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EX-31.02 - EXHIBIT 31.02 - Federal Home Loan Bank of New Yorkc92350exv31w02.htm
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EX-31.01 - EXHIBIT 31.01 - Federal Home Loan Bank of New Yorkc92350exv31w01.htm
EX-32.01 - EXHIBIT 32.01 - Federal Home Loan Bank of New Yorkc92350exv32w01.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 September 30, 2009
Commission file number: 000-51397
Federal Home Loan Bank of New York
(Exact name of registrant as specified in its charter)
     
Federal
(State or other jurisdiction of
incorporation or organization)
  13-6400946
(I.R.S. Employer
Identification No.)
     
101 Park Avenue, New York, N.Y.
(Address of principal executive offices)
  10178
(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 October 31, 2009 was 50,585,269.
 
 

 

 


 

FEDERAL HOME LOAN BANK OF NEW YORK
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED September 30, 2009
Table of Contents
         
    Page  
 
       
PART I. FINANCIAL INFORMATION
       
 
       
Item 1. FINANCIAL STATEMENTS (Unaudited):
       
 
       
    1  
 
       
    2  
 
       
    3  
 
       
    4  
 
       
    6  
 
       
    74  
 
       
    169  
 
       
    174  
 
       
    175  
 
       
    175  
 
       
    175  
 
       
    175  
 
       
    175  
 
       
    175  
 
       
    175  
 
       
    176  
 
       
 Exhibit 31.01
 Exhibit 31.02
 Exhibit 32.01
 Exhibit 32.02

 

 


Table of Contents

Federal Home Loan Bank of New York
Statements of Condition — Unaudited (in thousands, except per share data)
As of September 30, 2009 and December 31, 2008
                 
    September 30, 2009     December 31, 2008  
Assets
               
Cash and due from banks (Note 2)
  $ 1,189,158     $ 18,899  
Interest-bearing deposits (Note 3)
          12,169,096  
Federal funds sold
    3,900,000        
Available-for-sale securities, net of unrealized losses of $16,085 at September 30, 2009 and $64,420 at December 31, 2008 (Note 5)
    2,362,592       2,861,869  
Held-to-maturity securities (Note 4)
               
Long-term securities
    10,478,027       10,130,543  
Certificates of deposit
    2,000,000       1,203,000  
Advances (Note 6)
    95,944,732       109,152,876  
Mortgage loans held-for-portfolio, net of allowance for credit losses of $3,358 at September 30, 2009 and $1,406 at December 31, 2008 (Note 7)
    1,336,228       1,457,885  
Accrued interest receivable
    354,934       492,856  
Premises, software, and equipment
    14,596       13,793  
Derivative assets (Note 15)
    9,092       20,236  
Other assets
    14,957       18,838  
 
           
 
               
Total assets
  $ 117,604,316     $ 137,539,891  
 
           
 
               
Liabilities and capital
               
 
               
Liabilities
               
Deposits (Note 9)
               
Interest-bearing demand
  $ 2,255,403     $ 1,333,750  
Non-interest bearing demand
    4,968       828  
Term
    15,600       117,400  
 
           
 
               
Total deposits
    2,275,971       1,451,978  
 
           
 
               
Consolidated obligations, net (Note 8)
               
Bonds (Includes $2,385,968 at September 30, 2009 and $998,942 at December 31, 2008 at fair value under the fair value option)
    69,670,836       82,256,705  
Discount notes
    38,385,244       46,329,906  
 
           
 
               
Total consolidated obligations
    108,056,080       128,586,611  
 
           
 
               
Mandatorily redeemable capital stock (Note 11)
    127,882       143,121  
 
               
Accrued interest payable
    337,221       426,144  
Affordable Housing Program (Note 10)
    144,822       122,449  
Payable to REFCORP (Note 10)
    38,692       4,780  
Derivative liabilities (Note 15)
    871,744       861,660  
Other liabilities
    91,115       75,753  
 
           
 
               
Total liabilities
    111,943,527       131,672,496  
 
           
 
               
Commitments and Contingencies (Notes 8, 10, 15 and 17)
               
 
               
Capital (Note 11)
               
Capital stock ($100 par value), putable, issued and outstanding shares:
               
51,422 and 55,857 at September 30, 2009 and December 31, 2008
    5,142,154       5,585,700  
Retained earnings
    666,237       382,856  
Accumulated other comprehensive income (loss) (Note 12)
               
Net unrealized loss on available-for-sale securities
    (16,085 )     (64,420 )
Non-credit portion of OTTI on held-to-maturity securities
    (103,884 )      
Accretion of non-credit portion of impairment losses on held-to-maturity securities
    3,421        
Net unrealized loss on hedging activities
    (24,504 )     (30,191 )
Employee supplemental retirement plans (Note 14)
    (6,550 )     (6,550 )
 
           
 
               
Total capital
    5,660,789       5,867,395  
 
           
 
               
Total liabilities and capital
  $ 117,604,316     $ 137,539,891  
 
           
The accompanying notes are an integral part of the unaudited financial statements.

 

1


Table of Contents

Federal Home Loan Bank of New York
Statements of Income — Unaudited (in thousands, except per share data)
For the three and nine months ended September 30, 2009 and 2008
                                 
    Three months ended     Nine months ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
Interest income
                               
Advances (Note 6)
  $ 240,573     $ 678,896     $ 1,094,089     $ 2,211,823  
Interest-bearing deposits (Note 3)
    1,014       3,240       19,054       17,086  
Federal funds sold
    1,864       21,316       1,933       69,921  
Available-for-sale securities (Note 5)
    6,590       24,441       22,881       57,016  
Held-to-maturity securities (Note 4)
                               
Long-term securities
    111,232       138,412       355,916       396,660  
Certificates of deposit
    851       51,287       1,392       212,525  
Mortgage loans held-for-portfolio (Note 7)
    17,405       19,316       54,679       58,348  
Loans to other FHLBanks and other
    1       30       1       33  
 
                       
 
                               
Total interest income
    379,530       936,938       1,549,945       3,023,412  
 
                       
 
                               
Interest expense
                               
Consolidated obligations-bonds (Note 8)
    191,708       628,394       783,695       1,952,228  
Consolidated obligations-discount notes (Note 8)
    31,647       141,309       173,228       559,153  
Deposits (Note 9)
    516       7,370       2,002       33,235  
Mandatorily redeemable capital stock (Note 11)
    1,807       1,950       5,478       8,884  
Cash collateral held and other borrowings
          242       49       982  
 
                       
 
                               
Total interest expense
    225,678       779,265       964,452       2,554,482  
 
                       
 
                               
Net interest income before provision for credit losses
    153,852       157,673       585,493       468,930  
 
                       
 
                               
Provision (recovery) for credit losses on mortgage loans
    598       (31 )     1,966       215  
 
                       
 
                               
Net interest income after provision for credit losses
    153,254       157,704       583,527       468,715  
 
                       
 
                               
Other income (loss)
                               
Service fees
    1,101       934       3,181       2,422  
Instruments held at fair value — Unrealized gain (Note 16)
    426       3,582       8,653       3,582  
 
                               
Total OTTI losses
    (30,169 )           (118,160 )      
Portion of loss recognized in other comprehensive income
    26,486             103,884        
 
                       
Net impairment losses recognized in earnings
    (3,683 )           (14,276 )      
 
                       
 
                               
Net realized and unrealized gain (loss) on derivatives and hedging activities (Note 15)
    59,639       (25,515 )     124,613       (65,196 )
Net realized gain from sale of available-for-sale and redemption of held-to-maturity securities (Notes 4 and 5)
                721       1,058  
Provision for derivative counterparty credit losses (Notes 15 and 17)
          (64,523 )           (64,523 )
Other
    (39 )     92       59       (42 )
 
                       
 
                               
Total other income (loss)
    57,444       (85,430 )     122,951       (122,699 )
 
                       
 
                               
Other expenses
                               
Operating
    17,810       16,549       53,970       49,489  
Finance Agency and Office of Finance
    1,834       1,350       5,663       4,268  
 
                       
 
                               
Total other expenses
    19,644       17,899       59,633       53,757  
 
                       
 
                               
Income before assessments
    191,054       54,375       646,845       292,259  
 
                       
 
                               
Affordable Housing Program (Note 10)
    15,780       4,638       53,363       24,764  
REFCORP (Note 10)
    35,055       9,947       118,696       53,499  
 
                       
 
                               
Total assessments
    50,835       14,585       172,059       78,263  
 
                       
 
                               
Net income
  $ 140,219     $ 39,790     $ 474,786     $ 213,996  
 
                       
 
                               
Basic earnings per share (Note 13)
  $ 2.70     $ 0.79     $ 8.93     $ 4.55  
 
                       
 
                               
Cash dividends paid per share
  $ 1.40     $ 1.62     $ 3.54     $ 5.67  
 
                       
The accompanying notes are an integral part of the unaudited financial statements.

 

2


Table of Contents

Federal Home Loan Bank of New York
Statements of Capital — Unaudited (in thousands, except per share data)
For the nine months ended September 30, 2009 and 2008
                                                 
                            Accumulated                
    Capital Stock1             Other             Total  
    Class B     Retained     Comprehensive     Total     Comprehensive  
    Shares     Par Value     Earnings     Income (Loss)     Capital     Income (Loss)  
 
                                               
Balance, December 31, 2007
    43,680     $ 4,367,971     $ 418,295     $ (35,675 )   $ 4,750,591          
 
                                               
Proceeds from sale of capital stock
    36,970       3,697,013                   3,697,013          
Redemption of capital stock
    (24,964 )     (2,496,361 )                 (2,496,361 )        
Shares reclassified to mandatorily redeemable capital stock
    (648 )     (64,759 )                 (64,759 )        
Cash dividends ($5.67 per share) on capital stock
                (250,104 )           (250,104 )        
Net Income
                213,996             213,996     $ 213,996  
Net change in Accumulated other comprehensive income (Loss):
                                               
Net unrealized loss on available-for-sale securities
                      (43,952 )     (43,952 )     (43,952 )
Hedging activities
                      (1,755 )     (1,755 )     (1,755 )
 
                                   
 
                                          $ 168,289  
 
                                             
Balance, September 30, 2008
    55,038     $ 5,503,864     $ 382,187     $ (81,382 )   $ 5,804,669          
 
                                     
 
                                               
Balance, December 31, 2008
    55,857     $ 5,585,700     $ 382,856     $ (101,161 )   $ 5,867,395          
 
                                               
Proceeds from sale of capital stock
    26,932       2,693,233                   2,693,233          
Redemption of capital stock
    (31,363 )     (3,136,345 )                 (3,136,345 )        
Shares reclassified to mandatorily redeemable capital stock
    (4 )     (434 )                 (434 )        
Cash dividends ($3.54 per share) on capital stock
                (191,405 )           (191,405 )        
Net Income
                474,786             474,786     $ 474,786  
Net change in Accumulated other comprehensive income (Loss):
                                               
Non-credit portion of OTTI on held-to-maturity securities
                      (103,884 )     (103,884 )     (103,884 )
Accretion of non-credit portion of impairment losses on held-to-maturity securities
                      3,421       3,421       3,421  
Net unrealized gain on available-for-sale securities
                      48,335       48,335       48,335  
Hedging activities
                      5,687       5,687       5,687  
 
                                   
 
                                          $ 428,345  
 
                                             
Balance, September 30, 2009
    51,422     $ 5,142,154     $ 666,237     $ (147,602 )   $ 5,660,789          
 
                                     
     
1   Putable stock
The accompanying notes are an integral part of the unaudited financial statements.

 

3


Table of Contents

Federal Home Loan Bank of New York
Statements of Cash Flows — Unaudited (in thousands)
For the nine months ended September 30, 2009 and 2008
                 
    Nine months ended  
    September 30,  
    2009     2008  
Operating activities
               
 
               
Net Income
  $ 474,786     $ 213,996  
 
           
 
               
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
    (95,490 )     (103,645 )
Concessions on consolidated obligations
    4,977       6,904  
Premises, software, and equipment
    4,020       3,575  
Provision for derivative counterparty credit losses
          64,523  
Provision for credit losses on mortgage loans
    1,966       215  
Net realized (gains) from redemption of held-to-maturity securities
    (281 )     (1,058 )
Net realized (gains) from sale of available-for-sale securities
    (440 )      
Credit impairment losses on held-to-maturity securities
    14,276        
Change in net fair value adjustments on derivatives and hedging activities
    68,323       (468,072 )
Change in fair value adjustments on financial instruments held at fair value
    (8,653 )     (3,582 )
Net change in:
               
Accrued interest receivable
    137,921       110,871  
Derivative assets due to accrued interest
    184,842       151,442  
Derivative liabilities due to accrued interest
    (250,161 )     (91,585 )
Other assets
    4,830       (48,769 )
Affordable Housing Program liability
    22,373       3,323  
Accrued interest payable
    (95,244 )     (4,878 )
REFCORP liability
    33,912       (14,093 )
Other liabilities
    (5,759 )     (20,024 )
 
           
 
               
Total adjustments
    21,412       (414,853 )
 
           
 
               
Net cash provided (used) by operating activities
    496,198       (200,857 )
 
           
 
               
Investing activities
               
Net change in:
               
Interest-bearing deposits
    13,471,204       (341,090 )
Federal funds sold
    (3,900,000 )     (2,031,000 )
Deposits with other FHLBanks
    (84 )     (127 )
Premises, software, and equipment
    (4,823 )     (3,876 )
Held-to-maturity securities:
               
Long-term securities
               
Purchased
    (2,754,476 )     (2,142,900 )
Repayments
    2,283,149       1,862,789  
In-substance maturities
    38,251       94,634  
Net change in certificates of deposit
    (797,000 )     5,284,200  
Available-for-sale securities:
               
Purchased
    (613 )     (3,244,285 )
Proceeds
    420,607       251,777  
Proceeds from sales
    132,095       546  
Advances:
               
Principal collected
    320,102,436       389,788,259  
Made
    (308,324,718 )     (410,797,243 )
Mortgage loans held-for-portfolio:
               
Principal collected
    235,596       135,832  
Purchased and originated
    (117,152 )     (105,733 )
Loans to other FHLBanks
               
Loans made
    (400,000 )     (661,000 )
Principal collected
    400,000       716,000  
 
           
 
               
Net cash provided (used) by investing activities
    20,784,472       (21,193,217 )
 
           
The accompanying notes are an integral part of these unaudited financial statements.

 

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Table of Contents

Federal Home Loan Bank of New York
Statements of Cash Flows — Unaudited (in thousands)
For the nine months ended September 30, 2009 and 2008
                 
    Nine months ended  
    September 30,  
    2009     2008  
Financing activities
               
Net change in:
               
Deposits and other borrowings 1
  $ 531,109     $ 1,601,874  
Short-term loans from other FHLBanks:
               
Proceeds from loans
          1,260,000  
Payments for loans
          (1,260,000 )
Consolidated obligation bonds:
               
Proceeds from issuance
    35,112,667       55,509,862  
Payments for maturing and early retirement
    (47,224,995 )     (30,051,498 )
Consolidated obligation discount notes:
               
Proceeds from issuance
    814,559,648       536,200,240  
Payments for maturing
    (822,438,650 )     (542,193,830 )
Capital stock:
               
Proceeds from issuance
    2,693,233       3,697,013  
Payments for redemption / repurchase
    (3,136,345 )     (2,496,361 )
Redemption of Mandatorily redeemable capital stock
    (15,673 )     (159,857 )
Cash dividends paid 2
    (191,405 )     (250,104 )
 
           
 
               
Net cash (used) provided by financing activities
    (20,110,411 )     21,857,339  
 
           
 
               
Net increase in cash and cash equivalents
    1,170,259       463,265  
Cash and cash equivalents at beginning of the period
    18,899       7,909  
 
           
 
               
Cash and cash equivalents at end of the period
  $ 1,189,158     $ 471,174  
 
           
 
               
Supplemental disclosures:
               
Interest paid
  $ 1,161,678     $ 2,096,160  
Affordable Housing Program payments 3
  $ 30,990     $ 21,441  
REFCORP payments
  $ 84,784     $ 67,593  
Transfers of mortgage loans to real estate owned
  $ 1,091     $ 356  
Portion of non-credit OTTI losses on held-to-maturity securities
  $ 103,884     $  
     
1   Includes $227,796 of cash out-flows from derivatives for the nine months ended September 30, 2009 and $477,204 cash in-flows for the nine months ended September 30, 2008.
 
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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Notes to Financial Statements (Unaudited)
Background
The Federal Home Loan Bank of New York (“FHLBNY” or “the Bank”) is a federally chartered corporation, exempt from federal, state and local taxes except real property 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 issuance 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 (See Note 11 – Capital, Capital Ratios, and Mandatorily Capital Stock — for more information). The business of the cooperative is to provide liquidity for the members (primarily in the form of loans referred to as “advances”) and to provide a return on members’ investment in FHLBNY stock in the form of a dividend. Since the members are both stockholders and customers, the Bank operates such that there is a trade-off between providing value to them via low pricing for advances with a relatively lower dividend versus higher advances pricing with a relatively higher dividend. The FHLBNY is managed to deliver balanced value to members, rather than to maximize profitability or advance volume through low pricing.
All federally insured depository institutions, insured credit unions and insurance companies engaged in residential housing finance can apply for membership in the FHLBank in their district. All members are required to purchase capital stock in the FHLBNY as a condition of membership. A member of another FHLBank or a financial institution that is not a member of any FHLBank may also hold FHLBNY stock as a result of having acquired an FHLBNY member. Because the Bank operates as a cooperative, the FHLBNY conducts business with related parties in the normal course of business and considers all members and non-member stockholders as related parties in addition to the other FHLBanks. See Note 18 — Related party transactions — for more information.
The FHLBNY’s primary business is making collateralized advances to members which is the principal factor that impacts the financial condition of the FHLBNY.
As of July 30, 2008, 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. With the passage of the “Housing and Economic Recovery Act of 2008” (“Housing Act”), the Finance Agency was established and became the new independent Federal regulator (the “Regulator”) of the FHLBanks, effective July 30, 2008. The Finance Board, the FHLBanks’ former regulator, was merged into the Finance Agency as of October 27, 2008. The Finance Board was abolished one year after the date of enactment of the Housing Act. Finance Board regulations, orders, determinations and resolutions remain in effect until modified, terminated, set aside or superseded in accordance with the Housing Act by the FHFA Director, a court of competent jurisdiction or by operation of the law.

 

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The Finance Agency ensures that the FHLBNY carries out its housing and community development mission, remains adequately capitalized and able to raise funds in the capital markets, and operates in a safe and sound manner. However, while the Finance Agency establishes regulations governing the operations of the FHLBanks, each FHLBank 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 tax.
Assessments
Resolution Funding Corporation (“REFCORP”) Assessments. Although 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.
REFCORP was established by Congress 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 pay 20 percent of income calculated in accordance with accounting principles generally accepted in the U.S. (“GAAP”) after the assessment for Affordable Housing Program, but before the assessment for the REFCORP. The Affordable Housing Program and REFCORP assessments are calculated simultaneously because of their dependence on each other. The FHLBNY accrues its REFCORP assessment on a monthly basis.
The Resolution Funding Corporation has been designated as the calculation agent for the Affordable Housing Program and REFCORP assessments. Each FHLBank provides the amount of quarterly income before Affordable Housing Program and REFCORP and other information to the Resolution Funding Corporation, which then performs the calculations for each quarter end.
Affordable Housing Program (“AHP” or “Affordable Housing Program”) Assessments. Section 10(j) of the FHLBank Act requires each FHLBank to establish an Affordable Housing Program. Each FHLBank provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBanks must set aside for the Affordable Housing Program the greater of $100 million or 10 percent of regulatory net income. Regulatory net income is defined as GAAP net income before interest expense related to mandatorily redeemable capital stock under the accounting guidance for certain financial instruments with characteristics of both liabilities and equity, and the assessment for Affordable Housing Program, but after the assessment for REFCORP. The exclusion of interest expense related to mandatorily redeemable capital stock is a regulatory interpretation of the Finance Agency. The FHLBNY accrues the AHP expense monthly.

 

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Basis of Presentation
The preparation of financial statements in accordance with generally accepted accounting principles in the U.S. requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities (if applicable), and the reported amounts of income and expense during the reported periods. Although management believes these judgments, estimates, and assumptions to be appropriate, actual results may differ. The information contained in these financial statements is unaudited. In the opinion of management, normal recurring adjustments necessary for a fair presentation of the interim period results have been made. Certain amounts in the comparable 2007 and 2008 presentations have been conformed to the 2009 presentation and the impact of the changes was insignificant.
These unaudited financial statements should be read in conjunction with the FHLBNY’s audited financial statements for the year ended December 31, 2008, included in Form 10-K filed on March 27, 2009.
See Note 1 — Summary of Significant Accounting Policies in Notes to the Financial Statements of the Federal Home Loan Bank of New York filed on Form 10-K on March 27, 2009, which contains a summary of the Bank’s significant accounting policies.
Note 1. Recently Issued Accounting Standards and Interpretations, and Significant Accounting Policies and Estimates
Recently issued Accounting Standards and Interpretations
Accounting for the Consolidation of Variable Interest Entities — On June 12, 2009, the FASB issued guidance to improve financial reporting by enterprises involved with variable interest entities (VIEs) and to provide more relevant and reliable information to users of financial statements. This guidance amends the manner in which entities evaluate whether consolidation is required for VIEs. The guidance also requires that an entity continually evaluate VIEs for consolidation, rather than making such an assessment based upon the occurrence of triggering events. Additionally, the guidance requires enhanced disclosures about how an entity’s involvement with a VIE affects its financial statements and its exposure to risks. This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009 (January 1, 2010 for the FHLBNY), for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The FHLBNY is evaluating the impact of this pronouncement on its financial statements, results of operations and cash flows, which is not expected to be significant.
Accounting for Transfers of Financial Assets — On June 12, 2009, the FASB issued guidance, which is intended to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. Key provisions of the guidance include (i) the removal of the concept of qualifying special purpose entities, (ii) the introduction of the concept of a participating interest, in circumstances in which a portion of a financial asset has been transferred and (iii) the requirement that to qualify for sale accounting, the transferor must evaluate whether it maintains effective control over transferred financial assets either directly or indirectly. The guidance also requires enhanced disclosures about transfers of financial assets and a transferor’s continuing involvement. This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009 (January 1, 2010 for the FHLBNY), for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The FHLBNY is evaluating the effect of the adoption of this guidance on its financial condition, results of operations and cash flows, which is not expected to be significant.

 

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Codification of Accounting Standards — On June 29, 2009, the FASB established FASB’s Accounting Standards Codification (Codification) as the single source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. SEC rules and interpretive releases are also sources of authoritative GAAP for SEC registrants. The Codification is effective for interim and annual periods ending after September 15, 2009. The FHLBNY adopted the Codification on September 30, 2009. As the Codification is not intended to change or alter previous GAAP, its adoption did not affect the FHLBNY’s financial condition, results of operations or cash flows. Because the Codification is the single source of authoritative U.S. GAAP, the notes will generally not refer to the Codification.
Subsequent Events — On May 28, 2009, the FASB issued guidance establishing general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued (FASB ASC 855-10). This guidance sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date, including disclosure of the date through which an entity has evaluated subsequent events and whether that represents the date the financial statements were issued or were available to be issued. This guidance does not apply to subsequent events or transactions that are within the scope of other applicable GAAP that provide different guidance on the accounting treatment for subsequent events or transactions. This guidance is effective for interim and annual financial periods ending after June 15, 2009. The FHLBNY adopted this guidance for the period ended June 30, 2009. Its adoption resulted in additional disclosures in the financial statements in Form 10-Q for the periods ended June 30, 2009 and September 30, 2009. For more information, see Note 20 — Subsequent events.
Enhanced Disclosures about Derivative Instruments and Hedging Activities — On March 19, 2008, the FASB issued guidance which is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows (FASB ASC 815-10-65-1). The standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 (January 1, 2009 for the FHLBNY). Since the new guidance only requires additional disclosures concerning derivatives and hedging activities, its adoption as of January 1, 2009 did not have an effect on our financial condition, results of operations or cash flows. The expanded disclosures related to this guidance are included in Note 15 — Derivatives and hedging activities.
In September 2008, the FASB issued guidance to require enhanced disclosures about credit derivatives and guarantees and amend the existing guidance on guarantor’s accounting and disclosure requirements for guarantees, including indirect guarantees of indebtedness of others (FASB ASC 460-10) to exclude credit derivative instruments accounted for at fair value under the accounting standard for derivatives and hedge accounting (FASB ASC 815-10). The new guidance is effective for financial statements issued for reporting periods ending after November 15, 2008. Since the new guidance only requires additional disclosures concerning credit derivatives and guarantees, its adoption as of January 1, 2009 did not have an effect on our financial condition, results of operations or cash flows.

 

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Recognition and Presentation of Other-Than-Temporary Impairments — On April 9, 2009, the FASB issued guidance for recognition and presentation of other-than-temporary impairment (OTTI) (FASB ASC 320-10-65-1). The new guidance is intended to provide greater clarity to investors about the credit and noncredit component of an OTTI event and to more effectively communicate when an OTTI event has occurred. The guidance applies to debt securities and requires that the total OTTI be presented in the statement of income with an offset for the amount of impairment that is recognized in other comprehensive income, which is the noncredit component. Noncredit component losses are to be recorded in other comprehensive income if an investor can assert that (a) it does not have the intent to sell or (b) it is not more likely than not that it will have to sell the security prior to its anticipated recovery, and (c) it expects to recover the amortized cost basis of the security. The FHLBNY early adopted this guidance at January 1, 2009, and has recorded OTTI on its securities under the new rules. No cumulative effect transition adjustment was recorded since the FHLBNY had no OTTI prior to 2009. The expanded disclosures related to the new guidance are included in Note 4 — Held-to-maturity securities and Note 5 — Available-for-sale securities.
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly — On April 9, 2009, the FASB issued guidance, which clarifies the approach to, and provides additional factors to consider in estimating fair value when the volume and level of activity for the asset or liability have significantly decreased (FASB ASC 820-10-65-4). It also includes guidance on identifying circumstances that indicate a transaction is not orderly. The guidance is effective and should be applied prospectively for financial statements issued for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for reporting periods ending after March 15, 2009. If an entity elected to early adopt this guidance, it must also have concurrently adopted the OTTI guidance. The FHLBNY elected to early adopt this guidance effective January 1, 2009. The enhanced disclosures related to this guidance are included in Note 16 — Fair Values of Financial Instruments.
Interim Disclosures about Fair Value of Financial Instruments. On April 9, 2009, the FASB issued guidance to require disclosures about the fair value of financial instruments, including disclosure of the method(s) and significant assumptions used to estimate the fair value of financial instruments, in interim financial statements as well as in annual financial statements (FASB ASC 825-10-65-1). Previously, these disclosures were required only in annual financial statements. The guidance is effective and should be applied prospectively for financial statements issued for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for reporting periods ending after March 15, 2009. An entity may early adopt this guidance only if it also concurrently adopted guidance discussed in the previous paragraphs regarding fair value and the OTTI guidance. The FHLBNY elected to early adopt this guidance effective January 1, 2009. Its adoption resulted in increased interim financial statement disclosures, but did not affect the FHLBNY’s financial condition, results of operations or cash flows.

 

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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.
Fair Value Measurements and Disclosures — The accounting standards on fair value measurements and disclosures discusses how entities should measure fair value based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources or those that can be directly corroborated to market sources, while unobservable inputs reflect the FHLBNY’s market assumptions. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal or most advantageous market for the asset or liability between market participants at the measurement date. This definition is based on an exit price rather than transaction (entry) price.
In determining fair value, FHLBNY uses various valuation methods, including both the market and income approaches. The accounting guidance on fair value measurements and disclosures establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, and would be based on market data obtained from sources independent of FHLBNY. Unobservable inputs are inputs that reflect FHLBNY’s assumptions about the parameters market participants would use in pricing the asset or liability, and would be based on the best information available in the circumstances.
The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1 — Quoted prices for identical instruments in active markets.
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-based valuations in which all significant inputs and significant parameters are observable in active markets.
Level 3 — Valuations based upon valuation techniques in which significant inputs and significant parameters are unobservable.
The availability of observable inputs can vary from product to product and is affected by a wide variety of factors including, for example, the characteristics peculiar to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by FHLBNY in determining fair value is greatest for instruments categorized as Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purpose the level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. At September 30, 2009 and December 31, 2008, the FHLBNY measured and recorded fair values using the above guidance in the Statements of Condition for derivatives, available-for-sale securities, for certain consolidated obligation bonds that were designated and recorded at fair value using the fair value option (FVO) accounting guidance for financial assets and liabilities, and at September 30, 2009, for certain held-to-maturity securities determined to be OTTI and measured at fair value on a non-recurring basis. At September 30, 2009 and December 31, 2008, the Bank had designated consolidated obligation debt of $2.4 billion and $983.0 million under the FVO.

 

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A significant percentage of fixed-rate advances and consolidated obligation bonds are hedged to mitigate the risk of fair value changes from changes in the interest rate environment and are typically accounted under hedge accounting rules in a fair value hedging relationship. When the FHLBNY deems that a hedge relationship is either not operationally practical or considers the hedge may not be highly effective under accounting standard on derivative and hedging, the FHLBNY may designate certain advances and consolidated obligation bonds as economic hedges.
Fair Values of Derivative positions — The FHLBNY is an end-user of over-the-counter (“OTC”) derivatives to hedge assets and liabilities under hedge accounting rules to mitigate fair value risks. In addition, the Bank records the fair value of an insignificant amount of mortgage-delivery commitments as derivatives, also under derivative and hedge accounting rules. For additional information, see Note 15 — Derivatives and hedging activities.
Valuations of derivative assets and liabilities reflect the value of the instrument including the value associated with counterparty risk. Derivative values also take into account the FHLBNY’s own credit standing. The valuation of the derivative instrument reflects the net credit differential between the FHLBNY and its counterparties to its derivative contracts. The computed fair values of the FHLBNY’s OTC derivatives take into consideration the effects of legally enforceable master netting agreements that allow the FHLBNY to settle positive and negative positions and offset cash collateral with the same counterparty on a net basis. On a contract-by-contract basis, the collateral and netting arrangements sufficiently mitigated the impact of the credit differential between the FHLBNY and its counterparties to an immaterial level such that an adjustment for nonperformance risk was not deemed necessary. Fair values of the derivatives were computed using quantitative models and employed multiple market inputs including interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors. These multiple market inputs were predominantly actively quoted and verifiable through external sources, including brokers and market transactions.
Fair Values of investments classified as available-for-sale securities — Changes in the values of available-for-sale securities are recorded in Accumulated other comprehensive income (loss), which is a component of members’ capital, with an offset to the recorded value of the investments in the Statements of Condition. The Bank’s entire portfolio of mortgage-backed securities classified as available-for-sale (“AFS”) is comprised of securities issued by GSE variable rate collateralized mortgage obligations which are marketable at recorded fair values. A small percentage of the AFS portfolio at September 30, 2009 and December 31, 2008 consisted of investments in equity and bond mutual funds held by grantor trusts owned by the FHLBNY. The unit prices, or the “Net asset values,” of the underlying mutual funds were available through publicly viewable web sites and the units were marketable at recorded fair values. In summary, the recorded fair values of available-for-sale securities in the Statements of Condition at September 30, 2009 and December 31, 2008 reflected the estimated price at which the positions could be sold.
All of the FHLBNY’s mortgage-backed securities classified as available-for-sale are marketable and the fair value of these investment securities is estimated by management using specialized pricing services that employ pricing models or quoted prices of securities with similar characteristics. Inputs into the pricing models are market based and observable. Examples of securities, which would generally be classified within Level 2 of the valuation hierarchy and valued using the “market approach” as defined under the accounting standard for fair value measurements and disclosures, include GSE issued collateralized mortgage obligations and money market funds.

 

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See Note 16 — Fair Values of Financial Instruments — for additional disclosures with respect to the Levels associated with assets and liabilities recorded on the Bank’s Statements of Condition at September 30, 2009 and December 31, 2008. See Note 16 – Fair Values of Financial Instruments — for more information about fair value disclosures of financial instruments.
Fair Value on a Nonrecurring Basis — Certain held-to-maturity investment securities are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair-value adjustments in certain circumstances (for example, when there is evidence of other-than-temporary impairment). The FHLBNY early adopted the new guidance on recognition and presentation of other-than-temporary impairments. In accordance with this guidance, held-to-maturity mortgage-backed securities with unpaid principal balance of $197.2 million and fair value of $125.8 million at September 30, 2009 were determined to be credit impaired as a result of evidence of other-than-temporary impairment (“OTTI”) in the current year third quarter. The impairment consisted of credit loss component of $3.7 million recorded as a charge to earnings in the three months ended September 30, 2009. The non-credit component of OTTI was a loss of $26.5 million, which was recorded in Accumulated other comprehensive income (loss).
Financial Assets and Financial Liabilities recorded under the Fair Value Option — The accounting standards on the fair value option for financial assets and liabilities, created a fair value option allowing, but not requiring, an entity to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities with changes in fair value recognized in earnings as they occur. In the third quarter of 2008 and thereafter, the FHLBNY has elected the FVO designation for certain consolidated obligation bonds. The changes in fair values of the designated bonds are economically hedged by interest rate swaps. See Note 16 — Fair Values of Financial Instruments for more information.
Investments
Early adoption by the FHLBNY of the guidance on interim disclosures about fair value of financial instruments at January 1, 2009 required the Bank to incorporate certain clarifications and definitions in its investment policies. The new guidance amends the accounting rules for investments in debt and equity securities, and is primarily intended to provide greater clarity to investors about the credit and noncredit component of an OTTI event and to more effectively communicate when an OTTI event has occurred. The new guidance has been incorporated in the Bank’s investment policies as summarized below.
Held-to-maturity securities — The FHLBNY classifies investments for which it has both the ability and intent to hold to maturity as held-to-maturity investments, and are recorded at amortized cost basis. Amortized cost basis includes adjustments made to the cost of an investment for accretion, amortization, collection of cash, and fair value hedge accounting adjustments. If a held-to-maturity security is determined to be OTTI, the amortized cost basis of the security is adjusted for credit losses. Amortized cost basis of a held-to-maturity OTTI security is further adjusted for impairment related to all other factors (also referred to as the non-credit component of OTTI) recognized in Accumulated other comprehensive income (loss), and the adjusted amortized cost basis is the carrying value of the OTTI security reported in the Statements of Condition. Carrying value for a held-to-maturity security that is not impaired is its amortized cost basis.

 

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Under the accounting guidance for investments in debt and equity securities, changes in circumstances may cause the FHLBNY to change its intent to hold certain securities to maturity without calling into question its intent to hold other debt securities to maturity in the future. Thus, the sale or transfer of a held-to-maturity security due to changes in circumstances, such as evidence of significant deterioration in the issuer’s creditworthiness or changes in regulatory requirements, is not considered inconsistent with its original classification. Other events that are isolated, nonrecurring, and unusual for the FHLBNY that could not have been reasonably anticipated may cause the FHLBNY to sell or transfer a held-to-maturity security without necessarily calling into question its intent to hold other debt securities to maturity. The Bank did not transfer or sell any held-to-maturity securities due to changes in circumstances thus far in 2009 as well as in 2008 or 2007.
In accordance with accounting guidance for investments in debt and equity securities, sales of debt securities that meet either of the following two conditions may be considered as maturities for purposes of the classification of securities: (1) the sale occurs near enough to its maturity date (or call date if exercise of the call is probable) such that interest rate risk is substantially eliminated as a pricing factor and the changes in market interest rates would not have a significant effect on the security’s fair value, or (2) the sale of a security occurs after the FHLBNY has already collected a substantial portion (at least 85 percent) of the principal outstanding at acquisition due either to prepayments on the debt security or to scheduled payments on a debt security paid over its term.
Available-for-sale securities — The FHLBNY classifies investments that it may sell before maturity as available-for-sale and carries them at fair value. Fair value changes are recorded in Accumulated other comprehensive income until the security is sold or is expected to be sold.
The FHLBNY classifies investments that it may sell before maturity as available-for-sale and carries them at fair value. The change in fair value of the available-for-sale securities is recorded in other comprehensive income as a net unrealized gain or loss on available-for-sale securities. If available-for-sale securities had been hedged under a fair value hedge qualifying under the accounting for derivatives and hedging, the FHLBNY would record the portion of the change in value related to the risk being hedged in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities together with the related change in the fair value of the derivative, and would record the remainder of the change in Accumulated other comprehensive income as a Net unrealized gain (loss) on available-for-sale securities. If available-for-sale securities had been hedged under a cash flow hedge qualifying under the accounting standard for derivatives and hedging, the FHLBNY would record the effective portion of the change in value of the derivative related to the risk being hedged in other comprehensive income as a Net unrealized gain (loss) on derivatives and hedging activities. The ineffective portion would be recorded in Other income (loss) and presented as a Net realized and unrealized gain (loss) on derivatives and hedging activities. The FHLBNY computes the amortization and accretion of premiums and discounts on mortgage-backed securities using the level-yield method over the estimated lives of the securities. The FHLBNY’s estimated life method requires a retrospective adjustment of the effective yield each time the FHLBNY changes the estimated life as if the new estimate had been known at the original acquisition date of the asset.
The FHLBNY computes the amortization and accretion of premiums and discounts on investments other than mortgage-backed securities using the level-yield method to the contractual maturities of the investments.
The FHLBNY computes gains and losses on sales of investment securities using the specific identification method and includes these gains and losses in Other income (loss). The FHLBNY treats securities purchased under agreements to resell as collateralized financings because the counterparty retains control of the securities.

 

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Other than-temporary Impairment — Accounting and Governance Policies — Impairment analysis and Pricing of mortgage-backed securities, and Bond insurer methodology.
The FHLBNY regularly evaluates its investments for impairment and determines if unrealized losses are temporary based in part on the creditworthiness of the issuers and the underlying collateral. A security is considered impaired if its fair value is less than its amortized cost basis. Amortized cost basis includes adjustments made to the cost of an investment for accretion, amortization, collection of cash, previous OTTI recognized in earnings and fair value hedge accounting adjustments. If management has made a decision to sell such an “impaired” security, OTTI is considered to have occurred. If a decision to sell the impaired investment has not been made, but management concludes that it is more likely than not that it will be required to sell such a security before recovery of the amortized cost basis of the security, an OTTI is also considered to have occurred.
Even if management does not intend to sell such an impaired security, an OTTI has occurred if analysis determines that a credit loss exists. The difference between the present value of the cash flows expected to be collected and the amortized cost basis is a credit loss. To determine if a credit loss exists, management compares the present value of the cash flows expected to be collected to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the security’s amortized cost, an OTTI exists, irrespective of whether management will be required to sell such a security. The Bank’s methodology to calculate the present value of expected cash flows is to discount the expected cash flows (principal and interest) of a fixed-rate security that is deemed as OTTI by using the effective interest rate of the security as of the date it was acquired. For a variable-rate security that is evaluated for OTTI, the expected cash flows are computed using a forward-rate curve.
If management determines that it intends to sell a security in an unrealized loss position or can no longer assert that it will not be required to sell such as security before recovery of the amortized cost basis of the security, the entire OTTI is recorded as a charge to earnings in the period management reaches such a decision.
However, if management determines that OTTI exists only because of a credit loss (even if it does not intend to sell or it will not be required to sell such a security), the amount of impairment related to credit loss will affect earnings and the amount of loss related to factors other than credit loss is recognized as a component of Accumulated other comprehensive income (loss).
If the FHLBNY determines that OTTI has occurred, it accounts for the investment security as if it had been purchased on the measurement date of the other-than-temporary impairment. The investment security is written down to fair value, which becomes its new amortized cost basis. The new amortized cost basis is not adjusted for subsequent recoveries in fair value.
For securities designated as available-for-sale, subsequent unrealized changes to the fair values (other than OTTI) are recorded in Accumulated other comprehensive income (loss). For securities designated as held-to-maturity, the amount of OTTI recorded in Accumulated other comprehensive income (loss) for the non-credit component of OTTI is amortized prospectively over the remaining life of the securities based on the timing and amounts of estimated future cash flows. Amortization out of Accumulated other comprehensive income (loss) is offset by an increase in the carrying value of securities until the securities are repaid or are sold or subsequent OTTI is recognized in earnings.
If subsequent evaluation indicates a significant increase in cash flows greater than previously expected to be collected or if actual cash flows are significantly greater than previously expected, the increases are accounted for as a prospective adjustment to the accretable yield through interest income. In subsequent periods, if the fair value of the investment security has further declined below its then-current carrying value and there has been a decrease in the estimated cash flows the FHLBNY expects to collect, the FHLBNY will deem the security as OTTI.

 

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OTTI Governance Committee On April 28, 2009, and May 7, 2009, the Finance Agency, the FHLBanks’ regulator, provided the FHLBanks with guidance on the process for determining OTTI with respect to the FHLBanks’ holdings of private-label MBS and their adoption of the guidance for recognition and presentation of other-than-temporary impairment in the first quarter of 2009. The goal of the guidance is to promote consistency among all FHLBanks in the process for determining OTTI for private-label MBS.
Beginning with the second quarter of 2009, consistent with the objectives of the Finance Agency guidance, the FHLBanks formed an OTTI Governance Committee (“OTTI Committee”) with the responsibility for reviewing and approving the key modeling assumptions, inputs, and methodologies to be used by the FHLBanks to generate the cash flow projections used in analyzing credit losses and determining OTTI for private-label MBS. The OTTI Committee charter was approved on June 11, 2009, and provides a formal process by which the FHLBanks can provide input on and approve the assumptions.
Although a FHLBank may engage another FHLBank to perform its OTTI analysis under the guidelines of the OTTI Committee, each FHLBank is responsible for making its own determination of impairment and the reasonableness of assumptions, inputs, and methodologies used and for performing the required present value calculations using appropriate historical cost bases and yields. FHLBanks that hold the same private-label MBS are required to consult with one another to make sure that any decision that a commonly held private-label MBS is other-than-temporarily impaired, including the determination of fair value and the credit loss component of the unrealized loss, is consistent among those FHLBanks.
The OTTI Committee’s role and scope with respect to the assessment of credit impairment for the FHLBNY’s private-label MBS are discussed below under “Impairment analysis of mortgage-backed securities”.
Pricing Committee In an effort to achieve consistency among all of the FHLBanks of the pricing of investments of mortgage-backed securities, in the third quarter of 2009 the FHLBanks also formed the MBS Pricing Governance Committee, which was responsible for developing a fair value methodology for mortgage-backed securities that all FHLBanks could adopt. Consistent with the guidance from the Pricing Committee, the FHLBNY updated its methodology used to estimate the fair value of mortgage-backed securities during the quarter ended September 30, 2009. Under the approved methodology, the FHLBNY requests prices for all mortgage-backed securities from four specific third-party vendors. Prior to the change, the FHLBNY used three of the four vendors specified by the Pricing Committee. Depending on the number of prices received from the four vendors for each security, the FHLBNY selects a median or average price as defined by the methodology. The methodology also incorporates variance thresholds to assist in identifying median or average prices that may require further review by the FHLBNY. In certain limited instances (i.e., prices are outside of variance thresholds or the third-party services do not provide a price), the FHLBNY will obtain a price from securities dealers that is deemed most appropriate after consideration of all relevant facts and circumstances that would be considered by market participants. Prices for CUSIPs held in common with other FHLBanks are reviewed for consistency. The incorporation of the Pricing Committee guidelines did not have a significant impact in the FHLBNY’s estimate of the fair values of its investment securities as of September 30, 2009.

 

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Bond Insurer analysis Certain held-to-maturity private-label MBS owned by the FHLBNY are insured by third-party bond insurers (“monoline insurers”). The bond insurance on these investments guarantees the timely payments of principal and interest if these payments cannot be satisfied from the cash flows of the underlying mortgage pool. Private-label insured securities are cash flow tested for credit impairment. The cash flow analysis of the MBS protected by such third-party insurance looks first to the performance of the underlying security, considering its embedded credit enhancements in the form of excess spread, overcollateralization, and credit subordination, to determine the collectability of all amounts due. If these protections are deemed insufficient to make timely payment of all amounts due, then the FHLBNY considers the capacity of the third-party bond insurer to cover any shortfalls.
Certain monoline insurers have been subject to adverse ratings, rating downgrades, and weakening financial performance measures. In estimating the insurers’ capacity to provide credit protection in the future to cover any decrease in cash flows expected to be collected for securities deemed to be OTTI, the FHLBNY has developed a methodology to assess the ability of the monoline insurers to meet future insurance obligations. The methodology establishes boundaries that can be used on a consistent basis, and includes both quantitative and qualitative factors.
This methodology calculates the length of time a monoline is expected to remain financially viable to pay claims for securities insured; it employs for the most part, publicly available information to identify cash flows used up by a monoline for insurance claims. Based on the monoline’s existing insurance reserves, the methodology attempts to predict the length of time over which the monoline’s claims-paying resource could sustain bond insurance losses. The methodology provides an indicator of a point in time in the future when the monoline’s claim-paying resource are estimated to be exhausted.
For the FHLBNY’s insured securities that are deemed to be credit impaired absent insurer protection, the methodology compares the timing and amount of the cash flow shortfall to the timing of when a monoline’s claim-paying resource is deemed exhausted. The analysis quantifies both the timing and the amount of cash flow shortfall that the insurer is unlikely to be able to cover. However, estimation of an insurer’s financial strength to remain viable over a long time horizon requires significant judgment and assumptions. Predicting when the insurers may no longer have the ability to perform under their contractual agreements, then comparing the timing and amounts of cash flow shortfalls of securities that are credit impaired absent insurer protection requires significant judgment.
Determining a monoline’s financial viability is primarily based on an analysis which establishes quantitative boundaries to provide consistency in the assessment of OTTI under different fact patterns. Because predicting outcomes over a distant time horizon is inherently subjective, the FHLBNY employs qualitative factors to assist in the identification of critical quantitative inputs and assumptions.
The FHLBNY believes that bond insurance is an inherent aspect of credit support within the structure of the security itself and it is appropriate to include insurance in its evaluation of expected cash flows and determination of OTTI. The FHLBNY has also established that the terms of insurance enable the insurance to travel with the security if the security is sold in the future. Currently, the monolines that provide insurance for the Bank’s securities are going concerns and are honoring claims with their existing capital resources. Within the boundaries set in the methodology outlined above, the Bank believes it is appropriate to assert that insurer credit support can be relied upon over a certain period of time. As with all assumptions, changes to these assumptions may result in materially different outcomes and the realization of additional other-than-temporary impairment charges in the future.

 

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Impairment analysis of mortgage-backed securities
Securities with a fair value below amortized cost basis are considered impaired. Determining whether a decline in fair value is OTTI requires significant judgment. The FHLBNY evaluates its individual held-to-maturity investment in private-label issued mortgage- and asset-backed securities for OTTI on a quarterly basis. As part of this process, the FHLBNY assesses if it has an intention to sell the security or it is more likely than not that it will be required to sell the impaired investment before recovery of its amortized cost basis. At September 30, 2009, to assess whether the entire amortized cost bases of the FHLBNY’s private-label MBS will be recovered, the Bank performed cash flow analysis for 100% of its private-label MBS, including bonds determined to be other-than-temporarily impaired in a previous reporting period. In prior quarters of 2009 and at December 31, 2008, the Bank had identified private-label MBS with weak performance measures indicating the possibility of other-than-temporary impairment based on the Bank’s screening and monitoring parameters, which included pricing, credit rating and credit enhancement coverage. Bonds selected through the screening process were cash flow tested for impairment. Bonds determined to be credit impaired at September 30, 2009 were cash flow tested for credit impairment previously.
Cash flow analysis derived from the FHLBNY’s own assumptions — The FHLBNY cash flow tested 100% of its private-label MBS. Assessment for impairment employed by the FHLBNY’s own techniques and assumptions were determined primarily using historical performance data of the 54 private-label MBS. These assumptions and performance measures were “benchmarked” by comparing to performance parameters from “market consensus”, data obtained from a specialized consulting service, and to the assumptions and parameters provided by the OTTI Committee for the FHLBNY’s private-label MBS.
The FHLBNY’s analysis was performed using an internal process to develop bond performance parameters and a third party process to generate expected cash flows to be collected. The Bank’s internal process calculated the historical average of each bond’s prepayments, defaults, and loss severities, and considered other factors such as delinquencies and foreclosures. Assumptions were primarily based on historical performance statistics extracted from reports from trustees, loan servicer reports and other sources. In arriving at historical performance assumptions, which is the FHLBNY’s expected case assumptions, the FHLBNY also considered various characteristics of each security including, but not limited to, the following: the credit rating and related outlook or status; the creditworthiness of the issuers of the debt securities; the underlying type of collateral; the year of securitization or vintage, the duration and level of the unrealized loss, credit enhancements, if any; and other collateral-related characteristics such as FICO® credit scores, and delinquency rates. The relative importance of this information varies based on the facts and circumstances surrounding each security, as well as the economic environment at the time of assessment.
Each bond’s performance parameters, primarily prepayments, defaults and loss severities, which were calculated by the Bank’s internal approach were then input into a third party specialized cash flow model that allocated the projected collateral level losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. In a securitization in which the credit enhancement for the senior securities was derived from the presence of subordinate securities, losses were generally allocated first to the subordinate securities until their principal balance was reduced to zero.

 

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If the security is insured by a bond insurer and the security relies on the insurer for support either currently or potentially in future periods, the FHLBNY performed another analysis to assess the financial strength of the monoline insurers. The results of the insurer financial analysis (“monoline burn-out period”) were then incorporated in the third-party cash flow model, as a key input. If the cash flow model projected cash flow shortfalls (credit impairment) on an insured security, the monoline’s “burn-out period”, an end date for credit support, was then input to the cash flow model. The end date, also referred to as the burn-out date, provided the necessary information to the cash flow model for the continuation of cash flows until the burn-out date. Any cash flow shortfalls that occurred beyond the “burn-out” date was considered to be not recoverable and the insured security was then deemed to be credit impaired.
In determining monoline insurer support, the Bank considered the contractual terms of the insurance guarantee, and whether the credit protection under the terms of the agreement would “travel” with the security.
Role and scope of the OTTI Governance Committee
Starting with the third quarter, the OTTI Committee has adopted guidelines that require each FHLBank to assess credit impairment by cash flow testing of 100% of private-label securities that are within its scope. Of the 54 private-label MBS owned by the FHLBNY, 26 MBS backed by sub-prime loans, commercial real estate loans, home equity loans, and manufactured housing loans were deemed to be outside the scope of the OTTI Committee because loan level collateral data was not available, and 28 securities were modeled in the OTTI Committee common platform as described below. The FHLBNY developed key modeling assumptions and forecasted cash flows using the FHLBNY’s own assumptions for 100% of its private-label MBS.
Cash flow derived from the OTTI Committee common platform Consistent with the guidelines provided by the OTTI Committee, the FHLBNY has contracted with the FHLBank of San Francisco to perform cash-flow analyses for 13 of its residential private-label MBS. The unpaid principal balance of the 13 securities was $414.7 million at September 30, 2009. The FHLBNY has also contracted with the FHLBank of Chicago to perform cash flow analyses for 15 of its subprime private-label MBS. The unpaid principal balance was $197.7 million at September 30, 2009. Although the FHLBNY has engaged the two FHLBanks to perform the cash flow analysis for 28 private-label MBS, the FHLBNY has reviewed the underlying assumptions and is ultimately responsible for making its own determination of impairment and the reasonableness of assumptions, inputs, and methodologies used and performing the required present value calculations using appropriate historical cost bases and yields.
The two FHLBanks performed cash flow analysis for the 28 securities using two third-party models. The first model considered borrower characteristics and the particular attributes of the loans underlying a security in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults and loss severities. A significant input to the first model was the forecast of future housing price changes for the relevant states and core based statistical areas (CBSAs), which were based upon an assessment of the individual housing markets. CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and Budget; as currently defined, a CBSA must contain at least one urban area with a population of 10,000 or more people. The FHLBanks’ housing price forecast assumed CBSA level current-to-trough home price declines ranging from 0 percent to 20 percent over the next 9 to 15 months. Thereafter, home prices were projected to increase 0 percent in the first six months, 0.5 percent in the next six months, 3 percent in the second year and 4 percent in each subsequent year.

 

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The month-by-month projections of future loan performance derived from the first model, which reflected projected prepayments, defaults and loss severities, were then input into a second model that allocated the projected loan level cash flows and losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. In a securitization in which the credit enhancement for the senior securities was derived from the presence of subordinate securities, losses were generally allocated first to the subordinate securities until their principal balance was reduced to zero. The projected cash flows were based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in assumptions and expectations. The scenario of cash flows determined based on model approach described above reflects a best estimate scenario and includes a base case current to trough housing price forecast and a base case housing price recovery path described in the prior paragraph. The cash flows tested on the securities within the scope of the OTTI Committee resulted in the credit impairment of three securities which were also deemed to be credit impaired by the FHLBNY’s cash flow analysis.
GSE issued securities — The FHLBNY evaluates its individual securities issued by Fannie Mae and Freddie Mac or a government agency by considering the creditworthiness and performance of the debt securities and the strength of the 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 and credit enhancements and guarantees that exist to protect the investments.
Mortgage Loans Held-for-portfolio
The FHLBNY participates in the Mortgage Partnership Finance program® (“MPF” ®) by purchasing and originating conventional mortgage loans from its participating members, herein after referred to as Participating Financial Institutions (“PFI”). Federal Housing Administration (“FHA”) and Veterans Administration (“VA”) insured loans purchased were not a significant total of the outstanding mortgage loans held-for-portfolio at September 30, 2009 and December 31, 2008. The FHLBNY manages the liquidity, interest rate and prepayment option risk of the MPF loans, while the PFIs retain servicing activities. The FHLBNY and the PFI share the credit risks of the uninsured MPF loans by structuring potential credit losses into layers. Collectability of the loans is first supported by liens on the real estate securing the loan. For conventional mortgage loans, additional loss protection is provided by private mortgage insurance required for MPF loans with a loan-to-value ratio of more than 80% at origination, which is paid for by the borrower. Credit losses are absorbed by the FHLBNY to the extent of the First Loss Account (“FLA”) for which the maximum exposure is estimated to be $13.9 million and $13.8 million at September 30, 2009 and at December 31, 2008. The aggregate amount of FLA is memorialized and tracked but is neither recorded nor reported as a loan loss reserve in the FHLBNY’s financial statements. If “second losses” beyond this layer are incurred, they are absorbed through a credit enhancement provided by the PFI. The credit enhancement held by PFIs ensures that the lender retains a credit stake in the loans it sells to the FHLBNY or originates as an agent for the FHLBNY (only relates to MPF 100 product). For assuming this risk, PFIs receive monthly “credit enhancement fees” from the FHLBNY.
The amount of the credit enhancement is computed with the use of a Standard & 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 PFI. For certain MPF products, the credit enhancement fee is accrued and paid each month. For other MPF products, the credit enhancement fee is accrued monthly and is paid monthly after the FHLBNY has accrued 12 months of credit enhancement fees.

 

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Delivery commitment fees are charged to a PFI for extending the scheduled delivery period of the loans. Pair-off fees may be assessed and charged to PFI when the settlement of the delivery commitment (1) fails to occur, or (2) the principal amount of the loans purchased by the FHLBNY under a delivery commitment is not equal to the contract amount beyond established limits. Extension fees are received when a member requests to extend the period of the delivery commitment beyond the original stated maturity.
The FHLBNY records credit enhancement fees as a reduction to mortgage loan interest income. The FHLBNY records other non-origination fees, such as delivery commitment extension fees and pair-off-fees, as derivative income over the life of the commitment. All such fees were inconsequential for all periods reported. Mortgage loans are recorded at fair value on settlement date.
The FHLBNY defers and amortizes premiums, costs, and discounts as interest income using the level yield method to the loan’s contractual maturities. The FHLBNY classifies mortgage loans as held-for-portfolio and, accordingly, reports them at their principal amount outstanding, net of premiums, costs and discounts.
The FHLBNY places a mortgage loan on non-accrual status when the collection of the contractual principal or interest is 90 days or more past due. When a mortgage loan is placed on non-accrual status, accrued but uncollected interest is reversed against interest income.
Allowance for credit losses on mortgage loans. — The Bank performs periodic reviews of its portfolio to identify the losses inherent within the portfolio and to determine the likelihood of collection of the principal and interest. Mortgage loans, that are either classified under regulatory criteria (Special Mention, Sub-standard, or Loss) or past due, are separated from the aggregate pool and evaluated separately for impairment.
The allowance for credit losses on mortgage loans was $3.4 million and $1.4 million as of September 30, 2009 and December 31, 2008.
The Bank identifies inherent losses through analysis of the conventional loans (FHA and VA are insured loans, and excluded from the analysis) that are not adversely classified or past due. Reserves are based on the estimated costs to recover any portions of the MPF loans that are not FHA and VA insured. When a loan is foreclosed, the Bank will charge to the loan loss reserve account for any excess of the carrying value of the loan over the net realizable value of the foreclosed loan.
If adversely classified, or on non-accrual status, reserves for conventional mortgage loans, except FHA and VA insured loans, are analyzed under liquidation scenarios on a loan level basis, and identified losses are fully reserved. FHA and VA insured mortgage loans have minimal inherent credit risk; risk generally arises mainly from the servicers defaulting on their obligations. FHA and VA insured mortgage loans, if adversely classified, will have reserves established only in the event of a default of a PFI. Reserves are based on aging, collateral value and estimated costs to recover any uninsured portion of the MPF loan.
The FHLBNY also holds participation interests in residential and community development mortgage loans through its Community Mortgage Asset (“CMA”) program. Acquisition of participations under the CMA program was suspended indefinitely in November 2001, and outstanding balance was approximately $4.0 million at September 30, 2009 and December 31, 2008. If adversely classified, CMA loans will have additional reserves established based on the shortfall of the underlying estimated liquidation value of collateral to cover the remaining balance of the CMA loan. Reserve values are calculated by subtracting the estimated liquidation value of the collateral (after sale value) from the current remaining balance of the CMA loan.

 

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Note 2. 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 various Federal Reserve Banks of approximately $1.0 million for the periods ended September 30, 2009 and December 31, 2008. 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 $27.1 million and $31.0 million as of September 30, 2009 and December 31, 2008. The Bank includes member reserve balances in other liabilities in the Statements of Condition.
Note 3. Interest-bearing deposits
In October 2008, the Board of Governors of the Federal Reserve System directed the Federal Reserve Banks (“FRB”) to pay interest on balances in excess of certain required reserve and clearing balances. The formula for calculating interest earned is based on average excess balances over the calculation period; rates are generally tied to the federal funds rate. On July 1, 2009, the FHLBNY was no longer eligible to collect interest on excess balances with the FRB. The FRB will pay interest only on required reserves. At December 31, 2008, excess balances placed with the FRB were classified as interest- bearing deposit. At September 30, 2009, the balance with the FRB did not earn interest and was classified as Cash and Due from Banks.
Note 4. Held-to-maturity securities
Held-to-maturity securities consist of mortgage- and asset-backed securities (collectively mortgage-backed securities or “MBS”), state and local housing finance agency bonds, and short-term certificates of deposits issued by highly rated banks and financial institutions.
At September 30, 2009 and December 31, 2008, the FHLBNY had pledged MBS with an amortized cost basis of $2.2 million and $2.7 million to the FDIC in connection with deposits maintained by the FDIC at the FHLBNY.

 

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Mortgage-backed securities The carrying value and amortized cost basis of investments in mortgage-backed securities issued by Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corp. (“Freddie Mac”) (together, government sponsored enterprises or “GSE”) and a U.S. government agency at September 30, 2009 was $8.5 billion, or 88.2% of the carrying value of total MBS classified as held-to-maturity. The comparable carrying value of GSE issued MBS at December 31, 2008 was $7.6 billion, or 81.3% of total MBS classified as held-to-maturity. The carrying value (amortized cost less non-credit component of OTTI) of privately issued mortgage- and asset-backed securities at September 30, 2009 and December 31, 2008 was $1.2 billion and $1.7 billion. Privately issued MBS primarily included asset-backed securities, mortgage pass-throughs and Real Estate Mortgage Investment Conduit bonds, and securities supported by manufactured housing loans.
Certificates of deposits Investments in certificates of deposit are also classified as held-to-maturity. All such investments mature within one year. The amortized cost basis of certificates of deposit was $2.0 billion at September 30, 2009 and $1.2 billion at December 31, 2008.
State and local housing finance agency bonds Investments in primary public and private placements of taxable obligations of state and local housing finance authorities (“HFA”) were classified as held-to-maturity and the amortized cost basis was $791.2 million and $804.1 million at September 30, 2009 and December 31, 2008.
Impairment analysis of GSE issued securities The FHLBNY evaluates its individual securities issued by Fannie Mae and Freddie Mac or a government agency by considering the creditworthiness and performance of the debt securities and the strength of the 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 and 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”) — To assess whether the entire amortized cost bases of the Bank’s private-label MBS will be recovered, the Bank performed cash flow analysis for one hundred percent of the FHLBNY’s private-label MBS outstanding at September 30, 2009, including private-label MBS that were determined to be other-than-temporarily impaired in a previous reporting period.
Based on the results of its cash flow analyses, the FHLBNY determined that it was likely that it will not fully recover the amortized cost of ten of its private-label MBS and, accordingly, these securities were deemed to be OTTI at September 30, 2009. The impaired securities included seven securities, with total unpaid principal balance of $124.7 million at September 30, 2009, that had previously been identified as OTTI and three securities, with total unpaid principal balance of $72.5 million at September 30, 2009, that were determined to be OTTI as of September 30, 2009. The cash flow analysis compared the present value of the cash flows expected to be collected from the ten securities to the securities’ amortized cost bases. The difference, the credit loss of $3.7 million, was recorded as a charge to current year third quarter earnings. The non-credit component of OTTI associated with the impairment in the third quarter was $26.5 million and was recorded as a loss in Accumulated other comprehensive income (loss). In all fifteen securities have been deemed OTTI through the current year third quarter. Thirteen impaired securities are insured by bond insurers, Ambac and MBIA. The Bank’s analysis of the two bond insurers concluded that future credit losses due to projected collateral shortfalls of the impaired securities would not be fully supported by the two bond insurers.

 

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The cumulative credit impairment expenses recorded through earnings year-to-date September 30, 2009 was $14.3 million as a charge to earnings recorded in Other income (loss). The non-credit component of OTTI recorded in Accumulated other comprehensive income through the third quarter was $103.9 million. The Bank did not experience any OTTI during 2008 or 2007.
At December 31, 2008, the FHLBNY’s screening and monitoring process, which included pricing, credit rating and credit enhancement coverage, had identified 21 private-label MBS with weak performance measures indicating the possibility of OTTI. Bonds selected through the screening process were cash flow tested for credit impairment. Fourteen of the securities were determined to be impaired absent bond insurer support to meet scheduled cash flows in the future. The remaining securities were considered to be only temporarily impaired based on cash flow analysis. Based on financial analysis of the bond insurers it was deemed that Ambac and MBIA had the ability to meet future claims, and the fourteen bonds were determined to be also temporarily impaired at December 31, 2008.
In the first and second quarters of 2009, the FHLBNY also employed its screening procedures and identified private-label MBS with weaker performance measures. Bonds selected through the screening process were cash flow tested for credit impairment. Certain insured bonds that were determined to be credit impaired at December 31, 2008 absent insurer support were determined to be OTTI because of deteriorating financial conditions of MBIA and Ambac. First MBIA and then Ambac was downgraded and released financial information and results that the FHLBNY’s views resulted in the shortening of the bond insurance support period, a quantitative measure under the FHLBNY’s bond insurer analysis methodology. With the incremental shortening of the insurance support period of a credit impaired bond starting with the first quarter of 2009 because of deteriorating financial conditions at Ambac and MBIA, the FHLBNY recognized larger amounts of cash flow shortfalls at each of the quarters for certain insured bonds. Certain uninsured bonds were determined to be credit impaired also based on cash flow testing for credit impairment in the second and third quarters of 2009. Observed historical performance parameters of certain securities have deteriorated in 2009, and these factors have increased loss severities in the cash flow analyses of those private-label MBS.
The projected cash flows were based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in assumptions and expectations. The scenario of cash flows determined reflected the FHLBNY’s best estimate scenario.

 

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The table below summarizes the key characteristics of the 15 OTTI securities at September 30, 2009 (dollars in thousands):
                                                                                         
            September 30, 2009  
            Insurer MBIA     Insurer Ambac     Uninsured     OTTI     Gross OTTI Losses  
Security                   Fair             Fair             Fair     Credit     Non-credit     Less than     More than  
Classification   Count     UPB     Value     UPB     Value     UPB     Value     Loss     Loss     12 months     12 months  
 
                                                                                       
RMBS-Prime*
    1     $     $     $     $     $ 56,867     $ 54,687     $ (438 )   $ (2,766 )   $ (3,204 )   $  
HEL Subprime*
    14       35,616       20,653       181,995       117,651       62,461       38,392       (13,838 )     (101,118 )           (114,956 )
 
                                                                 
Total
    15     $ 35,616     $ 20,653     $ 181,995     $ 117,651     $ 119,328     $ 93,079     $ (14,276 )   $ (103,884 )   $ (3,204 )   $ (114,956 )
 
                                                                 
     
*   RMBS-Prime — Private-label MBS supported by prime residential loans; HEL Subprime — MBS supported by home equity loans.
The table below summarizes the key characteristics of the securities that were deemed OTTI in the third quarter of 2009 (dollars in thousands):
                                                                                         
            Q3 2009 activity  
            Insurer MBIA     Insurer Ambac     Uninsured     OTTI     Gross OTTI Losses  
Security                   Fair             Fair             Fair     Credit     Non-credit     Less than     More than  
Classification   Count     UPB     Value     UPB     Value     UPB     Value     Loss     Loss     12 months     12 months  
 
                                                                                       
RMBS-Prime*
        $     $     $     $     $     $     $     $     $     $  
HEL Subprime*
    10       13,304       7,680       121,435       79,700       62,460       38,392       (3,683 )     (26,486 )           (30,169 )
 
                                                                 
Total
    10     $ 13,304     $ 7,680     $ 121,435     $ 79,700     $ 62,460     $ 38,392     $ (3,683 )   $ (26,486 )         $ (30,169 )
 
                                                                 
     
*   RMBS-Prime — Private-label MBS supported by prime residential loans; HEL Subprime — MBS supported by home equity loans.
The table below summarizes the weighted average and range of Key Base Assumptions at September 30, 2009 for all 15 securities that were deemed OTTI through the third quarter of 2009 (dollars in thousands):
                                                         
            Key Base Assumption - OTTI Securities  
            CDR     CPR     Loss Severity %  
    Count     Average     Range     Average     Range     Average     Range  
 
                                                       
Prime-RMBS*
    1       22.2       22.2       2.0       2.0       40.0       40.0  
HEL-Subprime*
    14       7.3       14.62-2       6.9       15.03-3.21       90.0       110-70.5  
 
                                                     
Total
    15                                                  
 
                                                     
     
*   RMBS-Prime — Private-label MBS supported by prime residential loans;
 
    HEL Subprime — MBS supported by home equity loans.
Conditional Prepayment Rate(CPR): 1-((1-SMM^12) where, SMM is defined as the “Single Monthly Mortality (SMM)” = (Voluntary partial and full prepayments + repurchases + Liquidated Balances)/Beginning Principal Balance — Scheduled Principal). Voluntary prepayment excludes the liquidated balances mentioned above.
Conditional Default Rate (CDR): 1-((1-MDR)^12) where, MDR is defined as the “Monthly Default Rate (MDR)” = (Beginning Principal Balance of Liquidated Loans)/(Total Beginning Principal Balance).
Loss Severity* (Principal and interest in the current period) = Sum (Total Realized Loss Amount)/Sum (Beginning Principal and interest Balance of Liquidated Loans).
     
*   If the present value of cash flows expected to be collected (discounted at the security’s effective yield) is less than the amortized cost basis of the security, an other-than-temporary impairment is considered to have occurred because the entire amortized cost basis of the security will not be recovered. The Bank considers whether or not it will recover the entire amortized cost of the security by comparing the present value of the cash flows expected to be collected from the security (discounted at the security’s effective yield) with the amortized cost basis of the security.
Monoline support — Thirteen insured securities have been identified as credit impaired despite credit protection from Ambac and MBIA to meet scheduled payments in the future. Cash flows on certain insured securities are currently experiencing cash flow shortfalls. Ambac and MBIA are currently paying claims in order to meet current cash flow deficiency within the structure of the securities. Of the thirteen insured securities determined to be OTTI, eleven are insured by Ambac Assurance Corp (“Ambac”) and two by MBIA Insurance Corp (“MBIA”). Two OTTI securities, a triple-A and a double-B rated security, are uninsured.

 

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Monoline Analysis and Methodology — The two monoline insurers have been subject to adverse ratings, rating downgrades, and weakening financial performance measures. Rating downgrade implies an increased risk that the insurer will fail to fulfill its obligations to reimburse the investor for claims under the insurance policies. Monoline insurers are segmented into two categories of claims paying ability — (1) Adequate, and (2) At Risk. These categories represent an assessment of an insurer’s ability to perform as a financial guarantor.
Adequate. Monolines determined to possess “adequate” claims paying ability are expected to provide full protection on their insured private-label mortgage-backed securities. Accordingly, bonds insured by monolines with adequate ability to cover written insurance are run with full financial guarantee set to “on” in the cashflow model.
At Risk. For monolines with at risk coverage, further analysis is performed to establish an expected case regarding the time horizon of the monoline’s ability to fulfill its financial obligations and provide credit support. Accordingly, bonds insured by monolines in the at risk category are run with a partial financial guarantee in the cashflow model. This partial claim paying condition is expressed in the cashflow model by specifying a “guarantee ignore” date. The ignore date is based on the “burnout period” calculation method.
Burnout Period. The projected time horizon of credit protection provided by an insurer is a function of claim paying resources and anticipated claims in the future. This assumption is referred to as the “burnout period” and is expressed in months, and is computed by dividing each (a) insurers’ total claims paying resources by the (b) “burnout rate” projection. This variable uses monthly or aggregate dollar amount of claims each insurer has paid most recently, and additional qualitative information pertinent to the financial guarantor.
Based on the methodology, the Bank has classified FSA as adequate, and MBIA and Ambac as “at risk”. The Bank analyzed the going-concern basis of Ambac and MBIA and their financial strength to perform with respect to their contractual obligations for the securities owned by the FHLBNY; the monolines are currently performing under the terms of their contractual agreements with respect to the FHLBNY’s insured bonds. However, estimation of an insurer’s financial strength to remain viable over a long time horizon requires significant judgment and assumptions. Predicting when the insurers may no longer have the ability to perform under their contractual agreements, then comparing the timing and amounts of cash flow shortfalls of securities that are credit impaired to when insurer protection may not be available, and determining credit impairment is judgmental.

 

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The monoline analysis methodology resulted in the following “Protection time horizon” dates for Ambac and MBIA:
                 
    Protection time horizon calculation  
    Ambac     MBIA  
 
               
Burnout period (months)
    83       31  
Coverage ignore date
    7/31/2016       3/31/2012  
Number of OTTI securities
    11       2  
With respect to the Bank’s remaining investments, the Bank believes no OTTI exists. 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; the evaluation of the fundamentals of the issuers’ financial condition; and the estimated support from the monoline insurers under the contractual terms of insurance. Management has not made a decision to sell such securities at September 30, 2009. Management has also concluded that it is more likely than not that it will not be required to sell such securities before recovery of the amortized cost basis of the securities. Based on factors outlined above, the FHLBNY believes that the remaining securities classified as held-to-maturity were not other-than-temporarily impaired as of September 30, 2009.
However, without recovery in the near term such that liquidity returns to the mortgage-backed securities market and spreads return to levels that reflect underlying credit characteristics, or if the credit losses of the underlying collateral within the mortgage-backed securities perform worse than expected, or if the presumption of the ability of monoline insurers to support the insured securities identified at September 30, 2009 as dependent on insurance is negatively impacted by the insurers’ future financial performance, additional OTTI may be recognized in future periods.
The following table provides rollforward information of the credit component of OTTI recognized as a charge to earnings related to held-to-maturity securities for which a significant portion of the OTTI (non-credit component) was recognized in Accumulated other comprehensive income (loss) (in thousands):
                                 
    Three months ended     Nine months ended  
    September 30,     September 30,     September 30,     September 30,  
    2009     2008     2009     2008  
Beginning balance
  $ 10,593     $     $     $  
 
                               
Additions to the credit component for OTTI loss not previously recognized
    1,459             14,276        
Additional credit losses for which an OTTI charge was previously recognized
    2,224                    
Increases in cash flows expected to be collected, recognized over the remaining life of the securities
                       
 
                       
 
                               
Ending balance
  $ 14,276     $     $ 14,276     $  
 
                       

 

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Major Security Types
Amortized cost basis, as defined under the recently issued guidance on recognition and presentation of other-than-temporary impairment, includes adjustments made to the cost of an investment for accretion, amortization, collection of cash, and fair value hedge accounting adjustments. If a held-to-maturity security is determined to be OTTI, the amortized cost basis of the security is adjusted for previous OTTI recognized in earnings. Amortized cost basis of a held-to-maturity OTTI security is further adjusted for impairment related to all other factors (also referred to as the non-credit component of OTTI) recognized in Accumulated other comprehensive income (loss), and the adjusted amortized cost basis is the carrying value of the OTTI security reported in the Statements of Condition. Carrying value of a held-to-maturity security that is not OTTI is its amortized cost basis.
The amortized cost basis, the gross unrealized gains and losses, the fair values of held-to-maturity securities, and OTTI recognized in Accumulated other comprehensive income were as follows (in thousands):
                                                 
    September 30, 2009  
    Amortized                     Gross     Gross        
    Cost     OTTI     Carrying     Unrecognized     Unrecognized     Fair  
Issued, guaranteed or insured   Basis     in OCI     Value     Holding Gains     Holding Losses     Value  
Pools of Mortgages
                                               
Fannie Mae
  $ 1,194,202     $     $ 1,194,202     $ 47,563     $     $ 1,241,765  
Freddie Mac
    354,212             354,212       15,657             369,869  
 
                                   
Total pools of mortgages
    1,548,414             1,548,414       63,220             1,611,634  
 
                                   
 
                                               
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits
                                               
Fannie Mae
    2,370,747             2,370,747       70,184       (4,176 )     2,436,755  
Freddie Mac
    4,384,624             4,384,624       132,871       (7,914 )     4,509,581  
Ginnie Mae
    187,470             187,470       148       (1,432 )     186,186  
 
                                   
Total CMOs/REMICs
    6,942,841             6,942,841       203,203       (13,522 )     7,132,522  
 
                                   
 
                                               
Ginnie Mae-CMBS
    49,706             49,706       263             49,969  
 
                                               
Non-GSE MBS
                                               
CMOs/REMICs
    485,419       (2,545 )     482,874       2,533       (10,732 )     474,675  
Commercial mortgage-backed securities
                                   
 
                                   
Total non-federal-agency MBS
    485,419       (2,545 )     482,874       2,533       (10,732 )     474,675  
 
                                   
 
                                               
Asset-Backed Securities
                                               
Manufactured housing (insured)
    208,544             208,544             (46,536 )     162,008  
Home equity loans (insured)
    324,833       (74,915 )     249,918       8,515       (34,559 )     223,874  
Home equity loans (uninsured)
    227,546       (23,003 )     204,543             (44,662 )     159,881  
 
                                   
Total asset-backed securities
    760,923       (97,918 )     663,005       8,515       (125,757 )     545,763  
 
                                   
Total mortgage-backed securities
  $ 9,787,303     $ (100,463 )   $ 9,686,840     $ 277,734     $ (150,011 )   $ 9,814,563  
 
                                   
 
                                               
Other
                                               
State and local housing finance agency obligations
    791,187             791,187       5,325       (14,527 )     781,985  
Certificates of deposit
    2,000,000             2,000,000       3             2,000,003  
 
                                   
Total other
  $ 2,791,187     $     $ 2,791,187     $ 5,328     $ (14,527 )   $ 2,781,988  
 
                                   

 

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    December 31, 2008  
    Amortized     Gross     Gross        
    Cost     Unrealized     Unrealized     Fair  
Issued, guaranteed or insured   Basis     Holding Gains     Holding Losses     Value  
Pools of Mortgages
                               
Fannie Mae
  $ 1,400,058     $ 26,789     $     $ 1,426,847  
Freddie Mac
    422,088       7,860             429,948  
 
                       
Total pools of mortgages
    1,822,146       34,649             1,856,795  
 
                       
 
                               
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits
                               
Fannie Mae
    2,032,051       51,138       (125 )     2,083,064  
Freddie Mac
    3,722,840       101,595       (30 )     3,824,405  
Ginnie Mae
    6,325             (187 )     6,138  
 
                       
Total CMOs/REMICs
    5,761,216       152,733       (342 )     5,913,607  
 
                       
 
                               
Ginnie Mae-CMBS
                       
 
                               
Non-GSE MBS
                               
CMOs/REMICs
    609,907             (42,706 )     567,201  
Commercial mortgage-backed securities
    266,994       149       (127 )     267,016  
 
                       
Total non-federal-agency MBS
    876,901       149       (42,833 )     834,217  
 
                       
 
                               
Asset-Backed Securities
                               
Manufactured housing (insured)
    229,714             (75,418 )     154,296  
Home equity loans (insured)
    376,587             (144,957 )     231,630  
Home equity loans (uninsured)
    259,879             (79,112 )     180,767  
 
                       
Total asset-backed securities
    866,180             (299,487 )     566,693  
 
                       
Total mortgage-backed securities
  $ 9,326,443     $ 187,531     $ (342,662 )   $ 9,171,312  
 
                       
 
                               
Other
                               
State and local housing finance agency obligations
    804,100       6,573       (47,512 )     763,161  
Certificates of deposit
    1,203,000       328             1,203,328  
 
                       
Total other
  $ 2,007,100     $ 6,901     $ (47,512 )   $ 1,996,489  
 
                       

 

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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 losses are aggregated by major security type and by the length of time individual securities have been in a continuous unrealized loss position. (in thousands):
                                                 
    September 30, 2009  
    Less than 12 months     12 months or more     Total  
    Estimated     Unrealized     Estimated     Unrealized     Estimated     Unrealized  
    Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
Non-MBS Investment Securities
                                               
State and local housing agency obligations
  $ 254,366     $ (14,527 )   $     $     $ 254,366     $ (14,527 )
 
                                   
Total Non-MBS
    254,366       (14,527 )                 254,366       (14,527 )
 
                                   
 
                                               
MBS Investment Securities
                                               
MBS — Other US Obligations
                                               
Ginnie Mae
    136,455       (1,415 )     2,789       (17 )     139,244       (1,432 )
MBS-GSE
                                               
Fannie Mae
    771,784       (4,171 )     2,869       (5 )     774,653       (4,176 )
Freddie Mac
    1,384,438       (7,914 )                 1,384,438       (7,914 )
 
                                   
Total MBS-GSE
    2,156,222       (12,085 )     2,869       (5 )     2,159,091       (12,090 )
 
                                   
MBS-Private-Label
    54,687       (367 )     932,366       (225,892 )     987,053       (226,259 )
 
                                   
Total MBS
    2,347,364       (13,867 )     938,024       (225,914 )     3,285,388       (239,781 )
 
                                   
Total
  $ 2,601,730     $ (28,394 )   $ 938,024     $ (225,914 )   $ 3,539,754     $ (254,308 )
 
                                   
                                                 
    December 31, 2008  
    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 agency obligations
  $ 78,261     $ (16,065 )   $ 84,108     $ (31,447 )   $ 162,369     $ (47,512 )
 
                                   
Total Non-MBS
    78,261       (16,065 )     84,108       (31,447 )     162,369       (47,512 )
 
                                   
 
                                               
MBS Investment Securities
                                               
MBS — Other US Obligations
                                               
Ginnie Mae
    6,137       (187 )                 6,137       (187 )
MBS-GSE
                                               
Fannie Mae
    3,452       (125 )                 3,452       (125 )
Freddie Mac
    1,102       (30 )     32             1,134       (30 )
 
                                   
Total MBS-GSE
    4,554       (155 )     32             4,586       (155 )
 
                                   
MBS-Private-Label
    509,273       (115,061 )     718,321       (227,259 )     1,227,594       (342,320 )
 
                                   
Total MBS
    519,964       (115,403 )     718,353       (227,259 )     1,238,317       (342,662 )
 
                                   
Total
  $ 598,225     $ (131,468 )   $ 802,461     $ (258,706 )   $ 1,400,686     $ (390,174 )
 
                                   

 

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Note 5. Available-for-sale securities
Impairment analysis on Available-for-sale securities The Bank’s portfolio of mortgage-backed securities classified as available-for-sale (“AFS”) is comprised entirely of securities issued by GSEs collateralized mortgage obligations which are “pass through” securities. The FHLBNY evaluates its individual securities issued by Fannie Mae and Freddie Mac by considering the creditworthiness and performance of the debt securities and the strength of the government-sponsored enterprises’ guarantees of the securities. Based on the 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 September 30, 2009. Management also concluded that it is more likely than not that it will not be required to sell such securities before recovery of the amortized cost basis of the security. The FHLBNY believes that these securities were not other-than-temporarily impaired as of September 30, 2009 and December 31, 2008. The Bank established certain grantor trusts to fund current and future payments under certain supplemental pension plans and these are classified as available-for-sale. The grantor trusts invest in money market and bond funds. Investments in equity and fixed-income funds are redeemable at short notice, and realized gains and losses from investments in the funds were not significant. No available-for-sale-securities had been pledged at September 30, 2009 and December 31, 2008.
The amortized cost basis, gross unrealized gains, losses, and the fair value of investments classified as available-for-sale were as follows (in thousands):
                                 
    September 30, 2009  
    Amortized     Gross     Gross        
    Cost     Unrealized     Unrealized     Fair  
    Basis     Gains     Losses     Value  
 
                               
Cash equivalents
  $ 1,272     $     $     $ 1,272  
Equity funds
    9,445       43       (1,984 )     7,504  
Fixed income funds
    3,253       255             3,508  
Mortgage-backed securities
    2,364,707       4,329       (18,728 )     2,350,308  
 
                       
Total
  $ 2,378,677     $ 4,627     $ (20,712 )   $ 2,362,592  
 
                       
                                 
    December 31, 2008  
    Amortized     Gross     Gross        
    Cost     Unrealized     Unrealized     Fair  
    Basis     Gains     Losses     Value  
 
                               
Cash equivalents
  $ 836     $     $     $ 836  
Equity funds
    8,978             (3,516 )     5,462  
Fixed income funds
    3,833       66       (10 )     3,889  
Mortgage-backed securities
    2,912,642       364       (61,324 )     2,851,682  
 
                       
Total
  $ 2,926,289     $ 430     $ (64,850 )   $ 2,861,869  
 
                       
There were no AFS mortgage-backed securities supported by commercial loans at September 30, 2009 and December 31, 2008.

 

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Unrealized Losses — Available-for-sale securities (in thousands):
                                                 
    September 30, 2009  
    Less than 12 months     12 months or more     Total  
    Estimated     Unrealized     Estimated     Unrealized     Estimated     Unrealized  
    Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
Mortgage-backed securities
                                               
MBS-GSE
                                               
Fannie Mae
  $ 144,044     $ (327 )   $ 1,059,185     $ (12,230 )   $ 1,203,229     $ (12,557 )
Freddie Mac
                689,462       (6,171 )     689,462       (6,171 )
 
                                   
Total MBS-GSE
    144,044       (327 )     1,748,647       (18,401 )     1,892,691       (18,728 )
 
                                   
Total Temporarily Impaired
  $ 144,044     $ (327 )   $ 1,748,647     $ (18,401 )   $ 1,892,691     $ (18,728 )
 
                                   
                                                 
    December 31, 2008  
    Less than 12 months     12 months or more     Total  
    Estimated     Unrealized     Estimated     Unrealized     Estimated     Unrealized  
    Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
Mortgage-backed securities
                                               
MBS-GSE
                                               
Fannie Mae
  $ 1,662,928     $ (35,047 )   $ 142,630     $ (3,539 )   $ 1,805,558     $ (38,586 )
Freddie Mac
    957,617       (21,744 )     39,077       (994 )     996,694       (22,738 )
 
                                   
Total MBS-GSE
    2,620,545       (56,791 )     181,707       (4,533 )     2,802,252       (61,324 )
 
                                   
Total Temporarily Impaired
  $ 2,620,545     $ (56,791 )   $ 181,707     $ (4,533 )   $ 2,802,252     $ (61,324 )
 
                                   
Notes: Does not include unrealized losses of $2.0 million and $3.5 million at September 30, 2009 and December 31, 2008 in several grantor trusts comprising of money market and mutual funds.
Amortized cost of available-for-sale securities includes adjustments made to the cost basis of an investment for accretion, amortization, collection of cash, previous OTTI recognized in earnings and/or fair value hedge accounting adjustments. There were no AFS securities determined to be OTTI at September 30, 2009. No securities were hedged at September 30, 2009.
Gross unrealized losses at September 30, 2009 and December 31, 2008 were caused by interest rate changes, credit spread 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.

 

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Note 6. Advances
Redemption terms
Contractual redemption terms and yields of advances were as follows (dollars in thousands):
                                                 
    September 30, 2009     December 31, 2008  
            Weighted 2                     Weighted 2        
            Average     Percentage             Average     Percentage  
    Amount     Yield     of Total     Amount     Yield     of Total  
 
Overdrawn demand deposit accounts
  $       %     %   $       %     %
Due in one year or less
    20,222,153       1.98       22.08       32,420,095       2.52       31.36  
Due after one year through two years
    15,572,319       3.00       17.00       16,150,121       3.71       15.62  
Due after two years through three years
    8,933,691       2.99       9.75       7,634,680       3.76       7.39  
Due after three years through four years
    6,604,702       3.20       7.21       6,852,514       3.74       6.63  
Due after four years through five years
    3,565,489       3.38       3.89       3,210,575       3.88       3.11  
Due after five years through six years
    1,787,448       3.77       1.95       836,689       3.74       0.81  
Thereafter
    34,916,207       3.80       38.12       36,275,053       3.96       35.08  
 
                                   
 
                                               
Total par value
    91,602,009       3.12 %     100.00 %     103,379,727       3.44 %     100.00 %
 
                                       
 
                                               
Discount on AHP advances 1
    (275 )                     (330 )                
Hedging adjustments 1
    4,342,998                       5,773,479                  
 
                                           
 
                                               
Total
  $ 95,944,732                     $ 109,152,876                  
 
                                           
     
1   Discounts on AHP advances were amortized to interest income using the level-yield method and were not significant for all periods reported. Interest rates on AHP advances ranged from 1.25% to 4.00% at September 30, 2009 and 1.25% to 6.04% at December 31, 2008.
 
2   The weighed average yield is the weighted average coupon rates for advances, unadjusted for swaps. For floating-rate advances, the weighted average rate is the rate outstanding at the reporting dates.
The following summarizes advances by year of maturity or next call date (dollars in thousands):
                                 
    September 30, 2009     December 31, 2008  
            Percentage of             Percentage of  
    Amount     Total     Amount     Total  
 
Overdrawn demand deposit accounts
  $       %   $       %
Due or putable in one year or less
    53,090,265       57.96       63,251,007       61.18  
Due or putable after one year through two years
    18,689,569       20.40       18,975,821       18.36  
Due or putable after two years through three years
    8,427,941       9.20       10,867,530       10.51  
Due or putable after three years through four years
    5,838,402       6.37       5,293,364       5.12  
Due or putable after four years through five years
    3,085,989       3.37       2,728,075       2.64  
Due or putable after five years through six years
    156,448       0.17       230,189       0.22  
Thereafter
    2,313,395       2.53       2,033,741       1.97  
 
                       
 
                               
Total par value
    91,602,009       100.00 %     103,379,727       100.00 %
 
                           
 
                               
Discount on AHP advances
    (275 )             (330 )        
Hedging adjustments
    4,342,998               5,773,479          
 
                           
 
                               
Total
  $ 95,944,732             $ 109,152,876          
 
                           

 

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Note 7. Mortgage loans held-for-portfolio
Mortgage Partnership Finance program, (“MPF”) constitutes the majority of the mortgage loans held-for-portfolio. The MPF program involves investment by the FHLBNY in mortgage loans that are purchased from or originated through its participating financial institutions (“PFIs”). The members retain servicing rights and may credit-enhance the portion of the loans participated to the FHLBNY. No intermediary trust is involved.
The following table presents information on mortgage loans held-for-portfolio (dollars in thousands):
                                 
    September 30, 2009     December 31, 2008  
            Percentage of             Percentage of  
    Amount     Total     Amount     Total  
Real Estate:
                               
Fixed medium-term single-family mortgages
  $ 406,055       30.38 %   $ 467,845       32.15 %
Fixed long-term single-family mortgages
    926,537       69.32       983,493       67.58  
Multi-family mortgages
    3,934       0.30       4,009       0.27  
 
                       
 
Total par value
    1,336,526       100.00 %     1,455,347       100.00 %
 
                           
 
Unamortized premiums
    9,257               10,662          
Unamortized discounts
    (5,641 )             (6,310 )        
Basis adjustment 1
    (556 )             (408 )        
 
                           
 
Total mortgage loans held-for-portfolio
    1,339,586               1,459,291          
Allowance for credit losses
    (3,358 )             (1,406 )        
 
                           
Total mortgage loans held-for-portfolio after allowance for credit losses
  $ 1,336,228             $ 1,457,885          
 
                           
     
1   Represents fair value basis of open and closed delivery commitments.
The FHLBNY and its members share the credit risk of MPF loans by structuring potential credit losses into layers (See Significant Accounting Policies and Estimates in Note 1 in the Bank’s most recent Form 10-K filed on March 27, 2009). The first layer is typically 100 basis points but varies with the particular MPF program. The amount of the first layer, or First Loss Account (“FLA”), was estimated as $14.0 million and $13.8 million at September 30, 2009 and December 31, 2008. The FLA is not recorded or reported as a reserve for loan losses as it serves as a memorandum information account. The FHLBNY is responsible for absorbing the first layer. The second layer is that amount of credit obligation that the Participating Financial Institution (“PFI”) has taken on which will equate the loan to a double-A rating. The FHLBNY pays a Credit Enhancement fee to the PFI for taking on this obligation. The FHLBNY assumes all residual risk. Credit Enhancement fees accrued were $0.4 million for the third quarters of 2009 and 2008, and $1.2 million and $1.3 million for the nine months ended September 30, 2009 and 2008. The fees were reported as a reduction to mortgage loan interest income. The amount of charge-offs in each period reported was insignificant and it was not necessary for the FHLBNY to recoup any losses from the PFIs.

 

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The following provides rollforward analysis of the allowance for credit losses (in thousands):
                                 
    Three months ended September 30,     Nine months ended September 30,  
    2009     2008     2009     2008  
 
                               
Beginning balance
  $ 2,760     $ 879     $ 1,406     $ 633  
Charge-offs
          (4 )     (14 )     (4 )
Provision for credit losses on mortgage loans
    598       (31 )     1,966       215  
 
                       
 
                               
Ending balance
  $ 3,358     $ 844     $ 3,358     $ 844  
 
                       
The First Loss Account (“FLA”) memorializes the first tier of credit exposure and is neither an indication of inherent losses in the loan portfolio nor a loan loss reserve.
As of September 30, 2009 and December 31, 2008, the FHLBNY had $13.0 million and $4.8 million of non-accrual loans. The estimated fair value of the mortgage loans as of September 30, 2009 and December 31, 2008 are reported in Note 16 — Fair Values of Financial Instruments. 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.
The following table summarizes mortgage loans held-for-portfolio, all Veterans Administrations insured loans, past due 90 days or more and still accruing interest (in thousands):
                 
    September 30, 2009     December 31, 2008  
 
               
Secured by 1-4 family
  $ 698     $ 507  
 
           
Note 8. Consolidated obligations
Consolidated obligations are the joint and several obligations of the FHLBanks and consist of bonds and discount notes. The FHLBanks issue consolidated obligations through the Office of Finance as their fiscal agent. Consolidated bonds are issued primarily to raise intermediate- and long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits on maturity. Consolidated discount notes are issued primarily to raise short-term funds. Discount notes sell at less than their face amount and are redeemed at par value when they mature.
The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligations. Although it has never occurred, to the extent that an FHLBank would make a payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank would be entitled to reimbursement from the non-complying FHLBank. However, if the Finance Agency determines that the non-complying FHLBank is unable to satisfy its obligations, then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis the Finance Agency may determine.
Based on management’s review, the FHLBNY has no reason to record actual or contingent liabilities with respect to the occurrence of events or circumstances that would require the FHLBNY to assume an obligation on behalf of other FHLBanks. The par amounts of the FHLBanks’ outstanding consolidated obligations, including consolidated obligations held by other FHLBanks, were approximately $1.0 trillion and $1.3 trillion as of September 30, 2009 and December 31, 2008.
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 in each of the period ends in this report as follows:
                 
    September 30, 2009     December 31, 2008  
 
               
Percentage of unpledged qualifying assets to consolidated obligations
    109 %     107 %
 
           
General Terms
Consolidated obligations are issued with either fixed- or variable-rate coupon payment terms that use a variety of indices for interest rate resets. These indices include the London Interbank Offered Rate (“LIBOR”), Constant Maturity Treasury (“CMT”), 11th District Cost of Funds Index (“COFI”), and others. In addition, to meet the expected specific needs of certain investors in consolidated obligations, both fixed- and variable-rate bonds may also contain certain features that may result in complex coupon payment terms and call options. When such consolidated obligations are issued, the FHLBNY may enter into derivatives containing offsetting features that effectively convert the terms of the bond to those of a simple variable- or fixed-rate bond.
These consolidated obligations, beyond having fixed-rate or simple variable-rate coupon payment terms, may also include Optional Principal Redemption Bonds (callable bonds) that the FHLBNY may redeem in whole or in part at its discretion on predetermined call dates, according to the terms of the bond offerings.
With respect to interest payment terms, consolidated bonds may also have step-up, or step-down terms. Step-up bonds generally pay interest at increasing fixed rates for specified intervals over the life of the bond. Step-down bonds pay interest at decreasing fixed rates. These bonds generally contain provisions enabling the FHLBNY to call the bonds at its option on predetermined exercise dates at par.

 

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The following summarizes consolidated obligations issued by the FHLBNY and outstanding at September 30, 2009 and December 31, 2008 (in thousands):
                 
    September 30, 2009     December 31, 2008  
 
Consolidated obligation bonds-amortized cost
  $ 68,849,386     $ 80,978,383  
Fair value basis adjustments
    817,374       1,254,523  
Fair value basis on terminated hedges
    3,108       7,857  
Fair value option valuation adjustments and accrued interest
    968       15,942  
 
           
 
               
Total Consolidated obligation-bonds
  $ 69,670,836     $ 82,256,705  
 
           
 
               
Discount notes-amortized cost
  $ 38,385,244     $ 46,329,545  
Fair value basis adjustments
          361  
 
           
 
               
Total Consolidated obligation-discount notes
  $ 38,385,244     $ 46,329,906  
 
           
Redemption Terms of consolidated obligation bonds
The following is a summary of consolidated bonds outstanding by year of maturity (dollars in thousands):
                                                 
    September 30, 2009     December 31, 2008  
            Weighted                     Weighted        
            Average     Percentage             Average     Percentage  
Maturity   Amount     Rate 1     of total     Amount     Rate 1     of total  
 
                                               
One year or less
  $ 35,806,100       1.36 %     52.06 %   $ 49,568,550       1.93 %     61.23 %
Over one year through two years
    19,296,100       2.00       28.06       16,192,550       3.20       20.00  
Over two years through three years
    5,434,495       2.59       7.90       5,299,700       3.73       6.55  
Over three years through four years
    2,956,730       4.05       4.30       2,469,575       4.75       3.05  
Over four years through five years
    1,943,800       4.13       2.82       3,352,450       3.99       4.14  
Over five years through six years
    1,224,850       4.94       1.78       989,300       5.06       1.22  
Thereafter
    2,110,200       5.30       3.08       3,082,050       5.35       3.81  
 
                                   
 
                                               
Total par value
    68,772,275       2.01 %     100.00 %     80,954,175       2.64 %     100.00 %
 
                                       
 
                                               
Bond premiums
    112,091                       63,737                  
Bond discounts
    (34,980 )                     (39,529 )                
Fair value basis adjustments
    817,374                       1,254,523                  
Fair value basis adjustments on terminated hedges
    3,108                       7,857                  
Fair value option valuation adjustments and accrued interest
    968                       15,942                  
 
                                           
 
                                               
Total bonds
  $ 69,670,836                     $ 82,256,705                  
 
                                           
     
1   Weighted average rate represents the weighted average coupons of bonds, unadjusted for swaps. The weighted average coupon of bonds outstanding at September 30, 2009 and December 31, 2008, represent contractual coupons payable to investors.

 

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The following summarizes bonds outstanding by year of maturity or next call date (dollars in thousands):
                                 
    September 30, 2009     December 31, 2008  
            Percentage of             Percentage of  
    Amount     total     Amount     total  
Year of Maturity or next call date
                               
Due or callable in one year or less
  $ 41,328,100       60.09 %   $ 53,034,550       65.51 %
Due or callable after one year through two years
    16,921,400       24.61       15,472,350       19.11  
Due or callable after two years through three years
    3,389,495       4.93       4,843,700       5.98  
Due or callable after three years through four years
    2,696,730       3.92       1,445,575       1.79  
Due or callable after four years through five years
    1,326,800       1.93       2,954,450       3.65  
Due or callable after five years through six years
    1,114,850       1.62       684,800       0.85  
Thereafter
    1,994,900       2.90       2,518,750       3.11  
 
                       
 
                               
Total par value
    68,772,275       100.00 %     80,954,175       100.00 %
 
                           
 
Bond premiums
    112,091               63,737          
Bond discounts
    (34,980 )             (39,529 )        
Fair value basis adjustments
    817,374               1,254,523          
Fair value basis adjustments on terminated hedges
    3,108               7,857          
Fair value option valuation adjustments and accrued interest
    968               15,942          
 
                           
 
                               
Total bonds
  $ 69,670,836             $ 82,256,705          
 
                           
Discount notes
Consolidated discount notes are issued to raise short-term funds. Discount notes are consolidated obligations with original maturities up to one year. These notes are issued at less than their face amount and redeemed at par when they mature. The FHLBNY’s outstanding consolidated discount notes were as follows (dollars in thousands):
                 
    September 30, 2009     December 31, 2008  
 
Par value
  $ 38,406,688     $ 46,431,347  
 
           
 
               
Amortized cost
  $ 38,385,244     $ 46,329,545  
Fair value basis adjustments
          361  
 
           
 
               
Total
  $ 38,385,244     $ 46,329,906  
 
           
 
               
Weighted average interest rate
    0.26 %     1.00 %
 
           
Note 9. 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):
                 
    September 30, 2009     December 31, 2008  
 
Due in one year or less
  $ 15,600     $ 117,400  
 
           
 
               
Total term deposits
  $ 15,600     $ 117,400  
 
           

 

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Note 10. Affordable Housing Program and REFCORP
The FHLBank Act requires each FHLBank to establish an AHP. Each FHLBank provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBanks must set aside for the AHP the greater of $100 million or 10% of regulatory income. The FHLBNY charges the amount set aside for AHP to income and recognizes it as a liability. The FHLBNY relieves the AHP liability as members use the subsidies. If the result of the aggregate 10% calculation described above is less than $100 million for all twelve FHLBanks, then the FHLBank Act requires the shortfall to be allocated among the FHLBanks based on the ratio of each FHLBank’s income before AHP and REFCORP to the sum of the income before AHP and REFCORP of the twelve FHLBanks. There was no shortfall during the current or prior period quarters.
Regulatory income is income before assessments, and before interest expense related to mandatorily redeemable capital stock under the accounting guidance for certain financial instruments with characteristics of both liabilities and equity, but after the assessment for REFCORP. The exclusion of interest expense related to mandatorily redeemable capital stock is a regulatory interpretation. The AHP and REFCORP assessments are calculated simultaneously because of their interdependence on each other. Each FHLBank accrues this expense monthly based on its income before assessments. An FHLBank reduces its AHP liability as members use subsidies.
The following provides rollforward information with respect to changes in Affordable Housing Program liabilities (in thousands):
                                 
    Three months ended September 30,     Nine months ended September 30,  
    2009     2008     2009     2008  
 
                               
Beginning balance
  $ 140,037     $ 124,170     $ 122,449     $ 119,052  
Additions from current period’s assessments
    15,780       4,638       53,363       24,764  
Net disbursements for grants and programs
    (10,995 )     (6,433 )     (30,990 )     (21,441 )
 
                       
 
                               
Ending balance
  $ 144,822     $ 122,375     $ 144,822     $ 122,375  
 
                       
Each FHLBank is required to pay to REFCORP 20 percent of income calculated in accordance with GAAP after the assessment for AHP, but before the assessment for REFCORP. REFCORP has been designated as the calculation agent for AHP and REFCORP assessments. Each FHLBank provides its net income before AHP and REFCORP to REFCORP, which then performs the calculations for each quarter end.

 

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Note 11. Capital, Capital Ratios, 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. The 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.
The FHLBNY 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 and certain commitments outstanding with the FHLBNY. Class B1 and Class B2 shares have the same voting and dividend rights.
Any member that withdraws from membership must wait 5 years from the termination of the charter 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 expiration of the five-year waiting period1.
The FHLBNY is subject to risk-based capital rules. Specifically, the FHLBNY is subject to three capital requirements. First, the FHLBNY must maintain at all times permanent capital in an amount at least equal to the sum of its credit, market, and operations risks capital requirements calculated in accordance with the FHLBNY policy and the rules and regulations of the Federal Housing Finance Agency (“Finance Agency”). Only permanent capital, defined as Class B stock and retained earnings, satisfies this risk-based capital requirement. The Finance Agency may require the FHLBNY to maintain a greater amount of permanent capital than is required as defined by the risk-based capital requirements. In addition, the FHLBNY is required to maintain at least a 4% total capital-to-asset ratio and at least a 5% leverage ratio at all times. The leverage ratio is defined as the sum of permanent capital weighted 1.5 times plus allowance for loan loss reserves and nonpermanent capital weighted 1.0 times plus allowance for loan loss reserves divided by total assets. The FHLBNY was in compliance with the capital rules and requirements for all periods reported.
     
1   On December 12, 2007 the Finance Board, the predecessor of the Finance Agency, approved amendments to the FHLBNY’s capital plan, which allow the FHLBNY to recalculate the membership stock purchase requirement any time after 30 days subsequent to a merger. The amendments also permit the FHLBNY to use a zero mortgage asset base in performing the calculation, which recognizes the fact that the corporate entity that was once its member no longer exists. As a result of these amendments, the FHLBNY could determine that all of the membership stock formerly held by the member would become 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 Ratios
The following table summarizes the Bank’s risk-based capital ratios (dollars in thousands):
                                 
    September 30, 2009     December 31, 2008  
    Required 4     Actual     Required 4     Actual  
Regulatory capital requirements:
                               
Risk-based capital1
  $ 558,940     $ 5,936,273     $ 650,333     $ 6,111,676  
Total capital-to-asset ratio
    4.00 %     5.05 %     4.00 %     4.44 %
Total capital2
  $ 4,704,173     $ 5,939,631     $ 5,501,596     $ 6,113,082  
Leverage ratio
    5.00 %     7.57 %     5.00 %     6.67 %
Leverage capital3
  $ 5,880,216     $ 8,907,767     $ 6,876,995     $ 9,168,920  
     
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% of total assets. Actual “Total capital” is “Actual Risk-based capital” plus allowance for credit losses. Does not include reserves for the Lehman Brothers receivable which is a specific reserve.
 
3   Actual Leverage capital is “Risk-based capital” times 1.5 plus allowance for loan losses.
 
4   Required minimum.
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, and is subject to the provisions under the accounting guidance for certain financial instruments with characteristics of both liabilities and equity.
The FHLBNY is a cooperative whose member financial institutions own almost all of the FHLBNY’s capital stock. Member shares cannot be purchased or sold except between the Bank and its members at its $100 per share par value. Also, the FHLBNY does not have equity securities that trade in a public market. Future filings with the SEC will not be in anticipation of the sale of equity securities in a public market as the FHLBNY is prohibited by law from doing so, and the FHLBNY is not controlled by an entity that has equity securities traded or contemplated to be traded in a public market. Therefore, the FHLBNY is a nonpublic entity based on the definition given in the accounting guidance for certain financial instruments with characteristics of both liabilities and equity. In addition, although the FHLBNY is a nonpublic entity, the FHLBanks issue consolidated obligations that are traded in the public market. Based on this factor, the FHLBNY complies with the provisions of the accounting guidance for certain financial instruments with characteristics of both liabilities and equity as a nonpublic SEC registrant.

 

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In accordance with the accounting guidance for certain financial instruments with characteristics of both liabilities and equity, the FHLBNY reclassifies the stock subject to redemption from equity to a liability once a member: irrevocably exercises a written redemption right; gives notice of intent to withdraw from membership; or attains non-member status by merger or acquisition, charter termination, or involuntary termination from membership. Under such circumstances, the member shares will then meet the definition of a mandatorily redeemable financial instrument and are reclassified to a liability at fair value. Dividends on member shares classified as a liability in the Statements of Condition and an offset in the Statements of Income as an interest expense. The repayment of these mandatorily redeemable financial instruments, once settled, is reflected as financing cash outflows in the Statements of Cash Flows. In compliance with this provision, dividends on mandatorily redeemable capital stock in the amounts of $1.8 million and $2.0 million for the three months ended September 30, 2009 and 2008, and $5.5 million and $8.9 million for the nine months ended September 30, 2009 and 2008 were recorded as interest expense. If a member cancels its notice of voluntary withdrawal, the FHLBNY will reclassify the mandatorily redeemable capital stock from a liability to equity. After the reclassification, dividends on the capital stock will no longer be classified as interest expense.
At September 30, 2009 and December 31, 2008, mandatorily redeemable capital stock of $127.9 million and $143.1 million were held by former members who had attained non-member status by virtue of being acquired by non-members. A small number of members had also become non-members by relocating their charters to outside the FHLBNY’s membership district.
Anticipated redemptions of mandatorily redeemable capital stock were as follows (in thousands):
                 
    September 30, 2009     December 31, 2008  
 
               
Redemption less than one year
  $ 82,076     $ 38,328  
Redemption from one year to less than three years
    38,724       83,159  
Redemption from three years to less than five years
    2,123       14,646  
Redemption after five years or greater
    4,959       6,988  
 
           
 
               
Total
  $ 127,882     $ 143,121  
 
           
Anticipated redemptions assume the Bank will follow its current practice of daily redemption of capital in excess of the amount required to support advances. Commencing January 1, 2008, the Bank may also redeem, at its discretion, non-members’ membership stock.

 

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Note 12. Total comprehensive income
Changes in Accumulated other comprehensive income (loss) and total comprehensive income were as follows for the three and nine months ended September 30, 2009 and 2008 (in thousands):
                                                                 
    Three months ended September 30, 2009  
                    Accretion of                                      
                    non-credit portion                     Accumulated                
    Available-     Non-credit     of impairment     Cash     Supplemental     Other             Total  
    for-sale     OTTI on HTM     losses on     flow     Retirement     Comprehensive     Net     Comprehensive  
    securities     securities     HTM securities     hedges     Plans     Income (Loss)     Income     Income  
 
                                                               
June 30, 2008
  $ (29,612 )   $     $     $ (33,698 )   $ (5,087 )   $ (68,397 )                
 
                                                               
Net change
    (14,713 )                 1,728             (12,985 )   $ 39,790     $ 26,805  
 
                                               
 
                                                               
September 30, 2008
  $ (44,325 )   $     $     $ (31,970 )   $ (5,087 )   $ (81,382 )                
 
                                                   
 
                                                               
June 30, 2009
  $ (10,129 )   $ (77,398 )   $ 239     $ (26,402 )   $ (6,550 )   $ (120,240 )                
 
                                                               
Net change
    (5,956 )     (26,486 )     3,182       1,898             (27,362 )   $ 140,219     $ 112,857  
 
                                               
 
                                                               
September 30, 2009
  $ (16,085 )   $ (103,884 )   $ 3,421     $ (24,504 )   $ (6,550 )   $ (147,602 )                
 
                                                   
                                                                 
    Nine months ended September 30, 2009  
                    Accretion of                                      
                    non-credit portion                     Accumulated                
    Available-     Non-credit     of impairment     Cash     Supplemental     Other             Total  
    for-sale     OTTI on HTM     losses on     flow     Retirement     Comprehensive     Net     Comprehensive  
    securities     securities     HTM securities     hedges     Plans     Income (Loss)     Income     Income  
 
                                                               
December 31, 2007
  $ (373 )   $     $     $ (30,215 )   $ (5,087 )   $ (35,675 )                
 
                                                               
Net change
    (43,952 )                 (1,755 )           (45,707 )   $ 213,996     $ 168,289  
 
                                               
 
                                                               
September 30, 2008
  $ (44,325 )   $     $     $ (31,970 )   $ (5,087 )   $ (81,382 )                
 
                                                   
 
                                                               
December 31, 2008
  $ (64,420 )   $     $     $ (30,191 )   $ (6,550 )   $ (101,161 )                
 
                                                               
Net change
    48,335       (103,884 )     3,421       5,687             (46,441 )   $ 474,786     $ 428,345  
 
                                               
 
                                                               
September 30, 2009
  $ (16,085 )   $ (103,884 )   $ 3,421     $ (24,504 )   $ (6,550 )   $ (147,602 )                
 
                                                   

 

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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 September 30,     Nine months ended September 30,  
    2009     2008     2009     2008  
 
                               
Net income
  $ 140,219     $ 39,790     $ 474,786     $ 213,996  
 
                       
 
                               
Net income available to stockholders
  $ 140,219     $ 39,790     $ 474,786     $ 213,996  
 
                       
 
                               
Weighted average shares of capital
    53,233       52,000       54,505       48,757  
Less: Mandatorily redeemable capital stock
    (1,280 )     (1,538 )     (1,351 )     (1,742 )
 
                       
Average number of shares of capital used to calculate earnings per share
    51,953       50,462       53,154       47,015  
 
                       
 
                               
Net earnings per share of capital
  $ 2.70     $ 0.79     $ 8.93     $ 4.55  
 
                       
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 established several grantor trusts to meet future benefit obligations and current payments to beneficiaries in supplemental pension plans. The Bank also offers a Retiree Medical Benefit Plan, which is a postretirement health benefit plan. There are no funded plan assets that have been designated to provide postretirement health benefits.
Effective January 1, 2009, the Bank offers a Nonqualified Deferred Compensation Plan to certain officer employees and to the members of the Board of Directors of the Bank. Participants in the plan may elect to defer all or a portion of their compensation earned. The deferment period is generally for a minimum period of five years. Amounts recorded as a liability were de minimis at September 30, 2009.

 

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Retirement Plan Expenses — Summary
The following table presents employee retirement plan expenses for the periods ended (in thousands):
                                 
    Three months ended September 30,     Nine months ended September 30,  
    2009     2008     2009     2008  
 
                               
Defined Benefit Plan
  $ 1,441     $ 1,556     $ 4,324     $ 4,545  
Benefit Equalization Plan (defined benefit)
    515       469       1,544       1,408  
Defined Contribution Plan and BEP Thrift
    582       162       1,366       650  
Postretirement Health Benefit Plan
    251       250       753       749  
 
                       
 
                               
Total retirement plan expenses
  $ 2,789     $ 2,437     $ 7,987     $ 7,352  
 
                       
Benefit Equalization Plan (“BEP”)
The plan’s liability consisted of the accumulated compensation deferrals and accrued interest on the deferrals. There were no plan assets that have been designated for the BEP plan.
Components of the net periodic pension cost for the defined benefit component of the BEP, an unfunded plan, were as follows (in thousands):
                                 
    Three months ended September 30,     Nine months ended September 30,  
    2009     2008     2009     2008  
Service cost
  $ 153     $ 154     $ 458     $ 460  
Interest cost
    263       235       789       708  
Amortization of unrecognized prior service cost
    (36 )     (35 )     (108 )     (107 )
Amortization of unrecognized net loss
    135       115       405       347  
 
                       
 
                               
Net periodic benefit cost
  $ 515     $ 469     $ 1,544     $ 1,408  
 
                       
Key assumptions and other information for the actuarial calculations to determine benefit obligations for the Bank’s BEP were as follows (dollars in thousands):
                 
    September 30, 2009     December 31, 2008  
 
               
Discount rate *
    6.14 %     6.14 %
Salary increases
    5.50 %     5.50 %
Amortization period (years)
    8       8  
Benefits paid during the periods
  $ (544 )   $ (392 )
     
*   The discount rate was based on the Citigroup Pension Liability Index at December 31, 2008 and adjusted for durations.
The total amounts of benefits paid and expected to be paid under this plan are not expected to be materially different from amount disclosed in the Bank’s Form 10-K filed on March 27, 2009.

 

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Postretirement Health Benefit Plan
The Bank has a postretirement health benefit plan for retirees. Employees over the age of 55 are eligible provided they have completed ten years of service after age 45.
Components of the net periodic benefit cost for the postretirement health benefit plan were (in thousands):
                                 
    Three months ended September 30,     Nine months ended September 30,  
    2009     2008     2009     2008  
 
                               
Service cost (benefits attributed to service during the period)
  $ 139     $ 129     $ 417     $ 385  
Interest cost on accumulated postretirement health benefit obligation
    217       225       651       680  
Amortization of loss
    78       78       234       232  
Amortization of prior service cost/(credit)
    (183 )     (182 )     (549 )     (548 )
 
                       
 
                               
Net periodic postretirement health benefit cost
  $ 251     $ 250     $ 753     $ 749  
 
                       
Key assumptions and other information to determine obligation for the Bank’s postretirement health benefit plan were as follows:
                 
    September 30, 2009     December 31, 2008  
 
               
Weighted average discount rate at the end of the year*
    6.14 %     6.14 %
 
               
Health care cost trend rates:
               
Assumed for next year
    7.00 %     7.00 %
Ultimate rate
    5.00 %     5.00 %
Year that ultimate rate is reached
    2011       2011  
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, 2008 and adjusted for durations.
The total amounts of benefits paid and expected to be paid under this plan are not expected to be materially different from amount disclosed in the Bank’s Form 10-K filed on March 27, 2009.
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 cancellable 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; 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.

 

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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 a asset or liability that is elected under the fair value option (“FVO”) in accordance with the accounting standards on the fair value option for financial assets and liabilities. The swap is designated as an economic hedge to mitigate the volatility of the FVO designated asset or liability due to change in the full fair value of the designated asset or liability. In the third quarter of 2008 and thereafter, the FHLBNY elected the FVO for certain consolidated obligation bonds and executed interest rate swaps to offset the fair value changes of the bonds. At September 30, 2009 and December 31, 2008, par amounts of debt designated under the FVO were $2.4 billion and $983.0 million.
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.
Derivatives and 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 outflows 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 enter into an interest rate swap contract in which the counterparty pays to the FHLBank fixed cash flows designed to mirror in timing and amount the cash outflows the FHLBank pays on the consolidated obligations. Such transactions are treated as fair value hedges under the accounting standards for derivatives and hedging.
The issuance of the FHLB fixed-rate bonds to investors and the execution of interest rate swaps typically result in cash flow pattern in which the FHLBNY has effectively converted the bonds’ cash flows to variable cash flows that closely match the interest payments it receives on short-term or variable-rate advances. From time-to-time, this intermediation between the capital and swap markets has permitted the FHLBNY to raise funds at a lower cost than would otherwise be available through the issuance of simple fixed- or floating-rate consolidated obligations in the capital markets. The FHLBNY does not issue consolidated obligations denominated in currencies other than U.S. dollars.

 

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The FHLBNY has also issued variable-rate consolidated obligations bonds indexed to 1- month LIBOR, the U.S. Prime rate, or federal funds rate and has simultaneously executed interest-rate swaps to hedge the basis risk of the variable rate debt to 3-month LIBOR, the Bank’s preferred funding base. The interest rate swaps were accounted as economic hedges of the floating-rate bonds.
In the third quarter of 2008 and thereafter, the FHLBNY had elected the fair value option in accordance with the accounting standards on the fair value option for financial assets and liabilities for certain consolidated obligation bonds and these were measured under the provisions of the accounting standards on fair value measurements and disclosures as of September 30, 2009 and December 31, 2008.
Advances With a putable advance (also referred to as convertible) 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 if interest rates increase, or to terminate the advance and extend additional credit on new terms. The FHLBNY may hedge a convertible advance by entering into a cancelable derivative where the FHLBNY pays fixed and receives variable. 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 derivative on the put date, which would normally occur in a rising rate environment, and the FHLBNY can terminate the advance and extend additional credit 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 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 members may prepay without a prepayment fee, it usually finances such advances with callable debt. The Bank has not elected the FVO for any advances.
Mortgage Loans The FHLBNY invests in mortgage assets. The prepayment options embedded in mortgage assets can result in extensions or reductions in the expected maturities of these investments, depending on changes in estimated prepayment speeds. Finance Agency regulations limit this source of interest-rate risk by restricting the types of mortgage assets the Bank may own to those with limited average life changes under certain interest-rate shock scenarios and by establishing limitations on duration of equity and changes in market value of equity. The FHLBNY may manage against prepayment and duration risk by funding some mortgage assets with consolidated obligations that have call features. In addition, the FHLBNY may use derivatives to manage the prepayment and duration variability of mortgage assets. Net income could be reduced if the FHLBNY replaces the mortgages with lower yielding assets and if the Bank’s higher funding costs are not reduced concomitantly.
The FHLBNY manages the interest rate and prepayment risks associated with mortgages through debt issuance. The FHLBNY issues both callable and non-callable debt to achieve cash flow patterns and liability durations similar to those expected on the mortgage loans. The FHLBNY analyzes the duration, convexity and earnings risk of the mortgage portfolio on a regular basis under various rate scenarios. The Bank has not elected the FVO for any mortgage loans.
Firm Commitment Strategies — Mortgage delivery commitments are considered derivatives under the accounting standards for derivatives and hedging, and the FHLBNY accounts for them as freestanding derivatives, and records the fair values of mortgage loan delivery commitments on the balance sheet with an offset to current period earnings. Fair values of the mortgage delivery commitments were de minimis for all periods reported.

 

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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 naturally amortized into interest income over the life of the advance.
Forward Settlements — There were no forward settled securities at September 30, 2009 and December 31, 2008 that would settle outside the shortest period of time for the settlement of such securities.
Anticipated Debt Issuance — The FHLBNY enters into interest-rate swaps on the anticipated issuance of debt to “lock in” a spread between the earning asset and the cost of funding. The swap is terminated upon issuance of the debt instrument, and amounts reported in Accumulated other comprehensive income (loss) are reclassified to earnings in the periods in which earnings are affected by the variability of the cash flows of the debt that was issued.
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 treatment 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 has a de minimis affect on 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 as hedges to either advances, investments, or consolidated obligations. 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 — At September 30, 2009 and December 31, 2008, economic hedges were 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 derivatives. The FHLBNY believes the operational cost of designating the basis hedges in a qualifying hedge under the accounting standards for derivatives and hedging would outweigh the benefits of applying hedge accounting. (2) Interest rate caps to hedge balance sheet risk were considered freestanding derivatives. (3) Interest rate swaps hedging interest rate risk within the balance sheet. (4) Interest rate swaps that had been accounted under the provisions of the accounting standards for derivatives and hedging but had been de-designated from hedge accounting as they were assessed as being not highly effective hedges. (5) Interest rate swaps executed to offset the fair value changes of bonds designated in accordance with the accounting standards on the fair value option for financial assets and liabilities. Changes in fair values of all freestanding derivatives are recorded in Other income as a Net realized and unrealized gain (loss) from derivatives and hedging activities. The FHLBNY is not a derivatives dealer and does not trade derivatives for short-term profit.

 

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Cash Flow hedges
There were no material amounts for the first, second, or third quarters in 2009 and 2008 that were reclassified into earnings as a result of the discontinuance of cash flow hedges because it became probable that the original forecasted transactions would not occur by the end of the originally specified time period or within a two-month period thereafter. The maximum length of time over which the Bank typically hedges its exposure to the variability in future cash flows for forecasted transactions is between three and six months. No cash flow hedges were outstanding at September 30, 2009 and December 31, 2008. The effective portion of the gain or loss on swaps designated and qualifying as a cash flow hedging instrument is reported as a component of Accumulated other comprehensive income and reclassified into earnings in the same period during which the hedged forecasted transaction affects earnings.
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 to 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 FHLBNY established several small grantor trusts related to employee benefits programs.
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 derivative asset or 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 foreign currency swaps, of which the FHLBNY has none).
All derivatives are recorded on the Statements of Condition at their estimated fair value 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 interest-rate risk or balance sheet risk. Such derivatives are designated as economic hedges either because a qualifying hedge is not available, the hedge is not able to demonstrate that it 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 Accumulated other comprehensive income (loss) 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 under the accounting standards for derivatives and hedging. 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.

 

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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: (4) offset embedded options in assets and liabilities, (5) hedge the market value of existing assets, liabilities, and anticipated transactions; or (6) reduce funding costs.
The following tables present notional amounts and fair values of derivative instruments as of September 30, 2009 and December 31, 2008 (in thousands):
                         
    September 30, 2009  
    Notional Amount of     Derivative     Derivative  
    Derivatives     Assets     Liabilities  
Fair value of derivatives instruments
                       
Derivatives in fair value hedging relationships
                       
Interest rate swaps
  $ 97,418,662     $ 1,077,145     $ (4,655,105 )
 
                 
Total derivatives in hedging relationships
  $ 97,418,662     $ 1,077,145     $ (4,655,105 )
 
                 
 
                       
Derivatives not designated as hedging instruments
                       
Interest rate swaps
  $ 32,341,126     $ 199,206     $ (79,515 )
Interest rate caps or floors
    2,282,000       66,637       (8,787 )
Mortgage delivery commitments
    11,843       35        
Other*
    2,665,000       4,123       (652 )
 
                 
Total derivatives not designated as hedging instruments
  $ 37,299,969     $ 270,001     $ (88,954 )
 
                 
Total derivatives before netting and collateral adjustments
  $ 134,718,631     $ 1,347,146     $ (4,744,059 )
 
                 
 
Netting adjustments
          $ (1,338,054 )   $ 1,338,054  
Cash collateral and related accrued interest
                  2,534,261  
 
                   
Total collateral and netting adjustments
          $ (1,338,054 )   $ 3,872,315  
 
                   
Total reported on the Statements of Condition
          $ 9,092     $ (871,744 )
 
                   
     
*Other:   Comprised of $2.4 billion notional of swaps in economic hedges of debt designated under the FVO, and $0.3 billion swaps intermediated for members.

 

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    December 31, 2008  
    Notional Amount of     Derivative     Derivative  
    Derivatives     Assets     Liabilities  
Fair value of derivatives instruments
                       
Derivatives in fair value hedging relationships
                       
Interest rate swaps
  $ 84,582,796     $ 1,640,507     $ (6,117,173 )
 
                 
Total derivatives in hedging relationships
  $ 84,582,796     $ 1,640,507     $ (6,117,173 )
 
                 
 
                       
Derivatives not designated as hedging instruments
                       
Interest rate swaps
  $ 39,691,142     $ 207,243     $ (361,836 )
Interest rate caps or floors
    2,357,000       16,318       (8,360 )
Mortgage delivery commitments
    10,395       2       (110 )
Other*
    1,283,000       25,558       (18,734 )
 
                 
Total derivatives not designated as hedging instruments
  $ 43,341,537     $ 249,121     $ (389,040 )
 
                 
Total derivatives before netting and collateral adjustments
  $ 127,924,333     $ 1,889,628     $ (6,506,213 )
 
                 
 
                       
Netting adjustments
          $ (1,808,183 )   $ 1,808,183  
Cash collateral and related accrued interest
            (61,209 )     3,836,370  
 
                   
Total collateral and netting adjustments
          $ (1,869,392 )   $ 5,644,553  
 
                   
Total reported on the Statements of Condition
          $ 20,236     $ (861,660 )
 
                   
     
*Other:   Comprised of $1.0 billion notional of swaps in economic hedges of debt designated under the FVO, and $0.3 billion swaps intermediated for members.

 

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The following table presents the components of net gains (losses) on derivatives and hedging activities as presented in the Statements of Income for the three and nine months ended September 30, 2009 and 2008 (in thousands):
                                 
    Three months ended     Nine months ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
    Gain (Loss)     Gain (Loss)     Gain (Loss)     Gain (Loss)  
Derivatives designated as hedging instruments
                               
Interest rate swaps
                               
Advances
  $ 182     $ 5,259     $ (5,107 )   $ 3,621  
Consolidated obligations-bonds
    167       6,604       18,187       2,619  
 
                       
 
                               
Net gain (loss) related to fair value hedge ineffectiveness
  $ 349     $ 11,863     $ 13,080     $ 6,240  
 
                       
 
                               
Net gain (loss) related to cash flow hedge ineffectiveness
  $     $     $     $ (9 )
 
                       
Derivatives not designated as hedging instruments
                               
Economic hedges
                               
Interest rate swaps
                               
Advances
  $ (1,475 )   $ (44 )   $ 3,887     $ 1,066  
Consolidated obligations-bonds
    28,420       (23,375 )     101,662       (41,517 )
Consolidated obligations-discount notes
    (5,711 )     (2,829 )     409       (5,723 )
Member intermediation
    (16 )     68       (189 )     66  
Balance sheet — Macro hedges swaps
    210       19,983       2,617       19,983  
Accrued interest-swaps
    18,362       (20,745 )     (37,772 )     (36,915 )
Accrued interest-intermediation
    20       2       64       5  
Caps and floors
                               
Advances
    (305 )     (578 )     (1,056 )     (1,531 )
Balance sheet
    19,196       (7,626 )     50,613       (4,621 )
Accrued interest-options
    (1,786 )     (19 )     (3,731 )     99  
Mortgage delivery commitments
    47       141       (49 )     17  
Swaps under fair value option
                               
Consolidated obligations-bonds
    1,549       (2,356 )     (5,825 )     (2,356 )
Accrued interest on FVO swaps
    779             903        
 
                       
Net gain (loss) related to derivatives not designated as hedging instruments
  $ 59,290     $ (37,378 )   $ 111,533     $ (71,427 )
 
                       
 
                               
Net gain (loss) on derivatives and hedging activities
  $ 59,639     $ (25,515 )   $ 124,613     $ (65,196 )
 
                       

 

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The following table presents, by type of hedged item, the gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives for the three months ended September 30, 2009 and 2008 (in thousands):
                                                                 
    Three months ended September 30,  
    2009     2008  
                            Effect of                             Effect of  
                            Derivatives on                             Derivatives on  
    Gain (Loss) on     Gain (Loss) on     Earnings     Net Interest     Gain (Loss) on     Gain (Loss) on     Earnings     Net Interest  
    Derivative     Hedged Item     Impact     Income     Derivative     Hedged Item     Impact     Income  
 
                                                               
Derivatives designated as hedging instruments
                                                               
Interest rate swaps
                                                               
Advances
  $ (582,983 )   $ 583,165     $ 182     $ (503,185 )   $ (335,331 )   $ 340,590     $ 5,259     $ (171,690 )
Consolidated obligations-bonds
    98,668       (98,501 )     167       151,467       10,563       (3,959 )     6,604       118,620  
Consolidated obligations-notes
                                               
 
                                               
 
                                                               
Fair value hedges ineffectiveness
  $ (484,315 )   $ 484,664     $ 349     $ (351,718 )   $ (324,768 )   $ 336,631     $ 11,863     $ (53,070 )
 
                                                               
Cash flow hedges ineffectiveness
  $     $     $     $     $     $     $     $  
 
                                                               
Derivatives not designated as hedging instruments
                                                               
Interest rate swaps
                                                               
Advances
  $ (1,475 )   $     $ (1,475 )   $     $ (44 )   $     $ (44 )   $  
Consolidated obligations-bonds
    28,420             28,420             (23,375 )           (23,375 )      
Consolidated obligations-notes
    (5,711 )           (5,711 )           (2,829 )           (2,829 )      
Member intermediation
    (16 )           (16 )           68             68        
Balance sheet — Macro hedges swaps
    210             210             19,983             19,983        
Accrued interest-swaps
    18,362             18,362             (20,745 )           (20,745 )      
Accrued interest-intermediation
    20             20             2             2        
Caps and floors
                                                               
Advances
    (305 )           (305 )           (578 )           (578 )      
Balance sheet
    19,196             19,196             (7,626 )           (7,626 )      
Accrued interest-options
    (1,786 )           (1,786 )           (19 )           (19 )      
Mortgage delivery commitments
    47             47             141             141        
 
                                               
 
                                                               
Total
  $ (427,353 )   $ 484,664     $ 57,311     $ (351,718 )   $ (359,790 )   $ 336,631     $ (23,159 )   $ (53,070 )
 
                                               

 

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The following table presents, by type of hedged item, the gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives for the nine months ended September 30, 2009 and 2008 (in thousands):
                                                                 
    Nine months ended September 30,  
    2009     2008  
                            Effect of                             Effect of  
                            Derivatives on                             Derivatives on  
    Gain (Loss) on     Gain (Loss) on     Earnings     Net Interest     Gain (Loss) on     Gain (Loss) on     Earnings     Net Interest  
    Derivative     Hedged Item     Impact     Income     Derivative     Hedged Item     Impact     Income  
 
Derivatives designated as hedging instruments
                                                               
Interest rate swaps
                                                               
Advances
  $ 1,419,019     $ (1,424,126 )   $ (5,107 )   $ (1,252,775 )   $ (337,111 )   $ 340,732     $ 3,621     $ (341,522 )
Consolidated obligations-bonds
    (418,734 )     436,921       18,187       384,150       (44,921 )     47,540       2,619       288,228  
Consolidated obligations-notes
                      474                          
 
                                               
 
                                                               
Fair value hedges ineffectiveness
  $ 1,000,285     $ (987,205 )   $ 13,080     $ (868,151 )   $ (382,032 )   $ 388,272     $ 6,240     $ (53,294 )
 
                                                               
Cash Flow hedges ineffectiveness
  $     $     $     $     $ (9 )   $     $ (9 )   $  
 
Derivatives not designated as hedging instruments
                                                               
Interest rate swaps
                                                               
Advances
  $ 3,887     $     $ 3,887     $     $ 1,066     $     $ 1,066     $  
Consolidated obligations-bonds
    101,662             101,662             (41,517 )           (41,517 )      
Consolidated obligations-notes
    409             409             (5,723 )           (5,723 )      
Member intermediation
    (189 )           (189 )           66             66        
Balance sheet — Macro hedges swaps
    2,617             2,617             19,983             19,983        
Accrued interest-swaps
    (37,772 )           (37,772 )           (36,915 )           (36,915 )      
Accrued interest-intermediation
    64             64             5             5        
Caps and floors
                                                               
Advances
    (1,056 )           (1,056 )           (1,531 )           (1,531 )      
Balance sheet
    50,613             50,613             (4,621 )           (4,621 )      
Accrued interest-options
    (3,731 )           (3,731 )           99             99        
Mortgage delivery commitments
    (49 )           (49 )           17             17        
 
                                               
 
                                                               
Total
  $ 1,116,740     $ (987,205 )   $ 129,535     $ (868,151 )   $ (451,112 )   $ 388,272     $ (62,840 )   $ (53,294 )
 
                                               

 

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The effect of cash flow hedge related derivative instruments for the three and nine months ended September 30, 2009 and 2008 were as follows (in thousands):
                                                                 
    Three months ended September 30,  
    2009     2008  
    OCI     OCI  
    Gains/(Losses)     Gains/(Losses)  
            Location:     Amount     Ineffectiveness             Location:     Amount     Ineffectiveness  
    Recognized in     Reclassified to     Reclassified to     Recognized in     Recognized in     Reclassified to     Reclassified to     Recognized in  
    OCI 1     Earnings 1     Earnings 1     Earnings     OCI 1, 2     Earnings 1     Earnings 1     Earnings  
 
The effect of cash flow hedge related to Interest rate swaps
                                                               
Advances
  $     Interest Income   $     $     $     Interest Income   $     $  
Consolidated obligations-bonds
        Interest Expense     1,898               61     Interest Expense     1,667        
 
                                                   
 
Total
  $             $ 1,898     $     $ 61             $ 1,667     $  
 
                                                   
     
1   Effective portion
                                                                 
    Nine months ended September 30,  
    2009     2008  
    OCI     OCI  
    Gains/(Losses)     Gains/(Losses)  
            Location:     Amount     Ineffectiveness             Location:     Amount     Ineffectiveness  
    Recognized in     Reclassified to     Reclassified to     Recognized in     Recognized in     Reclassified to     Reclassified to     Recognized in  
    OCI 1     Earnings 1     Earnings 1     Earnings     OCI 1, 2     Earnings 1     Earnings     Earnings  
 
                                                               
The effect of cash flow hedge related to Interest rate swaps
                                                               
Advances
  $     Interest Income   $     $     $     Interest Income   $     $  
Consolidated obligations-bonds
        Interest Expense     5,687             (6,109 )   Interest Expense     4,345       9  
 
                                                   
 
Total
  $             $ 5,687     $     $ (6,109 )           $ 4,345     $ 9  
 
                                                   
     
1   Effective portion
     
2   Represents effective portion of basis adjustments to OCI during the period from cash flow hedging transactions.

 

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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, the FHLBNY’s assets and liabilities that were measured at fair value on its Statements of Condition at September 30, 2009 and December 31, 2008
(in thousands):
                                         
    September 30, 2009  
                                    Netting  
    Total     Level 1     Level 2     Level 3     Adjustments  
Assets
                                       
Available-for-sale securities
  $ 2,362,592     $     $ 2,362,592     $     $  
Derivative assets
    9,092               1,347,146               (1,338,054 )
 
                             
 
                                       
Total assets at fair value
  $ 2,371,684     $     $ 3,709,738     $     $ (1,338,054 )
 
                             
 
                                       
Liabilities
                                       
Consolidated obligations:
                                       
Bonds
  $ (2,385,968 )   $     $ (2,385,968 )   $     $  
Derivative liabilities
    (871,744 )           (4,744,059 )           3,872,315  
 
                             
 
                                       
Total liabilities at fair value
  $ (3,257,712 )   $     $ (7,130,027 )   $     $ 3,872,315  
 
                             
                                         
    December 31, 2008  
                                    Netting  
    Total     Level 1     Level 2     Level 3     Adjustments  
Assets
                                       
Available-for-sale securities
  $ 2,861,869     $     $ 2,861,869     $     $  
Derivative assets
    20,236             1,386,859             (1,366,623 )
 
                             
 
                                       
Total assets at fair value
  $ 2,882,105     $     $ 4,248,728     $     $ (1,366,623 )
 
                             
 
                                       
Liabilities
                                       
Consolidated obligations:
                                       
Bonds
  $ (998,942 )   $     $ (998,942 )   $     $  
Derivative liabilities
    (861,660 )           (5,978,026 )           5,116,366  
 
                             
 
                                       
Total liabilities at fair value
  $ (1,860,602 )   $     $ (6,976,968 )   $     $ 5,116,366  
 
                             

 

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Items Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities would be measured at fair value on a nonrecurring basis, and for the FHLBNY, such items may include mortgage loans in foreclosure, or mortgage loans and held-to-maturity securities written down to fair value. Certain private-label held-to-maturity MBS were written down to fair value as a result of OTTI during the three quarters ended September 30, 2009. The fair value of MBS for which a non-recurring change in fair value has been recorded at September 30, 2009 (in thousands):
                                                 
                                    Credit Loss *  
                                    September 30, 2009  
    Fair Value     Level 1     Level 2     Level 3     Three months     Nine months  
Held-to-maturity securities
                                               
Private-label residential MBS
  $ 125,771     $     $     $ 125,771     $ 3,683     $ 14,276  
 
                                   
Total
  $ 125,771     $     $     $ 125,771     $ 3,683     $ 14,276  
 
                                   
     
*   Note: The credit losses recognized in the current year third quarter of $3.7 million were associated with the held-to-maturity (“HTM”) securities determined to be OTTI at September 30, 2009. The credit impaired HTM securities were recorded in the Statements of Condition at their total fair values of $125.8 million at September 30, 2009. Cumulative credit losses of $14.3 million include credit losses on HTM securities that were previously impaired. For HTM securities that were previously credit impaired but no additional credit impairment were deemed necessary in the current quarter, the securities were recorded- consistent with accounting rules-at their carrying values and not re-adjusted to their fair values.

 

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Estimated fair values — Summary Tables
The Bank early adopted the new guidance on interim disclosures about fair value of financial instruments as of January 1, 2009. The FHLBNY has consistently presented estimated fair value disclosures in interim financial statements in prior periods, although it has not been required to under pre-existing GAAP disclosure requirements, as it believed fair values provided useful information to investors and its stockholders with respect to significant changes in the estimated fair values of the FHLBNY’s financial instruments.
The carrying value and estimated fair values of the FHLBNY’s financial instruments as of September 30, 2009 and December 31, 2008 were as follows (in thousands):
                                 
    September 30, 2009     December 31, 2008  
    Carrying     Estimated     Carrying     Estimated  
Financial Instruments   Value     Fair Value     Value     Fair Value  
Assets
                               
Cash and due from banks
  $ 1,189,158     $ 1,189,158     $ 18,899     $ 18,899  
Interest-bearing deposits
                12,169,096       12,170,681  
 
                               
Federal funds sold
    3,900,000       3,899,997              
Available-for-sale securities
    2,362,592       2,362,592       2,861,869       2,861,869  
Held-to-maturity securities
                               
Long-term securities
    10,478,027       10,596,548       10,130,543       9,934,473  
Certificates of deposit
    2,000,000       2,000,003       1,203,000       1,203,328  
Advances
    95,944,732       96,375,258       109,152,876       109,421,358  
Mortgage loans, net
    1,336,228       1,402,028       1,457,885       1,496,329  
Accrued interest receivable
    354,934       354,934       492,856       492,856  
Derivative assets
    9,092       9,092       20,236       20,236  
Other financial assets
    4,224       4,224       2,713       2,713  
 
                               
Liabilities
                               
Deposits
    2,275,971       2,275,983       1,451,978       1,452,648  
Consolidated obligations:
                               
Bonds
    69,670,836       70,032,687       82,256,705       82,533,048  
Discount notes
    38,385,244       38,396,793       46,329,906       46,408,907  
Mandatorily redeemable capital stock
    127,882       127,882       143,121       143,121  
Accrued interest payable
    337,221       337,221       426,144       426,144  
Derivative liabilities
    871,744       871,744       861,660       861,660  
Other financial liabilities
    33,784       33,784       38,594       38,594  

 

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The following table summarizes the activity related to consolidated obligation bonds for which the Bank elected the fair value option (in thousands):
                                 
    Three months ended     Nine months ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
Balance, beginning of the period
  $ 550,303     $     $ 998,942     $  
New transaction elected for fair value option
    1,835,000       589,000       2,385,000       589,000  
Maturities and terminations
                (983,000 )      
Change in fair value
    (426 )     (3,582 )     (8,653 )     (3,582 )
Change in accrued interest*
    1,091             (6,321 )      
 
                       
 
                               
Balance, end of the period
  $ 2,385,968     $ 585,418     $ 2,385,968     $ 585,418  
 
                       
     
*   De minimis amounts of change in accrued interest in 2008.
The following table presents the change in fair value include in the Statements of Income for the consolidated obligation bonds designated in accordance with the accounting standards on the fair value option for financial assets and liabilities (in thousands):
                                                 
    Three months ended September 30,  
    2009     2008  
                    Total change in                     Total change in  
    Interest expense on     Net gain(loss) due     fair value included     Interest expense on     Net gain(loss) due     fair value included  
    consolidated     to changes in fair     in current period     consolidated     to changes in fair     in current period  
    obligation bonds     value     earnings     obligation bonds     value     earnings  
 
                                               
Consolidated obligations-bonds
  $ (1,091 )   $ 426     $ (665 )   $     $ 3,582     $ 3,582  
 
                                   
                                                 
    Nine months ended September 30,  
    2009     2008  
                    Total change in                     Total change in  
    Interest expense on     Net gain(loss) due     fair value included     Interest expense on     Net gain(loss) due     fair value included  
    consolidated     to changes in fair     in current period     consolidated     to changes in fair     in current period  
    obligation bonds     value     earnings     obligation bonds     value     earnings  
 
                                               
Consolidated obligations-bonds
  $ (2,380 )   $ 8,653     $ 6,273     $     $ 3,582     $ 3,582  
 
                                   
The following table compares the aggregate fair value and aggregate remaining contractual fair value and aggregate remaining contractual principal balance outstanding of consolidated obligation bonds for which the fair value option has been elected (in thousands):
                         
    September 30, 2009  
                    Fair value  
    Principal Balance     Fair value     over/(under)  
 
                       
Consolidated obligations-bonds
  $ 2,385,000     $ 2,385,968     $ 968  
 
                 
                         
    December 31, 2008  
                    Fair value  
    Principal Balance     Fair value     over/(under)  
 
                       
Consolidated obligations-bonds
  $ 983,000     $ 998,942     $ 15,942  
 
                 

 

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Notes to Estimated Fair Values of financial instruments
The fair value of financial instruments 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. For additional information also see Significant Accounting Policies and Estimates in Note 1. The Fair Value Summary Tables above do not represent an estimate of the overall market value of the FHLBNY as a going concern, which would take into account future business opportunities and the net profitability of assets versus liabilities.
The estimated fair value amounts have been determined by the FHLBNY using procedures described below. Because an active secondary market does not exist for a portion of the 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.
Investment securities
The fair value of mortgage-backed investment securities is estimated by management using information from specialized pricing services that use pricing models or quoted prices of securities with similar characteristics. Inputs into the pricing models employed by pricing services for most of the Bank’s investments are market based and observable and are considered Level 2. 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 securities that are traded in sufficient volumes in the secondary market. The valuation of the Bank’s private-label securities that are all designated as held-to-maturity may require pricing services to use significant inputs that are subjective and are generally considered to be Level 3 because the inputs may not be market based and observable. Beginning with the current year third quarter, the FHLBNY requests prices for all mortgage-backed securities from four specific third-party vendors. Prior to the change, the FHLBNY used three vendors. The adoption of the fourth pricing vendor had no material impact on the financial results, financial position or cash flows of the Bank. Depending on the number of prices received from the four vendors for each security, the FHLBNY selects a median or average price. The Bank’s pricing methodology also incorporates variance thresholds to assist in identifying median or average prices that may require further review. In certain limited instances (i.e., prices are outside of variance thresholds or the third-party services do not provide a price), the FHLBNY will obtain a price from securities dealers that is deemed most appropriate after consideration of all relevant facts and circumstances that would be considered by market participants.

 

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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 as a result of a recognition of OTTI during the three quarters in 2009. The OTTI impaired securities are classified in the table of items measured at fair value on a nonrecurring basis as Level 3 financial instruments in accordance with the accounting standards for fair value measurements and disclosures, and valuation hierarchy as of September 30, 2009. This determination was made based on management’s view that the OTTI private-label instruments and certain other private-label MBS may not have an active market because of the specific vintage of the impaired securities as well as inherent conditions surrounding the trading of private-label mortgage-backed securities. Fair values of these securities were determined by management using third party specialized vendor pricing services that made appropriate adjustments to observed prices of comparable securities that were being transacted in orderly market. Fair values of the OTTI securities recorded in the Statements of Condition at September 30, 2009 were $125.8 million.
The fair value of housing finance agency bonds is estimated by management using information primarily from specialized dealers.
For more information, see Significant Accounting Policies and Estimates in Note 1 for corroboration and other analytical procedures performed by the FHLBNY. Examples of securities priced under such a valuation technique, and which are classified within Level 2 of the valuation hierarchy and valued using the “market approach” as defined under the accounting standards for fair value measurements and disclosures, include GSE issued collateralized mortgage obligations and money market funds.
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, 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” as defined in the accounting standards for fair value measurements and disclosures. Loans are aggregated into synthetic pass-through securities based on product type, loan origination year, gross coupon and loan term. Thereafter, these are compared against closing “TBA” prices extracted from independent sources. All significant inputs to the loan valuations are market based and observable.
Accrued interest receivable and payable
The estimated fair values approximate the recorded book value because of the relatively short period of time between their origination and expected realization.

 

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Derivative assets and liabilities
The FHLBNY’s derivatives are traded in the over-the-counter market and are valued using discounted cash flow models that use as their basis, readily observable and market based inputs. Significant inputs include interest rates and volatilities. 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 accounting standard for fair value measurements and disclosures clarified that the valuation of derivative assets and liabilities must reflect the value of the instrument including the values associated with counterparty risk and must also take into account the company’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 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 that no credit adjustments were deemed necessary to the recorded fair value of derivative assets and derivative liabilities in the Statements of Conditions at September 30, 2009 and December 31, 2008.
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 based on 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 that is available to the public and published by the Office of Finance, and (2) LIBOR curve and volatilities. Model adjustments that are not “market-observable” are not considered significant.
Mandatorily redeemable capital stock
The FHLBNY considers the fair value of capital subject to mandatory redemption, as the redemption value of the stock, which is generally par plus accrued estimated dividend. The FHLBNY has a cooperative structure. Stock can only be acquired by members at par value and redeemed at par value. Stock is not traded publicly and no market mechanism exists for the exchange of stock outside the cooperative structure.

 

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Note 17. Commitments and contingencies
The FHLBanks have joint and several liability for all the consolidated obligations issued on their behalf. Accordingly, should one or more of the FHLBanks be unable to repay their participation in the consolidated obligations, each of the other FHLBanks could be called upon to repay all or part of such obligations, as determined or approved by the Finance Agency. Neither the FHLBNY nor any other FHLBank has ever had to assume or pay the consolidated obligations of another FHLBank. The FHLBNY does not believe that it will be called upon to pay the consolidated obligations of another FHLBank in the future. Under the amended 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 September 30, 2009 and December 31, 2008. The par amount of the twelve FHLBanks’ outstanding consolidated obligations, including the FHLBNY’s, were approximately $1.0 trillion and $1.3 trillion at September 30, 2009 and December 31, 2008.
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 $891.2 million and $908.6 million as of September 30, 2009 and December 31, 2008, respectively and had original terms of up to 15 years, with a final expiration in 2019. Standby letters of credit are fully collateralized. Unearned fees on standby letters of credit were recorded in other liabilities and were not significant as of September 30, 2009 and December 31, 2008. 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.
During the third quarter of 2008, each FHLBank, including the FHLBNY, entered into a Lending Agreement with the U.S. Treasury in connection with the U.S. Treasury’s establishment of the Government Sponsored Enterprise Credit Facility (GSECF), as authorized by the Housing Act. The GSECF is designed to serve as a contingent source of liquidity for the housing government-sponsored enterprises, including each of the 12 FHLBanks. Any borrowings by one or more of the FHLBanks under the GSECF are considered consolidated obligations with the same joint and several liability as all other consolidated obligations. The terms of any borrowings are agreed to at the time of issuance. Loans under the Lending Agreement are to be secured by collateral acceptable to the U.S. Treasury, which consists of FHLBank advances to members that have been collateralized in accordance with regulatory standards and mortgage-backed securities issued by Fannie Mae or Freddie Mac. Each FHLBank is required to submit to the Federal Reserve Bank of New York, acting as fiscal agent of the U.S. Treasury, a list of eligible collateral updated on a weekly basis. As of September 30, 2009 and December 31, 2008, the FHLBNY had provided the U.S. Treasury listings of advance collateral amounting to $17.8 billion and $16.3 billion, which provides for maximum borrowings of $15.5 billion and $14.2 billion at September 30, 2009 and December 31, 2008. The amount of collateral can be increased or decreased (subject to the approval of the U.S. Treasury) at any time through the delivery of an updated listing of collateral. As of September 30, 2009, no FHLBank had drawn on this available source of liquidity. This temporary authorization expires December 31, 2009 and supplements the existing limit of $4.0 billion.

 

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Under the MPF program, the Bank was unconditionally obligated to purchase $12.0 million and $10.4 million in mortgage loans at September 30, 2009 and December 31, 2008. Commitments are generally for periods not to exceed 45 days. Such commitments entered into after June 30, 2003 were recorded as derivatives at their fair value under the accounting standards for derivatives and hedging. In addition, the FHLBNY had entered into conditional agreements under “Master Commitments” with its members in the MPF program to purchase mortgage loans in aggregate of $494.3 million and $246.9 million as of September 30, 2009 and December 31, 2008.
The FHLBNY generally executes derivatives with major banks and broker-dealers and generally 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 pledged $2.5 billion and $3.8 billion in cash as collateral at September 30, 2009 and December 31, 2008, and these amounts were reported as a component of Derivative liabilities. At September 30, 2009 and December 31, 2008, the FHLBNY was also exposed to credit risk associated with outstanding derivative transactions measured by the replacement cost of derivatives in a gain position. The Bank’s credit exposure at September 30, 2009 as defined above was below the threshold agreements with derivative counterparties and no collateral was required to be pledged by counterparties. At December 31, 2008, the Bank’s credit exposure was reduced by cash collateral of $61.2 million delivered by derivatives counterparties and held by the Bank. The amount was recorded as a reduction to Derivative assets at December 31, 2008.
Net rental expense and the cost of operating leases for the three and nine months ended September 30, 2009 and 2008 were not material. The lease agreements for FHLBNY premises provide for increases in the basic rentals resulting from increases in property taxes and maintenance expenses. Such increases are not expected to have a material effect on the FHLBNY’s results of operations or financial condition.

 

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The following table summarizes contractual obligations and contingencies as of September 30, 2009 (in thousands):
                                         
    September 30, 2009  
    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
  $ 35,806,100     $ 24,730,595     $ 4,900,530     $ 3,335,050     $ 68,772,275  
Mandatorily redeemable capital stock 1
    82,076       38,724       2,123       4,959       127,882  
Premises (lease obligations) 2
    3,060       6,120       5,635       7,011       21,826  
 
                             
 
                                       
Total contractual obligations
    35,891,236       24,775,439       4,908,288       3,347,020       68,921,983  
 
                             
 
                                       
Other commitments
                                       
Standby letters of credit
    863,242       4,937       15,255       7,778       891,212  
Consolidated obligation-bonds/ discount notes traded not settled
    2,302,700                         2,302,700  
Investment securities traded not settled
    25,000                         25,000  
Open delivery commitments (MPF)
    11,843                         11,843  
 
                             
 
                                       
Total other commitments
    3,202,785       4,937       15,255       7,778       3,230,755  
 
                             
 
                                       
Total obligations and commitments
  $ 39,094,021     $ 24,780,376     $ 4,923,543     $ 3,354,798     $ 72,152,738  
 
                             
     
1   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. Callable bonds contain exercise date or a series of exercise dates that may result in a shorter redemption period.
 
2   Immaterial amount of commitments for equipment leases not included.
The FHLBNY does not anticipate any credit losses from its off-balance sheet commitments and accordingly no provision for losses was required.

 

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Note 18. Related party transactions
The FHLBNY is a cooperative and the members own almost all of the stock of the Bank. Stock that is not owned by members is held by former members. The majority of the members of the Board of Directors of the FHLBNY are elected by and from the membership. The FHLBNY conducts its advances business almost exclusively with members. The Bank considers its transactions with its members and non-member stockholders as related party transactions in addition to transactions with other FHLBanks, the Office of Finance, and the Finance Agency. All transactions with all members, including those whose officers may serve as directors of the FHLBNY, are at terms that are no more favorable than comparable transactions with other members.
The FHLBNY may from time to time borrow or sell overnight and term Federal funds at market rates to members.
Debt Transfers
During the current year and prior year three quarters, there was no transfer of consolidated obligation bonds to other FHLBanks. Generally, when debt is transferred, it is exchanged for a cash price that represents the fair market value of the debt. Additionally, no debt was transferred to the FHLBNY from another FHLBank for the first three quarters of 2009 and 2008.
At trade date, the transferring bank notifies the Office of Finance of a change in primary obligor for the transferred debt.
Advances sold or transferred
No advances were transferred/sold to the FHLBNY or from the FHLBNY to another FHLBank in the current year or prior year three quarters ended September 30.
Loans to other Federal Home Loan Banks
In the current year third quarter, the FHLBNY extended an overnight loan of $400.0 million to another FHLBank for one day. No loans were made to another FHLBank in the current year prior two quarters. In the prior year, the Bank made four overnight loans for a total of $661.0 million. Generally, loans made to other FHLBanks are uncollateralized.
Borrowings from other Federal Home Loan Banks
In the current year three quarters, the FHLBNY had not borrowed funds from another FHLBank that were material. In the prior year three quarters, the FHLBNY had borrowed eight overnight loans for a total of $1.3 billion. The FHLBNY borrows from other FHLBanks, generally for a period of one day and are not collateralized.

 

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The following tables summarize outstanding balances with related parties at September 30, 2009 and December 31, 2008, and transactions for the three and nine months ended September 30, 2009 and 2008 (in thousands):
Related Party: Outstanding Assets, Liabilities and Capital
                                 
    September 30, 2009     December 31, 2008  
    Related     Unrelated     Related     Unrelated  
Assets
                               
Cash and due from banks
  $     $ 1,189,158     $     $ 18,899  
Interest-bearing deposits
                      12,169,096  
Federal funds sold
          3,900,000              
Available-for-sale securities
          2,362,592             2,861,869  
Held-to-maturity securities
                               
Long-term securities
          10,478,027             10,130,543  
Certificates of deposit
          2,000,000             1,203,000  
Advances
    95,944,732             109,152,876        
Mortgage loans 1
          1,336,228             1,457,885  
Accrued interest receivable
    308,036       46,898       433,755       59,101  
Premises, software, and equipment
          14,596             13,793  
Derivative assets 2
          9,092             20,236  
Other assets 3
    237       14,720       153       18,685  
 
                       
 
                               
Total assets
  $ 96,253,005     $ 21,351,311     $ 109,586,784     $ 27,953,107  
 
                       
 
                               
Liabilities and capital
                               
Deposits
  $ 2,275,971     $     $ 1,451,978     $  
Consolidated obligations
          108,056,080             128,586,611  
Mandatorily redeemable capital stock
    127,882             143,121        
Accrued interest payable
    42       337,179       814       425,330  
Affordable Housing Program 4
    144,822             122,449        
Payable to REFCORP
          38,692             4,780  
Derivative liabilities 2
          871,744             861,660  
Other liabilities 5
    27,125       63,990       31,003       44,750  
 
                       
 
                               
Total liabilities
  $ 2,575,842     $ 109,367,685     $ 1,749,365     $ 129,923,131  
 
                       
 
                               
Capital
    5,660,789             5,867,395        
 
                       
 
                               
Total liabilities and capital
  $ 8,236,631     $ 109,367,685     $ 7,616,760     $ 129,923,131  
 
                       
     
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  
    September 30, 2009     September 30, 2008  
    Related     Unrelated     Related     Unrelated  
Interest income
                               
Advances
  $ 240,573     $     $ 678,896     $  
Interest-bearing deposits 1
          1,014             3,240  
Federal funds sold
          1,864             21,316  
Available-for-sale securities
          6,590             24,441  
Held-to-maturity securities
                               
Long-term securities
          111,232             138,412  
Certificates of deposit
          851             51,287  
Mortgage loans 2
          17,405             19,316  
Loans to other FHLBanks and other
    1             30        
 
                       
 
                               
Total interest income
  $ 240,574     $ 138,956     $ 678,926     $ 258,012  
 
                       
 
                               
Interest expense
                               
Consolidated obligations
  $     $ 223,355     $     $ 769,703  
Deposits
    516             7,370        
Mandatorily redeemable capital stock
    1,807             1,950        
Cash collateral held and other borrowings
                2       240  
 
                       
 
                               
Total interest expense
  $ 2,323     $ 223,355     $ 9,322     $ 769,943  
 
                       
 
                               
Service fees
  $ 1,101     $     $ 934     $  
 
                       
     
1   Includes de minimis amounts of interest income from MPF service provider.
 
2   Includes de minimis amounts of mortgage interest income from loans purchased from members of another FHLBank.
                                 
    Nine months ended  
    September 30, 2009     September 30, 2008  
    Related     Unrelated     Related     Unrelated  
Interest income
                               
Advances
  $ 1,094,089     $     $ 2,211,823     $  
Interest-bearing deposits 1
          19,054             17,086  
Federal funds sold
          1,933             69,921  
Available-for-sale securities
          22,881             57,016  
Held-to-maturity securities
                               
Long-term securities
          355,916             396,660  
Certificates of deposit
          1,392             212,525  
Mortgage loans 2
          54,679             58,348  
Loans to other FHLBanks and other
    1             33        
 
                       
 
                               
Total interest income
  $ 1,094,090     $ 455,855     $ 2,211,856     $ 811,556  
 
                       
 
                               
Interest expense
                               
Consolidated obligations
  $     $ 956,923     $     $ 2,511,381  
Deposits
    2,002             33,235        
Mandatorily redeemable capital stock
    5,478             8,884        
Cash collateral held and other borrowings
          49       162       820  
 
                       
 
                               
Total interest expense
  $ 7,480     $ 956,972     $ 42,281     $ 2,512,201  
 
                       
 
                               
Service fees
  $ 3,181     $     $ 2,422     $  
 
                       
     
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.

 

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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 which includes New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. Institutions that are members of the FHLBNY must have their principal places of business within this market, but may also operate elsewhere. The 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 is 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 five advance holders at September 30, 2009, December 31, 2008 and September 30, 2008, and associated interest income are summarized as follows (dollars in thousands):
                                             
    September 30, 2009  
                        Percentage of        
                Par     Total Par Value     Interest Income  
    City   State     Advances