance,
a joint office of the FHLBanks established by the Finance Agency. Each FHLBank independently
determines its participation in each issuance of consolidated obligations based on, among other
factors, its own funding and operating requirements, maturities, interest rates, and other terms
available for consolidated obligations in the market place. Although the FHLBNY is primarily
liable for its portion of consolidated obligations (i.e., those issued on its behalf), the FHLBNY
is also jointly and severally liable with the other FHLBanks for the payment of principal and
interest on the consolidated obligations of all the FHLBanks. The FHLBanks, including the FHLBNY,
have emphasized diversification of funding sources and channels as the need for funding from the
capital markets has grown.
The two major debt programs offered by the Office of Finance are the Global Debt Program and the
TAP issue programs as described below. The FHLBNY participates in both programs.
The Global Debt Program provides the FHLBanks with the ability to distribute debt into multiple
primary markets across the globe. The FHLBank global debt issuance facility has been in place
since July 1994. FHLBank global bonds are known for their variety and flexibility; all can be
customized to meet changing market demand with different structures, terms and currencies. Global
Debt Program bonds are available in maturities ranging from one year to 30 years with the majority
of global issues between one and five years. The most common Global Debt Program structures are
bullets, floaters and fixed-rate callable bonds with maturities of one through ten years. Issue
sizes are typically from $500 million to $5 billion and individual bonds can be reopened to meet
additional demand. Bullets are the most common global bonds, particularly in sizes of $3 billion
or larger.
91
In mid-1999, the Office of Finance implemented the TAP issue program on behalf of the FHLBanks.
This program consolidates domestic bullet bond issuance through daily auctions of common maturities by reopening
previously issued bonds. Effectively, the program has reduced the number of separate FHLBanks
bullet issues and individual issues have grown as large as $1.0 billion. The increased issue sizes
have a number of market benefits for investors, dealers and the 12 FHLBanks. TAP issues have
improved market awareness, expanded secondary market trading opportunities, improved liquidity and
stimulated greater demand from investors and dealers seeking high-quality Government Sponsored
Enterprises securities with U.S. Treasury-like characteristics. The TAP issues follow the same
3-month quarterly cycles used for the issuance of on-the-run Treasury securities and also have
semi-annual coupon payment dates (March, June, September and December). The coupons for new issues
are determined by the timing of the first auction during a given quarter.
The FHLBanks also issue global consolidated obligations-bonds. Effective in January 2009, a debt
issuance process was implemented by the FHLBanks and the Office of Finance to provide a scheduled
monthly issuance of global bullet consolidated obligation bonds. As part of this process,
management from each of the FHLBanks will determine and communicate a firm commitment to the Office
of Finance for an amount of scheduled global debt to be issued on its behalf. If the FHLBanks
orders do not meet the minimum debt issue size, the proceeds are allocated to all FHLBanks based on
the larger of the FHLBanks commitment or allocated proceeds based on the individual FHLBanks
capital to total system capital. If the FHLBanks commitments exceed the minimum debt issue size,
the proceeds are allocated based on relative capital of the FHLBanks with the allocation limited
to the lesser of the allocation amount or actual commitment amount. The Finance Agency and the
U.S. Secretary of the Treasury have oversight over the issuance of FHLBank debt through the Office
of Finance. The FHLBanks can, however, pass on any scheduled calendar slot and not issue any
global bullet consolidated obligation bonds upon agreement of eight of the 12 FHLBanks.
The FHLBanks, including the FHLBNY, continue to issue debt that is both competitive and attractive
in the marketplace. In addition, the FHLBanks continuously monitor and evaluate their debt
issuance practices to ensure that consolidated obligations are efficiently and competitively
priced.
Consolidated obligations are issued with either fixed- or variable-rate coupon payment terms that
use a variety of indices for interest rate resets. These indices include the London Interbank
Offered Rate (LIBOR), Constant Maturity Treasury (CMT), 11th District Cost of Funds Index
(COFI), Prime rate, the Federal funds rate, and others. In addition, to meet the expected
specific needs of certain investors in consolidated obligations, both fixed- and variable-rate
bonds may also contain certain features that will result in complex coupon payment terms and call
options. When the FHLBNY cannot use such complex coupons to hedge its assets, FHLBNY enters into
derivative transactions containing offsetting features that effectively convert the terms of the
bond to those of a simple variable-rate bond.
The consolidated obligations, beyond having fixed- or variable-rate coupon payment terms, may also
be Optional Principal Redemption Bonds (callable bonds) that the FHLBNY may redeem in whole or in
part at its discretion on predetermined call dates according to the terms of the bond offerings.
Highlights Debt issuance and funding management
The FHLBNYs consolidated obligations outstanding has contracted at current quarter-end from
December 31, 2009 in part due to the contraction of the Banks advance business, and in part due to
reduction in overall funding requirements, as the Bank has also been cautious about increasing its
investment portfolios. However, the primary source of funds for the FHLBNY continued to be through
issuance of consolidated bonds and discount notes. Reported amounts of consolidated obligations
outstanding, comprising of bonds and discount notes, at September 30, 2010 and December 31, 2009,
were $92.7 billion and $104.8 billion, and funded 89.9% and 91.6% of Total assets at those dates.
These financing ratios have remained substantially unchanged over the years at around 90 percent,
indicative of the stable funding strategy pursued by the FHLBNY. Fixed-rate non-callable debt
remains the largest component of consolidated obligation debt. Earlier in the 2010 first quarter,
in response to market conditions for FHLBank debt, the FHLBNY shifted its funding strategy,
reducing its issuance of discount notes while increasing the utilization of callable debt. In the
second quarter, as market pricing of discount notes became relatively more attractive, the FHLBNY
increased issuance of discount notes to replace callable bonds that had been called or had
naturally matured. In the third quarter, as discount note pricing and spreads became less
attractive, issuances of discount notes declined.
Market trends for FHLBank bonds and discount notes and tactical changes in funding mix
While in 2009, key investors from Asia had reduced acquisitions of FHLBank debt and limited their
participation in debt issuances, in 2010, there is now encouraging signs of the return of central
banks from Asia to FHLBank debt issuances and increased participation in the debt offerings. In
2010, central banks in the Americas have also been strong buyers of Global FHLBank bonds in the
2010 second quarter. The most active issues were the 3-year and 2-year new issue Global bullets.
The cost of long-term debt issuance has continued to be under pressure through the 2010 third
quarter.
FHLBank consolidated obligation bonds
2010 first quarter - Several government support programs, including the Federal Reserves Agency
debt program, expired during the 2010 first quarter. With the absence of Fed purchasing GSE debt,
spreads deteriorated, with March 2010 witnessing the lowest weighted-average monthly bond pricing
spreads since February 2009. At the same time, compression of swapped funding levels of FHLBank
consolidated bonds to LIBOR had effectively driven up the cost of funding for the FHLBank debt, as
much of FHLBank fixed-rate debt is swapped back to LIBOR.
92
2010 second quarter - Several factors helped improve the pricing of the FHLBank debt. First, the
3-month LIBOR index had risen to 53 basis points, from around 25 basis points at March 31, 2010.
That brought some relief to the FHLBank debt spreads (to LIBOR). Second, a decline in the
availability of competing GSE issued debt in the 2010 second quarter also helped to improve funding
costs of FHLBank debt. Lastly, the credit concerns in Europe heightened credit risk about
sovereign debt and inter-bank lending, resulting in a flight to quality to FHLBank short-term debt.
By the close of the 2010 second quarter, debt costs had improved for almost all short-term FHLBank
debt. Cost of bullet bonds (non-callable, non-amortizing) was more favorable for all maturities
with the exception of longer-term maturities. Investor demand had been particularly strong for
bullets with maturities of less than 15 months. Cost of callable bonds improved on a swapped out
basis to 3-month LIBOR in parallel with the 3-month LIBOR rising to 53 basis points. Cost of
callable step-up bonds also improved and investor interest warmed as the structure can be used as
an effective hedge by investors in a rising rate environment. Some investors also saw
opportunities in investing in step-up bonds on the assumption that the step-up callable bond would
be called on the first call date and the investor would benefit from the higher yield on the
step-up bond relative to alternative short-term investment. Investor demand for floating-rate
FHLBank bonds was weak and volume was down.
2010 third quarter - Shrinking FHLBanks balance sheets and the resulting lower issuances have
adversely compressed spreads. Evidence of a slowing economy has caused yields to fall for
potential investors, who are, for the most part, cash rich. At the same time, callable bond
redemptions are on the rise in a low interest rate environment, and this too has added to
investors liquidity. All of these factors have driven investors to seek out ways to reinvest,
driving intermediate-term callable bond spreads tighter. As a result of these factors, investor
demand has shifted towards the shorter lockout (3-months or shorter) short-maturity callable bonds,
also on the assumption that the callable bonds would be called on the first call date and investor
would benefit from higher yield on the callable bond. Bullet bond issuances have declined for the
same reason investor perception of relatively low yields.
The outlook for the issuances of longer-term debt is still uncertain. It remains uneconomical for
the FHLBanks to issue longer-term debt. Yields demanded by investors for longer-term FHLBank debt
and spreads between 3-month LIBOR and FHLBank long-term debt yield have remained at levels that
make it expensive for the FHLBNY to issue term debt and offer longer-term advances to members even
if there was sufficient investor demand for such debt.
FHLBank consolidated obligation discount notes
2010 first quarter - In the prior year, the U.S. money market funds had become key drivers of the
increased demand for FHLBank discount notes. That changed in the 2010 first quarter as money
market funds experienced a steady outflow of funds, limiting additional demand for discount notes
longer than 2-months. With credit markets returning to normalcy in early 2010, money market fund
balances declined, demand for discount notes declined, resulting in lower volumes of issuances of
discount notes in the 2010 first quarter.
2010 second quarter - However, relief was in sight for the FHLBank discount notes with the
amendments to SECs Rule 2a-7, effective May 28, 2010, that tightened the credit restrictions on
money market funds, who are now required to purchase a greater percentage of first tier
securities. This benefited FHLBank issued discount notes due to the triple A rating ascribed to
the debt. The FHLBank discount notes also benefited as money market funds actively purchased
discount notes out to 60 days, since these maturities are categorized as weekly liquid assets under
the revised Rule 2a-7. The combination of the liquidity and maturity requirements coupled with
limits on second tier securities had a favorable impact on pricing levels in the short end of the
FHLBank discount note curve. Pricing along the longer end of the discount note curve had also
improved. Investors sought out the high credit quality of FHLBank discount notes because of
heightened inter-bank counterparty credit risk in light of European sovereign concerns. The cost
of discount notes in June 2010 was lower for the length of the discount note curve, relative to
equivalent term LIBOR, a key benchmark for the FHLBanks.
2010
third quarter - The 3-month LIBOR declined to levels in the first quarter. Since the FHLBank
discount note is offered at yields below the equivalent LIBOR, declining rates tend to compress the
spread to LIBOR and typically results in adverse pricing for the FHLBank debt. Further declines in
short-term yields would have created further erosion of discount note spreads to LIBOR, but it
appears that yield volatility may have been stabilized by the FRBs action to ensure support for
Treasury bills by weekly auction of bills, just sufficient to meet maturing bills. That action
will stabilize Treasury bill supply, stabilize Repo yields, and should prevent further discount
note spread erosion.
93
Consolidated obligation bonds
The following summarizes types of bonds issued and outstanding (dollars in thousands):
Table 23: Consolidated Obligation Bonds by Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate, non-callable |
|
$ |
46,800,200 |
|
|
|
63.48 |
% |
|
$ |
48,647,625 |
|
|
|
66.31 |
% |
Fixed-rate, callable |
|
|
6,321,300 |
|
|
|
8.57 |
|
|
|
8,374,800 |
|
|
|
11.42 |
|
Step Up, non-callable |
|
|
|
|
|
|
|
|
|
|
53,000 |
|
|
|
0.07 |
|
Step Up, callable |
|
|
2,180,000 |
|
|
|
2.96 |
|
|
|
3,305,000 |
|
|
|
4.51 |
|
Single-index floating rate |
|
|
18,428,000 |
|
|
|
24.99 |
|
|
|
12,977,500 |
|
|
|
17.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
73,729,500 |
|
|
|
100.00 |
% |
|
|
73,357,925 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond premiums |
|
|
145,239 |
|
|
|
|
|
|
|
112,866 |
|
|
|
|
|
Bond discounts |
|
|
(27,718 |
) |
|
|
|
|
|
|
(33,852 |
) |
|
|
|
|
Fair value basis adjustments |
|
|
1,060,537 |
|
|
|
|
|
|
|
572,537 |
|
|
|
|
|
Fair value basis adjustments on terminated hedges |
|
|
1,099 |
|
|
|
|
|
|
|
2,761 |
|
|
|
|
|
Fair value option valuation adjustments and accrued
interest |
|
|
10,236 |
|
|
|
|
|
|
|
(4,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds |
|
$ |
74,918,893 |
|
|
|
|
|
|
$ |
74,007,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tactical changes in the funding mix
In 2010, the FHLBNY issued fixed-rate and floating-rate bonds, and discount notes in a mix of
issuances to achieve its asset/liability management goals and be responsive to the changing market
dynamics. The issuance of bonds has been the primary financing vehicle for the Bank, although the
use of term and overnight discount notes remains vital sources of funding because of the ease of
issuance of discount notes as a flexible funding tool for day-to-day operations.
2010 first quarter - As investor demand in the 2010 first quarter shifted away from discount notes
to callable debt, the FHLBNY was also opportunistic in pursuing the debt structure most in demand
at a reasonable price consistent with the Banks asset/liability match. The Bank shifted its
funding mix between bonds and discount notes, reducing its issuance of discount notes. The
money-market sector, which had become a significant investor segment for FHLBank discount notes
during much of the credit crisis, was seeking short-term investments that offered a higher rate of
return. As a result, discount note pricing was adversely impacted, spreads to LIBOR narrowed, and
as a funding tool, discount notes were no longer as attractive as they had been in the prior year.
In the 2010 first quarter, spread deterioration was not just isolated to FHLBank discounts notes
but across to short-callable bonds as well, although not as significantly. Since December 31,
2009, the weighted-average bond funding costs deteriorated relative 3-month LIBOR and resulted in
increased funding costs on debt swapped to 3-month LIBOR. While short-term callable bond spreads
to LIBOR also worsened, the spread compression had been relatively small compared to other FHLBank
debt structures. Callable bonds became an attractive funding alternative in the 2010 first
quarter. Investor demand for short and medium-term callable bonds with call lock-outs of 1-year or
less was encouraging and the FHLBNY increased issuance of callable bonds. These structures tended
to fill in as a substitute for discount notes. Swapped short-lockout callable bonds offered
effective durations that could be as short as a term discount note. In the falling interest rate
environment, the swap counterparty is likely to exercise its rights to terminate the swap at the
first exercise opportunity, and the FHLBNY would also exercise its right and terminate the debt.
2010
Second quarter - Discount notes made a comeback with increased investor demand for the 60-day
maturity notes as a result of the amendment to SECs Rule 2a-7 that impacted the money market
industry, and resulted in improved pricing for FHLBank discount notes. Cost of funding on the
long-end of the discount note curve also improved as investors shifted from bank certificates of
deposit and other form of debt to higher quality FHLBank debt because of sovereign and increased
counterparty risk concerns in Europe. In response, the FHLBNY increased issuance of discount notes
in June 2010, replacing significant amounts of called and maturing bonds with new issuances of
discount notes.
2010
Third quarter - As interest rates declined further in the current quarter, the 3-month LIBOR,
an important benchmark for the FHLBNYs funding strategy declined and resulted in adverse spread
compression. In response, the FHLBNY reduced issuance of discount notes, instead relying on
floating-rate notes and bullet bonds to replace maturing discount notes.
The principal tactical funding strategy changes employed in executing issuances of FHLBank bonds
are outlined below:
|
|
Floating rate bonds - Floating-rate bonds had declined steadily through the four quarters
in 2009 and in the 2010 first two quarter. In those periods, maturing floating-rate bonds in
general were not replaced because of marketplace perception of a pricing advantage of
comparable GSE issued LIBOR-indexed floaters. In the 2010 third quarter, the Bank added (net
of maturities) $7.6 billion of floating-rate debt. As a result, floating-rate bonds
outstanding at September 30, 2010 increased to $18.4 billion, up from $10.8 billion at June
30, 2010 and $13.0 billion at December 31, 2009. The outstanding debt at September 30, 2010
consisted of $12.8 billion indexed to the 1-month LIBOR, the Prime rate and the Federal funds
effective rates. By executing interest rate swaps concurrently with the issuances of the
floating-rate bonds and swapping the non 3-month LIBOR indices for 3-month LIBOR, the Bank
effectively created variable funding that was indexed to 3-month LIBOR, at spreads more
favorable than it could have achieved by issuing a simple 3-month LIBOR floating-rate bond. |
94
|
|
Non-callable bonds - Non-callable bond remains the primary funding vehicle for the FHLBNY.
Issuances of non-callable debt are predicated partly on pricing of such debt and investor
demand, and partly on the need to achieve asset/liability management goals. The Bank has made
a strong effort to issue fixed-rate longer-term debt and lock-in the relative low rates in the
current interest-rate environment. This has been a challenge as investor appetite for term
debt has continued to be lukewarm, given investor preference for discount notes, short-term
bullets and short lock-out callable debt. |
|
|
Callable-bonds - In 2010, investors were receptive to the FHLBank short lockout callable
bonds with short maturities as an alternative to comparable debt available in the capital
markets, and execution pricing fared relatively better even under deteriorating pricing
conditions for other types of bond structures. Fixed-rate callable bonds with maturities up
to 15 months and a short lockout call option have been the more popular FHLBank bond
structure. Responding to investor preference, the FHLBNY issued short lockout callables, with
call dates as short as 3 months from issue date. Such debt structures offer an alternative at
an attractive pricing to similar maturity discount notes. FHLBank longer-term fixed-rate
callable-bonds have not been an attractive investment asset for investors over the last
several years, and have continued to be under price pressure. |
With a callable bond, the Bank purchases a call option from the investor and the option allows
the Bank to terminate the bond at predetermined call dates at par. When the Bank purchases the
call option from investors, it typically lowers the cost to the investor, who has traditionally
been receptive to callable-bond yields offered by the FHLBNY.
Debt extinguishment - In 2010, the FHLBNY
extinguished $250.0 million consolidated obligation bond at an insignificant gain.
Impact of hedging fixed-rates consolidated obligation bonds
The Bank hedges certain fixed-rate debt by the use of both cancellable and non-cancellable interest
rate swaps in fair value hedges under the accounting standards for derivatives and hedging. The
Bank may also hedge the anticipatory issuance of bonds under the provisions of cash flow hedging
rules as provided in the accounting standards for derivatives and hedging.
Net interest accruals from qualifying interest rate swaps under the derivatives and hedge
accounting rules are recorded together with interest expense of consolidated obligation bonds in
the Statements of Income. Fair value changes of debt in a qualifying fair value hedge are recorded
in Other income (loss) as a Net realized and unrealized gain (loss) on derivative and hedging
activities. An offset is recorded as a fair value basis adjustment to the carrying amount of the
debt in the balance sheet. Net interest accruals associated with derivatives not qualifying under
derivatives and hedge accounting rules are recorded in Other income (loss) as a Net realized and
unrealized gain (loss) on derivatives and hedging activities.
Derivatives are employed to hedge consolidated bonds in the following manner to achieve the
indicated principal objectives:
The FHLBNY:
|
|
Makes extensive use of the derivatives to restructure interest rates on consolidated
obligation bonds, both callable and non-callable, to better meet its members funding needs,
to reduce funding costs, and to manage risk in a changing market environment. |
|
|
Converts, at the time of issuance, certain simple fixed-rate bullet and callable bonds into
synthetic floating-rate bonds by the simultaneous execution of interest rate swaps that
convert the cash flows of the fixed-rate bonds to conventional adjustable rate instruments
tied to an index, typically 3-month LIBOR. |
|
|
Uses derivatives to manage the risk arising from changing market prices and volatility of a
fixed coupon bond by matching the cash flows of the bond to the cash flows of the derivative
and making the FHLBNY indifferent to changes in market conditions. Except when issued to fund
MBS and MPF loans, callable bonds are typically hedged by an offsetting derivative with a
mirror-image call option and identical terms. |
|
|
Adjusts the reported carrying value of hedged consolidated bonds for changes in their fair
value (fair value basis adjustments or fair value) that are attributable to the risk being
hedged in accordance with hedge accounting rules. Amounts reported for consolidated
obligation bonds in the Statements of Condition include fair value basis adjustments. |
|
|
Lowers its funding cost by the issuance of a callable bond and the execution of an
associated interest rate swap
with mirrored call options, which results in funding at a lower cost than the FHLBNY would
otherwise have achieved. The issuance of callable bonds and the simultaneous swapping with a
derivative instrument depends on the price relationships in both the bond and the derivatives
markets. |
95
The most significant element that impacts balance sheet reporting of debt is the recording of fair
value basis and valuation adjustments. In addition, when callable bonds are hedged by cancellable
swaps, the possibility of exercise of the call shortens the expected maturity of the bond. The
impact of hedging debt on recorded interest expense is discussed in this MD&A under Results of
Operations. Its impact as a risk management tool is discussed under Item 3. Quantitative and
Qualitative Disclosures about Market Risk.
Fair value basis and valuation adjustments - The Bank uses interest rate derivatives to hedge the
risk of changes in the benchmark rate, which the FHLBNY has adopted as LIBOR, and is also the
discounting basis for computing changes in fair values of hedged bonds. The Bank recorded net
unrealized fair value basis losses of $1.1 billion and $0.6 billion as part of the carrying values
of consolidated obligation bonds in the Statements of Condition at September 30, 2010 and December
31, 2009. Carrying values of bonds designated under the FVO are also adjusted for valuation
adjustments to recognize changes in the full fair value of the bonds elected under the FVO. At
September 30, 2010, the fair value basis recorded was in an unrealized loss position of $10.2
million. At December 31, 2009, the fair value basis was in an unrealized gain position of $4.3
million.
Changes in fair value basis reflect changes in the term structure of interest rates, the shape of
the yield curve at the measurement dates, the value and implied volatility of call options of
callable bonds, and from the growth or decline in hedge volume.
Hedge volume - As of September 30, 2010 and December 31, 2009, the Bank had hedged $32.3 billion
and $32.9 billion of fixed-rate consolidated bonds with interest rate swaps. The swaps hedged the
fair value risk from changes in the benchmark rate, and were in hedge relationships that qualified
under derivatives and hedge accounting rules. These hedges effectively converted the fixed-rate
exposure of the bonds to a variable-rate exposure, generally indexed to 3-month LIBOR. The Banks
callable bonds contain a call option purchased by the Bank from the investor. Generally, the call
option terms mirror the call option terms embedded in a cancellable swap. Under the terms of the
call option, the Bank has the right to terminate the bond at agreed upon dates, and the swap
counterparty has the right to cancel the swap.
At September 30, 2010 and December 31, 2009, outstanding par value of consolidated obligation bonds
elected under the FVO was $10.8 billion and $6.0 billion. These bonds were also hedged by interest
rate swaps designated as economic hedges, as discussed below.
Economic hedges - At inception of the hedges, the Bank did not believe that the hedges would be
highly effective in offsetting fair value changes between the derivative and the bonds (hedged
item), and the FHLBNY accounted for the derivatives as freestanding (economic hedge). Unless
designated under the FVO, economic hedges of debt do not generate basis adjustments for the hedged
instruments since their carrying values are not adjusted for fair value changes. The carrying
values of debt designated under the FVO are adjusted for changes in the full fair values of the
debt, not just for changes in the benchmark rate.
Principal economic hedges are summarized below:
Floating-rate debt - At September 30, 2010 and at December 31, 2009, the FHLBNY had hedged
$13.4 billion and $8.0 billion of floating-rate bonds that were indexed to interest rates
other than 3-month LIBOR by entering into swap agreements with derivative counterparties that
synthetically converted the floating rate debt cash flows to 3-month LIBOR.
Fixed-rate debt - At September 30, 2010 and December 31, 2009, the FHLBNY had hedged $1.5
billion and $13.1 billion of short-term fixed-rate debt.
FVO economic hedge - At September 30, 2010 and December 31, 2009, the FHLBNY had hedged $10.8
billion and $6.0 billion of short-term bonds designated under the FVO.
Impact of changes in interest rate to the balance sheet carrying values of hedged bonds - The
carrying amounts of consolidated obligation bonds included fair value basis losses of $1.1 billion
at September 30, 2010 and $0.6 billion at December 31, 2009. Changes in fair value basis reflect
changes in the term structure of interest rates, the shape of the yield curve at the two
measurement dates, and the value and implied volatility of call options of callable bonds.
Unrealized fair value basis losses were consistent with the forward yield curves at those dates
that were projecting forward rates below the fixed-rate coupons of hedge qualifying bonds and bonds
designated under the FVO. The flattening of the yield curve at September 30, 2010, with the
forward rates well below the same yields projected at December 31, 2009, caused bond fair values to
be in a loss position. At September 30, 2010, the yield curve was forecasting 0.64%, 1.29%, and
1.92% on the 3-year, 5-year and 7-year swap curves, compared to 1.67%, 2.68% and 3.38% at December
31, 2009.
Most of the hedged bonds had been issued in prior years at the then prevailing higher interest-rate
environment. Since such bonds were typically fixed-rate, in a declining interest rate environment
fixed-rate bonds exhibited unrealized fair value basis losses, which were recorded as part of the
balance sheet carrying values of the hedged debt. In the Statements of Income, such unrealized
losses from fair value basis adjustments on hedged bonds were almost entirely offset by net fair
value unrealized gains from derivatives associated with the hedged bonds, thereby achieving the
Banks hedging objectives of mitigating fair value basis risk.
96
Discount Notes
Consolidated obligation discount notes provide the FHLBNY with short-term and overnight funds.
Discount notes have maturities of up to one year and are offered daily through a dealer-selling
group; the notes are sold at a discount from their face amount and mature at par. Through a
sixteen-member selling group, the Office of Finance, acting on behalf of the twelve Federal Home
Loan Banks, offers discount notes. In addition, the Office of Finance offers discount notes in
four standard maturities in two auctions each week.
The FHLBNY typically uses discount notes to fund short-term advances, longer-term advances with
short repricing intervals, putable advances and money market investments.
The following summarizes discount notes issued and outstanding (dollars in thousands):
Table 24: Discount Notes Outstanding
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Par value |
|
$ |
17,791,522 |
|
|
$ |
30,838,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
17,784,192 |
|
|
$ |
30,827,639 |
|
Fair value option
valuation
adjustments |
|
|
3,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
17,787,908 |
|
|
$ |
30,827,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate |
|
|
0.19 |
% |
|
|
0.15 |
% |
|
|
|
|
|
|
|
Discount notes remain a popular funding vehicle for the FHLBNY. The efficiency of issuing discount
notes is an important element in its use to alter funding tactics relatively rapidly, as discount
notes can be issued any time and in a variety of amounts and maturities in contrast to other
short-term funding sources, such as the issuance of callable debt with an associated interest rate
derivative with matching terms.
During
the three quarters of 2010, the Bank has shifted its funding mix between bonds and discount notes,
reducing or increasing issuance of discount notes depending on changes in pricing and spreads of
discount notes. In 2010, investor demand for discount notes has declined relative to 2009. The money-market sector,
which had become a significant investor segment for FHLBank discount notes during much of the
credit crisis, is now seeking short-term investments that offer a higher rate of return. The
prevailing low interest rate environment in 2010 has also adversely impacted discount note spreads
to LIBOR, and as a funding tool, discount notes are no longer as attractive as they had been in
2009. In large part, the FHLBNY has stopped the issuance of overnight discount notes, in part
because of shortage of a ready source of a risk-free overnight asset to fund profitably, in part as
a result of worsening pricing of overnight discount note, and in part because the FHLBNY has
determined that term discount notes would better match its regulatory liquidity profile.
Discount notes outstanding at September 30, 2010 declined to $17.8 billion when spreads narrowed
adversely to levels observed in the 2010 first quarter. In the 2010 second quarter, spreads to
LIBOR had widened making the funding more attractive, discount notes outstanding rose to $27.5
billion from $19.8 billion at March 31, 2010.
Economic hedges of discount notes - As of September 30, 2010 and December 31, 2009, no discount
notes were hedged under the accounting standards for derivatives and hedging. The Bank generally
hedges discount notes in economic hedges to convert the fixed-rate exposure of the discount notes
to a variable-rate exposure, generally indexed to LIBOR. At September 30, 2010, the discount notes
outstanding as designated under the FVO was $1.8 billion in principal amounts and were economically
hedged by interest rate swaps to mitigate fair value risk due to changes in fair values of the
notes. There were no discount notes designated under the FVO at December 31, 2010.
Stockholders Capital and Mandatorily Redeemable Capital Stock
Capital Resources Stockholders Capital
The FHLBanks, including FHLBNY, have a unique cooperative structure. To access FHLBNYs products
and services, a financial institution must be approved for membership and purchase capital stock in
FHLBNY. The members stock requirement is based on the amount of mortgage-related assets on the
members balance sheet and its use of FHLBNY advances, as prescribed by the FHLBank Act, which
reflects the value of having ready access to FHLBNY as a reliable source of low-cost funds. FHLBNY
stock can be issued, exchanged, redeemed and repurchased only at its stated par value of $100 per
share. The shares are not publicly traded. See Note 11 for more information about Capital and
Capital ratios.
At September 30, 2010, total capital stock $100 par value, putable and issued and held by members
was 46,636,000 shares compared to 50,590,000 shares at December 31, 2009. Members are required to
purchase FHLBNY stock in proportion to the volume of advances borrowed. Decrease in capital stock
is in line with the decrease in advances borrowed by members.
Stockholders Capital - Stockholders Capital comprised of capital stock, retained earnings and
Accumulated other
comprehensive income (loss) (AOCI) decreased by $336.3 million at September 30, 2010 from
December 31, 2009 primarily because of decrease in capital stock. Retained earnings, after payment
of dividends, grew by $12.3 million to $701.2 million at September 30, 2010. For more information
about the Banks retained earnings policy, refer to the section Retained Earnings and Dividend in
the Banks Form 10-K filed on March 25, 2010. The loss in AOCI declined by $46.7 million from
December 31, 2009. The principal components of AOCI are summarized in Note 13 to the unaudited
financial statements accompanying this report.
97
Capital stock- Capital stock, par value $100, was $4.7 billion at September 30, 2010, a decline of
$395.4 million from December 31, 2009. The decline in capital stock was consistent with decreases
in advances borrowed by members. Since members are required to purchase stock as a percentage of
advances borrowed from the FHLBNY, a decline in advances will typically result in a decline in
capital stock. In addition, under the Banks present practice, stock in excess of the amount
necessary to support advance activity is redeemed daily by the FHLBNY. Therefore, the amount of
capital stock outstanding varies directly with members outstanding borrowings under the provisions
requiring members to purchase stock to support borrowings and its practice of redeeming excess
capital stock.
Mandatorily Redeemable Capital Stock
The FHLBNYs capital stock is redeemable at the option of both the member and the FHLBNY subject to
certain conditions. Such capital is considered to be mandatorily redeemable and a liability under
the accounting guidance for certain financial instruments with characteristics of both liabilities
and equity. Dividends related to capital stock classified as mandatorily redeemable are accrued at
an estimated dividend rate and reported as interest expense in the Statements of Income.
Mandatorily redeemable capital stock at September 30, 2010 and December 31, 2009 represented stock
held primarily by former members who were no longer members by virtue of being acquired by members
of other FHLBanks. Under existing practice, such stock will be repurchased when the stock is no
longer required to support outstanding transactions with the FHLBNY.
The FHLBNY reclassifies the stock subject to redemption from equity to liability once a member:
irrevocably exercises a written redemption right; gives notice of intent to withdraw from
membership; or attains non-member status by merger or acquisition, charter termination, or
involuntary termination from membership.
One member was acquired by a non-member financial institution thus far in 2010. Reduction in
mandatorily redeemable stock reflects the fact that the FHLBNY redeemed stock held by former
members when advances to the former members matured or were prepaid. Under existing practice,
capital stock held by non-members is repurchased at maturity of the advances borrowed by former
members. In accordance with Finance Agency regulations, former members and non-members cannot
renew their advance borrowings at maturity. Such capital is considered to be a liability and
mandatorily redeemable and subject to the provisions under the accounting guidance for certain
financial instruments with characteristics of both liabilities and equity.
The following table provides roll-forward information with respect to changes in mandatorily
redeemable capital stock liabilities (in thousands):
Table 25: Roll-Forward Mandatorily Redeemable Capital Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Beginning balance |
|
$ |
69,569 |
|
|
$ |
128,254 |
|
|
$ |
126,294 |
|
|
$ |
143,121 |
|
Capital stock subject to mandatory redemption
reclassified from equity |
|
|
42 |
|
|
|
434 |
|
|
|
30,308 |
|
|
|
434 |
|
Redemption of mandatorily redeemable capital stock
1 |
|
|
(2,263 |
) |
|
|
(806 |
) |
|
|
(89,254 |
) |
|
|
(15,673 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
67,348 |
|
|
$ |
127,882 |
|
|
$ |
67,348 |
|
|
$ |
127,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest payable |
|
$ |
794 |
|
|
$ |
1,807 |
|
|
$ |
794 |
|
|
$ |
1,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Redemption includes repayment of excess stock.
|
|
|
|
|
|
(The annualized accrual rates were 4.60% for September 30, 2010 and 5.60% for September 30, 2009.)
|
98
Derivative Instruments and Hedging Activities
Interest rate swaps, swaptions, and cap and floor agreements (collectively, derivatives) enable the
FHLBNY to manage its exposure to changes in interest rates by adjusting the effective maturity,
repricing frequency, or option characteristics of financial instruments. The FHLBNY, to a limited
extent, also uses interest rate swaps to hedge changes in interest rates prior to debt issuance and
essentially lock in the FHLBNYs funding cost.
Finance Agency regulations prohibit the speculative use of derivatives. The FHLBNY does not take
speculative positions with derivatives or any other financial instruments, or trade derivatives for
short-term profits. The FHLBNY does not have any special purpose entities or any other types of
off-balance sheet conduits.
The notional amounts of derivatives are not recorded as assets or liabilities in the Statements of
Condition, rather the fair values of all derivatives are recorded as either a derivative asset or a
derivative liability. Although notional principal is a commonly used measure of volume in the
derivatives market, it is not a meaningful measure of market or credit risk since the notional
amount does not change hands (other than in the case of currency swaps, of which the FHLBNY has
none).
All derivatives are recorded on the Statements of Condition at their estimated fair values and
designated as either fair value or cash flow hedges for qualifying hedges, or as non-qualifying
hedges (economic hedges or customer intermediations) under the accounting standards for derivatives
and hedging. In an economic hedge, the Bank retains or executes derivative contracts, which are
economically effective in reducing risk. Such derivatives are designated as economic hedges either
because a qualifying hedge is not available, the difficulty to demonstrate that the hedge would be
effective on an ongoing basis as a qualifying hedge, or the cost of a qualifying hedge is not
economical. Changes in the fair value of a derivative are recorded in current period earnings for
a fair value hedge, or in AOCI for the effective portion of fair value changes of a cash flow
hedge.
Interest income and interest expense from interest rate swaps used for hedging are reported
together with interest on the instrument being hedged if the swap qualifies for hedge accounting.
If the swap is designated as an economic hedge, interest accruals are recorded in Other income
(loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.
The FHLBNY uses derivatives in three ways: (1) as a fair value or cash flow hedge of an underlying
financial instrument or as a cash flow hedge of a forecasted transaction; (2) as intermediation
hedges to offset derivative positions (e.g., caps) sold to members; and (3) as an economic hedge,
defined as a non-qualifying hedge of an asset or liability and used as an asset/liability
management tool.
The FHLBNY uses derivatives to adjust the interest rate sensitivity of consolidated obligations to
more closely approximate the sensitivity of assets or to adjust the interest rate sensitivity of
advances to more closely approximate the sensitivity of liabilities. In addition, the FHLBNY uses
derivatives to (1) offset embedded options in assets and liabilities; (2) hedge the market value of
existing assets, liabilities and anticipated transactions; and (3) reduce funding costs. For
additional information, see Note 16 Derivatives and hedging activities to the financial
statements accompanying this report.
99
The following table summarizes the principal derivatives hedging strategies:
Table 26: Derivative Hedging Strategies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Notional Amount |
|
|
Notional Amount |
|
Derivatives/Terms |
|
Hedging Strategy |
|
Accounting Designation |
|
(in millions) |
|
|
(in millions) |
|
Pay fixed, receive floating
interest rate swap
|
|
To convert fixed rate on a fixed rate
advance to a LIBOR floating rate
|
|
Economic Hedge of Fair Value Risk
|
|
$ |
115 |
|
|
$ |
123 |
|
Pay fixed, receive floating interest
rate swap cancelable by FHLBNY
|
|
To convert fixed rate on a fixed rate advance
to a LIBOR floating rate callable advance
|
|
Fair Value Hedge
|
|
$ |
150 |
|
|
$ |
|
|
Pay fixed, receive floating interest
rate swap cancelable by counterparty
|
|
To convert fixed rate on a fixed rate advance
to a LIBOR floating rate putable advance
|
|
Fair Value Hedge
|
|
$ |
34,231 |
|
|
$ |
40,252 |
|
Pay fixed, receive floating interest rate swap
no longer cancelable by counterparty
|
|
To convert fixed rate on a fixed rate advance
to a LIBOR floating rate no-longer putable advance
|
|
Fair Value Hedge
|
|
$ |
4,064 |
|
|
$ |
2,283 |
|
Pay fixed, receive floating interest
rate swap non-cancelable
|
|
To convert fixed rate on a fixed rate advance
to a LIBOR floating rate non-putable advance
|
|
Fair Value Hedge
|
|
$ |
23,109 |
|
|
$ |
23,367 |
|
Purchased interest rate cap
|
|
To offset the cap embedded in the
variable rate advance
|
|
Economic Hedge of Fair Value Risk
|
|
$ |
8 |
|
|
$ |
390 |
|
Receive fixed, pay floating
interest rate swap
|
|
To convert fixed rate consolidated
obligation bond debt to a LIBOR floating rate
|
|
Economic Hedge of Fair Value Risk
|
|
$ |
5,300 |
|
|
$ |
13,113 |
|
Receive fixed, pay floating interest rate
swap cancelable by counterparty
|
|
To convert fixed rate consolidated obligation
bond debt to a LIBOR floating rate callable bond
|
|
Fair Value Hedge
|
|
$ |
4,970 |
|
|
$ |
6,785 |
|
Receive fixed, pay floating interest rate
swap no longer cancelable
|
|
To convert fixed rate consolidated obligation
bond debt to a LIBOR floating rate no-longer callable
|
|
Fair Value Hedge
|
|
$ |
440 |
|
|
$ |
108 |
|
Receive fixed, pay floating interest rate
swap non-cancelable
|
|
To convert fixed rate consolidated obligation
bond debt to a LIBOR floating rate non-callable
|
|
Fair Value Hedge
|
|
$ |
26,908 |
|
|
$ |
25,982 |
|
Receive fixed, pay floating
interest rate swap (non-callable)
|
|
To convert the fixed rate consolidated obligation
discount note debt to a LIBOR floating rate non-callable
|
|
Economic Hedge of Fair Value Risk
|
|
$ |
87 |
|
|
$ |
3,784 |
|
Basis swap
|
|
To convert non-LIBOR index to LIBOR to reduce
interest rate sensitivity and repricing gaps
|
|
Economic Hedge of Cash Flows
|
|
$ |
8,128 |
|
|
$ |
6,035 |
|
Basis swap
|
|
To convert 1M LIBOR index to 3M LIBOR to reduce
interest rate sensitivity and repricing gaps
|
|
Economic Hedge of Cash Flows
|
|
$ |
1,450 |
|
|
$ |
1,950 |
|
Receive fixed, pay floating interest rate
swap cancelable by counterparty
|
|
Fixed rate callable bond converted to a LIBOR
floating rate; matched to callable bond accounted
for under fair value option
|
|
Fair Value Option
|
|
$ |
3,101 |
|
|
$ |
5,690 |
|
Receive fixed, pay floating interest rate
swap non-cancelable
|
|
Fixed rate non-callable bond converted to a LIBOR
floating rate; matched to non-callable bond
accounted for under fair value option
|
|
Fair Value Option
|
|
$ |
7,650 |
|
|
$ |
350 |
|
Receive fixed, pay floating interest rate
swap non-cancelable
|
|
Fixed rate consolidated obligation discount note converted
to a LIBOR floating rate; matched to discount note
accounted for under fair value option
|
|
Fair Value Option
|
|
$ |
1,752 |
|
|
$ |
|
|
Pay fixed, receive floating
interest rate swap
|
|
Economic hedge on the Balance Sheet
|
|
Economic Hedge
|
|
$ |
|
|
|
$ |
1,050 |
|
Receive fixed, pay floating
interest rate swap
|
|
Economic hedge on the Balance Sheet
|
|
Economic Hedge
|
|
$ |
|
|
|
$ |
1,050 |
|
Purchased interest rate cap
|
|
Economic hedge on the Balance Sheet
|
|
Economic Hedge
|
|
$ |
1,892 |
|
|
$ |
1,892 |
|
Intermediary positions
interest rate swaps and caps
|
|
To offset interest rate swaps and caps executed
with members by executing offsetting derivatives
with counterparties
|
|
Economic Hedge of Fair Value Risk
|
|
$ |
550 |
|
|
$ |
320 |
|
The accounting designation economic hedges represented derivative transactions under hedge
strategies that do not qualify for hedge accounting but are an approved risk management hedge.
100
Derivatives Financial Instruments by hedge designation
The following table summarizes the notional amounts and estimated fair values of derivative
financial instruments (excluding accrued interest) by hedge designation. The table also provides a
reconciliation of fair value basis gains and (losses) of derivatives to the Statements of Condition
(in thousands):
Table 27: Derivatives Financial Instruments by Hedge Designation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
Estimated |
|
|
|
Notional |
|
|
Fair Value |
|
|
Notional |
|
|
Fair Value |
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in fair value hedging relationships |
|
$ |
93,872,212 |
|
|
$ |
(4,556,517 |
) |
|
$ |
98,776,447 |
|
|
$ |
(3,056,718 |
) |
Derivatives not designated as hedging
instruments |
|
|
15,079,729 |
|
|
|
117 |
|
|
|
27,104,963 |
|
|
|
31,723 |
|
Derivatives matching designated under FVO |
|
|
12,503,185 |
|
|
|
10,198 |
|
|
|
6,040,000 |
|
|
|
(2,632 |
) |
Interest rate caps/floors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic-fair value changes |
|
|
1,900,000 |
|
|
|
23,593 |
|
|
|
2,282,000 |
|
|
|
71,494 |
|
Mortgage delivery commitments (MPF) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic-fair value changes |
|
|
20,675 |
|
|
|
4 |
|
|
|
4,210 |
|
|
|
(39 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermediation |
|
|
550,000 |
|
|
|
709 |
|
|
|
320,000 |
|
|
|
352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
123,925,801 |
|
|
$ |
(4,521,896 |
) |
|
$ |
134,527,620 |
|
|
$ |
(2,955,820 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives, excluding accrued interest |
|
|
|
|
|
$ |
(4,521,896 |
) |
|
|
|
|
|
$ |
(2,955,820 |
) |
Cash collateral pledged to counterparties |
|
|
|
|
|
|
3,844,058 |
|
|
|
|
|
|
|
2,237,028 |
|
Cash collateral received from counterparties |
|
|
|
|
|
|
(53,796 |
) |
|
|
|
|
|
|
|
|
Accrued interest |
|
|
|
|
|
|
(20,439 |
) |
|
|
|
|
|
|
(19,104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative balance |
|
|
|
|
|
$ |
(752,073 |
) |
|
|
|
|
|
$ |
(737,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative asset balance |
|
|
|
|
|
$ |
32,425 |
|
|
|
|
|
|
$ |
8,280 |
|
Net derivative liability balance |
|
|
|
|
|
|
(784,498 |
) |
|
|
|
|
|
|
(746,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative balance |
|
|
|
|
|
$ |
(752,073 |
) |
|
|
|
|
|
$ |
(737,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments by Product
The following table summarizes the notional amounts and estimated fair values of derivative
financial instruments (excluding accrued interest) by product and type of accounting treatment.
The table also provides a reconciliation of fair value basis gains and (losses) of derivatives to
the Statements of Condition (in thousands):
Table 28: Derivative Financial Instruments by Product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Total estimated |
|
|
|
|
|
|
Total estimated |
|
|
|
|
|
|
|
fair value |
|
|
|
|
|
|
fair value |
|
|
|
|
|
|
|
(excluding |
|
|
|
|
|
|
(excluding |
|
|
|
Total notional |
|
|
accrued |
|
|
Total notional |
|
|
accrued |
|
|
|
amount |
|
|
interest) |
|
|
amount |
|
|
interest) |
|
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances-fair value hedges |
|
$ |
61,554,507 |
|
|
$ |
(5,604,763 |
) |
|
$ |
65,901,667 |
|
|
$ |
(3,622,141 |
) |
Consolidated obligations-fair value hedges |
|
|
32,317,705 |
|
|
|
1,048,246 |
|
|
|
32,874,780 |
|
|
|
565,423 |
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances-economic hedges |
|
|
122,659 |
|
|
|
(3,861 |
) |
|
|
513,089 |
|
|
|
(196 |
) |
Consolidated obligations-economic hedges |
|
|
14,965,070 |
|
|
|
3,978 |
|
|
|
24,881,874 |
|
|
|
36,954 |
|
MPF loan-commitments |
|
|
20,675 |
|
|
|
4 |
|
|
|
4,210 |
|
|
|
(39 |
) |
Balance sheet |
|
|
1,892,000 |
|
|
|
23,593 |
|
|
|
1,892,000 |
|
|
|
71,494 |
|
Intermediary positions-economic hedges |
|
|
550,000 |
|
|
|
709 |
|
|
|
320,000 |
|
|
|
352 |
|
Balance sheet-macro hedges swaps |
|
|
|
|
|
|
|
|
|
|
2,100,000 |
|
|
|
(5,035 |
) |
Derivatives matching COs designated under FVO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps-consolidated obligations-bonds |
|
|
10,751,000 |
|
|
|
7,750 |
|
|
|
6,040,000 |
|
|
|
(2,632 |
) |
Interest rate swaps-consolidated obligations-discount notes |
|
|
1,752,185 |
|
|
|
2,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notional and fair value |
|
$ |
123,925,801 |
|
|
$ |
(4,521,896 |
) |
|
$ |
134,527,620 |
|
|
$ |
(2,955,820 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives, excluding accrued interest |
|
|
|
|
|
$ |
(4,521,896 |
) |
|
|
|
|
|
$ |
(2,955,820 |
) |
Cash collateral pledged to counterparties |
|
|
|
|
|
|
3,844,058 |
|
|
|
|
|
|
|
2,237,028 |
|
Cash collateral received from counterparties |
|
|
|
|
|
|
(53,796 |
) |
|
|
|
|
|
|
|
|
Accrued interest |
|
|
|
|
|
|
(20,439 |
) |
|
|
|
|
|
|
(19,104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative balance |
|
|
|
|
|
$ |
(752,073 |
) |
|
|
|
|
|
$ |
(737,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative asset balance |
|
|
|
|
|
$ |
32,425 |
|
|
|
|
|
|
$ |
8,280 |
|
Net derivative liability balance |
|
|
|
|
|
|
(784,498 |
) |
|
|
|
|
|
|
(746,176 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative balance |
|
|
|
|
|
$ |
(752,073 |
) |
|
|
|
|
|
$ |
(737,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The categories of Fair value Commitment and Cash flow hedges represented derivative
transactions accounted for as hedges. The category of Economic hedges represented derivative
transactions under hedge strategies that did not qualify for hedge accounting treatment but were an
approved risk management strategy. No cash flow hedges were outstanding at September
30, 2010 or December 31, 2009.
101
Asset Quality and Concentration Advances, Investment Securities, Mortgage Loans, and Counterparty
Risks
The FHLBNY incurs credit risk the risk of loss due to default in its lending, investing, and
hedging activities. It has instituted processes to help manage and mitigate this risk. Despite
such processes, some amount of credit risk will always exist. External events, such as severe
economic downturns, declining real estate values (both residential and non-residential), changes in
monetary policy, adverse events in the capital markets, and other developments, could lead to
member or counterparty default or impact the creditworthiness of investments. Such events would
have a negative impact upon the FHLBNYs income and financial performance.
The following table sets forth five-year history of the FHLBNYs advances and mortgage loan
portfolios (in thousands):
Table 29: Advances and Mortgage Loan Portfolios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
85,697,171 |
|
|
$ |
94,348,751 |
|
|
$ |
109,152,876 |
|
|
$ |
82,089,667 |
|
|
$ |
59,012,394 |
|
|
$ |
61,901,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans before
allowance for credit losses |
|
$ |
1,273,224 |
|
|
$ |
1,322,045 |
|
|
$ |
1,459,291 |
|
|
$ |
1,492,261 |
|
|
$ |
1,484,012 |
|
|
$ |
1,467,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances
The FHLBNY closely monitors the creditworthiness of the institutions to which it lends. The FHLBNY
also closely monitors the quality and value of the assets that are pledged as collateral by its
members. The FHLBNY periodically assesses the mortgage underwriting and documentation standards of
its borrowing members. In addition, the FHLBNY has collateral policies and restricted lending
procedures in place to manage its exposure to those members experiencing difficulty in meeting
their capital requirements or other standards of creditworthiness.
The FHLBNY has not experienced any losses on advances extended to any member since its inception.
The FHLBank Act affords any security interest granted to the FHLBNY by a member, or any affiliate
of such member, priority over the claims and rights of any party (including any receiver,
conservator, trustee, or similar party) having the rights of a lien creditor. However, the
FHLBNYs security interest is not entitled to priority over claims and rights that (1) would be
entitled to priority under applicable law, or (2) are held by a bona fide purchaser for value or by
parties that are secured by actual perfected security interests.
The FHLBNYs members are required to pledge collateral to secure advances. Eligible collateral
includes: (1) one-to-four-family and multi-family mortgages; (2) U.S. Treasury and
government-agency securities; (3) mortgage-backed securities; and (4) certain other collateral
which is real estate-related and has a readily ascertainable value, and in which the FHLBNY can
perfect a security interest. The FHLBNY has the right to take such steps, as it deems necessary,
to protect its secured position on outstanding advances, including requiring additional collateral
(whether or not such additional collateral would otherwise be eligible to secure a loan). The
FHLBNY also has a statutory lien under the FHLBank Act on the capital stock of its members, which
serves as further collateral for members indebtedness to the FHLBNY.
The FHLBNY has established asset classification and reserve policies. All adversely classified
assets of the FHLBNY will have a reserve established for probable losses. Based upon the
collateral held as security and prior repayment histories, no allowance for losses on advances is
currently deemed necessary by management.
The FHLBNY uses methodologies to identify and measure credit risk from creditworthiness risk
arising from members, counterparties, and other entities; collateral risk arising from type,
quality, and lien status; and concentration risk arising from borrower, portfolio, geographic area,
industry, or product type.
Creditworthiness Risk Advances
The FHLBNYs potential exposure to creditworthiness risk arises from the deterioration of the
financial health of FHLBNY members. The FHLBNY manages its exposure to the creditworthiness of
members by monitoring their collateral and advance levels daily and by analyzing their financial
health each quarter.
Collateral Risk Advances
The FHLBNY is exposed to collateral risk if it is unable to perfect its interest in pledged
collateral, or when the liquidation value of pledged collateral does not fully cover the FHLBNYs
exposure. The FHLBNY manages this risk by pricing collateral on a weekly basis, performing on-site
reviews of pledged mortgage collateral from time to time, and reviewing pledged portfolio
concentrations on a quarterly basis. The FHLBNY requires that members pledge a specific amount of
excess collateral above the par amount of their outstanding obligations. Members provide the
FHLBNY with reports of pledged collateral and the FHLBNY evaluates the eligibility and value of the
pledged collateral.
The FHLBNYs loan and collateral agreements give the FHLBNY a security interest in assets held by
borrowers that is sufficient to cover their obligations to the FHLBNY. The FHLBNY may supplement
this security interest by imposing additional reporting, segregation or delivery requirements on
the borrower. The FHLBNY assigns specific collateral requirements to a borrower, based on a number
of factors. These include, but are not limited to: (1) the borrowers overall financial condition;
(2) the degree of complexity involved in the pledging, verifying, and reporting of collateral between the borrower and the FHLBNY, especially when third-party pledges,
custodians, outside service providers and pledges to other entities are involved; and (3) the type
of collateral pledged. The FHLBNY has also established collateral maintenance levels for borrower collateral that are
intended to help ensure that the FHLBNY has sufficient collateral to cover credit extensions and
reasonable expenses arising from potential collateral liquidation and other unknown factors.
Collateral maintenance levels are designated by collateral type and are periodically adjusted to
reflect current market and business conditions. Maintenance levels for individual borrowers may
also be adjusted, based on the overall financial condition of the borrower or another, third-party
entity involved in the collateral relationship with the FHLBNY. Borrowers are required to maintain
an amount of eligible collateral with a liquidation value at least equal to the borrowers current
collateral maintenance level. All borrowers that pledge mortgage loans as collateral are also
required to provide, on a monthly or quarterly basis, a detailed listing of mortgage loans pledged.
The FHLBNY uses this detailed reporting to monitor and track payment performance of the collateral
and to assess the risk profile of the pledged collateral based on mortgage characteristics,
geographic concentrations and other pertinent risk factors.
102
Drawing on current industry standards, the FHLBNY establishes collateral valuation methodologies
for each collateral type and calculates the estimated liquidation value of the pledged collateral
to determine whether a borrower has satisfied its collateral maintenance requirement. The FHLBNY
evaluates liquidation values on a weekly basis.
The FHLBNY makes on-site reviews of borrowers in connection with the evaluation of the borrowers
pledged mortgage collateral. This review involves a qualitative assessment of risk factors that
includes an examination of legal documentation, credit underwriting, and loan-servicing practices
on mortgage collateral. The FHLBNY has developed the on-site review process to more accurately
value each borrowers pledged mortgage portfolio based on current secondary-market standards. The
results of the review may lead to adjustments in the estimated liquidation value of pledged
collateral. The FHLBNY may also make additional market value adjustments to a borrowers pledged
mortgage collateral based on the quality and accuracy of the automated data provided to the FHLBNY.
See Tables 30-32 for more information.
Credit Risk and Concentration Risk Advances
While the FHLBNY has never experienced a credit loss on an advance, the expanded eligible
collateral for Community Financial Institutions and non-member housing associates permitted, but
not required, by the Finance Agency provides the potential for additional credit risk for the
FHLBNY. It is the FHLBNYs current policy not to accept expanded eligible collateral from
Community Financial Institutions. The management of the FHLBNY has the policies and procedures in
place to appropriately manage credit risk associated with the advance business. In extending
credit to a member, the FHLBNY adheres to specific credit policy limits approved by its Board of
Directors. The FHLBNY has not established limits for the concentrations of specific types of
advances, but management reports the activity in advances to the Board each month. Each quarter,
management reports the concentrations of putable advances made to individual members. There were
no past due advances and all advances were current at any periods in this report. Management does
not anticipate any credit losses, and accordingly, the FHLBNY has not provided an allowance for
credit losses on advances. The FHLBNYs potential credit risk from advances is concentrated in
commercial banks, savings institutions and insurance companies. At September 30, 2010, the top ten
member institutions had borrowed advances aggregating $57.3 billion or 71.4% of total advances
outstanding (par). The comparable amount at December 31, 2009 was $59.5 billion, or 65.6% of total
advance outstanding. Sufficient collateral was held to cover the advances to these institutions.
See Table 33 below for more information.
Collateral Coverage of Advances
The FHLBNY lends to financial institutions involved in housing finance within its district. In
addition, the FHLBNY is permitted, but not required, to accept collateral in the form of small
business or agricultural loans (expanded collateral) from Community Financial Institutions
(CFIs). Borrowing members pledge their capital stock of the FHLBNY as additional collateral for
advances. All member obligations with the FHLBNY must be fully collateralized throughout their
entire term.
As of September 30, 2010 and December 31, 2009, the FHLBNY had rights to collateral with an
estimated value greater than outstanding advances. Based upon the financial condition of the
member, the FHLBNY:
|
|
|
Allows a member to retain possession of the collateral assigned to the FHLBNY, if the
member executes a written security agreement and agrees to hold such collateral for the
benefit of the FHLBNY; or |
|
|
|
Requires the member specifically to assign or place physical possession of such
collateral with the FHLBNY or its safekeeping agent. |
The following table summarizes pledged collateral in support of advances (in thousands):
Table 30: Collateral Supporting Advances to Members
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying Collateral for Advances |
|
|
|
|
|
|
|
Mortgage |
|
|
Securities and |
|
|
|
|
|
|
Advances1 |
|
|
Loans2 |
|
|
Deposits2 |
|
|
Total2 |
|
September 30, 2010 |
|
$ |
80,102,811 |
|
|
$ |
102,314,450 |
|
|
$ |
44,596,206 |
|
|
$ |
146,910,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
$ |
90,737,700 |
|
|
$ |
111,346,235 |
|
|
$ |
49,564,456 |
|
|
$ |
160,910,691 |
|
|
|
|
Note1 |
|
Par value |
|
Note2 |
|
Estimated market value |
103
The level of over-collateralization is on an aggregate basis and may not necessarily be indicative
of a similar level of over-collateralization on an individual transaction basis. At a minimum,
each member pledged sufficient collateral to adequately secure the members outstanding obligation
with the FHLBNY. In addition, most members maintain an excess amount of pledged collateral with
the FHLBNY to secure future liquidity needs.
The following table summarizes pledged collateral in support of other member obligations (other
than advances) (in thousands):
Table 31: Collateral Supporting Member Obligations Other Than Advances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying Collateral for Other Obligations |
|
|
|
Other |
|
|
|
|
|
|
Securities and |
|
|
|
|
|
|
Obligations1 |
|
|
Mortgage Loans2 |
|
|
Deposits2 |
|
|
Total 2 |
|
September 30, 2010 |
|
$ |
1,899,440 |
|
|
$ |
4,686,068 |
|
|
$ |
323,262 |
|
|
$ |
5,009,330 |
|
|
|
December 31, 2009 |
|
$ |
720,622 |
|
|
$ |
2,257,204 |
|
|
$ |
126,970 |
|
|
$ |
2,384,174 |
|
|
|
|
Note1 |
|
Standby financial letters of credit, derivatives and members credit enhancement
guarantee amount. (MPFCE) |
|
Note2 |
|
Estimated market value |
The outstanding member obligations consisted principally of standby letters of credit, and a small
amount of collateralized value of outstanding derivatives, and members credit enhancement
guarantee amount (MPFCE) on loans sold to the FHLBNY through the Mortgage Partnership Finance
program. The FHLBNYs underwriting and collateral requirements for securing Letters of Credit are
the same as its requirements for securing advances.
The following table shows the breakdown of collateral pledged by members between those that were
specifically listed and those in the physical possession or that of its safekeeping agent (in
thousands):
Table 32: Location of Collateral Held
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Market Values |
|
|
|
Collateral in |
|
|
Collateral |
|
|
Collateral |
|
|
Total |
|
|
|
Physical |
|
|
Specifically |
|
|
Pledged for |
|
|
Collateral |
|
|
|
Possession |
|
|
Listed |
|
|
AHP |
|
|
Received |
|
September 30, 2010 |
|
$ |
51,752,820 |
|
|
$ |
100,449,622 |
|
|
$ |
(282,455 |
) |
|
$ |
151,919,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
$ |
57,660,864 |
|
|
$ |
105,714,763 |
|
|
$ |
(80,762 |
) |
|
$ |
163,294,865 |
|
The total of collateral pledged to the FHLBNY includes excess collateral pledged above the FHLBNYs
maximum Lendable value. These Lendable value requirements range from 60% to 97% of the collateral
pledged, based on the collateral type. It is common for members to maintain excess collateral
positions with the FHLBNY for future liquidity needs. Based on several factors (e.g. advance type,
collateral type or member financial condition) members are required to comply with specified
collateral requirements, including but not limited to, a detailed listing of pledged mortgage
collateral and/or delivery of pledged collateral to FHLBNY or its designated collateral
custodian(s). For example, all pledged securities collateral must be delivered to the FHLBNYs
nominee name at Citibank, N.A., the FHLBNYs securities safekeeping custodian. Mortgage collateral
that is required to be in the FHLBNYs possession is typically delivered to the FHLBNYs Jersey
City, N.J. facility. However, in certain instances, delivery to an FHLBNY approved custodian may
be allowed.
104
Table 33: Concentration analysis Top Ten Advance Holders
The following tables provide summary data for the top ten advance holders (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Total Par Value |
|
|
Interest Income |
|
|
|
City |
|
State |
|
Advances |
|
|
of Advances |
|
|
Three months |
|
|
Nine months |
|
Hudson City Savings Bank, FSB* |
|
Paramus |
|
NJ |
|
$ |
17,175,000 |
|
|
|
21.4 |
% |
|
$ |
178,029 |
|
|
$ |
529,488 |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
|
13,230,000 |
|
|
|
16.5 |
|
|
|
75,674 |
|
|
|
222,705 |
|
New York Community Bank* |
|
Westbury |
|
NY |
|
|
7,593,167 |
|
|
|
9.5 |
|
|
|
77,416 |
|
|
|
230,083 |
|
MetLife Bank, N.A. |
|
Bridgewater |
|
NJ |
|
|
4,969,500 |
|
|
|
6.2 |
|
|
|
16,368 |
|
|
|
40,514 |
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
|
3,709,163 |
|
|
|
4.6 |
|
|
|
11,607 |
|
|
|
34,369 |
|
Astoria Federal Savings and Loan Assn. |
|
Lake Success |
|
NY |
|
|
2,735,000 |
|
|
|
3.4 |
|
|
|
27,463 |
|
|
|
83,763 |
|
The Prudential Insurance Co. of America |
|
Newark |
|
NJ |
|
|
2,500,000 |
|
|
|
3.1 |
|
|
|
17,971 |
|
|
|
60,244 |
|
Valley National Bank |
|
Wayne |
|
NJ |
|
|
2,361,500 |
|
|
|
2.9 |
|
|
|
24,677 |
|
|
|
73,885 |
|
Doral Bank |
|
San Juan |
|
PR |
|
|
1,531,420 |
|
|
|
1.9 |
|
|
|
16,471 |
|
|
|
53,041 |
|
New York Life Insurance Company |
|
New York |
|
NY |
|
|
1,500,000 |
|
|
|
1.9 |
|
|
|
4,274 |
|
|
|
11,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
57,304,750 |
|
|
|
71.4 |
% |
|
$ |
449,950 |
|
|
$ |
1,339,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Officer of member bank also served on the Board of Directors of the FHLBNY. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Total Par Value |
|
|
12-months |
|
|
|
City |
|
State |
|
Advances |
|
|
of Advances |
|
|
Interest Income |
|
Hudson City Savings Bank, FSB* |
|
Paramus |
|
NJ |
|
$ |
17,275,000 |
|
|
|
19.0 |
% |
|
$ |
710,900 |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
|
13,680,000 |
|
|
|
15.1 |
|
|
|
356,120 |
|
New York Community Bank* |
|
Westbury |
|
NY |
|
|
7,343,174 |
|
|
|
8.1 |
|
|
|
310,991 |
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
|
5,005,641 |
|
|
|
5.5 |
|
|
|
97,628 |
|
The Prudential Insurance Co. of America |
|
Newark |
|
NJ |
|
|
3,500,000 |
|
|
|
3.9 |
|
|
|
93,601 |
|
Astoria Federal Savings and Loan Assn. |
|
Lake Success |
|
NY |
|
|
3,000,000 |
|
|
|
3.3 |
|
|
|
120,870 |
|
Emigrant Bank |
|
New York |
|
NY |
|
|
2,475,000 |
|
|
|
2.7 |
|
|
|
64,131 |
|
Doral Bank |
|
San Juan |
|
PR |
|
|
2,473,420 |
|
|
|
2.7 |
|
|
|
86,389 |
|
MetLife Bank, N.A. |
|
Bridgewater |
|
NJ |
|
|
2,430,500 |
|
|
|
2.7 |
|
|
|
46,142 |
|
Valley National Bank |
|
Wayne |
|
NJ |
|
|
2,322,500 |
|
|
|
2.6 |
|
|
|
103,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
59,505,235 |
|
|
|
65.6 |
% |
|
$ |
1,990,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
At December 31, 2009, officer of member bank also served on the Board of Directors of the
FHLBNY. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Total Par Value |
|
|
Interest Income |
|
|
|
City |
|
State |
|
Advances |
|
|
of Advances |
|
|
Three months |
|
|
Nine months |
|
Hudson City Savings Bank, FSB* |
|
Paramus |
|
NJ |
|
$ |
17,325,000 |
|
|
|
18.9 |
% |
|
$ |
178,896 |
|
|
$ |
532,100 |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
|
14,280,000 |
|
|
|
15.6 |
|
|
|
84,277 |
|
|
|
279,360 |
|
New York Community Bank* |
|
Westbury |
|
NY |
|
|
8,148,476 |
|
|
|
8.9 |
|
|
|
78,413 |
|
|
|
233,129 |
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
|
5,493,756 |
|
|
|
6.0 |
|
|
|
19,133 |
|
|
|
83,856 |
|
The Prudential Insurance Co. of America |
|
Newark |
|
NJ |
|
|
3,500,000 |
|
|
|
3.8 |
|
|
|
22,448 |
|
|
|
71,473 |
|
Astoria Federal Savings and Loan Assn. |
|
Lake Success |
|
NY |
|
|
2,960,000 |
|
|
|
3.2 |
|
|
|
29,824 |
|
|
|
91,226 |
|
Emigrant Bank |
|
New York |
|
NY |
|
|
2,475,000 |
|
|
|
2.7 |
|
|
|
16,127 |
|
|
|
48,004 |
|
Doral Bank |
|
San Juan |
|
PR |
|
|
2,473,420 |
|
|
|
2.7 |
|
|
|
21,513 |
|
|
|
65,825 |
|
MetLife Bank, N.A. |
|
Bridgewater |
|
NJ |
|
|
2,382,000 |
|
|
|
2.6 |
|
|
|
12,854 |
|
|
|
34,658 |
|
Valley National Bank |
|
Wayne |
|
NJ |
|
|
2,338,500 |
|
|
|
2.6 |
|
|
|
25,608 |
|
|
|
78,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
61,376,152 |
|
|
|
67.0 |
% |
|
$ |
489,093 |
|
|
$ |
1,517,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
At September 30, 2009, officer of member bank also served on the Board of Directors of the
FHLBNY. |
Investment quality
The FHLBNYs investments are summarized below (dollars in thousands):
Table 34: Period-Over-Period Change in Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
Dollar |
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
Variance |
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local housing finance agency obligations 1 |
|
$ |
740,256 |
|
|
$ |
751,751 |
|
|
$ |
(11,495 |
) |
|
|
(1.53 |
)% |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities, at fair value |
|
|
3,360,959 |
|
|
|
2,240,564 |
|
|
|
1,120,395 |
|
|
|
50.01 |
|
Held-to-maturity securities, at carrying
value |
|
|
7,480,990 |
|
|
|
9,767,531 |
|
|
|
(2,286,541 |
) |
|
|
(23.41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
|
11,582,205 |
|
|
|
12,759,846 |
|
|
|
(1,177,641 |
) |
|
|
(9.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grantor trusts 2 |
|
|
12,822 |
|
|
|
12,589 |
|
|
|
233 |
|
|
|
1.85 |
|
Federal funds sold |
|
|
4,095,000 |
|
|
|
3,450,000 |
|
|
|
645,000 |
|
|
|
18.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
15,690,027 |
|
|
$ |
16,222,435 |
|
|
$ |
(532,408 |
) |
|
|
(3.28 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Classified as held-to-maturity securities, at carrying value. |
|
2 |
|
Classified as available-for-sale securities, at fair value and represents investments
in registered mutual funds
and other fixed-income securities maintained under the grantor trusts. |
Long-term investments were principally comprised of (1) Mortgage-backed securities classified as
held-to-maturity at a carrying value of $7.5 billion, of which 88.2% comprised of securities issued
by government sponsored enterprises and a U.S. government agency, (2) Mortgage-backed securities
classified as available-for-sale securities at recorded fair values of $3.4 billion, 100 percent of
which was comprised of GSE issued mortgage-backed securities. In addition, the FHLBNY had
investments of $740.3 million in primary public and private placements of taxable obligations of
state and local housing finance authorities classified as held-to-maturity. Short-term investments
consisted of Federal funds sold.
105
Investment rating
External ratings and the changes in a securitys external rating are factors in the FHLBNYs
assessment of impairment; a rating or a rating change alone is not necessarily indicative of
impairment or absence of impairment.
The following tables contain information about credit ratings of the Banks investments in
Held-to-maturity and Available-for-sale securities (in thousands). Also see, Table 20 rating
information:
Table 35: NRSRO Held-to-Maturity Securities
External
ratings Held-to-maturity securities September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below |
|
|
|
Carrying |
|
|
NRSRO Ratings - September 30, 2010 |
|
|
Investment |
|
Issued, guaranteed or insured: |
|
Value |
|
|
AAA |
|
|
AA |
|
|
A |
|
|
BBB |
|
|
Grade |
|
Pools of Mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
939,288 |
|
|
$ |
939,288 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Freddie Mac |
|
|
269,515 |
|
|
|
269,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pools of mortgages |
|
|
1,208,803 |
|
|
|
1,208,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage Obligations/Real |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estate Mortgage Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
|
1,854,692 |
|
|
|
1,854,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac |
|
|
3,184,866 |
|
|
|
3,184,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ginnie Mae |
|
|
127,168 |
|
|
|
127,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CMOs/REMICs |
|
|
5,166,726 |
|
|
|
5,166,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac |
|
|
173,969 |
|
|
|
173,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ginnie Mae |
|
|
48,954 |
|
|
|
48,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial mortgage-backed
securities |
|
|
222,923 |
|
|
|
222,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GSE MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMOs/REMICs |
|
|
336,980 |
|
|
|
218,579 |
|
|
|
9,688 |
|
|
|
20,989 |
|
|
|
|
|
|
|
87,724 |
|
Asset-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing loans (insured) |
|
|
182,711 |
|
|
|
|
|
|
|
182,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans (insured) |
|
|
196,641 |
|
|
|
9,710 |
|
|
|
70,835 |
|
|
|
23,226 |
|
|
|
14,037 |
|
|
|
78,833 |
|
Home equity loans (uninsured) |
|
|
166,206 |
|
|
|
150,323 |
|
|
|
11,791 |
|
|
|
|
|
|
|
4,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset-backed securities |
|
|
545,558 |
|
|
|
160,033 |
|
|
|
265,337 |
|
|
|
23,226 |
|
|
|
18,129 |
|
|
|
78,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total HTM mortgage-backed securities |
|
$ |
7,480,990 |
|
|
$ |
6,977,064 |
|
|
$ |
275,025 |
|
|
$ |
44,215 |
|
|
$ |
18,129 |
|
|
$ |
166,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local housing finance
agency obligations |
|
$ |
740,256 |
|
|
$ |
71,597 |
|
|
$ |
592,594 |
|
|
$ |
19,845 |
|
|
$ |
56,220 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other |
|
$ |
740,256 |
|
|
$ |
71,597 |
|
|
$ |
592,594 |
|
|
$ |
19,845 |
|
|
$ |
56,220 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-maturity securities |
|
$ |
8,221,246 |
|
|
$ |
7,048,661 |
|
|
$ |
867,619 |
|
|
$ |
64,060 |
|
|
$ |
74,349 |
|
|
$ |
166,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 36: NRSRO Available-for-Sale Securities
External
ratings Available-for-sale securities September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NRSRO Ratings - September 30, 2010 |
|
Issued, guaranteed or insured: |
|
Fair Value |
|
|
AAA |
|
|
AA |
|
|
A |
|
Pools of Mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Freddie Mac |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pools of mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage Obligations/Real |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estate Mortgage Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
|
2,275,326 |
|
|
|
2,275,326 |
|
|
|
|
|
|
|
|
|
Freddie Mac |
|
|
1,085,633 |
|
|
|
1,085,633 |
|
|
|
|
|
|
|
|
|
Ginnie Mae |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CMOs/REMICs |
|
|
3,360,959 |
|
|
|
3,360,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GSE MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMOs/REMICs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-federal-agency MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing loans (insured) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans (insured) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans (uninsured) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS mortgage-backed securities |
|
$ |
3,360,959 |
|
|
$ |
3,360,959 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income funds, equity funds
and cash equivalents * |
|
$ |
12,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available-for-sale securities |
|
$ |
3,373,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
Fannie Mae and Freddie Mac Securities
The FHLBNYs mortgage-backed securities were predominantly issued by Fannie Mae and Freddie Mac.
The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and
Freddie Mac. Fannie Mae and Freddie Mac are in conservatorship, with the Finance Agency named as
conservator, who will manage Fannie Mae and Freddie Mac in an attempt to stabilize their financial
conditions and their ability to support the secondary mortgage market.
Available-for-sale securities 100 percent of MBS outstanding and classified as AFS were issued by
Fannie Mae and Freddie Mac.
Held-to-maturity
securities Comprised of 88.2% and 89.1% of MBS also issued by Fannie Mae,
Freddie Mac and a U.S. government agency at September 30, 2010 and December 31, 2009.
The following table summarizes the carrying value basis of held-to-maturity mortgage-backed
securities by issuer (dollars in thousands):
Table 37: Carrying Value Basis of Held-to-Maturity Mortgage-Backed Securities by Issuer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
Percentage |
|
|
December 31, |
|
|
Percentage |
|
|
|
2010 |
|
|
of total |
|
|
2009 |
|
|
of total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored enterprise residential
mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
2,793,981 |
|
|
|
37.35 |
% |
|
$ |
3,746,768 |
|
|
|
38.36 |
% |
Freddie Mac |
|
|
3,454,380 |
|
|
|
46.17 |
|
|
|
4,735,371 |
|
|
|
48.48 |
|
U.S. agency residential mortgage-backed securities |
|
|
127,168 |
|
|
|
1.70 |
|
|
|
171,531 |
|
|
|
1.76 |
|
U.S. government sponsored enterprise commercial
mortgage-backed securities |
|
|
173,969 |
|
|
|
2.33 |
|
|
|
|
|
|
|
|
|
U.S. agency commercial mortgage-backed securities |
|
|
48,953 |
|
|
|
0.65 |
|
|
|
49,526 |
|
|
|
0.51 |
|
Private-label issued securities |
|
|
882,539 |
|
|
|
11.80 |
|
|
|
1,064,335 |
|
|
|
10.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-maturity
securities-mortgage-backed securities |
|
$ |
7,480,990 |
|
|
|
100.00 |
% |
|
$ |
9,767,531 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Agency Private label mortgage and asset-backed securities
The Bank also held MBS that were privately issued, and were classified as held-to-maturity. The
following table summarizes private-label mortgage- and asset-backed securities by fixed- or
variable-rate coupon types (Unpaid principal balance; in thousands):
Table 38: Non-Agency Private Label Mortgage Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
Private-label MBS |
|
Fixed Rate |
|
|
Variable Rate |
|
|
Total |
|
|
Fixed Rate |
|
|
Variable Rate |
|
|
Total |
|
Private-label RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
$ |
328,579 |
|
|
$ |
4,068 |
|
|
$ |
332,647 |
|
|
$ |
435,913 |
|
|
$ |
4,359 |
|
|
$ |
440,272 |
|
Alt-A |
|
|
6,123 |
|
|
|
3,338 |
|
|
|
9,461 |
|
|
|
7,229 |
|
|
|
3,713 |
|
|
|
10,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total PL RMBS |
|
|
334,702 |
|
|
|
7,406 |
|
|
|
342,108 |
|
|
|
443,142 |
|
|
|
8,072 |
|
|
|
451,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
399,922 |
|
|
|
85,256 |
|
|
|
485,178 |
|
|
|
437,042 |
|
|
|
108,801 |
|
|
|
545,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Home Equity Loans |
|
|
399,922 |
|
|
|
85,256 |
|
|
|
485,178 |
|
|
|
437,042 |
|
|
|
108,801 |
|
|
|
545,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
182,731 |
|
|
|
|
|
|
|
182,731 |
|
|
|
202,299 |
|
|
|
|
|
|
|
202,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Manufactured Housing Loans |
|
|
182,731 |
|
|
|
|
|
|
|
182,731 |
|
|
|
202,299 |
|
|
|
|
|
|
|
202,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPB of private-label MBS |
|
$ |
917,355 |
|
|
$ |
92,662 |
|
|
$ |
1,010,017 |
|
|
$ |
1,082,483 |
|
|
$ |
116,873 |
|
|
$ |
1,199,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance (UPB) is also known as the current face or par amount of a mortgage-backed
security.
Other-Than-Temporarily Impaired Securities
OTTI at 2010 third quarter To assess whether the entire amortized cost basis of the Banks
private-label MBS will be recovered, the Bank performed cash flow analysis on 100 percent of the
its private-label MBS outstanding at September 30, 2010. Cash flow assessments identified credit
impairment on four HTM private-label mortgage-backed securities, and $3.1 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 third quarter was due to further deterioration in the credit performance metrics of the
securities. The non-credit portion of OTTI recorded in AOCI was not significant. Year-to-date
credit OTTI was $7.7 million.
107
The tables below provide the key characteristics of the securities1 that were deemed
OTTI in the 2010 (dollars in thousands):
Table 39: OTTI in 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Nine Months Ended |
|
|
|
Quarter ended September 30, 2010 |
|
|
September 30, 2010 |
|
|
September 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* |
|
$ |
31,876 |
|
|
$ |
15,050 |
|
|
$ |
16,341 |
|
|
$ |
8,233 |
|
|
$ |
(3,067 |
) |
|
$ |
(2,569 |
) |
|
$ |
(7,737 |
) |
|
$ |
(3,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
31,876 |
|
|
$ |
15,050 |
|
|
$ |
16,341 |
|
|
$ |
8,233 |
|
|
$ |
(3,067 |
) |
|
$ |
(2,569 |
) |
|
$ |
(7,737 |
) |
|
$ |
(3,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
HEL Subprime MBS supported by home equity loans. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30, 2010 |
|
|
|
Insurer MBIA |
|
|
Insurer Ambac |
|
|
OTTI |
|
Security |
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
Credit |
|
|
Non-credit2 |
|
Classification |
|
UPB |
|
|
Value |
|
|
UPB |
|
|
Value |
|
|
Loss |
|
|
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL Subprime* |
|
$ |
20,976 |
|
|
$ |
9,044 |
|
|
$ |
37,456 |
|
|
$ |
22,564 |
|
|
$ |
(1,270 |
) |
|
$ |
(1,068 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
20,976 |
|
|
$ |
9,044 |
|
|
$ |
37,456 |
|
|
$ |
22,564 |
|
|
$ |
(1,270 |
) |
|
$ |
(1,068 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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 September 30, 2010, the total carrying value of the securities prior to OTTI
was $22.7 million. The carrying values and fair values of OTTI securities in a loss position
prior to OTTI were $8.6 million and $8.1 million also at September 30, 2010. |
|
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. |
All four credit impaired securities at September 30, 2010 are insured by bond insurers Ambac
and MBIA. The Banks analysis of Ambac concluded that the bond insurer could not be relied upon to
make whole credit losses. Analysis of MBIA concluded that insurance support could be relied upon
for shortfalls up until June 30, 2011, beyond which date, MBIAs financial resources would be such
that insurance protection could not be relied upon.
The following table summarizes the key characteristics of securities insured by MBIA, Ambac, and
Assured Guaranty Municipal Trust (formerly FSA) (in thousands):
Table 40: Monoline Insurance of PLMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
AMBAC |
|
|
MBIA |
|
|
AGM * |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
Private-label MBS |
|
UPB |
|
|
Losses |
|
|
UPB |
|
|
Losses |
|
|
UPB |
|
|
Losses |
|
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
$ |
179,287 |
|
|
$ |
(31,202 |
) |
|
$ |
34,450 |
|
|
$ |
(8,414 |
) |
|
$ |
77,981 |
|
|
$ |
(2,577 |
) |
Manufactured Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182,731 |
|
|
|
(22,141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of all Private-label MBS |
|
$ |
179,287 |
|
|
$ |
(31,202 |
) |
|
$ |
34,450 |
|
|
$ |
(8,414 |
) |
|
$ |
260,712 |
|
|
$ |
(24,718 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Assured Guaranty Municipal Trust (formerly FSA) |
108
The following tables present additional information of the fair values and gross unrealized
losses of PLMBS by year of securitization and external rating (in thousands):
Table 41: PLMBS by Year of Securitization and External Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid Principal Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Ratings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
Amortized |
|
|
Unrealized |
|
|
|
|
|
|
Total OTTI |
|
Private-label MBS |
|
Subtotal |
|
|
Triple-A |
|
|
Double-A |
|
|
Single-A |
|
|
Triple-B |
|
|
Grade |
|
|
Cost |
|
|
(Losses) |
|
|
Fair Value |
|
|
Losses |
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
$ |
46,480 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
46,480 |
|
|
$ |
46,029 |
|
|
$ |
(407 |
) |
|
$ |
45,710 |
|
|
$ |
|
|
2005 |
|
|
66,409 |
|
|
|
|
|
|
|
|
|
|
|
21,223 |
|
|
|
|
|
|
|
45,186 |
|
|
|
64,699 |
|
|
|
(716 |
) |
|
|
64,575 |
|
|
|
|
|
2004 and earlier |
|
|
219,758 |
|
|
|
209,866 |
|
|
|
9,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,805 |
|
|
|
(443 |
) |
|
|
223,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS Prime |
|
|
332,647 |
|
|
|
209,866 |
|
|
|
9,892 |
|
|
|
21,223 |
|
|
|
|
|
|
|
91,666 |
|
|
|
329,533 |
|
|
|
(1,566 |
) |
|
|
334,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
9,461 |
|
|
|
9,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,462 |
|
|
|
(768 |
) |
|
|
8,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS |
|
|
342,108 |
|
|
|
219,327 |
|
|
|
9,892 |
|
|
|
21,223 |
|
|
|
|
|
|
|
91,666 |
|
|
|
338,995 |
|
|
|
(2,334 |
) |
|
|
342,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
485,178 |
|
|
|
180,811 |
|
|
|
89,111 |
|
|
|
42,759 |
|
|
|
28,932 |
|
|
|
143,565 |
|
|
|
456,876 |
|
|
|
(76,438 |
) |
|
|
381,214 |
|
|
|
(4,573 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
182,731 |
|
|
|
|
|
|
|
182,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182,712 |
|
|
|
(22,141 |
) |
|
|
160,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total PLMBS |
|
$ |
1,010,017 |
|
|
$ |
400,138 |
|
|
$ |
281,734 |
|
|
$ |
63,982 |
|
|
$ |
28,932 |
|
|
$ |
235,231 |
|
|
$ |
978,583 |
|
|
$ |
(100,913 |
) |
|
$ |
884,611 |
|
|
$ |
(4,573 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid Principal Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Ratings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Total OTTI |
|
Private-label MBS |
|
Subtotal |
|
|
Triple-A |
|
|
Double-A |
|
|
Single-A |
|
|
Triple-B |
|
|
Grade |
|
|
Amortized Cost |
|
|
(Losses) |
|
|
Fair Value |
|
|
Losses |
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
$ |
63,276 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
38,689 |
|
|
$ |
|
|
|
$ |
24,587 |
|
|
$ |
62,654 |
|
|
$ |
(2,396 |
) |
|
$ |
60,258 |
|
|
$ |
|
|
2005 |
|
|
82,982 |
|
|
|
28,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,295 |
|
|
|
80,996 |
|
|
|
(1,708 |
) |
|
|
79,288 |
|
|
|
(3,204 |
) |
2004 and earlier |
|
|
294,014 |
|
|
|
281,240 |
|
|
|
12,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292,773 |
|
|
|
(3,696 |
) |
|
|
289,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS Prime |
|
|
440,272 |
|
|
|
309,927 |
|
|
|
12,774 |
|
|
|
38,689 |
|
|
|
|
|
|
|
78,882 |
|
|
|
436,423 |
|
|
|
(7,800 |
) |
|
|
429,504 |
|
|
|
(3,204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
10,942 |
|
|
|
10,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,944 |
|
|
|
(938 |
) |
|
|
10,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS |
|
|
451,214 |
|
|
|
320,869 |
|
|
|
12,774 |
|
|
|
38,689 |
|
|
|
|
|
|
|
78,882 |
|
|
|
447,367 |
|
|
|
(8,738 |
) |
|
|
439,510 |
|
|
|
(3,204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
545,843 |
|
|
|
205,480 |
|
|
|
91,782 |
|
|
|
48,838 |
|
|
|
43,035 |
|
|
|
156,708 |
|
|
|
525,260 |
|
|
|
(151,818 |
) |
|
|
373,442 |
|
|
|
(137,708 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
202,299 |
|
|
|
|
|
|
|
202,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202,278 |
|
|
|
(37,101 |
) |
|
|
165,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total PLMBS |
|
$ |
1,199,356 |
|
|
$ |
526,349 |
|
|
$ |
306,855 |
|
|
$ |
87,527 |
|
|
$ |
43,035 |
|
|
$ |
235,590 |
|
|
$ |
1,174,905 |
|
|
$ |
(197,657 |
) |
|
$ |
978,129 |
|
|
$ |
(140,912 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
Weighted-average market price offers an analysis of unrealized loss percentage; a comparison
of the weighted-average credit support to weighted-average collateral delinquency percentage is
another indicator of the credit support available to absorb potential cash flow shortfalls.
Table 42: Weighted-Average Market Price of MBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
Original |
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Weighted- |
|
|
Weighted-Average |
|
|
|
Average Credit |
|
|
Average Credit |
|
|
Collateral |
|
Private-label MBS |
|
Support % |
|
|
Support % |
|
|
Delinquency % |
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
3.73 |
% |
|
|
5.29 |
% |
|
|
6.30 |
% |
2005 |
|
|
2.59 |
|
|
|
4.13 |
|
|
|
2.56 |
|
2004 and earlier |
|
|
1.58 |
|
|
|
3.21 |
|
|
|
0.65 |
|
|
|
|
|
|
|
|
|
|
|
Total RMBS Prime |
|
|
2.08 |
|
|
|
3.69 |
|
|
|
1.82 |
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
10.97 |
|
|
|
33.36 |
|
|
|
10.89 |
|
|
|
|
|
|
|
|
|
|
|
Total RMBS |
|
|
2.32 |
|
|
|
4.51 |
|
|
|
2.07 |
|
|
|
|
|
|
|
|
|
|
|
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
57.14 |
|
|
|
64.72 |
|
|
|
17.24 |
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
100.00 |
|
|
|
100.00 |
|
|
|
3.14 |
|
|
|
|
|
|
|
|
|
|
|
Total Private-label MBS |
|
|
46.33 |
% |
|
|
50.71 |
% |
|
|
9.55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Original |
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Weighted- |
|
|
Weighted-Average |
|
|
|
Average Credit |
|
|
Average Credit |
|
|
Collateral |
|
Private-label MBS |
|
Support % |
|
|
Support % |
|
|
Delinquency % |
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
3.74 |
% |
|
|
5.16 |
% |
|
|
5.47 |
% |
2005 |
|
|
2.67 |
|
|
|
3.82 |
|
|
|
2.32 |
|
2004 and earlier |
|
|
1.58 |
|
|
|
2.82 |
|
|
|
0.79 |
|
|
|
|
|
|
|
|
|
|
|
Total RMBS Prime |
|
|
2.10 |
|
|
|
3.35 |
|
|
|
1.75 |
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
10.73 |
|
|
|
32.35 |
|
|
|
11.22 |
|
|
|
|
|
|
|
|
|
|
|
Total RMBS |
|
|
2.30 |
|
|
|
4.05 |
|
|
|
1.98 |
|
|
|
|
|
|
|
|
|
|
|
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
57.86 |
|
|
|
65.34 |
|
|
|
17.40 |
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
57.78 |
|
|
|
55.56 |
|
|
|
3.64 |
|
|
|
|
|
|
|
|
|
|
|
Total Private-label MBS |
|
|
36.95 |
% |
|
|
40.63 |
% |
|
|
9.28 |
% |
|
|
|
|
|
|
|
|
|
|
Definitions:
Original Weighted-Average Credit Support percentage represents the arithmetic mean of a cohort of
securities by vintage; credit support is defined as the credit protection level at the time the
mortgage-backed securities closed. Support is expressed as a percentage of the sum of: subordinate
bonds, reserve funds, guarantees, overcollateralization, divided by the original collateral
balance.
Weighted-Average Credit Support percentage represents the arithmetic mean of a cohort of securities
by vintage; credit support is defined as the credit protection level as of the mortgage-backed
securities most current payment date. Support is expressed as a percentage of the sum of:
subordinate bonds, reserve funds, guarantees, overcollateralization, divided by the most current
unpaid collateral balance.
Weighted-average collateral delinquency percentage represents the arithmetic mean of a cohort
of securities by vintage: collateral delinquency is defined as the sum of the unpaid principal
balance of loans underlying the mortgage-backed security where the borrower is 60 or more days past due, or in bankruptcy
proceedings, or the loan is in foreclosure, or has become real estate owned divided by the
aggregate unpaid collateral balance.
110
Mortgage Loans Held-for-portfolio
Through the Mortgage Partnership Finance Program or MPF program, the FHLBNY invests in home
mortgage loans originated by or through members or approved state and local housing finance
agencies (housing associates). The FHLBNY purchases these mortgages loans under the Finance
Agencys Acquired Member Assets (AMA) regulation. These assets may include whole loans eligible
to secure advances (excluding mortgages above the conforming-loan limit); whole loans secured by
manufactured housing; or bonds issued by housing associates.
Underwriting standards - Summarized below are the principal underwriting criteria for the Banks
MPF Program through which the Bank acquires mortgage loans for its own portfolio. For a fuller
description of the MPF loan mortgage loan standards, refer to pages 8 through 19 of the Banks most
recent Form 10-K filed on March 25, 2010.
Mortgage loans delivered under the MPF Program must meet certain underwriting and eligibility
requirements. Loans must be qualifying 5- to 30-year conforming conventional or Government
fixed-rate, fully amortizing mortgage loans, secured by first liens on owner-occupied one-to-four
family residential properties and single unit second homes. Not eligible for delivery under the
MPF Program are mortgage loans that are not ratable by S&P, or loans that are classified as high
cost, high rate, or high risk. Satisfaction Collectability of mortgage loans is supported by liens
on real estate securing the loan. For conventional loans, defined as mortgage loans other than VA
and FHA insured loans, additional loss protection is provided by private mortgage insurance
required for MPF loans with a loan-to-value ratio of more than 80 percent at origination, which is
paid for by the borrower. The FHLBNY is responsible for losses up to the first loss level.
Losses beyond this layer are absorbed through credit enhancement provided by the member
participating in the Mortgage Partnership Program. All residual credit exposure is FHLBNYs
responsibility. The amount of credit enhancement is computed with the use of a Standard & Poors
model to bring a pool of uninsured loans to AA credit risk. The credit enhancement is an
obligation of the member.
The following table provides roll-forward information with respect to the First Loss Account (in
thousands):
Table 43: Roll-Forward First Loss Account
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
11,513 |
|
|
$ |
13,948 |
|
|
$ |
13,934 |
|
|
$ |
13,765 |
|
Additions |
|
|
187 |
|
|
|
19 |
|
|
|
340 |
|
|
|
216 |
|
Resets* |
|
|
|
|
|
|
|
|
|
|
(2,540 |
) |
|
|
|
|
Charge-offs |
|
|
(97 |
) |
|
|
|
|
|
|
(131 |
) |
|
|
(14 |
) |
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
11,603 |
|
|
$ |
13,967 |
|
|
$ |
11,603 |
|
|
$ |
13,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
For the Original MPF, MPF 100, MPF 125 and MPF Plus products, the Credit Enhancement is
periodically recalculated. If the recalculated Credit Enhancement would result in a PFI Credit
Enhancement obligation lower than the remaining obligation, the PFIs Credit Enhancement obligation
will be reset to the new, lower level. |
The aggregate amount of the First Loss Account is memorialized and tracked but is neither
recorded nor reported as a credit loss reserve in the FHLBNYs financial statements. If second
losses beyond this layer are incurred, they are absorbed through a credit enhancement provided by
the Participating Financial Institutions. The credit enhancement held by PFIs ensures that the
lender retains a credit stake in the loans it originates. For managing this risk, PFIs receive
monthly credit enhancement fees from the FHLBNY.
Mortgage loans Past due
In the FHLBNYs outstanding mortgage loans held-for-portfolio, non-performing loans and loans 90
days or more past due and accruing interest were as follows (in thousands):
Table 44: Mortgage Loans Past Due
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Secured by 1-4 family |
|
$ |
668 |
|
|
$ |
570 |
|
|
|
|
|
|
|
|
The past due loans still accruing were VA and FHA insured loans.
Non-performing mortgage loans were conventional mortgage loans that were placed on
non-accrual/non-performing status when the collection of the contractual principal or interest from
the borrower was 90 days or more past due. FHLBNY considers conventional loans that are 90 days or
more past due as non-accrual loans. Conventional loans exclude Federal Housing Administration
(FHA) and Veteran Administration (VA) insured loans. FHA and VA insured loans that were past
due 90 days or more were not significant at any period reported, and interest was still being
accrued because of VA and FHA insurance (See Table 45: Mortgage Loans Interest Short-fall). No
loans were impaired for any periods covered in this report, other than the non-accrual loans.
111
Mortgage loans Interest on Non-performing loans
The FHLBNYs interest contractually due and actually received for non-performing loans were as
follows (in thousands):
Table 45: Mortgage Loans Interest Short-Fall
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest contractually due 1 |
|
$ |
373 |
|
|
$ |
200 |
|
|
$ |
973 |
|
|
$ |
505 |
|
Interest actually received |
|
|
344 |
|
|
|
179 |
|
|
|
898 |
|
|
|
452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shortfall |
|
$ |
29 |
|
|
$ |
21 |
|
|
$ |
75 |
|
|
$ |
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The Bank does not recognize interest received as income from uninsured loans past due
90-days or greater. |
Table 46: Mortgage Loans Allowance for Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
5,392 |
|
|
$ |
2,760 |
|
|
$ |
4,498 |
|
|
$ |
1,406 |
|
Charge-offs |
|
|
(97 |
) |
|
|
|
|
|
|
(131 |
) |
|
|
(14 |
) |
Recoveries |
|
|
11 |
|
|
|
|
|
|
|
33 |
|
|
|
|
|
Provision for credit losses on mortgage loans |
|
|
231 |
|
|
|
598 |
|
|
|
1,137 |
|
|
|
1,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
5,537 |
|
|
$ |
3,358 |
|
|
$ |
5,537 |
|
|
$ |
3,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Participating Financial Institution Risk
The members or housing associates that are approved as Participating Financial Institutions
continue to bear a significant portion of the credit risk through credit enhancements that they
provide to the FHLBNY. The Acquired Member Assets regulation requires that these credit
enhancements be sufficient to protect the FHLBNY from excess credit risk exposure. Specifically,
the FHLBNY exposure must be no greater than it would be with an asset rated in the fourth-highest
credit rating category by a Nationally Recognized Statistical Rating Organization (NRSRO), or
such higher rating category as the FHLBNY may require. The MPF program is constructed to provide
the Bank with assets that are credit-enhanced to the second-highest credit rating category
(double-A).
The top five Participating Financial Institutions (PFI) and the outstanding MPF loan balances are
listed below (dollars in thousands):
Table 47: Top Five Participating Financial Institutions Concentration
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
Mortgage |
|
|
Percent of Total |
|
|
|
Loans |
|
|
Mortgage Loans |
|
|
|
|
|
|
|
|
|
|
Manufacturers and Traders Trust Company |
|
$ |
533,689 |
|
|
|
42.23 |
% |
Astoria Federal Savings and Loan Association |
|
|
210,404 |
|
|
|
16.65 |
|
Community Bank fka Elmira Svgs & Ln Assn |
|
|
51,694 |
|
|
|
4.09 |
|
OceanFirst Bank |
|
|
50,658 |
|
|
|
4.01 |
|
CFCU Community Credit Union |
|
|
40,802 |
|
|
|
3.23 |
|
All Others |
|
|
376,501 |
|
|
|
29.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 1 |
|
$ |
1,263,748 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Mortgage |
|
|
Percent of Total |
|
|
|
Loans |
|
|
Mortgage Loans |
|
|
|
|
|
|
|
|
|
|
Manufacturers and Traders Trust Company |
|
$ |
607,072 |
|
|
|
46.17 |
% |
Astoria Federal Savings and Loan Association |
|
|
220,268 |
|
|
|
16.75 |
|
Elmira Savings and Loan F.A. |
|
|
61,663 |
|
|
|
4.69 |
|
Ocean First Bank |
|
|
51,277 |
|
|
|
3.90 |
|
CFCU Community Credit Union |
|
|
42,344 |
|
|
|
3.22 |
|
All Others |
|
|
332,304 |
|
|
|
25.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 1 |
|
$ |
1,314,928 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
Note1 |
|
Totals do not include CMA loans. |
112
Credit Risk Exposure on MPF Loans Mortgage insurer default risk
Credit risk on MPF loans is the potential for financial loss due to borrower default or
depreciation in the value of the real estate collateral securing the MPF Loan, offset by the PFIs
credit enhancement protection, which may take the form of a contingent performance based credit
enhancement fees as well as the credit enhancement amount. The credit enhancement amount is a
direct liability of the PFI to pay credit losses; the PFI may also arrange with an insurer for a
SMI policy insuring a portion of the credit losses. To the extent credit losses are not
recoverable from PMI, the FHLBNY has potential credit exposure should the loan default and the PFI
directly or indirectly is unable to recover credit losses.
The MPF Program uses certain mortgage insurance companies to provide both primary mortgage
insurance (PMI) and supplemental mortgage insurance (SMI) for MPF loans. The FHLBNY is exposed
to the performance of mortgage insurers to the extent PFIs rely on insurer credit protection.
Credit exposure is defined as the total of PMI and SMI coverage written by a mortgage insurer on
MPF loans held by FHLBNY that are delinquent.
All mortgage insurance providers have had their external ratings for insurer financial strength
downgraded below AA- by one or more NRSROs since December 31, 2008. If a mortgage insurer fails to
fulfill its obligations, the FHLBNY may bear any remaining loss of the borrowers default on the
related mortgage loans not covered by the PFI.
The FHLBNY has stopped accepting new loans under master commitments with SMI from mortgage insurers
that no longer meet MPF insurer requirements. If an SMI provider is downgraded below an AA-
rating under the MPF Plus product, the PFI has six months to either replace the SMI policy or
provide its own undertaking; or it may forfeit its performance based CE Fees. If a PMI provider is
downgraded, the FHLBNY may request the servicer to obtain replacement PMI coverage with a different
provider. However, it is possible that replacement coverage may be unavailable or result in
additional cost to the FHLBNY.
Derivative Counterparty Ratings
The FHLBNY is subject to credit risk due to the risk of nonperformance by counterparties to the
derivative agreements. The FHLBNY transacts most of its derivatives with major financial
institutions. Some of these institutions or their affiliates buy, sell, and distribute
consolidated obligations. The FHLBNY is also subject to operational risks in the execution and
servicing of derivative transactions. The degree of counterparty credit risk may depend, among
other factors, on the extent to which netting procedures and/or the provision of collateral are
used to mitigate the risk. The FHLBNY manages counterparty credit risk through credit analysis and
collateral requirements and by following the requirements set forth in Finance Agencys
regulations. The contractual or notional amount of derivatives reflects the involvement of the
FHLBNY in the various classes of financial instruments, but it does not measure the credit risk
exposure of the FHLBNY, and the maximum credit exposure of the FHLBNY is substantially less than
the notional amount. The maximum credit risk is the estimated cost of replacing derivatives in
favorable fair value gain positions if the counterparty defaults and the related collateral, if
any, is of insufficient value to the FHLBNY.
The FHLBNY uses collateral agreements to mitigate counterparty credit risk in derivatives. When
the FHLBNY has more than one derivative transaction outstanding with a counterparty, and a legally
enforceable master netting agreement exists with the counterparty, the exposure, less collateral
held, represents the appropriate measure of credit risk. Substantially all derivative contracts
are subject to master netting agreements or other right of offset arrangements.
113
The following table summarizes the FHLBNYs credit exposure by counterparty credit rating (in
thousands, except number of counterparties).
Table 48: Credit Exposure by Counterparty Credit Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Total Net |
|
|
|
|
|
|
Number of |
|
|
Notional |
|
|
Exposure at |
|
|
Net Exposure after |
|
Credit Rating |
|
Counterparties |
|
|
Balance |
|
|
Fair Value |
|
|
Cash Collateral3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
AA |
|
|
8 |
|
|
|
45,406,173 |
|
|
|
40,342 |
|
|
|
18,346 |
|
A |
|
|
8 |
|
|
|
78,223,953 |
|
|
|
35,340 |
|
|
|
3,540 |
|
Members (Note1 and Note2) |
|
|
2 |
|
|
|
275,000 |
|
|
|
10,535 |
|
|
|
10,535 |
|
Delivery Commitments |
|
|
|
|
|
|
20,675 |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
18 |
|
|
$ |
123,925,801 |
|
|
$ |
86,221 |
|
|
$ |
32,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Total Net |
|
|
|
|
|
|
Number of |
|
|
Notional |
|
|
Exposure at |
|
|
Net Exposure after |
|
Credit Rating |
|
Counterparties |
|
|
Balance |
|
|
Fair Value |
|
|
Cash Collateral3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
AA |
|
|
7 |
|
|
|
45,652,167 |
|
|
|
684 |
|
|
|
684 |
|
A |
|
|
8 |
|
|
|
88,711,243 |
|
|
|
|
|
|
|
|
|
Members (Note1 and Note2) |
|
|
2 |
|
|
|
160,000 |
|
|
|
7,596 |
|
|
|
7,596 |
|
Delivery Commitments |
|
|
|
|
|
|
4,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
17 |
|
|
$ |
134,527,620 |
|
|
$ |
8,280 |
|
|
$ |
8,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note1: |
|
Fair values of $10.5 million and $7.6 million comprising of intermediated
transactions with members and interest-rate caps sold to members (with capped floating-rate
advances) were collateralized at September 30, 2010 and December 31, 2009. |
|
Note2: |
|
Members are required to pledge collateral to secure derivatives purchased by the
FHLBNY as an intermediary on behalf of its members. Eligible collateral includes: (1)
one-to-four-family and multi-family mortgages; (2) U.S. Treasury and government-agency securities;
(3) mortgage-backed securities; and (4) certain other collateral which is real estate-related and
has a readily ascertainable value, and in which the FHLBNY can perfect a security interest. As a
result of the collateral agreements with its members, the FHLBNY believes that its maximum credit
exposure due to the intermediated transactions was $0 at
September 30, 2010 and December 31, 2009. |
|
Note3: |
|
As reported in the Statements of Condition. |
Risk measurement - Although notional amount is a commonly used measure of volume in the
derivatives market, it is not a meaningful measure of market or credit risk since derivative
counterparties do not exchange the notional amount (except in the case of foreign currency swaps of
which the FHLBNY has none). Counterparties use the notional amounts of derivative instruments to
calculate contractual cash flows to be exchanged. The fair value of a derivative in a gain
position is a more meaningful measure of the FHLBNYs current market exposure on derivatives. The
FHLBNY estimates exposure to credit loss on derivative instruments by calculating the replacement
cost, on a present value basis, to settle at current market prices all outstanding derivative
contracts in a gain position, net of collateral pledged by the counterparty to mitigate the
FHLBNYs exposure. All derivative contracts with non-members are also subject to master netting
agreements or other right of offset arrangements.
Exposure - In determining credit risk, the FHLBNY considers accrued interest receivable and
payable, and the legal right to offset assets and liabilities by counterparty. The FHLBNY attempts
to mitigate its exposure by requiring derivative counterparties to pledge cash collateral, if the
amount of exposure is above the collateral threshold agreements. At September 30, 2010,
counterparties had deposited $53.8 million in cash as collateral to mitigate such an exposure. At
December 31, 2009, the fair values of derivatives in a gain position were below the threshold and
derivative counterparties pledged no cash to the FHLBNY.
At September 30, 2010 and December 31, 2009, the FHLBNY had posted $3.8 billion and $2.2 billion in
cash as collateral to derivative counterparties to mitigate derivatives in a net fair value
liability (unfavorable) position. The FHLBNY is exposed to the extent that a counterparty may not
pay the posted cash collateral to the FHLBNY under unforeseen circumstances, such as bankruptcy; in
such an event the FHLBNY would then exercise its rights under the International Swaps and
Derivatives Association agreement (ISDA). To the extent, the FHLBNY may not receive cash equal
to the amount posted, the FHLBNY could face losses.
Derivative counterparty ratings - The Banks credit exposures (derivatives in a net gain position)
at September 30, 2010 were to counterparties rated Single A or better and to member institutions on
whose behalf the FHLBNY had acted as an intermediary or had sold interest rate caps, at the request
of members, to create capped floating rate advance borrowings. The exposures were collateralized
under standard collateral agreements with the FHLBNYs member. Acting as an intermediary, the Bank
had also purchased equivalent notional amounts of derivatives from unrelated derivative
counterparties. See Table 48: Credit Exposure by Counterparty Credit Rating.
Risk mitigation - The FHLBNY attempts to mitigate derivative counterparty credit risk by
contracting only with experienced counterparties with investment-grade credit ratings. Annually,
the FHLBNYs management and Board of Directors review and approve all non-member derivative
counterparties. Management monitors counterparties on an ongoing basis for significant business
events, including ratings actions taken by nationally recognized statistical rating organizations.
All approved derivatives counterparties must enter into a master ISDA agreement with the FHLBNY
and, in addition, execute the Credit Support Annex to the ISDA agreement that provides for
collateral support at predetermined thresholds. These annexes contain enforceable provisions for
requiring collateral on certain derivative contracts that are in gain positions. The annexes also
define the maximum net unsecured credit exposure amounts that may exist before collateral delivery
is required. Typically, the maximum amount is based upon an analysis of individual counterpartys
rating and exposure. The FHLBNY also attempts to manage counterparty credit risk through credit
analysis, collateral management and other credit enhancements, such as guarantees, and by following
the requirements set forth in the Finance Agencys regulations.
114
Commitments, Contingencies and Off-Balance Sheet Arrangements
Consolidated obligations Joint and several liability
Although the Bank is primarily liable only for its portion of consolidated obligations (i.e., those
consolidated obligations issued on its behalf and those that have been transferred/assumed from
other FHLBanks), it is also jointly and severally liable with the other FHLBanks for the payment of
principal and interest on all of the consolidated obligations issued by the FHLBanks.
The Finance Agency, in its discretion, may require any FHLBank to make principal or interest
payments due on any consolidated obligation, regardless of whether there has been a default by a
FHLBank having primary liability. To the extent that a FHLBank makes any payment on a consolidated
obligation on behalf of another FHLBank, the paying FHLBank shall be entitled to reimbursement from
the FHLBank with primary liability. The FHLBank with primary liability would have a corresponding
liability to reimburse the FHLBank providing assistance to the extent of such payment and other
associated costs (including interest to be determined by the Finance Agency). However, if the
Finance Agency determines that the primarily liable FHLBank is unable to satisfy its obligations,
then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a
pro rata basis in proportion to each FHLBanks participation in all consolidated obligations
outstanding, or on any other basis that the Finance Agency may determine. No FHLBank has ever
failed to make a payment on a consolidated obligation for which it was the primary obligor; as a
result, the regulatory provisions for directing other FHLBanks to make payments on behalf of
another FHLBank or allocating the liability among other FHLBanks have never been invoked.
Consequently, the Bank has no means to determine how the Finance Agency might allocate among the
other FHLBanks the obligations of a FHLBank that is unable to pay consolidated obligations for
which such FHLBank is primarily liable. In the event the Bank is holding a consolidated obligation
as an investment for which the Finance Agency would allocate liability among the 12 FHLBanks, the
Bank might be exposed to a credit loss to the extent of its share of the assigned liability for
that particular consolidated obligation (the Bank did not hold any consolidated obligations of
other FHLBanks as investments at September 30, 2010 and December 31, 2009). If principal or
interest on any consolidated obligation issued by the FHLBank System is not paid in full when due,
the Bank may not pay dividends to, or repurchase shares of stock from, any shareholder of the Bank.
Although the FHLBNY is primarily liable for those consolidated obligations issued on its behalf, it
is also jointly and severally liable with the other FHLBanks for the payment of principal and
interest on the consolidated obligations of all the FHLBanks. If the principal or interest on any
consolidated obligation issued on behalf of the FHLBNY is not paid in full when due, the FHLBNY may
not pay dividends to, or redeem or repurchase shares of stock from, any member or non-member
stockholder until the Finance Agency approves the FHLBNYs consolidated obligation payment plan or
another remedy, and until the FHLBNY pays all the interest and principal currently due under all
its consolidated obligations. The par amounts of the outstanding consolidated obligations of all
12 FHLBanks were $0.8 trillion and $0.9 trillion at September 30, 2010 and December 31, 2009.
The FHLBNY does not believe that the identification of particular banks as the primary obligors on
these consolidated obligations is relevant because all FHLBanks are jointly and severally obligated
to pay all consolidated obligations. The identity of the primary obligor does not affect the
FHLBNYs investment decisions. The FHLBNYs ownership of consolidated obligations in which other
FHLBanks are primary obligors does not affect the FHLBNYs guarantee on consolidated obligations
as there is no automatic legal right of offset. Even if the FHLBNY were to claim an offset, the
FHLBNY would still be jointly and severally obligated for any debt service shortfall caused by the
FHLBanks failure to pay.
Off-balance sheet arrangements with respect to derivatives are discussed in detail in Note 16 to
the unaudited financial statements in this report. Also, see Item 1 Legal Proceedings.
115
The following table summarizes contractual obligations and other commitments as of September 30,
2010 (in thousands):
Table 49: Contractual Obligations and Other Commitments
(For more information, see Note 18 to the unaudited financial statements in this report.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
Payments due or expiration terms by period |
|
|
|
Less than |
|
|
One year |
|
|
Greater than three |
|
|
Greater than |
|
|
|
|
|
|
one year |
|
|
to three years |
|
|
years to five years |
|
|
five years |
|
|
Total |
|
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds at par 1 |
|
$ |
38,972,100 |
|
|
$ |
25,068,825 |
|
|
$ |
6,634,375 |
|
|
$ |
3,054,200 |
|
|
$ |
73,729,500 |
|
Mandatorily redeemable capital stock 1 |
|
|
45,708 |
|
|
|
14,650 |
|
|
|
2,037 |
|
|
|
4,953 |
|
|
|
67,348 |
|
Premises (lease obligations) 2 |
|
|
3,060 |
|
|
|
6,284 |
|
|
|
4,748 |
|
|
|
4,674 |
|
|
|
18,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
|
39,020,868 |
|
|
|
25,089,759 |
|
|
|
6,641,160 |
|
|
|
3,063,827 |
|
|
|
73,815,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit |
|
|
1,824,089 |
|
|
|
20,012 |
|
|
|
17,472 |
|
|
|
3,861 |
|
|
|
1,865,434 |
|
Consolidated obligations-bonds/
discount notes traded not settled |
|
|
774,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
774,322 |
|
Open delivery commitments (MPF) |
|
|
20,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other commitments |
|
|
2,619,086 |
|
|
|
20,012 |
|
|
|
17,472 |
|
|
|
3,861 |
|
|
|
2,660,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations and commitments |
|
$ |
41,639,954 |
|
|
$ |
25,109,771 |
|
|
$ |
6,658,632 |
|
|
$ |
3,067,688 |
|
|
$ |
76,476,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Callable bonds contain exercise date or a series of exercise dates that may result
in a shorter redemption period. Mandatorily redeemable capital stock is categorized by the dates at
which the corresponding advances outstanding mature. Excess capital stock is redeemed at that
time, and hence, these dates better represent the related commitments than the put dates associated
with capital stock, under which stock may not be redeemed until the later of five years from the
date the member becomes a nonmember or the related advance matures. |
|
2 |
|
Immaterial amount of commitments for equipment leases are not included. |
Liquidity, Short-Term Borrowings and Short-Term Debt
The FHLBNYs primary source of liquidity is the issuance of consolidated obligation bonds and
discount notes. To refinance maturing consolidated obligations, the Bank relies on the willingness
of the investors to purchase new issuances. The FHLBNY has access to the discount note market and
the efficiency of issuing discount notes is an important factor as a source of liquidity since
discount notes can be issued any time and in a variety of amounts and maturities. Member deposits
and capital stock purchased by members are another source of funds. Short-term unsecured
borrowings from other FHLBanks and in the Federal funds market provide additional sources of
liquidity. With the passage of the Housing Act on July 30, 2008, the U.S. Treasury was authorized
to purchase obligations issued by the FHLBanks, in any amount deemed appropriate by the U.S.
Treasury. This temporary authorization expired December 31, 2009 and supplemented the existing
limit of $4 billion. See Note 18 to the unaudited financial statements for more information.
The FHLBNYs liquidity position remains in compliance with all regulatory requirements and
management does not foresee any changes to that position.
Finance Agency Regulations Liquidity
Beginning December 1, 2005, with the implementation of the Capital Plan, the Financial
Management Policy rules of the Finance Agency with respect to liquidity were superseded by
regulatory requirements that are specified in Parts 917, 932 and 965 of Finance Agency regulations
and are summarized below. Each FHLBank shall at all times have at least an amount of liquidity
equal to the current deposits received from its members that may be invested in:
|
|
Obligations of the United States; |
|
|
|
Deposits in banks or trust companies; or |
|
|
|
Advances with a maturity not to exceed five years. |
In addition, each FHLBank shall provide for contingency liquidity, which is defined as the
sources of cash an FHLBank may use to meet its operational requirements when its access to the
capital markets is impeded. The FHLBNY met its contingency liquidity requirements and liquidity in
excess of requirements is summarized in the table titled Contingency Liquidity.
Violations of the liquidity requirements would result in non-compliance penalties under
discretionary powers given to the Finance Agency under applicable regulations, which include other
corrective actions.
Liquidity Management
The FHLBNY actively manages its liquidity position to maintain stable, reliable, and cost-effective
sources of funds, while taking into account market conditions, member demand, and the maturity
profile of the FHLBNYs assets and liabilities. The FHLBNY recognizes that managing liquidity is
critical to achieving its statutory mission of providing low-cost funding to its members. In
managing liquidity risk, the FHLBNY is required to maintain certain liquidity measures in
accordance with the FHLBank Act and policies developed by the FHLBNY management and approved by the FHLBNYs Board of Directors. The specific liquidity requirements applicable to the FHLBNY are
described in the next four sections:
116
Deposit Liquidity. The FHLBNY is required to invest an aggregate amount at least equal to the
amount of current deposits received from the FHLBNYs members in: (1) obligations of the U.S.
government; (2) deposits in banks or trust companies; or (3) advances to members with maturities
not exceeding five years. In addition to accepting deposits from its members, the FHLBNY may
accept deposits from other FHLBank or from any other governmental instrumentality.
Deposit liquidity is calculated daily. Quarterly average reserve requirements and actual reserves
are summarized below (in millions). The FHLBNY met its requirements at all times.
Table 50: Deposit Liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Deposit |
|
|
Average Actual |
|
|
|
|
For the quarters ended |
|
Reserve Required |
|
|
Deposit Liquidity |
|
|
Excess |
|
September 30, 2010 |
|
$ |
5,055 |
|
|
$ |
46,304 |
|
|
$ |
41,249 |
|
June 30, 2010 |
|
|
5,227 |
|
|
|
48,055 |
|
|
|
42,828 |
|
March 31, 2010 |
|
|
5,032 |
|
|
|
51,987 |
|
|
|
46,955 |
|
December 31, 2009 |
|
|
2,364 |
|
|
|
53,089 |
|
|
|
50,725 |
|
Operational Liquidity. The FHLBNY must be able to fund its activities as its balance sheet
changes from day to day. The FHLBNY maintains the capacity to fund balance sheet growth through
its regular money market and capital market funding activities. Management monitors the Banks
operational liquidity needs by regularly comparing the Banks demonstrated funding capacity with
its potential balance sheet growth. Management then takes such actions as may be necessary to
maintain adequate sources of funding for such growth.
Operational liquidity is measured daily. The FHLBNY met the requirements at all times. The
following table summarizes excess operational liquidity (in millions):
Table 51: Operational Liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance Sheet |
|
|
Average Actual |
|
|
|
|
For the quarters ended |
|
Liquidity Requirement |
|
|
Operational Liquidity |
|
|
Excess |
|
September 30, 2010 |
|
$ |
3,915 |
|
|
$ |
15,127 |
|
|
$ |
11,212 |
|
June 30, 2010 |
|
|
2,665 |
|
|
|
16,051 |
|
|
|
13,386 |
|
March 31, 2010 |
|
|
2,283 |
|
|
|
15,796 |
|
|
|
13,513 |
|
December 31, 2009 |
|
|
6,710 |
|
|
|
16,388 |
|
|
|
9,678 |
|
Contingency Liquidity. The FHLBNY is required by Finance Agency regulations to hold
contingency liquidity in an amount sufficient to meet its liquidity needs if it is unable,
by virtue of a disaster, to access the consolidated obligation debt markets for at least five
business days. Contingency liquidity includes (1) marketable assets with a maturity of one
year or less; (2) self-liquidating assets with a maturity of one year or less; (3) assets that
are generally acceptable as collateral in the repurchase market; and (4) irrevocable lines of
credit from financial institutions receiving not less than the second-highest credit rating
from a nationally recognized statistical rating organization. The FHLBNY consistently
exceeded the regulatory minimum requirements for contingency liquidity.
117
Contingency liquidity is reported daily. The FHLBNY met the requirements at all times. The
following table summarizes excess contingency liquidity (in millions):
Table 52: Contingency Liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Five Day |
|
|
Average Actual |
|
|
|
|
For the quarters ended |
|
Requirement |
|
|
Contingency Liquidity |
|
|
Excess |
|
September 30, 2010 |
|
$ |
1,967 |
|
|
$ |
14,859 |
|
|
$ |
12,892 |
|
June 30, 2010 |
|
|
2,047 |
|
|
|
15,821 |
|
|
|
13,774 |
|
March 31, 2010 |
|
|
2,424 |
|
|
|
15,463 |
|
|
|
13,039 |
|
December 31, 2009 |
|
|
2,188 |
|
|
|
15,309 |
|
|
|
13,121 |
|
The FHLBNY sets standards in its risk management policy that address its day-to-day
operational and contingency liquidity needs. These standards enumerate the specific types of
investments to be held by the FHLBNY to satisfy such liquidity needs and are outlined above.
These standards also establish the methodology to be used by the FHLBNY in determining the
FHLBNYs operational and contingency needs. Management continually monitors and projects the
FHLBNYs cash needs, daily debt issuance capacity, and the amount and value of investments
available for use in the market for repurchase agreements. Management uses this information
to determine the FHLBNYs liquidity needs and to develop appropriate liquidity plans.
Advance Roll-Off and Roll-Over Liquidity guidelines. In September 2009, the Finance
Agency finalized its Minimum Liquidity Requirement Guidelines. The guidelines expanded the
existing liquidity requirements under Parts 917, 932 and 965 of the Finance Agency regulations
to include additional cash flow requirements under two scenarios Advance Roll-Over and
Roll-Off scenarios. Each FHLBank, including the FHLBNY must have positive cash balances to
be able to maintain positive cash flows for 15 days under the Roll-Off scenario, and for five
days under the Roll-Over scenario. The Roll-Off scenario assumes that advances maturing under
their contractual terms would mature, and in that scenario the FHLBNY would maintain positive
cash flows for a minimum of 5 days on a daily basis. The Roll-Over scenario assumes that the
FHLBNYs maturing advances would be rolled over, and in that scenario the FHLBNY would
maintain positive cash flows for a minimum of 15 days on a daily basis. The FHLBNY calculates
the amount of cash flows under each scenario on a daily basis and has been in compliance with
the guidelines.
Other Liquidity Contingencies. As discussed more fully under the section Debt Financing -
Consolidated Obligations, the FHLBNY is primarily liable for consolidated obligations issued on its
behalf. The FHLBNY is also jointly and severally liable with the other FHLBanks for the payment of
principal and interest on the consolidated obligations of all the FHLBanks. If the principal or
interest on any consolidated obligation issued on behalf of the FHLBNY is not paid in full when
due, the following rules apply: the FHLBNY may not pay dividends to, or redeem or repurchase shares
of stock of any member or non-member stockholder until the Finance Agency approves the FHLBNYs
consolidated obligation payment plan or other remedy and until the FHLBNY pays all the interest or
principal currently due on all its consolidated obligations. The Finance Agency, at its
discretion, may require any FHLBank to make principal or interest payments due on any consolidated
obligations. The par amount of the outstanding consolidated obligations of all 12 FHLBanks was
$0.8 trillion at September 30, 2010. The FHLBNY does not believe that it will be called upon to
pay the consolidated obligations of another FHLBank in the future.
Finance Agency regulations also state that the FHLBanks must maintain, free from any lien or
pledge, the following types of assets in an amount at least equal to the amount of consolidated
obligations outstanding:
Cash;
Obligations of, or fully guaranteed by, the United States;
Secured advances;
Mortgages that have any guaranty, insurance, or commitment from the United States or any
agency of the United States;
Investments described in section 16(a) of the FHLBank Act, including securities that a
fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is
located; and
Other securities that are rated Aaa by Moodys or AAA by Standard & Poors.
Short-term Borrowings and Short-term Debt. The primary source of fund, as discussed under the
section Debt Financing Activity and Consolidation Obligation bonds and discount notes, in this MD&A
is the issuance of FHLBank debt to the public.
Consolidated obligation discount notes are issued with maturities up to one year and provide the
FHLBNY with short-term funds and are principally used in funding short-term advances, some
long-term advances, as well as money market instruments. The FHLBNY also issues short-term
consolidated obligation bonds as part of its asset-liability management strategy.
The FHLBNY may also borrow from another FHLBanks, generally for a period of one day. Such
borrowings have been insignificant historically.
118
The following table summarizes short-term debt and their key characteristics (in thousands)
Table 53: Consolidated Obligations Original Maturities Less Than One Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Obligations-Bonds With |
|
|
|
Consolidated Obligations-Discount Notes |
|
|
Original Maturities of One Year or Less |
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of the period1 |
|
$ |
17,784,192 |
|
|
$ |
30,827,639 |
|
|
$ |
13,054,985 |
|
|
$ |
17,987,974 |
|
Weighted-average coupon rate at end of the period |
|
|
0.19 |
% |
|
|
0.15 |
% |
|
|
0.31 |
% |
|
|
0.56 |
% |
Monthly-average outstanding for the period2 |
|
$ |
22,729,663 |
|
|
$ |
41,495,856 |
|
|
$ |
11,885,428 |
|
|
$ |
15,626,249 |
|
Highest outstanding at any month-end2 |
|
$ |
27,479,446 |
|
|
$ |
52,040,302 |
|
|
$ |
17,537,976 |
|
|
$ |
17,987,974 |
|
|
|
|
1 |
|
Outstanding balances represents the amortized cost of short-term debt (less
than 1-year) issued and outstanding at the reported dates. |
|
2 |
|
Monthly average outstanding and highest outstanding represent amounts during
the 9-months ended September 30, 2010, and 12-months ended December 31, 2009. |
Leverage Limits and Unpledged Asset Requirements
The FHLBNY met the Finance Agencys requirement that unpledged assets, as defined under
regulations, exceed the total of consolidated obligations as follows (in thousands):
Table 54: Unpledged Assets
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
Consolidated Obligations: |
|
|
|
|
|
|
|
|
Bonds |
|
$ |
74,918,893 |
|
|
$ |
74,007,978 |
|
Discount Notes |
|
|
17,787,908 |
|
|
|
30,827,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated obligations |
|
|
92,706,801 |
|
|
|
104,835,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpledged assets |
|
|
|
|
|
|
|
|
Cash |
|
|
69,471 |
|
|
|
2,189,252 |
|
Less: Member pass-through reserves at the FRB |
|
|
(50,339 |
) |
|
|
(29,331 |
) |
Secured Advances 2 |
|
|
85,697,171 |
|
|
|
94,348,751 |
|
Investments 1 |
|
|
15,690,234 |
|
|
|
16,222,615 |
|
Mortgage loans |
|
|
1,267,687 |
|
|
|
1,317,547 |
|
Accrued interest receivable on advances and investments |
|
|
305,763 |
|
|
|
340,510 |
|
Less: Pledged Assets |
|
|
(2,981 |
) |
|
|
(2,045 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102,977,006 |
|
|
|
114,387,299 |
|
|
|
|
|
|
|
|
Excess unpledged assets |
|
$ |
10,270,205 |
|
|
$ |
9,551,682 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The Bank pledged $3.0 million and $2.0 million at September 30, 2010 and December
31, 2009 to the FDIC. See Note 4 Held-to-maturity securities. |
|
2 |
|
The Bank also provided to the U.S. Treasury a listing of $0.0 and $10.3 billion in
advances with respect to a lending agreement at September 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 such securities in which fiduciary and trust funds may invest under the laws of the
state in which the FHLBank is located.
Purchases of MBS. Finance Agency investment regulations limit the purchase of mortgage-backed
securities to 300 percent of capital. The FHLBNY was in compliance with the regulation at all
times.
Table 55: FHFA MBS Limits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Actual |
|
|
Limits |
|
|
Actual |
|
|
Limits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage securities investment authority |
|
|
209 |
% |
|
|
300 |
% |
|
|
213 |
% |
|
|
300 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
On March 24, 2008, the Board of Directors of the Federal Housing Finance Board (Finance
Board), predecessor to the Finance Agency, adopted Resolution 2008-08, which temporarily expanded
the authority of a FHLBank to purchase mortgage-backed securities (MBS) under certain conditions.
The resolution had allowed an FHLBank to increase its investments in MBS issued by Fannie Mae and
Freddie Mac by an amount equal to three times its capital, which is to be calculated in addition to
the existing regulatory limit. The expanded authority permitted MBS to be as much as 600 percent
of the FHLBNYs capital.
All mortgage loans underlying any securities purchased under this expanded authority must have been
originated after January 1, 2008. The Finance Board believed that such loans are generally of
higher credit quality than loans originated at an earlier time, particularly in 2005 and 2006. The
loans underlying any Fannie Mae and Freddie Mac issued MBS acquired pursuant to the new authority
must have been underwritten to conform to standards imposed by the federal banking agencies in the
"Interagency Guidance on Nontraditional Mortgage Product Risks dated October 4, 2006 and the
"Statement on Subprime Mortgage Lending dated July 10, 2007.
119
The Bank has not notified or exercised Resolution 2008-08, therefore no separate calculation was
required. The expanded authority expired in March 2010.
Rating Actions With Respect to the FHLBNY are outlined below:
Table 56: FHLBNY Ratings
Short-Term Ratings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Moodys Investors Service |
|
S & P |
Year |
|
Outlook |
|
Rating |
|
Short-Term Outlook |
|
Rating |
2010 |
|
June 17, 2010 - Affirmed |
|
P-1 |
|
July 21, 2010 |
|
Short-Term rating affirmed |
|
A-1+ |
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
June 19, 2009 - Affirmed |
|
P-1 |
|
July 13, 2009 |
|
Short-Term rating affirmed |
|
A-1+ |
|
|
February 2, 2009 - Affirmed |
|
P-1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
October 29, 2008 - Affirmed |
|
P-1 |
|
June 16, 2008 |
|
Short-Term rating affirmed |
|
A-1+ |
|
|
April 17, 2008 - Affirmed |
|
P-1 |
|
|
|
|
|
|
Long-Term Ratings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moodys Investors Service |
|
S & P |
Year |
|
Outlook |
|
Rating |
|
Long-Term Outlook |
|
Rating |
2010 |
|
June 17, 2010 - Affirmed |
|
Aaa/Stable |
|
July 21, 2010 |
|
Long-Term rating affirmed |
|
outlook stable |
|
AAA/Stable |
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
June 19, 2009 - Affirmed |
|
Aaa/Stable |
|
July 13, 2009 |
|
Long-Term rating affirmed |
|
outlook stable |
|
AAA/Stable |
|
|
February 2, 2009 - Affirmed |
|
Aaa/Stable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
October 29, 2008 - Affirmed |
|
Aaa/Stable |
|
June 16, 2008 |
|
Long-Term rating affirmed |
|
outlook stable |
|
AAA/Stable |
|
|
April 17, 2008 - Affirmed |
|
Aaa/Stable |
|
|
|
|
|
|
|
|
Legislative and Regulatory Developments
The most important legislative development during the period covered by this report was the enactment of the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) on July 21, 2010, which is discussed in greater
detail below together with a presentation of certain regulatory actions resulting from the Dodd-Frank Act that may have
an important impact on the Bank. Other important developments during the period covered by this report include certain
Finance Agency regulatory actions, certain proposed legislation that would permit the Bank to continue to issue certain
tax exempt letters of credit past December 31, 2010, and Basel Committee activity that may ultimately impact member
demand for advances and investor demand for COs, each discussed in greater detail below.
Dodd-Frank Act
The Dodd-Frank Act, among other things: (1) creates an interagency oversight council (the Oversight Council) that is
charged with identifying and regulating systemically important financial institutions; (2) regulates the
over-the-counter derivatives market; (3) imposes new executive compensation proxy and disclosure requirements; (4)
establishes new requirements for MBS, including a risk-retention requirement; (5) reforms the credit rating agencies;
(6) makes a number of changes to the federal deposit insurance system; and (7) creates a consumer financial protection
bureau. Although the FHLBanks were exempted from several notable provisions of the Dodd-Frank Act, the FHLBanks
business operations, funding costs, rights, obligations, and the environment in which FHLBanks carry out their
housing-finance mission are likely to be impacted by the Dodd-Frank Act. Certain regulatory actions resulting from the
Dodd-Frank Act that may have an important impact on the Bank are summarized below, although the full impact of the
Dodd-Frank Act will become known only after the required regulations, studies and reports are issued and finalized.
Regulatory Activity Pursuant to the Dodd-Frank Act
Proposed Commodities Futures Trading Commission (CFTC) Securities and Exchange Commission (SEC ) RuleCertain Key
Definitions for Derivatives. On August 20, 2010, the CFTC and the SEC jointly issued a proposed rule which requested
comments on certain key terms necessary to regulate the use and clearing of derivatives as required by the Dodd-Frank
Act by September 20, 2010. The definitions of those terms may adversely impact the Bank. For example, in addition to
the clearing and exchange trading requirements for certain standardized derivatives transactions, if the Bank is
determined to be a major swap participant, the Bank will also have to register with the CFTC and will be subject to
new standards of conduct and additional reporting and swap-based capital and margin requirements. In addition,
derivatives transactions not subject to exchange trading or centralized clearing will also be subject to additional
margin requirements, and all derivatives transactions could be subject to new reporting requirements. Such additional
requirements would likely increase the cost of the Banks hedging activities and may adversely affect the Banks
ability to hedge its interest rate risk exposure, to achieve its risk management objectives, and to act as an
intermediary between its members and counterparties.
Proposed CFTC Rule on Eligible Investments for Derivatives Clearing Organizations. On November 3, 2010, the CFTC issued
a proposed rule with a comment deadline of December 3, 2010, which, among other changes, would eliminate the ability of
futures commissions merchants and derivatives clearing organizations to invest customer funds in GSE securities that
are not explicitly guaranteed by the U.S. government. Currently, GSE securities are eligible investments under CFTC
regulations. If this change is adopted as proposed, then the demand for FHLBank debt may be adversely impacted.
Oversight Council Proposed Rule Regarding Authority to Supervise and Regulate Certain Nonbank Financial Companies. On
October 6, 2010, the Oversight Council created by the Dodd-Frank Act issued a proposed rule with a comment deadline of
November 5, 2010 that, if implemented, will give the Oversight Council the authority to require a nonbank financial
company (a term to be defined by the Oversight Council) to be supervised by the Board of Governors of the Federal
Reserve System and subject to certain prudential standards. The Oversight Council shall make this determination based
on whether material financial distress at a given firm, or the nature, scope, size, scale, concentration,
interconnectedness, or mix of the activities of the firm, could pose a threat to the financial stability of the United
States. If the FHLBanks are determined to be nonbank financial companies subject to the Oversight Councils
regulatory requirements, then the FHLBanks operations and business are likely to be impacted.
120
Oversight Council Request for Information on Implementing the Volcker Rule. On October 6, 2010, the Oversight
Council issued a public request for information in connection with the Oversight Councils study on implementing
certain prohibitions on proprietary trading, which prohibitions are commonly referred to as the Volcker Rule.
Institutions covered by the Volcker Rule may be subject to higher capital requirements and quantitative limits with
regard to their proprietary trading. If the Volcker Rule is implemented in a way that subjects FHLBanks to it, then
the Bank may be subject to additional limitations on the composition of its investment portfolio, beyond those to which
it is already subject under existing Finance Agency regulations, which in turn could potentially result in less
profitable investment alternatives.
Federal Deposit Insurance Corporation (FDIC) Proposed Rule on Unlimited Deposit Insurance for Non-interest Bearing
Transaction Accounts. The Dodd-Frank Act requires the FDIC and the National Credit Union Administration to provide
unlimited deposit insurance for non-interest bearing transaction accounts. This requirement is in effect for
FDIC-insured institutions from December 31, 2010 until January 1, 2013 and for insured credit unions from the effective
date of the Dodd-Frank Act until January 1, 2013. On September 27, 2010, the FDIC issued a proposed rule to implement
this provision of the Dodd-Frank Act. Deposits are a source of liquidity for our members, and a rise in deposits, which
may occur due to the FDICs unlimited support of non-interest bearing transaction accounts if the proposed rule is
adopted, would tend to weaken member demand for Bank advances.
FDIC Proposed Rule on Dodd-Frank Resolution Authority. On October 12, 2010, the FDIC issued a proposed rule with a
comment deadline of November 18, 2010 on how the FDIC would treat certain creditor claims under the new orderly
liquidation authority established by the Dodd-Frank Act. The Dodd-Frank Act provides for the appointment of the FDIC
as receiver for a financial company in instances where the failure of the company and its liquidation under other
insolvency procedures (such as bankruptcy) would pose a significant risk to the financial stability of the United
States. The proposed rule provides, among other things, that:
|
|
all creditors must expect to absorb losses in any liquidation and that secured creditors will only be protected
to the extent of the fair value of their collateral; |
|
|
to the extent that any portion of a secured creditors claim is unsecured, it will absorb losses along with
other unsecured creditors; and |
|
|
secured obligations collateralized with US government obligations will be valued at par. |
Finance Agency Regulatory Actions
Proposed Finance Agency Regulation on Conservatorship and Receivership. On July 9, 2010, the Finance Agency issued a
proposed regulation on the conservatorship and receivership of Fannie Mae, Freddie Mac and the FHLBanks that would set
forth the basic authorities of the Finance Agency as conservator or receiver, including the enforcement and repudiation
of contracts; establishment of procedures for conservators and receivers and priorities of claims for contract parties
and other claimants; and address whether and to what extent claims by current and former holders of equity interests in
the regulated entities will be paid.
Proposed Finance Agency Regulation on Rules of Practice and Procedure for Enforcement Proceedings. On August 12, 2010,
the Finance Agency issued a proposed regulation with a comment deadline of October 12, 2010 that would, if adopted,
amend existing regulations implementing stronger Finance Agency enforcement powers and procedures.
Additional Developments
Tax-Exempt Bonds Supported by FHLBank Letters of Credit. Legislation has been introduced that would allow an FHLBank,
on behalf of one or more members, to issue letters of credit to support non-housing related tax-exempt state and local
bond issuances issued after December 31, 2010. If enacted, this would be an extension of the Banks authority to issue
such letters of credit that was first granted to the FHLBanks by the Housing and Economic Recovery Act of 2008, which
authority is otherwise set to expire on December 31, 2010.
Basel Committee on Banking Supervision Capital Framework. The Basel Committee on Banking Supervision (the Basel
Committee) has developed a new capital regime for internationally-active banks. Banks subject to the new regime will
be required to have increased amounts of capital with core capital being more strictly defined to include only common
equity and other capital assets that are able to fully absorb losses. While it is uncertain how the new capital regime
or other standards being developed by the Basel Committee, such as liquidity standards, will be implemented by the U.S.
regulatory authorities, the new regime could require some of our members to divest assets in order to comply with the
more stringent capital requirements, thereby decreasing their need for advances. Likewise, any new liquidity
requirements may also adversely impact member demand for advances and/or investor demand for COs.
121
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Management. Market or interest rate risk (IRR) is the risk of loss of market value or
future earnings that may result from changes in the interest rate environment. Embedded in IRR is a
tradeoff of risk versus reward wherein the FHLBNY could earn higher income by having higher IRR
through greater mismatches between its assets and liabilities at the cost of potentially
significant declines in market value and future income if the interest rate environment turned
against the FHLBNYs expectations. The FHLBNY has opted to retain a modest level of IRR which
allows it to preserve its capital value while generating steady and predictable income. In keeping
with that philosophy, the FHLBNYs balance sheet consists of predominantly short-term and
LIBOR-based assets and liabilities. More than 80 percent of the FHLBNYs financial assets are
either short-term or LIBOR-based, and a similar percentage of its liabilities are also either
short-term or LIBOR based. These positions protect the FHLBNYs capital from large changes in value
arising from interest rate or volatility changes.
The primary tool used by management to achieve the desired risk profile is the use of interest rate
exchange agreements (Swaps). All the LIBOR-based advances are long-term advances that are swapped
to 3- or 1-month LIBOR or possess adjustable rates which periodically reset to a LIBOR index.
Similarly, a majority of the long-term consolidated obligations are swapped to 3- or 1-month LIBOR.
These features create a relatively steady income that changes in concert with prevailing interest
rate changes to maintain a spread to short-term rates.
Despite its conservative philosophy, IRR does arise from a number of aspects of the FHLBNYs
portfolio. These include the embedded prepayment rights, refunding needs, rate resets between the
FHLBNYs short-term assets and liabilities, and basis risks arising from differences between the
yield curves associated with the FHLBNYs assets and its liabilities. To address these risks, the
FHLBNY uses certain key IRR measures including re-pricing gaps, duration of equity (DOE), value
at risk (VaR), net interest income (NII) at risk, key rate durations (KRD), and forecasted
dividend rates.
Risk Measurements. The FHLBNYs Risk Management Policy sets up a series of risk limits that the
FHLBNY calculates on a regular basis. The risk limits are as follows:
|
|
|
The option-adjusted DOE is limited to a range of +/- four years in the rates
unchanged case and to a range of +/- six years in the +/-200bps shock cases.
Due to the low interest rate environment beginning in early 2008 through the
third quarter of 2010, rates were too low for a meaningful parallel down-shock
measurement. |
|
|
|
|
The one-year cumulative re-pricing gap is limited to 10 percent of total assets. |
|
|
|
|
The sensitivity of expected net interest income over a one-year period is
limited to a -15 percent change under both the +/-200bps shocks compared to the
rates unchanged case. |
|
|
|
|
The potential decline in the market value of equity is limited to a 10 percent
change under the +/-200bps shocks. |
|
|
|
|
KRD exposure at any of nine term points (3-month, 1-year, 2-year, 3-year,
5-year, 7-year, 10-year, 15-year, and 30-year) is limited to between
+/-12 months. |
The FHLBNYs portfolio, including its derivatives, is tracked and the overall mismatch between
assets and liabilities is summarized by using a DOE measure. The FHLBNYs last five quarterly DOE
results are shown in years in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Case DOE |
|
|
-200bps DOE* |
|
|
+200bps DOE |
|
September 30, 2010 |
|
|
-2.13 |
|
|
|
N/A |
|
|
|
1.46 |
|
June 30, 2010 |
|
|
-1.20 |
|
|
|
N/A |
|
|
|
2.80 |
|
March 31, 2010 |
|
|
-0.51 |
|
|
|
N/A |
|
|
|
3.81 |
|
December 31, 2009 |
|
|
0.42 |
|
|
|
N/A |
|
|
|
3.68 |
|
September 30, 2009 |
|
|
-0.39 |
|
|
|
N/A |
|
|
|
3.88 |
|
|
|
|
* |
|
Due to the on-going low interest rate environment, there were no down-shock measurements
performed between the third quarter of 2009 and the third quarter of 2010. |
The DOE has remained within its limits. Duration indicates any cumulative re-pricing/maturity
imbalance in the FHLBNYs financial assets and liabilities. A positive DOE indicates that, on
average, the liabilities will re-price or mature sooner than the assets while a negative DOE
indicates that, on average, the assets will re-price or mature earlier than the liabilities. The
FHLBNY measures its DOE using software that incorporates any optionality within the FHLBNYs
portfolio using well-known and tested financial pricing theoretical models.
The FHLBNY does not solely rely on the DOE measure as a mismatch measure between its assets
and liabilities. It also performs the more traditional gap measure that subtracts
re-pricing/maturing liabilities from re-pricing/maturing assets over time. The FHLBNY observes the
differences over various horizons, but has set a 10 percent of assets limit on cumulative
re-pricings at the one-year point. This quarterly observation of the one-year cumulative
re-pricing gap is provided in the table below and all values are below 10 percent of assets; well
within the limit:
|
|
|
|
|
|
|
One Year Re- |
|
|
pricing Gap |
September 30, 2010 |
|
$ |
6.888 |
Billion |
June 30, 2010 |
|
$ |
4.939 |
Billion |
March 31, 2010 |
|
$ |
4.753 |
Billion |
December 31, 2009 |
|
$ |
4.626 |
Billion |
September 30, 2009 |
|
$ |
5.480 |
Billion |
122
The FHLBNYs review of potential interest rate risk issues also includes the effect of changes in
interest rates on expected net income. The FHLBNY projects asset and liability volumes and spreads
over a one-year horizon and then simulates expected income and expenses from those volumes and
other inputs. The effects of changes in interest rates are measured to test whether the FHLBNY has
too much exposure in its net interest income over the coming twelve-month period. To measure the
effect, the change to the spread in the shocks is calculated and compared against the base case
and subjected to a -15 percent limit. The quarterly sensitivity of the FHLBNYs expected net
interest income under both +/-200bps shocks over the next twelve months is provided in the table
below:
|
|
|
|
|
|
|
|
|
|
|
Sensitivity in |
|
|
Sensitivity in |
|
|
|
the -200bps |
|
|
the +200bps |
|
|
|
Shock * |
|
|
Shock |
|
September 30, 2010 |
|
|
N/A |
|
|
|
12.96 |
% |
June 30, 2010 |
|
|
N/A |
|
|
|
12.20 |
% |
March 31, 2010 |
|
|
N/A |
|
|
|
3.13 |
% |
December 31, 2009 |
|
|
N/A |
|
|
|
4.53 |
% |
September 30, 2009 |
|
|
N/A |
|
|
|
9.23 |
% |
|
|
|
* |
|
Due to the on-going low interest rate environment, there were no down-shock measurements
performed between the third quarter of 2009 and the third quarter of 2010. |
Aside from net interest income, the other significant impact on changes in the interest rate
environment is the potential impact on the value of the portfolio. These calculated and quoted
market values are estimated based upon their financial attributes including optionality and then
re-estimated under the assumption that interest rates suddenly rise or fall by 200bps. The worst
effect, whether it is the up or the down shock, is compared to the internal limit of 10 percent.
The quarterly potential maximum decline in the market value of equity under these 200bps shocks is
provided below:
|
|
|
|
|
|
|
|
|
|
|
Down-shock |
|
|
+200bps Change in |
|
|
|
Change in MVE * |
|
|
MVE |
|
September 30, 2010 |
|
|
N/A |
|
|
|
1.63 |
% |
June 30, 2010 |
|
|
N/A |
|
|
|
-1.62 |
% |
March 31, 2010 |
|
|
N/A |
|
|
|
-4.53 |
% |
December 31, 2009 |
|
|
N/A |
|
|
|
-5.08 |
% |
September 30, 2009 |
|
|
N/A |
|
|
|
-4.68 |
% |
|
|
|
* |
|
Due to the on-going low interest rate environment, there were no down-shock measurements
performed between the third quarter of 2009 and the third quarter of 2010. |
As noted, the potential declines under these shocks are within the FHLBNYs limits of a
maximum 10 percent.
123
The following table displays the FHLBNYs maturity/re-pricing gaps as of September 30, 2010
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Sensitivity |
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
More than |
|
|
More than |
|
|
More than |
|
|
|
|
|
|
Six months |
|
|
six months to |
|
|
one year to |
|
|
three years to |
|
|
More than |
|
|
|
or less |
|
|
one year |
|
|
three years |
|
|
five years |
|
|
five years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-MBS Investments |
|
$ |
8,899 |
|
|
$ |
315 |
|
|
$ |
417 |
|
|
$ |
184 |
|
|
$ |
186 |
|
MBS Investments |
|
|
7,636 |
|
|
|
1,548 |
|
|
|
1,035 |
|
|
|
241 |
|
|
|
481 |
|
Adjustable-rate loans and advances |
|
|
9,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unswapped |
|
|
25,726 |
|
|
|
1,863 |
|
|
|
1,452 |
|
|
|
425 |
|
|
|
667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate loans and advances |
|
|
14,117 |
|
|
|
4,201 |
|
|
|
13,883 |
|
|
|
7,780 |
|
|
|
30,932 |
|
Swaps hedging advances |
|
|
55,269 |
|
|
|
(3,905 |
) |
|
|
(12,857 |
) |
|
|
(7,590 |
) |
|
|
(30,917 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fixed-rate loans and advances |
|
|
69,386 |
|
|
|
296 |
|
|
|
1,026 |
|
|
|
190 |
|
|
|
15 |
|
Loans to other FHLBanks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
95,112 |
|
|
$ |
2,159 |
|
|
$ |
2,478 |
|
|
$ |
615 |
|
|
$ |
682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
3,773 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount notes |
|
|
17,156 |
|
|
|
630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Swapped discount notes |
|
|
629 |
|
|
|
(629 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net discount notes |
|
|
17,785 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Obligation Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB bonds |
|
|
28,034 |
|
|
|
14,522 |
|
|
|
21,510 |
|
|
|
6,741 |
|
|
|
3,040 |
|
Swaps hedging bonds |
|
|
39,771 |
|
|
|
(13,505 |
) |
|
|
(19,119 |
) |
|
|
(5,097 |
) |
|
|
(2,050 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net FHLB bonds |
|
|
67,805 |
|
|
|
1,017 |
|
|
|
2,391 |
|
|
|
1,644 |
|
|
|
990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
89,363 |
|
|
$ |
1,019 |
|
|
$ |
2,391 |
|
|
$ |
1,644 |
|
|
$ |
990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post hedge gaps1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodic gap |
|
$ |
5,749 |
|
|
$ |
1,140 |
|
|
$ |
87 |
|
|
$ |
(1,029 |
) |
|
$ |
(308 |
) |
Cumulative gaps |
|
$ |
5,749 |
|
|
$ |
6,889 |
|
|
$ |
6,976 |
|
|
$ |
5,947 |
|
|
$ |
5,639 |
|
|
|
|
1 |
|
Re-pricing gaps are estimated at the scheduled rate reset dates for floating rate instruments,
and at maturity for fixed rate instruments. For callable instruments,
the re-pricing period is
estimated by the earlier of the estimated call date under the current interest rate environment or
the instruments contractual maturity. |
124
The following tables display the FHLBNYs maturity/re-pricing gaps as of December 31, 2009 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Sensitivity |
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
More than |
|
|
More than |
|
|
More than |
|
|
|
|
|
|
Six months |
|
|
six months to |
|
|
one year to |
|
|
three years to |
|
|
More than |
|
|
|
or less |
|
|
one year |
|
|
three years |
|
|
five years |
|
|
five years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-MBS Investments |
|
$ |
8,621 |
|
|
$ |
124 |
|
|
$ |
371 |
|
|
$ |
249 |
|
|
$ |
587 |
|
MBS Investments |
|
|
6,773 |
|
|
|
903 |
|
|
|
2,420 |
|
|
|
1,167 |
|
|
|
879 |
|
Adjustable-rate loans and advances |
|
|
14,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unswapped |
|
|
29,495 |
|
|
|
1,027 |
|
|
|
2,791 |
|
|
|
1,416 |
|
|
|
1,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate loans and advances |
|
|
9,588 |
|
|
|
7,853 |
|
|
|
16,124 |
|
|
|
8,254 |
|
|
|
34,814 |
|
Swaps hedging advances |
|
|
63,852 |
|
|
|
(6,722 |
) |
|
|
(14,389 |
) |
|
|
(7,950 |
) |
|
|
(34,791 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fixed-rate loans and advances |
|
|
73,440 |
|
|
|
1,131 |
|
|
|
1,735 |
|
|
|
304 |
|
|
|
23 |
|
Loans to other FHLBanks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
102,935 |
|
|
$ |
2,158 |
|
|
$ |
4,526 |
|
|
$ |
1,720 |
|
|
$ |
1,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
2,590 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount notes |
|
|
28,770 |
|
|
|
2,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Swapped discount notes |
|
|
1,422 |
|
|
|
(1,422 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net discount notes |
|
|
30,192 |
|
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Obligation Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB bonds |
|
|
25,717 |
|
|
|
16,014 |
|
|
|
22,829 |
|
|
|
6,033 |
|
|
|
2,844 |
|
Swaps hedging bonds |
|
|
39,617 |
|
|
|
(14,298 |
) |
|
|
(19,513 |
) |
|
|
(4,501 |
) |
|
|
(1,305 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net FHLB bonds |
|
|
65,334 |
|
|
|
1,716 |
|
|
|
3,316 |
|
|
|
1,532 |
|
|
|
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
98,116 |
|
|
$ |
2,351 |
|
|
$ |
3,316 |
|
|
$ |
1,532 |
|
|
$ |
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post hedge gaps1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodic gap |
|
$ |
4,819 |
|
|
$ |
(193 |
) |
|
$ |
1,210 |
|
|
$ |
188 |
|
|
$ |
(50 |
) |
Cumulative gaps |
|
$ |
4,819 |
|
|
$ |
4,626 |
|
|
$ |
5,836 |
|
|
$ |
6,024 |
|
|
$ |
5,974 |
|
|
|
|
1 |
|
Re-pricing gaps are estimated at the scheduled rate reset dates for floating rate instruments,
and at maturity for fixed rate instruments. For callable instruments,
the re-pricing period is
estimated by the earlier of the estimated call date under the current interest rate environment or
the instruments contractual maturity. |
125
Operational Risk Management. Operational risk is the risk of loss resulting from the failures
or inadequacies of internal processes, people, and systems, or resulting from external events.
Operational risks include those arising from fraud, human error, computer system failures and a
wide range of external events from adverse weather to terrorist attacks. The management of these
risks is the responsibility of the senior managers at the operating level. To assist them in
discharging this responsibility and to ensure that operational risk is managed consistently
throughout the organization, the FHLBNY has developed an operational risk management framework,
which evolves as warranted by circumstances and changing conditions. The FHLBNYs Operational Risk
Management framework defines the core governing principles for operational risk management and
provides the framework to identify, control, monitor, measure, and report operational risks in a
consistent manner across the FHLBNY.
Risk and Control Self-Assessment. FHLBNYs Risk and Control Self-Assessment incorporates standards
for risk and control self-assessment which apply to all businesses and establish Risk and Control
Self-Assessment as the process for identifying the risks inherent in a business activities and for
evaluating and monitoring the effectiveness of the controls over those risks. It is the policy of
the FHLBNY to require businesses and staff functions to perform a Risk and Control Self-Assessment
on a periodic basis. The Risk and Control Self-Assessment must include documentation of the control
environment as well as policies for assessing risks and controls, testing commensurate with risk
level and tracking corrective action for control breakdowns or deficiencies. The Risk and Control
Self-Assessment also must require periodic reporting to senior management and to the Boards Audit
Committee.
126
ITEM 4T. CONTROLS AND PROCEDURES
|
(a) |
|
Evaluation of Disclosure Controls and Procedures: An evaluation of the
Banks disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Act)) was carried out under the supervision and with the participation of
the Banks President and Chief Executive Officer, Alfred A. DelliBovi, and
Senior Vice President and Chief Financial Officer, Patrick A. Morgan, at
September 30, 2010. Based on this evaluation, they concluded that as of
September 30, 2010, the Banks disclosure controls and procedures were
effective, at a reasonable level of assurance, in ensuring that the
information required to be disclosed by the Bank in the reports it files or
submits under the Act is (i) accumulated and communicated to the Banks
management (including the President and Chief Executive Officer and Senior
Vice President and Chief Financial Officer) in a timely manner, and (ii)
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms. |
|
|
(b) |
|
Changes in Internal Control Over Financial Reporting: There were no
changes in the Banks internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Act) during the Banks last
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Banks internal control over financial reporting. |
127
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As previously reported, on September 15, 2008, Lehman Brothers Holdings, Inc. (LBHI), the parent
company of Lehman Brothers Special Financing Inc. (LBSF) and a guarantor of LBSFs obligations,
filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court in the Southern District of New York. LBSF filed for protection under Chapter 11
in the same court on October 3, 2008. LBSF was a counterparty to FHLBNY on multiple derivative
transactions under an International Swap Dealers Association, Inc. master agreement with a total
notional amount of $16.5 billion at the time of termination of the Banks derivative transactions
with LBSF. The net amount that was due to the Bank after giving effect to obligations that were
due LBSF was approximately $65 million. The FHLBNY timely filed proofs of claim in the amount of
approximately $65 million as creditors of LBSF and LBHI in connection with the bankruptcy
proceedings. The Bank fully reserved the LBSF receivables as the bankruptcies of LBHI and LBSF
make the timing and the amount of any recovery uncertain.
As previously reported, the Bank received a Derivatives ADR Notice from LBSF dated July 23, 2010
making a Demand as of the date of the Notice of approximately $268 million owed to LBSF by the
Bank. Subsequently, in accordance with the Alternative Dispute Resolution Procedure Order entered
by the Bankruptcy Court dated September 17, 2009 (Order), the Bank responded to LBSF on August
23, 2010, denying LBSFs Demand. LBSF served a reply on September 7, 2010, effectively reiterating
its position. A mediation has been scheduled pursuant to the Order for December 8, 2010.
While the Bank believes that LBSFs position is without merit, the amount the Bank actually
recovers or pays will ultimately be decided in the course of the bankruptcy proceedings.
Item 1A. RISK FACTORS
There have been no material changes from risk factors included in the FHLBNYs Form 10-K for the
fiscal year ended December 31, 2009.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. (REMOVED AND RESERVED)
Item 5. OTHER INFORMATION
None.
128
Item 6. EXHIBITS
|
|
|
|
|
Exhibit No. |
|
Identification of Exhibit |
|
|
|
|
|
|
31.01 |
|
|
Certification Pursuant to Rules 13a-14(a) and 15d-14(a)
of the Securities Exchange Act of 1934 and Section 302
of the Sarbanes-Oxley Act of 2002 by Chief Executive
Officer |
|
|
|
|
|
|
31.02 |
|
|
Certification Pursuant to Rules 13a-14(a) and 15d-14(a)
of the Securities Exchange Act of 1934 and Section 302
of the Sarbanes-Oxley Act of 2002 by Chief Financial
Officer |
|
|
|
|
|
|
32.01 |
|
|
Certification of Chief Executive Officer furnished
pursuant to Section 906 of the Sarbanes-Oxley Act 2002,
18 U.S.C. Section 1350 |
|
|
|
|
|
|
32.02 |
|
|
Certification of Chief Financial Officer furnished
pursuant to Section 906 of the Sarbanes-Oxley Act 2002,
18 U.S.C. Section 1350 |
129
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
Federal Home Loan Bank of New York
(Registrant)
|
|
|
/s/ Patrick A. Morgan
|
|
|
Patrick A. Morgan |
|
|
Senior Vice President and Chief Financial Officer
Federal Home Loan Bank of New York (on behalf of the registrant and as the Principal Financial Officer) |
|
Date: November 12, 2010 |
130