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EX-10.01 - EXHIBIT 10.01 - Federal Home Loan Bank of New Yorkc16796exv10w01.htm
EX-10.02 - EXHIBIT 10.02 - Federal Home Loan Bank of New Yorkc16796exv10w02.htm
EX-31.02 - EXHIBIT 31.02 - Federal Home Loan Bank of New Yorkc16796exv31w02.htm
EX-31.01 - EXHIBIT 31.01 - Federal Home Loan Bank of New Yorkc16796exv31w01.htm
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-51397
Federal Home Loan Bank of New York
(Exact name of registrant as specified in its charter)
     
Federal   13-6400946
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
101 Park Avenue, New York, N.Y.   10178
(Address of principal executive offices)   (Zip Code)
(212) 681-6000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer þ   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The number of shares outstanding of the issuer’s common stock as of April 30, 2011 was 43,197,503.
 
 

 

 


 

FEDERAL HOME LOAN BANK OF NEW YORK
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011
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 Exhibit 10.01
 Exhibit 10.02
 Exhibit 31.01
 Exhibit 31.02
 Exhibit 32.01
 Exhibit 32.02

 

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Federal Home Loan Bank of New York
Statements of Condition — Unaudited (in thousands, except par value of capital stock)
As of March 31, 2011 and December 31, 2010
                 
    March 31, 2011     December 31, 2010  
Assets
               
Cash and due from banks (Note 3)
  $ 2,953,801     $ 660,873  
Federal funds sold
    5,093,000       4,988,000  
Available-for-sale securities, net of unrealized gains (losses) of $14,979 at March 31, 2011 and $22,965 at December 31, 2010 (Note 5)
    3,719,024       3,990,082  
Held-to-maturity securities (Note 4)
               
Long-term securities
    8,042,487       7,761,192  
Advances (Note 6)
    75,487,377       81,200,336  
Mortgage loans held-for-portfolio, net of allowance for credit losses of $6,969 at March 31, 2011 and $5,760 at December 31, 2010 (Note 7)
    1,270,891       1,265,804  
Accrued interest receivable
    250,454       287,335  
Premises, software, and equipment
    14,919       14,932  
Derivative assets (Note 15)
    24,964       22,010  
Other assets
    16,917       21,506  
 
           
 
               
Total assets
  $ 96,873,834     $ 100,212,070  
 
           
 
               
Liabilities and capital
               
 
               
Liabilities
               
Deposits (Note 8)
               
Interest-bearing demand
  $ 2,465,860     $ 2,401,882  
Non-interest bearing demand
    2,971       9,898  
Term
    43,800       42,700  
 
           
Total deposits
    2,512,631       2,454,480  
 
           
 
               
Consolidated obligations, net (Note 10)
               
Bonds (Includes $12,605,257 at March 31, 2011 and $14,281,463 at December 31, 2010 at fair value under the fair value option)
    68,529,981       71,742,627  
Discount notes (Includes $731,892 at March 31, 2011 and $956,338 at December 31, 2010 at fair value under the fair value option)
    19,507,159       19,391,452  
 
           
 
               
Total consolidated obligations
    88,037,140       91,134,079  
 
           
 
               
Mandatorily redeemable capital stock (Note 11)
    59,126       63,219  
 
               
Accrued interest payable
    230,109       197,266  
Affordable Housing Program
    135,131       138,365  
Payable to REFCORP
    18,735       21,617  
Derivative liabilities (Note 15)
    839,710       954,898  
Other liabilities
    98,225       103,777  
 
           
 
               
Total liabilities
    91,930,807       95,067,701  
 
           
 
               
Commitments and Contingencies (Notes 11, 15 and 17)
               
 
               
Capital (Note 11)
               
Capital stock ($100 par value), putable, issued and outstanding shares:
               
43,237 at March 31, 2011 and 45,290 at December 31, 2010
    4,323,664       4,528,962  
Retained earnings
    716,650       712,091  
Accumulated other comprehensive income (loss) (Note 12)
               
Net unrealized gains on available-for-sale securities
    14,979       22,965  
Non-credit portion of OTTI on held-to-maturity securities, net of accretion
    (89,271 )     (92,926 )
Net unrealized losses on hedging activities
    (11,468 )     (15,196 )
Employee supplemental retirement plans (Note 14)
    (11,527 )     (11,527 )
 
           
 
               
Total capital
    4,943,027       5,144,369  
 
           
 
               
Total liabilities and capital
  $ 96,873,834     $ 100,212,070  
 
           
The accompanying notes are an integral part of these unaudited financial statements.

 

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Federal Home Loan Bank of New York
Statements of Income — Unaudited (in thousands, except per share data)
For the three months ended March 31, 2011 and 2010
                 
    March 31,  
    2011     2010  
Interest income
               
Advances (Note 6)
  $ 158,696     $ 149,640  
Interest-bearing deposits
    966       830  
Federal funds sold
    2,546       1,543  
Available-for-sale securities (Note 5)
    8,639       5,764  
Held-to-maturity securities (Note 4)
               
Long-term securities
    71,056       98,634  
Mortgage loans held-for-portfolio (Note 7)
    15,486       16,741  
 
           
 
               
Total interest income
    257,389       273,152  
 
           
 
               
Interest expense
               
Consolidated obligations-bonds (Note 10)
    114,277       154,913  
Consolidated obligations-discount notes (Note 10)
    7,816       9,657  
Deposits (Note 8)
    470       892  
Mandatorily redeemable capital stock (Note 11)
    744       1,495  
Cash collateral held and other borrowings (Note 18)
    9        
 
           
 
               
Total interest expense
    123,316       166,957  
 
           
 
               
Net interest income before provision for credit losses
    134,073       106,195  
 
           
 
               
Provision for credit losses on mortgage loans
    1,773       709  
 
           
 
               
Net interest income after provision for credit losses
    132,300       105,486  
 
           
 
               
Other income (loss)
               
Service fees and other
    1,256       1,045  
Instruments held at fair value — Unrealized gains (losses)(Note 16)
    740       (8,419 )
 
               
Total OTTI losses
          (3,873 )
Net amount of impairment losses reclassified (from) to
               
Accumulated other comprehensive loss
    (370 )     473  
 
           
Net impairment losses recognized in earnings
    (370 )     (3,400 )
 
           
 
               
Net realized and unrealized gains (losses) on derivatives and hedging activities (Note 15)
    64,570       (363 )
Net realized gains from sale of available-for-sale securities and redemption of held-to-maturity securities (Note 4 and 5)
          708  
Losses from extinguishment of debt and other
    (51,893 )     (227 )
 
           
 
               
Total other income (loss)
    14,303       (10,656 )
 
           
 
               
Other expenses
               
Operating
    7,530       6,342  
Compensation and Benefits
    38,981       12,894  
Finance Agency and Office of Finance
    3,397       2,418  
 
           
 
               
Total other expenses
    49,908       21,654  
 
           
 
               
Income before assessments
    96,695       73,176  
 
           
 
               
Affordable Housing Program
    7,969       6,126  
REFCORP
    17,745       13,410  
 
           
 
               
Total assessments
    25,714       19,536  
 
           
 
               
Net income
  $ 70,981     $ 53,640  
 
           
 
               
Basic earnings per share (Note 13)
  $ 1.61     $ 1.09  
 
           
 
               
Cash dividends paid per share
  $ 1.46     $ 1.41  
 
           
The accompanying notes are an integral part of these unaudited financial statements.

 

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Federal Home Loan Bank of New York
Statements of Capital — Unaudited (in thousands, except per share data)
For the three months ended March 31, 2011 and 2010
                                                 
                            Accumulated                
    Capital Stock1             Other             Total  
    Class B     Retained     Comprehensive     Total     Comprehensive  
    Shares     Par Value     Earnings     Income (Loss)     Capital     Income (Loss)  
 
Balance, December 31, 2009
    50,590     $ 5,058,956     $ 688,874     $ (144,539 )   $ 5,603,291          
 
                                               
Proceeds from sale of capital stock
    3,644       364,445                   364,445          
Redemption of capital stock
    (5,944 )     (594,365 )                 (594,365 )        
Shares reclassified to mandatorily redeemable capital stock
    (14 )     (1,410 )                 (1,410 )        
Cash dividends ($1.41 per share) on capital stock
                (70,995 )           (70,995 )        
Net Income
                53,640             53,640     $ 53,640  
Net change in Accumulated other comprehensive income (loss):
                                               
Non-credit portion of OTTI on held-to-maturity securities, net of accretion
                      3,958       3,958       3,958  
Net unrealized gains on available-for-sale securities
                      14,930       14,930       14,930  
Hedging activities
                      2,132       2,132       2,132  
 
                                   
 
                                          $ 74,660  
 
                                             
Balance, March 31, 2010
    48,276     $ 4,827,626     $ 671,519     $ (123,519 )   $ 5,375,626          
 
                                     
 
                                               
Balance, December 31, 2010
    45,290     $ 4,528,962     $ 712,091     $ (96,684 )   $ 5,144,369          
 
                                               
Proceeds from sale of capital stock
    5,054       505,404                   505,404          
Redemption of capital stock
    (7,106 )     (710,604 )                 (710,604 )        
Shares reclassified to mandatorily redeemable capital stock
    (1 )     (98 )                 (98 )        
Cash dividends ($1.46 per share) on capital stock
                (66,422 )           (66,422 )        
Net Income
                70,981             70,981     $ 70,981  
Net change in Accumulated other comprehensive income (loss):
                                               
Non-credit portion of OTTI on held-to-maturity securities, net of accretion
                      3,655       3,655       3,655  
Net unrealized losses on available-for-sale securities
                      (7,986 )     (7,986 )     (7,986 )
Hedging activities
                      3,728       3,728       3,728  
 
                                   
 
                                          $ 70,378  
 
                                             
Balance, March 31, 2011
    43,237     $ 4,323,664     $ 716,650     $ (97,287 )   $ 4,943,027          
 
                                     
1   Putable stock
The accompanying notes are an integral part of these unaudited financial statements.

 

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Federal Home Loan Bank of New York
Statements of Cash Flows — Unaudited (in thousands)
For the three months ended March 31, 2011 and 2010
                 
    March 31,  
    2011     2010  
Operating activities
               
 
               
Net Income
  $ 70,981     $ 53,640  
 
           
 
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
    (13,080 )     (19,849 )
Concessions on consolidated obligations
    1,678       2,497  
Premises, software, and equipment
    1,399       1,365  
Provision for credit losses on mortgage loans
    1,773       709  
Net realized (gains) from sale of available-for-sale securities
          (708 )
Credit impairment losses on held-to-maturity securities
    370       3,400  
Change in net fair value adjustments on derivatives and hedging activities
    97,933       145,124  
Change in fair value adjustments on financial instruments held at fair value
    (740 )     8,419  
Losses from extinguishment of debt
    51,741        
Net change in:
               
Accrued interest receivable
    36,881       19,781  
Derivative assets due to accrued interest
    (6,425 )     (9,558 )
Derivative liabilities due to accrued interest
    (32,684 )     (27,425 )
Other assets
    3,851       2,560  
Affordable Housing Program liability
    (3,234 )     1,171  
Accrued interest payable
    32,954       54,380  
REFCORP liability
    (2,882 )     (10,361 )
Other liabilities
    (4,463 )     (32,257 )
 
           
Total adjustments
    165,072       139,248  
 
           
Net cash provided by operating activities
    236,053       192,888  
 
           
Investing activities
               
Net change in:
               
Interest-bearing deposits
    795,337       3,874  
Federal funds sold
    (105,000 )     320,000  
Deposits with other FHLBanks
    (62 )     22  
Premises, software, and equipment
    (1,386 )     (619 )
Held-to-maturity securities:
               
Long-term securities
               
Purchased
    (988,122 )      
Repayments
    712,634       916,331  
Available-for-sale securities:
               
Purchased
          (581,936 )
Repayments
    263,990       164,325  
Proceeds from sales
    144       32,993  
Advances:
               
Principal collected
    93,771,274       66,264,709  
Made
    (89,132,005 )     (60,622,185 )
Mortgage loans held-for-portfolio:
               
Principal collected
    78,059       49,065  
Purchased and originated
    (85,888 )     (20,106 )
Proceeds from sales of REO
    150        
Loans to other FHLBanks
               
Loans made
    (100,000 )     (27,000 )
Principal collected
    100,000       27,000  
 
           
Net cash provided by investing activities
    5,309,125       6,526,473  
 
           
The accompanying notes are an integral part of these unaudited financial statements.

 

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Federal Home Loan Bank of New York
Statements of Cash Flows — Unaudited (in thousands)
For the three months ended March 31, 2011 and 2010
                 
    March 31,  
    2011     2010  
Financing activities
               
Net change in:
               
Deposits and other borrowings 1
  $ 10,927     $ 5,238,715  
Consolidated obligation bonds:
               
Proceeds from issuance
    16,160,153       14,103,711  
Payments for maturing and early retirement
    (19,097,193 )     (15,757,412 )
Net payments on bonds transferred to other FHLBanks
    (167,381 )      
Consolidated obligation discount notes:
               
Proceeds from issuance
    41,571,744       27,155,228  
Payments for maturing
    (41,454,687 )     (38,157,604 )
Capital stock:
               
Proceeds from issuance
    505,404       364,445  
Payments for redemption / repurchase
    (710,604 )     (594,365 )
Redemption of Mandatorily redeemable capital stock
    (4,191 )     (22,512 )
Cash dividends paid 2
    (66,422 )     (70,995 )
 
           
Net cash used by financing activities
    (3,252,250 )     (7,740,789 )
 
           
Net increase (decrease) in cash and due from banks
    2,292,928       (1,021,428 )
Cash and due from banks at beginning of the period
    660,873       2,189,252  
 
           
Cash and due from banks at end of the period
  $ 2,953,801     $ 1,167,824  
 
           
 
               
Supplemental disclosures:
               
Interest paid
  $ 127,107     $ 136,535  
Affordable Housing Program payments 3
  $ 11,203     $ 4,955  
REFCORP payments
  $ 20,627     $ 23,771  
Transfers of mortgage loans to real estate owned
  $ 591     $ 377  
Portion of non-credit OTTI (gains) losses on held-to-maturity securities
  $ (370 )   $ 473  
1   Cash flows from derivatives containing financing elements were considered as a financing activity and were included in borrowing activity. Cash outflows were $107,935 and $109,565 for the three months ended 2011 and 2010.
 
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.

 

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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 local 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 FHLBNY’s 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 Stock 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 18 — Related Party Transactions.
The FHLBNY’s primary business is making collateralized advances to members is the principal factor that impacts the financial condition of the FHLBNY.
The FHLBNY is 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. The Finance Agency’s 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. government’s 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 make payments to REFCORP as described above until the total amount of payments actually made is equivalent to a $300 million annual annuity, whose final maturity date is April 15, 2030. 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. REFCORP expense is calculated on Net income 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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However, based on anticipated payments to be made by the 12 FHLBanks through the second quarter of 2011, it is likely that the FHLBanks will satisfy their obligation to REFCORP by the end of that period and, assuming that such is the case, further payments will not be necessary after that quarter. In anticipation of the termination of their REFCORP obligation, the FHLBanks have reached an agreement to set aside, once the obligation has ended, amounts that would have otherwise been paid to REFCORP as restricted retained earnings, with the objective of increasing the earnings reserves of the FHLBanks and enhancing the safety and soundness of the FHLBank System.
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 their 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 FHLBNY’s audited financial statements for the year ended December 31, 2010, included in Form 10-K filed on March 25, 2011.
Note 1. Significant Accounting Policies and Estimates.
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 Bank’s securities portfolios, estimating the liabilities for employee benefit programs, and estimating fair values of certain assets and liabilities. 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, 2011, which contains a summary of the Bank’s significant accounting policies and estimates.
Note 2. Recently Issued Accounting Standards and Interpretations.
A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. On April 5, 2011, the FASB issued guidance that will require creditors to evaluate modifications and restructurings of receivables using a more principles-based approach, which may result in certain modifications and restructurings being considered troubled debt restructurings. The required disclosures are effective for interim and annual reporting periods beginning on or after June 15, 2011 (July 1, 2011 for the FHLBNY). The adoption of this amended guidance is likely to result in increased financial statement disclosures, but will not affect the FHLBNY’s financial condition, results of operations, or cash flows.
Note 3. Cash and Due from Banks.
Cash on hand, cash items in the process of collection, and amounts due from correspondent banks and the Federal Reserve Banks are included in cash and due from banks.
Compensating balances — The Bank maintained average required clearing balances with the Federal Reserve Banks of approximately $1.0 million as of March 31, 2011 and December 31, 2010. 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 $48.4 million and $49.5 million as of March 31, 2011 and December 31, 2010. The Bank includes member reserve balances in Other liabilities in the Statements of Condition.

 

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Note 4. Held-to-Maturity Securities.
Held-to-maturity securities consist of mortgage- and asset-backed securities (collectively mortgage-backed securities, or “MBS”), and state and local housing finance agency bonds.
Mortgage-backed securities — The FHLBNY’s investments in MBS are predominantly government-sponsored, enterprise-issued securities, as well as investments in privately issued MBS.
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.
Major Security Types
The amortized cost basis, the gross unrecognized holding gains and losses1, the fair values of held-to-maturity securities, and OTTI recognized in AOCI were as follows (in thousands):
                                                 
    March 31, 2011  
            OTTI             Gross     Gross        
    Amortized     Recognized     Carrying     Unrecognized     Unrecognized     Fair  
Issued, guaranteed or insured:   Cost     in AOCI     Value     Holding Gains     Holding Losses     Value  
Pools of Mortgages
                                               
Fannie Mae
  $ 795,299     $     $ 795,299     $ 43,750     $     $ 839,049  
Freddie Mac
    226,545             226,545       12,332             238,877  
 
                                   
Total pools of mortgages
    1,021,844             1,021,844       56,082             1,077,926  
 
                                   
 
                                               
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits
                                               
Fannie Mae
    1,856,352             1,856,352       44,556             1,900,908  
Freddie Mac
    2,781,565             2,781,565       75,258             2,856,823  
Ginnie Mae
    107,456             107,456       416             107,872  
 
                                   
Total CMOs/REMICs
    4,745,373             4,745,373       120,230             4,865,603  
 
                                   
 
                                               
Commercial Mortgage-Backed Securities
                                               
Fannie Mae
    100,480             100,480             (3,763 )     96,717  
Freddie Mac
    607,346             607,346       1,726       (6,739 )     602,333  
Ginnie Mae
    44,408             44,408       1,329             45,737  
 
                                   
Total commercial mortgage-backed securities
    752,234             752,234       3,055       (10,502 )     744,787  
 
                                   
 
                                               
Non-GSE MBS
                                               
CMOs/REMICs
    256,840       (2,046 )     254,794       4,608       (795 )     258,607  
Commercial MBS
                                   
 
                                   
Total non-federal-agency MBS
    256,840       (2,046 )     254,794       4,608       (795 )     258,607  
 
                                   
 
                                               
Asset-Backed Securities
                                               
Manufactured housing (insured)
    171,066             171,066             (18,998 )     152,068  
Home equity loans (insured)
    252,301       (63,846 )     188,455       36,764       (3,078 )     222,141  
Home equity loans (uninsured)
    176,388       (23,379 )     153,009       16,948       (18,010 )     151,947  
 
                                   
Total asset-backed securities
    599,755       (87,225 )     512,530       53,712       (40,086 )     526,156  
 
                                   
 
                                               
Total MBS
  $ 7,376,046     $ (89,271 )   $ 7,286,775     $ 237,687     $ (51,383 )   $ 7,473,079  
 
                                   
 
                                               
Other
                                               
State and local housing finance agency obligations
  $ 755,712     $     $ 755,712     $ 1,277     $ (77,201 )   $ 679,788  
 
                                   
Total other
  $ 755,712     $     $ 755,712     $ 1,277     $ (77,201 )   $ 679,788  
 
                                   
 
                                               
Total Held-to-maturity securities
  $ 8,131,758     $ (89,271 )   $ 8,042,487     $ 238,964     $ (128,584 )   $ 8,152,867  
 
                                   
                                                 
    December 31, 2010  
            OTTI             Gross     Gross        
    Amortized     Recognized     Carrying     Unrecognized     Unrecognized     Fair  
Issued, guaranteed or insured:   Cost     in AOCI     Value     Holding Gains     Holding Losses     Value  
Pools of Mortgages
                                               
Fannie Mae
  $ 857,387     $     $ 857,387     $ 48,712     $     $ 906,099  
Freddie Mac
    244,041             244,041       13,316             257,357  
 
                                   
Total pools of mortgages
    1,101,428             1,101,428       62,028             1,163,456  
 
                                   
 
                                               
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits
                                               
Fannie Mae
    1,637,261             1,637,261       52,935             1,690,196  
Freddie Mac
    2,790,103             2,790,103       92,746             2,882,849  
Ginnie Mae
    116,126             116,126       936             117,062  
 
                                   
Total CMOs/REMICs
    4,543,490             4,543,490       146,617             4,690,107  
 
                                   
 
                                               
Commercial Mortgage-Backed Securities
                                               
Fannie Mae
  $ 100,492     $     $ 100,492     $     $ (2,516 )   $ 97,976  
Freddie Mac
    375,901             375,901       1,031     $ (5,315 )     371,617  
Ginnie Mae
    48,747             48,747       1,857             50,604  
 
                                   
Total commercial mortgage-backed securities
    525,140             525,140       2,888     $ (7,831 )     520,197  
 
                                   
 
                                               
Non-GSE MBS
                                               
CMOs/REMICs
    294,686       (2,209 )     292,477       6,228       (916 )     297,789  
Commercial MBS
                                   
 
                                   
Total non-federal-agency MBS
    294,686       (2,209 )     292,477       6,228       (916 )     297,789  
 
                                   
 
                                               
Asset-Backed Securities
                                               
Manufactured housing (insured)
    176,592             176,592             (21,437 )     155,155  
Home equity loans (insured)
    257,889       (66,252 )     191,637       35,550       (4,316 )     222,871  
Home equity loans (uninsured)
    184,284       (24,465 )     159,819       17,780       (21,478 )     156,121  
 
                                   
Total asset-backed securities
    618,765       (90,717 )     528,048       53,330       (47,231 )     534,147  
 
                                   
 
                                               
Total MBS
  $ 7,083,509     $ (92,926 )   $ 6,990,583     $ 271,091     $ (55,978 )   $ 7,205,696  
 
                                   
 
                                               
Other
                                               
State and local housing finance agency obligations
  $ 770,609     $     $ 770,609     $ 1,434     $ (79,439 )   $ 692,604  
 
                                   
Total other
  $ 770,609     $     $ 770,609     $ 1,434     $ (79,439 )   $ 692,604  
 
                                   
 
                                               
Total Held-to-maturity securities
  $ 7,854,118     $ (92,926 )   $ 7,761,192     $ 272,525     $ (135,417 )   $ 7,898,300  
 
                                   
1   Unrecognized gross holding gains and losses represent the difference between carrying value and fair value of a held-to-maturity security. At March 31, 2011 and December 31, 2010, the FHLBNY had pledged MBS with an amortized cost basis of $2.5 million and $2.7 million to the FDIC in connection with deposits maintained by the FDIC at the FHLBNY.

 

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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 losses1 are aggregated by major security type and by the length of time individual securities have been in a continuous unrealized loss position as follows (in thousands):
                                                 
    March 31, 2011  
    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
  $     $     $ 319,659     $ (77,201 )   $ 319,659     $ (77,201 )
 
                                   
Total Non-MBS
                319,659       (77,201 )     319,659       (77,201 )
 
                                   
MBS Investment Securities
                                               
MBS-GSE
                                               
Fannie Mae-CMBS
    96,717       (3,763 )                 96,717       (3,763 )
Freddie Mac-CMBS
    345,924       (6,739 )                 345,924       (6,739 )
 
                                   
Total MBS-GSE
    442,641       (10,502 )                 442,641       (10,502 )
 
                                   
MBS-Private-Label — CMOs
    3,705       (16 )     579,340       (76,153 )     583,045       (76,169 )
 
                                   
Total MBS
    446,346       (10,518 )     579,340       (76,153 )     1,025,686       (86,671 )
 
                                   
Total
  $ 446,346     $ (10,518 )   $ 898,999     $ (153,354 )   $ 1,345,345     $ (163,872 )
 
                                   
                                                 
    December 31, 2010  
    Less than 12 months     12 months or more     Total  
    Estimated     Unrealized     Estimated     Unrealized     Estimated     Unrealized  
    Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
Non-MBS Investment Securities
                                               
State and local housing finance agency obligations
  $ 20,945     $ (1,270 )   $ 309,476     $ (78,169 )   $ 330,421     $ (79,439 )
 
                                   
Total Non-MBS
    20,945       (1,270 )     309,476       (78,169 )     330,421       (79,439 )
 
                                   
MBS Investment Securities
                                               
MBS-GSE
                                               
Fannie Mae-CMBS
    97,976       (2,516 )                 97,976       (2,516 )
Freddie Mac-CMBS
    196,658       (5,315 )                 196,658       (5,315 )
 
                                   
Total MBS-GSE
    294,634       (7,831 )                 294,634       (7,831 )
 
                                   
MBS-Private-Label — CMOs
    5,017       (19 )     593,667       (87,302 )     598,684       (87,321 )
 
                                   
Total MBS
    299,651       (7,850 )     593,667       (87,302 )     893,318       (95,152 )
 
                                   
Total
  $ 320,596     $ (9,120 )   $ 903,143     $ (165,471 )   $ 1,223,739     $ (174,591 )
 
                                   
1   Unrealized losses represent the difference between amortized cost and fair value of a security. The baseline measure of unrealized losses is amortized cost, which is not adjusted for non-credit OTTI. Unrealized losses will not equal gross unrecognized losses, which is adjusted for non-credit OTTI.
Redemption terms
The amortized cost and estimated fair value of held-to-maturity securities, by contractual maturity, were as follows (in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
                                 
    March 31, 2011     December 31, 2010  
    Amortized     Estimated     Amortized     Estimated  
    Cost     Fair Value     Cost     Fair Value  
State and local housing finance agency obligations
                               
Due in one year or less
  $     $     $     $  
Due after one year through five years
    6,415       6,471       6,415       6,467  
Due after five years through ten years
    61,945       60,984       61,945       60,667  
Due after ten years
    687,352       612,333       702,249       625,470  
 
                       
State and local housing finance agency obligations
    755,712       679,788       770,609       692,604  
 
                       
 
                               
Mortgage-backed securities
                               
Due in one year or less
                       
Due after one year through five years
    1,502       1,532       1,730       1,768  
Due after five years through ten years
    1,458,848       1,479,854       1,324,480       1,351,936  
Due after ten years
    5,915,696       5,991,693       5,757,299       5,851,992  
 
                       
Mortgage-backed securities
    7,376,046       7,473,079       7,083,509       7,205,696  
 
                       
 
                               
Total Held-to-maturity securities
  $ 8,131,758     $ 8,152,867     $ 7,854,118     $ 7,898,300  
 
                       

 

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Interest rate payment terms
The following table summarizes interest rate payment terms of long-term securities classified as held-to-maturity (in thousands):
                                 
    March 31, 2011     December 31, 2010  
    Amortized     Carrying     Amortized     Carrying  
    Cost     Value     Cost     Value  
Mortgage-backed securities
                               
CMO
                               
Fixed
  $ 2,917,582     $ 2,914,132     $ 3,064,470     $ 3,060,797  
Floating
    2,669,981       2,669,981       2,105,272       2,105,272  
 
                       
CMO Total
    5,587,563       5,584,113       5,169,742       5,166,069  
Pass Thru
                               
Fixed
    1,644,915       1,560,288       1,830,665       1,742,633  
Floating
    143,568       142,374       83,102       81,881  
 
                       
Pass Thru Total
    1,788,483       1,702,662       1,913,767       1,824,514  
 
                       
Total MBS
    7,376,046       7,286,775       7,083,509       6,990,583  
 
                       
State and local housing finance agency obligations
                               
Fixed
    121,442       121,442       135,344       135,344  
Floating
    634,270       634,270       635,265       635,265  
 
                       
 
    755,712       755,712       770,609       770,609  
 
                       
Total Held-to-maturity securities
  $ 8,131,758     $ 8,042,487     $ 7,854,118     $ 7,761,192  
 
                       
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 GSE’s guarantees of the securities. Based on the Bank’s 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 by cash flow testing 100 percent of it private-label MBS. The credit-related OTTI is recognized in earnings. The noncredit portion of OTTI, which represents fair value losses of OTTI securities, is recognized in AOCI.
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 Bank’s 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. For more information with respect to critical estimates and assumptions about the Bank’s impairment methodologies, see Note 1 — Significant Accounting Policies and Estimates in Notes to Financial Statements of the Federal Home Loan Bank of New York on Form 10-K filed on March 25, 2011. 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.
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. The analysis of 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. 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 2010 and at March 31, 2011, 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. For OTTI assessment, the management of the Bank has effectively excluded Ambac as a reliable provider of support for any future short-falls on securities insured by Ambac, and will not rely on support from MBIA beyond June 30, 2011 for securities insured by MBIA. The FHLBNY performs this analysis and makes a re-evaluation of the bond insurance support period quarterly.

 

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Up until March 31, 2010, Ambac had been paying claims in order to meet any current cash flow deficiency within the structure of the insured securities. On March 24, 2010, Ambac, with the consent of the Commissioner of Insurance for the State of Wisconsin (the “Commissioner”), entered into a temporary injunction to suspend payments to bond holders and to create a segregated account for bond holders, which had no effect on payments due from Ambac through March 31, 2011. As a result, payments from Ambac to trustees of certain insured bonds owned by the FHLBNY were suspended. The amounts suspended were not material.
OTTI — Quarters ended March 31, 2011 and 2010 — To assess whether the entire amortized cost basis of the Bank’s private-label MBS will be recovered, the Bank performed cash flow analysis for 100 percent of the FHLBNY’s private-label MBS outstanding in all periods in this report. Cash flow assessments identified credit impairment as reported in the following tables. Certain securities had been previously determined to be OTTI, and the additional impairment (or re-impairment) 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 as the fair values of almost all securities deemed OTTI were in excess of their carrying values.
The table below summarizes the key characteristics of the securities that were deemed OTTI (in thousands):
                                                                 
    Quarter ended March 31, 2011  
    Insurer MBIA     Insurer Ambac     Uninsured     OTTI  
Security           Fair             Fair             Fair     Credit     Non-credit  
Classification   UPB     Value     UPB     Value     UPB     Value     Loss     Loss1  
 
                                                               
HEL Subprime*
  $ 30,869     $ 18,285     $     $     $     $     $ (370 )   $ 370  
 
                                               
Total
  $ 30,869     $ 18,285     $     $     $     $     $ (370 )   $ 370  
 
                                               
                                                 
    Quarter ended March 31, 2010  
    Insurer MBIA     Insurer Ambac     OTTI  
Security           Fair             Fair     Credit     Non-credit  
Classification   UPB     Value     UPB     Value     Loss     Loss1  
 
                                               
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   Positive non-credit loss represents the net amount of non-credit losses reclassified from OCI to increase the carrying value of securities previously deemed OTTI.
The Bank believes no OTTI exists for the remaining investments. The Bank’s conclusion is based upon multiple factors: bond issuers’ continued satisfaction of their 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 March 31, 2011, and has also concluded that it will not be required to sell such securities before recovery of the amortized cost basis of the securities. Without recovery in the near term such that spreads return to levels that reflect underlying credit characteristics, or if the credit losses of the underlying collateral within the MBS perform worse than expected, additional OTTI may be recognized in future periods.
The following table provides rollforward information about the credit component of OTTI recognized as a charge to earnings related to held-to-maturity securities (in thousands):
                 
    Quarter ended March 31,  
    2011     2010  
Beginning balance
  $ 29,138     $ 20,816  
Additions to the credit component for OTTI loss not previously recognized
           
Additional credit losses for which an OTTI charge was previously recognized
    370       3,400  
Increases in cash flows expected to be collected, recognized over the remaining life of the securities
           
 
           
Ending balance
  $ 29,508     $ 24,216  
 
           

 

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Key Base Assumptions
The table below summarizes the weighted average and range of Key Base Assumptions for all private-label MBS at March 31, 2011, including those deemed OTTI:
                                                 
    Key Base Assumption — All PLMBS at Quarter End  
    CDR     CPR     Loss Severity %  
Security Classification   Range     Average     Range     Average     Range     Average  
 
                                               
RMBS Prime
    1.0-2.8       1.4       8.2-46.1       29.7       30.0-72.1       35.3  
Alt-A
    1.0-8.3       3.7       2.0-11.6       4.2       30.0-30.0       30.0  
HEL Subprime
    1.0-11.7       3.7       2.0-10.6       4.4       30.0-100.0       69.2  
**   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 security’s effective yield) is less than the amortized cost basis of the security, 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 security’s effective yield) with the amortized cost basis of the security.
Note 5. Available-for-Sale Securities.
Major Security types — The unamortized cost, gross unrealized gains, losses, and the fair value1 of investments classified as available-for-sale were as follows (in thousands):
                                         
    March 31, 2011  
            OTTI     Gross     Gross        
    Amortized     Recognized     Unrealized     Unrealized     Fair  
    Cost     in AOCI     Gains     Losses     Value  
Cash equivalents
  $ 136     $     $     $     $ 136  
Equity funds
    6,598             327       (460 )     6,465  
Fixed income funds
    3,345             206             3,551  
GSE and U.S. Obligations
                                       
Mortgage-backed securities
                                       
CMO-Floating
    3,644,066             18,598       (3,493 )     3,659,171  
CMBS-Floating
    49,900                   (199 )     49,701  
 
                             
Total
  $ 3,704,045     $     $ 19,131     $ (4,152 )   $ 3,719,024  
 
                             
                                         
    December 31, 2010  
            OTTI     Gross     Gross        
    Amortized     Recognized     Unrealized     Unrealized     Fair  
    Cost     in AOCI     Gains     Losses     Value  
Cash equivalents
  $ 120     $     $     $     $ 120  
Equity funds
    6,715             182       (651 )     6,246  
Fixed income funds
    3,374             207             3,581  
GSE and U.S. Obligations
                                       
Mortgage-backed securities
                                       
CMO-Floating
    3,906,932             26,588       (3,157 )     3,930,363  
CMBS-Floating
    49,976                   (204 )     49,772  
 
                             
Total
  $ 3,967,117     $     $ 26,977     $ (4,012 )   $ 3,990,082  
 
                             
1   The carrying value of Available-for-sale securities equals fair value.

 

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Unrealized Losses — MBS classified as available-for-sale securities (in thousands):
                                                 
    March 31, 2011  
    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 — Other US Obligations
                                               
Ginnie Mae-CMOs
  $ 70,590     $ (230 )   $     $     $ 70,590     $ (230 )
MBS-GSE
                                               
Fannie Mae-CMOs
    469,133       (1,429 )                 469,133       (1,429 )
Fannie Mae-CMBS
    49,701       (199 )                 49,701       (199 )
Freddie Mac-CMOs
    436,881       (1,834 )                 436,881       (1,834 )
 
                                   
Total MBS-GSE
    955,715       (3,462 )                 955,715       (3,462 )
 
                                   
Total Temporarily Impaired
  $ 1,026,305     $ (3,692 )   $     $     $ 1,026,305     $ (3,692 )
 
                                   
                                                 
    December 31, 2010  
    Less than 12 months     12 months or more     Total  
    Estimated     Unrealized     Estimated     Unrealized     Estimated     Unrealized  
    Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
MBS Investment Securities
                                               
MBS — Other US Obligations
                                               
Ginnie Mae- CMOs
  $ 71,922     $ (192 )   $     $     $ 71,922     $ (192 )
MBS-GSE
                                               
Fannie Mae-CMOs
    374,535       (1,267 )                 374,535       (1,267 )
Fannie Mae-CMBS
    49,772       (204 )                 49,772       (204 )
Freddie Mac-CMOs
    368,652       (1,698 )                 368,652       (1,698 )
 
                                   
Total MBS-GSE
    792,959       (3,169 )                 792,959       (3,169 )
 
                                   
Total Temporarily Impaired
  $ 864,881     $ (3,361 )   $     $     $ 864,881     $ (3,361 )
 
                                   
Management of the FHLBNY has concluded that gross unrealized losses at March 31, 2011 and December 31, 2010, 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 Bank’s portfolio of mortgage-backed securities classified as available-for-sale (“AFS”) is comprised primarily of GSE-issued 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 Bank’s analysis, GSE securities are performing in accordance with their contractual agreements. The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and Freddie Mac. The U.S. Treasury and the Finance Agency placed Fannie Mae and Freddie Mac into conservatorship in an attempt to stabilize their financial conditions and their ability to support the secondary mortgage market. The FHLBNY believes that it will recover its investments in GSE-issued securities given the current levels of collateral, credit enhancements, and guarantees that exist to protect the investments. Management has not made a decision to sell such securities at March 31, 2011 or subsequently. Management also concluded that it is more likely than not that it will not be required to sell such securities before recovery of the amortized cost basis of the security. The FHLBNY believes that these securities were not other-than-temporarily impaired as of March 31, 2011 or at December 31, 2010.
The Bank has a grantor trust to fund current and future payments for its employee supplemental pension plans and investment in the trusts are classified as available-for-sale. The grantor trust invests in money market, equity and fixed-income and bond funds. Investments in equity and fixed-income funds are redeemable at short notice, and realized gains and losses from investments in the funds were not significant. No available-for-sale-securities had been pledged at March 31, 2011 and December 31, 2010.

 

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Redemption terms
The amortized cost and estimated fair value1 of investments classified as available-for-sale, by contractual maturity, were as follows (in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
                                 
    March 31, 2011     December 31, 2010  
    Amortized     Fair     Amortized     Fair  
    Cost     Value     Cost     Value  
Mortgage-backed securities
                               
GSE/U.S. agency issued CMO
                               
Due after ten years
  $ 3,644,066     $ 3,659,171     $ 3,906,932     $ 3,930,363  
 
                       
GSE/U.S. agency issued CMBS
                               
Due after five years through ten years
    49,900       49,701       49,976       49,772  
Fixed income funds, equity funds and cash equivalents*
    10,079       10,152       10,209       9,947  
 
                       
 
                               
Total
  $ 3,704,045     $ 3,719,024     $ 3,967,117     $ 3,990,082  
 
                       
*   Determined to be redeemable at anytime.
 
1   The carrying value of Available-for-sale securities equals fair value.
Interest rate payment terms
The following table summarizes interest rate payment terms of investments classified as available-for-sale securities (in thousands):
                                 
    March 31, 2011     December 31, 2010  
    Amortized Cost     Fair Value     Amortized Cost     Fair Value  
Mortgage-backed securities
                               
Mortgage pass-throughs-GSE/U.S. agency issued
                               
Variable-rate*
  $ 3,644,066     $ 3,659,171     $ 3,906,932     $ 3,930,363  
Variable-rate CMBS*
    49,900       49,701       49,976       49,772  
 
                       
 
                               
 
    3,693,966       3,708,872       3,956,908       3,980,135  
 
                       
Fixed income funds, equity funds and cash equivalents
    10,079       10,152       10,209       9,947  
 
                       
 
                               
Total
  $ 3,704,045     $ 3,719,024     $ 3,967,117     $ 3,990,082  
 
                       
*   LIBOR Indexed
Sale of available-for-sale securities
Sales of securities and investments designated as available-for-sales were not material in all periods in this Form 10-Q.
Note 6. Advances.
Redemption terms
Contractual redemption terms and yields of advances were as follows (dollars in thousands):
                                                 
    March 31, 2011     December 31, 2010  
            Weighted2                     Weighted2        
            Average     Percentage             Average     Percentage  
    Amount     Yield     of Total     Amount     Yield     of Total  
 
Overdrawn demand deposit accounts
  $       %     %   $ 196       1.15 %     %
Due in one year or less
    17,115,800       1.61       23.67       16,872,651       1.77       21.94  
Due after one year through two years
    10,219,244       2.40       14.13       9,488,116       2.81       12.33  
Due after two years through three years
    7,910,627       2.82       10.94       7,221,496       2.94       9.39  
Due after three years through four years
    4,435,207       2.46       6.13       5,004,502       2.69       6.50  
Due after four years through five years
    7,534,259       3.10       10.42       6,832,709       2.93       8.88  
Due after five years through six years
    10,549,451       4.35       14.60       9,590,448       4.32       12.46  
Thereafter
    14,535,683       3.52       20.11       21,929,421       3.68       28.50  
 
                                   
 
                                               
Total par value
    72,300,271       2.84 %     100.00 %     76,939,539       3.03 %     100.00 %
 
                                       
 
                                               
Discount on AHP advances 1
    (36 )                     (42 )                
Hedging adjustments
    3,187,142                       4,260,839                  
 
                                           
 
                                               
Total
  $ 75,487,377                     $ 81,200,336                  
 
                                           
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 3.50% at March 31, 2011 and December 31, 2010.
 
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.

 

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Monitoring and evaluating credit losses
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 FHLBNY’s 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 FHLBNY’s 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 arising from: creditworthiness risk arising from members, counterparties, and other entities; collateral risk arising from type, quality, and lien status; and concentration risk arising from borrower, portfolio, geographic area, industry, or product type.
Creditworthiness Risk — Advances
The FHLBNY’s 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 FHLBNY’s 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 FHLBNY’s 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 borrower’s 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 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 borrower’s current collateral maintenance level. All borrowers that pledge mortgage loans as collateral are also required to provide, on a monthly or quarterly basis, a detailed listing of mortgage loans pledged. The FHLBNY uses this detailed reporting to monitor and track payment performance of the collateral and to assess the risk profile of the pledged collateral based on mortgage characteristics, geographic concentrations and other pertinent risk factors.
Drawing on current industry standards, the FHLBNY establishes collateral valuation methodologies for each collateral type and calculates the estimated liquidation value of the pledged collateral to determine whether a borrower has satisfied its collateral maintenance requirement. The FHLBNY evaluates liquidation values on a weekly basis.
The FHLBNY makes on-site review of borrowers in connection with the evaluation of the borrowers’ pledged mortgage collateral. This review involves a qualitative assessment of risk factors that includes an examination of legal documentation, credit underwriting, and loan-servicing practices on mortgage collateral. The FHLBNY has developed the on-site review process to more accurately value each borrower’s 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 borrower’s pledged mortgage collateral based on the quality and accuracy of the automated data provided to the FHLBNY.

 

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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 FHLBNY’s 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 convertible advances made to individual members. At March 31, 2011 and December 31, 2010, all advances were current. Management does not anticipate any credit losses, and accordingly, the FHLBNY has not provided an allowance for credit losses on advances. The FHLBNY’s potential credit risk from advances is concentrated in commercial banks, savings institutions and insurance companies. At March 31, 2011 and December 31, 2010, the Bank had advances of $51.5 billion and $54.1 billion outstanding to ten member institutions, representing 71.2% and 70.3% of total advances outstanding, and sufficient collateral was held to cover the advances to these institutions.
Collateral Coverage of Advances
Security Terms. 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”). CFIs are defined in the Housing Act as those institutions that have, as of the date of the transaction at issue, less than $1,040 million in average total assets over the three years preceding that date (subject to annual adjustment by the Finance Agency director based on the Consumer Price Index). It is the FHLBNY’s policy not to accept such expanded collateral for advances. Borrowing members pledge their capital stock of the FHLBNY as additional collateral for advances. As of March 31, 2011, the FHLBNY had rights to collateral with an estimated value greater than outstanding advances. Based upon the financial condition of the member, the FHLBNY:
  (1)   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
  (2)   Requires the member specifically to assign or place physical possession of such collateral with the FHLBNY or its safekeeping agent.
Beyond these provisions, Section 10(e) of the FHLBank Act affords any security interest granted by a member to the FHLBNY priority over the claims or rights of any other party. The two exceptions are claims that would be entitled to priority under otherwise applicable law or perfected security interests. All member obligations with the Bank were fully collateralized throughout their entire term. The total of collateral pledged to the Bank includes excess collateral pledged above the Bank’s minimum collateral requirements. However, a “Maximum Lendable Value” is established to ensure that the Bank has sufficient eligible collateral securing credit extensions. The Maximum Lendable Value ranges from 90 percent to 70 percent for mortgage collateral and is applied to the lesser of book or market value. For securities, it ranges from 97 percent to 67 percent and is applied to the market value. There are not any Maximum Lendable Value ranges for deposit collateral pledged. It is common for members to maintain excess collateral positions with the Bank 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 the Bank or its designated collateral custodian(s). For example, all pledged securities collateral must be delivered to the Bank’s nominee name at Citibank, N.A., its securities safekeeping custodian. Mortgage collateral that is required to be in the Bank’s possession is typically delivered to the Bank’s Jersey City, New Jersey facility. However, in certain instances, delivery to a Bank approved custodian may be allowed. In both instances, the members provide periodic listings updating the information of the mortgage collateral in possession.
The following table summarizes pledged collateral in support of advances at March 31, 2011 and December 31, 2010 (in thousands):
Collateral Supporting Advances to Members
                                 
            Underlying Collateral for Advances  
            Mortgage     Securities and        
    Advances1     Loans2     Deposits2     Total2  
   
March 31, 2011
  $ 72,300,271     $ 100,212,737     $ 40,990,062     $ 141,202,799  
   
 
                       
December 31, 2010
  $ 76,939,539     $ 99,348,492     $ 42,461,442     $ 141,809,934  
 
                       
1   Par value
 
2   Estimated market value
The level of over-collateralization is on an aggregate basis and may not necessarily be indicative of a similar level of over-collateralization on an individual member basis. At a minimum, each member pledged sufficient collateral to adequately secure the member’s outstanding obligation with the FHLBNY. In addition, most members maintain an excess amount of pledged collateral with the FHLBNY to secure future liquidity needs.

 

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The following table summarizes pledged collateral in support of other member obligations (other than advances) at March 31, 2011 and December 31, 2010 (in thousands):
Collateral Supporting Member Obligations Other Than Advances
                                 
            Underlying Collateral for Other Obligations  
    Other     Mortgage     Securities and        
    Obligations1     Loans2     Deposits2     Total 2  
 
March 31, 2011
  $ 2,386,148     $ 7,035,254     $ 193,866     $ 7,229,120  
 
                       
 
December 31, 2010
  $ 2,057,501     $ 5,772,835     $ 213,620     $ 5,986,455  
 
                       
1   Standby financial letters of credit, derivatives and members’ credit enhancement guarantee amount. (“MPFCE”)
 
2   Estimated market value
The outstanding member obligations consisted primarily of standby letters of credit, 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 FHLBNY’s 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):
Location of Collateral Held
                                 
    Estimated Market Values  
    Collateral in     Collateral     Collateral     Total  
    Physical     Specifically     Pledged for     Collateral  
    Possession     Listed     AHP     Received  
March 31, 2011
  $ 46,965,149     $ 101,574,225     $ (107,455 )   $ 148,431,919  
 
                       
 
                               
December 31, 2010
  $ 48,604,470     $ 99,289,202     $ (97,283 )   $ 147,796,389  
 
                       
Total collateral pledged to the FHLBNY includes excess collateral pledged above the FHLBNY’s minimum collateral requirements. However, the amount reported under the “Total Collateral Received column excludes collateral pledged for AHP obligations.
In addition, the FHLBNY has a lien on each member’s investment in the capital stock of the FHLBNY.
Credit Risk. The FHLBNY has never experienced a credit loss on an advance. The management of the Bank has policies and procedures in place to appropriately manage credit risk. There were no past due advances and all advances were current for all periods in this report. Management does not anticipate any credit losses, and accordingly, the Bank has not provided an allowance for credit losses on advances. The Bank’s potential credit risk from advances is concentrated in commercial banks, savings institutions and insurance companies.
Concentration of advances outstanding. Advances to the FHLBNY’s top ten borrowing member institutions are reported in Note 19, Segment Information and Concentration. The FHLBNY held sufficient collateral to cover the advances to all of these institutions and it does not expect to incur any credit losses.

 

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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 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):
                                 
    March 31, 2011     December 31, 2010  
            Percentage of             Percentage of  
    Amount     Total     Amount     Total  
Real Estate*:
                               
Fixed medium-term single-family mortgages
  $ 337,796       26.58 %   $ 342,081       27.05 %
Fixed long-term single-family mortgages
    932,929       73.40       918,741       72.65  
Multi-family mortgages
    279       0.02       3,799       0.30  
 
                       
 
                               
Total par value
    1,271,004       100.00 %     1,264,621       100.00 %
 
                           
 
                               
Unamortized premiums
    11,524               11,333          
Unamortized discounts
    (4,271 )             (4,357 )        
Basis adjustment 1
    (397 )             (33 )        
 
                           
 
                               
Total mortgage loans held-for-portfolio
    1,277,860               1,271,564          
Allowance for credit losses
    (6,969 )             (5,760 )        
 
                           
Total mortgage loans held-for-portfolio after allowance for credit losses
  $ 1,270,891             $ 1,265,804          
 
                           
1   Represents fair value basis of open and closed delivery commitments.
 
*   Conventional mortgages constituted the majority of mortgage loans held-for-portfolio.
Acquisitions were not significant and no loans were transferred to the “loan-for-sale” category. From time-to-time, the Bank may request a PFI to purchase loans if the loan failed to comply with the MPF loan standards and these have been de minimis in all periods in this report.
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 in the Bank’s most recent Form 10-K filed on March 25, 2011). The first layer is typically 100 basis points but this varies with the particular MPF program. The amount of the first layer, or First Loss Account (“FLA”), was estimated as $12.3 million and $12.0 million at March 31, 2011 and December 31, 2010. 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 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 $0.3 million and $0.4 million for the three months ended March 31, 2011 and 2010, and reported as a reduction to mortgage loan interest income. The amount of charge-offs in each period reported was insignificant and it was not necessary for the FHLBNY to recoup any losses from the PFIs.
Allowance methodology for loan losses. The Bank performs periodic reviews of individual impaired mortgage loans within the MPF loan portfolio to identify the potential for losses inherent in the portfolio and to determine the likelihood of collection of the principal and interest. Mortgage loans that are past due 90 days or more past due or classified under regulatory criteria (Sub-standard, doubtful or Loss) are evaluated separately on a loan level basis for impairment. The FHLBNY bases its provision for credit losses on its estimate of probable credit losses inherent in the impaired MPF loan. The FHLBNY computes the provision for credit losses without considering the private mortgage insurance and other accompanying credit enhancement features (except the “First Loss Account”) to provide credit assurance to the FHLBNY. If adversely classified, or past due 90 days or more, 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 fully reserved.
When a loan is foreclosed and the Bank takes possession of real estate, the Bank will charge to the loan loss reserve account any excess of the carrying value of the loan over the net realizable value of the foreclosed loan.
FHA- and VA- insured mortgage loans have minimal inherent credit risk. Risk of such loans generally arises from servicers defaulting on their obligations. If adversely classified, the FHLBNY will have reserves established only in the event of a default of a PFI, and reserves would be based on the estimated costs to recover any uninsured portion of the MPF loan.
Classes of the MPF loan portfolio would be subject to disaggregation to the extent that it is needed to understand the exposure to credit risk arising from these loans. The FHLBNY has determined that no further disaggregation of portfolio segments is needed, other than the methodology discussed above. The FHLBNY does not evaluate MPF loans collectively.
Allowance for loan losses have been recorded against the uninsured MPF loans. All other types of mortgage-loans were insignificant and no allowances were necessary.

 

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Allowance for loan losses
The following provides a roll-forward analysis of the allowance for credit losses 1 (in thousands):
                 
    Three months ended March 31,  
    2011     2010  
Allowance for credit losses:
               
Beginning balance
  $ 5,760     $ 4,498  
Charge-offs
    (615 )     (33 )
Recoveries
    51       5  
Provision for credit losses on mortgage loans
    1,773       709  
 
           
Ending balance
  $ 6,969     $ 5,179  
 
           
Ending balance, individually evaluated for impairment
  $ 6,969          
 
             
Recorded investment, end of period:
               
Individually evaluated for impairment
  $ 27,526          
 
             
1   The Bank does not assess impairment on a collective basis.
Non-performing loans
Non-accrual loans are reported in the table below. Mortgage loans are considered impaired when, based on current information and events, it is probable that the FHLBNY will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreements. As of March 31, 2011 and December 31, 2010, the FHLBNY had no investment in impaired mortgage loans, other than the non-accrual loans.
The following table contrasts Non-performing loans and 90 day past due loans1 to total mortgage (in thousands):
                 
    March 31, 2011     December 31, 2010  
Mortgage loans, net of provisions for credit losses
  $ 1,270,891     $ 1,265,804  
 
           
 
               
Non-performing mortgage loans
  $ 27,526     $ 26,781  
 
           
 
               
Insured MPF loans past due 90 days or more and still accruing interest
  $ 526     $ 574  
 
           
1   Includes loans classified as sub-standard, doubtful or loss under regulatory criteria.
The following table summarizes the recorded investment, the unpaid principal balance and related allowance for impaired loans (individually assessed for impairment), and the average recorded investment of impaired loans 1 & 2 (in thousands):
                                         
    March 31, 2011  
            Unpaid             Average     Interest  
    Recorded     Principal     Related     Recorded     Income  
    Investment     Balance     Allowance     Investment     Recognized2  
With no related allowance:
                                       
Conventional MPF Loans1
  $ 4,218     $ 4,201     $     $ 4,598     $  
 
                             
 
  $ 4,218     $ 4,201     $     $ 4,598     $  
 
                             
With an allowance:
                                       
Conventional MPF Loans1
  $ 23,308     $ 23,324     $ 6,969     $ 22,861     $  
 
                             
 
  $ 23,308     $ 23,324     $ 6,969     $ 22,861     $  
 
                             
Total:
                                       
Conventional MPF Loans1
  $ 27,526     $ 27,525     $ 6,969     $ 27,459     $  
 
                             
 
  $ 27,526     $ 27,525     $ 6,969     $ 27,459     $  
 
                             
                                         
    December 31, 2010  
            Unpaid             Average     Interest  
    Recorded     Principal     Related     Recorded     Income  
    Investment     Balance     Allowance     Investment     Recognized2  
With no related allowance:
                                       
Conventional MPF Loans1
  $ 5,876     $ 5,856     $     $ 4,867     $  
 
                             
 
  $ 5,876     $ 5,856     $     $ 4,867     $  
 
                             
With an allowance:
                                       
Conventional MPF Loans1
  $ 20,909     $ 20,925     $ 5,760     $ 18,402     $  
 
                             
 
  $ 20,909     $ 20,925     $ 5,760     $ 18,402     $  
 
                             
Total:
                                       
Conventional MPF Loans1
  $ 26,785     $ 26,781     $ 5,760     $ 23,269     $  
 
                             
 
  $ 26,785     $ 26,781     $ 5,760     $ 23,269     $  
 
                             
1   Based on analysis of the nature of risks of the Bank’s investments in MPF loans, including its methodologies for identifying and measuring impairment, the management of the FHLBNY has determined that presenting such loans as a single class is appropriate.
 
2   Insured loans were not considered impaired. The Bank does not recognize interest received as income from uninsured loans past due 90-days or greater.

 

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Mortgage loans — Interest on Non-performing loans
The FHLBNY’s interest contractually due and actually received for non-performing loans were as follows (in thousands):
                 
    Three months ended March 31,  
    2011     2010  
Interest contractually due 1
  $ 407     $ 310  
Interest actually received
    372       279  
 
           
 
Shortfall
  $ 35     $ 31  
 
           
1   The Bank does not recognize interest received as income from uninsured loans past due 90-days or greater.
Recorded investments 1 in MPF loans that were past due loans and real-estate owned are summarized below (in thousands):
                                                 
    March 31, 2011     December 31, 2010  
    Conventional     Insured     Other     Conventional     Insured     Other  
    MPF Loans     Loans     Loans     MPF Loans     Loans     Loans  
Mortgage loans:
                                               
Past due 30 - 59 days
  $ 22,773     $ 767     $     $ 19,651     $ 768     $  
Past due 60 - 89 days
    6,011       112             6,437       207        
Past due 90 days or more
    27,526       530             26,785       577        
 
                                   
Total past due
    56,310       1,409             52,873       1,552        
 
                                   
Total current loans
    1,220,268       4,865       279       1,214,725       4,119       3,799  
 
                                   
Total mortgage loans
  $ 1,276,578     $ 6,274     $ 279     $ 1,267,598     $ 5,671     $ 3,799  
 
                                   
Other delinquency statistics:
                                               
Loans in process of foreclosure, included above
  $ 16,976     $ 325     $     $ 14,615     $ 284     $  
 
                                   
Serious delinquency rate
    2.21 %     8.40 %     %     2.14 %     10.11 %     %
 
                                   
Serious delinquent loans total used in calculation of serious delinquency rate
  $ 28,214     $ 527     $     $ 27,112     $ 573     $  
 
                                   
Past due 90 days or more and still accruing interest
  $     $ 527     $     $     $ 573     $  
 
                                   
Loans on non-accrual status
  $ 27,526     $     $     $ 26,785     $     $  
 
                                   
Troubled debt restructurings
  $     $     $     $     $     $  
 
                                   
Real estate owned
  $ 670                     $ 600                  
 
                                           
1   Recorded investments include accrued interest receivable and would not equal reported carrying values.
Certain comparative data were reclassified to conform to the presentation adopted as of March 31, 2011, and had no impact on the financial conditions, results of operations or cash flows since the reclassification impacted disclosures only.
Note 8. Deposits.
The FHLBNY accepts demand, overnight and term deposits from its members. A member that services mortgage loans may deposit in the FHLBNY funds collected in connection with the mortgage loans, pending disbursement of such funds to the owners of the mortgage loans.
The following table summarizes term deposits (in thousands):
                 
    March 31, 2011     December 31, 2010  
 
Due in one year or less
  $ 43,800     $ 42,700  
 
           
 
               
Total term deposits
  $ 43,800     $ 42,700  
 
           
Note 9. Borrowings.
Securities sold under agreements to repurchase
The FHLBNY did not have any securities sold under agreement to repurchase as of March 31, 2011 and December 31, 2010. Terms, amounts and outstanding balances of borrowings from other Federal Home Loan Banks are described under Note 18 — 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.
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.

 

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The FHLBNY met the qualifying unpledged asset requirements as follows:
                 
    March 31, 2011     December 31, 2010  
Percentage of unpledged qualifying assets to consolidated obligations
    110 %     110 %
 
           
The following summarizes consolidated obligations issued by the FHLBNY and outstanding at March 31, 2011 and December 31, 2010 (in thousands):
                 
    March 31, 2011     December 31, 2010  
 
               
Consolidated obligation bonds-amortized cost
  $ 68,050,887     $ 71,114,070  
Fair value basis adjustments
    473,369       622,593  
Fair value basis on terminated hedges
    468       501  
FVO-valuation adjustments and accrued interest
    5,257       5,463  
 
           
 
               
Total Consolidated obligation-bonds
  $ 68,529,981     $ 71,742,627  
 
           
 
               
Discount notes-amortized cost
  $ 19,504,022     $ 19,388,317  
FVO-valuation adjustments and remaining accretion
    3,137       3,135  
 
           
 
               
Total Consolidated obligation-discount notes
  $ 19,507,159     $ 19,391,452  
 
           
Redemption Terms of consolidated obligation bonds
The following is a summary of consolidated bonds outstanding by year of maturity (dollars in thousands):
                                                 
    March 31, 2011     December 31, 2010  
            Weighted                     Weighted        
            Average     Percentage             Average     Percentage  
Maturity   Amount     Rate 1     of Total     Amount     Rate 1     of Total  
 
One year or less
  $ 32,657,200       0.82 %     48.09 %   $ 33,302,200       0.91 %     46.91 %
Over one year through two years
    13,108,225       1.38       19.30       17,037,375       1.12       24.00  
Over two years through three years
    10,607,250       2.12       15.62       9,529,950       2.21       13.43  
Over three years through four years
    4,060,080       2.65       5.98       3,689,355       2.82       5.20  
Over four years through five years
    3,777,300       2.32       5.56       4,001,400       2.36       5.64  
Over five years through six years
    573,700       3.22       0.85       462,500       3.34       0.65  
Thereafter
    3,121,315       3.91       4.60       2,959,200       4.04       4.17  
 
                                   
 
                                               
 
    67,905,070       1.49 %     100.00 %     70,981,980       1.46 %     100.00 %
 
                                       
 
                                               
Bond premiums
    176,028                       163,830                  
Bond discounts
    (30,211 )                     (31,740 )                
Fair value basis adjustments
    473,369                       622,593                  
Fair value basis adjustments on terminated hedges
    468                       501                  
FVO-valuation adjustments and accrued interest
    5,257                       5,463                  
 
                                           
 
                                               
 
  $ 68,529,981                     $ 71,742,627                  
 
                                           
1   Weighted average rate represents the weighted average coupons of bonds, unadjusted for swaps. The weighted average coupon of bonds outstanding at March 31, 2011 and December 31, 2010 represent contractual coupons payable to investors.
Amortization of bond premiums and discounts resulted in net reduction of interest expense of $12.7 million and $7.2 million for the three months ended March 31, 2011 and 2010. Amortization of basis adjustments from terminated hedges were $1.0 million and $1.6 million, and were recorded as an expense for the three months ended March 31, 2011 and 2010.
In the three months ended March 31, 2011, the Bank transferred and retired $478.6 million of consolidated obligation bonds, resulting in a charge to Net income of $52.0 million. The transfers and retirements were at negotiated market rates. There were no retirements and transfers of debt in the same period in 2010.

 

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Discount Notes
Consolidated discount notes are issued to raise short-term funds. Discount notes are consolidated obligations with original maturities of up to one year. These notes are issued at less than their face amount and redeemed at par when they mature. The FHLBNY’s outstanding consolidated discount notes were as follows (dollars in thousands):
                 
    March 31, 2011     December 31, 2010  
 
               
Par value
  $ 19,509,575     $ 19,394,503  
 
           
 
               
Amortized cost
  $ 19,504,022     $ 19,388,317  
Fair value option valuation adjustments
    3,137       3,135  
 
           
 
               
Total
  $ 19,507,159     $ 19,391,452  
 
           
 
               
Weighted average interest rate
    0.11 %     0.16 %
 
           
Note 11. Capital Stock and Mandatorily Redeemable Capital Stock.
The FHLBanks, including the FHLBNY, have a cooperative structure. To access FHLBNY’s products and services, a financial institution must be approved for membership and purchase capital stock in FHLBNY. A member’s 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 member’s minimum requirement is held by both the member and the FHLBNY.
Under the Gramm-Leach-Bliley Act of 1999 (“GLB Act”) and the Finance Agency’s capital regulations, the FHLBNY’s 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 member’s 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. The latter ratio does not include the 1.5 weighting factor applicable to the permanent capital used in determining compliance with the 5.0 percent minimum leverage ratio.
Capital Plan under GLB Act
The FHLBNY implemented its current capital plan on December 1, 2005 through the issuance of Class B stock. The conversion was considered a capital exchange and was accounted for at par value. Members’ capital stock held immediately prior to the conversion date was automatically exchanged for an equal amount of Class B Capital Stock, comprised of Membership Stock (referred to as “Subclass B1 Stock”) and Activity-Based Stock (referred to as “Subclass B2 Stock”).
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-member’s 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 an amount of permanent capital greater than what is required 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 FHLBNY’s Capital Plan allows the Bank to recalculate the membership stock purchase requirement any time after 30 days subsequent to a merger. The Capital 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. The Capital Plan would allow the FHLBNY to determine that all of the membership stock formerly held by the member becomes excess stock, which would give the FHLBNY the discretion, but not the obligation, to repurchase that stock prior to the expiration of the five-year notice period.

 

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Capital Standards
The GLB Act specifies that the FHLBanks must meet certain minimum capital standards, including the maintenance of a minimum level of permanent capital sufficient to cover the credit, market, and operations risks to which the FHLBanks are subject. The FHLBNY must maintain: (1) a total capital ratio of at least 4.0%; (2) a leverage capital ratio of at least 5.0%; and (3) permanent capital in an amount equal to or greater than the “risk-based capital requirement” specified in the Finance Agency’s regulations. The capital requirements are described in greater detail below.
The total capital ratio is the ratio of the FHLBNY’s total capital to its total assets. Total capital is the sum of: (1) capital stock; (2) retained earnings; (3) the general allowance for losses (if any); and (4) such other amounts (if any) that the Finance Agency may decide are appropriate to include. Finance Agency regulations require that the FHLBNY maintain a minimum total capital ratio of 4.0%.
The leverage ratio is the weighted ratio of total capital to total assets. For purposes of determining this weighted average ratio, total capital is computed by multiplying the FHLBNY’s permanent capital by 1.5 and adding to this product all other components of total capital. Finance Agency regulations require that the FHLBNY maintain a minimum leverage ratio of 5.0%.
The Finance Agency has established criteria for each of the following capital classifications, based on the amount and type of capital held by an FHLBank: adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. This regulation defines critical capital levels for the FHLBanks, establishes the criteria for each of the capital classifications identified in the Housing Act and implements the Finance Agency’s prompt correction action authority over the FHLBanks. On July 20, 2009, the Finance Agency published Advisory Bulletin 2009-AB-01, which identified preliminary FHLBank capital classifications as a form of supervisory correspondence that should be treated by an FHLBank as unpublished information. Under this Advisory Bulletin, preliminary FHLBank capital classifications should be publicly disclosed only if the information is material to that FHLBank’s financial condition and business operations, provided that the disclosure is limited to a recital of the factual content of the unpublished information. (See Note 14 to the audited financial statements filed on March 25, 2011).
The FHLBNY met the “adequately capitalized” classification, which is the highest rating, under the Capital Rule. However, the Finance Agency has discretion to reclassify an FHLBank and to modify or add to the corrective action requirements for a particular capital classification.
Risk-based capital
The following table summarizes the Bank’s risk-based capital ratios (dollars in thousands):
                                 
    March 31, 2011     December 31, 2010  
    Required4     Actual     Required4     Actual  
Regulatory capital requirements:
                               
Risk-based capital1
  $ 548,640     $ 5,099,440     $ 538,917     $ 5,304,272  
Total capital-to-asset ratio
    4.00 %     5.27 %     4.00 %     5.30 %
Total capital2
  $ 3,874,953     $ 5,106,409     $ 4,008,483     $ 5,310,032  
Leverage ratio
    5.00 %     7.90 %     5.00 %     7.95 %
Leverage capital3
  $ 4,843,692     $ 7,656,129     $ 5,010,604     $ 7,962,168  
1   Actual “Risk-based capital” is capital stock and retained earnings plus mandatorily redeemable capital stock. Section 932.2 of the Finance Agency’s regulations also refers to this amount as “Permanent Capital.”
 
2   Required “Total capital” is 4.0% 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.
Mandatorily redeemable capital stock
Generally, the FHLBNY’s capital stock is redeemable at the option of either the member or the FHLBNY subject to certain conditions, including the provisions under the accounting guidance for certain financial instruments with characteristics of both liabilities and equity.
In accordance with the accounting guidance for certain financial instruments with characteristics of both liabilities and equity, the FHLBNY generally reclassifies the stock subject to redemption from equity to a liability once a member: irrevocably exercises a written redemption right; gives notice of intent to withdraw from membership; or attains non-member status by merger or acquisition, charter termination, or involuntary termination from membership. Under such circumstances, the member shares will then meet the definition of a mandatorily redeemable financial instrument and are reclassified to a liability at fair value. Dividends on member shares are accrued and also classified as a liability in the Statements of Condition and reported as interest expense in the Statements of Income. The repayment of these mandatorily redeemable financial instruments, once settled, is reflected as financing cash outflows in the Statements of Cash Flows.
If a member cancels its notice of voluntary withdrawal, the FHLBNY will reclassify the mandatorily redeemable capital stock from a liability to equity. After the reclassification, dividends on the capital stock will no longer be classified as interest expense.

 

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Anticipated redemptions of mandatorily redeemable capital stock were as follows (in thousands):
                 
    March 31, 2011     December 31, 2010  
 
Redemption less than one year
  $ 37,418     $ 27,875  
Redemption from one year to less than three years
    4,959       17,019  
Redemption from three years to less than five years
    459       2,035  
Redemption after five years or greater
    16,290       16,290  
 
           
 
               
Total
  $ 59,126     $ 63,219  
 
           
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 has exercised its discretionary authority provided under its Capital Plan to also redeem non-members’ membership stock.
Voluntary withdrawal from membership — As of March 31, 2011, one member had formally notified the Bank of its intent to withdraw from membership and voluntarily redeem its capital stock. There was one termination from membership due to insolvency for the three months ended March 31, 2011. In the same period in 2010, two members became non-members due to insolvency.
Members acquired by non-members — No member became a non-member during the three months ended March 31, 2011 and in the same period in 2010. When a member is acquired by a non-member, the FHLBNY reclassifies stock of the member to a liability on the day the member’s charter is dissolved. Under existing practice, the FHLBNY repurchases stock held by former members if such stock is considered “excess” and is no longer required to support outstanding advances. Membership stock held by former members is reviewed and repurchased annually.
The following table provides roll-forward information with respect to changes in mandatorily redeemable capital stock liabilities (in thousands):
                 
    Three months ended March 31,  
    2011     2010  
 
Beginning balance
  $ 63,219     $ 126,294  
Capital stock subject to mandatory redemption reclassified from equity
    98       1,410  
Redemption of mandatorily redeemable capital stock 1
    (4,191 )     (22,512 )
 
           
 
               
Ending balance
  $ 59,126     $ 105,192  
 
           
 
               
Accrued interest payable
  $ 847     $ 1,495  
 
           
1   Redemption includes repayment of excess stock.
(The annualized accrual rates were 5.80% for March 31, 2011 and 5.60% for March 31, 2010.)
Note 12. Total Comprehensive Income.
Total comprehensive income is comprised of Net income and Accumulated other comprehensive income (loss) (“AOCI”), which includes unrealized gains and losses on available-for-sale securities, cash flow hedging activities, employee supplemental retirement plans, and the non-credit portion of OTTI on HTM securities. Changes in AOCI and total comprehensive income were as follows for the three months ended March 31, 2011 and 2010 (in thousands):
                                                                 
            Non-credit     Reclassification                     Accumulated                
    Available-     OTTI on HTM     of Non-credit     Cash     Supplemental     Other             Total  
    for-sale     Securities,     OTTI to     Flow     Retirement     Comprehensive     Net     Comprehensive  
    Securities     Net of accretion     Net Income     Hedges     Plans     Income (Loss)     Income     Income  
Balance, December 31, 2009
    (3,409 )     (113,562 )     2,992       (22,683 )     (7,877 )     (144,539 )                
 
                                                               
Net change
    14,930       2,363       1,595       2,132             21,020     $ 53,640     $ 74,660  
 
                                               
 
                                                               
Balance, March 31, 2010
  $ 11,521     $ (111,199 )   $ 4,587     $ (20,551 )   $ (7,877 )   $ (123,519 )                
 
                                                   
 
                                                               
Balance, December 31, 2010
    22,965       (101,560 )     8,634       (15,196 )     (11,527 )     (96,684 )                
 
                                                               
Net change
    (7,986 )     3,285       370       3,728             (603 )   $ 70,981     $ 70,378  
 
                                               
 
                                                               
Balance, March 31, 2011
  $ 14,979     $ (98,275 )   $ 9,004     $ (11,468 )   $ (11,527 )   $ (97,287 )                
 
                                                   

 

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Note 13. Earnings Per Share of Capital.
The following table sets forth the computation of earnings per share (dollars in thousands except per share amounts):
                 
    Three months ended March 31,  
    2011     2010  
 
Net income
  $ 70,981     $ 53,640  
 
           
 
               
Net income available to stockholders
  $ 70,981     $ 53,640  
 
           
 
               
Weighted average shares of capital
    44,733       50,372  
Less: Mandatorily redeemable capital stock
    (592 )     (1,084 )
 
           
Average number of shares of capital used to calculate earnings per share
    44,141       49,288  
 
           
 
               
Basic earnings per share
  $ 1.61     $ 1.09  
 
           
Basic and diluted earnings per share of capital are the same. The FHLBNY has no dilutive potential common shares or other common stock equivalents.
Note 14. 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 Bank’s 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 plan’s liability consists of the accumulated compensation deferrals and accrued interest on the deferrals. The BEP is an unfunded plan. The Bank has a grantors trust to meet future benefit obligations and current payments to beneficiaries in the 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.
Retirement Plan Expenses Summary
The following table presents employee retirement plan expenses for the three months ended March 31, 2011 and 2010 (in thousands):
                 
    Three months ended March 31,  
    2011     2010  
 
Defined Benefit Plan
  $ 26,467     $ 1,312  
Benefit Equalization Plan (defined benefit)
    695       570  
Defined Contribution Plan
    351       235  
Postretirement Health Benefit Plan
    285       281  
 
           
 
               
Total retirement plan expenses
  $ 27,798     $ 2,398  
 
           
In March 2011, the FHLBNY contributed $24.0 million to its Defined Benefit Plan to eliminate a funding shortfall. Prior to the contribution, the DB Plan’s adjusted funding target attainment percentage (“AFTAP”) was 79.93% (80%). The AFTAP equals DB Plan assets divided by plan liabilities. Under the Pension Protection Act of 2006 (“PPA”), if the AFTAP in any future year is less than 80%, then the DB Plan will be restricted in its ability to provided increased benefits and /or lump sum distributions. If the AFTAP in any future year is less than 60%, then benefit accruals will be frozen. The contribution to the DB Plan was charged to Net income for the three months ended March 31, 2011. Subsequent to the contribution, the AFTAP was about 96%.
Components of the net periodic pension cost for the defined benefit component of the BEP, an unfunded plan, were as follows (in thousands):
                 
    Three months ended March 31,  
    2011     2010  
Service cost
  $ 165     $ 163  
Interest cost
    323       279  
Amortization of unrecognized prior service cost
    (13 )     (17 )
Amortization of unrecognized net loss
    220       145  
 
           
 
               
Net periodic benefit cost
  $ 695     $ 570  
 
           

 

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Key assumptions and other information for the actuarial calculations to determine current period’s benefit obligations for the BEP plan were as follows (dollars in thousands):
                 
    March 31, 2011     December 31, 2010  
 
               
Discount rate *
    5.35 %     5.35 %
Salary increases
    5.50 %     5.50 %
Amortization period (years)
    8       8  
Benefits paid during the period
  $ (1,006 )**   $ (515 )
*   The discount rate was based on the Citigroup Pension Liability Index at December 31, 2010 and adjusted for duration.
 
**   Forecast for the entire year.
Postretirement Health Benefit Plan
The FHLBNY has a postretirement health benefit plan for retirees called the Retiree Medical Benefit Plan. Employees over the age of 55 are eligible provided they have completed ten years of service after age 45.
Components of the net periodic benefit cost for the postretirement health benefit plan were (in thousands):
                 
    Three months ended March 31,  
    2011     2010  
 
               
Service cost (benefits attributed to service during the period)
  $ 180     $ 157  
Interest cost on accumulated postretirement health benefit obligation
    221       229  
Amortization of loss
    67       78  
Amortization of prior service cost/(credit)
    (183 )     (183 )
 
           
Net periodic postretirement health benefit cost
  $ 285     $ 281  
 
           
The measurement date used to determine current period’s benefit obligation was December 31, 2010.
Key assumptions and other information to determine current period’s obligation for the postretirement health benefit plan were as follows:
                 
    March 31, 2011     December 31, 2010  
 
               
Weighted average discount rate
    5.35 %     5.35 %
 
               
Health care cost trend rates:
               
Assumed for next year
    9.00 %     9.00 %
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, 2010 and adjusted for duration.
Note 15. 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 FHLBNY’s risk management program. These strategies also comply with the Finance Agency’s 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 (“FVO”) 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. The FHLBNY elected to use the FVO for certain consolidated obligation debt and executed interest rate swaps to offset the fair value changes of the bonds.

 

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The FHLBNY, consistent with Finance Agency’s 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 to use the FVO for certain consolidated obligation bonds and discount notes and these were measured under the accounting standards at fair value. To mitigate the volatility resulting from changes in fair values of bonds and notes designated under the FVO, the Bank has also executed interest rate swaps as economic hedges of the bonds and notes.
The FHLBNY has issued variable-rate consolidated obligations bonds indexed to 1 month-LIBOR, the U.S. Prime rate, or Federal funds rate and simultaneously executed interest-rate swaps (“basis swaps”) to hedge the basis risk of the variable rate debt to 3-month LIBOR, the FHLBNY’s preferred funding base. The interest rate basis swaps were accounted for 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 fixed-rate advance borrowed by a member, the FHLBNY may purchase from the member a put option that enables the FHLBNY to effectively convert an advance from fixed-rate to floating-rate by exercising the put option and terminating the advance at par on the pre-determined put exercise dates. Typically, the FHLBNY will exercise the option in a rising interest rate environment. The FHLBNY may hedge a putable advance by entering into a cancelable interest rate swap in which the FHLBNY pays to the swap counterparty fixed-rate cash flows and receives variable-rate cash flows. This type of hedge is treated as a fair value hedge under the accounting standards for derivatives and hedging. The swap counterparty can cancel the swap on the put date, which would normally occur in a rising rate environment, and the FHLBNY can terminate the advance and extend additional credit to the member on new terms.
The optionality embedded in certain financial instruments held by the FHLBNY can create interest-rate risk. When a member prepays an advance, the FHLBNY could suffer lower future income if the principal portion of the prepaid advance were reinvested in lower-yielding assets that would continue to be funded by higher-cost debt. To protect against this risk, the FHLBNY generally charges a prepayment fee that makes it financially indifferent to a borrower’s decision to prepay an advance. When the Bank offers advances (other than short-term) that are prepayable by members 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. Net income would decline if the FHLBNY replaced the mortgages with lower yielding assets and if the Bank’s higher funding costs were not reduced concomitantly. 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 that 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.
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.

 

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The Bank has not elected to use the FVO for any mortgage loans. No mortgage loan has been hedged with a derivative. The Bank considers a “delivery commitment” to purchase mortgage loans to be a derivative. See description below for the accounting of delivery commitments.
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, recording 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 in any periods in this report.
Forward Settlements — There were no forward settled securities that would settle outside the shortest period of time for the settlement of such securities in any period ends in this report.
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.
In the three months ended March 31, 2011, the Bank entered into an interest rate swap agreement with an unrelated swap dealer and designated it as a hedge of the variable quarterly interest payments on a 9-year discount note borrowing program expected to be accomplished by a series of issuances of $150.0 million discount notes with 91-day terms. The FHLBNY will continue issuing new 91-day discount notes over the next 9 years as each outstanding discount note matures. The interest on the FHLBank discount note is expected to be highly correlated with 3-month LIBOR and will be determined each time the note is issued. The interest rate swap requires a settlement every 91 days, and the variable rate, which is based on the 3-month LIBOR, is reset immediately following each payment. The swap is expected to eliminate the risk of variability of cash flows for each forecasted discount note issuances every 91 days. The FHLBNY performs prospective hedge effectiveness analysis every 91 days and a retrospective hedge effectiveness analysis every quarter. The fair value of the interest rate swap is recorded in AOCI and ineffectiveness, if any, is measured using the “hypothetical derivative method” and recorded in earnings. The effective portion remains in AOCI. The Bank monitors the credit standing of the derivative counterparty each quarter.
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. Fair values of the swaps sold to members net of the fair values of swaps purchased from derivative counterparties were not material at any periods in this report. 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 — 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 hedging 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 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. (4) Interest rate swaps executed to offset the fair value changes of bonds designated under the FVO.
The FHLBNY is not a derivatives dealer and does not trade derivatives for short-term profit.
Credit Risk — The FHLBNY is subject to credit risk due to the risk of nonperformance by counterparties to the derivative agreements. The FHLBNY transacts most of its derivatives with 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 Agency’s regulations. In determining credit risk, the FHLBNY considers accrued interest receivables and payables, and the legal right to offset assets and liabilities by counterparty.

 

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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 March 31, 2011 and December 31, 2010, the Bank’s credit exposure, representing derivatives in a fair value net gain position, was approximately $25.0 million and $22.0 million after the recognition of any cash collateral held by the FHLBNY. The credit exposures at March 31, 2011 and December 31, 2010 included $19.2 million and $6.1 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. Derivative counterparties’ exposure to the FHLBNY is measured by derivatives in a fair value loss position from the FHLBNY’s perspective, which from the counterparties’ perspective is a gain. At March 31, 2011 and December 31, 2010, derivatives in a net unrealized loss position, which represented the counterparties’ exposure to the potential non-performance risk of the FHLBNY, were $839.7 million and $954.9 million after deducting $1.9 billion and $2.7 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 FHLBNY’s cash pledged is exposed to credit risk. Derivative counterparties holding the FHLBNY’s cash as pledged collateral were rated Single-A or better at March 31, 2011, and based on credit analyses and collateral requirements, the management of the FHLBNY does not anticipate any credit losses on its derivative agreements.
Impact of rating downgrade — The FHLBNY transacts in derivative transactions directly with unaffiliated derivatives dealers under ISDA agreements. Each of the ISDA agreements also includes Credit Support Amount (“CSA”) provisions, which provide for collateral postings at various ratings and threshold levels and the continuation of the FHLBNY’s status as a government sponsored enterprise (“GSE”). The aggregate fair value of the FHLBNY’s derivative instruments that were in a net liability position at March 31, 2011 was approximately $839.7 million. Many of the CSA agreements stipulate that so long as the FHLBNY retains its GSE status, ratings downgrades would not result in the posting of additional collateral. Other CSA agreements would require the FHLBNY to post additional collateral based solely on an adverse change in the credit rating of the FHLBNY. On the assumption that the FHLBNY will retain its status as a GSE, the FHLBNY estimates that at March 31, 2011, a one-notch downgrade of FHLBNY’s credit rating (currently is assigned Triple-A by both Moody’s and S&P) to Aa by Moody’s Investor Services (Moody’s) and AA by Standard & Poor’s (S&P), would permit counterparties to make additional collateral calls of up to $440.3 million. Additional collateral postings upon downgrade are estimated based on the factors in the individual collateral posting provisions of the CSA with each counterparty and current exposure as of March 31, 2011.

 

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The following table summarizes outstanding notional balances and estimated fair values of the derivatives outstanding (in thousands):
                         
    March 31, 2011  
    Notional Amount of             Derivative  
    Derivatives     Derivative Assets     Liabilities  
Fair value of derivatives instruments
                       
Derivatives designated in hedging relationships
                       
Interest rate swaps-fair value hedges
  $ 91,722,304     $ 853,120     $ 3,590,893  
Interest rate swaps-cash flow hedges
    205,000       2,357        
 
                 
Total derivatives in hedging instruments
    91,927,304       855,477       3,590,893  
 
                 
 
                       
Derivatives not designated as hedging instruments
                       
Interest rate swaps
    23,897,530       22,248       13,403  
Interest rate caps or floors
    1,900,000       38,290       105  
Mortgage delivery commitments
    25,197       73       29  
Other*
    550,000       6,265       5,634  
 
                 
Total derivatives not designated as hedging instruments
    26,372,727       66,876       19,171  
 
                 
 
                       
Total derivatives before netting and collateral adjustments
  $ 118,300,031       922,353       3,610,064  
 
                 
Netting adjustments
            (897,389 )     (897,389 )
Cash collateral and related accrued interest
                  (1,872,965 )
 
                   
Total collateral and netting adjustments
            (897,389 )     (2,770,354 )
 
                   
Total reported on the Statements of Condition
          $ 24,964     $ 839,710  
 
                   
                         
    December 31, 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
  $ 93,840,813     $ 944,807     $ 4,661,102  
Interest rate swaps-cash flow hedges
                 
 
                 
Total derivatives in hedging instruments
    93,840,813       944,807       4,661,102  
 
                 
 
                       
Derivatives not designated as hedging instruments
                       
Interest rate swaps
    24,400,547       23,911       12,543  
Interest rate caps or floors
    1,900,000       41,881       107  
Mortgage delivery commitments
    29,993       9       523  
Other*
    550,000       6,069       5,392  
 
                 
Total derivatives not designated as hedging instruments
    26,880,540       71,870       18,565  
 
                 
 
                       
Total derivatives before netting and collateral adjustments
  $ 120,721,353       1,016,677       4,679,667  
 
                 
Netting adjustments
            (994,667 )     (994,667 )
Cash collateral and related accrued interest
                  (2,730,102 )
 
                   
Total collateral and netting adjustments
            (994,667 )     (3,724,769 )
 
                   
Total reported on the Statements of Condition
          $ 22,010     $ 954,898  
 
                   
*   Other: Comprised of swaps intermediated for members.
The categories “Fair value”, “Mortgage delivery commitment”, and “Cash Flow” hedges — represent derivative transactions in hedging relationships. If any such hedges do not qualify for hedge accounting under the accounting standards for derivatives and hedging, they are classified as “Economic” hedges. Changes in fair values of economic hedges are recorded through the income statement without the offset of corresponding changes in the fair value of the hedged item. Changes in fair values of qualifying derivative transactions designated in fair value hedges are recorded through the income statement with the offset of corresponding changes in the fair values of the hedged items. The effective portion of changes in the fair values of derivatives designated in a qualifying cash flow hedge is recorded in Accumulated other comprehensive income (loss).

 

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Earnings impact of derivatives and hedging activities
Net realized and unrealized gain (loss) on derivatives and hedging activities
The FHLBNY carries all derivative instruments on the Statements of Condition at fair value as Derivative Assets and Derivative Liabilities. If derivatives meet the hedging criteria under hedge accounting rules, including effectiveness measures, changes in fair value of the associated hedged financial instrument attributable to the risk being hedged (benchmark interest-rate risk, which is LIBOR for the FHLBNY) may also be recorded so that some or all of the unrealized fair value gains or losses recognized on the derivatives are offset by corresponding unrealized gains or losses on the associated hedged financial assets and liabilities. The net differential between fair value changes of the derivatives and the hedged items represent hedge ineffectiveness. Hedge ineffectiveness 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 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 are also recorded in Other income (loss) as an unrealized (loss) or gain from Instruments held at fair value.
Components of hedging gains and losses from derivatives and hedging activities for the three months ended March 31, 2011 are summarized below (in thousands):
                                 
    Three months ended March 31, 2011  
                            Effect of  
                            Derivatives on  
    Gain (Loss) on     Gain (Loss) on     Earnings     Net Interest  
    Derivative     Hedged Item     Impact     Income 1  
 
                               
Derivatives designated as hedging instruments
                               
Interest rate swaps
                               
Advances
  $ 551,846     $ (495,509 )   $ 56,337     $ (440,823 )
Consolidated obligations
    (146,891 )     148,688       1,797       134,999  
 
                       
Net gain (loss) related to fair value hedges
    404,955       (346,821 )     58,134       (305,824 )
 
                       
 
                               
Derivatives not designated as hedging instruments
                               
Interest rate swaps
                               
Advances
    683             683        
Consolidated obligations-bonds
    (211 )           (211 )      
Consolidated obligations-discount notes
                       
Member intermediation
    (46 )           (46 )      
Balance sheet-macro hedges swaps
                       
Accrued interest-swaps
    2,703             2,703        
Accrued interest-intermediation
    46             46        
Caps and floors
                               
Advances
    (18 )           (18 )      
Balance sheet
    (3,589 )           (3,589 )      
Accrued interest-options
                       
Mortgage delivery commitments
    169             169        
Swaps economically hedging instruments designated under FVO
                               
Consolidated obligations-bonds
    (2,594 )           (2,594 )      
Consolidated obligations-discount notes
    (861 )           (861 )      
Accrued interest on swaps
    10,154             10,154        
 
                       
Net gain (loss) related to derivatives not designated as hedging instruments
    6,436             6,436        
 
                       
Total
  $ 411,391     $ (346,821 )   $ 64,570     $ (305,824 )
 
                       

 

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Components of hedging gains and losses from derivatives and hedging activities for the three months ended March 31, 2010 are summarized below (in thousands):
                                 
    Three months ended March 31, 2010  
                            Effect of  
                            Derivatives on  
    Gain (Loss) on     Gain (Loss) on     Earnings     Net Interest  
    Derivative     Hedged Item     Impact     Income 1  
 
                               
Derivatives designated as hedging instruments
                               
Interest rate swaps
                               
Advances
  $ (152,087 )   $ 152,706     $ 619     $ (530,377 )
Consolidated obligations
    52,236       (48,232 )     4,004       172,777  
 
                       
Net gain (loss) related to fair value hedges
    (99,851 )     104,474       4,623       (357,600 )
 
                       
 
                               
Derivatives not designated as hedging instruments
                               
Interest rate swaps
                               
Advances
    (840 )           (840 )      
Consolidated obligations-bonds
    (13,309 )           (13,309 )      
Consolidated obligations-discount notes
    (2,332 )           (2,332 )      
Member intermediation
    (3 )           (3 )      
Balance sheet-macro hedges swaps
    173             173        
Accrued interest-swaps
    29,469             29,469        
Accrued interest-intermediation
    23             23        
Caps and floors
                               
Advances
    (289 )           (289 )      
Balance sheet
    (30,427 )           (30,427 )      
Accrued interest-options
    (1,989 )           (1,989 )      
Mortgage delivery commitments
    149             149        
Swaps economically hedging instruments designated under FVO
                               
Consolidated obligations-bonds
    6,638             6,638        
Consolidated obligations-discount notes
                       
Accrued interest on swaps
    7,751             7,751        
 
                       
Net gain (loss) related to derivatives not designated as hedging instruments
    (4,986 )           (4,986 )      
 
                       
Total
  $ (104,837 )   $ 104,474     $ (363 )   $ (357,600 )
 
                       
1   Represents interest expense and income generated from hedge qualifying interest-rate swaps that were recorded with interest income and expense of the hedged — bonds, discount notes, and advances.
Cash Flow hedges
For the three months ended March 31, 2011, the Bank entered into an interest rate swap agreement with an unrelated swap dealer and designated it as a hedge of the variable quarterly interest payments on a 9-year discount note borrowing program expected to be accomplished by a series of issuances of $150.0 million discount notes with 91-day terms. The FHLBNY will continue issuing new 91-day discount notes over the next 9 years as each outstanding discount note matures. The interest on the FHLBank discount note is expected to be highly correlated with 3-month LIBOR and will be determined each time the note is issued. The interest rate swap requires a settlement every 91 days, and the variable rate, which is based on the 3-month LIBOR, is reset immediately following each payment. The swap is expected to eliminate the risk of variability of in cash flows for each forecasted discount note issuances every 91 days. The FHLBNY performs prospective hedge effectiveness analysis every 91 days and a retrospective hedge effectiveness analysis every quarter. The fair value of the interest rate swap is recorded in AOCI and ineffectiveness, if any, is measured using the “hypothetical derivative method” and recorded in earnings. The effective portion remains in AOCI and is reclassified into earnings in the same period during which the hedged forecasted 91 day discount note expense affects earnings. The Bank monitors the credit standing of the derivative counterparty each quarter. The notional amount of the interest rate swap outstanding under this program was $150.0 million at March 31, 2011 and the fair value recorded in AOCI was an unrealized gain of $1.9 million.
From time-to-time, the Bank executes interest rate swaps on the anticipated issuance of debt to “lock in” a spread between the earning asset and the cost of funding. The hedges are accounted under cash flow hedging rules and the effective portion of changes in the fair values of the swaps is recorded in AOCI. The ineffective portion is recorded through net income. 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. The maximum period of time that the Bank typically hedges its exposure to the variability in future cash flows for forecasted transactions is between three and six months. At March 31, 2011, the Bank had open contracts of $55.0 million of swaps to hedge the anticipated issuances of debt. The fair values of the open contracts recorded in AOCI was an unrealized gain $0.4 million at March 31, 2011. There were no open contracts at December 31, 2010. For any periods in this report, there were no material amounts 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.

 

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The amounts in AOCI from terminated cash flow hedges representing net unrecognized losses were $13.4 million and $15.2 million at March 31, 2011 and December 31, 2010. At March 31, 2011, it is expected that over the next 12 months about $3.7 million of net losses recorded in AOCI will be recognized as a yield adjustment to consolidated bond interest expense and a charge to earnings.
The effect of cash flow hedge related derivative instruments were as follows (in thousands):
                             
    Three months ended March 31, 2011  
    AOCI  
    Gains/(Losses)  
            Location:   Amount     Ineffectiveness  
    Recognized     Reclassified to   Reclassified to     Recognized in  
    in AOCI 1, 2     Earnings 1   Earnings 1     Earnings  
The effect of cash flow hedge related to Interest rate swaps
                           
Advances
  $     Interest Income   $     $  
Consolidated obligations-bonds
    772     Interest Expense     1,038        
Consolidated obligations-discount notes
    1,918     Interest Expense            
 
                     
Total
  $ 2,690         $ 1,038     $  
 
                     
                             
    Three months ended March 31, 2010  
    AOCI  
    Gains/(Losses)  
            Location:   Amount     Ineffectiveness  
    Recognized     Reclassified to   Reclassified to     Recognized in  
    in AOCI 1, 2     Earnings 1   Earnings 1     Earnings  
The effect of cash flow hedge related to Interest rate swaps
                           
Advances
  $     Interest Income   $     $  
Consolidated obligations-bonds
    392     Interest Expense     1,740        
Consolidated obligations-discount notes
        Interest Expense            
 
                     
Total
  $ 392         $ 1,740     $  
 
                     
1   Effective portion
 
2   Represents basis adjustments from cash flow hedging transactions recorded in AOCI.

 

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Note 16. 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 FHLBNY’s assets and liabilities that were measured at fair value on its Statements of Condition (in thousands):
                                         
    March 31, 2011  
                                    Netting  
    Total     Level 1     Level 2     Level 3     Adjustments  
Assets
                                       
Available-for-sale securities
                                       
GSE/U.S. agency issued MBS
  $ 3,708,872     $     $ 3,708,872     $     $  
Equity and bond funds
    10,152             10,152              
Derivative assets(a)
                                       
Interest-rate derivatives
    24,891             922,280             (897,389 )
Mortgage delivery commitments
    73             73              
 
                             
 
                                       
Total assets at fair value
  $ 3,743,988     $     $ 4,641,377     $     $ (897,389 )
 
                             
 
                                       
Liabilities
                                       
Consolidated obligations:
                                       
Discount notes (to the extent FVO is elected)
  $ (731,892 )   $     $ (731,892 )   $     $  
Bonds (to the extent FVO is elected) (b)
    (12,605,257 )           (12,605,257 )            
Derivative liabilities(a)
                                       
Interest-rate derivatives
    (839,681 )           (3,610,035 )           2,770,354  
Mortgage delivery commitments
    (29 )           (29 )            
 
                             
 
                                       
Total liabilities at fair value
  $ (14,176,859 )   $     $ (16,947,213 )   $     $ 2,770,354  
 
                             
 
                                       
    December 31, 2010  
                                    Netting  
    Total     Level 1     Level 2     Level 3     Adjustments  
Assets
                                       
Available-for-sale securities
                                       
GSE/U.S. agency issued MBS
  $ 3,980,135     $     $ 3,980,135     $     $  
Equity and bond funds
    9,947             9,947              
Derivative assets(a)
                                       
Interest-rate derivatives
    22,001             1,016,668             (994,667 )
Mortgage delivery commitments
    9             9              
 
                             
 
                                       
Total assets at fair value
  $ 4,012,092     $     $ 5,006,759     $     $ (994,667 )
 
                             
 
                                       
Liabilities
                                       
Consolidated obligations:
                                       
Discount notes (to the extent FVO is elected)
  $ (956,338 )   $     $ (956,338 )   $     $  
Bonds (to the extent FVO is elected) (b)
    (14,281,463 )           (14,281,463 )            
Derivative liabilities(a)
                                       
Interest-rate derivatives
    (954,375 )           (4,679,144 )           3,724,769  
Mortgage delivery commitments
    (523 )           (523 )            
 
                             
 
                                       
Total liabilities at fair value
  $ (16,192,699 )   $     $ (19,917,468 )   $     $ 3,724,769  
 
                             
    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, including 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 FHLBNY’s 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. 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 March 31, 2011 and December 31, 2010, the Bank measured and recorded the fair values of HTM securities deemed to be OTTI on a nonrecurring basis; that is, they were 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. At December 31, 2010, certain held-to-maturity securities were deemed OTTI and their carrying values written down and recorded at their fair values on a nonrecurring basis. There were no held-to-maturity securities that had to be written down to their fair values at March 31, 2011.

 

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The following table summarizes the fair values of MBS for which a non-recurring 1 change in fair value was recorded (in thousands):
                                 
    December 31, 2010  
    Fair Value     Level 1     Level 2     Level 3  
Held-to-maturity securities
                               
Private-label residential mortgage-backed securities
  $ 15,827     $     $     $ 15,827  
 
                       
Total
  $ 15,827     $     $     $ 15,827  
 
                       
Note:   Certain OTTI securities were written down to their fair values ($15.8 million) when it was determined that their carrying values prior to write-down ($16.3 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 December 31, 2010, the securities were recorded at their carrying values and not re-adjusted to their fair values.
 
1   March 31, 2011 — No non-recurring fair values were recorded.
Estimated fair values — Summary Tables
The carrying values and estimated fair values of the FHLBNY’s financial instruments were as follows (in thousands):
                                 
    March 31, 2011     December 31, 2010  
    Carrying     Estimated     Carrying     Estimated  
Financial Instruments   Value     Fair Value     Value     Fair Value  
Assets
                               
Cash and due from banks
  $ 2,953,801     $ 2,953,801     $ 660,873     $ 660,873  
Federal funds sold
    5,093,000       5,092,998       4,988,000       4,987,976  
Available-for-sale securities
    3,719,024       3,719,024       3,990,082       3,990,082  
Held-to-maturity securities
                               
Long-term securities
    8,042,487       8,152,867       7,761,192       7,898,300  
Advances
    75,487,377       75,600,168       81,200,336       81,292,598  
Mortgage loans held-for-portfolio, net
    1,270,891       1,325,914       1,265,804       1,328,787  
Accrued interest receivable
    250,454       250,454       287,335       287,335  
Derivative assets
    24,964       24,964       22,010       22,010  
Other financial assets
    3,032       3,032       3,981       3,981  
 
                               
Liabilities
                               
Deposits
    2,512,631       2,512,635       2,454,480       2,454,488  
Consolidated obligations:
                               
Bonds
    68,529,981       68,679,235       71,742,627       71,926,039  
Discount notes
    19,507,159       19,507,547       19,391,452       19,391,743  
Mandatorily redeemable capital stock
    59,126       59,126       63,219       63,219  
Accrued interest payable
    230,109       230,109       197,266       197,266  
Derivative liabilities
    839,710       839,710       954,898       954,898  
Other financial liabilities
    52,178       52,178       58,818       58,818  

 

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Fair Value Option Disclosures
The following table summarizes the activity related to consolidated obligation bonds and discount notes for which the Bank elected the Fair Value Option (in thousands):
                                         
    Bonds     Discount Notes *  
    March 31, 2011     December 31, 2010     March 31, 2010     March 31, 2011     December 31, 2010  
Balance, beginning of the period
  $ (14,281,463 )   $ (6,035,741 )   $ (6,035,741 )   $ (956,338 )   $  
New transactions elected for fair value option
    (12,250,000 )     (25,471,000 )     (4,420,000 )           (1,851,991 )
Maturities and terminations
    13,926,000       17,235,000       3,685,000       224,448       898,788  
Changes in fair value
    316       (2,556 )     (8,419 )     424       (787 )
Changes in accrued interest/unaccreted balance
    (110 )     (7,166 )     (1,453 )     (426 )     (2,348 )
 
                             
 
                                       
Balance, end of the period
  $ (12,605,257 )   $ (14,281,463 )   $ (6,780,613 )   $ (731,892 )   $ (956,338 )
 
                             
*   Note: Discount notes were not designated under FVO at March 31, 2010
The following table presents the change in fair value included in the Statements of Income for the consolidated obligation bonds and discount notes designated in accordance with the accounting standards on the Fair Value Option for financial assets and liabilities (in thousands):
                                                 
    Three months ended March 31,  
    2011     2010  
            Net Gain(Loss)     Total Change in Fair             Net Gain(Loss)     Total Change in Fair  
            Due to     Value Included in             Due to     Value Included in  
    Interest     Changes in     Current Period     Interest     Changes in     Current Period  
    Expense     Fair Value     Earnings     Expense     Fair Value     Earnings  
 
                                               
Consolidated obligations-bonds
  $ (13,838 )   $ 316     $ (13,522 )   $ (8,522 )   $ (8,419 )   $ (16,941 )
Consolidated obligations-discount notes
    (981 )     424       (557 )                  
 
                                   
 
  $ (14,819 )   $ 740     $ (14,079 )   $ (8,522 )   $ (8,419 )   $ (16,941 )
 
                                   
The following table compares the aggregate fair value, and aggregate remaining contractual principal balance outstanding of consolidated obligation bonds and discount notes for which the Fair Value Option has been elected (in thousands):
                                                 
    March 31, 2011     December 31, 2010  
    Principal             Fair Value     Principal             Fair Value  
    Balance     Fair Value     Over/(Under)     Balance     Fair Value     Over/(Under)  
 
                                               
Consolidated obligations-bonds
  $ 12,600,000     $ 12,605,257     $ 5,257     $ 14,276,000     $ 14,281,463     $ 5,463  
Consolidated obligations-discount notes
    728,755       731,892       3,137       953,203       956,338       3,135  
 
                                   
 
  $ 13,328,755     $ 13,337,149     $ 8,394     $ 15,229,203     $ 15,237,801     $ 8,598  
 
                                   
Notes to Estimated Fair Values of Financial Instruments
The fair value of a financial instrument 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 liability’s 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. 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 FHLBNY’s financial instruments, in certain cases, fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change.
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.

 

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Investment securities
The Bank requests prices for all mortgage-backed securities from four third-party vendors, and depending on the number of prices received for each security, selects a median or average price as defined by the methodology. If four prices are received by the FHLBNY from the pricing vendors, the average of the middle two prices is used; if three prices are received, the middle price is used; if two prices are received, the average of the two prices is used; and if one price is received, it is subject to additional validation.
The FHLBNY routinely performs a comparison analysis of pricing to understand pricing trends and to establish a means of validating changes in pricing from period to period. The computed prices are tested for reasonableness using tolerance thresholds. Prices within the established thresholds are generally accepted unless strong evidence suggests that using the median pricing methodology 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.
Four vendor prices were received for substantially all of the FHLBNY’s MBS holdings and substantially all of those prices fell within the specified thresholds. The relative proximity of the prices received supported the FHLBNY’s 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 FHLBNY’s management which remains responsible for the selection and application of its fair value methodology and determining 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 appropriate for the security. Such inputs into the pricing models employed by pricing services for the Bank’s investments are market based and observable and are considered Level 2 of the fair value hierarchy.
The valuation of the FHLBNY’s 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 the reporting dates in this Form 10-Q, 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 December 31, 2010 (none at March 31, 2011) as a result of a recognition of OTTI. For such HTM securities, their carrying values were recorded in the balance sheet at their fair values. The fair values for such securities, classified on a nonrecurring basis, were considered to be Level 3 financial instruments under the valuation hierarchy. This determination was made based on management’s 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.

 

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Accrued interest receivable and payable
The estimated fair values approximate the recorded book value because of the relatively short period of time between their origination and expected realization.
Derivative assets and liabilities
The FHLBNY’s derivatives are traded in the over-the-counter market. Discounted cash flow analysis is the primary methodology employed by the FHLBNY’s 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 industry-standard option-adjusted valuation models that utilize market inputs, which can be corroborated by widely accepted third-party sources. The Bank’s 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 model’s 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 reflects the value of the instrument including the values associated with counterparty risk and would also take into account the FHLBNY’s 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 FHLBNY’s 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 Bank’s and the counterparty’s credit ratings. As a result of these practices and agreements and the FHLBNY’s 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 such that no credit adjustments were deemed necessary to the recorded fair value of derivative assets and derivative liabilities in the Statements of Conditions in this Form 10-Q.
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 17. Commitments and Contingencies.
Consolidated obligations — Joint and several liability. Although the FHLBNY 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 the 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). As discussed more fully in Note 20 to the audited financial statements filed on March 25, 2011, the FHLBNY does not believe that it will be called upon to pay the consolidated obligations of another FHLBank in the future. Accordingly, the FHLBNY has not recognized a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations at March 31, 2011 and December 31, 2010.

 

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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 FHLBank’s 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. If principal or interest on any consolidated obligation issued by the FHLBank System is not paid in full when due, the defaulting FHLBank may not pay dividends to, or repurchase shares of stock from, any shareholder of the defaulting FHLBank. The FHLBNY did not hold any consolidated obligations of another FHLBank as investments at March 31, 2011 and December 31, 2010.
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 FHLBNY’s consolidated obligation payment plan or another remedy, and until the FHLBNY pays all the interest and principal currently due under all its consolidated obligations.
Because the FHLBNY is jointly and severally liable for debt issued by other FHLBanks, the FHLBNY has not identified consolidated obligations outstanding by primary obligor. The FHLBNY does not believe that the identification of particular banks as the primary obligors on these consolidated obligations is relevant, because all FHLBanks are jointly and severally obligated to pay all consolidated obligations. The identity of the primary obligor does not affect the FHLBNY’s investment decisions. The FHLBNY’s ownership of consolidated obligations in which other FHLBanks are primary obligors does not affect the FHLBNY’s “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. The par amounts of the outstanding consolidated obligations of all 12 FHLBanks were $0.8 trillion at March 31, 2011 and December 31, 2010.
Under the provisions of accounting standard for guarantees, the Bank would have been required to recognize the fair value of the FHLBNY’s joint and several liability for all the consolidated obligations, as discussed above. However, the FHLBNY considers the joint and several liabilities as similar to a related party guarantee, which meets the scope exception under the accounting standard for guarantees. Accordingly, the FHLBNY has not recognized the fair value of a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations at March 31, 2011 and December 31, 2010.
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 $2.4 billion and $2.3 billion as of March 31, 2011 and December 31, 2010, 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 are recorded in Other liabilities, and were not significant as of March 31, 2011 and December 31, 2010. Based on management’s 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.
Under the MPF program, the Bank was unconditionally obligated to purchase $25.2 million and $30.0 million of mortgage loans at March 31, 2011 and December 31, 2010. 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 $785.5 million and $630.6 million as of March 31, 2011 and December 31, 2010.
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 counterparty’s credit exposure. To mitigate the counterparties’ exposures, the FHLBNY deposited $1.9 billion and $2.7 billion in cash with derivative counterparties as pledged collateral at March 31, 2011 and December 31, 2010, 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 $25.0 million and $22.0 million at March 31, 2011 and December 31, 2010. At March 31, 2011 and December 31, 2010, counterparties had deposited $71.1 million and $9.3 million in cash as collateral to mitigate such an exposure.

 

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Future benefit payments for the BEP and the postretirement health benefit plan are not considered significant. The Bank expects to fund $9.9 million over the next 12 months towards the Defined Benefit Plan, a non-contributory pension plan.
The following table summarizes contractual obligations and contingencies as of March 31, 2011 (in thousands):
                                         
    March 31, 2011  
    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
  $ 32,657,200     $ 23,715,475     $ 7,837,380     $ 3,695,015     $ 67,905,070  
Mandatorily redeemable capital stock 1
    37,418       4,959       459       16,290       59,126  
Premises (lease obligations) 2
    3,060       5,997       4,674       3,506       17,237  
 
                             
 
                                       
Total contractual obligations
    32,697,678       23,726,431       7,842,513       3,714,811       67,981,433  
 
                             
 
                                       
Other commitments
                                       
Standby letters of credit
    2,366,166       19,359       41,777       3,861       2,431,163  
Consolidated obligations-bonds/ discount notes traded not settled
    4,522,000                         4,522,000  
Commitments to fund additional advances
    16,000                         16,000  
Open delivery commitments (MPF)
    25,197                         25,197  
 
                             
 
                                       
Total other commitments
    6,929,363       19,359       41,777       3,861       6,994,360  
 
                             
 
                                       
Total obligations and commitments
  $ 39,627,041     $ 23,745,790     $ 7,884,290     $ 3,718,672     $ 74,975,793  
 
                             
1   Callable bonds contain exercise date or a series of exercise dates that may result in a shorter redemption period. Mandatorily redeemable capital stock is categorized by the dates at which the corresponding advances outstanding mature. Excess capital stock is redeemed at that time, and hence, these dates better represent the related commitments than the put dates associated with capital stock, under which stock may not be redeemed until the later of five years from the date the member becomes a nonmember or the related advance matures.
 
2   Immaterial amount of commitments for equipment leases are not included.
The FHLBNY does not anticipate any credit losses from its off-balance sheet commitments and accordingly no provision for losses is required.
Impact of the bankruptcy of Lehman Brothers
On September 15, 2008, Lehman Brothers Holdings, Inc. (“LBHI”), the parent company of Lehman Brothers Special Financing Inc. (“LBSF”) and a guarantor of LBSF’s 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 Bank’s 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 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 LBSF’s Demand. LBSF served a reply on September 7, 2010, effectively reiterating its position. The mediation being conducted pursuant to the Order commenced on December 8, 2010 and concluded without settlement on March 17, 2011. Pursuant to the Order, positions taken by the parties in the ADR process are confidential.
While the Bank believes that LBSF’s position is without merit, the amount the Bank actually recovers or pays will ultimately be decided in the course of the bankruptcy proceedings.
Note 18. Related Party Transactions.
The FHLBNY is a cooperative and the members own almost all of the stock of the Bank. Any stock 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.

 

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Debt Transfers
For the three months ended March 31, 2011 and 2010, the Bank did not assume debt from another FHLBank. The Bank transferred $150.0 million (par amounts) to another FHLBank for the three months ended March 31, 2011. No bonds were transferred by the FHLBNY to another FHLBank in the same period in 2010.
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 any periods in this report.
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. Loans participated by the FHLBNY to the FHLBank of Chicago was $75.0 million and $81.2 million at March 31, 2011 and December 31, 2010 on a cumulative basis. 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 for the three months ended March 31, 2011 and 2010.
Mortgage-backed Securities
No mortgage-backed securities were acquired from other FHLBanks during the periods in this report.
Intermediation
Notional amounts of $550.0 million were outstanding both at March 31, 2011 and December 31, 2010 in which the FHLBNY acted as an intermediary to sell derivatives to members. The notionals include offsetting identical transactions with unrelated derivatives counterparties. Net fair value exposures of these transactions at March 31, 2011 and December 31, 2010 were not material. The intermediated derivative transactions were fully collateralized.
Loans to other Federal Home Loan Banks
In the three months ended March 31, 2011, FHLBNY extended one overnight loan for a total of $100.0 million to another FHLBank. For the three months ended March 31, 2010, the FHLBNY extended one overnight loan for a total of $27.0 million to another FHLBank. Generally, loans made to other FHLBanks are uncollateralized. Interest income from such loans was not significant in any period in this report.
The following tables summarize outstanding balances with related parties at March 31, 2011 and December 31, 2010, and transactions for the three months ended March 31, 2011 and 2010 (in thousands):
Related Party: Outstanding Assets, Liabilities and Capital
                                 
    March 31, 2011     December 31, 2010  
    Related     Unrelated     Related     Unrelated  
Assets
                               
Cash and due from banks
  $     $ 2,953,801     $     $ 660,873  
Federal funds sold
          5,093,000             4,988,000  
Available-for-sale securities
          3,719,024             3,990,082  
Held-to-maturity securities
                               
Long-term securities
          8,042,487             7,761,192  
Advances
    75,487,377             81,200,336        
Mortgage loans 1
          1,270,891             1,265,804  
Accrued interest receivable
    220,672       29,782       256,617       30,718  
Premises, software, and equipment
          14,919             14,932  
Derivative assets 2
          24,964             22,010  
Other assets 3
    175       16,742       113       21,393  
 
                       
 
                               
Total assets
  $ 75,708,224     $ 21,165,610     $ 81,457,066     $ 18,755,004  
 
                       
 
                               
Liabilities and capital
                               
Deposits
  $ 2,512,631     $     $ 2,454,480     $  
Consolidated obligations
          88,037,140             91,134,079  
Mandatorily redeemable capital stock
    59,126             63,219        
Accrued interest payable
    5       230,104       10       197,256  
Affordable Housing Program 4
    135,131             138,365        
Payable to REFCORP
          18,735             21,617  
Derivative liabilities 2
          839,710             954,898  
Other liabilities 5
    48,395       49,830       49,484       54,293  
 
                       
 
                               
Total liabilities
  $ 2,755,288     $ 89,175,519     $ 2,705,558     $ 92,362,143  
 
                       
 
                               
Capital
    4,943,027             5,144,369        
 
                       
 
                               
Total liabilities and capital
  $ 7,698,315     $ 89,175,519     $ 7,849,927     $ 92,362,143  
 
                       
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.

 

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Related Party: Income and Expense transactions
                                 
    Three months ended  
    March 31, 2011     March 31, 2010  
    Related     Unrelated     Related     Unrelated  
Interest income
                               
Advances
  $ 158,696     $     $ 149,640     $  
Interest-bearing deposits 1
          966             830  
Federal funds sold
          2,546             1,543  
Available-for-sale securities
          8,639             5,764  
Held-to-maturity securities
                               
Long-term securities
          71,056             98,634  
Mortgage loans 2
          15,486             16,741  
 
                       
 
                               
Total interest income
  $ 158,696     $ 98,693     $ 149,640     $ 123,512  
 
                       
 
                               
Interest expense
                               
Consolidated obligations
  $     $ 122,093     $     $ 164,570  
Deposits
    470             892        
Mandatorily redeemable capital stock
    744             1,495        
Cash collateral held and other borrowings
          9              
 
                       
 
                               
Total interest expense
  $ 1,214     $ 122,102     $ 2,387     $ 164,570  
 
                       
 
                               
Service fees and other
  $ 1,256     $     $ 1,045     $  
 
                       
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 19. Segment Information and Concentration.
The FHLBNY manages its operations as a single business segment. Management and the FHLBNY’s 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 FHLBNY’s 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 Bank’s market is the same as its membership district This 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 FHLBNY’s 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 FHLBNY’s advance portfolio and its source of revenues.
The FHLBNY’s 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.

 

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The top ten advance holders at March 31, 2011, December 31, 2010 and March 31, 2010 and associated interest income for the periods then ended are summarized as follows (dollars in thousands):
                                 
    March 31, 2011  
                    Percentage of        
            Par     Total Par Value     Three Months  
    City   State   Advances     of Advances     Interest Income  
 
                               
Hudson City Savings Bank, FSB*
  Paramus   NJ   $ 15,525,000       21.5 %   $ 158,066  
Metropolitan Life Insurance Company
  New York   NY     12,155,000       16.8       67,672  
New York Community Bank*
  Westbury   NY     7,293,162       10.1       75,256  
MetLife Bank, N.A.
  Convent Station   NJ     4,284,500       5.9       19,864  
The Prudential Insurance Co. of America
  Newark   NJ     2,500,000       3.5       15,027  
Manufacturers and Traders Trust Company
  Buffalo   NY     2,257,875       3.1       4,505  
Valley National Bank
  Wayne   NJ     2,194,500       3.0       23,987  
Astoria Federal Savings and Loan Assn.
  Lake Success   NY     2,099,000       2.9       19,141  
Investors Savings Bank
  Short Hills   NJ     1,677,007       2.3       11,431  
New York Life Insurance Company
  New York   NY     1,500,000       2.1       3,433  
 
                         
Total
          $ 51,486,044       71.2 %   $ 398,382  
 
                         
*   Officer of member bank also served on the Board of Directors of the FHLBNY.
                                 
    December 31, 2010  
                    Percentage of        
            Par     Total Par Value     Twelve Months  
    City   State   Advances     of Advances     Interest Income  
 
                               
Hudson City Savings Bank, FSB*
  Paramus   NJ   $ 17,025,000       22.1 %   $ 705,743  
Metropolitan Life Insurance Company
  New York   NY     12,555,000       16.3       294,526  
New York Community Bank*
  Westbury   NY     7,793,165       10.1       307,102  
MetLife Bank, N.A.
  Convent Station   NJ     3,789,500       4.9       61,036  
Manufacturers and Traders Trust Company
  Buffalo   NY     2,758,000       3.6       42,979  
The Prudential Insurance Co. of America
  Newark   NJ     2,500,000       3.3       77,544  
Astoria Federal Savings and Loan Assn.
  Lake Success   NY     2,391,000       3.1       107,917  
Valley National Bank
  Wayne   NJ     2,310,500       3.0       98,680  
New York Life Insurance Company
  New York   NY     1,500,000       2.0       14,678  
First Niagara Bank, National Association
  Buffalo   NY     1,473,493       1.9       24,911  
 
                         
Total
          $ 54,095,658       70.3 %   $ 1,735,116  
 
                         
*   At December 31, 2010, officer of member bank also served on the Board of Directors of the FHLBNY.
                                 
    March 31, 2010  
                    Percentage of        
            Par     Total Par Value     Three Months  
    City   State   Advances     of Advances     Interest Income  
 
                               
Hudson City Savings Bank, FSB*
  Paramus   NJ   $ 17,275,000       20.3 %   $ 174,759  
Metropolitan Life Insurance Company
  New York   NY     13,555,000       15.9       72,407  
New York Community Bank*
  Westbury   NY     7,343,172       8.6       75,913  
Manufacturers and Traders Trust Company
  Buffalo   NY     4,755,523       5.6       11,754  
The Prudential Insurance Co. of America
  Newark   NJ     3,500,000       4.1       21,577  
Astoria Federal Savings and Loan Assn.
  Lake Success   NY     2,984,000       3.5       28,487  
Valley National Bank
  Wayne   NJ     2,271,500       2.7       24,716  
Doral Bank
  San Juan   PR     2,119,420       2.5       19,258  
New York Life Insurance Company
  New York   NY     2,000,000       2.4       3,075  
MetLife Bank, N.A.
  Convent Station   NJ     1,894,500       2.2       11,693  
 
                         
Total
          $ 57,698,115       67.8 %   $ 443,639  
 
                         
*   At March 31, 2010, officer of member bank also served on the Board of Directors of the FHLBNY.

 

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The following table summarizes capital stock held by members who were beneficial owners of more than 5 percent of the FHLBNY’s outstanding capital stock as of March 31, 2011 and December 31, 2010 (shares in thousands):
                     
        Number     Percent  
    March 31, 2011   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     8,044       18.35 %
Metropolitan Life Insurance Company
  200 Park Avenue, New York, NY 10166     6,855       15.64  
New York Community Bank*
  615 Merrick Avenue, Westbury, NY 11590-6644     3,868       8.82  
 
               
 
                   
 
        18,767       42.81 %
 
               
                     
        Number     Percent  
    December 31, 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     8,719       18.99 %
Metropolitan Life Insurance Company
  200 Park Avenue, New York, NY 10166     7,035       15.32  
New York Community Bank*
  615 Merrick Avenue, Westbury, NY 11590-6644     4,093       8.91  
 
               
 
                   
 
        19,847       43.22 %
 
               
*   Officer of member bank also served on the Board of Directors of the FHLBNY.
Note 20. Subsequent Events.
Under the final guidance issued by the FASB, 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, non-recognized subsequent events).
The FHLBNY has evaluated subsequent events through the date of this report and no significant subsequent events were identified.

 

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ITEM 2.   MANAGEMENT’S 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 Bank’s filings with the Securities and Exchange Commission.

 

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Organization of Management’s Discussion and Analysis (“MD&A”).
The FHLBNY’s MD&A is designed to provide information that will assist the readers in better understanding the FHLBNY’s financial statements, the changes in key items in the Bank’s financial statements from year to year, the primary factors driving those changes as well as how accounting principles affect the FHLBNY’s financial statements. The MD&A is organized as follows:
         
    Page  
 
    49  
 
       
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    51  
 
       
    55  
 
       
    55  
 
       
    56  
 
       
    57  
 
       
    58  
 
       
    62  
 
       
    64  
 
       
    66  
 
       
    68  
 
       
    70  
 
       
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    96  
 
       
    98  
MD&A TABLE REFERENCE
             
Table(s)   Description   Page(s)  
1.1 – 1.15
  Result of Operations     55 – 66  
2.1 – 2.2
  Assessments     67  
3.1 – 3.3
  Financial Condition     68 – 69  
4.1 – 4.10
  Advances     70 – 75  
5.1 – 5.10
  Investments     76 – 81  
6.1 – 6.3
  Mortgage Loans     82 – 83  
7.1 – 7.10
  Consolidated Obligations     85 – 89  
8.1 – 8.2
  Capital     90 – 91  
9.1 – 9.5
  Derivatives     93 – 95  
10.1 – 10.4
  Liquidity     96 – 98  

 

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Executive Overview
This overview of management’s discussion and analysis highlights and selected information 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 Bank’s most recent Form 10-K filed on March 25, 2011.
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 FHLBNY’s cooperative nature, the FHLBNY’s 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 FHLBNY’s earnings on invested member capital, net earnings on advances to members, mortgage loans and investments, offset in part by the FHLBNY’s operating expenses and assessments. FHLBNY’s 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 Agency’s supervisory and regulatory framework. However, each FHLBank’s 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 the FHLBank’s 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 FHLBNY’s 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 Bank’s operational performance and business and performance trends. Although the FHLBNY believes these non-GAAP financial measures enhance investor and members’ understanding of the Bank’s 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.
2011 First Quarter Highlights
Results of Operations
The FHLBNY reported 2011 first quarter Net income of $71.0 million, or $1.61 per share compared with Net income of $53.6 million or $1.09 per share in the same period in 2010. The return on average equity, which is Net income divided by average Capital stock, Retained earnings, and Accumulated other comprehensive income (loss) (“AOCI”), was 5.74% in the 2011 period compared with 3.99% in the same period in 2010.

 

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Net income benefited from member initiated prepayments which generated $42.7 million in prepayment fees and also contributed $52.0 million in derivative and hedging gains from termination of hedges associated with the prepayments. Two prominent charges to Net income were executed to benefit and protect future income. First, the Bank absorbed $51.7 million in charges when Management made tactical changes to its funding strategy and extinguished (or transferred) certain high-coupon debt to protect its future interest margin. Second, the Bank expensed $24.0 million to Compensation and benefits in order to reduce the funding shortfall in the defined benefit pension plan. The payment was made to reduce the likelihood of higher expenses in future periods and to avoid certain restrictions to plan participants.
Net interest income was $134.1 million in the 2011 first quarter, up from $106.2 million in the same period in 2010, an increase of 26.3%. Although margins on advances were weaker relative to the 2010 first quarter and the cost of funding remained above historical levels, the increase in Net interest income was largely the result of $42.7 million in prepayment fees. In the 2011 first quarter, member-borrowers prepaid $7.1 billion of longer-term advances, in most instances, taking advantage of prevailing lower interest rates to borrow anew at the lower prevailing coupons. The FHLBNY records prepayment fees in interest income. Almost all of the prepaid advances were hedged, and as a result the amounts recorded as prepayment fees were after recovering the recorded fair values of those advances.
Lower margin was caused by run-off of higher yielding advances and mortgage-backed securities (“MBS”). Also, the Bank’s floating rate GSE-issued MBS are indexed to 3-month LIBOR which has remained at low levels in the 2011 first quarter. GSE-issued floating-rate MBS is a very significant component of the FHLBNY’s investment portfolio.
The low LIBOR rate has also tended to compress margins. The FHLBNY attempts to execute interest rate swaps to convert fixed-rate debt to a sub-LIBOR spread, but when the LIBOR rate is low, there is very little “room” for achieving a spread that would be ascribed to the triple-A rating of the FHLBank debt. As a result, on a swapped funding level, the low LIBOR rate has effectively driven up the cost of FHLBank consolidated obligation bonds and this has narrowed the FHLBNY’s margins. Yields sought by investors for longer-term FHLBank bonds still remain expensive and the pricing is not economical for the FHLBNY to offer longer-term advances even if demand exists. The FHLBank discount notes, which have maturities from overnight to one year, were also priced at very narrow sub-LIBOR spreads. The FHLBNY has continued to use discount notes as an important funding tool because of their ease of issuance and continued investor demand at sub-LIBOR spreads.
Credit related OTTI was insignificant in the 2011 first quarter, only $0.4 million compared with $3.4 million in the same period in 2010. No new MBS were impaired and the OTTI charges were primarily as a result of additional credit losses recognized on previously impaired private-label MBS because of slight deterioration in the performance parameters of the securities. The FHLBNY makes quarterly cash flow assessments of the expected credit performance of its entire portfolio of private-label MBS.
The FHLBNY recorded $64.6 million of net gains from derivative and hedging activities in the 2011 first quarter, largely benefitting from the recognition of realized gains from termination of hedges contemporaneous with the prepayments. Such hedge terminations contributed $52.0 million in net realized gains. 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, when the FHLBNY terminates these instruments prior to maturity or prior to call or put dates (such as when members request prepayments of their borrowed advances), it would result in a realized gain or loss.
Concurrent with the significant member initiated prepayments, the Bank also took the opportunity to extinguish and transfer $478.6 million of certain high-coupon debt at a cost that exceeded the carrying values of the debt by $51.7 million. The Bank will replace such debt by issuing new debt at the lower prevailing interest rate for similar maturities. This is expected to benefit margin in future periods.
Operating Expenses of the FHLBNY were $7.5 million in the 2011 first quarter, up from $6.3 million in the same period in 2010.
Compensation and benefits rose to $38.9 million in the 2011 period, up from $12.9 million in the same period in 2010. In March 2011, the FHLBNY contributed $24.0 million to its Defined Benefit Plan to eliminate a funding shortfall and the amount was charged to Compensation and benefits.
Affordable Housing Program (“AHP”) assessment set aside from income totaled $7.9 million in the 2011 first quarter, up from $6.1 million in the same period in 2010. REFCORP assessment payments totaled $17.7 million in the 2011 first quarter, up from $13.4 million in the same period in 2010. Assessments are calculated on Net income before assessments, and the increases were due to the increase in Net income in the 2011 first quarter as compared to the same period in 2010. Based on projected payments by the 12 FHLBanks through the second quarter of 2011, it is likely that the FHLBanks will have satisfied its obligation to REFCORP and further payments would not be necessary thereafter. In anticipation of the termination of their REFCORP obligation, the FHLBanks have reached an agreement to set aside, once the obligation has ended, amounts that would have otherwise been paid to REFCORP as restricted retained earnings, with the objective of increasing the earnings reserves of the FHLBanks and enhancing the safety and soundness of the FHLBank system.
Cash dividends of $1.46 per share of capital stock (5.8% annualized return on capital stock) were paid to stockholders in the 2011 first quarter, up from $1.41, or 5.6% per share, paid in the same period in 2010.

 

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Financial Condition
Net cash generated from operating activities was higher than Net income and the FHLBNY’s liquidity position remains in compliance with all regulatory requirements and Management does not foresee any changes to that position. Management also believes cash flows from operations, available cash balances and the FHLBNY’s ability to generate cash through the issuance of consolidated obligation bonds and discount notes are sufficient to fund the FHLBNY’s operating liquidity needs.
The FHLBNY continued to experience balance sheet contraction, as both its lending and funding steadily declined at March 31, 2011, a continuing trend through each of the quarters in 2010. Principal amounts of Advances to member banks declined to $72.3 billion at March 31, 2011 compared to $76.9 billion at December 31, 2010. The decline has occurred gradually as member banks may have taken advantage of the improved availability of alternate funding sources such as deposits and senior unsecured borrowings in a more liquid market. Decline in demand for advances may also be due to lukewarm loan demand from member’s own customers due to weak economic conditions.
Aside from advances, the FHLBNY’s primary earning assets are its investment portfolios, comprising mainly of GSE and U.S. agency-issued mortgage-backed securities (“MBS”), and state and local government housing agency bonds. Investments in MBS and housing agency securities, which are classified as held-to-maturity and available-for-sale, totaled $11.8 billion, or 12.1% of Total assets at March 31, 2011, compared to $11.8 billion, or 11.7% of Total assets at December 31, 2010. GSE- and agency-issued MBS were 92.9% of the total balance sheet carrying value of all investments in MBS. Only $0.8 billion of private-label MBS remained outstanding. GSE-issued investment security values have improved as liquidity has gradually returned to the market, and fair values were generally in an unrealized gain position.
The FHLBNY’s capital remains strong. At March 31, 2011, actual risk-based capital was $5.1 billion, compared to required risk based capital of $0.5 billion. To support $96.9 billion of Total assets at March 31, 2011, the required minimum regulatory capital was $3.9 billion, or 4.0 percent of assets. The FHLBNY’s actual regulatory capital was $5.1 billion, exceeding required capital by $1.2 billion at March 31, 2011. Aggregate capital ratio was at 5.3 percent, or 1.3 percent more than the 4.0 percent regulatory minimum. The FHLBNY has prudently retained capital through the period of credit turmoil. Retained earnings, excluding losses in AOCI, have grown to $716.7 million at March 31, 2011. Losses in AOCI totaled $97.3 million compared to $96.7 million at December 31, 2010.
Business Outlook
The following forward-looking statements are based upon the current beliefs and expectations of the FHLBNY’s management and are subject to risks and uncertainties which could cause the FHLBNY’s actual results to differ materially from those set forth in such forward-looking statements.
The FHLBNY expects its full year 2011 earnings to decline to below the 2010 earnings, because of lower net interest margins on the Bank’s core assets, primarily its advances and investments in mortgage-backed securities.
In the low interest rate environment projected for the remainder of 2011, opportunities to invest in high-quality assets and earn a reasonable spread will be limited, constraining earnings. The Bank’s core assets, primarily advances and investments in mortgage-backed securities, will yield lower interest margins as the Bank does not expect recovery of its funding advantage in 2011.
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 Bank believes it is also difficult to predict member demand for advances, which is the primary focus of the FHLBNY’s 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 Bank’s members of alternative funding sources that are more attractive (e.g. consumer deposits), the interest rate environment, and the outlook for the economy. Members may choose to prepay advances, 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 FHLBNY’s 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 can neither 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, mature or be prepaid, 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. 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 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.

 

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Demand for FHLBank debt - The FHLBNY’s primary source of funds is the sale of consolidated obligations in the capital markets, and the FHLBNY’s ability to obtain funds through the sale of consolidated obligations depends in part on prevailing conditions in the capital markets, which are beyond the FHLBNY’s 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 Bank’s 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 FHLBNY’s members borrowing choices may also be limited.
Credit Impairment of Mortgage-backed securities - OTTI charges were insignificant in the 2011 first quarter. However, without recovery in the near term such that liquidity returns to the mortgage-backed securities market, or if the credit losses of the underlying collateral within the mortgage-backed securities perform worse than expected, the FHLBNY could face additional credit losses. 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.
REFCORP Assessments — Based on projected payments by the 12 FHLBanks through the second quarter of 2011, it is likely that the FHLBanks will have satisfied its obligation to REFCORP and further payments would not be necessary thereafter. In anticipation of the termination of their REFCORP obligation, the FHLBanks have reached an agreement to set aside, once the obligation has ended, amounts that would have otherwise been paid to REFCORP as restricted retained earnings, with the objective of increasing the earnings reserves of the FHLBanks and enhancing the safety and soundness of the FHLBank system. This would also benefit the FHLBNY’s Net income.
Sovereign credit rating of the United States and impact on the FHLBanks - On April 19, 2011 Standard & Poor’s Ratings Services affirmed the ‘AAA’ rating of the FHLBank but revised its outlook on the debt issues of the Federal Home Loan Bank System to negative from stable. Concurrently, S&P revised its outlooks to negative from stable for the Federal Home Loan Banks in Atlanta, Boston, Cincinnati, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, San Francisco, and Topeka while affirming their ‘AAA’ issuer credit ratings. These rating actions reflect S&P’s revision on April 18, 2011 of the outlook on the long-term sovereign credit rating on The United States of America to negative from stable (AAA/Negative/A-1+). S&P will not raise the outlooks and ratings of the FHLB System and/or System Banks above the US sovereign rating as long as the ratings and outlook on the U.S. remain unchanged. Conversely, if the ratings on the U.S. were lowered, the ratings on the FHLB System and System Banks whose ratings are equalized to the sovereign rating could also be lowered. The FHLBNY cannot predict with certainty what impact, if any, these recent rating actions will have on the FHLBank debt and consequence of any further rating actions on the cost of debt for the FHLBNY.

 

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SELECTED FINANCIAL DATA (UNAUDITED)
                                         
Statements of Condition                              
(dollars in millions)   March 31, 2011     December 31, 2010     September 30, 2010     June 30, 2010     March 31, 2010  
 
                                       
Investments1
  $ 16,855     $ 16,739     $ 15,690     $ 14,971     $ 15,561  
Advances
    75,487       81,200       85,697       85,286       88,859  
Mortgage loans held-for-portfolio, net of allowance for credit losses2
    1,271       1,266       1,268       1,283       1,288  
Total assets
    96,874       100,212       103,094       105,183       107,239  
Deposits and borrowings
    2,513       2,454       3,730       4,795       7,977  
Consolidated obligations, net
                                       
Bonds
    68,530       71,743       74,919       66,247       72,408  
Discount notes
    19,507       19,391       17,788       27,481       19,816  
Total consolidated obligations
    88,037       91,134       92,707       93,728       92,224  
Mandatorily redeemable capital stock
    59       63       67       70       105  
AHP liability
    135       138       138       144       146  
REFCORP liability
    19       22       21       14       14  
Capital
                                       
Capital stock
    4,323       4,529       4,664       4,680       4,828  
Retained earnings
    717       712       701       676       672  
Accumulated other comprehensive income (loss)
    (97 )     (97 )     (98 )     (109 )     (124 )
Total capital
    4,943       5,144       5,267       5,247       5,376  
Equity to asset ratio3
    5.10 %     5.13 %     5.11 %     4.99 %     5.01 %
 
                                       
Statements of Condition   Three months ended  
Averages(dollars in millions)   March 31, 2011     December 31, 2010     September 30, 2010     June 30, 2010     March 31, 2010  
 
                                       
Investments1
  $ 19,127     $ 17,343     $ 16,996     $ 18,757     $ 17,711  
Advances
    78,406       82,562       84,164       85,609       91,415  
Mortgage loans
    1,270       1,272       1,274       1,281       1,299  
Total assets
    101,662       104,891       106,179       108,325       113,116  
Interest-bearing deposits and other borrowings
    2,401       3,290       5,062       5,212       5,050  
Consolidated obligations, net
                                       
Bonds
    72,417       72,734       69,817       71,738       74,297  
Discount notes
    17,765       18,754       21,317       22,354       24,555  
Total consolidated obligations
    90,182       91,488       91,134       94,092       98,852  
Mandatorily redeemable capital stock
    59       58       68       96       108  
AHP liability
    137       137       141       144       144  
REFCORP liability
    10       11       10       7       9  
Capital
                                       
Capital stock
    4,414       4,543       4,611       4,719       4,929  
Retained earnings
    701       687       679       661       658  
Accumulated other comprehensive income (loss)
    (103 )     (94 )     (106 )     (120 )     (141 )
Total capital
    5,012       5,136       5,184       5,260       5,446  

 

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Operating Results and other data      
(dollars in millions)      
(except earnings and dividends per   Three months ended  
share, and headcount)   March 31, 2011     December 31, 2010     September 30, 2010     June 30, 2010     March 31, 2010  
 
Net interest income4
  $ 134     $ 108     $ 125     $ 116     $ 106  
Net income
    71       86       79       57       54  
Dividends paid in cash7
    66       76       54       52       71  
AHP expense
    8       10       9       6       6  
REFCORP expense
    18       21       20       14       13  
Return on average equity* 5
    5.74 %     6.68 %     6.03 %     4.32 %     3.99 %
Return on average assets*
    0.28 %     0.33 %     0.29 %     0.21 %     0.19 %
Net OTTI impairment losses
          (1 )     (3 )     (1 )     (3 )
Other non-interest income (loss)
    14       38       9       (15 )     (8 )
Total other income (loss)
    14       37       6       (16 )     (11 )
Operating expenses8
    46       24       22       20       19  
Finance Agency and Office of Finance expenses
    3       4       2       2       3  
Total other expenses
    49       28       24       22       22  
Operating expenses ratio* 6
    0.19 %     0.09 %     0.08 %     0.08 %     0.07 %
Earnings per share
  $ 1.61     $ 1.90     $ 1.71     $ 1.20     $ 1.09  
Dividend per share
  $ 1.46     $ 1.64     $ 1.15     $ 1.05     $ 1.41  
Headcount (Full/part time)
    269       271       269       270       266  
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 $7.0 million, $5.8 million, $5.5 million, $5.4 million, and $5.2 million at the periods ended March 31, 2011, December 31, 2010, September 30, 2010, June 30, 2010 and March 31, 2010.
 
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.
 
8   Operating expenses include Compensation and Benefits.
 
*   Annualized.

 

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Results of Operations
The following section provides a comparative discussion of the FHLBNY’s results of operations for the three months ended March 31, 2011 and 2010. For a discussion of the Critical accounting estimates used by the FHLBNY that affect the results of operations, see Significant Accounting Policies and Estimates in Note 1 in the Bank’s most recent Form 10-K filed on March 25, 2011.
Net Income
The FHLBNY manages its operations as a single business segment. Advances to members are the primary focus of the FHLBNY’s 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 Bank’s Net income include the volume and timing of investments in mortgage-backed securities, debt repurchases and associated losses, gains and losses from hedging activities, and earnings from shareholders’ capital.
Summarized below are the principal components of Net income (in thousands):
Table 1.1: Principal Components of Net Income
                 
    Three months ended March 31,  
    2011     2010  
 
               
Total interest income
  $ 257,389     $ 273,152  
Total interest expense
    123,316       166,957  
 
           
Net interest income before provision for credit losses
    134,073       106,195  
Provision for credit losses on mortgage loans
    1,773       709  
 
           
Net interest income after provision for credit losses
    132,300       105,486  
Total other income (loss)
    14,303       (10,656 )
Total other expenses
    49,908       21,654  
 
           
Income before assessments
    96,695       73,176  
 
           
Total assessments
    25,714       19,536  
 
           
Net income
  $ 70,981     $ 53,640  
 
           
Net income — 2011 first quarter compared to 2010 first quarter.
The FHLBNY reported 2011 first quarter Net income of $71.0 million, or $1.61 per share, compared with $53.6 million, or $1.09 per share for the same period in 2010. Net income was after the deduction of AHP and REFCORP assessments, which are a fixed percentage of the FHLBNY’s pre-assessment income.
Net income grew due to the increase in Net interest income. Net interest income was $134.1 million in the 2011 first quarter, up from $106.2 million in the same period in 2010, an increase of 26.3%. Although margins on advances were weaker and the cost of funding remained above historical pricing, the increase was largely the result of $42.7 million in prepayment fees recorded to Net interest income. In the 2011 first quarter, member-borrowers prepaid $7.1 billion of longer-term advances and, for the most part, took advantage of prevailing lower interest rates to borrow anew at the lower prevailing coupons.
The FHLBNY recorded $64.6 million of net gains from derivative and hedging activities in the 2011 first quarter, largely benefitting from the recognition of realized gains from termination of hedges contemporaneous with the prepayments. Such hedge terminations contributed $52.0 million. 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, when the FHLBNY terminates these instruments prior to maturity or prior to call or put dates (such as when members request prepayments of their borrowed advances), it would result in a realized gain or loss.
The remaining net gain of $12.6 million from derivatives and hedging activities was due to three factors: (1) Hedge ineffectiveness from hedges qualifying under hedge accounting rules resulted in net unrealized fair value gains (2) Net interest income associated with interest-rate swaps designated in economic hedges, including those matching debt under the FVO and (3) Interest rate caps, also designated as economic hedges, reported fair value losses in a declining interest rate environment. The impact of derivatives and hedging activities in the same period in 2010 was insignificant. In order to manage the FHLBNY’s interest rate risk profile, the FHLBNY routinely uses derivatives to manage the interest rate risk inherent in the Bank’s assets and liabilities. The FHLBNY will typically attempt to hedge an advance or consolidated obligation debt under hedge qualifying rules. Hedge ineffectiveness, the difference between changes in the fair value of the interest rate swap and the hedged advance or debt, will not be significant because under the Bank’s conservative hedging policies, the terms of the derivatives match very closely the terms of the hedged debt or advance. When it is operationally difficult to qualify for hedge accounting or when the hedge cannot be assured to be highly effective, the FHLBNY will economically hedge an advance or debt with an interest-rate derivative. Such hedges make the Bank economically hedged but also result in P&L volatility because changes in the fair values of the derivatives are not offset by offsetting changes in the fair values of hedged advances and debt. P&L volatility may arise from derivatives that are designated as economic hedges and typically would exhibit greater marked-to-market volatility when interest rates are also volatile. Also, in the course of a derivative’s existence, the derivative loses all of its fair value (gains or losses) if it is held to maturity or to its put/call exercise dates, and that can be a source of intra-period P&L volatility. The impact from changes in fair values of derivatives designated as economic hedges were not significant in the 2011 first quarter or the same period in 2010.

 

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The Bank accounted for certain consolidated obligation bonds and discount notes under the FVO accounting rules. Under the FVO, the designated debt is recorded at fair values based on the cost of issuing comparable term FHLBank debt. Changes in the fair values of debt are recorded through non-interest Other income (loss) with an offset recorded to the basis of the debt in the Bank’s balance sheet. Changes in the fair values of such debt resulted in an insignificant gain of $0.7 million in the 2011 first quarter. In contrast, changes in the fair values of such debt resulted in losses of $8.4 million in the same period in 2010. In both periods, the bonds and notes were economically hedged by interest rate swaps, and gains and losses were largely offset by recorded fair value changes on the swaps.
In the 2011 first quarter, credit related OTTI was insignificant, only $0.4 million, compared with $3.4 million in the same period in 2010. No new mortgage-backed securities were impaired and the OTTI charges were primarily as a result of additional credit losses recognized on previously impaired private-label MBS because of further deterioration in the performance parameters of the securities. The FHLBNY makes quarterly cash flow assessments of the expected credit performance of its entire portfolio of private-label MBS.
Concurrent with the member initiated prepayments in the 2011 first quarter, the Bank also took the opportunity to re-align its future debt profile by extinguishing and transferring $478.6 million of certain high-coupon debt, at a cost that exceeded the carrying values of the debt by $51.7 million. This was recorded as a loss in non-interest Other income (loss). Debt will be replaced by new issuances at the lower costing debt, which will benefit Net interest income in future periods.
Operating Expenses of the FHLBNY were $7.5 million in the 2011 first quarter, up from $6.3 million in the same period in 2010. Compensation and benefits rose to $38.9 million in the 2011 period, up from $12.9 million in the same period in 2010. In March 2011, the FHLBNY contributed $24.0 million to its Defined Benefit Plan to eliminate a funding shortfall this amount was charged to Net income. The FHLBNY was also assessed for its share of the operating expenses for the Finance Agency and the Office of Finance, and those totaled $3.4 million in the 2011 first quarter, up from $2.4 million in the same period in 2010. The 12 FHLBanks and two other GSEs share the administrative cost of the Finance Agency.
Affordable Housing Program (“AHP”) assessment set aside from income totaled $7.9 million in the 2011 first quarter, up from $6.1 million in the same period in 2010. REFCORP assessment payments totaled $17.7 million in the 2011 first quarter, up from $13.4 million in the same period in 2010. Assessments are calculated on Net income before assessments, and the increases were due to the increase in Net income in the 2011 first quarter as compared to the same period in 2010.
Interest Income — 2011 first quarter compared to 2010 first quarter
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 period from the prior year period. The principal categories of Interest Income are summarized below (dollars in thousands):
Table 1.2: Interest Income — Principal Sources
                         
    Three months ended March 31,  
                    Percentage  
    2011     2010     Variance  
Interest Income
                       
Advances
  $ 158,696     $ 149,640       6.05 %
Interest-bearing deposits 1
    966       830       16.39  
Federal funds sold
    2,546       1,543       65.00  
Available-for-sale securities
    8,639       5,764       49.88  
Held-to-maturity securities
                       
Long-term securities
    71,056       98,634       (27.96 )
Mortgage loans held-for-portfolio
    15,486       16,741       (7.50 )
 
                 
 
                       
Total interest income
  $ 257,389     $ 273,152       (5.77 )%
 
                 
1   Primarily from cash collateral deposited with swap counterparties.
Reported Interest income from advances was adjusted for the cash flows associated with interest rate swaps. The Bank generally pays fixed-rate cash flows to derivative counterparties, and in exchange, the Bank receives variable-rate LIBOR-indexed cash flows fixed-rate cash flows, which typically mirror the fixed-rate coupon received from advances borrowed by members.
The 2011 first quarter Interest income, which included $42.7 million of prepayment fees, declined compared to the same period in 2010. The primary causes were (1) lower coupons and yields from advances and investments in a declining interest rate environment, (2) lower volume of advance business, and (3) run-offs of higher yielding assets which were being replaced by assets with lower coupons. See Table 1.10 Rate and Volume Analysis for more information.

 

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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 Bank’s 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 1.3: Impact of Interest Rate Swaps on Interest Income Earned from Advances
                 
    Three months ended March 31,  
    2011     2010  
Advance Interest Income
               
Advance interest income before adjustment for interest rate swaps
  $ 597,304     $ 679,921  
Net interest adjustment from interest rate swaps
    (438,608 )     (530,281 )
 
           
Total Advance interest income reported
  $ 158,696     $ 149,640  
 
           
In the 2011 first quarter, the FHLBNY paid swap counterparties fixed-rate cash flows, which typically mirrored the coupons on hedged advances. In return, the swap counterparties paid the FHLBNY a pre-determined spread plus the prevailing 3-month 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 Bank’s primary funding base, and achieves its overall net interest spread objective.
Under GAAP, net interest adjustments from derivatives (as described in the table above) may be offset against the net interest accruals of the hedged financial instrument (e.g. advance) only if the derivative is in a hedge-qualifying relationship. If the hedge does not qualify under hedge accounting rules, 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 (loss) in the current year or prior year periods related to swaps associated with advances.
Interest Expense — 2011 first quarter compared to 2010 first quarter
The FHLBNY’s 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 bonds, 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 (dollars in thousands). Changes in 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.
Table 1.4: Interest Expenses — Principal Categories
                         
    Three months ended March 31,  
                    Percentage  
    2011     2010     Variance  
Interest Expense
                       
Consolidated obligations-bonds
  $ 114,277     $ 154,913       (26.23 )%
Consolidated obligations-discount notes
    7,816       9,657       (19.06 )
Deposits
    470       892       (47.31 )
Mandatorily redeemable capital stock
    744       1,495       (50.23 )
Cash collateral held and other borrowings
    9           NM  
 
                 
 
                       
Total interest expense
  $ 123,316     $ 166,957       (26.14 )%
 
                 
Reported Interest expense for consolidated obligation bonds is adjusted for the cash flows associated with interest rate swaps. 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 FHLBank bonds. 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. 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. The Bank 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.

 

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Reported Interest expense in the 2011 first quarter declined compared to the same period in 2010 because of (1) lower cost of coupons paid on consolidated obligation bonds and discount notes, and (2) lower volume of debt issued because of decline in funding requirements as balance sheet assets declined, specifically advances borrowed by members. See Table 1.10, Rate and Volume Analysis for more information.
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 rate, 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 1.5: Impact of Interest Rate Swaps on Consolidated Obligation Interest Expense
                 
    Three months ended March 31,  
    2011     2010  
Consolidated bonds and discount notes-Interest expense
               
Bonds-Interest expense before adjustment for swaps
  $ 249,744     $ 328,657  
Discount notes-Interest expense before adjustment for swaps
    7,816       9,657  
Net interest adjustment for interest rate swaps
    (135,467 )     (173,744 )
 
           
Total Consolidated bonds and discount notes-interest expense reported
  $ 122,093     $ 164,570  
 
           
Funding environment — Pricing of FHLBank bonds and discount notes have remained at very narrow sub-LIBOR spreads, and cost of funding has remained well above historical cost of FHLBank debt. Investor demand appears to be for shorter maturity bonds and notes. The prevailing investor belief seems to be that rates will eventually rise over the next 12 months, and investors are temporarily “parking” their cash in short maturity instruments. If such sentiments continue, discount note pricing should be most attractive for notes that mature within a month. The FHLBNY has generally increased the proportion of discount notes, relative to bonds, to fund its balance sheet. Issuance of long- and medium-term FHLBank bonds has remained at all-time lows as the pricing of bonds longer than 3-4 years have been uneconomical to issue.
Net Interest Income — 2011 first quarter compared to 2010 first quarter
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: 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.
  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 volatility of the 3-month LIBOR rate and its absolute level has a profound impact on the Bank’s cost of funding and earning assets. A stable spread between the FHLBank issued-debt and LIBOR is also an important element in the Bank’s funding tactics and also impacts the pricing of advances offered to members.
  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. These strategies may reduce income in the short-run, but 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 is 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.

 

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The following table summarizes Net interest income (dollars in thousands):
Table 1.6: Net Interest Income
                         
    Three months ended March 31,  
                    Percentage  
    2011     2010     Variance  
Total interest income
  $ 257,389     $ 273,152       (5.78 )%
Total interest expense
    123,316       166,957       (26.14 )
 
                 
Net interest income before provision for credit losses
  $ 134,073     $ 106,195       26.25 %
 
                 
Net interest income benefited from prepayment fees of $42.7 million. Without the positive impact of the fees, Net interest income would have declined in the 2011 first quarter compared to the same period in 2010, primarily because of (1) lower business volume as measured by average advances borrowed by members, and (2) prepayments, paydowns and maturities of higher-yielding assets that were replaced with assets with lower spreads.
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), and to changes in the average outstanding capital and non-interest bearing liabilities (Volume effects). In the 2011 first quarter, the FHLBNY earned less interest income from investing members’ capital and net non-interest assets compared to the same period in 2010. This was caused by 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. Typically, members’ capital is invested in short-term liquid investments, and the Bank earned very low income because of much lower yields in both periods. For more information, see Table 1.9: Spread and Yield Analysis and Table 1.10: Rate and Volume Analysis.
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. Net interest accruals of derivatives designated in a fair value or cash flow hedge qualifying under hedge accounting rules are recorded as adjustments to the interest income or interest expense of the hedged assets or liabilities. They can have a significant impact on Net interest income. On a GAAP basis, the impact of derivatives was to reduce Net interest income. For more information, see the table below.
The following table summarizes the impact of net interest adjustments from hedge qualifying interest-rate swaps (in thousands):
Table 1.7: Net Interest Adjustments from Hedge Qualifying Interest-Rate Swaps
                 
    Three months ended March 31,  
    2011     2010  
 
               
Interest Income
  $ 695,997     $ 803,433  
Net interest adjustment from interest rate swaps
    (438,608 )     (530,281 )
 
           
Reported interest income
    257,389       273,152  
 
           
 
               
Interest Expense
    258,783       340,701  
Net interest adjustment from interest rate swaps
    (135,467 )     (173,744 )
 
           
Reported interest expense
    123,316       166,957  
 
           
 
               
Net interest income (Margin)
  $ 134,073     $ 106,195  
 
           
 
               
Net interest adjustment — interest rate swaps
  $ (303,141 )   $ (356,537 )
 
           
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.
As reported in the table above, the FHLBNY paid to swap counterparties increasing amounts of interest payments over the last three years, because the cash flow interest exchanges between the swap dealer and the FHLBNY have been such that the hedges of fixed-rate advances resulted in a significantly greater amounts of cash out-flows than the cash in-flows from hedges of fixed-rate consolidated obligation debt.
In a hedge of a fixed-rate advance, the FHLBNY pays the swap dealer fixed-rate interest payment (which typically mirrors the coupon of the hedged advance), and in return the swap counterparties pay the FHLBNY a pre-determined spread plus the prevailing LIBOR, which resets generally every three months.
In a hedge of a fixed-rate consolidated obligation bond, the FHLBNY pays the swap dealer a LIBOR-indexed interest payment, and in return the swap dealer pays fixed-rate interest payments (which typically mirrors the coupon paid to investors holding the FHLBank debt).
As reported 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 achieves its overall net interest spread objective and remains indifferent for the most part to the volatility of interest rates.

 

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Impact of economic hedges on Net interest income 2011 first quarter compared to 2010 first quarter - 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 is 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).
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. Interest rate swaps designated as economic hedges have declined as much of the swaps executed in prior years have matured. In prior years, 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 rate to 3-month LIBOR cash flows.
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 1.8: GAAP Versus Economic Basis — Contrasting Net Interest Income, Net Income Spread and Return on Earning Assets
                                                 
    Three months ended March 31, 2011     Three months ended March 31, 2010  
    Amount     ROA     Net Spread     Amount     ROA     Net Spread  
 
                                               
GAAP net interest income
  $ 134,073       0.54 %     0.49 %   $ 106,195       0.38 %     0.33 %
 
                                               
Interest income (expense)
                                               
Swaps not designated in a hedging relationship
    12,857       0.05       0.06       37,220       0.14       0.15  
 
                                   
 
                                               
Economic net interest income
  $ 146,930       0.59 %     0.55 %   $ 143,415       0.52 %     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 Bank’s 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 Bank’s 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.

 

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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 1.9: Spread and Yield Analysis
                                                 
    Three months ended March 31,  
    2011     2010  
            Interest                     Interest        
    Average     Income/             Average     Income/        
(Dollars in thousands)   Balance     Expense     Rate1     Balance     Expense     Rate1  
Earning Assets:
                                               
Advances
  $ 78,406,209     $ 158,696       0.82 %   $ 91,414,698     $ 149,640       0.66 %
Certificates of deposit and other
    2,368,320       966       0.17       2,261,163       830       0.15  
Federal funds sold and other overnight funds
    7,347,356       2,546       0.14       5,371,946       1,543       0.12  
Investments
    11,762,592       79,695       2.75       12,412,612       104,398       3.41  
Mortgage and other loans
    1,270,681       15,486       4.94       1,299,588       16,741       5.22  
 
                                   
 
                                               
Total interest-earning assets
  $ 101,155,158     $ 257,389       1.03 %   $ 112,760,007     $ 273,152       0.98 %
 
                                   
 
                                               
Funded By:
                                               
Consolidated obligations-bonds
  $ 72,417,536     $ 114,277       0.64     $ 74,296,820     $ 154,913       0.85  
Consolidated obligations-discount notes
    17,764,760       7,816       0.18       24,555,640       9,657       0.16  
Interest-bearing deposits and other borrowings
    2,424,583       479       0.08       5,051,351       892       0.07  
Mandatorily redeemable capital stock
    59,197       744       5.10       108,396       1,495       5.59  
 
                                   
 
                                               
Total interest-bearing liabilities
    92,666,076       123,316       0.54 %     104,012,207       166,957       0.65 %
 
                                           
 
                                               
Capital and other non-interest- bearing funds
    8,489,082                     8,747,800                
 
                                       
 
                                               
Total Funding
  $ 101,155,158     $ 123,316             $ 112,760,007     $ 166,957          
 
                                       
 
                                               
Net Interest Income/Spread
          $ 134,073       0.49 %           $ 106,195       0.33 %
 
                                       
 
                                               
Net Interest Margin
                                               
(Net interest income/Earning Assets)
                    0.54 %                     0.38 %
 
                                           
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.

 

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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 FHLBNY’s interest income and interest expense (in thousands).
Table 1.10: Rate and Volume Analysis
                         
    For the three months ended  
    March 31, 2011 vs. March 31, 2010  
    Increase (Decrease)  
    Volume     Rate     Total  
Interest Income
                       
Advances
  $ (23,186 )   $ 32,242     $ 9,056  
Certificates of deposit and other
    40       96       136  
Federal funds sold and other overnight funds
    643       360       1,003  
Investments
    (5,241 )     (19,462 )     (24,703 )
Mortgage loans and other loans
    (367 )     (888 )     (1,255 )
 
                 
 
                       
Total interest income
    (28,111 )     12,348       (15,763 )
 
                       
Interest Expense
                       
Consolidated obligations-bonds
    (3,829 )     (36,807 )     (40,636 )
Consolidated obligations-discount notes
    (2,892 )     1,051       (1,841 )
Deposits and borrowings
    (508 )     95       (413 )
Mandatorily redeemable capital stock
    (629 )     (122 )     (751 )
 
                 
 
                       
Total interest expense
    (7,858 )     (35,783 )     (43,641 )
 
                 
 
                       
Changes in Net Interest Income
  $ (20,253 )   $ 48,131     $ 27,878  
 
                 
Allowance for Credit Losses — 2011 first quarter compared to 2010 first quarter
  Mortgage loans held-for-portfolio - The Bank evaluates mortgage loans at least quarterly on an individual loan-by-loan basis and compares the fair values of collateral (net of liquidation costs) to recorded investment values in order to measure credit losses on impaired loans. Based on the analysis performed, a provision of $1.8 million was recorded in the 2011 first quarter compared with $0.7 million in the same period in 2010. Increase in provision was due to increase in haircut values of collateral for evaluating impaired loans. Charge offs were insignificant in all periods, and were substantially recovered through the credit enhancement provisions of MPF loans. The FHLBNY believes the allowance for loan losses is adequate to cover the losses inherent in the FHLBNY’s mortgage loan portfolio.
  Advances - The FHLBNY’s credit risk from advances at March 31, 2011 and December 31, 2010 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.
The principal components of non-interest income (loss) are summarized below (in thousands):
Table 1.11: Analysis of Non-Interest Income (Loss) — 2011 first quarter compared to 2010 first quarter
                 
    Three months ended March 31,  
    2011     2010  
 
               
Other income (loss):
               
Service fees and other
  $ 1,256     $ 1,045  
Instruments held at fair value — Unrealized gains (losses)
    740       (8,419 )
 
               
Total OTTI losses
          (3,873 )
Net amount of impairment losses reclassified (from) to
               
Accumulated other comprehensive loss
    (370 )     473  
 
           
Net impairment losses recognized in earnings
    (370 )     (3,400 )
 
           
Net realized and unrealized gains (losses) on derivatives and hedging activities
    64,570       (363 )
Net realized gains from sale of available-for-sale securities and redemption of held-to-maturity securities
          708  
Losses from extinguishment of debt and other
    (51,893 )     (227 )
 
           
Total other income (loss)
  $ 14,303     $ (10,656 )
 
           

 

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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 to be a significant element of its operations.
Net impairment losses recognized in earnings on held-to-maturity securities — Other-than-temporary impairment (“OTTI”)
Credit-related OTTI was insignificant in the 2011 first quarter, just $0.4 million compared with $3.4 million in the same period in 2010. No new MBS were impaired and the OTTI charges were primarily as a result of additional credit losses caused by slight deterioration in the performance parameters of certain previously impaired private-label MBS. The FHLBNY makes quarterly cash flow assessments of the expected credit performance of its entire portfolio of private-label MBS.
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 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 are 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 changes 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 and discount 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 (loss). 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 recorded P&L impact of fair value changes of consolidated obligation bonds and discount notes under the FVO are primarily unrealized. Debt under the FVO designation consisted primarily of intermediate term bonds and discount notes. Gains are recorded when the debt’s market observable yields (with appropriate consideration for credit standing) are higher than the contractual coupons or yields of the designated debt as of the balance sheet dates. Conversely, if market interest rates fall below the contractual coupons or yields, a fair value loss is recorded. Losses and gains would also be recorded in the period the debt matures, causing previously recorded unrealized gains and losses to reverse in that period. Said another way, 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 were almost entirely offset by fair value changes on derivatives that economically hedged the debt. For more information, see Table 1.12 below and Note 16 — Fair Values of Financial Instruments.

 

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Earnings Impact of Derivatives and Hedging Activities
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.
Key components of $58.1 million in hedging gains from qualifying hedges were primarily due to:
  Net gains from hedges of advances were $56.3 million in the 2011 first quarter, largely benefitting from the recognition of realized gains from termination of hedges contemporaneous with the prepayments of hedged advances. Such hedge terminations contributed $52.0 million.
  Net gains from hedges of debt and advances and other instruments were not material in the 2011 first quarter, contributing $6.1 million. In the same period in 2010, a gain of $4.6 million was recorded.
  Typically, the FHLBNY hedges its advances and bonds with structures that are almost identical, and gains and losses represent hedge ineffectiveness caused by the asymmetrical impact of interest rate volatility on hedged debt and advances and associated swaps. Besides market volatility of interest rates, gains and losses are also caused by the timing of the maturity of swaps, because all gains and losses are unrealized and reverse as swaps mature or approach maturity. Thus, a fair value loss in a reported period may be followed by a gain in the period the swap matures.
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 FHLBNY’s 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 Bank’s 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 derivatives are 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.
Key components of hedging gains from derivatives designated as economic hedges were primarily due to:
  Economic hedges of consolidated obligation bonds — Unrealized gains were not significant and 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) 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.
  Economic hedges of consolidated obligation discount notes — The FHLBNY hedges the principal amounts of certain term discount notes to convert fixed cash flows to LIBOR indexed cash flows. Their impact was not material.
  Economic hedges of balance sheet parameters, primarily hedging GSE-issued capped floating-rate mortgage-backed securities. The Bank has an inventory of $1.9 billion of interest-rate caps with final maturities in 2018 and strikes ranging from 6.20% to 6.75% indexed mainly to 1-month LIBOR. The caps were purchased at a cost of $46.9 million. The fair values of the caps will exhibit unrealized gains and losses in line with volatility and direction of interest rates, but will ultimately decline to zero over the contractual life of the caps if held to maturity. In a declining interest rate environment at March 31, 2011, relative to December 31, 2010, fair values of purchased caps were exhibiting fair value losses. At March 31, 2011, fair values of interest rate caps were $38.3 million, down from $41.9 million at December 31, 2010.
Swaps economically hedging instruments designated under the FVO — The Bank hedges consolidated obligation bonds and discount notes under the FVO. In a declining interest rate environment, the interest rate swaps that were economic hedges of debt under the FVO were in fair value gain positions. Such swaps are structured for the Bank to receive fixed rate cash flows and pay floating rate (LIBOR-indexed) cash flows to swap counterparties. In a declining interest rate environment, the fair values of the swaps would be in an unrealized fair value gain position. Such gains will also decline to zero if held to maturity or to their call dates. In the 2011 first quarter, net unrealized gains were $6.7 million, compared to $14.4 million in the same period in 2010.

 

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The following tables summarize the impact of hedging activities on earnings (in thousands):
Table 1.12: Earnings Impact of Derivatives and Hedging Activities — By Financial Instrument Type
                                                         
    Three months ended March 31, 2011  
                    Consolidated     Consolidated                    
            MPF     Obligation     Obligation     Balance     Intermediary        
Earnings Impact   Advances     Loans     Bonds     Discount Notes     Sheet     Positions1     Total  
 
                                                       
Amortization/accretion of hedging activities reported in net interest income
  $ (2,215 )   $ 24     $ (468 )   $     $     $     $ (2,659 )
 
                                         
Net realized and unrealized gains (losses) on derivatives and hedging activities
    56,337             1,797                         58,134  
Net gains (losses) derivatives-FVO
                6,604       95                   6,699  
Gains (losses)-economic hedges1
    62       169       3,095             (3,589 )           (263 )
 
                                         
Net realized and unrealized (losses) gains on derivatives and hedging activities
    56,399       169       11,496       95       (3,589 )           64,570  
 
                                         
 
                                                       
Total
  $ 54,184     $ 193     $ 11,028     $ 95     $ (3,589 )   $     $ 61,911  
 
                                         
                                                         
    Three months ended March 31, 2010  
                    Consolidated     Consolidated                    
            MPF     Obligation     Obligation     Balance     Intermediary        
Earnings Impact   Advances     Loans     Bonds     Discount Notes     Sheet     Positions     Total  
 
                                                       
Amortization/accretion of hedging activities reported in net interest income
  $ (96 )   $ 21     $ (966 )   $     $     $     $ (1,041 )
 
                                         
Net realized and unrealized gains (losses) on derivatives and hedging activities
    619             4,004                         4,623  
Net gains (losses) derivatives-FVO
                14,389                         14,389  
Gains (losses)-economic hedges
    (3,643 )     149       13,296       1,296       (30,493 )     20       (19,375 )
 
                                         
Net realized and unrealized (losses) gains on derivatives and hedging activities
    (3,024 )     149       31,689       1,296       (30,493 )     20       (363 )
 
                                         
 
                                                       
Total
  $ (3,120 )   $ 170     $ 30,723     $ 1,296     $ (30,493 )   $ 20     $ (1,404 )
 
                                         
1   Includes de minimis amount of fair value for intermediary positions for three months ended March 31, 2011
Cash Flow Hedges
From time-to-time, the Bank executes interest rate swaps on the anticipated issuance of debt to “lock in” a spread between the earning asset and the cost of funding. The hedges are accounted under cash flow hedging rules and the effective portion of changes in the fair values of the swaps is recorded in AOCI. The ineffective portion is recorded through net income. 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. The maximum period of time that the Bank typically hedges to exposure to the variability in future cash flows for forecasted transactions is between three and six months. At March 31, 2011, the Bank had open contracts of $55.0 million of swaps to hedge the anticipated issuances of debt. The fair values of the open contracts recorded in AOCI amounted to an unrealized gain of $0.4 million at March 31, 2011.
No 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 in any periods in this report. Ineffectiveness from hedges designated as cash flow hedges was not material in any periods reported in this Form 10-Q. Over the next 12 months, it is expected that $3.7 million of net losses recorded in AOCI will be recognized as an interest expense.
In the 2011 first quarter, the Bank executed long-term pay-fixed receive 3-month LIBOR-indexed interest rate swap that was designated as cash flow hedges of a rollover financing program involving the sequential issuances of fixed-rate 3-month term discount notes over the same period as the term of the swap. The objective of the hedge is to offset the variability of cash flows, attributable to changes in benchmark interest rate (3-month LIBOR), due to the rollover of its fixed-rate 91 day discount notes issued in parallel with the cash flow payments of the swap every 91 days through till the maturity of the swap. Changes in the cash flows of the interest rate swap are expected to be highly effective at offsetting the changes in the interest element of the cash flows related to the forecasted issuance of the 91 day discount note. The maximum period of time that the Bank hedged exposure to the variability in future cash flows in this program is three months. At March 31, 2011, the Bank had open contracts of $150.0 million of swaps to hedge the anticipated issuances of discount notes under this program. The fair values of the open contracts recorded in AOCI amounted to an unrealized gain of $1.9 million at March 31, 2011.

 

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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 1.13: Accumulated Other Comprehensive Income (Loss) to Current Period Income from Cash Flow Hedges
                 
    Three months ended March 31,  
    2011     2010  
Accumulated other comprehensive income/(loss) from cash flow hedges
               
Beginning of period
  $ (15,196 )   $ (22,683 )
Net hedging transactions
    2,690       392  
Reclassified into earnings
    1,038       1,740  
 
           
 
               
End of period
  $ (11,468 )   $ (20,551 )
 
           
Debt extinguishment and sale of investment securities
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. From time to time, the bank may sell investment securities classified as available-for-sale, or on an isolated basis may be asked by the issuer of a security which the Bank has classified as held-to-maturity (“HTM”) to redeem the investment security.
The following table summarizes such activities (in thousands):
Table 1.14: Gains (Losses) on Sale and Extinguishment of Financial Instruments
                                 
    Three months ended March 31,  
    2011     2010  
    Carrying Value     Gains/(Losses)     Carrying Value     Gains/(Losses)  
Extinguishment of CO Bonds
  $ 327,345     $ (34,409 )   $     $  
Transfer of CO Bonds to Other FHLBanks
  $ 150,049     $ (17,332 )   $     $  
Operating Expenses, Compensation and Benefits, and Other Expenses — 2011 first quarter compared to 2010 first quarter
Operating expenses included the administrative and overhead costs of operating the Bank, as well as the operating costs of providing advances and managing collateral associated with the advances, managing the investment portfolios, and providing correspondent banking services to members. Operating Expenses of the FHLBNY were $7.5 million in the 2011 first quarter, up from $6.3 million in the same period in 2010. Compensation and benefits rose to $38.9 million in the 2011 period, up from $12.9 million in the same period in 2010. In March 2011, the FHLBNY contributed $24.0 million to its Defined Benefit Plan to eliminate a funding shortfall and this amount was charged to Net income. The FHLBNY was also assessed for its share of the operating expenses for the Finance Agency and the Office of Finance, and those totaled $3.4 million in the 2011 first quarter, up from $2.4 million in the same period in 2010. The 12 FHLBanks and two other GSEs share the administrative cost of the Finance Agency.
Operating Expenses
The following table sets forth the major categories of operating expenses (dollars in thousands):
Table 1.15: Operating Expenses
                                 
    Three months ended March 31,  
            Percentage of             Percentage of  
    2011     Total     2010     Total  
 
                               
Temporary workers
  $ 47       0.62 %   $ 39       0.61 %
Occupancy
    1,113       14.78       1,062       16.75  
Depreciation and leasehold amortization
    1,399       18.58       1,366       21.54  
Computer service agreements and contractual services
    2,575       34.20       1,901       29.97  
Professional and legal fees
    798       10.60       542       8.55  
Other *
    1,598       21.22       1,432       22.58  
 
                       
Total operating expenses
  $ 7,530       100.00 %   $ 6,342       100.00 %
 
                       
 
Salaries
  $ 7,559       19.39 %   $ 6,963       54.00 %
Employee benefits
    31,422       80.61       5,931       46.00  
 
                       
Total Compensation and Benefits
  $ 38,981       100.00 %   $ 12,894       100.00 %
 
                       
 
                               
Finance Agency and Office of Finance
  $ 3,397             $ 2,418          
 
                           
*   Other primarily represents audit fees, director fees and expenses, insurance and telecommunications.

 

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Assessments — 2011 first quarter compared to 2010 first quarter
Each FHLBank is required to set aside a portion of earnings to fund its Affordable Housing Program (“AHP”) and to satisfy its Resolution Funding Corporation assessment (“REFCORP”). For more information, see “Affordable Housing Program and Other Mission Related Programs” and “Assessments” under ITEM 1 BUSINESS in Form 10-K filed on March 25, 2011.
Affordable Housing Program obligations - The Bank fulfills its AHP obligations primarily through direct grants 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 FHLBNY sets aside 10 percent from its pre-assessment regulatory net income for the Affordable Housing Program. Regulatory net income is defined as GAAP net income before interest expense on mandatorily redeemable capital stock and the assessment for AHP, but after the assessment for REFCORP. The amounts set aside are considered as the Bank’s liability towards its Affordable Housing Program obligations. AHP grants and subsidies are provided to members out of this liability.
The following table provides roll-forward information with respect to changes in Affordable Housing Program liabilities (in thousands):
Table 2.1: Affordable Housing Program Liabilities
                 
    Three months ended March 31,  
    2011     2010  
 
               
Beginning balance
  $ 138,365     $ 144,489  
Additions from current period’s assessments
    7,969       6,126  
Net disbursements for grants and programs
    (11,203 )     (4,955 )
 
           
 
               
Ending balance
  $ 135,131     $ 145,660  
 
           
REFCORP — The following table provides roll-forward information with respect to changes in REFCORP liabilities (in thousands):
Table 2.2: REFCORP
                 
    Three months ended March 31,  
    2011     2010  
 
               
Beginning balance
  $ 21,617     $ 24,234  
Additions from current period’s assessments
    17,745       13,410  
Net disbursements to REFCORP
    (20,627 )     (16,027 )
 
           
Ending balance
  $ 18,735     $ 21,617  
 
           

 

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Financial Condition (dollars in thousands):
Table 3.1:Statements of Condition — Period-Over-Period Comparison
                                 
                    Net change in     Net change in  
(Dollars in thousands)   March 31, 2011     December 31, 2010     dollar amount     percentage  
Assets
                               
Cash and due from banks
  $ 2,953,801     $ 660,873     $ 2,292,928       346.95 %
Federal funds sold
    5,093,000       4,988,000       105,000       2.11  
Available-for-sale securities
    3,719,024       3,990,082       (271,058 )     (6.79 )
Held-to-maturity securities
                               
Long-term securities
    8,042,487       7,761,192       281,295       3.62  
Advances
    75,487,377       81,200,336       (5,712,959 )     (7.04 )
Mortgage loans held-for-portfolio
    1,270,891       1,265,804       5,087       0.40  
Derivative assets
    24,964       22,010       2,954       13.42  
Other assets
    282,290       323,773       (41,483 )     (12.81 )
 
                       
Total assets
  $ 96,873,834     $ 100,212,070     $ (3,338,236 )     (3.33 )%
 
                       
                                 
Liabilities
                               
Deposits
                               
Interest-bearing demand
  $ 2,465,860     $ 2,401,882     $ 63,978       2.66 %
Non-interest bearing demand
    2,971       9,898       (6,927 )     (69.98 )
Term
    43,800       42,700       1,100       2.58  
 
                       
Total deposits
    2,512,631       2,454,480       58,151       2.37  
 
                       
Consolidated obligations
                               
Bonds
    68,529,981       71,742,627       (3,212,646 )     (4.48 )
Discount notes
    19,507,159       19,391,452       115,707       0.60  
 
                       
Total consolidated obligations
    88,037,140       91,134,079       (3,096,939 )     (3.40 )
 
                       
   
Mandatorily redeemable capital stock
    59,126       63,219       (4,093 )     (6.47 )
   
Derivative liabilities
    839,710       954,898       (115,188 )     (12.06 )
Other liabilities
    482,200       461,025       21,175       4.59  
 
                       
Total liabilities
    91,930,807       95,067,701       (3,136,894 )     (3.30 )
 
                       
Capital
    4,943,027       5,144,369       (201,342 )     (3.91 )
 
                       
Total liabilities and capital
  $ 96,873,834     $ 100,212,070     $ (3,338,236 )     (3.33 )%
 
                       
Balance sheet overview- March 31, 2011 compared to December 31, 2010
The FHLBNY experienced steady balance sheet contraction in the 2011 first quarter, in parallel with the decline in Advances to $75.5 billion at March 31, 2011 from $81.2 billion at December 31, 2010. Reported balances include fair value basis of hedged advances. The decline in demand for member borrowings 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 has also declined, as loan demand from members’ customers may have stayed lukewarm due to nationally weak economic conditions.
Advances — At March 31, 2011, the FHLBNY’s Total assets were $96.9 billion, a decrease of 3.3%, or $3.3 billion from December 31, 2010. The Bank’s 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 7.0%.
Table 3.2:Advance Graph
(BAR GRAPH)

 

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Investments — The FHLBNY’s investment strategies continue to be restrained, and acquisitions 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 Bank’s risk-reward preferences.
Market pricing of GSE-issued MBS was substantially all in net unrealized fair value gain positions. Fair values of the Bank’s private-label securities also improved at March 31, 2011 relative to December 31, 2010, but were still depressed, as market conditions for such securities remained uncertain. For more information about fair values of AFS and HTM securities, see Note 16 Fair Values of Financial Instruments.
Leverage — At March 31, 2011, balance sheet leverage was 19.6 times shareholders’ equity, compared to 19.5 times capital at December 31, 2010. The Bank’s 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 liquidity 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 remain 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 — The primary source of funds for the FHLBNY continued to be the 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 to finance the Bank’s balance sheet assets has remained almost unchanged at March 31, 2011 from December 31, 2010.
Liquidity and Short-term Debt — The following table summarizes the FHLBNY’s short-term debt (in thousands). Also see Tables 7.1 — 7.10 and 10.4 for additional information.
Table 3.3: Short—term debt
                 
    Short Term Liquidity  
    March 31, 2011     December 31, 2010  
 
Consolidated Obligations-Discount Notes 1
  $ 19,507,159     $ 19,391,452  
 
Consolidated Obligations-Bonds With Original Maturities of One Year or Less 2
  $ 9,635,000     $ 12,410,000  
1   Outstanding at end of the period — carrying value
 
2   Outstanding at end of the period — par value
The FHLBNY’s liquid assets included cash at the FRB, federal funds sold, and a portfolio of highly rated GSE securities that were available-for-sale.
The FHLBanks’ GSE status enables the FHLBanks, including FHLBNY, to fund its consolidated obligation debt at tight margins to U.S. Treasury. These are discussed in more detail under “Debt Financing and Consolidated Obligations” in this MD&A. The FHLBNY’s internal source of liquidity position remains strong, and was in compliance with all regulatory requirements. Management does not foresee any changes to that position.
Among other liquidity measures, the FHLBNY is required to maintain sufficient liquidity, through short-term investments, in an amount at least equal to that Bank’s anticipated cash outflows under two different scenarios. The first scenario assumes that the FHLBNY cannot access the capital markets for 15 days and that during that time, members do not renew their maturing, prepaid and called advances. The second scenario assumes that the FHLBNY cannot access the capital market for five days and that during that period, members renew maturing and called advances. The FHLBNY was in compliance within these scenarios.
The FHLBNY also has in place other liquidity measures — Deposit Liquidity and Operational Liquidity indicated that the FHLBNY’s liquidity buffers were in excess of required reserves. For more information about the FHLBNY’s liquidity measures and see section “Liquidity, Short-term borrowings and Short-term Debt” in this MD&A.

 

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Advances
The FHLBNY’s primary business is making collateralized loans, known as “advances,” to members.
Member demand for advance borrowings has steadily declined in the 2011 first quarter, a continuing trend from 2010. Member prepayments were significant but were largely concentrated on the prepayments of putable fixed-rate advances, which were replaced almost immediately by medium and short-term fixed-rate advances without the put option.
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 Bank’s 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. 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 4.1: Advances by Product Type
                                 
    March 31, 2011     December 31, 2010  
            Percentage             Percentage  
    Amounts     of Total     Amounts     of Total  
 
                               
Adjustable Rate Credit — ARCs
  $ 8,016,000       11.09 %   $ 8,121,000       10.56 %
Fixed Rate Advances
    58,304,095       80.64       64,557,112       83.91  
Short-Term Advances
    3,489,700       4.83       1,357,300       1.76  
Mortgage Matched Advances
    466,114       0.64       479,934       0.62  
Overnight & Line of Credit (OLOC) Advances
    1,024,295       1.42       1,402,696       1.82  
All other categories
    1,000,067       1.38       1,021,497       1.33  
 
                       
 
                               
Total par value
    72,300,271       100.00 %     76,939,539       100.00 %
 
                           
 
                               
Discount on AHP Advances
    (36 )             (42 )        
Hedging adjustments
    3,187,142               4,260,839          
 
                           
 
                               
Total
  $ 75,487,377             $ 81,200,336          
 
                           
Member demand for advance products
Fixed-rate advance products declined at March 31, 2011 primarily because of the prepayment of fixed-rate putable advances. Borrowers have also remained reluctant to borrow long-term advances. Much of the prepayments were immediately replaced by medium- and short-term advances, which also explains the increase in Short-Term fixed rate advances.
Adjustable Rate Advances (“ARC Advances”) — Demand for ARC advances has stabilized after a declining trend in most of 2010. Generally, the FHLBNY’s larger members have been the more significant borrowers of ARCs.
ARC advances are medium- and long-term loans that can be linked to a variety of indices, such as 1-month LIBOR, 3-month LIBOR, the Federal funds rate, or Prime. Members use ARC advances to manage interest rate and basis risks by efficiently matching the interest rate index and repricing characteristics of floating-rate assets. The interest rate is set and reset (depending upon the maturity of the advance and the type of index) at a spread to that designated index. Principal is due at maturity and interest payments are due at each reset date, including the final payment date.
Fixed-rate Advances - Fixed-rate advances, comprising putable and non-putable advances, remain the largest category of advances.
Member demand for fixed-rate advances has been soft in the 2011 first quarter and borrowings have declined. Prepayments have been heavily concentrated in the fixed-rate putable advance. On aggregate, maturing and prepaid advances have been replaced by short- and 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 on the direction and timing of interest rate changes, or lukewarm demand from members’ customer base for longer-term fixed-rate loans.
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.

 

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A significant composition of Fixed-rate advances consists of advances with a “put” option feature (“putable advance”). Historically, Fixed-rate putable advances have been more competitively priced relative to fixed-rate “bullet” advances (without put option) because of the “put” feature that the Bank purchases from the member, driving down the coupon on the advance. The price advantage of a putable advance increases with the numbers of puts sold and the length of the term of a putable 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.
In the 2011 first quarter, maturing and prepaid putable advances were either not replaced or replaced by bullet advance (without the put feature).
Short-term Advances — Demand for Short-term fixed-rate advances had remained steady through most of the 2011 first quarter and grew because borrowing member replaced some of the prepaid putable advances with short-term advances to take advantage of the current low coupons.
Overnight advances — Overnight borrowings remained soft, a continuation of the trend seen in 2010. 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 a 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.
The following table summarizes merger activity (dollars in thousands):
Table 4.2: Merger Activity
                 
    Merger Activity  
    Three months ended March 31,  
    2011     2010  
 
               
Number of Non-Members 1
    9       11  
 
               
Non-member advances outstanding at period end
  $ 833,928     $ 1,840,960  
 
           
1   Members who became non-members because of mergers.
The former members are not considered to have a significant borrowing potential.
Prepayment of Advances
Prepayment initiated by members or former members is another important factor that impacts advances. The FHLBNY charges a prepayment fee when the member or a former member prepays certain advances before the original maturity.
The following table summarizes prepayment activity (in thousands):
Table 4.3: Prepayment Activity
                 
    Prepayment Activity  
    Three months ended March 31,  
    2011     2010  
 
               
Advances pre-paid at par
  $ 7,107,367     $ 180,000  
 
           
 
               
Prepayment fees
  $ 42,743     $ 701  
 
           
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.

 

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Advances — Interest Rate Terms
The following table summarizes interest-rate payment terms for advances (dollars in thousands):
Table 4.4: Advances by Interest-Rate Payment Terms
                                 
    March 31, 2011     December 31, 2010  
            Percentage             Percentage  
    Amount     of Total     Amount     of Total  
 
                               
Fixed-rate
  $ 64,284,271       88.91 %   $ 68,818,343       89.44 %
Variable-rate
    8,008,000       11.08       8,113,000       10.55  
Variable-rate capped
    8,000       0.01       8,000       0.01  
Overdrawn demand deposit accounts
                196        
 
                       
 
                               
Total par value
    72,300,271       100.00 %     76,939,539       100.00 %
 
                           
 
                               
Discount on AHP Advances
    (36 )             (42 )        
Hedging basis adjustments
    3,187,142               4,260,839          
 
                           
 
                               
Total
  $ 75,487,377             $ 81,200,336          
 
                           
Fixed-rate borrowings remained popular with members but amounts borrowed have declined in line with the overall decline in member demand for advances. The product is popular with members as reflected by an increasing percentage of total advances outstanding. Variable-rate advances outstanding declined in percentage terms and amounts outstanding. Member demand for adjustable-rate LIBOR-based funding has been weak, as members may perceive the risk of a combination of an unsettled interest rate environment and a steepening yield curve to make variable-rate borrowing relatively unattractive from an interest-rate risk management perspective. Variable-rate capped advances also declined in a declining interest rate environment. Typically, capped ARCs are in demand by members only in a rising rate environment, as they would purchase cap options from the FHLBNY to limit borrowers’ interest rate exposure. With a capped variable rate advance, the FHLBNY had offsetting purchased cap options that mirrored the terms of the caps sold to members, offsetting the FHLBNY’s exposure on the advance.
The following table summarizes variable-rate advances by reference-index type (in thousands):
Table 4.5: Variable-Rate Advances
                 
    March 31, 2011     December 31, 2010  
 
               
LIBOR indexed
  $ 8,016,000     $ 8,121,000  
Overdrawn demand deposit accounts
          196  
Prime
           
 
           
 
               
Total
  $ 8,016,000     $ 8,121,196  
 
           
The following table summarizes maturity and yield characteristics of par amounts of advances (dollars in thousands):
Table 4.6: Advances by Maturity and Yield Type
                                 
    March 31, 2011     December 31, 2010  
            Percentage             Percentage  
    Amount     of Total     Amount     of Total  
 
                               
Fixed-rate
                               
Due in one year or less
  $ 14,762,800       20.42 %   $ 14,384,651       18.70 %
Due after one year
    49,521,471       68.50       54,433,692       70.75  
 
                       
Total Fixed-rate
    64,284,271       88.92       68,818,343       89.45  
 
                               
Variable-rate
                               
Due in one year or less
    2,353,000       3.25       2,488,196       3.23  
Due after one year
    5,663,000       7.83       5,633,000       7.32  
 
                       
Total Variable-rate
    8,016,000       11.08       8,121,196       10.55  
 
                       
Total par value
    72,300,271       100.00 %     76,939,539       100.00 %
 
                           
Discount on AHP Advances
    (36 )             (42 )        
Hedging adjustments
    3,187,142               4,260,839          
 
                           
Total
  $ 75,487,377             $ 81,200,336          
 
                           

 

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Impact of Derivatives and hedging activities to the balance sheet carrying values of Advances
Advance book values included fair value basis adjustments (“hedging adjustments”), which are recorded under the hedge accounting provisions on hedged advances. When medium- and long-term interest rates rise or fall, the fair values of fixed-rate advances move in the opposite direction.
The Bank hedges certain advances by the use of both cancellable and non-cancellable interest rate swaps. These qualify as fair value hedges under the derivatives and hedge accounting rules. Recorded fair value basis adjustments to advances in the Statements of Condition were a result of these hedging activities. The Bank hedges the risk of changes in the benchmark rate, which the FHLBNY has adopted as LIBOR and is also the discounting basis for computing changes in fair values of hedged advances. Fair value changes of qualifying hedged advances under the derivatives and hedge accounting rules are recorded in the Statements of Income as a Net realized and unrealized gain (loss) on derivative and hedging activities, a component of Other income (loss). An offset is recorded as a fair value basis adjustment to the carrying amount of the advances in the Statements of Condition.
  Derivative transactions are employed to hedge fixed-rate advances in the following manner and to achieve the following principal objectives. The FHLBNY:
  Makes extensive use of the derivatives to restructure interest rates on fixed-rate advances, both putable and non-putable (“bullet”), to better match the FHLBNY’s 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 Bank’s 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.
The following table summarizes hedged advances by type of option features (in thousands):
Table 4.7: Hedged Advances by Type
                 
    Advances  
Par Amount   March 31, 2011     December 31, 2010  
Qualifying Hedges
               
Fixed-rate bullets
  $ 29,590,412     $ 26,562,821  
Fixed-rate putable
    26,877,062       33,612,162  
Fixed-rate callable
    305,000       150,000  
 
           
Total Qualifying Hedges
  $ 56,772,474     $ 60,324,983  
 
           
Aggregate par amount of advances hedged 1
  $ 56,866,249     $ 60,461,327  
 
           
Fair value basis (Qualifying hedging adjustments)
  $ 3,187,142     $ 4,260,839  
 
           
1   Either hedged economically or qualified under a hedge accounting rules
Except for an insignificant notional amount of derivatives that were designated as economic hedges of advances, hedged advances were in a qualifying hedging relationship under the accounting standards for derivatives and hedging. (See Tables 9.1 — 9.5). No advances were designated under the FVO. The FHLBNY typically hedges fixed-rate advances in order to convert fixed-rate cash flows to LIBOR-indexed cash flows through the use of interest rate swaps.
The FHLBNY has allowed its fixed-rate putable advances to decline, and since almost all advances with put or call features are hedged, the decline in hedged advances was consistent with the contraction of fixed-rate putable advances. The put option in the advance is purchased by the FHLBNY from the borrowing member and mirrors the cancellable swap option owned by the swap counterparty. 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 member’s choice at the then-prevailing market rates and at the then-existing terms and conditions.

 

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Fair value basis adjustments - Fair value gains were consistent with the higher contractual coupons of hedged long-and medium-term fixed-rate advances. These advances had been issued at prior years at the then-prevailing higher interest rate environment compared to the lower interest rate environment at the balance sheet dates that were projecting forward rates below the contractual coupons of hedged fixed-rate advances. Fixed-rate advances, in a lower interest rate environment relative to the coupons of the advances, will exhibit net unrealized fair value basis gains.
The period-over-period decrease in net fair value basis adjustments of hedged Advances was primarily caused by (1) the upward shift (albeit small) of the forward swap interest rates at the current period end compared to December 31, 2010, as displayed below. As future swap rates increase, the higher contractual coupons of the advances become less “valuable” and fair value gains decline, and (2) lower amounts (volume effects) of hedged advances.
(BAR GRAPH)
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 Bank’s hedging objectives of mitigating fair value basis risk.

 

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Advances — Call Dates and Exercise Options
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).
Table 4.9: Advances by Put/Call Date
                                 
    March 31, 2011     December 31, 2010  
          Percentage of           Percentage of  
    Amount     Total     Amount     Total  
 
                               
Overdrawn demand deposit accounts
  $       %   $ 196       %
Due or putable\callable in one year or less1
    42,893,112       59.33       49,443,712       64.26  
Due or putable after one year through two years
    10,116,744       13.99       8,889,867       11.55  
Due or putable after two years through three years
    7,502,977       10.38       6,959,596       9.05  
Due or putable after three years through four years
    4,276,457       5.91       4,744,502       6.17  
Due or putable after four years through five years
    4,428,259       6.12       4,145,209       5.39  
Due or putable after five years through six years
    694,951       0.96       815,948       1.06  
Thereafter
    2,387,771       3.31       1,940,509       2.52  
 
                       
 
                               
Total par value
    72,300,271       100.00 %     76,939,539       100.00 %
 
                           
 
                               
Discount on AHP advances
    (36 )             (42 )        
Hedging adjustments
    3,187,142               4,260,839          
 
                           
 
                               
Total
  $ 75,487,377             $ 81,200,336          
 
                           
1   Due or putable in one year or less includes five callable advances.
Contrasting advances by contractual maturity dates (See Tables 4.1 — 4.9) with potential put dates illustrates the impact of hedging on the effective duration of the Bank’s advances. The Bank’s advances borrowed by members include a significant amount of putable advances in which the Bank has purchased from members the option to terminate advances at agreed-upon dates. Typically, almost all putable advances are hedged by cancellable interest rate swaps in which the derivative counterparty has the right to exercise and terminate the swap at par at agreed upon dates. Under current hedging practices, when the swap counterparty exercises its right to call the cancellable swap, the Bank would typically also exercise its right to put the advance at par. Under this hedging practice, on a put option basis, the potential exercised maturity is significantly accelerated, and is an important factor in the Bank’s current hedge strategy.
The following table summarizes notional amounts of advances that were still putable or callable (one or more pre-determined option exercise dates remaining) (in thousands):
Table 4.10: Putable and Callable Advances
                 
    Advances  
    March 31, 2011*     December 31, 2010*  
Putable
  $ 27,787,662     $ 34,651,912  
 
           
No-longer putable
  $ 2,383,600     $ 2,581,100  
 
           
Callable
  $ 305,000     $ 150,000  
 
           
*   Par value
The FHLBNY has allowed its fixed-rate putable advances to decline and member borrowings have been weak for putable advances, which are typically medium and long-term. Significant prepayment of putable advances was the primary cause of the decline.
Investments
The FHLBNY maintains investments for liquidity purposes, to manage 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 Moody’s Investors Service (“Moody’s”) or Standard & Poor’s 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 FHLBank’s capital. The FHLBNY was within the 300 percent limit for all periods reported. The FHLBNY’s investment in mortgage-backed securities during all periods reported complied with FHLBNY’s 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 Moody’s and Standard & Poor’s rating services at acquisition.

 

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The FHLBNY’s 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 periods in this report.
The following table summarizes changes in investments by categories (including held-to-maturity securities, available-for-sale securities, and money market investments). No securities classified as available-for-sale were OTTI (dollars in thousands):
Table 5.1: Investments by Categories
                                 
    March 31,     December 31,     Dollar     Percentage  
    2011     2010     Variance     Variance  
 
                               
State and local housing finance agency obligations 1
  $ 755,712     $ 770,609     $ (14,897 )     (1.93 )%
Mortgage-backed securities
                               
Available-for-sale securities, at fair value
    3,708,872       3,980,135       (271,263 )     (6.82 )
Held-to-maturity securities, at carrying value
    7,286,775       6,990,583       296,192       4.24  
 
                       
Total securities
    11,751,359       11,741,327       10,032       0.09  
 
                               
Grantor trusts 2
    10,152       9,947       205       2.06  
Federal funds sold
    5,093,000       4,988,000       105,000       2.11  
 
                       
 
                               
Total investments
  $ 16,854,511     $ 16,739,274     $ 115,237       0.69 %
 
                       
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
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. The Bank owns a grantor trust to fund current and potential future payments to retirees for supplemental pension plan obligations. The trust fund is 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 5.2: Held-to-maturity mortgage-backed Securities — By Issuer
                                 
    March 31,     Percentage     December 31,     Percentage  
    2011     of Total     2010     of Total  
 
                               
U.S. government sponsored enterprise residential mortgage-backed securities
  $ 5,659,761       77.67 %   $ 5,528,792       79.09 %
U.S. agency residential mortgage-backed securities
    107,456       1.47       116,126       1.66  
U.S. government sponsored enterprise commercial mortgage-backed securities
    707,826       9.71       476,393       6.81  
U.S. agency commercial mortgage-backed securities
    44,408       0.61       48,748       0.70  
Private-label issued securities backed by home equity loans
    341,464       4.69       351,455       5.03  
Private-label issued residential mortgage-backed securities
    254,794       3.50       292,477       4.18  
Private-label issued securities backed by manufactured housing loans
    171,066       2.35       176,592       2.53  
 
                       
Total Held-to-maturity securities-mortgage-backed securities
  $ 7,286,775       100.00 %   $ 6,990,583       100.00 %
 
                       

 

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Held-to-maturity mortgage- and asset-backed securities (“MBS”) — The Bank’s conservative purchasing practices over the years are evidenced by the high concentration of MBS issued by the GSEs.
Local and housing finance agency bonds The FHLBNY had investments in primary public and private placements of taxable obligations of state and local housing finance authorities (“HFA”) classified as held-to-maturity. Investments in state and local housing finance bonds help to fund mortgages that finance low- and moderate-income housing.
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 FHLBNY’s available-for-sale securities was as follows (dollars in thousands):
Table 5.3: Available-for-Sale Securities Composition
                                 
    March 31,     Percentage     December 31,     Percentage  
    2011     of Total     2010     of Total  
Fannie Mae
  $ 2,309,122       62.26 %   $ 2,478,313       62.26 %
Freddie Mac
    1,329,160       35.84       1,429,900       35.93  
Ginnie Mae
    70,590       1.90       71,922       1.81  
 
                       
Total AFS mortgage-backed securities
    3,708,872       100.00 %     3,980,135       100.00 %
 
                           
Grantor Trusts — Mutual funds
    10,152               9,947          
 
                           
Total AFS portfolio
  $ 3,719,024             $ 3,990,082          
 
                           
All of the mortgage-backed securities in the AFS portfolio were issued by Fannie Mae, Freddie Mac, or a U.S. agency. The Bank also has a grantors trust designed to fund current and potential future payments to retirees for supplemental pension plan obligations. The funds are invested in money market funds, fixed-income and equity funds, and are designated as available-for-sale.
External rating information of the held-to-maturity portfolio was as follows. (Carrying values; in thousands):
Table 5.4: External Ratings of the Held-to-Maturity Portfolio
                                                 
    March 31, 2011  
                                    Below
Investment
       
    AAA-rated     AA-rated     A-rated     BBB-rated     Grade     Total  
 
                                               
Long-term securities
                                               
Mortgage-backed securities
  $ 6,737,651     $ 264,513     $ 105,873     $ 4,668     $ 174,070     $ 7,286,775  
State and local housing finance agency obligations
    71,344       617,163             67,205             755,712  
 
                                   
 
                                               
Total Long-term securities
  $ 6,808,995     $ 881,676     $ 105,873     $ 71,873     $ 174,070     $ 8,042,487  
 
                                   
 
                                               
 
                                               
    December 31, 2010  
                                    Below
Investment
       
    AAA-rated     AA-rated     A-rated     BBB-rated     Grade     Total  
 
                                               
Long-term securities
                                               
Mortgage-backed securities
  $ 6,463,552     $ 266,567     $ 87,796     $ 17,446     $ 155,222     $ 6,990,583  
State and local housing finance agency obligations
    71,461       631,943             67,205             770,609  
 
                                   
 
                                               
Total Long-term securities
  $ 6,535,013     $ 898,510     $ 87,796     $ 84,651     $ 155,222     $ 7,761,192  
 
                                   
External rating information of the available-for-sale portfolio was as follows (the carrying values of AFS investments are at fair values; in thousands):
Table 5.5: External Ratings of the Available-for-Sale Portfolio
                                                 
    March 31, 2011  
    AAA-rated     AA-rated     A-rated     BBB-rated     Unrated     Total  
 
                                               
Available-for-sale securities
                                               
Mortgage-backed securities 1
  $ 3,708,872     $     $     $     $     $ 3,708,872  
Other — Grantor trusts
                            10,152       10,152  
 
                                   
 
                                               
Total
  $ 3,708,872     $     $     $     $ 10,152     $ 3,719,024  
 
                                   
 
                                               
    December 31, 2010  
    AAA-rated     AA-rated     A-rated     BBB-rated     Unrated     Total  
 
                                               
Available-for-sale securities
                                               
Mortgage-backed securities 1
  $ 3,980,135     $     $     $     $     $ 3,980,135  
Other — Grantor trusts
                            9,947       9,947  
 
                                   
 
                                               
Total
  $ 3,980,135     $     $     $     $ 9,947     $ 3,990,082  
 
                                   
1   GSE and U.S. Obligations

 

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Weighted average rates — Mortgage-backed securities (HTM and AFS)
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 in parallel with changes in the LIBOR rate (dollars in thousands):
Table 5.6: Mortgage-Backed Securities Weighted Average Rates by Contractual Maturities
                                 
    March 31, 2011     December 31, 2010  
    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
    1,502       6.25       1,730       6.25  
Due after five years through ten years
    1,508,748       4.28       1,374,456       4.36  
Due after ten years
    9,559,762       2.37       9,664,231       2.57  
 
                       
 
                               
Total mortgage-backed securities
  $ 11,070,012       2.63 %   $ 11,040,417       2.79 %
 
                       
Adverse Case Scenario- OTTI securities
Management evaluates its investments for OTTI on a quarterly basis, by cash flow testing 100 percent of its private-label MBS. In addition, the FHLBNY evaluated its credit-impaired private-label MBS under a base case (or best estimate) scenario, and also performed a cash flow analysis for each of those securities under more adverse external assumptions that forecasted a larger home price decline and a slower rate of housing price recovery. The stress test scenario and associated results do not represent the Bank’s current expectations and therefore should not be construed as a prediction of the Bank’s future results, market conditions or the actual performance of these securities.
The results of the adverse case scenario are presented below alongside the FHLBNY’s expected outcome for the credit impaired securities (the base case) (in thousands):
Table 5.7: Base and Adverse Case Stress Scenarios
                                 
    As of March 31, 2011  
    Actual Results — Base Case Scenario     Adverse Case Scenario  
            OTTI Related to Credit             OTTI Related to Credit  
    UPB     Loss     UPB     Loss  
RMBS Prime
  $     $     $     $  
Alt-A
                       
HEL Subprime
    30,869       (370 )     30,869       (390 )
 
                       
Total
  $ 30,869     $ (370 )   $ 30,869     $ (390 )
 
                       
                                 
    As of March 31, 2010  
    Actual Results — Base Case Scenario     Adverse Case Scenario  
            OTTI related to credit             OTTI related to credit  
    UPB     loss     UPB     loss  
RMBS Prime
  $     $     $     $  
Alt-A
                       
HEL Subprime
    67,114       3,400       67,114       5,028  
 
                       
Total
  $ 67,114     $ 3,400     $ 67,114     $ 5,028  
 
                       
                                 
    As of December 31, 2010  
    Actual Results — Base Case Scenario     Adverse Case Scenario  
            OTTI related to credit             OTTI related to credit  
    UPB     loss     UPB     loss  
RMBS Prime
  $ 16,477       (176 )   $ 16,477     $ (272 )
Alt-A
                       
HEL Subprime
    17,641       (409 )     17,641       (421 )
 
                       
Total
  $ 34,118       (585 )   $ 34,118     $ (693 )
 
                       
In the adverse case scenario, expected losses were not significantly greater than those assessed and recorded under the base case expected loss scenario.

 

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Non-Agency Private label mortgage- and asset-backed securities
The Bank’s investments in privately issued MBS are summarized below. All private-label MBS were classified as held-to-maturity. (Unpaid principal balance; in thousands):
Table 5.8: Non-Agency Private Label Mortgage- and Asset-Backed Securities
                                                 
    March 31, 2010     December 31, 2010  
            Variable                     Variable        
Private-label MBS   Fixed Rate     Rate     Total     Fixed Rate     Rate     Total  
Private-label RMBS
                                               
Prime
  $ 246,901     $ 3,890     $ 250,791     $ 284,552     $ 3,995     $ 288,547  
Alt-A
    5,562       3,215       8,777       5,877       3,276       9,153  
 
                                   
Total PL RMBS
    252,463       7,105       259,568       290,429       7,271       297,700  
 
                                   
 
                                               
Home Equity Loans
                                               
Subprime
    379,957       77,794       457,751       389,031       81,835       470,866  
 
                                   
Total Home Equity Loans
    379,957       77,794       457,751       389,031       81,835       470,866  
 
                                   
 
                                               
Manufactured Housing Loans
                                               
Subprime
    171,084             171,084       176,611             176,611  
 
                                   
Total Manufactured Housing Loans
    171,084             171,084       176,611             176,611  
 
                                   
Total UPB of private-label MBS
  $ 803,504     $ 84,899     $ 888,403     $ 856,071     $ 89,106     $ 945,177  
 
                                   
Unpaid principal balance (UPB) is also known as the current face or par amount of a mortgage-backed security.
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 5.9: PLMBS by Year of Securitization and External Rating
                                                                                 
    March 31, 2011                                
    Unpaid Principal Balance                                
                                                                            Total  
                                                                            Credit and  
                                            Below             Gross             Non-Credit  
    Ratings                                     Investment     Amortized     Unrealized             OTTI  
Private-label MBS   Subtotal     Triple-A     Double-A     Single-A     Triple-B     Grade     Cost     (Losses)     Fair Value     Losses1  
RMBS
                                                                               
Prime
                                                                               
2006
  $ 35,323     $     $     $     $     $ 35,323     $ 34,798     $ (215 )   $ 34,707     $  
2005
    51,313                   14,202             37,111       49,826       (555 )     49,489        
2004 and earlier
    164,155       157,633       6,522                         163,438       (263 )     166,115        
 
                                                           
Total RMBS Prime
    250,791       157,633       6,522       14,202             72,434       248,062       (1,033 )     250,311        
 
                                                           
Alt-A
                                                                               
2004 and earlier
    8,777       8,777                               8,778       (531 )     8,296        
 
                                                           
Total RMBS
    259,568       166,410       6,522       14,202             72,434       256,840       (1,564 )     258,607        
 
                                                           
HEL
                                                                               
Subprime
                                                                               
2004 and earlier
    457,751       71,524       87,082       110,516       4,698       183,931       428,689       (55,607 )     374,088        
 
                                                           
Manufactured Housing Loans
                                                                               
Subprime
                                                                               
2004 and earlier
    171,084             171,084                         171,066       (18,998 )     152,068        
 
                                                           
Total PLMBS
  $ 888,403     $ 237,934     $ 264,688     $ 124,718     $ 4,698     $ 256,365     $ 856,595     $ (76,169 )   $ 784,763     $  
 
                                                           
1 Credit-related OTTI was offset by reclassification of non-credit OTTI to Net income.

 

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    December 31, 2010                                
    Unpaid Principal Balance                                
                                                                            Total  
                                                                            Credit and  
                                            Below             Gross             Non-Credit  
    Ratings                                     Investment     Amortized     Unrealized             OTTI  
Private-label MBS   Subtotal     Triple-A     Double-A     Single-A     Triple-B     Grade     Cost     (Losses)     Fair Value     Losses  
RMBS
                                                                               
Prime
                                                                               
2006
  $ 40,987     $     $     $     $     $ 40,987     $ 40,413     $ (303 )   $ 40,313     $ (479 )
2005
    59,456                   17,664             41,792       57,863       (589 )     57,763        
2004 and earlier
    188,104       180,110       7,994                         187,256       (388 )     191,029        
 
                                                           
Total RMBS Prime
    288,547       180,110       7,994       17,664             82,779       285,532       (1,280 )     289,105       (479 )
 
                                                           
Alt-A
                                                                               
2004 and earlier
    9,153       9,153                               9,154       (528 )     8,684        
 
                                                           
Total RMBS
    297,700       189,263       7,994       17,664             82,779       294,686       (1,808 )     297,789       (479 )
 
                                                           
HEL
                                                                               
Subprime
                                                                               
2004 and earlier
    470,866       124,936       88,402       89,465       27,984       140,079       442,173       (64,076 )     378,992       (4,573 )
 
                                                           
Manufactured Housing Loans
                                                                               
Subprime
                                                                               
2004 and earlier
    176,611             176,611                         176,592       (21,437 )     155,155        
 
                                                           
Total PLMBS
  $ 945,177     $ 314,199     $ 273,007     $ 107,129     $ 27,984     $ 222,858     $ 913,451     $ (87,321 )   $ 831,936     $ (5,052 )
 
                                                           

 

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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 5.10: Weighted-Average Market Price of MBS
                         
    March 31, 2011  
    Original              
    Weighted-     Weighted-     Weighted-Average  
    Average Credit     Average Credit     Collateral  
Private-label MBS   Support %     Support %     Delinquency %  
RMBS
                       
Prime
                       
2006
    3.84 %     5.32 %     8.32 %
2005
    2.46       4.55       3.50  
2004 and earlier
    1.59       3.68       0.81  
 
                 
Total RMBS Prime
    2.08       4.09       2.42  
Alt-A
                       
2004 and earlier
    11.23       33.59       8.20  
 
                 
Total RMBS
    2.39       5.09       2.61  
 
                 
HEL
                       
Subprime
                       
2004 and earlier
    57.42       32.08       17.26  
 
                 
Manufactured Housing Loans
                       
Subprime
                       
2004 and earlier
    100.00       27.15       3.25  
 
                 
Total Private-label MBS
    49.54 %     23.25 %     10.28 %
 
                 
                         
    December 31, 2010  
    Original              
    Weighted-     Weighted-     Weighted-Average  
    Average Credit     Average Credit     Collateral  
Private-label MBS   Support %     Support %     Delinquency %  
RMBS
                       
Prime
                       
2006
    3.81 %     5.30 %     6.94 %
2005
    2.52       4.29       3.05  
2004 and earlier
    1.56       3.40       0.65  
 
                 
Total RMBS Prime
    2.08       3.86       2.04  
Alt-A
                       
2004 and earlier
    11.11       33.38       7.42  
 
                 
Total RMBS
    2.36       4.76       2.20  
 
                 
HEL
                       
Subprime
                       
2004 and earlier
    57.15       64.57       17.26  
 
                 
Manufactured Housing Loans
                       
Subprime
                       
2004 and earlier
    100.00       100.00       3.51  
 
                 
Total Private-label MBS
    47.90 %     52.36 %     9.95 %
 
                 
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.

 

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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 may also invest in certificates of deposit with maturities not exceeding 270 days and issued by major financial institutions, and would be recorded at amortized cost basis and designated as held-to-maturity investment.
Federal funds sold - Historically, the FHLBNY has been a provider of Federal funds to its members, allowing the FHLBNY to warehouse and provide balance sheet liquidity to meet unexpected member borrowing demands. For more information, see Tables 5.1— 5.10.
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 FHLBNY’s derivatives are in a net unrealized loss position, as a liability from the FHLBNY’s 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. Typically, such cash deposit pledges earn interest at the overnight Federal funds rate. For more information, see Tables 9.1 — 9.5.
Mortgage Loans Held-for-Portfolio
The portfolio of mortgage loans was primarily comprised of investments in Mortgage Partnership Finance loans (“MPF” or “MPF Program”). More details about the MPF program can be found in Mortgage Partnership Finance Program under the caption Acquired Member Assets Program in the Bank’s most recent Form 10-K filed on March 25, 2011.
MPF Program - 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.
The following table summarizes Mortgage Partnership Finance Loans (“MPF” or “Mortgage Partnership Finance program”) by loss layer structure product types (in thousands):
Table 6.1: MPF by Loss Layers
                 
    March 31, 2011     December 31, 2010  
 
               
Original MPF
  $ 358,201     $ 343,925  
MPF 100
    22,170       23,591  
MPF 125
    421,467       392,780  
MPF 125 Plus
    462,675       494,917  
Other
    6,491       9,408  
 
           
Total MPF Loans *
  $ 1,271,004     $ 1,264,621  
 
           
*   Par amount of total mortgage loan held-for-portfolio includes CMA, par amount at March 31, 2011 was $0.3 million.
Original MPF — The first layer of losses is applied to the First Loss Account provided by the Bank. The member then provides a credit enhancement up to “AA” rating equivalent. Any credit losses beyond the first two layers, though a remote possibility, would be absorbed by the FHLBNY.
MPF 100 — The first layer of losses is applied to the First Loss Account provided by the Bank. Losses incurred in the First Loss Account are deducted from credit enhancement fees payable to the member after the third year. The member then provides a credit enhancement up to “AA” rating equivalent less the amount placed in the FLA. The Bank absorbs any losses incurred in the FLA that are not recovered through credit enhancement fees (should the pool liquidate prior to repayment of losses). Credit losses beyond the first two layers, though a remote possibility, would be absorbed by the FHLBNY.
MPF 125 — The first layer of losses is applied to the First Loss Account provided by the Bank. Losses incurred in the First Loss Account are deducted from the credit enhancement fees payable to the member. The member then provides a credit enhancement up to “AA” rating equivalent less the amount placed in the FLA. The Bank absorbs any losses incurred in the FLA that are not recovered through credit enhancement fees (should the pool liquidate prior to repayment of losses). Credit losses beyond the first two layers, though a remote possibility would be absorbed by the FHLBNY.
MPF Plus — The first layer of losses is applied to the First Loss Account (“FLA”) in an amount equal to a specified percentage of loans in the pool as of the sale date. Losses incurred in the First Loss Account are deducted from the credit enhancement fees payable to the member. The Bank absorbs any losses incurred in the FLA that are not recovered through credit enhancement fees (should the pool liquidate prior to repayment of losses) The member acquires an additional Credit Enhancement (“CE”) coverage through a supplemental mortgage insurance policy (“SMI”) to cover second-layer losses that exceed the deductible (“FLA”) of the Supplemental Mortgage Insurance policy. Losses not covered by the First Loss Account or Supplemental Mortgage Insurance coverage will be paid by the member’s Credit Enhancement obligation up to “AA” rating equivalent. The Bank would absorb losses that exceeded the Credit Enhancement obligation, though such losses are a remote possibility.

 

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Mortgage loans — Conventional and Insured Loans.
The following classifies mortgage loans between conventional loans and loans insured by FHA/VA (in thousands):
Table 6.2: Mortgage Loans — Conventional and Insured Loans
                 
    March 31, 2011     December 31, 2010  
 
               
Federal Housing Administration and Veteran Administration insured loans
  $ 6,212     $ 5,610  
Conventional loans
    1,264,513       1,255,212  
Others
    279       3,799  
 
           
Total par value
  $ 1,271,004     $ 1,264,621  
 
           
Mortgage Loans — Credit Enhancement
The amount of the credit enhancement is computed with the use of a Standard & Poor’s 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 Participating Financial Institution. For taking on the credit enhancement obligation, the Participating Financial Institution receives a credit enhancement fee that is paid by the FHLBNY. For certain Mortgage Partnership Finance products, the credit enhancement fee is accrued and paid each month. For other Mortgage Partnership Finance products, the credit enhancement fee is accrued and paid monthly after the FHLBNY has accrued 12 months of credit enhancement fees.
The portion of the credit enhancement that is an obligation of the Participating Financial Institution (“PFI”) must be fully secured with pledged collateral. A portion of the credit enhancement may also be covered by insurance, subject to limitations specified in the Acquired Member Assets regulation. Each member or housing associate that participates in the Mortgage Partnership Finance program must meet financial performance criteria established by the FHLBNY. In addition, each approved PFI must have a financial review performed by the FHLBNY on an annual basis.
The second layer is that amount of credit obligation that the Participating Financial Institution has taken on, which will equate the loan to a double-A rating. The FHLBNY pays a Credit Enhancement fee to the Participating Financial Institution for taking on this obligation. The FHLBNY assumes all residual risk.
Loan concentration was in New York State, which is to be expected since the largest two PFIs are located in New York.
Table 6.3: Concentration of MPF Loans
                                 
    Concentration of MPF Loans  
    March 31, 2011     December 31, 2010  
    Number of     Amounts     Number of     Amounts  
    loans %     outstanding %     loans %     outstanding %  
 
                               
New York State
    72.9 %     66.3 %     73.3 %     67.7 %
Deposit Liabilities
Deposit liabilities comprised of member deposits and, from time to time, may also include unsecured overnight borrowings from other FHLBanks.
Member deposits — The FHLBNY operates deposit programs for the benefit of its members. Deposits are primarily short-term in nature, with the majority maintained in demand accounts that reprice daily based upon rates prevailing in the overnight Federal funds market. Members’ liquidity preferences are the primary determinant of the level of deposits. Deposits at March 31, 2011 stood at $2.5 billion, slightly above the balances at December 31, 2010. 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 significant borrowings in any periods in this report.

 

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Debt Financing Activity and Consolidated Obligations
Consolidated obligations, which consist of consolidated bonds and consolidated discount notes, are the joint and several obligations of the FHLBanks and are the principal funding source for the FHLBNY’s operations. Discount notes are consolidated obligations with maturities of up to 365 days, and consolidated bonds have maturities of one year or longer. Member deposits, capital, and to a lesser extent borrowings from other FHLBanks, are also funding sources.
Consolidated Obligation Liabilities
The issuance and servicing of consolidated obligations debt are performed by the Office of Finance, a joint office of the FHLBanks established by the Finance Agency. Each FHLBank independently determines its participation in each issuance of consolidated obligations based on, among other factors, its own funding and operating requirements, maturities, interest rates, and other terms available for consolidated obligations in the market place. Although the FHLBNY is primarily liable for its portion of consolidated obligations (i.e. those issued on its behalf), the FHLBNY is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks. The FHLBanks, including the FHLBNY, have emphasized diversification of funding sources and channels as the need for funding from the capital markets has grown.
The two major debt programs offered by the Office of Finance are the Global Debt Program and the TAP issue programs as described below. The FHLBNY participates in both programs.
The Global Debt Program provides the FHLBanks with the ability to distribute debt into multiple primary markets across the globe. The FHLBank global debt issuance facility has been in place since July 1994. FHLBank global bonds are known for their variety and flexibility; all can be customized to meet changing market demand with different structures, terms and currencies. Global Debt Program bonds are available in maturities ranging from one year to 30 years with the majority of global issues between one and five years. The most common Global Debt Program structures are bullets, floaters and fixed-rate callable bonds with maturities of one through ten years. Issue sizes are typically from $500 million to $5 billion and individual bonds can be reopened to meet additional demand. Bullets are the most common global bonds, particularly in sizes of $3 billion or larger.
In mid-1999, the Office of Finance implemented the TAP issue program on behalf of the FHLBanks. This program consolidates domestic bullet bond issuance through daily auctions of common maturities by reopening previously issued bonds. Effectively, the program has reduced the number of separate FHLBanks bullet issues and individual issues have grown as large as $1.0 billion. The increased issue sizes have a number of market benefits for investors, dealers and the 12 FHLBanks. TAP issues have improved market awareness, expanded secondary market trading opportunities, improved liquidity and stimulated greater demand from investors and dealers seeking high-quality Government Sponsored Enterprises securities with U.S. Treasury-like characteristics. The TAP issues follow the same 3-month quarterly cycles used for the issuance of “on-the-run” Treasury securities and also have semi-annual coupon payment dates (March, June, September and December). The coupons for new issues are determined by the timing of the first auction during a given quarter.
The FHLBanks also issue global consolidated obligation 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 FHLBank’s commitment or allocated proceeds based on the individual FHLBank’s 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 may 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.

 

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Highlights — Debt issuance and funding management
The FHLBNY’s consolidated obligations outstanding has contracted, in part due to the contraction of the Bank’s 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.
Financing (utilization of FHLBank issued debt) ratio has 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. In early 2011 first quarter, the pricing of FHLBank issued discount notes were not favorable and spreads to LIBOR were generally in the single digits. In March 2011 pricing improved, and spreads widened to around 15-18 basis points below LIBOR. Short-term callable bonds with ultra short lock-out periods (before option exercise) were also popular as they provided a “yield pick-up” for investors. With a short-lockout, investor expectation is that the bond will be called at the first exercise date, and the investor would benefit from a “yield pick-up” over an equivalent tenor short-term investment. Term FHLBank bonds were priced at very tight spreads to LIBOR all through the 2011 first quarter. Longer term bond pricing remains prohibitively expensive as investors are reluctant to take the risk of locking in long-term investments without a step-up option which would protect yields when rates eventually rise.
Debt extinguishment — The following table summarizes debt transferred to or from another FHLBank and debt retired by the FHLBNY (in thousands):
Table 7.1: Transferred and Retired Debt
                 
    Three months ended March 31,  
    2011*     2010*  
Debt transferred to another FHLBank
  $ 150,000     $  
 
           
Debt transferred from another FHLBank
  $     $  
 
           
Debt extinguished
  $ 328,560     $  
 
           
*   Par value
In the 2011 first quarter, debt transfer and retirement resulted in a charge to Net income of $52.0 million.
Consolidated obligation bonds
The following summarizes types of bonds issued and outstanding (dollars in thousands):
Table 7.2: Consolidated Obligation Bonds by Type
                                 
    March 31, 2011     December 31, 2010  
            Percentage             Percentage  
    Amount     of Total     Amount     of Total  
 
Fixed-rate, non-callable
  $ 38,662,070       56.93 %   $ 43,307,980       61.01 %
Fixed-rate, callable
    9,260,000       13.64       8,821,000       12.43  
Step Up, non-callable
                       
Step Up, callable
    3,015,000       4.44       2,725,000       3.84  
Single-index floating rate
    16,968,000       24.99       16,128,000       22.72  
 
                       
 
Total par value
    67,905,070       100.00 %     70,981,980       100.00 %
 
                           
 
                               
Bond premiums
    176,028               163,830          
Bond discounts
    (30,211 )             (31,740 )        
Fair value basis adjustments
    473,369               622,593          
Fair value basis adjustments on terminated hedges
    468               501          
Fair value option valuation adjustments and accrued interest
    5,257               5,463          
 
                           
 
                               
Total bonds
  $ 68,529,981             $ 71,742,627          
 
                           
FHLBNY — Tactical changes in the funding mix
The FHLBNY issued fixed- and floating-rate bonds, and discount notes in a mix of issuances to achieve its asset/liability management goals and to 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. 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. In addition, the use of interest rate swaps effectively changes the repricing characteristics of a significant portion of the FHLBNY’s fixed-rate consolidated obligation debt (and fixed rate medium and long-term advances offered to members) 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, it results in the recognition of the spread (between the fixed payments and the LIBOR cash receipts) as the FHLBNY’s 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 FHLBNY’s 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.

 

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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.
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 Disclosure 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 which were not significant for all periods in this report primarily because of the relatively short durations of hedged bonds. 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. 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 — The following table summarizes par amounts of bonds hedged (in thousands):
Table 7.3: Bonds Hedged
                 
    Consolidated Obligations Bonds  
Par Amount   March 31, 2011     December 31, 2010  
Qualifying Hedges 1
               
Fixed-rate bullet bonds
  $ 26,664,830     $ 27,610,830  
Fixed-rate callable bonds
    8,285,000       5,905,000  
 
           
 
  $ 34,949,830     $ 33,515,830  
 
           
1   Under hedge accounting rules

 

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The following table summarizes par amounts of bonds under the FVO (in thousands):
    Table 7.4: Bonds under the Fair Value Option (FVO)
                 
    Consolidated Obligations Bonds  
Par Amount   March 31, 2011     December 31, 2010  
 
               
Bonds designated under FVO
  $ 12,600,000     $ 14,276,000  
 
           
The FHLBNY continued to hedge a significant percentage of its fixed-rate non-callable bonds (also referred to as bullet bonds) under hedge accounting rules. Bonds hedged under the fair value hedge accounting rule are to mitigate the fair value risk from changes in the benchmark rate, and effectively converts the fixed-rate exposure of the bonds to a variable-rate exposure, generally indexed to 3-month LIBOR. The Bank’s 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.
The Bank also hedges certain bonds under the FVO. Under this accounting rule, 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. Bonds designated under the FVO were economically hedged by interest rate swaps, as described below.
Economic hedges If 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 debt (hedged item), the FHLBNY would account for the derivatives as freestanding (economic hedges). When derivatives are designated as an economic hedge of a debt, the Bank may designate the debt under the FVO if operationally practical, and the full fair values of both the derivative and debt would be marked through P&L. The recorded balance sheet value of debt under the FVO would include the fair value basis adjustments so that the debt’s balance sheet carrying values would be its fair value. In other instances, the Bank may decide that the operational cost of designating debt under the FVO (or fair value hedge accounting) is not operationally practical and would opt to hedge the debt on an economic basis to mitigate the economic risks. In this scenario, the balance sheet carrying value of the debt would not include fair value basis since the debt is recorded at amortized cost. All derivatives, however, are recorded in the balance sheets at fair value with changes in fair values recorded through P&L.
The following table summarizes the bonds that were economically hedged (in thousands):
Table 7.5: Economically Hedged Bonds
                 
    Consolidated Obligations Bonds  
Par Amount   March 31, 2011     December 31, 2010  
Bonds designated as economically hedged
               
Floating-rate bonds
  $ 10,053,000     $ 8,928,000  
Fixed-rate bonds
    430,000       115,000  
 
           
 
  $ 10,483,000     $ 9,043,000  
 
           
Floating-rate debt — Hedged floating-rate bonds 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. The hedge objective was to reduce the basis risk from any asymmetrical changes between 3-month LIBOR and the Prime, Federal funds rate, or the 1-month LIBOR. Such bonds were hedged by interest-rate swaps with mirror image terms and the swaps were designated a stand-alone derivatives because the operational cost of designating the swaps in a hedge qualifying relationship outweighed the benefits.
Fixed-rate debt — In a less volatile interest-rate environment at March 31, 2011 and December 31, 2010, the FHLBNY was able to comply with the hedge effectiveness standards under accounting rules, and fewer fixed-rate bonds were designated as hedged on an economic basis.
Impact of changes in interest rates to the balance sheet carrying values of hedged bonds - The carrying amounts of consolidated obligation bonds included relative insignificant amounts of fair value basis losses. Changes in fair value basis from one period to another 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.
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 Bank’s hedging objectives of mitigating fair value basis risk.
Fair value losses were not significant because the hedged bonds were short- and medium-term on average, and their contractual coupons were not so different than the market interest rates at the balance sheet dates. For the same reason, the period-over-period net fair value basis losses of hedged bonds remained almost unchanged because the FHLBNY has continued to replace maturing and called short-term and medium-term hedged bonds with equivalent term bonds.

 

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Consolidated obligation bonds — maturity or next call date
Swapped, callable bonds contain an exercise date or a series of exercise dates that may result in a shorter redemption period. Thus, issuance of a callable bond with an associated callable swap significantly alters the contractual maturity characteristics of the original bond and introduces the possibility of an exercise call date that is significantly shorter than the contractual maturity. The following table summarizes consolidated bonds outstanding by years to maturity or next call date (dollars in thousands):
Table 7.6: Consolidated Obligation Bonds — Maturity or Next Call Date
                                 
    March 31, 2011     December 31, 2010  
            Percentage             Percentage  
    Amount     of Total     Amount     of Total  
Year of Maturity or next call date
                               
Due or callable in one year or less
  $ 42,902,200       63.18 %   $ 40,228,200       56.67 %
Due or callable after one year through two years
    9,578,225       14.10       15,671,375       22.08  
Due or callable after two years through three years
    7,577,250       11.16       7,209,950       10.16  
Due or callable after three years through four years
    2,700,080       3.98       2,649,355       3.73  
Due or callable after four years through five years
    2,717,300       4.00       2,926,400       4.12  
Due or callable after five years through six years
    238,700       0.35       227,500       0.32  
Thereafter
    2,191,315       3.23       2,069,200       2.92  
 
                       
 
    67,905,070       100.00 %     70,981,980       100.00 %
 
                           
 
                               
Bond premiums
    176,028               163,830          
Bond discounts
    (30,211 )             (31,740 )        
Fair value basis adjustments
    473,369               622,593          
Fair value basis adjustments on terminated hedges
    468               501          
Fair value option valuation adjustments and accrued interest
    5,257               5,463          
 
                           
 
                               
 
  $ 68,529,981             $ 71,742,627          
 
                           
Contrasting consolidated obligation bonds by contractual maturity dates with potential put dates illustrates the impact of hedging on the effective duration of the Bank’s advances. A significant amount of the Bank’s debt has been issued to investors that are callable — the Bank has purchased from investors the option to terminate debt at agreed upon dates. Call options are owned and exercisable by the Bank and are generally either a one-time option or quarterly. The Bank’s current practice is to exercise its option to call a bond when the swap counterparty exercises its option to call the callable swap hedging the callable bond.
The volume of callable bonds outstanding in a declining interest rate environment will shorten the “expected” maturities of hedged bonds. The following table summarizes callable bonds outstanding (in thousands):
Table 7.7: Outstanding Callable Bonds
                 
    March 31, 2011*     December 31, 2010*  
Callable
  $ 12,275,000     $ 11,546,000  
 
           
No longer callable
  $ 1,015,000     $ 1,015,000  
 
           
Non-Callable
  $ 54,615,070     $ 58,420,980  
 
           
*   Par value
Typically, almost all callable debt is hedged by cancellable interest rate swaps in which the derivative counterparty has the right to exercise and terminate the swap at par at agreed upon dates.
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.

 

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The following summarizes discount notes issued and outstanding (dollars in thousands):
Table 7.8: Discount Notes Outstanding
                 
    March 31, 2011     December 31, 2010  
 
               
Par value
  $ 19,509,575     $ 19,394,503  
 
           
 
               
Amortized cost
  $ 19,504,022     $ 19,388,317  
Fair value option valuation adjustments
    3,137       3,135  
 
           
 
               
Total
  $ 19,507,159     $ 19,391,452  
 
           
 
               
Weighted average interest rate
    0.11 %     0.16 %
 
           
Discount notes remained 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.
Discount notes — The following table summarizes hedges of discount notes (in thousands):
Table 7.9: Hedges of Discount Notes
                 
    Consolidated Obligations Discount Notes  
Principal Amount   March 31, 2011     December 31, 2010  
Discount notes hedged under qualifying hedge
  $ 150,000     $  
 
           
Discount notes under FVO
  $ 728,755     $ 953,202  
 
           
In the first quarter of 2011, the Bank entered into an interest rate swap agreement with an unrelated swap dealer and designated it as a hedge of the variable quarterly interest payments on a 9-year discount note borrowing program expected to be accomplished by a series of issuances of $150.0 million discount notes with 91-day terms. The FHLBNY will continue issuing new 91-day discount notes over the next 9 years as each outstanding discount note matures. The fair value recorded as part of the carrying value of the hedged discount note was an unrealized gain of $1.9 million with an offset to AOCI.
The Bank had also hedged discount notes in economic hedges under the FVO accounting rules to convert the fixed-rate exposure of the discount notes to a variable-rate exposure, generally indexed to LIBOR. The discount notes were economically hedged by interest rate swaps to mitigate fair value risk due to changes in their fair values.
Rating Actions With Respect to the FHLBNY are outlined below:
On April 19, 2011 Standard & Poor’s Ratings Services today affirmed the ‘AAA’ rating of the FHLBank but revised its outlooks on the debt issues of the Federal Home Loan Bank System to negative from stable. Concurrently, S&P revised its outlook to negative from stable for the Federal Home Loan Banks in Atlanta, Boston, Cincinnati, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, San Francisco, and Topeka while affirming their ‘AAA’ issuer credit ratings. These rating actions reflect S&P’s revision on April 18, 2011 of the outlook on the long-term sovereign credit rating on the United States of America to negative from stable (AAA/Negative/A-1+).
Table 7.10: FHLBNY Ratings
Short-Term Ratings:
                         
    Moody’s 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:
                         
    Moody’s 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                

 

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Stockholders’ Capital, Retained Earnings, and AOCI
The following table summarizes the components of Stockholders’ capital (in thousands):
Table 8.1: Stockholders’ Capital
                 
    March 31, 2011     December 31, 2010  
Capital Stock
  $ 4,323,664     $ 4,528,962  
Retained Earnings
    716,650       712,091  
Accumulated Other Comprehensive Income (Loss)
    (97,287 )     (96,684 )
 
           
Total Capital
  $ 4,943,027     $ 5,144,369  
 
           
Stockholders’ Capital — The decrease in capital stock was consistent with decreases in advances borrowed by members. Since members are required to purchase stock as a percentage of advances borrowed from the FHLBNY, a decline in advances will typically result in a decline in capital stock. In addition, under our 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 existing regulations and Bank practices.
Retained earnings — Retained earnings grew marginally as the FHLBNY paid its member/stockholders a significant dividend payout. Net income in the 2011 first quarter was $71.0 million; dividends paid in the period were $66.4 million.
Restricted retained earnings — On February 28, 2011, the FHLBNY entered into a Joint Capital Enhancement Agreement (the Agreement) with the other eleven FHLBanks to allocate 20 percent of its Net income (after setting aside funds for the Affordable Housing Program) to restricted retained earnings. The Agreement essentially requires each FHLBank to allocate approximately the same amount from Net income as was historically paid to REFCORP. The FHLBanks’ REFCORP obligations are expected to be fully satisfied in 2011. Currently, an FHLBank is required to contribute 20 percent of its Net income towards payment of interest on REFCORP bonds (after setting aside AHP assessments). Under the Agreement, each FHLBank will continue to allocate from Net income to restricted retained earnings up to a minimum of one percent of consolidated obligations for which the FHLBank is the primary obligor.
The Agreement includes provisions that would (1) allow the use of restricted retained earnings if an FHLBank incurs a quarterly or annual net loss, (2) allow the release of restricted retained earnings in the event of a decline in amount of consolidated obligations with certain restrictions, and (3) disallow the payments of dividends from restricted retained earnings. The Agreement can be voluntarily terminated by an affirmative vote of two-thirds of the Boards of Directors of the FHLBanks; or automatically, if a change in the Act, Finance Agency regulations, or other applicable law creates an alternate form of taxation or mandatory level of retained earnings.
The Agreement further requires each FHLBank to submit an application to the Finance Agency for approval to amend its capital plan or capital plan submission, as applicable, consistent with the terms of the Agreement. Under the Agreement, if the FHLBanks’ REFCORP obligation terminates before the Finance Agency has approved all proposed capital plan amendments submitted pursuant to the Agreement, each FHLBank will nevertheless be required to commence the required allocation to its separate restricted retained earnings account beginning as of the end of the calendar quarter in which the final payments are made by the FHLBanks with respect to their REFCORP obligations. Depending on the earnings of the FHLBanks, the REFCORP obligations could be satisfied as of the end of the second quarter of 2011. As of the date of this report, the Bank is considering amending its capital plan to incorporate the terms of the Agreement, which, if approved by the Finance Agency, would result in conforming amendments to the Agreement, including, among other things, possible revisions to the termination provisions and related provisions affecting restrictions on the separate restricted retained earnings account.

 

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The following table summarizes the components of AOCI (in thousands):
    Table 8.2: Accumulated other comprehensive income (loss) (“AOCI”)
                 
    Three months ended March 31,  
    2011     2010  
 
               
Accumulated other comprehensive income (loss)
               
Non-credit portion of OTTI on held-to-maturity securities, net of accretion
  $ (89,271 )   $ (106,612 )
Net unrealized gains on available-for-sale securities
    14,979       11,521  
Net unrealized losses on hedging activities
    (11,468 )     (20,551 )
Employee supplemental retirement plans
    (11,527 )     (7,877 )
 
           
Total Accumulated other comprehensive income (loss)
  $ (97,287 )   $ (123,519 )
 
           
Losses in AOCI primarily represent non-credit portion of OTTI. No new non-credit OTTI losses on private-label securities were identified in the 2011 first quarter. At March 31, 2011, additional OTTI losses recorded on previously impaired securities did not result in additional non-credit OTTI because the market pricing of the credit impaired private-label securities were greater than the carrying values of the OTTI securities. The net decline in the non-credit component of OTTI was due to accretion recorded as a reduction in AOCI losses and a corresponding addition to the balance sheet carrying values of the OTTI securities.
Cash flow hedging losses recorded in AOCI will be reclassified in future years as an expense over the terms of the hedged bonds as a yield adjustment to the fixed coupons of the debt. The loss in AOCI will continue to decline unless additional losses from cash flow hedges are recognized in AOCI. Minimum additional actuarially determined pension liabilities were recognized for the Bank’s supplemental pension plans.

 

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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 FHLBNY’s 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 of demonstrating 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 15 — Derivatives and Hedging Activities.

 

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The following tables provide information about the principal derivative hedging strategies:
Table 9.1: Derivative Hedging Strategies — Advances
                         
            March 31, 2011     December 31, 2010  
            Notional Amount     Notional Amount  
Derivatives/Terms   Hedging Strategy   Accounting Designation   (in millions)     (in millions)  
Pay fixed, receive floating
  To convert fixed rate on a fixed rate   Economic Hedge of Fair Value Risk   $ 86     $ 128  
interest rate swap
  advance to a LIBOR floating rate                    
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   $ 305     $ 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   $ 26,877     $ 33,612  
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   $ 2,539     $ 2,839  
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   $ 27,051     $ 23,724  
Purchased interest rate cap
  To offset the cap embedded in the variable rate advance   Economic Hedge of Fair Value Risk   $ 8     $ 8  
         
Table 9.2: Derivative Hedging Strategies — Consolidated Obligation Liabilities
         
            March 31, 2011     December 31, 2010  
            Notional Amount     Notional Amount  
Derivatives/Terms   Hedging Strategy   Accounting Designation   (in millions)     (in millions)  
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   $ 430     $ 115  
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   $ 8,285     $ 5,905  
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   $ 15     $ 15  
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   $ 26,650     $ 27,596  
Pay fixed, receive LIBOR interest rate swap
  To offset the variability of cash flows associated with interest payments on forecasted issuance of fixed rate consolidated obligation bond debt.   Cash flow hedge   $ 55     $  
Pay fixed, receive LIBOR interest rate swap
  To offset the variability of cash flows associated with interest payments on forecasted issuance of fixed rate consolidated obligation discount note debt.   Cash flow hedge   $ 150     $  
Basis swap
  To convert non-LIBOR index to LIBOR to reduce interest rate sensitivity and repricing gaps   Economic Hedge of Cash Flows   $ 8,003     $ 6,878  
Basis swap
  To convert 1M LIBOR index to 3M LIBOR to reduce interest rate sensitivity and repricing gaps   Economic Hedge of Cash Flows   $ 2,050     $ 2,050  
Receive fixed, pay floating interest rate swap cancelable by counterparty
  Fixed rate callable bond converted to a LIBOR floating rate; matched to callable bond accounted for under fair value option   Fair Value Option   $ 6,700     $ 5,576  
Receive fixed, pay floating interest rate swap no longer cancelable
  Fixed rate callable bond converted to a LIBOR floating rate; matched to bond no -longer callable accounted for under fair value option.   Fair Value Option   $ 1,000     $ 1,000  
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   $ 4,900     $ 7,700  
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   $ 729     $ 953  
         
Table 9.3: Derivative Hedging Strategies — Balance Sheet and Intermediation
         
            March 31, 2011     December 31, 2010  
            Notional Amount     Notional Amount  
Derivatives/Terms   Hedging Strategy   Accounting Designation   (in millions)     (in millions)  
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     $ 550  
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.

 

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Derivative Financial Instruments by Product
The following table summarizes the notional amounts and estimated fair values of derivative financial instruments (excluding accrued interest) by product and type of accounting treatment. The categories of “Fair value,” “Commitment,” and “Cash flow” hedges represented derivative transactions accounted for as hedges. The category of “Economic” hedges represented derivative transactions under hedge strategies that did not qualify for hedge accounting treatment but were an approved risk management strategy. The table also provides a reconciliation of fair value basis gains and (losses) of derivatives to the Statements of Condition (in thousands):
Table 9.4: Derivative Financial Instruments by Product
                                 
    March 31, 2011     December 31, 2010  
            Total Estimated             Total Estimated  
            Fair Value             Fair Value  
            (Excluding             (Excluding  
    Total Notional     Accrued     Total Notional     Accrued  
    Amount     Interest)     Amount     Interest)  
Derivatives designated as hedging instruments1
                               
Advances-fair value hedges
  $ 56,772,474     $ (3,180,464 )   $ 60,324,983     $ (4,269,037 )
Consolidated obligations-fair value hedges
    34,949,830       465,504       33,515,830       614,739  
Cash Flow-anticipated transactions
    205,000       2,357              
Derivatives not designated as hedging instruments2
                               
Advances hedges
    93,775       (2,432 )     136,345       (3,115 )
Consolidated obligations hedges
    10,483,000       1,999       9,043,000       1,675  
Mortgage delivery commitments
    25,197       44       29,993       (514 )
Balance sheet
    1,892,000       38,196       1,892,000       41,785  
Intermediary positions hedges
    550,000       614       550,000       659  
Derivatives matching COs designated under FVO3
                               
Interest rate swaps-consolidated obligations-bonds
    12,600,000       (3,099 )     14,276,000       (505 )
Interest rate swaps-consolidated obligations-discount notes
    728,755       421       953,202       1,282  
 
                       
 
                               
Total notional and fair value
  $ 118,300,031     $ (2,676,860 )   $ 120,721,353     $ (3,613,031 )
 
                       
 
                               
Total derivatives, excluding accrued interest
          $ (2,676,860 )           $ (3,613,031 )
Cash collateral pledged to counterparties
            1,944,065               2,739,402  
Cash collateral received from counterparties
            (71,100 )             (9,300 )
Accrued interest
            (10,851 )             (49,959 )
 
                           
 
                               
Net derivative balance
          $ (814,746 )           $ (932,888 )
 
                           
 
                               
Net derivative asset balance
          $ 24,964             $ 22,010  
Net derivative liability balance
            (839,710 )             (954,898 )
 
                           
 
                               
Net derivative balance
          $ (814,746 )           $ (932,888 )
 
                           
1   Qualifying under hedge accounting rules.
 
2   Not qualifying under hedge accounting rules but used as an economic hedge (“standalone”).
 
3   Economic hedge of debt designated under the FVO.
Derivative Credit Risk Exposure
In addition to market risk, the FHLBNY is subject to credit risk in derivative transactions because of the potential for non-performance by the counterparties, which could result in the FHLBNY having to acquire a replacement derivative from a different counterparty at a cost. The FHLBNY also is 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. See Table 9.5 below for summarized information.
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 FHLBNY’s 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 FHLBNY’s 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. The FHLBNY is also required to post cash as collateral to derivative counterparties to mitigate the risk faced by derivatives that are 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.

 

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Derivative counterparty ratings — The Bank’s credit exposures (derivatives in a net gain position) 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 FHLBNY’s member. Acting as an intermediary, the Bank had also purchased equivalent notional amounts of derivatives from unrelated derivative counterparties. See Table 9.5: Derivatives Counterparty Notional Balance by Credit Ratings.
Risk mitigation — The FHLBNY attempts to mitigate derivative counterparty credit risk by contracting only with experienced counterparties with investment-grade credit ratings. Annually, the FHLBNY’s 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 counterparty’s 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 Agency’s regulations.
Derivatives Counterparty Credit Ratings
The following table summarizes the FHLBNY’s credit exposure by counterparty credit rating (in thousands, except number of counterparties).
Table 9.5: Derivatives Counterparty Notional Balance by Credit Ratings
                                                 
    March 31, 2011  
                    Total Net     Credit Exposure     Other     Net  
    Number of     Notional     Exposure at     Net of     Collateral     Credit  
Credit Rating   Counterparties     Balance     Fair Value     Cash Collateral3     Held2     Exposure  
 
                                               
AAA
        $     $     $     $     $  
AA
    8       45,423,489       20,319       14,619             14,619  
A
    9       72,576,345       71,507       6,107             6,107  
Members (Notes 1 & 2)
    2       275,000       4,194       4,194       4,194        
Delivery Commitments
          25,197       44       44       44        
 
                                   
 
                                               
Total
    19     $ 118,300,031     $ 96,064     $ 24,964     $ 4,238     $ 20,726  
 
                                   
                                                 
    December 31, 2010  
                    Total Net     Credit Exposure     Other     Net  
    Number of     Notional     Exposure at     Net of     Collateral     Credit  
Credit Rating   Counterparties     Balance     Fair Value     Cash Collateral3     Held2     Exposure  
 
                                               
AAA
        $     $     $     $     $  
AA
    8       43,283,429       25,385       16,085             16,085  
A
    8       77,132,931                          
Members (Notes 1 & 2)
    2       275,000       5,925       5,925       5,925        
Delivery Commitments
          29,993                          
 
                                   
 
                                               
Total
    18     $ 120,721,353     $ 31,310     $ 22,010     $ 5,925     $ 16,085  
 
                                   
Note1:   Fair values of $4.2 million and $5.9 million comprising of intermediated transactions with members and interest-rate caps sold to members (with capped floating-rate advances) were collateralized at March 31, 2011 and December 31, 2010.
 
Note2:   Members are required to pledge collateral to secure derivatives purchased by the FHLBNY as an intermediary on behalf of its members. Eligible collateral includes: (1) one-to-four-family and multi-family mortgages; (2) U.S. Treasury and government-agency securities; (3) mortgage-backed securities; and (4) certain other collateral which is real estate-related and has a readily ascertainable value, and in which the FHLBNY can perfect a security interest. As a result of the collateral agreements with its members, the FHLBNY believes that its maximum credit exposure due to the intermediated transactions was $0 at March 31, 2011 and December 31, 2010.
 
Note3:   As reported in the Statements of Condition.

 

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Liquidity, Cash Flows, Short-Term Borrowings and Short-Term Debt
The FHLBNY’s 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. In addition, the Secretary of the Treasury is authorized to purchase up to $4.0 billion of consolidated obligations from the FHLBanks.
The FHLBNY’s 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. 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 FHLBNY’s 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 FHLBNY’s Board of Directors. The specific liquidity requirements applicable to the FHLBNY are described in the next four sections.
Deposit Liquidity. The FHLBNY is required to invest an aggregate amount at least equal to the amount of current deposits received from the FHLBNY’s 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 10.1: Deposit Liquidity
                         
    Average Deposit     Average Actual        
For the Quarters Ended   Reserve Required     Deposit Liquidity     Excess  
March 31, 2011
  $ 2,404     $ 44,982     $ 42,578  
December 31, 2010
    3,304       44,945       41,641  
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 Bank’s operational liquidity needs by regularly comparing the Bank’s 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 10.2: Operational Liquidity
                         
    Average Balance Sheet     Average Actual        
For the Quarters Ended   Liquidity Requirement     Operational Liquidity     Excess  
March 31, 2011
  $ 2,352     $ 17,796     $ 15,444  
December 31, 2010
    2,937       15,500       12,563  
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. Contingency liquidity is reported daily. The FHLBNY met the requirements at all times.

 

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The following table summarizes excess contingency liquidity (in millions):
Table 10.3: Contingency Liquidity
                         
    Average Five Day     Average Actual        
For the Quarters Ended   Requirement     Contingency Liquidity     Excess  
March 31, 2011
  $ 3,024     $ 17,586     $ 14,562  
December 31, 2010
    2,239       15,289       13,050  
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 FHLBNY’s operational and contingency needs. Management continually monitors and projects the FHLBNY’s 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 FHLBNY’s liquidity needs and to develop appropriate liquidity plans.
Advance “Roll-Off” and “Roll-Over” Liquidity guidelines. The Finance Agency’s Minimum Liquidity Requirement 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 FHLBNY’s 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, redeem or repurchase shares of stock of any member or non-member stockholder until the Finance Agency approves the FHLBNY’s 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 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 Moody’s or AAA by Standard & Poor’s.
Cash flows
Cash and due from banks was $2.9 billion at March 31, 2011, compared to $0.7 billion at March 31, 2010. Cash balances were primarily maintained at the Federal Reserve Banks at those dates for liquidity purposes for the Bank’s members. The following discussion highlights the major activities and transactions that affected FHLBNY’s cash flows for the current year period in this report. Also see Statements of Cash Flows to the financial statements accompany this MD&A.
Cash flows from operating activities
FHLBNY’s operating assets and liabilities support the Bank’s lending activities to members. Operating assets and liabilities can vary significantly in the normal course of business due to the amount and timing of cash flows, which are affected by member-driven borrowing, investment strategies and market conditions. Management believes cash flows from operations, available cash balances and the FHLBNY’s ability to generate cash through the issuance of consolidated obligation bonds and discount notes are sufficient to fund the FHLBNY’s operating liquidity needs.
In the 2011 first quarter, net cash provided by operating activities was $236.1 million driven by Net income and adjustments for non-cash items such as the amount set aside for Affordable Housing Program, OTTI and other provisions for mortgage credit losses, depreciation and amortization.

 

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Net cash generated from operating activities was higher than net income, largely as a result of adjustments for cash flows from certain interest rate swaps that were characterized as operating cash in-flows because of the financing element of the interest rate swaps, in addition to non-cash items.
Cash flows from investing activities
The FHLBNY’s investing activities predominantly include advances originated to be held for portfolio, the AFS and HTM securities portfolios and other short-term interest-earning assets. In the 2011 first quarter, investing activities provided net cash of $5.3 billion. This resulted primarily from decreases in advances borrowed by members. Partially offsetting these cash proceeds was an increase in investment securities purchased.
Short-term Borrowings and Short-term Debt. The primary source of funds, 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. Discount notes 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 FHLBank, generally for a period of one day. Such borrowings have been insignificant historically.
The following table summarizes short-term debt and their key characteristics (in thousands):
Table 10.4: Short-term Debt
                                 
                    Consolidated Obligations-Bonds With Original  
    Consolidated Obligations-Discount Notes     Maturities of One Year or Less  
    March 31, 2011     December 31, 2010     March 31, 2011     December 31, 2010  
 
                               
Outstanding at end of the period 1
  $ 19,507,159     $ 19,391,452     $ 9,635,000     $ 12,410,000  
Average outstanding for the period 1
  $ 17,764,760     $ 21,727,968     $ 11,601,667 2   $ 12,266,929  
Highest outstanding at any month-end 1
  $ 19,507,159     $ 27,480,949     $ 12,835,000     $ 17,538,000  
1   Outstanding balances represents the carrying value of discount notes and par value of bonds (less than 1 year) issued and outstanding at the reported dates.
 
2   The amount represents monthly average outstanding balance for the three months ended March 31, 2011.
Leverage Limits and Unpledged Asset Requirements
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.
The FHLBNY met the Finance Agency’s requirement that unpledged assets, as defined under regulations, exceed the total of consolidated obligations at all periods in this report.
Legislative and Regulatory Developments
The legislative and regulatory environment for the Bank continues to change as financial regulators issue proposed and/or final rules to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) enacted in July 2010 and Congress begins to debate proposals for housing finance and GSE reform.
Dodd-Frank Act
As discussed under Legislative and Regulatory Developments on page 37 in the Bank’s 2010 Form 10-K, the Dodd-Frank Act will likely impact the FHLBNY’s business operations, funding costs, rights, obligations, and/or the environment in which the FHLBNY carries out its housing finance mission. Certain regulatory actions during the period covered by this report resulting from the Dodd-Frank Act that may have an important impact on the Bank are summarized below, although the full effect of the Dodd-Frank Act will become known only after the required regulations, studies and reports are issued and finalized.
New Requirements for the Bank’s Derivatives Transactions
The Dodd-Frank Act provides for new statutory and regulatory requirements for derivative transactions, including those utilized by the Bank to hedge its interest rate and other risks. As a result of these requirements, certain derivative transactions will be required to be cleared through a third-party central clearinghouse and traded on regulated exchanges or new swap execution facilities. Such cleared trades are expected to be subject to initial and variation margin requirements established by the clearinghouse and its clearing members. While clearing swaps may reduce counterparty credit risk, the margin requirements for cleared trades have the potential of making derivative transactions more costly.

 

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The Dodd-Frank Act will also change the regulatory landscape for derivative transactions that are not subject to mandatory clearing requirements (uncleared trades). While the FHLBNY expects to continue to enter into uncleared trades on a bilateral basis, such trades are expected to be subject to new regulatory requirements, including new mandatory reporting requirements, new documentation requirements and new minimum margin and capital requirements imposed by other federal regulators. Under the proposed margin rules, the FHLBNY will have to post both initial margin and variation margin to its swap dealer counterparties. Pursuant to additional FHFA provisions, the Bank will be required to collect both initial margin and variation margin from its swap dealer counterparties, without any thresholds. These margin requirements and any related capital requirements could adversely impact the liquidity and pricing of certain uncleared derivative transactions entered into by the Bank and thus also make uncleared trades more costly.
The Commodity Futures Trading Commission (CFTC) has issued a proposed rule requiring that collateral posted by swaps customers to a clearinghouse in connection with cleared swaps be legally segregated on a customer basis. However, in connection with this proposed rule the CFTC has left open the possibility that customer collateral would not have to be legally segregated but could instead be commingled with all collateral posted by other customers of the clearing member. Such commingling would put the Bank’s collateral at risk in the event of a default by another customer of our clearing member. To the extent that the CFTC’s final rule places the Bank’s posted collateral at greater risk of loss in the clearing structure than under the current over-the-counter market structure, we may be adversely impacted.
The Dodd-Frank Act will require swap dealers and certain other large users of derivatives to register as “swap dealers” or “major swap participants,” as the case may be, with the CFTC and/or the SEC. Based on the definitions in the proposed rules jointly issued by the CFTC and SEC, it does not appear likely that the FHLBNY will be required to register as a “major swap participant,” although this remains a possibility. Also, based on the definitions in the proposed rules, it does not appear likely that the FHLBNY will be required to register as a “swap dealer” as a result of the derivative transactions that the Bank enters into with dealer counterparties for the purpose of hedging and managing the Bank’s interest rate risk, which constitute the great majority of the Bank’s derivative transactions. However, based on the proposed rules, it is possible that the FHLBNY could be required to register with the CFTC as a swap dealer based on the intermediated “swaps” that the Bank has historically entered into with the Bank’s members.
It is also unclear how the final rule will treat caps, floors and other derivatives embedded in advances to the FHLBNY’s members. The CFTC and SEC have issued joint proposed rules further defining the term “swap” under the Dodd-Frank Act. These proposed rules and accompanying interpretive guidance clarify that certain products will or will not be regulated as “swaps.” However, at this time it remains unclear whether certain transactions between the Bank and our member customers will be treated as “swaps.” Depending on how the terms “swap” and “swap dealer” are finally defined in the final regulations, the FHLBNY may be faced with the business decision of whether to continue to offer “swaps” to member customers if those transactions would require the Bank to register as a swap dealer. Designation as a swap dealer would subject the Bank to significant additional regulation and cost including, registration with the CFTC, new internal and external business conduct standards, additional reporting requirements and additional swap-based capital and margin requirements. Even if the Bank is designated as a swap dealer, the proposed regulation would permit the Bank to apply to the CFTC to limit such designation to those specified activities for which the Bank is acting as a swap dealer. Upon such designation, the hedging activities of the Bank would not be subject to the full requirements that will generally be imposed on traditional swap dealers.
The FHLBNY, together with the other FHLBanks, is actively participating in the development of the regulations under the Dodd-Frank Act by formally commenting to the regulators regarding a variety of rulemakings that could impact the FHLBanks. It is not expected that final rules implementing the Dodd-Frank Act will become effective until the latter half of 2011 and delays beyond that time are possible.
Regulation of Certain Nonbank Financial Companies
Federal Reserve Board Proposed Rule on Regulatory Oversight of Nonbank Financial Companies. On February 11, 2011, the Federal Reserve Board issued a proposed rule that would define certain key terms to determine which nonbank financial companies will be subject to the Federal Reserve’s regulatory oversight. The proposed rule provides that a company is “predominantly engaged in financial activities” if:
    the annual gross financial revenue of the company represents 85 percent or more of the company’s gross revenue in either of its two most recent completed fiscal years; or
    the company’s total financial assets represent 85 percent or more of the company’s total assets as of the end of either of its two most recently completed fiscal years.
Comments on this proposed rule were due by March 30, 2011.
The FHLBNY would be predominantly engaged in financial activities under either prong of the proposed test. In pertinent part to the Bank, the proposed rule also defines “significant nonbank financial company” to mean a nonbank financial company that had $50 billion or more in total assets as of the end of its most recently completed fiscal year.
Oversight Council Notice of Proposed Rulemaking on Authority to Supervise and Regulate Certain Nonbank Financial Companies. On January 26, 2011, the Oversight Council issued a proposed rule that would implement the Oversight Council’s authority to subject nonbank financial companies to the supervision of the Federal Reserve Board and certain prudential standards. The proposed rule defines “nonbank financial company” broadly enough to likely cover the Bank. Also, under the proposed rule, the Oversight Council will consider certain factors in determining whether to subject a nonbank financial company to supervision and prudential standards. Some factors identified include: the availability of substitutes for the financial services and products the entity provides as well as the entity’s size; interconnectedness with other financial firms; leverage, liquidity risk; and maturity mismatch and existing regulatory scrutiny. If the FHLBNY is determined to be a nonbank financial company subject to the Oversight Council’s regulatory requirements, then its operations and business are likely to be affected. Comments on this proposed rule were due by February 25, 2011.

 

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Oversight Council Recommendations on Implementing the Volcker Rule. In January 2011, the Oversight Council issued recommendations for implementing certain prohibitions on proprietary trading, commonly referred to as the Volcker Rule. Institutions subject to the Volcker Rule may be subject to various limits with regard to their proprietary trading and various regulatory requirements to ensure compliance with the Volcker Rule. If the FHLBNY is made subject to the Volcker Rule, then the Bank may be subject to additional limitations on the composition of its investment portfolio beyond FHFA regulations. These limitations may potentially result in less profitable investment alternatives. Further, complying with related regulatory requirements would be likely to increase the Bank’s regulatory requirements and incremental costs. The FHLBank System’s consolidated obligations generally are exempt from the operation of this rule, subject to certain limitations, including the absence of conflicts of interest and certain financial risks.
FDIC Regulatory Actions
FDIC Interim Final Rule on Dodd-Frank Orderly Liquidation Resolution Authority. On January 25, 2011, the FDIC issued an interim final rule 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, not including FDIC-insured depository institutions, 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 interim final rule provides, among other things:
    a valuation standard for collateral on secured claims;
    that all unsecured 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;
    a clarification of the treatment for contingent claims; and
    that secured obligations collateralized with U.S. government obligations will be valued at fair market value.
Comments on this interim final rule were due by March 28, 2011. Valuing most collateral at fair value, rather than par, could adversely impact the value of the Bank’s investments in the event of the issuer’s insolvency.
FDIC Final Rule on Assessment System. On February 25, 2011, the FDIC issued a final rule to revise the assessment system applicable to FDIC insured financial institutions. The rule, among other things, implements a provision in the Dodd-Frank Act to redefine the assessment base used for calculating deposit insurance assessments. Specifically, the rule changes the assessment base for most institutions from adjusted domestic deposits to average consolidated total assets minus average tangible equity. This rule became effective on April 1, 2011, so the FHLBNY advances are now included in its members’ assessment base. The rule also eliminates an adjustment to the base assessment rate paid for secured liabilities, including the FHLBNY advances, in excess of 25% of an institution’s domestic deposits since these are now part of the assessment base. To the extent that increased assessments increase the cost of advances for some members, it may negatively impact their demand for the Bank’s advances.
Joint Regulatory Actions
Proposed Rule on Incentive-based Compensation Arrangements. On April 14, 2011, seven federal financial regulators, including the FHFA, published a proposed rule that would prohibit “covered financial institutions” from entering into incentive-based compensation arrangements that encourage inappropriate risks.
Applicable to the FHLBanks and the Office of Finance, the rule would:
    prohibit excessive compensation;
    prohibit incentive compensation that could lead to material financial loss;
    require an annual report;
    require policies and procedures; and
    require mandatory deferrals of 50% of incentive compensation over three years for executive officers.
Covered persons under the rule would include senior management responsible for the oversight of firm wide activities or material business lines and non-executive employees or groups of those employees whose activities may expose the institution to a material loss.
Under the proposed rule, covered financial institutions would be required to comply with three key risk management principles related to the design and governance of incentive-based compensation: balanced design, independent risk management controls and strong governance.
The proposed rule identifies four methods to balance compensation design and make it more sensitive to risk: risk adjustment of awards, deferral of payment, longer performance periods and reduced sensitivity to short-term performance. Larger covered financial institutions, like the Bank, would also be subject to a mandatory 50% deferral of incentive-based compensation for executive officers and board oversight of incentive-based compensation for certain risk-taking employees who are not executive officers. The proposed rule would impact the design of the Bank’s compensation policies and practices, including its incentive compensation policies and practices, if adopted as proposed. Comments on the proposed rule are due by May 31, 2011.

 

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Proposed Rule on Credit Risk Retention for Asset-Backed Securities. On April 29, 2011, the Federal banking agencies, the FHFA, the Department of Housing and Urban Development and the Securities and Exchange Commission jointly issued a proposed rule, which proposes requiring sponsors of asset-backed securities to retain a minimum of five percent economic interest in a portion of the credit risk of the assets collateralizing asset-backed securities, unless all the assets securitized satisfy specified qualifications.
The proposed rule specifies criteria for qualified residential mortgage, commercial real estate, auto and commercial loans that would make them exempt from the risk retention requirement. The criteria for qualified residential mortgages is described in the proposed rulemaking as those underwriting and product features which, based on historical data, are associated with low risk even in periods of decline of housing prices and high unemployment.
Key issues in the proposed rule include: (1) the appropriate terms for treatment as a qualified residential mortgage; (2) the extent to which Fannie Mae and Freddie Mac related securitizations will be exempt from the risk retention rules; and (3) the possibility of creating a category of high quality non-qualified residential mortgage loans that would have less than a five percent risk retention requirement.
If adopted as proposed, the rule could reduce the number of loans originated by the FHLBNY’s members, which could negatively impact member demand for the Bank’s products. Comments on this proposed rule are due on June 10, 2011.
Housing Finance and GSE Reform
In the wake of the financial crisis and related housing problems, both Congress and the Obama Administration are considering changes to the U.S. housing finance structure, specifically reforming or eliminating Fannie Mae and Freddie Mac. These efforts may have implications for the FHLBanks.
On February 11, 2011, the Department of the Treasury and the U.S. Department of Housing and Urban Development issued a report to Congress entitled Reforming America’s Housing Finance Market. The report’s primary focus is to provide options for Congressional consideration regarding the long-term structure of housing finance, including reforms specific to Fannie Mae and Freddie Mac. In addition, the Obama Administration noted it would work, in consultation with the FHFA and Congress, to restrict the areas of mortgage finance in which Fannie Mae, Freddie Mac and the FHLBanks operate so that overall government support of the mortgage market will be substantially reduced over time.
Although the FHLBanks are not the primary focus of this report, they are recognized as playing a vital role in helping smaller financial institutions access liquidity and capital to compete in an increasingly competitive marketplace. The report suggests the following possible reforms for the FHLBank System:
    focus the FHLBanks on small- and medium-sized financial institutions;
    restrict membership by allowing each institution eligible for membership to be an active member in only a single FHLBank;
    limit the level of outstanding advances to larger members; and
    reduce FHLBank investment portfolios and their composition, focusing FHLBanks on providing liquidity for insured depository institutions.
The report also supports exploring additional means to provide funding to housing lenders, including potentially the development of a covered bond market.
In response, several bills have been introduced in Congress. While none propose specific changes to the FHLBanks, the FHLBNY could nonetheless be affected in numerous ways by changes to the U.S. housing finance structure and to Fannie Mae and Freddie Mac. For example, the FHLBanks traditionally have allocated a significant portion of their investment portfolio to investments in Fannie Mae and Freddie Mac debt securities. Accordingly, the FHLBanks’ investment strategies would likely be affected by winding down those entities. Winding down these two GSEs, or limiting the amount of mortgages they purchase, also could increase demand for the FHLBank advances if the FHLBank members responded by retaining more of their mortgage loans in portfolio, using advances to fund the loans.
It is also possible that Congress will consider any or all of the specific changes to the FHLBanks suggested by the Administration’s proposal. If legislation is enacted incorporating these changes, the FHLBanks could be significantly limited in their ability to make advances to their members and subject to additional limitations on their investment authority. Additionally, if Congress enacts legislation encouraging the development of a covered bond market, FHLBank advances could be reduced in time as larger members use covered bonds as an alternative form of wholesale mortgage financing. The potential effect of housing finance and GSE reform on the FHLBanks is unknown at this time and will depend on the legislation, if any, that is ultimately enacted.
FHFA Regulatory Actions
Final Rule on Temporary Increases in Minimum Capital Levels. On March 3, 2011, the FHFA issued a final rule effective April 4, 2011 authorizing the Director of the FHFA to increase the minimum capital level for an FHLBank if the Director determines that the current level is insufficient to address such FHLBank’s risks. The rule provides the factors that the Director may consider in making this determination including the FHLBank’s:

 

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  current or anticipated declines in the value of assets held by it;
 
  ability to access liquidity and funding;
 
  credit, market, operational and other risks;
 
  current or projected declines in its capital;
 
  material compliance with regulations, written orders, or agreements;
 
  housing finance market conditions;
 
  level of retained earnings;
 
  initiatives, operations, products or practices that entail heightened risk;
 
  ratio of market value of equity to the par value of capital stock; and/or
 
  other conditions as notified by the Director.
The rule provides that the Director shall consider the need to maintain, modify or rescind any such increase no less than every 12 months. If the FHLBNY is required to increase its minimum capital level, the Bank may need to lower or suspend dividend payments to increase retained earnings to satisfy such increase. Alternatively, the FHLBNY could satisfy an increased capital requirement by disposing of assets to decrease the size of its balance sheet relative to total outstanding stock, which may adversely impact the Bank’s results of operations and financial condition and ability to satisfy the Bank’s mission.
Final Rule on FHLBank Liabilities. On April 4, 2011, the FHFA issued a final rule that would, among other things:
    reorganize and re-adopt Finance Board regulations dealing with consolidated obligations, as well as related regulations addressing other authorized FHLBank liabilities and book entry procedures for consolidated obligations;
 
    implement recent statutory amendments that removed authority from the FHFA to issue consolidated obligations;
 
    specify that the FHLBanks issue consolidated obligations that are the joint and several obligations of the FHLBanks as provided for in the statute rather than as joint and several obligations of the FHLBanks as provided for in the current regulation; and
 
    provide that consolidated obligations are issued under Section 11(c) of the FHLBank Act rather than under Section 11(a) of the FHLBank Act.
This rule is not expected to have any adverse impact on the FHLBanks’ joint and several liability for the principal and interest payments on consolidated obligations. This rule became effective May 4, 2011.
Regulatory Policy Guidance on Reporting of Fraudulent Financial Instruments. On January 27, 2010, the FHFA issued a regulation requiring the FHLBanks to report to the FHFA upon the discovery of any fraud or possible fraud related to the purchase or sale of financial instruments or loans. On March 29, 2011, the FHFA issued immediately effective final guidance which sets forth fraud reporting requirements for the FHLBanks under the regulation. The guidance, among other things, provides examples of fraud that should be reported to the FHFA and the FHFA’s Office of Inspector General. In addition, the guidance requires FHLBanks to establish and maintain effective internal controls, policies, procedures and operational training to discover and report fraud or possible fraud. Although complying with the guidance will increase the FHLBNY’s regulatory requirements, the Bank does not expect any material incremental costs or adverse impact to its business.
Proposed Rule on Private Transfer Fee Covenants. On February 8, 2011, the FHFA issued a proposed rule that would restrict the Bank from purchasing, investing in, or taking security interests in, mortgage loans on properties encumbered by private transfer fee covenants, securities backed by such mortgage loans, and securities backed by the income stream from such covenants, except for certain transfer fee covenants. Excepted transfer fee covenants would include covenants to pay a private transfer fees to covered associations (including organizations comprising owners of home, condominiums, or cooperatives or certain other tax-exempt organizations) that use the private transfer fees exclusively for the direct benefit of the property. The foregoing restrictions would apply only to mortgages on properties encumbered by private transfer fee covenants created on or after February 8, 2011, and to such securities backed by such mortgages, and to securities issued after that date and backed by revenue from private transfer fees regardless of when the covenants were created. The FHLBNY would be required to comply with the regulation within 120 days of the publication of the final rule. To the extent that a final rule limits the type of collateral the Bank accept for advances and the type of loans eligible for purchase under the MPF Xtra product, the Bank’s business may be adversely impacted. Comments on the proposed rule were due by April 11, 2011.
Advance Notice of Proposed Rulemaking on Use of NRSRO Credit Ratings. On January 31, 2011, the FHFA issued an advanced notice of proposed rulemaking that would implement a provision in Dodd-Frank Act that requires all federal agencies to remove regulations that require use of NRSRO credit ratings in the assessment of a security. The notice seeks comment regarding certain specific FHFA regulations applicable to FHLBanks including risk-based capital requirements, prudential requirements, investments, and consolidated obligations. Comments on this advance notice of rulemaking were due on March 17, 2011.
Advance Notice of Proposed Rulemaking on FHLBank Members. On December 27, 2010, the FHFA issued an advance notice of proposed rulemaking to address its regulations on FHLBank membership to ensure such regulations are consistent with maintaining a nexus between FHLBank membership and the housing and community development mission of the FHLBanks, as further discussed on page 41 in the Legislative and Regulatory Developments section in the FHLBNY’s 2010 Form 10-K.

 

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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Management. Market risk or interest rate risk (“IRR”) is the risk of loss to market value or future earnings that may result from changes in the interest rate environment. Embedded in IRR is a tradeoff of risk versus reward. 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 FHLBNY’s 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 FHLBNY’s balance sheet consists of predominantly short-term and LIBOR-based assets and liabilities. More than 85 percent of the FHLBNY’s 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 FHLBNY’s 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 FHLBNY’s portfolio. These include the embedded prepayment rights, refunding needs, rate resets between the FHLBNY’s short-term assets and liabilities, and basis risks arising from differences between the yield curves associated with the FHLBNY’s 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 FHLBNY’s 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 +2.0 years to -3.5 years in the rates unchanged case and to a range of +/-6.0 years in the +/-200bps shock cases. Due to the low interest rate environment beginning in early 2008, the March 2010, June 2010, September 2010, December 2010, and March 2011 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 through the 3-year term point and a cumulative limit of +/-30 months from the 5-year through 30-year term points.
The FHLBNY’s portfolio, including its derivatives, is tracked and the overall mismatch between assets and liabilities is summarized by using a DOE measure. The FHLBNY’s last five quarterly DOE results are shown in years in the table below (note that, due to the on-going low interest rate environment, there was no down-shock measurement performed between the first quarter of 2010 and the first quarter of 2011):
                     
    Base Case DOE     -200bps DOE   +200bps DOE  
March 31, 2010
    -0.51     N/A     3.81  
June 30, 2010
    -1.20     N/A     2.80  
September 30, 2010
    -2.13     N/A     1.46  
December 31, 2010
    -1.09     N/A     2.92  
March 31, 2011
    -0.29     N/A     3.48  
The DOE has remained within its limits. Duration indicates any cumulative re-pricing/maturity imbalance in the FHLBNY’s 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 FHLBNY’s portfolio using well-known and tested financial pricing theoretical models.

 

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The FHLBNY does not solely rely on the DOE measure as a mismatch measure between its assets and liabilities. It also performs the more traditional gap measure that subtracts re-pricing/maturing liabilities from re-pricing/maturing assets over time. The FHLBNY observes the differences over various horizons, but has set a 10 percent of assets limit on cumulative re-pricings at the one-year point. This quarterly observation of the one-year cumulative re-pricing gap is provided in the table below and all values are below 10 percent of assets well within the limit:
         
    One Year Re-  
    pricing Gap  
March 31, 2010
  $4.753 Billion  
June 30, 2010
  $4.939 Billion  
September 30, 2010
  $6.888 Billion  
December 31, 2010
  $5.565 Billion  
March 31, 2011
  $5.123 Billion  
The FHLBNY’s 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 FHLBNY’s expected net interest income under both +/-200bps shocks over the next twelve months is provided in the table below (due to the ongoing low interest rate environment, the down-shock measurement was not performed between the first quarter of 2010 and the first quarter of 2011):
             
    Sensitivity in   Sensitivity in  
    the -200bps   the +200bps  
    Shock   Shock  
March 31, 2010
  N/A     3.13 %
June 30, 2010
  N/A     12.20 %
September 30, 2010
  N/A     12.96 %
December 31, 2010
  N/A     9.05 %
March 31, 2011
  N/A     3.90 %
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 (due to the ongoing low interest rate environment, the down-shock measurement was not performed between the first quarter of 2010 and the first quarter of 2011):
             
    Down-shock   +200bps Change in  
    Change in MVE   MVE  
March 31, 2010
  N/A     -4.53 %
June 30, 2010
  N/A     -1.62 %
September 30, 2010
  N/A     1.63 %
December 31, 2010
  N/A     -2.75 %
March 31, 2011
  N/A     -3.96 %
As noted, the potential declines under these shocks are within the FHLBNY’s limits of a maximum 10 percent.

 

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The following table displays the FHLBNY’s maturity/re-pricing gaps as of March 31, 2011 and December 31, 2010 (in millions):
                                         
    Interest Rate Sensitivity  
    March 31, 2011  
            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
  $ 10,807     $ 144     $ 364     $ 253     $ 454  
MBS Investments
    7,395       667       1,391       432       1,214  
Adjustable-rate loans and advances
    8,016                          
 
                             
Net unswapped
    26,218       811       1,755       685       1,668  
 
                                       
Fixed-rate loans and advances
    9,934       4,915       15,597       10,902       22,944  
Swaps hedging advances
    52,721       (4,402 )     (14,776 )     (10,618 )     (22,924 )
 
                             
Net fixed-rate loans and advances
    62,655       513       821       284       20  
Loans to other FHLBanks
                             
 
                             
 
                                       
Total interest-earning assets
  $ 88,873     $ 1,324     $ 2,576     $ 969     $ 1,688  
 
                             
 
                                       
Interest-bearing liabilities:
                                       
Deposits
  $ 2,581     $     $     $     $  
 
                                       
Discount notes
    19,170       337                    
Swapped discount notes
    100       (100 )                  
 
                             
Net discount notes
    19,270       237                    
 
                             
 
                                       
Consolidated Obligation Bonds
                                       
FHLB bonds
    21,085       11,590       23,771       7,927       3,684  
Swaps hedging bonds
    41,358       (11,048 )     (21,648 )     (6,422 )     (2,240 )
 
                             
Net FHLB bonds
    62,443       542       2,123       1,505       1,444  
 
                                       
Total interest-bearing liabilities
  $ 84,294     $ 779     $ 2,123     $ 1,505     $ 1,444  
 
                             
Post hedge gaps1:
                                       
Periodic gap
  $ 4,579     $ 545     $ 453     $ (536 )   $ 244  
Cumulative gaps
  $ 4,579     $ 5,124     $ 5,577     $ 5,041     $ 5,285  
                                         
    Interest Rate Sensitivity  
    December 31, 2010  
            More Than     More Than     More Than        
    Six Months     Six Months to     One Year to     Three Years to     More Than  
    or Less     One Year     Three Years     Five Years     Five Years  
 
                                       
Interest-earning assets:
                                       
Non-MBS Investments
  $ 9,240     $ 169     $ 374     $ 245     $ 399  
MBS Investments
    7,306       874       1,485       411       993  
Adjustable-rate loans and advances
    8,121                          
 
                             
Net unswapped
    24,667       1,043       1,859       656       1,392  
 
                                       
Fixed-rate loans and advances
    10,994       3,469       13,971       10,561       29,824  
Swaps hedging advances
    56,262       (3,041 )     (13,069 )     (10,347 )     (29,805 )
 
                             
Net fixed-rate loans and advances
    67,256       428       902       214       19  
Loans to other FHLBanks
                             
 
                             
 
                                       
Total interest-earning assets
  $ 91,923     $ 1,471     $ 2,761     $ 870     $ 1,411  
 
                             
 
                                       
Interest-bearing liabilities:
                                       
Deposits
  $ 2,454     $     $     $     $  
 
                                       
Discount notes
    19,120       271                    
Swapped discount notes
    100       (100 )                  
 
                             
Net discount notes
    19,220       171                    
 
                             
 
                                       
Consolidated Obligation Bonds
                                       
FHLB bonds
    21,722       14,333       23,856       7,793       3,410  
Swaps hedging bonds
    43,497       (13,567 )     (21,638 )     (6,167 )     (2,125 )
 
                             
Net FHLB bonds
    65,219       766       2,218       1,626       1,285  
 
                                       
Total interest-bearing liabilities
  $ 86,893     $ 937     $ 2,218     $ 1,626     $ 1,285  
 
                             
Post hedge gaps1:
                                       
Periodic gap
  $ 5,030     $ 534     $ 543     $ (756 )   $ 126  
Cumulative gaps
  $ 5,030     $ 5,564     $ 6,107     $ 5,351     $ 5,477  
     
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 instrument’s contractual maturity.

 

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ITEM 4T.   CONTROLS AND PROCEDURES.
  (a)   Evaluation of Disclosure Controls and Procedures: An evaluation of the Bank’s 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 Bank’s President and Chief Executive Officer, Alfred A. DelliBovi, and Senior Vice President and Chief Financial Officer, Patrick A. Morgan, at March 31, 2011. Based on this evaluation, they concluded that as of March 31, 2011, the Bank’s 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 Bank’s 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 Commission’s rules and forms.
 
  (b)   Changes in Internal Control Over Financial Reporting: There were no changes in the Bank’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the Bank’s last quarter that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.

 

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PART II OTHER INFORMATION
Item 1.   LEGAL PROCEEDINGS
From time to time, the Federal Home Loan Bank of New York is involved in disputes or regulatory inquiries that arise in the ordinary course of business. There has been no change with respect to a continuing legal proceeding involving the FHLBNY that was previously disclosed in Part 1, Item 3 of the FHLBNY’s 2010 Annual Report on Form 10-K filed on March 25, 2011.
Item 1A.   RISK FACTORS
There have been no material changes from risk factors included in the FHLBNY’s Form 10-K for the fiscal year ended December 31, 2010.
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

 

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Item 6.   Exhibits
                         
            Filed with            
No.   Exhibit Description   this Form 10-Q   Form   File No.   Date Filed
       
 
               
  10.01    
Bank Benefit Equalization Plan a
  X            
       
 
               
  10.02    
Bank 2011 Incentive Compensation Plan a *
  X            
       
 
               
  10.03    
Joint Capital Enhancement Agreement
      8-K   000-51397   3/1/2011
       
 
               
  31.01    
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the President and Chief Executive Officer
  X            
       
 
               
  31.02    
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Senior Vice President and Chief Financial Officer
  X            
       
 
               
  32.01    
Certification by the President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  X            
       
 
               
  32.02    
Certification by the Senior Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  X            
     
Notes:
 
a  
This exhibit includes a management contract, compensatory plan or arrangement required to be noted herein.
 
*  
Portions of the exhibit have been omitted and separately filed with the U.S. Securities and Exchange Commission with a request for confidential treatment.

 

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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: May 12, 2011

 

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