UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Friday, March 18, 2011
x | ||
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20102011
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-51397
Federal Home Loan Bank of New York
(Exact name of registrant as specified in its charter)
Federal | ||
13-6400946 | ||
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
101 Park Avenue | ||
New York, New York | 10178 | |
(Address of principal executive offices) | (Zip code) |
(212) 681-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class B Stock, putable, par value $100
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yeso Noþx
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yeso Noþx
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 Yesxþ No Noo
Indicate
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. (Check one):
Large accelerated filero | Accelerated filero | |||||
Non-accelerated filer | 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 Act).Yeso Noþx
Registrant’s stock is not publicly traded and is only issued to members of the registrant. Such stock is issued and redeemed at par value, $100 per share, subject to certain regulatory and statutory limits. At June 30, 2010,2011, the aggregate par value of the common stock held by members of the registrant was approximately $4,679,522,000.$4,716,065,500. At February 28, 2011, 43,881,66129, 2012, 45,031,102 shares of common stock were outstanding.
General
The Federal Home Loan Bank of New York (“FHLBNY”we” “us,” “our,” “the Bank” or “the Bank”the “FHLBNY”) 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 generally receive dividends on their capital stock investment. The FHLBNY’sOur defined geographic district is New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. The FHLBNY providesWe provide a readily available, low-cost source of funds for its member institutions. The FHLBNY doesWe do not have any wholly or partially owned subsidiaries, nor does itdo we have an equity position in any partnerships, corporations, or off-balance-sheet special purpose entities. The Bank doesWe have twoa grantor truststrust related to employee benefits programs, and these are more fully described in Note 1715 — Employee Retirement Plans toof the audited financial statements.
We obtain our 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, other borrowings, and the issuance of capital stock. Deposits may be accepted from member financial institutions and federal instrumentalities.
We combine private capital and public sponsorship as a GSE to provide itsour member financial institutions with a reliable flow of credit and other services for housing and community development. By supplying additional liquidity to itsour members, the FHLBNY enhanceswe enhance the availability of residential mortgages and community investment credit.
The FHLBNY is managed to deliver balanced value to members, rather than to maximize profitability or advance volume through low pricing.
Members of the FHLBNY must purchase FHLBNY stock according to regulatory requirements. (For more information, see Note 12 — Capital Stock, Mandatorily Redeemable Capital Stock and Note 14 — Capital toRestricted Retained Earnings of the audited financial statements)statements included in this report). The business of the cooperative is to provide liquidity for our 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. With the passage of Housing Recovery Act of 2008, community development financial institutions (“CDFIs”) that have been certified by the CDFI Fund of the U.S. Treasury Department, including community development loan funds, community development venture capital funds, and state-chartered credit unions without federal insurance, are eligible to become members of a FHLBank. The expanded membership became effective on February 4, 2010. At December 31, 2011, we had no CDFIs as members.
All members are required to purchase FHLBNY capital stock in FHLBNY as a condition of membership. For the year ending December 31, 2010,2011, community financial institutions are defined as FDIC-insured depository institutions having average total assets of $1,029less than $1,040 million. Annually, the Federal Housing Finance Agency (“Finance Agency”), formerly the Federal Housing Finance Board (“Finance Board”), will adjust the total assets “cap” to reflect any percentage increase in the preceding year’s Consumer Price Index.
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.one of our members. Because the Bank operateswe operate as a cooperative, the FHLBNY conductswe conduct business with related parties in the normal course of business and considersconsider all members and non-member stockholders as related parties in addition to the other FHLBanks. (For more information, see Note 2119 — Related Party Transactions toof the audited financial statements included in this report, and also Item 13 — Certain Relationships and Related Transactions, and Director Independence in this Form 10-K).
Our primary business is making collateralized loans or advances to members and is also the principal factor that impacts theour financial condition of the FHLBNY. The FHLBNYcondition. We also servesserve the public through itsour mortgage programs, which enable FHLBNYour members to liquefy certain mortgage loans by selling them to the Bank. The FHLBNYWe also providesprovide members with such correspondent services as safekeeping, wire transfers, depository and settlement services. Non-members that have acquired members have access to these services up to the time that their advances outstanding have been prepaidprepay or have matured.
As of July 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. The Finance Agency’s principal purpose as it relates to the FHLBanks is to ensure that the FHLBanks operate in a safe and sound manner, including maintenance of adequate capital and internal controls. In addition, the Finance Agency ensures that the operations and activities of each FHLBank foster liquid, efficient, competitive and resilient national housing finance markets; each FHLBank complies with the title and the rules, regulations, guidelines and orders issued under the Federal Housing Enterprises Financial Safety and Soundness Act (Safety and Soundness Act) and the Federal Home Loan Bank Act of 1932 (FHLBank Act); each FHLBank carries out its statutory mission only through activities that are authorized under and consistent with the Safety and Soundness Act and the FHLBank Act; and the activities of each FHLBank and the manner in which are operated is consistent with the public interest. The Finance Agency also ensures that the FHLBNY carries out its housing and community development mission, remains adequately capitalized and able to raise funds in the capital markets. However, while the Finance Agency establishes regulations governing
the operations of the FHLBanks, the Bank functions as a separate entity with its own management, employees and board of directors.
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Market Area
Our market area is the same as itsthe membership district — 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 area but may also operate elsewhere. The FHLBNYWe had 336340 and 331336 members at December 31, 20102011 and 2009.
The most recent market analysis performed in November 20102011 indicated that in the Bank’sour district, there are 2640 banks and thrifts and 560531 credit unions eligible“eligible” for membership that have not joined. Of these, the FHLBNY considerswe consider approximately 5556 as appropriate candidates for membership.
An appropriate candidate for membership is an institution that is likely to transact sufficient advance business with the FHLBNYus within a reasonable period of time, so that the stock the potential member will likely be required to purchase under membership provisions will not dilute the dividend on the existing members’ stock. Characteristics that identify attractive candidates include an asset base of $100 million or greater ($50 million for credit unions), an established practice of wholesale funding, a high loan-to-deposit ratio, strong asset growth, sufficient eligible collateral, and management that has had experience with the FHLBanks during previous employment.
We actively marketsmarket membership through personal contacts and promotional materials. The FHLBNY competesWe compete for business by offering competitively priced products and financial flexibility afforded by membership. Institutions join the FHLBNY primarily for access to a reliable source of liquidity. Advances are an attractive source of liquidity because they permit members to pledge relatively non-liquid assets, such as 1-4 family, multifamily and commercial real estate mortgages held in portfolio, to create liquidity for the member. Advances are attractively priced because of the FHLBNY’sour access to capital markets as a GSE and the FHLBNY’sour strategy of providing balanced value to members.
The following table summarizes the FHLBNY’sour members by type of institution.
| Commercial | Thrift | Credit | Insurance | |||||||||||||||||
| Banks | Institutions | Unions | Companies | Total | ||||||||||||||||
| December 31, 2010 | 159 | 110 | 62 | 5 | 336 | |||||||||||||||
| December 31, 2009 | 160 | 112 | 54 | 5 | 331 | |||||||||||||||
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| Commercial |
| Thrift |
| Credit |
| Insurance |
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| Banks |
| Institutions |
| Unions |
| Companies |
| Total |
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December 31, 2011 |
| 155 |
| 105 |
| 74 |
| 6 |
| 340 |
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December 31, 2010 |
| 159 |
| 110 |
| 62 |
| 5 |
| 336 |
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Business Segments
We manage our operations as a single business segment. Management and the FHLBNY’sour Board of Directors review enterprise-wide financial information in order to make operating decisions and assess performance.
Our cooperative structure permits itus to expand and contract with demand for advances and changes in membership. When advances are paid down, either because the member no longer needs the funds or because the member has been acquired by a non-member and the former member decides to prepay advances, the stock associated with the advances is immediately redeemed. When advances are paid before maturity, the FHLBNY collectswe collect fees that make the FHLBNYus financially indifferent to the prepayment. The FHLBNY’sOur operating expenses are very low, about 6.0-8.06.0-11.0 basis points on average assets. Dividend capacity, which is a function of net income and the amount of stock outstanding, is largely unaffected by the prepayment since future stock and future income are reduced more or less proportionately. We believe that the FHLBNYwe will be able to meet itsour financial obligations and continue to deliver balanced value to members, even if advance demand for advances drops significantly or if members are lost to acquisitions.
Products and Services
We offer our members several correspondent banking services as well as safekeeping services. The fee income that is generated from these services is not significant. The FHLBNYWe also issuesissue standby letters of credit on behalf of members for a fee. The total of income derived from suchall services was about $5.9 million in 2011, $4.9 million for the year ended December 31, 2010, aboutand $4.2 million in 2009,2010 and about $3.4 million in 2008.2009. On an infrequent basis, the FHLBNYwe may act as an intermediary to purchase derivative instruments for members.
We provide the Mortgage Partnership Finance® program to itsour members as another service. For more information, see Acquired Member Assets Programs in this report. However, the FHLBNY doeswe do not expect the program to become a significant factor in itsour operations. The interest revenues derived from this program and another inactive mortgage program aggregated $62.9 million in 2011, $65.4 million for the year ended December 31, 2010,and $72.0 million for the year ended December 31, 2009in 2010 and $77.9 million for the year ended December 31, 2008.2009. The revenues were not a significant source of Net interest income for the FHLBNY.
Our short-term investments may include certificates of deposit, Federal funds sold and interest-earning deposits placed with high-rated financial institutionsinstitutions. Such investments also provide immediate liquidity to satisfy members’ needs for funds. Investments in mortgage-backed securities, classified as held-to-maturity or available-for-sale, and housing finance agency bonds, classified as held-to-maturity, provide additional earnings to enhance dividend potential for members. As a cooperative, the FHLBNY striveswe strive to provide its members a reasonable return on their investment in the FHLBNY’sour capital stock. The interest income derived from investments aggregated $0.4 billion, $0.5 billion$319.4 million, $398.4 million and $1.0 billion$513.4 million for the
years ended December 31, 2011, 2010 and 2009 and 2008represented 36.0%, 36.9% and represented 36.9%, 27.7% and 23.4% of total interest income for those years.
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Advances
We offer a wide range of credit products to help members meet local credit needs, manage interest rate and liquidity risk and serve their communities. The Bank’sOur primary business is making secured loans, called advances, to its members. These advances are available as short- and long-term loans with adjustable-variable-andadjustable-variable and fixed-rate features (including option-embedded and amortizing advances).
Advances to members, including former members, constituted 81.0%,72.6% and 82.4%81.0% of the FHLBNY’s Totalour total assets of $100.2$97.7 billion and $114.5$100.2 billion at December 31, 20102011 and 2009.2010. In terms of revenues, interest income derived from advances was $0.6 billion, $1.3 billion$504.1 million, $614.8 million and $3.0 billion,$1,270.6 million, representing 57.0%56.9%, 68.4%57.0% and 74.7%68.4% of total interest income for the years ended December 31, 2011, 2010 2009 and 2008.2009. Most of the FHLBNY’sour critical functions are directed at supporting the borrowing needs of the FHLBNY’sour members, monitoring the members’ associated collateral positions, and providing member support operations.
Members use advances as a source of funding to supplement their deposit-gathering activities. Advances borrowed by members have grown substantiallybeen substantial in the last 10 years because many members have not been able to increase their deposits in their local markets as quickly as they have increased their assets. To close this funding gap, members have preferred to obtain reasonably priced advances rather than increasing their deposits by offering higher rates or foregoing asset growth. Because of the wide range of advance types, terms, and structures available to them, members have also used advances to enhance their asset/liability management. As a cooperative, the FHLBNY priceswe price advances at minimal net spreads above the cost of itsour funding in order to deliver more value to members.
Our members are required by the FHLBank Act to pledge collateral to secure their advances. Eligible collateral includes: (1) one-to-four-family and multi-family mortgages; (2) Treasury and U.S. government agency securities; (3) mortgage-backed securities; and (4) certain other collateral that is real estate-related, provided that such collateral has a readily ascertainable value and that the FHLBNYwe can perfect a security interest in that collateral. The FHLBNYWe also hashave a statutory lien priority with respect to certain member assets under the FHLBank Act as well as a claim on FHLBNY capital stock held by itsour members.
Highlights of the Bank’s Advances offeredour more significant advances to members are as follows (outstanding par amounts of Advances by product type are disclosed in a table in the MD&A section captioned Financial Condition: Assets, Liabilities, Capital, Commitments and Contingencies):
Adjustable Rate Advances (“ARC Advances”)— ARC advances are medium- and long-term loans that can be linked to a variety of indices, such as 1-month LIBOR, 3-month LIBOR, the Federal funds rate, or Prime. Members use ARC advances to manage interest rate and basis risks by efficiently matching the interest rate index and repricing characteristics of floating-rate assets. The interest rate is set and reset (depending upon the maturity of the advance and the type of index) at a spread to that designated index. Principal is due at maturity and interest payments are due at each reset date, and at the final payment date.
Fixed-rate Advances— Fixed-rate advances, comprising putable and non-putable advances, remain the largest category of advances. A significant component of Fixed-rate advances isWithin this category are putable advances. Historically, Fixed-rate putable advances have been more competitively priced relative to fixed-rate “bullet” advances because of the “put” feature that the Bank purchases from the member, driving down the coupon on the advance. With a putable advance, the FHLBNY haswe have the right to exercise the put option and terminate the advance at predetermined exercise date (s)date(s), which the FHLBNYwe normally would exercise when interest rates rise. The borrower may then apply for a new advance at the then prevailing coupon and terms. In the present interest rate environment, the price advantage has not been significant because of constraints in offering longer-term-advances. The price advantage of a putable advance increases with the numbersnumber of puts sold and the length of the term of a putable advance. Fixed-rate advances are flexible funding tools that can be used by members to meet short- to long-term liquidity needs. Terms vary from two days to 30 years.
We also offersoffer fixed-rate callable advances. The call feature is purchased by the member and allows the member the right to exercise the call option and terminate the advance at predetermined exercise date (s)date(s).
Overnight advances—The overnight advances program gives members a short-term, flexible, readily accessible revolving line of credit for immediate liquidity needs. Overnight Advances mature on the next business day, at which time the advance is repaid. Interest is calculated on a 360-day360 day basis, charged daily, and priced at a spread to the prevailing Federal funds rate.
Amortizing Advances—Amortizing Advances are medium- or long-term fixed-rate loans with fixed amortizing schedules structured to match the payment characteristics of a mortgage loan or portfolio of mortgage loans held by the member. Terms offered are from one to 30 years with constant principal and interest payments.
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We may issue standby financial letters of credit (“Letters of Credit”) on behalf of members to facilitate members’ residential and community lending, provide members with liquidity, or assist members with asset/liability management. Where permitted by law, members may utilize FHLBNY letters of credit to collateralize deposits made
by units of state and local governments (“municipal deposits”). The FHLBNY’sOur underwriting and collateral requirements for securing Letters of Credit are the same as itsour requirements for securing advances.
Derivatives
To assist members in managing their interest rate and basis risks in both rising and falling interest-rate environments, the FHLBNYwe will act as an intermediary between the member and derivatives counterparty. The FHLBNY doesWe do not act as a dealer and viewsview this as an additional service to itsour members. Amounts of such transactions have not been material. Participating members must comply with the FHLBNY’sour documentation requirements and meet the Bank’sour underwriting and collateral requirements.
Acquired Member Assets Programs
Utilizing a risk-sharing structure, the FHLBanks are permitted to acquire certain assets from or through their members. These initiatives are referred to as Acquired Member Assets (“AMA”) programs. At the FHLBNY, the Acquired Member Assets initiative is the Mortgage Partnership Finance(“ (“MPF®”) Program, which provides members with an alternative to originating and selling long-term, fixed-rate mortgages in the secondary market. In the MPF Program, the FHLBNY purchaseswe purchase conforming fixed-rate mortgages originated or purchased by itsour members. Members are then paid a fee for assuming a portion of the credit risk of the mortgages acquired by the FHLBNY.we acquired. Members assume credit risk by providing a credit enhancement to the FHLBNYus or providing and paying for a supplemental mortgage insurance policy insuring the FHLBNYus for some portion of the credit risk involved. This provides a double-A equivalent level of creditworthiness on the mortgages. The amount of this credit enhancement is fully collateralized by the member. The FHLBNY assumesWe assume the remainder of the credit risk along with the interest rate risk of holding the mortgages in its portfolio.
The Acquired Member Assets Regulation does not specifically address the disposition of Acquired Member Assets. The main intent of that regulation is the purchase of assets for investment rather than for trading purposes. However, the FHLBanks have the legal authority to sell Mortgage Partnership Finance loans pursuant to the granting of incidental powers in Section 12 of the FHLBank Act. Section 12(a) of the FHLBank Act specifically provides that each FHLBank “shall have all such incidental powers, not inconsistent with the provisions of this chapter, as are customary and usual in corporations generally.” General corporate law principles permit the sale of investments.
We also hold participation interests in residential and community development mortgage loans through its Community Mortgage Asset (“CMA”) program. Acquisitions of Chicago announced the launch of the MPF Xtra product which provides participating FHLBanks and PFIs with an additional new balance sheet mortgage sale alternative. Loans sold to the FHLBank of Chicago through the MPF Xtra product will concurrently be sold to Fannie Mae, as a third party investor, and will not be held on the FHLBank of Chicago’s balance sheet. Unlike other MPF products,participations under the MPF Xtra product PFIs are not required to provide credit enhancement and would not receive credit enhancement fees. As of December 31, 2010, the FHLBNY has not participatedCommunity Mortgage Asset program were suspended indefinitely in this product.
Mortgage Partnership Finance Program
Introduction
We invest in mortgage loans through the MPF Program, which is a secondary mortgage market structure under which eligible mortgage loans are purchased or funded from or through Participating Financial Institution members (“PFIs”) and purchase participations in pools of eligible mortgage loans are purchased from other FHLBanks (collectively, “MPF” or “MPF Loans”). MPF Loans are conforming conventional and Government (i.e.i.e., insured or guaranteed by the Federal Housing Administration (“FHA”), the Department of Veterans Affairs (“VA”), the Rural Housing Service of the Department of Agriculture (“RHS”) or the Department of Housing and Urban Development (“HUD”) fixed rate mortgage loans secured by one-to-four family residential properties with maturities ranging from five5 to 30 years or participations in such mortgage loans. MPF Loans that are Government loans are collectively referred to as “MPF Government Loans.”
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MPF Governance Committee
The MPF Program enables otherprogram Governance Committee, which is comprised of representatives from each of the FHLBanks participating in the MPF program, is responsible for providing guidance on strategic MPF program decisions, including, but not limited to, pricing methodology changes.
MPF Provider
The MPF Provider and the FHLBNY, to purchaseMPF Governance Committee establishes the structure of MPF loan products and fundthe eligibility rules for MPF Loans with their member PFIs.loans. In addition, the FHLBankMPF Provider manages the pricing and delivery mechanism for MPF loans and the back office processing of Chicago (“MPF Provider”) provides programmaticloans in its role as master servicer and operational support to thosemaster custodian. The MPF Provider has engaged Wells Fargo Bank N.A. (Wells Fargo) as the vendor for master servicing and the primary custodian for the MPF program. The MPF Provider has also contracted with other custodians meeting MPF program eligibility standards at the request of certain PFIs. The MPF Provider publishes and maintains the MPF Guides, which detail the requirements PFIs must follow in originating or selling and servicing MPF loans. The MPF Provider maintains the infrastructure through which FHLBanks that participatemay fund or purchase MPF loans through their PFIs. In exchange for providing these services, the MPF Provider receives a fee from each of the FHLBanks participating in the program (“MPF Banks”).program.
Participating Financial Institutions
Our members and eligible housing associates must apply to become a PFI. In order to do MPF business with us, each member or eligible housing associate must meet certain eligibility standards and sign a PFI Agreement. The current MPF Banks arePFI Agreement provides the Federal Home Loan Banks of Boston, Des Moines, New York, Pittsburgh,terms and Topeka.
loans. PFIs may either retain the servicing of MPF loans or sell the servicing to an approved third-party provider. If a PFI chooses to retain the servicing, it receives a servicing fee to manage the servicing activities. If a PFI chooses to sell the servicing rights to an approved third-party provider, the servicing is transferred concurrently with the sale of the MPF Program gives controlloans and a servicing fee is paid to the third-party provider. Throughout the servicing process, the master servicer monitors the PFI’s compliance with MPF program requirements and makes periodic reports to the MPF Provider.
MPF Loan Types
There are currently six MPF loan products from which PFIs may choose. Four of those functionsthese products (Original MPF, MPF 125, MPF Plus, and Original MPF Government) are closed loan products in which loans are acquired or closed by the PFI. MPF 100 is a loan product in which the FHLBanks “table fund” MPF loans; that most impact credit qualityis, the acquiring FHLBank will provide the funds through the PFI as its agent to PFIs. Themake the MPF Banksloan to the borrower. This product is no longer offered by the FHLBNY and the last asset acquired under this program was on July 27, 2009. Currently, the FHLBNY offers the Original MPF and MPF 125.
MPF Xtra (MPF Xtra is a trademark of the FHLBank of Chicago) is an off-balance sheet loan product in which the acquiring FHLBank assigns 100 percent of its interest in PFI master commitments to the FHLBank of Chicago. We do not currently offer the MPF Xtra product to our members.
Under all of the above MPF loan products, the PFI performs all traditional retail loan origination functions. With respect to the MPF 100 product, we are considered the originator of the MPF loan for accounting purposes since the PFI is acting as our agent when originating the MPF loan; however, we do not collect any origination fees. Typically, a PFI will sign a master commitment to cover all the conventional MPF loans it intends to deliver to us in a year or other time period specified in the master commitment agreement. However, a PFI may also sign a master commitment for Original MPF Government loans and choose to deliver MPF loans under more than one conventional product, or it may choose to use different servicing options and have several master commitments open at any one time. Master commitments may be for shorter periods than one year and may be extended or increased by agreement of us and the PFI up to a maximum of two years.
We are responsible for managing the interest rate risk, including prepayment risk, and liquidity risk associated with owningthe MPF Loans.
For additional discussion on our MPF Loans under a master commitment in excess of the MPF Bank’s first loss account. PFIs are paid a credit enhancement fee (“CE Fee”) for managingloan products and their related credit risk, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation — Mortgage loans held-for-portfolio.
Loan Modifications
Effective August 1, 2009, we introduced a temporary loan payment modification plan for participating PFIs, which was initially available until December 31, 2011 and has been extended through December 31, 2013. This modification plan was made available to homeowners currently in some instances alldefault or a portionimminent danger of the CE Fee may be performance based. See “Credit Enhancement Structure — MPF Loan Credit Risk” for a detailed discussion of the credit enhancement, risk sharing arrangements and loan product information for the MPF Program.
Mortgage Standards
Mortgage loans delivered under the MPF Program must meet the underwriting and eligibility requirements in the MPF Guides, as amended by any waiver granted to a PFI exempting it from complying with specified provisions of the MPF Guides. PFIs may utilize an approved automated underwriting system or underwrite MPF Loans manually. The current underwriting and eligibility guidelines under the MPF Guides with respect to MPF Loans are broadly summarized as follows:
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·Loan-to-Value Ratio and Primary Mortgage Insurance. The maximum loan-to-value ratio (“LTV”) for conventional MPF Loans must not exceed 95%. AHP mortgage loans may have LTVs up to 100% (but may not exceed 105% total LTV, which compares the property value to the total amount of all mortgages outstanding against a property). Government MPF Loans may not exceed the LTV limits set by the applicable federal agency. Conventional MPF Loans with LTVs greater than 80% require certain amounts of mortgage guaranty insurance (“MI”), called primary MI.
·Documentation and Compliance with Applicable Law. The mortgage documents and mortgage transaction must comply with all applicable laws and mortgage loans must be documented using standard Fannie Mae/Freddie Mac Uniform Instruments.
·Ineligible Mortgage Loans. The following types of mortgage loans are not eligible for delivery under the MPF Program: (1) mortgage loans that are not ratable by S&P; (2) mortgage loans not meeting the MPF
Program eligibility requirements as set forth in the MPF Guides and agreements; and (3) mortgage loans that are classified as high cost, high rate, high risk, Home Ownership and Equity Protection Act (HOEPA) loans or loans in similar categories defined under predatory lending or abusive lending laws.
The MPF Guides also contain MPF Program policies which include anti-predatory lending policies, eligibility requirements for PFIs such as insurance requirements and annual certification requirements, loan documentation and custodian requirements, as well as detailing the PFI’s servicing duties and responsibilities for reporting, remittances, default management and disposition of properties acquired by foreclosure or deed in lieu of foreclosure.
A majority of the states, and some municipalities, have enacted laws against mortgage loans considered predatory or abusive. Some of these laws impose a liability for violations not only on the originator, but also upon purchasers and assignees of mortgage loans. The FHLBNY takesWe take measures that are consideredwe consider as reasonable and appropriate to reduce the Bank’sour exposure to potential liability under these laws and we are not aware of any claim, action or proceeding asserting that the Bankwe may be liable under these laws. However, the Bankwe cannot be certain that itwe will never have any liability under predatory or abusive lending laws.
MPF Loan Deliveries
In order to deliver mortgage loans under the MPF Program, the PFI and MPF Bank will enter into a best efforts master commitment (“Master Commitment”) which provides the general terms under which the PFI will deliver mortgage loans to an MPF Bank, including a maximum loan delivery amount, maximum CE amount and expiration date. PFIs may then request to enter into one or more mandatory funding or purchase commitments (each, a “Delivery Commitment”), which is a mandatory commitment of the PFI to sell or originate eligible mortgage loans. Each MPF Loan delivered must conform to specified ranges of interest rates, maturity terms and business days for delivery (which may be extended for a fee) detailed in the Delivery Commitment or it will be rejected by the MPF Provider. Each MPF Loan under a Delivery Commitment is linked to a Master Commitment so that the cumulative credit enhancement level can be determined for each Master Commitment.
The sum of MPF Loans delivered by the PFI under a specific Delivery Commitment may be subject to a pair-offpair off fee if it exceeds the amount specified in the Delivery Commitment fee. Delivery Commitments that are not fully funded by their expiration dates are subject to pair-off fees (fees charged to a PFI for failing to deliver the amount of loans specified in a Delivery Commitment) or extension fees (fees charged to a PFI for extending the deadline to deliver loans on a Delivery Commitment).
In connection with each sale to or funding by an MPF Bank, the PFI makes customary representations and warranties in the PFI Agreement and under the MPF Guides that includeincludes eligibility and conformance of the MPF Loans with the requirements in the MPF Guides, and compliance with predatory lending laws and the integrity of the data transmitted to the MPF Provider. Once an MPF Loan is funded or purchased, the PFI must deliver a qualifying promissory note and certain other required documents to the designated custodian, who reports to the MPF Provider whether the documentation package matches the funding information transmitted to the MPF Provider and otherwise meets MPF Program requirements.
In the role of the MPF Provider, the FHLBank of Chicago conducts an initial quality assurance review of a selected sample of MPF Loans from each PFI’s initial MPF Loan delivery. Thereafter, it performs periodic reviews of a sample of MPF Loans to determine whether the reviewed MPF Loans complied with the MPF Program requirements at the time of acquisition. Any exception that indicates a negative trend is discussed with the PFI and can result in the suspension or termination of a PFI’s ability to deliver new MPF Loans if the concern is not adequately addressed.
When a PFI fails to comply with the requirements of the PFI Agreement, MPF Guides, applicable law or terms of the mortgage documents, the PFI may be required to provide an indemnification covering related losses or to repurchase the MPF Loans which are impacted by such failure if it cannot be cured. Reasons for which a PFI could be required to repurchase an MPF Loan may include (butbut are not limited to)to MPF Loan ineligibility, breach of representation or warranty under the PFI Agreement or the MPF Guides, failure to deliver the required MPF Loan document package to an approved custodian, servicing breach or fraud.
We do not currently conduct quality assurance reviews of MPF Government loans. The PFI is required to deliver an enforceable Government Agency insurance certificate or loan guaranty.
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While the FHLBNYwe may purchase participation interests in MPF Loans from other MPF Banks and may also sell participation interests to other MPF Banks at the time MPF Loans are acquired, the FHLBNY haswe have not purchased or sold any interest in MPF loans since July 2004. The Bank’sOur intent is to hold all MPF Loans for its portfolio.
We are responsible for evaluating, monitoring, and certifying to any participating MPF Bank the creditworthiness of each PFI initially, and at least annually thereafter. The FHLBNY isWe are responsible for ensuring that adequate collateral is available from each of its PFIs to secure any direct obligation portion of the PFI’s CE Amount. The Bank isWe are also responsible for enforcing the PFI’s obligations under its PFI Agreement.
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MPF Servicing
The PFI or its servicing affiliate generally retains the right and responsibility for servicing MPF Loans it delivers. The PFI is responsible for collecting the borrower’s monthly payments and otherwise dealing with the borrower with respect to the MPF Loan and the mortgaged property. Based on monthly reports the PFI is required to provide the master servicer, appropriate withdrawals are made from the PFI’s deposit account with the applicable MPF Bank. In some cases, the PFI has agreed to advance principal and interest payments on the scheduled remittance date when the borrower has failed to pay, provided that the collateral securing the MPF Loan is sufficient to reimburse the PFI for
advanced amounts. The PFI recovers the advanced amounts either from future collections or upon the liquidation of the collateral securing the MPF Loans.
If an MPF Loan becomes delinquent, the PFI is required to contact the borrower to determine the cause of the delinquency and whether the borrower will be able to cure the default. The MPF Guides permit certain types of forbearance plans and the Guides also provide for certain types of temporary modification plans.
Upon any MPF Loan becoming 90 days or more delinquent, the master servicer monitors and reviews the PFI’s default management activities for that MPF Loan, including timeliness of notices to the mortgagor, forbearance proposals, property protection activities, and foreclosure referrals, all in accordance with the MPF Guides.
Upon liquidation of any MPF Loan and submission of each realized loss calculation from the PFI, the master servicer reviews the realized loss calculation for conformity with the primary mortgage insurance requirements, (ifif applicable, and conformity to the cost and timeliness standards of the MPF Guides. The master servicer disallows the reimbursement to the PFI of any servicing advances related to the PFI’s failure to perform in accordance with the MPF Guides. If there is a loss on a conventional MPF Loan, the loss is allocated based on the Master Commitment and shared in accordance with the risk-sharingrisk sharing structure for that particular Master Commitment. The servicer repaysre-pays any gain on sale of real-estatereal estate owned property to the MPF Bank or, in the case of participation, to the MPF Banks based upon their respective interest in the MPF Loan. However, the amount of the gain is available to reduce subsequent losses incurred under the Master Commitment before such losses are allocated between the MPF Bank and the PFI.
The MPF Provider monitors the PFI’s compliance with MPF Program requirements throughout the servicing process and will bring any material concerns to the attention of the MPF Bank. Minor lapses in servicing are charged to the PFI. Major lapses in servicing could result in a PFI’s servicing rights being terminated for cause and the servicing of the particular MPF Loans being transferred to a new, qualified servicing PFI. In addition, the MPF Guides require each PFI to maintain errors and omissions insurance and a fidelity bond and to provide an annual certifications ofcertification with respect to its insurance and its compliance with the MPF Program requirements.
Although PFIs or their servicing affiliates generally service the MPF Loans delivered by the PFI, certain PFIs choose to sell the servicing rights on a concurrent basis (servicing released) or in a bulk transfer to another PFI which is permitted with the consent of the MPF Banks involved. One PFI has been designated to acquire servicing under the MPF Program’s concurrent sale of servicing option. In addition, several PFIs have acquired servicing rights on a concurrent servicing released basis or bulk transfer basis without the direct support from the MPF Program.
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11
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We offer our members an array of correspondent banking services, including depository services, wire transfers, settlement services, and safekeeping services. Depository services include processing of customer transactions in “Overnight Investment Accounts,” the interest-bearing demand deposit account each customer has with the FHLBNY.us. All customer-related transactions (e.g. deposits, Federal Reserve Bank settlements, advances, securities transactions, and wires) are posted to these accounts each business day. Wire transfers include processing of incoming and outgoing domestic and foreign wire transfers, including third-party transfers. Settlement services include automated clearinghouse and other transactions received through the FHLBNY’sour accounts at the Federal Reserve Bank as correspondent for its members and passed through to our customers’ Overnight Investment Accounts at the FHLBNY.with us. Through a third party, the FHLBNY offerswe offer customers a range of securities custodial services, such as settlement of book entry (electronically held) and physical securities. The FHLBNY encouragesWe encourage members to access these products through 1Linksm, an Internet-based delivery system we developed as a proprietary service by the FHLBNY.service. Members access the 1Link system to obtain account activity information or process wire transfers, book transfers, security safekeeping and advance transactions.
Affordable Housing Program and Other Mission Related Programs
Federal Housing Finance Agency regulation Part 952.5 (a) (“Community Investment Cash Advance Programs”) states in general that each FHLBank shall establish an Affordable Housing Program in accordance with Part 951,1291, and a Community Investment Program. As more fully discussed under the section “Assessments” in this Form 10-K, the 12 FHLBanks, including the FHLBNY, must annually set aside for the Affordable Housing Program the greater of $100 million or 10 percent of regulatory defined net income.
The FHLBank may also offer a Rural Development Advance program, an Urban Development Advance program, and other Community Investment Cash Advance programs.
Affordable Housing Program (“AHP”).The FHLBNY meets We meet this requirement by allocating 10 percent of itsthe previous year’s regulatory defined net income to itsour Affordable Housing Program each year. The Affordable Housing Program helps our members of the FHLBNY meet their Community Reinvestment Act responsibilities. The program gives members access to cash grants and subsidized, low-cost funding to create affordable rental and home ownership opportunities, including first-time homebuyer programs. Within each year’s AHP allocation, the FHLBNY haswe have established a set-aside program for first-time homebuyers called the First Home Clubsm. A total of 15% of each AHP allocation has been set aside for this program. Household income qualifications for the First Home Club are the same as for the competitive AHP. Qualifying households can receive matched funds at a 4:1 ratio, up to $7,500, to help with closing costs and/or down payment assistance. Households are also required to attend counseling seminars that address personal budgeting and home ownership skills training.
Other Mission- Mission—Related Activities.The Community Investment Program (“CIP”), Rural Development Advance, and Urban Development Advance are community-lending programs that provide additional support to members in their affordable housing and economic development lending activities. These community-lending programs support affordable housing and economic development activity within low- and moderate-income neighborhoods andas well as other activities that benefit low- and moderate-income households. Through the
Community Investment Program, Rural Development Advance, and Urban Development Advance programs, the FHLBNY provideswe provide reduced-interest-rate advances to members for lending activity that meets the program requirements. The FHLBNYWe also providesprovide letters of credit (“Letters of Credit”) in support of projects that meet the CIP, Rural Development Advance, and Urban Development Advance program requirements. The project-eligible Letters of Credit are offered at reduced fees. Providing community lending programs (Community Investment Project, Rural Development Advance, Urban Development Advance, and Letters of Credit) at advantaged pricing that is discounted from the FHLBNY’sour market interest rates and fees represents an additional allocation of the FHLBNY’sour income in support of affordable housing and community economic development efforts. In addition, overhead costs and administrative expenses associated with the implementation of the FHLBNY’sour Affordable Housing and community lending programs are absorbed as general operating expenses and are not charged back to the AHP allocation. The foregone interest and fee income, as well as the administrative and operating costs, are above and beyond the annual income contribution to the AHP Loans offered under these programs.
Investments
We maintain portfolios of investments to provide additional earnings and for liquidity purposes. Investment income also bolsters the FHLBNY’sour capacity to fund Affordable Housing Program projects, to cover operating expenditures, and up until June 30, 2011, to also satisfy the Resolution Funding Corporation (REFCORP) assessment. For more information, see REFCORP Assessments in this report.Form 10-K. To help ensure the availability of funds to meet member credit needs, the FHLBNY maintainswe maintain a portfolio of short-term investments issued by highly-rated financial institutions. The investments include overnight Federal funds, term Federal funds, interest-bearing deposits, and certificates of deposit. The FHLBNYWe further enhancesenhance our interest income by holding long-term investments classified as either held-to-maturity or as available-for-sale. These portfolios primarily consist of mortgage-backed securities issued by government-sponsored mortgage enterprises and U.S. government agencies. The FHLBNY’sOur securities portfolio also includes a smaller portfolio of privately issued mortgage-backed and residential asset-backed securities, which were primarily acquired prior to 2004. Investments in mortgage-backed securities must carry, at the time of acquisition, the highest credit ratings from Moody’s Investors Service (“Moody’s”) or Standard & Poor’s (“S&P”). The FHLBNYWe also hashave investments in housing-related obligations of state and local governments and their housing finance agencies, which are required to carry ratings of AA or higher at time of acquisition. Housing-related obligations help to liquefy mortgages that finance low- and moderate-income housing. The long-term investment portfolio generally provides the FHLBNYus with higher returns than those available in the short-term money markets. For more information about investments, see section Asset Quality and Concentration — Advances, Investment securities, and Mortgage Loans, in this MD&A.
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·Instruments such as common stock that represent ownership in an entity. Exceptions include stock in small business investment companies and certain investments targeted at low-income persons or communities;
·Instruments issued by non-U.S. entities, other than those issued by U.S. branches and agency offices of foreign commercial banks; and
·Non-investment-grade debt instruments. Exceptions include certain investments targeted at low-income persons or communities and instruments that were downgraded after purchase.
We also limitslimit the book value of the FHLBNY’sour investments in mortgage-backed and residential asset-backed securities, collateralized mortgage obligations (“CMOs”), Real Estate Mortgage Investment Conduits “REMICs”(“REMICs”), and other eligible asset-backed securities, collectively known as mortgage-backed securities or “MBS”,“MBS,” to not exceed 300 percent of the Bank’s previous month-endour regulatory capital on the day it purchaseswe purchase the securities. At the time of purchase, all securities purchased must carry the highest rating assigned by Moody’s or S&P.
We are prohibited from purchasing:
·Interest-only or principal-only stripped mortgage-backed securities;
·Residual-interest or interest-accrual classes of collateralized mortgage obligations (CMOs) and real estate mortgage investment conduits (REMICs);
·Fixed-rate or floating-rate mortgage-backed securities that on the trade date are at rates equal to their contractual caps and whose average lives vary by more than six years under an assumed instantaneous interest rate change of 300 basis points;
·Non-U.S. dollar denominateddollar-denominated securities.
Debt Financing — Consolidated Obligations
Our primary source of funds for the FHLBNY is the sale of debt securities, known as consolidated obligations, in the U.S. and Globalglobal capital markets. Consolidated obligations are the joint and several obligations of the FHLBanks, backed only by the financial resources of the twelve12 FHLBanks. Consolidated obligations are not obligations of the United States, and the United States does not guarantee them.
Consolidated obligations are currently rated Aaa/P-1 by Moody’s and AAA/AA+/ A-1+ by S&P. These areOn August 5, 2011, S&P lowered its long-term credit rating on the highestUnited States from AAA to AA+ with a negative outlook. S&P has indicated that its ratings available for such debt from a Nationally Recognized Statistical Rating Organization (“NRSRO”). These ratings indicate thatof the FHLBanks have an extremely strong capacity to meet their commitments to pay principal and interest on consolidated obligations and that the consolidated obligationsFHLBank System are judged to beconstrained by the long-term credit rating of the highest quality with minimalUnited States. On August 8, 2011, S&P downgraded the long-term credit risk. The ratings on the FHLBanks’ consolidated obligations also reflectsenior unsecured debt issues of the FHLBank System and 10 of the 12 FHLBanks from AAA to AA+. The FHLBanks of Chicago and Seattle were already rated AA+ prior to the United States downgrade. S&P’s outlook for the FHLBank System’s status as a government-sponsored enterprise (“GSE”). Thesesenior unsecured
debt and all 12 FHLBanks is negative. However, S&P’s actions did not affect the short-term A-1+ ratings have not been affected byof the FHLBanks and the FHLBank System’s short-term debt issues. On August 2, 2011, following the raising of the U.S. statutory debt limit, Moody’s confirmed the Aaa bond rating actions takenof the U.S. government and changed the rating outlook of the U.S. government to negative. Moody’s also confirmed the long-term Aaa rating on the senior unsecured debt issues of the FHLBank System, the 12 FHLBanks, and other ratings Moody’s considers directly linked to the U.S. government. Additionally, in conjunction with respectthe revision of the U.S. government outlook to individual FHLBanks. The FHLBNY isnegative, the rating outlook for the FHLBank System debt was also currently rated Aaa/P-1 by Moody’s and AAA/ A-1+ by S&P.revised to negative. Investors should note that a rating issued by an NRSROa rating agency is not a recommendation to buy, sell or hold securities, and that the ratings may be revised or withdrawn by the NRSROrating agency at any time. Investors should evaluate the rating of each NRSROrating agency independently.
At December 31, 20102011 and 2009,2010, the par amounts of consolidated obligations outstanding, bonds and discount notes for all 12 FHLBanks aggregated $0.8was $0.7 trillion and $0.9$0.8 trillion. In comparison, the FHLBNY’sour consolidated obligations outstanding at December 31, 2011 and 2010 and 2009 aggregated $90.4$88.5 billion and $104.2$90.4 billion.
Although the FHLBNY iswe are primarily liable for itsour portion of consolidated obligations (i.e. those issued on itsour behalf), the FHLBNY iswe are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks. If the principal or interest on any consolidated obligation issued on our behalf of the FHLBNY is not paid in full when due, the following rules apply: the FHLBNYwe may not pay dividends to, or redeem or repurchase shares of stock from any member or non-member stockholder until the Finance Agency, the regulator of the FHLBanks, approves the FHLBNY’sour consolidated obligation payment plan or other remedy and until the FHLBNY payswe pay all the interest or principal currently due under all its consolidated obligations. The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligations.
To the extent that aany FHLBank makeswould make any payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank shall be entitled to reimbursement from the non-complying FHLBank. However, if the Finance Agency determines that the non-complying FHLBank is unable to make the payment, then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks in proportion to each FHLBank’s participation in all consolidated obligations outstanding or on any other basis determined by the Finance Agency.
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·Cash;
·Obligations of, or fully guaranteed by, the United States;
·Secured advances;
·Mortgages that have a guaranty, insurance, or commitment from the United States or any agency of the United States;
·Investments described in section 16(a) of the FHLBank Act, including securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located; and
·Other securities that are rated Aaa by Moody’s or AAA by Standard & Poor’s.
The FHLBanks issue consolidated obligations through the Office of Finance (“OF”, or the “Office of Finance”), which has authority to issue joint and several debt on behalf of the FHLBanks. Consolidated obligations are distributed through dealers selected by the Office of Finance using various methods including competitive auction and negotiations with individual or syndicates of underwriters. Some debt issuance is in response to specific inquiries from underwriters. Many consolidated obligations are issued with the FHLBank concurrently entering into derivatives agreements, such as interest rate swaps. To facilitate issuance, the OF may coordinate communication between underwriters, individual FHLBanks, and financial institutions executing derivative agreements with the FHLBanks.
Issuance volume is not concentrated with any particular underwriter.
The Office of Finance is mandated by the Finance Agency to ensure that consolidated obligations are issued efficiently and at the lowest all-in cost of funds over time. If the Office of Finance determines that its action is consistent with its Finance Agency’s mandated policies, it may reject the FHLBNY’sour issuance request, and the requests of other FHLBanks, to raise funds through the issuance of consolidated obligations on particular terms and conditions. The FHLBNY hasWe have never been denied access under this policy for all periods reported.
The Office of Finance also services all outstanding debt; provides the FHLBanks with rating information received from Nationally Recognized Statistical Rating Organizations (“NRSROs”) for counterparties to which the FHLBanks have unsecured credit exposure; serves as a source of information for the FHLBanks on capital market developments; administers the Resolution Funding Corporation and the Financing Corporation; and manages the FHLBanks’ relationship with the rating agencies with respect to the consolidated obligations.
Consolidated Obligation Liabilities
The issuance and servicing of consolidated obligations debt are performed by the Office of Finance, a joint office of the FHLBanks established by the Finance Agency. Each FHLBank independently determines its participation in each issuance of consolidated obligations based on (among other factors) its own funding and operating requirements, maturities, interest rates, and other terms available for consolidated obligations in the market place. Although the FHLBNY is primarily liable for its portion of consolidated obligations (i.e. those issued on its behalf), the FHLBNY iswe are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks. The FHLBanks, including the FHLBNY, have emphasized diversification of funding sources and channels as the need for funding from the capital markets has grown.
Consolidated Obligations Bonds. Consolidated obligation bonds satisfy our long-term funding requirements. Typically, the maturity of securities issued in recent years range from one to ten years, but the maturity is not subject to any statutory or regulatory limit. Consolidated obligation bonds can be fixed or adjustable rate and callable or non-callable. Consolidated obligation bonds can be issued and distributed through negotiated or competitively bid transactions with underwriters approved by the Office of Finance or members of a selling group. The two major debt programs offered by the Office of Finance are the Global Debt Program and the TAP issue programs as described below. The FHLBNY participatesWe participate in both programs.
The Global Debt Program - provides the FHLBanks with the ability to distribute debt into multiple primary markets across the globe. The FHLBank global debt issuance facility has been in place since July 1994. FHLBank global bonds are known for their variety and flexibility; all can be customized to meet changing market demand with different structures, terms and currencies. Global Debt Program bonds are available in maturities ranging from one year to 30 years, with the majority of global issues between one and five years. The Global Issuance Program, which is also conducted through the Office of Finance has the objective of providing funding to FHLBanks at lower interest costs than consolidated bonds issued through the TAP program because issuances occur less frequently, are larger in size, and are placed by dealers to investors via a syndication process.
The most common Global Debt Program structures are bullets, floaters and fixed-rate callable bonds with maturities of one to ten years. Issue sizes are typically from $500 million to $5 billion, and individual bonds can be reopened to meet additional demand. Bullets are the most common global bonds, particularly in sizes of $3 billion or larger.
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Consolidated obligations are issued with either fixed- or variable-rate coupon payment terms that use a variety of indices for interest rate resets. These indices include the London Interbank Offered Rate (“LIBOR”), Constant Maturity Treasury (“CMT”), 11th District Cost of Funds Index (“COFI”), Prime rate, the Federal funds rate, and others. In addition, to meet the expected specific needs of certain investors in consolidated obligations, both fixed- and variable-rate bonds may also contain certain features that will result in complex coupon payment terms and call options. When the FHLBNYwe cannot use such complex coupons to match itsour assets, FHLBNY enterswe enter into derivative transactions containing offsetting features that effectively convert the terms of the bond to those of a simple variable-rate bond.
The consolidated obligations, beyond having fixed- or variable-rate coupon payment terms, may also be Optional Principal Redemption Bonds (callable bonds) that the FHLBNYwe may redeem in whole or in part at itsour discretion on predetermined call dates according to the terms of the bond offerings.
Consolidated obligation Bonds.TAP Issue ProgramConsolidated obligation bonds satisfy the FHLBNY’s long-term funding requirements. Typically, the maturity of securities issued in recent years range from one to ten years, but the maturity is not subject to any statutory or regulatory limit. Consolidated obligation bonds can be fixed or adjustable rate and callable or non-callable. Consolidated obligation bonds can be issued and distributed through negotiated or competitively bid transactions with underwriters approved by the Office of Finance or members of a selling group.
TAP Issues are simply generic bullet maturities that are created once a quarter (at market prices) and then reopened over 3-month periods, allowing the FHLBanks also participate into consolidate small medium-term notes into large, liquid issues under a single CUSIP. TAP Issues have standard features, including semi-annual interest payments on 2/15 and 8/15 or 5/15 and 11/15. On-the-run TAP maturities include the “Global Issuance Program.” The Global Issuance Program commenced in 2002 through the Office of Finance with the objective of providing funding2-, 3-, 5-, and 7-year issuances. TAP Issues are brought to FHLBanks at lower interest costs than consolidated bonds issued through the TAP program because issuances occur less frequently, are larger in size, and are placed by dealers to investorsmarket once daily via a syndicationcompetitive auction process.
Consolidated obligationObligation Discount Notes.Consolidated obligation discount notes provide the FHLBNYus with short-term funds. These notes have maturities of up to one year and are offered daily through a dealer-selling group. The notes are sold at a discount from their face amount and mature at par.
On a daily basis, FHLBanks may request that specific amounts of discount notes with specific maturity dates be offered by the Office of Finance for sale through the dealer-selling group. One or more other FHLBanks may also request that amounts of discount notes with the same maturities be offered for sale for their benefit on the same day. The Office of Finance commits to issue discount notes on behalf of the participating FHLBanks when dealers submit orders for the specific discount notes offered for sale. The FHLBanks receive funding based on the time of the request, the rate requested for issuance, and the trade settlement and maturity dates. If all terms of the request are the same except for the time of the request, then a FHLBank may receive frombetween zero toand 100 percent of the proceeds of the sale of the discount notes issued depending on: the time of the request; the maximum costs the FHLBank or other FHLBanks if any, participating in the same issuance are willing to pay;pay (if any); and the amount of orders submitted by dealers.
Twice weekly, FHLBanks may also request that specific amounts of discount notes with fixed maturity dates of 4, 9, 13, and 26 weeks be offered by the Office of Finance through a competitive auction conducted with securities dealers in the discount note selling group. One or more of the FHLBanks may also request that amounts of those same discount notes be offered for sale for their benefit through the same auction. The discount notes offered for sale through competitive auction are not subject to a limit on the maximum costs the FHLBanks are willing to pay. The FHLBanks receive funding based on their requests at a weighted average rate of the winning bids from the dealers. If the bids submitted are less than the total of the FHLBanks’ requests, an FHLBank receives funding based on that FHLBank’s capital relative to the capital of other FHLBanks offering discount notes.
Regardless of the method of issuance, the Office of Finance can only issue consolidated obligations when ana FHLBank provides a request for and agrees to accept the funds.
Deposits
The FHLBank Act allows the FHLBNYus to accept deposits from its members, other FHLBanks and government instrumentalities. For the FHLBNY,us, member deposits are also a source of funding, but the FHLBNY doeswe do not rely on member deposits to meet itsour funding requirements. For members, deposits are a low-risk earning asset that may satisfy their regulatory liquidity requirements. The FHLBNY offersWe offer several types of deposit programs to itsour members, including demand and term deposits.
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Our Board of Directors adopted a Retained Earnings and Dividend Policy in order to: (1) establish a process to assess the adequacy of retained earnings in view of the Bank’sour assessment of the financial, economic and business risks inherent in itsour operations; (2) establish the priority of contributions to retained earnings relative to other distributions of income; (3) establish a target level of retained earnings and a timeline to achieve the target; and (4) establish a process to ensure maintenance of appropriate levels of retained earnings. The objective of the Retained Earnings and Dividend Policy is to preserve the value of theour members’ investment in the Bank.
We may pay dividends from retained earnings and current income. The FHLBNY’sOur Board of Directors may declare and pay dividends in either cash or capital stock. DividendsOur dividends and theour dividend policy of the FHLBNY are subject to Finance Agency regulations and policies.
To preserve the value of the members’ investments, the level of retained earnings should be sufficient to: (1) protect the members’ paid-in capital from losses related to market, credit, operational, and other risks (including legal and accounting) within a defined confidence level under normal operating conditions; and (2) provide members with a reasonable dividend. The FHLBNY’s level of retained earnings should provide management with a high degree of confidence that reasonably foreseeable losses will not impair paid-in capital thereby preserving the par value of the stock, and to be available to supplement dividends when earnings are low or losses occur.
As of December 31, 2010,2011, management had determined that the amount of retained earnings, net of losses in Accumulated other comprehensive income (loss) (“AOCI”), necessary to achieve the objectives based on the risk profile of the FHLBNY’sour balance sheet was$538.3481.3 million. At December 31, 2010,2011, actual retained earningearnings were $746.2 million and losses in AOCI were $190.4 million. The December 31, 2010, retained earnings target was $538.3 million, and actual retained earnings was $712.1 million and losses in AOCI were $96.7 million. The December 31, 2009 retained earning target was $358.1 million. At December 31, 2009, actual retained earning was $688.9 million and losses in AOCI were $144.5 million. Management has not determined at this time the Bank’sour expected dividend payout ratios in 2011,2012, and is also in the process of re-evaluating the retained earnings target for 2011,2012, but expects to establish a higher target.
The following table summarizes the impact of dividends on the FHLBNY’sour retained earnings for the years ended December 31, 2011, 2010 2009 and 20082009 (in thousands):
|
| December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Retained earnings, beginning of year |
| $ | 712,091 |
| $ | 688,874 |
| $ | 382,856 |
|
Net Income for the year |
| 244,486 |
| 275,525 |
| 570,755 |
| |||
|
| 956,577 |
| 964,399 |
| 953,611 |
| |||
Dividends paid in the year (a) |
| (210,340 | ) | (252,308 | ) | (264,737 | ) | |||
Retained earnings, end of year |
| $ | 746,237 |
| $ | 712,091 |
| $ | 688,874 |
|
| December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Retained earnings, beginning of year | $ | 688,874 | $ | 382,856 | $ | 418,295 | ||||||
| Net Income for the year | 275,525 | 570,755 | 259,060 | |||||||||
| 964,399 | 953,611 | 677,355 | ||||||||||
Dividend paid in the year1 | (252,308 | ) | (264,737 | ) | (294,499 | ) | ||||||
| Retained earnings, end of year | $ | 712,091 | $ | 688,874 | $ | 382,856 | ||||||
(a) Dividends are paid in arrears in the second month after quarter end. Dividends are not accrued at quarter end.
Competition
Demand for advances is affected by (among other things) the availability and cost to members of alternate sources of liquidity, including retail deposits, wholesale and brokered deposits, and repurchase agreements, andagreements. Additionally, during the credit crisis, members had access to various government lending programs. BecauseHistorically, members generally growhave grown their assets at a faster pace than they grow retail deposits and capital the FHLBNY competescreating a funding gap. We compete with otherboth secured and unsecured suppliers of wholesale funding both secured and unsecured, to fill the members’these potential funding gaps. Such other suppliers of funding may include Wall Street dealers, commercial banks, regional broker-dealers, the U.S. Government and firms capitalizing on wholesale funding platforms (e.g. “CDARS,” the Certificate of Deposit Account Registry Service). Certain members may have access to alternative wholesale funding sources such as lines of credit, wholesale CD programs, brokered CDs and sales of securities under agreements to repurchase. Large members may also have independent access to the national and global credit markets. The availability of alternative funding sources can vary as a result of market conditions, member creditworthiness, availability of collateral and suppliers’ appetite for the business, as well as other factors.
We compete for funds raised through the issuance of unsecured debt in the national and global debt markets. Competitors include corporate, sovereign, and supranational entities, as well as Government Sponsored Enterprises including Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corp. (“Freddie Mac”) and other Government Sponsored Enterprises, as well as corporate, sovereign, and supranational entities.. Increases in the supply of competing debt products could, in the absence of increases in demand, result in higher debt costs or lesser amounts of debt issued at the same cost than would otherwise be the case. In addition, the availability and cost of funds can be adversely affected by regulatory initiatives that could reduce demand for Federal Home Loan Bank system debt. Although the available supply of funds has kept pace with the funding needs of the FHLBNY’sour members, there can be no assurance that this will continue to be the case indefinitely.
In addition, the sale of callable debt and the simultaneous execution of callable derivatives that mirror the debt have been an important source of competitively priced funding for the FHLBNY.us. Therefore, the liquidity of markets for callable debt and derivatives areis an important determinant of the FHLBNY’sour relative cost of funds. There is considerable competition among high credit quality issuers in the markets for callable debt and derivatives. There can be no assurance that the current breadth and depth of these markets will be sustained.
We compete for the purchase of mortgage loans held-for-portfolio.held-for-sale. For single-family products, the FHLBNY competeswe compete primarily with Fannie Mae and Freddie Mac, principally on the basis of price, products, structures, and services offered.
17
An indirect but growing source of competition is the acquisition of a FHLBNY member bank by a member of another FHLBank. Under Finance Agency regulations, if the charter residing within our district is dissolved, the acquired institution is no longerconsidered as a member of the FHLBNYnon-member and cannot borrow additional funds from the FHLBNY.us. In addition, the non-member may not renew advances when they mature. FormerOur former members, of the FHLBNY, who attained non-member status by virtue of being acquired, had advances borrowed and outstanding of $0.8 billion$710.4 million and $2.3 billion$837.0 million at December 31, 20102011 and 2009, respectively.2010. Such non-members also held capital stock, which was reported as mandatorily redeemable capital stock of $63.2$54.8 million and $126.3$63.2 million at December 31, 2011 and 2010, and 2009, andstock was classified as a liability in the Statements of Condition.
Oversight, Audits, and Examinations
We are supervised and regulated by the Federal Housing Finance Agency (“Finance Agency”), which was created on July 30, 2008, when the President signed into law the Housing and Economic Recovery Act of 2008.2008 into law. The Act created a regulator with all of the authorities necessary to oversee vital components of our country’s secondary mortgage markets — Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. In addition, this law combined the staffs of the Office of Federal Housing Enterprise Oversight (“OFHEO”), the Federal Housing Finance Board (“FHFB”), and the GSE mission office at the Department of Housing and Urban Development (“HUD”). The establishment of the Finance Agency will promote a stronger, safer U.S. housing finance system, affordable housing and community investment through safety and soundness oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
We carry out itsour statutory mission only through activities that comply with the rules, regulations, guidelines, and orders issued under the Federal Housing Enterprises Financial Safety and Soundness Act Housing Act and the FHLBank Act.
The Government Corporation Control Act provides that, before a government corporation may issue and offer obligations to the public, the Secretary of the Treasury shall prescribe the form, denomination, maturity, interest rate and conditions of the obligations; the way and time issued; and the selling price. The U.S. Department of the Treasury receives the Finance Agency’s annual report to Congress, monthly reports reflecting securities transactions of the FHLBanks, and other reports reflecting the operations of the FHLBanks.
We have an internal audit department; the FHLBNY’sour Board of Directors has an Audit Committee. An independent registered public accounting firm audits theour annual financial statements of the FHLBNY.statements. The independent registered public accounting firm conducts these audits following auditing standards established by the Public Company Accounting Oversight Board (United States). The FHLBanks, the Finance Agency, and Congress all receive the audit reports. The FHLBNYWe must also submit annual management reports to Congress, the President, the Office of Management and Budget, and the Comptroller General. These reports include: Statements of financial condition, operations, and cash flows; a Statement of internal accounting and administrative control systems; and the Report of the independent registered public accounting firm on the financial statements and internal controls over financial reporting.
The Comptroller General has authority under the FHLBank Act to audit or examine the Finance Agency and the FHLBanks, including the FHLBNY, and to decide the extent to which they fairly and effectively fulfill the purpose of the FHLBank Act. Furthermore, the Government Corporation Control Act provides that the Comptroller General may review any audit of the FHLBNY’sour financial statements conducted by a registered independent public accounting firm. If the Comptroller General conducts such a review, then he or she must report the results and provide his or her recommendations to Congress, the Office of Management and Budget and the FHLBNY.Bank. The Comptroller General may also conduct his or her own audit of any of our financial statementsstatements.
Personnel
As of December 31, 2011, we had 273 full-time and 3 part-time employees. As of December 31, 2010, the FHLBNYwe had 268 full-time and 3 part-time employees. At December 31, 2009 there were 259 full-time and 5 part-time employees. The employees are not represented by a collective bargaining unit, and the FHLBNY considers itswe consider our relationship with its employees to be good.
Tax Status
The FHLBanks, including the FHLBNY, are exempt from ordinary federal, state, and local taxation except for local real estate tax.
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Up until June 30, 2011, the FHLBanks, including the FHLBNY, is exempt from ordinary federal, state, and local taxation except for local real estate tax, it iswere required to make payments to REFCORP.REFCORP based on a percentage of Net Income. Each FHLBank iswas required to pay 20 percentmake payments to REFCORP until the total amount of income calculatedpayment actually made by all 12 FHLBanks was equivalent to a $300 million annual annuity, whose final maturity date was April 15, 2030. Based on payments made by the 12 FHLBanks through the second quarter of 2011, the FHLBanks had satisfied their obligation to REFCORP by the end of that period and no further payments will be necessary. In the third quarter of 2011, the FHLBNY recovered $365,000 from a prior quarter in accordance with accounting principles generally accepted in the U.S. (“GAAP”) after the assessment for the Affordable Housing Program. The Affordable Housing Program and REFCORP assessments are calculated simultaneously because of their interdependence on each other. The FHLBNY accrues its REFCORP assessment on a monthly basis.
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 AHP 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 and the assessment for Affordable Housing Program, butand prior to June 30, 2011, 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 accruesWe accrue the AHP expense monthly.
We charge the amount set aside for Affordable Housing Program to income and recognizesrecognize the amounts set aside as a liability. The Bank relievesWe relieve the AHP liability as members use subsidies. In periods where the FHLBNY’sour regulatory income before Affordable Housing Program and REFCORP (prior to the termination of the REFCORP obligation on June 30, 2011) is zero or less, the amount of AHP liability is equal to zero, barring application of the following. If the result of the aggregate 10 percent calculation described above is less than $100 million for all 12 FHLBanks, then the Act requires the shortfall to be allocated among the FHLBanks based on the ratio of each FHLBank’s income before Affordable Housing Program and REFCORP to the sum of the income before Affordable Housing Program and REFCORP of the 12 FHLBanks. There was no shortfall in the years ended 2011, 2010 2009 or 2008.
The following risk factors along with all of the other information set forth in this Annual Report on Form 10-K, including the financial statements and accompanying notes should be considered. If any of the events or developments described in this section were to occur, the business, financial condition or results of operations could be adversely affected.
The FHLBNY’s funding depends on its ability to access the capital markets.The FHLBNY’s Our primary source of funds is the sale of consolidated obligations in the capital markets. The FHLBNY’sOur ability to obtain funds through the sale of consolidated obligations depends in part on prevailing conditions in the capital markets, which are, for the most part, beyond the FHLBNY’sour control. Accordingly, the FHLBNYwe may not be able to obtain funding on acceptable terms, if at all. If the FHLBNYwe cannot access funding when needed on acceptable terms, itsour ability to support and continue operations could be adversely affected, which could negatively affect itsour financial condition and results of operations.
Changes in the credit ratings on FHLBank System consolidated obligations may adversely affect the cost of consolidated obligations, which could adversely affect FHLBNY’s financial condition and results of operations.FHLBank System consolidated obligations have been assigned Aaa/P-1 and AAA/AA+/A-1+ ratings by Moody’s and S&P. The outlook for the FHLBank debt by both S&P and Moody’s is negative. Rating agencies may from time to time change a rating or issue negative reports, which may adversely affect the cost of funds of one or more FHLBanks, including the FHLBNY, and the ability to issue consolidated obligations on acceptable terms. A higher cost of funds or the impairment of the ability to issue consolidated obligations on acceptable terms could also adversely affect the FHLBNY’sour financial condition and results of operations.
19
quantities necessary to manage itsour interest-rate risk on consolidated obligations or other financial instruments. This could negatively affect the FHLBNY’sour financial condition and results of operations.
The FHLBanks are governed by federal laws and regulations, which could change or be applied in a manner detrimental to the FHLBNY’s operations.The FHLBanks are government-sponsored enterprises (“GSEs”), organized under the authority of the FHLBank Act, and, as such, are governed by federal laws and regulations of the Finance Agency, an independent agency in the executive branch of the federal government. From time to time, Congress has amended the FHLBank Act in ways that have significantly affected the FHLBanks and the manner in which the FHLBanks carry out their housing finance mission and business operations. New or modified legislation enacted by Congress or regulations adopted by the Finance Agency could have a negative effect on the FHLBanks’our ability to conduct business or itsour cost of doing business.
Changes in regulatory or statutory requirements, or in their application, could result in, among other things, changes in: the FHLBNY’sour cost of funds; retained earnings requirements; debt issuance; dividend payment limits and the form of dividend payments; capital redemption and repurchase limits;repurchases; permissible business activities; the size, scope;scope, or nature of the FHLBNY’sour lending, investment, or mortgage purchase program activities;programs; or increasedour compliance costs. Changes that restrict dividend payments, the growth of the FHLBNY’sour current business, or the creation of new products or services could negatively affect the FHLBNY’sour results of operations and financial condition. Further, the regulatory environment affecting members could be changed in a manner that would negatively affect their ability to acquire or own FHLBNY’sour capital stock or take advantage of an FHLBNY’sour products and services.
As a result of these factors, the FHLBank System may have to pay a higher rate of interest on consolidated obligations to make them attractive to investors. If the FHLBNY maintains its existing pricing on advances, theobligations. The resulting increase in the cost of issuing consolidated obligations could cause the FHLBNY’sour advances to be less profitable and reduce itsour net interest margins (the difference between the interest rate received on advances and the interest rate paid on consolidated obligations). If in response to this decrease in net interest margin, the FHLBNY changeswe change the pricing of itsour advances, the advancesthey may no longer be attractive to its members and outstanding advances balances may decrease. In eitherany case, the increased cost of issuing consolidated obligations could negatively affect the FHLBNY’sour financial condition and results of operations.
Changes in interest rates could significantly affect the FHLBNY’s financial condition and results of operations.The FHLBNY realizesWe earn income primarily from the spread between interest earned on itsour outstanding advances, investments and shareholders’ capital, and interest paid on itsour consolidated obligations and other interest-bearing liabilities. Although the FHLBNY useswe use various methods and procedures to monitor and manage itsour exposure to changes in interest rates, the FHLBNYwe may experience instances when either itsour interest-bearing liabilities will be more sensitive to changes in interest rates than our interest-earning assets, or vice versa. In either case, interest rate movements contrary to the FHLBNY’sour position could negatively affect itsour financial condition and results of operations. Moreover, the effect of changes in interest rates can be exacerbated by prepayment and extension risk, which is the risk that mortgage related assets will be refinanced by the mortgagor in low interest rate environments or will remain outstanding longer than expected at below market yields when interest rates increase.
A loss or change of business activities with large members could adversely affect the FHLBNY’s results of operations and financial condition.Withdrawal of one or more large members from the FHLBNY’sour membership could result in a reduction of the FHLBNY’sour total assets, capital, and net income. If one or more of the FHLBNY’sour large members were to prepay itstheir advances or repay the advances as they came due and no other advances were made to replace them, it could also result in a reduction of the FHLBNY’sour total assets, capital, and net income. The timing and magnitude of the effect of a reduction in the amount of advances would depend on a number of factors, including:
·the amount and the period over which the advances were prepaid or repaid;
·the amount and timing of any corresponding decreases in activity-based capital;
·the profitability of the advances;
·the size and profitability of the FHLBNY’sour short- and long-term investments; and
·the extent to which consolidated obligations matured as the advances were prepaid or repaid.
The FHLBNY’s financial condition and results of operations could be adversely affected by FHLBNY’s exposure to credit risk.The FHLBNY’s hasWe have exposure to credit risk in that the market value of an obligation may decline as a result of deterioration in the creditworthiness of the obligor or the credit quality of a security instrument. In addition, the FHLBNY assumeswe assume secured and unsecured credit risk exposure associated with the risk that a borrower or counterparty could default and the FHLBNYwe could suffer a loss if itwe could not fully recover amounts owed to itus on a timely basis. A credit loss, if material, will have an adverse effect on the FHLBNY’s financial condition and results of operations, and the value of FHLBank membership.
The FHLBNY may not be able to meet its obligations as they come due or meet the credit and liquidity needs of its members in a timely and cost-effective manner.The FHLBNY seeksWe seek to be in a position to meet itsour members’ credit and liquidity needs and pay itsour obligations without maintaining excessive holdings of low-yielding liquid investments or being forced to incur unnecessarily high borrowing costs. In addition, the FHLBNY maintainswe maintain a contingencycontingent liquidity plan designed to enable itus to meet itsour obligations and the liquidity needs of members in the event of operational disruptions or short-term disruptions in the capital markets. The FHLBNY’sOur ability to manage itsour liquidity position or its contingencyour contingent liquidity plan may not enable itus to meet itsour obligations and the credit and liquidity needs of itsour members, which could have an adverse effect on the FHLBNY’sour financial condition and results of operations.
20
more favorable terms than the FHLBNY offersones we offer on itsour advances, including more flexible credit or collateral standards. The FHLBNYWe may make changes in policies, programs, and agreements affecting members from time to time, including, affecting the availability of and conditions for access to advances and other credit products, the MPF Program, the AHP, and other programs, products, and services, which could cause members to obtain financing from alternative sources. In addition, many of our competitors are not subject to the same regulations, which may enable those competitors to offer products and terms that the FHLBNY iswe are not able to offer.
The availability to the FHLBNY’s members of alternative funding sources that are more attractive to our members may significantly decrease the demand for the FHLBNY’sour advances. Lowering the price of the advances to compete with these alternative funding sources may decrease the profitability of advances. A decrease in the demand for the FHLBNY’sour advances or a decrease in the FHLBNY’sour profitability on advances could adversely affect the FHLBNY’sour financial condition and results of operations.
Certain FHLBanks, including the FHLBNY, also compete primarily(primarily with Fannie Mae and Freddie Mac,Mac) for the purchase of mortgage loans from members. Some FHLBanks may also compete with other FHLBanks with which their members have a relationship through affiliates. The FHLBNY offersWe offer the MPF Program to itsour members. Competition among FHLBanks for MPF program business may be affected by the requirement that a member and its affiliates can sell loans into the MPF Program through only one FHLBank relationship at a time. Increased competition can result in a reduction in the amount of mortgage loans the FHLBNY iswe are able to purchase and, therefore, lower income from this part of its business.
The FHLBanks, including the FHLBNY, also compete with the U.S. Department of the Treasury, Fannie Mae, Freddie Mac, and other GSEs, as well as corporate, sovereign, and supranational entities, for funds raised through the issuance of unsecured debt in the national and global debt markets. Increases in the supply of competing debt products may, in the absence of increases in demand, result in higher debt costs or lower amounts of debt issued at the same cost than otherwise would be the case. Increased competition could adversely affect the FHLBNY’sour ability to have access to funding, reduce the amount of funding available to the FHLBNY,us, or increase the cost of funding available to the FHLBNY.us. Any of these effects could adversely affect the FHLBNY’sour financial condition and results of operations.
The FHLBNY relies heavily on information systems and other technology.The FHLBNY relies
We rely heavily on its information systems and other technology to conduct and manage itsour business. We have implemented a business continuity plan that includes the maintenance of an alternate site for data processing and office functions. All critical systems are tested annually for recovery readiness and all business units update and test their respective disaster recovery plans annually. If the FHLBNY experienceswe were to experience a failure or interruption in any of these systems or other technology the FHLBNY may be unableand our disaster recovery capabilities were also impacted, it would affect our ability to conduct and manage itsour business effectively, including its advance and hedging activities. Although the FHLBNY has implemented a business continuity plan, itThis may not be able to prevent, timely and adequately address, or mitigate the negative effects of any failure or interruption, which could adversely affect its member relations, risk management, and negatively affect the FHLBNY’sour financial condition and results of operations.
Economic downturns and changes in federal monetary policy could have an adverse effect on the FHLBNY’s business and its results of operations.The FHLBNY’sOur businesses and results of operations are sensitive to general business and economic conditions. These conditions include short- and long-term interest rates, inflation, money supply, fluctuations in both debt and equity capital markets, and the strength of the United States economy and the local economies in which the FHLBNY conducts itswe conduct our business. If any of these conditions deteriorate, the FHLBNY’sour businesses and results of operations could be adversely affected. For example, a prolonged economic downturn could result in members becoming delinquent or defaulting on theirneeding fewer advances. In addition, the FHLBNY’sour business and results of operations are significantly affected by the fiscal and monetary policies of the federal government and its agencies, including the Federal Reserve Board, which regulates the supply of money and credit in the United States. The Federal Reserve Board’s policies directly and indirectly influence the yield on interest-earning assets and the cost of interest-bearing liabilities.
The FHLBNY may become liable for all or a portion of the consolidated obligations of the FHLBanks, which could negatively impact the FHLBNY’s financial condition and results of operations.The FHLBNY isWe are jointly and severally liable along with the other FHLBanks for the consolidated obligations issued on behalf of their behalf through the Office of Finance. Dividends on, redemption of, or repurchase of shares of the FHLBNY’sour capital stock isare not permitted unless the principal and interest due on all consolidated obligations have been paid in full. If another Federal Home Loan Bank were to default on its obligation to pay principal or interest on any consolidated obligations, the Finance Agency may allocate the outstanding liability among one or more of the remaining Federal Home Loan BanksFHLBanks on a pro rata basis or on any other basis the Finance Agency may determine. As a result, the FHLBNY’sour ability to pay dividends on, to redeem, or to repurchase shares of capital stock could be affected by the financial condition of one or more of the other Federal Home Loan Banks.FHLBanks. However, no Federal Home Loan BankFHLBank has ever defaulted on its debt since the FHLB System was established in 1932.
Loan modification programs could adversely impact the value of the FHLBNY’s mortgage-backed securities.
Federal and state government authorities, as well as private entities such as financial institutions and the servicers of residential mortgage loans, have proposed, commenced, or promoted implementation of programs designed to provide homeowners with assistance in avoiding residential mortgage loan foreclosures. Loan modification programs, as well as future legislative, regulatory or other actions, including amendments to the bankruptcy laws, that result in the modification of outstanding mortgage loans that may adversely affect the value of and the returns on the FHLBNY’sour mortgage-backed securities.
21
unable to liquidate the collateral for the value assigned to it in the event of a payment default by a member, the FHLBNYwe could experience a credit loss on advances, which could adversely affect itsour financial condition and results of operations.
Deteriorating market conditions increase the risk that the FHLBNY’s models will produce unreliable results.
We use market-based information as inputs to itsour financial models, which are used to in making operational decisions and to derive estimates for use in itsour financial reporting processes. The downturn in the housing and mortgage markets created additional risk regarding the reliability of the models, particularly since the models are regularly adjusted in response to rapid changes in the actions of consumers and mortgagees to changes in economic conditions. This may increase the risk that theour models could produce unreliable results or estimates that vary widely or prove to be inaccurate.
The FHLBNY occupieshas geographic concentrations that may adversely impact its business operations and/or financial condition.
By nature of our regulatory charter and our business operations, we are exposed to credit risk as the result of limited geographic diversity. Our advance lending is limited by charter to operations to the four areas — New Jersey, New York, Puerto Rico and the US Virgin Islands. We employ conservative credit rating and collateral policies to limit exposure, but a decline in regional economic conditions could create an exposure to us in excess of collateral held.
We have concentrations of mortgage loans in some geographic areas based on our investments in MPF loans and private-label MBS and on the receipt of collateral pledged for advances. To the extent that any of these geographic areas experiences significant declines in the local housing markets, declining economic conditions, or a natural disaster, we could experience increased losses on our investments in the MPF loans or the related MBS or be exposed to a greater risk that the pledged collateral securing related advances would be inadequate in the event of default on such an advance.
The inability to retain key personnel could adversely impact the Bank’s operations.
We rely on key personnel for many of our functions. Our success in retaining such personnel is important to our ability to conduct our operations and measure and maintain risk and financial controls. The ability to retain key personnel could be challenged as the U.S. employment market improves. We maintain a succession planning program in which we attempt to identify and develop employees who can potentially replace key personnel in the event of their departure.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
We occupy approximately 41,000 square feet of leased office space at 101 Park Avenue, New York, New York. The FHLBNYWe also maintainsmaintain 30,000 square feet of leased office space at 30 Montgomery Street, Jersey City, New Jersey, principally as an operations center.
On September 15, 2008, Lehman Brothers Holdings, Inc. (“LBHI”), the parent company of Lehman Brothers Special Financing, Inc. (“LBSF”) and a guarantor of LBSF’s obligations, filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in the Southern District of New York. LBSF filed for protection under Chapter 11 in the same court on October 3, 2008. LBSF was a counterparty to FHLBNY on multiple derivative transactions under an International Swap Dealers Association, Inc. master agreement with a total notional amount of $16.5 billion at the time of termination of the Bank’s derivative transactions with LBSF. The net amount that was due to the Bank after giving effect to obligations that were due to LBSF was approximately $65 million. The FHLBNY filed timely proofs of claim in the amount of approximately $65 million as creditors of LBSF and LBHI in connection with the bankruptcy proceedings. The Bank fully reserved the LBSF receivables as the bankruptcies of LBHI and LBSF make the timing and the amount of any recovery uncertain.
As previously reported, the Bank received a Derivatives ADR Notice from LBSF dated July 23, 2010, making a Demand as of the date of the Notice of approximately $268 million owed to LBSF by the Bank.Bank (inclusive of interest). Subsequently, in accordance with the Alternative Dispute Resolution Procedure Order entered by the Bankruptcy Court dated September 17, 2009 (“Order”), the Bank responded to LBSF on August 23, 2010, denying LBSF’s Demand. LBSF served a reply on September 7, 2010, effectively reiterating its position. The mediation being conducted pursuant to the Order commenced on December 8, 2010 and concluded without settlement on March 17, 2011. LBSF continues to claim approximately $268 million plus interest at the rate of LIBOR plus 13.5% on a principal amount of approximately $198 million from December 6, 2010. Pursuant to the Order, positions taken by the parties in the ADR process are confidential.
While the Bank believes that LBSF’s position is without merit, the amount the Bank actually recovers or pays will ultimately be decided in the course of the bankruptcy proceedings.
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Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
All of the stock of the FHLBNY is owned by itsour members. Stock may also be held by former members as a result of having been acquired by a non-member institution. The FHLBNY conducts itsWe conduct our business in advances and mortgages exclusively with its stockholder members and housing associates. There is no established marketplace for FHLBNY stock as FHLBNY stock is not publicly traded. It may be redeemed at par value upon request, subject to regulatory limits. The par value of all FHLBNY stock is $100 per share. These shares of stock in the FHLBNY are registered under the Securities Exchange Act of 1934, as amended. At December 31, 2010 the FHLBNY2011, we had 336340 members, who held 45,289,62544,906,014 shares of capital stock between them. Former members held 632,192548,273 shares. At December 31, 2009 the FHLBNY2010, we had 331336 members with 50,589,56345,289,625 shares of capital stock between them and 1,262,942632,192 shares held by former members. Capital stock held by former members is classified as a liability, and deemed to be mandatorily redeemable under the accounting guidance for certain financial instruments with characteristics of both liabilities and equity.
Our recent quarterly cash dividends are outlined in the table below. No dividends were paid in the form of stock. Dividend payments and earnings retention are subject to modificationbe determined by the FHLBNY’sour Board of Directors, at its discretion, and within the regulatory framework promulgated by the Finance Agency. The FHLBNY’sOur Retained Earnings and Dividends Policy outlined in the section titled Retained Earnings and Dividends under Part I, ITEMItem 1 of this Annual Report on Form 10-K provides additional information.
Dividends from a calendar quarter’s earnings are paid1(a) subsequent to the end of that calendar quarter as summarized below (dollars in thousands):
|
| 2011 |
|
|
| 2010 |
| 2009 |
| |||||||||
Month Paid |
| Amount |
| Dividend Rate |
| Month Paid |
| Amount |
| Dividend Rate |
| Amount |
| Dividend Rate |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
November |
| $ | 47,198 |
| 4.00 | % | November |
| $ | 76,675 |
| 6.50 | % | $ | 75,139 |
| 5.60 | % |
August |
| 48,987 |
| 4.50 |
| August |
| 55,225 |
| 4.60 |
| 75,862 |
| 5.60 |
| |||
May |
| 49,635 |
| 4.50 |
| May |
| 52,792 |
| 4.25 |
| 77,293 |
| 5.60 |
| |||
February |
| 67,269 |
| 5.80 |
| January |
| 73,024 |
| 5.60 |
| 43,180 |
| 3.00 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| $ | 213,089 |
|
|
|
|
| $ | 257,716 |
|
|
| $ | 271,474 |
|
|
|
| 2010 | 2009 | 2008 | ||||||||||||||||||||||||
| Month Paid | Amount | Dividend Rate | Amount | Dividend Rate | Month Paid | Amount | Dividend Rate | |||||||||||||||||||
| November | $ | 76,675 | 6.50 | % | $ | 75,139 | 5.60 | % | October | $ | 45,748 | 3.50 | % | |||||||||||||
| August | 55,225 | 4.60 | 75,862 | 5.60 | July | 78,810 | 6.50 | |||||||||||||||||||
| May | 52,792 | 4.25 | 77,293 | 5.60 | April | 88,182 | 7.80 | |||||||||||||||||||
| January | 73,024 | 5.60 | 43,180 | 3.00 | January | 94,404 | 8.40 | |||||||||||||||||||
| $ | 257,716 | $ | 271,474 | $ | 307,144 | |||||||||||||||||||||
(a)The table above reports dividend on a paid basis and includes payments to former members as well as members. Dividends paid to former members were $2.4 million, $4.3 million and $7.5 million for the years ended December 31, 2011, 2010 and 2009.
Dividends are accrued for former members, and recorded as interest expense on mandatorily redeemable capital stock held by former members, and is a charge to Net income. Dividends on capital stock held by members are not accrued. Dividend is declared andDividends are paid subsequent toin arrears in the second month after the quarter end in which the dividend is earned, and is a direct charge to Retained earnings.
Issuer Purchases of Equity Securities
In accordance with correspondence from the Office of Chief Counsel of the Division of Corporate Finance of the U.S. Securities and Exchange Commission dated August 26, 2005, the FHLBNY iswe are exempt from disclosures of unregistered sales of common equity securities or securities issued through the Office of Finance that otherwise would have been required under itemItem 701 of the SEC’s Regulation S-K. By the same no-action letter, the FHLBNY iswe are also exempt from disclosure of securities repurchases by the issuer that otherwise would have been required under Item 703 of Regulation S-K.
ITEM 6. SELECTED FINANCIAL DATA
Statements of Condition |
| Years ended December 31, |
| |||||||||||||
(dollars in millions) |
| 2011 |
| 2010 |
| 2009 |
| 2008 |
| 2007 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investments (a) |
| $ | 14,236 |
| $ | 16,739 |
| $ | 16,222 |
| $ | 14,195 |
| $ | 25,034 |
|
Interest-bearing balance at FRB (b) |
| — |
| — |
| — |
| 12,169 |
| — |
| |||||
Advances |
| 70,864 |
| 81,200 |
| 94,349 |
| 109,153 |
| 82,090 |
| |||||
Mortgage loans held-for-portfolio, net of allowance for credit losses (c) |
| 1,408 |
| 1,266 |
| 1,318 |
| 1,458 |
| 1,492 |
| |||||
Total assets |
| 97,662 |
| 100,212 |
| 114,461 |
| 137,540 |
| 109,245 |
| |||||
Deposits and borrowings |
| 2,101 |
| 2,454 |
| 2,631 |
| 1,452 |
| 1,606 |
| |||||
Consolidated obligations, net |
|
|
|
|
|
|
|
|
|
|
| |||||
Bonds |
| 67,441 |
| 71,743 |
| 74,008 |
| 82,257 |
| 66,326 |
| |||||
Discount notes |
| 22,123 |
| 19,391 |
| 30,828 |
| 46,330 |
| 34,791 |
| |||||
Total consolidated obligations |
| 89,564 |
| 91,134 |
| 104,836 |
| 128,587 |
| 101,117 |
| |||||
Mandatorily redeemable capital stock |
| 55 |
| 63 |
| 126 |
| 143 |
| 239 |
| |||||
AHP liability |
| 127 |
| 138 |
| 144 |
| 122 |
| 119 |
| |||||
REFCORP liability |
| — |
| 22 |
| 24 |
| 5 |
| 24 |
| |||||
Capital |
|
|
|
|
|
|
|
|
|
|
| |||||
Capital stock |
| 4,491 |
| 4,529 |
| 5,059 |
| 5,585 |
| 4,368 |
| |||||
Retained earnings |
|
|
|
|
|
|
|
|
|
|
| |||||
Unrestricted |
| 722 |
| 712 |
| 689 |
| 383 |
| 418 |
| |||||
Restricted |
| 24 |
| — |
| — |
| — |
| — |
| |||||
Total retained earnings |
| 746 |
| 712 |
| 689 |
| 383 |
| 418 |
| |||||
Accumulated other comprehensive income (loss) |
| (191 | ) | (97 | ) | (145 | ) | (101 | ) | (35 | ) | |||||
Total capital |
| 5,046 |
| 5,144 |
| 5,603 |
| 5,867 |
| 4,751 |
| |||||
Equity to asset ratio (d) |
| 5.17 | % | 5.13 | % | 4.90 | % | 4.27 | % | 4.35 | % | |||||
Statements of Condition |
| Years ended December 31, |
| |||||||||||||
Averages (See note; dollars in millions) |
| 2011 |
| 2010 |
| 2009 |
| 2008 |
| 2007 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investments (a) |
| $ | 20,486 |
| $ | 17,693 |
| $ | 15,987 |
| $ | 22,253 |
| $ | 22,155 |
|
Interest-bearing balance at FRB (b) |
| — |
| — |
| 6,046 |
| 1,322 |
| — |
| |||||
Advances |
| 75,202 |
| 85,908 |
| 98,966 |
| 92,617 |
| 65,454 |
| |||||
Mortgage loans held-for-portfolio, net of allowance for credit losses |
| 1,314 |
| 1,281 |
| 1,386 |
| 1,465 |
| 1,502 |
| |||||
Total assets |
| 100,911 |
| 108,100 |
| 125,461 |
| 119,710 |
| 89,961 |
| |||||
Interest-bearing deposits and other borrowings |
| 2,301 |
| 4,650 |
| 2,095 |
| 2,003 |
| 2,202 |
| |||||
Consolidated obligations, net |
|
|
|
|
|
|
|
|
|
|
| |||||
Bonds |
| 68,028 |
| 72,136 |
| 71,860 |
| 81,342 |
| 63,277 |
| |||||
Discount notes |
| 21,442 |
| 21,728 |
| 41,496 |
| 28,349 |
| 18,956 |
| |||||
Total consolidated obligations |
| 89,470 |
| 93,864 |
| 113,356 |
| 109,691 |
| 82,233 |
| |||||
Mandatorily redeemable capital stock |
| 58 |
| 83 |
| 137 |
| 166 |
| 146 |
| |||||
AHP liability |
| 132 |
| 142 |
| 135 |
| 122 |
| 108 |
| |||||
REFCORP liability |
| 5 |
| 9 |
| 21 |
| 6 |
| 10 |
| |||||
Capital |
|
|
|
|
|
|
|
|
|
|
| |||||
Capital stock |
| 4,476 |
| 4,699 |
| 5,244 |
| 4,923 |
| 3,771 |
| |||||
Retained earnings |
|
|
|
|
|
|
|
|
|
|
| |||||
Unrestricted |
| 707 |
| 672 |
| 558 |
| 381 |
| 362 |
| |||||
Restricted |
| 4 |
| — |
| — |
| — |
| — |
| |||||
Total retained earnings |
| 711 |
| 672 |
| 558 |
| 381 |
| 362 |
| |||||
Accumulated other comprehensive income (loss) |
| (129 | ) | (116 | ) | (106 | ) | (74 | ) | (17 | ) | |||||
Total capital |
| 5,058 |
| 5,255 |
| 5,696 |
| 5,230 |
| 4,116 |
| |||||
Note — Average balance calculation. For most components of the average balances, a daily weighted average balance is calculated for the period. When daily weighted average balance information is not available, a simple monthly average balance is calculated.
Operating Results and other data |
|
|
|
|
|
|
|
|
|
|
| |||||
(dollars in millions) |
|
|
|
|
|
|
|
|
|
|
| |||||
(except earnings and dividends per |
| December 31, |
| |||||||||||||
share, and headcount) |
| 2011 |
| 2010 |
| 2009 |
| 2008 |
| 2007 |
| |||||
Net income |
| $ | 245 |
| $ | 276 |
| $ | 571 |
| $ | 259 |
| $ | 323 |
|
Net interest income (e) |
| 442 |
| 455 |
| 701 |
| 694 |
| 499 |
| |||||
Dividends paid in cash (f) |
| 210 |
| 252 |
| 265 |
| 294 |
| 273 |
| |||||
AHP expense |
| 27 |
| 31 |
| 64 |
| 30 |
| 37 |
| |||||
REFCORP expense |
| 31 |
| 69 |
| 143 |
| 65 |
| 81 |
| |||||
Return on average equity (g) |
| 4.83 | % | 5.24 | % | 10.02 | % | 4.95 | % | 7.85 | % | |||||
Return on average assets |
| 0.24 | % | 0.25 | % | 0.45 | % | 0.22 | % | 0.36 | % | |||||
Net OTTI impairment losses |
| (6 | ) | (8 | ) | (21 | ) | — |
| — |
| |||||
Other non-interest income (loss) |
| (8 | ) | 25 |
| 185 |
| (267 | ) | 14 |
| |||||
Total other income (loss) |
| (14 | ) | 17 |
| 164 |
| (267 | ) | 14 |
| |||||
Operating expenses (h) |
| 109 |
| 85 |
| 76 |
| 66 |
| 67 |
| |||||
Finance Agency and Office of Finance expenses |
| 13 |
| 10 |
| 8 |
| 7 |
| 5 |
| |||||
Total other expenses |
| 122 |
| 95 |
| 84 |
| 73 |
| 72 |
| |||||
Operating expenses ratio (i) |
| 0.11 | % | 0.08 | % | 0.06 | % | 0.06 | % | 0.07 | % | |||||
Earnings per share |
| $ | 5.46 |
| $ | 5.86 |
| $ | 10.88 |
| $ | 5.26 |
| $ | 8.57 |
|
Dividend per share |
| $ | 4.70 |
| $ | 5.24 |
| $ | 4.95 |
| $ | 6.55 |
| $ | 7.51 |
|
Headcount (Full/part time) |
| 276 |
| 271 |
| 264 |
| 251 |
| 246 |
| |||||
(a) | ||
| Statements of Condition | Years ended December 31, | |||||||||||||||||||
| (dollars in millions) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Investments1 | $ | 16,739 | $ | 16,222 | $ | 14,195 | $ | 25,034 | $ | 20,503 | ||||||||||
| Interest bearing balance at FRB * | — | — | 12,169 | — | — | |||||||||||||||
| Advances | 81,200 | 94,349 | 109,153 | 82,090 | 59,012 | |||||||||||||||
Mortgage loans held-for-portfolio, net of allowance for credit losses2 | 1,266 | 1,318 | 1,458 | 1,492 | 1,483 | |||||||||||||||
| Total assets | 100,212 | 114,461 | 137,540 | 109,245 | 81,579 | |||||||||||||||
| Deposits and borrowings | 2,454 | 2,631 | 1,452 | 1,606 | 2,266 | |||||||||||||||
| Consolidated obligations, net | ||||||||||||||||||||
| Bonds | 71,743 | 74,008 | 82,257 | 66,326 | 62,043 | |||||||||||||||
| Discount notes | 19,391 | 30,828 | 46,330 | 34,791 | 12,191 | |||||||||||||||
| Total consolidated obligations | 91,134 | 104,836 | 128,587 | 101,117 | 74,234 | |||||||||||||||
| Mandatorily redeemable capital stock | 63 | 126 | 143 | 239 | 110 | |||||||||||||||
| AHP liability | 138 | 144 | 122 | 119 | 102 | |||||||||||||||
| REFCORP liability | 22 | 24 | 5 | 24 | 17 | |||||||||||||||
| Capital | ||||||||||||||||||||
| Capital stock | 4,529 | 5,059 | 5,585 | 4,368 | 3,546 | |||||||||||||||
| Retained earnings | 712 | 689 | 383 | 418 | 369 | |||||||||||||||
| Accumulated other comprehensive income (loss) | (97 | ) | (145 | ) | (101 | ) | (35 | ) | (11 | ) | ||||||||||
| Total capital | 5,144 | 5,603 | 5,867 | 4,751 | 3,904 | |||||||||||||||
Equity to asset ratio3 | 5.13 | % | 4.90 | % | 4.27 | % | 4.35 | % | 4.79 | % | ||||||||||
| Statements of Condition | Years ended December 31, | |||||||||||||||||||
| Averages (dollars in millions) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Investments1 | $ | 17,693 | $ | 15,987 | $ | 22,253 | $ | 22,155 | $ | 19,431 | ||||||||||
| Interest-bearing balance at FRB * | — | 6,046 | 1,322 | — | — | |||||||||||||||
| Advances | 85,908 | 98,966 | 92,617 | 65,454 | 64,658 | |||||||||||||||
| Mortgage loans | 1,281 | 1,386 | 1,465 | 1,502 | 1,471 | |||||||||||||||
| Total assets | 108,100 | 125,461 | 119,710 | 89,961 | 86,319 | |||||||||||||||
| Interest-bearing deposits and other borrowings | 4,650 | 2,095 | 2,003 | 2,202 | 1,709 | |||||||||||||||
| Consolidated obligations, net | ||||||||||||||||||||
| Bonds | 72,136 | 71,860 | 81,342 | 63,277 | 60,932 | |||||||||||||||
| Discount notes | 21,728 | 41,496 | 28,349 | 18,956 | 18,382 | |||||||||||||||
| Total consolidated obligations | 93,864 | 113,356 | 109,691 | 82,233 | 79,314 | |||||||||||||||
| Mandatorily redeemable capital stock | 83 | 137 | 166 | 146 | 51 | |||||||||||||||
| AHP liability | 142 | 135 | 122 | 108 | 95 | |||||||||||||||
| REFCORP liability | 9 | 21 | 6 | 10 | 9 | |||||||||||||||
| Capital | ||||||||||||||||||||
| Capital stock | 4,699 | 5,244 | 4,923 | 3,771 | 3,737 | |||||||||||||||
| Retained earnings | 672 | 558 | 381 | 362 | 313 | |||||||||||||||
| Accumulated other comprehensive income (loss) | (116 | ) | (106 | ) | (74 | ) | (17 | ) | 1 | |||||||||||
| Total capital | 5,255 | 5,696 | 5,230 | 4,116 | 4,051 | |||||||||||||||
| Operating Results and other data | ||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| (except earnings and dividends per | Years ended December 31, | |||||||||||||||||||
| share, and headcount) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Net interest income4 | $ | 455 | $ | 701 | $ | 694 | $ | 499 | $ | 470 | ||||||||||
| Net income | 276 | 571 | 259 | 323 | 285 | |||||||||||||||
Dividends paid in cash7 | 252 | 265 | 294 | 273 | 208 | |||||||||||||||
| AHP expense | 31 | 64 | 30 | 37 | 32 | |||||||||||||||
| REFCORP expense | 69 | 143 | 65 | 81 | 71 | |||||||||||||||
Return on average equity5 | 5.24 | % | 10.02 | % | 4.95 | % | 7.85 | % | 7.04 | % | ||||||||||
| Return on average assets | 0.25 | % | 0.45 | % | 0.22 | % | 0.36 | % | 0.33 | % | ||||||||||
| Net OTTI impairment losses | (8 | ) | (21 | ) | — | — | — | |||||||||||||
| Other non-interest income (loss) | 25 | 185 | (267 | ) | 14 | (13 | ) | |||||||||||||
| Total other income (loss) | 17 | 164 | (267 | ) | 14 | (13 | ) | |||||||||||||
| Operating expenses | 85 | 76 | 66 | 67 | 63 | |||||||||||||||
| Finance Agency and Office of Finance expenses | 10 | 8 | 7 | 5 | 5 | |||||||||||||||
| Total other expenses | 95 | 84 | 73 | 72 | 68 | |||||||||||||||
Operating expenses ratio6 | 0.08 | % | 0.06 | % | 0.06 | % | 0.07 | % | 0.07 | % | ||||||||||
| Earnings per share | $ | 5.86 | $ | 10.88 | $ | 5.26 | $ | 8.57 | $ | 7.63 | ||||||||||
| Dividend per share | $ | 5.24 | $ | 4.95 | $ | 6.55 | $ | 7.51 | $ | 5.59 | ||||||||||
| Headcount (Full/part time) | 271 | 264 | 251 | 246 | 232 | |||||||||||||||
Investments include held-to-maturity securities, available for-sale securities, Federal funds, loans to other FHLBanks, and other interest bearing deposits. | ||
(b) | FRB program commenced in October 2008. On July 2, 2009, the Bank was no longer eligible to collect interest on excess balances. | |
(c) | Allowances for credit losses were $6.8 million, $5.8 million, $4.5 million, $1.4 | |
(d) | Equity to asset ratio is capital stock plus retained earnings and Accumulated other comprehensive income (loss) as a percentage of total assets. | |
(e) | Net interest income is net interest income before the provision for credit losses on mortgage loans. | |
(f) | Excludes dividends accrued to non-members classified as interest expense under the accounting standards for certain financial instruments with characteristics of both liabilities and equity. | |
(g) | Return on average equity is net income as a percentage of average capital stock plus average retained earnings and average Accumulated other comprehensive income (loss). | |
(h) | Operating expenses include Compensation and Benefits. | |
(i) | Operating expenses as a percentage of total average assets. | |
| 2010 (unaudited) | ||||||||||||||||
| 4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter | |||||||||||||
| Interest income | $ | 243,436 | $ | 285,566 | $ | 276,454 | $ | 273,152 | ||||||||
| Interest expense | 135,208 | 160,405 | 160,254 | 166,957 | ||||||||||||
| Net interest income | 108,228 | 125,161 | 116,200 | 106,195 | ||||||||||||
| Provision for credit losses | 273 | 231 | 196 | 709 | ||||||||||||
| Other income (loss) | 37,549 | 6,105 | (16,457 | ) | (10,656 | ) | ||||||||||
| Other expenses and assessments | 59,076 | 52,243 | 42,882 | 41,190 | ||||||||||||
| 21,800 | 46,369 | 59,535 | 52,555 | |||||||||||||
| Net income | $ | 86,428 | $ | 78,792 | $ | 56,665 | $ | 53,640 | ||||||||
| 2009 (unaudited) | ||||||||||||||||
| 4th Quarter | 3rd Quarter | 2nd Quarter | 1st Quarter | |||||||||||||
| Interest income | $ | 307,742 | $ | 379,530 | $ | 504,256 | $ | 666,159 | ||||||||
| Interest expense | 192,627 | 225,678 | 303,997 | 434,777 | ||||||||||||
| Net interest income | 115,115 | 153,852 | 200,259 | 231,382 | ||||||||||||
| Provision for credit losses | 1,142 | 598 | 925 | 443 | ||||||||||||
| Other income (loss) | 41,419 | 57,444 | 74,654 | (9,147 | ) | |||||||||||
| Other expenses and assessments | 59,423 | 70,479 | 87,560 | 73,653 | ||||||||||||
| 19,146 | 13,633 | 13,831 | 83,243 | |||||||||||||
| Net income | $ | 95,969 | $ | 140,219 | $ | 186,428 | $ | 148,139 | ||||||||
|
| 2011 (unaudited) |
| ||||||||||
|
| 4th Quarter |
| 3rd Quarter |
| 2nd Quarter |
| 1st Quarter |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest income |
| $ | 238,221 |
| $ | 180,586 |
| $ | 210,298 |
| $ | 257,389 |
|
Interest expense |
| 106,103 |
| 104,503 |
| 110,657 |
| 123,316 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net interest income |
| 132,118 |
| 76,083 |
| 99,641 |
| 134,073 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Provision for credit losses |
| 186 |
| 765 |
| 429 |
| 1,773 |
| ||||
Other income (loss) |
| (12,644 | ) | (13,703 | ) | (1,788 | ) | 14,303 |
| ||||
Other expenses and assessments |
| 34,764 |
| 25,945 |
| 44,113 |
| 75,622 |
| ||||
|
| 47,594 |
| 40,413 |
| 46,330 |
| 63,092 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 84,524 |
| $ | 35,670 |
| $ | 53,311 |
| $ | 70,981 |
|
|
| 2010 (unaudited) |
| ||||||||||
|
| 4th Quarter |
| 3rd Quarter |
| 2nd Quarter |
| 1st Quarter |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest income |
| $ | 243,436 |
| $ | 285,566 |
| $ | 276,454 |
| $ | 273,152 |
|
Interest expense |
| 135,208 |
| 160,405 |
| 160,254 |
| 166,957 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net interest income |
| 108,228 |
| 125,161 |
| 116,200 |
| 106,195 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Provision for credit losses |
| 273 |
| 231 |
| 196 |
| 709 |
| ||||
Other income (loss) |
| 37,549 |
| 6,105 |
| (16,457 | ) | (10,656 | ) | ||||
Other expenses and assessments |
| 59,076 |
| 52,243 |
| 42,882 |
| 41,190 |
| ||||
|
| 21,800 |
| 46,369 |
| 59,535 |
| 52,555 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 86,428 |
| $ | 78,792 |
| $ | 56,665 |
| $ | 53,640 |
|
Interim period —- Infrequently occurring items recognized.
2010-2011 first quarter — $42.7 million was recorded in Interest income as prepayment fees. We early extinguished debt and took a charge of $51.7 million. We contributed $24.0 million to our Defined Benefit Pension and took a charge to the quarter’s earnings.
2011 fourth quarter — $53.6 million was recorded in Interest income as prepayment fees. We early extinguished debt and took a charge $31.3 million.
2010 — There were no infrequently occurring items that were material in any interim period in 2010.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Statements contained in this Annual Report onForm 10-K,, including statements describing the objectives, projections, estimates, or predictions of the Federal Home Loan Bank of New York (“FHLBNY”we” “us,” “our,” “ the Bank” or “Bank”the “FHLBNY”) may be “forward-looking statements.” These statements may use forward-looking terminology, such as “anticipates,” “believes,” “could,” “estimates,” “may,” “should,” “will,” or other variations on these terms or their negatives.negatives, and include statements related to, among others, gains and losses on derivatives, plans to pay dividends and repurchase excess capital stock, future other-than-temporary impairment charges, future classification of securities, and reform legislation. The Bank cautions that, by their nature, forward-looking statements are subject to a number of risks or uncertainties, including the Risk Factors set forth in ITEM 1A and the risks set forth below, and that actual results could differ materially from those expressed or implied in these forward-looking statements. As a result, you are cautioned not to place undue reliance on such statements. The Bank does not undertake to update any forward-looking statement herein or that may be made from time to time on behalf of the Bank.
Forward-looking statements include, among others, the following:
· | the Bank’s projections regarding income, retained earnings, and dividend payouts; | ||
· | the Bank’s expectations relating to future balance sheet growth; | ||
· | the Bank’s targets under the Bank’s retained earnings plan; and | ||
· | the Bank’s expectations regarding the size of its mortgage-loan portfolio, particularly as compared to prior periods. |
Actual results may differ from forward-looking statements for many reasons, including but not limited to:
· | changes in economic and market conditions; | ||
· | changes in demand for Bank advances and other products resulting from changes in members’ deposit flows and credit demands or otherwise; | ||
· | an increase in advance prepayments as a result of changes in interest rates or other factors; | ||
· | the volatility of market prices, rates, and indices that could affect the value of collateral held by the Bank as security for obligations of Bank members and counterparties to interest-rate-exchange agreements and similar agreements; | ||
· | political events, including legislative developments that affect the Bank, its members, counterparties, and/or investors in the COs of the FHLBanks; | ||
· | competitive forces including, without limitation, other sources of funding available to Bank members, other entities borrowing funds in the capital markets, and the ability to attract and retain skilled employees; | ||
· | the pace of technological change and the ability of the Bank to develop and support technology and information systems, including the internet, sufficient to manage the risks of the Bank’s business effectively; | ||
· | changes in investor demand for COs and/or the terms of interest-rate-exchange-agreements and similar agreements; | ||
· | timing and volume of market activity; |
· | ability to introduce new or adequately adapt current Bank products and services and successfully manage the risks associated with those products and services, including new types of collateral used to secure advances; | ||
· | risk of loss arising from litigation filed against one or more of the FHLBanks; | ||
· | realization of losses arising from the Bank’s joint and several liability on COs; | ||
· | risk of loss due to fluctuations in the housing market; | ||
· | inflation or deflation; and | ||
· | issues and events within the FHLBank System and in the political arena that may lead to regulatory, judicial, or other developments that may affect the marketability of the COs, the Bank’s financial obligations with respect to COs, and the Bank’s ability to access the capital markets. |
Risks and other factors could cause actual results of the Bank to differ materially from those implied by any forward-looking statements. These risk factors are not exhaustive. The Bank operates in a changing economic and regulatory environments, and new risk factors will emerge from time to time. Management cannot predict such new risk factors nor can it assess the impact, if any, of such new risk factors on the business of the Bank or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those implied by any forward-looking statements.
This MD&A is designed to provide information that will assist the readers in better understanding the FHLBNY’sour financial statements, the changes in key items in the Bank’sour financial statements from year to year, the primary factors driving those changes as well as how accounting principles affect the FHLBNY’sour financial statements. The MD&A is organized as follows:
Page | ||||
25 | ||||
25 | ||||
27 | ||||
28 | ||||
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34 | ||||
Financial Condition | 39 | |||
41 | ||||
46 | ||||
53 | ||||
55 | ||||
55 | ||||
60 | ||||
61 | ||||
62 | ||||
Liquidity, Cash Flows, Short-Term Borrowings and Short-term Debt | 67 | |||
70 | ||||
70 | ||||
72 | ||||
73 | ||||
74 | ||||
79 | ||||
Operating Expenses, Compensation and Benefits, and Other Expenses | 81 | |||
82 | ||||
83 | ||||
MD&A TABLE REFERENCE
| Table(s) | Description | Page(s) | ||
| 1.1 | Market Interest Rates | 31 | ||
| 2.1 – 2.3 | Financial Condition | 43 | ||
| 3.1 – 3.11 | Advances | 45 | ||
| 4.1 – 4.7 | Investments | 51 | ||
| 5.1 – 5.3 | Mortgage Loans | 55 | ||
| 6.1 – 6.10 | Consolidated Obligations | 59 | ||
| 7.1 – 7.3 | Capital | 67 | ||
| 8.1 – 8.6 | Derivatives | 69 | ||
| 9.1 – 9.6 | Liquidity | 75 | ||
| 10.1 – 10.15 | Result of Operations | 79 | ||
| 11.1 – 11.2 | Assessments | 93 | ||
| 12.1 – 12.5 | Asset Quality — Advances | 94 | ||
| 13.1 – 13.9 | Asset Quality — Investments | 97 | ||
| 14.1 – 14.9 | Asset Quality — Mortgage Loans Held for-portfolio | 103 | ||
| 15.1 | Credit Exposure by Counterparty Credit Rating | 108 | ||
| 16.1 | Contractual Obligations and other commitments | 110 |
Table(s) |
| Description |
| Page(s) |
|
| 28 | ||
|
| 39 - 41 | ||
|
| 41 - 46 | ||
|
| 47 - 51 | ||
|
| 53 - 54 | ||
|
| 56 - 61 | ||
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| 61 - 62 | ||
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| 63 - 66 | ||
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| 67 - 70 | ||
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| 70 - 81 | ||
|
| 82 |
This overview of management’s discussion and analysis highlights selected information and may not contain all of the information that is important to readers of this Form 10-K. For a more complete understanding of events, trends and uncertainties, as well as the liquidity, capital, credit and market risks, and critical accounting estimates, affecting the Federal Home Loan Bank of New York (“FHLBNY” or “Bank”), this Form 10-K should be read in its entirety.
Cooperative business model. As a cooperative, the FHLBNY seekswe seek to maintain a balance between itsour public policy mission and itsour ability to provide adequate returns on the capital supplied by itsour members. The FHLBNY achievesWe achieve this balance by delivering low-cost financing to members to help them meet the credit needs of their communities and also by paying a dividend on the members’ capital stock. Reflecting the FHLBNY’s cooperative nature, the FHLBNY’sOur financial strategies are designed to enable the FHLBNYus to expand and contract in response to member credit needs. The FHLBNY invests itsBy investing capital in high quality,high-quality, short- and medium-term financial instruments. This strategy allows the FHLBNY toinstruments, we maintain sufficient liquidity to satisfy member demand for short- and long-term funds, repay maturing consolidated obligations, and meet other obligations. The dividends paid by FHLBNYwe pay are largely the result of the FHLBNY’s earnings on invested member capital, net earnings on advances to members, mortgage loans and investments, offset in part by the FHLBNY’s operating expenses and assessments. FHLBNY’s boardOur Board of directorsDirectors and managementManagement determine the pricing of member credit and dividend policies based on the needs of itsour members and the cooperative.
Historical Perspective. The fundamental business of the FHLBNY is to provide member institutions and housing associates with advances and other credit products in a wide range of maturities to meet their needs. Congress created the FHLBanks in 1932 to improve the availability of funds to support home ownership. Although the FHLBanks were initially capitalized with government funds, members have provided all of the FHLBanks’ capital for over 50 years.
Explanation of the use of certain non-GAAP measures of Interest Income and Expense, Net Interest income and margin.The FHLBNY has presented its results of our operations are presented in accordance with U.S. generally accepted accounting principles. The FHLBNY hasWe have also presented certain information regarding itsour spread between Interest Income and Expense, Net Interest income spread and Net InterestReturn on Earning assets. This spread that combines interest expense on debt with net interest paidexchanged with swap dealers on interest rate swaps associated with debt that were hedged on an economic basis. These areWe believe these non-GAAP financial measures used by management that the FHLBNY believes are useful to investors and members of the FHLBNY in understanding the Bank’sseeking to understand our operational performance and business and performance trends. Although the FHLBNY believeswe believe these non-GAAP financial measures enhance investor and members’ understanding of the Bank’s business and performance, these non-GAAP financial measuresthey should not be considered an alternative to GAAP. When discussing non-GAAP measures, the Bank hasWe have provided GAAP measures in parallel.
2010Financial performance of the Federal Home Loan Bank of New York
|
| December 31, |
| Net change in dollar amount |
| |||||||||||
(Dollars in millions, except per share data) |
| 2011 |
| 2010 |
| 2009 |
| 2011 |
| 2010 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net interest income before provision for credit losses |
| $ | 442 |
| $ | 455 |
| $ | 701 |
| $ | (13 | ) | $ | (246 | ) |
Provision for credit losses on mortgage loans |
| $ | 3 |
| $ | 1 |
| $ | 3 |
| $ | 2 |
| $ | (2 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net OTTI impairment losses |
| $ | (6 | ) | $ | (8 | ) | $ | (21 | ) | $ | 2 |
| $ | 13 |
|
Other non-interest income (loss) |
| (8 | ) | 25 |
| 185 |
| (33 | ) | (160 | ) | |||||
Total other income (loss) |
| $ | (14 | ) | $ | 17 |
| $ | 164 |
| $ | (31 | ) | $ | (147 | ) |
Operating expenses |
| $ | 29 |
| $ | 27 |
| $ | 26 |
| $ | 2 |
| $ | 1 |
|
Compensation and benefits |
| $ | 80 |
| $ | 58 |
| $ | 50 |
| $ | 22 |
| $ | 8 |
|
Net income |
| $ | 245 |
| $ | 276 |
| $ | 571 |
| $ | (31 | ) | $ | (295 | ) |
Earnings per share |
| $ | 5.46 |
| $ | 5.86 |
| $ | 10.88 |
| $ | (0.40 | ) | $ | (5.02 | ) |
Dividend per share |
| $ | 4.70 |
| $ | 5.24 |
| $ | 4.95 |
| $ | (0.54 | ) | $ | 0.29 |
|
2011 Highlights
We reported 20102011 Net income of $244.5 million, or $5.46 per share, compared with Net income of $275.5 million, or $5.86 per share compared with 2009 Net income of $570.8 million or $10.88 per share.in 2010. The return on average equity, which is Net income divided by average Capital stock, Retained earnings and Accumulated other comprehensive income (loss) (“AOCI”), was 4.83% in 2011, compared with 5.24% in 2010 compared with 10.02% in 2009.
In 2011, we took two significant charges: $86.5 million due to early retirement of high-costing debt, and $24.0 million cash contribution made to our Defined benefit pension plan to improve the significant declineplan’s funded status. Net Income in 2011 benefited from $109.2 million in prepayment fees on advances.
2011 Net interest income. Income also benefited from the cessation of REFCORP assessment on June 30, 2011 when the final REFCORP assessment was settled, and the 12 FHLBanks had fully satisfied their obligation to REFCORP. As a result, REFCORP payments charged to earnings were only $30.7 million in 2011, compared to $68.9 million in 2010.
The amounts that would have otherwise been paid to REFCORP are being set aside as Restricted retained earnings by the 12 FHLBanks, with the objective of increasing earnings reserves and enhancing the safety and soundness of the FHLBank system. At December 31, 2011, we had set aside $24.0 million as Restricted retained earnings.
Cash dividends of $4.70 per share of capital stock were paid to stockholders in 2011, compared to $5.24 per share of capital stock were paid in 2010.
Net interest income was $441.9 million in 2011, compared to $455.8 million in 2010, down from $700.6 million in 2009, a decline of 34.9%. The2010. Lower transaction volume, specifically lower average advance balances was the primary cause of the lowercause. Net interest income was the decline in business volume as measured by average member advances outstanding. Average outstanding advances in 2010 were $85.9 billion down from $99.0 billion in 2009. This adverse change in volume caused Net interest income to decline by $125.0 million over 2009. An additional decline of $119.8 million was caused by a 12 basis point contraction of Net interest spread, which is the difference between yields earned on interest-earning assets and yields paid on interest-costing liabilities. Net interest incomeliabilities, was 41 basis points, an improvement of 4 basis points over 2010. The improvement was principally due to net prepayment fees recorded in Interest income. Yield adjustments on modified advances caused reported margins to be adversely impacted. Investments in floating-rate mortgage-backed securities earned lower yields. As high-yielding fixed-rate MBS and net interest spreadintermediate-term advances continue to pay down or mature, they have contractedbeen replaced by lower yielding assets due to levels more typical of the years before 2009, primarily because the Bank’s funding advantage weakened in 2010.
28
Derivative hedging gains contributed $83.5 million in 2011 compared to $26.8 million in 2010. Consolidated obligation debt accounted for under the Fair Value Option reported fair value losses of $10.5 million in 2011 compared with losses of $3.3 million in 2010. Unrealized fair value losses were primarily attributable to the strong credit quality of FHLBank debt that drove market yields from collapsing completely. The FRB has also stepped up its effortslower and fair values of balance sheet debt higher. Fair value gains and losses are unrealized and will generally reverse over time.
OTTI charges were $5.6 million in 2011, compared to purchase debt. The FRB’s actions also stabilized the FHLBank discount note yields but that has not prevented discount note spreads from narrowing. As a result of the spread compression, discount note issuances were reduced,$8.3 million in 2010, and maturing notes were replaced by floating-rate debt and short lockout callable bonds with short maturities.
Financial Condition
Net cash generated from operating activities was higher thanin excess of Net income in 2011 and the FHLBNY’s2010. Our liquidity position remainsremained in compliance with all regulatory requirements and Management doeswe do not foresee any changes to that position. ManagementWe also believesbelieve our cash flows from operations, available cash balances and the FHLBNY’sour ability to generate cash through the issuance of consolidated obligation bonds and discount notes are sufficient to fund the FHLBNY’s operating liquidity needs. For information about the Bank’s Cash flows, liquidity and short-term debt, see section in this MD&A titled: “Cash Flows, Liquidity, Short-term borrowings and Short-term debt.”
Our capital and net non interest-bearing liabilities in short-term interest-yielding assets were an important contributorremains strong. At December 31, 2011, actual risk-based capital was $5.3 billion, compared to FHLBNY’s Net interest income. In 2010, deployedrequired risk-based capital of $9.0$0.5 billion. To support $97.7 billion potentially couldof total assets at December 31, 2011, the required minimum regulatory capital was $3.9 billion, or 4.0 percent of assets. Our actual regulatory capital was $5.3 billion, exceeding required capital by $1.4 billion. Aggregate capital ratio was at 5.42 percent or 1.42 percent more than the 4.0 percent regulatory minimum. We have earned a yield of 16-20 basis points, the weighted average yield on money market instruments in 2010. Contribution to Net interest income from deployed capital depends on (1) the absolute volume of deployed capital as measured by average capital stock,prudently increased retained earnings through the period of credit turmoil. Retained earnings at December 31, 2011, have grown to $746.2 million, which includes $24.0 million of reserves set aside as Restricted retained earnings. Losses in AOCI, a component of shareholders’ equity, was $190.4 million, compared to $96.7 million at December 31, 2010, and net non interest-bearing liabilities, and (2) the short-term investment yields.
Total assets were close to maturity$97.7 billion at December 31, 2011, slightly lower than $100.2 billion at December 31, 2010. See Note 18 to the audited financial statements and Tables 8.1 — 8.6 in this MD&A for more information. In general, the FHLBNY holds derivatives and associated hedged instruments and consolidated obligation debt under the Fair Value Option accounting (“FVO”), to their maturity, call, or put dates. When such financial instruments are held to their contractual maturity (or put/call dates), nearly allPrincipal amounts of the cumulative net fair value gains and losses that are recorded as unrealized will generally reverse over time, and fair value changes will sum to zero over time. In limited instances, the FHLBNY may terminate these instruments prior to maturity or prior to call or put dates, which would result in a realized gain or loss.
29
Aside from advances, the FHLBNY’sour primary earning assets are its investment portfolios, comprising mainlycomprised of GSEMBS issued primarily by GSEs and U.S. agencybonds issued mortgage-backed securities (“MBS”), andby state and local government housing agencies. Investments in MBS and housing agency bonds. Such investment securities, classified as held-to-maturity and available-for-sale,bonds totaled $11.8$13.3 billion, or 13.6% of total assets at December 31, 2011, compared to $11.7 billion, or 11.7% of Totaltotal assets at December 31, 2010, included $10.2 billion2010. GSE- and agency-issued MBS were 94.8% of GSE and agency issued MBS. Only $0.8 billionthe total balance sheet carrying value of investments in MBS at December 31, 2011. Unpaid principal balances of private-label MBS remained outstanding. GSE issuedoutstanding aggregated $765.1 million at December 31, 2011, down from $945.2 million at December 31, 2010, as no new investment security values havewas made in private-label MBS in any periods presented in this report. Market pricing of GSE-issued investment securities has improved at December 31, 2011, compared to December 31, 2010, as liquidity has gradually returned to the market, and previously recordedfair values generally generated unrealized gains. Market pricing of our portfolio of private-label securities has remained stable at December 31, 2011, compared to December 31, 2010.
S&P lowered our long-term credit rating on August 8, 2011 from AAA to AA+. Moody’s maintained our credit rating at AAA. Both rating agencies have lowered their outlook to negative. The pricing performance of the short- and intermediate-term FHLBank debt has improved since the downgrade, but we cannot predict the long-term impact, if any, upon our funding costs or our ability to access the capital markets. We continue to monitor the condition of our debt issuance very carefully. For certain credit support agreements with derivative counterparties, the downgrade resulted in the posting of $160.8 million of additional cash collaterals at December 31, 2011. However, other credit support agreements with derivative counterparties were not impacted because the agreements stipulate that so long as we retain our GSE status, ratings downgrades would not result in the posting of additional collateral. For additional information of the impact of the downgrade on our derivative contracts, including a further one-notch hypothetical downgrade, below AA, see Note 16 - Derivatives and Hedging activities in the audited financial statements included in this Form 10-K. There were no other significant contracts or covenants for any credit facility or other agreement that were impacted by the downgrade. We have substantial investments in mortgage-backed securities issued by other GSEs and U.S. agency, and rating downgrade from AAA to AA could alter the perceived creditworthiness of instruments issued, insured or guaranteed by institutions linked to the U.S. government, and MBS issued by the institutions could be correspondingly affected by credit downgrades. Pricing of such securities owned by us have been stable and were substantially in net unrealized fair value losses in AOCI reversed. At December 31, 2010, fair values of GSE issued MBS were generally in an unrealized gain position.
We are also closely monitoring the impact of the U.S. government’s Making Home Affordable program and its likely impact on our members’ mortgage origination business, which could have a direct impact on our advances or mortgage-loan program under the MPF, but believe it is too early to predict its outcome on our business model.
Business Outlook
The following forward-looking statements are based upon the current beliefs and expectations of the FHLBNY’s management and are subject to risks and uncertainties which could cause the FHLBNY’sour actual results to differ materially from those set forth in such forward-looking statements.
We expect our 2012 earnings to declineremain relatively unchanged from the reported 2011 Net income. If long-term rates remain low, relative to ultimately reach levels more typical ofshort-term rates or if the years before 2009, primarily as a result of lower net interest margins on the Bank’s core assets, primarily advances and investmentsforward yield curve flattens further in mortgage-backed securities, as the Bank expects continued erosion of its funding advantages.
Advances — In December 2011, the economy showed some signs of its funding advantages.
Generally, the growth or decline in advances is reflective of demand by members for both short-term liquidity and long-term funding driven by economic factors such as availability to the Bank’s members of alternative funding sources that are more attractive such as(e.g. consumer deposits,deposits), the interest rate environment and the outlook for the economy. Members may choose to prepay advances, which may require prepayment fees, based on their expectations of interest rate changes and demand for liquidity. Demand for advances may also be influenced by the dividend payout rate to members on their capital stock investment in the FHLBNY.with us. Members are required to invest in FHLBNY’sour capital stock in the form of membership stock and activity-based stock. Members are also required to purchase activity stock in order to borrow advances. Advance volume is also influenced by merger activity where members are either acquired by non-members, or acquired by members of another FHLBank. When FHLBNYour members are acquired by members of another FHLBank or a non-member, they no longer qualify for membership in the FHLBNY, whichFHLBNY. They cannot renew outstanding advances or provide new advances to non-members. Subsequent to the merger, maturing advances may not be replaced, which has an immediate impact on short-term and overnight advance lending if the former member borrowed such advances.
Earnings— As existing high-yielding fixed-rate MBS and some intermediate-term advances continue to pay down, mature or mature,be prepaid, it is unlikely they will be replaced by equivalent high-yielding assets due to the low interest rate environment, and this will tend to lower the overall yield on total assets. The FHLBNY expects generalWe do not expect advance demand from members to continuegrow relative to decline, and specifically, the Bank expectsoutstanding amounts at December 31, 2011. Specifically, we expect limited demand for large intermediate-term advances because many members have adequate liquidity, and other members have significant amounts of intermediate-term advances that were borrowed from the FHLBNYus several years ago. The FHLBNY anticipatesWe anticipate that such members may be considering prepaying those borrowings, or not replacing them at maturity. Members that have expressed interest in intermediate-term borrowing have not been significant borrowers in the past.
30
Sovereign credit rating of the United States and impact on the FHLBanks — On August 5, 2011, Standard & Poor’s Rating Services (“S&P”) lowered its long-term sovereign credit rating on the U.S. to “AA+” from “AAA”. S&P’s outlook on the long-term rating is negative. At the same time, S&P affirmed its “A-1+” short-term rating on the U.S. On August 8, 2011, S&P also lowered the long-term rating of the senior unsecured debt issues of the Federal Home Loan Bank System, the 12 Federal Home Loan Banks to “AA+” from “AAA” and also revised the rating outlook of the debt to negative. A rating being placed on negative outlook indicates a substantial likelihood of a risk of further downgrades within two years.
S&P, Moody’s and Fitch Ratings (“Fitch”) have all indicated that they would likely not raise the outlooks and ratings of the FHLB System and/or System Banks above the U.S. sovereign rating. If the ratings on the U.S. were lowered, the ratings on the FHLB System and System Banks whose ratings are equalized to the sovereign rating could also be lowered. We cannot predict with certainty the longer-term impact of these recent rating actions on the FHLBank debt or the consequence of any further rating actions on the cost of our debt. Please see Rating Actions in this MD&A with respect to most recent rating announcements and actions by S&P and Moody’s for the FHLBNY.
Federal Reserve — “Operation Twist” — In 2011, the Federal Reserve Bank’s (“the FRB”) declared its intention is to dramatically drop Treasury yields in the long-end of the yield curve, with the economic goal of putting downward pressure on longer-term rates and help make broader financial conditions more accommodative. To meet its objectives, the FRB sold short-maturity securities and purchased longer-maturity securities. With the increased supply from FRB sales, repo rates rose, pushing overnight rates and yields to rise all along the short-end of the yield curve. This also may have caused the FHLBank-issued discount note yields to increase as well and investor demand to increase. We believe the program is currently expected to continue through June 2012, but uncertain of its continued impact.
Demand for FHLBank debt— The FHLBNY’sOur primary source of funds is the sale of consolidated obligations in the capital markets, and the FHLBNY’sour ability to obtain funds through the sale of consolidated obligations depends in part on prevailing conditions in the capital markets, which are beyond the FHLBNY’sour control. The FHLBNYWe may not be able to obtain funding on acceptable terms given the extraordinary market conditions and structural changes in the debt market. If the FHLBNYwe cannot access funding when needed on acceptable terms, itsour ability to support and continue operations could be adversely affected, which could negatively affect its financial condition and results of operations. The pricing of the FHLBanks’our longer-term debt remains at levels that are still higher than historical levels, relative to LIBOR. To the extent the FHLBankswe receive sub-optimal funding, the Bank’sour member institutions in turn may experience higher costs for advance borrowings. To the extent the FHLBanks may not be able to issue long-term debt at economical spreads relative to the 3-month LIBOR, rate, the FHLBNY’s membersour members’ borrowing choices may also be limited.
Continued uncertainties in Europe are expected to keep swap spreads elevated, which will continue to provide attractive funding opportunities in longer term discount notes. With U.S. Treasury and GSE supply expected to be limited, European credit turmoil will still be a concern and the FOMC is expected to further enforce low rates for an extended period of time, discount note rates are unlikely to move far from current levels and spreads to LIBOR are unlikely to stabilize.
There was some good news for the FHLBank debt in the closing months in 2011. Our debt was trading at funding levels that were very favorable over the preceding months. Short- and intermediate-term FHLBank debt pricing improved as sub-LIBOR spreads widened, and this could potentially reduce our cost of funds, should it continue. While this funding cost improvement may be attributed to credit problems in Europe, the FHLBank debt had performed better than other debt with similar credit profile. We are unable to say if this is a trend or just a reaction to increased demand by investors for the high-quality FHLBank debt in the face of credit tensions facing European banks.
Credit Impairment of Mortgage-backed securities— OTTI charges declinedwere insignificant in 2010.2011. However, without continued recovery in the near term such that liquidity returns to the mortgage-backed securities market, or if the credit losses of the underlying collateral within the mortgage-backed securities perform worse than expected, the FHLBNYwe could face additional credit losses. In addition, certain private-label MBS may be undergoing loan modification and forbearance proceedings at the loan level, and such processes may have an adverse impact on the amounts and timing of expected cash flows.
REFCORP AssessmentsImpact of Home Affordable Refinance Program (“HARP”) —Based If a home value has fallen while the mortgage payment on projected paymentsthe home has increased, and Fannie Mae or Freddie Mac owns or guarantees the home mortgage, the U.S. government’s Making Home Affordable program provides a refinance option for the home owner. Refinancing can help a homeowner by initiating a new mortgage loan with better terms to pay off and replace the current loan. HARP Refinancing is only available to financially stable borrowers who already have a Fannie Mae or a Freddie Mac mortgage and have been keeping it current for at least the past 12 FHLBanks throughmonths. Certain other conditions also apply.
We are unable to predict the third quarter of 2011, it is likely that the FHLBanks will have satisfied its obligation to REFCORP and further payments would not be necessary thereafter. The FHLBanks have drafted a proposal for Congressional approval that would allow an amount that was previously paid to REFCORP to be set aside as a means of increasing the retained earnings reserves of the FHLBanks and create a buffer that would enhance safety and soundness of the FHLBank system.
Defined Pension Benefit Plan contribution— In March 2011, the FHLBNY contributed $24.0 million to its Defined Benefit Plan to eliminate a funding shortfall calculated by the DB Plan’s actuarial consultant as of July 2010. The DB Plan’s adjusted funding target attainment percentage (“AFTAP”) was 79.93% (80%) at July 1, 2010. The AFTAP equals DB Plan assets divided by plan liabilities. Under the Pension Protection Act of 2006 (“PPA”), if the AFTAP in any future year is less than 80%, then the DB Plan will be restricted in its ability to provided increased benefits and /or lump sum distributions. If the AFTAP in any future year is less than 60%, then benefit accruals will be frozen. The contribution to the DB Plan is expected to reduce the likelihood of such restrictions being placed on the Bank’s DB Plan in future years. The contribution will be charged to Net income in the 2011 first quarter.
Conditions in Financial Markets. The primary external factors that affect net interest income are market interest rates and the general state of the economy. The following table presents changes in key rates over the course of 20102011 and 20092010 (rates in percent):
| Year-to-date December 31, | ||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| Average | Average | Ending Rate | Ending Rate | |||||||||||||
| Federal Funds Rate | 0.25 | % | 0.25 | % | 0.25 | % | 0.25 | % | ||||||||
| 3-month LIBOR | 0.34 | 0.69 | 0.30 | 0.25 | ||||||||||||
| 2-year U.S. Treasury | 0.69 | 0.94 | 0.60 | 1.14 | ||||||||||||
| 5-year Treasury | 1.92 | 2.18 | 2.01 | 2.68 | ||||||||||||
| 10-year Treasury | 3.20 | 3.24 | 3.30 | 3.84 | ||||||||||||
| 15-year residential mortgage note rate | 4.13 | 4.59 | 4.23 | 4.57 | ||||||||||||
| 30-year residential mortgage note rate | 4.75 | 5.03 | 4.82 | 5.08 | ||||||||||||
|
| December 31, |
| ||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
|
|
| Average |
| Average |
| Ending Rate |
| Ending Rate |
|
Federal Funds Target Rate |
| 0.25 | % | 0.25 | % | 0.25 | % | 0.25 | % |
Federal Funds Effective Rate |
| 0.10 |
| 0.18 |
| 0.04 |
| 0.13 |
|
3-Month LIBOR |
| 0.34 |
| 0.34 |
| 0.58 |
| 0.30 |
|
2-Year U.S.Treasury |
| 0.44 |
| 0.69 |
| 0.24 |
| 0.60 |
|
5-Year Treasury |
| 1.51 |
| 1.92 |
| 0.83 |
| 2.01 |
|
10-Year Treasury |
| 2.76 |
| 3.20 |
| 1.88 |
| 3.30 |
|
15-Year Residential Mortgage Note Rate |
| 3.76 |
| 4.13 |
| 3.37 |
| 4.23 |
|
30-Year Residential Mortgage Note Rate |
| 4.53 |
| 4.75 |
| 4.07 |
| 4.82 |
|
Source: Office of Finance, Bloomberg L.L.P.
31
The level of interest rates also directly affects the FHLBNY’sour earnings on invested capital. Compared to other banking institutions, the FHLBNY operateswe operate at comparatively low net spreads between the yield it earnswe earn on assets and itsthe cost of our liabilities. Therefore, the FHLBNY generateswe generate a relatively higher proportion of itsour income from the investment of member-supplied capital at the average asset yield. As a result, changes in asset yields tend to have a greater effect on FHLBNY’sour profitability than they do on the profitability of other banking institutions.
In summary, the FHLBNY’sour average asset yields and the returns on capital invested in these assets largely reflect the short-term interest rate environment because the maturities of FHLBNYour assets are generally short-term in nature, have rate resets that reference short-term rates, or have been hedged with derivatives in which a short-term rate is received.
Changes in rates paid on consolidated obligations and the spread of these rates relative to LIBOR and U.S. Treasury securities may also impact FHLBNY’s profitability. The rate and price at which the FHLBNY iswe are able to issue consolidated obligations, and their relationship to other products such as Treasury securities and LIBOR, change frequently and are affected by a multitude of factors including: overall economic conditions; volatility of market prices, rates, and indices; the level of interest rates and shape of the Treasury curve; the level of asset swap rates and shape of the swap curve; supply from other issuers (including GSEs such as Fannie Mae and Freddie Mac, supra/sovereigns, and other highly-rated borrowers); the rate and price of other products in the market such as mortgage-backed securities, repurchase agreements, and commercial paper; investor preferences; the total volume, timing, and characteristics of issuance by the FHLBanks; the amount and type of advance demand from the FHLBNY’sour members; political events, including legislation and regulatory action; press interpretations of market conditions and issuer news; the presence of inflation or deflation; actions by the Federal Reserve; and currency exchange rates.
Recently Issued Accounting Standards and Interpretations, and Significant Accounting Policies and Estimates.
For a discussion of recently issued accounting standards and interpretations, see the audited financial statements accompanying this report (specifically, Note 22. - Recently Issued Accounting Standards and Interpretations).
Significant Accounting Policies and Estimates
We have identified certain accounting policies that it believeswe believe 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 liabilities for pension, and estimating fair values of certain assets and liabilities, evaluating the impairment of the Bank’sour securities portfolios, estimating the allowance for credit losses on the advance and mortgage loan portfolios, accounting for derivatives and hedging activities, and amortization of premiums and accretion of discounts. The Bank hasWe have discussed each of these significant accounting policies, the related estimates and its judgment with the Audit Committee of the Board of Directors. For additional discussion regarding the application of these and other accounting policies, see Note 1 to- Significant Accounting Policies and Estimates in the Bank’s audited financial statements accompanying this report.
Fair Value Measurements and Disclosures
The accounting standards on fair value measurements and disclosures discuss 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’sour market assumptions. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal or most advantageous market for the asset or liability between market participants at the measurement date. This definition is based on an exit price rather than transaction or entry price.
Valuation Techniques— Three valuation techniques are prescribed under the fair value measurement standards: Market approach, Income approach and Cost approach. Valuation techniques for which sufficient data is available and that are appropriate under the circumstances should be used.
In determining fair value, FHLBNY useswe use various valuation methods, including both the market and income approaches.
·Market approach — This technique uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
·Income approach — This technique uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted), based on assumptions used by market participants. The present value technique used to measure fair value depends on the facts and circumstances specific to the asset or liability being measured and the availability of data.
·Cost approach — This approach is based on the amount that currently would be required to replace the service capacity of an asset (often referred to as current replacement cost).
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The 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 FHLBNYwe exercise 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 December 31, 2011 and 2010, and 2009, the FHLBNYwe measured and recorded fair values using the above guidance for derivatives, available-for-sale securities, and certain consolidated obligation bondsdebt that were designated and recorded at fair value using the fair value option (“FVO”). At December 31, 2011 and 2010, and 2009, the Bankwe had designated consolidated obligation debt of $15.2$17.5 billion and $6.0$15.2 billion under the FVO accounting. Held-to-maturityCertain held-to-maturity securities that were determined to be credit impairedcredit-impaired or OTTI at December 31, 2011 and 2010 were also measured at fair valuevalues of $20.3 million and $15.8 million on a non-recurring basis. Recorded fair values of OTTI securities were $15.8 million and $42.9 millionbasis at December 31, 2010 and 2009.
Fair values of all derivatives were computed and recorded in the Statements of Condition 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 mortgage-backed securities (classified as held-to-maturity or available-for-sale), were computed consistent with the guidance from the MBS Pricing Committee (“Pricing Committee”) (See Pricing of mortgage-backed securities in Note 1 — Significant Accounting Polices and Estimates toin the audited financial statements accompanying this report), and the FHLBNY updated its. We have refined our pricing methodology used to estimate the fair value of mortgage-backedour long-term investment securities starting inconsistent with the interim periods ended September 30, 2009 and thereafter.guidance from the Pricing Committee. Under the approved methodology, the FHLBNY requestedwe request prices for all mortgage-backed securities from fourspecific 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 selectswe select a median or average price as defined by the methodology. The methodologymethodologies also incorporatesincorporated variance thresholds to assist in identifying median or average prices that may require our further review by the FHLBNY. In certain limited instances (i.e.review. When prices arefall 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 allwe analyze for reasonableness and incorporate other relevant facts and circumstancesfactors that would be considered by market participants.
In additionthe 4th quarter of 2011, the pricing methodology was further refined by the Price Committee, and we adopted the change as of December 31, 2011. We introduced the concept of clustering pricing, and to predefine cluster tolerances. An outlier, under the methodology, is any vendor price that is outside of a defined cluster tolerance. A second refinement was the adoption of a formal process to examine yields as an additional method to validate prices of PLMBS. An implied yield is calculated for each of PLMBS using estimated fair values derived from cash flows on a bond-by-bond basis. This yield is then compared to the instruments carried atimplied yield for comparable securities according to price information from third-party MBS “market surveillance reports”.
Adoption formalized the methodologies across the 12 FHLBanks. For us, many of the changes were already in practice. Consequently adoption had no material impact on the fair value as described above, avalues of our investment securities. For more information, see Note 1 - Significant Accounting Polices and Estimates.
A significant percentage of fixed-rate advances and consolidated obligation bondsdebt were hedged to mitigate the risk of fair value changes that are attributable solely to changes in LIBOR, thewhich is our designated benchmark interest rate, for the FHLBNY, and accounted under hedge accounting rules in a fair value hedging relationship. To the extent the FHLBNY’sthat our valuation model is used to calculate changes in the benchmark fair values of hedged items, the inputs have a significant effect on the reported carrying values of assets and liabilities and the related income and expense; the use of different inputs could result in materially different net income and reported carrying values. When the FHLBNY deems that a hedge relationship is either not operationally practical or considers the hedge may not be highly effective as defined under hedge accounting standards, the FHLBNY may designate certain derivatives as economic hedges of advances and consolidated obligation bonds and discount notes.
In addition to those items that are carried at fair value, the Bank estimateswe estimate fair values for itsour other financial instruments for disclosure purposes. The Bank’sOur fair value measurement methodologies for assets and liabilities that are carried at fair value are more fully described in Note 1 — Significant Accounting Policies and Estimates, and Note 19 —17 - Fair Values of Financial Instruments toin the audited financial statements accompanying this report.
Our pricing models are subject to quarterly and annual validationvalidations, and the Bankwe periodically reviewsreview and refines,refine, as appropriate, its assumptions and valuation methodologies to reflect market indications as closely as possible. The Bank believes it hasWe have the appropriate personnel, technology, and policies and procedures in place to value itsour financial instruments in a reasonable and consistent manner and in accordance with established accounting policies.
We regularly evaluates itsevaluate our investments for impairment and determinesdetermine if unrealized losses are temporary based in part on the creditworthiness of the issuers, and in part on the underlying collateral within the structure of the security and the cash flows expected to be collected on the security. A security is considered impaired if its fair value is less than its amortized cost basis. If management has made a decision to sell such an impaired security, OTTI is considered to have occurred. If a decision to sell the impaired investment has not been made, but management concludes that it is likely that it will be required to sell such a security before recovery of the amortized cost basis of the security, an OTTI is also considered to have occurred.
Even if management does not intend to sell such an impaired security, an OTTI has occurred if cash flow analysis determines that a credit loss exists. The difference between the present value of the cash flows expected to be collected and the amortized cost basis is a credit loss. To determine if a credit loss exists, management compares the present value of the cash flows expected to be collected to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the security’s amortized cost, an OTTI exists, irrespective of whether management will be required to sell such a security. The Bank’sOur methodology to calculatefor calculating the present value of expected cash flows is to discount the expected cash flows (principal and interest) of a fixed-rate security that is being evaluated for OTTI, by using the effective interest rate of the security as of the date it was acquired. For a variable-rate security that is evaluated for OTTI, the expected cash flows are computed using a forward-rate curve and discounted using the forward rates.
If the FHLBNY determineswe determine that OTTI has occurred, it accountswe account for the investment security as if it had been purchased on the measurement date of the other-than-temporary impairment. The investment security is written down to fair value, which becomes its new amortized cost basis. The new amortized cost basis is not adjusted for subsequent recoveries in fair value.
For securities designated as available-for-sale, subsequent unrealized changes to the fair values (other than OTTI) are recorded in AOCI. For securities designated as held-to-maturity, the amount of OTTI recorded in AOCI for the non-credit component of OTTI is amortized prospectively over the remaining life of the securities based on the timing and amounts of estimated future cash flows. Amortization out of AOCI is offset by an increase in the carrying value of securities until the securities are repaid or are sold or subsequent OTTI is recognized in earnings.
If subsequent evaluation indicates a significant increase in cash flows greater than previously expected to be collected or if actual cash flows are significantly greater than previously expected, the increases are accounted for as a prospective adjustment to the accretable yield through interest income. In subsequent periods, if the fair value of the investment security has further declined below its then-current carrying value and there has been a decrease in the estimated cash flows the FHLBNY expectswe expect to collect, the FHLBNYwe will deem the security as OTTI.
For additional discussion regarding FHLBank impairment and pricing policies for mortgage-backed securities, and Bond insurer methodology, see Note 1 to the Bank’s audited financial statements accompanying this report.
Provision for Credit Losses
The provision for credit losses for advances (none) and mortgage loans, including those acquired under the Mortgage Partnership Finance Program (MPF)(“MPF”), represents management’s estimate of the probable credit losses inherent in these two portfolios. Determining the amount of the provision for credit losses is considered a critical accounting estimate because management’s evaluation of the adequacy of the provision is subjective and requires significant estimates, including the amounts and timing of estimated future cash flows, estimated losses based on historical loss experience, and consideration of current economic trends, all of which are susceptible to change. The FHLBNY’sThese assumptions and judgments on itsour provision for credit losses are based on information available as of the date of the financial statements. Actual losses could differ from these estimates.
Advances —- No provisions for credit losses were required. The FHLBNY hasWe have policies and procedures in place to manage itsour credit risk effectively. Outlined below are the underlying assumptions that the FHLBNY useswe use for evaluating itsour exposure to credit loss.
·Monitoring the creditworthiness and financial condition of the institutions to which it lends funds.
·Reviewing the quality and value of collateral pledged by members.
·Estimating borrowing capacity based on collateral value and type for each member, including assessment of margin requirements based on factors such as cost to liquidate and inherent risk exposure based on collateral type.
·Evaluating historical loss experience.
Significant changes to any of the factors described above could materially affect the FHLBNY’sour provision for losses on advances. For example, the FHLBNY’sour current assumptions about the financial strength of any member may change due to various circumstances, such as new information becoming available regarding the member’s financial strength or future changes in the national or regional economy. New information may require the FHLBNYus to place a member on credit watch and require collateral to be delivered, adjust itsour current margin requirement, or provide for losses on advances.
We are required by Finance Agency regulations to obtain sufficient collateral on advances to protect against losses, and to accept only certain kinds of collateral on its advances, such as U.S. government or government-agency securities, residential mortgage loans, deposits, in the FHLBNY, and other real-estate related assets. The FHLBNY hasWe have never experienced a credit loss on an advance. Based on the collateral held as security for advances, management’s credit analyses, and prior repayment history, no allowance for credit losses on advances was deemed necessary by management at December 31, 2011, 2010 2009 and 2008.
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Mortgage Loans — MPF Program.The FHLBNY has We have policies and procedures in place to manage itsour credit risk effectively. These include:
·Evaluation of members to ensure that they meet the eligibility standards for participation in the MPF Program.
·Evaluation of the purchased and originated loans to ensure that they are qualifying conventional, conforming fixed-rate, first lien mortgage loans with fully amortizing loan terms of up to 30 years, secured by owner-occupied, single-family residential properties.
·Estimation of loss exposure and historical loss experience to establish an adequate level of loss reserves.
We give 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. The FHLBNY recordsWe record cash payments received on non-accrual loans as a reduction of principal.
Allowance for credit losses on MPF Program loans, which are classified either under regulatory criteria (Special Mention, Sub-standard, or Loss) or past due, are segregated from the aggregate pool. If adversely classified, or on non-accrual status, MPF loans, except Federal Housing Administration and Veterans Administration insured loans (“insured mortgage loans”), are analyzed under liquidation scenarios on a loan level basis and identified losses greater than $1,000 are fully reserved. Federal Housing Administration and Veterans Administration insuredInsured mortgage loans have minimal inherent credit risk; risk generally arises mainly from the servicer defaulting on their obligations. If adversely classified, Federal Housing Administration and Veterans Administrationinsured mortgage loans will have reserves established only in the event of a default of a PFI. Reserves are based on the estimated costs to recover any uninsured portion of the MPF loan.
Mortgage loans, other than those included in large groups of smaller-balance homogeneous loans, are considered impaired when, based on current information and events, it is probable that the FHLBNYwe will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreements.
Our management identifies inherent losses through analysis of the conventional loans (loss analysis excludes Federal Housing Administration and Veterans Administration insured mortgage loans) that are not adversely classified or past due. Reserves are based on the estimated costs to recover any portion of the MPF loans that are not FHA and VA insured.
When a mortgage loan is foreclosed, the FHLBNYwe will charge to the loan loss reserve account any excess of the carrying value of the loan over the net realizable value of the foreclosed loan.
Accounting for Derivatives
We record and reports itsreport our hedging activities in accordance with accounting standards for derivatives and hedging. In compliance with the standards, the accounting for derivatives requires the FHLBNYus to make the following assumptions and estimates: (i) assessing whether the hedging relationship qualifies for hedge accounting, (ii) assessing whether an embedded derivative should be bifurcated, (iii) calculating the effectiveness of the hedging relationship, (iv) evaluating exposure associated with counterparty credit risk, and (v) estimating the fair value of the derivatives. The FHLBNY’sOur assumptions and judgments include subjective estimates based on information available as of the date of the financial statements and could be materially different based on different assumptions, calculations, and estimates.
We specifically identifiesidentify the hedged asset or liability and the associated hedging strategy. Prior to execution of each transaction, the FHLBNY documentswe document the following items:
·Hedging strategy
·Identification of the item being hedged
·Determination of the accounting designation
·Determination of method used to assess the effectiveness of the hedge relationship
·Assessment that the hedge is expected to be effective in the future if designated as a qualifying hedge accounting standards for derivatives and hedging.
All derivatives are recorded on the Statements of Condition at their 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 executeswe execute derivative contracts, which are economically effective in reducing risk, either because a qualifying hedge is not available or because the cost of a qualifying hedge is not economical.
Changes in the fair values of a derivative that qualifies as a fair value hedge are recorded in current period earnings or in AOCI if the derivative qualifies as a cash flow hedge.
In addition, the FHLBNY evaluateswe evaluate the products offeredwe offer to itsour members and our debt issued to investors to determine whether an embedded derivative exists under the accounting standards for derivatives and hedging. The evaluation includes reviewing the terms of the instrument to identify whether some or all of the cash flows or the value of other exchanges required by the instrument are similar to a derivative and should be bifurcated from the host contract. If it is determined that an embedded derivative should be bifurcated, the FHLBNY measureswe measure the fair value of the embedded derivative separately from the host contract and recordswe record the changes in fair value in earnings. The FHLBNYWe did not have to bifurcate any embedded derivative in any period reported.
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For a hedging relationship that does not qualify for the short-cut method, the FHLBNY measureswe measure its effectiveness by assessing and recording the change in fair value of the hedged item attributable to the risk being hedged separately from the change in fair value of the derivative. This method for measuring effectiveness is also referred to as the “long-haul” method. The FHLBNY designsWe design effectiveness testing criteria based on itsour knowledge of the hedged item and hedging instrumentinstruments that were employed to create the hedging relationship. The FHLBNY usesWe use regression analyses to evaluate effectiveness results, which must fall within established tolerances. Effectiveness testing is performed at hedge inception and on at least a quarterly basis for both prospective considerations and retrospective evaluations.
Hedge Discontinuance.When a hedging relationship fails the effectiveness test, the FHLBNYwe immediately discontinuesdiscontinue hedge accounting. In addition, the FHLBNY discontinueswe discontinue hedge accounting for a cash flow hedge when it is no longer probable that a forecasted transaction will occur in the original expected time period, or when the fair value hedge of a firm commitment no longer meets the required criteria of a firm commitment. The FHLBNY treatsWe treat modifications of hedged items (e.g. reduction in par amounts, change in maturity date, and change in strike rates) that are other than minor as a termination of a hedge relationship. The FHLBNY recordsWe record the effect of discontinuance of hedges to earnings as a Net realized and unrealized gain (loss) on derivatives and hedging activities in “Other income (loss)” in the Statements of Income.
Accounting for Hedge Ineffectiveness.The FHLBNY quantifiesWe quantify and recordsrecord the ineffectiveness portion of a hedging relationship as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income (loss) in the Statements of income. Ineffectiveness for fair value hedging relationships is calculated as the difference in the change in fair value of the hedging instrument and the change in fair value of the hedged item that is attributable to the risk being hedged, which has beenwe have designated by the Bank as LIBOR. Ineffectiveness for anticipatory hedge relationships is recorded when the change in the fair value of the hedging instrument differs from the related change in the present value of the cash flows from the anticipated hedged item.
Credit Risk from Counterparties.The FHLBNY isWe are subject to credit risk as a result of nonperformance by counterparties to the derivative agreements. The FHLBNY entersWe enter into master netting arrangements and bilateral security agreements with all active non-member derivative counterparties, which provide for delivery of collateral at specified levels to limit the FHLBNY’s net unsecured credit exposure to these counterparties. The FHLBNY makesWe make judgments on each counterparty’s creditworthiness and estimates of collateral values in analyzing its credit risk for nonperformance by counterparties. Bilateral agreements consider the credit risks and the agreement specifies thresholds that change with changes in credit ratings. Typically, collateral is exchanged when fair values of derivative positions exceed the predetermined thresholds. To the extent that the fair values do not equal the collateral posted as a result of the thresholds in place, the FHLBNY orwe (or the derivative counterparty iscounterparty) are exposed to credit risk in the event of a default. Also, to the extent that the posted collateral does not equal the replacement fair values of open derivative positions in a scenario such as a default, the FHLBNY orwe (or the derivative counterparty iscounterparty) are exposed to credit risk. All extensions of credit, including those associated with the purchase or sale of derivatives to our members, of the FHLBNY, are fully secured by eligible collateral.
Recording of Derivatives and Hedged items.The FHLBNY recordsWe record derivatives on trade date, but recordsrecord the associated hedged consolidated obligations and advances on settlement date. Hedge accounting commences on trade date, at which time subsequent changes to the derivative’s fair valuevalues are recorded along with the offsetting changes in the fair value of the hedged item. On settlement date, the adjustments to the hedge items carrying amount are combined with the proceeds and become part of its total carrying amount.
We have defined itsour market settlement conventions for hedged items to be five business days or less for advances and thirty calendar days or less, using a next business day convention for consolidated obligation bonds and discount notes. These market settlement conventions are the shortest period possible for each type of advance and consolidated obligation from the time the instruments are committed to the time they settle.
We consider hedges of committed advances and consolidated obligations bonds eligible for the short-cut accounting (hedges must meet certain specific criteria under the accounting standards for derivatives and hedging to qualify for an assumption of no ineffectiveness), as long as settlement of the committed asset or liability occurs within the shortest period possible for that type of instrument. The FHLBNYAside from meeting pre-defined criteria, we also believesbelieve the conditions of no ineffectiveness are met only if the fair value of the swap is zero on the date the FHLBNY commits itselfwe commit to issueissuing the consolidated obligation bond.
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We estimate prepayments for purposes of amortizing premiums and accreting discounts associated with certain investment securities in accordance with accounting guidance for investments in debt and equity securities, which requires premiums and discounts to be recognized in income at a constant effective yield over the life of the instrument. Because actual prepayments often deviate from the estimates, the FHLBNYwe periodically recalculatesrecalculate the effective yield to reflect actual prepayments to date.
·Adjustments of the effective yields for mortgage-backed securities are recorded on a retrospective basis, as if the new estimated life of the security had been known at its original acquisition date. Changes in interest rates have a direct impact on prepayment speeds and estimated life, which will result in yield adjustments and can be a source of income volatility. Reductions in interest rates generally accelerate prepayments, which accelerate the amortization of premiums and reduce current earnings. Typically, declining interest rates also accelerate the accretion of discounts, thereby increasing current earnings. On the other hand, in a rising interest rate environment, prepayments will generally extend over a longer period, shifting some of the premium amortization and discount accretion to future periods.
·We use the contractual method to amortize premiums and accrete discounts on mortgage loans held-for-portfolio. The contractual method recognizes the income effects of premiums and discounts in a manner that is reflective of the actual behavior of the mortgage loans during the period in which the behavior occurs while
also reflecting the contractual terms of the assets without regard to changes in estimated prepayments based upon assumptions about future borrower behavior.
For more information about amortization and accretion recorded in the Statements of Income see Note 54 — Held-to-Maturity Securities, Note 65 — Available-for-Sale Securities, and Note 87 — Mortgage Loans Held-for-Portfolio toin the audited financial statements accompanying this report.
Legislative and Regulatory Developments
The legislative and regulatory environment for the BankFHLBanks and the Office of Finance has been one of profound change duringchanged profoundly over the period covered by this report,past few years, with the most notable of which was the enactment of the Dodd-FrankHousing Act on July 21, 2010. Further, the issuance of several proposedin 2008 and final regulations from the Finance Agencycontinuing, as well as from non-FHLBank financial regulators such as the FDIC, have added to the climate of rapid regulatory change. The Bank expects 2011 to involve additional, significant legislative and regulatory changes as regulations are issuedissue proposed and/or final rules to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) enacted in July 2010 and proposals forCongress considers housing finance and GSE housing reform are introduced.
DODD-FRANK ACT
Derivatives Transactions
The Dodd-Frank Act provides for new statutory and regulatory requirements for derivative transactions, including those utilized by the Bankus to hedge itsour interest rate and other risks. As a result of these requirements, certain derivative transactions will be required to be cleared through a third-party central clearinghouse and traded on regulated exchanges or new swap execution facilities. Such
Mandatory Clearing of Derivatives Transactions. The Commodity Futures Trading Commission (CFTC) has issued a final rule regarding the process to determine which types of swaps will be subject to mandatory clearing, but has not yet made any such determinations. The CFTC has also issued a proposal setting forth an implementation schedule for effectiveness of its mandatory clearing determinations. Pursuant to this proposal, regardless of when the CFTC determines that a type of swap is required to be cleared, trades aresuch mandatory clearing would not take effect until certain rules being issued by the CFTC and the SEC under the Dodd-Frank Act have been finalized. In addition, the proposal provides that each time the CFTC determines that a type of swap is required to be cleared, the CFTC would have the option to implement such requirement in three phases. Under the proposal, we may be a “category 2 entity” and would therefore have to comply with mandatory clearing requirements for a particular swap during phase 2 (within 180 days of the CFTC’s issuance of such requirements). Based on the CFTC’s proposed implementation schedule and the time periods set forth in the rule for CFTC determinations regarding mandatory clearing, it is not expected that any of our swaps will be required to be cleared until the fourth quarter of 2012, at the earliest.
Collateral Requirements for Cleared Swaps. Cleared swaps will be subject to initial and variation margin requirements established by the clearinghouse and its clearing members. While clearing swaps may reduce counterparty credit risk, the margin requirements for cleared tradesswaps have the potential of making derivative transactions more costlycostly. In addition, mandatory swap clearing will require us to enter into new relationships and less attractiveaccompanying documentation with clearing members (which we are currently negotiating) and additional documentation with our swap counterparties.
The CFTC has issued a final rule requiring that collateral posted by swap customers to a clearinghouse in connection with cleared swaps be legally segregated on a customer-by-customer basis (the LSOC Model). Pursuant to the LSOC Model, customer collateral must be segregated by customer on the books of a futures commission merchant (FCM) and derivatives clearing organization but may be commingled with the collateral of other customers of the same FCM in one physical account. The LSOC model affords greater protection to collateral posted for cleared swaps than is currently afforded to collateral posted for futures contracts. However, because of operational and investment risks inherent in the LSOC Model and because of certain provisions applicable to FCM insolvencies under the U.S. Bankruptcy Code, the LSOC Model does not afford complete protection to cleared swaps customer collateral. To the extent the CFTC’s final rule places our posted collateral at greater risk of loss in the clearing structure than under the current over-the-counter market structure, we may be adversely impacted.
Definitions of Certain Terms under New Derivatives Requirements. The Dodd-Frank Act will require swap dealers and certain other large users of derivatives to register as risk management tools“swap dealers” or “major swap participants,” as the case may be, with the CFTC and/or the SEC. Based on the definitions in the proposed rules jointly issued by the CFTC and SEC, we may not be required to register as a “major swap participant.” Also, based on the definitions in the proposed rules, we may not be required to register as a “swap dealer” for the Bank.derivative transactions that we enter into with dealer counterparties for the purpose of hedging and managing our interest rate risk; however, based on the proposed rules, it is possible that we could be required to register with the CFTC as a swap dealer if we enter into intermediated swaps with our members and are found to not qualify for scope exception.
It is also unclear how the final rule will treat the call and put optionality in certain advances to members. The CFTC and SEC have issued joint proposed rules further defining the term “swap” under the Dodd-Frank Act. These proposed rules and accompanying interpretive guidance attempt to clarify what products will and will not be regulated as “swaps.” While it is unlikely that advance transactions between us and our member customers will be treated as “swaps,” the proposed rules and accompanying interpretive guidance are not entirely clear on this issue.
Depending on how the terms “swap” and “swap dealer” are defined in the final regulations, we may be faced with the business decision of whether to continue to offer certain types of advance products to member customers if those transactions would require us to register as a swap dealer. Designation as a swap dealer would subject us to significant additional regulation and costs including, without limitation, registration with the CFTC, new internal and external business conduct standards, additional reporting requirements, and additional swap-based capital and margin requirements. Even if we are designated as a swap dealer as a result of its advance activities, the proposed regulations would permit us to apply to the CFTC to limit such designation to those specified activities for which we are acting as a swap dealer. If such limited designation is granted, our hedging activities would not be subject to the full requirements that will generally be imposed on traditional swap dealers.
Uncleared Derivatives Transactions. The Dodd-Frank Act will also change the regulatory landscape for derivative transactions that are not subject to mandatory clearing requirements (uncleared trades). While the Bank expectswe expect to continue to enter into uncleared trades on a bilateral basis, such trades are expected towill be subject to new regulatory requirements, including new mandatory reporting, requirementsdocumentation, and potentially, new minimum margin and capital requirements imposed by bank and other federal regulators. Any suchrequirements. Under the proposed margin rules, we will have to post both initial margin and variation margin to our swap dealer counterparties, but may be eligible in both instances for modest unsecured thresholds as “low-risk financial end users.” Pursuant to additional Finance Agency provisions, we will be required to collect both initial margin and variation margin from our swap dealer counterparties, without any unsecured thresholds. These margin requirements and any related capital requirements could adversely impact the liquidity and pricing of certain uncleared derivative transactions entered into by the Bank,us, making unclearedsuch trades more costly and less attractive as risk management toolscostly.
The CFTC has issued a proposal setting forth an implementation schedule for the Bank.
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We, together with the other FHLBanks, isare actively participating in the development of the regulations underregulatory process regarding the Dodd-Frank Act by formally providing commentscommenting to the regulators regarding thea variety of rulemakings that could impact the FHLBanks. It is not expected that final rules implementingWe are also working with the other FHLBanks to implement the processes and documentation necessary to comply with the Dodd-Frank Act will become effective until the latter halfAct’s new requirements for derivatives.
Regulation of 2011 and delays beyond that time are possible.
Oversight Council and Federal Reserve Board Proposed Rules Regarding Authority to Supervise and Regulate Certain Nonbank Financial Companies.Definitions.On January 26, 2011, the Oversight Council issued a proposed rule with a comment deadline of February 25, 2011, that would implement the Oversight Council’s authority to subject nonbank financial companies to the supervision of the Board of Governors of the Federal Reserve System (the Federal Reserve Board) and certain prudential standards. The proposed rule defines “nonbank financial company” broadly enough to likely cover the Bank. The rule provides certain factors that the Oversight Council will consider in determining whether to subject a nonbank financial company to such supervision and prudential standards. These factors include the availability of substitutes for the financial services and products the entity provides as well as the entity’s size, interconnectedness with other financial firms, leverage, liquidity risk and existing regulatory scrutiny.
·the annual gross financial revenue of the company represents 85 percent or more of the company’s gross revenue in either of its two most recent completed fiscal years; or
·the company’s total financial assets represent 85 percent or more of the company’s total assets as of the end of either of its two most recently completed fiscal years.
We would be deemed predominantly engaged in financial activities under either prong of the proposed test. In pertinent part, the proposed rule also defines “significant nonbank financial company” to meanand thus a nonbank financial company with $50 billion or more in total assets as ofunder the end of its most recently completed fiscal year. The Bank had $100.2 billion in total assets at December 31, 2010.
Oversight Council Recommendations on Implementing the Volcker Rule.Proposed RuleIn January. On October 18, 2011, the Oversight Council issued a second notice of proposed rulemaking to provide guidance regarding the standards and procedures it will consider in designating nonbank financial companies whose financial activities or financial condition may pose a threat to the overall financial stability of the U.S., and to subject those companies to FRB supervision and certain recommendationsprudential standards. This proposed rule supersedes a prior proposal on these designations. Under the proposed designation process, in non-emergency situations the Oversight Council will first identify those U.S. nonbank financial companies that have $50 billion or more of total consolidated assets and exceed any of five other quantitative threshold indicators of interconnectedness or susceptibility to material financial distress. Significantly for implementingus, in addition to the asset size criterion, one of the other thresholds is whether a nonbank financial company has $20 billion or more of borrowing outstanding, including bonds (in the our case, COs) issued. As of December 31, 2011, we had $97.7 billion in total assets and $89.6 billion in total outstanding COs. If a nonbank financial company meets any of these quantitative thresholds, the Oversight Council will then analyze the potential
threat that the nonbank financial company may pose to the U.S. financial stability, based in part on information from the company’s primary financial regulator and nonpublic information collected directly from the company. Comments on this proposed rule were due by December 19, 2011.
FRB Proposed Prudential Standards. On January 5, 2012, the FRB issued a proposed rule that would implement the enhanced prudential standards and early remediation standards required by the Dodd-Frank Act for nonbank financial companies identified by the Oversight Council as posing a threat to the U.S. financial stability. Such proposed prudential standards include: risk-based capital and leverage requirements, liquidity standards, requirements for overall risk management, single-counterparty credit limits, stress test requirements, and a debt-to-equity limit. The capital and liquidity requirements would be implemented in phases and would be based on or exceed the Basel international capital and liquidity framework (as discussed in further detail below under Additional Developments). Comments on the proposed rule are due by March 31, 2012.
The FRB and Oversight Council proposed rules are broad enough and may capture us as a nonbank financial company and may subject us to FRB oversight and prudential standards, unless the final applicable rules exempt the FHLBanks. If we are designated by the Oversight Council for supervision and oversight by the FRB, then our operations and business could be adversely impacted by additional costs and business activities’ restrictions resulting from such oversight.
SIGNIFICANT FHFA REGULATORY ACTIONS
Advance Notice of Proposed Rulemaking on Use of NRSRO Credit Ratings. On January 31, 2011, the FHFA issued an advance notice of proposed rulemaking that would implement a provision in the Dodd-Frank Act that requires all federal agencies to remove regulations that require use of NRSRO credit ratings in the assessment of a security. The notice seeks comment regarding certain prohibitionsspecific FHFA regulations applicable to FHLBanks including risk-based capital requirements, prudential requirements, investments, and consolidated obligations. Comments on proprietary trading, commonly referredthis advance notice of rulemaking were due on March 17, 2011.
Final Rule on Private Transfer Fee Covenants. On March 16, 2012, the Finance Agency published in the Federal Register a rule which will be effective on July 16, 2012 that will restrict us from purchasing, investing in, accepting as collateral or otherwise dealing in any mortgages on properties encumbered by private transfer fee covenants, securities backed by such mortgages, and securities backed by the income stream from such covenants, except for certain excepted transfer fee covenants. The covenant to pay private transfer fees to covered associations (including, among others, organizations comprising owners of homes, condominiums, cooperatives, and manufactured homes and certain other tax-exempt organizations) that use the private transfer fees exclusively for the direct benefit of the property is an example of a private transfer fee covenant that is exempted from the rule. The foregoing restrictions will apply only to mortgages on properties encumbered by private transfer fee covenants created on or after February 8, 2011, and to securities backed by such mortgages, and to securities issued after February 8, 2011 and backed by revenue from private transfer fees regardless of when the covenants were created. Based on the exceptions contained in the rule, we do not expect the rule to have a significant impact on our business and/or results of operation.
Final Rule on Temporary Increases in Minimum Capital Levels. On March 3, 2011, the FHFA issued a final rule effective April 4, 2011 authorizing the Director of the FHFA to increase the minimum capital level for an FHLBank if the Director determines that the current level is insufficient to address such FHLBank’s risks. The rule provides certain factors that the Director may consider in making this determination (including current or anticipated declines in the value of assets held by the FHLBank and current or projected declines in its capital), and gives the Director discretion to consider other conditions as appropriate. The rule provides that the Volcker Rule. InstitutionsDirector shall consider the need to maintain, modify or rescind any such increase no less than every 12 months. If we are required to increase our minimum capital level, we may need to lower or suspend dividend payments to increase retained earnings to satisfy such increase. Alternatively, we could satisfy an increased capital requirement by disposing of assets to decrease the size of our balance sheet relative to total outstanding stock, which may adversely impact our results of operations and financial condition and ability to satisfy our mission.
Proposed Rule on Incentive-based Compensation Arrangements. On April 14, 2011, seven federal financial regulators, including the FHFA, issued a proposed rule that would prohibit “covered financial institutions” from entering into incentive-based compensation arrangements with covered persons (including executive officers and other employees that may be in a position to expose the institution to risk of material loss) that encourage inappropriate risks. Among other things, the proposed rule would require mandatory deferrals of incentive compensation for executive officers and require board identification and oversight of incentive-based compensation for covered persons who are not executive officers. The proposed rule would impact the design of our compensation policies and practices, including our incentive compensation policies and practices, if adopted as proposed. Comments on the proposed rule were due by May 31, 2011.
Proposed Rule on Prudential Management and Operations Standards. On June 20, 2011, the FHFA issued a proposed rule to establish prudential standards with respect to ten categories of operation and management of the FHLBanks and the other housing finance GSEs, including internal controls, interest rate risk exposure and market risk. The FHFA proposes to adopt the standards as guidelines set out in an appendix to the rule, which generally provide principles and leave to the regulated entities the obligation to organize and manage their operations in a way that ensures the standards are met, subject to the Volcker Rule may be subjectoversight of the FHFA. The proposed rule also provides potential consequences for failing to variousmeet the standards, such as requirements regarding submission of a corrective action plan and the authority of the Director to impose other sanctions, such as limits with regardon asset growth or increases in capital, that the Director believes appropriate, until the regulated entity returns to their proprietary trading and various regulatory requirements to ensure compliance with the Volcker Rule. If prudential standards. Comments on this proposed rule were due on or before August 19, 2011.
Final Rule on Voluntary Mergers. On November 28, 2011, the FHFA issued a final rule that establishes the conditions and procedures for the consideration and approval of voluntary mergers between FHLBanks. Under the rule, two or more FHLBanks may merge provided:
·the FHLBanks arehave agreed upon the terms of the proposed merger and the board of directors of each such FHLBank has authorized the execution of the merger agreement;
·the FHLBanks have jointly filed a merger application with the FHFA to obtain the approval of the Director;
·the Director has granted approval of the merger, subject to any closing conditions as the Volcker Rule, thenDirector may determine must be met before the Bank may be subjectmerger is consummated;
·the members of each such FHLBank ratify the merger agreement;
·the Director has received evidence that the closing conditions have been met; and
·the Director has accepted the organization certificate of the continuing FHLBank.
Conservatorship and Receivership. On June 20, 2011, the FHFA issued a final rule to additional limitationsestablish a framework for conservatorship and receivership operations for the FHLBanks. The final rule addresses the nature of a conservatorship or receivership and provides greater specificity on the compositionFHLBank’s operations, in line with procedures set forth in similar regulatory frameworks such as the FDIC’s receivership authority. The rule clarifies the relationship among various classes of creditors and equity holders under a conservatorship or receivership and the priorities for contract parties and other claimants in receivership. This rule became effective on July 20, 2011.
OTHER SIGNIFICANT REGULATORY ACTIONS
FDIC Interim Final Rule on Dodd-Frank Orderly Liquidation Resolution Authority. On January 25, 2011, the FDIC issued an interim final rule on how the FDIC would treat certain creditor claims under the new orderly liquidation authority established by the Dodd-Frank Act. The Dodd-Frank Act provides for the appointment of the FDIC as receiver for a financial company, not including FDIC-insured depository institutions, in instances where the failure of the company and its investment portfolio beyond existing Finance Agency regulations. These limitations may potentially resultliquidation under other insolvency procedures (such as bankruptcy) would pose a significant risk to the financial stability of the United States. The interim final rule provides, among other things:
·a valuation standard for collateral on secured claims;
·that all unsecured creditors must expect to absorb losses in less profitable investment alternatives. Further, complyingany liquidation and that secured creditors will only be protected to the extent of the fair value of their collateral;
·a clarification of the treatment for contingent claims; and
·that secured obligations collateralized with related regulatory requirements would likely increaseU.S. government obligations will be valued at fair market value.
Comments on this interim final rule were due by March 28, 2011. Valuing most collateral at fair value, rather than par, could adversely impact the Bank’s regulatory burden with attendant incremental costs. The FHLBank System’s consolidated obligations generally are exempt fromvalue of our investments in the operationevent of this rule, subject to certain limitations, including the absence of conflicts of interest and certain financial risks.
FDIC Final Rule on Assessment System. InOn February 25, 2011, the FDIC issued a final rule to revise the assessment system applicable to FDIC-insuredFDIC insured financial institutions. The rule, among other things, implements a provision in the Dodd-Frank Act to redefine the assessment base used for calculating deposit insurance assessments. Specifically, the rule changes the assessment base for most institutions from adjusted domestic deposits to average consolidated total assets minus average tangible equity. Once thisThis rule takes effectbecame effective on April 1, 2011, so FHLBank advances will beare now included in theirour members’ assessment base. The rule also eliminates an adjustment to the base assessment rate paid for secured liabilities, including FHLBank advances, in excess of 25%25 percent of an institution’s domestic deposits becausesince these are now part of the assessment base. This rule may negatively affect demand for FHLBank advances toTo the extent that theseincreased assessments increase the cost of advances for some members.
FDIC FinalJoint Proposed Rule on Unlimited Deposit InsuranceCredit Risk Retention for Non-Interest-Bearing Transaction Accounts.Asset-Backed Securities. On November 15, 2010,April 29, 2011, the FDICfederal banking agencies, the FHFA, the Department of Housing and Urban Development and the SEC jointly issued a proposed rule, which proposes requiring sponsors of asset-backed securities to retain a minimum of five percent economic interest in a portion of the credit risk of the assets collateralizing asset-backed securities, unless all the assets securitized satisfy specified qualifications.
The proposed rule specifies criteria for qualified residential mortgage, commercial real estate, auto and commercial loans that would make them exempt from the risk retention requirement. The criteria for qualified residential mortgages is described in the proposed rulemaking as those underwriting and product features which, based on historical data, are associated with low risk even in periods of decline of housing prices and high unemployment.
Key issues in the proposed rule include: (1) the appropriate terms for treatment as a qualified residential mortgage; (2) the extent to which Fannie Mae and Freddie Mac related securitizations will be exempt from the risk retention rules; and (3) the possibility of creating a category of high quality non-qualified residential mortgage loans that would have less than a five percent risk retention requirement.
If adopted a finalas proposed, the rule providing for unlimited deposit insurance for non-interest-bearing transaction accounts from December 31, 2010 until January 1, 2013. Deposits are a sourcecould reduce the number of liquidity forloans originated by our members, and a rise in deposits, which may occur as a result of the FDIC’s unlimited support of non-interest-bearing transaction accounts, tends to weakencould negatively impact member demand for Bank advances.
our products. Comments on this proposed rule were due on June 10, 2011.
38
National Credit Union Administration Proposal on Emergency Liquidity. On December 22, 2011, the National Credit Union Administration (NCUA) issued an advance notice of proposed rulemaking that would require federally insured credit unions to have access to backup federal liquidity sources for use in times of financial emergency and distressed economic circumstances. The proposed rule would require federally insured credit unions, as part of their contingency funding plans, to have access to backup federal liquidity sources through one of four ways:
· becoming a member in good standing of the Central Liquidity Facility (CLF) directly;
· becoming a member in good standing of CLF indirectly through a corporate credit union;
· obtaining and maintaining demonstrated access to the Federal Reserve Discount Window; or
· maintaining a certain percentage of assets in highly liquid Treasury securities.
The rule would apply to both federal and state-chartered credit unions. If enacted, the proposed rule may encourage credit unions to favor these federal sources of liquidity over FHLBank membership and advances, which could have a negative impact on our results of operations. Comments on the advance notice of proposed rulemaking are due by February 21, 2012.
ADDITIONAL DEVELOPMENTS
Home Affordable Refinance Program and Other Foreclosure Prevention Efforts. During the third quarter of 2011, the FHFA, and Fannie Mae and Freddie Mac (the Enterprises) announced a series of changes to the Home Affordable Refinance Program (HARP) that are intended to assist more eligible borrowers who can benefit from refinancing their home mortgage. The changes include lowering or eliminating certain risk-based fees, removing the current 125 percent loan-to-value ceiling on fixed-rate mortgages that are purchased by the Enterprises, waiving certain representations and warranties, eliminating the need for a new property appraisal where there is a reliable automated valuation model estimate provided by the Enterprises, and extending the end date for the appointment of the FDIC as receiverprogram until December 31, 2013 for a financial company (not including FDIC-insured depository institutions) in instances where the failure of the company and its liquidation under other insolvency procedures (such as bankruptcy) would pose a significant riskloans originally sold to the financial stabilityEnterprises on or before May 31, 2009. Other federal agencies have implemented other programs during the past few years to prevent foreclosure (including the Home Affordable Modification Program and the Principal Reduction Alternative). These programs focus on lowering a homeowner’s monthly payments through mortgage modifications or refinancings, providing temporary reductions or suspensions of mortgage payments, and helping homeowners transition to more affordable housing. Other proposals such as expansive principal writedowns or principal forgiveness, or converting delinquent borrowers into renters and conveying the United States. The interim final rule provides, among other things, that:
Housing Finance and GSE Housing Reform
Housing finance and notedGSE reform is not expected to progress significantly prior to the 2012 presidential election, but it is expected that the Obama Administration would work, in consultation with the FHFA and Congress, to restrict the areas of mortgage finance in which Fannie Mae, Freddie Mac and the FHLBanks operate so that overall government supportGSE legislative activity will continue. While none of the mortgage market will be substantially reduced over time. Specifically, with respectlegislation introduced thus far proposes specific changes to the FHLBanks, we could nonetheless be affected in numerous ways by changes to the report statedU.S. housing finance structure and to the Obama Administration supports limiting the levelenterprises. The ultimate effects of advanceshousing finance and reducing portfolio investments, consistent with the FHLBanks’ mission of providing liquidity and access to capital for insured depository institutions. If housing GSE reform or any other legislation, is enacted incorporating these requirements,including legislation to address the debt limit or federal deficit, on the FHLBanks could be significantly limited in their ability to make advances to their membersis unknown at this time and subject to additional limitations on their investment authority.
39
40
41
On January 5, 2012, the FRB announced its proposed rule on enhanced prudential standards and early remediation requirements, as required by the Dodd-Frank Act, for nonbank financial companies designated as systemically important by the Oversight Council. The proposed rule declines to finalize certain standards such as liquidity requirements until the Basel Committee framework gains greater international consensus, but the FRB proposes a liquidity buffer requirement that would be in addition to the final Basel Committee framework requirements. The size of the buffer would be determined through liquidity stress tests, taking into account a financial institution’s structure and risk factors.
While it is still uncertain how the new capital regime or otherand liquidity standards being developed by the Basel Committee such as liquidity standards,ultimately will be implemented by the U.S. regulatory authorities, the new regimeframework and the FRB’s proposed plan could require some of our members to divest assets in order to comply with the more stringent capital and liquidity requirements, thereby tending to decrease their need for advances. Likewise, anyadvances; on the other hand, the new liquidityframework may incent our members to take our term advances to create balance sheet liquidity. The requirements may also adversely impact member demand for advances and/oraffect investor demand for COs.
| December 31, | Net change in | Net change in | ||||||||||||||
| (Dollars in thousands) | 2010 | 2009 | dollar amount | percentage | ||||||||||||
Assets | ||||||||||||||||
| Cash and due from banks | $ | 660,873 | $ | 2,189,252 | $ | (1,528,379 | ) | (69.81 | )% | |||||||
| Federal funds sold | 4,988,000 | 3,450,000 | 1,538,000 | 44.58 | ||||||||||||
| Available-for-sale securities | 3,990,082 | 2,253,153 | 1,736,929 | 77.09 | ||||||||||||
| Held-to-maturity securities | ||||||||||||||||
| Long-term securities | 7,761,192 | 10,519,282 | (2,758,090 | ) | (26.22 | ) | ||||||||||
| Advances | 81,200,336 | 94,348,751 | (13,148,415 | ) | (13.94 | ) | ||||||||||
| Mortgage loans held-for-portfolio | 1,265,804 | 1,317,547 | (51,743 | ) | (3.93 | ) | ||||||||||
| Derivative assets | 22,010 | 8,280 | 13,730 | NM | ||||||||||||
| Other assets | 323,773 | 374,641 | (50,868 | ) | (13.58 | ) | ||||||||||
Total assets | $ | 100,212,070 | $ | 114,460,906 | $ | (14,248,836 | ) | (12.45 | )% | |||||||
Liabilities | ||||||||||||||||
| Deposits | ||||||||||||||||
| Interest-bearing demand | $ | 2,401,882 | $ | 2,616,812 | $ | (214,930 | ) | (8.21 | )% | |||||||
| Non-interest bearing demand | 9,898 | 6,499 | 3,399 | 52.29 | ||||||||||||
| Term | 42,700 | 7,200 | 35,500 | NM | ||||||||||||
| Total deposits | 2,454,480 | 2,630,511 | (176,031 | ) | (6.69 | ) | ||||||||||
| Consolidated obligations | ||||||||||||||||
| Bonds | 71,742,627 | 74,007,978 | (2,265,351 | ) | (3.06 | ) | ||||||||||
| Discount notes | 19,391,452 | 30,827,639 | (11,436,187 | ) | (37.10 | ) | ||||||||||
| Total consolidated obligations | 91,134,079 | 104,835,617 | (13,701,538 | ) | (13.07 | ) | ||||||||||
| Mandatorily redeemable capital stock | 63,219 | 126,294 | (63,075 | ) | (49.94 | ) | ||||||||||
| Derivative liabilities | 954,898 | 746,176 | 208,722 | 27.97 | ||||||||||||
| Other liabilities | 461,025 | 519,017 | (57,992 | ) | (11.17 | ) | ||||||||||
Total liabilities | 95,067,701 | 108,857,615 | (13,789,914 | ) | (12.67 | ) | ||||||||||
Capital | 5,144,369 | 5,603,291 | (458,922 | ) | (8.19 | ) | ||||||||||
Total liabilities and capital | $ | 100,212,070 | $ | 114,460,906 | $ | (14,248,836 | ) | (12.45 | )% | |||||||
|
|
|
|
|
| Net change in |
| Net change in |
| |||
(Dollars in thousands) |
| December 31, 2011 |
| December 31, 2010 |
| dollar amount |
| percentage |
| |||
Assets |
|
|
|
|
|
|
|
|
| |||
Cash and due from banks |
| $ | 10,877,790 |
| $ | 660,873 |
| $ | 10,216,917 |
| 1545.97 | % |
Federal funds sold |
| 970,000 |
| 4,988,000 |
| (4,018,000 | ) | (80.55 | ) | |||
Available-for-sale securities |
| 3,142,636 |
| 3,990,082 |
| (847,446 | ) | (21.24 | ) | |||
Held-to-maturity securities |
|
|
|
|
|
|
|
|
| |||
Long-term securities |
| 10,123,805 |
| 7,761,192 |
| 2,362,613 |
| 30.44 |
| |||
Advances |
| 70,863,777 |
| 81,200,336 |
| (10,336,559 | ) | (12.73 | ) | |||
Mortgage loans held-for-portfolio |
| 1,408,460 |
| 1,265,804 |
| 142,656 |
| 11.27 |
| |||
Derivative assets |
| 25,131 |
| 22,010 |
| 3,121 |
| 14.18 |
| |||
Other assets |
| 250,741 |
| 323,773 |
| (73,032 | ) | (22.56 | ) | |||
|
|
|
|
|
|
|
|
|
| |||
Total assets |
| $ | 97,662,340 |
| $ | 100,212,070 |
| $ | (2,549,730 | ) | (2.54 | )% |
|
|
|
|
|
|
|
|
|
| |||
Liabilities |
|
|
|
|
|
|
|
|
| |||
Deposits |
|
|
|
|
|
|
|
|
| |||
Interest-bearing demand |
| $ | 2,066,598 |
| $ | 2,401,882 |
| $ | (335,284 | ) | (13.96 | )% |
Non-interest bearing demand |
| 12,450 |
| 9,898 |
| 2,552 |
| 25.78 |
| |||
Term |
| 22,000 |
| 42,700 |
| (20,700 | ) | (48.48 | ) | |||
|
|
|
|
|
|
|
|
|
| |||
Total deposits |
| 2,101,048 |
| 2,454,480 |
| (353,432 | ) | (14.40 | ) | |||
|
|
|
|
|
|
|
|
|
| |||
Consolidated obligations |
|
|
|
|
|
|
|
|
| |||
Bonds |
| 67,440,522 |
| 71,742,627 |
| (4,302,105 | ) | (6.00 | ) | |||
Discount notes |
| 22,123,325 |
| 19,391,452 |
| 2,731,873 |
| 14.09 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Total consolidated obligations |
| 89,563,847 |
| 91,134,079 |
| (1,570,232 | ) | (1.72 | ) | |||
|
|
|
|
|
|
|
|
|
| |||
Mandatorily redeemable capital stock |
| 54,827 |
| 63,219 |
| (8,392 | ) | (13.27 | ) | |||
|
|
|
|
|
|
|
|
|
| |||
Derivative liabilities |
| 486,166 |
| 954,898 |
| (468,732 | ) | (49.09 | ) | |||
Other liabilities |
| 410,041 |
| 461,025 |
| (50,984 | ) | (11.06 | ) | |||
|
|
|
|
|
|
|
|
|
| |||
Total liabilities |
| 92,615,929 |
| 95,067,701 |
| (2,451,772 | ) | (2.58 | ) | |||
|
|
|
|
|
|
|
|
|
| |||
Capital |
| 5,046,411 |
| 5,144,369 |
| (97,958 | ) | (1.90 | ) | |||
|
|
|
|
|
|
|
|
|
| |||
Total liabilities and capital |
| $ | 97,662,340 |
| $ | 100,212,070 |
| $ | (2,549,730 | ) | (2.54 | )% |
Balance sheet overview
Our mission is to support the liquidity needs of our members. To meet this mission, our balance sheet contraction through the quartersstrategy is to keep our balance sheet in 2010 in parallelline with the declinerise and fall of amounts borrowed by members in Advances to $81.2the form of advances.
Total assets were $97.7 billion at December 31, 2010 from a peak of $109.1 billion in 2008 and $94.32011, compared to $100.2 billion at December 31, 2009. Reported balances include fair value basis of hedged advances. The2010. After a decline in demand for member borrowings has occurred as member banks have taken advantagethe 2011 first quarter, the balance sheet remained relatively stable through the 2011 third quarter and declined again in the 2011 fourth quarter. Principal amounts of improved availability of alternate funding sources such as deposits and senior unsecured borrowings in a more liquid market. Member demand for borrowed advances has alsoAdvances to members declined as loan demand from members’ customers may have stayed lukewarm due to nationally weak economic conditions.
Advances — Our balance sheet management strategy has been to keep balance sheet growth or decline in line with the changes in member demand for advances, which declined 13.9%.
Table 2.2:Advance Graph
Investments— The FHLBNY’sOur investment strategies continue to be restrained, and acquisitions were limited to investments in mortgage-backed securities (“MBS”) issued by GSEs and U.S. government agencies. Acquisitions even in such securities have been made only when they justified the Bank’sour risk-reward preferences.
43
Fair values of the Bank’s private-label securitiesMBS (“PLMBS”) have also improvedbeen stable, and unrealized losses have declined at December 31, 2010 relative2011, compared to 2009, but were stillDecember 31, 2010. All PLMBS are held-to-maturity investments, and their fair values are not recorded on the balance sheet on a recurring basis. We consider our PLMBS as Level 3 investments because the market for the securities remains depressed as market conditions for such securities remainedand the future is uncertain. For more information about fair values of AFS and HTM securities, see Note 19 to the audited financial statements accompanying this report.
Leverage— At December 31, 2010,2011, balance sheet leverage was 19.519.4 times shareholders’ equity, compared to 20.419.5 times capital at December 31, 2009. The Bank’s2010. Our balance sheet management strategy is to keep the balance sheet change in line with the changes in member demand for advances, although from time to time the Bankwe may maintain excess liquidity in highly liquid investments or cash balances at the FRB to meet unexpected member demand for funds. Increases or decreases in investments have a direct impact on leverage, but generally growth in or shrinkage of advances does not significantly impact balance sheet leverage under existing capital stock management practices. This is because changes in shareholders’ capital are in line with changes in advances, and the ratio of assets to capital generally remains unchanged. Under our existing capital management practices, members are required to purchase capital stock to support their borrowings from the Bank,us, and when capital stock is in excess of the amount that is required to support advance borrowings, the Bank redeemswe redeem the excess capital stock immediately. Therefore, stockholders’ capital increases and decreases with members’ advance borrowings, and the capital to asset ratios remain relatively unchanged. As capital increases or declines in line with higher or lower volumes of advances, the Bankwe may also adjust itsour assets by increasing or decreasing holdings of short-term investments in certificates of deposit and, to some extent, itsour positions in Federal funds sold, which it inventorieswe generally inventory to accommodate unexpected member needs for liquidity.
Debt— In 2010 as in 2009, theOur primary source of funds for the FHLBNY continued to be the issuance of consolidated obligation bonds and discount notes. Discount notes are consolidated obligations with maturities up to one year, and consolidated bonds have maturities of one year or longer. The mix between
Our ability to access the usecapital markets and other sources of discount notes and bonds has fluctuated during 2010 and 2009, partly becausefunding, as well as our cost of fluctuations infunds, are dependent on our credit ratings from the market pricing of discount notes relative tomajor ratings organizations. On August 8, 2011, S&P lowered the pricing of fixed-rate bonds with similar maturities, and partly becauselong-term rating of the price attractivenesssenior unsecured debt issues of short-term callablethe Federal Home Loan Bank System to “AA+” from “AAA,” and non-callable bondsalso revised the rating outlook of the debt to negative. A rating being placed on negative outlook indicates a substantial likelihood of a risk of further downgrades within two years. Although the FHLBank debt performance appears to have withstood the impact of the rating downgrade, and investor preference for the high-quality of our debt appears to have grown stronger since the September 2011 Fed action that caused a further flattening of the yield curve, we cannot say with certainty the long-term impact of such actions on our liquidity position, which could be swapped backadversely affected by many causes both internal and external to 3-month LIBOR rates as an alternative to discount notes. In the 2010 first quarter, the Bank had decreased its issuancesour business.
Liquidity and Short-term Debt— The following table summarizes the FHLBNY’sour short-term debt (in thousands). Also see Tables 6.19.1 — 6.10 and 9.4 for additional information.
Table 2.3: Short-term debtShort—term Debt
|
| December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Consolidated obligations-discount notes (a) |
| $ | 22,123,325 |
| $ | 19,391,452 |
| $ | 30,827,639 |
|
Consolidated obligations-bonds with original maturities of one year or less (b) |
| $ | 15,125,000 |
| $ | 12,410,000 |
| $ | 17,988,000 |
|
| Short Term Liquidity | ||||||||||||
| December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Consolidated Obligations-Discount Notes1 | $ | 19,391,452 | $ | 30,827,639 | $ | 46,329,906 | ||||||
Consolidated Obligations-Bonds With Original Maturities of One Year or Less2 | $ | 12,410,000 | $ | 17,988,000 | $ | 24,379,100 | ||||||
(a)Outstanding at end | ||
(b) Outstanding at end of the period - par value
Our liquid assets included cash at the FRB, federalFederal funds sold, and a portfolio of highly-rated GSE securities that wereare available-for-sale.
Among other liquidity measures, the FHLBNY iswe are required to maintain sufficient liquidity through short-term investments, in an amount at least equal to that Bank’sour anticipated cash outflows under two different scenarios. The first scenario assumes that the FHLBNYwe cannot access the capital markets for 15 days and that during that time,period, members do not renew their maturing, prepaid and called advances. The second scenario assumes that the FHLBNYwe cannot access the capital market for five days, and that during that period, members renew maturing and called“put” advances. The FHLBNY wasWe were in compliance within thesewith regulations under both scenarios.
We also has in placehave other liquidity measures in place — Deposit Liquidity and Operational Liquidity indicated that the FHLBNY’sour liquidity buffers were in excess of required reserves. For more information about the FHLBNY’sour liquidity measures, andplease see section “Liquidity, Cash Flows, Short-term borrowingsBorrowings and Short-term Debt” in this MD&A.
44
Generally, the growth or decline in advances is reflective of demand by members for both short-term liquidity and term fundingfunding. This demand is driven by economic factors such as availability to the Bank’s members of alternative funding sources that are more attractive, or by the interest rate environment and the outlook for the economy. Members may choose to prepay advances (which may generate prepayment penalty fees) based on their expectations of interest rate changes and demand for liquidity. Advance volume is also influenced by merger activity, where members are either acquired by non-members or acquired by members of another FHLBank. When FHLBNYour members are acquired by members of another FHLBank or a non-member, thethese former members no longer qualify for membership and the FHLBNYwe may not offer renewals or additional advances to the former members. Subsequent to the merger, maturing advances may not be replaced, which has an immediate impact on short-term and overnight lending if the former member borrowed short-term and overnight advances.
Advances — Product Types
The following table summarizes par values of advances by product type (dollars in thousands):
Table 3.1:Advances by Product Type
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Percentage | Percentage | |||||||||||||||
| Amounts | of Total | Amounts | of Total | |||||||||||||
| Adjustable Rate Credit — ARCs | $ | 8,121,000 | 10.56 | % | $ | 14,100,850 | 15.54 | % | ||||||||
| Fixed Rate Advances | 64,557,112 | 83.91 | 71,943,468 | 79.29 | ||||||||||||
| Short-Term Advances | 1,357,300 | 1.76 | 2,173,321 | 2.39 | ||||||||||||
| Mortgage Matched Advances | 479,934 | 0.62 | 606,883 | 0.67 | ||||||||||||
| Overnight & Line of Credit (OLOC) Advances | 1,402,696 | 1.82 | 926,517 | 1.02 | ||||||||||||
| All other categories | 1,021,497 | 1.33 | 986,661 | 1.09 | ||||||||||||
Total par value | 76,939,539 | 100.00 | % | 90,737,700 | 100.00 | % | ||||||||||
| Discount on AHP Advances | (42 | ) | (260 | ) | ||||||||||||
| Hedging adjustments | 4,260,839 | 3,611,311 | ||||||||||||||
Total | $ | 81,200,336 | $ | 94,348,751 | ||||||||||||
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||
|
|
|
| Percentage |
|
|
| Percentage |
| ||
|
| Amounts |
| of Total |
| Amounts |
| of Total |
| ||
|
|
|
|
|
|
|
|
|
| ||
Adjustable Rate Credit - ARCs |
| $ | 6,270,500 |
| 9.36 | % | $ | 8,121,000 |
| 10.56 | % |
Fixed Rate Advances |
| 53,561,735 |
| 79.96 |
| 64,557,112 |
| 83.91 |
| ||
Short-Term Advances |
| 4,202,360 |
| 6.27 |
| 1,357,300 |
| 1.76 |
| ||
Amortizing Advances |
| 438,033 |
| 0.65 |
| 479,934 |
| 0.62 |
| ||
Overnight & Line of Credit (OLOC) Advances |
| 1,480,075 |
| 2.21 |
| 1,402,696 |
| 1.82 |
| ||
All other categories |
| 1,036,199 |
| 1.55 |
| 1,021,497 |
| 1.33 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Total par value |
| 66,988,902 |
| 100.00 | % | 76,939,539 |
| 100.00 | % | ||
|
|
|
|
|
|
|
|
|
| ||
Discount on AHP Advances |
| (15 | ) |
|
| (42 | ) |
|
| ||
Hedging adjustments |
| 3,874,890 |
|
|
| 4,260,839 |
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
Total |
| $ | 70,863,777 |
|
|
| $ | 81,200,336 |
|
|
|
Member demand for advance products
Fixed-rate advance products declined primarily because of the prepayment of fixed-rate putable advances in the 2011 first and Adjustable-ratefourth quarters. Some prepayments of fixed-rate putable advances (“ARCs”)were replaced by medium- and short-term
advance, which also explains the increase in Short-Term fixed rate advances. Members have been the more significant products that have declined in 2010 relativealso remained reluctant to the balances at December 31, 2009.
Adjustable Rate Advances (“ARC Advances”)— Demand for ARC advances declined steadilyhad stabilized in 2009 and thatthe 2011 first quarter after a declining trend has continued through 2010, as demand hasin most of 2010. In the 2011 second quarter, maturing ARC advances were not replaced, resulting in a decline in outstanding balances. Since then, ARC advances have remained weak.relatively stable. Generally, the FHLBNY’sour larger members have been the more significant borrowers of ARCs.
ARC advances are medium- and long-term loans that can be linked to a variety of indices, such as 1-month LIBOR, 3-month LIBOR, the Federal funds rate, or Prime. Members use ARC advances to manage interest rate and basis risks by efficiently matching the interest rate index and repricing characteristics of floating-rate assets. The interest rate is set and reset (depending upon the maturity of the advance and the type of index) at a spread to that designated index. Principal is due at maturity and interest payments are due at each reset date, including the final payment date.
Fixed-rate Advances— Fixed-rate advances, comprising putable and non-putable advances, remain the largest category of advances.
Member demand for fixed-rate advances hadhas been steadysoft in 2011 and borrowings have not increased. Prepayment activity has been heavily concentrated in the first three quarters of 2010, although compared to 2009, borrowingsfixed-rate putable advance category. On aggregate, when maturing and prepaid fixed-rate advances have declined, and on aggregate, maturing advances had been replaced, by new borrowings. In the fourth quarter, outstanding balances declined by $2.6 billion as maturing advances were not replaced by new borrowings. In 2010, demand has been concentrated aroundmembers have borrowed short- and medium-term advances, as members remain uncertain about locking into long-term advances, perhaps because of unfavorable pricing of longer-term advances, or an uncertain outlook overon the direction and timing of interest rate changes, or lukewarm demand from members’ customer base for longer-term fixed-rate loans.
Fixed-rate advances are flexible funding tools that can be used by members to meet short- to long-term liquidity needs. Terms vary from two days to 30 years.
45
Short-term Advances— Demand for Short-term fixed-rate advances has remained very weakbeen uneven in 2010, a continuing trend from 2009. Borrowed2011. Borrowings increased in the first quarter, then declined in the subsequent three quarters but the amounts stood at $1.4 billion, down from $2.2 billionoutstanding were still higher than the outstanding amounts at December 31, 2009. By way2010, mainly because borrowing members replaced some of contrast, the outstanding balance was $7.8 billion at December 31, 2008.
Overnight advances —Overnight borrowings also remained lacklustersoft in 2010,2011, a continuation of the trend seen in 2009.2010. Member demand for the overnight Advances may also reflect the seasonal needs of certain member banks for their short-term liquidity requirements. Some large members also use overnight advances to adjust their balance sheet in line with their own leverage targets.
Merger Activity
Merger activity is an important factor and, if significant, would contribute to an uneven pattern in advance balances. Merger activity may result in the loss of new business if a member is acquired by a non-member. The FHLBank Act does not permit new advances to replace maturing advances to former members. Advances held by members who are acquired by non-members may remain outstanding until their contractual maturities. Merger activity may also result in a decline in the advance book if the acquired member decides to prepay existing advances partially or in full depending on the post-merger liquidity needs.
The following table summarizes merger activity (dollars in thousands):
Table 3.2:Merger Activity
|
| December 31, 2011 |
| December 31, 2010 |
| ||
|
|
|
|
|
| ||
Number of Non-Members (a) |
| 3 |
| 7 |
| ||
|
|
|
|
|
| ||
Non-Member Advances outstanding (a) |
| $ | — |
| $ | 310,000 |
|
|
|
|
|
|
| ||
Total number of Non-Members at period end |
| 8 |
| 8 |
| ||
|
|
|
|
|
| ||
Total Advances outstanding to Non-Members at period end |
| $ | 710,430 |
| $ | 837,025 |
|
| Merger activity | ||||||||
| Years ended December 31, | ||||||||
| 2010 | 2009 | |||||||
Number of Non-Members1 | 8 | 9 | ||||||
| Non-member advances outstanding at period end | $ | 837,025 | $ | 2,328,736 | ||||
(a) Members who became Non-Members because of mergers and voluntary/involuntary terminations within the periods then ended.
Prepayment of Advances
Prepayment initiated by members or former members is another important factor that impacts advances. The FHLBNY chargesWe charge a prepayment fee when the member or a former member prepays certain advances before the original maturity.
The following table summarizes prepayment activity (in thousands):
Table 3.3:Prepayment Activity
|
| Years ended December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
|
|
|
|
|
| ||
Advances pre-paid at par |
| $ | 12,336,163 |
| $ | 3,367,767 |
|
|
|
|
|
|
| ||
Prepayment fees (a) |
| $ | 109,194 |
| $ | 13,130 |
|
| Prepayment Activity | ||||||||
| Years ended December 31, | ||||||||
| 2010 | 2009 | |||||||
Advances pre-paid1 | $ | 3,367,767 | $ | 3,366,170 | ||||
| Prepayment fees | $ | 13,130 | $ | 22,853 | ||||
(a) Amount represents fees received from members minus the fair value basis of hedged advances at the modification dates. For advances that are prepaid and hedged under hedge accounting rules, the FHLBNYwe generally terminatesterminate the hedging relationship upon prepayment and adjustsadjust the prepayment fees received for the associated fair value basis of the hedged prepaid advance.
46
| December 31, 2010 | December 31, 2009 | |||||||||||||||||||||||
| Weighted2 | Weighted2 | |||||||||||||||||||||||
| Average | Percentage | Average | Percentage | |||||||||||||||||||||
| Amount | Yield | of Total | Amount | Yield | of Total | |||||||||||||||||||
| Overdrawn demand deposit accounts | $ | 196 | 1.15 | % | — | % | $ | 2,022 | 1.20 | % | — | % | ||||||||||||
| Due in one year or less | 16,872,651 | 1.77 | 21.94 | 24,128,022 | 2.07 | 26.59 | ||||||||||||||||||
| Due after one year through two years | 9,488,116 | 2.81 | 12.33 | 10,819,349 | 2.73 | 11.92 | ||||||||||||||||||
| Due after two years through three years | 7,221,496 | 2.94 | 9.39 | 10,069,555 | 2.91 | 11.10 | ||||||||||||||||||
| Due after three years through four years | 5,004,502 | 2.69 | 6.50 | 5,804,448 | 3.32 | 6.40 | ||||||||||||||||||
| Due after four years through five years | 6,832,709 | 2.93 | 8.88 | 3,364,706 | 3.19 | 3.71 | ||||||||||||||||||
| Due after five years through six years | 9,590,448 | 4.32 | 12.46 | 2,807,329 | 3.91 | 3.09 | ||||||||||||||||||
| Thereafter | 21,929,421 | 3.68 | 28.50 | 33,742,269 | 3.78 | 37.19 | ||||||||||||||||||
| Total par value | 76,939,539 | 3.03 | % | 100.00 | % | 90,737,700 | 3.06 | % | 100.00 | % | ||||||||||||||
Discount on AHP advances1 | (42 | ) | (260 | ) | ||||||||||||||||||||
| Hedging adjustments | 4,260,839 | 3,611,311 | ||||||||||||||||||||||
Total | $ | 81,200,336 | $ | 94,348,751 | ||||||||||||||||||||
Advances — Interest Rate Terms
The following table summarizes interest-rate payment terms for advances (dollars in thousands):
Table 3.5: 3.4:Advances by Interest-Rate Payment Terms
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||
|
|
|
| Percentage |
|
|
| Percentage |
| ||
|
| Amount |
| of Total |
| Amount |
| of Total |
| ||
|
|
|
|
|
|
|
|
|
| ||
Fixed-rate (a) |
| $ | 60,718,402 |
| 90.64 | % | $ | 68,818,343 |
| 89.44 | % |
Variable-rate (b) |
| 6,262,500 |
| 9.35 |
| 8,113,000 |
| 10.55 |
| ||
Variable-rate capped (c) |
| 8,000 |
| 0.01 |
| 8,000 |
| 0.01 |
| ||
Overdrawn demand deposit accounts |
| — |
| — |
| 196 |
| — |
| ||
|
|
|
|
|
|
|
|
|
| ||
Total par value |
| 66,988,902 |
| 100.00 | % | 76,939,539 |
| 100.00 | % | ||
|
|
|
|
|
|
|
|
|
| ||
Discount on AHP Advances |
| (15 | ) |
|
| (42 | ) |
|
| ||
Hedging basis adjustments |
| 3,874,890 |
|
|
| 4,260,839 |
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
Total |
| $ | 70,863,777 |
|
|
| $ | 81,200,336 |
|
|
|
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Percentage | Percentage | |||||||||||||||
| Amount | of Total | Amount | of Total | |||||||||||||
| Fixed-rate | $ | 68,818,343 | 89.44 | % | $ | 76,634,828 | 84.46 | % | ||||||||
| Variable-rate | 8,121,000 | 10.56 | 13,730,850 | 15.13 | ||||||||||||
| Variable-rate capped | — | — | 370,000 | 0.41 | ||||||||||||
| Overdrawn demand deposit accounts | 196 | — | 2,022 | — | ||||||||||||
| Total par value | 76,939,539 | 100.00 | % | 90,737,700 | 100.00 | % | ||||||||||
| Discount on AHP Advances | (42 | ) | (260 | ) | ||||||||||||
| Hedging basis adjustments | 4,260,839 | 3,611,311 | ||||||||||||||
Total | $ | 81,200,336 | $ | 94,348,751 | ||||||||||||
(a)Fixed-rate borrowings remained popular with members but amounts borrowed have declined in line with the overall decline in member demand for advances. The product is popular with members as reflected by an increasing percentage of total advances outstanding at December 31, 2010.outstanding.
(b) Variable-rate advances outstanding declined in percentage terms and amounts outstanding. Member demand for adjustable-rate LIBOR-based funding has been weak, as members may perceive the risk of a combination ofborrowing in an unsettled interest rate environment and a steepening yield curve, toa combination of events that make variable-rate borrowing relatively unattractive from an interest-rate risk management perspective. Variable-rate capped advances also declined in a declining interest rate environment.
(c) Typically, capped ARCs are in demand by members only in a rising rate environment, as they would purchase cap options from the FHLBNYus to limit borrowers’ interest rate exposure. With a capped variable rate advance, the FHLBNY had offsetting purchasedwe purchase cap options that mirroredmirror the terms of the caps sold to members, offsetting the FHLBNY’sour exposure on the advance.
47
Table 3.6: 3.5:Variable-Rate Advances
|
| December 31, 2011 |
| December 31, 2010 |
| ||
|
|
|
|
|
| ||
LIBOR indexed (a) |
| $ | 6,270,500 |
| $ | 8,121,000 |
|
Overdrawn demand deposit accounts |
| — |
| 196 |
| ||
|
|
|
|
|
| ||
Total |
| $ | 6,270,500 |
| $ | 8,121,196 |
|
(a) LIBOR indexed advances are typically ARC advances and the larger members have not increased their borrowings in 2011.
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| LIBOR indexed | $ | 8,121,000 | $ | 14,100,500 | ||||
| Overdrawn demand deposit accounts | 196 | 2,022 | ||||||
| Prime | — | 350 | ||||||
Total | $ | 8,121,196 | $ | 14,102,872 | ||||
The following table summarizes maturity and yield characteristics of par amounts of advances (dollars in thousands):
Table 3.7: 3.6:Advances by Maturity and Yield Type
| December 31, | ||||||||||||||||
| 2010 | 2009 | |||||||||||||||
| Percentage | Percentage | |||||||||||||||
| Amount | of Total | Amount | of Total | |||||||||||||
| Fixed-rate | ||||||||||||||||
| Due in one year or less | $ | 14,384,651 | 18.70 | % | $ | 17,342,672 | 19.12 | % | ||||||||
| Due after one year | 54,433,692 | 70.75 | 59,292,156 | 65.34 | ||||||||||||
| Total Fixed-rate | 68,818,343 | 89.45 | 76,634,828 | 84.46 | ||||||||||||
| Variable-rate | ||||||||||||||||
| Due in one year or less | 2,488,196 | 3.23 | 6,787,372 | 7.48 | ||||||||||||
| Due after one year | 5,633,000 | 7.32 | 7,315,500 | 8.06 | ||||||||||||
| Total Variable-rate | 8,121,196 | 10.55 | 14,102,872 | 15.54 | ||||||||||||
| Total par value | 76,939,539 | 100.00 | % | 90,737,700 | 100.00 | % | ||||||||||
| Discount on AHP Advances | (42 | ) | (260 | ) | ||||||||||||
| Hedging adjustments | 4,260,839 | 3,611,311 | ||||||||||||||
Total | $ | 81,200,336 | $ | 94,348,751 | ||||||||||||
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||
|
|
|
| Percentage |
|
|
| Percentage |
| ||
|
| Amount |
| of Total |
| Amount |
| of Total |
| ||
|
|
|
|
|
|
|
|
|
| ||
Fixed-rate |
|
|
|
|
|
|
|
|
| ||
Due in one year or less |
| $ | 17,949,321 |
| 26.79 | % | $ | 14,384,651 |
| 18.70 | % |
Due after one year |
| 42,769,081 |
| 63.85 |
| 54,433,692 |
| 70.75 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Total Fixed-rate |
| 60,718,402 |
| 90.64 |
| 68,818,343 |
| 89.45 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Variable-rate |
|
|
|
|
|
|
|
|
| ||
Due in one year or less |
| 2,468,500 |
| 3.68 |
| 2,488,196 |
| 3.23 |
| ||
Due after one year |
| 3,802,000 |
| 5.68 |
| 5,633,000 |
| 7.32 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Total Variable-rate |
| 6,270,500 |
| 9.36 |
| 8,121,196 |
| 10.55 |
| ||
Total par value |
| 66,988,902 |
| 100.00 | % | 76,939,539 |
| 100.00 | % | ||
Discount on AHP Advances |
| (15 | ) |
|
| (42 | ) |
|
| ||
Hedging adjustments |
| 3,874,890 |
|
|
| 4,260,839 |
|
|
| ||
Total |
| $ | 70,863,777 |
|
|
| $ | 81,200,336 |
|
|
|
Impact of Derivatives and hedging activities to the balance sheet carrying values of Advances
Advance book values included fair value basis adjustments (“hedging adjustments”) for those advances recorded under hedge accounting provisions. When medium- and long-term interest rates rise or fall, the fair values of fixed-rate advances move in the opposite direction.
We hedge certain advances by the use ofusing both cancellable and non-cancellable interest rate swaps. These qualify as fair value hedges under the derivatives and hedge accounting rules. Recorded fair value basis adjustments to advances in the Statements of Condition were a result of these hedging activities. The Bank hedgesWe hedge the risk of changes in the benchmark rate, which the FHLBNY haswe have adopted as LIBOR andLIBOR. The benchmark rate is also the discounting basis for computing changes in fair values of hedged advances. Fair value changes of qualifying hedged advances under the derivatives and hedge accounting rules are recorded in the Statements of Income as a Net realized and unrealized gain (loss) on derivative and hedging activities, a component of Other income (loss). An offset is recorded as a fair value basis adjustment to the carrying amount of the advances in the Statements of Condition.
Derivative transactions are employed to hedge fixed-rate advances in the following manner and to achieve the following principal objectives. The FHLBNY:
·We make extensive use of the derivatives to restructure interest rates on fixed-rate advances, both putable and non-putable (“bullet”), to better match the FHLBNY’sour cash flows, to enhance yields, and to manage risk from a changing interest rate environment.
·We convert, at the time of issuance, certain simple fixed-rate bullet and putable fixed-rate advances into synthetic floating-rate advances by the simultaneous execution of interest rate swaps that convert the cash flows of the fixed-rate advances to conventional adjustable rate instruments tied to an index, typically 3-month LIBOR.
·We use derivatives to manage the risks arising from changing market prices and volatility of a fixed coupon advance by matching the cash flows of the advance to the cash flows of the derivative, andthereby making the FHLBNYus indifferent to changes in market conditions. Putable advances are typically hedged by an offsetting derivative with a mirror-image call option with identical terms.
·We adjust the reported carrying value of hedged fixed-rate advances for changes in their fair value (“fair value basis” or “fair value”) that are attributable to the risk being hedged in accordance with hedge accounting rules. Amounts reported for advances in the Statements of Condition include fair value hedge basis adjustments.
The most significant element that impacts balance sheet reporting of advances is the recording of fair value basis adjustments to the carrying value of advances in the Statements of Condition. In addition, when putable advances are hedged by cancellable swaps, the possibility of exercise of the call shortens the expected maturity of the advance. The impact of derivatives to the Bank’son our income is discussed in this MD&A under “Results of Operations.” Fair value basis adjustments, as measured under the hedging rules, are impacted by hedge volume, the interest rate environment and the volatility of the interest rates.
The following table summarizes hedged advances by type of option features (in thousands):
Table 3.8:3.7: Hedged Advances by Type
|
|
|
|
|
| ||
Par Amount |
| December 31, 2011 |
| December 31, 2010 |
| ||
Qualifying Hedges |
|
|
|
|
| ||
Fixed-rate bullets |
| $ | 32,733,909 |
| $ | 26,562,821 |
|
Fixed-rate putable (a) |
| 17,439,412 |
| 33,612,162 |
| ||
Fixed-rate callable |
| 325,000 |
| 150,000 |
| ||
Total Qualifying Hedges |
| $ | 50,498,321 |
| $ | 60,324,983 |
|
Aggregate par amount of advances hedged (b) |
| $ | 50,617,650 |
| $ | 60,461,327 |
|
Fair value basis (Qualifying hedging adjustments) |
| $ | 3,874,890 |
| $ | 4,260,839 |
|
| Advances | ||||||||
| Years ended December 31, | ||||||||
| Par Amount | 2010 | 2009 | ||||||
| Qualifying Hedges | ||||||||
| Fixed-rate bullets | $ | 26,562,821 | $ | 25,649,405 | ||||
| Fixed-rate putable | 33,612,162 | 40,252,262 | ||||||
| Fixed-rate callable | 150,000 | — | ||||||
| Total Qualifying Hedges | $ | 60,324,983 | $ | 65,901,667 | ||||
Aggregate par amount of advances hedged1 | $ | 60,461,327 | $ | 66,414,756 | ||||
| Fair value basis (Qualifying hedging adjustments) | $ | 4,260,839 | $ | 3,611,311 | ||||
(a) We have allowed our fixed-rate putable advances to decline and since almost all advances with put or call features are hedged, the decline in hedged advances was consistent with the contraction of fixed-rate putable advances. We purchase the put option in the advance from the borrowing member, and this option mirrors the cancellable swap option owned by the swap counterparty. Under the terms of the put option, we have the right to terminate the advance at agreed-upon dates. The period until the option is exercisable is known as the lockout period. If the advance is put at the end of the lockout period, the member can borrow an advance product of the member’s choice at the then-prevailing market rates and at the then-existing terms and conditions.
(b)Except for an insignificant notional amount of derivatives that were designated as economic hedges of advances, hedged advances were in a qualifying hedging relationship under the accounting standards for derivatives and hedging. (See Tables 8.1 — 8.6)8.7). No advances were designated under the FVO. The FHLBNYWe typically hedgeshedge fixed-rate advances in order to convert fixed-rate cash flows to LIBOR-indexed cash flows through the use of interest rate swaps.
Fair value basis adjustments— The Bank uses interest rate derivatives to hedge the risk of changes in the benchmark rate, which the FHLBNY has adopted as LIBOR, and is also the discounting basis for computing changes in fair values of hedged advances. Recorded fair value basis adjustments in the Statements of Condition were associated with hedging activities under the hedge accounting provisions. Advances designated at inception as economic hedges do not have any basis adjustments, and were insignificant. The reported carrying values of advances at December 31, 2010 included net unrealized fair value basis gains of $4.3 billion up from $3.6 billion at December 31, 2009 associated with hedged advances that qualified under hedge accounting rules at those dates.
The following graph compares the swap curve at December 31, 2011 and 2010:
Table 3.9: 3.8:LIBOR Swap Curve - Graph
Unrealized gains from fair value basis adjustments to advances were almost entirely offset by net fair value unrealized losses of the derivatives associated with the fair value hedges of advances, thereby achieving the Bank’sour hedging objectives of mitigating fair value basis risk.
The table below offers a view of the advance portfolio with the possibility of the exercise of the put option that is controlled by the FHLBNY, and putwe control. Put dates are summarized into similar maturity tenors as the previous table that summarizes advancesorganized by contractual maturitiesdate of first put (dollars in thousands).
Table 3.10: 3.9:Advances by Put Date/Call Date(a)
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||
|
| Amount |
| Percentage of |
| Amount |
| Percentage of |
| ||
|
|
|
|
|
|
|
|
|
| ||
Overdrawn demand deposit accounts |
| $ | — |
| — | % | $ | 196 |
| — | % |
Due or putable\callable in one year or less (b) |
| 36,896,233 |
| 55.07 |
| 49,443,712 |
| 64.26 |
| ||
Due or putable after one year through two years |
| 6,689,684 |
| 9.99 |
| 8,889,867 |
| 11.55 |
| ||
Due or putable after two years through three years |
| 6,540,378 |
| 9.76 |
| 6,959,596 |
| 9.05 |
| ||
Due or putable after three years through four years |
| 5,906,310 |
| 8.82 |
| 4,744,502 |
| 6.17 |
| ||
Due or putable after four years through five years |
| 7,432,042 |
| 11.09 |
| 4,145,209 |
| 5.39 |
| ||
Due or putable after five years through six years |
| 1,524,143 |
| 2.28 |
| 815,948 |
| 1.06 |
| ||
Thereafter |
| 2,000,112 |
| 2.99 |
| 1,940,509 |
| 2.52 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Total par value |
| 66,988,902 |
| 100.00 | % | 76,939,539 |
| 100.00 | % | ||
|
|
|
|
|
|
|
|
|
| ||
Discount on AHP advances |
| (15 | ) |
|
| (42 | ) |
|
| ||
Hedging adjustments |
| 3,874,890 |
|
|
| 4,260,839 |
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
Total |
| $ | 70,863,777 |
|
|
| $ | 81,200,336 |
|
|
|
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Percentage of | Percentage of | |||||||||||||||
| Amount | Total | Amount | Total | |||||||||||||
| Overdrawn demand deposit accounts | $ | 196 | — | % | $ | 2,022 | — | % | ||||||||
Due or putable\callable in one year or less1 | 49,443,712 | 64.26 | 56,978,134 | 62.79 | ||||||||||||
| Due or putable after one year through two years | 8,889,867 | 11.55 | 14,082,199 | 15.52 | ||||||||||||
| Due or putable after two years through three years | 6,959,596 | 9.05 | 8,991,805 | 9.91 | ||||||||||||
| Due or putable after three years through four years | 4,744,502 | 6.17 | 5,374,048 | 5.92 | ||||||||||||
| Due or putable after four years through five years | 4,145,209 | 5.39 | 2,826,206 | 3.12 | ||||||||||||
| Due or putable after five years through six years | 815,948 | 1.06 | 158,329 | 0.18 | ||||||||||||
| Thereafter | 1,940,509 | 2.52 | 2,324,957 | 2.56 | ||||||||||||
| Total par value | 76,939,539 | 100.00 | % | 90,737,700 | 100.00 | % | ||||||||||
| Discount on AHP advances | (42 | ) | (260 | ) | ||||||||||||
| Hedging adjustments | 4,260,839 | 3,611,311 | ||||||||||||||
Total | $ | 81,200,336 | $ | 94,348,751 | ||||||||||||
(a)Contrasting advances by contractual maturity dates (See Tables 3.1 — 3.11)—3.10) with potential put dates illustrates the impact of hedging on the effective duration of the Bank’sour advances. The Bank’s advancesAdvances borrowed by members include a significant amount of putable advances in which the Bank haswe have purchased from members the option to terminate advances at agreed-upon dates. Typically, almost all putable advances are hedged by cancellable interest rate swaps in which the derivative counterparty has the right to exercise and terminate the swap at par at agreed upon dates. Under current hedging practices, when the swap counterparty exercises its right to call the cancellable swap, the Bankwe would typically also exercise itsour right to put the advance at par. Under this hedging practice, on a put option basis, the potential exercised maturity is significantly accelerated, and is an important factor in the Bank’sour current hedge strategy. This is best illustrated by the fact that on a contractual maturity basis, 41.0%23.2% of advances would mature after five years, while on a put basis, the percentage declines to 3.6%.
(b) Includes $325.0 million par amounts of callable advances at December 31, 2011. Members have purchased the option to terminate advances.
The following table summarizes notional amounts of advances that were still putable or callable (one or more pre-determined option exercise dates remaining) (in thousands):
Table 3.11: 3.10:Putable and Callable Advances
|
| December 31, 2011 (a) |
| December 31, 2010 (a) |
| ||
Putable |
| $ | 18,324,162 |
| $ | 34,651,912 |
|
No-longer putable |
| $ | 2,217,500 |
| $ | 2,581,100 |
|
Callable |
| $ | 325,000 |
| $ | 150,000 |
|
| Advances | ||||||||
| December 31, | ||||||||
| 2010* | 2009* | |||||||
| Putable | $ | 34,651,912 | $ | 41,447,812 | ||||
| No-longer putable | $ | 2,581,100 | $ | 2,093,700 | ||||
| Callable | $ | 150,000 | — | |||||
(a) Par value
We have allowed itsour fixed-rate putable advances to decline and member borrowings have been weak for putable advances, which are typically mediummedium- and long-term.
Investments
We maintain investments for our liquidity purposes, and also to manage stock repurchases and redemptions, to provide additional earnings, and to ensure the availability of funds to meet the credit needs of itsour members. The FHLBNYWe also maintainsmaintain longer-term investment portfolios, which are principally mortgage-backed securities issued by government-sponsored mortgage agencies, a smaller portfolio of MBS issued by private enterprises and securities issued by state or local housing finance agencies.
Investments —Policies and Practices
On May 20, 2011, the Finance Agency regulations prohibitissued a final rule that incorporates the FHLBanks, including the FHLBNY, from investing in certain types of securities and limit the investment in mortgage- and asset-backed securities.
50
in the secondary market after the bond settles. There wereWe made no investments in consolidated obligations byduring the FHLBNY at December 31, 2010 or December 31, 2009. On March 24, 2008, the Board of Directors of the Federal Housing Finance Board, predecessor to the Finance Agency adopted Resolution 2008-08, which temporarily expanded the authority of a FHLBank to purchase mortgage-backed securities (“MBS”) under certain conditions. The resolution allowed a FHLBank to increase its investmentsperiods in MBS issued by Fannie Mae and Freddie Mac by an amount equal to three times its capital, which is to be calculated in addition to the existing limit. The expanded authority permitted MBS investments to be as much as 600 percent of the FHLBNY’s capital. The FHLBNY did not exercise the expanded authority provided under the temporary regulations to purchase MBS issued by Fannie Mae and Freddie Mac. The expanded authority expired in March 2010.
The following table summarizes changes in investments by categories (including held-to-maturity securities, available-for-sale securities, and money market investments). No securities classified as available-for-sale were OTTI (dollars in thousands):
Table 4.1:Investments by Categories
|
| December 31, |
| Dollar |
| Percentage |
| |||||
|
| 2011 |
| 2010 |
| Variance |
| Variance |
| |||
|
|
|
|
|
|
|
|
|
| |||
State and local housing finance agency obligations (a) |
| $ | 779,911 |
| $ | 770,609 |
| $ | 9,302 |
| 1.21 | % |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
| |||
Available-for-sale securities, at fair value |
| 3,133,469 |
| 3,980,135 |
| (846,666 | ) | (21.27 | ) | |||
Held-to-maturity securities, at carrying value |
| 9,343,894 |
| 6,990,583 |
| 2,353,311 |
| 33.66 |
| |||
Total securities |
| 13,257,274 |
| 11,741,327 |
| 1,515,947 |
| 12.91 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Grantor trust (b) |
| 9,167 |
| 9,947 |
| (780 | ) | (7.84 | ) | |||
Federal funds sold |
| 970,000 |
| 4,988,000 |
| (4,018,000 | ) | (80.55 | ) | |||
|
|
|
|
|
|
|
|
|
| |||
Total investments |
| $ | 14,236,441 |
| $ | 16,739,274 |
| $ | (2,502,833 | ) | (14.95 | )% |
| December 31, | Dollar | Percentage | ||||||||||||||
| 2010 | 2009 | Variance | Variance | |||||||||||||
State and local housing finance agency obligations1 | $ | 770,609 | $ | 751,751 | $ | 18,858 | 2.51 | % | ||||||||
| Mortgage-backed securities | ||||||||||||||||
| Available-for-sale securities, at fair value | 3,980,135 | 2,240,564 | 1,739,571 | 77.64 | ||||||||||||
| Held-to-maturity securities, at carrying value | 6,990,583 | 9,767,531 | (2,776,948 | ) | (28.43 | ) | ||||||||||
| Total securities | 11,741,327 | 12,759,846 | (1,018,519 | ) | (7.98 | ) | ||||||||||
Grantor trusts2 | 9,947 | 12,589 | (2,642 | ) | (20.99 | ) | ||||||||||
| Federal funds sold | 4,988,000 | 3,450,000 | 1,538,000 | 44.58 | ||||||||||||
| Total investments | $ | 16,739,274 | $ | 16,222,435 | $ | 516,839 | 3.19 | % | ||||||||
(a) Classified as held-to-maturity securities, at carrying value, which for an HTM security is amortized cost if the security is not OTTI. If the security is OTTI, carrying value is amortized cost less total OTTI and other adjustments.
(b) Classified as available-for-sale securities, at fair value and represents investments in registered mutual funds and other fixed-income securities maintained under the grantor trust.
Long-Term Investments
Investments with original long-term contractual maturities were comprised of mortgage- and asset-backed securities, and investment in securities issued by state and local housing agencies. These investments were classified either as “Held-to-maturity” or as “Available-for-sale” securities in accordance with accounting standard on investments in debt and equity securities as amended by the guidance on recognition and presentation of other-than-temporary impairments. Severalsecurities. We own a grantor trusts have been established and owned by the FHLBNYtrust to fund current and potential future payments to retirees for supplemental pension plan obligations. The trust funds arefund is classified as available-for-sale and is invested in fixed-income and equity funds, which were classified as available-for-sale.
Mortgage-Backed Securities — By Issuer
Issuer composition of held-to-maturity mortgage-backed securities was as follows (carrying values; dollars in thousands):
Table 4.2:Held-to-Maturity Mortgage-Backed Securities — By Issuer
| December 31, | Percentage | December 31, | Percentage | |||||||||||||
| 2010 | of Total | 2009 | of Total | |||||||||||||
| U.S. government sponsored enterprise residential mortgage-backed securities | $ | 5,528,792 | 79.09 | % | $ | 8,482,139 | 86.84 | % | ||||||||
| U.S. agency residential mortgage-backed securities | 116,126 | 1.66 | 171,531 | 1.76 | ||||||||||||
| U.S. government sponsored enterprise commercial mortgage-backed securities | 476,393 | 6.81 | — | — | ||||||||||||
| U.S. agency commercial mortgage-backed securities | 48,748 | 0.70 | 49,526 | 0.51 | ||||||||||||
| Private-label issued securities backed by home equity loans | 351,455 | 5.03 | 417,151 | 4.27 | ||||||||||||
| Private-label issued residential mortgage-backed securities | 292,477 | 4.18 | 444,906 | 4.55 | ||||||||||||
| Private-label issued securities backed by manufactured housing loans | 176,592 | 2.53 | 202,278 | 2.07 | ||||||||||||
| Total Held-to-maturity securities-mortgage-backed securities | $ | 6,990,583 | 100.00 | % | $ | 9,767,531 | 100.00 | % | ||||||||
|
| December 31, |
| Percentage |
| December 31, |
| Percentage |
| ||
|
| 2011 |
| of Total |
| 2010 |
| of Total |
| ||
|
|
|
|
|
|
|
|
|
| ||
U.S. government sponsored enterprise residential mortgage-backed securities |
| $ | 6,473,587 |
| 69.28 | % | $ | 5,528,792 |
| 79.09 | % |
U.S. agency residential mortgage-backed securities |
| 89,586 |
| 0.96 |
| 116,126 |
| 1.66 |
| ||
U.S. government sponsored enterprise commercial mortgage-backed securities |
| 2,093,447 |
| 22.40 |
| 476,393 |
| 6.81 |
| ||
U.S. agency commercial mortgage-backed securities |
| 34,447 |
| 0.37 |
| 48,747 |
| 0.70 |
| ||
Private-label issued securities backed by home equity loans |
| 313,849 |
| 3.36 |
| 351,456 |
| 5.03 |
| ||
Private-label issued residential mortgage-backed securities |
| 185,097 |
| 1.98 |
| 292,477 |
| 4.18 |
| ||
Private-label issued securities backed by manufactured housing loans |
| 153,881 |
| 1.65 |
| 176,592 |
| 2.53 |
| ||
Total Held-to-maturity securities-mortgage-backed securities |
| $ | 9,343,894 |
| 100.00 | % | $ | 6,990,583 |
| 100.00 | % |
51
Local and housing finance agency bonds—The FHLBNY had We have investments in primary public and private placements of taxable obligations of state and local housing finance authorities (“HFA”) classified as held-to-maturity. Investments in state and local housing finance bonds help to fund mortgages that finance low- and moderate-income housing. The FHLBNYWe purchased $74.6$69.0 million of HFA bonds in 2011 and $74.6 million in 2010.
Available-for-sale securities— The FHLBNY classifies investments that it mayAny investment we might sell before maturity is classified as available-for-sale (“AFS”) and carries them. We carry such investments at fair value. Fair value changes are recorded in AOCI until the security is sold or is anticipated to be sold. Composition
The composition of FHLBNY’s available-for-sale securities was as follows (dollars in thousands):
Table 4.3:Available-for-Sale Securities Composition
| December 31, | Percentage | December 31, | Percentage | |||||||||||||
| 2010 | of Total | 2009 | of Total | |||||||||||||
| Fannie Mae | $ | 2,478,313 | 62.26 | % | $ | 1,544,500 | 68.93 | % | ||||||||
| Freddie Mac | 1,429,900 | 35.93 | 696,064 | 31.07 | ||||||||||||
| Ginnie Mae | 71,922 | 1.81 | — | — | ||||||||||||
| Total AFS mortgage-backed securities | 3,980,135 | 100.00 | % | 2,240,564 | 100.00 | % | ||||||||||
| Grantor Trusts — Mutual funds | 9,947 | 12,589 | ||||||||||||||
| Total Available-for-sale portfolio | $ | 3,990,082 | $ | 2,253,153 | ||||||||||||
|
| December 31, |
| Percentage |
| December 31, |
| Percentage |
| ||
|
| 2011 |
| of Total |
| 2010 |
| of Total |
| ||
|
|
|
|
|
|
|
|
|
| ||
Fannie Mae |
| $ | 1,942,230 |
| 61.99 | % | $ | 2,478,313 |
| 62.26 | % |
Freddie Mac |
| 1,125,609 |
| 35.92 |
| 1,429,900 |
| 35.93 |
| ||
Ginnie Mae |
| 65,630 |
| 2.09 |
| 71,922 |
| 1.81 |
| ||
Total AFS mortgage-backed securities |
| 3,133,469 |
| 100.00 | % | 3,980,135 |
| 100.00 | % | ||
Grantor Trust - Mutual funds |
| 9,167 |
|
|
| 9,947 |
|
|
| ||
Total AFS portfolio |
| $ | 3,142,636 |
|
|
| $ | 3,990,082 |
|
|
|
All of the mortgage-backed securities in the AFS portfolio was comprised of securitieswere issued by Fannie Mae, Freddie Mac andor a U.S. agency. The Bank acquired $2.9 billion of GSE issued, triple-A rated MBSFunds in 2010. The Bank also hasthe grantor trusts designed to fund current and potential future payments to retirees for supplemental pension plan obligations. The truststrust are invested in money marketregistered mutual funds, fixed-income and equity funds, and are designated as available-for-sale.
External rating information of the held-to-maturity portfolio was as follows. (Carryingfollows (carrying values; in thousands):
Table 4.4:External Rating of the Held-to-Maturity Portfolio
|
| December 31, 2011 |
| ||||||||||||||||
|
| AAA-rated (a) |
| AA-rated (b) |
| A-rated |
| BBB-rated |
| Below |
| Total |
| ||||||
Long-term securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage-backed securities |
| $ | 100,639 |
| $ | 8,933,445 |
| $ | 70,925 |
| $ | 76,205 |
| $ | 162,680 |
| $ | 9,343,894 |
|
State and local housing finance agency obligations |
| 69,741 |
| 663,540 |
| — |
| 46,630 |
| — |
| 779,911 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term securities |
| $ | 170,380 |
| $ | 9,596,985 |
| $ | 70,925 |
| $ | 122,835 |
| $ | 162,680 |
| $ | 10,123,805 |
|
|
| December 31, 2010 |
| ||||||||||||||||
|
| AAA-rated (c) |
| AA-rated |
| A-rated |
| BBB-rated |
| Below |
| Total |
| ||||||
Long-term securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage-backed securities |
| $ | 6,463,552 |
| $ | 266,567 |
| $ | 87,796 |
| $ | 17,446 |
| $ | 155,222 |
| $ | 6,990,583 |
|
State and local housing finance agency obligations |
| 71,461 |
| 631,943 |
| — |
| 67,205 |
| — |
| 770,609 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total Long-term securities |
| $ | 6,535,013 |
| $ | 898,510 |
| $ | 87,796 |
| $ | 84,651 |
| $ | 155,222 |
| $ | 7,761,192 |
|
| December 31, 2010 | ||||||||||||||||||||||||
| Below | ||||||||||||||||||||||||
| Investment | ||||||||||||||||||||||||
| AAA-rated | AA-rated | A-rated | BBB-rated | Grade | Total | |||||||||||||||||||
| Long-term securities | ||||||||||||||||||||||||
| Mortgage-backed securities | $ | 6,463,552 | $ | 266,567 | $ | 87,796 | $ | 17,446 | $ | 155,222 | $ | 6,990,583 | ||||||||||||
| State and local housing finance agency obligations | 71,461 | 631,943 | — | 67,205 | — | 770,609 | ||||||||||||||||||
Total Long-term securities | $ | 6,535,013 | $ | 898,510 | $ | 87,796 | $ | 84,651 | $ | 155,222 | $ | 7,761,192 | ||||||||||||
| December 31, 2009 | ||||||||||||||||||||||||
| Below | ||||||||||||||||||||||||
| Investment | ||||||||||||||||||||||||
| AAA-rated | AA-rated | A-rated | BBB-rated | Grade | Total | |||||||||||||||||||
| Long-term securities | ||||||||||||||||||||||||
| Mortgage-backed securities | $ | 9,205,018 | $ | 299,314 | $ | 65,921 | $ | 31,261 | $ | 166,017 | $ | 9,767,531 | ||||||||||||
| State and local housing finance agency obligations | 72,992 | 601,109 | 21,430 | 56,220 | — | 751,751 | ||||||||||||||||||
Total Long-term securities | $ | 9,278,010 | $ | 900,423 | $ | 87,351 | $ | 87,481 | $ | 166,017 | $ | 10,519,282 | ||||||||||||
(a) Represents certain PLMBS and housing bonds that are rated triple-A by S&P and Moody’s
52
(c) At December 31, 2010 and until August 8, 2011, the credit rating status of GSE issued MBS were based on the triple-A credit ratings assigned to GSEs by the major credit rating agencies.
External rating information of the available-for-sale portfolio was as follows (the carrying values of AFS investments are at fair values; in thousands):
Table 4.5:External Rating of the Available-for-Sale Portfolio
|
| December 31, 2011 |
| ||||||||||||||||
|
| AAA-rated (d) |
| AA-rated (d) |
| A-rated |
| BBB-rated |
| Unrated |
| Total |
| ||||||
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage-backed securities |
| $ | — |
| $ | 3,133,469 |
| $ | — |
| $ | — |
| $ | — |
| $ | 3,133,469 |
|
Other - Grantor trust |
| — |
| — |
| — |
| — |
| 9,167 |
| 9,167 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total Available-for-sale securities |
| $ | — |
| $ | 3,133,469 |
| $ | — |
| $ | — |
| $ | 9,167 |
| $ | 3,142,636 |
|
|
| December 31, 2010 |
| ||||||||||||||||
|
| AAA-rated (e) |
| AA-rated |
| A-rated |
| BBB-rated |
| Unrated |
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Available-for-sale securities |
| �� |
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage-backed securities |
| $ | 3,980,135 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 3,980,135 |
|
Other - Grantor trust |
| — |
| — |
| — |
| — |
| 9,947 |
| 9,947 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total Available-for-sale securities |
| $ | 3,980,135 |
| $ | — |
| $ | — |
| $ | — |
| $ | 9,947 |
| $ | 3,990,082 |
|
(d) All MBS are GSE/Agency issued securities and the ratings are based on issuer credit ratings. Fannie Mae, Freddie Mac and U.S. Agency issued securities MBS are rated double-A (Based on S&P’s rating of AA+/Negative for the GSEs and Double - A for the U.S sovereign; Moody’s affirmed the triple-A status of the two GSEs and the U.S. sovereign rating).
(e) At December 31, 2010 and until August 8, 2011, we reported the credit ratings of GSE and U.S. Agency MBS as triple-A, the credit rating ascribed to the issuers.
| December 31, 2010 | ||||||||||||||||||||||||
| AAA-rated | AA-rated | A-rated | BBB-rated | Unrated | Total | |||||||||||||||||||
| Available-for-sale securities | ||||||||||||||||||||||||
Mortgage-backed securities1 | $ | 3,980,135 | $ | — | $ | — | $ | — | $ | — | $ | 3,980,135 | ||||||||||||
| Other — Grantor trusts | — | — | — | — | 9,947 | 9,947 | ||||||||||||||||||
Total | $ | 3,980,135 | $ | — | $ | — | $ | — | $ | 9,947 | $ | 3,990,082 | ||||||||||||
| December 31, 2009 | ||||||||||||||||||||||||
| AAA-rated | AA-rated | A-rated | BBB-rated | Unrated | Total | |||||||||||||||||||
| Available-for-sale securities | ||||||||||||||||||||||||
Mortgage-backed securities1 | $ | 2,240,564 | $ | — | $ | — | $ | — | $ | — | $ | 2,240,564 | ||||||||||||
| Other — Grantor trusts | — | — | — | — | 12,589 | 12,589 | ||||||||||||||||||
Total | $ | 2,240,564 | $ | — | $ | — | $ | — | $ | 12,589 | $ | 2,253,153 | ||||||||||||
Weighted average rates — Mortgage-backed securities (HTM and AFS)
The following table summarizes weighted average rates and amounts by contractual maturities. A significant portion of the MBS portfolio consisted of floating-rate securities and the weighted average rates will change in parallel with changes in the LIBOR rate (dollars in thousands):
Table 4.6:Mortgage-Backed SecuritiesWeighted Average Rates by Contractual Maturities
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Amortized | Weighted | Amortized | Weighted | |||||||||||||
| Cost | Average Rate | Cost | Average Rate | |||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Due in one year or less | $ | — | — | % | $ | — | — | % | ||||||||
| Due after one year through five years | 1,730 | 6.25 | 2,663 | 6.25 | ||||||||||||
| Due after five years through ten years | 1,374,456 | 4.36 | 1,140,153 | 4.78 | ||||||||||||
| Due after ten years | 9,664,231 | 2.57 | 10,977,950 | 3.21 | ||||||||||||
| Total mortgage-backed securities | $ | 11,040,417 | 2.79 | % | $ | 12,120,766 | 3.36 | % | ||||||||
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||
|
| Amortized |
| Weighted |
| Amortized |
| Weighted |
| ||
|
| Cost |
| Average Rate |
| Cost |
| Average Rate |
| ||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
| ||
Due in one year or less |
| $ | — |
| — | % | $ | — |
| — | % |
Due after one year through five years |
| 972 |
| 6.25 |
| 1,730 |
| 6.25 |
| ||
Due after five years through ten years |
| 2,886,147 |
| 3.67 |
| 1,374,456 |
| 4.36 |
| ||
Due after ten years |
| 9,649,520 |
| 1.94 |
| 9,664,231 |
| 2.57 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Total mortgage-backed securities |
| $ | 12,536,639 |
| 2.34 | % | $ | 11,040,417 |
| 2.79 | % |
53
We evaluated its credit impairedour OTTI private-label MBS under a base case (or best estimate) scenario, and also performed a cash flow analysis for each of those securities under more adverse external assumptions that forecasted a larger home price decline and a slower rate of housing price recovery. The stress test scenario and associated results do not represent the Bank’sour current expectations and therefore should not be construed as a prediction of the Bank’s future results, market conditions or the actual performance of these securities.
Table 4.7:Base and Adverse Case Stress Scenarios(a)
|
| As of December 31, 2011 |
| ||||||||||
|
| Actual Results - Base Case Scenario |
| Adverse Case Scenario |
| ||||||||
|
| UPB |
| OTTI Related to Credit |
| UPB |
| OTTI Related to Credit |
| ||||
RMBS Prime |
| $ | 14,917 |
| $ | 60 |
| $ | 14,917 |
| $ | 845 |
|
HEL Subprime |
| 23,326 |
| 3,963 |
| 23,326 |
| 4,664 |
| ||||
Total Securities |
| $ | 38,243 |
| $ | 4,023 |
| $ | 38,243 |
| $ | 5,509 |
|
| December 31, 2010 | ||||||||||||||||
| Actual Results — Base Case Scenario | Pro-forma Results — Adverse Case Scenario | |||||||||||||||
| OTTI Related to Credit | OTTI Related to Credit | |||||||||||||||
| UPB | Loss | UPB | Loss | |||||||||||||
| RMBS Prime | $ | 16,477 | $ | (176 | ) | $ | 16,477 | $ | (272 | ) | ||||||
| Alt-A | — | — | — | — | ||||||||||||
| HEL Subprime | 17,641 | (409 | ) | 17,641 | (421 | ) | ||||||||||
Total | $ | 34,118 | $ | (585 | ) | $ | 34,118 | $ | (693 | ) | ||||||
In(a) Generally, the adverse case scenario, expectedAdverse Case is computed by stressing Credit Default Rate and Loss Severity.
(b) Credit OTTI recognized in the 4th Quarter of 2011 (December 31, 2011).
Non-Agency Private label mortgage — and asset-backed securities
Our investments in privately-issued MBS are summarized below. All private-label MBS were classified as held-to-maturity (unpaid principal balance (a); in thousands):
Table 4.8:Non-Agency Private Label Mortgage — and Asset-Backed Securities
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||||||||||
Private-label MBS |
| Fixed Rate |
| Variable |
| Total |
| Fixed Rate |
| Variable |
| Total |
| ||||||
Private-label RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Prime |
| $ | 177,687 |
| $ | 3,621 |
| $ | 181,308 |
| $ | 284,552 |
| $ | 3,995 |
| $ | 288,547 |
|
Alt-A |
| 4,794 |
| 2,931 |
| 7,725 |
| 5,877 |
| 3,276 |
| 9,153 |
| ||||||
Total PL RMBS |
| 182,481 |
| 6,552 |
| 189,033 |
| 290,429 |
| 7,271 |
| 297,700 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Home Equity Loans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Subprime |
| 352,836 |
| 69,283 |
| 422,119 |
| 389,031 |
| 81,835 |
| 470,866 |
| ||||||
Total Home Equity Loans |
| 352,836 |
| 69,283 |
| 422,119 |
| 389,031 |
| 81,835 |
| 470,866 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Manufactured Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Subprime |
| 153,898 |
| — |
| 153,898 |
| 176,611 |
| — |
| 176,611 |
| ||||||
Total Manufactured Housing Loans |
| 153,898 |
| — |
| 153,898 |
| 176,611 |
| — |
| 176,611 |
| ||||||
Total UPB of private-label MBS (b) |
| $ | 689,215 |
| $ | 75,835 |
| $ | 765,050 |
| $ | 856,071 |
| $ | 89,106 |
| $ | 945,177 |
|
(a) Unpaid principal balance (UPB) is also known as the current face or par amount of a mortgage-backed security.
(b) Paydowns of PLMBS have reduced outstanding unpaid principal balances. No acquisitions of PLMBS have been made for last several years.
The following tables present additional information of the fair values and gross unrealized losses areof PLMBS by year of securitization and external rating (in thousands):
Table 4.9:PLMBS by Year of Securitization and External Rating
|
| December 31, 2011 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| Unpaid Principal Balance |
|
|
|
|
|
|
| Total |
| ||||||||||||||||||||
Private-label MBS |
| Ratings |
| Triple-A |
| Double-A |
| Single-A |
| Triple-B |
| Below |
| Amortized |
| Gross |
| Fair Value |
| Credit and |
| ||||||||||
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
2006 |
| $ | 24,960 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 24,960 |
| $ | 24,401 |
| $ | (260 | ) | $ | 24,141 |
| $ | (315 | ) |
2005 |
| 39,469 |
| — |
| — |
| — |
| 10,062 |
| 29,407 |
| 38,267 |
| (494 | ) | 37,822 |
| — |
| ||||||||||
2004 and earlier |
| 116,879 |
| 77,299 |
| 3,621 |
| — |
| 32,203 |
| 3,756 |
| 116,411 |
| (439 | ) | 117,885 |
| — |
| ||||||||||
Total RMBS Prime |
| 181,308 |
| 77,299 |
| 3,621 |
| — |
| 42,265 |
| 58,123 |
| 179,079 |
| (1,193 | ) | 179,848 |
| (315 | ) | ||||||||||
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
2004 and earlier |
| 7,725 |
| 7,725 |
| — |
| — |
| — |
| — |
| 7,726 |
| (904 | ) | 6,831 |
| — |
| ||||||||||
Total RMBS |
| 189,033 |
| 85,024 |
| 3,621 |
| — |
| 42,265 |
| 58,123 |
| 186,805 |
| (2,097 | ) | 186,679 |
| (315 | ) | ||||||||||
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
2004 and earlier |
| 422,119 |
| 16,086 |
| 84,886 |
| 80,392 |
| 50,743 |
| 190,012 |
| 387,990 |
| (51,415 | ) | 338,378 |
| (476 | ) | ||||||||||
Manufactured Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
2004 and earlier |
| 153,898 |
| — |
| 153,898 |
| — |
| — |
| — |
| 153,881 |
| (8,387 | ) | 145,494 |
| — |
| ||||||||||
Total PLMBS |
| $ | 765,050 |
| $ | 101,110 |
| $ | 242,405 |
| $ | 80,392 |
| $ | 93,008 |
| $ | 248,135 |
| $ | 728,676 |
| $ | (61,899 | ) | $ | 670,551 |
| $ | (791 | ) |
|
| December 31, 2010 |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| Unpaid Principal Balance |
|
|
|
|
|
|
| Total |
| ||||||||||||||||||||
Private-label MBS |
| Ratings |
| Triple-A |
| Double-A |
| Single-A |
| Triple-B |
| Below |
| Amortized |
| Gross |
| Fair Value |
| Credit and |
| ||||||||||
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
2006 |
| $ | 40,987 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 40,987 |
| $ | 40,413 |
| $ | (303 | ) | $ | 40,313 |
| $ | (479 | ) |
2005 |
| 59,456 |
| — |
| — |
| 17,664 |
| — |
| 41,792 |
| 57,863 |
| (589 | ) | 57,763 |
| — |
| ||||||||||
2004 and earlier |
| 188,104 |
| 180,110 |
| 7,994 |
| — |
| — |
| — |
| 187,256 |
| (388 | ) | 191,029 |
| — |
| ||||||||||
Total RMBS Prime |
| 288,547 |
| 180,110 |
| 7,994 |
| 17,664 |
| — |
| 82,779 |
| 285,532 |
| (1,280 | ) | 289,105 |
| (479 | ) | ||||||||||
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
2004 and earlier |
| 9,153 |
| 9,153 |
| — |
| — |
| — |
| — |
| 9,154 |
| (528 | ) | 8,684 |
| — |
| ||||||||||
Total RMBS |
| 297,700 |
| 189,263 |
| 7,994 |
| 17,664 |
| — |
| 82,779 |
| 294,686 |
| (1,808 | ) | 297,789 |
| (479 | ) | ||||||||||
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
2004 and earlier |
| 470,866 |
| 124,936 |
| 88,402 |
| 89,465 |
| 27,984 |
| 140,079 |
| 442,173 |
| (64,076 | ) | 378,992 |
| (4,573 | ) | ||||||||||
Manufactured Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
2004 and earlier |
| 176,611 |
| — |
| 176,611 |
| — |
| — |
| — |
| 176,592 |
| (21,437 | ) | 155,155 |
| — |
| ||||||||||
Total PLMBS |
| $ | 945,177 |
| $ | 314,199 |
| $ | 273,007 |
| $ | 107,129 |
| $ | 27,984 |
| $ | 222,858 |
| $ | 913,451 |
| $ | (87,321 | ) | $ | 831,936 |
| $ | (5,052 | ) |
(a) Credit-related OTTI was offset by reclassification of non-credit OTTI to Net income.
Weighted-average market price offers an analysis of unrealized loss percentage; a comparison of the weighted-average credit support to weighted-average collateral delinquency percentage is another indicator of the credit support available to absorb potential cash flow shortfalls.
Table 4.10:Weighted-Average Market Price of MBS
|
| December 31, 2011 |
| ||||
Private-label MBS |
| Original |
| Weighted-Average Credit |
| Weighted-Average Collateral |
|
RMBS |
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
2006 |
| 3.81 | % | 4.91 | % | 10.46 | % |
2005 |
| 2.39 |
| 4.55 |
| 3.55 |
|
2004 and earlier |
| 1.57 |
| 4.30 |
| 1.51 |
|
Total RMBS Prime |
| 2.06 |
| 4.44 |
| 3.19 |
|
Alt-A |
|
|
|
|
|
|
|
2004 and earlier |
| 11.73 |
| 34.33 |
| 9.90 |
|
Total RMBS |
| 2.45 |
| 5.66 |
| 3.46 |
|
HEL |
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
2004 and earlier |
| 58.08 |
| 30.99 |
| 16.90 |
|
Manufactured Housing Loans |
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
2004 and earlier |
| 100.00 |
| 27.70 |
| 3.19 |
|
Total Private-label MBS |
| 52.77 | % | 24.07 | % | 10.82 | % |
|
| December 31, 2010 |
| ||||
Private-label MBS |
| Original |
| Weighted-Average Credit |
| Weighted-Average |
|
RMBS |
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
2006 |
| 3.81 | % | 5.30 | % | 6.94 | % |
2005 |
| 2.52 |
| 4.29 |
| 3.05 |
|
2004 and earlier |
| 1.56 |
| 3.40 |
| 0.65 |
|
Total RMBS Prime |
| 2.08 |
| 3.86 |
| 2.04 |
|
Alt-A |
|
|
|
|
|
|
|
2004 and earlier |
| 11.11 |
| 33.38 |
| 7.42 |
|
Total RMBS |
| 2.36 |
| 4.76 |
| 2.20 |
|
HEL |
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
2004 and earlier |
| 57.15 |
| 64.57 |
| 17.26 |
|
Manufactured Housing Loans |
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
2004 and earlier |
| 100.00 |
| 100.00 |
| 3.51 |
|
Total Private-label MBS |
| 47.90 | % | 52.36 | % | 9.95 | % |
Definitions:
(a) Original Weighted-Average Credit Support Percentage represents the average of a cohort of securities by vintage; credit support is defined as the credit protection level at the time the mortgage-backed securities closed. Support is expressed as a percentage of the sum of: subordinate bonds, reserve funds, guarantees, overcollateralization, divided by the original collateral balance.
(b) Weighted-Average Credit Support Percentagerepresents the average of a cohort of securities by vintage; credit support is defined as the credit protection level as of the mortgage-backed securities most current payment date. Support is expressed as a percentage of the sum of: subordinate bonds, reserve funds, guarantees, overcollateralization, divided by the most current unpaid collateral balance.
(c) Weighted-Average Collateral Delinquency Percentagerepresents the average of a cohort of securities by vintage: collateral delinquency is defined as the sum of the unpaid principal balance of loans underlying the mortgage-backed security where the borrower is 60 or more days past due, or in bankruptcy proceedings, or the loan is in foreclosure, or has become real estate owned divided by the aggregate unpaid collateral balance.
Short-term investments
We typically maintain substantial investments in high quality short- and intermediate-term financial instruments such as certificates of deposit, as well as overnight and term Federal funds sold to highly-rated financial institutions. These investments provide the liquidity necessary to meet members’ credit needs. Short-term investments also provide a flexible means of implementing the asset/liability management decisions to increase liquidity. We may also invest in certificates of deposit with maturities not significantly greater than those assessedexceeding 270 days and issued by major financial institutions, and such investment securities would be recorded at amortized cost basis and designated as held-to-maturity investment.
Federal funds sold — Historically, we have been a provider of Federal funds to our members, allowing us to warehouse and provide balance sheet liquidity to meet unexpected member borrowing demands. For more information see Table 4.1.
Cash collateral pledged — All cash posted as pledged collateral to derivative counterparties is reported as a deduction to Derivative liabilities in the Statements of Condition. We generally execute derivatives with major financial institutions and enter into bilateral collateral agreements. When our derivatives are in a net unrealized loss position, as a liability from our perspective, counterparties are exposed and we would be called upon to post cash collateral to mitigate the counterparties’ credit exposure. Collateral agreements include certain thresholds and pledge requirements that are generally triggered if exposures exceed the agreed-upon thresholds. Typically, such cash deposit pledges earn interest at the overnight Federal funds rate. At December 31, 2011 and 2010, underwe had deposited $2.6 billion and $2.7 billion in interest-earning cash as pledged collateral to derivative counterparties. Typically, such cash deposit pledges earn interest at the base case expected loss scenario.
Fair valuesof investment securities
To compute fair values at December 31, 2011 and 2010, four vendor prices were received for substantially all of the FHLBNY’sour MBS holdings and substantially all of those prices fell within the specified thresholds. The
Except for a small portfolio of private-label MBS and housing finance agency bonds, our portfolio of MBS were issued by GSEs and U.S. agency and the relative proximity of the prices received supported the FHLBNY’sour conclusion that the final computed prices were reasonable estimates of fair value.
The four specialized pricing services use pricing models or quoted prices of securities with similar characteristics. The valuation techniques used by pricing services employ cash flow generators and option-adjusted spread models. Pricing spreads used as inputs in the models are based on new issue and secondary market transactions if the securities are traded in sufficient volumes in the secondary market.
The valuation of the FHLBNY’sour private-label mortgage-backed securities, all designated as held-to-maturity, may require pricing services to use significant inputs that are subjective and may be considered to be Level 3 of the fair value hierarchy because of the current lack of significant market activity so that the inputs may not be market based and observable.hierarchy. All private-label mortgage-backed securities were classified as held-to-maturity and were recorded in the balance sheet at their carrying values. Carrying value of a held-to-maturity security is the same as its amortized cost, unless the security is determined to be OTTI. In the period the security is determined to be OTTI, its carrying value is generally adjusted down to its fair value.
For a comparison of carrying values and fair values of mortgage-backed securities, see Notes 4 and 5 to the audited financial statements accompanying this report. For more information about the corroboration and other analytical procedures we performed, by the FHLBNY, see Note 1 — Significant Accounting Policies and Estimates, and Note 1917 — Fair Values of Financial Instruments toin the audited financial statements accompanying this report. Examples of securities priced under such a valuation technique, which are classified within Level 2 of the valuation hierarchy and valued using the “market approach” as defined in the accounting standards for fair value measurements and disclosures, include GSE issued collateralized mortgage obligations and money market funds.
The portfolio of mortgage loans was primarily comprised of investments in Mortgage Partnership Finance loans (“MPF” or “MPF Program”) and Community Mortgage Asset loans (“CMA”). More details about the MPF program can be found in Mortgage Partnership Finance Program under the caption Acquired Member Assets Program in this MD&A. In the CMA program, the FHLBNY holds participation interests in residential and community development mortgage loans. Acquisition of participations under the CMA program was suspended indefinitely in November 2001 and the loans were performing under their contractual terms. The remaining investment in this program was not significant.
The following table presents information on mortgage loans held-for-portfolio (dollars insummarizes MPF loan by product types (in thousands):
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Percentage of | Percentage of | |||||||||||||||
| Amount | Total | Amount | Total | |||||||||||||
Real Estate: | ||||||||||||||||
| Fixed medium-term single-family mortgages | $ | 342,081 | 27.05 | % | $ | 388,072 | 29.43 | % | ||||||||
| Fixed long-term single-family mortgages | 918,741 | 72.65 | 926,856 | 70.27 | ||||||||||||
| Multi-family mortgages | 3,799 | 0.30 | 3,908 | 0.30 | ||||||||||||
| Total par value | 1,264,621 | 100.00 | % | 1,318,836 | 100.00 | % | ||||||||||
| Unamortized premiums | 11,333 | 9,095 | ||||||||||||||
| Unamortized discounts | (4,357 | ) | (5,425 | ) | ||||||||||||
Basis adjustment1 | (33 | ) | (461 | ) | ||||||||||||
| Total mortgage loans held-for-portfolio | 1,271,564 | 1,322,045 | ||||||||||||||
| Allowance for credit losses | (5,760 | ) | (4,498 | ) | ||||||||||||
Total mortgage loans held-for-portfolio after allowance for credit losses | $ | 1,265,804 | $ | 1,317,547 | ||||||||||||
55
|
| December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Original MPF (a) |
| $ | 382,504 |
| $ | 343,925 |
| $ | 280,312 |
|
MPF 100 (b) |
| 16,399 |
| 23,591 |
| 30,542 |
| |||
MPF 125 (c) |
| 582,153 |
| 392,780 |
| 392,097 |
| |||
MPF 125 Plus (d) |
| 394,052 |
| 494,917 |
| 606,002 |
| |||
Other |
| 24,753 |
| 9,408 |
| 9,883 |
| |||
Total MPF Loans (e) |
| $ | 1,399,861 |
| $ | 1,264,621 |
| $ | 1,318,836 |
|
(a)Original MPF — The first layer of losses is applied to the First Loss Account we provide. The member then provides a credit enhancement up to “AA” rating equivalent. We would absorb any credit losses beyond the first two layers, though the possibility of any such losses is remote.
(c)MPF 125 — The first layer of losses is applied to the First Loss Account we provide. Losses incurred in the First Loss Account are deducted from the credit enhancement fees payable to the member. The member then provides a credit enhancement up to “AA” rating equivalent less the amount placed in the FLA. We absorb any losses incurred in the FLA that are not recovered through credit enhancement fees (should the pool liquidate prior to repayment of losses). We would absorb any credit losses beyond the first two layers.
(d)MPF 125 Plus —The first layer of losses is applied to the First Loss Account (“FLA”) in an amount equal to a specified percentage of loans in the pool as of the sale date. Losses incurred in the First Loss Account are deducted from the credit enhancement fees payable to the member. We absorb any losses incurred in the FLA that are not recovered through credit enhancement fees (should the pool liquidate prior to repayment of losses). The member acquires an additional Credit Enhancement (“CE”) coverage through a supplemental mortgage insurance policy (“SMI”) to cover second-layer losses that exceed the deductible (“FLA”) of the Supplemental Mortgage Insurance policy. Losses not covered by the First Loss Account or Supplemental Mortgage Insurance coverage will be paid by the member’s Credit Enhancement obligation up to “AA” rating equivalent. We would absorb losses that exceeded the Credit Enhancement obligation, though such losses are a remote possibility.
(e)Par amount of total mortgage loan held-for-portfolio includes CMA, par amount at December 31, 2011 was $0.2 million.
Mortgage loans — Conventional and insured loans.Insured Loans
The following table classifies mortgage loans between conventional loans and loans insured by FHA/VA (in thousands):
Table 5.2:Mortgage Loans — Conventional and Insured Loans
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Federal Housing Administration and Veteran Administration insured loans | $ | 5,610 | $ | 5,975 | ||||
| Conventional loans | 1,255,212 | 1,308,953 | ||||||
| Others | 3,799 | 3,908 | ||||||
Total par value | $ | 1,264,621 | $ | 1,318,836 | ||||
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
|
|
|
|
|
| ||
Federal Housing Administration and Veteran Administration insured loans |
| $ | 24,507 |
| $ | 5,610 |
|
Conventional loans |
| 1,375,108 |
| 1,255,212 |
| ||
Others |
| 246 |
| 3,799 |
| ||
|
|
|
|
|
| ||
Total par value |
| $ | 1,399,861 |
| $ | 1,264,621 |
|
Mortgage Loans —- Credit LossesEnhancement
The amount of the allowancecredit enhancement is computed with the use of S&P’s model for determining the amount of credit enhancement necessary to bring a pool of uninsured loans to “AA” credit risk. The credit enhancement becomes an obligation of the Participating Financial Institution (“PFI”). For taking on the credit enhancement obligation, the PFI receives a credit enhancement fee that we pay. For certain MPF products, the credit enhancement fee is accrued and paid each month. For other MPF products, the credit enhancement fee is accrued and paid monthly after being deferred for 12 months.
The portion of the credit enhancement that is an obligation of the PFI must be fully secured with pledged collateral. A portion of the credit enhancement may also be covered by insurance, subject to limitations specified in the Acquired Member Assets regulation. Each member or housing associate that participates in the MPF program must meet our established financial performance criteria. In addition, we perform financial reviews of each approved PFI annually.
The second layer is that amount of credit obligation that the PFI has taken on, which will equate the loan to a double-A rating. We pay a CE fee to the PFI for taking on this obligation. We assume all residual risk.
The FHLBNY computes the provision for credit losses was as follows (in thousands):
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Beginning balance | $ | 4,498 | $ | 1,406 | $ | 633 | ||||||
| Charge-offs | (223 | ) | (16 | ) | — | |||||||
| Recoveries | 76 | — | — | |||||||||
| Provision for credit losses on mortgage loans | 1,409 | 3,108 | 773 | |||||||||
Ending balance | $ | 5,760 | $ | 4,498 | $ | 1,406 | ||||||
Loan concentration was in New York State, which is to be expected since the largest two PFIs are located in New York.
Table 5.3:Concentration of MPF Loans
|
| December 31, |
| ||||||||||
|
| 2011 |
| 2010 |
| 2009 |
| ||||||
|
| Number of |
| Amounts |
| Number of |
| Amounts |
| Number of |
| Amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York State |
| 71.6 | % | 62.9 | % | 73.3 | % | 67.7 | % | 73.5 | % | 66.7 | % |
Table 5.4:Top Five Participating Financial Institutions — Concentration (dollars in thousands)
|
| December 31, 2011 |
| |||
|
| Mortgage |
| Percent of Total |
| |
|
| Loans |
| Mortgage Loans |
| |
|
|
|
|
|
| |
Manufacturers and Traders Trust Company |
| $ | 394,865 |
| 28.21 | % |
Astoria Federal Savings and Loan Association |
| 241,727 |
| 17.27 |
| |
Investors Bank |
| 87,935 |
| 6.28 |
| |
Ocean First Bank |
| 69,199 |
| 4.95 |
| |
Watertown Savings Bank |
| 54,287 |
| 3.88 |
| |
All Others |
| 551,602 |
| 39.41 |
| |
|
|
|
|
|
| |
Total (a) |
| $ | 1,399,615 |
| 100.00 | % |
|
| December 31, 2010 |
| |||
|
| Mortgage |
| Percent of Total |
| |
|
| Loans |
| Mortgage Loans |
| |
|
|
|
|
|
| |
Manufacturers and Traders Trust Company |
| $ | 495,821 |
| 39.32 | % |
Astoria Federal Savings and Loan Association |
| 225,407 |
| 17.88 |
| |
Community Bank fka Elmira Svgs & Ln Assn |
| 45,963 |
| 3.65 |
| |
Ocean First Bank |
| 50,292 |
| 3.99 |
| |
CFCU Community Credit Union |
| 37,839 |
| 3.00 |
| |
All Others |
| 405,500 |
| 32.16 |
| |
|
|
|
|
|
| |
Total (a) |
| $ | 1,260,822 |
| 100.00 | % |
(a) Totals do not include CMA loans.
Table 5.5:Roll-Forward First Loss Account (in thousands)
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Beginning balance |
| $ | 11,961 |
| $ | 13,934 |
| $ | 13,765 |
|
|
|
|
|
|
|
|
| |||
Additions |
| 2,784 |
| 850 |
| 349 |
| |||
Resets(a) |
| (715 | ) | (2,600 | ) | (157 | ) | |||
Charge-offs |
| (408 | ) | (223 | ) | (23 | ) | |||
Recoveries |
| — |
| — |
| — |
| |||
Ending balance |
| $ | 13,622 |
| $ | 11,961 |
| $ | 13,934 |
|
(a)For the Original MPF, MPF 100, MPF 125 and MPF Plus products, the Credit Enhancement is periodically recalculated. If the recalculated Credit Enhancement would result in a PFI Credit Enhancement obligation lower than the remaining obligation, the PFI’s Credit Enhancement obligation will be reset to the new, lower level.
Table 5.6:Second Losses and SMI Coverage (in thousands)
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Second Loss Position (a) |
| $ | 35,862 |
| $ | 24,574 |
| $ | 18,064 |
|
|
|
|
|
|
|
|
| |||
SMI Coverage (b) |
| $ | 17,958 |
| $ | 17,958 |
| $ | 17,958 |
|
(a)Increase due to increase in overall outstanding of MPF.
(b)SMI coverage has reminded unchanged because no new master commitments have been added under the MPF Plus Program.
Loan Modifications
Effective August 1, 2009, we introduced a temporary loan payment modification plan for participating PFIs, which was initially available until December 31, 2011 and has been extended through December 31, 2013. This modification plan was made available to homeowners currently in default or imminent danger of default. The modification plan stated specific eligibility requirements that had to be met and procedures the PFIs had to follow to participate in the modification plan. As of December 31, 2011, only 4 MPF loans had been modified under this plan.
Deposit liabilities comprisedconsisted of member deposits, and from time to time may also include unsecured overnight borrowings from other FHLBanks.
Member deposits— The FHLBNY operatesWe operate deposit programs for the benefit of itsour members. Deposits are primarily short-term in nature, with the majority maintained in demand accounts that reprice daily based upon rates prevailing in the overnight Federal funds market. Members’ liquidity preferences are the primary determinant of the level of deposits. Deposits at December 31, 20102011 stood at $2.4$2.1 billion, slightly belowlower than $2.5 billion, the balancesbalance at December 31, 2009. The Bank2010. In addition to member deposits, we may accept deposits from governmental and semi-governmental institutions in addition to member deposit.institutions. Fluctuations in member deposits have little impact on the Bank and aredo not represent a significant source of liquidity for the Bank.
Borrowings from other FHLBanks— The Bank borrowsWe may borrow from other FHLBanks, generally for a period of one day and at market terms. There were no significant borrowings in 2010, and no amounts were outstanding at December 31, 2010 and 2009.
Debt Financing Activity and Consolidated Obligations
Consolidated obligations, which consist of consolidated bonds and consolidated discount notes, are the joint and several obligations of the FHLBanks and are the principal funding source for the FHLBNY’sour operations. Discount notes are consolidated obligations with maturities of up to 365 days, and consolidated bonds have maturities of one year or longer. Member deposits, capital and, to a lesser extent, borrowings from other FHLBanks are also funding sources.
Consolidated Obligation Liabilities
The issuance and servicing of consolidated obligations debt are performed by the Office of Finance, a joint office of the FHLBanks established by the Finance Agency. Each FHLBank independently determines its participation in each issuance of consolidated obligations based on, among other factors, its own funding and operating requirements, maturities, interest rates and other terms available for consolidated obligations in the market place. Although the FHLBNY iswe are primarily liable for itsour portion of consolidated obligations (i.e. those issued on itsour behalf), the FHLBNY iswe are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks. The FHLBanks, including the FHLBNY, have emphasized diversification of funding sources and channels as the need for funding from the capital markets has grown.
56
Our consolidated obligation bonds upon agreement of eight of the 12 FHLBanks.
The FHLBank debt the FHLBNY shifted its funding strategy, reducing its issuance of discount notes while increasing the utilization of callable debt. In the second quarter, as market pricing of discount notes became relatively more attractive, the FHLBNY increased issuance of discount notes to replace callable bonds that had been called or had naturally matured. In the third quarter, as discount noteremained in demand by investors at reasonable pricing, and spreads became less attractive, issuances of discount notes declined. Inhas withstood the 2010 fourth quarter, spreads improved, yields stabilized and discount note issuances became an attractive alternative togeneral concerns about the issuance of short-term, callable bonds.
57
Consolidated obligation bonds — We have analyzed the performance of our bonds from a perspective of spread to LIBOR. That is because we make extensive use of derivatives to restructure fixed rates on consolidated bonds to sub-LIBOR floating rate. Therefore, the relationship between swaps rates and bond yields are an important economic indicator. That relationship was uneven in 20102011.
In the first half of 2011, the low 3-month LIBOR tended to compress margins for our debt and has also impactedspecifically for our short-term debt. Typically, we execute interest rate swaps to convert fixed-rate debt to a sub-LIBOR spread, but when the LIBOR rate is low, there is very little floor for achieving a spread that would be ascribed to the high-quality FHLBank issued consolidated obligation bonds. The 3-monthAs a result, on a LIBOR has also been uneven in 2010 and that too has impacted the FHLBanks’ issuance strategies since much of the bonds are swapped to LIBOR indexed floating interest rate, andfunding level, the low LIBOR rate tends to narrow spreads to LIBOR and to compress the FHLBanks’ margins.
The 2011 third quarter started with uncertainties and concerns regarding the debt ceiling. In July 2011, aggregate bond pricing levels on a LIBOR basis improved slightly, but funding forcosts deteriorated towards the end of the month due to concerns about the debt ceiling. That condition changed in September 2011, and aggregate bond pricing levels on a LIBOR basis improved by significant margins. In some maturity sectors, pricing was the most favorable since June 2009.
In the 2011 fourth quarter, the FHLBank debt, as muchbond pricing remained attractive because of FHLBank fixed-rate debt is swapped back to LIBOR.
Table of longer-term debt is still uncertain. It remains uneconomical forContents
Longer term bond pricing remained prohibitively expensive, as investors were reluctant to take the FHLBanks to issue longer-term debt. Yields demanded by investors for longer-term FHLBank debt and spreads between 3-month LIBOR and FHLBankrisk of locking in long-term debt yield have remained at levels that make it expensive for the FHLBNY to issue term debt and offer longer-term advances to members, even if there was sufficient investor demand for such debt.
FHLBank consolidatedConsolidated obligation discount notes
58
| December 31, | ||||||||
| 2010* | 2009* | |||||||
| Debt transferred to another FHLBank | $ | — | $ | — | ||||
| Debt transferred from another FHLBank | $ | 193,925 | $ | — | ||||
| Debt extinguished | $ | 300,500 | $ | 500,000 | ||||
Consolidated obligation bonds
Table 6.2: 6.1:Consolidated Obligation Bonds by Type
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Percentage of | Percentage of | |||||||||||||||
| Amount | Total | Amount | Total | |||||||||||||
| Fixed-rate, non-callable | $ | 43,307,980 | 61.01 | % | $ | 48,647,625 | 66.31 | % | ||||||||
| Fixed-rate, callable | 8,821,000 | 12.43 | 8,374,800 | 11.42 | ||||||||||||
| Step Up, non-callable | — | — | 53,000 | 0.07 | ||||||||||||
| Step Up, callable | 2,725,000 | 3.84 | 3,305,000 | 4.51 | ||||||||||||
| Single-index floating rate | 16,128,000 | 22.72 | 12,977,500 | 17.69 | ||||||||||||
| Total par value | 70,981,980 | 100.00 | % | 73,357,925 | 100.00 | % | ||||||||||
| Bond premiums | 163,830 | 112,866 | ||||||||||||||
| Bond discounts | (31,740 | ) | (33,852 | ) | ||||||||||||
| Fair value basis adjustments | 622,593 | 572,537 | ||||||||||||||
| Fair value basis adjustments on terminated hedges | 501 | 2,761 | ||||||||||||||
| Fair value option valuation adjustments and accrued interest | 5,463 | (4,259 | ) | |||||||||||||
Total bonds | $ | 71,742,627 | $ | 74,007,978 | ||||||||||||
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||
|
| Amount |
| Percentage of |
| Amount |
| Percentage of |
| ||
|
|
|
|
|
|
|
|
|
| ||
Fixed-rate, non-callable |
| $ | 47,108,685 |
| 71.02 | % | $ | 43,307,980 |
| 61.01 | % |
Fixed-rate, callable |
| 1,935,610 |
| 2.92 |
| 8,821,000 |
| 12.43 |
| ||
Step Up, non-callable |
| — |
| — |
| — |
| — |
| ||
Step Up, callable |
| 950,000 |
| 1.43 |
| 2,725,000 |
| 3.84 |
| ||
Single-index floating rate |
| 16,335,000 |
| 24.63 |
| 16,128,000 |
| 22.72 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Total par value |
| 66,329,295 |
| 100.00 | % | 70,981,980 |
| 100.00 | % | ||
|
|
|
|
|
|
|
|
|
| ||
Bond premiums |
| 145,869 |
|
|
| 163,830 |
|
|
| ||
Bond discounts |
| (26,459 | ) |
|
| (31,740 | ) |
|
| ||
Fair value basis adjustments |
| 979,013 |
|
|
| 622,593 |
|
|
| ||
Fair value basis adjustments on terminated hedges |
| 201 |
|
|
| 501 |
|
|
| ||
Fair value option valuation adjustments and accrued interest |
| 12,603 |
|
|
| 5,463 |
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
Total bonds |
| $ | 67,440,522 |
|
|
| $ | 71,742,627 |
|
|
|
59
·Floating rate bonds — Floating-rate bonds had declined steadily through the four quarters in 2009 and in the first two quarter of 2010. In those periods, maturingWe have judiciously used floating-rate bonds in general were not replaced due to marketplace perception of a pricing advantage of comparable GSE issued LIBOR-indexed floaters. In the 2010 third quarter, the Bank added (net of maturities) $7.6 billion of floating-rate debt. As a result, floating-rate bonds outstanding at September 30, 2010 increased to $18.4 billion, up from $10.8 billion at June 30, 2010 and $13.0 billion at December 31, 2009. In the 2010 fourth quarter, maturing floating-rate bonds were not replaced and outstanding amounts declined to $16.1 billion at December 31, 2010. The outstanding floating-rate debt at December 31, 2010 consisted of debt indexed to the 1-month LIBOR, the Prime rate and the Federal funds effective rates. By executing interest rate swaps concurrently with the issuances of the floating-rate bonds and by swapping the non 3-month LIBOR indices for 3-month LIBOR, the Bank effectively created variable funding that was indexedthem back to 3-month LIBOR, we create synthetic LIBOR funding at spreads more favorable than it could have achieved by issuing a simple 3-month LIBOR floating-rate bond.
·Non-callable bonds — Non-callable bond remains thebonds remain our primary funding vehicle for the FHLBNY.vehicle. Issuances of non-callable debt are predicated partly on pricing of such debt and investor demand, and partly on the need to achieve asset/liability management goals. The Bank has made a strong effort to issue fixed-rate longer-term debt and lock-in the relative low rates in the current interest-rate environment. This has been a challenge as investor appetite for term debt has continued to be lukewarm, given investor preference for discount notes, short-term bullets and short lock-out callable debt.
·Callable-bonds — In 2010, investors were receptive to the FHLBank short lockoutMaturing fixed-rate callable bonds with short maturities as an alternative to comparable debt availablewere not replaced in the capital markets,general in 2011 and execution pricing fared relatively better even under deteriorating pricing conditions for other types of bond structures. Fixed-rate callable bonds with maturities up to 15 months and a short lockout call option have been the more popular FHLBank bond structure. Responding to investor preference, the FHLBNY issued short lockout callable bonds, with call dates as short as 3 months from issue date. Such debt structures offer an alternative at an attractive pricing to similar maturity discount notes.outstanding balances declined. FHLBank longer-term fixed-rate callable-bonds have not been an attractive investment asset for investors over the last several years, and have continued to be under price pressure.
Debt extinguishment — The following table summarizes debt transferred to or from another FHLBank and debt retired by the FHLBNY.
60
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
Debt transferred to another FHLBank |
| $ | 150,000 |
| $ | — |
|
Debt transferred from another FHLBank |
| $ | — |
| $ | 193,925 |
|
Debt extinguished |
| $ | 627,225 |
| $ | 300,500 |
|
In 2011, 2010 and 2009 debt transfer and retirement resulted in a charge to earnings of $86.5 million, $2.1 million and $69.5 thousand.
Impact of hedging fixed-rates consolidated obligation bonds
Derivatives are employed to hedge consolidated bonds in the following manner to achieve the indicated principal objectives:
·We make extensive use of the derivatives to restructure interest rates on consolidated obligation bonds, both callable and non-callable, to better meet its members’ funding needs, to reduce funding costs, and to manage risk in a changing market environment.
·We convert, at the time of issuance, certain simple fixed-rate bullet and callable bonds into synthetic floating-rate bonds by the simultaneous execution of interest rate swaps that convert the cash flows of the fixed-rate bonds to conventional adjustable rate instruments tied to an index, typically 3-month LIBOR.
·We use derivatives to manage the risk arising from changing market prices and volatility of a fixed coupon bond by matching the cash flows of the bond to the cash flows of the derivative, andthereby making the FHLBNYus indifferent to changes in market conditions. Except when issued to fund MBS and MPF loans, callableCallable bonds are typically hedged by an offsetting derivative with a mirror-image call option and identical terms.
·We adjust the reported carrying value of hedged consolidated bonds for changes in their fair value (“fair value basis adjustments” or “fair value”) that are attributable to the risk being hedged in accordance with hedge accounting rules. Amounts reported for consolidated obligation bonds in the Statements of Condition include fair value basis adjustments.
We hedge certain fixed-rate debt using both cancellable and non-cancellable interest rate swaps in fair value hedges under the accounting standards for derivatives and hedging. We may also hedge the anticipatory issuance of a callable bond andbonds under the executionprovisions of an associated interest rate swap with mirrored call options, which results in funding at a lower cost than the FHLBNY would otherwise have achieved. The issuance of callable bonds and the simultaneous swapping with a derivative instrument depends on the price relationships in both the bond and the derivatives markets.
The most significant element that impacts balance sheet reporting of debt is the recording of fair value basis and valuation adjustments. In addition, when callable bonds are hedged by cancellable swaps, the possibility of exercise of the call shortens the expected maturity of the bond. The impact of hedging debt on recorded interest expense is discussed in this MD&A under “Results of Operations”.Operations.” Its impact as a risk management tool is discussed under ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Fair value basis and valuation adjustments— The Bank usesWe use interest rate derivatives to hedge the risk of changes in the benchmark rate, which the FHLBNY has adoptedwe have designated as LIBOR. LIBOR and is also the discounting basis for computing changes in fair values of hedged bonds. The Bank recordedbonds that qualify for hedge accounting. Recorded net unrealized fair value basis losses were not significant relative to the principal amounts of $0.6 billion as partbonds outstanding because of the carrying valuesrelatively short durations of consolidated obligation bonds in the Statements of Condition at December 31, 2010 and December 31, 2009.hedged bonds. Carrying values of bonds designated under the FVO are also adjusted for valuation adjustments to recognize changes in the full fair value of the bonds. The discounting basis for computing changes in fair values of bonds elected under the FVO. At December 31, 2010,FVO is the fair value basis recorded was in an unrealized loss positionobserved yield curve of $5.5 million. At December 31, 2009, the fair value basis was in an unrealized gain position of $4.3 million.
61
| Consolidated Obligations Bonds | ||||||||
| Years ended December 31, | ||||||||
| Par Amount | 2010 | 2009 | ||||||
Qualifying Hedges1 | ||||||||
| Fixed-rate bullet bonds | $ | 27,610,830 | $ | 26,089,780 | ||||
| Fixed-rate callable bonds | 5,905,000 | 6,785,000 | ||||||
| $ | 33,515,830 | $ | 32,874,780 | |||||
| Consolidated Obligations Bonds | ||||||||
| Years ended December 31, | ||||||||
| Par Amount | 2010 | 2009 | ||||||
| Bonds designated under FVO | $ | 14,276,000 | $ | 6,040,000 | ||||
We continued to hedge a significant percentage of itsour fixed-rate non-callable bonds (also referred to as bullet bonds) under hedge accounting rules. A declining percentage of callable bonds are being hedged under fair value accounting hedging strategies, as the Bank’sour current hedge accounting strategy is to hedge short lock-out callable bonds under the Fair Value Option, and alternative hedge accounting rule because of the ease of operational effectiveness.
Table 6.3:Bonds hedgedHedged under the fair value hedge accounting rule are to mitigate the fair value risk from changes in the benchmark rate, and effectively convertsQualifying Hedges (in thousands)
|
| Consolidated Obligation Bonds |
| ||||
Par Amount |
| December 31, 2011 |
| December 31, 2010 |
| ||
Qualifying Hedges (a) |
|
|
|
|
| ||
Fixed-rate bullet bonds (b) |
| $ | 30,217,830 |
| $ | 27,610,830 |
|
Fixed-rate callable bonds (c) |
| 1,380,610 |
| 5,905,000 |
| ||
|
| $ | 31,598,440 |
| $ | 33,515,830 |
|
(a) | Under hedge accounting rules. |
(b) | The increase is primarily due to increased issuance of fixed-rate non-callable bonds. The hedges effectively convert the fixed-rate exposure of the bonds to a variable-rate exposure, generally indexed to 3-month LIBOR. |
(c) | As a tactical shift in funding strategy, we have generally not replaced maturing fixed-rate callable bonds and this explains the decline in outstanding balances. A callable bond contains a call option which we purchase from the investor. Generally, the call option term mirrors the call option term embedded in a cancellable swap. Under the terms of the call option, we have the right to terminate the bond at agreed upon dates, and the swap counterparty has the right to cancel the swap. In the low interest rate environment, the price advantage to the investor was not as attractive given the uncertainty of being called. |
If, at inception of the hedges, the Bank dida hedge, we do not believe that the hedgeshedge would be highly effective in offsetting fair value changes between the derivative and the debt (hedged item), the FHLBNY would account for the derivatives as freestanding (economic hedges). When derivatives are designated as an economic hedge of a debt, the Bankwe may designate the debt under the FVO if operationally practical, and record changes to the full fair values of both the derivative and debt would be marked through P&L. The recorded balance sheet value of debt under the FVO would include the fair value basis adjustments so that the debt’s balance sheet carrying values would be its fair value. In other instances,The following table summarizes par amounts of bonds under the BankFVO (in thousands):
Table 6.4:Bonds under the Fair Value Option (FVO)
|
| Consolidated Obligation Bonds |
| ||||
Par Amount |
| December 31, 2011 |
| December 31, 2010 |
| ||
Bonds designated under FVO |
| $ | 12,530,000 |
| $ | 14,276,000 |
|
We have opted to reduce bonds designated under the FVO. Bonds designated under the FVO were economically hedged by interest rate swaps.
We may also decide that the operational cost of designating debt under the FVO (or fair value hedge accounting) is not operationally practical andoutweighed the accounting benefits. We would then opt to hedge the debt on an economic basis to mitigate the economic risks. In this scenario, the balance sheet carrying value of the debt would not include fair value basis since the debt is recorded at amortized cost. All derivatives, however, are recorded in the balance sheets at fair value with changes in fair values recorded through P&L.
Table 6.5:Economically Hedged Bonds
|
| Consolidated Obligation Bonds |
| ||||
Par Amount |
| December 31, 2011 |
| December 31, 2010 |
| ||
Bonds designated as economically hedged |
|
|
|
|
| ||
Floating-rate bonds (a) |
| $ | 13,570,000 |
| $ | 8,928,000 |
|
Fixed-rate bonds (b) |
| 50,000 |
| 115,000 |
| ||
|
| $ | 13,620,000 |
| $ | 9,043,000 |
|
| Consolidated Obligations Bonds | ||||||||
| Years ended December 31, | ||||||||
| Par Amount | 2010 | 2009 | ||||||
| Bonds designated as economically hedged | ||||||||
| Floating-rate bonds | $ | 8,928,000 | $ | 7,985,000 | ||||
| Fixed-rate bonds | 115,000 | 13,113,000 | ||||||
| $ | 9,043,000 | $ | 21,098,000 | |||||
(a) | Floating-rate debt — Floating rate bonds indexed to the federal funds effective rate increased and these were hedged to LIBOR. Hedged floating-rate bonds were indexed to interest rates other than 3-month LIBOR and we executed swap agreements with derivative counterparties that synthetically converted the floating rate debt cash flows to 3-month LIBOR. The hedge objective was to reduce the basis risk from any asymmetrical changes between 3-month LIBOR and the Prime, Federal funds rate, or the 1-month LIBOR. Such bonds were hedged by interest-rate swaps with mirror image terms and the swaps were designated as stand-alone derivatives because the operational cost of designating the swaps in a hedge qualifying relationship outweighed the accounting benefits. |
(b) | Fixed-rate debt — The interest-rate environment has been relatively stable allowing our hedges to remain as highly effective hedges; a modest number of fixed-rate bonds were designated as hedged on an economic basis. |
62
Most of the hedged bonds had been issued in prior years at the then prevailing higher interest-rateinterest rate environment. Since such bonds were typically fixed-rate, in a declininglower interest rate environment these fixed-rate bonds exhibited unrealized fair value basis losses, which were recorded as part of the balance sheet carrying values of the hedged debt. In the Statements of Income, such unrealized losses from fairFair value basis adjustments on hedged bonds were almost entirely offset by net fair value unrealized gains from derivatives associated with the hedged bonds, thereby achieving the Bank’s hedging objectives of mitigating fair value basis risk.
Consolidated obligation bonds — maturity or next call date
Swapped, callable bonds contain an exercise date or a series of exercise dates that may result in a shorter redemption period. The following table summarizes consolidated bonds outstanding by years to maturity or next call date (dollars in thousands):
Table 6.6:Consolidated Obligation Bonds — Maturity or Next Call Date
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||
|
| Amount |
| Percentage of |
| Amount |
| Percentage of |
| ||
Year of maturity or next call date |
|
|
|
|
|
|
|
|
| ||
Due or callable in one year or less |
| $ | 35,799,485 |
| 53.97 | % | $ | 40,228,200 |
| 56.67 | % |
Due or callable after one year through two years |
| 20,516,800 |
| 30.93 |
| 15,671,375 |
| 22.08 |
| ||
Due or callable after two years through three years |
| 3,511,280 |
| 5.29 |
| 7,209,950 |
| 10.16 |
| ||
Due or callable after three years through four years |
| 3,227,190 |
| 4.87 |
| 2,649,355 |
| 3.73 |
| ||
Due or callable after four years through five years |
| 796,735 |
| 1.20 |
| 2,926,400 |
| 4.12 |
| ||
Due or callable after five years through six years |
| 728,470 |
| 1.10 |
| 227,500 |
| 0.32 |
| ||
Thereafter |
| 1,749,335 |
| 2.64 |
| 2,069,200 |
| 2.92 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Total par value |
| 66,329,295 |
| 100.00 | % | 70,981,980 |
| 100.00 | % | ||
|
|
|
|
|
|
|
|
|
| ||
Bond premiums |
| 145,869 |
|
|
| 163,830 |
|
|
| ||
Bond discounts |
| (26,459 | ) |
|
| (31,740 | ) |
|
| ||
Fair value basis adjustments |
| 979,013 |
|
|
| 622,593 |
|
|
| ||
Fair value basis adjustments on terminated hedges |
| 201 |
|
|
| 501 |
|
|
| ||
Fair value option valuation adjustments and accrued interest |
| 12,603 |
|
|
| 5,463 |
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
Total bonds |
| $ | 67,440,522 |
|
|
| $ | 71,742,627 |
|
|
|
(a)Contrasting consolidated obligation bonds by contractual maturity dates with potential put dates illustrates the impact of hedging on the effective duration of our advances. A significant amount of our debt has been issued to investors that are callable - we have purchased the option to terminate debt at agreed upon dates from investors. Call options are exercisable either as a one-time option or quarterly. Our current practice is to exercise our option to call a bond when the swap counterparty exercises its option to call the cancellable swap hedging the callable bond. Thus, issuance of a callable bond with an associated callable swap significantly alters the contractual maturity characteristics of the original bond and introduces the possibility of an exercise call date that is significantly shorter than the contractual maturity. The following table summarizes consolidated bonds outstanding by years to maturity or next call date (dollars in thousands):
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Percentage of | Percentage of | |||||||||||||||
| Amount | Total | Amount | Total | |||||||||||||
Year of Maturity or next call date | ||||||||||||||||
| Due or callable in one year or less | $ | 40,228,200 | 56.67 | % | $ | 50,481,350 | 68.82 | % | ||||||||
| Due or callable after one year through two years | 15,671,375 | 22.08 | 11,352,200 | 15.48 | ||||||||||||
| Due or callable after two years through three years | 7,209,950 | 10.16 | 4,073,575 | 5.55 | ||||||||||||
| Due or callable after three years through four years | 2,649,355 | 3.73 | 3,606,250 | 4.91 | ||||||||||||
| Due or callable after four years through five years | 2,926,400 | 4.12 | 1,325,800 | 1.81 | ||||||||||||
| Due or callable after five years through six years | 227,500 | 0.32 | 529,050 | 0.72 | ||||||||||||
| Thereafter | 2,069,200 | 2.92 | 1,989,700 | 2.71 | ||||||||||||
| 70,981,980 | 100.00 | % | 73,357,925 | 100.00 | % | |||||||||||
| Bond premiums | 163,830 | 112,866 | ||||||||||||||
| Bond discounts | (31,740 | ) | (33,852 | ) | ||||||||||||
| Fair value basis adjustments | 622,593 | 572,537 | ||||||||||||||
| Fair value basis adjustments on terminated hedges | 501 | 2,761 | ||||||||||||||
| Fair value option valuation adjustments and accrued interest | 5,463 | (4,259 | ) | |||||||||||||
| $ | 71,742,627 | $ | 74,007,978 | |||||||||||||
In a declining interest rate environment, will shorten the “expected”expected maturities of hedged bonds.callable bonds will shorten. The following table summarizes callable bonds outstanding (in thousands):
Table 6.7:Outstanding Callable Bonds
|
| December 31, |
| ||||
|
| 2011 (a) |
| 2010 (a) |
| ||
Callable |
| $ | 2,885,610 |
| $ | 11,546,000 |
|
No longer callable |
| $ | — |
| $ | 1,015,000 |
|
Non-Callable |
| $ | 63,443,685 |
| $ | 58,420,980 |
|
| December 31, | ||||||||
| 2010* | 2009* | |||||||
| Callable | $ | 11,546,000 | $ | 11,679,800 | ||||
| No longer callable | $ | 1,015,000 | $ | 93,000 | ||||
| Non-Callable | $ | 58,420,980 | $ | 61,585,125 | ||||
(a)Par Value.
63
Consolidated obligation discount notes provide the FHLBNYus with short-term and overnight funds. Discount notes have maturities of up to one year and are offered daily through a dealer-selling group; the notes are sold at a discount from their face amount and mature at par. Through a sixteen-member16-member selling group, the Office of Finance, acting on behalf of the twelve12 Federal Home Loan Banks, offers discount notes. In addition, the Office of Finance offersissues discount notes in four standard maturities in two auctions each week.
In the second half of 2011, on a LIBOR basis, auctioned discount note funding cost improved in all maturity sectors when compared to the first two quarters of 2011. In 2011, we adopted a new long-term cash flow hedging strategy (Discount note rollover program) to provide predictable fixed-rate funding. Under this program, $903.0 million of discount notes to fund short-term advances, longer-term advances with short repricing intervals, putable advances and money market investments.were outstanding at December 31, 2011.
The following table summarizes discount notes issued and outstanding (dollars in thousands):
Table 6.8:Discount Notes Outstanding
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Par value | $ | 19,394,503 | $ | 30,838,104 | ||||
| Amortized cost | $ | 19,388,317 | $ | 30,827,639 | ||||
| Fair value option valuation adjustments | 3,135 | — | ||||||
Total | $ | 19,391,452 | $ | 30,827,639 | ||||
Weighted average interest rate | 0.16 | % | 0.15 | % | ||||
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
|
|
|
|
| |||
Par value | $ | 22,127,530 | $ | 19,394,503 | |||
|
|
|
|
|
| ||
Amortized cost |
| $ | 22,121,109 |
| $ | 19,388,317 |
|
Fair value basis adjustments |
| (1,467 | ) | — |
| ||
Fair value option valuation adjustments |
| 3,683 |
| 3,135 |
| ||
|
|
|
|
| |||
Total discount notes |
| $ | 22,123,325 |
| $ | 19,391,452 |
|
|
|
|
|
|
| ||
Weighted average interest rate |
| 0.07 | % | 0.16 | % | ||
Discount notes remained a popular funding vehicle for the FHLBNY. The efficiency of issuing discount notes is an important element in its use to alter funding tactics relatively rapidly, as discount notes can be issued any time and in a variety of amounts and maturities in contrast to other short-term funding sources, such as the issuance of callable debt with an associated interest rate derivative with matching terms.
Table 6.9:Hedges of Discount Notes
|
| Consolidated Obligation Discount Notes |
| ||||
Principal Amount |
| December 31, 2011 |
| December 31, 2010 |
| ||
Discount notes hedged under qualifying hedge (a) |
| $ | 3,308,455 |
| $ | — |
|
Discount notes economically hedged |
| $ | 201,520 |
| $ | — |
|
Discount notes under FVO (b) |
| $ | 4,917,172 |
| $ | 953,202 |
|
| Consolidated Obligations Discount Notes | ||||||||
| Years ended December 31, | ||||||||
| Principal Amount | 2010 | 2009 | ||||||
| Discount notes hedged under qualifying hedge | $ | — | $ | — | ||||
| Discount notes economically hedged | $ | — | $ | 3,783,874 | ||||
| Discount notes under FVO | $ | 953,202 | $ | — | ||||
(a) In the first quarter of 2011 we implemented a cash flow hedging strategy that involves the execution of interest rate swap agreements with swap dealer and designating the swaps as hedges of the variable quarterly interest payments on discount note borrowing program expected to be accomplished by the issuances of series of discount notes with 91-day terms. In this program, we will continue issuing new 91-day discount notes over the next 10 years (original maturities) as each outstanding discount note matures. The fair values of the $903.0 million interest rate swaps were recorded in AOCI and were in an aggregate net unrealized loss position of $97.6 million at December 31, 2010 and 2009, no2011. In addition, we hedged $2.4 billion of discount notes werethat qualified for fair value hedge accounting rules.
(b) We also hedged discount notes as economic hedges under the accounting standards for derivatives and hedging. The Bank generally hedges discount notes in economic hedgesFVO to convert the fixed-rate exposure of the discount notes to a variable-rate exposure, generally indexed to LIBOR. At December 31, 2010,LIBOR, by the discount notes outstanding and designated under the FVO were $953.2 million. The discount notes were economically hedged byexecution of interest rate swaps to mitigate fair value risk due to changes in their fair values. There were no discount notes designated under the FVO at December 31, 2009.
64
On July 15, 2011, Standard & Poor’s (“S&P”) placed the “AAA” rating on the FHLBank System’s senior unsecured debt and the “AAA” long-term ratings on select FHLBanks on CreditWatch with negative implications. The “A-1+” short-term ratings on those entities are not affected. S&P’s CreditWatch action follows placement of the sovereign credit rating on the U.S. on CreditWatch with negative implications. The CreditWatch listing on the FHLBank System’s debt reflects the application of S&P’s Government-related enterprises (“GRE”) criteria, under which S&P equalizes the rating on that debt with the sovereign rating because of the almost certain likelihood of government support. S&P’s CreditWatch listing on the FHLBanks reflects the potential reduction in the implicit support that S&P has historically factored into the issuer credit ratings because of the important role the FHLBanks play as primary liquidity providers to U.S. mortgage and housing-market participants. Under S&P’s GRE criteria, the issuer credit rating for the FHLBank system banks can be one to three notches above the stand-alone credit profile on any of the member banks. Thus, a lower U.S. sovereign rating would directly affect the issuer credit ratings on the individual FHLBanks. Each FHLBank, except FHLB-Chicago and FHLB-Seattle, is on CreditWatch with negative implications. FHLB-Chicago is rated AA+Stable. Seattle is rated AA+Negative. That reflects the July 14, 2011, ratings action of S&P of the sovereign credit rating on the U.S., which was placed on CreditWatch with negative implications. S&P expects the FHLBank System as a GSE to continue to benefit from the implied support of the U.S. government for its consolidated debt obligations.
On August 2, 2011, Moody’s Investors Service confirmed the “Aaa” bond rating of the United States government following the raising of the U.S. statutory debt limit on August 2. Moody’s also confirmed the long-term “Aaa” rating on the senior unsecured debt issues of the Federal Home Loan Bank System, the 12 Federal Home Loan Banks, and other ratings Moody’s considers directly linked to the U.S. government. Additionally, Moody’s revised the rating outlook to negative for U.S. government debt and all issuers Moody’s considers directly-linked to the U.S. government.
On August 5, 2011, Standard & Poor’s Rating Services (“S&P”) lowered its long-term sovereign credit rating on the U.S. to “AA+” from “AAA”. S&P’s outlook on the long-term rating is negative. At the same time, S&P affirmed its “A-1+” short-term rating on the U.S. On August 8, 2011, S&P also lowered the long-term rating of the senior unsecured debt issues of the Federal Home Loan Bank System, the 12 Federal Home Loan Banks to “AA+” from “AAA”, and also revised the rating outlook of the FHLBank debt to negative.
S&P | Moody’s | |||||||||||||||||||
Long-Term/ Short-Term | Long-Term/ Short-Term | |||||||||||||||||||
Year | Rating | Outlook | Rating | Outlook | ||||||||||||||||
2011 | August 8, 2011 | AA+/A-1+ | Negative/Affirmed | August 2, 2011 | Aaa/P-1 | Negative/Affirmed | ||||||||||||||
July 19, 2011 | AAA/A-1+ | Negative Watch/Affirmed | July 13, 2011 | Aaa/P-1 | Negative Watch/Affirmed | |||||||||||||||
April 20, 2011 | AAA/A-1+ | Negative/Affirmed | ||||||||||||||||||
2010 | July 21, 2010 | AAA/A-1+ | Affirmed/Affirmed | June 17, 2010 | Aaa/P-1 | Affirmed/Affirmed | ||||||||||||||
65
66
Table 7.1:Stockholders’ Capital
|
| December 31, 2011 |
| December 31, 2010 |
| ||
Capital Stock (a) |
| $ | 4,490,601 |
| $ | 4,528,962 |
|
Unrestricted retained earnings (b) |
| 722,198 |
| 712,091 |
| ||
Restricted retained earnings (c) |
| 24,039 |
| — |
| ||
Accumulated Other Comprehensive Income (Loss) |
| (190,427 | ) | (96,684 | ) | ||
Total Capital |
| $ | 5,046,411 |
| $ | 5,144,369 |
|
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Capital Stock | $ | 4,528,962 | $ | 5,058,956 | ||||
| Retained Earnings | 712,091 | 688,874 | ||||||
| Accumulated Other Comprehensive Income (Loss) | (96,684 | ) | (144,539 | ) | ||||
| Total Capital | $ | 5,144,369 | $ | 5,603,291 | ||||
(a) Stockholders’ Capital comprised of capital— Capital stock retained earnings and Accumulated other comprehensive income (loss), decreased by $458.9 million to $5.1 billion at December 31, 2010.
(b) Unrestricted retained earnings grew marginally as the FHLBNYwe paid itsour member/stockholders a significant dividend payout.payout that preserved retained earnings. Net income in 20102011 was $275.5 million, and$244.5 million; dividends paid in 2010 totaled $252.3the period were $210.3 million. NetWe set aside $24.0 million as restricted retained earnings in the 2011 year end.
(c) Restricted retained earnings — On February 28, 2011, the Bank entered into a Joint Capital Enhancement Agreement (the “Agreement”) with the other 11 Federal Home Loan Banks (collectively, the “FHLBanks”). The Agreement provides that, upon satisfaction of the FHLBanks’ obligations to make payments related to the Resolution Funding Corporation (“REFCORP”), each FHLBank will, on a quarterly basis, allocate at least 20 percent of its net income to a separate restricted retained earnings account to be established at each FHLBank until the balance of the account equals at least 1% of its average balance of outstanding Consolidated Obligations for the previous quarter. The Agreement is further described in 2009 was $570.8 million,a Current Report on Form 8-K filed by the Bank on March 1, 2011. On August 5, 2011, the FHLBanks collectively amended certain provisions of the Agreement. On the same day, amendments to the Capital Plans of the FHLBanks intended to reflect the text of the amended Agreement were approved by the Federal Housing Finance Agency (“FHFA”), with such Capital Plan amendments to become effective on September 5, 2011. The amendments to the Agreement and dividends paid totaled $264.7 million. For more information aboutthe amendments to the Bank’s Capital Plan are both described in a Current Report on Form 8-K filed by the Bank on August 5, 2011.
On August 5, 2011, the FHFA certified that the FHLBanks had fully satisfied their REFCORP obligations. In accordance with the terms of the Agreement, each FHLBank will allocate at least 20% of its net income, beginning with the third quarter of 2011, to its own separate restricted retained earning policy, referearnings account until the balance of the account equals at least 1% of its average balance of outstanding Consolidated Obligations for the previous quarter. These restricted retained earnings will not be available to pay dividends, but will remain on the section Retained EarningsFHLBank’s balance sheet to help serve as an additional capital buffer against losses. The restricted retained earnings account established under the Agreement will be separate from any other restricted retained earnings account that may be maintained by an FHLBank. The Agreement contains mechanisms for voluntary and Dividend in this report.
The following table summarizes the components of AOCI (in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
Accumulated other comprehensive income (loss) | ||||||||
| Non-credit portion of OTTI on held-to-maturity securities, net of accretion | $ | (92,926 | ) | $ | (110,570 | ) | ||
| Net unrealized gain (loss) on available-for-sale securities | 22,965 | (3,409 | ) | |||||
| Hedging activities | (15,196 | ) | (22,683 | ) | ||||
| Employee supplemental retirement plans | (11,527 | ) | (7,877 | ) | ||||
| Total Accumulated other comprehensive income (loss) | $ | (96,684 | ) | $ | (144,539 | ) | ||
67
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
|
|
|
|
|
| ||
Accumulated other comprehensive income (loss) |
|
|
|
|
| ||
Non-credit portion of OTTI on held-to-maturity securities, net of accretion (a) |
| $ | (75,849 | ) | $ | (92,926 | ) |
Net unrealized gains on available-for-sale securities (b) |
| 16,419 |
| 22,965 |
| ||
Net unrealized losses on hedging activities (c) |
| (111,985 | ) | (15,196 | ) | ||
Employee supplemental retirement plans (d) |
| (19,012 | ) | (11,527 | ) | ||
Total Accumulated other comprehensive income (loss) |
| $ | (190,427 | ) | $ | (96,684 | ) |
(b) Fair values of available-for-sale securities — Represents net unrealized fair value gains of MBS securities and grantor trust funds. The overall pricing the portfolio has not changed materially between December 31, 2011 and 2010, but the portfolio had declined and the absolute amount of the unrealized gain has also declined.
(c) Cash flow hedges gains and losses — In 2011, we executed a cash flow “rollover” hedge strategy, typically with swaps up to 10 years. Fair value losses in AOCI declined as (1) no significant additional hedge lossesof $97.6 million were recognizedgenerated primarily due to the adverse change in 2010 and, (2) Recorded losses were reclassified to interest expensefair values of $903.0 million of swaps designated in the current year as an adjustmenthedges of discount note. Fair value changes will be recorded through AOCI over the life of the hedges for the effective portion of the cash flow hedge strategy. Ineffectiveness, if any, will be recorded through earnings. Discount note expense is synthetically changed to yield of hedged bond. fixed cash flows over the hedge periods, thereby achieving hedge objectives.
The balance ofAOCI loss also included $14.4 million due to realized losses from terminated swaps in cash flow hedge strategy associated with hedges of anticipated issuance of debt. Amounts recorded in AOCI will continue to be reclassified in future periods as an expense over the terms of the hedged bonds as a yield adjustment to the fixed coupons of the debt, and the loss in AOCI will continue to decline unless additional losses from cash flow hedges are recognized in AOCI.debt.
(d) Employee supplemental plans — Minimum additional actuarially determined pension liabilities were recognized for the Bank’s supplemental pension plans.
Dividend— - As a cooperative, the FHLBNY seekswe seek to maintain a balance between itsour public policy mission of providing low-cost funds to its members and providing itsour members with adequate returns on their capital invested in FHLBNYour stock. The FHLBNYWe also has to balance itsour mission with a goal to strengthen itsour financial position through an increase in the level of retained earnings. The FHLBNY’sOur dividend policy takes both factors into consideration —- the need to enhance retained earnings and the need to provide low-cost advances, while reasonably compensating members for the use of their capital. By Finance Agency regulation, dividends may be paid out of current earnings or previously retained earnings. The FHLBNYWe may be restricted from paying dividends if it iswe are not in compliance with any of its minimum capital requirements or if payment would cause the FHLBNYus to fail to meet any of its minimum capital requirements. In addition, the FHLBNYwe may not pay dividends if any principal or interest due on any consolidated obligations has not been paid in full, or if the FHLBNY failswe fail to satisfy certain liquidity requirements under applicable Finance Agency regulations. None of these restrictions applied to the FHLBNY for any period presented in this Form 10-K.
The following table summarizes dividend paid and payout ratios:
Table 7.3:Dividends Paid and Payout Ratios
|
| December 31, 2011 |
| December 31, 2010 |
| ||
Cash dividends paid per share |
| $ | 4.70 |
| $ | 5.24 |
|
Dividends paid (a) |
| $ | 213,089 |
| $ | 257,716 |
|
Pay-out ratio (b) |
| 87.16 | % | 93.54 | % | ||
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Cash dividends paid per share | $ | 5.24 | $ | 4.95 | ||||
Dividends paid1 | $ | 257,716 | $ | 271,474 | ||||
Pay-out ratio2 | 93.54 | % | 47.56 | % | ||||
(a)In thousands.
(b)Dividend paid during the year divided by net income for the year.
Dividends are computed based on the weighted average stock outstanding during a quarter and are declared and paid in the following quarter. Dividends paid in the first quarter of a year are based on average stock outstanding in the fourth quarter of the previous year. In 2011, four dividends were paid for a total of $4.70 per share. In 2010, four dividends were paid for a total of $5.24 per share, or 93.5% of net earnings per share, compared toand $4.95 per share or 47.6% of net earnings per share in 2009. In 2008, $6.55 per share was paid, or 118.6% of net earnings per share.
Dividends paid in the first quarter of 20112012 for the fourth quarter of 20102011 was 5.8% (annualized)5.0%.
68
Interest rate swaps, swaptions and cap and floor agreements (collectively, derivatives) enable the FHLBNYus to manage itsour exposure to changes in interest rates by adjusting the effective maturity, repricing frequency, or option characteristics of financial instruments. The FHLBNY, toTo a limited extent, we also usesuse interest rate swaps to hedge changes in interest rates prior to debt issuance and essentially lock in the FHLBNY’s funding cost.
The notional amounts of derivatives are not recorded as assets or liabilities in the Statements of Condition. Rather, the fair values of all derivatives are recorded as either a derivative asset or a derivative liability. Although notional principal is a commonly used measure of volume in the derivatives market, it is not a meaningful measure of market or credit risk since the notional amount does not change hands (other than in the case of currency swaps, of which the FHLBNY haswe have none).
All derivatives are recorded on the Statements of Condition at their estimated fair values and designated as either fair value or cash flow hedges for qualifying hedges, or as non-qualifying hedges (economic hedges or customer intermediations) under the accounting standards for derivatives and hedging. In an economic hedge, the Bank retainswe retain or executesexecute derivative contracts, which are economically effective in reducing risk. Such derivatives are designated as economic hedges either because a qualifying hedge is not available, the difficultyor it is not possible to demonstrate that the hedge would be effective on an ongoing basis as a qualifying hedge, or the cost of a qualifying hedge is operationally not economical. Changes in the fair value of a derivative are recorded in current period earnings for a fair value hedge, or in AOCI for the effective portion of fair value changes of a cash flow hedge.
Interest income and interest expense from interest rate swaps used for hedging are reported together, with interest on the instrument being hedged if the swap qualifies for hedge accounting. If the swap is designated as an economic hedge, interest accruals are recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.
We use 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.
We use 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 useswe use derivatives toto: (1) offset embedded options in assets and liabilities; (2) hedge the market value of existing assets, liabilities and anticipated transactions; and (3) reduce funding costs. For additional information, see Note 1816 — Derivatives and Hedging Activities toin the audited financial statements accompanyingincluded in this report.Form 10-K. Finance Agency regulations prohibit the speculative use of derivatives. We do not take speculative positions with derivatives or any other financial instruments, or trade derivatives for short-term profits.
The following table summarizes the principal derivatives hedging strategies as of December 31, 20102011 and 2009:
| December 31, | December 31, | |||||||||||
| 2010 Notional | 2009 Notional | |||||||||||
| Amount | Amount | |||||||||||
| Derivatives/Terms | Hedging Strategy | Accounting Designation | (in millions) | (in millions) | ||||||||
| Pay fixed, receive floating | To convert fixed rate on a fixed rate | Economic Hedge of | $ | 128 | $ | 123 | ||||||
| interest rate swap | advance to a LIBOR floating rate | Fair Value Risk | ||||||||||
| Pay fixed, receive floating interest | To convert fixed rate on a fixed rate advance | Fair Value Hedge | $ | 150 | $ | — | ||||||
| rate swap cancelable by FHLBNY | to a LIBOR floating rate callable advance | |||||||||||
| Pay fixed, receive floating interest | To convert fixed rate on a fixed rate advance | Fair Value Hedge | $ | 33,612 | $ | 40,252 | ||||||
| rate swap cancelable by counterparty | to a LIBOR floating rate putable advance | |||||||||||
| Pay fixed, receive floating | To convert fixed rate on a fixed rate advance | Fair Value Hedge | $ | 2,839 | $ | 2,283 | ||||||
| interest rate swap no longer cancelable by | to a LIBOR floating rate no-longer putable | |||||||||||
| counterparty | advance | |||||||||||
| Pay fixed, receive floating interest | To convert fixed rate on a fixed rate advance | Fair Value Hedge | $ | 23,724 | $ | 23,367 | ||||||
| rate swap non-cancelable | to a LIBOR floating rate non-putable advance | |||||||||||
| Purchased interest rate cap | To offset the cap embedded in the | Economic Hedge of | $ | 8 | $ | 390 | ||||||
| variable rate advance | Fair Value Risk | |||||||||||
Derivatives/Terms |
| Hedging Strategy |
| Accounting Designation |
| December 31, 2011 |
| December 31, 2010 |
| ||
Pay fixed, receive floating interest rate swap |
| To convert fixed rate on a fixed rate advance to a LIBOR floating rate |
| Economic Hedge of Fair Value Risk |
| $ | 111 |
| $ | 128 |
|
Pay fixed, receive floating interest rate swap cancelable by FHLBNY |
| To convert fixed rate on a fixed rate advance to a LIBOR floating rate callable advance |
| Fair Value Hedge |
| $ | 325 |
| $ | 150 |
|
Pay fixed, receive floating interest rate swap cancelable by counterparty |
| To convert fixed rate on a fixed rate advance to a LIBOR floating rate putable advance |
| Fair Value Hedge |
| $ | 17,439 |
| $ | 33,612 |
|
Pay fixed, receive floating interest rate swap no longer cancelable by counterparty |
| To convert fixed rate on a fixed rate advance to a LIBOR floating rate no-longer putable advance |
| Fair Value Hedge |
| $ | 2,507 |
| $ | 2,839 |
|
Pay fixed, receive floating interest rate swap non-cancelable |
| To convert fixed rate on a fixed rate advance to a LIBOR floating rate non-putable advance |
| Fair Value Hedge |
| $ | 30,227 |
| $ | 23,724 |
|
Purchased interest rate cap |
| To offset the cap embedded in the variable rate advance |
| Economic Hedge of Fair Value Risk |
| $ | 8 |
| $ | 8 |
|
69
| December 31, | December 31, | |||||||||||
| 2010 Notional | 2009 Notional | |||||||||||
| Amount | Amount | |||||||||||
| Derivatives/Terms | Hedging Strategy | Accounting Designation | (in millions) | (in millions) | ||||||||
| Receive fixed, pay floating | To convert fixed rate consolidated | Economic Hedge of | $ | 115 | $ | 13,113 | ||||||
| interest rate swap | obligation bond debt to a LIBOR floating rate | Fair Value Risk | ||||||||||
| Receive fixed, pay floating interest rate | To convert fixed rate consolidated obligation | Fair Value Hedge | $ | 5,905 | $ | 6,785 | ||||||
| swap cancelable by counterparty | bond debt to a LIBOR floating rate callable bond | |||||||||||
| Receive fixed, pay floating interest rate | To convert fixed rate consolidated obligation | Fair Value Hedge | $ | 15 | $ | 108 | ||||||
| swap no longer cancelable | bond debt to a LIBOR floating rate no-longer callable | |||||||||||
| Receive fixed, pay floating interest rate | To convert fixed rate consolidated obligation | Fair Value Hedge | $ | 27,596 | $ | 25,982 | ||||||
| swap non-cancelable | bond debt to a LIBOR floating rate non-callable | |||||||||||
| Receive fixed, pay floating | To convert the fixed rate consolidated obligation | Economic Hedge of | $ | — | $ | 3,784 | ||||||
| interest rate swap (non-callable) | discount note debt to a LIBOR floating rate non-callable | Fair Value Risk | ||||||||||
| Basis swap | To convert non-LIBOR index to LIBOR to reduce | Economic Hedge of | $ | 6,878 | $ | 6,035 | ||||||
| interest rate sensitivity and repricing gaps | Cash Flows | |||||||||||
| Basis swap | To convert 1M LIBOR index to 3M LIBOR to reduce | Economic Hedge of | $ | 2,050 | $ | 1,950 | ||||||
| interest rate sensitivity and repricing gaps | Cash Flows | |||||||||||
| Receive fixed, pay floating interest rate | Fixed rate callable bond converted to a LIBOR | Fair Value Option | $ | 5,576 | $ | 5,690 | ||||||
| swap cancelable by counterparty | floating rate; matched to callable bond accounted | |||||||||||
| for under fair value option | ||||||||||||
| Receive fixed, pay floating | Fixed rate callable bond converted to a LIBOR | Fair Value Option | $ | 1,000 | $ | — | ||||||
| interest rate swap no longer cancelable | floating rate; matched to bond no -longer callable | |||||||||||
| accounted for under fair value option. | ||||||||||||
| Receive fixed, pay floating interest rate | Fixed rate non-callable bond converted to a LIBOR | Fair Value Option | $ | 7,700 | $ | 350 | ||||||
| swap non-cancelable | floating rate; matched to non-callable bond | |||||||||||
| accounted for under fair value option | ||||||||||||
| Receive fixed, pay floating interest rate | Fixed rate consolidated obligation discount note converted | Fair Value Option | $ | 953 | $ | — | ||||||
| swap non-cancelable | to a LIBOR floating rate; matched to discount note | |||||||||||
| accounted for under fair value option | ||||||||||||
Derivatives/Terms |
| Hedging Strategy |
| Accounting Designation |
| December 31, 2011 |
| December 31, 2010 |
| ||
Receive fixed, pay floating interest rate swap |
| To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate |
| Economic Hedge of Fair Value Risk |
| $ | 50 |
| $ | 115 |
|
Receive fixed, pay floating interest rate swap cancelable by counterparty |
| To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate callable bond |
| Fair Value Hedge |
| $ | 1,381 |
| $ | 5,905 |
|
Receive fixed, pay floating interest rate swap no longer cancelable |
| To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate no-longer callable |
| Fair Value Hedge |
| $ | — |
| $ | 15 |
|
Receive fixed, pay floating interest rate swap non-cancelable |
| To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate non-callable |
| Fair Value Hedge |
| $ | 30,218 |
| $ | 27,596 |
|
Receive fixed, pay floating interest rate swap |
| To convert the fixed rate consolidated obligation discount note debt to a LIBOR floating rate |
| Economic Hedge of Fair Value Risk |
| $ | 202 |
| $ | — |
|
Receive fixed, pay floating interest rate swap |
| To convert the fixed rate consolidated obligation discount note debt to a LIBOR floating rate. |
| Fair Value Hedge |
| $ | 2,405 |
| $ | — |
|
Pay fixed, receive LIBOR interest rate swap |
| To offset the variability of cash flows associated with interest payments on forecasted issuance of fixed rate consolidated obligation discount note debt. |
| Cash flow hedge |
| $ | 903 |
| $ | — |
|
Basis swap |
| To convert non-LIBOR index to LIBOR to reduce interest rate sensitivity and repricing gaps |
| Economic Hedge of Cash Flows |
| $ | 11,720 |
| $ | 6,878 |
|
Basis swap |
| To convert 1M LIBOR index to 3M LIBOR to reduce interest rate sensitivity and repricing gaps |
| Economic Hedge of Cash Flows |
| $ | 1,850 |
| $ | 2,050 |
|
Receive fixed, pay floating interest rate swap cancelable by counterparty |
| Fixed rate callable bond converted to a LIBOR floating rate; matched to callable bond accounted for under fair value option |
| Fair Value Option |
| $ | 1,430 |
| $ | 5,576 |
|
Receive fixed, pay floating interest rate swap no longer cancelable |
| Fixed rate callable bond converted to a LIBOR floating rate; matched to bond no-longer callable accounted for under fair value option. |
| Fair Value Option |
| $ | — |
| $ | 1,000 |
|
Receive fixed, pay floating interest rate swap non-cancelable |
| Fixed rate non-callable bond converted to a LIBOR floating rate; matched to non-callable bond accounted for under fair value option |
| Fair Value Option |
| $ | 11,100 |
| $ | 7,700 |
|
Receive fixed, pay floating interest rate swap non-cancelable |
| Fixed rate consolidated obligation discount note converted to a LIBOR floating rate; matched to discount note accounted for under fair value option |
| Fair Value Option |
| $ | 4,917 |
| $ | 953 |
|
Table 8.3:8.3 Derivative Hedging Strategies — Balance Sheet and Intermediation
| December 31, | December 31, | |||||||||||
| 2010 Notional | 2009 Notional | |||||||||||
| Amount | Amount | |||||||||||
| Derivatives/Terms | Hedging Strategy | Accounting Designation | (in millions) | (in millions) | ||||||||
| Pay fixed, receive floating interest rate swap | Economic hedge on the Balance Sheet | Economic Hedge | $ | — | $ | 1,050 | ||||||
| Receive fixed, pay floating interest rate swap | Economic hedge on the Balance Sheet | Economic Hedge | $ | — | $ | 1,050 | ||||||
| Purchased interest rate cap | Economic hedge on the Balance Sheet | Economic Hedge | $ | 1,892 | $ | 1,892 | ||||||
| Intermediary positions interest rate swaps | To offset interest rate swaps and caps executed | Economic Hedge of | $ | 550 | $ | 320 | ||||||
| and caps | with members by executing offsetting derivatives | Fair Value Risk | ||||||||||
| with counterparties | ||||||||||||
Derivatives/Terms |
| Hedging Strategy |
| Accounting Designation |
| December 31, 2011 |
| December 31, 2010 |
| ||
Purchased interest rate cap |
| Economic hedge on the Balance Sheet |
| Economic Hedge |
| $ | 1,892 |
| $ | 1,892 |
|
Intermediary positions interest rate swaps and caps |
| To offset interest rate swaps and caps executed with members by executing offsetting derivatives with counterparties |
| Economic Hedge of Fair Value Risk |
| $ | 550 |
| $ | 550 |
|
The accounting designation “economic” hedges represented derivative transactions under hedge strategies that do not qualify for hedge accounting but are an approved risk management hedge.
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Estimated | Estimated | |||||||||||||||
| Notional | Fair Value | Notional | Fair Value | |||||||||||||
Interest rate swaps | ||||||||||||||||
Derivatives in fair value hedging relationships1 | $ | 93,840,813 | $ | (3,654,298 | ) | $ | 98,776,447 | $ | (3,056,718 | ) | ||||||
Derivatives in economic hedges2 | 9,171,345 | (1,440 | ) | 27,104,963 | 31,723 | |||||||||||
Derivatives matching debt designated under FVO3 | 15,229,202 | 777 | 6,040,000 | (2,632 | ) | |||||||||||
Interest rate caps/floors | ||||||||||||||||
| Economic hedges-fair value | 1,900,000 | 41,785 | 2,282,000 | 71,494 | ||||||||||||
Mortgage delivery commitments (MPF) | ||||||||||||||||
| Economic hedges-fair value | 29,993 | (514 | ) | 4,210 | (39 | ) | ||||||||||
Other | ||||||||||||||||
| Intermediation | 550,000 | 659 | 320,000 | 352 | ||||||||||||
Total | $ | 120,721,353 | $ | (3,613,031 | ) | $ | 134,527,620 | $ | (2,955,820 | ) | ||||||
| Total derivatives, excluding accrued interest | $ | (3,613,031 | ) | $ | (2,955,820 | ) | ||||||||||
| Cash collateral pledged to counterparties | 2,739,402 | 2,237,028 | ||||||||||||||
| Cash collateral received from counterparties | (9,300 | ) | — | |||||||||||||
| Accrued interest | (49,959 | ) | (19,104 | ) | ||||||||||||
Net derivative balance | $ | (932,888 | ) | $ | (737,896 | ) | ||||||||||
| Net derivative asset balance | $ | 22,010 | $ | 8,280 | ||||||||||||
| Net derivative liability balance | (954,898 | ) | (746,176 | ) | ||||||||||||
Net derivative balance | $ | (932,888 | ) | $ | (737,896 | ) | ||||||||||
71
Table 8.5: Derivative8.4:Derivatives Financial Instruments by Product
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||||
|
|
|
| Total Estimated |
|
|
| Total Estimated |
| ||||
|
|
|
| Fair Value |
|
|
| Fair Value |
| ||||
|
|
|
| (Excluding |
|
|
| (Excluding |
| ||||
|
| Total Notional |
| Accrued |
| Total Notional |
| Accrued |
| ||||
|
| Amount |
| Interest) |
| Amount |
| Interest) |
| ||||
Derivatives designated as hedging instruments (a) |
|
|
|
|
|
|
|
|
| ||||
Advances-fair value hedges |
| $ | 50,498,321 |
| $ | (3,880,147 | ) | $ | 60,324,983 |
| $ | (4,269,037 | ) |
Consolidated obligations-fair value hedges |
| 34,003,896 |
| 965,380 |
| 33,515,830 |
| 614,739 |
| ||||
Cash Flow-anticipated transactions |
| 903,000 |
| (97,588 | ) | — |
| — |
| ||||
Derivatives not designated as hedging instruments (b) |
|
|
|
|
|
|
|
|
| ||||
Advances hedges |
| 119,329 |
| (4,160 | ) | 136,345 |
| (3,115 | ) | ||||
Consolidated obligations hedges |
| 13,821,520 |
| (20,264 | ) | 9,043,000 |
| 1,675 |
| ||||
Mortgage delivery commitments |
| 31,242 |
| 270 |
| 29,993 |
| (514 | ) | ||||
Balance sheet |
| 1,892,000 |
| 14,927 |
| 1,892,000 |
| 41,785 |
| ||||
Intermediary positions hedges |
| 550,000 |
| 483 |
| 550,000 |
| 659 |
| ||||
Derivatives matching COs designated under FVO (c) |
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps-consolidated obligations-bonds |
| 12,530,000 |
| (7,078 | ) | 14,276,000 |
| (505 | ) | ||||
Interest rate swaps-consolidated obligations-discount notes |
| 4,917,172 |
| (568 | ) | 953,202 |
| 1,282 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total notional and fair value |
| $ | 119,266,480 |
| $ | (3,028,745 | ) | $ | 120,721,353 |
| $ | (3,613,031 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Total derivatives, excluding accrued interest |
|
|
| $ | (3,028,745 | ) |
|
| $ | (3,613,031 | ) | ||
Cash collateral pledged to counterparties |
|
|
| 2,638,843 |
|
|
| 2,739,402 |
| ||||
Cash collateral received from counterparties |
|
|
| (40,900 | ) |
|
| (9,300 | ) | ||||
Accrued interest |
|
|
| (30,233 | ) |
|
| (49,959 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Net derivative balance |
|
|
| $ | (461,035 | ) |
|
| $ | (932,888 | ) | ||
|
|
|
|
|
|
|
|
|
| ||||
Net derivative asset balance |
|
|
| $ | 25,131 |
|
|
| $ | 22,010 |
| ||
Net derivative liability balance |
|
|
| (486,166 | ) |
|
| (954,898 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Net derivative balance |
|
|
| $ | (461,035 | ) |
|
| $ | (932,888 | ) | ||
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Total Estimated | Total Estimated | |||||||||||||||
| Fair Value | Fair Value | |||||||||||||||
| (Excluding | (Excluding | |||||||||||||||
| Total Notional | Accrued | Total Notional | Accrued | |||||||||||||
| Amount | Interest) | Amount | Interest) | |||||||||||||
Derivatives designated as hedging instruments1 | ||||||||||||||||
| Advances-fair value hedges | $ | 60,324,983 | $ | (4,269,037 | ) | $ | 65,901,667 | $ | (3,622,141 | ) | ||||||
| Consolidated obligations-fair value hedges | 33,515,830 | 614,739 | 32,874,780 | 565,423 | ||||||||||||
Derivatives not designated as hedging instruments2 | ||||||||||||||||
| Advances-economic hedges | 136,345 | (3,115 | ) | 513,089 | (196 | ) | ||||||||||
| Consolidated obligations-economic hedges | 9,043,000 | 1,675 | 24,881,874 | 36,954 | ||||||||||||
| MPF loan-commitments | 29,993 | (514 | ) | 4,210 | (39 | ) | ||||||||||
| Balance sheet | 1,892,000 | 41,785 | 1,892,000 | 71,494 | ||||||||||||
| Intermediary positions-economic hedges | 550,000 | 659 | 320,000 | 352 | ||||||||||||
| Balance sheet-macro hedges swaps | — | — | 2,100,000 | (5,035 | ) | |||||||||||
Derivatives matching COs designated under FVO3 | ||||||||||||||||
| Interest rate swaps-consolidated obligations-bonds | 14,276,000 | (505 | ) | 6,040,000 | (2,632 | ) | ||||||||||
| Interest rate swaps-consolidated obligations-discount notes | 953,202 | 1,282 | — | — | ||||||||||||
Total notional and fair value | $ | 120,721,353 | $ | (3,613,031 | ) | $ | 134,527,620 | $ | (2,955,820 | ) | ||||||
| Total derivatives, excluding accrued interest | $ | (3,613,031 | ) | $ | (2,955,820 | ) | ||||||||||
| Cash collateral pledged to counterparties | 2,739,402 | 2,237,028 | ||||||||||||||
| Cash collateral received from counterparties | (9,300 | ) | — | |||||||||||||
| Accrued interest | (49,959 | ) | (19,104 | ) | ||||||||||||
Net derivative balance | $ | (932,888 | ) | $ | (737,896 | ) | ||||||||||
| Net derivative asset balance | $ | 22,010 | $ | 8,280 | ||||||||||||
| Net derivative liability balance | (954,898 | ) | (746,176 | ) | ||||||||||||
Net derivative balance | $ | (932,888 | ) | $ | (737,896 | ) | ||||||||||
(a) Qualifying under hedge accounting rules.
(b) Not qualifying under hedge accounting rules but used as an economic hedge (“standalone”).
(c) Economic hedge of debt designated under the FVO.
Derivative Credit Risk Exposure and Concentration
In addition to market risk, the FHLBNY iswe are subject to credit risk in derivative transactions because of the potential for non-performance by the counterparties, which could result in the FHLBNYour having to acquire a replacement derivative from a different counterparty at a cost. The FHLBNYWe are also is subject to operational risks in the execution and servicing of derivative transactions.
Summarized below are our risk evaluation and measurement processes.
Risk measurement— Although notional amount is a commonly used measure of volume in the derivatives market, it is not a meaningful measure of market or credit risk since derivative counterparties do not exchange the notional amount (except in the case of foreign currency swaps, of which the FHLBNY has none). Counterparties use the notional amounts of derivative instruments to calculate contractual cash flows to be exchanged. The fair value of a derivative in a gain position is a more meaningful measure of the FHLBNY’s current market exposure on derivatives. The FHLBNY estimatesWe estimate exposure to credit loss on derivative instruments by calculating the replacement cost, on a present value basis, to settle at current market prices all outstanding derivative contracts in a gain position, net of collateral pledged by the counterparty to mitigate the FHLBNY’sour exposure. All derivative contracts with non-members are also subject to master netting agreements or other right of offset arrangements.
Exposure— In determining credit risk, the FHLBNY considerswe consider accrued interest receivable and payable, and the legal right to offset assets and liabilities by counterparty. The FHLBNY attemptsWe attempt to mitigate its exposure by requiring derivative counterparties to pledge cash collateral if the amount of exposure is above the collateral threshold agreements. At December 31, 2010, counterparties had deposited $9.3 million in cash as collateral to mitigate such an exposure. At December 31, 2009, the fair values of derivatives in a gain position were below the threshold and derivative counterparties pledged no cash to the FHLBNY.
72
Risk mitigation— The FHLBNY attemptsWe attempt to mitigate derivative counterparty credit risk by contracting only with experienced counterparties with investment-grade credit ratings. Annually, the FHLBNY’sour management and Board of Directors review and approve all non-member derivative counterparties. Management monitorsWe monitor counterparties on an ongoing basis for significant business events, including ratings actions taken by nationally recognized statistical rating organizations. All approved derivatives counterparties must enter into a master ISDA agreement with the FHLBNYour bank and, in addition, execute the Credit Support Annex to the ISDA agreement that provides for collateral support at predetermined thresholds. These annexes contain enforceable provisions for requiring collateral on certain derivative contracts that are in gain positions. The annexes also define the maximum net unsecured credit exposure amounts that may exist before collateral delivery is required. Typically, the maximum amount is based upon an analysis
Derivatives Counterparty Credit Ratings
The following table summarizes the FHLBNY’sour credit exposure by counterparty credit rating (in thousands, except number of counterparties).
Table 8.6: 8.5:Derivatives Counterparty Notional Balance by Credit Ratings
|
| December 31, 2011 |
| |||||||||||||||
|
|
|
|
|
| Total Net |
| Credit Exposure |
| Other |
| Net |
| |||||
|
| Number of |
| Notional |
| Exposure at |
| Net of |
| Collateral |
| Credit |
| |||||
Credit Rating |
| Counterparties |
| Balance |
| Fair Value |
| Cash Collateral (c) |
| Held (b) |
| Exposure |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
AAA |
| — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
AA |
| 6 |
| 20,125,098 |
| 13,407 |
| 13,407 |
| — |
| 13,407 |
| |||||
A |
| 11 |
| 97,184,740 |
| 43,292 |
| 2,392 |
| — |
| 2,392 |
| |||||
BBB |
| 1 |
| 1,650,400 |
| — |
| — |
| — |
| — |
| |||||
Members (a) & (b) |
| 2 |
| 275,000 |
| 9,062 |
| 9,062 |
| 9,062 |
| — |
| |||||
Delivery Commitments |
| — |
| 31,242 |
| 270 |
| 270 |
| 270 |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| 20 |
| $ | 119,266,480 |
| $ | 66,031 |
| $ | 25,131 |
| $ | 9,332 |
| $ | 15,799 |
|
|
| December 31, 2010 |
| |||||||||||||||
|
|
|
|
|
| Total Net |
| Credit Exposure |
| Other |
| Net |
| |||||
|
| Number of |
| Notional |
| Exposure at |
| Net of |
| Collateral |
| Credit |
| |||||
Credit Rating |
| Counterparties |
| Balance |
| Fair Value |
| Cash Collateral (c) |
| Held (b) |
| Exposure |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
AAA |
| — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
AA |
| 8 |
| 43,283,429 |
| 25,385 |
| 16,085 |
| — |
| 16,085 |
| |||||
A |
| 8 |
| 77,132,931 |
| — |
| — |
| — |
| — |
| |||||
BBB |
| — |
| — |
| — |
| — |
| — |
| — |
| |||||
Members (a) & (b) |
| 2 |
| 275,000 |
| 5,925 |
| 5,925 |
| 5,925 |
| — |
| |||||
Delivery Commitments |
| — |
| 29,993 |
| — |
| — |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| 18 |
| $ | 120,721,353 |
| $ | 31,310 |
| $ | 22,010 |
| $ | 5,925 |
| $ | 16,085 |
|
(a) Fair values of $9.1 million and $5.9 million at December 31, 2011 and 2010 comprised of intermediated transactions with members and interest-rate caps sold to members (with capped floating-rate advances).
(b) Members are required to pledge collateral to secure derivatives purchased by the FHLBNY as an intermediary on behalf of its members. Eligible collateral includes: (1) one-to-four-family and multi-family mortgages; (2) U.S. Treasury and government-agency securities; (3) mortgage-backed securities; and (4) certain other collateral which is real estate related and has a readily ascertainable value, and in which the FHLBNY can perfect a security interest. As a result of the collateral agreements with its members, the FHLBNY believes that its maximum credit exposure due to the intermediated transactions was $0 at December 31, 2011 and December 31, 2010.
(c) As reported in the Statements of Condition.
Counterparties with no fair values represent net balances in a liability position. The tables above present fair values in gain positions.
Derivative Counterparty Country Concentration Risk
The following table summarizes derivative fair value and notional exposures by significant counterparty concentration by country of tax domicile (dollars in thousands):
Table 8.6 Derivative Counterparty Concentration (1)
|
|
|
| December 31, 2011 |
| ||||||||
|
| Domicile of |
| Notional |
| Percentage |
| Fair Value |
| Percentage |
| ||
Counterparties |
| Counterparties (a) |
| Amount (b) |
| of Total |
| Exposure |
| of Total |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Counterparty |
| Germany |
| $ | 20,474,146 |
| 17.2 | % | $ | — |
| — | % |
Counterparty |
| Switzerland |
| 14,148,654 |
| 11.9 |
| — |
| — |
| ||
Counterparty |
| USA |
| 13,345,921 |
| 11.2 |
| — |
| — |
| ||
Counterparty |
| USA |
| 7,780,245 |
| 6.5 |
| 2,392 |
| 9.5 |
| ||
Counterparty |
| USA |
| 3,041,156 |
| 2.5 |
| 13,407 |
| 53.4 |
| ||
All other counterparties |
|
|
| 60,170,116 |
| 50.4 |
| — |
| — |
| ||
Members and Delivery Commitments |
|
|
| 306,242 |
| 0.3 |
| 9,332 |
| 37.1 |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
| $ | 119,266,480 |
| 100.0 | % | $ | 25,131 |
| 100.0 | % |
|
|
|
| December 31, 2010 |
| ||||||||
|
| Domicile of |
| Notional |
| Percentage |
| Fair Value |
| Percentage |
| ||
Counterparties |
| Counterparties (a) |
| Amount |
| of Total |
| Exposure |
| of Total |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Counterparty |
| Germany |
| $ | 16,737,475 |
| 13.9 | % | $ | — |
| — | % |
Counterparty |
| USA |
| 14,000,889 |
| 11.6 |
| — |
| — |
| ||
Counterparty |
| USA |
| 13,395,104 |
| 11.1 |
|
|
| — |
| ||
Counterparty |
| USA |
| 2,132,500 |
| 1.7 |
| 16,085 |
| 73.1 |
| ||
All other counterparties |
|
|
| 74,150,392 |
| 61.4 |
| — |
| — |
| ||
Members and Delivery Commitments |
|
|
| 304,993 |
| 0.3 |
| 5,925 |
| 26.9 |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
| $ | 120,721,353 |
| 100.0 | % | $ | 22,010 |
| 100.0 | % |
| December 31, 2010 | ||||||||||||||||||||||||
| Total Net | Credit Exposure | Other | Net | |||||||||||||||||||||
| Number of | Notional | Exposure at | Net of | Collateral | Credit | |||||||||||||||||||
| Credit Rating | Counterparties | Balance | Fair Value | Cash Collateral3 | Held2 | Exposure | ||||||||||||||||||
| AAA | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
| AA | 8 | 43,283,429 | 25,385 | 16,085 | — | 16,085 | ||||||||||||||||||
| A | 8 | 77,132,931 | — | — | — | — | ||||||||||||||||||
Members (Notes1&2) | 2 | 275,000 | 5,925 | 5,925 | 5,925 | — | ||||||||||||||||||
| Delivery Commitments | — | 29,993 | — | — | — | — | ||||||||||||||||||
Total | 18 | $ | 120,721,353 | $ | 31,310 | $ | 22,010 | $ | 5,925 | $ | 16,085 | |||||||||||||
(a) Domicile is based on tax representation by derivative counterparty.
(b) Counterparties with notional amounts greater than 10% of total or with fair values in a gain position, representing our exposures to couterparties.
(1)Notional concentration - At December 31, 2011, notional contracts with three counterparties were in excess of 10% of total, and, in aggregate, they accounted for 40.2% of the total notional amounts. At December 31, 2010, notional contracts with three counterparties were in excess of 10% of the total. In aggregate, they accounted for 36.6 % of the total notional amounts.
| December 31, 2009 | ||||||||||||||||||||||||
| Total Net | Credit Exposure | Other | Net | |||||||||||||||||||||
| Number of | Notional | Exposure at | Net of | Collateral | Credit | |||||||||||||||||||
| Credit Rating | Counterparties | Balance | Fair Value | Cash Collateral3 | Held2 | Exposure | ||||||||||||||||||
| AAA | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
| AA | 7 | 45,652,167 | 684 | 684 | — | 684 | ||||||||||||||||||
| A | 8 | 88,711,243 | — | — | — | — | ||||||||||||||||||
Members (Notes1&2) | 2 | 160,000 | 7,596 | 7,596 | 7,596 | — | ||||||||||||||||||
| Delivery Commitments | — | 4,210 | — | — | — | — | ||||||||||||||||||
Total | 17 | $ | 134,527,620 | $ | 8,280 | $ | 8,280 | $ | 7,596 | $ | 684 | |||||||||||||
Table 8.7 Derivative Notional and Fair Values by Maturity (in thousands):
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||||
|
| Notional |
| Fair Value |
| Notional |
| Fair Value |
| ||||
Maturity in one year or less |
| $ | 46,998,539 |
| $ | (52,122 | ) | $ | 35,039,885 |
| $ | (4,969 | ) |
Maturity after one year to three years or less |
| 34,482,949 |
| (86,236 | ) | 35,007,036 |
| (206,971 | ) | ||||
Maturity after three years to five years or less |
| 19,740,911 |
| (1,453,810 | ) | 16,771,959 |
| (367,756 | ) | ||||
Maturity after five years and thereafter |
| 18,012,839 |
| (1,436,847 | ) | 33,872,480 |
| (3,032,821 | ) | ||||
Delivery Commitments |
| 31,242 |
| 270 |
| 29,993 |
| (514 | ) | ||||
|
| $ | 119,266,480 |
| $ | (3,028,745 | ) | $ | 120,721,353 |
| $ | (3,613,031 | ) |
Accounting for Derivatives —- Hedge Effectiveness
An entity that elects to apply hedge accounting is required, to establish at the inception of the hedge, to establish the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective portion of the hedge. Those methods must be consistent with the entity’s approach to managing risk. At inception and during the life of the hedging relationship, management must demonstrate that the hedge is expected to be highly effective in offsetting changes in the hedged item’s fair value or the variability in cash flows attributable to the hedged risk.
73
·Inception prospective assessment. Upon designation of the hedging relationship and on an ongoing basis, we are required to demonstrate that we expect the hedging relationship to be highly effective. This is a forward-looking consideration. The prospective assessment at designation uses sensitivity analysis employing an option-adjusted valuation model to generate changes in market value of the hedged item and the swap. These projected market values are then analyzed over multiple instantaneous, parallel rate shocks. The hedge is expected to be highly effective if the change in fair value of the swap divided by the change in the fair value of the hedged item is within the 80%-125% dollar value offset boundaries. See note below summarizing statistical regression methodology (a).
·Ongoing prospective assessment. For purposes of assessing effectiveness on an ongoing basis, we will utilize the regression results from our retrospective assessment as a means of demonstrating that we expect all “long-haul” hedge relationships to be highly effective in future periods (i.e. we will use the regression for both ongoing prospective and retrospective assessment).
·Retrospective assessment. At least quarterly, we will be required to determine whether the hedging relationship was highly effective in offsetting changes in fair value or cash flows through the date of the periodic assessment. This is an evaluation of the past experience.
(a) We use a statistical method commonly referred to as regression analysis to analyze how a single dependent variable is affected by the changes in one (or more) independent variable(s). If the two variables are highly correlated, then movements of one variable can be reasonably expected to trigger similar movements in the other variable. Thus, regression analysis serves to measure the strength of empirical relationships and assessing the probability of hedge effectiveness. We test the effectiveness of the hedges by regressing the changes in the net present value of future cash flows (“NPV”) of the derivative against changes in the net present value of the hedged transaction, typically an advance or a consolidated obligation.
Discontinuation of hedge accounting
If a derivative no longer qualifies as a fair value or a cash flow hedge, the FHLBNY discontinueswe discontinue hedge accounting prospectively, and reportsreport the derivative in the Statement of Condition at its fair value and recordsrecord fair value gains and losses in earnings until the derivative matures. If the FHLBNY waswe were to discontinue a cash flow hedge, previously deferred gains and losses in AOCI would be recognized in current earnings at the time the hedged transaction affects earnings. For discontinued fair value hedges, the FHLBNYwe no longer adjustsadjust the carrying value (basis) of the hedged item, typically an advance or a bond, for changes in their fair values. The FHLBNYWe then amortizesamortize previous fair value adjustments to the basis of the hedged item over the life of the hedged item (for callable as well as non-callable previously hedged advances and bonds).
Embedded derivatives
Beforea trade is executed, the FHLBNY’sour procedures require the identification and evaluation of any embedded derivatives under accounting standards for derivatives and hedging. This evaluation will consider if the economic characteristics and the risks of the embedded derivative instrument are not clearly and closely related to the economic characteristic and risks of the host contract. At December 31, 2011, 2010 and 2009, and 2008, the FHLBNYwe had no embedded derivatives that were required to be separated from the “host” contract because their economic or risk characteristics were not clearly and closely related to the economic characteristics and risks of the host contract.
Aggregation of similar items
We have insignificant amounts of similar advances that arewere hedged in aggregate as a portfolio. For such hedges, the FHLBNY performswe perform a similar asset test for homogeneity to ensure the hedged advances share the risk exposure for which they are designated as being hedged. Other than a very limited number of portfolio hedges, the FHLBNY’sour other hedged items and derivatives are hedged as separately identifiable instruments.
Measurement of hedge ineffectiveness
We calculate the fair values of itsour derivatives and associated hedged items using discounted cash flows and other adjustments to incorporate volatilities of future interest rates and options, if embedded, in the derivative or the hedged item. For each financial statement reporting period, the FHLBNY measureswe measure the changes in the fair values of all derivatives, and changes in fair value of the hedged items attributable to the risk being hedged unless(unless we assumed that the FHLBNY has assumedhedges presented no ineffectiveness (referred to asand the “short-cut method”)short-cut method was applied) and reportswe report changes through current earnings. For hedged items eligible for the short-cut method, the FHLBNY treatswe treat the change in fair value of the derivative as equal to the change in the fair value of the hedged item attributable to the change in the benchmark interest rate. To the extent the change in the fair value of the derivative is not equal to the change in the fair value of the hedged item when not using the short-cut method, the resulting difference represents hedge ineffectiveness, and is reported through current earnings.
74
Our primary source of liquidity is the issuance of consolidated obligation bonds and discount notes. To refinance maturing consolidated obligations, the Bank relieswe rely on the willingness of theour investors to purchase new issuances. The FHLBNY hasWe have access to the discount note market, and the efficiency of issuing discount notes is an important factor as a source of liquidity, since discount notes can be issued any time and in a variety of amounts and maturities. Member deposits and capital stock purchased by members are another source of funds. Short-term unsecured borrowings from other FHLBanks and in the Federal funds market provide additional sources of liquidity. WithIn addition, the passageSecretary of the Housing Act on July 30, 2008, the U.S. Treasury wasis authorized to purchase up to $4.0 billion of consolidated obligations issued byfrom the FHLBanks in any amount deemed appropriate by the U.S. Treasury. This temporary authorization expired December 31, 2009 and supplemented the existing limit of $4 billion.
Our liquidity position remains in compliance with all regulatory requirements and management does not foresee any changes to that position.
Finance Agency Regulations —- Liquidity
Regulatory requirements that are specified in Parts 917, 932 and 9651270 of Finance Agency regulations and are summarized below. Each FHLBank shall at all times have at least an amount of liquidity equal to the current deposits received from its members that may be invested in:
In addition, each FHLBank shall provide for contingency liquidity, which is defined as the sources of cash an FHLBank may use to meet its operational requirements when its access to the capital markets is impeded. The FHLBNYWe met itsour contingency liquidity requirements. Liquidity in excess of requirements is summarized in the table titled Contingency Liquidity.
Liquidity Management
We actively manages itsmanage our liquidity position to maintain stable, reliable, and cost-effective sources of funds while taking into account market conditions, member demand and the maturity profile of the FHLBNY’sour assets and liabilities. The FHLBNY recognizesWe recognize that managing liquidity is critical to achieving itsour statutory mission of providing low-cost funding to itsour members. In managing liquidity risk, the FHLBNY iswe are required to maintain certain liquidity measures in accordance with the FHLBank Act and policies developed by the FHLBNY management and approved by the FHLBNY’sour Board of Directors. The specificapplicable liquidity requirements applicable to the FHLBNY are described in the next four sections.
Deposit Liquidity.The FHLBNY is We are required to invest an aggregate amount at least equal to the amount of current deposits received from the FHLBNY’s members in: (1) obligations of the U.S. government; (2) deposits in banks or trust companies; or (3) advances to members with maturities not exceeding five years. In addition to accepting deposits from itsour members, the FHLBNYwe may accept deposits from other FHLBankFHLBanks or from any other governmental instrumentality. Deposit liquidity is calculated daily. Quarterly average reserve requirements and actual reserves are summarized below during each quarter in 2010 and 2009 (in millions). The FHLBNYWe met itsthese requirements at all times.
|
| Average Deposit |
| Average Actual |
|
|
| |||
For the Quarters Ended |
| Reserve Required |
| Deposit Liquidity |
| Excess |
| |||
December 31, 2011 |
| $ | 2,223 |
| $ | 49,402 |
| $ | 47,179 |
|
September 30, 2011 |
| 2,334 |
| 48,689 |
| 46,355 |
| |||
June 30, 2011 |
| 2,276 |
| 46,994 |
| 44,718 |
| |||
March 31, 2011 |
| 2,404 |
| 44,982 |
| 42,578 |
| |||
December 31, 2010 |
| 3,304 |
| 44,945 |
| 41,641 |
| |||
September 30, 2010 |
| 5,055 |
| 46,304 |
| 41,249 |
| |||
June 30, 2010 |
| 5,227 |
| 48,055 |
| 42,828 |
| |||
March 31, 2010 |
| 5,032 |
| 51,987 |
| 46,955 |
| |||
| Average Deposit | Average Actual | |||||||||||
| For the Quarters ended | Reserve Required | Deposit Liquidity | Excess | |||||||||
| December 31, 2010 | $ | 3,304 | $ | 44,945 | $ | 41,641 | ||||||
| September 30, 2010 | 5,055 | 46,304 | 41,249 | |||||||||
| June 30, 2010 | 5,227 | 48,055 | 42,828 | |||||||||
| March 31, 2010 | 5,032 | 51,987 | 46,955 | |||||||||
| December 31, 2009 | 2,364 | 53,089 | 50,725 | |||||||||
| September 30, 2009 | 2,189 | 55,890 | 53,701 | |||||||||
| June 30, 2009 | 2,190 | 57,886 | 55,696 | |||||||||
| March 31, 2009 | 1,753 | 63,267 | 61,514 | |||||||||
Operational LiquidityLiquidity. . The FHLBNYWe must be able to fund itsour activities as itsour balance sheet changes from day to day. The FHLBNY maintainsWe maintain the capacity to fund balance sheet growth through its regular money market and capital market funding activities. Management monitors the Bank’sWe monitor our operational liquidity needs by regularly comparing the Bank’sour demonstrated funding capacity with its potential balance sheet growth. Management then takesWe take such actions as may be necessary to maintain adequate sources of funding for such growth.
75
Table 9.2:Operational Liquidity
| Average Balance Sheet | Average Actual | |||||||||||
| For the Quarters ended | Liquidity Requirement | Operational Liquidity | Excess | |||||||||
| December 31, 2010 | $ | 2,937 | $ | 15,500 | $ | 12,563 | ||||||
| September 30, 2010 | 3,915 | 15,127 | 11,212 | |||||||||
| June 30, 2010 | 2,665 | 16,051 | 13,386 | |||||||||
| March 31, 2010 | 2,283 | 15,796 | 13,513 | |||||||||
| December 31, 2009 | 6,710 | 16,388 | 9,678 | |||||||||
| September 30, 2009 | 18,348 | 22,205 | 3,857 | |||||||||
| June 30, 2009 | 11,925 | 25,904 | 13,979 | |||||||||
| March 31, 2009 | 9,543 | 20,893 | 11,350 | |||||||||
|
| Average Balance Sheet |
| Average Actual |
|
|
| |||
For the Quarters Ended |
| Liquidity Requirement |
| Operational Liquidity |
| Excess |
| |||
December 31, 2011 |
| $ | 5,888 |
| $ | 21,205 |
| $ | 15,317 |
|
September 30, 2011 |
| 4,513 |
| 20,050 |
| 15,537 |
| |||
June 30, 2011 |
| 2,867 |
| 18,516 |
| 15,649 |
| |||
March 31, 2011 |
| 2,352 |
| 17,796 |
| 15,444 |
| |||
December 31, 2010 |
| 2,937 |
| 15,500 |
| 12,563 |
| |||
September 30, 2010 |
| 3,915 |
| 15,127 |
| 11,212 |
| |||
June 30, 2010 |
| 2,665 |
| 16,051 |
| 13,386 |
| |||
March 31, 2010 |
| 2,283 |
| 15,796 |
| 13,513 |
| |||
Contingency LiquidityLiquidity. .The FHLBNY isWe are required by Finance Agency regulations to hold “contingency liquidity” in an amount sufficient to meet itsour liquidity needs if it iswe are unable, by virtue of a disaster, to access the consolidated obligation debt markets for at least five business days. Contingency liquidity includes (1) marketable assets with a maturity of one year or less; (2) self-liquidating assets with a maturity of one year or less; (3) assets that are generally acceptable as collateral in the repurchase market; and (4) irrevocable lines of credit from financial institutions receiving not less than the second-highest credit rating from a nationally recognized statistical rating organization. The FHLBNYWe consistently exceeded the regulatory minimum requirements for contingency liquidity. Contingency liquidity is reported daily. The FHLBNYWe met thethese requirements at all times.
The following table summarizes excess contingency liquidity by each quarter in 2010 and 2009 (in millions):
Table 9.3: Contingency Liquidity
| Average Five Day | Average Actual | |||||||||||
| For the Quarters ended | Requirement | Contingency Liquidity | Excess | |||||||||
| December 31, 2010 | $ | 2,239 | $ | 15,289 | $ | 13,050 | ||||||
| September 30, 2010 | 1,967 | 14,859 | 12,892 | |||||||||
| June 30, 2010 | 2,047 | 15,821 | 13,774 | |||||||||
| March 31, 2010 | 2,424 | 15,463 | 13,039 | |||||||||
| December 31, 2009 | 2,188 | 15,309 | 13,121 | |||||||||
| September 30, 2009 | 2,962 | 16,676 | 13,714 | |||||||||
| June 30, 2009 | 11,877 | 21,030 | 9,153 | |||||||||
| March 31, 2009 | 7,443 | 18,709 | 11,266 | |||||||||
|
| Average Five Day |
| Average Actual |
|
|
| |||
For the Quarters Ended |
| Requirement |
| Contingency Liquidity |
| Excess |
| |||
December 31, 2011 |
| $ | 1,397 |
| $ | 21,086 |
| $ | 19,689 |
|
September 30, 2011 |
| 2,481 |
| 19,781 |
| 17,300 |
| |||
June 30, 2011 |
| 2,880 |
| 18,245 |
| 15,365 |
| |||
March 31, 2011 |
| 3,024 |
| 17,586 |
| 14,562 |
| |||
December 31, 2010 |
| 2,239 |
| 15,289 |
| 13,050 |
| |||
September 30, 2010 |
| 1,967 |
| 14,859 |
| 12,892 |
| |||
June 30, 2010 |
| 2,047 |
| 15,821 |
| 13,774 |
| |||
March 31, 2010 |
| 2,424 |
| 15,463 |
| 13,039 |
| |||
The FHLBNY sets standards in itsour risk management policy that address itsour day-to-day operational and contingency liquidity needs. These standards enumerate the specific types of investments to be held by the FHLBNY to satisfy such liquidity needs and are outlined above. These standards also establish the methodology to be used by the FHLBNY in determining the FHLBNY’sour operational and contingency needs. ManagementWe continually monitorsmonitor and projects the FHLBNY’sproject our cash needs, daily debt issuance capacity, and the amount and value of investments available for use in the market for repurchase agreements. Management usesWe use this information to determine the FHLBNY’sour liquidity needs and to develop appropriate liquidity plans.
Advance “Roll-Off” and “Roll-Over” Liquidity guidelinesGuidelines.. In September 2009, the The Finance Agency finalized itsAgency’s Minimum Liquidity Requirement Guidelines. The guidelinesGuidelines expanded the existing liquidity requirements under Parts 917, 932 and 965 of the Finance Agency regulations to include additional cash flow requirements under two scenarios —scenarios: Advance “Roll-Over” and Roll-Off”“Roll-Off” scenarios. Each FHLBank, including the FHLBNY, must have positive cash balances to be able to maintain positive cash flows for 15 days under the Roll-Off scenario, and for five days under the Roll-Over scenario. The Roll-Off scenario assumes that advances maturing under their contractual terms would mature, and in that scenario the FHLBNYwe would maintain positive cash flows for a minimum of 5 days on a daily basis. The Roll-Over scenario assumes that the FHLBNY’sour maturing advances would be rolled over, and in that scenario the FHLBNYwe would maintain positive cash flows for a minimum of 15 days on a daily basis. The FHLBNY calculatesWe calculate the amount of cash flows under each scenario on a daily basis and hashave been in compliance with thethese guidelines.
Other Liquidity ContingenciesContingencies.. As discussed more fully under the section Debt Financing - Consolidated Obligations, the FHLBNY iswe are primarily liable for consolidated obligations issued on itsour behalf. The FHLBNY isWe are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks. If the principal or interest on any consolidated obligation issued on our behalf of the FHLBNY is not paid in full when due, the following rules apply: the FHLBNYwe may not pay dividends, to, redeem or repurchase shares of stock of any member or non-member stockholder until the Finance Agency approves the FHLBNY’sour consolidated obligation payment plan or other remedy and until the FHLBNY payswe pay all the interest or principal currently due on all itsour consolidated obligations. The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligations. The par amount of the outstanding consolidated obligations of all 12 FHLBanks was $0.8 trillion and $0.9 trillion at December 31, 2010 and 2009. The FHLBNY doesWe do not believe that itwe will be called upon to pay the consolidated obligations of another FHLBank in the future.
76
or fully guaranteed by, the United States; Secured advances; Mortgages that have any guaranty, insurance, or commitment from the United States or any agency of the United States; Investments described in section 16(a) of the FHLBank Act, including securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located; and Other securities that are rated “Aaa” by Moody’s or “AAA” by Standard & Poor’s.
Cash flows
Cash and due from banks was $10.9 billion at December 31, 2011, compared to $660.9 million at December 31, 2010, compared to $2.2 billion at December 31, 2009. Cash2010. Large cash balances were primarily maintained at the Federal Reserve BanksBank at those datesyear-end, and throughout the year, to avoid potential credit issues that may arise if invested in unsecured overnight deposits at other financial institutions. Generally, we maintain funds at the FRB for liquidity purposes for the Bank’sour members. The following discussion highlights the major activities and transactions that affected FHLBNY’sour cash flows in 2010 and 2009.flows. Also see Statements of Cash Flows to the audited financial statements accompany this MD&A.
Cash flows from operating activities
Our operating assets and liabilities support the Bank’sour lending activities to members. Operating assets and liabilities can vary significantly in the normal course of business due to the amount and timing of cash flows, which are affected by member drivenmember-driven borrowing, investment strategies and market conditions. Management believes cash flows from operations, available cash balances and the FHLBNY’sour ability to generate cash through the issuance of consolidated obligation bonds and discount notes are sufficient to fund the FHLBNY’sour operating liquidity needs.
Net cash used provided by operating activities was $701.9 million and $760.3 million mainlyin 2011 and 2010, compared to Net income of $244.5 million and $275.5 million in 2011 and 2010. Operating cash flow was driven by maturing advances to members that were not replaced as member borrowing activity declined in 2010. Net cash was provided by net income and from adjustments forby non-cash items such as the amount set aside for Affordable Housing Program, net changes in accrued interest receivable and payable, OTTI and other provisions for mortgage credit losses, depreciation and amortization.
Net cash generated from operating activities was higher than net income, largely as a result of adjustmentsreporting classification for cash flows from certain interest rate swaps that were characterized as operating cash in-flows because of the financing element of the interest rate swaps. In 2008, we executed interest rate swaps, which at inception of the contracts included off-market terms, or required up-front cash exchanges. Such terms are considered to be financing elements, under accounting rules which required us to report all cash outflows associated with the contracts as cash outflows from financing activities ($374.6 million and $440.0 million in addition to non-cash items.
Cash flows from investing activities
Our investing activities predominantly includewere the advances originated to be held for portfolio, the AFS and HTM securitiesinvestment portfolios and other short-term interest-earning assets. In 2010,2011, investing activities provided net cash of $12.4 billion, compared to $12.9 billion.billion in 2010. This resulted primarily from decreases in advances borrowed by members.
Short-term Borrowings and Short-term Debt.TheOur primary source of fund, as discussed under the section Debt Financing Activity and Consolidation Obligation bonds and discount notes, in this MD&Afunds is the issuance of FHLBank debt to the public. Consolidated obligation discount notes are issued with maturities up to one year and provide the FHLBNYus with short-term funds. Discount notes are principally used in funding short-term advances, some long-term advances, as well as money market instruments. The FHLBNYWe also issuesissue short-term consolidated obligation bonds as part of itsour asset-liability management strategy. The FHLBNYWe may also borrow from another FHLBanks,FHLBank, generally for a period of one day. Such borrowings have been insignificant historically.
The following table summarizes short-term debt and their key characteristics (dollars in thousands):
| Consolidated Obligations- | ||||||||||||||||
| Consolidated Obligations- | Bonds With Original | |||||||||||||||
| Discount Notes | Maturities of One Year or Less | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
Outstanding at end of the period1 | $ | 19,391,452 | $ | 30,827,639 | $ | 12,410,000 | $ | 17,988,000 | ||||||||
Weighted-average rate at end of the period2 | 0.16 | % | 0.15 | % | 0.22 | % | 0.55 | % | ||||||||
Daily average outstanding for the period1 | $ | 21,727,968 | $ | 41,495,955 | $ | 12,266,929 | $ | 16,304,295 | ||||||||
Weighted-average rate for the period2 | 0.19 | % | 0.47 | % | 0.39 | % | 0.94 | % | ||||||||
Highest outstanding at any month-end1 | $ | 27,480,949 | $ | 52,040,392 | $ | 17,538,000 | $ | 22,224,600 | ||||||||
77
|
| Consolidated Obligations-Discount Notes |
| Consolidated Obligations-Bonds With Original |
| ||||||||
|
| December 31, |
| December 31, |
| ||||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Outstanding at end of the period (a) |
| $ | 22,123,325 |
| $ | 19,391,452 |
| $ | 15,125,000 |
| $ | 12,410,000 |
|
Weighted-average rate at end of the period |
| 0.07 | % | 0.16 | % | 0.16 | % | 0.22 | % | ||||
Average outstanding for the period (a) |
| $ | 24,093,700 |
| $ | 21,727,968 |
| $ | 14,456,667 | (b) | $ | 12,266,929 |
|
Weighted-average rate for the period |
| 0.08 | % | 0.19 | % | 0.23 | % | 0.39 | % | ||||
Highest outstanding at any month-end (a) |
| $ | 27,015,724 |
| $ | 27,480,949 |
| $ | 17,725,000 |
| $ | 17,538,000 |
|
(a) Outstanding balances represent the carrying value of discount notes and par value of bonds (one year or less) issued and outstanding at the reported dates.
(b) The amount represents the monthly average par value outstanding balance for the year ended December 31, 2011.
Leverage Limits and Unpledged Asset Requirements
Finance Agency regulations require the FHLBanks to maintain, in the aggregate, unpledged qualifying assets equal to the consolidated obligations outstanding. Qualifying assets are defined as cash; secured advances; assets with an assessment or rating at least equivalent to the current assessment or rating of the consolidated obligations; obligations, participations, mortgages or other securities of or issued by the United States or an agency of the United States; and such securities in which fiduciary and trust funds may invest under the laws of the state in which the FHLBank is
located. We met the Finance Agency’s requirement that unpledged assets, as defined under regulations, exceed the total of consolidated obligations at all periods in this report as follows (in thousands):
Table 9.59.5::Unpledged Assets
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
Consolidated Obligations: |
|
|
|
|
| ||
Bonds |
| $ | 67,440,522 |
| $ | 71,742,627 |
|
Discount Notes |
| 22,123,325 |
| 19,391,452 |
| ||
|
|
|
|
|
| ||
Total consolidated obligations |
| 89,563,847 |
| 91,134,079 |
| ||
|
|
|
|
|
| ||
Unpledged assets |
|
|
|
|
| ||
Cash |
| 10,877,790 |
| 660,873 |
| ||
Less: Member pass-through reserves at the FRB |
| (69,555 | ) | (49,484 | ) | ||
Secured Advances |
| 70,863,777 |
| 81,200,336 |
| ||
Investments (a) |
| 14,236,633 |
| 16,739,386 |
| ||
Mortgage loans |
| 1,408,460 |
| 1,265,804 |
| ||
Accrued interest receivable on advances and investments |
| 223,848 |
| 287,335 |
| ||
Less: Pledged Assets |
| (2,003 | ) | (2,748 | ) | ||
|
|
|
|
|
| ||
Total unpledged assets |
| 97,538,950 |
| 100,101,502 |
| ||
Excess unpledged assets |
| $ | 7,975,103 |
| $ | 8,967,423 |
|
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Consolidated Obligations: | ||||||||
| Bonds | $ | 71,742,627 | $ | 74,007,978 | ||||
| Discount Notes | 19,391,452 | 30,827,639 | ||||||
| Total consolidated obligations | 91,134,079 | 104,835,617 | ||||||
| Unpledged assets | ||||||||
| Cash | 660,873 | 2,189,252 | ||||||
| Less: Member pass-through reserves at the FRB | (49,484 | ) | (29,331 | ) | ||||
Secured Advances 2 | 81,200,336 | 94,348,751 | ||||||
Investments1 | 16,739,386 | 16,222,615 | ||||||
| Mortgage loans | 1,265,804 | 1,317,547 | ||||||
| Accrued interest receivable on advances and investments | 287,335 | 340,510 | ||||||
| Less: Pledged Assets | (2,748 | ) | (2,045 | ) | ||||
| 100,101,502 | 114,387,299 | |||||||
Excess unpledged assets | $ | 8,967,423 | $ | 9,551,682 | ||||
(a)The Bank pledged $2.0 million and $2.7 million at December 31, 2011 and 2010 to the FDIC. See Note 4 — Held-to-Maturity Securities.
Purchases of MBS.Finance Agency investment regulations limit the purchase of mortgage-backed securities to 300% of capital. The FHLBNY wasWe were in compliance with the regulation at all times.
Table 9.6: FHFA MBS Limits
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Actual | Limits | Actual | Limits | |||||||||||||
| Mortgage securities investment authority | 215 | % | 300 | % | 213 | % | 300 | % | ||||||||
|
| December 31, |
| ||||||
|
| 2011 |
| 2010 |
| ||||
|
| Actual |
| Limits |
| Actual |
| Limits |
|
|
|
|
|
|
|
|
|
|
|
Mortgage securities investment authority |
| 240 | % | 300 | % | 215 | % | 300 | % |
78
The following section provides a comparative discussion of the FHLBNY’sour results of operations for the three years ended December 31, 2010.2011. For a discussion of the Criticalsignificant accounting estimates we used by the FHLBNY that affect the results of our operations, see section in the MD&A captioned Significant Accounting Policies and Estimates.
Net Income
Interest income from advances is the principal source of revenue. The primary expenses are interest paid on consolidated obligations debt, operating expenses, principally administrative and overhead expenses, and “assessments”assessments on netNet income. The FHLBNY is exempt from ordinary federal, state, and local taxation except for local real estate tax. It is required to make payments to REFCORP and set aside funds from its income towards an Affordable Housing Program (“AHP”), together referred to as assessments. Other significant factors affecting the Bank’sour Net income include the volume and timing of investments in mortgage-backed securities, losses from debt repurchases, and associated losses, gains and losses from derivatives and hedging activities and earnings from investing our shareholders’ capital.
Summarized below are the principal components of Net income (in thousands):
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Total interest income | $ | 1,078,608 | $ | 1,857,687 | $ | 4,058,879 | ||||||
| Total interest expense | 622,824 | 1,157,079 | 3,364,381 | |||||||||
Net interest income before provision for credit losses | 455,784 | 700,608 | 694,498 | |||||||||
| Provision for credit losses on mortgage loans | 1,409 | 3,108 | 773 | |||||||||
Net interest income after provision for credit losses | 454,375 | 697,500 | 693,725 | |||||||||
| Total other income (loss) | 16,541 | 164,370 | (267,459 | ) | ||||||||
| Total other expenses | 95,415 | 84,175 | 72,658 | |||||||||
Income before assessments | 375,501 | 777,695 | 353,608 | |||||||||
| Total assessments | 99,976 | 206,940 | 94,548 | |||||||||
Net income | $ | 275,525 | $ | 570,755 | $ | 259,060 | ||||||
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Total interest income |
| $ | 886,494 |
| $ | 1,078,608 |
| $ | 1,857,687 |
|
Total interest expense |
| 444,579 |
| 622,824 |
| 1,157,079 |
| |||
Net interest income before provision for credit losses |
| 441,915 |
| 455,784 |
| 700,608 |
| |||
Provision for credit losses on mortgage loans |
| 3,153 |
| 1,409 |
| 3,108 |
| |||
Net interest income after provision for credit losses |
| 438,762 |
| 454,375 |
| 697,500 |
| |||
Total other income (loss) |
| (13,832 | ) | 16,541 |
| 164,370 |
| |||
Total other expenses |
| 122,307 |
| 95,415 |
| 84,175 |
| |||
Income before assessments |
| 302,623 |
| 375,501 |
| 777,695 |
| |||
Total assessments |
| 58,137 |
| 99,976 |
| 206,940 |
| |||
Net income |
| $ | 244,486 |
| $ | 275,525 |
| $ | 570,755 |
|
Net income —2011 compared to 2010
The 2011 Net income was $244.5 million, compared with $275.5 million in 2010. Net interest income was lower primarily due to lower Interest income from advances and investments. While cost of funding has declined in the lower interest rate environment, the yields from interest bearing assets have declined even more sharply. Advance
volume, as measured by average outstanding balance, contracted in 2011, also contributing to lower Net interest income.
Net interest income, the primary component of Net income, was $441.9 million, down from $455.8 million in 2010. Net interest income in 2011 benefited from $109.2 million in net prepayment fees from advances. Prepayment fees recorded in Net interest income were net of settlement of fair value of the prepaid advances. Net interest income was reduced by $66.8 million due to amortization of fair value basis of $5.0 billion of hedged modified advances, of which $4.6 billion were modified in 2011. The amortization adjusts the reported yields by including the fair value basis at the modification dates. An equivalent amortization is recorded as hedging gains in Other income as a net realized and unrealized gain from derivative and hedging activities, because the hedging instrument (interest rate swap) is also modified. Taken together, the amortization had no impact on 2011 Net Income.
Other Income was a loss of $13.8 million in contrast to a gain of $16.5 million in 2010.
·We bought back our own debt and took a charge of $86.5 million. High-costing debt was re-purchased to re-align the balance sheet and maintain leverage in line with advances, after significant member initiated advance prepayments in the first and fourth quarters of 2011.
·Derivative and hedging gains contributed $16.7 million in 2011, compared to $26.8 million in 2010, representing hedge ineffectiveness. Amounts included ineffectiveness from qualifying hedges, changes in fair values of derivatives designated as standalone (economic hedges), as well as the net interest accruals of derivatives designated as economic hedges.
·Amortization gains of $66.8 million were also recorded in 2011. When we enter into an agreement with a member to modify the terms of an existing advance, and if the new advance qualifies as a modification of the existing hedged advance, the hedging fair value adjustments of the derivatives are amortized over the duration of the derivatives.
·Fair value changes of consolidated obligation debt designated under the FVO reported losses of $10.5 million in 2011, compared with losses of $3.3 million in 2010. Fair value losses are unrealized and will reverse over time. Unfavorable changes were primarily attributable to the strong credit quality of FHLBank debt driving market yields lower and driving down the fair values of existing debt that had been issued at higher coupons.
·OTTI charges were $5.6 million in the current year, compared to $8.3 million in 2010.
Operating expenses grew in 2011 primarily due to cash contribution of $24.0 million to improve the funded status of the Defined Benefit Pension plan. Compensation and benefits, and payments to the Finance Agency and the Office of Finance were also higher.
Assessments were lower in 2011, benefitting from the cessation of REFCORP assessment on June 30, 2011, when the 12 FHLBanks had fully satisfied their obligation to REFCORP and no further payments were required. As a result, REFCORP payments charged to earnings were only $30.7 million in 2011, compared to $68.9 million in 2010.
Net income 2010 compared to 2009.2009
Reported 2010 Net income ofwas $275.5 million, or $5.86 per share, compared with 2009 Net income of $570.8 million, or $10.88 per share. Net income was after the deduction of AHP and until June 30, 2011, after the deduction of REFCORP assessments, which are a fixed percentage of the FHLBNY’s pre-assessment income.
Net interest income, a key metric for the FHLBNY and the primary contributor to Net income was adversely affected in 2010 by a number of factors. Net interest income in 2010 was $455.8 million, down $244.8 million from 2009, and was the primary cause of the decline in Net income. 2010 Net interest income was impacted by higherThe cost of debt was higher, and lower advance business volume.volume was lower. Advance volume as measured by average outstanding balances was $85.9 billion in 2010 compared to $99.0 billion in 2009. The higher cost of debt was upimpacted net interest margin, and Net interest spread declined by 12 basis points in 2010.
Net income included net gains from derivatives and hedging activities ofwas $26.8 million in a less volatile interest rate environment in 2010, in contrast to net gains of $164.7 million in 2009. Three factors contributed to the lower level of P&L impact of derivative and hedging activities in 2010: (1) the 3-month LIBOR rate, a benchmark rate for the Bank’s hedges, was less volatile in 2010, moderating the P&L impact of changes in fair values of interest rate swaps, particularly those designated as economic hedges, (2) interest rate caps, also designated as economic hedges, reported fair value losses of $29.7 million in a declining interest rate environment, in contrast to a gain of $63.3 million in 2009, and (3) previously recorded fair value gains reversed in 2010 as much of the derivatives designated as economic hedges matured or were close to maturity at December 31, 2010.
79
In 2010, credit relatedcredit-related OTTI charged to income was $8.3 million, compared to $20.8 million in 2009. The OTTI charges were primarily as athe result of additional credit losses recognized on previously impaired private-label mortgage-backed securities because of further deterioration in the performance parameters of the securities. The non-credit portion of OTTI recorded in AOCI was not significant, primarily because the market values of the securities were generally in excess of their recorded carrying values and no additional significant non-credit losses were identified. In 2009, the non-credit portion of OTTI recorded in AOCI was $120.1 million.
Total Other expenses comprised of Operating expenses (the administrative and overhead costs of operating the Bank) and Assessments paid to the Finance Agency and the Office of finance, grew by $11.2 million to $95.4 million in 2010. Employee pension benefits, salary costs and Assessments were higher.
REFCORP assessments were $68.9 million in 2010, down $73.8 million from 2009. AHP assessments were $31.1 million in 2010, down $33.2 million from 2009. REFCORP and AHP assessments arewere calculated on Net income before assessments and the decreases were due to lower Net income in 2010.
Net income — 2009 compared to 2008.
Reported Interest income and Interest expense includes the accruals from interest rate swaps associated with advances and debt that are hedged under qualifying hedges. Tables 10.3 and 10.5 provide more information about the impact of derivatives.
In order to manage our interest rate risk profile, we routinely use derivatives to manage the interest rate risk inherent in our assets and liabilities. We will typically attempt to hedge an advance or consolidated obligation debt under hedge qualifying rules. Hedge ineffectiveness, the difference between changes in the fair value of the interest rate swap and the hedged advance or debt, will not be significant because under our conservative hedging policies, the terms of the derivatives very closely match the terms of the hedged debt or advance. When it is operationally difficult to qualify for hedge accounting or when the hedge cannot be assured to be highly effective, we will economically hedge an advance or debt with an interest-rate derivative. Such hedges make us economically hedged but result in P&L volatility, because changes in the fair values of the derivatives are not offset by offsetting changes in the fair values of hedged advances and debt. In a volatile interest rate environment, the P&L marked-to-market volatility from economic hedges can be significant. Also, in the course of a derivative’s existence, the derivative loses all of its fair value (gains or losses) if it is held to maturity or to its put/call exercise dates, and can be a source of P&L volatility. In general, we hold derivatives and their associated hedged instruments, including consolidated obligation bonds,debt at fair values under the FVO, to the maturity, call or put dates. Fair value gains and (2)losses would move in parallel with changes in interest rate caps designated in economic hedges of certain GSE issued capped floating-rate MBS, and (3) reversal of previously recorded fair value hedging losses.
80
Table 10.2:Interest Income — Principal Sources
|
|
|
|
|
|
|
| Percentage |
| Percentage |
| |||
|
| Years ended December 31, |
| Variance |
| Variance |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| 2011 |
| 2010 |
| |||
Interest Income |
|
|
|
|
|
|
|
|
|
|
| |||
Advances (a) |
| $ | 504,118 |
| $ | 614,801 |
| $ | 1,270,643 |
| (18.00 | )% | (51.61 | )% |
Interest-bearing deposits (b) |
| 2,834 |
| 5,461 |
| 19,865 |
| (48.10 | ) | (72.51 | ) | |||
Federal funds sold |
| 6,746 |
| 9,061 |
| 3,238 |
| (25.55 | ) | NM |
| |||
Available-for-sale securities |
| 30,248 |
| 31,465 |
| 28,842 |
| (3.87 | ) | 9.09 |
| |||
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
| |||
Long-term securities |
| 279,602 |
| 352,398 |
| 461,491 |
| (20.66 | ) | (23.64 | ) | |||
Certificates of deposit |
| — |
| — |
| 1,626 |
| NM |
| NM |
| |||
Mortgage loans held-for-portfolio |
| 62,942 |
| 65,422 |
| 71,980 |
| (3.79 | ) | (9.11 | ) | |||
Loans to other FHLBanks and other |
| 4 |
| — |
| 2 |
| NM |
| NM |
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Total interest income (c) |
| $ | 886,494 |
| $ | 1,078,608 |
| $ | 1,857,687 |
| (17.81 | )% | (41.94 | )% |
| Percentage | Percentage | |||||||||||||||||||
| Years ended December 31, | Variance | Variance | ||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | ||||||||||||||||
Interest Income | ||||||||||||||||||||
| Advances | $ | 614,801 | $ | 1,270,643 | $ | 3,030,799 | (51.61 | )% | (58.08 | )% | ||||||||||
Interest-bearing deposits1 | — | 19,865 | 28,012 | (100.00 | ) | (29.08 | ) | |||||||||||||
| Federal funds sold | 9,061 | 3,238 | 77,976 | 179.82 | (95.85 | ) | ||||||||||||||
| Available-for-sale securities | 31,465 | 28,842 | 80,746 | 9.09 | (64.28 | ) | ||||||||||||||
| Held-to-maturity securities | ||||||||||||||||||||
| Long-term securities | 352,398 | 461,491 | 531,151 | (23.64 | ) | (13.11 | ) | |||||||||||||
| Certificates of deposit | — | 1,626 | 232,300 | (100.00 | ) | (99.30 | ) | |||||||||||||
| Mortgage loans held-for-portfolio | 65,422 | 71,980 | 77,862 | (9.11 | ) | (7.55 | ) | |||||||||||||
| Loans to other FHLBanks and other | — | 2 | 33 | (100.00 | ) | (93.94 | ) | |||||||||||||
Total interest income | $ | 1,073,147 | $ | 1,857,687 | $ | 4,058,879 | (42.23 | )% | (54.23 | )% | ||||||||||
(a) | Reported Interest income from advances was adjusted for the cash flows associated with interest rate swaps in qualifying hedging relationships. We generally pay fixed-rate cash flows to derivative counterparties, and in exchange, we receive variable-rate LIBOR-indexed cash flows. Significant prepayments in 2011 resulted in $109.2 million in advance prepayment fees added to interest income. Fees were after settling the fair value basis of prepaid hedged advances. Interest income was reduced by $66.8 million due to amortization of fair value basis of modified advances (as a yield adjustment). The comparable amortization was not significant in 2010 or 2009. | |
(b) | Primarily from cash collateral deposited with swap counterparties. Cash collateral posted is netted within Derivative liabilities in the Statements of Condition. | |
(c) | Interest income has declined in each year relative to the prior year. The primary causes were (1) lower coupons and yields from advances and investments in a declining interest rate environment, (2) lower volume of advance business, and (3) run-offs of higher yielding assets which were being replaced by assets with lower coupons. See Rate and Volume Analysis for more information. |
NM — not meaningful.
Impact of hedging advances— The FHLBNY executesWe execute interest rate swaps to modify the effective interest rate terms of many of itsour fixed-rate advance products and typically all of itsour putable advances. In these swaps, the FHLBNYwe effectively convertsconvert a fixed-rate stream of cash flows from its fixed-rate advances to a floating-rate stream of cash flows, typically indexed to LIBOR. These cash flow patterns from derivatives in the periods reported were in line with the Bank’sour interest rate risk management practices and effectively convertedachieved our goal of converting fixed-rate cash flows of hedged advances to LIBOR-indexed cash flows. Derivative strategies are used to manage the interest rate risk inherent in fixed-rate advances and are designed to protect future interest income.
The table below summarizes interest income earned from advances and the impact of interest rate derivatives (in thousands):
Table 10.3:Impact of Interest Rate Swaps on Interest Income Earned from Advances
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
Advance Interest Income |
|
|
|
|
|
|
| |||
Advance interest income before adjustment for interest rate swaps |
| $ | 2,120,419 |
| $ | 2,614,154 |
| $ | 3,062,649 |
|
Net interest adjustment from interest rate swaps (a), (b) |
| (1,616,301 | ) | (1,999,353 | ) | (1,792,006 | ) | |||
Total Advance interest income reported |
| $ | 504,118 |
| $ | 614,801 |
| $ | 1,270,643 |
|
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Advance Interest Income | ||||||||||||
| Advance interest income before adjustment for interest rate swaps | $ | 2,614,154 | $ | 3,062,649 | $ | 3,483,979 | ||||||
Net interest adjustment from interest rate swaps1 | (1,999,353 | ) | (1,792,006 | ) | (453,180 | ) | ||||||
Total Advance interest income reported | $ | 614,801 | $ | 1,270,643 | $ | 3,030,799 | ||||||
(a) | The unfavorable cash flow patterns of the interest rate swaps were indicative of the lower LIBOR rates (obligation of the swap counterparty) compared to our obligation to pay out fixed-rate cash flows, which have been higher than LIBOR cash in-flows. We are generally indifferent to changes in the cash flow patterns as we also hedge our fixed-rate consolidated obligation debt, which is our primary funding base, and two hedge strategies together achieve our management’s overall net interest spread objective. LIBOR was higher in 2011 than in 2010 and contributed to less adverse cash out flow - $1.6 billion in 2011, down from $2.0 billion in 2010. | |
(b) | Under our accounting policy, net interest adjustments from derivatives (as described in the table above) may be offset against the net interest accruals of the hedged financial instrument (e.g. advance) only if the derivative is in a hedge-qualifying relationship. If the hedge does not qualify under hedge accounting rules, and our management designates the hedge as an economic hedge, the net interest adjustments from derivatives would not be recorded with the advance interest revenues. Instead, the net interest adjustments from swaps would be recorded in Other income (loss) as a Net realized and unrealized gain (loss) from derivatives and hedging activities. Thus, the accounting designation of a hedge may have a significant impact on reported Interest |
81
The principal categories of Interest Expenseexpense are summarized by year below (dollars in thousands). Changes in rate and intermediation volume (average interest-costing liabilities), the mix of debt issuances between bonds and discount notes, and the impact of hedging strategies explain the changes in interest expense.
Table 10.4:Interest Expenses —- Principal Categories
|
|
|
|
|
|
|
| Percentage |
| Percentage |
| |||
|
| Years ended December 31, |
| Variance |
| Variance |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| 2011 |
| 2010 |
| |||
Interest Expense |
|
|
|
|
|
|
|
|
|
|
| |||
Consolidated obligations-bonds (a) |
| $ | 406,166 |
| $ | 572,730 |
| $ | 953,970 |
| (29.08 | )% | (39.96 | )% |
Consolidated obligations-discount notes |
| 34,704 |
| 42,237 |
| 193,041 |
| (17.84 | ) | (78.12 | ) | |||
Deposits |
| 1,243 |
| 3,502 |
| 2,512 |
| (64.51 | ) | 39.41 |
| |||
Mandatorily redeemable capital stock |
| 2,384 |
| 4,329 |
| 7,507 |
| (44.93 | ) | (42.33 | ) | |||
Cash collateral held and other borrowings |
| 82 |
| 26 |
| 49 |
| 215.38 |
| (46.94 | ) | |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Total interest expense (b) |
| $ | 444,579 |
| $ | 622,824 |
| $ | 1,157,079 |
| (28.62 | )% | (46.17 | )% |
| Percentage | Percentage | |||||||||||||||||||
| Years ended December 31, | Variance | Variance | ||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | ||||||||||||||||
Interest Expense | ||||||||||||||||||||
| Consolidated obligations-bonds | $ | 572,730 | $ | 953,970 | $ | 2,620,431 | (39.96 | )% | (63.59 | )% | ||||||||||
| Consolidated obligations-discount notes | 42,237 | 193,041 | 697,729 | (78.12 | ) | (72.33 | ) | |||||||||||||
| Deposits | 3,502 | 2,512 | 36,193 | 39.41 | (93.06 | ) | ||||||||||||||
| Mandatorily redeemable capital stock | 4,329 | 7,507 | 8,984 | (42.33 | ) | (16.44 | ) | |||||||||||||
| Cash collateral held and other borrowings | 26 | 49 | 1,044 | (46.94 | ) | (95.31 | ) | |||||||||||||
Total interest expense | $ | 622,824 | $ | 1,157,079 | $ | 3,364,381 | (46.17 | )% | (65.61 | )% | ||||||||||
(a) | Reported Interest expense from consolidated obligation bonds and discount notes were adjusted for the cash flows associated with interest rate swaps in qualifying hedging relationships. We generally pay variable-rate LIBOR-indexed cash flows to derivative counterparties and, in exchange, we receive fixed-rate cash flows, which typically mirror the fixed-rate coupon payments to investors holding the FHLBank bonds. |
(b) | Reported Interest expense in each year has declined relative to the prior year because of (1) lower cost of coupons paid on consolidated obligation bonds and discount notes, and (2) lower volume of debt issued because of decline in funding requirements as balance sheet assets declined, specifically advances borrowed by members. See Rate and Volume Analysis for more information. |
Impact of hedging debt—The FHLBNY issues We issue both fixed-rate callable and non-callable debt. Typically, the Bank issues callable debt is issued with the simultaneous execution of cancellable interest rate swaps to modify the effective interest rate terms and the effective durations of itsour fixed-rate callable debt. A substantial percentage of non-callable fixed-rate debt is also swapped to “plain vanilla” LIBOR-indexed cash flows. These hedging strategies benefit the Bankus in two principal ways: (1)ways. First, fixed-rate callable bond, in conjunction with interest rate swap containing a call feature that mirrors the option embedded in the callable bond, enables the FHLBNYus to meet itsour funding needs at yields not otherwise directly attainable through the issuance of callable debt; and, (2)debt. Second, the issuanceissuances of fixed-rate debt and the simultaneous execution of an interest rate swap convertsswaps convert the debt to an adjustable-rate instrument tied to an index, typically 3-month LIBOR.LIBOR, which is our preferred funding rate. Derivative strategies are used to manage the interest rate risk inherent in fixed-rate debt, and certain floating-rate debt that areis not indexed to 3-month LIBOR rates. The strategies are designed to protect future interest income. The economic hedge of debt tied to indices other than 3-month LIBOR (Prime, Federal funds rate, and 1-month LIBOR) is designed to effectively convert the cash flows of the debt to 3-month LIBOR.
Table 10.5: Impact of Interest Rate Swaps on Consolidated Obligation Interest Expense
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
Consolidated bonds and discount notes-Interest expense |
|
|
|
|
|
|
| |||
Bonds-Interest expense before adjustment for swaps |
| $ | 887,338 |
| $ | 1,203,208 |
| $ | 1,513,617 |
|
Discount notes-Interest expense before adjustment for swaps |
| 23,350 |
| 42,237 |
| 193,041 |
| |||
Net interest adjustment for interest rate swaps (a), (b) |
| (469,818 | ) | (630,478 | ) | (559,647 | ) | |||
Total Consolidated bonds and discount notes-interest expense reported |
| $ | 440,870 |
| $ | 614,967 |
| $ | 1,147,011 |
|
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Consolidated bonds and discount notes-Interest expense | ||||||||||||
| Bonds-Interest expense before adjustment for swaps | $ | 1,203,208 | $ | 1,513,617 | $ | 2,958,518 | ||||||
| Discount notes-Interest expense before adjustment for swaps | 42,237 | 193,041 | 697,729 | |||||||||
Net interest adjustment for interest rate swaps1 | (630,478 | ) | (559,647 | ) | (338,087 | ) | ||||||
Total Consolidated bonds and discount notes-interest expense reported | $ | 614,967 | $ | 1,147,011 | $ | 3,318,160 | ||||||
(a) | The favorable cash flow patterns of the interest rate swaps were indicative of LIBOR rates (our obligation to pay the swap counterparty) being less than the counterparty’s obligation to pay us the higher fixed rates. We are generally indifferent to changes in the cash flow patterns as we typically hedge our fixed-rate advances borrowed by member to meet our overall net interest spread objective. Decline in the net cash from interest rate swaps was mainly because of lower volume of hedged debt. In addition, LIBOR was higher in 2011 than in 2010. Taken together, the factors contributed to reduction in cash flows received from swap counterparties - $469.8 million, down from $630.5 million in 2010. | |
(b) | Net interest adjustments from derivatives (as described in the table above) may be offset against the net interest accruals of the hedged financial instrument (e.g. bonds and discount notes) only if the derivative is in a hedge-qualifying relationship. If the hedge does not qualify under hedge accounting rules, and our management designates the hedge as an economic hedge, the net interest adjustments from derivatives would not be recorded together with the interest expense on debt. Instead, the net interest adjustments from swaps would be recorded in Other income (loss) as a Net realized and unrealized gain (loss) from derivatives and hedging activities. Thus, the accounting designation of a hedge may have a significant impact on reported Interest |
Net Interest Income
The following table summarizes Net interest income (dollars in thousands):
Table 10.6:Net Interest Income
|
|
|
|
|
|
|
| Percentage |
| Percentage |
| |||
|
| Years ended December 31, |
| Variance |
| Variance |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| 2011 |
| 2010 |
| |||
Total interest income |
| $ | 886,494 |
| $ | 1,078,608 |
| $ | 1,857,687 |
| (17.81 | )% | (41.94 | )% |
Total interest expense |
| 444,579 |
| 622,824 |
| 1,157,079 |
| (28.62 | ) | (46.17 | ) | |||
Net interest income before provision for credit losses |
| $ | 441,915 |
| $ | 455,784 |
| $ | 700,608 |
| (3.04 | )% | (34.94 | )% |
Net interest income is theour principal source of revenue, for the Bank, and represents the difference between interest income from interest-earning assets, and interest expense paidaccrued on interest-costing liabilities. Net interest income is impacted by a variety of factors:
| December 31, | Percentage | Percentage | ||||||||||||||||||
| 2010 | 2009 | 2008 | Variance 2010 | Variance 2009 | ||||||||||||||||
| Total interest income | $ | 1,078,608 | $ | 1,857,687 | $ | 4,058,879 | (41.94 | )% | (54.23 | )% | ||||||||||
| Total interest expense | 622,824 | 1,157,079 | 3,364,381 | (46.17 | ) | (65.61 | ) | |||||||||||||
Net interest income before provision for credit losses | $ | 455,784 | $ | 700,608 | $ | 694,498 | (34.94 | )% | 0.88 | % | ||||||||||
Net interest spread, the difference between yields earned on interest-earning assets and yields paid on interest-costing liabilities, was 41 basis points in 2011, up from 37 basis points in 2010 but down from 49 basis points in 2009. Interest spread in 2011 benefited from $109.2 million in net prepayment fees recorded as a component of Net interest income. Net interest spread was reduced by $66.8 million due to amortization of fair value basis of modified advances. Without the impact on Net interest income a key metric for the FHLBNYfrom prepayments and modifications, net interest spread would have been slightly lower in 2011, relative to 2010. Interest spread in 2009 benefited from lower cost of funds, and higher yielding advance products which have since been prepaid or modified, and also benefited from higher yielding investments.
Although LIBOR rates have risen in 2011, those rates are still quite low relative to their historical levels, and the primary contributor to Net income, was adversely affected in 2010 and contracted to levels more typical of the years before 2009, primarily because of (1) lower business volume as measured by average advances borrowed by members, and (2) the Bank’s funding advantage experienced in 2009 weakened in 2010.
83
Impact of lower interest income from investing member capital —The FHLBNY earns significant We earn interest income from investing itsour members’ capital to fund interest-earning assets. Such earnings are sensitive to the changes in short-term interest rates (Rate effects), and to changes in the average outstanding capital and non-interest bearing liabilities (Volume effects). In 2010, the FHLBNY2011, we earned less interest income from investing members’ capital and net non-interest assets compared to 2009. The primary cause2010. This was caused by the decline in stockholdersaverage stockholders’ capital stock, which has declined in parallel with the lower volume of advances borrowed by members. As capital declines, the FHLBNY haswe have lower amounts of deployed capital to invest and enhance interest income. Typically, members’ capital is invested in short-term liquid investments, and the Bankwe earned lower
very low income because of verymuch lower yields in 2010, relative to 2009.yields. For more information, see Table 10.9: Spread and Yield Analysis and Table 10.10: Rate and Volume Analysis.
Impact of qualifying hedges on Net interest income— The Bank deploysWe deploy hedging strategies to protect future net interest income that may reduce income in the short-term. Net interest accruals of derivatives designated in a fair value or cash flow hedge qualifyingthat qualify under hedge accounting rules, are recorded as adjustments to the interest income or interest expense of theassociated with hedged assets or liabilities. They can have a significant impact on Net interest income. On a GAAP basis,income because of the presentation in the interest accruals in the Income statement, although they have no impact of derivatives was to reduce reported 2010on Net interest income by $1.4 billion. For more information, see the table below.
84
Table 10.7:Net Interest Adjustments from Hedge Qualifying Interest-Rate Swaps
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Interest Income |
| $ | 2,502,795 |
| $ | 3,077,961 |
| $ | 3,649,693 |
|
Net interest adjustment from interest rate swaps (a) |
| (1,616,301 | ) | (1,999,353 | ) | (1,792,006 | ) | |||
Reported interest income |
| 886,494 |
| 1,078,608 |
| 1,857,687 |
| |||
|
|
|
|
|
|
|
| |||
Interest Expense |
| 914,397 |
| 1,253,302 |
| 1,716,726 |
| |||
Net interest adjustment from interest rate swaps (b) |
| (469,818 | ) | (630,478 | ) | (559,647 | ) | |||
Reported interest expense |
| 444,579 |
| 622,824 |
| 1,157,079 |
| |||
|
|
|
|
|
|
|
| |||
Net interest income (Margin) (c) |
| $ | 441,915 |
| $ | 455,784 |
| $ | 700,608 |
|
|
|
|
|
|
|
|
| |||
Net interest adjustment - interest rate swaps |
| $ | (1,146,483 | ) | $ | (1,368,875 | ) | $ | (1,232,359 | ) |
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Interest Income | $ | 3,077,961 | $ | 3,649,693 | $ | 4,512,059 | ||||||
| Net interest adjustment from interest rate swaps | (1,999,353 | ) | (1,792,006 | ) | (453,180 | ) | ||||||
Reported interest income | 1,078,608 | 1,857,687 | 4,058,879 | |||||||||
Interest Expense | 1,253,302 | 1,716,726 | 3,702,468 | |||||||||
| Net interest adjustment from interest rate swaps | (630,478 | ) | (559,647 | ) | (338,087 | ) | ||||||
Reported interest expense | 622,824 | 1,157,079 | 3,364,381 | |||||||||
Net interest income (Margin) | $ | 455,784 | $ | 700,608 | $ | 694,498 | ||||||
Net interest adjustment — interest rate swaps | $ | (1,368,875 | ) | $ | (1,232,359 | ) | $ | (115,093 | ) | |||
(a) | ||
| ||
(b) | In a hedge of a fixed-rate consolidated obligation debt, we pay the swap dealer LIBOR-indexed interest | |
(c) | In aggregate, we paid swap counterparties greater amounts of interest than we received from dealers, because the interest exchanges with the swap dealer have been such that the hedges of fixed-rate advances resulted in significantly greater amounts of cash out-flows than the cash in-flows from hedges of fixed-rate consolidated obligation debt. As reported in the table above, the unfavorable cash flow patterns of the interest rate swaps were indicative of the lower LIBOR rates (obligation of the swap counterparty) compared to our fixed-rate obligation. We are generally indifferent to changes in the cash flow patterns, as they achieve our overall net interest spread objective and we remain indifferent for the most part to the volatility of interest rates. | |
Impact of economic hedges on Net interest income 2010, 2009 and 2008——The FHLBNY executesWe designate certain derivative transactions designated as economic hedges, primarily as hedges of FHLBNYthe FHLBank debt. Under existing accounting rules, the interest income or expense generated from the derivatives designated as economic hedges areis not reported as a component of Net interest income, although they have an economic impact on Net interest income. Under GAAP, interestInterest income or expense from such derivatives areis recorded as derivative gains and losses in Other income (loss).
85
Table 10.8:GAAP Versus Economic Basis(b) — Contrasting Net Interest Income, Net Income Spread and Return on Earning Assets
|
| Years ended December 31, |
| |||||||||||||||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||||||||||||||
|
| Amount |
| ROA |
| Net Spread |
| Amount |
| ROA |
| Net Spread |
| Amount |
| ROA |
| Net Spread |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
GAAP net interest income |
| $ | 441,915 |
| 0.44 | % | 0.41 | % | $ | 455,784 |
| 0.42 | % | 0.37 | % | $ | 700,608 |
| 0.56 | % | 0.49 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Interest income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Swaps not designated in a hedging relationship |
| 31,428 |
| 0.03 |
| 0.03 |
| 81,454 |
| 0.08 |
| 0.08 |
| 8,026 |
| 0.01 |
| 0.01 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Economic net interest income |
| $ | 473,343 |
| 0.47 | % | 0.44 | % | $ | 537,238 |
| 0.50 | % | 0.45 | % | $ | 708,634 |
| 0.57 | % | 0.50 | % |
(a) | The reporting classification of interest income or expense associated with swaps designated as economic hedges has no impact on Net income, as these adjustments are either reported as a component of Net interest income if the hedges are qualifying hedges, or as a component of Other income as gains or losses from hedging activities if they are economic hedges. Interest rate swaps designated as economic hedges have declined as much of the swaps executed in prior year periods have matured. In prior year periods, significant amounts of swaps were designated as economic hedges of consolidated obligation debt, in a hedging strategy that converted floating-rate debt indexed to 1-month LIBOR, the Prime rate, and the Federal funds rate to 3-month LIBOR cash flows. The decline in the amount of interest associated with economic hedges is due to decline in swaps designated as economic hedges and lower interest rates. |
(b) | Explanation of the use of certain non-GAAP measures of Interest Income and Expense, Net Interest income and margin. We have presented our results of operations in accordance with U.S. generally accepted accounting principles. We have also presented certain information regarding our Interest Income and Expense, Net Interest income and Net Interest spread that combines interest expense on debt with net interest paid on interest rate swaps associated with debt that were hedged on an economic basis. These are non-GAAP financial measures used by management that we believe are useful to investors and our investors and stockholders in understanding our operational performance as well as business and performance trends. Although we believe these non-GAAP financial measures enhance investor and members’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. |
| Years ended December 31, | ||||||||||||||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||||||||||||||
| Amount | ROA | Net Spread | Amount | ROA | Net Spread | Amount | ROA | Net Spread | ||||||||||||||||||||||||||||
| GAAP net interest income | $ | 455,784 | 0.42 | % | 0.37 | % | $ | 700,608 | 0.56 | % | 0.49 | % | $ | 694,498 | 0.59 | % | 0.41 | % | ||||||||||||||||||
| Interest income (expense) | ||||||||||||||||||||||||||||||||||||
| Swaps not designated in a hedging relationship | 81,454 | 0.08 | 0.08 | 8,026 | 0.01 | 0.01 | (127,056 | ) | (0.11 | ) | (0.11 | ) | ||||||||||||||||||||||||
Economic net interest income | $ | 537,238 | 0.50 | % | 0.45 | % | $ | 708,634 | 0.57 | % | 0.50 | % | $ | 567,442 | 0.48 | % | 0.30 | % | ||||||||||||||||||
Spread and Yield Analysis
Table 10.9:Spread and Yield Analysis
|
| Years ended December 31, |
| ||||||||||||||||||||||
|
| 2011 |
| 2010 |
| 2009 |
| ||||||||||||||||||
|
|
|
| Interest |
|
|
|
|
| Interest |
|
|
|
|
| Interest |
|
|
| ||||||
|
| Average |
| Income/ |
|
|
| Average |
| Income/ |
|
|
| Average |
| Income/ |
|
|
| ||||||
(Dollars in thousands) |
| Balance |
| Expense |
| Rate (a) |
| Balance |
| Expense |
| Rate (a) |
| Balance |
| Expense |
| Rate (a) |
| ||||||
Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Advances |
| $ | 75,202,253 |
| $ | 504,118 |
| 0.67 | % | $ | 85,908,274 |
| $ | 614,801 |
| 0.72 | % | $ | 98,965,716 |
| $ | 1,270,643 |
| 1.28 | % |
Interest bearing deposits and others |
| 2,701,786 |
| 2,834 |
| 0.10 |
| 2,780,919 |
| 5,461 |
| 0.20 |
| 3,263,671 |
| 6,096 |
| 0.19 |
| ||||||
Federal funds sold and other overnight funds |
| 8,499,097 |
| 6,746 |
| 0.08 |
| 5,673,805 |
| 9,061 |
| 0.16 |
| 8,386,126 |
| 18,635 |
| 0.22 |
| ||||||
Investments |
| 11,980,570 |
| 309,850 |
| 2.59 |
| 12,003,578 |
| 383,863 |
| 3.20 |
| 12,761,836 |
| 490,333 |
| 3.84 |
| ||||||
Mortgage and other loans |
| 1,321,726 |
| 62,946 |
| 4.76 |
| 1,281,549 |
| 65,422 |
| 5.10 |
| 1,386,964 |
| 71,980 |
| 5.19 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total interest-earning assets |
| $ | 99,705,432 |
| $ | 886,494 |
| 0.89 | % | $ | 107,648,125 |
| $ | 1,078,608 |
| 1.00 | % | $ | 124,764,313 |
| $ | 1,857,687 |
| 1.49 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Funded By: |
|
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
| ||||||
Consolidated obligations-bonds |
| $ | 68,027,867 |
| $ | 406,166 |
| 0.60 |
| $ | 72,135,934 |
| $ | 572,730 |
| 0.79 |
| $ | 71,860,494 |
| $ | 953,970 |
| 1.33 |
|
Consolidated obligations-discount notes |
| 21,442,303 |
| 34,704 |
| 0.16 |
| 21,727,968 |
| 42,237 |
| 0.19 |
| 41,495,955 |
| 193,041 |
| 0.47 |
| ||||||
Interest-bearing deposits and other borrowings |
| 2,389,368 |
| 1,325 |
| 0.06 |
| 4,663,653 |
| 3,528 |
| 0.08 |
| 2,121,718 |
| 2,561 |
| 0.12 |
| ||||||
Mandatorily redeemable capital stock |
| 58,492 |
| 2,384 |
| 4.08 |
| 82,650 |
| 4,329 |
| 5.24 |
| 137,126 |
| 7,507 |
| 5.47 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total interest-bearing liabilities |
| 91,918,030 |
| 444,579 |
| 0.48 | % | 98,610,205 |
| 622,824 |
| 0.63 | % | 115,615,293 |
| 1,157,079 |
| 1.00 | % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Capital and other non-interest-bearing funds |
| 7,787,402 |
| — |
|
|
| 9,037,920 |
| — |
|
|
| 9,149,020 |
| — |
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total Funding |
| $ | 99,705,432 |
| $ | 444,579 |
|
|
| $ | 107,648,125 |
| $ | 622,824 |
|
|
| $ | 124,764,313 |
| $ | 1,157,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net Interest Income/Spread |
|
|
| $ | 441,915 |
| 0.41 | % |
|
| $ | 455,784 |
| 0.37 | % |
|
| $ | 700,608 |
| 0.49 | % | |||
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
| ||||||
Net Interest Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
(Net interest income/Earning Assets) |
|
|
|
|
| 0.44 | % |
|
|
|
| 0.42 | % |
|
|
|
| 0.56 | % | ||||||
(a) Reported yields with respect to advances and consolidated obligations may not necessarily equal the coupons on the instruments as derivatives are extensively used to change the yield and optionality characteristics of the underlying hedged items. When fixed-rate debt is issued by us and hedged with an interest rate derivative, it effectively converts the debt into a simple floating-rate bond. Similarly, we make fixed-rate advances to members and hedge the advances with a pay-fixed, receive-variable interest rate derivative that effectively converts the fixed-rate asset to one that floats with prevailing LIBOR rates. Average balance sheet information is presented below, as it is more representative of activity throughout the periods presented. For most components of the average balances, a daily weighted average wasbalance is calculated for the period. When daily weighted average balance information wasis not available, a simple monthly average balance wasis calculated. Average yields wereare derived by dividing income by the average balances of the related assets and average costs are derived by dividing expenses by the average balances of the related liabilities.
| Years ended December 31, | ||||||||||||||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||||||||||||||
| Interest | Interest | Interest | ||||||||||||||||||||||||||||||||||
| Average | Income/ | Average | Income/ | Average | Income/ | |||||||||||||||||||||||||||||||
| (Dollars in thousands) | Balance | Expense | Rate1 | Balance | Expense | Rate1 | Balance | Expense | Rate1 | |||||||||||||||||||||||||||
Earning Assets: | ||||||||||||||||||||||||||||||||||||
| Advances | $ | 85,908,274 | $ | 614,801 | 0.72 | % | $ | 98,965,716 | $ | 1,270,643 | 1.28 | % | $ | 92,616,501 | $ | 3,030,799 | 3.27 | % | ||||||||||||||||||
| Certificates of deposit and other | 2,780,919 | 5,461 | 0.20 | 3,263,671 | 6,096 | 0.19 | 7,802,425 | 251,600 | 3.22 | |||||||||||||||||||||||||||
| Federal funds sold and other overnight funds | 5,673,805 | 9,061 | 0.16 | 8,386,126 | 18,635 | 0.22 | 4,333,408 | 86,688 | 2.00 | |||||||||||||||||||||||||||
| Investments | 12,003,578 | 383,863 | 3.20 | 12,761,836 | 490,333 | 3.84 | 12,441,712 | 611,897 | 4.92 | |||||||||||||||||||||||||||
| Mortgage and other loans | 1,281,549 | 65,422 | 5.10 | 1,386,964 | 71,980 | 5.19 | 1,467,561 | 77,895 | 5.31 | |||||||||||||||||||||||||||
Total interest-earning assets | $ | 107,648,125 | $ | 1,078,608 | 1.00 | % | $ | 124,764,313 | $ | 1,857,687 | 1.49 | % | $ | 118,661,607 | $ | 4,058,879 | 3.42 | % | ||||||||||||||||||
Funded By: | ||||||||||||||||||||||||||||||||||||
| Consolidated obligations-bonds | $ | 72,135,934 | $ | 572,730 | 0.79 | $ | 71,860,494 | $ | 953,970 | 1.33 | $ | 81,341,452 | $ | 2,620,431 | 3.22 | |||||||||||||||||||||
| Consolidated obligations-discount notes | 21,727,968 | 42,237 | 0.19 | 41,495,955 | 193,041 | 0.47 | 28,349,373 | 697,729 | 2.46 | |||||||||||||||||||||||||||
| Interest-bearing deposits and other borrowings | 4,663,653 | 3,528 | 0.08 | 2,121,718 | 2,561 | 0.12 | 2,058,389 | 37,237 | 1.81 | |||||||||||||||||||||||||||
| Mandatorily redeemable capital stock | 82,650 | 4,329 | 5.24 | 137,126 | 7,507 | 5.47 | 166,372 | 8,984 | 5.40 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 98,610,205 | 622,824 | 0.63 | % | 115,615,293 | 1,157,079 | 1.00 | % | 111,915,586 | 3,364,381 | 3.01 | % | ||||||||||||||||||||||||
| Capital and other non-interest-bearing funds | 9,037,920 | — | 9,149,020 | — | 6,746,021 | — | ||||||||||||||||||||||||||||||
Total Funding | $ | 107,648,125 | $ | 622,824 | $ | 124,764,313 | $ | 1,157,079 | $ | 118,661,607 | $ | 3,364,381 | ||||||||||||||||||||||||
Net Interest Income/Spread | $ | 455,784 | 0.37 | % | $ | 700,608 | 0.49 | % | $ | 694,498 | 0.41 | % | ||||||||||||||||||||||||
Net Interest Margin (Net interest income/Earning Assets) | 0.42 | % | 0.56 | % | 0.59 | % | ||||||||||||||||||||||||||||||
86
The Rate and Volume Analysis presents changes in interest income, interest expense and net interest income that are due to changes in volumes and rates. The following tables present the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected the FHLBNY’sour interest income and interest expense (in thousands).
Table 10.10:Rate and Volume Analysis
|
| For the years ended |
| |||||||
|
| December 31, 2011 vs. December 31, 2010 |
| |||||||
|
| Increase (Decrease) |
| |||||||
|
| Volume |
| Rate |
| Total |
| |||
Interest Income |
|
|
|
|
|
|
| |||
Advances |
| $ | (73,402 | ) | $ | (37,281 | ) | $ | (110,683 | ) |
Interest bearing deposits and others |
| (151 | ) | (2,476 | ) | (2,627 | ) | |||
Federal funds sold and other overnight funds |
| 3,382 |
| (5,697 | ) | (2,315 | ) | |||
Investments |
| (735 | ) | (73,278 | ) | (74,013 | ) | |||
Mortgage loans and other loans |
| 2,008 |
| (4,484 | ) | (2,476 | ) | |||
|
|
|
|
|
|
|
| |||
Total interest income |
| (68,898 | ) | (123,216 | ) | (192,114 | ) | |||
|
|
|
|
|
|
|
| |||
Interest Expense |
|
|
|
|
|
|
| |||
Consolidated obligations-bonds |
| (31,106 | ) | (135,458 | ) | (166,564 | ) | |||
Consolidated obligations-discount notes |
| (549 | ) | (6,984 | ) | (7,533 | ) | |||
Deposits and borrowings |
| (1,424 | ) | (779 | ) | (2,203 | ) | |||
Mandatorily redeemable capital stock |
| (1,106 | ) | (839 | ) | (1,945 | ) | |||
|
|
|
|
|
|
|
| |||
Total interest expense |
| (34,185 | ) | (144,060 | ) | (178,245 | ) | |||
|
|
|
|
|
|
|
| |||
Changes in Net Interest Income |
| $ | (34,713 | ) | $ | 20,844 |
| $ | (13,869 | ) |
|
| For the years ended |
| |||||||
|
| December 31, 2010 vs. December 31, 2009 |
| |||||||
|
| Increase (Decrease) |
| |||||||
|
| Volume |
| Rate |
| Total |
| |||
Interest Income |
|
|
|
|
|
|
| |||
Advances |
| $ | (150,608 | ) | $ | (505,234 | ) | $ | (655,842 | ) |
Certificates of deposit and other |
| (936 | ) | 301 |
| (635 | ) | |||
Federal funds sold and other overnight funds |
| (5,120 | ) | (4,454 | ) | (9,574 | ) | |||
Investments |
| (27,855 | ) | (78,615 | ) | (106,470 | ) | |||
Mortgage loans and other loans |
| (5,397 | ) | (1,161 | ) | (6,558 | ) | |||
|
|
|
|
|
|
|
| |||
Total interest income |
| (189,916 | ) | (589,163 | ) | (779,079 | ) | |||
|
|
|
|
|
|
|
| |||
Interest Expense |
|
|
|
|
|
|
| |||
Consolidated obligations-bonds |
| 3,644 |
| (384,884 | ) | (381,240 | ) | |||
Consolidated obligations-discount notes |
| (67,869 | ) | (82,935 | ) | (150,804 | ) | |||
Deposits and borrowings |
| 2,195 |
| (1,228 | ) | 967 |
| |||
Mandatorily redeemable capital stock |
| (2,866 | ) | (312 | ) | (3,178 | ) | |||
|
|
|
|
|
|
|
| |||
Total interest expense |
| (64,896 | ) | (469,359 | ) | (534,255 | ) | |||
|
|
|
|
|
|
|
| |||
Changes in Net Interest Income |
| $ | (125,020 | ) | $ | (119,804 | ) | $ | (244,824 | ) |
2010 compared to 2009
| For the years ended | ||||||||||||
| December 31, 2010 vs. December 31, 2009 | ||||||||||||
| Increase (Decrease) | ||||||||||||
| Volume | Rate | Total | ||||||||||
Interest Income | ||||||||||||
| Advances | $ | (150,608 | ) | $ | (505,234 | ) | $ | (655,842 | ) | |||
| Certificates of deposit and other | (936 | ) | 301 | (635 | ) | |||||||
| Federal funds sold and other overnight funds | (5,120 | ) | (4,454 | ) | (9,574 | ) | ||||||
| Investments | (27,855 | ) | (78,615 | ) | (106,470 | ) | ||||||
| Mortgage loans and other loans | (5,397 | ) | (1,161 | ) | (6,558 | ) | ||||||
| Total interest income | (189,916 | ) | (589,163 | ) | (779,079 | ) | ||||||
Interest Expense | ||||||||||||
| Consolidated obligations-bonds | 3,644 | (384,884 | ) | (381,240 | ) | |||||||
| Consolidated obligations-discount notes | (67,869 | ) | (82,935 | ) | (150,804 | ) | ||||||
| Deposits and borrowings | 2,195 | (1,228 | ) | 967 | ||||||||
| Mandatorily redeemable capital stock | (2,866 | ) | (312 | ) | (3,178 | ) | ||||||
| Total interest expense | (64,896 | ) | (469,359 | ) | (534,255 | ) | ||||||
Changes in Net Interest Income | $ | (125,020 | ) | $ | (119,804 | ) | $ | (244,824 | ) | |||
| For the years ended | ||||||||||||
| December 31, 2009 vs. December 31, 2008 | ||||||||||||
| Increase (Decrease) | ||||||||||||
| Volume | Rate | Total | ||||||||||
Interest Income | ||||||||||||
| Advances | $ | 207,773 | $ | (1,967,929 | ) | $ | (1,760,156 | ) | ||||
| Certificates of deposit and other | (146,358 | ) | (99,146 | ) | (245,504 | ) | ||||||
| Federal funds sold and other overnight funds | 81,073 | (149,126 | ) | (68,053 | ) | |||||||
| Investments | 15,744 | (137,308 | ) | (121,564 | ) | |||||||
| Mortgage loans and other loans | (4,278 | ) | (1,637 | ) | (5,915 | ) | ||||||
| Total interest income | 153,954 | (2,355,146 | ) | (2,201,192 | ) | |||||||
Interest Expense | ||||||||||||
| Consolidated obligations-bonds | (305,431 | ) | (1,361,030 | ) | (1,666,461 | ) | ||||||
| Consolidated obligations-discount notes | 323,561 | (828,249 | ) | (504,688 | ) | |||||||
| Deposits and borrowings | 1,146 | (35,822 | ) | (34,676 | ) | |||||||
| Mandatorily redeemable capital stock | (1,579 | ) | 102 | (1,477 | ) | |||||||
| Total interest expense | 17,697 | (2,224,999 | ) | (2,207,302 | ) | |||||||
Changes in Net Interest Income | $ | 136,257 | $ | (130,147 | ) | $ | 6,110 | |||||
·Mortgage loans held-for-portfolio— The Bank evaluates - We evaluate conventional mortgage loans at least quarterly on an individual loan-by-loan basis and comparescompare the fair values of collateral (net of liquidation costs) to recorded investment values in order to measure credit losses on impaired loans. FHA/VA (Insured mortgage loans) guaranteed loans are evaluated collectively for impairment. Based on the analysis performed a provision of all mortgage loans, provisions for credit losses were $3.2 million in 2011, compared to $1.4 million was recorded.and $3.1 million in 2010 and 2009. Charge offs were insignificant in all periods, and were substantially recovered through the credit enhancement provisions of MPF loans. Cumulatively, the allowance for credit losses recorded in the Statements of Condition have grown to $6.8 million at December 31, 2011, compared to $5.8 million at December 31, 2010, compared toand $4.5 million at December 31, 2009. The FHLBNY believesWe believe the allowance for loan losses is adequate to cover the losses inherent in the FHLBNY’sour mortgage loan portfolio.
·Advances - Our credit risk from advances at December 31, 2011, 2010 and 2009 werewas concentrated in commercial banks, savings institutions and insurance companies. All advances were fully collateralized during their entire term. In addition, borrowing members pledged their stock in the FHLBNY as additional collateral for advances. The FHLBNY hasWe have not experienced any losses on credit extended to any member since its inception. Based on the collateral held as security and prior repayment history, no allowance for losses is currently deemed necessary.
The principal components of non-interest income (loss) are summarized below (in thousands):
Table 10.11:Other Income (loss)
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Other income (loss): |
|
|
|
|
|
|
| |||
Service fees and other (a) |
| $ | 5,909 |
| $ | 4,918 |
| $ | 4,165 |
|
Instruments held at fair value - Unrealized gains (losses) (b) |
| (10,494 | ) | (3,343 | ) | 15,523 |
| |||
Total OTTI losses |
| (791 | ) | (5,052 | ) | (140,912 | ) | |||
Net amount of impairment losses reclassified (from) to Accumulated other comprehensive loss |
| (4,802 | ) | (3,270 | ) | 120,096 |
| |||
Net impairment losses recognized in earnings (c) |
| (5,593 | ) | (8,322 | ) | (20,816 | ) | |||
Net realized and unrealized gains (losses) on derivatives and hedging activities (d) |
| 83,539 |
| 26,756 |
| 164,700 |
| |||
Net realized gains from sale of available-for-sale securities and redemption of held-to-maturity securities |
| 17 |
| 931 |
| 721 |
| |||
Losses from extinguishment of debt and other (e) |
| (87,210 | ) | (4,399 | ) | 77 |
| |||
Total other income (loss) |
| $ | (13,832 | ) | $ | 16,541 |
| $ | 164,370 |
|
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Other income (loss): | ||||||||||||
| Service fees | $ | 4,918 | $ | 4,165 | $ | 3,357 | ||||||
| Instruments held at fair value-Unrealized (losses) gains | (3,343 | ) | 15,523 | (8,325 | ) | |||||||
| Total OTTI losses | (5,052 | ) | (140,912 | ) | — | |||||||
| Net amount of impairment losses reclassified (from) to Accumulated other comprehensive loss | (3,270 | ) | 120,096 | — | ||||||||
| Net impairment losses recognized in earnings | (8,322 | ) | (20,816 | ) | — | |||||||
| Net realized and unrealized (losses) gains on derivatives and hedging activities | 26,756 | 164,700 | (199,259 | ) | ||||||||
| Net realized gains from sale of securities | 931 | 721 | 1,058 | |||||||||
| Provision for derivative counterparty credit losses | — | — | (64,523 | ) | ||||||||
Other1 | (4,399 | ) | 77 | 233 | ||||||||
Total other income (loss) | $ | 16,541 | $ | 164,370 | $ | (267,459 | ) | |||||
(a)Service fees
(b)Instruments held at fair value under the Fair Value Option - At December 31, 2011, $17.5 billion of debt were designated under the FVO, compared to $15.2 billion at December 31, 2010, and $6.0 billion at December 31, 2009, consisted of intermediate- and short-term bonds and discount notes. Unrealized fair value losses were recorded in 2011 and 2010, as the market observed yields were below the contractual coupons of the same debt outstanding on our balance sheet. Conversely, gains would be recorded when the debt’s market observable yields (with appropriate consideration for credit standing) are higher than the contractual coupons or yields of the designated debt as of the balance sheet dates, as was the scenario in 2009. Losses and gains would also be recorded in the period the debt matures, when previously recorded unrealized gains and losses are reversed in the period the debt matures. Said another way, when bonds and discount notes are recorded at fair value and are held to maturity, their cumulative fair value changes sum to zero at maturity.
(c)Net impairment losses recognized in earnings on held-to-maturity securities — Other-than-temporary impairment (“OTTI”) — 2010, 2009 and 2008
(d)Earnings impact of derivatives and hedging activities — 2010, 2009 and 2008
·Reported gains from qualifying hedges in 2011 aggregated $39.0 million. They represent ineffectiveness between changes in the fair values of derivatives and the hedged advances and debt. The comparable ineffectiveness in 2010 and 2009 were gains of $10.6 million and $20.7 million. Fair value gains and losses will reverse in the period the hedged item and derivatives mature. In 2011, the Bank modified $4.6 billion of a derivative that qualifieshedged fixed-rate advances and associated interest rate swaps. The fair value basis of the swaps was computed on the modification dates to be amortized to zero over the life of the modified swaps. In 2011, amortization of $66.8 million was recorded as a fair value hedge under the accounting standards forcredit to derivatives and hedging activities in Other income. The fair values of the swaps had been in unrealized liability positions at the modification dates. The comparable amortizations in 2010 and 2009 were not significant. Fair value basis of modified advances had been in unrealized gain positions and were also amortized.
· Decline in the fair values of $1.9 billion of interest rate caps purchased primarily to hedge capped LIBOR indexed floating-rate MBS - The cap volatilities were down and the offsetting gain orforward swap curve declined at December 31, 2011 relative to 2010, causing fair values of caps to decline
by $26.9 to $14.9 million. If held to maturity, cap values will decline to zero in 2018. The comparable P&L impact in 2010 was a loss of $29.7 million. At December 31, 2009, long-term rates were on the hedged assetrise, and volatility of rates was up and fair values of caps reported $63.3 million in unrealized gains.
·Interest rate swaps designated as economic hedges (“standalone”)reported fair value losses from the following activities: (1) consolidated bonds indexed to rates other than the 3-month LIBOR index, primarily federal funds rate and 1-month LIBOR) and discount notes, and (2) debt, both bonds and discount notes, accounted under the FVO. In 2011, fair value changes of standalone derivatives, primarily interest rate swaps, resulted in fair value hedging losses of $21.7 million, compared to losses of $36.6 in 2010 and gains of $82.4 million in 2009. Interest-rate swaps that were economic hedges of debt were typically structured to pay 3-month LIBOR cash flows to swap dealers, and to receive either federal funds indexed cash flows, or liability attributablereceive fixed-rate cash flows. The rise and fall of the 3-month LIBOR relative to the hedged riskfederal funds rate or the 1-month LIBOR are determining factors of recorded gains and losses, as is the volume of derivatives designated as standalone. At December 31, 2011, the 3-month LIBOR was 58 basis points, up from 30 basis points at December 31, 2010. The overnight federal funds rate was higher at December 31, 2011 compared to 2010. As the 3-month LIBOR rises, our future projected obligations becomes greater, and fair values of the standalone debt (receive fixed-rate, pay LIBOR indexed floating rate) swaps exhibit unrealized fair value losses. Fair value losses have declined over time because the federal funds rate has risen, and we are projecting increased cash in-flows from the fed fund indexed leg of the basis swaps. Gains in 2009 were primarily due to the reversal of fair value losses in prior year when swaps matured or were nearing maturity.
· Interest accruals (representing the cash flows associated with swaps designated as economic hedges of (1) advances and debt that did not qualify for hedge accounting, and (2) debt under the FVO), were positive cash in-flows, and we accrued $31.6 million in 2011, compared to $79.0 million in 2010 and $2.3 million in 2009. While fair values are based on the present value of projected cash flows, interest accruals are based on actual settled rates. The rise and fall of the 3-month LIBOR versus the fixed-rate of the standalone swaps, or, for basis swaps, the change in the federal funds rate, and the volume of interest rate swaps designated as standalone typically determine the amount of recorded net accruals.
(e)Losses from extinguishment of debt — We buy back or retire our own debt principally to reduce future debt costs. When assets are prepaid ahead of their expected or contractual maturities, we also attempt to extinguish debt in order to realign asset liability cash flow patterns. Debt retirement and transfers in a declining interest rate environment typically requires a payment of a premium resulting in a loss. See Tables 10.15 and 10.16 for more information.
Impact of Modification of advances
Table 10.12:Impact of Modification
|
| December 31, |
| ||||||||||
|
| 2011 |
| 2010 |
| ||||||||
|
| Par Amount |
| Fair Value |
| Par Amount |
| Fair Value |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Beginning of Year |
| $ | 510,000 |
| $ | 40,915 |
| $ | 50,000 |
| $ | 1,152 |
|
Termination |
| (50,000 | ) | — |
| — |
| — |
| ||||
Modification |
| 4,637,500 |
| 611,594 |
| 460,000 |
| 41,537 |
| ||||
Amortization (a) |
| — |
| (66,848 | ) | — |
| (1,774 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
End of Year |
| $ | 5,097,500 |
| $ | 585,661 |
| $ | 510,000 |
| $ | 40,915 |
|
(a)Advances modified were in qualifying fair value hedges. The fair value basis adjustments at the modification dates were amortized over the life of the modified advance on a level-yield basis, and recorded as a reduction of interest income from advances. The fair value basis of the interest rate swap at the modification dates were also amortized on a level-yield basis and recorded as a gain in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities. To the extent that changes in the fair value of the derivative is not entirely offset by changes in the fair value of the hedged asset or liability, the net impact from hedging activities represents hedge ineffectiveness.
88
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Gains-Sales of investment securities | $ | 931 | $ | 721 | $ | 1,058 | ||||||
| Losses-Extinguishment and/or transfer of debt | $ | (2,115 | ) | $ | (70 | ) | $ | — | ||||
89
The following tables summarize the impact of hedging activities on earnings for each of the three years ended December 31, 2010, 2009 and 2008 (in thousands):
Table 10.13:Earnings Impact |
| December 31, 2010 | ||||||||||||||||||||||||||||
| Consolidated | Consolidated | |||||||||||||||||||||||||||
| MPF | Obligation | Obligation | Balance | Intermediary | ||||||||||||||||||||||||
| Earnings Impact | Advances | Loans | Bonds | Discount Notes | Sheet | Positions | Total | |||||||||||||||||||||
| Amortization/accretion of hedging activities reported in net interest income | $ | (2,132 | ) | $ | (22 | ) | $ | (3,474 | ) | — | $ | — | $ | — | $ | (5,628 | ) | |||||||||||
| Net realized and unrealized gains (losses) on derivatives and hedging activities | 3,240 | — | 9,144 | — | — | — | 12,384 | |||||||||||||||||||||
| Net gains (losses) derivatives-FVO | — | — | 29,431 | 3,964 | — | — | 33,395 | |||||||||||||||||||||
| Gains (losses)-economic hedges | (6,887 | ) | (24 | ) | 16,502 | 716 | (29,775 | ) | 445 | (19,023 | ) | |||||||||||||||||
| Reported in Other income | (3,647 | ) | (24 | ) | 55,077 | 4,680 | (29,775 | ) | 445 | 26,756 | ||||||||||||||||||
Total | $ | (5,779 | ) | $ | (46 | ) | $ | 51,603 | $ | 4,680 | $ | (29,775 | ) | $ | 445 | $ | 21,128 | |||||||||||
| December 31, 2009 | ||||||||||||||||||||||||||||
| Consolidated | Consolidated | |||||||||||||||||||||||||||
| MPF | Obligation | Obligation | Balance | Intermediary | ||||||||||||||||||||||||
| Earnings Impact | Advances | Loans | Bonds | Discount Notes | Sheet | Positions | Total | |||||||||||||||||||||
| Amortization/accretion of hedging activities reported in net interest income | $ | (1,226 | ) | $ | 36 | $ | (1,980 | ) | $ | 361 | $ | — | $ | — | $ | (2,809 | ) | |||||||||||
| Net realized and unrealized gains (losses) on derivatives and hedging activities | (4,542 | ) | — | 25,648 | — | — | — | 21,106 | ||||||||||||||||||||
| Net gains (losses) derivatives-FVO | — | — | (1,168 | ) | — | — | — | (1,168 | ) | |||||||||||||||||||
| Gains (losses)-economic hedges | (6,409 | ) | (20 | ) | 52,311 | 33,606 | 65,321 | (47 | ) | 144,762 | ||||||||||||||||||
| Reported in Other income | (10,951 | ) | (20 | ) | 76,791 | 33,606 | 65,321 | (47 | ) | 164,700 | ||||||||||||||||||
Total | $ | (12,177 | ) | $ | 16 | $ | 74,811 | $ | 33,967 | $ | 65,321 | $ | (47 | ) | $ | 161,891 | ||||||||||||
| December 31, 2008 | ||||||||||||||||||||||||||||
| Consolidated | Consolidated | |||||||||||||||||||||||||||
| MPF | Obligation | Obligation | Balance | Intermediary | ||||||||||||||||||||||||
| Earnings Impact | Advances | Loans | Bonds | Discount Notes | Sheet | Positions | Total | |||||||||||||||||||||
| Amortization/accretion of hedging activities reported in net interest income | $ | (2,472 | ) | $ | 81 | $ | (459 | ) | $ | — | $ | — | $ | — | $ | (2,850 | ) | |||||||||||
| Net realized and unrealized gains (losses) on derivatives and hedging activities | 31,838 | — | (43,539 | ) | (333 | ) | — | — | (12,034 | ) | ||||||||||||||||||
| Net gains (losses) derivatives-FVO | — | — | 7,193 | — | — | — | 7,193 | |||||||||||||||||||||
| Gains (losses)-economic hedges | (22,656 | ) | (3 | ) | (159,686 | ) | 8,142 | (20,695 | ) | 480 | (194,418 | ) | ||||||||||||||||
| Reported in Other income | 9,182 | (3 | ) | (196,032 | ) | 7,809 | (20,695 | ) | 480 | (199,259 | ) | |||||||||||||||||
Total | $ | 6,710 | $ | 78 | $ | (196,491 | ) | $ | 7,809 | $ | (20,695 | ) | $ | 480 | $ | (202,109 | ) | |||||||||||
|
| December 31, 2011 |
| |||||||||||||||||||
|
|
|
|
|
| Consolidated |
| Consolidated |
|
|
|
|
|
|
| |||||||
|
|
|
| MPF |
| Obligation |
| Obligation |
| Balance |
| Intermediary |
|
|
| |||||||
Earnings Impact |
| Advances |
| Loans |
| Bonds |
| Discount Notes |
| Sheet |
| Positions |
| Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Amortization/accretion/interest accruals of hedging activities reported in net interest income |
| (1,683,831 | ) | $ | (74 | ) | $ | 478,647 |
| $ | (11,355 | ) | $ | — |
| $ | — |
| $ | (1,216,613 | ) | |
Net realized and unrealized gains (losses) on derivatives and hedging activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Gains (losses) on fair value hedges |
| 106,712 |
| — |
| (2,255 | ) | 1,400 |
| — |
| — |
| 105,857 |
| |||||||
Gains (losses) on cash flow hedges |
| — |
| — |
| (119 | ) | — |
| — |
| — |
| (119 | ) | |||||||
Net gains (losses) derivatives-FVO |
| — |
| — |
| 15,142 |
| 655 |
| — |
| — |
| 15,797 |
| |||||||
Gains (losses)-economic hedges |
| (2,462 | ) | 3,060 |
| (11,849 | ) | 102 |
| (26,858 | ) | 11 |
| (37,996 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized and unrealized (losses) gains on derivatives and hedging activities |
| 104,250 |
| 3,060 |
| 919 |
| 2,157 |
| (26,858 | ) | 11 |
| 83,539 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total earnings impact |
| $ | (1,579,581 | ) | $ | 2,986 |
| $ | 479,566 |
| $ | (9,198 | ) | $ | (26,858 | ) | $ | 11 |
| $ | (1,133,074 | ) |
|
| December 31, 2010 |
| |||||||||||||||||||
|
|
|
|
|
| Consolidated |
| Consolidated |
|
|
|
|
|
|
| |||||||
|
|
|
| MPF |
| Obligation |
| Obligation |
| Balance |
| Intermediary |
|
|
| |||||||
Earnings Impact |
| Advances |
| Loans |
| Bonds |
| Discount Notes |
| Sheet |
| Positions |
| Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Amortization/accretion/interest accruals of hedging activities reported in net interest income |
| $ | (2,001,485 | ) | $ | (22 | ) | $ | 627,004 |
| $ | — |
| $ | — |
| $ | — |
| $ | (1,374,503 | ) |
Net realized and unrealized gains (losses) on derivatives and hedging activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Gains (losses) on fair value hedges |
| 3,240 |
| — |
| 9,144 |
| — |
| — |
| — |
| 12,384 |
| |||||||
Gains (losses) on cash flow hedges |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| |||||||
Net gains (losses) derivatives-FVO |
| — |
| — |
| 29,431 |
| 3,964 |
| — |
| — |
| 33,395 |
| |||||||
Gains (losses)-economic hedges |
| (6,887 | ) | (24 | ) | 16,502 |
| 716 |
| (29,775 | ) | 445 |
| (19,023 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized and unrealized (losses) gains on derivatives and hedging activities |
| (3,647 | ) | (24 | ) | 55,077 |
| 4,680 |
| (29,775 | ) | 445 |
| 26,756 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total earnings impact |
| $ | (2,005,132 | ) | $ | (46 | ) | $ | 682,081 |
| $ | 4,680 |
| $ | (29,775 | ) | $ | 445 |
| $ | (1,347,747 | ) |
|
| December 31, 2009 |
| |||||||||||||||||||
|
|
|
|
|
| Consolidated |
| Consolidated |
|
|
|
|
|
|
| |||||||
|
|
|
| MPF |
| Obligation |
| Obligation |
| Balance |
| Intermediary |
|
|
| |||||||
Earnings Impact |
| Advances |
| Loans |
| Bonds |
| Discount Notes |
| Sheet |
| Positions |
| Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Amortization/accretion/interest accruals of hedging activities reported in net interest income |
| $ | (1,793,232 | ) | $ | 36 |
| $ | 559,647 |
| $ | 474 |
| $ | — |
| $ | — |
| $ | (1,233,075 | ) |
Net realized and unrealized gains (losses) on derivatives and hedging activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Gains (losses) on fair value hedges |
| (4,542 | ) | — |
| 25,648 |
| — |
| — |
| — |
| 21,106 |
| |||||||
Gains (losses) on cash flow hedges |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| |||||||
Net gains (losses) derivatives-FVO |
| — |
| — |
| (1,168 | ) | — |
| — |
| — |
| (1,168 | ) | |||||||
Gains (losses)-economic hedges |
| (6,409 | ) | (20 | ) | 52,311 |
| 33,606 |
| 65,321 |
| (47 | ) | 144,762 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized and unrealized (losses) gains on derivatives and hedging activities |
| (10,951 | ) | (20 | ) | 76,791 |
| 33,606 |
| 65,321 |
| (47 | ) | 164,700 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total earnings impact |
| $ | (1,804,183 | ) | $ | 16 |
| $ | 636,438 |
| $ | 34,080 |
| $ | 65,321 |
| $ | (47 | ) | $ | (1,068,375 | ) |
Cash Flow Hedges
Hedges of hedged consolidated obligation bonds and advances dueanticipated issuances of debt — From time to changes in the benchmark rate (adopted as the 3-month LIBOR rate) and changes in the fair value of the associated derivatives.
90
91
| Years ended December 31, | ||||||||||||
| Accumulated other comprehensive income/(loss) from cash flow hedges | 2010 | 2009 | 2008 | |||||||||
| Beginning of period | $ | (22,683 | ) | $ | (30,191 | ) | $ | (30,215 | ) | |||
| Net hedging transactions | (249 | ) | — | (6,100 | ) | |||||||
| Reclassified into earnings | 7,736 | 7,508 | 6,124 | |||||||||
| End of period | $ | (15,196 | ) | $ | (22,683 | ) | $ | (30,191 | ) | |||
Hedges of discount note issuances — We introduced a new cash flow hedging strategy in the 2011 first quarter. In this strategy, we execute long-term pay-fixed, receive 3-month LIBOR-indexed interest rate swaps that are designated as cash flow hedges atof a rollover financing program involving the current quarter end.
Derivative gains and losses reclassified from AOCI (a) to current period income - The following table summarizes changes in derivative gains and (losses) and reclassifications into earnings from AOCI in the Statements of Condition (in thousands):
Table 10.14:Accumulated Other Comprehensive Income (Loss) to Current Period Income from Cash Flow Hedges
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
Accumulated other comprehensive income/(loss) from cash flow hedges |
|
|
|
|
|
|
| |||
Beginning of period |
| $ | (15,196 | ) | $ | (22,683 | ) | $ | (30,191 | ) |
Net hedging transactions |
| (99,880 | ) | (249 | ) | — |
| |||
Reclassified into earnings |
| 3,091 |
| 7,736 |
| 7,508 |
| |||
|
|
|
|
|
|
|
| |||
End of period |
| $ | (111,985 | ) | $ | (15,196 | ) | $ | (22,683 | ) |
(a) | Includesunrealized losses from rollover cash flow hedge strategy, and previously recorded basis from settled derivatives that hedged anticipatory issuances of debt. Amounts reclassified relate to reclassification of basis to interest expense in parallel with the yields being recognized on issued debt. |
Debt extinguishment and sales of investment securities
We retire debt principally to reduce future debt costs or when the associated asset is either prepaid or terminated early, and less frequently from prepayments of mortgage-backed securities. From time to time, we may sell investment securities classified as available-for-sale, or on an isolated basis, may be asked by the issuer of a security, which we have classified as held-to-maturity (“HTM”) to redeem the investment portfolios, and providing correspondent banking services to members.
92
Table 10.15:Gains (Losses) on Sale and Extinguishment of Financial Instruments
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Gains-Sales of investment securities |
| $ | 17 |
| $ | 931 |
| $ | 721 |
|
|
|
|
|
|
|
|
| |||
Losses-Extinguishment and/or transfer of debt |
| $ | (86,501 | ) | $ | (2,115 | ) | $ | (70 | ) |
Table 10.16:Debt Extinguishment and Sale of Investment Securities
|
| December 31, |
| ||||||||||||||||
|
| 2011 |
| 2010 |
| 2009 |
| ||||||||||||
|
| Carrying Value |
| Gains/(Losses) |
| Carrying Value |
| Gains/(Losses) |
| Carrying Value |
| Gains/(Losses) |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Extinguishment of CO Bonds (a) |
| $ | 623,921 |
| $ | (69,169 | ) | $ | 300,648 |
| $ | (2,115 | ) | $ | 500,000 |
| $ | (70 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Transfer of CO Bonds to Other FHLBanks (a) |
| $ | 150,049 |
| $ | (17,332 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
(a) | We retire debt principally to reduce future debt costs when the associated asset is either prepaid or terminated early, and less frequently from prepayments of mortgage-backed securities. When assets are prepaid ahead of their expected or contractual maturities, we also attempt to extinguish debt (consolidated obligation bonds) in order to realign asset and liability cash flow patterns. Bond retirement typically requires a payment of a premium resulting in a loss. We typically receive prepayment fees when assets are prepaid, making us economically whole. From time to time, we may sell investment securities classified as available-for-sale, or on an isolated basis may be asked by the issuer of a security which we have classified as held-to-maturity to redeem the investment security. There were insignificant gains from such redemptions in 2011, 2010 and 2009. |
Operating Expenses, Compensation and Benefits, and Other Expenses — 2011, 2010, 2009
Table 10.15: 10.17:Operating Expenses
|
| Years ended December 31, |
| |||||||||||||
|
| 2011 |
| Percentage of |
| 2010 |
| Percentage of |
| 2009 |
| Percentage of |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Temporary workers |
| $ | 93 |
| 0.32 | % | $ | 116 |
| 0.42 | % | 162 |
| 0.62 | % | |
Occupancy |
| 4,395 |
| 15.05 |
| 4,316 |
| 15.77 |
| 4,347 |
| 16.54 |
| |||
Depreciation and leasehold amortization |
| 5,334 |
| 18.26 |
| 5,646 |
| 20.63 |
| 5,405 |
| 20.56 |
| |||
Computer service agreements and contractual services |
| 10,467 |
| 35.84 |
| 8,862 |
| 32.37 |
| 6,798 |
| 25.86 |
| |||
Professional and legal fees |
| 2,404 |
| 8.23 |
| 2,981 |
| 10.89 |
| 3,274 |
| 12.45 |
| |||
Other (a) |
| 6,514 |
| 22.30 |
| 5,452 |
| 19.92 |
| 6,301 |
| 23.97 |
| |||
Total Operating Expenses (b) |
| $ | 29,207 |
| 100.00 | % | $ | 27,373 |
| 100.00 | % | $ | 26,287 |
| 100.00 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Salaries |
| $ | 30,235 |
| 37.89 | % | $ | 29,120 |
| 50.02 | % | $ | 27,366 |
| 54.98 | % |
Employee benefits |
| 49,560 |
| 62.11 |
| 29,100 |
| 49.98 |
| 22,412 |
| 45.02 |
| |||
Total Compensation and Benefits (c) |
| $ | 79,795 |
| 100.00 | % | $ | 58,220 |
| 100.00 | % | $ | 49,778 |
| 100.00 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Finance Agency and Office of Finance (d) |
| $ | 13,305 |
|
|
| $ | 9,822 |
|
|
| $ | 8,110 |
|
|
|
| Years ended December 31, | ||||||||||||||||||||||||
| Percentage of | Percentage of | Percentage of | ||||||||||||||||||||||
| 2010 | total | 2009 | total | 2008 | total | |||||||||||||||||||
| Salaries | $ | 29,120 | 34.02 | % | $ | 27,366 | 35.98 | % | $ | 25,565 | 38.58 | % | ||||||||||||
| Employee benefits | 29,100 | 34.00 | 22,412 | 29.46 | 18,805 | 28.38 | ||||||||||||||||||
| Temporary workers | 116 | 0.14 | 162 | 0.21 | 282 | 0.43 | ||||||||||||||||||
| Occupancy | 4,316 | 5.04 | 4,347 | 5.71 | 4,079 | 6.16 | ||||||||||||||||||
| Depreciation and leasehold amortization | 5,646 | 6.60 | 5,405 | 7.11 | 4,971 | 7.50 | ||||||||||||||||||
| Computer service agreements and contractual services | 8,862 | 10.35 | 6,798 | 8.94 | 5,053 | 7.62 | ||||||||||||||||||
| Professional and legal fees | 2,981 | 3.48 | 3,274 | 4.30 | 2,469 | 3.73 | ||||||||||||||||||
| Other * | 5,452 | 6.37 | 6,301 | 8.29 | 5,039 | 7.60 | ||||||||||||||||||
Total operating expenses | $ | 85,593 | 100.00 | % | $ | 76,065 | 100.00 | % | $ | 66,263 | 100.00 | % | ||||||||||||
| Finance Agency and Office of Finance | $ | 9,822 | $ | 8,110 | $ | 6,395 | ||||||||||||||||||
(a) | ||
Other | ||
(b) | Operating expenses included the administrative and overhead costs of operating our Bank, as well as the operating costs of providing advances and managing collateral associated with the advances, managing the investment portfolios, and providing correspondent banking services to members. Computer service agreements and contractual services were higher in 2011 compared to 2010 and 2009, mainly because of additional software maintenance fees and expenses incurred in enhancing operating processes. | |
(c) | Compensation and benefits rose to $79.8 million in 2011, up from $58.2 million in 2010 and $49.8 in 2009, primarily because of additional contribution of $24.0 million to our Defined Benefit Plan and this amount was charged to Compensation and Benefits. | |
(d) | We were also assessed for our share of the operating expenses for the Finance Agency and the Office of Finance. The 12 FHLBanks and two other GSEs share the administrative cost of the Finance Agency and these expenses have also increased. . |
Assessments
Each FHLBank is required to set aside a portion of earnings to fund its Affordable Housing Program (“AHP”) and to satisfy its Resolution Funding Corporation assessment (“REFCORP”).REFCORP obligations. For more information, see “Affordable Housing Program and Other Mission Related Programs” and “Assessments” under ITEM 1 BUSINESS in this MD&A.
Affordable Housing ProgramAHP obligations— The Bank fulfils itsWe fulfill our AHP obligations primarily through direct grants to members, who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBNY sets aside 10Ten percent from itsof our annual pre-assessment regulatory net income is set aside for the Affordable Housing Program. Regulatory net income is defined as GAAP net income before interest expense on mandatorily redeemable capital stock and the assessment for AHP, but after the assessment for REFCORP.AHP. The amounts set aside are considered as the Bank’sour liability towards its Affordable Housing Programour AHP obligations. AHP grants and subsidies are provided to members out of this liability.
The following table provides roll-forward information with respect to changes in Affordable Housing ProgramAHP liabilities (in thousands):
Table 11.1:Affordable Housing Program Liabilities
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Beginning balance | $ | 144,489 | $ | 122,449 | $ | 119,052 | ||||||
| Additions from current period’s assessments | 31,095 | 64,251 | 29,783 | |||||||||
| Net disbursements for grants and programs | (37,219 | ) | (42,211 | ) | (26,386 | ) | ||||||
Ending balance | $ | 138,365 | $ | 144,489 | $ | 122,449 | ||||||
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Beginning balance |
| $ | 138,365 |
| $ | 144,489 |
| $ | 122,449 |
|
Additions from current period’s assessments |
| 27,430 |
| 31,095 |
| 64,251 |
| |||
Net disbursements for grants and programs |
| (38,341 | ) | (37,219 | ) | (42,211 | ) | |||
|
|
|
|
|
|
|
| |||
Ending balance |
| $ | 127,454 |
| $ | 138,365 |
| $ | 144,489 |
|
Subsequent to June 30, 2011, AHP is calculated as 10% of net income after adding interest payments on mandatorily redeemable stock.
REFCORP—- The following table provides roll-forward information with respect to changes in REFCORP liabilities (in thousands):
Table 11.2:REFCORP
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Beginning balance | $ | 24,234 | $ | 4,780 | $ | 23,998 | ||||||
| Additions from current period’s assessments | 68,881 | 142,689 | 64,765 | |||||||||
| Net disbursements to REFCORP | (71,498 | ) | (123,235 | ) | (83,983 | ) | ||||||
Ending balance | $ | 21,617 | $ | 24,234 | $ | 4,780 | ||||||
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Beginning balance |
| $ | 21,617 |
| $ | 24,234 |
| $ | 4,780 |
|
Additions from current period assessments |
| 30,707 |
| 68,881 |
| 142,689 |
| |||
Net disbursements to REFCORP |
| (52,324 | ) | (71,498 | ) | (123,235 | ) | |||
Ending balance |
| $ | — |
| $ | 21,617 |
| $ | 24,234 |
|
REFCORP and AHP assessments are calculated on Net income andIn the decreases werethird quarter of 2011, we recovered $365 thousand from a prior quarter in 2011 due to significant decrease in 2010 Net income compared to 2009. For more information about REFCORP and AHP assessments see the section Assessments in this Form 10-K.cash over payment.
| December 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| Advances | $ | 81,200,336 | $ | 94,348,751 | $ | 109,152,876 | $ | 82,089,667 | $ | 59,012,394 | ||||||||||
| Mortgage loans before allowance for credit losses | $ | 1,271,564 | $ | 1,322,045 | $ | 1,459,291 | $ | 1,492,261 | $ | 1,484,012 | ||||||||||
94ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
| Underlying Collateral for Advances | ||||||||||||||||
| Mortgage | Securities and | |||||||||||||||
| Advances1 | Loans2 | Deposits2 | Total2 | |||||||||||||
December 31, 2010 | $ | 76,939,539 | $ | 99,348,492 | $ | 42,461,442 | $ | 141,809,934 | ||||||||
December 31, 2009 | $ | 90,737,700 | $ | 111,346,235 | $ | 49,564,456 | $ | 160,910,691 | ||||||||
95
| Underlying Collateral for Other Obligations | ||||||||||||||||
| Other | Mortgage | Securities and | ||||||||||||||
| Obligations1 | Loans2 | Deposits2 | Total2 | |||||||||||||
December 31, 2010 | $ | 2,057,501 | $ | 5,772,835 | $ | 213,620 | $ | 5,986,455 | ||||||||
December 31, 2009 | $ | 720,622 | $ | 2,257,204 | $ | 126,970 | $ | 2,384,174 | ||||||||
| Estimated Market Values | ||||||||||||||||
| Collateral in | Collateral | Collateral | Total | |||||||||||||
| Physical | Specifically | Pledged for | Collateral | |||||||||||||
| Possession | Listed | AHP | Received | |||||||||||||
December 31, 2010 | $ | 48,604,470 | $ | 99,289,202 | $ | (97,283 | ) | $ | 147,796,389 | |||||||
December 31, 2009 | $ | 57,660,864 | $ | 105,714,763 | $ | (80,762 | ) | $ | 163,294,865 | |||||||
96
| December 31, 2010 | ||||||||||||||||||
| Percentage of | ||||||||||||||||||
| Par | Total Par Value | 12-months | ||||||||||||||||
| City | State | Advances | of Advances | Interest Income | ||||||||||||||
| Hudson City Savings Bank, FSB* | Paramus | NJ | $ | 17,025,000 | 22.1 | % | $ | 705,743 | ||||||||||
| Metropolitan Life Insurance Company | New York | NY | 12,555,000 | 16.3 | 294,526 | |||||||||||||
| New York Community Bank* | Westbury | NY | 7,793,165 | 10.1 | 307,102 | |||||||||||||
| MetLife Bank, N.A. | Bridgewater | NJ | 3,789,500 | 4.9 | 61,036 | |||||||||||||
| Manufacturers and Traders Trust Company | Buffalo | NY | 2,758,000 | 3.6 | 42,979 | |||||||||||||
| The Prudential Insurance Co. of America | Newark | NJ | 2,500,000 | 3.3 | 77,544 | |||||||||||||
| Astoria Federal Savings and Loan Assn. | Lake Success | NY | 2,391,000 | 3.1 | 107,917 | |||||||||||||
| Valley National Bank | Wayne | NJ | 2,310,500 | 3.0 | 98,680 | |||||||||||||
| New York Life Insurance Company | New York | NY | 1,500,000 | 2.0 | 14,678 | |||||||||||||
| First Niagara Bank, National Association | Buffalo | NY | 1,473,493 | 1.9 | 24,911 | |||||||||||||
Total | $ | 54,095,658 | 70.3 | % | $ | 1,735,116 | ||||||||||||
| December 31, 2009 | ||||||||||||||||||
| Percentage of | ||||||||||||||||||
| Par | Total Par Value | 12-months | ||||||||||||||||
| City | State | Advances | of Advances | Interest Income | ||||||||||||||
| Hudson City Savings Bank, FSB* | Paramus | NJ | $ | 17,275,000 | 19.0 | % | $ | 710,900 | ||||||||||
| Metropolitan Life Insurance Company | New York | NY | 13,680,000 | 15.1 | 356,120 | |||||||||||||
| New York Community Bank* | Westbury | NY | 7,343,174 | 8.1 | 310,991 | |||||||||||||
| Manufacturers and Traders Trust Company | Buffalo | NY | 5,005,641 | 5.5 | 97,628 | |||||||||||||
| The Prudential Insurance Co. of America | Newark | NJ | 3,500,000 | 3.9 | 93,601 | |||||||||||||
| Astoria Federal Savings and Loan Assn. | Lake Success | NY | 3,000,000 | 3.3 | 120,870 | |||||||||||||
| Emigrant Bank | New York | NY | 2,475,000 | 2.7 | 64,131 | |||||||||||||
| Doral Bank | San Juan | PR | 2,473,420 | 2.7 | 86,389 | |||||||||||||
| MetLife Bank, N.A. | Bridgewater | NJ | 2,430,500 | 2.7 | 46,142 | |||||||||||||
| Valley National Bank | Wayne | NJ | 2,322,500 | 2.6 | 103,707 | |||||||||||||
Total | $ | 59,505,235 | 65.6 | % | $ | 1,990,479 | ||||||||||||
| December 31, | Dollar | Percentage | ||||||||||||||
| 2010 | 2009 | Variance | Variance | |||||||||||||
State and local housing finance agency obligations1 | $ | 770,609 | $ | 751,751 | $ | 18,858 | 2.51 | % | ||||||||
| Mortgage-backed securities | ||||||||||||||||
| Available-for-sale securities, at fair value | 3,980,135 | 2,240,564 | 1,739,571 | 77.64 | ||||||||||||
| Held-to-maturity securities, at carrying value | 6,990,583 | 9,767,531 | (2,776,948 | ) | (28.43 | ) | ||||||||||
| Total securities | 11,741,327 | 12,759,846 | (1,018,519 | ) | (7.98 | ) | ||||||||||
Grantor trusts2 | 9,947 | 12,589 | (2,642 | ) | (20.99 | ) | ||||||||||
| Federal funds sold | 4,988,000 | 3,450,000 | 1,538,000 | 44.58 | ||||||||||||
| Total investments | $ | 16,739,274 | $ | 16,222,435 | $ | 516,839 | 3.19 | % | ||||||||
97
| NRSRO Ratings — December 31, 2010 | ||||||||||||||||||||||||
| Below | ||||||||||||||||||||||||
| Carrying | Investment | |||||||||||||||||||||||
| Issued, guaranteed or insured: | Value | AAA | AA | A | BBB | Grade | ||||||||||||||||||
Pools of Mortgages | ||||||||||||||||||||||||
| Fannie Mae | $ | 857,387 | $ | 857,387 | $ | — | $ | — | $ | — | $ | — | ||||||||||||
| Freddie Mac | 244,041 | 244,041 | — | — | — | — | ||||||||||||||||||
| Total pools of mortgages | 1,101,428 | 1,101,428 | — | — | — | — | ||||||||||||||||||
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits | ||||||||||||||||||||||||
| Fannie Mae | 1,637,261 | 1,637,261 | — | — | — | — | ||||||||||||||||||
| Freddie Mac | 2,790,103 | 2,790,103 | — | — | — | — | ||||||||||||||||||
| Ginnie Mae | 116,126 | 116,126 | — | — | — | — | ||||||||||||||||||
| Total CMOs/REMICs | 4,543,490 | 4,543,490 | — | — | — | — | ||||||||||||||||||
Commercial Mortgage-Backed Securities | ||||||||||||||||||||||||
| Fannie Mae | 100,492 | 100,492 | — | — | — | — | ||||||||||||||||||
| Freddie Mac | 375,901 | 375,901 | — | — | — | — | ||||||||||||||||||
| Ginnie Mae | 48,747 | 48,747 | — | — | — | — | ||||||||||||||||||
| Total commercial mortgage-backed securities | 525,140 | 525,140 | — | — | — | — | ||||||||||||||||||
Non-GSE MBS | ||||||||||||||||||||||||
| CMOs/REMICs | 292,477 | 188,598 | 7,812 | 17,469 | — | 78,598 | ||||||||||||||||||
Asset-Backed Securities | ||||||||||||||||||||||||
| Manufactured housing loans (insured) | 176,592 | — | 176,592 | — | — | — | ||||||||||||||||||
| Home equity loans (insured) | 191,637 | 9,614 | 70,679 | 21,182 | 13,538 | 76,624 | ||||||||||||||||||
| Home equity loans (uninsured) | 159,819 | 95,282 | 11,484 | 49,145 | 3,908 | — | ||||||||||||||||||
| Total asset-backed securities | 528,048 | 104,896 | 258,755 | 70,327 | 17,446 | 76,624 | ||||||||||||||||||
| Total HTM mortgage-backed securities | $ | 6,990,583 | $ | 6,463,552 | $ | 266,567 | $ | 87,796 | $ | 17,446 | $ | 155,222 | ||||||||||||
Other | ||||||||||||||||||||||||
| State and local housing finance agency obligations | $ | 770,609 | $ | 71,461 | $ | 631,943 | $ | — | $ | 67,205 | $ | — | ||||||||||||
| Total other | $ | 770,609 | $ | 71,461 | $ | 631,943 | — | $ | 67,205 | $ | — | |||||||||||||
Total Held-to-maturity securities | $ | 7,761,192 | $ | 6,535,013 | $ | 898,510 | $ | 87,796 | $ | 84,651 | $ | 155,222 | ||||||||||||
| NRSRO Ratings — December 31, 2010 | ||||||||||||||||
| Issued, guaranteed or insured: | Fair Value | AAA | AA | A | ||||||||||||
Pools of Mortgages | ||||||||||||||||
| Fannie Mae | $ | — | $ | — | $ | — | $ | — | ||||||||
| Freddie Mac | — | — | — | — | ||||||||||||
| Total pools of mortgages | — | — | — | — | ||||||||||||
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits | ||||||||||||||||
| Fannie Mae | 2,428,541 | 2,428,541 | — | — | ||||||||||||
| Freddie Mac | 1,429,900 | 1,429,900 | — | — | ||||||||||||
| Ginnie Mae | 71,922 | 71,922 | — | — | ||||||||||||
| Total CMOs/REMICs | 3,930,363 | 3,930,363 | — | — | ||||||||||||
Commercial Mortgage-Backed Securities | ||||||||||||||||
| Fannie Mae | 49,772 | 49,772 | — | — | ||||||||||||
Non-GSE MBS | ||||||||||||||||
| CMOs/REMICs | — | — | — | — | ||||||||||||
| Commercial mortgage-backed securities | — | — | — | — | ||||||||||||
| Total non-federal-agency MBS | — | — | — | — | ||||||||||||
Asset-Backed Securities | ||||||||||||||||
| Manufactured housing loans (insured) | — | — | — | — | ||||||||||||
| Home equity loans (insured) | — | — | — | — | ||||||||||||
| Home equity loans (uninsured) | — | — | — | — | ||||||||||||
| Total asset-backed securities | — | — | — | — | ||||||||||||
| Total AFS mortgage-backed securities | $ | 3,980,135 | $ | 3,980,135 | $ | — | $ | — | ||||||||
Other | ||||||||||||||||
Fixed income funds, equity funds and cash equivalents* | $ | 9,947 | ||||||||||||||
Total Available-for-sale securities | $ | 3,990,082 | ||||||||||||||
98
| December 31, | Percentage | December 31, | Percentage | |||||||||||||
| 2010 | of Total | 2009 | of Total | |||||||||||||
| U.S. government sponsored enterprise residential mortgage-backed securities | ||||||||||||||||
| Fannie Mae | $ | 2,494,647 | 35.69 | % | $ | 3,746,768 | 38.36 | % | ||||||||
| Freddie Mac | 3,034,145 | 43.40 | 4,735,371 | 48.48 | ||||||||||||
| U.S. agency residential mortgage-backed securities | 116,126 | 1.66 | 171,531 | 1.76 | ||||||||||||
| U.S. government sponsored enterprise commercial mortgage-backed securities | 476,393 | 6.81 | — | — | ||||||||||||
| U.S. agency commercial mortgage-backed securities | 48,748 | 0.70 | 49,526 | 0.51 | ||||||||||||
| Private-label issued securities | 820,524 | 11.74 | 1,064,335 | 10.89 | ||||||||||||
| Total Held-to-maturity securities-mortgage-backed securities | $ | 6,990,583 | 100.00 | % | $ | 9,767,531 | 100.00 | % | ||||||||
| December 31, 2010 | December 31, 2009 | |||||||||||||||||||||||
| Variable | Variable | |||||||||||||||||||||||
| Private-label MBS | Fixed Rate | Rate | Total | Fixed Rate | Rate | Total | ||||||||||||||||||
| Private-label RMBS | ||||||||||||||||||||||||
| Prime | $ | 284,552 | $ | 3,995 | $ | 288,547 | $ | 435,913 | $ | 4,359 | $ | 440,272 | ||||||||||||
| Alt-A | 5,877 | 3,276 | 9,153 | 7,229 | 3,713 | 10,942 | ||||||||||||||||||
| Total PL RMBS | 290,429 | 7,271 | 297,700 | 443,142 | 8,072 | 451,214 | ||||||||||||||||||
| �� | ||||||||||||||||||||||||
| Home Equity Loans | ||||||||||||||||||||||||
| Subprime | 389,031 | 81,835 | 470,866 | 437,042 | 108,801 | 545,843 | ||||||||||||||||||
| Total Home Equity Loans | 389,031 | 81,835 | 470,866 | 437,042 | 108,801 | 545,843 | ||||||||||||||||||
| Manufactured Housing Loans | ||||||||||||||||||||||||
| Subprime | 176,611 | — | 176,611 | 202,299 | — | 202,299 | ||||||||||||||||||
| Total Manufactured Housing Loans | 176,611 | — | 176,611 | 202,299 | — | 202,299 | ||||||||||||||||||
| Total UPB of private-label MBS | $ | 856,071 | $ | 89,106 | $ | 945,177 | $ | 1,082,483 | $ | 116,873 | $ | 1,199,356 | ||||||||||||
99
| Year Ended | ||||||||||||||||||||||||||||||||
| Quarter ended December 31, 2010 | December 31, 2010 | |||||||||||||||||||||||||||||||
| Insurer MBIA | Insurer Ambac | Uninsured | OTTI | |||||||||||||||||||||||||||||
| Security | Fair | Fair | Fair | Credit | Non-credit | |||||||||||||||||||||||||||
| Classification | UPB | Value | UPB | Value | UPB | Value | Loss | Loss | ||||||||||||||||||||||||
RMBS-Prime* | $ | — | $ | — | $ | — | $ | — | $ | 16,477 | $ | 15,827 | $ | (176 | ) | $ | (303 | ) | ||||||||||||||
HEL Subprime* | 11,375 | 6,932 | 6,282 | 3,863 | — | — | (8,146 | ) | 3,573 | |||||||||||||||||||||||
Total | $ | 11,375 | $ | 6,932 | $ | 6,282 | $ | 3,863 | $ | 16,477 | $ | 15,827 | $ | (8,322 | ) | $ | 3,270 | |||||||||||||||
| Quarter ended September 30, 2010 | ||||||||||||||||||||||||
| Insurer MBIA | Insurer Ambac | OTTI | ||||||||||||||||||||||
| Security | Fair | Fair | Credit | Non-credit | ||||||||||||||||||||
| Classification | UPB | Value | UPB | Value | Loss | Loss | ||||||||||||||||||
HEL Subprime* | $ | 31,876 | $ | 15,050 | $ | 16,341 | $ | 8,233 | $ | (3,067 | ) | $ | (2,569 | ) | ||||||||||
Total | $ | 31,876 | $ | 15,050 | $ | 16,341 | $ | 8,233 | $ | (3,067 | ) | $ | (2,569 | ) | ||||||||||
| Quarter ended June 30, 2010 | ||||||||||||||||||||||||
| Insurer MBIA | Insurer Ambac | OTTI | ||||||||||||||||||||||
| Security | Fair | Fair | Credit | Non-credit | ||||||||||||||||||||
| Classification | UPB | Value | UPB | Value | Loss | Loss | ||||||||||||||||||
HEL Subprime* | $ | 20,976 | $ | 9,044 | $ | 37,456 | $ | 22,564 | $ | (1,270 | ) | $ | (1,068 | ) | ||||||||||
Total | $ | 20,976 | $ | 9,044 | $ | 37,456 | $ | 22,564 | $ | (1,270 | ) | $ | (1,068 | ) | ||||||||||
| Quarter ended March 31, 2010 | ||||||||||||||||||||||||
| Insurer MBIA | Insurer Ambac | OTTI | ||||||||||||||||||||||
| Security | Fair | Fair | Credit | Non-credit | ||||||||||||||||||||
| Classification | UPB | Value | UPB | Value | Loss | Loss | ||||||||||||||||||
HEL Subprime* | $ | 21,637 | $ | 9,730 | $ | 45,476 | $ | 26,015 | $ | (3,400 | ) | $ | 473 | |||||||||||
Total | $ | 21,637 | $ | 9,730 | $ | 45,476 | $ | 26,015 | $ | (3,400 | ) | $ | 473 | |||||||||||
| December 31, 2010 | ||||||||||||||||||||||||
| AMBAC | MBIA | AGM * | ||||||||||||||||||||||
| Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
| Private-label MBS | UPB | Losses | UPB | Losses | UPB | Losses | ||||||||||||||||||
HEL | ||||||||||||||||||||||||
Subprime | ||||||||||||||||||||||||
| 2004 and earlier | $ | 173,220 | $ | (26,600 | ) | $ | 33,674 | $ | (5,443 | ) | $ | 77,885 | $ | (3,871 | ) | |||||||||
Manufactured Housing Loans | ||||||||||||||||||||||||
Subprime | ||||||||||||||||||||||||
| 2004 and earlier | — | — | — | — | 176,611 | (21,437 | ) | |||||||||||||||||
Total of all Private-label MBS | $ | 173,220 | $ | (26,600 | ) | $ | 33,674 | $ | (5,443 | ) | $ | 254,496 | $ | (25,308 | ) | |||||||||
100
| December 31, 2010 | ||||||||||||||||||||||||||||||||||||||||
| Unpaid Principal Balance | ||||||||||||||||||||||||||||||||||||||||
| Below | Gross | |||||||||||||||||||||||||||||||||||||||
| Ratings | Investment | Amortized | Unrealized | Total OTTI | ||||||||||||||||||||||||||||||||||||
| Private-label MBS | Subtotal | Triple-A | Double-A | Single-A | Triple-B | Grade | Cost | (Losses) | Fair Value | Losses | ||||||||||||||||||||||||||||||
RMBS | ||||||||||||||||||||||||||||||||||||||||
Prime | ||||||||||||||||||||||||||||||||||||||||
| 2006 | $ | 40,987 | $ | — | $ | — | $ | — | $ | — | $ | 40,987 | $ | 40,413 | $ | (303 | ) | $ | 40,313 | $ | (479 | ) | ||||||||||||||||||
| 2005 | 59,456 | — | — | 17,664 | — | 41,792 | 57,863 | (589 | ) | 57,763 | — | |||||||||||||||||||||||||||||
| 2004 and earlier | 188,104 | 180,110 | 7,994 | — | — | — | 187,256 | (388 | ) | 191,029 | — | |||||||||||||||||||||||||||||
| Total RMBS Prime | 288,547 | 180,110 | 7,994 | 17,664 | — | 82,779 | 285,532 | (1,280 | ) | 289,105 | (479 | ) | ||||||||||||||||||||||||||||
Alt-A | ||||||||||||||||||||||||||||||||||||||||
| 2004 and earlier | 9,153 | 9,153 | — | — | — | — | 9,154 | (528 | ) | 8,684 | — | |||||||||||||||||||||||||||||
| Total RMBS | 297,700 | 189,263 | 7,994 | 17,664 | — | 82,779 | 294,686 | (1,808 | ) | 297,789 | (479 | ) | ||||||||||||||||||||||||||||
HEL | ||||||||||||||||||||||||||||||||||||||||
Subprime | ||||||||||||||||||||||||||||||||||||||||
| 2004 and earlier | 470,866 | 124,936 | 88,402 | 89,465 | 27,984 | 140,079 | 442,173 | (64,076 | ) | 378,992 | (4,573 | ) | ||||||||||||||||||||||||||||
Manufactured Housing Loans | ||||||||||||||||||||||||||||||||||||||||
Subprime | ||||||||||||||||||||||||||||||||||||||||
| 2004 and earlier | 176,611 | — | 176,611 | — | — | — | 176,592 | (21,437 | ) | 155,155 | — | |||||||||||||||||||||||||||||
Total PLMBS | $ | 945,177 | $ | 314,199 | $ | 273,007 | $ | 107,129 | $ | 27,984 | $ | 222,858 | $ | 913,451 | $ | (87,321 | ) | $ | 831,936 | $ | (5,052 | ) | ||||||||||||||||||
| December 31, 2009 | ||||||||||||||||||||||||||||||||||||||||
| Unpaid Principal Balance | ||||||||||||||||||||||||||||||||||||||||
| Below | Gross | |||||||||||||||||||||||||||||||||||||||
| Ratings | Investment | Amortized | Unrealized | Total OTTI | ||||||||||||||||||||||||||||||||||||
| Private-label MBS | Subtotal | Triple-A | Double-A | Single-A | Triple-B | Grade | Cost | (Losses) | Fair Value | Losses | ||||||||||||||||||||||||||||||
RMBS | ||||||||||||||||||||||||||||||||||||||||
Prime | ||||||||||||||||||||||||||||||||||||||||
| 2006 | $ | 63,276 | $ | — | $ | — | $ | 38,689 | $ | — | $ | 24,587 | $ | 62,654 | $ | (2,396 | ) | $ | 60,258 | $ | — | |||||||||||||||||||
| 2005 | 82,982 | 28,687 | — | — | — | 54,295 | 80,996 | (1,708 | ) | 79,288 | (3,204 | ) | ||||||||||||||||||||||||||||
| 2004 and earlier | 294,014 | 281,240 | 12,774 | — | — | — | 292,773 | (3,696 | ) | 289,958 | — | |||||||||||||||||||||||||||||
| Total RMBS Prime | 440,272 | 309,927 | 12,774 | 38,689 | — | 78,882 | 436,423 | (7,800 | ) | 429,504 | (3,204 | ) | ||||||||||||||||||||||||||||
Alt-A | ||||||||||||||||||||||||||||||||||||||||
| 2004 and earlier | 10,942 | 10,942 | — | — | — | — | 10,944 | (938 | ) | 10,006 | — | |||||||||||||||||||||||||||||
| Total RMBS | 451,214 | 320,869 | 12,774 | 38,689 | — | 78,882 | 447,367 | (8,738 | ) | 439,510 | (3,204 | ) | ||||||||||||||||||||||||||||
HEL | ||||||||||||||||||||||||||||||||||||||||
Subprime | ||||||||||||||||||||||||||||||||||||||||
| 2004 and earlier | 545,843 | 205,480 | 91,782 | 48,838 | 43,035 | 156,708 | 525,260 | (151,818 | ) | 373,442 | (137,708 | ) | ||||||||||||||||||||||||||||
Manufactured Housing Loans | ||||||||||||||||||||||||||||||||||||||||
Subprime | ||||||||||||||||||||||||||||||||||||||||
| 2004 and earlier | 202,299 | — | 202,299 | — | — | — | 202,278 | (37,101 | ) | 165,177 | — | |||||||||||||||||||||||||||||
Total PLMBS | $ | 1,199,356 | $ | 526,349 | $ | 306,855 | $ | 87,527 | $ | 43,035 | $ | 235,590 | $ | 1,174,905 | $ | (197,657 | ) | $ | 978,129 | $ | (140,912 | ) | ||||||||||||||||||
101
| December 31, 2010 | ||||||||||||
| Original | ||||||||||||
| Weighted- | Weighted- | Weighted-Average | ||||||||||
| Average Credit | Average Credit | Collateral | ||||||||||
| Private-label MBS | Support % | Support % | Delinquency % | |||||||||
RMBS | ||||||||||||
Prime | ||||||||||||
| 2006 | 3.81 | % | 5.30 | % | 6.94 | % | ||||||
| 2005 | 2.52 | 4.29 | 3.05 | |||||||||
| 2004 and earlier | 1.56 | 3.40 | 0.65 | |||||||||
| Total RMBS Prime | 2.08 | 3.86 | 2.04 | |||||||||
Alt-A | ||||||||||||
| 2004 and earlier | 11.11 | 33.38 | 7.42 | |||||||||
| Total RMBS | 2.36 | 4.76 | 2.20 | |||||||||
HEL | ||||||||||||
Subprime | �� | |||||||||||
| 2004 and earlier | 57.15 | 64.57 | 17.26 | |||||||||
Manufactured Housing Loans | ||||||||||||
Subprime | ||||||||||||
| 2004 and earlier | 100.00 | 100.00 | 3.51 | |||||||||
Total Private-label MBS | 47.90 | % | 52.36 | % | 9.95 | % | ||||||
| December 31, 2009 | ||||||||||||
| Original | ||||||||||||
| Weighted- | Weighted- | Weighted-Average | ||||||||||
| Average Credit | Average Credit | Collateral | ||||||||||
| Private-label MBS | Support % | Support % | Delinquency % | |||||||||
RMBS | ||||||||||||
Prime | ||||||||||||
| 2006 | 3.74 | % | 5.16 | % | 5.47 | % | ||||||
| 2005 | 2.67 | 3.82 | 2.32 | |||||||||
| 2004 and earlier | 1.58 | 2.82 | 0.79 | |||||||||
| Total RMBS Prime | 2.10 | 3.35 | 1.75 | |||||||||
Alt-A | ||||||||||||
| 2004 and earlier | 10.73 | 32.35 | 11.22 | |||||||||
| Total RMBS | 2.30 | 4.05 | 1.98 | |||||||||
HEL | ||||||||||||
Subprime | ||||||||||||
| 2004 and earlier | 57.86 | 65.34 | 17.40 | |||||||||
Manufactured Housing Loans | ||||||||||||
Subprime | ||||||||||||
| 2004 and earlier | 57.78 | 55.56 | 3.64 | |||||||||
Total Private-label MBS | 36.95 | % | 40.63 | % | 9.28 | % | ||||||
102
| December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Original MPF | $ | 343,925 | $ | 280,312 | $ | 197,516 | ||||||
| MPF 100 | 23,591 | 30,542 | 36,838 | |||||||||
| MPF 125 | 392,780 | 392,097 | 467,479 | |||||||||
| MPF 125 Plus | 494,917 | 606,002 | 742,523 | |||||||||
| Other | 9,408 | 9,883 | 10,991 | |||||||||
| Total MPF Loans * | $ | 1,264,621 | $ | 1,318,836 | $ | 1,455,347 | ||||||
103
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Mortgage loans, net of provisions for credit losses | $ | 1,265,804 | $ | 1,317,547 | ||||
| Non-performing mortgage loans | $ | 26,781 | $ | 16,007 | ||||
| Insured MPF loans past due 90 days or more and still accruing interest | $ | 574 | $ | 570 | ||||
| December 31, 2010 | ||||||||||||||||||||
| Unpaid | Average | Interest | ||||||||||||||||||
| Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
| Investment | Balance | Allowance | Investment | Recognized | ||||||||||||||||
With no related allowance: | ||||||||||||||||||||
Conventional MPF Loans1 | $ | 5,876 | $ | 5,856 | $ | — | $ | 4,867 | $ | — | ||||||||||
| Insured Loans | — | — | — | — | — | |||||||||||||||
| $ | 5,876 | $ | 5,856 | $ | — | $ | 4,867 | $ | — | |||||||||||
With an allowance: | ||||||||||||||||||||
Conventional MPF Loans1 | $ | 20,909 | $ | 20,925 | $ | 5,760 | $ | 18,402 | $ | — | ||||||||||
| Insured Loans | — | — | — | — | — | |||||||||||||||
| $ | 20,909 | $ | 20,925 | $ | 5,760 | $ | 18,402 | $ | — | |||||||||||
Total: | ||||||||||||||||||||
Conventional MPF Loans1 | $ | 26,785 | $ | 26,781 | $ | 5,760 | $ | 23,269 | $ | — | ||||||||||
| Insured Loans | — | — | — | — | — | |||||||||||||||
| $ | 26,785 | $ | 26,781 | $ | 5,760 | $ | 23,269 | $ | — | |||||||||||
| December 31, 2009 | ||||||||||||||||||||
| Unpaid | Average | Interest | ||||||||||||||||||
| Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
| Investment | Balance | Allowance | Investment | Recognized | ||||||||||||||||
With no related allowance: | ||||||||||||||||||||
Conventional MPF Loans1 | $ | 3,222 | $ | 3,211 | $ | — | $ | 2,277 | $ | — | ||||||||||
| Insured Loans | — | — | — | — | — | |||||||||||||||
| $ | 3,222 | $ | 3,211 | $ | — | $ | 2,277 | $ | — | |||||||||||
With an allowance: | ||||||||||||||||||||
Conventional MPF Loans1 | $ | 12,786 | $ | 12,796 | $ | 4,498 | $ | 9,433 | $ | — | ||||||||||
| Insured Loans | — | — | — | — | — | |||||||||||||||
| $ | 12,786 | $ | 12,796 | $ | 4,498 | $ | 9,433 | $ | — | |||||||||||
Total: | ||||||||||||||||||||
Conventional MPF Loans1 | $ | 16,008 | $ | 16,007 | $ | 4,498 | $ | 11,710 | $ | — | ||||||||||
| Insured Loans | — | — | — | — | — | |||||||||||||||
| $ | 16,008 | $ | 16,007 | $ | 4,498 | $ | 11,710 | $ | — | |||||||||||
104
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Interest contractually due1 | $ | 1,254 | $ | 714 | $ | 168 | ||||||
| Interest actually received | 1,171 | 626 | 146 | |||||||||
| Shortfall | $ | 83 | $ | 88 | $ | 22 | ||||||
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Beginning balance | $ | 4,498 | $ | 1,406 | $ | 633 | ||||||
| Charge-offs | (223 | ) | (16 | ) | — | |||||||
| Recoveries | 76 | — | — | |||||||||
| Provision for credit losses on mortgage loans | 1,409 | 3,108 | 773 | |||||||||
Ending balance | $ | 5,760 | $ | 4,498 | $ | 1,406 | ||||||
105
| December 31, 2010 | ||||||||
| Mortgage | Percent of Total | |||||||
| Loans | Mortgage Loans | |||||||
| Manufacturers and Traders Trust Company | $ | 495,821 | 39.32 | % | ||||
| Astoria Federal Savings and Loan Association | 225,407 | 17.88 | ||||||
| Community Bank fka Elmira Svgs & Ln Assn | 45,963 | 3.65 | ||||||
| OceanFirst Bank | 50,292 | 3.99 | ||||||
| CFCU Community Credit Union | 37,839 | 3.00 | ||||||
| All Others | 405,500 | 32.16 | ||||||
Total1 | $ | 1,260,822 | 100.00 | % | ||||
| December 31, 2009 | ||||||||
| Mortgage | Percent of Total | |||||||
| Loans | Mortgage Loans | |||||||
| Manufacturers and Traders Trust Company | $ | 607,072 | 46.17 | % | ||||
| Astoria Federal Savings and Loan Association | 220,268 | 16.75 | ||||||
| Elmira Savings and Loan F.A. | 61,663 | 4.69 | ||||||
| Ocean First Bank | 51,277 | 3.90 | ||||||
| CFCU Community Credit Union | 42,344 | 3.22 | ||||||
| All Others | 332,304 | 25.27 | ||||||
Total1 | $ | 1,314,928 | 100.00 | % | ||||
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Beginning balance | $ | 13,934 | $ | 13,765 | $ | 12,947 | ||||||
| Additions | 850 | 349 | 839 | |||||||||
| Resets* | (2,600 | ) | (157 | ) | — | |||||||
| Charge-offs | (223 | ) | (23 | ) | (21 | ) | ||||||
| Recoveries | — | — | — | |||||||||
Ending balance | $ | 11,961 | $ | 13,934 | $ | 13,765 | ||||||
106
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Second Loss Position | $ | 24,574 | $ | 18,064 | $ | 14,300 | ||||||
| SMI Coverage | $ | 17,958 | $ | 17,958 | $ | 17,958 | ||||||
| December 31, | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
| Number of | Amounts | Number of | Amounts | Number of | Amounts | |||||||||||||||||||
| loans % | outstanding % | loans % | outstanding % | loans % | outstanding % | |||||||||||||||||||
| New York State | 73.3 | % | 67.7 | % | 73.5 | % | 66.7 | % | 73.3 | % | 69.8 | % | ||||||||||||
107
| December 31, 2010 | ||||||||||||||||||||||||
| Total Net | Credit Exposure | Other | Net | |||||||||||||||||||||
| Number of | Notional | Exposure at | Net of | Collateral | Credit | |||||||||||||||||||
| Credit Rating | Counterparties | Balance | Fair Value | Cash Collateral3 | Held2 | Exposure | ||||||||||||||||||
| AAA | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
| AA | 8 | 43,283,429 | 25,385 | 16,085 | — | 16,085 | ||||||||||||||||||
| A | 8 | 77,132,931 | — | — | — | — | ||||||||||||||||||
Members (Notes1&2) | 2 | 275,000 | 5,925 | 5,925 | 5,925 | — | ||||||||||||||||||
| Delivery Commitments | — | 29,993 | — | — | — | — | ||||||||||||||||||
Total | 18 | $ | 120,721,353 | $ | 31,310 | $ | 22,010 | $ | 5,925 | $ | 16,085 | |||||||||||||
| December 31, 2009 | ||||||||||||||||||||||||
| Total Net | Credit Exposure | Other | Net | |||||||||||||||||||||
| Number of | Notional | Exposure at | Net of | Collateral | Credit | |||||||||||||||||||
| Credit Rating | Counterparties | Balance | Fair Value | Cash Collateral3 | Held2 | Exposure | ||||||||||||||||||
| AAA | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
| AA | 7 | 45,652,167 | 684 | 684 | — | 684 | ||||||||||||||||||
| A | 8 | 88,711,243 | — | — | — | — | ||||||||||||||||||
Members (Notes1&2) | 2 | 160,000 | 7,596 | 7,596 | 7,596 | — | ||||||||||||||||||
| Delivery Commitments | — | 4,210 | — | — | — | — | ||||||||||||||||||
Total | 17 | $ | 134,527,620 | $ | 8,280 | $ | 8,280 | $ | 7,596 | $ | 684 | |||||||||||||
108
109
| December 31, 2010 | ||||||||||||||||||||
| Payments Due or Expiration Terms by Period | ||||||||||||||||||||
| Less Than | One Year | Greater Than Three | Greater Than | |||||||||||||||||
| One Year | to Three Years | Years to Five Years | Five Years | Total | ||||||||||||||||
| Contractual Obligations | ||||||||||||||||||||
Consolidated obligations-bonds at par1 | $ | 33,302,200 | $ | 26,567,325 | $ | 7,690,755 | $ | 3,421,700 | $ | 70,981,980 | ||||||||||
Mandatorily redeemable capital stock1 | 27,875 | 17,019 | 2,035 | 16,290 | 63,219 | |||||||||||||||
Premises (lease obligations)2 | 3,060 | 6,177 | 4,674 | 4,090 | 18,001 | |||||||||||||||
| Total contractual obligations | 33,333,135 | 26,590,521 | 7,697,464 | 3,442,080 | 71,063,200 | |||||||||||||||
| Other commitments | ||||||||||||||||||||
| Standby letters of credit | 2,218,352 | 19,769 | 42,472 | 3,861 | 2,284,454 | |||||||||||||||
| Consolidated obligations-bonds/ discount notes traded not settled | 58,000 | — | — | — | 58,000 | |||||||||||||||
| Commitment to fund pension | 11,952 | — | — | — | 11,952 | |||||||||||||||
| Open delivery commitments (MPF) | 29,993 | — | — | — | 29,993 | |||||||||||||||
| Total other commitments | 2,318,297 | 19,769 | 42,472 | 3,861 | 2,384,399 | |||||||||||||||
Total obligations and commitments | $ | 35,651,432 | $ | 26,610,290 | $ | 7,739,936 | $ | 3,445,941 | $ | 73,447,599 | ||||||||||
110
Our primary tool used by management to achieve the desired risk profile is the use of interest rate exchange agreements (“Swaps”). All the LIBOR-based advances are long-term advances that are swapped to 3- or 1-month LIBOR or possess adjustable rates which periodically reset to a LIBOR index. Similarly, a majority of the long-term consolidated obligations are swapped to 3- or 1-month LIBOR. These features create a relatively steady income that changes in concert with prevailing interest rate changes to maintain a spread to short-term rates.
Despite itsthe conservative philosophy, IRR does arise from a number of aspects of the FHLBNY’sin our portfolio. These include the embedded prepayment rights, refunding needs, rate resets between the FHLBNY’s short-term assets and liabilities, and basis risks arising from differences between the yield curves associated with the FHLBNY’s assets and its liabilities. To address these risks, the FHLBNY useswe use certain key IRR measures including re-pricing gaps, duration of equity (“DOE”), value at risk (“VaR”), net interest income (“NII”) at risk, key rate durations (“KRD”), and forecasted dividend rates.
Risk Measurements.The FHLBNY’s Our Risk Management Policy sets up a series of risk limits that the FHLBNY calculateswe calculate on a regular basis. The risk limits are as follows:
·The option-adjusted DOE is limited to a range of +2.0 years to -3.5 years in the rates unchanged case, and to a range of +/-6.0 years in the +/-200bps shock cases. Due to the low interest rate environment beginning in early 2008, the December 2009,2010, March 2010,2011, June 2010,2011, September 2010,2011, and December 20102011 rates were too low for a meaningful parallel down-shock measurement.
·The one-year cumulative re-pricing gap is limited to 10 percent of total assets.
·The sensitivity of expected net interest income over a one-year period is limited to a -15 percent change under both the +/-200bps shocks compared to the rates unchanged case.
·The potential decline in the market value of equity is limited to a 10 percent change under the +/-200bps shocks.
·KRD exposure at any of nine term points (3-month, 1-year, 2-year, 3-year, 5-year, 7-year, 10-year, 15-year, and 30-year) is limited to between +/-12 months through the 3-year term point and a cumulative limit of +/-30 months from the 5-year through 30-year term points.
Our portfolio, including its derivatives, is tracked and the overall mismatch between assets and liabilities is summarized by using a DOE measure. The FHLBNY’sOur last five quarterly DOE results are shown in years in the table below (note that, due(due to the on-going low interest rate environment, there was no down-shock measurement performed between the fourth quarter of 20092010 and the fourth quarter of 2010)2011):
| Base Case DOE | -200bps DOE | +200bps DOE | ||||||||||
| December 31, 2009 | 0.42 | N/A | 3.68 | |||||||||
| March 31, 2010 | -0.51 | N/A | 3.81 | |||||||||
| June 30, 2010 | -1.20 | N/A | 2.80 | |||||||||
| September 30, 2010 | -2.13 | N/A | 1.46 | |||||||||
| December 31, 2010 | -1.09 | N/A | 2.92 | |||||||||
|
| Base Case DOE |
| -200bps DOE |
| +200bps DOE |
|
December 31, 2010 |
| -1.09 |
| N/A |
| 2.92 |
|
March 31, 2011 |
| -0.29 |
| N/A |
| 3.48 |
|
June 30, 2011 |
| -0.36 |
| N/A |
| 2.68 |
|
September 30, 2011 |
| -1.22 |
| N/A |
| 1.49 |
|
December 31, 2011 |
| 0.02 |
| N/A |
| 2.67 |
|
The DOE has remained within itspolicy limits. Duration indicates any cumulative re-pricing/maturity imbalance in the FHLBNY’sportfolio’s financial assets and liabilities. A positive DOE indicates that, on average, the liabilities will re-price or mature sooner than the assets, while a negative DOE indicates that, on average, the assets will re-price or mature earlier than the liabilities. The FHLBNY measures itsWe measure DOE using software that incorporates any optionality within the FHLBNY’sour portfolio using well-known and tested financial pricing theoretical models.
We do not solely rely on the DOE measure as a mismatch measure between its assets and liabilities. ItWe also performsperform the more traditional gap measure that subtracts re-pricing/maturing liabilities from re-pricing/maturing assets over time. The FHLBNY observesWe observe the differences over various horizons, but hashave set a 10 percent of assets limit on cumulative re-pricings at the one-year point. This quarterly observation of the one-year cumulative re-pricing gap is provided in the table below and all values are below 10 percent of assets;assets well within the limit:
One Year Re- | |||||
December 31, 2010 | $ | 5.565 Billion | |||
March 31, 2011 | $ | 5.123 Billion | |||
June 30, 2011 | $ | 5.571 Billion | |||
September 30, 2011 | $ | 6.548 Billion | |||
December 31, 2011 | $ | 5.641 Billion | |||
Sensitivity in | Sensitivity in | |||||||
December 31, 2010 | N/A | 9.05 | % | |||||
March 31, 2011 | N/A | 3.90 | % | |||||
June 30, 2011 | N/A | 12.26 | % | |||||
September 30, 2011 | N/A | 17.31 | % | |||||
December 31, 2011 | N/A | 13.93 | % | |||||
Aside from net interest income, the other significant impact on changes in the interest rate environment is the potential impact on the value of the portfolio. These calculated and quoted market values are estimated based upon their financial attributes including optionality(including optionality) and then re-estimated under the assumption that interest rates suddenly rise or fall by 200bps. The worst effect, whether it is the up or the down shock, is compared to the internal limit of 10 percent. The quarterly potential maximum decline in the market value of equity under these 200bps shocks is provided below (note that, due(due to the on-goingongoing low interest rate environment, the down-shock measurement was not performed between the fourth quarter of 20092010 and the fourth quarter of 2010)2011):
Down-shock Change | ||||||||
+200bps Change in | ||||||||
December 31, 2010 | N/A | -2.75 | % | |||||
March 31, 2011 | N/A | -3.96 | % | |||||
June 30, 2011 | N/A | -2.52 | % | |||||
September 30, 2011 | N/A | 0.51 | % | |||||
December 31, 2011 | N/A | -2.26 | % | |||||
As noted, the potential declines under these shocks are within the FHLBNY’sour limits of a maximum 10 percent.
|
| Interest Rate Sensitivity |
| |||||||||||||
|
| December 31, 2011 |
| |||||||||||||
|
|
|
| More Than |
| More Than |
| More Than |
|
|
| |||||
|
| Six Months |
| Six Months to |
| One Year to |
| Three Years to |
| More Than |
| |||||
|
| or Less |
| One Year |
| Three Years |
| Five Years |
| Five Years |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Non-MBS Investments |
| $ | 15,436 |
| $ | 229 |
| $ | 455 |
| $ | 216 |
| $ | 337 |
|
MBS Investments |
| 8,954 |
| 527 |
| 571 |
| 214 |
| 2,306 |
| |||||
Adjustable-rate loans and advances |
| 6,271 |
| — |
| — |
| — |
| — |
| |||||
Net unswapped |
| 30,661 |
| 756 |
| 1,026 |
| 430 |
| 2,643 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fixed-rate loans and advances |
| 14,242 |
| 3,746 |
| 12,147 |
| 17,034 |
| 13,551 |
| |||||
Swaps hedging advances |
| 44,910 |
| (3,379 | ) | (11,415 | ) | (16,618 | ) | (13,498 | ) | |||||
Net fixed-rate loans and advances |
| 59,152 |
| 367 |
| 732 |
| 416 |
| 53 |
| |||||
Loans to other FHLBanks |
| — |
| — |
| — |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total interest-earning assets |
| $ | 89,813 |
| $ | 1,123 |
| $ | 1,758 |
| $ | 846 |
| $ | 2,696 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits |
| $ | 2,130 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Discount notes |
| 21,239 |
| 885 |
| — |
| — |
| — |
| |||||
Swapped discount notes |
| (248 | ) | (610 | ) | — |
| — |
| 858 |
| |||||
Net discount notes |
| 20,991 |
| 275 |
| — |
| — |
| 858 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Consolidated Obligation Bonds |
|
|
|
|
|
|
|
|
|
|
| |||||
FHLB bonds |
| 20,922 |
| 13,594 |
| 24,443 |
| 4,272 |
| 3,217 |
| |||||
Swaps hedging bonds |
| 40,478 |
| (13,095 | ) | (22,740 | ) | (2,923 | ) | (1,720 | ) | |||||
Net FHLB bonds |
| 61,400 |
| 499 |
| 1,703 |
| 1,349 |
| 1,497 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total interest-bearing liabilities |
| $ | 84,521 |
| $ | 774 |
| $ | 1,703 |
| $ | 1,349 |
| $ | 2,355 |
|
Post hedge gaps (a): |
|
|
|
|
|
|
|
|
|
|
| |||||
Periodic gap |
| $ | 5,292 |
| $ | 349 |
| $ | 55 |
| $ | (503 | ) | $ | 341 |
|
Cumulative gaps |
| $ | 5,292 |
| $ | 5,641 |
| $ | 5,696 |
| $ | 5,193 |
| $ | 5,534 |
|
|
| Interest Rate Sensitivity |
| |||||||||||||
|
| December 31, 2010 |
| |||||||||||||
|
|
|
| More Than |
| More Than |
| More Than |
|
|
| |||||
|
| Six Months |
| Six Months to |
| One Year to |
| Three Years to |
| More Than |
| |||||
|
| or Less |
| One Year |
| Three Years |
| Five Years |
| Five Years |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Non-MBS Investments |
| $ | 9,240 |
| $ | 169 |
| $ | 374 |
| $ | 245 |
| $ | 399 |
|
MBS Investments |
| 7,306 |
| 874 |
| 1,485 |
| 411 |
| 993 |
| |||||
Adjustable-rate loans and advances |
| 8,121 |
| — |
| — |
| — |
| — |
| |||||
Net unswapped |
| 24,667 |
| 1,043 |
| 1,859 |
| 656 |
| 1,392 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fixed-rate loans and advances |
| 10,994 |
| 3,469 |
| 13,971 |
| 10,561 |
| 29,824 |
| |||||
Swaps hedging advances |
| 56,262 |
| (3,041 | ) | (13,069 | ) | (10,347 | ) | (29,805 | ) | |||||
Net fixed-rate loans and advances |
| 67,256 |
| 428 |
| 902 |
| 214 |
| 19 |
| |||||
Loans to other FHLBanks |
| — |
| — |
| — |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total interest-earning assets |
| $ | 91,923 |
| $ | 1,471 |
| $ | 2,761 |
| $ | 870 |
| $ | 1,411 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits |
| $ | 2,454 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Discount notes |
| 19,120 |
| 271 |
| — |
| — |
| — |
| |||||
Swapped discount notes |
| 100 |
| (100 | ) | — |
| — |
| — |
| |||||
Net discount notes |
| 19,220 |
| 171 |
| — |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Consolidated Obligation Bonds |
|
|
|
|
|
|
|
|
|
|
| |||||
FHLB bonds |
| 21,722 |
| 14,333 |
| 23,856 |
| 7,793 |
| 3,410 |
| |||||
Swaps hedging bonds |
| 43,497 |
| (13,567 | ) | (21,638 | ) | (6,167 | ) | (2,125 | ) | |||||
Net FHLB bonds |
| 65,219 | �� | 766 |
| 2,218 |
| 1,626 |
| 1,285 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total interest-bearing liabilities |
| $ | 86,893 |
| $ | 937 |
| $ | 2,218 |
| $ | 1,626 |
| $ | 1,285 |
|
Post hedge gaps (a): |
|
|
|
|
|
|
|
|
|
|
| |||||
Periodic gap |
| $ | 5,030 |
| $ | 534 |
| $ | 543 |
| $ | (756 | ) | $ | 126 |
|
Cumulative gaps |
| $ | 5,030 |
| $ | 5,564 |
| $ | 6,107 |
| $ | 5,351 |
| $ | 5,477 |
|
(a) Re-pricing gaps are estimated at the scheduled rate reset dates for floating rate instruments, and at maturity for fixed rate instruments. For callable instruments, the re-pricing period is estimated by the earlier of the estimated call date under the current interest rate environment or the instrument’s contractual maturity.
| Interest Rate Sensitivity | ||||||||||||||||||||
| December 31, 2010 | ||||||||||||||||||||
| More Than | More Than | More Than | ||||||||||||||||||
| Six Months | Six Months to | One Year to | Three Years to | More Than | ||||||||||||||||
| or Less | One Year | Three Years | Five Years | Five Years | ||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||
| Non-MBS Investments | $ | 9,240 | $ | 169 | $ | 374 | $ | 245 | $ | 399 | ||||||||||
| MBS Investments | 7,306 | 874 | 1,485 | 411 | 993 | |||||||||||||||
| Adjustable-rate loans and advances | 8,121 | — | — | — | — | |||||||||||||||
| Net unswapped | 24,667 | 1,043 | 1,859 | 656 | 1,392 | |||||||||||||||
| Fixed-rate loans and advances | 10,994 | 3,469 | 13,971 | 10,561 | 29,824 | |||||||||||||||
| Swaps hedging advances | 56,262 | (3,041 | ) | (13,069 | ) | (10,347 | ) | (29,805 | ) | |||||||||||
| Net fixed-rate loans and advances | 67,256 | 428 | 902 | 214 | 19 | |||||||||||||||
| Loans to other FHLBanks | — | — | — | — | — | |||||||||||||||
Total interest-earning assets | $ | 91,923 | $ | 1,471 | $ | 2,761 | $ | 870 | $ | 1,411 | ||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||
| Deposits | $ | 2,454 | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Discount notes | 19,120 | 271 | — | — | — | |||||||||||||||
| Swapped discount notes | 100 | (100 | ) | |||||||||||||||||
| Net discount notes | 19,220 | 171 | — | — | — | |||||||||||||||
| Consolidated Obligation Bonds | ||||||||||||||||||||
| FHLB bonds | 21,722 | 14,333 | 23,856 | 7,793 | 3,410 | |||||||||||||||
| Swaps hedging bonds | 43,497 | (13,567 | ) | (21,638 | ) | (6,167 | ) | (2,125 | ) | |||||||||||
| Net FHLB bonds | 65,219 | 766 | 2,218 | 1,626 | 1,285 | |||||||||||||||
Total interest-bearing liabilities | $ | 86,893 | $ | 937 | $ | 2,218 | $ | 1,626 | $ | 1,285 | ||||||||||
Post hedge gaps1: | ||||||||||||||||||||
| Periodic gap | $ | 5,030 | $ | 534 | $ | 543 | $ | (756 | ) | $ | 126 | |||||||||
| Cumulative gaps | $ | 5,030 | $ | 5,564 | $ | 6,107 | $ | 5,351 | $ | 5,477 | ||||||||||
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE | ||
113
| Interest Rate Sensitivity | ||||||||||||||||||||
| December 31, 2009 | ||||||||||||||||||||
| More Than | More Than | More Than | ||||||||||||||||||
| Six Months | Six Months to | One Year to | Three Years to | More Than | ||||||||||||||||
| or Less | One Year | Three Years | Five Years | Five Years | ||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||
| Non-MBS Investments | $ | 8,621 | $ | 124 | $ | 371 | $ | 249 | $ | 587 | ||||||||||
| MBS Investments | 6,773 | 903 | 2,420 | 1,167 | 879 | |||||||||||||||
| Adjustable-rate loans and advances | 14,101 | — | — | — | — | |||||||||||||||
| Net unswapped | 29,495 | 1,027 | 2,791 | 1,416 | 1,466 | |||||||||||||||
| Fixed-rate loans and advances | 9,588 | 7,853 | 16,124 | 8,254 | 34,814 | |||||||||||||||
| Swaps hedging advances | 63,852 | (6,722 | ) | (14,389 | ) | (7,950 | ) | (34,791 | ) | |||||||||||
| Net fixed-rate loans and advances | 73,440 | 1,131 | 1,735 | 304 | 23 | |||||||||||||||
| Loans to other FHLBanks | — | — | — | — | — | |||||||||||||||
Total interest-earning assets | $ | 102,935 | $ | 2,158 | $ | 4,526 | $ | 1,720 | $ | 1,489 | ||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||
| Deposits | $ | 2,590 | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Discount notes | 28,770 | 2,057 | — | — | — | |||||||||||||||
| Swapped discount notes | 1,422 | (1,422 | ) | — | — | — | ||||||||||||||
| Net discount notes | 30,192 | 635 | — | — | — | |||||||||||||||
| Consolidated Obligation Bonds | ||||||||||||||||||||
| FHLB bonds | 25,717 | 16,014 | 22,829 | 6,033 | 2,844 | |||||||||||||||
| Swaps hedging bonds | 39,617 | (14,298 | ) | (19,513 | ) | (4,501 | ) | (1,305 | ) | |||||||||||
| Net FHLB bonds | 65,334 | 1,716 | 3,316 | 1,532 | 1,539 | |||||||||||||||
Total interest-bearing liabilities | $ | 98,116 | $ | 2,351 | $ | 3,316 | $ | 1,532 | $ | 1,539 | ||||||||||
Post hedge gaps1: | ||||||||||||||||||||
| Periodic gap | $ | 4,819 | $ | (193 | ) | $ | 1,210 | $ | 188 | $ | (50 | ) | ||||||||
| Cumulative gaps | $ | 4,819 | $ | 4,626 | $ | 5,836 | $ | 6,024 | $ | 5,974 | ||||||||||
Financial Statements |
114
87 | ||||
88 | ||||
89 | ||||
90 | ||||
91 | ||||
92 | ||||
94 | ||||
Supplementary Data | ||||
Supplementary financial data for each full quarter within the two years ended | ||||
December 31, | ||||
Friday, March 25, 2011
The management of the Federal Home Loan Bank of New York (the “Bank”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Bank’s internal control over financial reporting is designed by, or under the supervision of, the Principal Executive Officer and the Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. The Bank’s management assessed the effectiveness of the Bank’s internal control over financial reporting as of December 31, 2010.2011. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) inInternal Control-Integrated Framework. Based on its assessment, management of the Bank determined that as of December 31, 2010,2011, the Bank’s internal control over financial reporting was effective based on those criteria.
PricewaterhouseCoopers LLP, the Bank’s independent registered public accounting firm that audited the accompanying Financial Statements has also issued an audit report on the effectiveness of internal control over financial reporting. Their report, which expresses an unqualified opinion on the effectiveness of the Bank’s internal control over financial reporting as of December 31, 2010,2011, appears on the following page.
Tothe Board of Directors and Shareholders of the Federal Home Loan Bank of New York:
In our opinion, the accompanying statements of condition and the related statements of income, of capital and of cash flowspresent fairly, in all material respects, the financial position of the Federal Home Loan Bank of New York (the “Bank”) at December 31, 20102011 and 2009,2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010,2011 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Bank maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, 2011,based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Bank’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Bank’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, NY
March 25, 2011
Statements of Condition (in thousands, except par value)value of capital stock)
| December 31, 2010 | December 31, 2009 | |||||||
Assets | ||||||||
| Cash and due from banks (Note 3) | $ | 660,873 | $ | 2,189,252 | ||||
| Federal funds sold | 4,988,000 | 3,450,000 | ||||||
| Available-for-sale securities, net of unrealized gains (losses) of $22,965 at December 31, 2010 and ($3,409) at December 31, 2009 (Note 6) | 3,990,082 | 2,253,153 | ||||||
| Held-to-maturity securities (Note 5) | ||||||||
| Long-term securities | 7,761,192 | 10,519,282 | ||||||
| Advances (Note 7) | 81,200,336 | 94,348,751 | ||||||
| Mortgage loans held-for-portfolio, net of allowance for credit losses of $5,760 at December 31, 2010 and $4,498 at December 31, 2009 (Note 8) | 1,265,804 | 1,317,547 | ||||||
| Accrued interest receivable | 287,335 | 340,510 | ||||||
| Premises, software, and equipment | 14,932 | 14,792 | ||||||
| Derivative assets (Note 18) | 22,010 | 8,280 | ||||||
| Other assets | 21,506 | 19,339 | ||||||
Total assets | $ | 100,212,070 | $ | 114,460,906 | ||||
Liabilities and capital | ||||||||
Liabilities | ||||||||
| Deposits (Note 9) | ||||||||
| Interest-bearing demand | $ | 2,401,882 | $ | 2,616,812 | ||||
| Non-interest bearing demand | 9,898 | 6,499 | ||||||
| Term | 42,700 | 7,200 | ||||||
| Total deposits | 2,454,480 | 2,630,511 | ||||||
| Consolidated obligations, net (Note 11) | ||||||||
| Bonds (Includes $14,281,463 at December 31, 2010 and $6,035,741 at December 31, 2009 at fair value under the fair value option) | 71,742,627 | 74,007,978 | ||||||
| Discount notes (Includes $956,338 at December 31, 2010 and $0 at December 31, 2009 at fair value under the fair value option) | 19,391,452 | 30,827,639 | ||||||
| Total consolidated obligations | 91,134,079 | 104,835,617 | ||||||
| Mandatorily redeemable capital stock (Note 12) | 63,219 | 126,294 | ||||||
| Accrued interest payable | 197,266 | 277,788 | ||||||
| Affordable Housing Program (Note 13) | 138,365 | 144,489 | ||||||
| Payable to REFCORP (Note 13) | 21,617 | 24,234 | ||||||
| Derivative liabilities (Note 18) | 954,898 | 746,176 | ||||||
| Other liabilities | 103,777 | 72,506 | ||||||
Total liabilities | 95,067,701 | 108,857,615 | ||||||
Commitments and Contingencies(Notes 11, 13, 18 and 20) | ||||||||
Capital(Note 14) | ||||||||
| Capital stock ($100 par value), putable, issued and outstanding shares: | ||||||||
| 45,290 at December 31, 2010 and 50,590 at December 31, 2009 | 4,528,962 | 5,058,956 | ||||||
| Retained earnings | 712,091 | 688,874 | ||||||
| Accumulated other comprehensive income (loss) (Note 15) | ||||||||
| Net unrealized gains (losses) on available-for-sale securities | 22,965 | (3,409 | ) | |||||
| Non-credit portion of OTTI on held-to-maturity securities, net of accretion | (92,926 | ) | (110,570 | ) | ||||
| Net unrealized losses on hedging activities | (15,196 | ) | (22,683 | ) | ||||
| Employee supplemental retirement plans (Note 17) | (11,527 | ) | (7,877 | ) | ||||
Total capital | 5,144,369 | 5,603,291 | ||||||
Total liabilities and capital | $ | 100,212,070 | $ | 114,460,906 | ||||
|
| December 31, 2011 |
| December 31, 2010 |
| ||
Assets |
|
|
|
|
| ||
Cash and due from banks (Note 3) |
| $ | 10,877,790 |
| $ | 660,873 |
|
Federal funds sold |
| 970,000 |
| 4,988,000 |
| ||
Available-for-sale securities, net of unrealized gains of $16,419 at December 31, 2011 and $22,965 at December 31, 2010 (Note 5) |
| 3,142,636 |
| 3,990,082 |
| ||
Held-to-maturity securities (Note 4) |
|
|
|
|
| ||
Long-term securities |
| 10,123,805 |
| 7,761,192 |
| ||
Advances (Note 6) |
| 70,863,777 |
| 81,200,336 |
| ||
Mortgage loans held-for-portfolio, net of allowance for credit losses of $6,786 at December 31, 2011 and $5,760 at December 31, 2010 (Note 7) |
| 1,408,460 |
| 1,265,804 |
| ||
Accrued interest receivable |
| 223,848 |
| 287,335 |
| ||
Premises, software, and equipment |
| 13,487 |
| 14,932 |
| ||
Derivative assets (Note 16) |
| 25,131 |
| 22,010 |
| ||
Other assets |
| 13,406 |
| 21,506 |
| ||
|
|
|
|
|
| ||
Total assets |
| $ | 97,662,340 |
| $ | 100,212,070 |
|
|
|
|
|
|
| ||
Liabilities and capital |
|
|
|
|
| ||
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
| ||
Deposits (Note 8) |
|
|
|
|
| ||
Interest-bearing demand |
| $ | 2,066,598 |
| $ | 2,401,882 |
|
Non-interest bearing demand |
| 12,450 |
| 9,898 |
| ||
Term |
| 22,000 |
| 42,700 |
| ||
|
|
|
|
|
| ||
Total deposits |
| 2,101,048 |
| 2,454,480 |
| ||
|
|
|
|
|
| ||
Consolidated obligations, net (Note 10) |
|
|
|
|
| ||
Bonds (Includes $12,542,603 at December 31, 2011 and $14,281,463 at December 31, 2010 at fair value under the fair value option) |
| 67,440,522 |
| 71,742,627 |
| ||
Discount notes (Includes $4,920,855 at December 31, 2011 and $956,338 at December 31, 2010 at fair value under the fair value option) |
| 22,123,325 |
| 19,391,452 |
| ||
|
|
|
|
|
| ||
Total consolidated obligations |
| 89,563,847 |
| 91,134,079 |
| ||
|
|
|
|
|
| ||
Mandatorily redeemable capital stock (Note 12) |
| 54,827 |
| 63,219 |
| ||
|
|
|
|
|
| ||
Accrued interest payable |
| 146,247 |
| 197,266 |
| ||
Affordable Housing Program |
| 127,454 |
| 138,365 |
| ||
Payable to REFCORP |
| — |
| 21,617 |
| ||
Derivative liabilities (Note 16) |
| 486,166 |
| 954,898 |
| ||
Other liabilities |
| 136,340 |
| 103,777 |
| ||
|
|
|
|
|
| ||
Total liabilities |
| 92,615,929 |
| 95,067,701 |
| ||
|
|
|
|
|
| ||
Commitments and Contingencies (Notes 12, 16 and 18) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Capital (Note 12) |
|
|
|
|
| ||
Capital stock ($100 par value), putable, issued and outstanding shares: 44,906 at December 31, 2011 and 45,290 at December 31, 2010 |
| 4,490,601 |
| 4,528,962 |
| ||
Retained earnings |
|
|
|
|
| ||
Unrestricted |
| 722,198 |
| 712,091 |
| ||
Restricted (Note 12) |
| 24,039 |
| — |
| ||
Total retained earnings |
| 746,237 |
| 712,091 |
| ||
Accumulated other comprehensive income (loss) (Note 13) |
|
|
|
|
| ||
Net unrealized gains on available-for-sale securities |
| 16,419 |
| 22,965 |
| ||
Non-credit portion of OTTI on held-to-maturity securities, net of accretion |
| (75,849 | ) | (92,926 | ) | ||
Net unrealized losses on hedging activities |
| (111,985 | ) | (15,196 | ) | ||
Employee supplemental retirement plans (Note 15) |
| (19,012 | ) | (11,527 | ) | ||
|
|
|
|
|
| ||
Total capital |
| 5,046,411 |
| 5,144,369 |
| ||
|
|
|
|
|
| ||
Total liabilities and capital |
| $ | 97,662,340 |
| $ | 100,212,070 |
|
The accompanying notes are an integral part of these financial statements.
Statements of Income (in thousands, except per share data)
| 2010 | 2009 | 2008 | ||||||||||
| Interest income | ||||||||||||
| Advances (Note 7) | $ | 614,801 | $ | 1,270,643 | $ | 3,030,799 | ||||||
| Interest-bearing deposits | 5,461 | 19,865 | 28,012 | |||||||||
| Federal funds sold | 9,061 | 3,238 | 77,976 | |||||||||
| Available-for-sale securities (Note 6) | 31,465 | 28,842 | 80,746 | |||||||||
| Held-to-maturity securities (Note 5) | ||||||||||||
| Long-term securities | 352,398 | 461,491 | 531,151 | |||||||||
| Certificates of deposit | — | 1,626 | 232,300 | |||||||||
| Mortgage loans held-for-portfolio (Note 8) | 65,422 | 71,980 | 77,862 | |||||||||
| Loans to other FHLBanks and other | — | 2 | 33 | |||||||||
Total interest income | 1,078,608 | 1,857,687 | 4,058,879 | |||||||||
| Interest expense | ||||||||||||
| Consolidated obligations-bonds (Note 11) | 572,730 | 953,970 | 2,620,431 | |||||||||
| Consolidated obligations-discount notes (Note 11) | 42,237 | 193,041 | 697,729 | |||||||||
| Deposits (Note 9) | 3,502 | 2,512 | 36,193 | |||||||||
| Mandatorily redeemable capital stock (Note 12) | 4,329 | 7,507 | 8,984 | |||||||||
| Cash collateral held and other borrowings (Note 21) | 26 | 49 | 1,044 | |||||||||
Total interest expense | 622,824 | 1,157,079 | 3,364,381 | |||||||||
Net interest income before provision for credit losses | 455,784 | 700,608 | 694,498 | |||||||||
| Provision for credit losses on mortgage loans | 1,409 | 3,108 | 773 | |||||||||
Net interest income after provision for credit losses | 454,375 | 697,500 | 693,725 | |||||||||
| Other income (loss) | ||||||||||||
| Service fees | 4,918 | 4,165 | 3,357 | |||||||||
| Instruments held at fair value — Unrealized (losses) gains (Note 19) | (3,343 | ) | 15,523 | (8,325 | ) | |||||||
| Total OTTI losses | (5,052 | ) | (140,912 | ) | — | |||||||
| Net amount of impairment losses reclassified (from) to Accumulated other comprehensive loss | (3,270 | ) | 120,096 | — | ||||||||
| Net impairment losses recognized in earnings | (8,322 | ) | (20,816 | ) | — | |||||||
| Net realized and unrealized (losses) gains on derivatives and hedging activities (Note 18) | 26,756 | 164,700 | (199,259 | ) | ||||||||
| Net realized gains from sale of available-for-sale securities and redemption of held-to-maturity securities (Note 5 and 6) | 931 | 721 | 1,058 | |||||||||
| Provision for derivative counterparty credit losses (Notes 18 and 20) | — | — | (64,523 | ) | ||||||||
| Other | (4,399 | ) | 77 | 233 | ||||||||
Total other income (loss) | 16,541 | 164,370 | (267,459 | ) | ||||||||
| Other expenses | ||||||||||||
| Operating | 85,593 | 76,065 | 66,263 | |||||||||
| Finance Agency and Office of Finance | 9,822 | 8,110 | 6,395 | |||||||||
Total other expenses | 95,415 | 84,175 | 72,658 | |||||||||
Income before assessments | 375,501 | 777,695 | 353,608 | |||||||||
| Affordable Housing Program (Note 13) | 31,095 | 64,251 | 29,783 | |||||||||
| REFCORP (Note 13) | 68,881 | 142,689 | 64,765 | |||||||||
Total assessments | 99,976 | 206,940 | 94,548 | |||||||||
Net income | $ | 275,525 | $ | 570,755 | $ | 259,060 | ||||||
| �� | ||||||||||||
Basic earnings per share (Note 16) | $ | 5.86 | $ | 10.88 | $ | 5.26 | ||||||
Cash dividends paid per share | $ | 5.24 | $ | 4.95 | $ | 6.55 | ||||||
|
| December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
Interest income |
|
|
|
|
|
|
| |||
Advances (Note 6) |
| $ | 504,118 |
| $ | 614,801 |
| $ | 1,270,643 |
|
Interest-bearing deposits |
| 2,834 |
| 5,461 |
| 19,865 |
| |||
Federal funds sold |
| 6,746 |
| 9,061 |
| 3,238 |
| |||
Available-for-sale securities (Note 5) |
| 30,248 |
| 31,465 |
| 28,842 |
| |||
Held-to-maturity securities (Note 4) |
|
|
|
|
|
|
| |||
Long-term securities |
| 279,602 |
| 352,398 |
| 461,491 |
| |||
Certificates of deposit |
| — |
| — |
| 1,626 |
| |||
Mortgage loans held-for-portfolio (Note 7) |
| 62,942 |
| 65,422 |
| 71,980 |
| |||
Loans to other FHLBanks and other (Note 19) |
| 4 |
| — |
| 2 |
| |||
|
|
|
|
|
|
|
| |||
Total interest income |
| 886,494 |
| 1,078,608 |
| 1,857,687 |
| |||
|
|
|
|
|
|
|
| |||
Interest expense |
|
|
|
|
|
|
| |||
Consolidated obligations-bonds (Note 10) |
| 406,166 |
| 572,730 |
| 953,970 |
| |||
Consolidated obligations-discount notes (Note 10) |
| 34,704 |
| 42,237 |
| 193,041 |
| |||
Deposits (Note 8) |
| 1,243 |
| 3,502 |
| 2,512 |
| |||
Mandatorily redeemable capital stock (Note 12) |
| 2,384 |
| 4,329 |
| 7,507 |
| |||
Cash collateral held and other borrowings (Note 16) |
| 82 |
| 26 |
| 49 |
| |||
|
|
|
|
|
|
|
| |||
Total interest expense |
| 444,579 |
| 622,824 |
| 1,157,079 |
| |||
|
|
|
|
|
|
|
| |||
Net interest income before provision for credit losses |
| 441,915 |
| 455,784 |
| 700,608 |
| |||
|
|
|
|
|
|
|
| |||
Provision for credit losses on mortgage loans |
| 3,153 |
| 1,409 |
| 3,108 |
| |||
|
|
|
|
|
|
|
| |||
Net interest income after provision for credit losses |
| 438,762 |
| 454,375 |
| 697,500 |
| |||
|
|
|
|
|
|
|
| |||
Other income (loss) |
|
|
|
|
|
|
| |||
Service fees and other |
| 5,909 |
| 4,918 |
| 4,165 |
| |||
Instruments held at fair value - Unrealized gains (losses)(Note 17) |
| (10,494 | ) | (3,343 | ) | 15,523 |
| |||
|
|
|
|
|
|
|
| |||
Total OTTI losses |
| (791 | ) | (5,052 | ) | (140,912 | ) | |||
Net amount of impairment losses reclassified (from) to Accumulated other comprehensive income (loss) |
| (4,802 | ) | (3,270 | ) | 120,096 |
| |||
Net impairment losses recognized in earnings |
| (5,593 | ) | (8,322 | ) | (20,816 | ) | |||
|
|
|
|
|
|
|
| |||
Net realized and unrealized gains on derivatives and hedging activities (Note 16) |
| 83,539 |
| 26,756 |
| 164,700 |
| |||
Net realized gains from sale of available-for-sale securities and redemption of held-to-maturity securities (Note 4 and 5) |
| 17 |
| 931 |
| 721 |
| |||
Gains (Losses) from extinguishment of debt and other |
| (87,210 | ) | (4,399 | ) | 77 |
| |||
|
|
|
|
|
|
|
| |||
Total other income (loss) |
| (13,832 | ) | 16,541 |
| 164,370 |
| |||
|
|
|
|
|
|
|
| |||
Other expenses |
|
|
|
|
|
|
| |||
Operating |
| 29,207 |
| 27,373 |
| 26,287 |
| |||
Compensation and benefits |
| 79,795 |
| 58,220 |
| 49,778 |
| |||
Finance Agency and Office of Finance |
| 13,305 |
| 9,822 |
| 8,110 |
| |||
|
|
|
|
|
|
|
| |||
Total other expenses |
| 122,307 |
| 95,415 |
| 84,175 |
| |||
|
|
|
|
|
|
|
| |||
Income before assessments |
| 302,623 |
| 375,501 |
| 777,695 |
| |||
|
|
|
|
|
|
|
| |||
Affordable Housing Program (Note 11) |
| 27,430 |
| 31,095 |
| 64,251 |
| |||
REFCORP (Note 11) |
| 30,707 |
| 68,881 |
| 142,689 |
| |||
|
|
|
|
|
|
|
| |||
Total assessments |
| 58,137 |
| 99,976 |
| 206,940 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 244,486 |
| $ | 275,525 |
| $ | 570,755 |
|
|
|
|
|
|
|
|
| |||
Basic earnings per share (Note 14) |
| $ | 5.46 |
| $ | 5.86 |
| $ | 10.88 |
|
|
|
|
|
|
|
|
| |||
Cash dividends paid per share |
| $ | 4.70 |
| $ | 5.24 |
| $ | 4.95 |
|
The accompanying notes are an integral part of these financial statements.
119
Statements of Capital (in thousands, except per share data)
Years Ended December 31, 2011, 2010 2009 and 20082009
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| |||||||
|
| Capital Stock (a) |
|
|
|
|
|
|
| Other |
|
|
| Total |
| |||||||||
|
| Class B |
| Retained Earnings |
| Comprehensive |
| Total |
| Comprehensive |
| |||||||||||||
|
| Shares |
| Par Value |
| Unrestricted |
| Restricted |
| Total |
| Income (Loss) |
| Capital |
| Income (Loss) |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, December 31, 2008 |
| 55,857 |
| $ | 5,585,700 |
| $ | 382,856 |
| $ | — |
| $ | 382,856 |
| $ | (101,161 | ) | $ | 5,867,395 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Proceeds from sale of capital stock |
| 32,095 |
| 3,209,506 |
| — |
| — |
| — |
| — |
| 3,209,506 |
|
|
| |||||||
Redemption of capital stock |
| (36,864 | ) | (3,686,402 | ) | — |
| — |
| — |
| — |
| (3,686,402 | ) |
|
| |||||||
Shares reclassified to mandatorily redeemable capital stock |
| (498 | ) | (49,848 | ) | — |
| — |
| — |
| — |
| (49,848 | ) |
|
| |||||||
Cash dividends ($4.95 per share) on capital stock |
| — |
| — |
| (264,737 | ) | — |
| (264,737 | ) | — |
| (264,737 | ) |
|
| |||||||
Net Income |
| — |
| — |
| 570,755 |
| — |
| 570,755 |
| — |
| 570,755 |
| $ | 570,755 |
| ||||||
Net change in Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Non-credit portion of OTTI on held-to-maturity securities, net of accretion |
| — |
| — |
| — |
| — |
| — |
| (113,562 | ) | (113,562 | ) | (113,562 | ) | |||||||
Reclassification of non-credit OTTI to net income |
| — |
| — |
| — |
| — |
| — |
| 2,992 |
| 2,992 |
| 2,992 |
| |||||||
Net unrealized gains on available-for-sale securities |
| — |
| — |
| — |
| — |
| — |
| 61,011 |
| 61,011 |
| 61,011 |
| |||||||
Hedging activities |
| — |
| — |
| — |
| — |
| — |
| 7,508 |
| 7,508 |
| 7,508 |
| |||||||
Employee supplemental retirement plans |
| — |
| — |
| — |
| — |
| — |
| (1,327 | ) | (1,327 | ) | (1,327 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, December 31, 2009 |
| 50,590 |
| $ | 5,058,956 |
| $ | 688,874 |
| $ | — |
| $ | 688,874 |
| $ | (144,539 | ) | $ | 5,603,291 |
| $ | 527,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Proceeds from sale of capital stock |
| 18,749 |
| $ | 1,874,910 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 1,874,910 |
|
|
| |
Redemption of capital stock |
| (23,566 | ) | (2,356,594 | ) | — |
| — |
| — |
| — |
| (2,356,594 | ) |
|
| |||||||
Shares reclassified to mandatorily redeemable capital stock |
| (483 | ) | (48,310 | ) | — |
| — |
| — |
| — |
| (48,310 | ) |
|
| |||||||
Cash dividends ($5.24 per share) on capital stock |
| — |
| — |
| (252,308 | ) | — |
| (252,308 | ) | — |
| (252,308 | ) |
|
| |||||||
Net Income |
| — |
| — |
| 275,525 |
| — |
| 275,525 |
| — |
| 275,525 |
| $ | 275,525 |
| ||||||
Net change in Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Non-credit portion of OTTI on held-to-maturity securities, net of accretion |
| — |
| — |
| — |
| — |
| — |
| 12,002 |
| 12,002 |
| 12,002 |
| |||||||
Reclassification of non-credit OTTI to net income |
| — |
| — |
| — |
| — |
| — |
| 5,642 |
| 5,642 |
| 5,642 |
| |||||||
Net unrealized gains on available-for-sale securities |
| — |
| — |
| — |
| — |
| — |
| 26,374 |
| 26,374 |
| 26,374 |
| |||||||
Hedging activities |
| — |
| — |
| — |
| — |
| — |
| 7,487 |
| 7,487 |
| 7,487 |
| |||||||
Employee supplemental retirement plans |
| — |
| — |
| — |
| — |
| — |
| (3,650 | ) | (3,650 | ) | (3,650 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, December 31, 2010 |
| 45,290 |
| $ | 4,528,962 |
| $ | 712,091 |
| $ | — |
| $ | 712,091 |
| $ | (96,684 | ) | $ | 5,144,369 |
| $ | 323,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Proceeds from sale of capital stock |
| 23,956 |
| $ | 2,395,681 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 2,395,681 |
|
|
| |
Redemption of capital stock |
| (24,304 | ) | (2,430,428 | ) | — |
| — |
| — |
| — |
| (2,430,428 | ) |
|
| |||||||
Shares reclassified to mandatorily redeemable capital stock |
| (36 | ) | (3,614 | ) | — |
| — |
| — |
| — |
| (3,614 | ) |
|
| |||||||
Cash dividends ($4.70 per share) on capital stock |
| — |
| — |
| (210,340 | ) | — |
| (210,340 | ) | — |
| (210,340 | ) |
|
| |||||||
Net Income |
| — |
| — |
| 220,447 |
| 24,039 |
| 244,486 |
| — |
| 244,486 |
| $ | 244,486 |
| ||||||
Net change in Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Non-credit portion of OTTI on held-to-maturity securities, net of accretion |
| — |
| — |
| — |
| — |
| — |
| 11,960 |
| 11,960 |
| 11,960 |
| |||||||
Reclassification of non-credit OTTI to net income |
| — |
| — |
| — |
| — |
| — |
| 5,117 |
| 5,117 |
| 5,117 |
| |||||||
Net unrealized losses on available-for-sale securities |
| — |
| — |
| — |
| — |
| — |
| (6,546 | ) | (6,546 | ) | (6,546 | ) | |||||||
Hedging activities |
| — |
| — |
| — |
| — |
| — |
| (96,789 | ) | (96,789 | ) | (96,789 | ) | |||||||
Employee supplemental retirement plans |
| — |
| — |
| — |
| — |
| — |
| (7,485 | ) | (7,485 | ) | (7,485 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, December 31, 2011 |
| 44,906 |
| $ | 4,490,601 |
| $ | 722,198 |
| $ | 24,039 |
| $ | 746,237 |
| $ | (190,427 | ) | $ | 5,046,411 |
| $ | 150,743 |
|
| 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 | 51,315 | 5,131,525 | — | — | 5,131,525 | |||||||||||||||||||
| Redemption of capital stock | (38,490 | ) | (3,849,038 | ) | — | — | (3,849,038 | ) | ||||||||||||||||
| Shares reclassified to mandatorily redeemable capital stock | (648 | ) | (64,758 | ) | — | — | (64,758 | ) | ||||||||||||||||
| Cash dividends ($6.55 per share) on capital stock | — | — | (294,499 | ) | — | (294,499 | ) | |||||||||||||||||
| Net Income | — | — | 259,060 | — | 259,060 | $ | 259,060 | |||||||||||||||||
| Net change in Accumulated other comprehensive income (loss): | ||||||||||||||||||||||||
| Net unrealized losses on available-for-sale securities | — | — | — | (64,047 | ) | (64,047 | ) | (64,047 | ) | |||||||||||||||
| Hedging activities | — | — | — | 24 | 24 | 24 | ||||||||||||||||||
| Employee supplemental retirement plans | — | — | — | (1,463 | ) | (1,463 | ) | (1,463 | ) | |||||||||||||||
| $ | 193,574 | |||||||||||||||||||||||
Balance, December 31, 2008 | 55,857 | $ | 5,585,700 | $ | 382,856 | $ | (101,161 | ) | $ | 5,867,395 | ||||||||||||||
| Proceeds from sale of capital stock | 32,095 | $ | 3,209,506 | $ | — | $ | — | $ | 3,209,506 | |||||||||||||||
| Redemption of capital stock | (36,864 | ) | (3,686,402 | ) | — | — | (3,686,402 | ) | ||||||||||||||||
| Shares reclassified to mandatorily redeemable capital stock | (498 | ) | (49,848 | ) | — | — | (49,848 | ) | ||||||||||||||||
| Cash dividends ($4.95 per share) on capital stock | — | — | (264,737 | ) | — | (264,737 | ) | |||||||||||||||||
| Net Income | — | — | 570,755 | — | 570,755 | $ | 570,755 | |||||||||||||||||
| Net change in Accumulated other comprehensive income (loss): | ||||||||||||||||||||||||
| Non-credit portion of OTTI on held-to-maturity securities, net of accretion | — | — | — | (110,570 | ) | (110,570 | ) | (110,570 | ) | |||||||||||||||
| Net unrealized gains on available-for-sale securities | — | — | — | 61,011 | 61,011 | 61,011 | ||||||||||||||||||
| Hedging activities | — | — | — | 7,508 | 7,508 | 7,508 | ||||||||||||||||||
| Employee supplemental retirement plans | — | — | — | (1,327 | ) | (1,327 | ) | (1,327 | ) | |||||||||||||||
| $ | 527,377 | |||||||||||||||||||||||
Balance, December 31, 2009 | 50,590 | $ | 5,058,956 | $ | 688,874 | $ | (144,539 | ) | $ | 5,603,291 | ||||||||||||||
| Proceeds from sale of capital stock | 18,749 | $ | 1,874,910 | $ | — | $ | — | $ | 1,874,910 | |||||||||||||||
| Redemption of capital stock | (23,566 | ) | (2,356,594 | ) | — | — | (2,356,594 | ) | ||||||||||||||||
| Shares reclassified to mandatorily redeemable capital stock | (483 | ) | (48,310 | ) | — | — | (48,310 | ) | ||||||||||||||||
| Cash dividends ($5.24 per share) on capital stock | — | — | (252,308 | ) | — | (252,308 | ) | |||||||||||||||||
| Net Income | — | — | 275,525 | — | 275,525 | $ | 275,525 | |||||||||||||||||
| Net change in Accumulated other comprehensive income (loss): | ||||||||||||||||||||||||
| Non-credit portion of OTTI on held-to-maturity securities, net of accretion | — | — | — | 17,644 | 17,644 | 17,644 | ||||||||||||||||||
| Net unrealized gains on available-for-sale securities | — | — | — | 26,374 | 26,374 | 26,374 | ||||||||||||||||||
| Hedging activities | — | — | — | 7,487 | 7,487 | 7,487 | ||||||||||||||||||
| Employee supplemental retirement plans | — | — | — | (3,650 | ) | (3,650 | ) | (3,650 | ) | |||||||||||||||
| $ | 323,380 | |||||||||||||||||||||||
Balance, December 31, 2010 | 45,290 | $ | 4,528,962 | $ | 712,091 | $ | (96,684 | ) | $ | 5,144,369 | ||||||||||||||
(a) Putable stock
The accompanying notes are an integral part of these financial statements.
Statements of Cash Flows — (in thousands)
| 2010 | 2009 | 2008 | ||||||||||
Operating activities | ||||||||||||
| Net Income | $ | 275,525 | $ | 570,755 | $ | 259,060 | ||||||
| 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 | (61,255 | ) | (120,715 | ) | (78,409 | ) | ||||||
| Concessions on consolidated obligations | 12,978 | 7,006 | 8,772 | |||||||||
| Premises, software, and equipment | 5,646 | 5,405 | 4,971 | |||||||||
| Provision for derivative counterparty credit losses | — | — | 64,523 | |||||||||
| Provision for credit losses on mortgage loans | 1,409 | 3,108 | 773 | |||||||||
| Net realized (gains) from redemption of held-to-maturity securities | (223 | ) | (281 | ) | (1,058 | ) | ||||||
| Net realized (gains) from sale of available-for-sale securities | (708 | ) | (440 | ) | — | |||||||
| Credit impairment losses on held-to-maturity securities | 8,322 | 20,816 | — | |||||||||
| Change in net fair value adjustments on derivatives and hedging activities | 504,841 | 188,151 | (386,416 | ) | ||||||||
| Change in fair value adjustments on financial instruments held at fair value | 3,343 | (15,523 | ) | 8,325 | ||||||||
| Net change in: | ||||||||||||
| Accrued interest receivable | 53,175 | 152,345 | 69,467 | |||||||||
| Derivative assets due to accrued interest | 67,998 | 246,371 | 185,343 | |||||||||
| Derivative liabilities due to accrued interest | (37,141 | ) | (252,684 | ) | 78,731 | |||||||
| Other assets | (2,584 | ) | 814 | (67,367 | ) | |||||||
| Affordable Housing Program liability | (6,124 | ) | 22,040 | 3,397 | ||||||||
| Accrued interest payable | (73,358 | ) | (153,033 | ) | (222,109 | ) | ||||||
| REFCORP liability | (2,617 | ) | 19,454 | (19,218 | ) | |||||||
| Other liabilities | 11,117 | (1,575 | ) | 3,813 | ||||||||
| Total adjustments | 484,819 | 121,259 | (346,462 | ) | ||||||||
Net cash provided (used) by operating activities | 760,344 | 692,014 | (87,402 | ) | ||||||||
Investing activities | ||||||||||||
| Net change in: | ||||||||||||
| Interest-bearing deposits | (502,374 | ) | 13,768,437 | (15,609,066 | ) | |||||||
| Federal funds sold | (1,538,000 | ) | (3,450,000 | ) | 4,381,000 | |||||||
| Deposits with other FHLBanks | 66 | (25 | ) | (67 | ) | |||||||
| Premises, software, and equipment | (5,786 | ) | (6,404 | ) | (5,610 | ) | ||||||
| Held-to-maturity securities: | ||||||||||||
| Long-term securities | ||||||||||||
| Purchased | (551,113 | ) | (3,511,033 | ) | (2,284,435 | ) | ||||||
| Repayments | 3,302,202 | 2,919,664 | 2,334,966 | |||||||||
| In-substance maturities | 22,523 | 77,701 | 102,390 | |||||||||
| Net change in certificates of deposit | — | 1,203,000 | 9,097,200 | |||||||||
| Available-for-sale securities: | ||||||||||||
| Purchased | (2,860,592 | ) | (710 | ) | (3,244,495 | ) | ||||||
| Proceeds | 1,121,667 | 543,924 | 335,314 | |||||||||
| Proceeds from sales | 36,877 | 132,461 | 653 | |||||||||
| Advances: | ||||||||||||
| Principal collected | 224,670,438 | 370,709,084 | 596,335,124 | |||||||||
| Made | (210,872,277 | ) | (358,067,057 | ) | (619,122,796 | ) | ||||||
| Mortgage loans held-for-portfolio: | ||||||||||||
| Principal collected | 245,580 | 285,888 | 170,272 | |||||||||
| Purchased and originated | (195,777 | ) | (150,058 | ) | (138,255 | ) | ||||||
| Loans to other FHLBanks | ||||||||||||
| Loans made | (27,000 | ) | (472,000 | ) | (661,000 | ) | ||||||
| Principal collected | 27,000 | 472,000 | 716,000 | |||||||||
Net cash provided (used) by investing activities | 12,873,434 | 24,454,872 | (27,592,805 | ) | ||||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
Operating activities |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Net Income |
| $ | 244,486 |
| $ | 275,525 |
| $ | 570,755 |
|
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 |
| (167,727 | ) | (61,255 | ) | (120,715 | ) | |||
Concessions on consolidated obligations |
| 8,051 |
| 12,978 |
| 7,006 |
| |||
Premises, software, and equipment |
| 5,334 |
| 5,646 |
| 5,405 |
| |||
Provision for credit losses on mortgage loans |
| 3,153 |
| 1,409 |
| 3,108 |
| |||
Net realized (gains) from redemption of held-to-maturity securities |
| (17 | ) | (223 | ) | (281 | ) | |||
Net realized (gains) from sale of available-for-sale securities |
| — |
| (708 | ) | (440 | ) | |||
Credit impairment losses on held-to-maturity securities |
| 5,593 |
| 8,322 |
| 20,816 |
| |||
Change in net fair value adjustments on derivatives and hedging activities |
| 533,791 |
| 504,841 |
| 188,151 |
| |||
Change in fair value adjustments on financial instruments held at fair value |
| 10,494 |
| 3,343 |
| (15,523 | ) | |||
Losses from extinguishment of debt (a) |
| 86,501 |
| — |
| — |
| |||
Net change in: |
|
|
|
|
|
|
| |||
Accrued interest receivable |
| 63,487 |
| 53,175 |
| 152,345 |
| |||
Derivative assets due to accrued interest |
| 26,012 |
| 67,998 |
| 246,371 |
| |||
Derivative liabilities due to accrued interest |
| (45,739 | ) | (37,141 | ) | (252,684 | ) | |||
Other assets |
| 2,725 |
| (2,584 | ) | 814 |
| |||
Affordable Housing Program liability |
| (10,911 | ) | (6,124 | ) | 22,040 |
| |||
Accrued interest payable |
| (54,254 | ) | (73,358 | ) | (153,033 | ) | |||
REFCORP liability |
| (21,617 | ) | (2,617 | ) | 19,454 |
| |||
Other liabilities |
| 12,492 |
| 11,117 |
| (1,575 | ) | |||
Total adjustments |
| 457,368 |
| 484,819 |
| 121,259 |
| |||
Net cash provided by operating activities |
| 701,854 |
| 760,344 |
| 692,014 |
| |||
Investing activities |
|
|
|
|
|
|
| |||
Net change in: |
|
|
|
|
|
|
| |||
Interest-bearing deposits |
| 100,560 |
| (502,374 | ) | 13,768,437 |
| |||
Federal funds sold |
| 4,018,000 |
| (1,538,000 | ) | (3,450,000 | ) | |||
Deposits with other FHLBanks |
| (80 | ) | 66 |
| (25 | ) | |||
Premises, software, and equipment |
| (3,889 | ) | (5,786 | ) | (6,404 | ) | |||
Held-to-maturity securities: |
|
|
|
|
|
|
| |||
Long-term securities |
|
|
|
|
|
|
| |||
Purchased |
| (4,691,522 | ) | (551,113 | ) | (3,511,033 | ) | |||
Repayments |
| 2,342,986 |
| 3,302,202 |
| 2,919,664 |
| |||
In-substance maturities |
| 3,935 |
| 22,523 |
| 77,701 |
| |||
Net change in certificates of deposit |
| — |
| — |
| 1,203,000 |
| |||
Available-for-sale securities: |
|
|
|
|
|
|
| |||
Purchased |
| (1,094,954 | ) | (2,860,592 | ) | (710 | ) | |||
Repayments |
| 1,938,319 |
| 1,121,667 |
| 543,924 |
| |||
Proceeds from sales |
| 656 |
| 36,877 |
| 132,461 |
| |||
Advances: |
|
|
|
|
|
|
| |||
Principal collected |
| 270,176,636 |
| 224,670,438 |
| 370,709,084 |
| |||
Made |
| (260,225,999 | ) | (210,872,277 | ) | (358,067,057 | ) | |||
Mortgage loans held-for-portfolio: |
|
|
|
|
|
|
| |||
Principal collected |
| 248,205 |
| 245,580 |
| 285,888 |
| |||
Purchased |
| (394,653 | ) | (195,777 | ) | (150,058 | ) | |||
Proceeds from sales of REO (b) |
| 1,692 |
| — |
| — |
| |||
Net cash provided by investing activities |
| 12,419,892 |
| 12,873,434 |
| 24,454,872 |
| |||
The accompanying notes are an integral part of these financial statements.
|
| 2011 |
| 2010 |
| 2009 |
| |||
Financing activities |
|
|
|
|
|
|
| |||
Net change in: |
|
|
|
|
|
|
| |||
Deposits and other borrowings |
| $ | (301,761 | ) | $ | (146,577 | ) | $ | 1,115,652 |
|
Derivative contracts with financing element (c) |
| (374,625 | ) | (439,963 | ) | (343,018 | ) | |||
Consolidated obligation bonds: |
|
|
|
|
|
|
| |||
Proceeds from issuance |
| 54,659,796 |
| 68,041,134 |
| 54,502,275 |
| |||
Payments for maturing and early retirement |
| (59,197,084 | ) | (70,571,842 | ) | (62,024,547 | ) | |||
Net payments on bonds transferred (to)/from other FHLBanks (d) |
| (167,381 | ) | 224,664 |
| — |
| |||
Consolidated obligation discount notes: |
|
|
|
|
|
|
| |||
Proceeds from issuance |
| 148,526,627 |
| 121,978,200 |
| 862,167,891 |
| |||
Payments for maturing |
| (145,793,308 | ) | (133,402,396 | ) | (877,586,478 | ) | |||
Capital stock: |
|
|
|
|
|
|
| |||
Proceeds from issuance |
| 2,395,681 |
| 1,874,910 |
| 3,209,506 |
| |||
Payments for redemption / repurchase |
| (2,430,428 | ) | (2,356,594 | ) | (3,686,402 | ) | |||
Redemption of mandatorily redeemable capital stock |
| (12,006 | ) | (111,385 | ) | (66,675 | ) | |||
Cash dividends paid (e) |
| (210,340 | ) | (252,308 | ) | (264,737 | ) | |||
Net cash used by financing activities |
| (2,904,829 | ) | (15,162,157 | ) | (22,976,533 | ) | |||
Net increase (decrease) in cash and due from banks |
| 10,216,917 |
| (1,528,379 | ) | 2,170,353 |
| |||
Cash and due from banks at beginning of the period |
| 660,873 |
| 2,189,252 |
| 18,899 |
| |||
Cash and due from banks at end of the period |
| $ | 10,877,790 |
| $ | 660,873 |
| $ | 2,189,252 |
|
|
|
|
|
|
|
|
| |||
Supplemental disclosures: |
|
|
|
|
|
|
| |||
Interest paid |
| $ | 566,651 |
| $ | 722,595 |
| $ | 1,401,932 |
|
Affordable Housing Program payments (f) |
| $ | 38,341 |
| $ | 37,219 |
| $ | 42,211 |
|
REFCORP payments |
| $ | 52,324 |
| $ | 71,498 |
| $ | 123,235 |
|
Transfers of mortgage loans to real estate owned |
| $ | 1,450 |
| $ | 1,305 |
| $ | 1,400 |
|
Portion of non-credit OTTI (gains) losses on held-to-maturity securities |
| $ | (4,802 | ) | $ | (3,270 | ) | $ | 120,096 |
|
| 2010 | 2009 | 2008 | ||||||||||
Financing activities | ||||||||||||
| Net change in: | ||||||||||||
Deposits and other borrowings1 | $ | (586,540 | ) | $ | 772,634 | $ | 328,165 | |||||
| Short-term loans from other FHLBanks: | ||||||||||||
| Proceeds from loans | — | 135,000 | 1,260,000 | |||||||||
| Payments for loans | — | (135,000 | ) | (1,260,000 | ) | |||||||
| Consolidated obligation bonds: | ||||||||||||
| Proceeds from issuance | 68,041,134 | 54,502,275 | 62,035,840 | |||||||||
| Payments for maturing and early retirement | (70,571,842 | ) | (62,024,547 | ) | (47,118,882 | ) | ||||||
| Net proceeds on bonds transferred from other FHLBanks | 224,664 | — | — | |||||||||
| Consolidated obligation discount notes: | ||||||||||||
| Proceeds from issuance | 121,978,200 | 862,167,891 | 686,114,086 | |||||||||
| Payments for maturing | (133,402,396 | ) | (877,586,478 | ) | (674,495,767 | ) | ||||||
| Capital stock: | ||||||||||||
| Proceeds from issuance | 1,874,910 | 3,209,506 | 5,131,525 | |||||||||
| Payments for redemption / repurchase | (2,356,594 | ) | (3,686,402 | ) | (3,849,038 | ) | ||||||
| Redemption of Mandatorily redeemable capital stock | (111,385 | ) | (66,675 | ) | (160,233 | ) | ||||||
Cash dividends paid2 | (252,308 | ) | (264,737 | ) | (294,499 | ) | ||||||
Net cash (used) provided by financing activities | (15,162,157 | ) | (22,976,533 | ) | 27,691,197 | |||||||
| Net (decrease) increase in cash and due from banks | (1,528,379 | ) | 2,170,353 | 10,990 | ||||||||
| Cash and due from banks at beginning of the period | 2,189,252 | 18,899 | 7,909 | |||||||||
| Cash and due from banks at end of the period | $ | 660,873 | $ | 2,189,252 | $ | 18,899 | ||||||
Supplemental disclosures: | ||||||||||||
| Interest paid | $ | 722,595 | $ | 1,401,932 | $ | 2,821,378 | ||||||
Affordable Housing Program payments3 | $ | 37,219 | $ | 42,211 | $ | 26,386 | ||||||
| REFCORP payments | $ | 71,498 | $ | 123,235 | $ | 83,983 | ||||||
| Transfers of mortgage loans to real estate owned | $ | 1,305 | $ | 1,400 | $ | 755 | ||||||
| Portion of non-credit OTTI (gains) losses on held-to-maturity securities | $ | (3,270 | ) | $ | 120,096 | $ | — | |||||
(b) Beginning with the year ended December 31, 2011, the Bank reports sales of foreclosed property as an investing activity. In 2010 and 2009, sales of $1.8 million and $0.8 million were reported as an adjustment to operating cash flows. The comparative numbers for those years have not been reclassified because they were not material.
(c) Cash flows from derivatives containing financing elements were considered as a financing activity and were included in borrowing activity.
(d) For information about bonds transferred (to)/from FHLBanks and other related party transactions, see Note 19. Related Party Transactions.
(e) Does not include payments to holders of mandatorily redeemable capital stock. Such payments are reported as interest expense.
(f) 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 financial statements.
Federal Home Loan Bank of New York
Background
The Federal Home Loan Bank of New York (“FHLBNY” or “the Bank”) is a federally chartered corporation exempt from federal, state and local taxes except local real estate taxes. It is one of twelve district Federal Home Loan Banks (“FHLBanks”). The FHLBanks are U.S. government-sponsored enterprises (“GSEs”), organized under the authority of the Federal Home Loan Bank Act of 1932, as amended (“FHLBank Act”). Each FHLBank is a cooperative owned by member institutions located within a defined geographic district. The members purchase capital stock in the FHLBank and receive dividends on their capital stock investment. The FHLBNY’s defined geographic district is New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. The FHLBNY provides a readily available, low-cost source of funds for its member institutions. The FHLBNY does not have any wholly or partially owned subsidiaries, nor does it have an equity position in any partnerships, corporations, or off-balance-sheet special purpose entities.
Tax Status
The FHLBanks, including the FHLBNY, are exempt from ordinary federal, state, and local taxation except for local real estate taxes.
Assessments
Resolution Funding Corporation(“REFCORP”)Assessments.Although Assessments. Up until June 30, 2011, the FHLBanks, including the FHLBNY, is exempt from ordinary federal, state, and local taxation except for local real estate taxes, it is required to make payments to REFCORP.
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Affordable Housing Program(“AHP”)Assessments. Section 10(j) of the FHLBank Act requires each FHLBank to establish an Affordable Housing Program. Assessments. 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 12 FHLBanks must set aside for the Affordable Housing Program the greater of $100 million or 10 percent of their regulatory defined net income. Regulatory defined net income is GAAP net income before (1) interest expense related to mandatorily redeemable capital stock,and (2)for 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.
Note 1. Significant Accounting Policies and Estimates.
Significant Accounting Policies and Estimates
The FHLBNY has identified certain accounting policies that it believes are significant because they require management to make subjective judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or by using different assumptions. These policies include estimating the allowance for credit losses on the advance and mortgage loan portfolios, evaluating the impairment of the Bank’s securities portfolios, estimating the liabilities for employee benefit programs, and estimating fair values of certain assets and liabilities.
Fair Value Measurements and Disclosures
The accounting standard on fair value measurements and disclosures discusses how entities should measure fair value based on whether the inputs to those valuation techniques are observable or unobservable. In January 2010, the Financial Accounting Standards Board (“FASB”) provided further guidelines effective January 1, 2010, that required enhanced disclosures about fair value measurements that the FHLBNY adopted in the 2010 first quarter. For more information, see Note 1917 — Fair Values of Financial Instruments.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal or most advantageous market for the asset or liability between market participants at the measurement date. This definition is based on an exit price rather than transaction or entry price.
Valuation Techniques— Three valuation techniques are prescribed under the fair value measurement standards — Market approach, Income approach and Cost approach. Valuation techniques for which sufficient data is available and that are appropriate under the circumstances should be used.
In determining fair value, FHLBNY uses various valuation methods, including both the market and income approaches.
·Market approach — This technique uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
·Income approach — This technique uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted), based on assumptions used by market participants. The present value technique used to measure fair value depends on the facts and circumstances specific to the asset or liability being measured and the availability of data.
·Cost approach — This approach is based on the amount that currently would be required to replace the service capacity of an asset (often referred to as current replacement cost).
Federal Home Loan Bank of New York
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.
In its Statements of Condition at December 31, 20102011 and 2009,2010, the FHLBNY measured and recorded fair values using the above guidance for derivatives, available-for-saleAFS securities, and certain consolidated obligation bonds and discount notes that were designated under the fair value option accounting (“FVO”). Certain held-to-maturity securities determined to be credit impaired or other-than-temporarily impaired (“OTTI”) at December 31, 20102011 and 20092010 were measured and recorded at their fair values on a non-recurring basis.
Fair Valuesvalues of Derivativederivative positions —The FHLBNY is an end-user of over-the-counter (“OTC”) derivatives to hedge assets and liabilities under hedge accounting rules to mitigate fair value risks. In addition, the Bank records the fair value of an insignificant amount of mortgage-delivery commitments as derivatives. For additional information, see Note 1816 — 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 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. The agreements include collateral thresholds that reflect the net credit differential between the FHLBNY and its derivative counterparties. On a contract-by-contract basis, the collateral and netting arrangements sufficiently mitigated the impact of the credit differential between the FHLBNY and its derivative counterparties to an immaterial level such that an adjustment for nonperformance risk was not deemed necessary. Fair values of the derivatives were computed using quantitative models and employed multiple market inputs including interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors. These multiple market inputs were predominantly actively quotedcorroborated to independent market data, and verifiable through external sources, including brokers and market transactions.
Fair Values of investments classified as available-for-saleAvailable for sale securities (“AFS securities”)—The FHLBNY measures and records fair values of available-for-saleAFS securities in the Statements of Condition in accordance with the fair value measurement standards. Changes in the values of available-for-saleAFS securities are recorded in Accumulated other comprehensive income (loss) (“AOCI”), a component of members’ capital, with an offset to the recorded value of the investments in the Statements of Condition. The Bank’s investments classified as available-for-sale (“AFS”)AFS are comprised of mortgage-backed securities that are primarily GSE issued variable-rate collateralized mortgage obligations and are marketable at their recorded fair values. A small percentage of the AFS portfolio at December 31, 20102011 and 20092010 consisted of investments in open-end equity and bond mutual funds held by a grantor truststrust owned by the FHLBNY. The unitUnit prices orof mutual funds are determined by the “Netnet asset values” over the number of outstanding shares of the underlyingfund at each closing trading day as published by the mutual funds. The funds were available through publicly viewable websites andclassified within Level 1 of the units were marketable at recorded fair values.
The fair values of these investment securitiesin MBS are estimated by management using specialized pricing services that employ pricing models or quoted prices of securities with similar characteristics. Inputs intoThe Bank has established that the pricing vendors use methods that generally employ, but are not limited to, benchmark yields, recent trades, dealer estimates, valuation models, are market based and observable.benchmarking of like securities, sector groupings, and/or matrix pricing. 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.
For more information about methodologies used by the Bank to validate vendor pricing, see Page 12, FHLBank System Pricing Committee. Also, see Note 1917 — Fair Values of Financial Instruments — for additional disclosures
Federal Home Loan Bank of New York
Notes to Financial Statements
about fair values and Levels associated with assets and liabilities recorded on the Bank’s Statements of Condition at December 31, 20102011 and 2009.
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Financial Assets and Financial Liabilities recordedRecorded under the Fair Value Option— The accounting standards on the fair value option for financial assets and liabilities, created the Fair Value Optionfair value option (“FVO”) allowing, but not requiring, an entity to irrevocably elect fair value as the initial and subsequent measurement attribute for the selected financial assets and financial liabilities with changes in fair value recognized in earnings as they occur. The FHLBNY has elected the FVO designation for certain consolidated obligations. At December 31, 2010 and 2009, the Bank had designated certain consolidated obligationobligations debt under the FVO and recorded their fair values in the Statements of Condition at those dates.December 31, 2011 and 2010. The changes in fair values of the designated debt are economically hedged by interest rate swaps. See Note 1917 — Fair Values of Financial Instruments for more information.
Investments
Early adoption by the FHLBNY of the guidance on disclosures about the fair value of financial instruments at January 1, 2009 required the Bank to incorporate certain clarifications and definitions in its investment policies. The guidance amended the pre-existing accounting rules for investments in debt and equity securities, and the guidance was primarily intended to provide greater clarity to investors about the credit and noncreditnon-credit component of an other-than-temporary impairment (“OTTI”) event and to more effectively communicate when an OTTI event has occurred. The guidance was incorporated in the 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. Such investments are recorded at amortized cost basis, which includes adjustments made to the cost of an investment for accretion and amortization of discounts and premiums, collection of cash, and fair value hedge accounting adjustments. If a held-to-maturity security is determined to be OTTI, the amortized cost basis of the security is adjusted for credit losses. Amortized cost basis of a held-to-maturity OTTI security is further adjusted for impairment related to all other factors (also referred to as the non-credit component of OTTI) and recognized in AOCI;Accumulated other comprehensive income (loss) (“AOCI”); the adjusted amortized cost basis is the carrying value of the OTTI security as reported in the Statements of Condition. Carrying value for a held-to-maturity security that is not OTTI is its amortized cost basis.
Under the accounting guidance for investments in debt and equity securities, changes in circumstances may cause the FHLBNY to change its intent to hold certain securities to maturity without calling into question its intent to hold other debt securities to maturity in the future. Thus, the sale or transfer of a held-to-maturity security due to changes in circumstances, such as evidence of significant deterioration in the 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 in any period in this report.
In accordance with accounting guidance for investments in debt and equity securities, sales of debt securities that meet either of the following two conditions may be considered as maturities for purposes of the classification of securities: (1) the sale occurs near enough to its maturity date (or call date if exercise of the call is probable) such that interest rate risk is substantially eliminated as a pricing factor and the changes in market interest rates would not have a significant effect on the 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.
Available-for-saleAFS securities— The FHLBNY classifies investments that it may sell before maturity as available-for-saleAFS and carries them at fair value.
Until available-for-saleAFS securities are sold, changes in fair values are recorded in AOCI as Net unrealized gain or (loss) on available-for-saleAFS securities. If available-for-saleAFS securities had been hedged under a fair value hedge qualifying for hedge accounting, the FHLBNY would record the portion of the change in fair value related to the risk being hedged in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities together with the related change in the fair value of the derivative, and would record the remainder of the change in AOCI as a Net unrealized gain (loss) on available-for-saleAFS securities. If available-for-saleAFS securities had been hedged under a cash flow hedge qualifying for hedge accounting, the FHLBNY would record the effective portion of the change in value of the derivative related to the risk being hedged in AOCI as a Net unrealized gain (loss) on derivatives and hedging activities. The ineffective portion would be recorded in Other income (loss) and presented as a Net realized and unrealized gain (loss) on derivatives and hedging activities.
The FHLBNY computes gains and losses on sales of investment securities using the specific identification method and includes these gains and losses in Other income (loss). The FHLBNY treats securities purchased under agreements to resell as collateralized financings because the counterparty retains control of the securities.
Federal Home Loan Bank of New York
Other-than-temporary impairment (“OTTI”)—Accounting and Governance Policies — Impairment analysis, Pricing of mortgage-backed securities, and Bond insurer methodology.
The FHLBNY regularly evaluates its investments for impairment quarterly, and determines if unrealized losses are temporary based in part on the creditworthiness of the issuers, and in part on the underlying collateral within the structure of the security and the cash flows expected to be collected on the security. A security is considered impaired if its fair value is less than its amortized cost basis. If management has made a decision to sell such an impaired security, OTTI is considered to have occurred. If a decision to sell the impaired investment has not been made, but management concludes that “it is more likely than not” that it will be required to sell such a security before recovery of the amortized cost basis of the security, an OTTI is also considered to have occurred.
Even if management does not intend to sell such an impaired security, management determines whether an OTTI has occurred if cash flow analysis determines that a credit loss exists. The difference between the present value of the cash flows expected to be collected and the amortized cost basis is a credit loss. To determine if a credit loss exists, management comparesby comparing 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 being evaluated for OTTI, by using the effective interest rate of the security as of the date it was acquired. For a variable-rate security that is evaluated for OTTI, the expected cash flows are computed using a forward-rate curve and discounted using the forward rates.
If the FHLBNY determines that OTTI has occurred, it accounts for the investment security as if it had been purchased on the measurement date of the other-than-temporary impairment. The investment security is written down to fair value, which becomes its new amortized cost basis. The new amortized cost basis is not adjusted for subsequent recoveries in fair value.
For securities designated as available-for-sale,AFS, subsequent unrealized changes to the fair values (other than OTTI) are recorded in AOCI. For securities designated as held-to-maturity, the amount of OTTI recorded in AOCI for the non-credit component of OTTI is amortized prospectively over the remaining life of the securities based on the timing and amounts of estimated future cash flows. Amortization out of AOCI is offset by an increase in the carrying value of securities until the securities are repaid or are sold or subsequent OTTI is recognized in earnings.
If subsequent evaluation indicates a significant increase in cash flows greater than previously expected to be collected or if actual cash flows are significantly greater than previously expected, the increases are accounted for as a prospective adjustment to the accretable yield through interest income. In subsequent periods, if the fair value of the investment security has further declined below its then-current carrying value and there has been a decrease in the estimated cash flows the FHLBNY expects to collect, the FHLBNY will deem the security as OTTI.
OTTI FHLBank System Governance Committee— On April 28, 2009 and May 7, 2009, the Finance Agency, the FHLBanks’ regulator, provided the FHLBanks with guidance on the process for determining OTTI with respect to the FHLBanks’ holdings of private-label MBS and for adoption of the guidance for recognition and presentation of OTTI. The goal of the guidance is to promote consistency among all FHLBanks in the process for determining and presenting OTTI for private-label MBS.
Beginning with the second quarter of 2009, consistent with the objectives of the Finance Agency, the FHLBanks formed an OTTI Governance Committee (“OTTI Committee”) with the responsibility for reviewing and approving key modeling assumptions, inputs, and methodologies to be used by the FHLBanks to generate the cash flow projections used in analyzing credit losses and determining OTTI for private-label MBS. The OTTI Committee charter was approved on June 11, 2009, and provides a formal process by which the FHLBanks can provide input on and approve the assumptions.
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Beginning with the third quarter of 2009, the OTTI Committee adopted guidelines that each FHLBank should assess credit impairment by cash flow testing of 100 percent of private-label securities. Of the 53 private-label MBS owned by the FHLBNY, approximately 50 percent of MBS backed by sub-prime loans, home equity loans, and manufactured housing loans were deemed to be outside the scope of the OTTI Committee because sufficient loan level collateral data was not available to determine the assumptions under the OTTI Committee’s approach described below. The remaining Consequently, about 50 percent of the FHLNBY’s securities were modeled in the OTTI Committee common platform. The FHLBNY has developed key modeling assumptions and has forecasted cash flows using the FHLBNY’s own assumptions for 100 percent of its private-label MBS.
Cash flow derived from the OTTI Committee common platform— Consistent with the guidelines provided by the OTTI Committee, the FHLBNY has contracted with the FHLBanks of San Francisco and Chicago to perform cash-flow analyses for the securities within the scope of the OTTI Committee as a means of benchmarking the FHLBNY’s own cash flow analysis. At December 31, 20102011 and 2009, the2010, FHLBanks of San Francisco and Chicago cash flow tested approximately 50 percent of the FHLBNY’s private-label MBS.
Federal Home Loan Bank of New York
Notes to Financial Statements
Although the FHLBNY has engaged the two FHLBanks to perform the cash flow analysis, the FHLBNY is ultimately responsible for making its own determination of impairment and the reasonableness of assumptions, inputs, and methodologies used and for performing the required present value calculations using appropriate historical cost basisbases and yields.
The FHLBanks of San Francisco and Chicago performed cash flow analysis for the FHLBNY’s private-label securities in scope using two third-party models to establish the modeling assumptions and calculate the forecasted cash flows in the structure of the MBS. The first model considered borrower characteristics and the particular attributes of the loans underlying a security in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults and loss severities. A significant input to the first model was the forecast of future housing price changes for the relevant states and core based statistical areas (“CBSAs”), which were based upon an assessment of the individual housing markets. CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and Budget; as currently defined, a CBSA must contain at least one urban area with a population of 10,000 or more people. The Bank’sbase case modeled housing price forecast as of December 31, 20102011 assumed current-to-trough home price declines ranging from 1 percent0% (for those housing markets that are believed to 10 percenthave reached their trough) to 8.0%. For those markets where further home price declines are anticipated, the declines were projected to occur over the 3- to 9-month period beginning October 1, 2010.2011. Thereafter, home prices were projected to recover using one of five different recovery paths that vary by housing market. Under those recovery paths, home prices wereare projected to increase within a range of 0 percent0.0% to 2.8 percent2.8% in the first year, 0 percent0.0% to 3.0 percent3.0% in the second year, 1.5 percent1.5% to 4.0 percent4.0% in the third year, 2.0 percent2.0% to 5.0 percent5.0% in the fourth year, 2.0 percent2.0% to 6.0 percent6.0% in each of the fifth and sixth years, and 2.3 percent2.3% to 5.6 percent5.6% in each subsequent year.
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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.
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.
FHLBank System Pricing Committee — In an effort to achieve consistency among the FHLBanks’ pricing of investments of mortgage-backed securities, the 12 FHLBanks also formed the MBS Pricing Governance Committee (“Pricing Committee”) in the third quarter of 2009. The Pricing Committee was responsible for developing a fair value methodology for mortgage-backed securities that all FHLBanks could adopt. In its first guidance, the Pricing Committee established a standard pricing methodology and required the FHLBanks to use four pricing vendors. Prior to then, the FHLBNY had been using three pricing vendors and the adoption of the fourth vendor and the methodology had no material impact on the fair values of the FHLBNY’s investments.
The FHLBNY’s base investment pricing methodology establishes a median price for each security using a formula that is based on the number of prices received. The adoption of the formulaic methodology at September 2009 enhanced consistency among the 12 FHLBanks. If four prices are received from the four pricing vendors, the average of the two middle prices is used; if three prices are received, the middle price is used; if two prices are received, the average of the two prices is used; and if one price is received, it is used subject to further validation. Vendor prices that are outside of a defined tolerance threshold of the median price are identified as outliers and subject to additional review, including, but not limited to, comparison to prices provided by an additional third-party valuation service, prices for similar securities, and/or non-binding dealer estimates, or use of internal model prices, which are deemed to be reflective of all relevant facts and circumstances that a market participant would consider. Such analysis is also applied in those limited instances where no third-party vendor price or only one third-party vendor price is available in order to arrive at an estimated fair value. If the analysis confirms that an outlier is not representative of fair value and that the average of the vendor prices within the tolerance threshold of the median price is the best estimate, then the average of the vendor prices within the tolerance threshold of the median price is used as the final price. If, on the other hand, an outlier (or some other price identified in the analysis) is determined to be a better estimate of fair value, then the outlier (or the other price as appropriate) is used as the final price. In all cases, the final price is used to determine the fair value of the security.
The FHLBNY has also established that the pricing vendors use methods that generally employ, but are not limited to, benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of like securities, sector groupings, and/or matrix pricing.
Effective December 31, 2011, the FHLBNY refined its method for estimating the fair values for its investment securities, consistent with the methodology changes approved by the Pricing Committee in the fourth quarter of 2011. Methodology refinement on December 31, 2011 had no material impact on the fair values of the FHLBNY’s investment securities.
Federal Home Loan Bank of New York
Notes to Financial Statements
The December 31, 2011 methodology introduces the concept of clustering pricing, and to predefine cluster tolerances. An outlier, under the methodology, is any vendor price that is outside of a defined cluster tolerance. The outlier is evaluated for reasonableness. Once the median prices are computed from the four pricing vendors, the second step is to determine which of the sourced prices fall within the required tolerance level interval to the median price, which forms the “cluster” of prices to be averaged. This average will determine a “default” price for the security. To be included among the cluster, each price must fall within 10 points of the median price for residential PLMBS and within 3 points of the median price for GSE issued MBS. The cluster tolerance guidelines shall be reviewed annually by the Governance Committee and may be revised as necessary. The final step is to determine the final price of the security based on the cluster average and an evaluation of any outlier prices. If all prices fall within the cluster, the final price is simply the average of the cluster. However, if a price falls outside the cluster, additional analysis is required. If the price that falls outside the cluster tolerance is found to be a better estimate of the fair value, then the selected outlier price will be the final price instead of the average of prices that fit within the appropriate tolerance range.
The FHLBNY considers the adoption of the cluster tolerance approach as a refinement to its existing price evaluation processes. It provides an additional level of analysis through pre-defined cluster tolerances, and examination of outliers in this manner will further strengthen the FHLBNY’s investment valuation process.
A second refinement under the December 31, 2011 methodology was the adoption of a formal process to examine yields as an additional method to validate prices of PLMBS. Under the new methodology, the FHLBNY calculates an implied yield for each of its PLMBS using estimated fair values derived from cash flows on a bond-by-bond basis. This yield is then compared to the implied yield for comparable securities according to price information from third-party MBS “market surveillance reports”. Significant variances or inconsistencies are evaluated in conjunction with all of the other available pricing information to determine whether an adjustment to the fair value estimate is appropriate. The FHLBNY’s pre-existing methodology also examined price changes that exceeded a pre-established tolerance and price changes relative to changes in the option-adjusted spread (“OAS”). An independent team also reviews pricing by putting like securities into cohorts and tracking outliers and the review is performed for all mortgage-backed securities and housing finance agency bonds.
The methodologies adopted at December 31, 2011, will enhance the FHLBNY’s pre-existing price validation processes and provide a greater degree of reliance on the recorded fair values of the FHLBNY’s investments.
Bond Insurer analysis — Certain held-to-maturity private-label MBS owned by the FHLBNY are insured by third-party bond insurers (“monoline insurers”). The bond insurance on these investments guarantees the timely payments of principal and interest if these payments cannot be satisfied from the cash flows of the underlying mortgage pool. The FHLBNY performs cash flow credit impairment tests on all of its private-label insured securities, and the analysis of the MBS protected by such third-party insurance looks first to the performance of the underlying security, and considers its embedded credit enhancements in the form of excess spread, overcollateralization, and credit subordination, to determine the collectability of all amounts due. If the embedded credit enhancement protections are deemed insufficient to make timely payment of all amounts due, then the FHLBNY considers the capacity of the third-party bond insurer to cover any shortfalls.
Certain monoline insurers have been subject to adverse ratings, rating downgrades, and weakening financial performance measures. In estimating the insurers’ capacity to provide credit protection in the future to cover any shortfall in cash flows expected to be collected for securities deemed to be OTTI, the FHLBNY has developed a methodology to assess the ability of the monoline insurers to meet future insurance obligations.
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. The methodology 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 resources could sustain bond insurance losses and projects a “burn out” period.
·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 “coverage ignore” date. The ignore date is based on the “burnout period” calculation method.
· Burnout Period. The projected time horizon of credit protection provided by an insurer is a function of claims paying resources and anticipated claims in the future. This assumption is referred to as the “burnout period” and is expressed in months, and is computed by dividing each (a) insurers’ total claims paying resources by the (b) “burnout rate” projection. This variable uses monthly or aggregate dollar amount of claims each insurer has paid most recently, and additional qualitative information pertinent to the financial guarantor.
Federal Home Loan Bank of New York
Notes to Financial Statements
Based on analysis, the Bank has classified bond insurer FSA (name changed in 2009 to Assured Guaranty Municipal Corp.) as adequate, and bond insurers MBIA and Ambac as “at risk”.
1.Up until March 31, 2010, both Ambac Assurance Corp (“Ambac”), and MBIA Insurance Corp (“MBIA”), the two primary bond insurers for the FHLBNY, had been paying claims in order to meet any cash flow deficiency within the structure of the insured securities. On March 24, 2010, Ambac, with the consent of the Commissioner of Insurance for the State of Wisconsin (the “Commissioner”), entered into a temporary injunction to suspend payments to bond holders and to create a segregated account for bondholders. As a result, payments from Ambac to trustees of certain insured bonds owned by the FHLBNY were also temporarily suspended. The FHLBNY’s cash flow analysis recognized the entire amount of shortfall suspended by the Commissioner as OTTI, and a charge was recorded in 2011. MBIA is continuing to meet claims for bonds owned by the FHLBNY.
2.For Ambac, that support period ended at March 31, 2010 (no-reliance after that date) based on the FHLBNY’s analysis of the temporary injunction by the Commissioner.
The monoline analysis methodology resulted in the following “Burnout Period” time horizon dates for Ambac and MBIA:
Burnout Period | |||||
Ambac | MBIA | ||||
March 31, 2011 | |||||
Burnout period (months) | — | 3 | |||
Coverage ignore date | 3/31/2011 | 6/30/2011 | |||
June 30, 2011 | |||||
Burnout period (months) | — | 6 | |||
Coverage ignore date | 6/30/2011 | 12/31/2011 | |||
September 30, 2011 | |||||
Burnout period (months) | — | 3 | |||
Coverage ignore date | 9/30/2011 | 12/31/2011 | |||
December 31, 2011 | |||||
Burnout period (months) | — | 3 | |||
Coverage ignore date | 12/31/2011 | 3/31/2012 | |||
The results of the insurer financial analysis (“monoline burn-out period”) are then incorporated in the third-party cash flow model, as a key input. If the cash flow model projected cash flow shortfalls (credit impairment) on an insured security, the monoline’s burnout period (an end date for credit support), is then input to the cash flow model. The end date, also referred to as the burnout date, provides the necessary information as an input to the cash flow model for the continuation of cash flows up until the burnout date. Any cash flow shortfall that occurs beyond the “burn-out” date is considered not recoverable and the insured security is then deemed credit impaired
The FHLBNY’s cash flow analysis for OTTI at each quarter in 2011 disregarded any reliance on Ambac for credit support. MBIA is currently rated below investment grade. For MBIA the support period was also re-assessed at each quarter in 2011. The Bank’s monoline analysis for MBIA at December 31, 2011 concluded that cash flow support for impaired bonds insured by MBIA could be relied upon through March 31, 2012 (no-reliance after that date).
The FHLBNY believes that bond insurance could again become an inherent aspect of credit support within the structure of the security itself, and it is appropriate to include insurance in the FHLBNY’s evaluation of expected cash flows and determination of OTTI in future periods. The FHLBNY has also established that the terms of insurance enable the insurance to travel with the security if the security is sold in the future to support the assertion that bond insurance is a relevant consideration. If the FHLBNY’s monoline analysis determines that bond insurers, Ambac and MBIA, could be deemed fully capable of honoring their insurance pledges, the FHLBNY would renew its reliance on the two monoline insurers for cash flow shortfalls. 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.
Impairment analysis of mortgage-backed securities
To assess whether the entire amortized cost basis of the FHLBNY’s private-label MBS will be recovered in future periods, beginning with the quarter ended September 30, 2009 and thereafter, the Bank performed OTTI analysis by cash flow testing 100 percent of its private-label MBS. The FHLBNY’s methodology prior to September 30, 2009 was to analyze all its private-label MBS to isolate securities that were considered to be at risk of OTTI and to perform cash flow analysis on securities at risk of OTTI.
Cash flow analysis derived from the FHLBNY’s own assumptions — Assessment for OTTI employed by the FHLBNY’s own techniques and assumptions were determined primarily using historical performance data of the 53 private-label MBS at December 31, 2011. These assumptions and performance measures were benchmarked by comparing to (1) performance parameters from “market consensus”, and (2) the assumptions and parameters
Federal Home Loan Bank of New York
Notes to Financial Statements
provided by the OTTI Committee for the FHLBNY’s private-label MBS, which represented about 50 percent of the FHLBNY’s private-label MBS portfolio.
The internal process calculates the historical average of each bond’s prepayments, defaults, and loss severities, and considered other factors such as delinquencies and foreclosures. Management’s assumptions are primarily based on historical performance statistics extracted from reports from trustees, loan servicer reports and other sources. In arriving at historical performance assumptions, which is the FHLBNY’s expected case assumptions, the FHLBNY also considers various characteristics of each security including, but not limited to, the following: the credit rating and related outlook or status; the creditworthiness of the issuers of the debt securities; the underlying type of collateral; the year of securitization or vintage, the duration and level of the unrealized loss, credit enhancements, if any; and other collateral-related characteristics such as FICO® credit scores, and delinquency rates. The relative importance of this information varies based on the facts and circumstances surrounding each security as well as the economic environment at the time of assessment.
Each bond’s performance parameters, primarily prepayments, defaults and loss severities, and bond insurance financial guarantee predictors, as calculated by the Bank’s internal approach are then input into the specialized bond cash flow model that allocates the projected collateral level losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. In a securitization in which the credit enhancements for the senior securities are derived from the presence of subordinate securities, losses are generally allocated first to the subordinate securities until their principal balance is reduced to zero.
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 U.S. agency issued securities are performing in accordance with their contractual agreements. The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and Freddie Mac. In September 2008, the U.S. Treasury and the Finance Agency placed Fannie Mae and Freddie Mac into conservatorship in an attempt to stabilize their financial conditions and their ability to support the secondary mortgage market. The FHLBNY believes that it will recover its investments in GSE and agency issued securities given the current levels of collateral and credit enhancements and guarantees that exist to protect the investments.
Allowance for loan Losses
Federal funds sold represents short-term, unsecured lending to major banks and financial institutions. Federal funds sold are recorded at cost on settlement date and interest is accrued using contractual rates.
Advances
Accounting for Advances.The FHLBNY reports advances at amortized cost, net of unearned commitment fees, discounts (whichand premiums, (discounts are generally associated with advances for the Affordable Housing Program) and premiums, and any hedging adjustments. The FHLBNY records interest on advances to income as earned, and amortizes the premium and accretes the discounts on advances prospectively to interest income using a level-yield methodology over the term of the advance.
Impairment Analysis of Advances. The FHLBNY has established asset classification and reserve policies. All adversely classified assets of the FHLBNY will have a reserve established for probable losses. The FHLBNY has not incurred any credit losses on advances since its inception. Based upon financial condition of its borrowers, the collateral held as security on the advances and prior repayment histories, nohistory, management of the FHLBNY believes that an allowance for credit losses on advances is currently deemed necessary by management.
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The FHLBNY’s loan and collateral agreements give the FHLBNY a security interest in assets held by borrowers that is sufficient to cover their obligations to the FHLBNY. The FHLBNY may supplement this security interest by imposing additional reporting, segregation or delivery requirements on the borrower. The FHLBNY assigns specific collateral requirements to a borrower, based on a number of factors. These include, but are not limited to: (1) the borrower’s overall financial condition; (2) the degree of complexity involved in the pledging, verifying, and reporting of collateral between the borrower and the FHLBNY, especially when third-party pledges, custodians, outside service providers and pledges to other entities are involved; and (3) the type of collateral pledged.
Table of its members and closely monitors the quality and valueContents
Federal Home Loan Bank of assets that are pledged as collateral by its members. The FHLBNY periodically assesses the mortgage underwriting and documentation standards of its borrowing members. In addition, the FHLBNY has lending proceduresNew York
Notes to manage its exposure to those members experiencing difficulty in meeting their capital requirements or other standards of credit worthiness. An advance will be considered impaired when, based on current information and events, it is probable that the FHLBNY will be unable to collect all amounts due according to the contractual terms of the advance agreement.
The FHLBNY has also established collateral maintenance levels for borrower collateral that are intended to help ensure that the FHLBNY has sufficient collateral to cover credit extensions and reasonable expenses arising from potential collateral liquidation and other unknown factors. Collateral maintenance levels are designated by collateral type and are periodically adjusted to reflect current market and business conditions. Maintenance levels for individual borrowers may also be adjusted, based on the overall financial condition of the borrower or another, third-party entity involved in the collateral relationship with the FHLBNY. Borrowers are required to maintain an amount of eligible collateral with a liquidation value at least equal to the borrower’s current collateral maintenance level.
As Note 76 — Advances more fully describes, community financial institutions (FDIC-insured institutions with assets of $1,029$1,040 million or less during 2010)2011) are subject to more expanded statutory collateral rules for small business and agricultural loans. The FHLBNY has not incurred any credit losses on advances since its inception. Based upon financial condition of its borrowers, the collateral held as security on the advances and repayment history, management of the FHLBNY believes that an allowance for credit losses on advances is unnecessary.
Prepayment Fees on advancesAdvance modifications..The FHLBNY charges a member a prepayment fee when the member prepays certain advances before the original maturity. The FHLBNY records prepayment fees net of fair value basis adjustments included in the book basis of the advance as interest income from advances. From time to time, the FHLBNY will enter into an agreement with a member to modify the terms of an existing advance. The FHLBNY evaluates whether the modified advance meets the accounting criteria to qualify as a modification of an existing advance or as a new advance in accordance with provisions under creditor’s accounting for a modification or exchange of debt instruments. If the new advance qualifies as a modification of the existing hedged advance, the hedging fair value adjustments and the net prepayment fee on the prepaid advance are recorded in the carrying value of the modified advance and amortized over the life of the modified advance as interest income from advances.
If the modified advance is also hedged advance,under a qualifying fair value hedge, the fair value gains or losses ofbasis adjustments at the advance and the prepayment fees are included in the carrying amount of the modified advance, and gains or losses and prepayment fees aremodification date will be amortized to interest income over the life of the modified advance using theon a level-yield method. If the modified advance is also hedgedbasis, and the hedge meetsrecorded as a component of interest income from advances. The fair value basis of the hedging criteria in accordance with accounting standards for derivativesinstrument, typically an interest rate swap, will also be amortized on a level-yield basis and hedging, basis adjustments continue to be made after the modification, and subsequent value changes attributable to hedged risks are recorded in Other income (loss) as Net realized and unrealized gain (loss) on derivatives and hedging activities.
Prepayment Fees on advances. The FHLBNY charges a member a prepayment fee when the member prepays certain advances before the original maturity.
For advances that are hedged under a qualifying fair value hedge, the FHLBNY terminates the hedging relationship upon prepayment, and records the associated fair value gains and losses, adjusted for the prepayment fees, are recorded asin interest income from advances.
For prepaid advances that are not hedged or that are hedged but do not meet the hedge accounting requirements, the Bank records prepayment fees net of any fair value basis adjustments included in the book basis of the prepaid advance. If the FHLBNY would receive prepayment fees on an advance that is determined to be a modification of the original advance, the fees would be deferred, recorded in the basis of the modified advance, and amortized over the life of the modified advance using the level-yield method. This amortization would be recorded as a component of interest income from advances.
Mortgage Loans Held-for-PortfolioHeld-for-portfolio
The FHLBNY participates in the Mortgage Partnership Finance program® (“MPF”®) by purchasing and originating conventional mortgage loans from its participating members, hereafter referred to as Participating Financial Institutions (“PFI”). Federal Housing Administration (“FHA”) and Veterans Administration (“VA”) insured loans purchased were not a significant total of the outstanding mortgage loans held-for-portfolio at December 31, 20102011 and 2009.2010. The FHLBNY manages the liquidity, interest rate and prepayment option risk of the MPF loans, while the PFIs retain servicing activities.
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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 and paid monthly after the FHLBNY has accrued 12 months of credit enhancement fees.
Federal Home Loan Bank of New York
Notes to Financial Statements
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.
Accounting for mortgage loans.The FHLBNY classifies mortgage loans as held-for-portfolio and, accordingly, reports them at their principal amount outstanding, net of premiums, costs and discounts, which is the fair value of the mortgage loan on settlement date. The FHLBNY has the intent and ability to hold these mortgage loans to maturity.
Mortgage loans in foreclosure are written down and measured at their fair values on a non-recurring basis (see Note 19.—17 Fair Values of Financial Instruments.Instruments). 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,pair-off fees, as derivative income over the life of the commitment. All such fees were inconsequentialinsignificant for all periods reported. The FHLBNY defers and amortizes premiums, costs, and discounts as interest income using the level yield method to the loan’s contractual maturities. Loan origination costs wereare deemed insignificant and wereare not included in the basis of the mortgage loans.
Non-accrual mortgage loans.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. A loan on non-accrual status may be restored to accrual when (1) principal and interest areis no longer 90 days or more past due, (2) the FHLBNY expects to collect the remaining interest and principal, and (3) the collection is not under legal proceedings. For mortgage-loans on non-accrual status, accrued but uncollected interest is reversed against mortgage-loan interest income. The FHLBNY records cash received on such loans first as interest income and then as a reduction of principal. Ifif the collection of the remaining principal and interest due is determined to be doubtful, then cash received would be applied first to principal until the remaining principal amount due is expected to be collected, and then as a recovery of any charge-offs, followed by recordingcharge-offs. Any remaining cash flows would be recorded as interest income.
Troubled Debt Restructurings. Troubled debt restructuring is considered to have occurred when a concession is granted to a borrower for economic or legal reasons related to the borrower’s financial difficulties and that concession would not have been otherwise considered. In April 2011, FASB issued new guidance that clarified how to determine when a borrower is experiencing financial difficulty, when a concession is granted by a creditor, and when a delay is considered insignificant. Adoption of the new TDR accounting guidance had no material impact on the numbers of loans restructured or the amounts in allowance for credit losses.
Effective August 1, 2009, the MPF program introduced a temporary loan payment modification plan for participating PFIs, which was initially available until December 31, 2011 and has been extended through December 31, 2013. This modification plan was made available to homeowners currently in default or imminent danger of default. As of December 31, 2011, only 4 MPF loans had been modified under this plan.
The MPF Loan troubled debt restructurings primarily involve modifying the borrower’s monthly payment for a period of up to 36 months to no more than a housing expense ratio of 38% of their monthly income. The outstanding principal balance is re-amortized to reflect a principal and interest payment for a term not to exceed 40 years and a housing expense ratio not to exceed 38%. This would result in a balloon payment at the original maturity date of the loan as the maturity date and number of remaining monthly payments is unchanged. If the 38% ratio is still not met, the MPF program reduces for up to thirty-six (36) months the interest rate in 0.125% increments below the original note rate, to a floor rate of 3.00%, resulting in reduced principal and interest payments, until the target 38% housing expense ratio is met. A MPF loan involved in the troubled debt restructuring program is individually evaluated by the FHLBNY for impairment when determining its related allowance for credit losses. For the FHLBNY, such modifications were not material and recorded investments in four modified loans totaled $0.8 million at December 31, 2011. Allowances for credit losses were $122.0 thousand.
Allowance for credit losses on mortgage loans.The Bank reviews its portfolio to identify the losses inherent within the portfolio and to determine the likelihood of collection of the principal and interest. An allowance for credit losses is a valuation allowance separately established for each identified loan in order to provide for probable losses inherent in loans, that are conventional MPF loans and uninsured MPF loans andeither classified under regulatory criteria (Special Mention, Sub-standard, or Loss) or past due 90 days or more, or MPFmore. Such loans that are classified under regulatory criteria (Sub-standard, doubtful, and loss). Each impaired loan is evaluated separately for impairment. See Note 8. Mortgage Loans Held-for-portfolio.
The allowance for credit losses on mortgage loans was $6.8 million and $5.8 million and $4.5 million as ofat December 31, 20102011 and 2009.
Impairment methodology and portfolio segmentation and disaggregation of mortgage loans——A conventional mortgage loan is considered impaired by the FHLBNY when it is past due 90 days or more and is then analyzed for credit losses. Measurement of credit losses is based on current information and events and when it is probable that the FHLBNY will be unable to collect all amounts due according to the contractual terms of the loan agreement. Each such loan is measured for impairment based on the fair value of the underlying property less estimated selling costs. It is assumed that repayment willis expected to be provided solely by the sale of the underlying property;property, that is, there is no other available and reliable source of repayment. To the extent that the net fair value of the property (collateral) is less than the carrying value of the loan, a loan loss allowance is recorded. FHA and VA are insured loans, and are excluded from the analysis. FHA-FHA and VA-insuredVA insured mortgage loans have minimal inherent credit risk; risk generally arises mainly from the servicers defaulting on their obligations. FHA-FHA and VA-insuredVA insured mortgage loans, if adversely classified, would have reserves established only in the event of a default of a PFI, and would be based on aging, collateral value and estimated costs to recover any uninsured portion of the MPF loan.
Federal Home Loan Bank of New York
Notes to Financial Statements
Aside from separating conventional mortgage loans is recognized infrom FHA and VA insured loans, the same manner as non-accrual loans noted below.
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Real estate owned (“REO”)—REO includes assets that have been received in satisfaction of a mortgage loanloans through foreclosure. REO is recorded at the lower of cost or fair value less estimated selling costs. The FHLBNY recognizes a charge-off to allowance for credit losses if the fair value is less than the recorded investment in the loan at the date of transfer from mortgage-loanmortgage loan to REO. Any subsequent realized gains, realized or unrealized losses and carrying costs are included in Other income (non-interest) in the Statements of Income. REO is recorded in Other assets in the Statements of Condition.
Mandatorily Redeemable Capital Stock
Generally, the FHLBNY’s capital stock is redeemable at the option of both the member and 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. Dividends related to capital stock classified as mandatorily redeemable stock are accrued at an estimated dividend rate and reported as interest expense in the Statements of Income.
Mandatorily redeemable capital stock at December 31, 20102011 and 20092010 represented stocks held by former members who were no longer members by virtue of being acquired by members of another FHLBank. Under existing practice, such stock will be repurchased when the stock is no longer required to support outstanding transactions with the FHLBNY. The FHLBNY repurchases excess stock upon the receipt of a request for redemption of such stock from a member, and the member’s stock is typically repurchased by the Bank by the next business day.
Redemption rights under the Capital Plan.
Under the FHLBNY’s Capital Plan, no provision is available for the member to request the redemption of stock in excess of the stock required to support the member’s business transactions with the FHLBNY. This type of stock is referred to as “Activity-Based Stock” in the Capital Plan. However, the FHLBNY may at its discretion repurchase excess Activity-Based Stock. Separately, the member may request the redemption of Membership Capital Stock (the capital stock representing the member’s basic investment in the FHLBNY) in excess of the member’s Membership Stock purchase requirement, and the FHLBNY may also in its discretion repurchase such excess stock.
Under the Capital Plan, a notice of intent to withdraw from membership must be provided to the FHLBNY five years prior to the withdrawal date. At the end of such five-year period, the FHLBNY will redeem such stock unless it is needed to meet any applicable minimum stock investment requirements in the Capital Plan (e.g., to help secure any remaining advances) or if other limitations apply as specified in the Capital Plan.
The redemption notice may be cancelled by giving written notice to the FHLBNY at any time prior to the expiration of the five-year period. Also, the notice will be automatically cancelled if, within five business days of the expiration of the five-year period, the member would be unable to meet its minimum stock investment requirements following such redemption. However, if the member rescinds the redemption notice during the five-year period (or if the notice is automatically cancelled), the FHLBNY may charge a $500 cancellation fee, which may be waived only if the FHLBNY’s Board of Directors determines that the requesting member has a bona fide business reason to do so and the waiver is consistent with Section 7(j) of the FHLBank Act. Section 7(j) requires that the FHLBNY’s Board of Directors administer the affairs of the FHLBNY fairly and impartially and without discrimination in favor of or against any member.
Accounting considerations under the Capital Plan.Generally, thereThere are three triggering events that could cause the FHLBNY to repurchase capital stock.
·a member requests redemption of excess membership stock;
·a member delivers notice of its intent to withdraw from membership; and
·a member attains non-member status (through merger into or acquisition by a non-member, or involuntary termination from membership).
The member’s request to redeem excess Membership Stock will be considered to be revocable until the stock is repurchased. Since the member’s request to redeem excess Membership Stock can be withdrawn by the member without penalty, the FHLBNY considers the member’s intent regarding such request to not be substantive in nature and therefore no reclassification to a liability will be made at the time the request is delivered.
Under the Capital Plan, when a member delivers a notification of its intent to withdraw from membership, the reclassification from equity to a liability will become effective upon receipt of the notification. The FHLBNY considers the member’s intent regarding such notification to be substantive in nature and, therefore, reclassification to a liability will be made at the time the notification of the intent to withdraw is delivered. When a member is acquired by a non-member, the FHLBNY reclassifies stock of former members to a liability on the day the member’s charter is dissolved.
Federal Home Loan Bank of New York
Notes to Financial Statements
In compliance with the accounting guidance for certain financial instruments with characteristics of both liabilities and equity, the FHLBNY reclassifies stock subject to mandatory redemption from equity to a liability once a member 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. Shares of capital stock meeting this definition are reclassified to a liability at fair value. Unpaid dividends related to capital stock reclassified as a liability are accrued at an estimated dividend rate and reported as interest expense in the Statements of Income. The repurchase of these mandatorily redeemable financial instruments is reflected as a cash outflow in the financing activities section of the Statements of Cash Flows.
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Affordable Housing Program
The FHLBank Act requires each FHLBank to establish and fund an AHP (see Note 1311 — Affordable Housing Program and REFCORP). The FHLBNY charges the required funding for AHP to earnings and establishes a liability. The AHP funds provide subsidies to members to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. The FHLBNY also issues AHP advances at interest rates below the customary interest rates for non-subsidized advances. When the FHLBNY makes an AHP advance, the present value of the variation in the cash flow caused by the difference between the AHP advance interest rate and the Bank’sFHLBNY’s related cost of funds for comparable maturity funding is charged against the AHP liability. The amounts are then recorded as a discount on the AHP advance, and were inconsequentialnot material for all periodsyears reported. As an alternative, the FHLBNY has the authority to make the AHP subsidy available to members as a grant.
AHP assessment is based on a fixed percentage of income before assessments and before adjustment for dividends associated with mandatorily redeemable capital stock.stock, and until June 30, 2011, before REFCORP assessments (REFCORP assessments ceased effective June 30, 2011). Dividend payments on non-member stock, considered to be mandatorily redeemable, are reported as interest expense in accordance with the accounting guidance for certain financial instruments with characteristics of both liabilities and equity. If the FHLBNY incurs a loss for the entire year, no AHP assessment or assessment credit is due or accrued, as explained more fully in Note 1311 — Affordable Housing Program and REFCORP.
Commitment Fees
The FHLBNY records the present value of fees receivable from standby letters of credit as an asset and an offsetting liability for the obligation. Fees, which are generally received for one year in advance, are recorded as unrecognized standby commitment fees (deferred credit) and amortized monthly over the commitment period. The FHLBNY amortizes fees received to income using the level-yield method. The amount of fees was not significant for each of the periods reported.
Derivatives
The contractual or notional amount of derivatives reflects the involvement of the FHLBNY in the various classes of financial instruments.instruments, and serves as a basis for calculating periodic interest payments or cash flow. The notional amount of derivatives does not measure the credit risk exposure of the FHLBNY, and the maximum credit exposure of the FHLBNY is substantially less than the notional amount. The maximum credit risk is the estimated cost of replacing favorable interest-rate swaps, forward agreements, mandatory delivery contracts for mortgage loans, and purchased caps and floors if the derivative counterparties default and the related collateral, if any, is of insufficient value to the FHLBNY. Accounting for derivatives is addressed under accounting standards for derivatives and hedging. All derivatives are recognized on the balance sheet at their estimated fair values, including accrued unpaid interest as either a derivative asset or a derivative liability net of cash collateral received from orand pledged to derivative counterparties.
Each derivative is designated as one of the following:
(1) a qualifying (a) hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment (a “fair value” hedge);
(2) a qualifying (a) hedge of a forecasted transaction or the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (a “cash flow” hedge);
(3) a non-qualifying (a) hedge of an asset or liability (“economic hedge”) for asset-liability management purposes; or
(4) a non-qualifying (a) hedge of another derivative (an “intermediation” hedge) that is offered as a product to members or used to offset other derivatives with non-member counterparties.
(a) The terms “qualifying” and “non-qualifying” refer to accounting standards for derivatives and hedging.
The FHLBNY had no foreign currency assets, liabilities or hedges in 2011, 2010 2009 or 2008.
Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk (including changes that reflect
Federal Home Loan Bank of New York
Notes to Financial Statements
losses or gains on firm commitments), are recorded in current period’s earnings in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.
Changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge, (toto the extent that the hedge is effective)effective, are reported in AOCI, a component of equity, until earnings are affected by the variability of the cash flows of the hedged transaction (i.e., until the recognition of interest on a variable rate asset or liability is recorded in earnings).
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The FHLBNY has defined its market settlement conventions for hedged items to be five business days or less for advances and thirty calendar days or less, using a next business day convention, for consolidated obligations bonds and discount notes. These market settlement conventions are the shortest period possible for each type of advance and consolidated obligation from the time the instruments are committed to the time they settle.
The FHLBNY considers hedges of committed advances and consolidated obligation bonds eligible for the “short cut” provisions, under accounting standards for derivatives and hedging, as long as settlement of the committed asset or liability occurs within the market settlement conventions for that type of instrument. A short-cut hedge is a highly effective hedging relationship that uses an interest rate swap as the hedging instrument to hedge a recognized asset or liability and that meets the criteria under the accounting standards for derivatives and hedging to qualify for an assumption of no ineffectiveness.
For both fair value and cash flow hedges that qualify for hedge accounting treatment, any hedge ineffectiveness (which represents the amount by which the change in the fair value of the derivative differs from the change in the fair value of the hedged item or the variability in the cash flows of the forecasted transaction) isare recorded in current period’s earnings in Other income (loss) as a Net realized and unrealized gains (losses)gain (loss) on derivatives and hedging activities. The differentials between accruals of interest income and expense on derivatives designated as fair value or cash flow hedges that qualify for hedge accounting treatment isare recognized as adjustments to the interest income or expense of the hedged advances and consolidated obligations.
Changes in the fair value of a derivative not qualifying for hedge accounting are recorded in current period earnings with no fair value adjustment to the asset or liability being hedged. Both the net interest and the fair value adjustments on the derivative are recorded in Other income (loss) as a Net realized and unrealized gains (losses)gain (loss) on derivatives and hedging activities. Interest income and expense and changes in fair values of derivatives designated as economic hedges (also referred to as standalone hedges), or when executed as intermediated derivatives for members are also recorded in the manner described above.
The FHLBNY routinely issues debt to investors and makes advances to members in which a derivative instrument is “embedded”. Upon execution of these transactions, the FHLBNY assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the advance or debt (the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. If the FHLBNY determines that (1) the embedded derivative has economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) a separate, standalone instrument with the same terms would qualify as a derivative instrument, the embedded derivative would be separated from the host contract as prescribed for hybrid financial instruments under accounting standards for derivatives and hedge accounting, and carried at fair value. However, if the entire contract (the host contract and the embedded derivative) is to be measured at fair value, the changes in fair value would be reported in current earnings (such as an investment security classified as “trading”; or, if the FHLBNY cannot reliably identify and measure the embedded derivative for purposes of separating that derivative from its host contract, the entire contract would be carried on the balance sheet at fair value and no portion of the contract would be designated as a hedging instrument). The FHLBNY had no financial instruments with embedded derivatives that required bifurcation at December 31, 20102011 and 2009.
When hedge accounting is discontinued because the FHLBNY determines that the derivative no longer qualifies as an effective fair value hedge of an existing hedged item, the FHLBNY continues to carry the derivative on the balance sheet at its fair value, ceases to adjust the hedged asset or liability for changes in fair value, and amortizes the cumulative basis adjustment on the hedged item into earnings over the remaining life of the hedged item using the level-yield methodology.
When hedge accounting is discontinued because the FHLBNY determines that the derivative no longer qualifies as an effective cash flow hedge of an existing hedged item, the FHLBNY continues to carry the derivative on the balance sheet at its fair value and reclassifies the basis adjustment in AOCI to earnings when earnings are affected by the existing hedge item, which is the original forecasted transaction. Under limited circumstances, when the FHLBNY discontinues cash flow hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period plus the following two months, but it is probable the transaction will still occur in the future, the gain or loss on the derivative remains in AOCI and is recognized into earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within two months after that, the gains and losses that were included in AOCI are recognized immediately in earnings.
Federal Home Loan Bank of New York
Notes to Financial Statements
When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the FHLBNY would continue to carry the derivative on the balance sheet at its fair value, removing from the balance sheet any asset or liability that was recorded to recognize the firm commitment and recording it as a gain or loss in current period earnings.
135
The Bank reports derivative assets and derivative liabilities in its Statements of Condition after giving effect to legally enforceable master netting agreements with derivative counterparties, which include interest receivable and payable on derivative contracts and the fair values of the derivative contracts. The Bank records cash collateral received and paid in the Statements of Condition as derivativeDerivative assets and liabilities in the following manner:manner — Cash collateral pledged by the Bank is reported as a deduction to Derivative liabilities; cash collateral received from derivative counterparties is reported as a deduction to Derivative assets. No securities were either pledged or received as collateral for derivatives executed with swap counterparties at December 31, 20102011 or 2009.
Premises, Software and Equipment
The Bank computes depreciation using the straight-line method over the estimated useful lives of assets ranging from three to seven years. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful lives or the terms of the underlying leases, whichleases. Amortization periods range up to seven years. The Bank capitalizes improvements and major renewals but expenses ordinary maintenance and repairs when incurred. The Bank includes gains and losses on disposal of premises and equipment in Other income (loss).
| December 31, | ||||||||||||||||
| 2010 | 2009 | |||||||||||||||
| Accumulated | Accumulated | |||||||||||||||
| Fixed Assets | Assets | Depreciation | Assets | Depreciation | ||||||||||||
| Premises, Furniture, and Equipment | $ | 11,617 | $ | (8,017 | ) | $ | 11,133 | $ | (7,390 | ) | ||||||
| Computer Software and Hardware | 40,314 | (28,982 | ) | 35,012 | (23,963 | ) | ||||||||||
| Total: | $ | 51,931 | $ | (36,999 | ) | $ | 46,145 | $ | (31,353 | ) | ||||||
Concessions on Consolidated Obligations
Concessions are paid to dealers in connection with the issuance of certain consolidated obligation bonds. The Office of Finance prorates the amount of the concession to the FHLBNY based upon the percentage of the debt issued that is assumed by the FHLBNY. Concessions paid on consolidated obligations designated under the Fair Value Option (“FVO”) accounting standards are expensed as incurred. Concessions paid on consolidated obligations not designated under the FVO, are deferred and amortized, using a level-yield methodology, over the terms to maturity or the estimated lives of the consolidated obligations. The FHLBNY charges to expense as incurred the concessions applicable to the sale of consolidated obligation discount notes because of their short maturities; amounts are recorded in consolidated obligations interest expense.
Discounts and Premiums on Consolidated Obligations
The FHLBNY expenses the discounts on consolidated obligation discount notes, using the level-yield method, over the term of the related notes and amortizes the discounts and premiums on callable and non-callable consolidated bonds, also using the level-yield method, over the contractual term to maturity of the consolidated obligation bonds.
Resolution Funding Corporation (“REFCORP”) Assessments
The FHLBNY is assessed for its proportionate share of the costs of operating the Finance Agency and the Office of Finance. The Finance Agency is authorized to impose assessments on the FHLBanks and two other GSEs, in amounts sufficient to pay the Finance Agency’s annual operating expenses and capital expenditures.
136
Earnings per CommonCapital Share
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if convertible securities or other contracts to issue common stock were converted or exercised into common stock. Capital stock classified as mandatorily redeemable capital stock is excluded from this calculation. Basic and diluted earnings per share are the same, as the Bank has no additional potential common shares that may be dilutive.
Cash Flows
In the Statements of Cash Flows, the FHLBNY considers Cash and due from banks to be cash. Federal funds sold, certificates of deposit, and interest-earning balances at the Federal Reserve Banks are reported in the Statements of Cash Flows as investing activities. Cash collateral pledged is reported as a deduction to Derivative liabilities and cash collateral received is reported as a deduction to Derivative assets in the Statements of Condition. In the Statements of Cash Flows, cash collateral pledged or received is reported as net changes in investing and financing activities.
Derivative instruments — Cash flows from a derivative instrument that is accounted for as a fair value or cash flow hedge, including those designated as economic hedges are reflected as cash flows from operating activities provided that the derivative instrument does not include an other-than-insignificant financing element at inception.
Federal Home Loan Bank of New York
Notes to Financial Statements
In the third quarter of 2008, the Bank replaced a significant amount of derivative contracts that had been executed with Lehman Brothers Special Financing Inc. (“LBSF”), when LBSFafter Lehman Brothers Holding Inc., the credit support provider, filed for bankruptcy. The derivatives were replaced at terms that were generally “off-market” and required the derivative counterparties to pay cash to the FHLBNY to assume the derivatives whichthat were primarily in a gain position from the perspective of the counterparties. All cash inflows and outflows of the replacement trades were reported as a financing activity at the inception of the trades in the Statements of Cash Flows. Consistent with the accounting provisions of derivatives and hedge accounting, the interest rate exchanges at each payment dates are reported as a financing activity as well, because the derivatives contained a financing element considered to be more-than-insignificantmore than insignificant at inception.
Losses on debt extinguishmentsextinguishment — In the Statement of Cash flows for the year ended December 31, 2011, net losses of $86.5 million from debt retirement were included as anpart of financing activity. In prior years, losses from debt extinguishment were included as part of Operating cash flows. While both presentation methods are acceptable under GAAP, the FHLBNY made the change to be consistent with the FHLBanks. Adoption had no impact on the FHLBNY’s financial condition and results of operations. In 2010 and 2009, losses from debt extinguishment were $2.1 million and $70 thousand and were reported as reduction of Net cash provided by operating activity and reports the cash payments from the early retirementactivities. Par amounts of debt net of these amounts under financing activityextinguished were $777.2 million, $300.5 million, and $500.0 million in the Statements of Cash Flows.
Note 2. Recently Issued Accounting Standards and Interpretations.
A Creditor’s Determination of Variable Interest Entities.In June 2009,Whether a Restructuring Is a Troubled Debt Restructuring. On April 5, 2011, the Financial Accounting Standards Board (“FASB”) issued guidance that will require creditors to improve financial reporting by enterprises involved with variable interest entities (“VIEs”)evaluate modifications and to providerestructurings of receivables using a more relevantprinciples-based approach, which may result in certain modifications and reliable information to users of financial statements. This guidance amended the manner in which entities evaluate whether consolidation isrestructurings being considered troubled debt restructurings. The required for VIEs. The guidance also required that an entity continually evaluate VIEs for consolidation, rather than making such an assessment based upon the occurrence of triggering events. Additionally, the guidance required enhanced disclosures about how an entity’s involvement with a VIE affects its financial statements and its exposure to risks. This guidance was effective as of the beginning of each reporting entity’s first annual reporting period that began 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 was prohibited. The FHLBNY has evaluated its operations and investments and concluded that the impact of VIEs were insignificant. The guidance did not impact the financial statements, results of operations or cash flows of the FHLBNY.
137
Fair Value Measurement and Hedging Activities.
138
Disclosures about an Employer’s Participation in Note 5 — Held-to-Maturity Securities and Note 6 — Available-for-Sale Securities.
Disclosures about Offsetting Assets and Liabilities. It also included On December 16, 2011 the FASB and the IASB issued common disclosure requirements intended to help investors and other financial statement users better assess the effect or potential effect of offsetting arrangements on a company’s financial position, whether a company’s financial
Federal Home Loan Bank of New York
Notes to Financial Statements
statements are prepared on the basis of GAAP or International Financial Reporting Standards. This guidance will require the FHLBNY to disclose both gross and net information about financial instruments, including derivative instruments, which are either offset on identifying circumstances that indicate a transaction is not orderly. Thethe statement of condition or subject to an enforceable master netting arrangement or similar agreement. This guidance waswill be effective prospectively for financial statements issued for interim and annual reporting periods ending after June 15, 2009, with earlybeginning on January 1, 2013 and will be applied retrospectively for all comparative periods presented. The adoption permitted for reporting periods ending after March 15, 2009. The FHLBNY elected to early adoptof this guidance effective January 1, 2009. The enhancedwill result in expanded interim and annual financial statement disclosures, related to this guidance are included in Note 19 — Fair Valuesbut will not affect the FHLBNY’s financial condition, results of Financial Instruments.
Note 3.Cash and Due from Banks.Banks, Interest-bearing Deposits and Federal Funds Sold.
Cash on hand, cash items in the process of collection, and amounts due from correspondent banks and the Federal Reserve Banks are included in cashCash and due from banks.
Compensating balances
The Bank maintained average required clearing balances with the Federal Reserve Banks of approximately $1.0 million for the years ended December 31, 20102011 and 2009.2010. The Bank uses earnings credits on these balances to pay for services received from the Federal Reserve Banks.
Pass-through deposit reserves
The Bank acts as a pass-through correspondent for member institutions required to deposit reserves with the Federal Reserve Banks. Pass-through reserves deposited with Federal Reserve Banks were $49.5$69.6 million and $29.3$49.5 million as of December 31, 20102011 and 2009.2010. The Bank includes member reserve balances in Other liabilities in the Statements of Condition.
Note 4. Interest-Bearing Deposits.Cash Collateral Pledged to Derivative Counterparties
The FHLBNY executes derivatives with major swap dealers and financial institutions, collectively counterparties, and enters into bilateral collateral agreements. When counterparties are exposed, the Board of Governors ofFHLBNY would typically post cash as pledged collateral to mitigate 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 was based on average excess balances over the calculation period; rates are generally tied to the federal funds rate.counterparty’s credit exposure. At December 31, 2008, the Bank had invested $12.2 billion in excess balances placed with the FRB as interest-bearing deposit. Effective July 2, 2009,2011 and 2010, the FHLBNY no longer collectedhad deposited $2.6 billion and $2.7 billion with counterparties and these amounts earned interest on excess balances with the FRB. The FRB will pay interest only on required reserves. At December 31, 2010 and 2009, the cashgenerally at the FRBovernight Federal funds rate. The cash posted was classifiedrecorded as Cash and Due from Banks as the balances did not earn interest.a deduction to Derivative liabilities.
Mortgage-backed securities— The FHLBNY’s investments in MBS are predominantly government-sponsored, enterprise-issued securities. The carrying value of investments in mortgage-backed securities issued by Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corp. (“Freddie Mac”) (together, government sponsored enterprises or “GSEs”) and a U.S. government agency at December 31, 2010 was $6.2 billion, or 88.3%Bank of the total MBS classified as held-to-maturity. The comparable carrying value of GSE issued MBS at December 31, 2009 was $8.7 billion, or 89.1% of the total MBS classified as held-to-maturity. The carrying value (amortized cost less non-credit component of OTTI) of privately issued mortgage- and asset-backed securities at December 31, 2010 and 2009 was $0.8 billion and $1.1 billion. Privately issued MBS primarily included asset-backed securities, mortgage pass-throughs and Real Estate Mortgage Investment Conduit bonds, and securities supported by manufactured housing loans.
State and local housing finance agency bondsNotes to Financial Statements— 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 $770.6 million and $751.8 million at December 31, 2010 and 2009.
139
The amortized cost basis, the gross unrecognized holding gains and losses1(a), the fair values of held-to-maturity securities, and OTTI recognized in AOCI were as follows (in thousands):
|
| December 31, 2011 |
| ||||||||||||||||
|
|
|
| OTTI |
|
|
| Gross |
| Gross |
|
|
| ||||||
|
| Amortized |
| Recognized |
| Carrying |
| Unrecognized |
| Unrecognized |
| Fair |
| ||||||
Issued, guaranteed or insured: |
| Cost |
| in AOCI |
| Value |
| Holding Gains |
| Holding Losses |
| Value |
| ||||||
Pools of Mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fannie Mae |
| $ | 652,061 |
| $ | — |
| $ | 652,061 |
| $ | 49,797 |
| $ | — |
| $ | 701,858 |
|
Freddie Mac |
| 187,515 |
| — |
| 187,515 |
| 12,709 |
| — |
| 200,224 |
| ||||||
Total pools of mortgages |
| 839,576 |
| — |
| 839,576 |
| 62,506 |
| — |
| 902,082 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fannie Mae |
| 2,811,573 |
| — |
| 2,811,573 |
| 30,131 |
| (1,866 | ) | 2,839,838 |
| ||||||
Freddie Mac |
| 2,822,438 |
| — |
| 2,822,438 |
| 47,207 |
| (1,604 | ) | 2,868,041 |
| ||||||
Ginnie Mae |
| 89,586 |
| — |
| 89,586 |
| 741 |
| — |
| 90,327 |
| ||||||
Total CMOs/REMICs |
| 5,723,597 |
| — |
| 5,723,597 |
| 78,079 |
| (3,470 | ) | 5,798,206 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial Mortgage-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fannie Mae |
| 100,445 |
| — |
| 100,445 |
| 8,326 |
| — |
| 108,771 |
| ||||||
Freddie Mac |
| 1,993,002 |
| — |
| 1,993,002 |
| 138,025 |
| — |
| 2,131,027 |
| ||||||
Ginnie Mae |
| 34,447 |
| — |
| 34,447 |
| 978 |
| — |
| 35,425 |
| ||||||
Total commercial mortgage-backed securities |
| 2,127,894 |
| — |
| 2,127,894 |
| 147,329 |
| — |
| 2,275,223 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Non-GSE MBS (b) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CMOs/REMICs |
| 186,805 |
| (1,708 | ) | 185,097 |
| 2,925 |
| (1,343 | ) | 186,679 |
| ||||||
Commercial MBS |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||
Total non-federal-agency MBS |
| 186,805 |
| (1,708 | ) | 185,097 |
| 2,925 |
| (1,343 | ) | 186,679 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Asset-Backed Securities (b) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Manufactured housing (insured) (c) |
| 153,881 |
| — |
| 153,881 |
| — |
| (8,387 | ) | 145,494 |
| ||||||
Home equity loans (insured) (c) |
| 230,901 |
| (53,596 | ) | 177,305 |
| 34,483 |
| (5,853 | ) | 205,935 |
| ||||||
Home equity loans (uninsured) |
| 157,089 |
| (20,545 | ) | 136,544 |
| 14,294 |
| (18,395 | ) | 132,443 |
| ||||||
Total asset-backed securities |
| 541,871 |
| (74,141 | ) | 467,730 |
| 48,777 |
| (32,635 | ) | 483,872 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total MBS |
| $ | 9,419,743 |
| $ | (75,849 | ) | $ | 9,343,894 |
| $ | 339,616 |
| $ | (37,448 | ) | $ | 9,646,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
State and local housing finance agency obligations |
| $ | 779,911 |
| $ | — |
| $ | 779,911 |
| $ | 2,433 |
| $ | (80,032 | ) | $ | 702,312 |
|
Total other |
| $ | 779,911 |
| $ | — |
| $ | 779,911 |
| $ | 2,433 |
| $ | (80,032 | ) | $ | 702,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total Held-to-maturity securities |
| $ | 10,199,654 |
| $ | (75,849 | ) | $ | 10,123,805 |
| $ | 342,049 |
| $ | (117,480 | ) | $ | 10,348,374 |
|
|
| December 31, 2010 |
| ||||||||||||||||
|
|
|
| OTTI |
|
|
| Gross |
| Gross |
|
|
| ||||||
|
| Amortized |
| Recognized |
| Carrying |
| Unrecognized |
| Unrecognized |
| Fair |
| ||||||
Issued, guaranteed or insured: |
| Cost |
| in AOCI |
| Value |
| Holding Gains |
| Holding Losses |
| Value |
| ||||||
Pools of Mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fannie Mae |
| $ | 857,387 |
| $ | — |
| $ | 857,387 |
| $ | 48,712 |
| $ | — |
| $ | 906,099 |
|
Freddie Mac |
| 244,041 |
| — |
| 244,041 |
| 13,316 |
| — |
| 257,357 |
| ||||||
Total pools of mortgages |
| 1,101,428 |
| — |
| 1,101,428 |
| 62,028 |
| — |
| 1,163,456 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fannie Mae |
| 1,637,261 |
| — |
| 1,637,261 |
| 52,935 |
| — |
| 1,690,196 |
| ||||||
Freddie Mac |
| 2,790,103 |
| — |
| 2,790,103 |
| 92,746 |
| — |
| 2,882,849 |
| ||||||
Ginnie Mae |
| 116,126 |
| — |
| 116,126 |
| 936 |
| — |
| 117,062 |
| ||||||
Total CMOs/REMICs |
| 4,543,490 |
| — |
| 4,543,490 |
| 146,617 |
| — |
| 4,690,107 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial Mortgage-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fannie Mae |
| 100,492 |
| — |
| 100,492 |
| — |
| (2,516 | ) | 97,976 |
| ||||||
Freddie Mac |
| 375,901 |
| — |
| 375,901 |
| 1,031 |
| (5,315 | ) | 371,617 |
| ||||||
Ginnie Mae |
| 48,747 |
| — |
| 48,747 |
| 1,857 |
| — |
| 50,604 |
| ||||||
Total commercial mortgage-backed securities |
| 525,140 |
| — |
| 525,140 |
| 2,888 |
| (7,831 | ) | 520,197 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Non-GSE MBS (b) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CMOs/REMICs |
| 294,686 |
| (2,209 | ) | 292,477 |
| 6,228 |
| (916 | ) | 297,789 |
| ||||||
Commercial MBS |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||
Total non-federal-agency MBS |
| 294,686 |
| (2,209 | ) | 292,477 |
| 6,228 |
| (916 | ) | 297,789 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Asset-Backed Securities (b) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Manufactured housing (insured) (c) |
| 176,592 |
| — |
| 176,592 |
| — |
| (21,437 | ) | 155,155 |
| ||||||
Home equity loans (insured) (c) |
| 257,889 |
| (66,252 | ) | 191,637 |
| 35,550 |
| (4,316 | ) | 222,871 |
| ||||||
Home equity loans (uninsured) |
| 184,284 |
| (24,465 | ) | 159,819 |
| 17,780 |
| (21,478 | ) | 156,121 |
| ||||||
Total asset-backed securities |
| 618,765 |
| (90,717 | ) | 528,048 |
| 53,330 |
| (47,231 | ) | 534,147 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total MBS |
| $ | 7,083,509 |
| $ | (92,926 | ) | $ | 6,990,583 |
| $ | 271,091 |
| $ | (55,978 | ) | $ | 7,205,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
State and local housing finance agency obligations |
| $ | 770,609 |
| $ | — |
| $ | 770,609 |
| $ | 1,434 |
| $ | (79,439 | ) | $ | 692,604 |
|
Total other |
| $ | 770,609 |
| $ | — |
| $ | 770,609 |
| $ | 1,434 |
| $ | (79,439 | ) | $ | 692,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total Held-to-maturity securities |
| $ | 7,854,118 |
| $ | (92,926 | ) | $ | 7,761,192 |
| $ | 272,525 |
| $ | (135,417 | ) | $ | 7,898,300 |
|
| December 31, 2010 | ||||||||||||||||||||||||
| Gross | Gross | |||||||||||||||||||||||
| Amortized | OTTI | Carrying | Unrecognized | Unrecognized | Fair | |||||||||||||||||||
| Issued, guaranteed or insured: | Cost | in OCI | Value | Holding Gains | Holding Losses | Value | ||||||||||||||||||
Pools of Mortgages | ||||||||||||||||||||||||
| Fannie Mae | $ | 857,387 | $ | — | $ | 857,387 | $ | 48,712 | $ | — | $ | 906,099 | ||||||||||||
| Freddie Mac | 244,041 | — | 244,041 | 13,316 | — | 257,357 | ||||||||||||||||||
| Total pools of mortgages | 1,101,428 | — | 1,101,428 | 62,028 | — | 1,163,456 | ||||||||||||||||||
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits | ||||||||||||||||||||||||
| Fannie Mae | 1,637,261 | — | 1,637,261 | 52,935 | — | 1,690,196 | ||||||||||||||||||
| Freddie Mac | 2,790,103 | — | 2,790,103 | 92,746 | — | 2,882,849 | ||||||||||||||||||
| Ginnie Mae | 116,126 | — | 116,126 | 936 | — | 117,062 | ||||||||||||||||||
| Total CMOs/REMICs | 4,543,490 | — | 4,543,490 | 146,617 | — | 4,690,107 | ||||||||||||||||||
Commercial Mortgage-Backed Securities | ||||||||||||||||||||||||
| Fannie Mae | 100,492 | — | 100,492 | — | $ | (2,516 | ) | 97,976 | ||||||||||||||||
| Freddie Mac | 375,901 | — | 375,901 | 1,031 | $ | (5,315 | ) | 371,617 | ||||||||||||||||
| Ginnie Mae | 48,747 | — | 48,747 | 1,857 | — | 50,604 | ||||||||||||||||||
| Total commercial mortgage-backed securities | 525,140 | — | 525,140 | 2,888 | $ | (7,831 | ) | 520,197 | ||||||||||||||||
Non-GSE MBS | ||||||||||||||||||||||||
| CMOs/REMICs | 294,686 | (2,209 | ) | 292,477 | 6,228 | (916 | ) | 297,789 | ||||||||||||||||
| Commercial MBS | — | — | — | — | — | — | ||||||||||||||||||
| Total non-federal-agency MBS | 294,686 | (2,209 | ) | 292,477 | 6,228 | (916 | ) | 297,789 | ||||||||||||||||
Asset-Backed Securities | ||||||||||||||||||||||||
| Manufactured housing (insured) | 176,592 | — | 176,592 | — | (21,437 | ) | 155,155 | |||||||||||||||||
| Home equity loans (insured) | 257,889 | (66,252 | ) | 191,637 | 35,550 | (4,316 | ) | 222,871 | ||||||||||||||||
| Home equity loans (uninsured) | 184,284 | (24,465 | ) | 159,819 | 17,780 | (21,478 | ) | 156,121 | ||||||||||||||||
| Total asset-backed securities | 618,765 | (90,717 | ) | 528,048 | 53,330 | (47,231 | ) | 534,147 | ||||||||||||||||
| Total MBS | $ | 7,083,509 | $ | (92,926 | ) | $ | 6,990,583 | $ | 271,091 | $ | (55,978 | ) | $ | 7,205,696 | ||||||||||
Other | ||||||||||||||||||||||||
| State and local housing finance agency obligations | $ | 770,609 | $ | — | $ | 770,609 | $ | 1,434 | $ | (79,439 | ) | $ | 692,604 | |||||||||||
| Total other | $ | 770,609 | $ | — | $ | 770,609 | $ | 1,434 | $ | (79,439 | ) | $ | 692,604 | |||||||||||
Total Held-to-maturity securities | $ | 7,854,118 | $ | (92,926 | ) | $ | 7,761,192 | $ | 272,525 | $ | (135,417 | ) | $ | 7,898,300 | ||||||||||
| December 31, 2009 | ||||||||||||||||||||||||
| Gross | Gross | |||||||||||||||||||||||
| Amortized | OTTI | Carrying | Unrecognized | Unrecognized | Fair | |||||||||||||||||||
| Issued, guaranteed or insured: | Cost | in OCI | Value | Holding Gains | Holding Losses | Value | ||||||||||||||||||
Pools of Mortgages | ||||||||||||||||||||||||
| Fannie Mae | $ | 1,137,514 | $ | — | $ | 1,137,514 | $ | 38,378 | $ | — | $ | 1,175,892 | ||||||||||||
| Freddie Mac | 335,368 | — | 335,368 | 12,903 | — | 348,271 | ||||||||||||||||||
| Total pools of mortgages | 1,472,882 | — | 1,472,882 | 51,281 | — | 1,524,163 | ||||||||||||||||||
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits | ||||||||||||||||||||||||
| Fannie Mae | 2,609,254 | — | 2,609,254 | 70,222 | (2,192 | ) | 2,677,284 | |||||||||||||||||
| Freddie Mac | 4,400,003 | — | 4,400,003 | 128,952 | (3,752 | ) | 4,525,203 | |||||||||||||||||
| Ginnie Mae | 171,531 | — | 171,531 | 245 | (1,026 | ) | 170,750 | |||||||||||||||||
| Total CMOs/REMICs | 7,180,788 | — | 7,180,788 | 199,419 | (6,970 | ) | 7,373,237 | |||||||||||||||||
Ginnie Mae-CMBS | 49,526 | — | 49,526 | 62 | — | 49,588 | ||||||||||||||||||
Non-GSE MBS | ||||||||||||||||||||||||
| CMOs/REMICs | 447,367 | (2,461 | ) | 444,906 | 2,437 | (7,833 | ) | 439,510 | ||||||||||||||||
| Commercial MBS | — | — | — | — | — | — | ||||||||||||||||||
| Total non-federal-agency MBS | 447,367 | (2,461 | ) | 444,906 | 2,437 | (7,833 | ) | 439,510 | ||||||||||||||||
Asset-Backed Securities | ||||||||||||||||||||||||
| Manufactured housing (insured) | 202,278 | — | 202,278 | — | (37,101 | ) | 165,177 | |||||||||||||||||
| Home equity loans (insured) | 307,279 | (79,445 | ) | 227,834 | 12,795 | (25,136 | ) | 215,493 | ||||||||||||||||
| Home equity loans (uninsured) | 217,981 | (28,664 | ) | 189,317 | 3,436 | (34,804 | ) | 157,949 | ||||||||||||||||
| Total asset-backed securities | 727,538 | (108,109 | ) | 619,429 | 16,231 | (97,041 | ) | 538,619 | ||||||||||||||||
| Total MBS | $ | 9,878,101 | $ | (110,570 | ) | $ | 9,767,531 | $ | 269,430 | $ | (111,844 | ) | $ | 9,925,117 | ||||||||||
Other | ||||||||||||||||||||||||
| State and local housing finance agency obligations | $ | 751,751 | $ | — | $ | 751,751 | $ | 3,430 | $ | (11,046 | ) | $ | 744,135 | |||||||||||
| Total other | $ | 751,751 | $ | — | $ | 751,751 | $ | 3,430 | $ | (11,046 | ) | $ | 744,135 | |||||||||||
Total Held-to-maturity securities | $ | 10,629,852 | $ | (110,570 | ) | $ | 10,519,282 | $ | 272,860 | $ | (122,890 | ) | $ | 10,669,252 | ||||||||||
(a) | ||
Unrecognized gross holding gains and losses represent the difference between | ||
(b) | Private-label MBS. | |
(c) | Amortized cost - Manufactured housing bonds insured by AGM (FSA) were $153.9 million and $176.6 million at December 31, 2011 and 2010. Asset backed securities (supported by home equity loans) insured by AGM were $73.7 million and $77.9 million at December 31, 2011 and 2010. Asset backed securities (supported by home equity loans) insured by Ambac and MBIA, together, were $157.2 million and $180.0 million at December 31, 2011 and 2010. |
Federal Home Loan Bank of New York
Unrealized Losseslosses
The following tables summarize held-to-maturity securities with fair values below their amortized cost basis. The fair values and gross unrealized holding losses1(a) are aggregated by major security type and by the length of time individual securities have been in a continuous unrealized loss position as follows (in thousands):
|
| December 31, 2011 |
| ||||||||||||||||
|
| Less than 12 months |
| 12 months or more |
| Total |
| ||||||||||||
|
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| ||||||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| ||||||
Non-MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
State and local housing finance agency obligations |
| $ | — |
| $ | — |
| $ | 292,348 |
| $ | (80,032 | ) | $ | 292,348 |
| $ | (80,032 | ) |
Total Non-MBS |
| — |
| — |
| 292,348 |
| (80,032 | ) | 292,348 |
| (80,032 | ) | ||||||
MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fannie Mae |
| 993,420 |
| (1,866 | ) | — |
| — |
| 993,420 |
| (1,866 | ) | ||||||
Freddie Mac |
| 729,246 |
| (1,604 | ) | — |
| — |
| 729,246 |
| (1,604 | ) | ||||||
Total MBS-GSE |
| 1,722,666 |
| (3,470 | ) | — |
| — |
| 1,722,666 |
| (3,470 | ) | ||||||
MBS-Private-Label |
| 19,418 |
| (430 | ) | 525,436 |
| (61,469 | ) | 544,854 |
| (61,899 | ) | ||||||
Total MBS |
| 1,742,084 |
| (3,900 | ) | 525,436 |
| (61,469 | ) | 2,267,520 |
| (65,369 | ) | ||||||
Total |
| $ | 1,742,084 |
| $ | (3,900 | ) | $ | 817,784 |
| $ | (141,501 | ) | $ | 2,559,868 |
| $ | (145,401 | ) |
|
| December 31, 2010 |
| ||||||||||||||||
|
| Less than 12 months |
| 12 months or more |
| Total |
| ||||||||||||
|
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| ||||||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| ||||||
Non-MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
State and local housing finance agency obligations |
| $ | 20,945 |
| $ | (1,270 | ) | $ | 309,476 |
| $ | (78,169 | ) | $ | 330,421 |
| $ | (79,439 | ) |
Total Non-MBS |
| 20,945 |
| (1,270 | ) | 309,476 |
| (78,169 | ) | 330,421 |
| (79,439 | ) | ||||||
MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fannie Mae |
| 97,976 |
| (2,516 | ) | — |
| — |
| 97,976 |
| (2,516 | ) | ||||||
Freddie Mac |
| 196,658 |
| (5,315 | ) | — |
| — |
| 196,658 |
| (5,315 | ) | ||||||
Total MBS-GSE |
| 294,634 |
| (7,831 | ) | — |
| — |
| 294,634 |
| (7,831 | ) | ||||||
MBS-Private-Label |
| 5,017 |
| (19 | ) | 593,667 |
| (87,302 | ) | 598,684 |
| (87,321 | ) | ||||||
Total MBS |
| 299,651 |
| (7,850 | ) | 593,667 |
| (87,302 | ) | 893,318 |
| (95,152 | ) | ||||||
Total |
| $ | 320,596 |
| $ | (9,120 | ) | $ | 903,143 |
| $ | (165,471 | ) | $ | 1,223,739 |
| $ | (174,591 | ) |
| December 31, 2010 | ||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
| Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | |||||||||||||||||||
| Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
Non-MBS Investment Securities | ||||||||||||||||||||||||
| State and local housing finance agency obligations | $ | 20,945 | $ | (1,270 | ) | $ | 309,476 | $ | (78,169 | ) | $ | 330,421 | $ | (79,439 | ) | |||||||||
Total Non-MBS | 20,945 | (1,270 | ) | 309,476 | (78,169 | ) | 330,421 | (79,439 | ) | |||||||||||||||
MBS Investment Securities | ||||||||||||||||||||||||
MBS — Other US Obligations | ||||||||||||||||||||||||
| Ginnie Mae | — | — | — | — | — | — | ||||||||||||||||||
MBS-GSE | ||||||||||||||||||||||||
| Fannie Mae-CMBS | 97,976 | (2,516 | ) | — | — | 97,976 | (2,516 | ) | ||||||||||||||||
| Freddie Mac-CMBS | 196,658 | (5,315 | ) | — | — | 196,658 | (5,315 | ) | ||||||||||||||||
Total MBS-GSE | 294,634 | (7,831 | ) | — | — | 294,634 | (7,831 | ) | ||||||||||||||||
MBS-Private-Label — CMOs | 5,017 | (19 | ) | 593,667 | (87,302 | ) | 598,684 | (87,321 | ) | |||||||||||||||
Total MBS | 299,651 | (7,850 | ) | 593,667 | (87,302 | ) | 893,318 | (95,152 | ) | |||||||||||||||
Total | $ | 320,596 | $ | (9,120 | ) | $ | 903,143 | $ | (165,471 | ) | $ | 1,223,739 | $ | (174,591 | ) | |||||||||
| December 31, 2009 | ||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
| Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | |||||||||||||||||||
| Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
Non-MBS Investment Securities | ||||||||||||||||||||||||
| State and local housing finance agency obligations | $ | 212,112 | $ | (8,611 | ) | $ | 43,955 | $ | (2,435 | ) | $ | 256,067 | $ | (11,046 | ) | |||||||||
Total Non-MBS | 212,112 | (8,611 | ) | 43,955 | (2,435 | ) | 256,067 | (11,046 | ) | |||||||||||||||
MBS Investment Securities | ||||||||||||||||||||||||
MBS — Other US Obligations | ||||||||||||||||||||||||
| Ginnie Mae-CMOs | 122,359 | (1,020 | ) | 2,274 | (6 | ) | 124,633 | (1,026 | ) | |||||||||||||||
MBS-GSE | ||||||||||||||||||||||||
| Fannie Mae-CMOs | 780,645 | (2,192 | ) | — | — | 780,645 | (2,192 | ) | ||||||||||||||||
| Freddie Mac-CMOs | 814,881 | (3,752 | ) | — | — | 814,881 | (3,752 | ) | ||||||||||||||||
Total MBS-GSE | 1,595,526 | (5,944 | ) | — | — | 1,595,526 | (5,944 | ) | ||||||||||||||||
MBS-Private-Label — CMOs | 113,140 | (1,523 | ) | 765,445 | (196,134 | ) | 878,585 | (197,657 | ) | |||||||||||||||
Total MBS | 1,831,025 | (8,487 | ) | 767,719 | (196,140 | ) | 2,598,744 | (204,627 | ) | |||||||||||||||
Total | $ | 2,043,137 | $ | (17,098 | ) | $ | 811,674 | $ | (198,575 | ) | $ | 2,854,811 | $ | (215,673 | ) | |||||||||
(a)Unrealized holding losses represent the difference between fair value and amortized cost. The baseline measure of unrealized holding losses is amortized cost, which is not adjusted for non-credit OTTI. Unrealized holding losses will not equal gross unrecognized losses, which are adjusted for non-credit OTTI.
Redemption terms
The amortized cost and estimated fair value of held-to-maturity securities, arranged by contractual maturity, were as follows (in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Amortized | Estimated | Amortized | Estimated | |||||||||||||
| Cost | Fair Value | Cost | Fair Value | |||||||||||||
| State and local housing finance agency obligations | ||||||||||||||||
| Due in one year or less | $ | — | $ | — | $ | 2,820 | $ | 2,869 | ||||||||
| Due after one year through five years | 6,415 | 6,467 | 9,315 | 9,338 | ||||||||||||
| Due after five years through ten years | 61,945 | 60,667 | 62,065 | 62,766 | ||||||||||||
| Due after ten years | 702,249 | 625,470 | 677,551 | 669,162 | ||||||||||||
| State and local housing finance agency obligations | 770,609 | 692,604 | 751,751 | 744,135 | ||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Due in one year or less | — | — | — | — | ||||||||||||
| Due after one year through five years | 1,730 | 1,768 | 2,661 | 2,645 | ||||||||||||
| Due after five years through ten years | 1,324,480 | 1,351,936 | 1,140,154 | 1,172,718 | ||||||||||||
| Due after ten years | 5,757,299 | 5,851,992 | 8,735,286 | 8,749,754 | ||||||||||||
| Mortgage-backed securities | 7,083,509 | 7,205,696 | 9,878,101 | 9,925,117 | ||||||||||||
| Certificates of deposit | ||||||||||||||||
| Due in one year or less | — | — | — | — | ||||||||||||
| Certificates of deposit | — | — | — | — | ||||||||||||
Total Held-to-maturity securities | $ | 7,854,118 | $ | 7,898,300 | $ | 10,629,852 | $ | 10,669,252 | ||||||||
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||||
|
| Amortized |
| Estimated |
| Amortized |
| Estimated |
| ||||
|
| Cost |
| Fair Value |
| Cost |
| Fair Value |
| ||||
State and local housing finance agency obligations |
|
|
|
|
|
|
|
|
| ||||
Due in one year or less |
| $ | 3,315 |
| $ | 3,347 |
| $ | — |
| $ | — |
|
Due after one year through five years |
| — |
| — |
| 6,415 |
| 6,467 |
| ||||
Due after five years through ten years |
| 59,175 |
| 58,750 |
| 61,945 |
| 60,667 |
| ||||
Due after ten years |
| 717,421 |
| 640,215 |
| 702,249 |
| 625,470 |
| ||||
State and local housing finance agency obligations |
| 779,911 |
| 702,312 |
| 770,609 |
| 692,604 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
| ||||
Due in one year or less |
| — |
| — |
| — |
| — |
| ||||
Due after one year through five years |
| 972 |
| 981 |
| 1,730 |
| 1,768 |
| ||||
Due after five years through ten years |
| 2,836,464 |
| 3,005,000 |
| 1,324,480 |
| 1,351,936 |
| ||||
Due after ten years |
| 6,582,307 |
| 6,640,081 |
| 5,757,299 |
| 5,851,992 |
| ||||
Mortgage-backed securities |
| 9,419,743 |
| 9,646,062 |
| 7,083,509 |
| 7,205,696 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total Held-to-maturity securities |
| $ | 10,199,654 |
| $ | 10,348,374 |
| $ | 7,854,118 |
| $ | 7,898,300 |
|
Federal Home Loan Bank of New York
Interest rate payment terms
The following table summarizes interest rate payment terms of long-term securities classified as held-to-maturity (in thousands):
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||||
|
| Amortized |
| Carrying |
| Amortized |
| Carrying |
| ||||
|
| Cost |
| Value |
| Cost |
| Value |
| ||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
| ||||
CMO |
|
|
|
|
|
|
|
|
| ||||
Fixed |
| $ | 3,528,227 |
| $ | 3,525,334 |
| $ | 3,064,470 |
| $ | 3,060,797 |
|
Floating |
| 4,391,908 |
| 4,391,907 |
| 2,105,272 |
| 2,105,272 |
| ||||
CMO Total |
| 7,920,135 |
| 7,917,241 |
| 5,169,742 |
| 5,166,069 |
| ||||
Pass Thru (a) |
|
|
|
|
|
|
|
|
| ||||
Fixed |
| 1,373,804 |
| 1,301,956 |
| 1,830,665 |
| 1,742,633 |
| ||||
Floating |
| 125,804 |
| 124,697 |
| 83,102 |
| 81,881 |
| ||||
Pass Thru Total |
| 1,499,608 |
| 1,426,653 |
| 1,913,767 |
| 1,824,514 |
| ||||
Total MBS |
| 9,419,743 |
| 9,343,894 |
| 7,083,509 |
| 6,990,583 |
| ||||
State and local housing finance agency obligations |
|
|
|
|
|
|
|
|
| ||||
Fixed |
| 106,901 |
| 106,901 |
| 135,344 |
| 135,344 |
| ||||
Floating |
| 673,010 |
| 673,010 |
| 635,265 |
| 635,265 |
| ||||
|
| 779,911 |
| 779,911 |
| 770,609 |
| 770,609 |
| ||||
Total Held-to-maturity securities |
| $ | 10,199,654 |
| $ | 10,123,805 |
| $ | 7,854,118 |
| $ | 7,761,192 |
|
| December 31, 2010 | ||||||||||||
| Amortized | OTTI | Carrying | ||||||||||
| Cost | in OCI | Value | ||||||||||
Mortgage-backed securities | ||||||||||||
CMO | ||||||||||||
| Fixed | $ | 3,064,470 | $ | (3,673 | ) | $ | 3,060,797 | |||||
| Floating | 2,105,272 | — | 2,105,272 | |||||||||
| CMO Total | 5,169,742 | (3,673 | ) | 5,166,069 | ||||||||
Pass Thru | ||||||||||||
| Fixed | 1,830,665 | (88,032 | ) | 1,742,633 | ||||||||
| Floating | 83,102 | (1,221 | ) | 81,881 | ||||||||
| Pass Thru Total | 1,913,767 | (89,253 | ) | 1,824,514 | ||||||||
Total MBS | 7,083,509 | (92,926 | ) | 6,990,583 | ||||||||
State and local housing finance agency obligations | ||||||||||||
| Fixed | 135,344 | — | 135,344 | |||||||||
| Floating | 635,265 | — | 635,265 | |||||||||
| 770,609 | — | 770,609 | ||||||||||
Total Held-to-maturity securities | $ | 7,854,118 | $ | (92,926 | ) | $ | 7,761,192 | |||||
| December 31, 2009 | ||||||||||||
| Amortized | OTTI | Carrying | ||||||||||
| Cost | in OCI | Value | ||||||||||
Mortgage-backed securities | ||||||||||||
CMO | ||||||||||||
| Fixed | $ | 4,281,206 | $ | (5,047 | ) | $ | 4,276,159 | |||||
| Floating | 3,089,976 | — | 3,089,976 | |||||||||
| CMO Total | 7,371,182 | (5,047 | ) | 7,366,135 | ||||||||
Pass Thru | ||||||||||||
| Fixed | 2,396,776 | (104,146 | ) | 2,292,630 | ||||||||
| Floating | 110,143 | (1,377 | ) | 108,766 | ||||||||
| Pass Thru Total | 2,506,919 | (105,523 | ) | 2,401,396 | ||||||||
Total MBS | 9,878,101 | (110,570 | ) | 9,767,531 | ||||||||
State and local housing finance agency obligations | ||||||||||||
| Fixed | 173,781 | — | 173,781 | |||||||||
| Floating | 577,970 | — | 577,970 | |||||||||
| 751,751 | — | 751,751 | ||||||||||
Total Held-to-maturity securities | $ | 10,629,852 | $ | (110,570 | ) | $ | 10,519,282 | |||||
(a) Includes MBS supported by pools of mortgages.
Impairment analysis of GSE issuedGSE-issued and private label mortgage-backed securities
The FHLBNY evaluates its individual securities issued by Fannie Mae, Freddie Mac and a government agencyagencies 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, GSEGSE- and agency issuedagency-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 GSEGSE- and agency issuedagency-issued securities given the current levels of collateral, credit enhancements and guarantees that exist to protect the investments.
142
Base case (best estimate) assumptions and adverse case scenariosOTTI —In evaluating its private-label MBS for OTTI, the FHLBNY develops a base case assumption about future changes in home prices, prepayments, default and loss severities. The base case assumptions are the Bank’s best estimate of the performance parameters of its private-label MBS. The assumptions are then input to an industry standard bond cash flow model that generates expected cash flows based on various security classes in the securitization structure of each private-label MBS. See Note 1 for information with respect to critical estimates and assumptions about the Bank’s impairment methodologies. In addition to evaluating its private-label MBS under a base case scenario, the FHLBNY also performs a cash flow analysis for each security determined to be OTTI under a more stressful performance scenario. For more information, see Table: “Adverse case scenario — December 31, 2010” that summarizes the base case assumptions and OTTI results under an adverse case scenario.
143
|
| Year-to-Date December 31, 2011 (a) |
| Twelve months ended |
| ||||||||||||||||||||
|
| Insurer MBIA |
| Insurer Ambac |
| Uninsured |
| OTTI (b) |
| ||||||||||||||||
Security |
|
|
| Fair |
|
|
| Fair |
|
|
| Fair |
| Credit |
| Non-credit |
| ||||||||
Classification |
| UPB |
| Value |
| UPB |
| Value |
| UPB |
| Value |
| Loss |
| Loss |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
RMBS-Prime |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 24,960 |
| $ | 24,141 |
| $ | (141 | ) | $ | (175 | ) |
HEL Subprime (c) |
| 28,543 |
| 16,779 |
| 40,734 |
| 25,470 |
| 3,478 |
| 3,328 |
| (5,452 | ) | 4,977 |
| ||||||||
Total Securities |
| $ | 28,543 |
| $ | 16,779 |
| $ | 40,734 |
| $ | 25,470 |
| $ | 28,438 |
| $ | 27,469 |
| $ | (5,593 | ) | $ | 4,802 |
|
|
| Year-to-Date December 31, 2010 (a) |
| Twelve months ended | |||||||||||||||||||||
|
| Insurer MBIA |
| Insurer Ambac |
| Uninsured |
| OTTI (b) |
| ||||||||||||||||
Security |
|
|
| Fair |
|
|
| Fair |
|
|
| Fair |
| Credit |
| Non-credit |
| ||||||||
Classification |
| UPB |
| Value |
| UPB |
| Value |
| UPB |
| Value |
| Loss |
| Loss |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
RMBS-Prime |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 16,477 |
| $ | 15,827 |
| $ | (176 | ) | $ | (303 | ) |
HEL Subprime (c) |
| 31,256 |
| 17,090 |
| 66,798 |
| 45,658 |
| — |
| — |
| (8,146 | ) | 3,573 |
| ||||||||
Total Securities |
| $ | 31,256 |
| $ | 17,090 |
| $ | 66,798 |
| $ | 45,658 |
| $ | 16,477 |
| $ | 15,827 |
| $ | (8,322 | ) | $ | 3,270 |
|
(a)Unpaid principal balances and fair values at December 31 on securities determineddeemed to be OTTI in 2011 and 2010.
(b)Represent total OTTI recorded in the fourth quarter12-months ended December 31, 2011 and 2010. If the present value of 2010 (dollars in thousands):
| Year ended December 31, 2010 | ||||||||||||||||||||||||||||||||
| Insurer MBIA | Insurer Ambac | Uninsured | OTTI | |||||||||||||||||||||||||||||
| Security | Fair | Fair | Fair | Credit | Non-credit | |||||||||||||||||||||||||||
| Classification | UPB | Value | UPB | Value | UPB | Value | Loss | Loss 1 | ||||||||||||||||||||||||
RMBS-Prime* | $ | — | $ | — | $ | — | $ | — | $ | 58,269 | $ | 55,631 | $ | (176 | ) | $ | (303 | ) | ||||||||||||||
HEL Subprime* | 31,256 | 17,090 | 173,220 | 129,804 | 70,747 | 62,300 | (8,146 | ) | 3,573 | |||||||||||||||||||||||
Total | $ | 31,256 | $ | 17,090 | $ | 173,220 | $ | 129,804 | $ | 129,016 | $ | 117,931 | $ | (8,322 | ) | $ | 3,270 | |||||||||||||||
(c)HEL Subprime securities are supported by home equity loans.
Based on cash flow testing, the Bank believes no OTTI inexists for the fourth quarter of 2010 (dollars in thousands):
| Quarter ended December 31, 2010 | ||||||||||||||||||||||||||||||||
| Insurer MBIA | Insurer Ambac | Uninsured | OTTI | |||||||||||||||||||||||||||||
| Security | Fair | Fair | Fair | Credit | Non-credit | |||||||||||||||||||||||||||
| Classification | UPB | Value | UPB | Value | UPB | Value | Loss | Loss | ||||||||||||||||||||||||
RMBS-Prime* | $ | — | $ | — | $ | — | $ | — | $ | 16,477 | $ | 15,827 | $ | (176 | ) | $ | (303 | ) | ||||||||||||||
HEL Subprime* | 11,375 | 6,932 | 6,282 | 3,863 | — | — | (409 | ) | — | |||||||||||||||||||||||
Total | $ | 11,375 | $ | 6,932 | $ | 6,282 | $ | 3,863 | $ | 16,477 | $ | 15,827 | $ | (585 | ) | $ | (303 | ) | ||||||||||||||
| Quarter ended December 31, 2009 | ||||||||||||||||||||||||||||||||
| Insurer MBIA | Insurer Ambac | Uninsured | OTTI | |||||||||||||||||||||||||||||
| Security | Fair | Fair | Fair | Credit | Non-credit | |||||||||||||||||||||||||||
| Classification | UPB | Value | UPB | Value | UPB | Value | Loss | Loss | ||||||||||||||||||||||||
HEL Subprime* | $ | — | $ | — | $ | 89,092 | $ | 53,027 | $ | 20,118 | $ | 12,874 | $ | (6,540 | ) | $ | (16,212 | ) | ||||||||||||||
Total | $ | — | $ | — | $ | 89,092 | $ | 53,027 | $ | 20,118 | $ | 12,874 | $ | (6,540 | ) | $ | (16,212 | ) | ||||||||||||||
| Year ended December 31, 2009 | ||||||||||||||||||||||||||||||||
| Insurer MBIA | Insurer Ambac | Uninsured | OTTI | |||||||||||||||||||||||||||||
| Security | Fair | Fair | Fair | Credit | Non-credit | |||||||||||||||||||||||||||
| Classification | UPB | Value | UPB | Value | UPB | Value | Loss | Loss | ||||||||||||||||||||||||
RMBS-Prime* | $ | — | $ | — | $ | — | $ | — | $ | 54,295 | $ | 51,715 | $ | (438 | ) | $ | (2,766 | ) | ||||||||||||||
HEL Subprime* | 34,425 | 17,161 | 198,532 | 127,470 | 80,774 | 53,783 | (20,378 | ) | (117,330 | ) | ||||||||||||||||||||||
Total | $ | 34,425 | $ | 17,161 | $ | 198,532 | $ | 127,470 | $ | 135,069 | $ | 105,498 | $ | (20,816 | ) | $ | (120,096 | ) | ||||||||||||||
Federal Home Loan Bank of New York
The following table provides rollforward information ofabout the credit component of OTTI recognized as a charge to earnings related to held-to-maturity securities for which a significant portion of the OTTI (non-credit component) was recognized in AOCI (in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
Beginning balance | $ | 20,816 | $ | — | ||||
| Additions to the credit component for OTTI loss not previously recognized | 176 | 20,816 | ||||||
| Additional credit losses for which an OTTI charge was previously recognized | 8,146 | — | ||||||
| Increases in cash flows expected to be collected, recognized over the remaining life of the securities | — | — | ||||||
Ending balance | $ | 29,138 | $ | 20,816 | ||||
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
Beginning balance |
| $ | 29,138 |
| $ | 20,816 |
|
Additions for OTTI on securities not previously impaired |
| 85 |
| 176 |
| ||
Additional credit losses for which an OTTI charge was previously recognized |
| 5,508 |
| 8,146 |
| ||
Ending balance |
| $ | 34,731 |
| $ | 29,138 |
|
Key Base Assumptions
| Key Base Assumption — OTTI Securities Life-to-Date | ||||||||||||||||||||||||
| CDR | CPR | Loss Severity % | ||||||||||||||||||||||
| Security Classification | Range | Average | Range | Average | Range | Average | ||||||||||||||||||
RMBS Prime | 2.0-3.6 | 2.3 | 7.1-14.0 | 12.6 | 40.0-65.1 | 45.2 | ||||||||||||||||||
HEL Subprime | 4.3-16.8 | 7.6 | 2.0-10.2 | 5.0 | 52.2-100.0 | 84.9 | ||||||||||||||||||
The table below summarizes the weighted average and range of Key Base Assumptions for all private-label MBS at December 31, 2010,2011, including those deemed OTTI:
|
| Key Base Assumptions - All PLMBS at December 31, 2011 |
| ||||||||||
|
| CDR (a) |
| CPR (b) |
| Loss Severity % (c) |
| ||||||
Security Classification |
| Range |
| Average |
| Range |
| Average |
| Range |
| Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS Prime (1) |
| 1.0-4.3 |
| 1.6 |
| 5.2-42.0 |
| 21.4 |
| 30.0-85.4 |
| 37.4 |
|
Alt-A |
| 1.0-1.0 |
| 1.0 |
| 2.0-11.5 |
| 4.2 |
| 30.0-30.0 |
| 30.0 |
|
HEL Subprime (2) |
| 1.0-11.5 |
| 4.4 |
| 2.0-13.0 |
| 3.6 |
| 30.0-100.0 |
| 74.6 |
|
Manufactured Housing Loans |
| 3.5-6.7 |
| 5.3 |
| 2.1-2.3 |
| 2.2 |
| 76.6-76.8 |
| 76.7 |
|
| Key Base Assumption — All PLMBS at Quarter End | ||||||||||||||||||||||||
| CDR | CPR | Loss Severity % | ||||||||||||||||||||||
| Security Classification | Range | Average | Range | Average | Range | Average | ||||||||||||||||||
RMBS Prime | 1.0-2.0 | 1.4 | 7.1-40.6 | 24.3 | 30.0-48.6 | 34.9 | ||||||||||||||||||
Alt-A | 1.0-7.9 | 3.5 | 2.0-16.9 | 4.7 | 30.0-30.0 | 30.0 | ||||||||||||||||||
HEL Subprime | 1.0-7.9 | 4.0 | 2.0-11.3 | 4.5 | 30.0-100.0 | 68.8 | ||||||||||||||||||
(1) | ||
(2)Residential asset backed MBS.
(a)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).
(b)Conditional Prepayment Rate (CPR): 1— ((1-SMM)^12) where, SMM is defined as the “Single Monthly Mortality (SMM)” = (Voluntary Partial and MBIA to meet scheduled paymentsFull Prepayments + Repurchases + Liquidated Balances)/(Beginning Principal Balance - Scheduled Principal). Voluntary prepayment excludes the liquidated balances mentioned above.
(c)Loss Severity (Principal and Interest in the future. Cash flows on certain insured securities are currently experiencing cash flow shortfalls.
145Note 5. Available-for-Sale Securities.
146
|
| December 31, 2011 |
| |||||||||||||
|
|
|
| OTTI |
| Gross |
| Gross |
|
|
| |||||
|
| Amortized |
| Recognized |
| Unrealized |
| Unrealized |
| Fair |
| |||||
|
| Cost |
| in AOCI |
| Gains |
| Losses |
| Value |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash equivalents |
| $ | 125 |
| $ | — |
| $ | — |
| $ | — |
| $ | 125 |
|
Equity funds |
| 5,955 |
| — |
| 124 |
| (560 | ) | 5,519 |
| |||||
Fixed income funds |
| 3,241 |
| — |
| 282 |
| — |
| 3,523 |
| |||||
GSE and U.S. Obligations |
|
|
|
|
|
|
|
|
|
|
| |||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
| |||||
CMO-Floating |
| 3,067,213 |
| — |
| 18,263 |
| (1,516 | ) | 3,083,960 |
| |||||
CMBS-Floating |
| 49,683 |
| — |
| — |
| (174 | ) | 49,509 |
| |||||
Total Available-for-sale securities |
| $ | 3,126,217 |
| $ | — |
| $ | 18,669 |
| $ | (2,250 | ) | $ | 3,142,636 |
|
|
| December 31, 2010 |
| |||||||||||||
|
|
|
| OTTI |
| Gross |
| Gross |
|
|
| |||||
|
| Amortized |
| Recognized |
| Unrealized |
| Unrealized |
| Fair |
| |||||
|
| Cost |
| in AOCI |
| Gains |
| Losses |
| Value |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash equivalents |
| $ | 120 |
| $ | — |
| $ | — |
| $ | — |
| $ | 120 |
|
Equity funds |
| 6,715 |
| — |
| 182 |
| (651 | ) | 6,246 |
| |||||
Fixed income funds |
| 3,374 |
| — |
| 207 |
| — |
| 3,581 |
| |||||
GSE and U.S. Obligations |
|
|
|
|
|
|
|
|
|
|
| |||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
| |||||
CMO-Floating |
| 3,906,932 |
| — |
| 26,588 |
| (3,157 | ) | 3,930,363 |
| |||||
CMBS-Floating |
| 49,976 |
| — |
| — |
| (204 | ) | 49,772 |
| |||||
Total Available-for-sale securities |
| $ | 3,967,117 |
| $ | — |
| $ | 26,977 |
| $ | (4,012 | ) | $ | 3,990,082 |
|
(a)The carrying value of AFS securities equals fair value. No AFS securities had been pledged at December 31, 2011 and 2010.
(b)The Bank has a grantor trust to fund current and future payments for its employee supplemental pension plans and investments in the trust are classified as AFS. The grantor trust invests in money market, equity and fixed-income and bond funds. Daily net asset values are readily available and investments are redeemable at short notice. Realized gains and losses from investments in the funds were not significant.
| December 31, 2010 | ||||||||||||||||||||
| Gross | Gross | |||||||||||||||||||
| Amortized | OTTI | Unrealized | Unrealized | Fair | ||||||||||||||||
| Cost | in OCI | Gains | Losses | Value | ||||||||||||||||
| Cash equivalents | $ | 120 | $ | — | $ | — | $ | — | $ | 120 | ||||||||||
| Equity funds | 6,715 | — | 182 | (651 | ) | 6,246 | ||||||||||||||
| Fixed income funds | 3,374 | — | 207 | — | 3,581 | |||||||||||||||
| GSE and U.S. Obligations | ||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||
| CMO-Floating | 3,906,932 | — | 26,588 | (3,157 | ) | 3,930,363 | ||||||||||||||
| CMBS-Floating | 49,976 | — | — | (204 | ) | 49,772 | ||||||||||||||
Total | $ | 3,967,117 | $ | — | $ | 26,977 | $ | (4,012 | ) | $ | 3,990,082 | |||||||||
| December 31, 2009 | ||||||||||||||||||||
| Gross | Gross | |||||||||||||||||||
| Amortized | OTTI | Unrealized | Unrealized | Fair | ||||||||||||||||
| Cost | in OCI | Gains | Losses | Value | ||||||||||||||||
| Cash equivalents | $ | 1,230 | $ | — | $ | — | $ | — | $ | 1,230 | ||||||||||
| Equity funds | 8,995 | — | 57 | (1,561 | ) | 7,491 | ||||||||||||||
| Fixed income funds | 3,672 | — | 196 | — | 3,868 | |||||||||||||||
| GSE and U.S. Obligations | ||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||
| CMO-Floating | 2,242,665 | — | 6,937 | (9,038 | ) | 2,240,564 | ||||||||||||||
| CMBS-Floating | — | — | — | — | — | |||||||||||||||
Total | $ | 2,256,562 | $ | — | $ | 7,190 | $ | (10,599 | ) | $ | 2,253,153 | |||||||||
Federal Home Loan Bank of New York
Notes to Financial Statements
Unrealized Losses — MBS classified as available-for-saleAFS securities (in thousands):
| December 31, 2010 | ||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
| Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | |||||||||||||||||||
| Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
MBS Investment Securities | ||||||||||||||||||||||||
MBS — Other US Obligations | ||||||||||||||||||||||||
| Ginnie Mae- CMOs | $ | 71,922 | $ | (192 | ) | $ | — | $ | — | $ | 71,922 | $ | (192 | ) | ||||||||||
MBS-GSE | ||||||||||||||||||||||||
| Fannie Mae-CMOs | 374,535 | (1,267 | ) | — | — | 374,535 | (1,267 | ) | ||||||||||||||||
| Fannie Mae-CMBS | 49,772 | (204 | ) | — | — | 49,772 | (204 | ) | ||||||||||||||||
| Freddie Mac-CMOs | 368,652 | (1,698 | ) | — | — | 368,652 | (1,698 | ) | ||||||||||||||||
Total MBS-GSE | 792,959 | (3,169 | ) | — | — | 792,959 | (3,169 | ) | ||||||||||||||||
Total Temporarily Impaired | $ | 864,881 | $ | (3,361 | ) | $ | — | $ | — | $ | 864,881 | $ | (3,361 | ) | ||||||||||
| December 31, 2009 | ||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
| Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | |||||||||||||||||||
| Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
MBS Investment Securities | ||||||||||||||||||||||||
MBS-GSE | ||||||||||||||||||||||||
| Fannie Mae-CMOs | $ | — | $ | — | $ | 1,006,860 | $ | (6,394 | ) | $ | 1,006,860 | $ | (6,394 | ) | ||||||||||
| Freddie Mac-CMOs | — | — | 662,237 | (2,644 | ) | 662,237 | (2,644 | ) | ||||||||||||||||
Total MBS-GSE | — | — | 1,669,097 | (9,038 | ) | 1,669,097 | (9,038 | ) | ||||||||||||||||
Total Temporarily Impaired | $ | — | $ | — | $ | 1,669,097 | $ | (9,038 | ) | $ | 1,669,097 | $ | (9,038 | ) | ||||||||||
|
| December 31, 2011 |
| ||||||||||||||||
|
| Less than 12 months |
| 12 months or more |
| Total |
| ||||||||||||
|
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| ||||||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| ||||||
MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
MBS-Other US Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ginnie Mae-CMOs |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fannie Mae-CMOs |
| 162,451 |
| (127 | ) | 247,794 |
| (474 | ) | 410,245 |
| (601 | ) | ||||||
Fannie Mae-CMBS |
| 49,509 |
| (174 | ) | — |
| — |
| 49,509 |
| (174 | ) | ||||||
Freddie Mac-CMOs |
| 77,834 |
| (29 | ) | 304,846 |
| (886 | ) | 382,680 |
| (915 | ) | ||||||
Total MBS-GSE |
| 289,794 |
| (330 | ) | 552,640 |
| (1,360 | ) | 842,434 |
| (1,690 | ) | ||||||
Total Temporarily Impaired |
| $ | 289,794 |
| $ | (330 | ) | $ | 552,640 |
| $ | (1,360 | ) | $ | 842,434 |
| $ | (1,690 | ) |
|
| December 31, 2010 |
| ||||||||||||||||
|
| Less than 12 months |
| 12 months or more |
| Total |
| ||||||||||||
|
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| Estimated |
| Unrealized |
| ||||||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| ||||||
MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
MBS-Other US Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ginnie Mae-CMOs |
| $ | 71,922 |
| $ | (192 | ) | $ | — |
| $ | — |
| $ | 71,922 |
| $ | (192 | ) |
MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fannie Mae-CMOs |
| 374,535 |
| (1,267 | ) | — |
| — |
| 374,535 |
| (1,267 | ) | ||||||
Fannie Mae-CMBS |
| 49,772 |
| (204 | ) | — |
| — |
| 49,772 |
| (204 | ) | ||||||
Freddie Mac-CMOs |
| 368,652 |
| (1,698 | ) | — |
| — |
| 368,652 |
| (1,698 | ) | ||||||
Total MBS-GSE |
| 792,959 |
| (3,169 | ) | — |
| — |
| 792,959 |
| (3,169 | ) | ||||||
Total Temporarily Impaired |
| $ | 864,881 |
| $ | (3,361 | ) | $ | — |
| $ | — |
| $ | 864,881 |
| $ | (3,361 | ) |
Management of the FHLBNY has concluded that gross unrealized losses at December 31, 20102011 and 2009,2010, as summarized in the tabletables above, were caused by interest rate changes, credit spreads widening and reduced liquidity in the applicable markets. The FHLBNY has reviewed the investment security holdings and determined, based on creditworthiness of the securities and including any underlying collateral and/or insurance provisions of the security, that unrealized losses in the analysis above represent temporary impairment.
147
Redemption terms
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees. The amortized cost and estimated fair value (a) of investments classified as AFS, by contractual maturity, were as follows (in thousands):
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||||
|
| Amortized |
| Fair |
| Amortized |
| Fair |
| ||||
|
| Cost |
| Value |
| Cost |
| Value |
| ||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
| ||||
GSE/U.S. agency issued CMO |
|
|
|
|
|
|
|
|
| ||||
Due after ten years |
| $ | 3,067,213 |
| $ | 3,083,960 |
| $ | 3,906,932 |
| $ | 3,930,363 |
|
GSE/U.S. agency issued CMBS |
|
|
|
|
|
|
|
|
| ||||
Due after five years through ten years |
| 49,683 |
| 49,509 |
| 49,976 |
| 49,772 |
| ||||
Fixed income funds, equity funds and cash equivalents (b) |
| 9,321 |
| 9,167 |
| 10,209 |
| 9,947 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total Mortgage-backed securities |
| $ | 3,126,217 |
| $ | 3,142,636 |
| $ | 3,967,117 |
| $ | 3,990,082 |
|
(a) The carrying value of AFS securities equals fair value.
(b) Determined to be redeemable at short notice.
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Amortized | Fair | Amortized | Fair | |||||||||||||
| Cost Basis | Value | Cost Basis | Value | |||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| GSE/U.S. agency issued CMO | ||||||||||||||||
| Due after ten years | $ | 3,906,932 | $ | 3,930,363 | $ | 2,242,665 | $ | 2,240,564 | ||||||||
| GSE/U.S. agency issued CMBS | ||||||||||||||||
| Due after five years through ten years | 49,976 | 49,772 | — | — | ||||||||||||
| Fixed income funds, equity funds and cash equivalents* | 10,209 | 9,947 | 13,897 | 12,589 | ||||||||||||
Total | $ | 3,967,117 | $ | 3,990,082 | $ | 2,256,562 | $ | 2,253,153 | ||||||||
Federal Home Loan Bank of New York
Notes to Financial Statements
Interest rate payment terms
The following table summarizes interest rate payment terms of investments in mortgage-backed securities classified as available-for-saleAFS securities (in thousands):
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||||
|
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value |
| ||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
| ||||
Mortgage pass-throughs-GSE/U.S. agency issued |
|
|
|
|
|
|
|
|
| ||||
Variable-rate - LIBOR indexed |
| $ | 3,067,213 |
| $ | 3,083,960 |
| $ | 3,906,932 |
| $ | 3,930,363 |
|
Variable-rate CMBS - LIBOR indexed |
| 49,683 |
| 49,509 |
| 49,976 |
| 49,772 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total Mortgage-backed securities (a) |
| $ | 3,116,896 |
| $ | 3,133,469 |
| $ | 3,956,908 |
| $ | 3,980,135 |
|
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Mortgage pass-throughs-GSE/U.S. agency issued | ||||||||||||||||
| Variable-rate* | $ | 3,906,932 | $ | 3,930,363 | $ | 2,242,665 | $ | 2,240,564 | ||||||||
| Variable-rate CMBS* | 49,976 | 49,772 | — | — | ||||||||||||
| Fixed-rate | — | — | — | — | ||||||||||||
| 3,956,908 | 3,980,135 | 2,242,665 | 2,240,564 | |||||||||||||
| Fixed income funds, equity funds and cash equivalents | 10,209 | 9,947 | 13,897 | 12,589 | ||||||||||||
Total | $ | 3,967,117 | $ | 3,990,082 | $ | 2,256,562 | $ | 2,253,153 | ||||||||
(a) Total will not agree to total AFS portfolio because bond and equity funds in a grantor trust have been excluded.
148
The Bank offers to its members a wide range of fixed- and adjustable-rate advance loan products to with different maturities, interest rates, payment characteristics, and optionality.
Note 7. Advances.
Contractual redemption terms and yields of advances were as follows (dollars in thousands):
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||||||
|
|
|
| Weighted (b) |
|
|
|
|
| Weighted (b) |
|
|
| ||
|
|
|
| Average |
| Percentage |
|
|
| Average |
| Percentage |
| ||
|
| Amount |
| Yield |
| of Total |
| Amount |
| Yield |
| of Total |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Overdrawn demand deposit accounts |
| $ | — |
| — | % | — | % | $ | 196 |
| 1.15 | % | — | % |
Due in one year or less |
| 20,417,821 |
| 1.44 |
| 30.48 |
| 16,872,651 |
| 1.77 |
| 21.94 |
| ||
Due after one year through two years |
| 6,746,684 |
| 2.70 |
| 10.07 |
| 9,488,116 |
| 2.81 |
| 12.33 |
| ||
Due after two years through three years |
| 6,642,878 |
| 2.38 |
| 9.92 |
| 7,221,496 |
| 2.94 |
| 9.39 |
| ||
Due after three years through four years |
| 6,629,810 |
| 2.57 |
| 9.90 |
| 5,004,502 |
| 2.69 |
| 6.50 |
| ||
Due after four years through five years |
| 10,999,042 |
| 3.99 |
| 16.42 |
| 6,832,709 |
| 2.93 |
| 8.88 |
| ||
Due after five years through six years |
| 10,840,355 |
| 3.89 |
| 16.18 |
| 9,590,448 |
| 4.32 |
| 12.46 |
| ||
Thereafter |
| 4,712,312 |
| 2.71 |
| 7.03 |
| 21,929,421 |
| 3.68 |
| 28.50 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Total par value |
| 66,988,902 |
| 2.68 | % | 100.00 | % | 76,939,539 |
| 3.03 | % | 100.00 | % | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Discount on AHP advances (a) |
| (15 | ) |
|
|
|
| (42 | ) |
|
|
|
| ||
Hedging adjustments |
| 3,874,890 |
|
|
|
|
| 4,260,839 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Total |
| $ | 70,863,777 |
|
|
|
|
| $ | 81,200,336 |
|
|
|
|
|
| December 31, 2010 | December 31, 2009 | |||||||||||||||||||||||
| Weighted2 | Weighted2 | |||||||||||||||||||||||
| Average | Percentage | Average | Percentage | |||||||||||||||||||||
| Amount | Yield | of Total | Amount | Yield | of Total | |||||||||||||||||||
| Overdrawn demand deposit accounts | $ | 196 | 1.15 | % | — | % | $ | 2,022 | 1.20 | % | — | % | ||||||||||||
| Due in one year or less | 16,872,651 | 1.77 | 21.94 | 24,128,022 | 2.07 | 26.59 | ||||||||||||||||||
| Due after one year through two years | 9,488,116 | 2.81 | 12.33 | 10,819,349 | 2.73 | 11.92 | ||||||||||||||||||
| Due after two years through three years | 7,221,496 | 2.94 | 9.39 | 10,069,555 | 2.91 | 11.10 | ||||||||||||||||||
| Due after three years through four years | 5,004,502 | 2.69 | 6.50 | 5,804,448 | 3.32 | 6.40 | ||||||||||||||||||
| Due after four years through five years | 6,832,709 | 2.93 | 8.88 | 3,364,706 | 3.19 | 3.71 | ||||||||||||||||||
| Due after five years through six years | 9,590,448 | 4.32 | 12.46 | 2,807,329 | 3.91 | 3.09 | ||||||||||||||||||
| Thereafter | 21,929,421 | 3.68 | 28.50 | 33,742,269 | 3.78 | 37.19 | ||||||||||||||||||
| Total par value | 76,939,539 | 3.03 | % | 100.00 | % | 90,737,700 | 3.06 | % | 100.00 | % | ||||||||||||||
Discount on AHP advances1 | (42 | ) | (260 | ) | ||||||||||||||||||||
| Hedging adjustments | 4,260,839 | 3,611,311 | ||||||||||||||||||||||
Total | $ | 81,200,336 | $ | 94,348,751 | ||||||||||||||||||||
(a) Discounts on AHP advances were amortized to interest income using the level-yield method and were not significant for all periods reported. Interest rates on AHP advances ranged from 1.25% to 3.50% at December 31, 2011 and at December 31, 2010. (b)The weighted average yield is the weighted average coupon rates for advances, unadjusted for swaps. For floating-rate advances, the weighted average rate is the rate outstanding |
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Percentage | Percentage | |||||||||||||||
| Amount | of Total | Amount | of Total | |||||||||||||
| Overdrawn demand deposit accounts | $ | 196 | — | % | $ | 2,022 | — | % | ||||||||
Due or putable\callable in one year or less1 | 49,443,712 | 64.26 | 56,978,134 | 62.79 | ||||||||||||
| Due or putable after one year through two years | 8,889,867 | 11.55 | 14,082,199 | 15.52 | ||||||||||||
| Due or putable after two years through three years | 6,959,596 | 9.05 | 8,991,805 | 9.91 | ||||||||||||
| Due or putable after three years through four years | 4,744,502 | 6.17 | 5,374,048 | 5.92 | ||||||||||||
| Due or putable after four years through five years | 4,145,209 | 5.39 | 2,826,206 | 3.12 | ||||||||||||
| Due or putable after five years through six years | 815,948 | 1.06 | 158,329 | 0.18 | ||||||||||||
| Thereafter | 1,940,509 | 2.52 | 2,324,957 | 2.56 | ||||||||||||
| Total par value | 76,939,539 | 100.00 | % | 90,737,700 | 100.00 | % | ||||||||||
| Discount on AHP advances | (42 | ) | (260 | ) | ||||||||||||
| Hedging adjustments | 4,260,839 | 3,611,311 | ||||||||||||||
Total | $ | 81,200,336 | $ | 94,348,751 | ||||||||||||
149
Summarized below are the FHLBNY’s assessment methodologies for evaluating credit losses on advances.
The FHLBNY closely monitors the creditworthiness of the institutions to which it lends. The FHLBNY also closely monitors the quality and value of the assets that are pledged as collateral by its members. The FHLBNY’s members are required to pledge collateral to secure advances. Eligible collateral includes: (1) one-to-four-family and multi-family mortgages; (2) U.S. Treasury and government-agency securities; (3) mortgage-backed securities; and (4) certain other collateral which is real estate-related and has a readily ascertainable value, and in which the FHLBNY can perfect a security interest. The FHLBNY has the right to take such steps as it deems necessary to protect its secured position on outstanding advances, including requiring additional collateral (whether or not such additional collateral would otherwise be eligible to secure a loan). The FHLBNY also has a statutory lien under the FHLBank Act on the capital stock of its members, which serves as further collateral for members’ indebtedness to the FHLBNY.
Credit Risk. The management of the Bank has policies and procedures in place to appropriately manage credit risk. There were no past due advances and all advances were current for all periods in this report. Management does not anticipate any credit losses, and accordingly, the Bank has not provided an allowance for credit losses on advances. The Bank’s potential credit risk from advances is concentrated in commercial banks, savings institutions, and insurance companies.
Federal Home Loan Bank of New York
Notes to Financial Statements
Concentration of advances outstanding.Advances to the FHLBNY’s top ten borrowing member institutions are reported in Note 20 Segment Information and Concentration. The FHLBNY held sufficient collateral to cover the advances to all of these institutions and it does not expect to incur any credit losses.
Collateral Coverage of Advances
Security Terms.The FHLBNY lends to financial institutions involved in housing finance within its district. In addition, the FHLBNY is permitted, but not required, to accept collateral in the form of small business or agricultural loans (“expanded collateral”) from Community Financial Institutions (“CFIs”). CFIs are defined in the Housing Act as those institutions that have, as of the date of the transaction at issue, less than $1,029 million in average total assets over the three years preceding that date (subject to annual adjustment by the Finance Agency director based on the Consumer Price Index). It is the FHLBNY’s policy not to accept such expanded collateral for advances. Borrowing members pledge their capital stock of the FHLBNY as additional collateral for advances. As of December 31,At all times during 2011 and 2010, the FHLBNY had rights to collateral with an estimated value greater than outstanding advances.advances (a). Based upon the financial condition of the member, the FHLBNY:
(1)Allows a member to retain possession of the mortgage collateral assigned to the FHLBNY if the member executes a written security agreement, provides periodic listings and agrees to hold such collateral for the benefit of the FHLBNY; however securities and cash collateral are always in physical possession; or
(2)Requires the member specifically to assign or place physical possession of such mortgage collateral with the FHLBNY or its safekeeping agent.
Beyond these provisions, Section 10(e) of the FHLBank Act affords any security interest granted by a member to the FHLBNY priority over the claims or rights of any other party. The two exceptions are claims that would be entitled to priority under otherwise applicable law or perfected security interests. All member obligations with the Bank were fully collateralized throughout their entire term. The total of collateral pledged to the Bank includes excess collateral pledged above the Bank’s minimum collateral requirements. However, a “Maximum Lendable Value” is established to ensure that the Bank has sufficient eligible collateral securing credit extensions. The Maximum Lendable Values rangeValue ranges from 9070 percent to 7090 percent for mortgage collateral, and is applied to the lesser of book or market value. For securities, it ranges from 9767 percent to 6797 percent, and is applied to the market value. There are not anyno Maximum Lendable Value ranges for deposit collateral pledged. It is common for members to maintain excess collateral positions with the Bank for future liquidity needs. Based on several factors (e.g. advance type, collateral type or member financial condition) members are required to comply with specified collateral requirements, including but not limited to a detailed listing of pledged mortgage collateral and/or delivery of pledged collateral to the Bank or its designated collateral custodian(s). For example, allAll pledged securities collateral must be delivered to the Bank’s nominee name at Citibank, N.A., itsthe Bank’s securities safekeeping custodian. Mortgage collateral that is required to be in the Bank’s possession is typically delivered to the Bank’s Jersey City, New Jersey facility. However, in certain instances, delivery to a Bank approved custodian may be allowed. In both instances, the members provide periodic listings updating the information of the mortgage collateral in possession.
The following table summarizes pledged collateral at December 31, 2011 and 2010 (in thousands):
Collateral Supporting Indebtedness to Members
|
| Indebtedness |
| Collateral |
| ||||||||||||||
|
| Advances (b) |
| Other |
| Total |
| Mortgage |
| Securities and |
| Total (d), (e) |
| ||||||
December 31, 2011 |
| $ | 66,988,902 |
| $ | 2,865,788 |
| $ | 69,854,690 |
| $ | 152,236,826 |
| $ | 40,912,212 |
| $ | 193,149,038 |
|
December 31, 2010 |
| $ | 76,939,539 |
| $ | 2,057,501 |
| $ | 78,997,040 |
| $ | 105,121,327 |
| $ | 42,675,062 |
| $ | 147,796,389 |
|
(a) The level of over-collateralization is on an aggregate basis and 2009, members had pledgedmay not necessarily be indicative of a totalsimilar level of $147.8 billion and $163.3 billion.over-collateralization on an individual member basis. At a minimum, each member pledged sufficient collateral to adequately collateralize theirsecure the member’s outstanding obligationsobligation with the Bank. At December 31, 2010FHLBNY. In addition, most members maintain an excess amount of pledged collateral with the FHLBNY to secure future liquidity needs.
(b) Par value.
(c) Standby financial letters of credit, derivatives and 2009, $48.6 billion and $57.7 billionmembers’ credit enhancement guarantee amount (“MPFCE”).
(d) Estimated market value.
(e) The increase in total collateral is attributable to one new member that is currently only utilizing other obligations.
The following table shows the breakdown of collateral pledged by members between those that were specifically listed and those in the Bank’s physical possession of the FHLBNY or that of its safekeeping agent(s); $99.3 billion and $105.7 billion were specifically listed. Under this collateralization arrangement,agent (in thousands):
Location of Collateral Held
|
| Estimated Market Values |
| ||||||||||
|
| Collateral in |
| Collateral |
| Collateral |
| Total Collateral |
| ||||
December 31, 2011 |
| $ | 46,773,857 |
| $ | 146,485,001 |
| $ | (109,820 | ) | $ | 193,149,038 |
|
December 31, 2010 |
| $ | 48,604,470 |
| $ | 99,289,202 |
| $ | (97,283 | ) | $ | 147,796,389 |
|
(a) Primarily pledged by non-members to cover potential recovery of AHP Subsidy in the member holds or had engaged a third party custodian for physical possessionevent of specificnon-compliance. This amount is included in the total collateral pledged, to the FHLBNY. Member borrowers regardless of assigned collateral category provide listings of loans pledged to the Bank with detailed information such as loan amount, payments, maturity date, interest rate, loan-to-value, collateral type, FICO scores, etc.
Federal Home Loan Bank of New York
Notes to Financial Statements
Advance prepayments - The optionality embedded in certain financial instruments held by the FHLBNY can create interest-rate risk. When a lien on each member’s investment inmember prepays an advance, the capital stockFHLBNY could suffer lower future income if the principal portion of the FHLBNY.
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Percentage | Percentage | |||||||||||||||
| Amount | of Total | Amount | of Total | |||||||||||||
| Fixed-rate | $ | 68,818,343 | 89.44 | % | $ | 76,634,828 | 84.46 | % | ||||||||
| Variable-rate | 8,121,000 | 10.56 | 13,730,850 | 15.13 | ||||||||||||
| Variable-rate capped | — | — | 370,000 | 0.41 | ||||||||||||
| Overdrawn demand deposit accounts | 196 | — | 2,022 | — | ||||||||||||
| Total par value | 76,939,539 | 100.00 | % | 90,737,700 | 100.00 | % | ||||||||||
| Discount on AHP Advances | (42 | ) | (260 | ) | ||||||||||||
| Hedging basis adjustments | 4,260,839 | 3,611,311 | ||||||||||||||
Total | $ | 81,200,336 | $ | 94,348,751 | ||||||||||||
150
Mortgage Partnership Finance® program loans, or (MPF)(MPF®), constitute the majority of the mortgage loans held-for-portfolio. The MPF program involves investment by the FHLBNY in mortgage loans that are purchased from its participating financial institutions (“PFIs”). The members retain servicing rights and may credit-enhance the portion of the loans participated to the FHLBNY. No intermediary trust is involved.
The following table presents information on mortgage loans held-for-portfolio (dollars in thousands):
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||
|
| Amount |
| Percentage of |
| Amount |
| Percentage of |
| ||
Real Estate(a): |
|
|
|
|
|
|
|
|
| ||
Fixed medium-term single-family mortgages |
| $ | 329,659 |
| 23.55 | % | $ | 342,081 |
| 27.05 | % |
Fixed long-term single-family mortgages |
| 1,069,956 |
| 76.43 |
| 918,741 |
| 72.65 |
| ||
Multi-family mortgages |
| 246 |
| 0.02 |
| 3,799 |
| 0.30 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Total par value |
| 1,399,861 |
| 100.00 | % | 1,264,621 |
| 100.00 | % | ||
|
|
|
|
|
|
|
|
|
| ||
Unamortized premiums |
| 16,811 |
|
|
| 11,333 |
|
|
| ||
Unamortized discounts |
| (3,592 | ) |
|
| (4,357 | ) |
|
| ||
Basis adjustment (b) |
| 2,166 |
|
|
| (33 | ) |
|
| ||
|
|
|
|
|
|
|
|
|
| ||
Total mortgage loans held-for-portfolio |
| 1,415,246 |
|
|
| 1,271,564 |
|
|
| ||
Allowance for credit losses |
| (6,786 | ) |
|
| (5,760 | ) |
|
| ||
Total mortgage loans held-for-portfolio after allowance for credit losses |
| $ | 1,408,460 |
|
|
| $ | 1,265,804 |
|
|
|
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Percentage of | Percentage of | |||||||||||||||
| Amount | Total | Amount | Total | |||||||||||||
Real Estate: | ||||||||||||||||
| Fixed medium-term single-family mortgages | $ | 342,081 | 27.05 | % | $ | 388,072 | 29.43 | % | ||||||||
| Fixed long-term single-family mortgages | 918,741 | 72.65 | 926,856 | 70.27 | ||||||||||||
| Multi-family mortgages | 3,799 | 0.30 | 3,908 | 0.30 | ||||||||||||
| Total par value | 1,264,621 | 100.00 | % | 1,318,836 | 100.00 | % | ||||||||||
| Unamortized premiums | 11,333 | 9,095 | ||||||||||||||
| Unamortized discounts | (4,357 | ) | (5,425 | ) | ||||||||||||
Basis adjustment1 | (33 | ) | (461 | ) | ||||||||||||
| Total mortgage loans held-for-portfolio | 1,271,564 | 1,322,045 | ||||||||||||||
| Allowance for credit losses | (5,760 | ) | (4,498 | ) | ||||||||||||
Total mortgage loans held-for-portfolio after allowance for credit losses | $ | 1,265,804 | $ | 1,317,547 | ||||||||||||
(a) Conventional mortgages constitutedrepresent the remaining balancemajority of mortgage loans held-for-portfolio.
(b) Represents fair value basis of open and closed delivery commitments.
No loans were transferred to a “loan-for-sale” category. From time to time, the Bank may request a PFI to repurchase loans if the loan failed to comply with the MPF loan standards. In 2011, PFIs repurchased $7.3 million of loans. In prior periods, repurchases were insignificant.
The FHLBNY and its members share the credit risk of MPF loans by structuring potential credit losses into layers (See Note 1 — Significant Accounting Policies and Estimates).layers. The first layer is typically 100 basis points, but this varies with the particular MPF program.product. The amount of the first layer, or First Loss Account (“FLA”), was estimated as $12.0at $13.6 million and $13.9$12.0 million at December 31, 20102011 and 2009.2010. The FLA is not recorded or reported as a reserve for loan losses, as it serves as a memorandum or information account. The FHLBNY is responsible for absorbing the first layer. The second layer is that amount of credit obligations that the PFI has taken on which will equate the loan to a double-A rating. The FHLBNY pays a Credit Enhancement fee to the PFI for taking on this obligation. The FHLBNY assumes all residual risk. Credit Enhancement fees accrued were $1.4 million for the years ended December 31, 2011 and 2010, and $1.6 million for the year ended December 31, 2010, $1.6 million for year ended December 31, 2009, and $1.7 million for the years ended December 31, 2008, and2009. These fees were reported as a reduction to mortgage loan interest income.
In terms of the credit enhancement waterfall, the MPF program structures potential credit losses on conventional MPF loans into layers on each loan pool as follows:
· The first layer of protection against loss is the liquidation value of the real property securing the loan.
· The next layer of protection comes from the primary mortgage insurance (“PMI”) that is required for loans with a loan-to-value ratio greater than 80% at origination.
· Losses that exceed the liquidation value of the real property and any PMI, up to an agreed upon amount, the FLA for each Master Commitment, will be absorbed by the FHLBNY.
· Losses in excess of charge-offsthe FLA, up to an agreed-upon amount, the credit enhancement amount, will be covered by the PFI’s credit enhancement obligation.
· Losses in each period reported was insignificantexcess of the FLA and it was not necessarythe PFI’s remaining credit enhancement for the FHLBNY to recoupMaster Commitment, if any, losses fromwill be absorbed by the PFIs.
Allowance methodology for loan losseslosses..
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 Bank performs periodic reviews of individual impaired mortgage loans within the MPF loan portfolio to identify the potential for losses inherent in the portfolio and to determine the likelihood of collection of the principal and interest. Mortgage loans that are past due 90 days or more or classified under
Federal Home Loan Bank of New York
Notes to Financial Statements
regulatory criteria (Sub-standard, doubtfulDoubtful or Loss) are evaluated separately on a loan level basis for impairment. The FHLBNY bases its provision for credit losses on its estimate of probable credit losses inherent in the impaired MPF loan. The FHLBNY computes the provision for credit losses without considering the private mortgage insurance and other accompanying credit enhancement features (except the “First Loss Account”) to provide credit assurance to the FHLBNY. If adversely classified, or past due 90 days or more, reserves for conventional mortgage loans, except FHA- and VA-insured loans, are analyzed under liquidation scenarios on a loan level basis, and identified losses are fully reserved.
When a loan is foreclosed and the Bank takes possession of real estate, the Bank will charge to the loan loss reserve account any excess of the carrying value of the loan over the net realizable value of the foreclosed loan.
FHA- and VA- insuredVA-insured mortgage loans have minimal inherent credit risk; risk, and are therefore not considered impaired. Risk of such loans generally arises from servicers defaulting on their obligations, ifobligations. If adversely classified, the FHLBNY will have reserves established only in the event of a default of a PFI. ReservesPFI, and reserves would be based on the estimated costs to recover any uninsured portion of the MPF loan.
Credit enhancement fees
As discussed previously, the FHLBNY pays a credit enhancement fee (“CE fees”) to the PFI for taking on a credit enhancement obligation. For certain MPF products, the CE fees are accrued on the master commitments outstanding and paid each month. Under the MPF agreements with PFIs, the FHLBNY may recover credit losses from future CE fees. For certain MPF products, the CE fees are held back for 12 months and then paid monthly to the PFIs.
The FHLBNY does not evaluate MPF loans collectively.
Allowance for loancredit losses
Allowances for credit losses have been recorded against the uninsured MPF loans. All other types of mortgage-loansmortgage loans were insignificant and no allowances were necessary.
151
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
Allowance for credit losses: |
|
|
|
|
|
|
| |||
Beginning balance |
| $ | 5,760 |
| $ | 4,498 |
| $ | 1,406 |
|
Charge-offs |
| (2,595 | ) | (223 | ) | (16 | ) | |||
Recoveries |
| 468 |
| 76 |
| — |
| |||
Provision for credit losses on mortgage loans |
| 3,153 |
| 1,409 |
| 3,108 |
| |||
Ending balance |
| $ | 6,786 |
| $ | 5,760 |
| $ | 4,498 |
|
|
|
|
|
|
|
|
| |||
Ending balance, individually evaluated for impairment |
| $ | 6,786 |
| $ | 5,760 |
| $ | 4,498 |
|
|
|
|
|
|
|
|
| |||
Recorded investment, end of period: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Individually evaluated for impairment |
|
|
|
|
|
|
| |||
Impaired, with or without a related allowance |
| $ | 27,054 |
| $ | 26,785 |
| $ | 16,008 |
|
Not impaired, no related allowance |
| 1,368,062 |
| 1,244,611 |
| 1,306,837 |
| |||
|
| $ | 1,395,116 |
| $ | 1,271,396 |
| $ | 1,322,845 |
|
|
|
|
|
|
|
|
| |||
Collectively evaluated for impairment (b) |
|
|
|
|
|
|
| |||
Impaired, with or without a related allowance |
| $ | 280 |
| $ | 577 |
| $ | 575 |
|
Not impaired, no related allowance |
| 25,194 |
| 5,094 |
| 5,460 |
| |||
|
| $ | 25,474 |
| $ | 5,671 |
| $ | 6,035 |
|
(a) The Bank assesses impairment on a loan level basis for conventional loans. Increase in allowance for credit losses is primarily because of decline in liquidation values of real property securing impaired loans.
(b) All government-guaranteed loans are collectively evaluated for impairment. Loans past due 90-days or more were considered impaired but credit analysis indicated funds would be collected and no allowance was necessary.
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Beginning balance | $ | 4,498 | $ | 1,406 | $ | 633 | ||||||
| Charge-offs | (223 | ) | (16 | ) | — | |||||||
| Recoveries | 76 | — | — | |||||||||
| Provision for credit losses on mortgage loans | 1,409 | 3,108 | 773 | |||||||||
Ending balance | $ | 5,760 | $ | 4,498 | $ | 1,406 | ||||||
Federal Home Loan Bank of New York
Notes to Financial Statements
Non-performing loans
Non-accrual loans are reported in the table below. As of December 31, 20102011 and 2009, the FHLBNY had $26.8 million and $16.0 million of non-accrual loans. Mortgage loans are considered impaired when, based on current information and events, it is probable that the FHLBNY will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreements. As of December 31, 2010, and 2009, the FHLBNY had no investment in impaired mortgage loans, other than the non-accrual loans.
The following table contrastscompares Non-performing loans and 90 — day past due loans1(a) to total mortgage (in thousands):
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
|
|
|
|
|
| ||
Mortgage loans, net of provisions for credit losses |
| $ | 1,408,460 |
| $ | 1,265,804 |
|
|
|
|
|
|
| ||
Non-performing mortgage loans - Conventional |
| $ | 26,696 |
| $ | 26,781 |
|
|
|
|
|
|
| ||
Insured MPF loans past due 90 days or more and still accruing interest |
| $ | 278 |
| $ | 574 |
|
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Mortgage loans, net of provisions for credit losses | $ | 1,265,804 | $ | 1,317,547 | ||||
| Non-performing mortgage loans | $ | 26,781 | $ | 16,007 | ||||
| Insured MPF loans past due 90 days or more and still accruing interest | $ | 574 | $ | 570 | ||||
(a) Includes loans classified as sub-standard, doubtful or loss under regulatory criteria.
152
|
| December 31, 2011 |
| |||||||||||||
|
|
|
| Unpaid |
|
|
| Average |
| Interest |
| |||||
|
| Recorded |
| Principal |
| Related |
| Recorded |
| Income |
| |||||
Impaired Loans |
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized (c) |
| |||||
With no related allowance: |
|
|
|
|
|
|
|
|
|
|
| |||||
Conventional MPF Loans (a) (b) |
| $ | 5,801 |
| $ | 5,790 |
| $ | — |
| $ | 4,605 |
| $ | — |
|
With an allowance: |
|
|
|
|
|
|
|
|
|
|
| |||||
Conventional MPF Loans (a) |
| 21,253 |
| 21,287 |
| 6,786 |
| 21,572 |
| — |
| |||||
Total Conventional MPF Loans (a) |
| $ | 27,054 |
| $ | 27,077 |
| $ | 6,786 |
| $ | 26,177 |
| $ | — |
|
|
| December 31, 2010 |
| |||||||||||||
|
|
|
| Unpaid |
|
|
| Average |
| Interest |
| |||||
|
| Recorded |
| Principal |
| Related |
| Recorded |
| Income |
| |||||
Impaired Loans |
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized (c) |
| |||||
With no related allowance: |
|
|
|
|
|
|
|
|
|
|
| |||||
Conventional MPF Loans (a) (b) |
| $ | 5,876 |
| $ | 5,856 |
| $ | — |
| $ | 4,867 |
| $ | — |
|
With an allowance: |
|
|
|
|
|
|
|
|
|
|
| |||||
Conventional MPF Loans (a) |
| 20,909 |
| 20,925 |
| 5,760 |
| 18,402 |
| — |
| |||||
Total Conventional MPF Loans (a) |
| $ | 26,785 |
| $ | 26,781 |
| $ | 5,760 |
| $ | 23,269 |
| $ | — |
|
| December 31, 2010 | ||||||||||||||||||||
| Unpaid | Average | Interest | ||||||||||||||||||
| Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
| Investment | Balance | Allowance | Investment | Recognized | ||||||||||||||||
With no related allowance: | ||||||||||||||||||||
Conventional MPF Loans1 | $ | 5,876 | $ | 5,856 | $ | — | $ | 4,867 | $ | — | ||||||||||
| Insured Loans | — | — | — | — | — | |||||||||||||||
| $ | 5,876 | $ | 5,856 | $ | — | $ | 4,867 | $ | — | |||||||||||
With an allowance: | ||||||||||||||||||||
Conventional MPF Loans1 | $ | 20,909 | $ | 20,925 | $ | 5,760 | $ | 18,402 | $ | — | ||||||||||
| Insured Loans | — | — | — | — | — | |||||||||||||||
| $ | 20,909 | $ | 20,925 | $ | 5,760 | $ | 18,402 | $ | — | |||||||||||
Total: | ||||||||||||||||||||
Conventional MPF Loans1 | $ | 26,785 | $ | 26,781 | $ | 5,760 | $ | 23,269 | $ | — | ||||||||||
| Insured Loans | — | — | — | — | — | |||||||||||||||
| $ | 26,785 | $ | 26,781 | $ | 5,760 | $ | 23,269 | $ | — | |||||||||||
| December 31, 2009 | ||||||||||||||||||||
| Unpaid | Average | Interest | ||||||||||||||||||
| Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
| Investment | Balance | Allowance | Investment | Recognized | ||||||||||||||||
With no related allowance: | ||||||||||||||||||||
Conventional MPF Loans1 | $ | 3,222 | $ | 3,211 | $ | — | $ | 2,277 | $ | — | ||||||||||
| Insured Loans | — | — | — | — | — | |||||||||||||||
| $ | 3,222 | $ | 3,211 | $ | — | $ | 2,277 | $ | — | |||||||||||
With an allowance: | ||||||||||||||||||||
Conventional MPF Loans1 | $ | 12,786 | $ | 12,796 | $ | 4,498 | $ | 9,433 | $ | — | ||||||||||
| Insured Loans | — | — | — | — | — | |||||||||||||||
| $ | 12,786 | $ | 12,796 | $ | 4,498 | $ | 9,433 | $ | — | |||||||||||
Total: | ||||||||||||||||||||
Conventional MPF Loans1 | $ | 16,008 | $ | 16,007 | $ | 4,498 | $ | 11,710 | $ | — | ||||||||||
| Insured Loans | — | — | — | — | — | |||||||||||||||
| $ | 16,008 | $ | 16,007 | $ | 4,498 | $ | 11,710 | $ | — | |||||||||||
(a) Based on analysis of the nature of risks of the Bank’s investments in MPF loans, including its methodologies for identifying and measuring impairment, the management of the FHLBNY has determined that presenting such loans as a single class is appropriate.
(b) Collateral values, net of estimated costs to sell, exceeded the recorded investments in impaired loans and no allowances were deemed necessary.
(c) Insured loans were not considered impaired. The Bank does not record interest received to income from uninsured loans past due 90 days or greater.
Mortgage loans — Interest on Non-performing loans
The FHLBNY’s interest contractually due and actually received for non-performing loans were as follows (in thousands):
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Interest contractually due (a) |
| $ | 1,387 |
| $ | 1,254 |
| $ | 714 |
|
Interest actually received |
| 1,293 |
| 1,171 |
| 626 |
| |||
|
|
|
|
|
|
|
| |||
Shortfall |
| $ | 94 |
| $ | 83 |
| $ | 88 |
|
(a) The Bank does not recognize interest received as income from uninsured loans past due 90 days or greater.
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Interest contractually due1 | $ | 1,254 | $ | 714 | $ | 168 | ||||||
| Interest actually received | 1,171 | 626 | 146 | |||||||||
| Shortfall | $ | 83 | $ | 88 | $ | 22 | ||||||
Federal Home Loan Bank of New York
Notes to Financial Statements
Recorded investments(a) in MPF loans that were past due loans and real-estatereal estate owned are summarized below (in thousands):
|
| December 31, |
| ||||||||||||||||
|
| 2011 |
| 2010 |
| ||||||||||||||
|
| Conventional |
| Insured |
| Other |
| Conventional |
| Insured |
| Other |
| ||||||
Mortgage loans: |
| MPF Loans |
| Loans |
| Loans |
| MPF Loans |
| Loans |
| Loans |
| ||||||
Past due 30 - 59 days |
| $ | 21,757 |
| $ | 1,009 |
| $ | — |
| $ | 19,651 |
| $ | 768 |
| $ | — |
|
Past due 60 - 89 days |
| 5,920 |
| 172 |
| — |
| 6,437 |
| 207 |
| — |
| ||||||
Past due 90 days or more |
| 26,675 |
| 280 |
| — |
| 26,785 |
| 577 |
| — |
| ||||||
Total past due |
| 54,352 |
| 1,461 |
| — |
| 52,873 |
| 1,552 |
| — |
| ||||||
Total current loans |
| 1,340,516 |
| 24,013 |
| 248 |
| 1,214,725 |
| 4,119 |
| 3,799 |
| ||||||
Total mortgage loans |
| $ | 1,394,868 |
| $ | 25,474 |
| $ | 248 |
| $ | 1,267,598 |
| $ | 5,671 |
| $ | 3,799 |
|
Other delinquency statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans in process of foreclosure, included above |
| $ | 18,499 |
| $ | 163 |
| $ | — |
| $ | 14,615 |
| $ | 284 |
| $ | — |
|
Serious delinquency rate (b) |
| 1.94 | % | 1.10 | % | — | % | 2.14 | % | 10.11 | % | — | % | ||||||
Serious delinquent loans total used in calculation of serious delinquency rate |
| $ | 27,028 |
| $ | 280 |
| $ | — |
| $ | 27,112 |
| $ | 573 |
| $ | — |
|
Past due 90 days or more and still accruing interest |
| $ | — |
| $ | 280 |
| $ | — |
| $ | — |
| $ | 573 |
| $ | — |
|
Loans on non-accrual status |
| $ | 26,675 |
| $ | — |
| $ | — |
| $ | 26,785 |
| $ | — |
| $ | — |
|
Troubled debt restructurings (c) |
| $ | 816 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Real estate owned |
| $ | 589 |
|
|
|
|
| $ | 600 |
|
|
|
|
| ||||
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Conventional | Insured | Conventional | Insured | |||||||||||||
| MPF Loans | Loans | MPF Loans | Loans | |||||||||||||
| Past due 30 - 59 days* | $ | 19,484 | $ | 764 | $ | 25,319 | $ | 913 | ||||||||
| Past due 60 - 89 days* | 6,350 | 204 | 7,675 | 362 | ||||||||||||
| Past due 90 days or more* | 12,493 | 289 | 7,953 | 300 | ||||||||||||
| $ | 38,327 | $ | 1,257 | $ | 40,947 | $ | 1,575 | |||||||||
| Loans in process of foreclosure | $ | 14,612 | $ | 285 | $ | 8,515 | $ | 271 | ||||||||
| Real estate owned inventory | $ | 600 | $ | 1,126 | ||||||||||||
(a) | Recorded investments include accrued interest receivable and would not equal reported carrying values. | |
(b) | Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of total loan portfolio class recorded investment. | |
(c) | The FHLBNY’s MPF Loan troubled debt restructurings primarily involve modifying the borrower’s monthly payment for a period of up to 36 months, with a cap based on a ratio of the borrower’s housing expense to monthly income. The outstanding principal balance is re-amortized to reflect a principal and interest payment for a term not |
153
The following table summarizes performing and non-performing Troubled Debt Restructurings balances (in thousands):
|
| December 31, 2011 |
| |||||||
Troubled Debt Restructurings: |
| Performing |
| Non-performing |
| Total |
| |||
Conventional MPF Loans |
| $ | 379 |
| $ | 437 |
| $ | 816 |
|
Total |
| $ | 379 |
| $ | 437 |
| $ | 816 |
|
No loans classified as TDR defaulted in 2011.
The following table summarizes modification balances during 2011 (in thousands):
|
| 2011 |
| |||||||
|
| Recorded Investment Outstanding |
| |||||||
Troubled Debt Restructurings: |
| Pre-modification at |
| Post-modification at Dates |
| Modification in Process |
| |||
Conventional MPF Loans |
| $ | 809 |
| $ | 382 |
| $ | 437 |
|
Total |
| $ | 809 |
| $ | 382 |
| $ | 437 |
|
The following table summarizes Troubled Debt Restructurings balances and related allowance for credit losses (in thousands):
|
| December 31, 2011 |
| ||||
|
| Recorded |
| Related |
| ||
Newly Impaired Loans Identified as TDRs: |
| Investment |
| Allowance |
| ||
Conventional MPF Loans |
| $ | 816 |
| $ | 123 |
|
Total |
| $ | 816 |
| $ | 123 |
|
Second,Prepayment risks - 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
Federal Home Loan Bank of New York
Notes to Financial Statements
with consolidated obligations that have call features. Net income could be reduced if the PFI under its credit enhancement obligation, losses for each Master Commitment in excessFHLBNY 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 FLA, if any, up to the CE Amount. The CE Amount may consist ofmortgage portfolio on a direct liability of the PFI to pay credit losses up to a specified amount, a contractual obligation of the PFI to provide SMI or a combination of both.
154
The following table summarizes term deposits (in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Due in one year or less | $ | 42,700 | $ | 7,200 | ||||
Total term deposits | $ | 42,700 | $ | 7,200 | ||||
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
|
|
|
|
|
| ||
Due in one year or less |
| $ | 22,000 |
| $ | 42,700 |
|
|
|
|
|
|
| ||
Total term deposits |
| $ | 22,000 |
| $ | 42,700 |
|
Note 10. 9.Borrowings.
Securities sold under agreements to repurchase
The FHLBNY did not have any securities sold under agreement to repurchase as of December 31, 2010 or 2009.during 2011 and 2010. Terms, amounts and outstanding balances of borrowings from other Federal Home Loan Banks during 2011 and 2010 are described under Note 2119 — Related Party Transactions.
Note 11. 10.Consolidated Obligations.
Consolidated obligations are the joint and several obligations of the FHLBanks and consist of bonds and discount notes. The FHLBanks issue consolidated obligations through the Office of Finance as their fiscal agent. In connection with each debt issuance, a FHLBank specifies the amount of debt it wants issued on its behalf. The Office of Finance tracks the amount of debt issued on behalf of each FHLBank. Each FHLBank separately tracks and records as liability its specific portion of consolidated obligations for which it is the primary obligor. 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 $0.8$0.7 trillion and $0.9$0.8 trillion as of December 31, 20102011 and 2009.
Finance Agency regulations require the FHLBanks to maintain, in the aggregate, unpledged qualifying assets equal to the consolidated obligations outstanding. Qualifying assets are defined as cash; secured advances; assets with an assessment or rating at least equivalent to the current assessment or rating of the consolidated obligations; obligations, participations, mortgages, or other securities of or issued by the United States or an agency of the United States; and securities in which fiduciary and trust funds may invest under the laws of the state in which the FHLBank is located.
The FHLBNY met the qualifying unpledged asset requirements in each of the years reported as follows:
| Decenber 31, | ||||||||
| 2010 | 2009 | |||||||
Percentage of unpledged qualifying assets to consolidated obligations | 110 | % | 109 | % | ||||
|
| December 31, |
| ||
|
| 2011 |
| 2010 |
|
|
|
|
|
|
|
Percentage of unpledged qualifying assets to consolidated obligations |
| 109 | % | 110 | % |
Federal Home Loan Bank of New York
General Terms
FHLBank consolidated obligations are issued with either fixed- or variable-rate coupon payment terms that use a variety of indices for interest rate resets. These indices include the London Interbank Offered Rate (“LIBOR”), Constant Maturity Treasury (“CMT”), 11th District Cost of Funds Index (“COFI”), and others. At December 31, 2010In addition, to meet the expected specific needs of certain investors in consolidated obligations, both fixed- and 2009, variable-rate bonds may also contain certain features that may result in complex coupon payment terms and call options. When such consolidated obligation couponsobligations are issued, for the FHLBNY were primarily indexedmay enter into derivatives containing offsetting features that effectively convert the terms of the bond to LIBOR and the Federal funds rate.
Consolidated obligations, beyond having fixed-rate or simple variable-rate coupon payment terms, may also include Optional Principal Redemption Bonds (callable bonds) that the FHLBNY may redeem in whole or in part at its discretion on predetermined call dates, according to the terms of the bond offerings.
With respect to interest payment terms, consolidated bonds may also have step-up, or step-down terms. Step-up bonds generally pay interest at increasing fixed rates for specified intervals over the life of the bond. Step-down bonds pay interest at decreasing fixed rates. These bonds generally contain provisions enabling the FHLBNY to call bonds at its option on predetermined exercise dates at par.
The following summarizes consolidated obligations issued by the FHLBNY and outstanding at December 31, 20102011 and 20092010 (in thousands):
|
| December 31, 2011 |
| December 31, 2010 |
| ||
Consolidated obligation bonds-amortized cost |
| $ | 66,448,705 |
| $ | 71,114,070 |
|
Fair value basis adjustments |
| 979,013 |
| 622,593 |
| ||
Fair value basis on terminated hedges |
| 201 |
| 501 |
| ||
FVO (a)-valuation adjustments and accrued interest |
| 12,603 |
| 5,463 |
| ||
|
|
|
|
|
| ||
Total Consolidated obligation-bonds |
| $ | 67,440,522 |
| $ | 71,742,627 |
|
|
|
|
|
|
| ||
Discount notes-amortized cost |
| $ | 22,121,109 |
| $ | 19,388,317 |
|
Fair value basis adjustments |
| (1,467 | ) | — |
| ||
FVO (a)-valuation adjustments and remaining accretion |
| 3,683 |
| 3,135 |
| ||
|
|
|
|
|
| ||
Total Consolidated obligation-discount notes |
| $ | 22,123,325 |
| $ | 19,391,452 |
|
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Consolidated obligation bonds-amortized cost | $ | 71,114,070 | $ | 73,436,939 | ||||
| Fair value basis adjustments | 622,593 | 572,537 | ||||||
| Fair value basis on terminated hedges | 501 | 2,761 | ||||||
| FVO- valuation adjustments and accrued interest | 5,463 | (4,259 | ) | |||||
Total Consolidated obligation-bonds | $ | 71,742,627 | $ | 74,007,978 | ||||
| Discount notes-amortized cost | $ | 19,388,317 | $ | 30,827,639 | ||||
| FVO-valuation adjustments and remaining accretion | 3,135 | — | ||||||
Total Consolidated obligation-discount notes | $ | 19,391,452 | $ | 30,827,639 | ||||
(a) Accounted under the Fair Value Option rules.
Redemption Terms of consolidated obligation bonds
The following is a summary of consolidated bonds outstanding by year of maturity (dollars in thousands):
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||||||
|
|
|
| Weighted |
|
|
|
|
| Weighted |
|
|
| ||
|
|
|
| Average |
| Percentage |
|
|
| Average |
| Percentage |
| ||
Maturity |
| Amount |
| Rate (a) |
| of Total |
| Amount |
| Rate (a) |
| of Total |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
One year or less |
| $ | 34,498,875 |
| 0.63 | % | 52.00 | % | $ | 33,302,200 |
| 0.91 | % | 46.91 | % |
Over one year through two years |
| 20,552,410 |
| 1.23 |
| 30.99 |
| 17,037,375 |
| 1.12 |
| 24.00 |
| ||
Over two years through three years |
| 3,801,280 |
| 2.62 |
| 5.73 |
| 9,529,950 |
| 2.21 |
| 13.43 |
| ||
Over three years through four years |
| 3,282,190 |
| 2.60 |
| 4.95 |
| 3,689,355 |
| 2.82 |
| 5.20 |
| ||
Over four years through five years |
| 971,735 |
| 2.52 |
| 1.47 |
| 4,001,400 |
| 2.36 |
| 5.64 |
| ||
Over five years through six years |
| 873,470 |
| 3.78 |
| 1.32 |
| 462,500 |
| 3.34 |
| 0.65 |
| ||
Thereafter |
| 2,349,335 |
| 3.83 |
| 3.54 |
| 2,959,200 |
| 4.04 |
| 4.17 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| 66,329,295 |
| 1.21 | % | 100.00 | % | 70,981,980 |
| 1.46 | % | 100.00 | % | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Bond premiums (b) |
| 145,869 |
|
|
|
|
| 163,830 |
|
|
|
|
| ||
Bond discounts (b) |
| (26,459 | ) |
|
|
|
| (31,740 | ) |
|
|
|
| ||
Fair value basis adjustments |
| 979,013 |
|
|
|
|
| 622,593 |
|
|
|
|
| ||
Fair value basis adjustments on terminated hedges |
| 201 |
|
|
|
|
| 501 |
|
|
|
|
| ||
FVO (c) - valuation adjustments and accrued interest |
| 12,603 |
|
|
|
|
| 5,463 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Total Consolidated obligation-bonds |
| $ | 67,440,522 |
|
|
|
|
| $ | 71,742,627 |
|
|
|
|
|
| December 31, 2010 | December 31, 2009 | |||||||||||||||||||||||
| Weighted | Weighted | |||||||||||||||||||||||
| Average | Percentage | Average | Percentage | |||||||||||||||||||||
| Maturity | Amount | Rate1 | of Total | Amount | Rate1 | of Total | ||||||||||||||||||
| One year or less | $ | 33,302,200 | 0.91 | % | 46.91 | % | $ | 40,896,550 | 1.34 | % | 55.75 | % | ||||||||||||
| Over one year through two years | 17,037,375 | 1.12 | 24.00 | 15,912,200 | 1.69 | 21.69 | ||||||||||||||||||
| Over two years through three years | 9,529,950 | 2.21 | 13.43 | 7,518,575 | 2.28 | 10.25 | ||||||||||||||||||
| Over three years through four years | 3,689,355 | 2.82 | 5.20 | 3,961,250 | 3.49 | 5.40 | ||||||||||||||||||
| Over four years through five years | 4,001,400 | 2.36 | 5.64 | 2,130,300 | 4.27 | 2.90 | ||||||||||||||||||
| Over five years through six years | 462,500 | 3.34 | 0.65 | 644,350 | 5.15 | 0.88 | ||||||||||||||||||
| Thereafter | 2,959,200 | 4.04 | 4.17 | 2,294,700 | 5.06 | 3.13 | ||||||||||||||||||
| 70,981,980 | 1.46 | % | 100.00 | % | 73,357,925 | 1.87 | % | 100.00 | % | |||||||||||||||
| Bond premiums | 163,830 | 112,866 | ||||||||||||||||||||||
| Bond discounts | (31,740 | ) | (33,852 | ) | ||||||||||||||||||||
| Fair value basis adjustments | 622,593 | 572,537 | ||||||||||||||||||||||
| Fair value basis adjustments on terminated hedges | 501 | 2,761 | ||||||||||||||||||||||
| FVO-valuation adjustments and accrued interest | 5,463 | (4,259 | ) | |||||||||||||||||||||
| $ | 71,742,627 | $ | 74,007,978 | |||||||||||||||||||||
(a) | ||
Weighted average rate represents the weighted average contractual coupons of bonds, unadjusted for swaps. | ||
(b) | Amortization of | |
(c) | Accounted under the Fair Value Option rules. |
Federal Home Loan Bank of New York
Consolidated obligation bonds extinguished, transferred to and assumed from other FHLBanks
We retire debt principally to reduce future debt costs when the associated asset is either prepaid or terminated early, and less frequently from prepayments of mortgage-backed securities. When assets are prepaid ahead of their expected or contractual maturities, we also attempt to extinguish debt (consolidated obligation bonds) in order to realign asset and liability cash flow patterns. Bond retirement typically requires a payment of a premium resulting in a loss. We typically receive prepayment fees when assets are prepaid, making as economically whole. During 2011, 2010 and 2009, the FHLBNY retired $300.5$773.9 million, $300.6 million and $500.0 million of consolidated obligation bonds (book values). The debt buy-back resulted in a charge to income of $86.5 million, $2.1 million and $69.5 thousand in 2011, 2010 and 2009. The amount of debt retired included debt transferred to another FHLBank. Debt transfers to another FHLBank are at negotiated market rates. During 2011, the Bank transferred debt to another FHLBank totaling $150.0 million at a cost that exceeded book value by $2.1 million and $69.5 thousand, which$17.3 million. There were recorded as a loss. no transfers to another FHLBank in 2010 or 2009. Debt not transferred to another FHLBank is re-purchased through dealers from investors.
The bonds retired were generally associated with the prepayment of advances for which prepayment fees were received.Bank did not assume debt from another FHLBank in 2011. During the year ended December 31, 2008,2010, the FHLBNY did not retire any consolidated bonds.
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Percentage of | Percentage of | |||||||||||||||
| Amount | Total | Amount | Total | |||||||||||||
Year of Maturity or next call date | ||||||||||||||||
| Due or callable in one year or less | $ | 40,228,200 | 56.67 | % | $ | 50,481,350 | 68.82 | % | ||||||||
| Due or callable after one year through two years | 15,671,375 | 22.08 | 11,352,200 | 15.48 | ||||||||||||
| Due or callable after two years through three years | 7,209,950 | 10.16 | 4,073,575 | 5.55 | ||||||||||||
| Due or callable after three years through four years | 2,649,355 | 3.73 | 3,606,250 | 4.91 | ||||||||||||
| Due or callable after four years through five years | 2,926,400 | 4.12 | 1,325,800 | 1.81 | ||||||||||||
| Due or callable after five years through six years | 227,500 | 0.32 | 529,050 | 0.72 | ||||||||||||
| Thereafter | 2,069,200 | 2.92 | 1,989,700 | 2.71 | ||||||||||||
| 70,981,980 | 100.00 | % | 73,357,925 | 100.00 | % | |||||||||||
| Bond premiums | 163,830 | 112,866 | ||||||||||||||
| Bond discounts | (31,740 | ) | (33,852 | ) | ||||||||||||
| Fair value basis adjustments | 622,593 | 572,537 | ||||||||||||||
| Fair value basis adjustments on terminated hedges | 501 | 2,761 | ||||||||||||||
| Fair value option valuation adjustments and accrued interest | 5,463 | (4,259 | ) | |||||||||||||
| $ | 71,742,627 | $ | 74,007,978 | |||||||||||||
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Non-callable | $ | 59,435,980 | $ | 61,678,125 | ||||
| Callable | 11,546,000 | 11,679,800 | ||||||
Total par value | $ | 70,981,980 | $ | 73,357,925 | ||||
157
The following summarizes types of bonds issued and outstanding (in thousands).
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Percentage of | Percentage of | |||||||||||||||
| Amount | Total | Amount | Total | |||||||||||||
| Fixed-rate, non-callable | $ | 43,307,980 | 61.01 | % | $ | 48,647,625 | 66.31 | % | ||||||||
| Fixed-rate, callable | 8,821,000 | 12.43 | 8,374,800 | 11.42 | ||||||||||||
| Step Up, non-callable | — | — | 53,000 | 0.07 | ||||||||||||
| Step Up, callable | 2,725,000 | 3.84 | 3,305,000 | 4.51 | ||||||||||||
| Single-index floating rate | 16,128,000 | 22.72 | 12,977,500 | 17.69 | ||||||||||||
| Total par value | 70,981,980 | 100.00 | % | 73,357,925 | 100.00 | % | ||||||||||
| Bond premiums | 163,830 | 112,866 | ||||||||||||||
| Bond discounts | (31,740 | ) | (33,852 | ) | ||||||||||||
| Fair value basis adjustments | 622,593 | 572,537 | ||||||||||||||
| Fair value basis adjustments on terminated hedges | 501 | 2,761 | ||||||||||||||
| Fair value option valuation adjustments and accrued interest | 5,463 | (4,259 | ) | |||||||||||||
Total bonds | $ | 71,742,627 | $ | 74,007,978 | ||||||||||||
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||
|
| Amount |
| Percentage of |
| Amount |
| Percentage of |
| ||
|
|
|
|
|
|
|
|
|
| ||
Fixed-rate, non-callable |
| $ | 47,108,685 |
| 71.02 | % | $ | 43,307,980 |
| 61.01 | % |
Fixed-rate, callable |
| 1,935,610 |
| 2.92 |
| 8,821,000 |
| 12.43 |
| ||
Step Up, callable |
| 950,000 |
| 1.43 |
| 2,725,000 |
| 3.84 |
| ||
Single-index floating rate |
| 16,335,000 |
| 24.63 |
| 16,128,000 |
| 22.72 |
| ||
|
|
|
|
|
|
|
|
|
| ||
Total par value |
| 66,329,295 |
| 100.00 | % | 70,981,980 |
| 100.00 | % | ||
|
|
|
|
|
|
|
|
|
| ||
Bond premiums |
| 145,869 |
|
|
| 163,830 |
|
|
| ||
Bond discounts |
| (26,459 | ) |
|
| (31,740 | ) |
|
| ||
Fair value basis adjustments |
| 979,013 |
|
|
| 622,593 |
|
|
| ||
Fair value basis adjustments on terminated hedges |
| 201 |
|
|
| 501 |
|
|
| ||
Fair value option valuation adjustments and accrued interest |
| 12,603 |
|
|
| 5,463 |
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
Total bonds |
| $ | 67,440,522 |
|
|
| $ | 71,742,627 |
|
|
|
Discount Notes
Consolidated discount notes are issued to raise short-term funds. Discount notes are consolidated obligations with original maturities of up to one year. These notes are issued at less than their face amount and redeemed at par when they mature.
The FHLBNY’s outstanding consolidated discount notes were as follows (dollars in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Par value | $ | 19,394,503 | $ | 30,838,104 | ||||
| Amortized cost | $ | 19,388,317 | $ | 30,827,639 | ||||
| Fair value option valuation adjustments | 3,135 | — | ||||||
Total | $ | 19,391,452 | $ | 30,827,639 | ||||
Weighted average interest rate | 0.16 | % | 0.15 | % | ||||
158
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
|
|
|
|
|
| ||
Par value |
| $ | 22,127,530 |
| $ | 19,394,503 |
|
|
|
|
|
|
| ||
Amortized cost |
| $ | 22,121,109 |
| $ | 19,388,317 |
|
Fair value basis adjustments |
| (1,467 | ) | — |
| ||
Fair value option valuation adjustments |
| 3,683 |
| 3,135 |
| ||
|
|
|
|
|
| ||
Total discount notes |
| $ | 22,123,325 |
| $ | 19,391,452 |
|
|
|
|
|
|
| ||
Weighted average interest rate |
| 0.07 | % | 0.16 | % | ||
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Redemption less than one year | $ | 27,875 | $ | 102,453 | ||||
| Redemption from one year to less than three years | 17,019 | 16,766 | ||||||
| Redemption from three years to less than five years | 2,035 | 2,118 | ||||||
| Redemption after five years or greater | 16,290 | 4,957 | ||||||
Total | $ | 63,219 | $ | 126,294 | ||||
| December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Beginning balance | $ | 126,294 | $ | 143,121 | $ | 238,596 | ||||||
| Capital stock subject to mandatory redemption reclassified from equity | 48,310 | 49,848 | 64,758 | |||||||||
Redemption of mandatorily redeemable capital stock1 | (111,385 | ) | (66,675 | ) | (160,233 | ) | ||||||
Ending balance | $ | 63,219 | $ | 126,294 | $ | 143,121 | ||||||
Accrued interest payable | $ | 950 | $ | 2,029 | $ | 1,260 | ||||||
The FHLBank Act requires each FHLBank to establish an AHP.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 the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBanks must set aside for the AHP the greater of $100 million or 10 percent of regulatory 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 percent calculation described above is less than $100 million for all twelve FHLBanks, then the FHLBank Act requires the shortfall to be allocated among the FHLBanks based on the ratio of each FHLBank’s pre-assessment income before AHP and REFCORP to the sum of thetotal pre-assessment income before AHP and REFCORP of the twelvefor all 12 FHLBanks. There was no shortfall in 2010, 2009 or 2008. The FHLBNY had outstanding principal in AHP-related advances of $0.6 million and $2.1 million as of December 31,2011, 2010 and 2009. Each FHLBank
Federal Home Loan Bank of New York
Notes 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 by the Finance Agency. The AHP and REFCORP assessments are calculated simultaneously because of their interdependence on each other. Each FHLBank Financial Statements
accrues this expense monthly based on its income before assessments. A FHLBank reduces itsPre-assessment income is net income before AHP liability as members use subsidies.
159
The following provides roll-forward information with respect to changes in Affordable Housing Program liabilities (in thousands):
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Beginning balance | $ | 144,489 | $ | 122,449 | $ | 119,052 | ||||||
| Additions from current period’s assessments | 31,095 | 64,251 | 29,783 | |||||||||
| Net disbursements for grants and programs | (37,219 | ) | (42,211 | ) | (26,386 | ) | ||||||
Ending balance | $ | 138,365 | $ | 144,489 | $ | 122,449 | ||||||
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Beginning balance |
| $ | 138,365 |
| $ | 144,489 |
| $ | 122,449 |
|
Additions from current period’s assessments |
| 27,430 |
| 31,095 |
| 64,251 |
| |||
Net disbursements for grants and programs |
| (38,341 | ) | (37,219 | ) | (42,211 | ) | |||
|
|
|
|
|
|
|
| |||
Ending balance |
| $ | 127,454 |
| $ | 138,365 |
| $ | 144,489 |
|
The FHLBNY also had outstanding principal in AHP-related advances of income calculated in accordance with GAAP after the assessment for AHP, but before the assessment for REFCORP. The AHP$0.5 million and REFCORP assessments are calculated simultaneously because$0.6 million as of their interdependence on each other. Each FHLBank accrues its REFCORP assessment on a monthly basis. REFCORP has been designated as the calculation agent for AHPDecember 31, 2011 and REFCORP assessments. Each FHLBank provides its net income before AHP2010.
Note 12.Capital Stock, Mandatorily Redeemable Capital Stock and REFCORP to REFCORP, which then performs the calculations for each quarter end.
The FHLBanks, including the FHLBNY, have a cooperative structure. To access FHLBNY’s products and services, a financial institution must be approved for membership and purchase capital stock in FHLBNY. A member’s stock requirement is generally based on its use of FHLBNY products, subject to a minimum membership requirement as prescribed by the FHLBank Act and the FHLBNYFHLBNY’s 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’s Capital Plan offers two sub-classes of Class B capital stock, Class B1 and Class B2. Class B1 stock is issued to meet membership stock purchase requirements. Class B2 stock is issued to meet activity-based requirements. The FHLBNY requires member institutions to maintain Class B1 stock based on a percentage of the member’s mortgage-related assets and Class B2 stock-basedstock based on a percentage of advances and acquired member assets, mainly MPF loans, outstanding with the FHLBank and certain commitments outstanding with the FHLBank. Class B1 and Class B2 stockholders have the same voting rights and dividend rates.
The FHLBNY is subject to risk-based capital rules. Specifically, the FHLBNY is subject to three capital requirements under its capital plan. First, the FHLBNY must maintain at all times permanent capital in an amount at least equal to the sum of its credit risk, its market risk, and operations risk capital requirements as calculated in accordance with the FHLBNY policy, and rules and regulations of the Finance Agency. Only permanent capital, defined as Class B stock and retained earnings, satisfies this risk-based capital requirement. The Finance Agency may require the FHLBNY to maintain a greateran amount of permanent capital greater than what is required as defined by the risk-based capital requirements. In addition, the FHLBNY is required to maintain at least a 4.0% total capital-to-asset ratio and at least a 5.0% leverage ratio at all times. The leverage ratio is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 timetimes divided by total assets. The FHLBNY was in compliance with the aforementioned capital rules and requirements for all periods presented.
Federal Home Loan Bank of New York
Risk-based capital
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||||
|
| Required (d) |
| Actual |
| Required (d) |
| Actual |
| ||||
Regulatory capital requirements: |
|
|
|
|
|
|
|
|
| ||||
Risk-based capital (a), (e) |
| $ | 495,427 |
| $ | 5,291,666 |
| $ | 540,244 |
| $ | 5,304,272 |
|
Total capital-to-asset ratio |
| 4.00 | % | 5.42 | % | 4.00 | % | 5.29 | % | ||||
Total capital (b) |
| $ | 3,906,494 |
| $ | 5,291,666 |
| $ | 4,008,483 |
| $ | 5,304,272 |
|
Leverage ratio |
| 5.00 | % | 8.13 | % | 5.00 | % | 7.94 | % | ||||
Leverage capital (c) |
| $ | 4,883,117 |
| $ | 7,937,449 |
| $ | 5,010,604 |
| $ | 7,956,408 |
|
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Required4 | Actual | Required4 | Actual | |||||||||||||
| Regulatory capital requirements: | ||||||||||||||||
Risk-based capital1 | $ | 538,917 | $ | 5,304,272 | $ | 606,716 | $ | 5,874,125 | ||||||||
| Total capital-to-asset ratio | 4.00 | % | 5.30 | % | 4.00 | % | 5.14 | % | ||||||||
Total capital2 | $ | 4,008,483 | $ | 5,310,032 | $ | 4,578,436 | $ | 5,878,623 | ||||||||
| Leverage ratio | 5.00 | % | 7.95 | % | 5.00 | % | 7.70 | % | ||||||||
Leverage capital3 | $ | 5,010,604 | $ | 7,962,168 | $ | 5,723,045 | $ | 8,815,685 | ||||||||
(a)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.” (b)Required “Total capital” is 4.0% of total assets. (c)Actual “Leverage capital” is Actual “Risk-based capital” times 1.5. (d)Required minimum. (e)Under regulatory guidelines issued by the Federal Housing finance Agency (“FHFA”), the Bank’s regulator, concurrently with the rating action on August 8, 2011 by S&P lowered the rating of long-term securities issued by the U.S. government, federal agencies, and other entities, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, from AAA to AA+. With regard to this action, consistent with guidance provided by the banking regulators with respect to capital rules, the FHFA provides the following guidance for the Federal Home Loan Banks: the risk weights for Treasury securities and other securities issued or guaranteed by the U.S. Government, government agencies, and government-sponsored entities do not change for purposes of calculating risk-based capital. Mandatorily redeemable capital stock Generally, the FHLBNY’s capital stock is redeemable at the option of either the member or the FHLBNY subject to certain conditions, including the provisions under the accounting guidance for certain financial instruments with characteristics of both liabilities and equity. In accordance with the accounting guidance for certain financial instruments with characteristics of both liabilities and equity, the FHLBNY generally reclassifies the stock subject to redemption from equity to a liability once a member irrevocably exercises a written redemption right, gives notice of intent to withdraw from membership, or attains non-member status by merger or acquisition, charter termination, or involuntary termination from membership. Under such circumstances, the member shares will then meet the definition of a mandatorily redeemable financial instrument and are reclassified to a liability at fair value. Anticipated redemptions of mandatorily redeemable capital stock in the following table assume the FHLBNY will follow its current practice of daily redemption of capital in excess of the amount required to support advances (in thousands):
Voluntary and involuntary withdrawal and changes in membership — Changes in membership due to mergers were not significant in any periods in this report. When a member is acquired by a non-member, the FHLBNY reclassifies stock of the member to a liability on the day the member’s charter is dissolved. Under existing practice, the FHLBNY repurchases Class B2 capital stock held by former members if such stock is considered “excess” and is no longer required to support outstanding advances. Class B2 membership stock held by former members is reviewed and repurchased annually. The following table provides withdrawals and terminations in membership:
(a)The Board of Directors of FHLBank may terminate the membership of any institution that: (1) fails to comply with any requirement of the FHLBank Act, any regulation adopted by the Finance Agency, or any requirement of the Bank’s capital plan; (2) becomes insolvent orotherwise subject to the appointment of a conservator, receiver, or other legal custodian under federal or state law; or (3) would jeopardize the safety or soundness of the FHLBank if it was to remain a member. Federal Home Loan Bank of New York Notes to Financial Statements The following table provides rollforward information with respect to changes in mandatorily redeemable capital stock liabilities (in thousands):
(a)Redemption includes repayment of excess stock. (b)The annualized accrual rates were 4.00%, 6.50%, and 5.60% for 2011, 2010, and 2009. Restricted Retained Earnings —In 2011, the 12 FHLBanks entered into a Joint Capital Enhancement Agreement (“Capital Agreement”), as amended. The Capital Agreement is intended to enhance the capital position of each FHLBank, by allocating that portion of each FHLBank’s earnings historically paid to satisfy its REFCORP obligation to a separate retained earnings account at that FHLBank. Because each FHLBank had been required to contribute 20% of its earnings toward payment of the interest on REFCORP bonds until the REFCORP obligation was satisfied, the Capital Agreement provides that, with full satisfaction of the REFCORP obligation, each FHLBank will contribute 20% of its Net income each quarter to a restricted retained earnings account until the balance of that account equals at least one percent of that FHLBank’s average balance of outstanding consolidated obligations for the previous quarter (see calculation below). These restricted retained earnings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2011, restricted retained earnings were $24.0 million. The one percent restricted retained earnings target would have been $885.5 million if the Bank’s compliance with regulatory capital requirements, calculating mortgage securities investment authority (300 percent of total capital), calculating unsecured credit exposure to other GSEs (100 percent of total capital), or calculating unsecured credit limits to other counterparties (various percentages of total capital dependingcalculations were based on the ratingFHLBNY’s average consolidated obligations outstanding during the 4th quarter of the counterparty).
Note 15. 13.Total Comprehensive Income.
Total comprehensive income is comprised of Net income and Accumulated other comprehensive income (loss) (“AOCI”),AOCI, which includes unrealized gains and losses on available-for-saleAFS securities, cash flow hedging activities, employee supplemental retirement plans and the non-credit portion of OTTI on HTM securities. Changes in AOCI, and total comprehensive income were as follows for each of the three years ended December 31, 20102011 (in thousands):
| Non-credit | Reclassification | Accumulated | ||||||||||||||||||||||||||||||
| Available- | OTTI on HTM | of Non-credit | Cash | Supplemental | Other | Total | ||||||||||||||||||||||||||
| for-sale | Securities, | OTTI to | Flow | Retirement | Comprehensive | Net | Comprehensive | |||||||||||||||||||||||||
| Securities | Net of accretion | Net Income | Hedges | Plans | Income (Loss) | Income | Income | |||||||||||||||||||||||||
| Balance, December 31, 2007 | $ | (373 | ) | $ | — | $ | — | $ | (30,215 | ) | $ | (5,087 | ) | $ | (35,675 | ) | ||||||||||||||||
| Net change | (64,047 | ) | — | — | 24 | (1,463 | ) | (65,486 | ) | $ | 259,060 | $ | 193,574 | |||||||||||||||||||
| Balance, December 31, 2008 | (64,420 | ) | — | — | (30,191 | ) | (6,550 | ) | (101,161 | ) | ||||||||||||||||||||||
| Net change | 61,011 | (113,562 | ) | 2,992 | 7,508 | (1,327 | ) | (43,378 | ) | $ | 570,755 | $ | 527,377 | |||||||||||||||||||
| Balance, December 31, 2009 | (3,409 | ) | (113,562 | ) | 2,992 | (22,683 | ) | (7,877 | ) | (144,539 | ) | |||||||||||||||||||||
| Net change | 26,374 | 12,002 | 5,642 | 7,487 | (3,650 | ) | 47,855 | $ | 275,525 | $ | 323,380 | |||||||||||||||||||||
| Balance, December 31, 2010 | $ | 22,965 | $ | (101,560 | ) | $ | 8,634 | $ | (15,196 | ) | $ | (11,527 | ) | $ | (96,684 | ) | ||||||||||||||||
|
|
|
| Non-credit |
| Reclassification |
|
|
|
|
| Accumulated |
|
|
|
|
| ||||||||
|
| Available- |
| OTTI on HTM |
| of Non-credit |
| Cash |
| Supplemental |
| Other |
|
|
| Total |
| ||||||||
|
| for-sale |
| Securities, |
| OTTI to |
| Flow |
| Retirement |
| Comprehensive |
| Net |
| Comprehensive |
| ||||||||
|
| Securities |
| Net of accretion |
| Net Income |
| Hedges |
| Plans |
| Income (Loss) |
| Income |
| Income (loss) |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, December 31, 2008 |
| $ | (64,420 | ) | $ | — |
| $ | — |
| $ | (30,191 | ) | $ | (6,550 | ) | $ | (101,161 | ) |
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net change |
| 61,011 |
| (113,562 | ) | 2,992 |
| 7,508 |
| (1,327 | ) | (43,378 | ) | $ | 570,755 |
| $ | 527,377 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, December 31, 2009 |
| (3,409 | ) | (113,562 | ) | 2,992 |
| (22,683 | ) | (7,877 | ) | (144,539 | ) |
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net change |
| 26,374 |
| 12,002 |
| 5,642 |
| 7,487 |
| (3,650 | ) | 47,855 |
| $ | 275,525 |
| $ | 323,380 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, December 31, 2010 |
| 22,965 |
| (101,560 | ) | 8,634 |
| (15,196 | ) | (11,527 | ) | (96,684 | ) |
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net change |
| (6,546 | ) | 11,960 |
| 5,117 |
| (96,789 | ) | (7,485 | ) | (93,743 | ) | $ | 244,486 |
| $ | 150,743 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, December 31, 2011 |
| $ | 16,419 |
| $ | (89,600 | ) | $ | 13,751 |
| $ | (111,985 | ) | $ | (19,012 | ) | $ | (190,427 | ) |
|
|
|
| ||
Federal Home Loan Bank of New York
Note 16. 14.Earnings Per Share of Capital.
The following table sets forth the computation of earnings per share (dollars in thousands except per share amounts):
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Net income | $ | 275,525 | $ | 570,755 | $ | 259,060 | ||||||
Net income available to stockholders | $ | 275,525 | $ | 570,755 | $ | 259,060 | ||||||
| Weighted average shares of capital | 47,820 | 53,807 | 50,894 | |||||||||
| Less: Mandatorily redeemable capital stock | (826 | ) | (1,371 | ) | (1,664 | ) | ||||||
| Average number of shares of capital used to calculate earnings per share | 46,994 | 52,436 | 49,230 | |||||||||
Net earnings per share of capital | $ | 5.86 | $ | 10.88 | $ | 5.26 | ||||||
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 244,486 |
| $ | 275,525 |
| $ | 570,755 |
|
|
|
|
|
|
|
|
| |||
Net income available to stockholders |
| $ | 244,486 |
| $ | 275,525 |
| $ | 570,755 |
|
|
|
|
|
|
|
|
| |||
Weighted average shares of capital |
| 45,340 |
| 47,820 |
| 53,807 |
| |||
Less: Mandatorily redeemable capital stock |
| (585 | ) | (826 | ) | (1,371 | ) | |||
Average number of shares of capital used to calculate earnings per share |
| 44,755 |
| 46,994 |
| 52,436 |
| |||
|
|
|
|
|
|
|
| |||
Basic earnings per share |
| $ | 5.46 |
| $ | 5.86 |
| $ | 10.88 |
|
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 17. 15.Employee Retirement Plans.
The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (“(Pentegra DB Plan”). The DB Plan isPlan), a tax-qualified, multiple-employer defined benefitdefined-benefit multiemployer 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 tofor 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 establisheda grantor truststrust to meet future benefit obligations and current payments to beneficiaries in the supplemental pension plans.
The Bank also offers a Retiree Medical Benefit Plan, which is a postretirement health benefit plan. There are no funded plan assets that have been designated to provide postretirement health benefits. The Board of Directors of the FHLBNY approved certain amendments to the Retiree Medical Benefit Plan effective as of January 1, 2008. The amendments did not have a material impact on reported results of operations or financial condition of the Bank.
On January 1, 2009, the Bank offered a Nonqualified Deferred Compensation Plan to certain officer employees and to the members of the Board of Directors of the Bank. Participants in the plan would elect to defer all or a portion of their compensation earned for a minimum period of five years. This benefit plan and other nonqualified supplemental pension plans were terminated effective November 10, 2009. Plan terminations had no material effect on the Bank’s financial results, financial position or cash flows for all reported periods.
Retirement Plan Expenses—Summary
The following table presents employee retirement plan expenses (a)for the years ended (in thousands):
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Defined Benefit Plan |
| $ | 30,303 |
| $ | 10,680 |
| $ | 5,506 |
|
Benefit Equalization Plan (defined benefit) |
| 2,780 |
| 2,281 |
| 2,059 |
| |||
Defined Contribution Plan |
| 1,414 |
| 1,531 |
| 1,772 |
| |||
Postretirement Health Benefit Plan |
| 990 |
| 1,138 |
| 1,017 |
| |||
|
|
|
|
|
|
|
| |||
Total retirement plan expenses |
| $ | 35,487 |
| $ | 15,630 |
| $ | 10,354 |
|
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Defined Benefit Plan | $ | 10,680 | $ | 5,506 | $ | 5,872 | ||||||
| Benefit Equalization Plan (defined benefit) | 2,281 | 2,059 | 1,878 | |||||||||
| Defined Contribution Plan and BEP Thrift | 1,531 | 1,772 | 721 | |||||||||
| Postretirement Health Benefit Plan | 1,138 | 1,017 | 990 | |||||||||
Total retirement plan expenses | $ | 15,630 | $ | 10,354 | $ | 9,461 | ||||||
(a)In March 2011, the FHLBNY contributed $24.0 million to its Defined Benefit Plan as to eliminate a funding shortfall calculated byshortfall. Prior to the DB Plan’s actuarial consultant as of July 2010. Thecontribution the DB Plan’s adjusted funding target attainment percentage (“AFTAP”) was 79.93%79.9% (80%) at July 1, 2010.based on the actuarial valuation for the DB Plan. The AFTAP equals DB Plan assets divided by plan liabilities. Under the Pension Protection Act of 2006 (“PPA”), if the AFTAP in any future year is less than 80%, then the DB Plan will be restricted in its ability to provided increased benefits and /or lump sum distributions. If theAFTAP in any future year is less than 60%, then benefit accruals will be frozen. The contribution to the DB Plan will bewas charged to Compensation and Benefits.
Pentegra DB Plan Net incomePension Cost and Funded Status
The Pentegra DB Plan operates as a multiemployer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. As a result, certain multiemployer plan disclosures, including the certified zone status, are not applicable to the Pentegra DB Plan. Typically, multiemployer plans contain provisions for collective bargaining arrangements. There are no
Federal Home Loan Bank of New York
Notes to Financial Statements
collective bargaining agreements in place at any of the FHLBanks (including the FHLBNY) that participate in the 2011 first quarter.
162
The Pentegra DB Plan’s annual valuation process includes calculating the plan’s funded status, and separately calculating the funded status of each participating employer. The funded status is defined as the market value of assets divided by the funding target (100% of the present value of all benefit liabilities accrued at that date). As permitted by ERISA, the Pentegra DB Plan accepts contributions for the prior plan year up to eight and a half months after the asset valuation date. As a result, the market value of assets at the valuation date (July 1) may increase by any subsequent contributions designated for the immediately preceding plan year ended June 30.
The following table presented multiemployer plan disclosure for the three years ended December 31, (dollars in thousands):
|
| 2011 |
| 2010 |
| 2009 (d) |
| |||
|
|
|
|
|
|
|
| |||
Net pension cost charged to compensation and benefit expense for the year ended December 31 |
| $ | 30,303 |
| $ | 10,680 |
| $ | 5,500 |
|
Contributions allocated to plan year ended June 30, |
| $ | 14,196 |
| $ | 28,100 | (a) | $ | 5,766 |
|
Pentegra DB Plan funded status as of July 1 (b) |
| 90.01 | % | 85.81 | % | 93.74 | % | |||
FHLBNY’s funded status as of July 1 (c) |
| 101.30 | % | 100.00 | % | 90.23 | % | |||
(a)Represented more than 5% of contributions made by all employers in the Plan.
(b)Based on actuarial valuation of the Pentegra DB Plan and include all participants’ allocated to plan years and known at the time of the preparation of the actuarial valuation. The funded status may increase because the plan’s participants are permitted to make contributions through March 15 of the following year. Funded status remains preliminary until the Form 5500 is filed no later than April 15 of 2012 and 2013 for the plan years ended June 30, 2010 and 2011.
(c)Based on cash contributions made through December 31, 2011 and allocated to the DB Plan year(s). The funded status may increase because the FHLBNY is permitted to make contribution through March 15 of the following year.
(d)The most recent Form 5500 available for the Pentegra DB Plan is for the plan year ended June 30, 2009.
Benefit Equalization Plan (BEP)
The plan’s liability consistedmethod for determining the accrual expense and liabilities of the accumulated compensation deferralsplan is the Projected Unit Credit Accrual Method. Under this method, the liability of the plan is composed mainly of two components, Projected Benefit Obligation (PBO) and accrued interest onService Cost accruals. The total liability is determined by projecting each person’s expected plan benefits. These projected benefits are then discounted to the deferrals.measurement date. Finally, the liability is allocated to service already worked (PBO) and service to be worked (Service Cost). There were no plan assets (this is an unfunded plan) that have been designated for the BEP plan.
The accrued pension costs for the Bank’s BEP plan were as follows (in thousands):
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
|
|
|
|
|
| ||
Accumulated benefit obligation |
| $ | 25,092 |
| $ | 19,625 |
|
Effect of future salary increases |
| 6,252 |
| 5,070 |
| ||
Projected benefit obligation |
| 31,344 |
| 24,695 |
| ||
Unrecognized prior service cost |
| 260 |
| 314 |
| ||
Unrecognized net (loss) |
| (14,406 | ) | (9,935 | ) | ||
|
|
|
|
|
| ||
Accrued pension cost |
| $ | 17,198 |
| $ | 15,074 |
|
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Accumulated benefit obligation | $ | 19,625 | $ | 16,103 | ||||
| Effect of future salary increases | 5,070 | 3,289 | ||||||
| Projected benefit obligation | 24,695 | 19,392 | ||||||
| Unrecognized prior service cost | 314 | 380 | ||||||
| Unrecognized net (loss) | (9,935 | ) | (6,464 | ) | ||||
Accrued pension cost | $ | 15,074 | $ | 13,308 | ||||
Federal Home Loan Bank of New York
Notes to Financial Statements
Components of the projected benefit obligation for the Bank’s BEP plan were as follows (in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
Projected benefit obligation at the beginning of the year | $ | 19,392 | $ | 17,422 | ||||
| Service | 653 | 610 | ||||||
| Interest | 1,117 | 1,053 | ||||||
| Benefits paid | (515 | ) | (537 | ) | ||||
| Actuarial loss | 4,048 | 844 | ||||||
Projected benefit obligation at the end of the year | $ | 24,695 | $ | 19,392 | ||||
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
|
|
|
|
|
| ||
Projected benefit obligation at the beginning of the year |
| $ | 24,695 |
| $ | 19,392 |
|
Service |
| 660 |
| 653 |
| ||
Interest |
| 1,294 |
| 1,117 |
| ||
Benefits paid |
| (656 | ) | (515 | ) | ||
Actuarial loss |
| 5,351 |
| 4,048 |
| ||
|
|
|
|
|
| ||
Projected benefit obligation at the end of the year |
| $ | 31,344 |
| $ | 24,695 |
|
The measurement date used to determine current period projected benefit obligation for the BEP plan was December 31 2010.
Amounts recognized in the Statements of Condition for the Bank’s BEP plan were as follows (in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Unrecognized (gain)/loss | $ | 9,935 | $ | 6,464 | ||||
| Prior service cost | (314 | ) | (380 | ) | ||||
Accumulated other comprehensive loss | $ | 9,621 | $ | 6,084 | ||||
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
|
|
|
|
|
| ||
Unrecognized (gain)/loss |
| $ | 14,406 |
| $ | 9,935 |
|
Prior service cost |
| (260 | ) | (314 | ) | ||
|
|
|
|
|
| ||
Accumulated other comprehensive loss |
| $ | 14,146 |
| $ | 9,621 |
|
Changes in the BEP plan assets were as follows (in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Fair value of the plan assets at the beginning of the year | $ | — | $ | — | ||||
| Employer contributions | 515 | 537 | ||||||
| Benefits paid | (515 | ) | (537 | ) | ||||
Fair value of the plan assets at the end of the year | $ | — | $ | — | ||||
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
|
|
|
|
|
| ||
Fair value of the plan assets at the beginning of the year |
| $ | — |
| $ | — |
|
Employer contributions |
| 656 |
| 515 |
| ||
Benefits paid |
| (656 | ) | (515 | ) | ||
|
|
|
|
|
|
|
|
Fair value of the plan assets at the end of the year |
| $ | — |
| $ | — |
|
Components of the net periodic pension cost for the defined benefit component of the BEP an unfunded plan, were as follows (in thousands):
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Service cost | $ | 653 | $ | 610 | $ | 614 | ||||||
| Interest cost | 1,117 | 1,053 | 944 | |||||||||
| Amortization of unrecognized prior service cost | (67 | ) | (143 | ) | (143 | ) | ||||||
| Amortization of unrecognized net loss | 578 | 539 | 463 | |||||||||
Net periodic benefit cost | $ | 2,281 | $ | 2,059 | $ | 1,878 | ||||||
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
Service cost |
| $ | 660 |
| $ | 653 |
| $ | 610 |
|
Interest cost |
| 1,294 |
| 1,117 |
| 1,053 |
| |||
Amortization of unrecognized prior service cost |
| (53 | ) | (67 | ) | (143 | ) | |||
Amortization of unrecognized net loss |
| 879 |
| 578 |
| 539 |
| |||
|
|
|
|
|
|
|
| |||
Net periodic benefit cost |
| $ | 2,780 |
| $ | 2,281 |
| $ | 2,059 |
|
163
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
|
|
|
|
|
| ||
Net loss (gain) |
| $ | 5,351 |
| $ | 4,048 |
|
Prior service cost (benefit) |
| — |
| — |
| ||
Amortization of net loss (gain) |
| (879 | ) | (578 | ) | ||
Amortization of prior service cost (benefit) |
| 53 |
| 67 |
| ||
Amortization of net obligation |
| — |
| — |
| ||
|
|
|
|
|
| ||
Total recognized in other comprehensive income |
| $ | 4,525 |
| $ | 3,537 |
|
|
|
|
|
|
| ||
Total recognized in net periodic benefit cost and other comprehensive income |
| $ | 7,305 |
| $ | 5,818 |
|
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Net loss (gain) | $ | 4,048 | $ | 845 | ||||
| Prior service cost (benefit) | — | — | ||||||
| Amortization of net loss (gain) | (578 | ) | (539 | ) | ||||
| Amortization of prior service cost (benefit) | 67 | 143 | ||||||
| Amortization of net obligation | — | — | ||||||
Total recognized in other comprehensive income | $ | 3,537 | $ | 449 | ||||
Total recognized in net periodic benefit cost and other comprehensive income | $ | 5,818 | $ | 2,508 | ||||
Federal Home Loan Bank of New York
Notes to Financial Statements
The net transition obligation (asset), prior service cost (credit), and the estimated net loss (gain) for the BEP plan that are expected to be amortized from AOCI into net periodic benefit cost over the next fiscal year are shown in the table below (in thousands):
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Expected amortization of net (gain)/loss | $ | 879 | $ | 578 | ||||
| Expected amortization of prior service cost/(credit) | $ | (53 | ) | $ | (67 | ) | ||
| Expected amortization of transition obligation/(asset) | $ | — | $ | — | ||||
|
| December 31, |
| ||||
|
| 2012 |
| 2011 |
| ||
|
|
|
|
|
| ||
Expected amortization of net (gain)/loss |
| $ | 1,622 |
| $ | 879 |
|
Expected amortization of prior service cost/(credit) |
| $ | (53 | ) | $ | (53 | ) |
Expected amortization of transition obligation/(asset) |
| $ | — |
| $ | — |
|
Key assumptions and other information for the actuarial calculations to determine current year’s benefit obligations for the BEP plan were as follows (dollars in thousands):
|
| December 31, 2011 |
| December 31, 2010 |
| December 31, 2009 |
| |||
|
|
|
|
|
|
|
| |||
Discount rate (a) |
| 4.23 | % | 5.35 | % | 5.87 | % | |||
Salary increases |
| 5.50 | % | 5.50 | % | 5.50 | % | |||
Amortization period (years) |
| 7 |
| 8 |
| 8 |
| |||
Benefits paid during the period |
| $ | (656 | ) | $ | (515 | ) | $ | (537 | ) |
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Discount rate * | 5.35 | % | 5.87 | % | 6.14 | % | ||||||
| Salary increases | 5.50 | % | 5.50 | % | 5.50 | % | ||||||
| Amortization period (years) | 8 | 8 | 8 | |||||||||
| Benefits paid during the year | $ | (515 | ) | $ | (537 | ) | $ | (392 | ) | |||
(a) | ||
The discount |
Future BEP plan benefits to be paid were estimated to be as follows (in thousands):
| Years | Payments | |||
| 2011 | $ | 1,006 | ||
| 2012 | 1,038 | |||
| 2013 | 1,086 | |||
| 2014 | 1,186 | |||
| 2015 | 1,225 | |||
| 2016-2020 | 7,306 | |||
Total | $ | 12,847 | ||
Years |
| Payments |
| |
|
|
|
| |
2012 |
| $ | 1,221 |
|
2013 |
| 1,251 |
| |
2014 |
| 1,308 |
| |
2015 |
| 1,352 |
| |
2016 |
| 1,417 |
| |
2017-2021 |
| 8,561 |
| |
|
|
|
| |
Total |
| $ | 15,110 |
|
The net periodic benefit cost for 20112012 is expected to be $3.6 million (2011 was $2.8 million (2010 was $2.3 million).
Postretirement Health Benefit Plan
The FHLBNY has a postretirement health benefit plan for retirees called the Retiree Medical Benefit Plan. The plan is unfunded. Assumptions used in determining the accumulated postretirement benefit obligation (“APBO”) included a discount rate assumption of 5.35%4.23%. At December 31, 2011, the effect of a percentage point increase in the assumed healthcare trend rates would be an increase in postretirement benefit expense of $270.7 thousand and in APBO of $3.3 million. At December 31, 2010, the effect of a percentage point increase in the assumed healthcare trend rates would be an increase in postretirement benefit expense of $272.1 thousand and in APBO of $2.7 million. At December 31, 2009,2011, the effect of a percentage point increasedecrease in the assumed healthcare trend rates would be an increasea decrease in postretirement benefit expense of $255.2$220.8 thousand and in APBO of $2.4$2.7 million. At December 31, 2010, the effect of a percentage point decrease in the assumed healthcare trend rates would be a decrease in postretirement benefit expense of $221.9 thousand and in APBO of $2.2 million. At December 31, 2009, the effect of a percentage point decrease in the assumed healthcare trend rates would be a decrease in postretirement benefit expense of $208.4 thousand and in APBO of $2.0 million. Employees over the age of 55 are eligible provided they have completed ten years of service after age 45.
164
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
Accumulated postretirement benefit obligation at the beginning of the year |
| $ | 16,728 |
| $ | 15,841 |
|
Service cost |
| 681 |
| 620 |
| ||
Interest cost |
| 841 |
| 909 |
| ||
Actuarial loss |
| (431 | ) | (267 | ) | ||
Benefits paid, net of participants’ contributions |
| (332 | ) | (364 | ) | ||
Change in discount rate assumptions |
| 2,859 |
| (11 | ) | ||
Accumulated postretirement benefit obligation at the end of the year |
| 20,346 |
| 16,728 |
| ||
Unrecognized net gain |
| — |
| — |
| ||
Accrued postretirement benefit cost |
| $ | 20,346 |
| $ | 16,728 |
|
| December 31, | ||||||||
| 2010 | 2009 | |||||||
Accumulated postretirement benefit obligation at the beginning of the year | $ | 15,841 | $ | 14,357 | ||||
| Service cost | 620 | 566 | ||||||
| Interest cost | 909 | 867 | ||||||
| Actuarial loss | (267 | ) | (628 | ) | ||||
| Benefits paid, net of participants’ contributions | (364 | ) | (410 | ) | ||||
| Change in plan assumptions | (11 | ) | 1,089 | |||||
Accumulated postretirement benefit obligation at the end of the year | 16,728 | 15,841 | ||||||
| Unrecognized net gain | — | — | ||||||
Accrued postretirement benefit cost | $ | 16,728 | $ | 15,841 | ||||
Federal Home Loan Bank of New York
Notes to Financial Statements
Changes in postretirement health benefit plan assets were (in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
Fair value of plan assets at the beginning of the year | $ | — | $ | — | ||||
| Employer contributions | 364 | 410 | ||||||
| Benefits paid, net of participants’ contributions and subsidy received | (364 | ) | (410 | ) | ||||
Fair value of plan assets at the end of the year | $ | — | $ | — | ||||
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
Fair value of plan assets at the beginning of the year |
| $ | — |
| $ | — |
|
Employer contributions |
| 332 |
| 364 |
| ||
Benefits paid, net of participants’ contributions and subsidy received |
| (332 | ) | (364 | ) | ||
Fair value of plan assets at the end of the year |
| $ | — |
| $ | — |
|
Amounts recognized in AOCI for the Bank’s postretirement benefit obligation were (in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Prior service cost/(credit) | $ | (2,105 | ) | $ | (2,835 | ) | ||
| Net loss/(gain) | 4,011 | 4,628 | ||||||
Accrued pension cost | $ | 1,906 | $ | 1,793 | ||||
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
|
|
|
|
|
| ||
Prior service cost/(credit) |
| $ | (1,374 | ) | $ | (2,105 | ) |
Net loss/(gain) |
| 6,240 |
| 4,011 |
| ||
Accrued pension cost |
| $ | 4,866 |
| $ | 1,906 |
|
The net transition obligation (asset), prior service cost (credit), and estimated net loss (gain) for the postretirement health benefit plan are expected to be amortized from AOCI into net periodic benefit cost over the next fiscal year are shown in the table below (in thousands);
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Expected amortization of net (gain)/loss | $ | 266 | $ | 314 | ||||
| Expected amortization of prior service cost/(credit) | $ | (731 | ) | $ | (731 | ) | ||
| Expected amortization of transition obligation/(asset) | $ | — | $ | — | ||||
|
| December 31, |
| ||||
|
| 2012 |
| 2011 |
| ||
|
|
|
|
|
| ||
Expected amortization of net (gain)/loss |
| $ | 536 |
| $ | 266 |
|
Expected amortization of prior service cost/(credit) |
| $ | (731 | ) | $ | (731 | ) |
Expected amortization of transition obligation/(asset) |
| $ | — |
| $ | — |
|
Components of the net periodic benefit cost for the postretirement health benefit plan were (in thousands):
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Service cost (benefits attributed to service during the period) | $ | 621 | $ | 566 | $ | 505 | ||||||
| Interest cost on accumulated postretirement health benefit obligation | 909 | 867 | 820 | |||||||||
| Amortization of loss | 339 | 315 | 396 | |||||||||
| Amortization of prior service cost/(credit) | (731 | ) | (731 | ) | (731 | ) | ||||||
Net periodic postretirement health benefit cost | $ | 1,138 | $ | 1,017 | $ | 990 | ||||||
|
| Years ended December 31, |
| |||||||
|
| 2011 |
| 2010 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Service cost (benefits attributed to service during the period) |
| $ | 681 |
| $ | 621 |
| $ | 566 |
|
Interest cost on accumulated postretirement health benefit obligation |
| 841 |
| 909 |
| 867 |
| |||
Amortization of loss |
| 199 |
| 339 |
| 315 |
| |||
Amortization of prior service cost/(credit) |
| (731 | ) | (731 | ) | (731 | ) | |||
|
|
|
|
|
|
|
| |||
Net periodic postretirement health benefit cost |
| $ | 990 |
| $ | 1,138 |
| $ | 1,017 |
|
165
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Net loss (gain) | $ | (278 | ) | $ | 462 | |||
| Prior service cost (benefit) | — | — | ||||||
| Amortization of net loss (gain) | (339 | ) | (315 | ) | ||||
| Amortization of prior service cost (benefit) | 731 | 731 | ||||||
| Amortization of net obligation | — | — | ||||||
Total recognized in other comprehensive income | $ | 114 | $ | 878 | ||||
Total recognized in net periodic benefit cost and other comprehensive income | $ | 1,251 | $ | 1,895 | ||||
|
| December 31, |
| ||||
|
| 2011 |
| 2010 |
| ||
|
|
|
|
|
| ||
Net loss (gain) |
| $ | 2,428 |
| $ | (278 | ) |
Prior service cost (benefit) |
| — |
| — |
| ||
Amortization of net loss (gain) |
| (199 | ) | (339 | ) | ||
Amortization of prior service cost (benefit) |
| 731 |
| 731 |
| ||
Amortization of net obligation |
| — |
| — |
| ||
|
|
|
|
|
| ||
Total recognized in other comprehensive income |
| $ | 2,960 |
| $ | 114 |
|
|
|
|
|
|
| ||
Total recognized in net periodic benefit cost and other comprehensive income |
| $ | 3,950 |
| $ | 1,252 |
|
The measurement date used to determine current year’s benefit obligationobligations was December 31 2010.in each of the two years.
Federal Home Loan Bank of New York
Notes to Financial Statements
Key assumptions(a) and other information to determine current year’s obligation for the FHLBNY’s postretirement health benefit plan were as follows:
|
| Years ended December 31, |
| ||||
|
| 2011 |
| 2010 |
| 2009 |
|
|
|
|
|
|
|
|
|
Weighted average discount rate |
| 4.23% |
| 5.35% |
| 5.87% |
|
|
|
|
|
|
|
|
|
Health care cost trend rates: |
|
|
|
|
|
|
|
Assumed for next year |
| 8.00% |
| 9.00% |
| 10.00% |
|
Pre 65 Ultimate rate |
| 5.00% |
| 5.00% |
| 5.00% |
|
Pre 65 Year that ultimate rate is reached |
| 2017 |
| 2016 |
| 2016 |
|
Post 65 Ultimate rate |
| 5.50% |
| 6.00% |
| 6.00% |
|
Post 65 Year that ultimate rate is reached |
| 2017 |
| 2016 |
| 2016 |
|
Alternative amortization methods used to amortize |
|
|
|
|
|
|
|
Prior service cost |
| Straight - line |
| Straight - line |
| Straight - line |
|
Unrecognized net (gain) or loss |
| Straight - line |
| Straight - line |
| Straight - line |
|
| Years ended December 31, | ||||||
| 2010 | 2009 | 2008 | ||||
| Weighted average discount rate at the end of the year | 5.35% | 5.87% | 6.14% | |||
| Health care cost trend rates: | ||||||
| Assumed for next year | 9.00% | 10.00% | 7.00% | |||
| Pre 65 Ultimate rate | 5.00% | 5.00% | 5.00% | |||
| Pre 65 Year that ultimate rate is reached | 2016 | 2016 | 2011 | |||
| Post 65 Ultimate rate | 6.00% | 6.00% | 5.50% | |||
| Post 65 Year that ultimate rate is reached | 2016 | 2016 | 2016 | |||
| Alternative amortization methods used to amortize | ||||||
| Prior service cost | Straight – line | Straight – line | Straight – line | |||
| Unrecognized net (gain) or loss | Straight – line | Straight – line | Straight – line | |||
(a) | The discount rates were based on the Citigroup Pension Liability Index adjusted for duration at December 31 in each of the three years. |
Future postretirement benefit plan expenses to be paid were estimated to be as follows (in thousands):
| Years | Payments | |||
| 2011 | $ | 582 | ||
| 2012 | 660 | |||
| 2013 | 732 | |||
| 2014 | 803 | |||
| 2015 | 876 | |||
| 2016-2020 | 5,504 | |||
Total | $ | 9,157 | ||
Years |
| Payments |
| |
|
|
|
| |
2012 |
| $ | 618 |
|
2013 |
| 694 |
| |
2014 |
| 761 |
| |
2015 |
| 834 |
| |
2016 |
| 902 |
| |
2017-2021 |
| 5,719 |
| |
|
|
|
| |
Total |
| $ | 9,528 |
|
The Bank’s postretirement health benefit plan expenseaccrual for 20112012 is expected to be $1.1$1.5 million (2010(2011 was $1.1$1.0 million).
Note 18.16. Derivatives and Hedging Activities.
General— The FHLBNY may enter into interest-rate swaps, swaptions, and interest-rate cap and floor agreements to manage its exposure to changes in interest rates. The FHLBNY may also use callable swaps to potentially adjust the effective maturity, repricing frequency, or option characteristics of financial instruments to achieve risk management objectives. The FHLBNY, 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 is not a derivatives dealer and does not trade derivatives for short-term profit. The FHLBNY uses derivatives in three ways: by designating them as a fair value or cash flow hedge of an underlying financial instrument or a forecasted transaction that qualifies for hedge accounting treatment; by acting as an intermediary; or by designating the derivative as an asset-liability management hedge (i.e., an “economic hedge”). For example, the FHLBNY uses derivatives in its overall interest-rate risk management to adjust the interest-rate sensitivity of consolidated obligations to approximate more closely the interest-rate sensitivity of assets (both advances and investments), and/or to adjust the interest-rate sensitivity of advances, investments or mortgage loans to approximate more closely the interest-rate sensitivity of liabilities. In addition to using derivatives to manage mismatches of interest rates between assets and liabilities, the FHLBNY also uses derivatives: to manage embedded options in assets and liabilities; to hedge the market value of existing assets and liabilities and anticipated transactions; to hedge the duration risk of prepayable instruments; and to reduce funding costs where possible.
166
The FHLBNY will execute an interest rate swap to match the terms of an asset or liability that is elected under the Fair Value Option (“FVO”)FVO and the swap is also considered as an economic hedge to mitigate the volatility of the FVO designated asset or liability due to change in the full fair value of the designated asset or liability. The FHLBNY elected the FVO for certain consolidated obligation debt and executed interest rate swaps to offset the fair value changes of the bonds.
Hedging activities
Consolidated Obligations— The FHLBNY manages the risk arising from changing market prices and volatility of a consolidated obligation by matching the cash inflows on the derivative with the cash outflow on the consolidated obligation. While consolidated obligations are the joint and several obligations of the FHLBanks, one or more FHLBanks may individually serve as counterparties to derivative agreements associated with specific debt issues. For instance, in a typical transaction, fixed-rate consolidated obligations are issued for one or more FHLBanks, and each of those FHLBanks could simultaneously enter into a matching derivative in which the counterparty pays to the
Federal Home Loan Bank of New York
Notes to Financial Statements
FHLBank fixed cash flows designed to mirror in timing and amount the cash outflows the FHLBank pays on the consolidated obligations. When such transactions qualify for hedge accounting they are treated as fair value hedges under the accounting standards for derivatives and hedging. The FHLBNY has also elected the FVO for certain consolidated obligation bonds and discount notes and these were measured under the accounting standards for fair value measurements as economic hedges. To mitigate the volatility resulting from changes in fair values of bonds and notes designated under the FVO, the Bank has also executed interest rate swaps as economic hedges of bonds and notes.
The FHLBNY has issued variable-rate consolidated obligations denominated in currencies other thanbonds indexed to 1 month-LIBOR, the U.S. dollars.
Advances—With a putable fixed-rate advance borrowed by a member, the FHLBNY may purchase from the member a put option that enables the FHLBNY to effectively convert an advance from fixed-rate to floating-rate by exercising the put option and terminating the advance at par on the pre-determined put exercise dates. Typically, the FHLBNY will exercise the option in a rising interest rate environment. The FHLBNY may hedge a putable advance by entering into a cancelable interest rate swap in which the FHLBNY pays to the swap counterparty fixed-rate cash flows and receives variable-rate cash flows. This type of hedge is treated as a fair value hedge under the accounting standards for derivatives and hedging. The swap counterparty can cancel the swap on the put date, which would normally occur in a rising rate environment, and the FHLBNY can terminate the advance and extend additional credit to the member on new terms.
The Bank has not elected the FVO for any advances.
167
Firm Commitment Strategies— Mortgage delivery commitments are considered derivatives under the accounting standards for derivatives and hedging, and thehedging. The FHLBNY accounts for them as freestanding derivatives, recordingand records the fair values of mortgage loan delivery commitments on the balance sheet with an offset to current period earnings.In Other income as a Net realized and unrealized gains (losses) on derivatives and hedging activities. Fair values were de minimisnot significant for all periods reported.
The FHLBNY may also hedge a firm commitment for a forward starting advance through the use ofwith 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 movementfair value adjustments associated with the firm commitment will be added to the basis of the advance at the time the commitment is terminated and the advance is issued. The basis adjustment will then be amortized into interest income over the life of the advance.
If a hedged firm commitment no longer qualified as a fair value hedge, the hedge would be terminated and net gains and losses would be recognized in current period earnings. There were no material amounts of gains and losses recognized due to disqualification of firm commitment hedges in 2011, 2010 2009 and 2008.
Forward Settlements— There were no forward settled securities at December 31, 20102011 and 20092010 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 andinterest to be paid for the cost of funding. The swap is terminated upon issuance of the debt instrument, and amounts reported in AOCI are reclassified to earnings in the periods in which earnings are affected by the variability of the cash flows of the debt that was issued.
Intermediation— To meet the hedging needs of its members, the FHLBNY acts as an intermediary between the members and the other counterparties. This intermediation allows smaller members access to the derivatives market. The derivatives used in intermediary activities do not qualify for hedge accounting under the accounting standards for derivatives and hedging, and are separately marked-to-market through earnings. The net impact of the accounting for these derivatives does not significantly affect the operating results of the FHLBNY.
Derivative agreements in which the FHLBNY is an intermediary may arise when the FHLBNY: (1) enters into offsetting derivatives with members and other counterparties to meet the needs of its members, and (2) enters into derivatives to offset the economic effect of other derivative agreements that are no longer designated to either advances, investments, or consolidated obligations. The notional principal of interest rate swaps outstanding at December 31, 2011 and 2010 in which the FHLBNY was an intermediary was $550.0$275.0 million, and $320.0 million as of December 31, 2010 and 2009.with an offsetting purchase from unrelated counterparties. Fair values of the swaps sold to members net of the fair values of swaps purchased from derivative counterparties were not material at December 31, 20102011 and 2009.2010. Collateral with respect
Federal Home Loan Bank of New York
Notes to Financial Statements
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 December 31,In 2011 and 2010, and 2009, economic hedges comprised primarily of: (1) Short- and medium-term interest rate swaps that hedged the basis risk (Prime rate, Fed fund rate, and the 1-month LIBOR index) of variable-rate bonds issued by the FHLBNY. These swaps were considered freestanding and changes in the fair values of the swaps were recorded through income. The FHLBNY believes the operational cost of designating the basis hedges in a qualifying hedge would outweigh the benefits of applying hedge accounting. (2) Interest rate caps acquired in the second quarter of 2008 to hedge balance sheet risk, primarilyspecifically interest rate risk from certain capped floating-rate investment securities, were considered freestanding derivatives with fair value changes recorded through Other income (loss) as a Net realized and unrealized gain or loss on derivatives and hedging activities.securities. (3) Interest rate swaps hedging balance sheet risk. (4) Interest rate swaps that had previously qualified as hedges under the accounting standards for derivatives and hedging, but had been subsequently de-designated from hedge accounting as they were assessed as being not highly effective hedges. (5)(4) Interest rate swaps executed to offset the fair value changes of bonds designated under the FVO.
These swaps in economic hedges were considered freestanding and changes in the fair values of the swaps were recorded through income.
Recently adopted cash flow hedging strategy — Beginning in the first quarter of 2011, the Bank hedges the rolling issuance of discount notes as a cash flow hedge. In these hedges, the Bank enters into interest rate swap agreements with unrelated swap dealers and designates the swaps as hedges of the variable quarterly interest payments on the discount note borrowing program. In this program, the Bank issues a series of discount notes with 91-day terms over periods, generally about 10 years. The FHLBNY will continue issuing new 91-day discount notes over the terms of the swaps as each outstanding discount note matures. The interest rate swaps require a settlement every 91 days, and the variable rate, which is not a derivatives dealer and does not trade derivatives for short-term profit.
168
The FHLBNY uses collateral agreements to mitigate counterparty credit risk in derivatives. When the FHLBNY has more than one derivative transaction outstanding with a counterparty, and a legally enforceable master netting agreement exists with the counterparty, the exposure (less collateral held) represents the appropriate measure of credit risk. Substantially all derivative contracts are subject to master netting agreements or other right of offset arrangements. At December 31, 20102011 and 2009,2010, the Bank’s credit exposure, representing derivatives in a fair value net gain position, was approximately $22.0$25.1 million and $8.3$22.0 million after the recognition of any cash collateral held by the FHLBNY. The credit exposureexposures at December 31, 2011 and 2010 and 2009 included $6.1$6.8 million and $0.8$6.1 million in net interest receivable.
Derivative counterparties are also exposed to credit losses resulting from potential nonperformance risk of the FHLBNY with respect to derivative contracts. Derivative counterparties’ exposure to the FHLBNY is measured by derivatives in a fair value loss position from the FHLBNY’s perspective, which from the counterparties’ perspective is a gain. At December 31, 20102011 and 2009,2010, derivatives in a net unrealized loss position, which represented the counterparties’ exposure to the potential non-performance risk of the FHLBNY, were $954.9$486.2 million and $746.2$954.9 million after deducting $2.7$2.6 billion and $2.2$2.7 billion of cash collateral pledged by the FHLBNY at those dates to the exposed counterparties. TheHowever, the FHLBNY is also exposed to the risk of derivative counterparties defaulting on the terms of the derivative contracts and failing to return cash deposited with counterparties. If such an event were to occur, the FHLBNY would be forced to replace derivatives by executing similar derivative contracts with other counterparties. To the extent that the FHLBNY receives cash from the replacement trades that is less than the amount of cash deposited with the defaulting counterparty, the FHLBNY’s cash pledged as a deposit is exposed to credit risk.risk of the defaulting counterparty. Derivative counterparties holding the FHLBNY’s cash as pledged collateral were rated Single-ATriple-B or better at December 31, 2010,2011, and based on credit analyses and collateral requirements, the management of the FHLBNY does not anticipate any credit losses on its derivative agreements.
169
Federal Home Loan Bank of New York
Notes to Financial Statements
On the assumption that the FHLBNY will retain its status as a GSE, the FHLBNY estimates that a one notch downgrade of FHLBNY’s credit rating by S&P would have permitted swap dealers and counterparties to make additional collateral calls of up to $160.8 million at December 31, 2011. Additional collateral postings upon an assumed downgrade were estimated based on the factors in the individual collateral posting provisions of the CSA with each counterparty and the exposures as of December 31, 2011. The aggregate fair value of the FHLBNY’s derivative instruments that were in a net liability position at December 31, 2011 was approximately $486.2 million.
The following table summarizestables represented outstanding notional balances and estimated fair values of the derivatives outstanding at December 31, 20102011 and 20092010 (in thousands):
|
| December 31, 2011 |
| |||||||
|
| Notional Amount of |
| Derivative Assets |
| Derivative Liabilities |
| |||
|
|
|
|
|
|
|
| |||
Fair value of derivative instruments |
|
|
|
|
|
|
| |||
Derivatives designated in hedging relationships |
|
|
|
|
|
|
| |||
Interest rate swaps-fair value hedges |
| $ | 84,502,217 |
| $ | 1,124,954 |
| $ | 4,074,397 |
|
Interest rate swaps-cash flow hedges |
| 903,000 |
| — |
| 97,588 |
| |||
Total derivatives in hedging instruments |
| 85,405,217 |
| 1,124,954 |
| 4,171,985 |
| |||
|
|
|
|
|
|
|
| |||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
| |||
Interest rate swaps |
| 31,380,021 |
| 13,460 |
| 41,093 |
| |||
Interest rate caps or floors |
| 1,900,000 |
| 14,935 |
| 20 |
| |||
Mortgage delivery commitments |
| 31,242 |
| 270 |
| — |
| |||
Other (a) |
| 550,000 |
| 9,285 |
| 8,784 |
| |||
Total derivatives not designated as hedging instruments |
| 33,861,263 |
| 37,950 |
| 49,897 |
| |||
|
|
|
|
|
|
|
| |||
Total derivatives before netting and collateral adjustments |
| $ | 119,266,480 |
| 1,162,904 |
| 4,221,882 |
| ||
Netting adjustments |
|
|
| (1,096,873 | ) | (1,096,873 | ) | |||
Cash collateral and related accrued interest |
|
|
| (40,900 | ) | (2,638,843 | ) | |||
Total collateral and netting adjustments |
|
|
| (1,137,773 | ) | (3,735,716 | ) | |||
|
|
|
|
|
|
|
| |||
Total reported on the Statements of Condition |
|
|
| $ | 25,131 |
| $ | 486,166 |
| |
|
| December 31, 2010 |
| |||||||
|
| Notional Amount of |
| Derivative Assets |
| Derivative Liabilities |
| |||
|
|
|
|
|
|
|
| |||
Fair value of derivative instruments |
|
|
|
|
|
|
| |||
Derivatives designated in hedging relationships |
|
|
|
|
|
|
| |||
Interest rate swaps-fair value hedges |
| $ | 93,840,813 |
| $ | 944,807 |
| $ | 4,661,102 |
|
Interest rate swaps-cash flow hedges |
| — |
| — |
| — |
| |||
Total derivatives in hedging instruments |
| 93,840,813 |
| 944,807 |
| 4,661,102 |
| |||
|
|
|
|
|
|
|
| |||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
| |||
Interest rate swaps |
| 24,400,547 |
| 23,911 |
| 12,543 |
| |||
Interest rate caps or floors |
| 1,900,000 |
| 41,881 |
| 107 |
| |||
Mortgage delivery commitments |
| 29,993 |
| 9 |
| 523 |
| |||
Other (a) |
| 550,000 |
| 6,069 |
| 5,392 |
| |||
Total derivatives not designated as hedging instruments |
| 26,880,540 |
| 71,870 |
| 18,565 |
| |||
|
|
|
|
|
|
|
| |||
Total derivatives before netting and collateral adjustments |
| $ | 120,721,353 |
| 1,016,677 |
| 4,679,667 |
| ||
Netting adjustments |
|
|
| (994,667 | ) | (994,667 | ) | |||
Cash collateral and related accrued interest |
|
|
| — |
| (2,730,102 | ) | |||
Total collateral and netting adjustments |
|
|
| (994,667 | ) | (3,724,769 | ) | |||
|
|
|
|
|
|
|
| |||
Total reported on the Statements of Condition |
|
|
| $ | 22,010 |
| $ | 954,898 |
| |
| December 31, 2010 | ||||||||||||
| Notional Amount of | Derivative | Derivative | ||||||||||
| Derivatives | Assets | Liabilities | ||||||||||
Fair value of derivatives instruments | ||||||||||||
| Derivatives designated in hedging relationships | ||||||||||||
| Interest rate swaps-fair value hedges | $ | 93,840,813 | $ | 944,807 | $ | (4,661,102 | ) | |||||
| Total derivatives in hedging instruments | $ | 93,840,813 | $ | 944,807 | $ | (4,661,102 | ) | |||||
| Derivatives not designated as hedging instruments | ||||||||||||
| Interest rate swaps | $ | 24,400,547 | $ | 23,911 | $ | (12,543 | ) | |||||
| Interest rate caps or floors | 1,900,000 | 41,881 | (107 | ) | ||||||||
| Mortgage delivery commitments | 29,993 | 9 | (523 | ) | ||||||||
| Other* | 550,000 | 6,069 | (5,392 | ) | ||||||||
| Total derivatives not designated as hedging instruments | $ | 26,880,540 | $ | 71,870 | $ | (18,565 | ) | |||||
Total derivatives before netting and collateral adjustments | $ | 120,721,353 | $ | 1,016,677 | $ | (4,679,667 | ) | |||||
| Netting adjustments | $ | (994,667 | ) | $ | 994,667 | |||||||
| Cash collateral and related accrued interest | — | 2,730,102 | ||||||||||
| Total collateral and netting adjustments | $ | (994,667 | ) | $ | 3,724,769 | |||||||
Total reported on the Statements of Condition | $ | 22,010 | $ | (954,898 | ) | |||||||
| December 31, 2009 | ||||||||||||
| Notional Amount of | Derivative | Derivative | ||||||||||
| Derivatives | Assets | Liabilities | ||||||||||
Fair value of derivatives instruments | ||||||||||||
| Derivatives designated in hedging relationships | ||||||||||||
| Interest rate swaps-fair value hedges | $ | 98,776,447 | $ | 854,699 | $ | (3,974,207 | ) | |||||
| Total derivatives in hedging instruments | $ | 98,776,447 | $ | 854,699 | $ | (3,974,207 | ) | |||||
| Derivatives not designated as hedging instruments | ||||||||||||
| Interest rate swaps | $ | 33,144,963 | $ | 147,239 | $ | (73,450 | ) | |||||
| Interest rate caps or floors | 2,282,000 | 77,999 | (7,525 | ) | ||||||||
| Mortgage delivery commitments | 4,210 | — | (39 | ) | ||||||||
| Other* | 320,000 | 1,316 | (956 | ) | ||||||||
| Total derivatives not designated as hedging instruments | $ | 35,751,173 | $ | 226,554 | $ | (81,970 | ) | |||||
Total derivatives before netting and collateral adjustments | $ | 134,527,620 | $ | 1,081,253 | $ | (4,056,177 | ) | |||||
| Netting adjustments | $ | (1,072,973 | ) | $ | 1,072,973 | |||||||
| Cash collateral and related accrued interest | — | 2,237,028 | ||||||||||
| Total collateral and netting adjustments | $ | (1,072,973 | ) | $ | 3,310,001 | |||||||
Total reported on the Statements of Condition | $ | 8,280 | $ | (746,176 | ) | |||||||
(a) Other: Comprised of swaps intermediated for members. Notional amounts represent purchases from dealers and sales to members.
The categories—“Fair “Fair value”, “Mortgage delivery commitment”, and “Cash Flow” hedges—represent derivative transactions in hedging relationships. If any such hedges do not qualify for hedge accounting under the accounting standards for derivatives and hedging, they are classified as “Economic” hedges. Changes in fair values of economic hedges are recorded through the income statement without the offset of corresponding changes in the fair value of the hedged item. Changes in fair values of qualifying derivative transactions designated in fair value hedges are recorded through the income statement with the offset of corresponding changes in the fair values of the hedged items. The effective portion of changes in the fair values of derivatives designated in a qualifying cash flow hedge is recorded in Accumulated other comprehensive income (loss).
170
The FHLBNY carries all derivative instruments on the Statements of Condition at fair value as Derivative Assets and Derivative Liabilities. If derivatives meet the hedging criteria under hedge accounting rules, including effectiveness measures, changes in fair value of the associated hedged financial instrument attributable to the risk being hedged (benchmark interest-rate risk, which is LIBOR for the FHLBNY) may also be recorded so that some or all of the unrealized fair value gains or losses recognized on the derivatives are offset by corresponding unrealized gains or losses on the associated hedged financial assets and liabilities. The net differential between fair value changes of the derivatives and the hedged items representrepresents hedge ineffectiveness. Hedge ineffectiveness represents the amounts by which the changes in the fair value of the derivatives differ from the changes in the fair values of the hedged items or the variability in the cash flows of forecasted transactions. The net ineffectiveness
Federal Home Loan Bank of New York
Notes to Financial Statements
from hedges that qualify under hedge accounting rules are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income (loss) in the Statements of Income. If derivatives do not qualify for the hedging criteria under hedge accounting rules, but are executed as economic hedges of financial assets or liabilities under a FHLBNY-approved hedge strategy, only the fair value changes of the derivatives are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income (loss) in the Statements of Income.
When the FHLBNY elects to measure certain debt under the accounting designation for FVO, the Bank will typically execute a derivative as an economic hedge of the debt. Fair value changes of the derivatives are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income. Fair value changes of the debt designated under the FVO are also recorded in Other income (loss) as an unrealized (loss) or gain from Instruments held at fair value.
Components of hedging gains and losses from derivatives and hedging activities are summarized below (in thousands):
| Years ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Gain (Loss) | Gain (Loss) | Gain (Loss) | ||||||||||
Derivatives designated as hedging instruments | ||||||||||||
Interest rate swaps | ||||||||||||
| Advances | $ | 3,240 | $ | (4,542 | ) | $ | 31,838 | |||||
| Consolidated obligations-bonds | 9,144 | 25,647 | (43,530 | ) | ||||||||
| Consolidated obligations-discount notes | — | — | (333 | ) | ||||||||
| Net gain (loss) related to fair value hedge ineffectiveness | 12,384 | 21,105 | (12,025 | ) | ||||||||
| Net gain (loss) related to cash flow hedge ineffectiveness | — | — | (9 | ) | ||||||||
Derivatives not designated as hedging instruments | ||||||||||||
Economic hedges | ||||||||||||
Interest rate swaps | ||||||||||||
| Advances | (1,693 | ) | 4,491 | (20,833 | ) | |||||||
| Consolidated obligations-bonds | (32,316 | ) | 92,070 | (38,763 | ) | |||||||
| Consolidated obligations-discount notes | (4,332 | ) | (9,643 | ) | 13,895 | |||||||
| Member intermediation | 307 | (132 | ) | 462 | ||||||||
| Balance sheet-macro hedges swaps | 173 | 2,869 | 18,029 | |||||||||
| Fair Value-Total net losses and gains | (37,861 | ) | 89,655 | (27,210 | ) | |||||||
| Accrued interest-swaps | 51,468 | (1,136 | ) | (126,551 | ) | |||||||
| Accrued interest-intermediation | 138 | 85 | 18 | |||||||||
| Interest accrual | 51,606 | (1,051 | ) | (126,533 | ) | |||||||
| Total impact of swaps | 13,745 | 88,604 | (153,743 | ) | ||||||||
Caps and floors | ||||||||||||
| Advances | (437 | ) | (1,353 | ) | (2,050 | ) | ||||||
| Balance sheet | (29,709 | ) | 63,330 | (38,723 | ) | |||||||
| Fair Value-Total net losses and gains | (30,146 | ) | 61,977 | (40,773 | ) | |||||||
| Accrued interest-options | (2,598 | ) | (5,798 | ) | 101 | |||||||
| Total impact of caps and floors | (32,744 | ) | 56,179 | (40,672 | ) | |||||||
Mortgage delivery commitments | (24 | ) | (20 | ) | (3 | ) | ||||||
Swaps economically hedging instruments designated under FVO | ||||||||||||
| Consolidated obligations-bonds | 2,127 | (10,330 | ) | 7,698 | ||||||||
| Consolidated obligations-discount notes | 1,282 | — | — | |||||||||
| Fair value-Total FVO net gains and losses | 3,409 | (10,330 | ) | 7,698 | ||||||||
| Accrued interest on swaps | 29,986 | 9,162 | (505 | ) | ||||||||
| Total impact-Swaps hedging instruments under FVO | 33,395 | (1,168 | ) | 7,193 | ||||||||
| Net gain (loss) related to derivatives not designated as hedging instruments | 14,372 | 143,595 | (187,225 | ) | ||||||||
Net realized and unrealized gain (loss) on derivatives and hedging activities | $ | 26,756 | $ | 164,700 | $ | (199,259 | ) | |||||
|
| December 31, 2011 |
| ||||||||||
|
| Gain (Loss) on |
| Gain (Loss) on |
| Earnings Impact |
| Effect of Derivatives on |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps |
|
|
|
|
|
|
|
|
| ||||
Advances |
| $ | (839,798 | ) | $ | 879,662 |
| $ | 39,864 |
| $ | (1,616,983 | ) |
Consolidated obligations-bonds |
| 354,431 |
| (356,686 | ) | (2,255 | ) | 478,647 |
| ||||
Consolidated obligations-discount notes |
| (67 | ) | 1,467 |
| 1,400 |
| 1,088 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net gain (loss) related to fair value hedges |
| (485,434 | ) | 524,443 |
| 39,009 |
| (1,137,248 | ) | ||||
Cash flow hedges |
| (119 | ) | — |
| (119 | ) | (12,443 | ) | ||||
Advance modification-amortization of basis (a) |
| — |
| 66,848 |
| 66,848 |
| (66,848 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps |
|
|
|
|
|
|
|
|
| ||||
Advances |
| 358 |
| — |
| 358 |
| — |
| ||||
Consolidated obligations-bonds |
| (21,706 | ) | — |
| (21,706 | ) | — |
| ||||
Consolidated obligations-discount notes |
| 6 |
| — |
| 6 |
| — |
| ||||
Member intermediation |
| (176 | ) | — |
| (176 | ) | — |
| ||||
Balance sheet-macro hedges swaps |
| — |
| — |
| — |
| — |
| ||||
Accrued interest-swaps (b) |
| 7,208 |
| — |
| 7,208 |
| — |
| ||||
Accrued interest-intermediation (b) |
| 187 |
| — |
| 187 |
| — |
| ||||
Caps and floors |
|
|
|
|
|
|
|
|
| ||||
Advances |
| (75 | ) | — |
| (75 | ) | — |
| ||||
Balance sheet |
| (26,858 | ) | — |
| (26,858 | ) | — |
| ||||
Accrued interest-options |
| — |
| — |
| — |
| — |
| ||||
Mortgage delivery commitments |
| 3,060 |
| — |
| 3,060 |
| — |
| ||||
Swaps economically hedging instruments designated under FVO |
|
|
|
|
|
|
|
|
| ||||
Consolidated obligations-bonds |
| (6,573 | ) | — |
| (6,573 | ) | — |
| ||||
Consolidated obligations-discount notes |
| (1,850 | ) | — |
| (1,850 | ) | — |
| ||||
Accrued interest on swaps (b) |
| 24,220 |
| — |
| 24,220 |
| — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net gain (loss) related to derivatives not designated as hedging instruments |
| (22,199 | ) | — |
| (22,199 | ) | — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
|
| $ | (507,752 | ) | $ | 591,291 |
| $ | 83,539 |
| $ | (1,216,539 | ) |
Federal Home Loan Bank of New York
Notes to Financial Statements
|
| December 31, 2010 |
| ||||||||||
|
| Gain (Loss) on |
| Gain (Loss) on |
| Earnings Impact |
| Effect of Derivatives on |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps |
|
|
|
|
|
|
|
|
| ||||
Advances |
| $ | (701,008 | ) | $ | 702,474 |
| $ | 1,466 |
| $ | (1,999,711 | ) |
Consolidated obligations-bonds |
| 61,202 |
| (52,058 | ) | 9,144 |
| 627,004 |
| ||||
Consolidated obligations-discount notes |
| — |
| — |
| — |
| — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net gain (loss) related to fair value hedges |
| (639,806 | ) | 650,416 |
| 10,610 |
| (1,372,707 | ) | ||||
Cash flow hedges |
| — |
| — |
| — |
| — |
| ||||
Advance modification-amortization of basis (a) |
| — |
| 1,774 |
| 1,774 |
| (1,774 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps |
|
|
|
|
|
|
|
|
| ||||
Advances |
| (1,693 | ) | — |
| (1,693 | ) | — |
| ||||
Consolidated obligations-bonds |
| (32,316 | ) | — |
| (32,316 | ) | — |
| ||||
Consolidated obligations-discount notes |
| (4,332 | ) | — |
| (4,332 | ) | — |
| ||||
Member intermediation |
| 307 |
| — |
| 307 |
| — |
| ||||
Balance sheet-macro hedges swaps |
| 173 |
| — |
| 173 |
| — |
| ||||
Accrued interest-swaps (b) |
| 51,468 |
| — |
| 51,468 |
| — |
| ||||
Accrued interest-intermediation (b) |
| 138 |
| — |
| 138 |
| — |
| ||||
Caps and floors |
|
|
|
|
|
|
|
|
| ||||
Advances |
| (437 | ) | — |
| (437 | ) | — |
| ||||
Balance sheet |
| (29,709 | ) | — |
| (29,709 | ) | — |
| ||||
Accrued interest-options (b) |
| (2,598 | ) | — |
| (2,598 | ) | — |
| ||||
Mortgage delivery commitments |
| (24 | ) | — |
| (24 | ) | — |
| ||||
Swaps economically hedging instruments designated under FVO |
|
|
|
|
|
|
|
|
| ||||
Consolidated obligations-bonds |
| 2,127 |
| — |
| 2,127 |
| — |
| ||||
Consolidated obligations-discount notes |
| 1,282 |
| — |
| 1,282 |
| — |
| ||||
Accrued interest on swaps (b) |
| 29,986 |
| — |
| 29,986 |
| — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net gain (loss) related to derivatives not designated as hedging instruments |
| 14,372 |
| — |
| 14,372 |
| — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
|
| $ | (625,434 | ) | $ | 652,190 |
| $ | 26,756 |
| $ | (1,374,481 | ) |
|
| December 31, 2009 |
| ||||||||||
|
| Gain (Loss) on |
| Gain (Loss) on |
| Earnings Impact |
| Effect of Derivatives on |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps |
|
|
|
|
|
|
|
|
| ||||
Advances |
| $ | 2,147,467 |
| $ | (2,152,437 | ) | $ | (4,970 | ) | $ | (1,792,804 | ) |
Consolidated obligations-bonds |
| (655,908 | ) | 681,555 |
| 25,647 |
| 559,647 |
| ||||
Consolidated obligations-discount notes |
| — |
| — |
| — |
| 474 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net gain (loss) related to fair value hedges |
| 1,491,559 |
| (1,470,882 | ) | 20,677 |
| (1,232,683 | ) | ||||
Cash flow hedges |
| — |
| — |
| — |
| — |
| ||||
Advance modification-amortization of basis (a) |
| — |
| 428 |
| 428 |
| (428 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps |
|
|
|
|
|
|
|
|
| ||||
Advances |
| 4,491 |
| — |
| 4,491 |
| — |
| ||||
Consolidated obligations-bonds |
| 92,070 |
| — |
| 92,070 |
| — |
| ||||
Consolidated obligations-discount notes |
| (9,643 | ) | — |
| (9,643 | ) | — |
| ||||
Member intermediation |
| (132 | ) | — |
| (132 | ) | — |
| ||||
Balance sheet-macro hedges swaps |
| 2,869 |
| — |
| 2,869 |
| — |
| ||||
Accrued interest-swaps (b) |
| (1,136 | ) | — |
| (1,136 | ) | — |
| ||||
Accrued interest-intermediation (b) |
| 85 |
| — |
| 85 |
| — |
| ||||
Caps and floors |
|
|
|
|
|
|
|
|
| ||||
Advances |
| (1,353 | ) | — |
| (1,353 | ) | — |
| ||||
Balance sheet |
| 63,330 |
| — |
| 63,330 |
| — |
| ||||
Accrued interest-options (b) |
| (5,798 | ) | — |
| (5,798 | ) | — |
| ||||
Mortgage delivery commitments |
| (20 | ) | — |
| (20 | ) | — |
| ||||
Swaps economically hedging instruments designated under FVO |
|
|
|
|
|
|
|
|
| ||||
Consolidated obligations-bonds |
| (10,330 | ) | — |
| (10,330 | ) | — |
| ||||
Consolidated obligations-discount notes |
| — |
| — |
| — |
| — |
| ||||
Accrued interest on swaps (b) |
| 9,162 |
| — |
| 9,162 |
| — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net gain (loss) related to derivatives not designated as hedging instruments |
| 143,595 |
| — |
| 143,595 |
| — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
|
| $ | 1,635,154 |
| $ | (1,470,454 | ) | $ | 164,700 |
| $ | (1,233,111 | ) |
(a)In 2011, the Bank modified $4.6 billion of hedged fixed-rate advances and associated interest rate swaps. The fair value basis of the swaps was computed on the modification dates to be amortized to zero over the life of the modified swaps. In 2011, amortization of $66.8 million was recorded as a credit to derivatives and hedging activities in Other income. The fair values of the swaps had been in unrealized liability positions at the modification dates. Fair value basis of modified advances were in unrealized gain position and were amortized and recorded as a reduction of Interest income from advances (as a yield adjustment). Taken together, the amortization of the modified swaps and the modified advances were offsetting adjustments. The comparable amortizations in 2010 and 2009 were not significant. In 2010, par amounts of $460.0 million of advances were modified. No loans were modified in 2009.
(b)Represents interest expense and income generated from hedge qualifying interest-rate swaps that were recorded with interest income and expense of the hedged — bonds, discount notes and advances.
Federal Home Loan Bank of New York
Notes to Financial Statements
Cash Flow hedges
The effect of interest rate swaps in cash flow hedging relationships were as follows (in thousands):
|
| December 31, 2011 |
| |||||||||
|
| AOCI |
| |||||||||
|
| Gains/(Losses) |
| |||||||||
|
| Recognized in |
| Location: |
| Amount |
| Ineffectiveness |
| |||
|
|
|
|
|
|
|
|
|
| |||
Consolidated obligations-bonds (a) |
| $ | (2,292 | ) | Interest Expense |
| $ | 3,091 |
| $ | (119 | ) |
Consolidated obligations-discount notes (b) |
| (97,588 | ) | Interest Expense |
| — |
| — |
| |||
|
| $ | (99,880 | ) |
|
| $ | 3,091 |
| $ | (119 | ) |
|
| December 31, 2010 |
| |||||||||
|
| AOCI |
| |||||||||
|
| Gains/(Losses) |
| |||||||||
|
| Recognized in |
| Location: |
| Amount |
| Ineffectiveness |
| |||
|
|
|
|
|
|
|
|
|
| |||
Consolidated obligations-bonds (a) |
| $ | (249 | ) | Interest Expense |
| $ | 7,736 |
| $ | — |
|
|
| $ | (249 | ) |
|
| $ | 7,736 |
| $ | — |
|
|
| December 31, 2009 |
| |||||||||
|
| AOCI |
| |||||||||
|
| Gains/(Losses) |
| |||||||||
|
| Recognized in |
| Location: |
| Amount |
| Ineffectiveness |
| |||
|
|
|
|
|
|
|
|
|
| |||
Consolidated obligations-bonds (a) |
| $ | — |
| Interest Expense |
| $ | 7,508 |
| $ | — |
|
|
| $ | — |
|
|
| $ | 7,508 |
| $ | — |
|
(a) | Hedges of anticipated issuance of debt - The maximum period of time that the Bank typically hedges its exposure to the variability in future cash flows for forecasted transactions is between three and nine months. There were no open contracts at December 31, 2011 and December 31, 2010. The amounts in AOCI from terminated and open cash flow hedges representing net unrecognized losses were $14.4 million and $15.2 million at December 31, 2011 and December 31, 2010. At December 31, 2011, it is expected that over the next 12 months about $3.7 million of net losses recorded in AOCI will be recognized as a yield adjustment to consolidated bond interest expense and a charge to earnings. |
(b) | Hedges of discount note in rolling issuances - $903.0 million of notional amounts of the interest rate swaps were outstanding under this program, and $97.6 million in unrealized fair values losses were recorded in AOCI at December 31, 2011. The program commenced in the first quarter of 2011. The maximum period of time that the Bank typically hedges its exposure to the variability in future cash flows under this strategy is generally about 10 years. |
(c) | Effective portion. |
(d) | Represents basis adjustments from cash flow hedging transactions recorded in AOCI. |
There were no material amounts in 2010, 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 December 31, 2010 or 2009.
| December 31, 2010 | ||||||||||||||
| OCI | ||||||||||||||
| Gains/(Losses) | ||||||||||||||
| Location: | Amount | Ineffectiveness | ||||||||||||
| Recorded in | Reclassified to | Reclassified to | Recognized in | |||||||||||
| OCI 1, 2 | Earnings1 | Earnings1 | Earnings | |||||||||||
The effect of cash flow hedge related to Interest rate swaps | ||||||||||||||
| Advances | $ | — | Interest Income | $ | — | $ | — | |||||||
| Consolidated obligations-bonds | (249 | ) | Interest Expense | 7,736 | — | |||||||||
Total | $ | (249 | ) | $ | 7,736 | $ | — | |||||||
| December 31, 2009 | ||||||||||||||
| OCI | ||||||||||||||
| Gains/(Losses) | ||||||||||||||
| Location: | Amount | Ineffectiveness | ||||||||||||
| Recorded in | Reclassified to | Reclassified to | Recognized in | |||||||||||
| OCI 1, 2 | Earnings1 | Earnings1 | Earnings | |||||||||||
The effect of cash flow hedge related to Interest rate swaps | ||||||||||||||
| Advances | $ | — | Interest Income | $ | — | $ | — | |||||||
| Consolidated obligations-bonds | — | Interest Expense | 7,508 | — | ||||||||||
Total | $ | — | $ | 7,508 | $ | — | ||||||||
| December 31, 2008 | ||||||||||||||
| OCI | ||||||||||||||
| Gains/(Losses) | ||||||||||||||
| Location: | Amount | Ineffectiveness | ||||||||||||
| Recorded in | Reclassified to | Reclassified to | Recognized in | |||||||||||
| OCI 1, 2 | Earnings1 | Earnings1 | Earnings | |||||||||||
The effect of cash flow hedge related to Interest rate swaps | ||||||||||||||
| Advances | $ | — | Interest Income | $ | — | $ | — | |||||||
| Consolidated obligations-bonds | (6,109 | ) | Interest Expense | 6,124 | 9 | |||||||||
Total | $ | (6,109 | ) | $ | 6,124 | $ | 9 | |||||||
Federal Home Loan Bank of New York
Note 19. 17.Fair Values of Financial Instruments.
Items Measured at Fair Value on a Recurring Basis
The following table presents for each hierarchy level (see note below), the FHLBNY’s assets and liabilities that were measured at fair value on its Statements of Condition at December 31, 2010 and 2009 (in thousands):
|
| December 31, 2011 |
| |||||||||||||
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Netting |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
| |||||
GSE/U.S. agency issued MBS |
| $ | 3,133,469 |
| $ | — |
| $ | 3,133,469 |
| $ | — |
| $ | — |
|
Equity and bond funds |
| 9,167 |
| 9,167 |
| — |
| — |
| — |
| |||||
Derivative assets(a) |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest-rate derivatives |
| 24,861 |
| — |
| 1,162,634 |
| — |
| (1,137,773 | ) | |||||
Mortgage delivery commitments |
| 270 |
| — |
| 270 |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total recurring fair value measurement - assets |
| $ | 3,167,767 |
| $ | 9,167 |
| $ | 4,296,373 |
| $ | — |
| $ | (1,137,773 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Consolidated obligations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Discount notes (to the extent FVO is elected) |
| $ | (4,920,855 | ) | $ | — |
| $ | (4,920,855 | ) | $ | — |
| $ | — |
|
Bonds (to the extent FVO is elected) (b) |
| (12,542,603 | ) | — |
| (12,542,603 | ) | — |
| — |
| |||||
Derivative liabilities(a) |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest-rate derivatives |
| (486,166 | ) | — |
| (4,221,882 | ) | — |
| 3,735,716 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total recurring fair value measurement - liabilities |
| $ | (17,949,624 | ) | $ | — |
| $ | (21,685,340 | ) | $ | — |
| $ | 3,735,716 |
|
|
| December 31, 2010 |
| |||||||||||||
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Netting |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
| |||||
GSE/U.S. agency issued MBS |
| $ | 3,980,135 |
| $ | — |
| $ | 3,980,135 |
| $ | — |
| $ | — |
|
Equity and bond funds |
| 9,947 |
| 9,947 |
| — |
| — |
| — |
| |||||
Derivative assets(a) |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest-rate derivatives |
| 22,001 |
| — |
| 1,016,668 |
| — |
| (994,667 | ) | |||||
Mortgage delivery commitments |
| 9 |
| — |
| 9 |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total recurring fair value measurement - assets |
| $ | 4,012,092 |
| $ | 9,947 |
| $ | 4,996,812 |
| $ | — |
| $ | (994,667 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Consolidated obligations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Discount notes (to the extent FVO is elected) |
| $ | (956,338 | ) | $ | — |
| $ | (956,338 | ) | $ | — |
| $ | — |
|
Bonds (to the extent FVO is elected) (b) |
| (14,281,463 | ) | — |
| (14,281,463 | ) | — |
| — |
| |||||
Derivative liabilities(a) |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest-rate derivatives |
| (954,375 | ) | — |
| (4,679,144 | ) | — |
| 3,724,769 |
| |||||
Mortgage delivery commitments |
| (523 | ) | — |
| (523 | ) | — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total recurring fair value measurement - liabilities |
| $ | (16,192,699 | ) | $ | — |
| $ | (19,917,468 | ) | $ | — |
| $ | 3,724,769 |
|
| December 31, 2010 | ||||||||||||||||||||
| Netting | ||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Adjustments | ||||||||||||||||
Assets | ||||||||||||||||||||
| Available-for-sale securities | ||||||||||||||||||||
| GSE/U.S. agency issued MBS | $ | 3,980,135 | $ | — | $ | 3,980,135 | $ | — | $ | — | ||||||||||
| Equity and bond funds | 9,947 | — | 9,947 | — | — | |||||||||||||||
Derivative assets(a) | ||||||||||||||||||||
| Interest-rate derivatives | 22,001 | — | 1,016,668 | — | (994,667 | ) | ||||||||||||||
| Mortgage delivery commitments | 9 | — | 9 | — | — | |||||||||||||||
Total assets at fair value | $ | 4,012,092 | $ | — | $ | 5,006,759 | $ | — | $ | (994,667 | ) | |||||||||
Liabilities | ||||||||||||||||||||
| Consolidated obligations: | ||||||||||||||||||||
| Discount notes (to the extent FVO is elected) | $ | (956,338 | ) | $ | — | $ | (956,338 | ) | $ | — | $ | — | ||||||||
Bonds (to the extent FVO is elected)(b) | (14,281,463 | ) | — | (14,281,463 | ) | — | — | |||||||||||||
Derivative liabilities(a) | ||||||||||||||||||||
| Interest-rate derivatives | (954,375 | ) | — | (4,679,144 | ) | — | 3,724,769 | |||||||||||||
| Mortgage delivery commitments | (523 | ) | — | (523 | ) | — | — | |||||||||||||
Total liabilities at fair value | $ | (16,192,699 | ) | $ | — | $ | (19,917,468 | ) | $ | — | $ | 3,724,769 | ||||||||
| �� | ||||||||||||||||||||
| December 31, 2009 | ||||||||||||||||||||
| Netting | ||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Adjustments | ||||||||||||||||
Assets | ||||||||||||||||||||
| Available-for-sale securities | ||||||||||||||||||||
| GSE/U.S. agency issued MBS | $ | 2,240,564 | $ | — | $ | 2,240,564 | $ | — | $ | — | ||||||||||
| Equity and bond funds | 12,589 | — | 12,589 | — | — | |||||||||||||||
Derivative assets(a) | ||||||||||||||||||||
| Interest-rate derivatives | 8,280 | — | 1,081,253 | — | (1,072,973 | ) | ||||||||||||||
| Mortgage delivery commitments | — | — | — | — | — | |||||||||||||||
Total assets at fair value | $ | 2,261,433 | $ | — | $ | 3,334,406 | $ | — | $ | (1,072,973 | ) | |||||||||
Liabilities | ||||||||||||||||||||
| Consolidated obligations: | ||||||||||||||||||||
| Discount notes (to the extent FVO is elected) | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Bonds (to the extent FVO is elected)(b) | (6,035,741 | ) | — | (6,035,741 | ) | — | — | |||||||||||||
Derivative liabilities(a) | ||||||||||||||||||||
| Interest-rate derivatives | (746,137 | ) | — | (4,056,138 | ) | — | 3,310,001 | |||||||||||||
| Mortgage delivery commitments | (39 | ) | — | (39 | ) | — | — | |||||||||||||
Total liabilities at fair value | $ | (6,781,917 | ) | $ | — | $ | (10,091,918 | ) | $ | — | $ | 3,310,001 | ||||||||
Level 1 — Quoted prices in active markets for identical assets.
Level 2 — Significant other observable inputs.
Level 3 — Significant unobservable inputs.
(a)Based on analysis of the nature of the risk, the presentation of derivatives as a single class is appropriate.
(b)Based on analysis of the nature of risks of consolidated obligation bonds measured at fair value, the FHLBNY has determined that presenting the bonds as a single class is appropriate.
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities would be measured at fair value on a nonrecurring basis. For the FHLBNY, such items may include mortgage loans in foreclosure, or mortgage loans and held-to-maturity securities written down to fair value and real estate owned. At December 31, 2011 and 2010, the Bank measured and recorded the fair values of HTM securities deemed to be OTTI on a nonrecurring basis; that is, they were not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example,(e.g. when there is evidence of other-than-temporaryOTTI). For held-to-maturity securities that were previously credit impaired but no additional credit impairment — OTTI) in accordance withwere deemed necessary, the guidance on recognition and presentation of other-than-temporary impairment. The held-to-maturity OTTI securities were recorded at their carrying values and not re-adjusted to their fair values of $15.8 million and $42.9 million at December 31, 2010 and December 31, 2009. The nonrecurring measurement basis related to certain private-label held-to-maturity mortgage-backed securities that were determined to be OTTI. For more information, see Note 5 — Held-to-Maturity Securities.
Federal Home Loan Bank of New York
The following tables summarizetable summarizes the fair values of MBSPLMBS for which a non-recurring change in fair value was recorded (in thousands):
| December 31, 2010 | ||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Held-to-maturity securities | ||||||||||||||||
| Private-label residential mortgage-backed securities | $ | 15,827 | $ | — | $ | — | $ | 15,827 | ||||||||
Total | $ | 15,827 | $ | — | $ | — | $ | 15,827 | ||||||||
| December 31, 2009 | ||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Held-to-maturity securities | ||||||||||||||||
| Home equity loans | $ | 42,922 | $ | — | $ | — | $ | 42,922 | ||||||||
Total | $ | 42,922 | $ | — | $ | — | $ | 42,922 | ||||||||
|
| December 31, 2011 |
| ||||||||||
|
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||
Held-to-maturity securities |
|
|
|
|
|
|
|
|
| ||||
Prime residential MBS |
| $ | 14,609 |
| $ | — |
| $ | — |
| $ | 14,609 |
|
Home equity loan investments |
| 5,669 |
| — |
| — |
| 5,669 |
| ||||
Total non-recurring assets at fair value |
| $ | 20,278 |
| $ | — |
| $ | — |
| $ | 20,278 |
|
|
| December 31, 2010 |
| ||||||||||
|
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||
Held-to-maturity securities |
|
|
|
|
|
|
|
|
| ||||
Prime residential MBS |
| $ | 15,827 |
| $ | — |
| $ | — |
| $ | 15,827 |
|
Total non-recurring assets at fair value |
| $ | 15,827 |
| $ | — |
| $ | — |
| $ | 15,827 |
|
Estimated fair values — Summary Tables
The carrying value and estimated fair values of the FHLBNY’s financial instruments as of December 31, 2011 and 2010 were as follows (in thousands):
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Carrying | Estimated | Carrying | Estimated | |||||||||||||
| Financial Instruments | Value | Fair Value | Value | Fair Value | ||||||||||||
| Assets | ||||||||||||||||
| Cash and due from banks | $ | 660,873 | $ | 660,873 | $ | 2,189,252 | $ | 2,189,252 | ||||||||
| Federal funds sold | 4,988,000 | 4,987,976 | 3,450,000 | 3,449,997 | ||||||||||||
| Available-for-sale securities | 3,990,082 | 3,990,082 | 2,253,153 | 2,253,153 | ||||||||||||
| Held-to-maturity securities | ||||||||||||||||
| Long-term securities | 7,761,192 | 7,898,300 | 10,519,282 | 10,669,252 | ||||||||||||
| Advances | 81,200,336 | 81,292,598 | 94,348,751 | 94,624,708 | ||||||||||||
| Mortgage loans held-for-portfolio, net | 1,265,804 | 1,328,787 | 1,317,547 | 1,366,538 | ||||||||||||
| Accrued interest receivable | 287,335 | 287,335 | 340,510 | 340,510 | ||||||||||||
| Derivative assets | 22,010 | 22,010 | 8,280 | 8,280 | ||||||||||||
| Other financial assets | 3,981 | 3,981 | 3,412 | 3,412 | ||||||||||||
| Liabilities | ||||||||||||||||
| Deposits | 2,454,480 | 2,454,488 | 2,630,511 | 2,630,513 | ||||||||||||
| Consolidated obligations: | ||||||||||||||||
| Bonds | 71,742,627 | 71,926,039 | 74,007,978 | 74,279,737 | ||||||||||||
| Discount notes | 19,391,452 | 19,391,743 | 30,827,639 | 30,831,201 | ||||||||||||
| Mandatorily redeemable capital stock | 63,219 | 63,219 | 126,294 | 126,294 | ||||||||||||
| Accrued interest payable | 197,266 | 197,266 | 277,788 | 277,788 | ||||||||||||
| Derivative liabilities | 954,898 | 954,898 | 746,176 | 746,176 | ||||||||||||
| Other financial liabilities | 58,818 | 58,818 | 38,832 | 38,832 | ||||||||||||
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||||
|
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| ||||
Financial Instruments |
| Value |
| Fair Value |
| Value |
| Fair Value |
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Cash and due from banks |
| $ | 10,877,790 |
| $ | 10,877,790 |
| $ | 660,873 |
| $ | 660,873 |
|
Federal funds sold |
| 970,000 |
| 971,233 |
| 4,988,000 |
| 4,987,976 |
| ||||
Available-for-sale securities |
| 3,142,636 |
| 3,142,636 |
| 3,990,082 |
| 3,990,082 |
| ||||
Held-to-maturity securities |
|
|
|
|
|
|
|
|
| ||||
Long-term securities |
| 10,123,805 |
| 10,348,374 |
| 7,761,192 |
| 7,898,300 |
| ||||
Advances |
| 70,863,777 |
| 71,025,990 |
| 81,200,336 |
| 81,292,598 |
| ||||
Mortgage loans held-for-portfolio, net |
| 1,408,460 |
| 1,490,639 |
| 1,265,804 |
| 1,328,787 |
| ||||
Accrued interest receivable |
| 223,848 |
| 223,848 |
| 287,335 |
| 287,335 |
| ||||
Derivative assets |
| 25,131 |
| 25,131 |
| 22,010 |
| 22,010 |
| ||||
Other financial assets |
| 1,544 |
| 1,544 |
| 3,981 |
| 3,981 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Liabilities |
|
|
|
|
|
|
|
|
| ||||
Deposits |
| 2,101,048 |
| 2,101,056 |
| 2,454,480 |
| 2,454,488 |
| ||||
Consolidated obligations |
|
|
|
|
|
|
|
|
| ||||
Bonds |
| 67,440,522 |
| 67,697,074 |
| 71,742,627 |
| 71,926,039 |
| ||||
Discount notes |
| 22,123,325 |
| 22,126,093 |
| 19,391,452 |
| 19,391,743 |
| ||||
Mandatorily redeemable capital stock |
| 54,827 |
| 54,827 |
| 63,219 |
| 63,219 |
| ||||
Accrued interest payable |
| 146,247 |
| 146,247 |
| 197,266 |
| 197,266 |
| ||||
Derivative liabilities |
| 486,166 |
| 486,166 |
| 954,898 |
| 954,898 |
| ||||
Other financial liabilities |
| 79,749 |
| 79,749 |
| 58,818 |
| 58,818 |
| ||||
174
The following table summarizes the activity related to consolidated obligation bonds and discount notes for which the Bank elected the Fair Value Optionfair value option (in thousands):
|
| Years ended December 31, |
| |||||||||||||
|
| 2011 |
| 2010 |
| 2009 |
| 2011 |
| 2010 |
| |||||
|
| Bonds |
| Discount notes* |
| |||||||||||
Balance at beginning of year |
| $ | (14,281,463 | ) | $ | (6,035,741 | ) | $ | (998,942 | ) | $ | (956,338 | ) | $ | — |
|
New transactions elected for fair value option |
| (26,395,000 | ) | (25,471,000 | ) | (10,100,000 | ) | (4,917,172 | ) | (1,851,991 | ) | |||||
Maturities and terminations |
| 28,141,000 |
| 17,235,000 |
| 5,043,000 |
| 953,202 |
| 898,788 |
| |||||
Net (losses) gains on financial instruments held under fair value option |
| (10,376 | ) | (2,556 | ) | 15,523 |
| (118 | ) | (787 | ) | |||||
Change in accrued interest/unaccreted balance |
| 3,236 |
| (7,166 | ) | 4,678 |
| (429 | ) | (2,348 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at end of year |
| $ | (12,542,603 | ) | $ | (14,281,463 | ) | $ | (6,035,741 | ) | $ | (4,920,855 | ) | $ | (956,338 | ) |
*Note: Discount notes were not designated under FVO at December 31, 2009
| Years ended December 31, | ||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | |||||||||||||
| Bonds | Bonds | Bonds | Discount Notes* | |||||||||||||
| Balance, beginning of the period | $ | (6,035,741 | ) | $ | (998,942 | ) | $ | — | $ | — | ||||||
| New transactions elected for fair value option | (25,471,000 | ) | (10,100,000 | ) | (1,014,000 | ) | (1,851,991 | ) | ||||||||
| Maturities and terminations | 17,235,000 | 5,043,000 | 31,000 | 898,788 | ||||||||||||
| Changes in fair value | (2,556 | ) | 15,523 | (8,325 | ) | (787 | ) | |||||||||
| Changes in accrued interest/unaccreted balance | (7,166 | ) | 4,678 | (7,617 | ) | (2,348 | ) | |||||||||
| Balance, end of the period | $ | (14,281,463 | ) | $ | (6,035,741 | ) | $ | (998,942 | ) | $ | (956,338 | ) | ||||
Federal Home Loan Bank of New York
Notes to Financial Statements
The following table presents the change in fair value included in the Statements of Income for the consolidated obligation bonds and discount notes designated in accordance withobligations for which the accounting standards on the Fair Value Option for financial assets and liabilitiesfair value option has been elected (in thousands):
| December 31, 2010 | ||||||||||||
| Interest | Total Change in | |||||||||||
| Expense on | Net Gain(Loss) | Fair Value Included | ||||||||||
| Consolidated | Due to Changes in | in Current Period | ||||||||||
| Obligations | Fair Value | Earnings | ||||||||||
Consolidated obligations-bonds | $ | (40,983 | ) | $ | (2,556 | ) | $ | (43,539 | ) | |||
Consolidated obligations-discount notes | (2,348 | ) | (787 | ) | (3,135 | ) | ||||||
| $ | (43,331 | ) | $ | (3,343 | ) | $ | (46,674 | ) | ||||
| December 31, 2009 | ||||||||||||
| Interest | Total Change in | |||||||||||
| Expense on | Net Gain(Loss) | Fair Value Included | ||||||||||
| Consolidated | Due to Changes in | in Current Period | ||||||||||
| Obligations | Fair Value | Earnings | ||||||||||
Consolidated obligations-bonds | $ | (10,869 | ) | $ | 15,523 | $ | 4,654 | |||||
Consolidated obligations-discount notes | — | — | — | |||||||||
| $ | (10,869 | ) | $ | 15,523 | $ | 4,654 | ||||||
| December 31, 2008 | ||||||||||||
| Interest | Total Change in | |||||||||||
| Expense on | Net Gain(Loss) | Fair Value Included | ||||||||||
| Consolidated | Due to Changes in | in Current Period | ||||||||||
| Obligations | Fair Value | Earnings | ||||||||||
Consolidated obligations-bonds | $ | (7,835 | ) | $ | (8,325 | ) | $ | (16,160 | ) | |||
Consolidated obligations-discount notes | — | — | — | |||||||||
| $ | (7,835 | ) | $ | (8,325 | ) | $ | (16,160 | ) | ||||
|
| December 31, 2011 |
| |||||||
|
| Interest Expense |
| Net Gain(Loss) Due to |
| Total Change in Fair |
| |||
|
|
|
|
|
|
|
| |||
Consolidated obligations-bonds |
| $ | (37,522 | ) | $ | (10,376 | ) | $ | (47,898 | ) |
Consolidated obligations-discount notes |
| (4,308 | ) | (118 | ) | (4,426 | ) | |||
|
|
|
|
|
|
|
| |||
|
| $ | (41,830 | ) | $ | (10,494 | ) | $ | (52,324 | ) |
|
| December 31, 2010 |
| |||||||
|
| Interest Expense |
| Net Gain(Loss) Due to |
| Total Change in Fair |
| |||
|
|
|
|
|
|
|
| |||
Consolidated obligations-bonds |
| $ | (40,983 | ) | $ | (2,556 | ) | $ | (43,539 | ) |
Consolidated obligations-discount notes |
| (2,348 | ) | (787 | ) | (3,135 | ) | |||
|
|
|
|
|
|
|
| |||
|
| $ | (43,331 | ) | $ | (3,343 | ) | $ | (46,674 | ) |
|
| December 31, 2009 |
| |||||||
|
| Interest Expense |
| Net Gain(Loss) Due to |
| Total Change in Fair |
| |||
|
|
|
|
|
|
|
| |||
Consolidated obligations-bonds |
| $ | (10,869 | ) | $ | 15,523 |
| $ | 4,654 |
|
|
|
|
|
|
|
|
| |||
|
| $ | (10,869 | ) | $ | 15,523 |
| $ | 4,654 |
|
175
|
| December 31, 2011 |
| |||||||
|
| Aggregate Unpaid |
| Aggregate Fair Value |
| Fair Value |
| |||
|
|
|
|
|
|
|
| |||
Consolidated obligations-bonds (a) |
| $ | 12,530,000 |
| $ | 12,542,603 |
| $ | 12,603 |
|
Consolidated obligations-discount notes (b) |
| 4,917,172 |
| 4,920,855 |
| 3,683 |
| |||
|
| $ | 17,447,172 |
| $ | 17,463,458 |
| $ | 16,286 |
|
|
| December 31, 2010 |
| |||||||
|
| Aggregate Unpaid |
| Aggregate Fair Value |
| Fair Value |
| |||
|
|
|
|
|
|
|
| |||
Consolidated obligations-bonds (a) |
| $ | 14,276,000 |
| $ | 14,281,463 |
| $ | 5,463 |
|
Consolidated obligations-discount notes (b) |
| 953,203 |
| 956,338 |
| 3,135 |
| |||
|
| $ | 15,229,203 |
| $ | 15,237,801 |
| $ | 8,598 |
|
|
| December 31, 2009 |
| |||||||
|
| Aggregate Unpaid |
| Aggregate Fair Value |
| Fair Value |
| |||
|
|
|
|
|
|
|
| |||
Consolidated obligations-bonds (a) |
| $ | 6,040,000 |
| $ | 6,035,741 |
| $ | (4,259 | ) |
|
| $ | 6,040,000 |
| $ | 6,035,741 |
| $ | (4,259 | ) |
(a)Fair values of fixed-rate bonds at December 31, 2011 were in unrealized loss positions due to decline in observed market yields relative to contractual yields of the bonds. Unrealized fair values losses of fixed-rate liabilities will increase as market yields decline.
(b)The FHLBNY designated greater amounts of discount notes under the FVO designation at December 31, 2011 compared to 2010. In a relatively volatile interest rate environment in 2011, it was not possible to predict with a high-degree of certainty that the hedges of short-term discount notes would remain highly effective hedges through their term to maturity, and absent that assurance, the discount notes could not qualify for hedge accounting. Instead, the FHLBNY designated the discount notes under the FVO.
| December 31, 2010 | ||||||||||||
| Fair Value | ||||||||||||
| Principal Balance | Fair Value | Over/(Under) | ||||||||||
Consolidated obligations-bonds | $ | 14,276,000 | $ | 14,281,463 | $ | 5,463 | ||||||
Consolidated obligations-discount notes | 953,203 | 956,338 | 3,135 | |||||||||
| $ | 15,229,203 | $ | 15,237,801 | $ | 8,598 | |||||||
| December 31, 2009 | ||||||||||||
| Fair Value | ||||||||||||
| Principal Balance | Fair Value | Over/(Under) | ||||||||||
Consolidated obligations-bonds | $ | 6,040,000 | $ | 6,035,741 | $ | (4,259 | ) | |||||
Consolidated obligations-discount notes | — | — | — | |||||||||
| $ | 6,040,000 | $ | 6,035,741 | $ | (4,259 | ) | ||||||
| December 31, 2008 | ||||||||||||
| Fair Value | ||||||||||||
| Principal Balance | Fair Value | Over/(Under) | ||||||||||
Consolidated obligations-bonds | $ | 983,000 | $ | 998,942 | $ | 15,942 | ||||||
Consolidated obligations-discount notes | — | — | — | |||||||||
| $ | 983,000 | $ | 998,942 | $ | 15,942 | |||||||
Federal Home Loan Bank of New York
Notes to Financial Statements
Notes toEstimated Fair Values of Financial Instrumentsfinancial instruments
The fair value of a financial instrument that is an asset is defined as the price the FHLBNY would receive to sell anthe asset in an orderly transaction betweenwith market participants at the measurement date.participants. 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.
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.
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.
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.
176
The FHLBNY believes such methodologies —- valuation comparison, review of changes in valuation parameters, and credit analysis have been designed to identify the effects of the credit crisis, which has tended to reduce the availability of certain observable market pricing or has caused the widening of the bid/offer spread of certain securities.
As of December 31, 2010,2011, four vendor prices were received for substantially all of the FHLBNY’s MBS holdings and substantially all of those prices fell within the specified thresholds. The relative proximity of the prices received supported the FHLBNY’s conclusion that the final computed prices were reasonable estimates of fair value. While the FHLBNY adopted this common methodology, the fair values of mortgage-backed investment securities are still estimated by FHLBNY’s management, which remains responsible for the selection and application of its fair value methodology and determining the reasonableness of assumptions and inputs used.
The four specialized pricing services use pricing models or quoted prices of securities with similar characteristics. The valuation techniques used by pricing services employ cash flow generators and option-adjusted spread models. Pricing spreads used as inputs in the models are based on new issue and secondary market transactions if the securities are traded in sufficient volumes in the secondary market. These pricing vendors typically employ valuation techniques that incorporate benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of like securities, sector groupings, and/or matrix pricing, as may be deemed appropriate for the security. Such 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 of the fair value hierarchy.
The valuation of the FHLBNY’s private-label securities, all designated as held-to-maturity, may require pricing services to use significant inputs that are subjective and may be considered to be Level 3 of the fair value hierarchy because of the current lack of significant market activity so that the inputs may not be market based and observable. At December 31, 20102011 and 2009,2010, all private-label mortgage-backed securities were classified as held-to-maturity and were recorded in the balance sheet at their carrying values. Carrying value of a security is the same as its amortized cost, unless the security is determined to be OTTI. In the period the security is determined to be OTTI, its carrying value is generally adjusted down to its fair value.
Federal Home Loan Bank of New York
Notes to Financial Statements
Certain held-to-maturity private-label mortgage-backed securities were written down to their fair value at December 31, 20102011 and 20092010 as a result of a recognition of OTTI. For such HTM securities, their carrying values arewere recorded in the balance sheet at their fair values. The fair values and securities are classified on a nonrecurring basis as Level 3 financial instruments under the valuation hierarchy. This determination was made based on management’s view that the private-label instruments may not have an active market because of the specific vintage of the securities as well as inherent conditions surrounding the trading of private-label mortgage-backed securities.
The fair value of housing finance agency bonds is estimated by management using information primarily from pricing services.
Advances
The fair values of advances are computed using standard option valuation models. The most significant inputs to the valuation model are (1) consolidated obligation debt curve (the “CO Curve”), published by the Office of Finance and available to the public, and (2) LIBOR swap curves and volatilities. The Bank considers both these inputs to be market-basedmarket 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.”approach”. Loans are aggregated into synthetic pass-through securities based on product type, loan origination year, gross coupon and loan term. Thereafter, these are compared against closing “TBA” prices extracted from independent sources. All significant inputs to the loan valuations are market based and observable.
Accrued interest receivable and payable
The estimated fair values approximate the recorded book value because of the relatively short period of time between their origination and expected realization.
Derivative assets and liabilities
The FHLBNY’s derivatives are traded in the over-the-counter market. Discounted cash flow analysis is the primary methodology employed by the FHLBNY’s valuation models to measure and to record the fair values of its interest rate swaps. The valuation technique is considered as an “Income approach.”approach”. Interest rate caps and floors are valued under the “Market approach.”approach”. Interest rate swaps and interest rate caps and floors are valued in industry-standard option-adjustedoption adjusted valuation models that utilize market inputs, which can be corroborated, byfrom widely accepted third-party sources. The Bank’s valuation model utilizes a modifiedBlack-Karasinskimodel that assumes that rates are distributed log normally. The log-normal model precludes interest rates turning negative in the model computations. Significant market-basedmarket based and observable inputs into the valuation model include volatilities and interest rates. These derivative positions are classified within Level 2 of the valuation hierarchy, and include interest rate swaps, swaptions, interest rate caps and floors, and mortgage delivery commitments.
177
The valuation of derivative assets and liabilities reflectsreflect the value of the instrument including the values associated with counterparty risk and would also take into account the FHLBNY’s own credit standing and non-performance risk. The Bank has collateral agreements with all its derivative counterparties and enforces collateral exchanges at least weekly. The computed fair values of the FHLBNY’s derivatives took into consideration the effects of legally enforceable master netting agreements that allow the FHLBNY to settle positive and negative positions and offset cash collateral with the same counterparty on a net basis. The Bank and each derivative counterparty have bilateral collateral thresholds that take into account both the Bank’sBank and the counterparty’s credit ratings. As a result of these practices and agreements and the FHLBNY’s assessment of any change in its own credit spread, the Bank has concluded that the impact of the credit differential between the Bank and its derivative counterparties was sufficiently mitigated to an immaterial level such that no credit adjustments were deemed necessary to the recorded fair value of derivative assets and derivative liabilities in the Statements of Condition at December 31, 20102011 and 2009.
Deposits
The FHLBNY determines estimated fair values of deposits by calculating the present value of expected future cash flows from the deposits. The discount rates used in these calculations are the current cost of deposits with similar terms.
Federal Home Loan Bank of New York
Notes to Financial Statements
Consolidated obligations
The FHLBNY estimates fair values based on the cost of raising comparable term debt and prices its bonds and discount notes off of the current consolidated obligations market curve, which has a daily active market. The fair values of consolidated obligation debt (bonds and discount notes) are computed using a standard option valuation model using market based and observable inputs: (1) consolidated obligation debt curve (the “CO Curve”) that is available to the public and published by the Office of Finance, and (2) LIBOR curve and volatilities. Model adjustments that are not observable are not considered significant.
Mandatorily redeemable capital stock
The FHLBNY considers the fair value of capital subject to mandatory redemption, as the redemption value of the stock, which is generally par plus accrued estimated dividend. The FHLBNY has a cooperative structure. Stock can only be acquired by members at par value and redeemed at par value. Stock is not traded publicly and no market mechanism exists for the exchange of stock outside the cooperative structure.
Note 20.18. Commitments and Contingencies.
The FHLBanks have joint and several liability for all the consolidated obligations issued on their behalf. Accordingly, should one or more of the FHLBanks be unable to repay their participation in the consolidated obligations, each of the other FHLBanks could be called upon to repay all or part of such obligations, as determined or approved by the Finance Agency. Neither the FHLBNY nor any other FHLBank has ever had to assume or pay the consolidated obligations of another FHLBank. The FHLBNY does not believe that it will be called upon to pay the consolidated obligations of another FHLBank in the future. Under the provisions of accounting standard for guarantees, the Bank would have been required to recognize the fair value of the 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 December 31, 20102011 and 2009.2010. The par amount of the twelve FHLBanks’ outstanding consolidated obligations including the FHLBNY’s, was approximately $0.8$0.7 trillion and $0.9$0.8 trillion at December 31, 20102011 and 2009.
Standby letters of credit are executed for a fee on behalf of members to facilitate residential housing, community lending, and members’ asset/liability management or to provide liquidity. A standby letter of credit is a financing arrangement between the FHLBNY and its member. Members assume an unconditional obligation to reimburse the FHLBNY for value given by the FHLBNY to the beneficiary under the terms of the standby letter of credit. The FHLBNY may, in its discretion, permit the member to finance repayment of their obligation by receiving a collateralized advance. Outstanding standby letters of credit were approximately $2,284.5 million$2.8 billion and $697.9 million$2.3 billion as of December 31, 20102011 and 2009,2010, and had original terms of up to 15 years, with a final expiration in 2019. Standby letters of credit are fully collateralized. Unearned fees on standby letters of credit wereare recorded in Other liabilities, and were not significant as of December 31, 20102011 and 2009. 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.
178
Future benefit payments — For the BEP and the postretirement health benefit plan are not considered significant. The Bank expects to fund $10.1 million over the next 12 months towards the Defined Benefit Plan, a non-contributory pension plan.
Derivative contracts - The FHLBNY executes derivatives with major financial institutions and enters into bilateral collateral agreements. When counterparties are exposed, the Bank would typically pledge cash collateral to mitigate the counterparty’s credit exposure. To mitigate the counterparties’ exposures, the FHLBNY deposited $2.7$2.6 billion and $2.2$2.7 billion in cash with derivative counterparties as pledged collateral at December 31, 20102011 and 2009,2010, and these amounts were reported as a deduction to Derivative liabilities.
Lease contracts - The FHLBNY charged to operating expenses net rental costs of approximately $3.3 million, $3.4$3.3 million and $3.2$3.4 million for the years ended December 31, 2011, 2010 2009 and 2008.2009. Lease agreements for FHLBNY premises generally provide for increases in the basic rentals resulting from increases in property taxes and maintenance expenses. Such increases are not expected to have a material effect on the FHLBNY’s results of operations or financial condition.
Federal Home Loan Bank paid in the amount in March 2011of New York
Notes to eliminate the shortfall. For more information about future benefits and the Defined Benefit plan shortfall, see Note 17. Employee Retirement Plans.
The following table summarizes contractual obligations and contingencies as of December 31, 20102011 (in thousands):
|
| December 31, 2011 |
| |||||||||||||
|
| Payments Due or Expiration Terms by Period |
| |||||||||||||
|
|
|
| Greater Than |
| Greater Than |
|
|
|
|
| |||||
|
| Less Than |
| One Year |
| Three Years |
| Greater Than |
|
|
| |||||
|
| One Year |
| to Three Years |
| to Five Years |
| Five Years |
| Total |
| |||||
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
| |||||
Consolidated obligations-bonds at par (a) |
| $ | 34,498,875 |
| $ | 24,353,690 |
| $ | 4,253,925 |
| $ | 3,222,805 |
| $ | 66,329,295 |
|
Mandatorily redeemable capital stock (a) |
| 34,264 |
| 2,990 |
| 4,567 |
| 13,006 |
| 54,827 |
| |||||
Premises (lease obligations) (b) |
| 3,115 |
| 5,413 |
| 4,674 |
| 1,558 |
| 14,760 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total contractual obligations |
| 34,536,254 |
| 24,362,093 |
| 4,263,166 |
| 3,237,369 |
| 66,398,882 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other commitments |
|
|
|
|
|
|
|
|
|
|
| |||||
Standby letters of credit |
| 2,736,806 |
| 68,707 |
| 13,157 |
| 3,861 |
| 2,822,531 |
| |||||
Consolidated obligations-bonds/ discount notes traded not settled |
| 36,000 |
| — |
| — |
| — |
| 36,000 |
| |||||
Consolidated obligations-debt extinguishment/ calls traded not settled |
| 8,717 |
| — |
| — |
| — |
| 8,717 |
| |||||
Commitments to fund pension (c) |
| 10,065 |
| — |
| — |
| — |
| 10,065 |
| |||||
Open delivery commitments (MPF) |
| 31,242 |
| — |
| — |
| — |
| 31,242 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total other commitments |
| 2,822,830 |
| 68,707 |
| 13,157 |
| 3,861 |
| 2,908,555 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total obligations and commitments |
| $ | 37,359,084 |
| $ | 24,430,800 |
| $ | 4,276,323 |
| $ | 3,241,230 |
| $ | 69,307,437 |
|
| December 31, 2010 | ||||||||||||||||||||
| Payments Due or Expiration Terms by Period | ||||||||||||||||||||
| Less Than | One Year | Greater Than Three | Greater Than | |||||||||||||||||
| One Year | to Three Years | Years to Five Years | Five Years | Total | ||||||||||||||||
| Contractual Obligations | ||||||||||||||||||||
Consolidated obligations-bonds at par1 | $ | 33,302,200 | $ | 26,567,325 | $ | 7,690,755 | $ | 3,421,700 | $ | 70,981,980 | ||||||||||
Mandatorily redeemable capital stock1 | 27,875 | 17,019 | 2,035 | 16,290 | 63,219 | |||||||||||||||
Premises (lease obligations)2 | 3,060 | 6,177 | 4,674 | 4,090 | 18,001 | |||||||||||||||
| Total contractual obligations | 33,333,135 | 26,590,521 | 7,697,464 | 3,442,080 | 71,063,200 | |||||||||||||||
| Other commitments | ||||||||||||||||||||
| Standby letters of credit | 2,218,352 | 19,769 | 42,472 | 3,861 | 2,284,454 | |||||||||||||||
| Consolidated obligations-bonds/discount notes traded not settled | 58,000 | — | — | — | 58,000 | |||||||||||||||
| Commitment to fund pension | 11,952 | — | — | — | 11,952 | |||||||||||||||
| Open delivery commitments (MPF) | 29,993 | — | — | — | 29,993 | |||||||||||||||
| Total other commitments | 2,318,297 | 19,769 | 42,472 | 3,861 | 2,384,399 | |||||||||||||||
Total obligations and commitments | $ | 35,651,432 | $ | 26,610,290 | $ | 7,739,936 | $ | 3,445,941 | $ | 73,447,599 | ||||||||||
(a)Callable bonds contain an exercise date or a series of exercise dates that may result in a shorter redemption period. Mandatorily redeemable capital stock is categorized by the dates at which the corresponding member obligations 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.
(b)Immaterial amount of commitments for equipment leases are not included.
(c)The Bank’s contribution towards the funded Defined Benefit Plan is not available beyond one year. For projected benefits payable for the Bank’s unfunded Benefit Equalization Plan and the Bank’s Postretirement Benefit Plan, see Note 15.
The FHLBNY does not anticipate any credit losses from its off-balance sheet commitments and accordingly no provision for losses is required.
179
On September 15, 2008, Lehman Brothers Holdings, Inc. (“LBHI”), the parent company of Lehman Brothers Special Financing, Inc. (“LBSF”) and a guarantor of LBSF’s obligations, filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in the Southern District of New York. LBSF filed for protection under Chapter 11 in the same court on October 3, 2008. LBSF was a counterparty to FHLBNY on multiple derivative transactions under an International Swap Dealers Association, Inc. master agreement with a total notional amount of $16.5 billion at the time of termination of the Bank’s derivative transactions with LBSF. The net amount that was due to the Bank after giving effect to obligations that were due to LBSF was approximately $65 million. The FHLBNY timely filed proofs of claim in the amount of approximately $65 million as creditors of LBSF and LBHI in connection with the bankruptcy proceedings. The Bank fully reserved the LBSF receivables as the bankruptcies of LBHI and LBSF make the timing and the amount of any recovery uncertain.
As previously reported, the Bank received a Derivatives ADR Notice from LBSF dated July 23, 2010, making a Demand as of the date of the Notice of approximately $268 million owed to LBSF by the Bank. Subsequently, in accordance with the Alternative Dispute Resolution Procedure Order entered by the Bankruptcy Court dated September 17, 2009 (“Order”), the Bank responded to LBSF on August 23, 2010, denying LBSF’s Demand. LBSF served a reply on September 7, 2010, effectively reiterating its position. The mediation being conducted pursuant to the Order commenced on December 8, 2010 and concluded without settlement on March 17, 2011. Pursuant to the Order, positions taken by the parties in the ADR process are confidential.
While the Bank believes that LBSF’s position is without merit, the amount the Bank actually recovers or pays will ultimately be decided in the course of the bankruptcy proceedings.
Note 21.19. Related Party Transactions.Transactions
The FHLBNY is a cooperative and the members own almost all of the stock of the Bank. Any stockStock 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 Transfersassumptions and transfers
The Bank did not assume debt from another FHLBank in 2011. During the 2010, the bankBank assumed debt from another FHLBank totaling $193.9 million (par amounts). During 20092011, the Bank transferred debt to another
Federal Home Loan Bank of New York
Notes to Financial Statements
FHLBank totaling $150.0 million (par amounts) at negotiated market rates that exceeded book cost by $17.3 million, and 2008, there was a charge to earnings. There were no transfer of consolidated obligation bonds from other FHLBanks. Amounts transferred were in exchange for a cash price that represented the fair market values of the bonds, No bonds were transferred by the FHLBNYtransfers to another FHLBank in 2010 and 2009.
When debt is transferred, the transferring bank notifies the Office of Finance of aon trade date the 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 2011, 2010 2009 and 2008.
MPF Program
In the MPF program, the FHLBNY may participate out certain portions of its purchases of mortgage loans from its members. Transactions are at market rates. The FHLBank of Chicago, the MPF provider’s cumulative share of interest in the FHLBNY’s MPF loans at December 31, 20102011 was $81.2$62.9 million (December 31, 20092010 was $101.2$81.2 million) from inception of the program through mid-2004. Since 2004, the FHLBNY has not shared its purchases with the FHLBank of Chicago. Fees paid to the FHLBank of Chicago were $0.5$0.6 million, $0.6$0.5 million and $0.6 million in each of the years ended December 31, 2011, 2010 2009 and 2008.
Mortgage-backed Securities
No mortgage-backed securities were acquired from other FHLBanks during the periods in this report.
Intermediation
Notional amounts of $550.0$275.0 million and $320.0 millionof interest rate swaps were outstanding at December 31, 20102011 and 20092010. They represented derivative contracts in which the FHLBNY acted as an intermediary to sell derivatives to members. These were offset by identical transactionsmembers with an offsetting purchase contracts with unrelated derivatives counterparties. Net fair value exposures of these transactions at December 31, 20102011 and 20092010 were not material.significant. The intermediated derivative transactions were fully collateralized.
Loans to other Federal Home Loan Banks
In 2011, the FHLBNY extended five overnight loans for a total of $1.4 billion to other FHLBanks. In 2010, the FHLBNY extended one overnight loan for a total of $27.0 million to another FHLBank.other FHLBanks. In 2009, the FHLBNY extended two overnight loans for a total of $472.0 million to other FHLBanks. In 2008, the Bank made four overnight loans for a total of $661.0 million. Generally, loans made to other FHLBanks are uncollateralized. Interest income from such loans was $3.6 thousand, $0.2 thousand $1.9 thousand and $31.0$1.9 thousand for the years ended December 31, 2011, 2010 2009 and 2008.
180
The FHLBNY borrows from other FHLBanks, generally for a period of one day. In 2011 and 2010, there was no borrowing from other FHLBanks. For the years ended December 31,In 2009, and 2008, such borrowings averaged $0.4 million, and $5.5 million. There were no borrowings outstanding as of December 31, 2009. Interestinterest expense for the years ended December 31, 2009 and 2008 was $0.4 thousand and $159.4 thousand.
Federal Home Loan Bank of New York
Notes to Financial Statements
The following tables summarize outstanding balances with related parties at December 31, 20102011 and 2009,2010, and transactions for each of the years ended December 31, 2011, 2010 2009 and 20082009 (in thousands):
Related Party: Outstanding Assets, Liabilities and Capital
|
| December 31, 2011 |
| December 31, 2010 |
| ||||||||
|
| Related |
| Unrelated |
| Related |
| Unrelated |
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Cash and due from banks |
| $ | — |
| $ | 10,877,790 |
| $ | — |
| $ | 660,873 |
|
Federal funds sold |
| — |
| 970,000 |
| — |
| 4,988,000 |
| ||||
Available-for-sale securities |
| — |
| 3,142,636 |
| — |
| 3,990,082 |
| ||||
Held-to-maturity securities |
|
|
|
|
|
|
|
|
| ||||
Long-term securities |
| — |
| 10,123,805 |
| — |
| 7,761,192 |
| ||||
Advances |
| 70,863,777 |
| — |
| 81,200,336 |
| — |
| ||||
Mortgage loans (a) |
| — |
| 1,408,460 |
| — |
| 1,265,804 |
| ||||
Accrued interest receivable |
| 195,700 |
| 28,148 |
| 256,617 |
| 30,718 |
| ||||
Premises, software, and equipment |
| — |
| 13,487 |
| — |
| 14,932 |
| ||||
Derivative assets (b) |
| — |
| 25,131 |
| — |
| 22,010 |
| ||||
Other assets (c) |
| 193 |
| 13,213 |
| 113 |
| 21,393 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total assets |
| $ | 71,059,670 |
| $ | 26,602,670 |
| $ | 81,457,066 |
| $ | 18,755,004 |
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities and capital |
|
|
|
|
|
|
|
|
| ||||
Deposits |
| $ | 2,101,048 |
| $ | — |
| $ | 2,454,480 |
| $ | — |
|
Consolidated obligations |
| — |
| 89,563,847 |
| — |
| 91,134,079 |
| ||||
Mandatorily redeemable capital stock |
| 54,827 |
| — |
| 63,219 |
| — |
| ||||
Accrued interest payable |
| 8 |
| 146,239 |
| 10 |
| 197,256 |
| ||||
Affordable Housing Program (d) |
| 127,454 |
| — |
| 138,365 |
| — |
| ||||
Payable to REFCORP |
| — |
| — |
| — |
| 21,617 |
| ||||
Derivative liabilities (b) |
| — |
| 486,166 |
| — |
| 954,898 |
| ||||
Other liabilities (e) |
| 69,555 |
| 66,785 |
| 49,484 |
| 54,293 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total liabilities |
| $ | 2,352,892 |
| $ | 90,263,037 |
| $ | 2,705,558 |
| $ | 92,362,143 |
|
|
|
|
|
|
|
|
|
|
| ||||
Capital |
| 5,046,411 |
| — |
| 5,144,369 |
| — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total liabilities and capital |
| $ | 7,399,303 |
| $ | 90,263,037 |
| $ | 7,849,927 |
| $ | 92,362,143 |
|
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Related | Unrelated | Related | Unrelated | |||||||||||||
Assets | ||||||||||||||||
| Cash and due from banks | $ | — | $ | 660,873 | $ | — | $ | 2,189,252 | ||||||||
| Federal funds sold | — | 4,988,000 | — | 3,450,000 | ||||||||||||
| Available-for-sale securities | — | 3,990,082 | — | 2,253,153 | ||||||||||||
| Held-to-maturity securities | ||||||||||||||||
| Long-term securities | — | 7,761,192 | — | 10,519,282 | ||||||||||||
| Advances | 81,200,336 | — | 94,348,751 | — | ||||||||||||
Mortgage loans 1 | — | 1,265,804 | — | 1,317,547 | ||||||||||||
| Accrued interest receivable | 256,617 | 30,718 | 299,684 | 40,826 | ||||||||||||
| Premises, software, and equipment | — | 14,932 | — | 14,792 | ||||||||||||
Derivative assets2 | — | 22,010 | — | 8,280 | ||||||||||||
Other assets3 | 113 | 21,393 | 179 | 19,160 | ||||||||||||
Total assets | $ | 81,457,066 | $ | 18,755,004 | $ | 94,648,614 | $ | 19,812,292 | ||||||||
Liabilities and capital | ||||||||||||||||
| Deposits | $ | 2,454,480 | $ | — | $ | 2,630,511 | $ | — | ||||||||
| Consolidated obligations | — | 91,134,079 | — | 104,835,617 | ||||||||||||
| Mandatorily redeemable capital stock | 63,219 | — | 126,294 | — | ||||||||||||
| Accrued interest payable | 10 | 197,256 | 16 | 277,772 | ||||||||||||
Affordable Housing Program4 | 138,365 | — | 144,489 | — | ||||||||||||
| Payable to REFCORP | — | 21,617 | — | 24,234 | ||||||||||||
Derivative liabilities2 | — | 954,898 | — | 746,176 | ||||||||||||
Other liabilities5 | 49,484 | 54,293 | 29,330 | 43,176 | ||||||||||||
Total liabilities | $ | 2,705,558 | $ | 92,362,143 | $ | 2,930,640 | $ | 105,926,975 | ||||||||
Capital | 5,144,369 | — | 5,603,291 | — | ||||||||||||
Total liabilities and capital | $ | 7,849,927 | $ | 92,362,143 | $ | 8,533,931 | $ | 105,926,975 | ||||||||
(a)Includes insignificant amounts of mortgage loans purchased from members of another FHLBank.
(b)Derivative assets and liabilities include insignificant fair values due to intermediation activities on behalf of members.
(c)Includes insignificant amounts of miscellaneous assets that are considered related party.
(d)Represents funds not yet disbursed to eligible programs.
(e)Related column includes member pass-through reserves at the Federal Reserve Bank.
181
|
| Years ended December 31, |
| ||||||||||||||||
|
| 2011 |
| 2010 |
| 2009 |
| ||||||||||||
|
| Related |
| Unrelated |
| Related |
| Unrelated |
| Related |
| Unrelated |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Advances |
| $ | 504,118 |
| $ | — |
| $ | 614,801 |
| $ | — |
| $ | 1,270,643 |
| $ | — |
|
Interest-bearing deposits (a) |
| — |
| 2,834 |
| — |
| 5,461 |
| — |
| 19,865 |
| ||||||
Federal funds sold |
| — |
| 6,746 |
| — |
| 9,061 |
| — |
| 3,238 |
| ||||||
Available-for-sale securities |
| — |
| 30,248 |
| — |
| 31,465 |
| — |
| 28,842 |
| ||||||
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Long-term securities |
| — |
| 279,602 |
| — |
| 352,398 |
| — |
| 461,491 |
| ||||||
Certificates of deposit |
| — |
| — |
| — |
| — |
| — |
| 1,626 |
| ||||||
Mortgage loans (b) |
| — |
| 62,942 |
| — |
| 65,422 |
| — |
| 71,980 |
| ||||||
Loans to other FHLBanks and other |
| 4 |
| — |
| — |
| — |
| 2 |
| — |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total interest income |
| $ | 504,122 |
| $ | 382,372 |
| $ | 614,801 |
| $ | 463,807 |
| $ | 1,270,645 |
| $ | 587,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Consolidated obligations |
| $ | — |
| $ | 440,870 |
| $ | — |
| $ | 614,967 |
| $ | — |
| $ | 1,147,011 |
|
Deposits |
| 1,243 |
| — |
| 3,502 |
| — |
| 2,512 |
| — |
| ||||||
Mandatorily redeemable capital stock |
| 2,384 |
| — |
| 4,329 |
| — |
| 7,507 |
| — |
| ||||||
Cash collateral held and other borrowings |
| — |
| 82 |
| — |
| 26 |
| — |
| 49 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total interest expense |
| $ | 3,627 |
| $ | 440,952 |
| $ | 7,831 |
| $ | 614,993 |
| $ | 10,019 |
| $ | 1,147,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| $ | 5,909 |
| $ | — |
| $ | 4,918 |
| $ | — |
| $ | 4,165 |
| $ | — |
|
(a)Includes insignificant amounts of interest income from MPF service provider.
(b)Includes de minimis amounts of mortgage interest income from loans purchased from members of another FHLBank.
| Years ended December 31, | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
| Related | Unrelated | Related | Unrelated | Related | Unrelated | |||||||||||||||||||
| Interest income | ||||||||||||||||||||||||
| Advances | $ | 614,801 | $ | — | $ | 1,270,643 | $ | — | $ | 3,030,799 | $ | — | ||||||||||||
Interest-bearing deposits 1 | — | 5,461 | — | 19,865 | — | 28,012 | ||||||||||||||||||
| Federal funds sold | — | 9,061 | — | 3,238 | — | 77,976 | ||||||||||||||||||
| Available-for-sale securities | — | 31,465 | — | 28,842 | — | 80,746 | ||||||||||||||||||
| Held-to-maturity securities | ||||||||||||||||||||||||
| Long-term securities | — | 352,398 | — | 461,491 | — | 531,151 | ||||||||||||||||||
| Certificates of deposit | — | — | — | 1,626 | — | 232,300 | ||||||||||||||||||
Mortgage loans2 | — | 65,422 | — | 71,980 | — | 77,862 | ||||||||||||||||||
| Loans to other FHLBanks and other | — | — | 2 | — | 33 | — | ||||||||||||||||||
Total interest income | $ | 614,801 | $ | 463,807 | $ | 1,270,645 | $ | 587,042 | $ | 3,030,832 | $ | 1,028,047 | ||||||||||||
| Interest expense | ||||||||||||||||||||||||
| Consolidated obligations | $ | — | $ | 614,967 | $ | — | $ | 1,147,011 | $ | — | $ | 3,318,160 | ||||||||||||
| Deposits | 3,502 | — | 2,512 | — | 36,193 | — | ||||||||||||||||||
| Mandatorily redeemable capital stock | 4,329 | — | 7,507 | — | 8,984 | — | ||||||||||||||||||
| Cash collateral held and other borrowings | — | 26 | — | 49 | 163 | 881 | ||||||||||||||||||
Total interest expense | $ | 7,831 | $ | 614,993 | $ | 10,019 | $ | 1,147,060 | $ | 45,340 | $ | 3,319,041 | ||||||||||||
| Service fees | $ | 4,918 | $ | — | $ | 4,165 | $ | — | $ | 3,357 | $ | — | ||||||||||||
Federal Home Loan Bank of New York
Notes to Financial Statements
Note 22.20. 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.
182
The top ten advance holders at December 31, 2011, 2010 2009 and 2008,2009, and associated interest income for the years then ended are summarized as follows (dollars in thousands):
|
| December 31, 2011 |
| ||||||||||
|
|
|
|
|
|
|
| Percentage of |
|
|
| ||
|
|
|
|
|
| Par |
| Total Par Value |
| Twelve Months |
| ||
|
| City |
| State |
| Advances |
| of Advances |
| Interest Income |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Metropolitan Life Insurance Company |
| New York |
| NY |
| $ | 11,655,000 |
| 17.4 | % | $ | 266,792 |
|
Hudson City Savings Bank, FSB* |
| Paramus |
| NJ |
| 8,925,000 |
| 13.3 |
| 520,044 |
| ||
New York Community Bank* |
| Westbury |
| NY |
| 8,755,154 |
| 13.1 |
| 304,289 |
| ||
MetLife Bank, N.A. |
| Convent Station |
| NJ |
| 4,764,500 |
| 7.1 |
| 95,740 |
| ||
The Prudential Insurance Co. of America |
| Newark |
| NJ |
| 2,424,000 |
| 3.6 |
| 57,154 |
| ||
Investors Bank |
| Short Hills |
| NJ |
| 2,115,486 |
| 3.2 |
| 53,984 |
| ||
Valley National Bank |
| Wayne |
| NJ |
| 2,103,500 |
| 3.2 |
| 90,261 |
| ||
Astoria Federal Savings and Loan Assn. |
| Lake Success |
| NY |
| 2,043,000 |
| 3.0 |
| 71,909 |
| ||
First Niagara Bank, National Association |
| Buffalo |
| NY |
| 1,667,072 |
| 2.5 |
| 16,626 |
| ||
New York Life Insurance Company |
| New York |
| NY |
| 1,500,000 |
| 2.2 |
| 14,497 |
| ||
Total |
|
|
|
|
| $ | 45,952,712 |
| 68.6 | % | $ | 1,491,296 |
|
* At December 31, 2011, officer of member bank also served on the Board of Directors of the FHLBNY.
|
| December 31, 2010 |
| ||||||||||
|
|
|
|
|
|
|
| Percentage of |
|
|
| ||
|
|
|
|
|
| Par |
| Total Par Value |
| Twelve Months |
| ||
|
| City |
| State |
| Advances |
| of Advances |
| Interest Income |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Hudson City Savings Bank, FSB* |
| Paramus |
| NJ |
| $ | 17,025,000 |
| 22.1 | % | $ | 705,743 |
|
Metropolitan Life Insurance Company |
| New York |
| NY |
| 12,555,000 |
| 16.3 |
| 294,526 |
| ||
New York Community Bank* |
| Westbury |
| NY |
| 7,793,165 |
| 10.1 |
| 307,102 |
| ||
MetLife Bank, N.A. |
| Convent Station |
| NJ |
| 3,789,500 |
| 4.9 |
| 61,036 |
| ||
Manufacturers and Traders Trust Company |
| Buffalo |
| NY |
| 2,758,000 |
| 3.6 |
| 42,979 |
| ||
The Prudential Insurance Co. of America |
| Newark |
| NJ |
| 2,500,000 |
| 3.3 |
| 77,544 |
| ||
Astoria Federal Savings and Loan Assn. |
| Lake Success |
| NY |
| 2,391,000 |
| 3.1 |
| 107,917 |
| ||
Valley National Bank |
| Wayne |
| NJ |
| 2,310,500 |
| 3.0 |
| 98,680 |
| ||
New York Life Insurance Company |
| New York |
| NY |
| 1,500,000 |
| 2.0 |
| 14,678 |
| ||
First Niagara Bank, National Association |
| Buffalo |
| NY |
| 1,473,493 |
| 1.9 |
| 24,911 |
| ||
Total |
|
|
|
|
| $ | 54,095,658 |
| 70.3 | % | $ | 1,735,116 |
|
| December 31, 2010 | ||||||||||||||||
| Percentage of | ||||||||||||||||
| Par | Total Par Value | 12-months | ||||||||||||||
| City | State | Advances | of Advances | Interest Income | ||||||||||||
| Hudson City Savings Bank, FSB* | Paramus | NJ | $ | 17,025,000 | 22.1 | % | $ | 705,743 | ||||||||
| Metropolitan Life Insurance Company | New York | NY | 12,555,000 | 16.3 | 294,526 | |||||||||||
| New York Community Bank* | Westbury | NY | 7,793,165 | 10.1 | 307,102 | |||||||||||
| MetLife Bank, N.A. | Bridgewater | NJ | 3,789,500 | 4.9 | 61,036 | |||||||||||
| Manufacturers and Traders Trust Company | Buffalo | NY | 2,758,000 | 3.6 | 42,979 | |||||||||||
| The Prudential Insurance Co. of America | Newark | NJ | 2,500,000 | 3.3 | 77,544 | |||||||||||
| Astoria Federal Savings and Loan Assn. | Lake Success | NY | 2,391,000 | 3.1 | 107,917 | |||||||||||
| Valley National Bank | Wayne | NJ | 2,310,500 | 3.0 | 98,680 | |||||||||||
| New York Life Insurance Company | New York | NY | 1,500,000 | 2.0 | 14,678 | |||||||||||
| First Niagara Bank, National Association | Buffalo | NY | 1,473,493 | 1.9 | 24,911 | |||||||||||
Total | $ | 54,095,658 | 70.3 | % | $ | 1,735,116 | ||||||||||
* At December 31, 2010, officer of member bank also served on the Board of Directors of the FHLBNY.
|
| December 31, 2009 |
| ||||||||||
|
|
|
|
|
|
|
| Percentage of |
|
|
| ||
|
|
|
|
|
| Par |
| Total Par Value |
| Twelve Months |
| ||
|
| City |
| State |
| Advances |
| of Advances |
| Interest Income |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Hudson City Savings Bank, FSB* |
| Paramus |
| NJ |
| $ | 17,275,000 |
| 19.0 | % | $ | 710,900 |
|
Metropolitan Life Insurance Company |
| New York |
| NY |
| 13,680,000 |
| 15.1 |
| 356,120 |
| ||
New York Community Bank* |
| Westbury |
| NY |
| 7,343,174 |
| 8.1 |
| 310,991 |
| ||
Manufacturers and Traders Trust Company |
| Buffalo |
| NY |
| 5,005,641 |
| 5.5 |
| 97,628 |
| ||
The Prudential Insurance Co. of America |
| Newark |
| NJ |
| 3,500,000 |
| 3.9 |
| 93,601 |
| ||
Astoria Federal Savings and Loan Assn. |
| Lake Success |
| NY |
| 3,000,000 |
| 3.3 |
| 120,870 |
| ||
Emigrant Bank |
| New York |
| NY |
| 2,475,000 |
| 2.7 |
| 64,131 |
| ||
Doral Bank |
| San Juan |
| PR |
| 2,473,420 |
| 2.7 |
| 86,389 |
| ||
MetLife Bank, N.A. |
| Bridgewater |
| NJ |
| 2,430,500 |
| 2.7 |
| 46,142 |
| ||
Valley National Bank |
| Wayne |
| NJ |
| 2,322,500 |
| 2.6 |
| 103,707 |
| ||
Total |
|
|
|
|
| $ | 59,505,235 |
| 65.6 | % | $ | 1,990,479 |
|
| December 31, 2009 | ||||||||||||||||
| Percentage of | ||||||||||||||||
| Par | Total Par Value | 12-months | ||||||||||||||
| City | State | Advances | of Advances | Interest Income | ||||||||||||
| Hudson City Savings Bank, FSB* | Paramus | NJ | $ | 17,275,000 | 19.0 | % | $ | 710,900 | ||||||||
| Metropolitan Life Insurance Company | New York | NY | 13,680,000 | 15.1 | 356,120 | |||||||||||
| New York Community Bank* | Westbury | NY | 7,343,174 | 8.1 | 310,991 | |||||||||||
| Manufacturers and Traders Trust Company | Buffalo | NY | 5,005,641 | 5.5 | 97,628 | |||||||||||
| The Prudential Insurance Co. of America | Newark | NJ | 3,500,000 | 3.9 | 93,601 | |||||||||||
| Astoria Federal Savings and Loan Assn. | Lake Success | NY | 3,000,000 | 3.3 | 120,870 | |||||||||||
| Emigrant Bank | New York | NY | 2,475,000 | 2.7 | 64,131 | |||||||||||
| Doral Bank | San Juan | PR | 2,473,420 | 2.7 | 86,389 | |||||||||||
| MetLife Bank, N.A. | Bridgewater | NJ | 2,430,500 | 2.7 | 46,142 | |||||||||||
| Valley National Bank | Wayne | NJ | 2,322,500 | 2.6 | 103,707 | |||||||||||
Total | $ | 59,505,235 | 65.6 | % | $ | 1,990,479 | ||||||||||
| December 31, 2008 | ||||||||||||||||
| Percentage of | ||||||||||||||||
| Par | Total Par Value | 12-months | ||||||||||||||
| City | State | Advances | of Advances | Interest Income | ||||||||||||
| Hudson City Savings Bank, FSB* | Paramus | NJ | $ | 17,525,000 | 17.0 | % | $ | 671,146 | ||||||||
| Metropolitan Life Insurance Company | New York | NY | 15,105,000 | 14.6 | 260,420 | |||||||||||
| Manufacturers and Traders Trust Company | Buffalo | NY | 7,999,689 | 7.7 | 257,649 | |||||||||||
| New York Community Bank* | Westbury | NY | 7,796,517 | 7.5 | 337,019 | |||||||||||
| Astoria Federal Savings and Loan Assn. | Lake Success | NY | 3,738,000 | 3.6 | 151,066 | |||||||||||
| The Prudential Insurance Co. of America | Newark | NJ | 3,000,000 | 2.9 | 13,082 | |||||||||||
| Merrill Lynch Bank & Trust Co., FSB | New York | NY | 2,972,000 | 2.9 | 68,625 | |||||||||||
| Valley National Bank | Wayne | NJ | 2,646,500 | 2.6 | 103,918 | |||||||||||
| Emigrant Bank | New York | NY | 2,525,000 | 2.4 | 64,116 | |||||||||||
| Doral Bank | San Juan | PR | 2,412,500 | 2.3 | 89,643 | |||||||||||
Total | $ | 65,720,206 | 63.5 | % | $ | 2,016,684 | ||||||||||
* At December 31, 2009, officer of member bank also served on the Board of Directors of the FHLBNY.
Federal Home Loan Bank of New York
The following table summarizes capital stock held by members who were beneficial owners of more than 5 percent of the FHLBNY’s outstanding capital stock as of February 28, 201129, 2012 and December 31, 20102011 (shares in thousands):
|
|
|
| Number |
| Percent |
|
|
| February 29, 2012 |
| of Shares |
| of Total |
|
Name of Beneficial Owner |
| Principal Executive Office Address |
| Owned |
| Capital Stock |
|
|
|
|
|
|
|
|
|
Metropolitan Life Insurance Company |
| 200 Park Avenue, New York, NY 10166 |
| 6,556 |
| 14.58 | % |
Hudson City Savings Bank, FSB* |
| West 80 Century Road, Paramus, NJ 07652 |
| 4,881 |
| 10.86 |
|
New York Community Bank* |
| 615 Merrick Avenue, Westbury, NY 11590-6644 |
| 4,293 |
| 9.55 |
|
Citibank, N.A. |
| 399 Park Avenue, New York, NY 10043 |
| 3,962 |
| 8.81 |
|
|
|
|
|
|
|
|
|
|
|
|
| 19,692 |
| 43.80 | % |
|
|
|
| Number |
| Percent |
|
|
| December 31, 2011 |
| of Shares |
| of Total |
|
Name of Beneficial Owner |
| Principal Executive Office Address |
| Owned |
| Capital Stock |
|
|
|
|
|
|
|
|
|
Metropolitan Life Insurance Company |
| 200 Park Avenue, New York, NY 10166 |
| 6,579 |
| 14.47 |
|
Hudson City Savings Bank, FSB* |
| West 80 Century Road, Paramus, NJ 07652 |
| 5,106 |
| 11.23 |
|
New York Community Bank* |
| 615 Merrick Avenue, Westbury, NY 11590-6644 |
| 4,546 |
| 10.00 |
|
Citibank, N.A. |
| 399 Park Avenue, New York, NY 10043 |
| 3,647 |
| 8.02 |
|
MetLife Bank, N.A. |
| 334 Madison Avenue, Convent Station, NJ 07961 |
| 2,343 |
| 5.16 |
|
|
|
|
|
|
|
|
|
|
|
|
| 22,221 |
| 48.88 | % |
| Number | Percent | |||||||||
| February 28, 2011 | of Shares | of Total | ||||||||
| Name of Beneficial Owner | Principal Executive Office Address | Owned | Capital Stock | |||||||
| Hudson City Savings Bank, FSB* | West 80 Century Road, Paramus, NJ 07652 | 8,697 | 19.55 | % | ||||||
| Metropolitan Life Insurance Company | 200 Park Avenue, New York, NY 10166 | 6,934 | 15.59 | |||||||
| New York Community Bank* | 615 Merrick Avenue, Westbury, NY 11590-6644 | 3,867 | 8.70 | |||||||
| 19,498 | 43.84 | % | ||||||||
| Number | Percent | |||||||||
| December 31, 2010 | of Shares | of Total | ||||||||
| Name of Beneficial Owner | Principal Executive Office Address | Owned | Capital Stock | |||||||
| Hudson City Savings Bank, FSB* | West 80 Century Road, Paramus, NJ 07652 | 8,719 | 18.99 | % | ||||||
| Metropolitan Life Insurance Company | 200 Park Avenue, New York, NY 10166 | 7,035 | 15.32 | |||||||
| New York Community Bank* | 615 Merrick Avenue, Westbury, NY 11590-6644 | 4,093 | 8.91 | |||||||
| 19,847 | 43.22 | % | ||||||||
* At February 29, 2012 and December 31, 2011, officer of member bank also served on the Board of Directors of the FHLBNY.
Note 23.21. Subsequent Events.
Subsequent events for the FHLBNY are events or transactions that occur after the balance sheet date but before financial statements are issued. There are two types of subsequent events:
a. The first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements (that is, recognized subsequent events).
b. The second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date (that is, non-recognizednonrecognized subsequent events).
The FHLBNY has evaluated subsequent events through the date of this report and no significant subsequent events were identified other thanidentified.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A.CONTROLS AND PROCEDURES
(a)Evaluation of Disclosure Controls and Procedures: An evaluation of the following.
184
None
None
2010ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
2011 and 20112012 Board of Directors
The FHLBank Act, as amended by the Housing and Economic Recovery Act of 2008 (“HERA”), provides that an FHLBank’s board of directors is to comprise thirteen directors, or such other number as the Director of the Federal Housing Finance Agency determines appropriate. For each of 20102011 and 2011,2012, the FHFA Director designated seventeen directorships for the Bank,us, ten of which are Member Directorships and seven of which are Independent Directorships.
All individuals serving as Bank directors must be United States citizens. A majority of the directors serving on the Board must be Member Directors and at least two-fifths must be Independent Directors.
A Member Directorship may be held only by an officer or director of a member institution that is located within the Bank’sour district and that meets all minimum regulatory capital requirements. There are no other qualification requirements for Member Directors apart from the foregoing.
Member Directors are, generally speaking, elected by Bankour stockholders in, respectively, New York, New Jersey, and Puerto Rico and the U.S. Virgin Islands. The Bank’sOur Board of Directors is ordinarily not permitted to nominate or elect Member Directors; however, the Board may appoint a director to fill a vacant Member Directorship in the event that no nominations are received from members in the course of the Member Director election process. Each member institution that is required to hold stock as of the record date, which is December 31 of the year prior to the year in which the election is held, may nominate and/or vote for representatives from member institutions in its respective state to fill open Member Directorships. The Finance Agency’s election regulation provides that no director, officer, employee, attorneynone of our directors, officers, employees, attorneys or agent of the Bank,agents, other than in a personal capacity, may support the nomination or election of a particular individual for a Member Directorship.
An Independent Directorship may be held, generally speaking, only by an individual who is a bona fide resident of the Bank’sour district, who is not a director, officer, or employee of a member institution or of any person that receives advances from the Bank,us, and who is not an officer of any FHLBank. At least two Independent Directors must be “public interest” directors. Public interest directors, as defined by Finance Agency regulations, are Independent Directors who have at least four years of experience representing consumer or community interests in banking services, credit needs, housing or consumer financial protection. Pursuant to Finance Agency regulations, each Independent Director must either satisfy the aforementioned requirements to be a public interest director, or have knowledge or experience in one or more of the following areas: auditing and accounting, derivatives, financial management, organizational management, project development, risk management practices, and the law.
Our members are permitted to identify candidates to be considered by the Bankus to be included on the Independent Director nominee slate. The Bank’sOur Board of Directors is then required by Finance Agency regulations to consult with the Bank’sour Affordable Housing Advisory Council (“Advisory Council”) in establishing the nominee slate. (The Advisory Council is an
advisory body consisting of fifteen persons residing in the Bank’sour district appointed by the Bank’sour Board, the members of which are drawn from community and not-for-profit organizations that are actively involved in providing or promoting low and moderate income housing or community lending. The Advisory Council provides advice on ways in which the Bankwe can better carry out itsour housing finance and community lending mission.) After the nominee slate is approved by the Board, the slate is then presented to the Bank’sour membership for a district-wide vote. The election regulation permits the Bank’sour directors, officers, attorneys, employees, agents, and Advisory Council to support the candidacy of the board of director’s nominees for Independent Directorships.
185
The following table sets forth information regarding each of the directors of the FHLBNY who served on theour Board at any time during the period from January 1, 20102011 through the date of this annual report on Form 10-K. Unless otherwise specifically indicated by a footnote, all persons in the below table served continuously on the Board from January 1, 20102011 through the date of this annual report on Form 10-K. Footnotes are also used to specifically identify (i) those Directors who served on the Board only through December 31, 2011 or January 1, 2012; (ii) those directors who served on the Board in 20102011 and who were also elected to serve by Bankour members or the Bank for a new term on the Board commencing on January 1, 2011. After2012; and (iii) those Directors who were elected to serve by our members or the Board for a term on the Board commencing on January 1, 2012. Following table is biographical information for each director.
No director has any family relationship with any of our other directordirectors or executive officerofficers of the Bank.us. In addition, no director or executive officer has an involvement in any legal proceeding required to be disclosed pursuant to Item 401(f) of Regulation S-K.
| Start of | Expiration | Represents | ||||||||||||||||||
| Bank | Current | of Current | Bank | |||||||||||||||||
| Age as of | Director | Term | Term | Members | Director | |||||||||||||||
| Director Name | 3/25/2011 | Since | 1/1/ | 12/31/ | in | Type | ||||||||||||||
| Michael M. Horn (Chair) | 71 | 4/2007 | 2010 | 2013 | 2nd District | Independent | ||||||||||||||
| José Ramon González (Vice Chair) | 56 | 1/2004 | 2010 | 2013 | PR & USVI | Member | ||||||||||||||
John R. Burana | 61 | 12/2010 | 2011 | 2011 | NY | Member | ||||||||||||||
Anne Evans Estabrookb | 66 | 1/2004 | 2011 | 2014 | 2nd District | Independent | ||||||||||||||
Joseph R. Ficalorac | 64 | 1/2005 | 2011 | 2014 | NY | Member | ||||||||||||||
| Jay M. Ford | 61 | 6/2008 | 2009 | 2012 | NJ | Member | ||||||||||||||
| James W. Fulmer | 59 | 1/2007 | 2010 | 2013 | NY | Member | ||||||||||||||
Ronald E. Hermance, Jr.d | 63 | 1/2005 | 2011 | 2014 | NJ | Member | ||||||||||||||
| Katherine J. Liseno | 66 | 1/2004 | 2010 | 2013 | NJ | Member | ||||||||||||||
Kevin J. Lynchd | 64 | 1/2005 | 2011 | 2014 | NJ | Member | ||||||||||||||
| Joseph J. Melone | 79 | 4/2007 | 2010 | 2011 | 2nd District | Independent | ||||||||||||||
Richard S. Mrozb | 49 | 3/2002 | 2011 | 2014 | 2nd District | Independent | ||||||||||||||
| Thomas M. O’Brien | 60 | 4/2008 | 2009 | 2012 | NY | Member | ||||||||||||||
| C. Cathleen Raffaeli | 54 | 4/2007 | 2009 | 2012 | 2nd District | Independent | ||||||||||||||
| Edwin C. Reed | 57 | 4/2007 | 2009 | 2012 | 2nd District | Independent | ||||||||||||||
John M. Scarchillie | — | 8/2006 | — | — | NY | Member | ||||||||||||||
| DeForest B. Soaries, Jr. | 59 | 1/2009 | 2009 | 2011 | 2nd District | Independent | ||||||||||||||
| George Strayton | 67 | 6/2006 | 2009 | 2011 | NY | Member | ||||||||||||||
Director Name | Age as of | Bank | Start of | Expiration | Represents | Director | |||||||
Michael M. Horn (Chair) | 72 | 4/2007 | 1/1/10 | 12/31/13 | Districtwide | Independent | |||||||
José Ramon González (Vice Chair) | 57 | 1/2004 | 1/1/10 | 12/31/13 | PR & USVI | Member | |||||||
John R. Buran (a) | 62 | 12/2010 | 1/1/12 | 12/31/15 | NY | Member | |||||||
Anne Evans Estabrook | 67 | 1/2004 | 1/1/11 | 12/31/14 | Districtwide | Independent | |||||||
Joseph R. Ficalora | 65 | 1/2005 | 1/1/11 | 12/31/14 | NY | Member | |||||||
Jay M. Ford | 62 | 6/2008 | 1/1/09 | 12/31/12 | NJ | Member | |||||||
James W. Fulmer | 60 | 1/2007 | 1/1/10 | 12/31/13 | NY | Member | |||||||
Ronald E. Hermance, Jr. | 64 | 1/2005 | 1/1/11 | 12/31/14 | NJ | Member | |||||||
Thomas L. Hoy (b) | 63 | 1/2012 | 1/1/12 | 12/31/15 | NY | Member | |||||||
Katherine J. Liseno | 67 | 1/2004 | 1/1/10 | 12/31/13 | NJ | Member | |||||||
Kevin J. Lynch | 65 | 1/2005 | 1/1/11 | 12/31/14 | NJ | Member | |||||||
Joseph J. Melone (c) | 80 | 4/2007 | 1/1/12 | 12/31/15 | Districtwide | Independent | |||||||
Richard S. Mroz | 50 | 3/2002 | 1/1/11 | 12/31/14 | Districtwide | Independent | |||||||
Thomas M. O’Brien (d) | 61 | 4/2008 | 1/1/09 | 1/1/12 | NY | Member | |||||||
Vincent F. Palagiano (e) | 71 | 1/2012 | 1/1/12 | 12/31/12 | NY | Member | |||||||
C. Cathleen Raffaeli | 55 | 4/2007 | 1/1/09 | 12/31/12 | Districtwide | Independent | |||||||
Edwin C. Reed | 58 | 4/2007 | 1/1/09 | 12/31/12 | Districtwide | Independent | |||||||
DeForest B. Soaries, Jr. (c) | 60 | 1/2009 | 1/1/12 | 12/31/15 | Districtwide | Independent | |||||||
George Strayton (f) | 68 | 6/2006 | 1/1/09 | 12/31/11 | NY | Member |
(a)Mr. Buran served on the Board as a Member Director representing the interests of New York members throughout 2011, and his term expired on December 31, 2011. On November 14, 2011, Mr. Buran was elected by our membership to serve as a Member Director representing the interests of New York members for a new four year term commencing January 1, 2012.
(b)Mr. Hoy was elected on November 14, 2011 by our membership to serve as a Member Director representing the interests of New York members for a four year term commencing January 1, 2012.
(c)Mr. Melone and Rev. Soaries both served on the Board as Independent Directors representing the interests of members throughout our membership district throughout 2011, and their terms expired on December 31, 2011. On November 14, 2011, they were elected by our membership to serve as Independent Directors for new terms of four years each commencing January 1, 2012.
(d)Mr. O’Brien served on the Board as a Member Director representing the interests of New York members throughout 2011. He sent us a letter received on December 12, 2011 indicating that he would no longer be eligible to serve as a Member Director representing New York members once the pending merger of the institution of which he was President and Chief Executive Officer, our member State Bank of Long Island, Jericho, New York, with another entity located outside of the State of New York was concluded, and that as such he would resign from the Board on the effective date of the merger. Mr. O’Brien indicated in his letter that the effective date was expected to be January 2, 2012. The merger took place on January 1, 2012.
(e)On December 15, 2011, our Board voted to elect Mr. Palagiano to serve as a Member Director representing New York members effective upon the resignation from the Board of Mr. O’Brien, an event that took place on January 1, 2012. Mr. Palagiano will serve on the Board through and until December 31, 2012, the end date of the directorship that had been held by Mr. O’Brien.
(f)Mr. Strayton served on the Board as a Member Director representing the interests of New York members throughout 2011, and his term expired on December 31, 2011. He did not run again for another term.
Mr. Horn(Chair) has been a partner in the law firm of McCarter & English, LLP since 1990. He has served as the Commissioner of Banking for the State of New Jersey and as the New Jersey State Treasurer. He was also a member of the New Jersey State Assembly and served as a member of the Assembly Banking Committee. In addition, Mr. Horn served on New Jersey’s Executive Commission on Ethical Standards as both its Vice Chair and Chairman, was appointed as a State Advisory Member of the Federal Financial Institutions Examination Council, and was a member of the Municipal Securities Rulemaking Board. Mr. Horn is counsel to the New Jersey Bankers Association, chairman of the Bank Regulatory Committee of the Banking Law Section of the New Jersey State Bar Association, and a Fellow of the American Bar Foundation. He served as a director of Ryan Beck & Co. through February 27, 2007. Mr. Horn’s legal and regulatory experience, as indicated by his background, support his qualifications to serve on the Bank’sour Board of Directors as an Independent Director.
186
Mr. Buranis currently Director, President and Chief Executive Officer of Bank members Flushing Savings Bank and Flushing Commercial Bank, and also of Flushing Financial Corporation, the holding company for those two institutions. He joined Flushing Savings Bank and Flushing Financial Corporation in 2001 as Chief Operating Officer and he became a Director of these entities in 2003. In 2005, he was named President and Chief Executive Officer of Flushing Savings Bank and Flushing Commercial Bank. He became a Director, as well as President & CEO, of Flushing Commercial Bank in 2007. Mr. Buran’s career spans over 3035 years in the banking industry, beginning with Citibank in 1977. There he held a variety of management positions including Business Manager of their retail distribution in Westchester, Long Island and Manhattan and Vice President in charge of their Investment Sales Division. Mr. Buran left Citibank to become Senior Vice President, Division Head for Retail Services of NatWest Bank and later Executive Vice President of Fleet Bank’s (now Bank of America) retail branch system in New York City, Long Island, Westchester and Southern Connecticut. He also spent time as a consultant and Assistant to the President of Carver Bank. Mr. Buran has devoted his time to a variety of charitable and not-for profit organizations. He has been a board member of the Long Island Association, both the Nassau and Suffolk County Boy Scouts, Family and Children’s Association, EAS, Long Island University, the Long Island Philharmonic and Channel 21. He was the fundraising chairman for the Suffolk County Vietnam Veteran’s War Memorial in Farmingville, New York and has been recipient of the Boy Scouts’ Chief Scout Citizen Award. His work in the community has been recognized by Family and Children’s Association, and the Gurwin Jewish Geriatric Center. He was also a recipient of the Long Island Association’s SBA Small Business Advocate Award. Mr. Buran was honored with St. Joseph’s College’s Distinguished Service Award in 1998 and 2004. Today, he serves on the Board of Trustees of the College. Mr. Buran also serves as Audit Committee Chairmanon the Advisory Board and is former Board President of Neighborhood Housing Services of New York City. He is a Board member of The Korean American Youth Foundation. He is also currentlypast Chairman and a current board member of the New York Bankers Association as well as a Director of New York Bankers Service Corporation. Mr. Buran also serves on the board of the Long Island Conservatory. In 2011, he was appointed to the Community Depository Institutions Advisory Council of the Federal Reserve Bank of New York. He holds a B.S. in Management and an M.B.A., both from New York University.
Ms. Estabrookhas been chief executive of Elberon Development Co. in Cranford, New Jersey since 1984. It, together with its affiliated companies, owns approximately two million square feet of rental property. Most of the property is industrial with the remainder serving commercial and retail tenants. She is the past chairman of the New Jersey Chamber of Commerce and, until June 2007, served on its executive committee, and chaired its nominating committee. She previously served as a director on the board of New Brunswick Savings Bank. Ms. Estabrook also served as a member of the Lay Board of the Delbarton School in Morristown for 15 years, including five years as chair. Since 2005, Ms. Estabrook has served as a Director of New Jersey American Water Company, Inc. Until December 2010, Ms. Estabrook was a member and Secretary of the Board of Trustees of Catholic Charities, served on its Executive Committee and its Audit Committee, and chaired its Finance Committee and Building and Facilities Committees. She is presently on the Board of Overseers of the Weill Cornell Medical School, is a Trustee of St. Barnabas Corporation, and is also on the Board of Trustees of Monmouth Medical Center, where she serves on its Executive and Community Action Committees, and Chairs the Children’s Hospital Committee. Ms. Estabrook serves as a Member of the Liberty Hall Museum Board at Kean University in Union, NJ and serves on the Board of Trustees of the New Jersey Performing Arts Center (NJPAC). In April 2011, Ms. Estabrook was selected to serve on New Jersey Governor Chris Christie’s New Jersey Council on Higher Education as its Vice Chair. In September 2011, she became a member of the board of managers of the Theatre Square Development Company, LLC. Ms. Estabrook’s experience in, among other areas, representing community interests in housing, and in project development, as indicated by her background described above, support her qualifications to serve on the Bank’sour Board of Directors as a public interest director and Independent Director.
Mr. Ficalorahas been the President and Chief Executive Officer and a Director of New York Community Bancorp, Inc. (“NYCB”) since its inception on July 20, 1993 and1993. He has also been the President, and Chief Executive Officer and a Director of itsNYCB primary subsidiaries, Bank member New York Community Bank (“New York Community”) and Bank member New York Commercial Bank (“New York Commercial”), both of which are our members, since January 1, 1994 and
December 30, 2005, respectively. On January 1, 2007, he was appointed Chairman of New York Community Bancorp, Inc., New York Community and New York Commercial (a position he previously held at New York Community Bancorp, Inc. from July 20, 1993 through July 31, 2001 and at New York Community from May 20, 1997 through July 31, 2001); he served as Chairman of these three entities until December 2010. Since 1965, when he joined New York Community (formerly Queens County Savings Bank), Mr. Ficalora has held increasingly responsible positions, crossing all lines of operations. Prior to his appointment as President and Chief Executive Officer of New York Community in 1994, Mr. Ficalora served as President and Chief Operating Officer (beginning in October 1989); before that, he served as Executive Vice President, Comptroller and Secretary. A graduate of Pace University with a degree in business and finance, Mr. Ficalora provides leadership to several professional banking organizations. In addition to previously serving as a member of the Executive Committee and as Chairman of the former Community Bankers Association of New York State, Mr. Ficalora is a Director of the New York State Bankers Association and Chairman of its Metropolitan Area Division; in addition,Division. Additionally, he is a member of the Board of Directors of the American Bankers Association. He also serves on the Board of Directors of RSI Retirement Trust, Pentegra Services, Inc., and of Peter B. Cannell and Co., Inc., an investment advisory firm that became a subsidiary of New York Community in 2004. Mr. Ficalora served as a member of the Board of Directors of the Thrift Institutions Advisory Council of the Federal Reserve Board in Washington, D.C., and also served as a member of the Thrift Institutions Advisory Panel of the Federal Reserve Bank of New York. Mr. Ficalora has also previously served as a director of Computhrift Corporation, Chairman and board member of the New York Savings Bank Life Insurance Fund, President and Director of the MSB Fund and President and Director of the Asset Management Fund Large Cap Equity Institutional Fund, Inc. With respect to community activities, Mr. Ficalora has been a member of the Board of Directors of the Queens Chamber of Commerce since 1990 and a member of its Executive Committee since April 1992. In addition, Mr. Ficalora is President of the Queens Borough Public Library and the Queens Library Foundation Board, and serves on the Boards of Directors of the New York Hall of Science, New York Hospital-Queens, Flushing Cemetery, and on the Advisory Council of the Queens Museum of Art.
187
Mr. Fulmerhas been a director of Bank member The Bank of Castile since 1988, the Chairman since 1992, Chief Executive Officer since 1996, and President since 2002. Mr. Fulmer hasis also been Vice Chairman of Tompkins Financial Corporation (“Tompkins Financial”), the parent company of The Bank of Castile, since 2007, and has served as President and a Director of Tompkins Financial Corporation since 2000. Since 2001, he has served as Chairman of the Board of Tompkins Insurance Agencies, Inc. and, since 2006, he has, a subsidiary of Tompkins Financial. He also served as Chairman of AM&M Financial Services, Inc., both subsidiaries another subsidiary of Tompkins Financial, Corporation.from 2006 until its merger with Tompkins Financial Advisors, also a subsidiary of Tompkins Financial, in January 2011. Mr. Fulmer currently serves as a Director of Tompkins Financial Advisors. In addition, since 1999, Mr. Fulmer has served as a member of the board of directors of Bank member Mahopac National Bank, which is also a subsidiary of Tompkins Financial Corporation. He served as the President and Chief Executive Officer of Letchworth Independent Bancshares Corporation from 1991 until its merger with Tompkins Financial Corporation in 1999. Before joining The Bank of Castile, Mr. Fulmer held various executive positions with Fleet Bank of New York (formerly known as Security New York State Corporation and Norstar Bank) for approximately 12 years. He is an active community leader, serving as a member of the Board of Directors of the Erie & Niagara Insurance Association, Buffalo, NY, Cherry Valley Insurance Company, Buffalo, NY, and United Memorial Medical Center in Batavia, New York,York. Mr. Fulmer is also a board member and treasurer of WXXI Public Broadcasting Council and the Genesee County Economic Development Center. Mr. Fulmerin Rochester, NY. He is a former director of the Monroe Title Corporation and the Catholic Heath System of Western New York. He is also a former president of the Independent Bankers Association of New York State and a former member of the Board of Directors of the New York Bankers Association.
Mr. Hermance, Chairman and Chief Executive Officer of Bank member Hudson City Savings Bank, Paramus, New Jersey, has over 20 years of service with that institution. He joined Hudson City as Senior Executive Vice President and Chief Operating Officer and was also named to the Board of Directors. In 1997, he was promoted to President, and he served in that position through December 14, 2010. On January 1, 2002, he also became Chief Executive Officer. On January 1, 2005, Mr. Hermance assumed the title of Chairman in addition to his other titles. Mr. Hermance is also currently Chairman and Chief Executive Officer of Hudson City Bancorp, the parent company, which trades on the NASDAQ. HeMr. Hermance serves as a member of the Thrift Institutions Advisory PanelBoard of the Federal Reserve Bank of New York, and as a trusteeTrustees of St. John Fisher College.
Mr. Hoy serves as Chairman and CEO of Bank member Glens Falls National Bank and Trust Company. He is also Chairman, President and CEO of Arrow Financial Corporation, the holding company for Glens Falls National Bank and Trust Company and Bank member Saratoga National Bank and Trust Company. Mr. Hoy joined Glens Falls National Bank in 1974 as a Management Trainee and became President of the Bank on January 1, 1995. He became President of Arrow in 1996 and CEO in 1997. Mr. Hoy is a graduate of Cornell University and has been active in various banking organizations, including serving as past President of the Independent Bankers Association of New York, past Chairman of the New York Bankers Association, and past member of the American Bankers Association Board of Directors. Mr. Hoy served four years on active duty in the Navy as a Surface Warfare Officer on various
destroyers, and retired after twenty years as a Commander in the U.S. Naval Reserve. He has been extremely active in his community, serving on numerous Boards and leading several community fundraising efforts. He has been recognized for his community service with the J. Walter Juckett Award from the Adirondack Regional Chambers of Commerce, the Twin Rivers Council’s Good Scout Award and the C.R. Wood Theater’s Charles R. Wood Award.
Ms. Lisenohas been President and Chief Executive Officer of Bank member Metuchen Savings Bank since 1979, having begun her career with the bank in 1962. She currently serves on the New Jersey Bankers Association’s Government Relations Committee, and she also currently serves on the Board of the Thrift Institutions Community Investment Corp. (TICIC), a subsidiary of the New Jersey Bankers Association. Ms. Liseno is also a trustee of the Jersey Bankers Political Action Committee (JEBPAC), formerly known as the Savings Association Political Election Committee of the New Jersey Bankers Association (SAPEC-NJ). Ms. Liseno was a member of the Legislative and Regulatory Affairs Committee of the New Jersey League of Community Bankers (“New Jersey League”), the predecessor of the New Jersey Bankers Association; she also served on the New Jersey League’s Executive Committee and was the Chairman of the Board of Governors of the New Jersey League. Ms. Liseno also served on the Board of Bankers Cooperative Group, Inc. She is also past president of the Central Jersey Savings League.
Mr. Lynchhas been President and Chief Executive Officer of Bank member Oritani Bank, headquartered in the Township of Washington, New Jersey, since July 1, 1993. He has also been President and Chief Executive Officer of Oritani Financial Corporation, the holding company of Oritani Bank, since its formation in 1998. Mr. Lynch has also served as Chair of the two aforementioned entities since August of 2006; prior to that time, he served as a Director. Mr. Lynch is a former Chairman of the New Jersey League of Community Bankers and served as a member of its Board of Governors for several years and also served on the Board of its subsidiary, the Thrift Institutions Community Investment Corp. (TICIC). Mr. Lynch is a member of the Professional Development and Education Committees of the American Bankers Association. He was a member of the Board of Directors of the Pentegra Defined Benefit Plan For Financial Institutions from 1997 through 2007, and was Chair of that Board in 2004 and 2005 and Vice Chair in 2002 and 2003, and has been a member of the Board of Pentegra Services, Inc. since 2007. He is a member of the American Bar Association and a former member of the Board of Directors of Bergen County Habitat for Humanity. Mr. Lynch is also a member of the Board of Directors of the Hackensack Main Street Business Alliance. Prior to appointment to his current position at Oritani Bank in 1993, Mr. Lynch was Vice President and General Counsel of a leasing company and served as a director of Oritani Bank. Mr. Lynch earned a Juris Doctor degree from Fordham University, an LLM degree from New York University, an MBA degree from Rutgers University and a BA in Economics from St. Anselm’s College.
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Mr. Mroz,of Haddonfield, New Jersey, is a government and public affairs consultant and lawyer. Mr. Mroz has been the sole proprietor of a government and public affairs consulting business since January 1, 2010. From January 1, 2007 until December 2009, he served as President of Salmon Ventures, Ltd, a firm with which he maintains an affiliation. Salmon Ventures is a non-legal government, regulatory and public affairs consulting firm. Mr. Mroz represents clients in New Jersey and nationally in connection with legislative, regulatory and business development affairs. Mr. Mroz, as a governmental affairs agent, is an advocate for clients in the utility, real estate, insurance and banking industries for federal, state, and local regulatory, administrative, and legislative matters. In his law practice he concentrates on real estate, corporate and regulatory issues. In this regard, Mr. Mroz became, as of March 1, 2011, Of Counsel to the law firm of Archer & Greiner. From April 1, 2007 through the end of February 2011, he was Of Counsel to the law firm of Gruccio, Pepper, DeSanto & Ruth. Prior to that, he was Of Counsel to the law firm of Stradley Ronon Stevens & Young, LLP for six years, until December 31, 2006. Mr. Mroz has a distinguished record of community and public service. He is the former Chief Counsel to New Jersey Governor Christine Todd Whitman, serving in that position in 1999 and 2000. Prior to that, he served in various capacities in the Whitman Administration, including Special Counsel, Director of the Authorities, and member of the Governor’s Transition Team. He served as County Counsel for Camden County, New Jersey, from 1991 to 1994. Mr. Mroz is also active in community affairs, serving on the board of directors for the New Jersey Alliance for Action and also as the Chairman of the Board of the Volunteers for America, Delaware Valley. Mr. Mroz currently serves as counsel to the New Jersey Conference of Mayors, and was former counsel to the Delaware River Bay Authority and to the Atlantic City Hotel and Lodging Association. He was also, through December 31, 2010, the solicitor for the Waterford Township, N.J., Planning Board. He has been a frequent commentator on Philadelphia radio and TV stations regarding election and political issues. Mr. Mroz’sThe legal and regulatory experience of Mr. Mroz, as indicated by his background, support his qualifications to serve on the Bank’sour Board of Directors as an Independent Director.
Mr. O’Brienjoined Bank member State Bank of Long Island as President, CEO and director in November of 2006, following six years serving as the President, CEO and director of Atlantic Bank of New York. Since November of 2006,During this time, he has also served as aPresident, CEO and director of State Bancorp, Inc., the holding company of State Bank of Long Island. On January 1, 2012, Valley National Bancorp acquired State Bancorp, Inc. and concurrently Valley National Bank
acquired State Bank of Long Island. When these events occurred, Mr. O’Brien’s positions with these entities terminated, and he left the Board of the Federal Home Loan Bank of New York. Mr. O’Brien presently serves as a consultant to Valley National Bank. He previously served as Vice Chairman of North Fork Bancorporation as well as Chairman of the Board, President and CEO of North Side Savings Bank. Mr. O’Brien is a past Chairman of the New York Bankers Association. He serves as an independent trustee of Prudential Insurance Company’s Mutual Fund Complex, a trustee of the Catholic Healthcare System of New York and Catholic Healthcare Foundation, and a trustee of Niagara University. He has been a trustee of Molloy College, a member of the National Advisory Board of Fannie Mae and an advisory board member for Neighborhood Housing Services of New York City.
Mr. Palagiano has served as Chairman of the Board and CEO of Bank member The Dime Savings Bank of Williamsburgh (“Dime Savings”) since 1989 and of the holding company for the Bank, Dime Community Bancshares, Inc. (“Dime Community”), since its formation in 1995. He has served as a Trustee or Director of the Dime Savings since 1978. In addition, Mr. Palagiano has served on the Board of Directors of the Boy Scouts of America, Brooklyn Division since 1999, and served on the Boards of Directors of the Institutional Investors Capital Appreciation Fund from 1996 to 2006, and The Community Bankers Association of New York from 2001 to 2005. Mr. Palagiano joined Dime Savings in 1970 as an appraiser and has also served as President of both Dime Community and Dime Savings, and as Executive Vice President, Chief Operating Officer and Chief Lending Officer of Dime Savings. Prior to 1970, Mr. Palagiano served in the real estate and mortgage departments at other financial institutions and title companies.
Ms. Raffaelihas been the President and Managing Director of the Hamilton White Group, LLC since 2002. The Hamilton White Group is an investment and advisory firm dedicated to assisting companies grow their businesses, pursue new markets and acquire capital. From 2004 to 2006, she was also the President and Chief Executive Officer of the Cardean Learning Group. Additionally, she served as the President and Chief Executive Officer of Proact Technologies, Inc. from 2000 to 2002 and Consumer Financial Network from 1998 to 2000. Ms. Raffaeli also served as the Executive Director of the Commercial Card Division of Citicorp and worked in executive positions in Citicorp’s Global Transaction Services and Mortgage Banking Divisions from 1994 to 1998. She has also held senior positions at Chemical Bank and Merrill Lynch. Ms. Raffaeli servesserved on the Board of Directors of E*Trade from 2003 through 2011 and formerly served on the Board of American Home Mortgage Holdings, Inc.Financial Corporation from 1998 through 2010. She currently serves on three university and college boards. Ms. Raffaeli’s financial and other management experience, as indicated by her background described above, support her qualifications to serve on the Bank’sour Board of Directors as an Independent Director.
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Mr. Scarchilliwas, until his passing on June 5, 2010, President and Chief Executive Officer of Bank member Pioneer Savings Bank, headquartered in Troy, New York (where he had that title since 1997), and a member of the Board of Trustees. Mr. Scarchilli was a graduate of Hudson Valley Community College in Troy and had a Bachelor’s Degree in Accounting from Siena College. Mr. Scarchilli also served as President, CEO and Director of Pioneer Commercial Bank and served as Chairman of the Board of PSB Financial Services, Inc., both wholly-owned subsidiaries of Pioneer Savings Bank. He was also a Director of the New York Bankers Association and was Chairman of that Association through February 9, 2009. He was a Director of the American Bankers Association, a national banking trade organization, in 2008. Mr. Scarchilli served as a member of the Thrift Institutions Advisory Panel of the Federal Reserve Bank of New York, served as a Director on the Banking Board of the New York State Banking Department, and also served as a Director of the Independent Bankers Association of New York State. Through January 8, 2007, Mr. Scarchilli served as a Director of Asset Management Fund Large Cap Equity Fund Institutional Fund, Inc. In 2005, Mr. Scarchilli served as a trustee on the RSI Retirement Trust Board. Mr. Scarchilli also served on numerous not-for-profit boards in the local community. He was a Director of the Center for Economic Growth and Co-Chair of Troy 20/20. Additionally, he served as a member of the Audit and Compliance Committee of Ordway Research Institute.
Mr. Straytonhas been was President, Chief Executive Officer and a Directordirector of Bank member Provident Bank, an independent full servicefull-service community bank with $3.0 billion in assets headquartered in Montebello, New York, since 1986.from 1986 until July of 2011. He iswas also President, Chief Executive Officer and a Directordirector of Provident New York Bancorp, the holding company of Provident Bank, and of Provident Municipal Bank. In July, 2011, Mr. Strayton is retired from most of the foregoing positions, but continued to serve as a director of Provident New York Bancorp and as a director of Provident Bank. He also
currently serves as a director of Orange & Rockland Utilities. At the time of his retirement, Mr. Strayton was a director of the New York Bankers Association, and a member of the Government Affairs Committee of the American Bankers Association.Association and a director of the New York Business Development Corporation. He also currently servesserved on the Community Depository Institutions Advisory Council of the Federal Reserve Bank of New York. Further, he serves as a director of Orange & Rockland Utilities and the New York Business Development Corporation. Mr. Strayton’s career includesincluded chairmanships of the Community Bankers Association of New York State, St. Thomas Aquinas College, Rockland Business Association, Rockland County Boy Scouts of America, and Rockland United Way, among other local organizations.
The following sets forth the executive officers of the FHLBNY at December 31, 20102011 and as of the date of this annual report on Form 10-K. The Bank hasreport. We have determined that itsour executive officers are those officers who are members of the Bank’sour internal Management Committee. All Bank officers are “at will” employees and do not serve for a fixed term.
Management | |||||||||||
Age as of | Employee of | Committee | |||||||||
Executive Officer | Position held as of 3/27/ | 3/27/ | Bank Since | Member Since | |||||||
Alfred A. DelliBovi | President & Chief Executive Officer | 66 | 11/30/92 | 03/31/04 | |||||||
Eric P. Amig | Senior Vice President & Director of Bank Relations | 53 | 02/01/93 | 01/01/09 | |||||||
John F. Edelen | Senior Vice President & Chief Risk Officer | 50 | 05/27/97 | 01/01/11 | |||||||
G. Robert Fusco * | Senior Vice President, CIO & Head of Enterprise Services | 53 | 03/02/87 | 05/01/09 | |||||||
Adam Goldstein | Senior Vice President & Head of | 38 | 07/14/97 | 03/20/08 | |||||||
Paul B. Héroux | Senior Vice President & Head of Member Services | 53 | 02/27/84 | 03/31/04 | |||||||
Peter S. Leung | Senior Vice President & Head of Asset Liability Management | 57 | 01/20/04 | 03/31/04 | |||||||
Patrick A. Morgan | Senior Vice President & Chief Financial Officer | 71 | 02/16/99 | 03/31/04 | |||||||
Kevin M. Neylan | Senior Vice President, | 54 | 04/30/01 | 03/31/04 | |||||||
Craig E. Reynolds ** | Senior Vice President, Asset Liability Management | 63 | 06/27/94 | 03/31/04 | |||||||
*Left employment 1/8/93; rehired 5/10/93.
**Retired on 3/4/11. Position listed as held in this table is position held as of that date.
Alfred A. DelliBoviwas elected President of the Federal Home Loan Bank of New York in November 1992. As President, he serves as the Chief Executive Officer and directs the Bank’sour overall operations to facilitate the extension of credit products and services to the Bank’sour member-lenders. Since 2005, Mr. DelliBovi has been a member of the Board of Directors of the Pentegra Defined Contribution Plan for Financial Institutions; he previously served on this board from 1994 through 2000. Since October, 2009, he has served on the Board of Directors of the Pentegra Defined Benefit Plan for Financial Institutions; he previously served on this board from 2001 through 2003. In addition, Mr. DelliBovi was appointed by the U.S. Department of the Treasury in September 2006 to serve as a member of the Directorate of the Resolution Funding Corporation, and he was appointed Chairman in September 2007; he served on this board until October 2009. In November 2009, Mr. DelliBovi was appointed to serve as Chair of the Board of the Financing Corporation (“FICO”). Mr. DelliBovi previously served on the FICO Board as Chair from November 2002 through November 2003, and also served as Vice Chair of the FICO Board from November 1996 to November 1997. Since July, 2010, Mr. DelliBovi, along with the eleven other FHLBank Presidents and five independent directors, has served as a Director of the Office of Finance of the Federal Home Loan Banks. In December 2011, Mr. DelliBovi was named to the Bipartisan Policy Center’s Housing Commission. This 17 member national commission is in the process of developing a package of realistic and actionable policy recommendations to address the nation’s troubled housing sector. Prior to joining the Bank, Mr. DelliBovi served as Deputy Secretary of the U.S. Department of Housing and Urban Development from 1989 until 1992. In May 1992, President Bush appointed Mr. DelliBovi Co-Chairman of the Presidential Task Force on Recovery in Los Angeles. Mr. DelliBovi served as a senior official at the U.S. Department of Transportation in the Reagan Administration, was elected to four terms in the New York State Assembly, and earned a Master of Public Administration degree from Bernard M. Baruch College, City University of New York.
Eric P. Amighas servedjoined us as Director of Bank Relations since joining the Bank in February 1993. In January of 2009 he was named Head of Bank Relations. From 1985 through January 1993, he worked in the U.S. Department of Housing and Urban Development; during this time he served as Special Assistant to the Deputy Secretary from 1990-1993. Mr. Amig has also served as a legislative aide into the President Pro Tempore of the Pennsylvania State Senate and was the Executive Director of the Federal/State Relations Committee of the Pennsylvania House of Representatives.
Adam Goldsteinwas named Head of Marketing and Sales in March 2008; in this role, he leads the Sales, Marketing Communications and Business Research and Development efforts at the Bank. He joined the Bank in June 1997 and has held a number of key positions in the Bank’s sales and marketing areas. In addition to an undergraduate degree from the SUNY College at Oneonta and an M.B.A. in Financial Marketing from SUNY Binghamton University, Mr. Goldstein has received post-graduate program certifications in Business Excellence from Columbia University, in Management Development from Cornell University, and in Management Practices from New York University.
G. Robert Fuscowas named Chief Information Officer and Head of Technology and Support Services in May 2009. In June 2009, he reorganized the Technology and Support Services area as Enterprise Services and is currently CIO and Head of Enterprise Services. Mr. Fusco is responsible for all of the Bank’sour marketing, technology, telecommunications, records management, business continuity and facilities services. He also serves as the Bank’s Director of Minority and Women Inclusion. Mr. Fusco has been with the Bankus since April 1987. During his 2324 years at the Bank, he has held various management positions in Information Technology, including IT Director starting in 2000, Chief Technology Officer starting in 2006, and CIO in 2008. Mr. Fusco received an undergraduate degree from the State University of New York at Stony Brook. He has earned numerous post-graduate technical and management certifications throughout his career, and is a graduate of the American Bankers Association National Graduate School of Banking. Prior to joining the Bank, Mr. Fusco held positions at Citicorp and the Federal Reserve Bank of New York.
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the SUNY College at Oneonta and an M.B.A. in Financial Marketing from SUNY Binghamton University, Mr. Goldstein has received post-graduate program certifications in Business Excellence from Columbia University, in Management Development from Cornell University, in Management Practices from New York University, and in Finance from The New York Institute of Finance.
Paul B. Hérouxwas named Head of Member Services in March 2004; in this role, he oversees several functions, at the Bank, including Credit and Correspondent Services, Collateral Services Acquired Member Assets and Community Investment/Affordable Housing Operations. Mr. Héroux joined the Bank in 1984 as a Human Resources Generalist and served as the Director of Human Resources from 1988 to 1990. InDuring his tenure, with the Bank, he has held other key positions including Director of Financial Operations and Chief Credit Officer. He received an undergraduate degree from St. Bonaventure University and is a graduate of the Columbia Senior Executive Program as well as the ABA Stonier National Graduate School of Banking. Prior to joining the Bank,us, Mr. Héroux held positions at Merrill Lynch & Co. and E.F. Hutton & Co.
Peter S. Leungjoined the Bankus as Chief Risk Officer in January 2004, and served in that position until December, 2010. He was named Head of Asset Liability Management in January 2011. Mr. Leung has more than twenty-fourtwenty-six years experience in the Federal Home Loan Bank System. Prior to joining the Bank,us, Mr. Leung was the Chief Risk Officer of the Federal Home Loan Bank of Dallas for three years, and the Associate Director and then Deputy Director of the Office of Supervision of the Federal Housing Finance Board for a total of 11 years. He also served as an examiner with the Federal Home Loan Bank of Seattle and with the Office of Thrift Supervision for a total of four years in the 1980’s. Mr. Leung is a CPA and has an undergraduate degree from SUNY at Buffalo and an M.B.A. from City University, Seattle, Washington.
Patrick A. Morganwas named the Chief Financial Officer in March 2004. Mr. Morgan joined the FHLBNYus in 1999 after more than fifteen years in the financial services industry including working for one of the largest international banks in the U.S. Prior to that, Mr. Morgan was a senior audit manager with one of the Big Four public accounting firms. He is a CPA and a member of the New York State Society of CPAs and the American Institute of CPAs.
Kevin M. Neylanwas named Head of Strategy and Business DevelopmentFinance in January 2009.2012. He was previously Head of Strategy and Business Development from January 2009 through December 2011, Head of Strategy and Organizational Performance from January 2005 to December 2008, and was Director, Strategy and Organizational Performance from January 2004 to December 2004. He will become Chief Financial Officer upon the retirement of Patrick Morgan. Mr. Neylan is currently responsible for developing and monitoring the execution of the Bank’sour business strategy. He is also responsible forstrategy and overseeing the Bank’s Sales and Marketing,our Finance, Human Resources and Legal functions. Mr. Neylan had approximately twenty years of experience in the financial services industry prior to joining the Bankus in April 2001. He was a partner in the financial service consulting group of one of the Big Four accounting firms. He holds an M.S. in corporate strategy from the MIT Sloan School of Management and a B.S. in management from St. John’s University.
Craig E. Reynoldswas named Head of Asset Liability Management in March 2004, and served in that capacity through December 2010. Mr. Reynolds then served as Senior Vice President, Asset Liability Management until his retirement from the Bank on March 4, 2011. Prior to March 2004, he served as Treasurer of the Bank.Treasurer. Mr. Reynolds joined the FHLBNYus in 1994 after more than 22 years in banking, with almost half this time spent working abroad in international banking. He was the treasurer of a U.S. bank’s branch in Tokyo and later resided in Riyadh, Saudi Arabia as the treasurer of a Saudi Arabian bank for over five years. He received an undergraduate degree from Manhattan College in the Bronx, New York.
In accordance with correspondence from the Office of Chief Counsel of the Division of Corporation Finance of the U.S. Securities and Exchange Commission dated August 26, 2005, Directors, officers and 10% stockholders of the Bank are exempted from Section 16 of the Securities Exchange Act of 1934 with respect to transactions in or ownership of Bank capital stock.
Audit Committee
The Audit Committee of the FHLBNY’sour Board of Directors is primarily responsible for overseeing the services performed by the FHLBNY’sour independent registered public accounting firm and internal audit department, evaluating the FHLBNY’sour accounting policies and its system of internal controls and reviewing significant financial transactions. For the period from January 1, 20102011 through the date of the filing of this annual report on Form 10-K, the members of the Audit Committee included: Anne E. Estabrook (Chair)(2011 Chair), Katherine J. Liseno (Vice Chair), John R. Buran, Joseph R. Ficalora, Jay M. Ford (2012 Chair), José R. González, Michael M. Horn, Thomas L. Hoy, Joseph J. Melone and John M. Scarchilli.Richard S. Mroz. As of the date of the filing of this annual report on Form 10-K, the members of the Audit Committee are: Anne Evans EstabrookJay M. Ford (Chair), Katherine J. Liseno (Vice Chair), John R. Buran, Joseph R. Ficalora, Jay M. Ford, José R. González, Michael M. Horn, Thomas L. Hoy, Joseph J. Melone.
Audit Committee Financial Expert
Our Board of Directors has determined that for the period from January 1, 20102011 through the date of the filing of this annual report on Form 10-K, José R González of the FHLBNY’s Audit Committee qualified as an “audit committee financial expert” under Item 407 (d) of Regulation S-K but was not considered “independent” as the term is defined by the rules of the New York Stock Exchange.
Code of Ethics
It is the duty of the Board of Directors to oversee the Chief Executive Officer and other senior management in the competent and ethical operation of the FHLBNY on a day-to-day basis and to assure that the long-term interests of the shareholders are being served. To satisfy this duty, the directors take a proactive, focused approach to their position, and set standards to ensure that the FHLBNY iswe are committed to business success through maintenance of the highest standards of responsibility and ethics. In this regard, the Board has adopted a Code of Business Conduct and Ethics that applies to all employees as well as the Board. The Code of Business Conduct and Ethics is posted on the Corporate Governance Section of the FHLBNY’s website at http://www.fhlbny.com. The FHLBNY intendsWe intend to disclose any changes in or waivers from its Code of Business Conduct and Ethics by filing a Form 8-K or by posting such information on its website.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Introduction
About the Bank’s Mission
The mission of the Federal Home Loan Bank of New York (“Bank”, or “we”, “us” or “our”) is to advance housing opportunity and local community development by maximizing the capacity of its community-based member-lenders to serve their markets.
We meet our mission by providing our members with access to economical wholesale credit and technical assistance through our credit products, mortgage finance programs, housing and community lending programs and correspondent services to increase the availability of home financefinancing to families of all incomes.
Achieving the Bank’s Mission
We operate in a very competitive market for financial talent. Without the capability to attract, motivate and retain talented employees, the ability of the Bank to fulfill itsour mission would be in jeopardy. All employees, and particularly senior and middle management, are frequently required to perform multiple tasks requiring a variety of skills. The Bank’sOur employees not only have the appropriate talent and experience to execute the Bank’sour mission, but they also possess skill sets that are difficult to find in the marketplace. In this regard, as of December 31, 2010, the Bank2011, we employed 268273 employees, a relatively small workforce for a New York City-based financial institution that had, as of that date, $100$97.7 billion in assets.
Compensation and Human Resources Committee Oversight of Compensation
Compensation is a key element in attracting, motivating and retaining talent. In this regard, it is the role of the Compensation and Human ResourcesC&HR Committee (“C&HR Committee”) of the Bank’s Board of Directors (“Board”) to:
1.review and recommend to the Board changes regarding our compensation and benefits programs for employees and retirees;
2.review and approve individual performance ratings and related merit increases for our Chief Executive Officer and for the other Management Committee members;
3.review salary adjustments for Bank Officers;
4.review and approve annually the Bank’s Incentive Compensation Plan (“Incentive Plan”), year-end Incentive Plan results and Incentive Plan award payouts;
5.advise the Board on compensation, benefits and human resources matters affecting Bank employees;
6.review and discuss with Bank management the Compensation Discussion and Analysis (“CD&A”) to be included in our Form 10-K and determine whether to recommend to the Board that the CD&A be included in the Form 10-K; and
7.review and monitor compensation arrangements for our executives so that we continue to retain, attract, motivate and align quality management consistent with the investment rationale and performance objectives contained in our annual business plan and budget, subject to the direction of the Board.
The Board has delegated to the C&HR Committee the authority to retain and replace, and approve fees and other retention terms for: i) any compensation and benefits consultant to be used to assist in the evaluation of Chief Executive Officer’s compensation, and ii) any other advisors that it shall deem necessary to assist it in fulfilling its duties. The Charter of the C&HR Committee is available in the Corporate Governance section of the Bank’sour web site located at www.fhlbny.com.
The role of Bank management (including executive officers)Officers) with respect to compensation is limited to administering Board-approved programs and providing proposals for the consideration of the C&HR Committee. No member of Bank management serves on the Board or any Board committee.
Finance Agency Oversight of Executive Compensation
Notwithstanding the role of the C&HR Committee discussed in this CD&A, Section 1113 of the Housing and Economic Recovery Act of 2008 (“HERA”) requires that the Director of the Federal Housing Finance Agency (“Finance Agency”) prohibit a FHLBank from paying compensation to its executive officers that is not reasonable and comparable to that paid for employment in similar businesses involving similar duties and responsibilities. In connection with the fulfillment of these responsibilities, the Finance Agency on October 1, 2008 directed the FHLBanks to submit all compensation actions involving a Named Executive Officer (“NEO”) to the Finance Agency for review at least four weeks in advance of any planned board of directors’ decision with respect to those actions.
Compensation decisions for all of the Bank’s NEOs require action of the C&HR Committee of the Board of Directors. However, for purposes of complying with the four-week review period required by the Finance Agency’s October 1, 2008 letter prior to the taking of final action by the C&HR Committee, the Bankwe submitted to the regulator on November 18, 20102011 proposed 20102011 merit-related base pay increases for 2011;2012; further, the Bankwe submitted to the regulator on December 13, 2010,February 15, 2012, proposed 20102011 incentive award payments to be paid in 2011.2012. The aforementioned merit-related base pay increases were implemented and incentive
award payments made after the expiration of the four-week period and following final approval by the C&HR Committee.
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1.Executive compensation must be reasonable and comparable to that offered to executives in similar positions at other comparable financial institutions.
2.Executive incentive compensation should be consistent with sound risk management and preservation of the par value of the capital stock.
3.A significant percentage of an executive’s incentive-based compensation should be tied to longer-term performance and outcome-indicators.
4.A significant percentage of an executive’s incentive-based compensation should be deferred and made contingent upon performance over several years.
5.The board of directors of each FHLBank and the Office of Finance should promote accountability and transparency in the process of setting compensation.
While the Bank believeswe believe that itsour compensation programs align well against each of these principles, the Bankwe also reviewsreview compensation programs annually to ensure that it continuesthey continue to meet our needs.
On April 14, 2011, federal banking regulators, including the Bank’s needs.
How the Bank StaysWe Stay Competitive in the Labor Market
The C&HR Committee-recommended and Board-approved Compensation Policy acknowledges and takes into account the Bank’sour business environment and factors the Bank takes into account to remain competitive in itsthe labor market. The major components of the Compensation Policy, which is currently in effect, include the following:
·Maintenance of an overall greater emphasis on base salary and benefits (versus annual and long-term incentives) than would be typical of regional/commercial banks.
·The use of regional/commercial banks (see the peer group list in Section I below) as the primary peer group for benchmarking at the 50th percentile of total compensation (a) cash compensation (i.e., base salary, and, for exempt employees, “variable” or “at risk” short-term incentive compensation): and (b) health and welfare programs and other benefits); discounted for purposes of establishing competitive pay levels by 15% to account for the incremental value provided by our benefit programs.
·A philosophical determination to match officer positions one position level down versus commercial/regional banks. The rationale is that officer positions at commercial/regional banks may manage multiple business lines in multiple locations. In addition, we generally recruit senior level positions from a ‘divisional’ level at large commercial/regional banks and not the higher ‘corporate’ level.
·The targeting of cash compensation pay at the 75th percentile of the FHLBanks where regional/commercial bank data is not available. The 15% discount to account for the incremental value provided by our benefit programs will not be applied to benchmark results from the other FHLBanks, as the other FHLBanks offer similar benefits.
·A commitment to conduct detailed cash compensation benchmarking for approximately one-third of officer positions each year. (In this regard, we use benchmarking information from Aon Consulting, Inc. as well as a variety of other reputable sources.)
·A commitment to evaluate the value of total compensation delivered to employees including base pay, incentive compensation, retirement and health and welfare benefits in determining market competitiveness every third year.
Additional factors that the Bank takeswe take into account to remain competitive in its labor market include, but are not limited to:
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·Cost of living — The New York metropolitan area has a high cost of living that may require compensation premiums for some positions, particularly at more junior levels; and
·Availability of/demand for talent — Recruiting critical positions with high market demand typically requires a recruiting premium to entice an individual to change firms.
The Bank’s Total Compensation Program
In response to the challenging economic environment that the Bank operates in which we operate, compensation and benefits at the Bank consist of the following components: (a) cash compensation (i.e., base salary, and, for exempt employees, “variable” or “at risk” short-term incentive compensation); (b) retirement-related benefits (i.e., the Qualified Defined Benefit Plan; the Qualified Defined Contribution Plan; and the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan (“DB BEP”)) and (c) health and welfare programs and other benefits which are listed in Section IV C below. These components, along with certain benefits described in the next paragraph, comprised the Bank’sour total compensation program for 2010,2011, and are discussed in detail in Section IV below.
This CD&A provides information related to the Bank’s total compensation program provided to itsour NEOs for 20102011 — that is, the Bank’sour Principal Executive Officer (“PEO”), Principal Financial Officer (“PFO”) and the three most highly-compensated executive officers other than the PEO and PFO. The information includes, among other things, the objectives of the Bank’s total compensation program and the elements of compensation the Bank providesprovided to itsour NEOs. These compensation programs are not exclusive to the NEOs; they also apply to all Bank employees as explained throughout the CD&A.
I. Objectives of the Bank’s total compensation program
The objectives of the Bank’s total compensation program (described above) are to help motivate employees to achieve consistent and superior results over a long period of time for the Bank, and to provide a program that allows the Bankus to compete for and retain talent that otherwise might be lured away from the Bank. The Bankaway. Our low turnover rate and retention of itsour key employees is evidence that the Bank’s total compensation program is working.
Compensation and Benefit Study
In June, 2006 the Committee engaged compensation specialists Aon Consulting, Inc., and its subsidiary, McLagan Partners, Inc.(“McLagan”), which focuses on executive compensation (collectively, “Aon”), to perform a broad and comprehensive review of all the Bank’s compensation and benefits programs for all employees, including NEOs. To assist the C&HR Committee’s review of the process, the Committee engaged another compensation and benefits consultant, Pearl Meyers and Partners (“Pearl Meyers”), to serve as a ‘check and balance’ with regard to the process. (Aon Consulting, Inc. had, prior to this engagement, been retained by the Bank with regard to matters pertaining to retiree medical benefits reporting, and had also been involved with a review of actuarial assumptions and valuations used by the administrator of the Bank’sour Defined Benefit and Benefit Equalizations Plans. McLagan had also been previously engaged by the Bank for compensation consulting purposes. Aon continued providing the services listed above to the Bank in 2010.2011.)
Aon was specifically instructed by the C&HR Committee to: (i) determine how the Bank’s compensation and benefit programs and level of rewards were compared to and aligned with the market; (ii) ascertain the current and projected costs of each Bank benefit and identify ways to control these costs; (iii) determine the optimal mix of compensation and benefits for the Bank;benefits; and (iv) determine if there were alternative benefit structures that should be considered. Aon was informed of the Bank’sour continued desire to attract, motivate and retain talented employees.
A major undertaking for Aon during the review process was to identify the Bank’s peer groupgroups for “benchmarking” purposes (that is, for purposes of comparing levels of benefits and compensation). Aon weighed a number of factors in order to arrive at the selection of a peer group. Among the factors considered were firms that were either business competitors or labor market competitors (focusing attention on firms either headquartered or having major offices in the same or similar geographic markets), and firms similar in size (assets, revenues and employee population) to the Bank.. Through Aon’s experience working with other Home Loan Banks and through direct interviews with the Bank’s senior management, Aon identified the current and future skill sets needed to meet the Bank’s business objectives and also noted that the Bankwe tended to hire employees from and lose employees to certain institutions.
While “Wall Street” firms were considered for use as benchmark peers, Aon recommended they not be used because of an inconsistency between business operating models and compensation models. The rationale was that these firms tend to base their compensation levels to a significant extent on activities that carry a high degree of risk and commensurate level of return. In contrast, the Bank, as a Federally-regulated provider of liquidity to financial institutions, operates using a low risk/return business model. Based on these considerations, Aon recommended that the Bank’s peer groupgroups should be regional and commercial banks.
In addition, Aon proposed that Bank officer positions be matched one position level down versus commercial/regional banks. Aon’s rationale was that officer positions at commercial/regional banks are one level more significant than at the Bank because they manage multiple business lines in multiple locations. In contrast, the Bankwe only hashave two locations and one main business segment. Therefore, the Bankwe generally recruitsrecruit senior level positions from a “divisional” level at commercial/regional banks as opposed to the higher “corporate” level of such organizations. The C&HR Committee and the Board agreed with these recommendations.
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Australia & New Zealand Banking Group | Cargill | KeyCorp | ||
ABN AMRO | CIBC World Markets | Lloyds TSB | ||
The Bank of Nova Scotia | Citigroup | M&T Bank Corporation | ||
Banco Santander | Commerzbank | Mizuho Corporate Bank, Ltd. |
Bank of Tokyo — Mitsubishi UFJ | DVB Bank | National Australia Bank | ||
Bank of America Merrill Lynch | DZ Bank | Rabobank Nederland | ||
BMO Financial Group | Fannie Mae | Royal Bank of Canada | ||
BNP Paribas | Federal Home Loan Bank System | Royal Bank of Scotland | ||
Brown Brothers Harriman | Fifth Third Bank | Societe Generale | ||
The CIT Group | Freddie Mac | Standard Chartered Bank | ||
Capital One | GE Commercial Finance | Sumitomo Mitsui Banking Corporation | ||
HSBC Bank | SunTrust Banks | |||
HSBC Global Banking & Markets | TD Securities | |||
ING Bank | Wells Fargo Bank | |||
JP Morgan Chase | WestLB | |||
Westpac Banking Corporation |
Note: Benchmarking data from international banks only contained results from their New York operations.
Compensation and Benefits Study Results
Aon’s review was presented to the Board on August 3, 2007. The results of the study completed by Aon indicated that indicated:
·cash compensation was generally below our peer groups and heavily weighted towards base pay (Note: We are prohibited by law from offering equity-based compensation and we do not offer long-term incentives);
·added together, cash compensation and retirement-related benefits were slightly above our peers (and heavily weighted towards benefits);
·added together, cash compensation, retirement-related benefits and health and welfare benefits were generally above our peers and heavily weighted towards benefits; and
·the Bank’s:
Aon’s recommendations to the Board took into account the C&HR Committee’s direction to Aon that, to the extent possible:
·the dominant features of the current compensation and benefits program which stressed fixed compensation over variable to support our risk-averse culture should be retained;
·greater weight on benefits vs. competitor peer group should be retained; and
·heavier reliance on base pay vs. incentive pay should be retained.
To help better align the Bank’s total compensation program with itsour peer group, Aon recommended, and the Board approved, changes to the Bank’s retirement plan for certain active employees effective as of July 1, 2008, and changes to the Bank’s health and welfare plans effective as of January 1, 2008 for all active employees and certain employees who retired on or after January 1, 2008. Aon also recommended the establishment of a Nonqualified Profit Sharing Plan that became effective July 1, 2008 for certain Bank employees. (This plan was later terminated as discussed in section IV B.) The changes to the Bank plans made at that time as a result of the Aon study are discussed in more detail in section IV B.
Pearl Meyers stated during the aforementioned August 3, 2007 meeting that the Bank’sour peer group hadhas been correctly identified; that the level of compensation and all alternatives had been explored; and that the outcome was reasonable. Pearl Meyers was also of the view that the Committee appropriately exercised its fiduciary duties throughout the process.
While Aon interviewed members of management and conducted focus sessions with various employees at all levels to gather information during the course of the study, the C&HR Committee and the Board acted on Aon’s recommendations independentlyindependent of the Bank’s management and employees.
In accordance with the Board approved Compensation Policy, we evaluate the value of total compensation delivered to employees including base pay, incentive compensation, retirement and health and welfare benefits in determining market competitiveness every third year after the date we completed the final implementation of Board-approved total compensation program design changes — namely July 1, 2008. The most recent review of our total compensation program commenced in September 2011 and a preliminary report was submitted by Aon (“Aon Report”) to the C&HR Committee at its meeting on February 10, 2012 for its review. The C&HR Committee agreed to continue to review and discuss the Aon Report during 2012 as they would like to first consider the effects of implementing a deferred incentive compensation plan for its NEO’s in 2012.
II. The Bank’s total compensation program is designed to reward for performance and employee longevity, to balance risk and returns, and to compete with compensation programs offered by the Bank’sour competitors
The Bank’s total compensation program is designed to attract, retain and motivate employees and to reward employees based on Bank overall performance achievement as compared to the Bank’s goals and individual employee performance. The BankWe also strivesstrive to ensure that itsour employees are compensated fairly and consistent with employees in the Bank’sour peer group.
All of the elements of the Bank’s total compensation program are available to all employees, including NEOs, except with respect to: 1) the Bank’s Incentive Plan; and 2) the Bank’s nonqualifiedNonqualified plans. Participation in the Incentive Plan is offered to all exempt (non-hourly) employees. Exempt employees constituted 86.94%87.55% of all Bank employees as of year-end 2010.
All exempt employees are eligible to receive annual incentive awards through participation in the Incentive Plan. These awards are based on a combination of Bank performance results and individual performance results. The better the Bank and/or the employee perform, the higher the employee’s potential award is likely to be, up to a predetermined limit. In addition, the better the employee’s performance, the greater the employee’s annual salary increase is likely to be, up to a predetermined limit.
We are prohibited by law from offering equity-based compensation, and the Bank doeswe do not currently offer long-term incentives. However, many of the firms in the Bank’sour peer groupgroups do offer these types of compensation. The Bank’sOur total compensation program takes into account the existence of these other types of compensation by offering a defined benefit and defined contribution plan to help the Bank effectively compete for talent. The Bank’s defined benefit and defined contribution plans are designed to reward employees for continued strong performance over their careers — that is, the longer an employee works at the Bank, the greater the benefit the employee is likely to accumulate. Senior and mid-level employees are generally long-tenured and would not want to endanger their pension benefits by inappropriately stretching rules to achieve a short-term financial gain.
We do not structure any of itsour compensation plans in a way that inappropriately encourages risk taking to achieve payment.taking. As described in Section IV A 2 below, the rationale for having the equally-weighted Bankwide goals of Return and Risk within the Bank’s Incentive Plan is to motivate management to take a balanced approach to managing risks and returns in the course of managing the Bank’s business, while at the same time ensuring that the Bank fulfills itswe fulfill our mission.
In addition, the Bank’s defined benefit and defined contribution plans are designed to reward employees for continued strong performance over their careers — that is, the longer an employee works at the Bank, the greater the benefit the employee is likely to accumulate. This combined with the Bank’s compensation philosophy and the structure of the Bank’s compensation programs helps to ensure that the compensation paid to employees at termination of employment from the Bank is aligned with the interest of the shareholders of the Bank.
III. The elements of total compensation
The Bank’s total compensation program consists of the following components: (a) cash compensation (i.e., base salary, and,for exempt employees, “variable” or “at risk” short-term incentive compensation); (b) retirement-related benefits (i.e., the Qualified Defined Benefit Plan; the Qualified Defined Contribution Plan; and the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan (“DB BEP”)) and (c) health and welfare programs and other benefits which are listed in Section IV C below. Together, these components comprised the Bank’s total compensation program for 2010, and they are discussed in detail in Section IV below.
IV. Explanation of why the Bank chooses towe provide each element of total compensation
The Bank’sOur Compensation Policy
As a result of the Aon study and recommendations described above, the Board approved a revised Compensation Policy in November 2007 designed to help ensure that the Bank provideswe provide competitive compensation necessary to retain and motivate current employees while attracting the talent needed to successfully execute the Bank’s current and future business plans. The major components of the revised Compensation Policy, which is currently in effect, include the following:
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•The use of regional/commercial banks (see the peer group list in Section I above) as the peer group for benchmarking at the 50th percentile of total compensation (a) cash compensation (i.e., base salary, and, for exempt employees, “variable” or “at risk” short-term incentive compensation) (b) retirement-related benefits; and (c) health and welfare programs and other benefits), discounted for purposes of establishing competitive pay levels by 15% to account for the incremental value provided by the benefit programs.
•A philosophical determination to match officer positions one position level down versus commercial/regional banks. The rationale is that officer positions at commercial/regional banks are one level more significant than at the Bank because they may manage multiple business lines in multiple locations. In addition, we generally recruit senior level positions from a ‘divisional’ level at commercial/regional banks and not the higher ‘corporate’ level.
•The targeting of cash compensation pay at the 75th percentile of the FHLBanks where regional/commercial bank data is not available. The 15% discount to account for the incremental value provided by the benefit programs will not be applied to benchmark results from the other FHLBanks, as the other FHLBanks offer similar benefits.
•A commitment to conduct detailed cash compensation benchmarking for approximately one-third of the officer positions each year.
•A commitment to evaluate the value of total compensation delivered to employees including base pay, incentive compensation, retirement and health and welfare benefits in determining market competitiveness every third year.
Additional factors that the Bankwe will take into account during the benchmarking process to ensure the Bank remainswe remain competitive in itsour labor market include:
•Geographical area — New York City is a highly competitive market. •Cost of living — | |||
•Availability of/demand for talent — Recruiting critical positions with high market demand typically requires a recruiting premium to begin in 2011, three years after the date the Bank completed the final implementation of Board-approved total compensation program design changes — July 1, 2008. entice an individual to change firms.
It should be noted that, due to the fact that the Bank conductswe conduct detailed benchmarking for only one-third of the Bank’s Officerofficer positions on an annual basis with respect to cash compensation, the effectiveness of the benchmarking program of the Bank can be demonstrated only once every three years. However, NEOs are benchmarked every year.
2009 Compensation Benchmarking Analysis
We performed itsour annual benchmarking analysis in October 2009 of 24 Bank officer positions using compensation data (base pay and incentive compensation) from Aon. Aon reported that benchmarking compensation in 2009 was, in general, was complicated as a result of an aberration in the poor financial performance of regional/commercial banks, the resultant decreases in compensation in the financial market in general and the Bank’sour strong financial results. Aon reviewed the results with the view that the Bank’sour conservative compensation philosophy limits the upside in incentive compensation by capping incentive pay as a percentage of base salary while bonuses provided by competitors of the Bank can be very high when times are good. Therefore, Aon believed it would seem inherently inconsistent to adjust employee compensation downward in an unprecedented “low watermark year” in the market while the Bank limitslimiting the amount of compensation increases when theremarkets are good years in the market.
As a result, management decided to propose to the C&HR Committee that there be no market adjustments for 2010 to the salaries of the officer positions that were benchmarked in 2009. The C&HR Committee agreed, and decided that if the information related to benchmarked compensation in 2010 was similar to the results of 2009, then the Bank’s compensation structure and benchmarking process should be reviewed and may need to change to reflect the market.
2010 Compensation Benchmarking Analysis
In its continuing effort to annually benchmark approximately one-third of the Bank’s officers with respect to cash compensation, in 2010, Bank management engaged McLagan to perform a benchmarking analysis of 29 officer positions which included allpositions. NEOs are counted as part of the NEOs. one-third every year.
Out of the 29 positions benchmarked, 25 positions were matched by McLagan. Two of the NEO positions for which a position match werewas not identified were for the Head of Member Services and the Head of Strategy and Business Development. The difficulty in matching these positions illustrates the unique nature of the business and structure of the Home Loan Bank. McLagan will seek to benchmark these two positions again in 2011.
McLagan submitted and discussed a report on the results of its officer benchmarking analysis (“Analysis”) to the Board’s C&HR Committee at its December 2010 meeting. The C&HR Committee had a more active role in working with McLagan in the benchmarking process and beginning in 2011, compensation consultants will report directly to the C&HR Committee. The C&HR Committee did not completely agree with the Analysis with regards to the peer groups, and comparable position matches within the Bank’sour peer group, that werewas used in the Analysis by McLagan. Therefore, it was agreed that the entire benchmarking process would be reviewed in 2011 as there were many positions that do not fit position descriptions at the Bank’sour peer groups and that the Bank has very complex transactions performed by professionals who would not have equivalents at a divisional level at one of the Bank’sour peer groups.
McLagan recommended increases to the salaries of four officer positions, none of which were NEO’s. McLagan also proposed certain amendments to the Bank’s Board approved Compensation Policy (‘(“Policy”). The C&HR Committee approved the proposed salary increases but deferred acting on the proposed changes to the Policy because the C&HR Committee plans to review the Bank’s total rewards philosophy in 2011 and will review the Policy for changes at the same time.
2011 Compensation Benchmarking Methodology
In 2011 McLagan reported directly to the C&HR Committee. In September 2011, the benchmarking methodology was refined and approved by the C&HR Committee for use during the review of the Bank’s total compensation program, the results of which are scheduled to be submitted to the Board during the first quarter of 2012. The methodology was modified to also include commercial banks with assets totaling $5 billion to $20 billion. After its review of the results, the Board will finalize the benchmarking methodology and update the Compensation Policy. A preliminary report (“Aon Report”) on the results of our total compensation program was submitted by Aon to the C&HR Committee at its meeting on February 10, 2012 for its review. The C&HR Committee agreed to continue to review and discuss the Aon Report during 2012 as they would like to first consider the effects of implementing a deferred incentive compensation plan for its NEO’s in 2012.
The following is an explanation of why the Bank chooses towe provide each element of compensation.
A. Cash Compensation
1.Base Pay
The goal of offering competitive base pay is to make the Bank successful in attracting, motivating and retaining the talent needed to execute the Bank’s business strategies.
In addition to the benchmarking process provided for in the Bank’s Compensation Policy as described above, a performance-based merit increase program exists for all employees, including NEO’s, that have a direct impact on base pay. Generally, employees receive merit increases on an annual basis. Such merit increases are based upon the attainment of a performance rating of “Outstanding,” “Exceeds Requirements,” or “Meets Requirements” achieved on individual performance evaluations. Merit guidelines are determined each year and distributed to managers. These guidelines establish the maximum merit increase percentage permissible for employee performance during that year. In OctoberNovember of 2009,2011, the C&HR Committee determined that merit-related officer base pay increases for 2010 would be 3.0% for officers rated ‘Meets Requirements’; 4.0% for officers rated ‘Exceeds Requirements’; and 4.5% for officers rated ‘Outstanding’ for their performance in 2009.
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2.Incentive Plan
The objective of the Bank’s Incentive Plan is to motivate exempt employees to perform at a high level and take actions that: i) support the Bank’sour strategies, ii) lead to the attainment of the Bank’s business plan, and iii) fulfill the Bank’sour mission. Funding for the Bank’s Incentive Plan is approved by the Board as part of the annual business plan process. By including goals that seek to balance risk and return, the Bank’s Incentive Plan is designed to incent appropriate behavior and work in a variety of economic conditions.
Aon reported in the course of its 2007 study of the Bank’s compensation and benefit programs (described earlier in Section I above) that most firms in the Bank’sour peer group provide their employees with annual short-term incentives. As such, for the Bank not to offer this element of compensation would put it at a distinct disadvantage with respect to its competitors for new talent, and also pose a challenge with respect to the retention of key employees.
There are two types of performance measures that impact upon Incentive Plan awards received by participants: i) Bankwide performance goals, and ii) individual performance goals (which can include work performed as part of a group) established and measured through the annual performance evaluation process.
The Bankwide goals are designed to help management focus on what it needs to accomplish for the success of the cooperative.success. The 20102011 Bankwide goals are organized into three broad categories:
Goals Category | Weighting | Goal | Goal Basis | |||||
Business Effectiveness | 80 | % | Return | Dividend Capacity as forecasted in the | ||||
Risk | Enterprise Risk Level in the | |||||||
Community Investment Effectiveness | 10 | % | Mission | Achievement in specific areas of housing and community development activities. | ||||
Growth Effectiveness | 10 | % | New Members | Number of new members and new/return borrowers during | ||||
The goal measures in the Business Effectiveness and Growth Effectiveness goal categories were approved by the Board’s Compensation and Human ResourcesC&HR Committee in March 2010,2011, and the goal measures in the MissionCommunity Investment Effectiveness goal category waswere approved by the Board’s Housing Committee in March 20102011;all of the goal measures were reported to the Board. A description of these goal categories is set forth below:
Business Effectiveness Goal Category
The Return and Risk Goals that make up the Business Effectiveness Goal are linked and create a beneficial tension through the tradeoffs in managing one versus the other. These goals are weighted exactly the same; this motivates management to act in ways that are aligned with the Board’s wishes as the Bank understands them, i.e., to have management achieve forecasted returns while managing risks to stay within the prescribed risk parameters. In addition, and again consistent with management’s understanding of the Board’s wishes, this set of goals will not motivate management to increase Dividend Capacity if doing such would require imprudently increasing the risk in the balance sheet.
Return Goal
Provide value to shareholders through the dividend. The Return Goal is based on Dividend Capacity.
Risk Goal
The Risk Goal is intended to encourage management to balance those actions taken to enhance earnings (i.e., Dividend Capacity) with actions that are needed to maintain appropriate risk levels in the business.
MissionCommunity Investment Effectiveness Goal Category
The MissionCommunity Investment Effectiveness Goal Category is intended to help ensure the Bank’sour achievement of mission-related community development activities.
The Growth Effectiveness Goal Category is intended to set the stage for future growth. The Bank believesWe believe that recruiting new members now will, over time, create additional advances usage.
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We believe that employees at higher ranks have a greater impact on the achievement of Bankwide goals than employees at lower ranks. Therefore, employees at higher ranks have a greater weighting placed on the Bankwide performance component of their Incentive Plan award opportunities as opposed to the individual performance component. For the Bank’s Chief Executive Officer and the other Management Committee members (a group that includes all of the NEOs), the overall incentive compensation opportunity is weighted 90% on Bankwide performance goals and 10% on individual performance goals. There are differences among the NEOs with regard to their individual performance goals; however, these differences do not have a material impact on the amount of incentive compensation payout.
When employees are individually evaluated, they receive one of five performance ratings: “Outstanding”; “Exceeds Requirements”; “Meets Requirements”; “Needs Improvement” or “Unsatisfactory”. Incentive Plan participants that arewere rated as “Exceeds Requirements” or “Outstanding” on their individual performance evaluations receivereceived an additional 3% or 6%, respectively, of their base salary added to their Incentive Plan award.
Incentive Plan awards are only paid to participants who have attained at least a specified threshold rating within the “Meets Requirements” category on their individual performance evaluations and do not have any unresolved disciplinary matters in their record.
Participants will receive an individual Incentive Plan award payment even if Bankwide goal results are such that no payments are awarded for the Bankwide portion of the Incentive Plan.
The Incentive Plan is administered by the Chief Executive Officer, subject to any requirements for review and approval by the C&HR Committee that the Committee may establish.has established. In all areas not specifically reserved by the Committee for its review and approval, the decisions of the Chief Executive Officer or his designee concerning the Incentive Plan are binding on the Bank and on all Incentive Plan participants.
Beginning with the 2010 IC Plan, and approved in the 2011 Plan, we added a clawback provision to the Incentive Plan that states:
“Any undue incentives paid to a Participant with a rank of Vice President or higher based on the achievement of financial or operational goals within this Plan that subsequently are deemed by the Bank to be inaccurate, misstated or misleading shall be recoverable from such Participant by the Bank. Inaccurate, misstated and/or misleading achievement of financial or operational goals shall include, but not be limited to, overstatements of revenue, income, capital, return measures and/or understatements of credit risk, market risk, operational risk or expenses. The value of any benefits delivered or accrued related to the undue incentive (i.e., the amount of the incentive over and above what should have been paid to the Participant barring inaccurate, misstated and/or misleading achievement of financial or operational goals) shall be reduced and/or recovered by the Bank to the fullest extent possible. Participants shall be responsible for the repayment of any such excess incentive payments as described in this paragraph upon demand by the Bank.”
2012 Deferred Incentive Compensation Plan
On July 21, 2011, the Federal Housing Finance Agency (“FHFA”) submitted a letter regarding observations and recommendations that the C&HR Committee should consider as it develops our 2012 Incentive Compensation Program (“ICP”) program. One of the recommendations was for us to create a long-term incentive plan or deferral of short-term incentive awards. At its September 26, 2011 meeting, the C&HR Committee authorized Aon to develop a proposed deferred incentive compensation plan for its NEOs. Aon submitted a couple of proposed deferred incentive compensation models to the C&HR Committee’s at its January 18, 2012 meeting. The Chair of the C&HR Committee discussed the development of a deferred incentive compensation program with the FHFA at a meeting on February 23, 2012 to better understand the FHFA’s insight on the deferral plan.
B. Retirement Benefits
Introduction
The Qualified Defined Benefit Plan, Qualified Defined Contribution Plan, and the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan, were elements of the Bank’s total compensation program in 20102011 intended to help encourage the accumulation of wealth by and consistent and superior results from, qualified employees, including NEOs, over a long period of time.
These benefits (in addition to the Health and Welfare Programs and Other Benefits noted in Section IV C below) were part of the Bank’sour strategy to compete for and retain talent that might otherwise be lured away from the Bank by competing financial enterprises who offer their employees long-term incentives and equity-sharing opportunities — forms of compensation that the Bank doeswe do not offer.
The Qualified Defined Benefit Plan was amended for eligible Bank employees as of July 1, 2008 and, as a consequence, the terms of the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan for certain Bank employees also changed as of that date, since the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan mirrors the structure of the Qualified Defined Benefit Plan.
On November 10, 2009, the Bank’s Board decided, upon recommendations by Aon Consulting, Inc., to terminate the Nonqualified Defined Contribution Portion of the Benefits Equalization Plan, the Nonqualified Deferred Compensation Plan and the Nonqualified Profit Sharing Plan. TheThese nonqualified plans originally were established for all employees who reached the IRS maximum limits and met certain criteria in their compensation that they would have otherwise been able to receive if not for the IRS maximum limitations. Further information on the former plan is described below. After the termination of these plans, waswe established two replacement plans for the result of several factors, i.e.: information from Aon that suggests a trend toward companies terminating these plans; a belief that the benefits these plans were to provide to employees would be less valuable if taxes were higherformer participants in the future; and uncertainty as to whether these plans would be repudiated in the unlikely event of a conservatorship or receivership of the Bank. As can be seen in the financial reports included in this Annual Report on Form 10-K, the Bank remained financially healthy and performed very well during 2009 and 2010. However, the potential for joint and several liabilities that exists among the FHLBanks also creates the potential, however remote, that if one or more of the Home Loan Banks were taken into conservatorship or receivership, then all of the remaining FHLBanks might be placed into conservatorship or receivership as well.
Nonqualified Deferred Compensation Plan.
The Nonqualified Defined Contribution Portion of the BEP and the Nonqualified Profit Sharing Plan were terminated on November 10, 2009, and the Bank implemented replacementassets in these plans for these individuals, as described below.
Thrift Restoration Plan
For 2010 and thereafter, for the former participants who would have been otherwise eligible for a match in the amount of 6% of base pay in excess of IRS limitations ($245,000 for 2010)2011), there has been and will continue to be the provision of an additional annual cash payment in an amount equal to 6% of base pay in excess of IRS limitations.
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In 2010 and thereafter, there has been and will continue to be the provision of an amount equal to 8% of the prior year’s base pay and short-term incentive payment to the extent the requirements under the Bank’s Short Term Incentive Plan have been achieved. The 8% payment will not be included as income for calculating the benefits for the Qualified Defined Benefit Plan.
The Board approved the establishment of the Replacement Plansreplacement plans on January 21, 2010.
The reimbursement of fees is not grossed up for tax purposes to the employees. The financial counseling reimbursement is available until March 11, 2011.
i) Qualified Defined Benefit Plan
The Pentegra Qualified Defined Benefit Plan for Financial Institutions (“DB Plan”), as adopted by the Bank, is an IRS-qualified defined benefit plan which covers all Bank employees who have achieved four months of service. The DB Plan is part of a multiple-employer defined benefit program administered by Pentegra Retirement Services.
Participants, who as of July 1, 2008 had five years of DB Plan service and were age 50 years or older, are provided with a benefit of 2.50% of a participant’s highest consecutive 3-year average earnings, multiplied by the participant’s years of benefit service, not to exceed 30 years. Earnings are defined as base salary plus short-term incentives, and overtime, subject to the annual Internal Revenue Code limit. These participants are identified herein as “Grandfathered”.
For all other participants (identified herein as “Non-Grandfathered”), the DB Plan provides a benefit of 2.0% (as opposed to 2.5% provided to Grandfathered participants) of a participant’s highest consecutive 5-year average earnings (as opposed to consecutive 3-year average earnings as previously provided to Grandfathered participants), multiplied by the participant’s years of benefit service, not to exceed 30 years. The Normal Form of Payment is a life annuity (i.e., an annuity paid until the death of the participant), as opposed to a guaranteed twelve-year payout as previously provided to Grandfathered participants. Also,In addition, for the Non-Grandfathered participants, the cost of living adjustments (“COLAs”) are no longer provided on future accruals (as opposed to a 1% simple interest COLA beginning at age 66 as previously provided).
The table below summarizes the DB Plan changes affecting the Non-Grandfathered employees that went into effect on July 1, 2008. For purposes of the following table, please note the following definitions:
“Defined Benefit Plan” — An Internal Revenue Code qualified deferred compensation arrangement that pays an employee and his/her designated beneficiary upon retirement a lifetime annuity or the lump sum actuarial equivalent of that annuity.
Benefit Multiplier — The annuity paid from the Bank’s DB Plan is calculated on an employee’s years of service, up to a maximum of 30 years, multiplied by 2.5% per year. Beginning July 1, 2008, the Benefit Multiplier changed to 2.0% for Non-Grandfathered Employees.
Final Average Pay Period — Is that —The period of time that an employee’s salary is used in the calculation of that employee’s benefit. For Grandfathered Employees, the Benefit Multiplier, 2.5%, is multiplied by the average of the employee’s three highest consecutive years of salary multiplied by that employee’s years of service, not to exceed thirty years at the date of termination. For Non-Grandfathered Employees, any accrued benefits prior to July 1, 2008, the accrued
Benefit Multiplier mirrors the Grandfathered Employees at 2.5%. For benefits accrued after July 1, 2008 a Benefits Multiplier of 2% is multiplied by the employee’s years of service (total service not to exceed thirty years) multiplied by the average of the employee’s five highest consecutive years of salary.
Normal Form of Payment — The DB Plan must state the form of the annuity to be paid to the retiring employee. For unmarried Grandfathered retirees, the Normal Form of Payment is a life annuity with a 12 year guaranteed payment (“Guaranteed-12 Year Payout”) which means that if the unmarried Grandfathered retiree dies prior to receiving 12 years of annuity payments, the retiree’s beneficiary will receive a lump sum equal to the remaining unpaid payments in the 12-year period. For married Grandfathered retirees, the Normal Form of Payment is a 50% joint and survivor annuity which provides a continuation of half of the monthly annuity to the surviving beneficiary. The initial 50% Joint and Survivor Annuity monthly payment is actuarially equivalent to the 12-year guaranteed payment provided to single retirees under the formula. Effective July 1, 2008, the DB Plan provides single Non-Grandfathered retirees with a straight “Life Annuity” as the Normal Form of Payment, which means that, once a retiree dies, the annuity terminates. For married Non-Grandfathered retirees, the Normal Form of Payment will be a 50% Joint and Survivor Annuity that is actuarially equivalent to the straight Life Annuity.
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Early Retirement Subsidy:
Early retirement under the plan is available after age 45.
Grandfathered Employees
Grandfathered Employee retirees who retire prior to normal retirement age (65) are eligible for subsidized early retirement reduction factors. Any participant who retires early and elects to draw pension benefits prior to age 65, and who has a combined age and length of service of at least 70 years, will realize a reduction of 1.5% to his/her early retirement benefit for each year benefits commence earlier than age 65. If that employee had not accumulated a total of 70 years, the reduction would be 3% for each year benefits commence earlier than age 65.
Grandfathered employees who were enrolled in the plan prior to July 1, 1983 and retired on or after age 55 are entitled to a Retirement Adjustment Payment. This is a one-time payment equivalent to three months of the regular retirement allowance, payable at the time of benefit commencement.
Non-Grandfathered Employees
Effective as of July 1, 2008, if an employee on the date of his/her retirement, before 65, had accumulated a total of 70 or more years of age plus service, the reduction will be 3% for every year between his/her age at commencement and age 65. However, if a Non-Grandfathered Employee on the date of his/her retirement, before 65, had not accumulated 70 or more years of age plus service, the reduction will be the actuarial equivalent between his/her age at commencement and age 65. At early retirement, the new early retirement factors will apply to the Non-Grandfathered Employee’s total service benefit. The retiree will be entitled to receive the greater of this early retirement benefit or the early retirement benefit accrued as of July 1, 2008 under the old plan formula.
Vesting — Grandfathered Employees are entitled, starting with the second year of employment service, to 20% of his/her accumulated benefit per year. As a result, after the sixth year of employment service, an employee will be entitled to 100% of his/her accumulated benefit. Non-Grandfathered Employees who entered the DB Plan on or after July 1, 2008 will not receive such benefit until such employee has completed five years of employment service. At that point, the employee will be entitled to 100% of his/her accumulated benefit. The term “5 Year Cliff” is a reference to the foregoing provision. Grandfathered and Non-Grandfathered Employees already participating in the DB Plan prior to July 1, 2008 will vest at 20% per year starting with the second year through the fourth year of employment service and will be accelerated to 100% vesting after the fifth year.
DEFINED BENEFIT PLAN |
| GRANDFATHERED |
| NON-GRANDFATHERED |
PROVISIONS |
| EMPLOYEES |
| EMPLOYEES |
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Benefit Multiplier |
| 2.5% |
| 2.0% |
Final Average Pay Period |
| High 3 Year |
| High 5 Year |
Normal Form of Payment |
| Guaranteed 12 Year Payout |
| Life Annuity |
Cost of Living Adjustments |
| 1% Per Year Cumulative Commencing at Age 66 |
| None |
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Early Retirement Subsidy<65: |
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a) Rule of 70 |
| 1.5% Per Year |
| 3% Per Year |
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b) Rule of 70 Not Met |
| 3% Per Year |
| Actuarial Equivalent |
*Vesting |
| 20% Per Year Commencing Second Year of Employment |
| 5 Year Cliff |
| DEFINED BENEFIT PLAN | GRANDFATHERED | NON-GRANDFATHERED | ||
| PROVISIONS | EMPLOYEES | EMPLOYEES | ||
| Benefit Multiplier | 2.5% | 2.0% | ||
| Final Average Pay Period | High 3 Year | High 5 Year | ||
| Normal Form of Payment | Guaranteed 12 Year Payout | Life Annuity | ||
| Cost of Living Adjustments | 1% Per Year Cumulative Commencing at Age 66 | None | ||
| Early Retirement Subsidy<65: | ||||
| a) Rule of 70 | 1.5% Per Year | 3% Per Year | ||
| b) Rule of 70 Not Met | 3% Per Year | Actuarial Equivalent | ||
| *Vesting | 20% Per Year Commencing | 5 Year Cliff | ||
| Second Year of Employment |
* Greater of DB Plan Vesting or New Plan Vesting applied to employees participating in the DB Plan prior to July 1, 2008.
Earnings under the Bank’s DB Plan continue to be defined as base salary plus short-term incentives, and overtime, subject to the annual IRC limit. The IRC limit on earnings for calculation of the DB Plan benefit for 20102011 was $245,000.
In 2012, the IRC increased the earnings limit for the DB Plan to $250,000.
The DB Plan pays monthly annuities, or a lump sum amount available at or after age 59-1/2, calculated on an actuarial basis, to vested participants or the beneficiaries of deceased vested participants. Annual benefits provided under the DB Plan also are subject to IRC limits, which vary by age and benefit payment option selected.
ii) Nonqualified Defined Benefit Portion of the Benefit Equalization Plan
Employees at the rank of Vice President and above who exceed income limitations established by the IRC for three out of five consecutive years and who are also approved for inclusion by the Bank’s Nonqualified Plan Committee are eligible to participate in the BEP, commonly referred to as a “Supplemental Executive Retirement Plan,” a non-qualified retirement plan that in many respects mirrors the DB Plan.
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The Nonqualified Defined Benefit Portion of the BEP utilizes the identical benefit formulas applicable to the Bank’s DB Plan. In the event that the benefits payable from the Bank’s DB Plan have been reduced or otherwise limited by government regulations, the employee’s “lost” benefits are payable under the terms of the defined benefit portion of the BEP.
The Nonqualified Defined Benefit Portion of the BEP is an unfunded arrangement. However, the Bankwe established a grantor truststrust to assist in financing the payment of benefits under these plans. The trust were approved by the Nonqualified Plan Committee in March of 2006 and established in June of 2007.
Although other nonqualified plans were terminated on November 10, 2009, the Nonqualified Defined Benefit Portion of the BEP was not terminated on that day, and remains in effect as of the date of this Annual Report on Form 10-K.
iii) Qualified Defined Contribution Plan
Employees who have met the eligibility requirements contained in the Pentegra Qualified Defined Contribution Plan for Financial Institutions (“DC Plan”) can choose to contribute to the DC Plan, a retirement savings plan qualified under the IRC. Employees are eligible for membership in the DC Plan on the first day of the month coinciding with or next following the date the employee completes three full calendar months of employment.
An employee may contribute 1% to 100% of base salary into the DC Plan, up to IRC limitations. The IRC limit for 20102011 was $16,500 for employees under the age of 50. An additional “catch up” contribution of $5,500 is permitted under IRC rules for employees who attain age 50 before the end of the calendar year. TheIf an employee contributes at least 3% of base salary, the Bank matches up to 100%provides a match of 3% of base salary. After completing three years of employment,
the firstmatch is 4.5% of base salary and after five years of employment 6% of base salary. Contributions of less than 3% of base salary receive a match of 2% of the employee’s base salary or $34.61 per pay period (whichever is less).
In 2012, the IRC limit for the DC Plan has been increased to $17,000 for employees under age 50. The additional “catch-up” contribution through the third year of employment; 150% of the first 3% of contribution during the fourth and fifth years of employment; and 200% of the first 3% of contribution starting with the sixth year of employment.
C. Health and Welfare Programs and Other Benefits
In addition to the foregoing, the Bank offerswe offer a comprehensive benefits package for all regular employees (including NEOs) which include the following significant benefits:
Medical and Dental
Employees can choose preferred provider, open access or managed care medical.medical plans. All types of medical coverage include a prescription benefit. Dental plan choices include preferred provider or managed care. Employees contribute to cover a portion of the costs for these benefits.
Retiree Medical
We offer eligible employees medical coverage when they retire. Employees are eligible to participate in the Retiree Medical Benefits Plan if they are at least 55 years old with 10 years of Bank service when they retire from active service.
Under the Plan as in effect since May 1, 1995, retirees who retire before age 62 pay the full Bank premium for the coverage they had as employees until they attain age 62. Thereafter, they contribute a percentage of the Bank’s premium based on their total completed years of service (no adjustment is made for partial years of service) on a “Defined Benefit” basis, as defined below, as follows:
|
| Percentage of Premium |
|
Completed Years of Service |
| Paid by Retiree |
|
10 |
| 50.0 | % |
11 |
| 47.5 | % |
12 |
| 45.0 | % |
13 |
| 42.5 | % |
14 |
| 40.0 | % |
15 |
| 37.5 | % |
16 |
| 35.0 | % |
17 |
| 32.5 | % |
18 |
| 30.0 | % |
19 |
| 27.5 | % |
20 or more |
| 25.0 | % |
| Completed | ||||
| Years of | Percentage of Premium | |||
| Service | Paid by Retiree | |||
| 10 | 50.0 | % | ||
| 11 | 47.5 | % | ||
| 12 | 45.0 | % | ||
| 13 | 42.5 | % | ||
| 14 | 40.0 | % | ||
| 15 | 37.5 | % | ||
| 16 | 35.0 | % | ||
| 17 | 32.5 | % | ||
| 18 | 30.0 | % | ||
| 19 | 27.5 | % | ||
| 20 or more | 25.0 | % | ||
The premium paid by retirees upon becoming Medicare-eligible (either at age 65 or prior thereto as a result of disability) is a premium reduced to take into account the status of Medicare as the primary payer of the medical benefits of Medicare-eligible retirees.
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After the retiree or a covered dependent of the retiree becomes Medicare-eligible, the Bank’sour contribution toward the premium for the coverage of the Medicare-eligible individual will be reduced to $25 per month.month multiplied by the number of years of service earned by the retiree after age 45 and by the number of individuals (including the retiree, the retiree’s spouse, and each other dependent of the retiree) covered under the Plan. The $45 and $25 amounts were fixed for the 2008 calendar year. Each year thereafter, these amounts will increase by a cost-of-living adjustment (“COLA”) factor not to exceed 3% and were $46.35 and $25.75 for 2009.
Defined Benefit — A medical plan in which the Bank provideswe provide medical coverage to a retired employee and collectscollect from the retiree a monthly fixed dollar portion of the premium for the coverage elected by the employee.
Defined Dollar Plan — A medical plan in which the Bank provideswe provide medical coverage to a retired employee up to a fixed Bank cost for the coverage elected by the employee and the retiree assumes all costs above the Bank’s stated contribution.
Provisions for | |||||
Grandfathered | |||||
Provisions for Non-Grandfathered | |||||
Retirees | Retirees | ||||
Plan Type | Defined Benefit | Defined Dollar Plan | |||
Medical Plan Formula | 1) Same coverage offered to active employees prior to age 65 | 1) Retiree, (and covered individual), is eligible for $45/month x years of service after age 45, and has attained the age of 62. There is a 3% Cost of Living Adjustment each year | |||
2) Supplement Medicare coverage for retirees | 2) Retiree, (and covered individual), is eligible for $25/month x years of service after age 45 and after age 65. There is a 3% Cost of Living Adjustment each year | ||||
Employer | |||||
Cost Share Examples: | 0% for Pre-62 | $0 for Pre-62 Pre-65/Post-65 | |||
10 years of service after age 45 | 50% for Post-62 | $5,400/$3,000 | |||
15 years of service after age 45 | 62.5% for Post-62 | $8,100/$4,500 | |||
20 years of service after age 45 | 75% for Post-62 | $10,800/$6,000 |
Vision Care
Employees can choose from two types of coverage offered. Basic vision care is offered at no charge to employees. Employees contribute to the cost for the enhanced coverage.
Life Insurance
The Group Term Life insurance providingprovides a death benefit of twice an employee’s annual salary (including incentive compensation) is provided at no cost to the employee other than taxation of the imputed incomevalue of coverage in excess of $50,000.
Additional Life Insurance
Additional Life Insurance is provided to two NEOs (the Bank President and the Head of Member Services) who, in 2003, were participants in the Bank’s Split Dollar life insurance program, as consideration for their assigning to the Bank their portion of their Split Dollar life insurance policy with the Bank.policy. The Bank’s Split Dollar life insurance program was terminated in 2003.
This Additional Term Life Insurance policy is paid by the Bank; however, each individual owns the policy. The BankWe purchased these policies in 2003 for 15 years and locked in the premiums for the duration of the policies. When the policies expire in 2018, there is an option to renew, though the rate will be subject to change.
Retiree Life Insurance provides a death benefit in relation to the amount of coverage one chooses at the time of retirement. The continued benefit is calculated by the insurance broker and is paid for by the retiree. Coverage can be chosen in $1000$1,000 increments up to a maximum of $20,000.
205
Business Travel Accident insurance provides a death benefit while traveling on Bank business, outside of the normal commute, at no cost to the employee.
Short-and Long-Term Disability Insurance
Short-and long-term disability insurance is provided at no cost to the employee.
Supplemental Short-Term Disability Coverage
We provide supplemental short-term disability coverage at no cost to the employee. This coverage provides 66.67% (up to a maximum of $1000$1,000 per week) of a person’s salary while they are on disability leave. Once state disability coverage is confirmed, the Bank reduces anywe reduce supplemental calculations by the amount payable from the Short-Term Disability provider.
Flexible Spending Accounts
Flexible spending accounts in accordance with IRC rules are provided to employees to allow tax benefits for certain medical expenses, dependent medical expenses, and mass transit expenses associated with commuting and parking expenses associated with commuting. The administrative costs for these accounts are paid by the Bank.
Employee Assistance Program
Employee assistance counseling is available at no cost to employees. This is a Bank provided benefit forthat allows employees to anonymously speak to an outsidea 3rd party provider regarding different types ofvarious issues such as stress, financial,finance, smoking cessation, weight management and personal therapy.
Educational Development Assistance
Educational Development Assistance provides tuition reimbursement, subject to the satisfaction of certain conditions.
Voluntary Life Insurance
Employees are afforded the opportunity to purchase additional life insurance for themselves and their eligible dependents.
Long-Term Care
Employees are afforded the opportunity to purchase Long-Term Care insurance for themselves and their eligible dependents.
Fitness Club Reimbursement
Fitness club reimbursement, up to $350 per year, is available subject to the satisfaction of certain criteria.
Severance Plan
There is a formal Board-approved Severance Plan available tocovering all Bank employees who work twenty or more hours a week, and have at least one year of employment, and whose employment was terminated for specific reasons outlined in the Severance Plan.
Service Award
We provide employees, including NEOs, who are employed at the Bank for 10 years or more with a service award. This award is presented after 10 years in increments of 5 years. The award ranges from $250 - $1,000.
Perquisites
Perquisites are as a benefit an insubstantial and insignificant amount of compensationpresent expenditures totaling less than $10,000 for the year 20102011 per NEO for all such expenditures.
V. Explanation of how the Bank determineswe determine the amount and, where applicable, the formula for each element of compensation
Please see Section IV directly above for an explanation of the mechanisms used by the Bank to determine employee compensation.
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The Committee believes it has developed a unified, coherent system of compensation. The Bank’s compensation and benefits program consists of the following components: (a) cash compensation (i.e., base salary, and, for exempt employees, “variable”
“variable” or “at risk” short-term incentive compensation); (b) retirement-related benefits (i.e., Qualified Defined Benefit Plan; Qualified Defined Contribution Plan; and Nonqualified Defined Benefit Portion of the Benefit Equalization Plan; and (c) health and welfare programs and other benefits which are listed in Section IV C above.
Together, these components comprised the Bank’s total compensation program for 2010,2011, and they are discussed in detail in Section IV above.
Our overall objectives with regard to its compensation and benefits program are to motivate employees to achieve consistent and superior results over a long period of time, for the Bank, and to provide a program that allows the Bankus to compete for and retain talent that otherwise might be lured away from the Bank.away. Section IV of the CD&A above describes how each element of the Bank’s compensation objectives and the Bank’s decisions regarding each such element fit within such objectives.
As the Bank makeswe make changes to one element of the compensation and benefits program mix, the C&HR Committee considers the impact on the other elements of the mix. In this regard, the C&HR Committee strives to maintain programs that keep the Bank within the parameters of its Compensation Policy.
We note that differences in compensation levels that may exist among the NEOs are primarily attributable to the benchmarking process. The Board does have the power to adjust compensation from the results of the benchmarking process; however, this power is not normally exercised.
COMPENSATION COMMITTEE REPORT
The Compensation and Human ResourcesC&HR Committee (“Committee”) of the Board of Directors of the Bank has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the C&HR Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Bank’s annual report on Form 10-K for the year 2010.
THE COMPENSATION AND HUMAN RESOURCES COMMITTEE
C. Cathleen Raffaeli, Chair
James W. Fulmer
José R. González
Katherine J. Liseno
Kevin J. Lynch
Richard S. MrozThomas M. O’Brien
Vincent F. Palagiano
We do not believe that risks arising from the Bank’s compensation policies with respect to its employees are reasonably likely to have a material adverse effect on the Bank. The Bank doesWe do not structure any of itsour compensation plans in a way that inappropriately encourages risk taking to achieve payment.
Our business model operates on a low return/low risk basis. One of the Bank’simportant characteristics of our culture is appropriate attention to risk aversion. The Bank hasmanagement. We have established procedures with respect to risk which are reviewed frequently. The Bank’sfrequently by entities such as our regulator, external audit firm, Risk Management Group, and Internal Audit Department conducts review of these procedures and advises on compliance of the associated application.
In addition, the Bank haswe have a Board and associated Committees that provide governance to the Bank.governance. The Bank’s compensation programs are reviewed annually by the CHRCC&HR Committee to ensure they follow the goalsgoals.
The structure of the Bank.
We operate with a philosophy that all our employees are risk managers and are, therefore, responsible for managing risk. It is true that we have separated operational management from risk oversight, and those employees who work in the Risk Management Group have a special responsibility to identify, measure, and report risk. However, all employees need to be aware of and responsible for managing risks at the Bank, fulfills its mission.
In addition, the Bank iswe are prohibited by law from offering equity-based compensation, and the Bank doeswe do not currently offer long-term incentives. However, many of the firms in the Bank’sour peer group do offer these types of compensation. The Bank’s total compensation program takes into account the existence of these other types of compensation by offering defined benefit and defined contribution plans to help the Bank effectively compete for talent. The Bank’s defined benefit and defined contribution plans are designed to reward employees for continued strong performance over the course of their careers — that is, the longer an employee works at the Bank, the greater the benefit the employee is likely to accumulate. Senior and mid-level employees are generally long-tenured and the Bank believeswe believe that these employees would not want to endanger their pension benefits by inappropriately stretching rules to achieve a short-term financial gain. By definition, these programs are reflective of the risk adverse culture.
The Finance Agency also has issued certain compensation principles, one of which is that executive compensation should be consistent with sound risk management and preservation of the par value of FHLBank stock. Also, the Finance Agency reviews all executive compensation plans relative to these principles and such other factors as the Finance Agency determines to be appropriate, including the 2011 Incentive Plan, prior to their becoming effective.
Thus, the general risk-averse culture, of the Bank, which is reflected in the Bank’s compensation policies,policy, leads the Bankus to believe that any risks arising from the Bank’s compensation policies with respect to itsour employees are not reasonably likely to have a material adverse effect on the Bank.
Compensation Committee Interlocks and Insider Participation
The following persons served on the Board’s Compensation and Human ResourcesC&HR Committee during all or some of the period from January 1, 20102011 through the date of this annual report on Form 10-K: James W. Fulmer, José R. González, Katherine J. Liseno, Kevin J. Lynch, Richard Mroz, Thomas O’BrienVincent F. Palagiano, and C. Cathleen Raffaeli. During this period, no interlocking relationships existed between any member of the FHLBNY’sBank’s Board of Directors or the Compensation and Human ResourcesC&HR Committee and any member of the board of directors or compensation committee of any other company, nor did any such interlocking relationship existed in the past. Further, no member of the Compensation and Human ResourcesC&HR Committee listed above is or was formerly an officer or an employee of the Bank.
The table below summarizes the total compensation earned by each of the Named Executive Officers (“NEO”) for the years ended December 31, 2011, December 31, 2010 and December 31, 2009 and December 31, 2008 (in whole dollars):
Summary Compensation Table for Fiscal Years 2011, 2010 2009 and 20082009
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| Pension Value |
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| Non-Equity |
| Deferred |
| All Other |
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| Incentive |
| Compensation |
| Compensation |
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| Plan |
| (B), (C) |
| (D), (E), (F), (G), (H), (I), (J), (K), (L) |
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| Salary |
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| Stock |
| Option |
| Compensation |
| (b), (c), (d), (e), (f) |
| (g), (h), (i), (j), (k), (l), (m), (n) |
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Name and Principal Position |
| Year |
| (13) (14) (15) |
| Bonus |
| Awards |
| Awards |
| (A) (a) (1) |
| (2), (3), (4) |
| (5), (6), (7), (8), (9), (10), (11) |
| Total |
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Alfred A. DelliBovi |
| 2011 |
| $ | 709,263 |
| — |
| — |
| — |
| $ | 523,180 |
| $ | 1,444,000 |
| $ | 120,417 |
| $ | 2,796,860 |
|
President & |
| 2010 |
| $ | 678,721 |
| — |
| — |
| — |
| $ | 526,090 |
| $ | 1,434,998 |
| $ | 69,177 |
| $ | 2,708,986 |
|
Chief Executive Officer (PEO) |
| 2009 |
| $ | 649,494 |
| — |
| — |
| — |
| $ | 503,592 |
| $ | 1,010,379 |
| $ | 72,917 |
| $ | 2,236,382 |
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Peter S. Leung |
| 2011 |
| $ | 453,443 |
| — |
| — |
| — |
| $ | 250,858 |
| $ | 792,000 |
| $ | 68,012 |
| $ | 1,564,313 |
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Senior Vice President, |
| 2010 |
| $ | 438,109 |
| — |
| — |
| — |
| $ | 248,119 |
| $ | 458,721 |
| $ | 36,545 |
| $ | 1,181,494 |
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Head of Asset Liability Management |
| 2009 |
| $ | 423,294 |
| — |
| — |
| — |
| $ | 239,805 |
| $ | 323,067 |
| $ | 41,095 |
| $ | 1,027,261 |
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Paul B. Héroux |
| 2011 |
| $ | 322,417 |
| — |
| — |
| — |
| $ | 178,371 |
| $ | 822,000 |
| $ | 100,225 |
| $ | 1,423,013 |
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Senior Vice President, |
| 2010 |
| $ | 311,514 |
| — |
| — |
| — |
| $ | 176,423 |
| $ | 428,561 |
| $ | 93,205 |
| $ | 1,009,703 |
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Head of Member Services |
| 2009 |
| $ | 300,980 |
| — |
| — |
| — |
| $ | 170,511 |
| $ | 282,434 |
| $ | 45,464 |
| $ | 799,389 |
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Patrick A. Morgan |
| 2011 |
| $ | 341,885 |
| — |
| — |
| — |
| $ | 189,141 |
| $ | 375,000 |
| $ | 49,633 |
| $ | 955,659 |
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Senior Vice President, |
| 2010 |
| $ | 330,324 |
| — |
| — |
| — |
| $ | 187,076 |
| $ | 274,232 |
| $ | 35,078 |
| $ | 826,710 |
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Chief Financial Officer (PFO) |
| 2009 |
| $ | 319,154 |
| — |
| — |
| — |
| $ | 180,807 |
| $ | 172,000 |
| $ | 34,552 |
| $ | 706,513 |
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John F. Edelen * |
| 2011 |
| $ | 325,000 |
| — |
| — |
| — |
| $ | 179,800 |
| $ | 343,000 |
| $ | 81,014 |
| $ | 928,814 |
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Senior Vice President, |
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Chief Risk Officer |
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Footnotes for Summary Compensation Table for the Year Ending December 31, 2011
(A) Bonuses are not provided by the Bank. However, the non-equity incentive plan compensation in the above table may be considered by some to be deemed a “bonus”.
(B)Change in Pension Value for the Pentegra Defined Benefit Plan for Financial Institutions
A. DelliBovi — $251,000
P. Leung — $278,000
P. Morgan — $158,000
P. Héroux — $393,000
J. Edelen — $197,000
(C) Change in Pension Value for the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan:
A. DelliBovi — $1,193,000
P. Leung — $514,000
P. Morgan —$217,000
P. Héroux — $429,000
J. Edelen — $146,000
(D) For all NEO, includes these items for all employees: amount of funds matched in connection with the Pentegra Defined Contribution Plan for Financial Institutions, payment of group term life insurance premium, payment of long term disability insurance premium, payment of health insurance premium, payment of dental insurance premium, payment of vision insurance premium and payment of employee assistance program premium.
(E) For A. DelliBovi, includes costs associated with personal usage of company leased automobile $5,527.
(F) For P. Héroux includes payment of this item for all eligible officers: officer physical examination.
(G) For A. DelliBovi and P. Héroux, includes payment of this item : payment of supplemental individual term life insurance premium.
(H) For P. Héroux, includes payment of this item for all employees: fitness center reimbursement.
(I) For all NEO’s except J. Edelen, includes payment for the replacement plan for the Nonqualified Defined Contribution Portion of the BEP.
(J) For P. Héroux $39,035 and J. Edelen,$28,273 includes payment for the replacement plan for the Nonqualified Profit Sharing Plan.
(K) For A. DelliBovi $250 and P. Leung $12,500, includes a payment for Reimbursement for Financial Counseling Costs Incurred in 2011 for Participants in Terminated Plans.
| Change in | ||||||||||||||||||||||||||||||||||||
| Pension Value | ||||||||||||||||||||||||||||||||||||
| Non-Equity | and Nonqualified | All Other | ||||||||||||||||||||||||||||||||||
| Incentive | Deferred | Compensation | ||||||||||||||||||||||||||||||||||
| Plan | Compensation | (g, h, i, j, k, l, m, n) | ||||||||||||||||||||||||||||||||||
| Salary | Stock | Option | Compensation | (b,c,d,e,f) | (5,6,7,8,9,10,11) | |||||||||||||||||||||||||||||||
| Name and Principal Position | Year | (13) (14) (15) | Bonus | Awards | Awards | (a) (1) (A) | (2,3,4) (B,C) | (D, E, F, G, H, I, J) | Total | |||||||||||||||||||||||||||
| Alfred A. DelliBovi | 2010 | $ | 678,721 | — | — | — | $ | 526,090 | $ | 1,434,998 | $ | 69,177 | $ | 2,708,986 | ||||||||||||||||||||||
| President & | 2009 | $ | 649,494 | — | — | — | $ | 503,592 | $ | 1,010,379 | $ | 72,917 | $ | 2,236,382 | ||||||||||||||||||||||
| Chief Executive Officer (PEO) | 2008 | $ | 615,634 | — | — | — | $ | 379,938 | $ | 1,092,000 | $ | 76,328 | $ | 2,163,900 | ||||||||||||||||||||||
| Peter S. Leung | 2010 | $ | 438,109 | — | — | — | $ | 248,119 | $ | 458,721 | $ | 36,545 | $ | 1,181,494 | ||||||||||||||||||||||
| Senior Vice President, | 2009 | $ | 423,294 | — | — | — | $ | 239,805 | $ | 323,067 | $ | 41,095 | $ | 1,027,261 | ||||||||||||||||||||||
| Chief Risk Officer | 2008 | $ | 405,066 | — | — | — | $ | 181,414 | $ | 328,000 | $ | 49,045 | $ | 963,525 | ||||||||||||||||||||||
| Paul B. Héroux | 2010 | $ | 311,514 | — | — | — | $ | 176,423 | $ | 428,561 | $ | 93,205 | $ | 1,009,703 | ||||||||||||||||||||||
| Senior Vice President, | 2009 | $ | 300,980 | — | — | — | $ | 170,511 | $ | 282,434 | $ | 45,464 | $ | 799,389 | ||||||||||||||||||||||
| Head of Member Services | 2008 | $ | 288,019 | — | — | — | $ | 128,993 | $ | 400,000 | $ | 57,200 | $ | 874,212 | ||||||||||||||||||||||
| Patrick A. Morgan | 2010 | $ | 330,324 | — | — | — | $ | 187,076 | $ | 274,232 | $ | 35,078 | $ | 826,710 | ||||||||||||||||||||||
| Senior Vice President, | 2009 | $ | 319,154 | — | — | — | $ | 180,807 | $ | 172,000 | $ | 34,552 | $ | 706,513 | ||||||||||||||||||||||
| Chief Financial Officer (PFO) | 2008 | $ | 305,411 | — | — | — | $ | 136,782 | $ | 268,000 | $ | 36,933 | $ | 747,126 | ||||||||||||||||||||||
Kevin M. Neylan(12) | 2010 | $ | 321,280 | — | — | — | $ | 181,954 | $ | 250,146 | $ | 44,062 | $ | 797,442 | ||||||||||||||||||||||
| Senior Vice President, | 2009 | $ | 310,415 | — | — | — | $ | 175,856 | $ | 185,411 | $ | 41,596 | $ | 713,278 | ||||||||||||||||||||||
| Head of Strategy & Business Development | ||||||||||||||||||||||||||||||||||||
(L) Payment for an additional award due to the employee receiving a rating of “Exceed Requirements” or “Outstanding” on their performance review. These amounts are based upon a 3% or 6% payment as found in the Section A.2 of the CD&A as determined by the C&HRC for the President and by the President with respect to all other NEOs:
A. DelliBovi — $42,556
P. Leung — $13,603
P. Morgan — $10,257
P. Héroux — $9,673
J. Edelen — $9,750
* J. Edelen is a new NEO in 2011
(14) Figures represent salaries approved by our Board of Directors for the year 2011.
Footnotes for Summary Compensation Table for the Year Ending December 31, 2010
(a) Bonuses are not provided by the Bank. However, the non-equity incentive plan compensation in the above table may be considered by some to be deemed a “bonus”.
(b)Change in Pension Value for the Pentegra Defined Benefit Plan for Financial Institutions
A. DelliBovi — $228,000
P. Leung — $143,000
P. Morgan — $109,000
P. Héroux — $181,000
K. Neylan — $98,000
(c)Change in Pension Value for the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan:
A. DelliBovi — $1,106,000
P. Leung — $292,000
P. Morgan — $158,000
P. Héroux — $229,000
K. Neylan — $129,000
(d)Change in Nonqualified Defined Compensation Earnings of the BEP:
A. DelliBovi — $100,998
P. Leung — $18,602
P. Morgan —$7,232
P. Héroux — $15,712
K. Neylan — $23,146
(e)Change in Nonqualified Deferred Compensation Plan Earnings:
P. Leung — $5,119
(f)Change in Nonqualified Profit Sharing Plan Earnings:
P. Heroux -$2,849
209
(h)For A. DelliBovi, includes value of leased automobile $9,620.
(i)For A. DelliBovi, and P. Leung includes payment of this item for all eligible officers: officer physical examination.
(j)For A. DelliBovi and P. Héroux, includes payment of this item: payment of term life insurance premium.
(k) For P. Heroux and for K. Neylan, includes payment of this item for all employees: fitness center reimbursement
(l)All participants received a payment for the replacement plan for the Nonqualified Defined Contribution Portion of the BEP
(m)For P. Heroux $37,719, includes payment for the replacement plan for the Nonqualified Profit Sharing Plan
(n)For A. DelliBovi $9,013, P. Heroux $11,952, and K. Neylan $3,825, includes a payment for Reimbursement for Financial Counseling Costs Incurred in 2010 for Participants in Terminated Plans
(For further information regarding footnotes l, m, & n directly above, please review the information included in the section entitled “Nonqualified Deferred Compensation” below)
(15) Figures represent salaries approved by our Board of Directors for the year 2010
Footnotes for Summary Compensation Table for the Year Ending December 31, 2009
(1)Bonuses are not provided by the Bank. However, the non-equity incentive plan compensation in the above table may be considered by some to be deemed a “bonus”.
(2)Change in Pension Value for the Pentegra Defined Benefit Plan for Financial Institutions:
A. DelliBovi — $224,000
P. Leung — $143,000
P. Morgan — $104,000
P. Héroux — $192,000
K. Neylan — $91,000
(3)Change in Pension Value for the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan:
A. DelliBovi — $575,000
P. Leung — $145,000
P. Morgan — $60,000
(4)Change in Nonqualified Defined Contribution Earnings of the BEP:
A. DelliBovi — $211,379
P. Leung — $35,067
P. Morgan — $8,000
P. Héroux — $30,434
K. Neylan — $37,411
(5)For all NEO, includes these items for all employees: amount of funds matched in connection with the Pentegra Defined Contribution Plan for Financial Institutions, payment of group term life insurance premium, payment of long term disability insurance premium, payment of health insurance premium, payment of dental insurance premium, payment of vision insurance premium and payment of employee assistance program premium. (6)Includes these items paid by the Bank for all eligible officers: amount of funds matched in connection with the Nonqualified Defined Contribution Portion of the Benefit Equalization Plan (amount of funds matched for A. DelliBovi was $21,999, for P. Leung $15,526, for P. Morgan $9,724, for Paul Heroux $1,722 and for K. Neylan $6,715). (7)For A. DelliBovi, includes value of leased automobile $8,100. (8)For Paul Heroux, includes payment of this item for all eligible employees: Years of Service Award. (9) For P. Leung, P. Heroux, and K. Neylan, includes payment of this item for all eligible officers: officer physical examination. (10) For A. DelliBovi and | ||
210
P. Héroux,
A. DelliBovi — $941,000
(11) For P. Morgan — $194,000P. Leung — $223,000P. Héroux — $244,000Heroux and for K. Neylan, includes payment of this item paid by the Bank for all employees: fitness center reimbursement.
(12) Kevin Neylan is a new NEO in 2009.
(13)Figures represent salaries approved by our Board of Directors for the year 2009.
The following table sets forth information regarding all incentive plan award opportunities made available to Named Executive OfficersNEO for the fiscal year 20102011 (in whole dollars):
Grants of Plan-Based Awards for Fiscal Year 2011
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Alfred A. DelliBovi |
| 03/16/2011 |
| $ | 156,038 |
| $ | 283,705 |
| $ | 539,040 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
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Peter S. Leung |
| 03/16/2011 |
| $ | 74,818 |
| $ | 136,033 |
| $ | 258,463 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
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Paul B. Héroux |
| 03/16/2011 |
| $ | 53,199 |
| $ | 96,725 |
| $ | 183,778 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
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Patrick A. Morgan |
| 03/16/2011 |
| $ | 56,411 |
| $ | 102,566 |
| $ | 194,874 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
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John F. Edelen |
| 03/16/2011 |
| $ | 53,625 |
| $ | 97,500 |
| $ | 185,250 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
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| Grants of Plan-Based Awards for Fiscal Year 2010 | ||||||||||||||||||||||||||||||||||||||||||||
| All Other | All Other | Exercise | Grant | |||||||||||||||||||||||||||||||||||||||||
| Stock | Option | or | Date | |||||||||||||||||||||||||||||||||||||||||
| Awards: | Awards: | Base | Fair Value | |||||||||||||||||||||||||||||||||||||||||
| Estimated Future Payouts | Estimated Future Payouts | Number of | Number of | Price of | of Stock | |||||||||||||||||||||||||||||||||||||||
| Under Non-Equity Incentive | Under Equity Incentive | Shares of | Securities | Option | and Option | |||||||||||||||||||||||||||||||||||||||
| Grant | Plan Awards (2) (3) | Plan Awards | Stock | Underlying | Awards | Awards | ||||||||||||||||||||||||||||||||||||||
| Name | Date (1) | Threshold | Target | Maximum | Threshold | Target | Maximum | or Units | Options | ($/Sh) | ($/Sh) | |||||||||||||||||||||||||||||||||
| Alfred A. DelliBovi | 02/23/2010 | $ | 149,319 | $ | 271,488 | $ | 515,828 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||
| Peter S. Leung | 02/23/2010 | $ | 72,288 | $ | 131,433 | $ | 249,722 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||
| Paul B. Héroux | 02/23/2010 | $ | 51,400 | $ | 93,454 | $ | 177,563 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||
| Patrick A. Morgan | 02/23/2010 | $ | 54,503 | $ | 99,097 | $ | 188,285 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||
| Kevin M. Neylan | 02/23/2010 | $ | 53,011 | $ | 96,384 | $ | 183,130 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||
(1)On this date, the Board of Directors’ C&HR Committee approved the 2011 Incentive Plan. Approval of the ICP does not mean a payout is guaranteed. (2)Figures represent an assumed rating attained by the NEO of at least a specified threshold rating within the “Meets Requirements” category for the NEO with respect to their individual performance. (3)Amounts represent potential awards under the 2011 Incentive Plan.
| ||
We are an “at will” employer and does not provide written employment agreements to any of its employees. However, employees, including Named Executive Officers (or “NEOs”),NEO, receive: (a) cash compensation (i.e., base salary, and, for exempt employees, “variable” or “at risk” short-term incentive compensation); (b) retirement-related benefits (i.e., the Qualified Defined Benefit Plan; the Qualified Defined Contribution Plan; and the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan (“DB BEP”)) and (c) health and welfare programs and other benefits. Other benefits, which are available to all regular employees, include medical, dental, vision care, life, business travel accident, and short and long term disability insurance, flexible spending accounts, an employee assistance program, educational development assistance, voluntary life insurance, long term care insurance, fitness club reimbursement and severance pay.
211
| 2010 | 2011 | |||||||
| (1) | (2) | |||||||
| Alfred A. DelliBovi | $ | 678,721 | $ | 709,263 | ||||
| Patrick A. Morgan | 330,324 | 341,885 | ||||||
| Peter S. Leung | 438,109 | 453,443 | ||||||
| Paul B. Héroux | 311,514 | 322,417 | ||||||
| Kevin M. Neylan | 321,280 | 332,525 | ||||||
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| 2012 |
| 2011 |
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| (2) |
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Alfred A. DelliBovi |
| $ | 741,180 |
| $ | 709,263 |
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Peter S. Leung |
| $ | 469,314 |
| $ | 453,443 |
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Paul B. Héroux |
| $ | 333,702 |
| $ | 322,417 |
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Patrick A. Morgan |
| $ | 353,851 |
| $ | 341,885 |
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John F. Edelen |
| $ | 336,375 |
| $ | 325,000 |
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The 20112012 increases in the base salaries of the NEOs from 20102011 were based on their 20102011 performance.
(1)Figures represent salaries approved by our Board of Directors for the year 2012
(2)Figures represent salaries approved by our Board of Directors for the year 2011
A performance-based merit increase program exists for all employees, including NEO’s that have ana direct impact on base pay. Generally, employees receive merit increases on an annual basis. Such merit increases are based upon the attainment of a performance rating of “Outstanding,” “Exceeds Requirements,” or “Meets Requirements” achieved on individual performance evaluations. Merit guidelines are determined each year and distributed to managers. These guidelines establish the maximum merit increase percentage permissible for employee performance during that year. In OctoberNovember of 2009,2011, the C&HR Committee determined that merit-related officer base pay increases for 20102012 would be 3.0% for officers rated ‘Meets Requirements’; 3.5% for officers rated ‘Exceeds Requirements’; and 4.5% for officers rated ‘Outstanding’ for their performance in 2009.
When employees are individually evaluated, they receive one of five performance ratings: “Outstanding”; “Exceeds Requirements”; “Meets Requirements”; “Needs Improvement” or “Unsatisfactory”. Incentive Plan participants that were rated as “Exceeds Requirements” or “Outstanding” on their individual performance evaluations received an additional 3% or 6%, respectively, of their base salary added to their Incentive Plan award for the 2009 and 2010 Plan years. In October of 2010,2011, we removed the C&HR Committee determined that merit-related officeradditional 3% and 6% award for employees’ superior annual performance ratings from the Incentive Plan and instead included it as a cash payout based on the annual performance evaluation rating. This cash payout for a superior performance rating will not result in an increase to base pay increases for 2011 would be 3.0% for officers rated ‘Meets Requirements’; 3.5% for officers rated ‘Exceeds Requirements’; and 4.5% for officers rated ‘Outstanding’ for their performance in 2010.
Short-Term Incentive Compensation Plan (“Incentive Plan”)
The objective of the Bank’s Incentive Plan is to motivate exempt employees to perform at a high level and take actions that: i) support the Bank’sour strategies, ii) lead to the attainment of the Bank’s business plan, and iii) fulfill the Bank’sour mission. Funding for the Bank’s Incentive Plan is approved by the Board as part of the annual business plan process. By including goals that seek to balance risk and return, the Bank’s Incentive Plan is designed to incent appropriate behavior and work in a variety of economic conditions.
Aon reported in the course of its 2007 study of the Bank’s compensation and benefit programs (described earlier in Section I above) that most firms in the Bank’sour peer group provide their employees with annual short-term incentives. As such, for the Bank not to offer this element of compensation would put it at a distinct disadvantage with respect to its competitors for new talent, and also pose a challenge with respect to the retention of key employees.
There are two types of performance measures that impact upon Incentive Plan awards received by participants: i) Bankwide performance goals, and ii) individual performance goals (which can include work performed as part of a group) established and measured through the annual performance evaluation process.
The Bankwide goals are designed to help management focus on what it needs to accomplish for the success of the cooperative.success. The 20102011 Bankwide goals are organized into three broad categories:
Goals Category | Weighting | Goal | Goal Basis | ||||||
Business Effectiveness | 80 | % | Return | Dividend Capacity as forecasted in the | |||||
Risk | Enterprise Risk Level in the | ||||||||
Community Investment Effectiveness | 10 | % | Mission | Achievement in specific areas of housing and community development activities. | |||||
Growth Effectiveness | 10 | % | New Members | Number of new members and new/return borrowers during | |||||
212
Business Effectiveness Goal Category
The Return and Risk Goals that make up the Business Effectiveness Goal are linked and create a beneficial tension through the tradeoffs in managing one versus the other. These goals are weighted exactly the same; this motivates
management to act in ways that are aligned with the Board’s wishes as the Bank understands them, i.e., to have management achieve forecasted returns while managing risks to stay within the prescribed risk parameters. In addition, and again consistent with management’s understanding of the Board’s wishes, this set of goals will not motivate management to increase Dividend Capacity if doing such would require imprudently increasing the risk in the balance sheet.
Return Goal
Provide value to shareholders through the dividend. The Return Goal is based on Dividend Capacity.
Risk Goal
The Risk Goal is intended to encourage management to balance those actions taken to enhance earnings (i.e., Dividend Capacity) with actions that are needed to maintain appropriate risk levels in the business.
MissionCommunity Investment Effectiveness Goal Category
The MissionCommunity Investment Effectiveness Goal Category is intended to help ensure the Bank’s achievement of mission-related community development activities.
Growth Effectiveness Goal-Category
The Growth Effectiveness Goal Category is intended to set the stage for future growth. The Bank believesWe believe that recruiting new members now will, over time, create additional advances usage.
Bankwide Goals — Weighting Based on Employee Rank
We believe that employees at higher ranks have a greater impact on the achievement of Bankwide goals than employees at lower ranks. Therefore, employees at higher ranks have a greater weighting placed on the Bankwide performance component of their Incentive Plan award opportunities as opposed to the individual performance component. For the Bank’s Chief Executive Officer and the other Management Committee members (a group that includes all of the NEOs), the overall incentive compensation opportunity is weighted 90% on Bankwide performance goals and 10% on individual performance goals. There are differences among the NEOs with regard to their individual performance goals; however, these differences do not have a material impact on the amount of incentive compensation payout.
When employees are individually evaluated, they receive one of five performance ratings: “Outstanding”; “Exceeds Requirements”; “Meets Requirements”; “Needs Improvement” or “Unsatisfactory”. Incentive Plan participants that arewere rated as “Exceeds Requirements” or “Outstanding” on their individual performance evaluations receivereceived an additional 3% or 6%, respectively, of their base salary added to their Incentive Plan award.
Incentive Plan awards are only paid to participants who have attained at least a specified threshold rating within the “Meets Requirements” category on their individual performance evaluations and do not have any unresolved disciplinary matters in their record.
Participants will receive an individual Incentive Plan award payment even if Bankwide goal results are such that no payments are awarded for the Bankwide portion of the Incentive Plan.
The Incentive Plan is administered by the Chief Executive Officer, subject to any requirements for review and approval by the C&HR Committee that the Committee may establish.has established. In all areas not specifically reserved by the Committee for its review and approval, the decisions of the Chief Executive Officer or his designee concerning the Incentive Plan are binding on the Bank and on all Incentive Plan participants.
Beginning with the 2010 IC plan, and approved in the 2011 Plan, we added a clawback provision to the Incentive Plan that states:
“Any undue incentives paid to a Participant with a rank of Vice President or higher based on the achievement of financial or operational goals within this Plan that subsequently are deemed by the Bank to be inaccurate, misstated or misleading shall be recoverable from such Participant by the Bank. Inaccurate, misstated and/or misleading achievement of financial or operational goals shall include, but not be limited to, overstatements of revenue, income, capital, return measures and/or understatements of credit risk, market risk, operational risk or expenses. The value of any benefits delivered or accrued related to the undue incentive (i.e., the amount of the incentive over and above what should have been paid to the Participant barring inaccurate, misstated and/or misleading achievement of financial or operational goals) shall be reduced and/or recovered by the Bank to the fullest extent possible. Participants shall be responsible for the repayment of any such excess incentive payments as described in this paragraph upon demand by the Bank.”
2012 Deferred Incentive Compensation Plan
On July 21, 2011, the Federal Housing Finance Agency (“FHFA”) submitted a letter regarding observations and recommendations that the C&HR Committee should consider as it develops our 2012 Incentive Compensation Program (“ICP”) program. One of the recommendations was for us to create a long-term incentive plan or deferral of short-term incentive awards. At its September 26, 2011 meeting, the C&HR Committee authorized Aon to develop a
proposed deferred incentive compensation plan for its NEOs. Aon submitted a couple of proposed deferred incentive compensation models to the C&HR Committee’s at its January 18, 2012 meeting. The Chair of the C&HR Committee discussed the development of a deferred incentive compensation program with the FHFA at a meeting on February 23, 2012 to better understand the FHFA’s insight on the deferral plan.
Qualified Defined Contribution Plan
Employees who have met the eligibility requirements contained in the Pentegra Qualified Defined Contribution Plan for Financial Institutions (“DC Plan”) can choose to contribute to the DC Plan, a retirement savings plan qualified under the IRC. Employees are eligible for membership in the DC Plan on the first day of the month coinciding with or next following the date the employee completes three full calendar months of employment.
An employee may contribute 1% to 100% of base salary into the DC Plan, up to IRC limitations. The IRC limit for 20102011 was $16,500 for employees under the age of 50. An additional “catch up” contribution of $5,500 is permitted under IRC rules for employees who attain age 50 before the end of the calendar year. TheIf an employee contributes at least 3% of base salary, the Bank matches up to 100%provides a match of 3% of base salary. After completing three years of employment; the firstmatch is 4.5% of base salary and after the five years of employment 6% of base salary. Contributions of less than 3% of base salary receive a match of 2% of the employee’s base salary or $34.61 per pay period (whichever is less).
In 2012, the IRC limit for the DC Plan has been increased to $17,000 for employees under age 50. The additional “catch-up” contribution through the third year of employment; 150% of the first 3% of contribution during the fourth and fifth years of employment; and 200% of the first 3% of contribution starting with the sixth year of employment.
Additional Information
Additional information about compensation and benefits are provided in the discussions immediately following the below pension and compensation tables.
213
AND OPTION EXERCISES AND STOCK VESTED
The tables disclosing (i) outstanding option and stock awards and (ii) exercises of stock options and vesting of restricted stock for Named Executive OfficersNEO are omitted because all employees of Federal Home Loan Banks are prohibited by law from holding capital stock issued by a Federal Home Loan Bank. As such, these tables are not applicable.
PENSION BENEFITS
The table below shows the present value of accumulated benefits payable to each of the Named Executive Officers,NEO, the number of years of service credited to each such person, and payments during the last fiscal year (if any) to each such person, under the Pentegra Defined Benefit Plan for Financial Institutions and the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan (amounts in whole dollars):
| Pension Benefits for Fiscal Year 2010 | ||||||||||||||
| Number of | Present Value | Payment During | ||||||||||||
| Plan | Years Credited | of Accumulated | Last | |||||||||||
| Name | Name | Service [1] | Benefit [2] | Fiscal Year | ||||||||||
| Alfred A. DelliBovi | Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan | 17.75 | $ | 1,384,000 | — | |||||||||
| Nonqualified Defined Benefit Portion of the Benefit Equalization Plan | 17.75 | $ | 4,929,000 | — | ||||||||||
| Peter S. Leung | Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan | 13.50 | $ | 703,000 | — | |||||||||
| Nonqualified Defined Benefit Portion of the Benefit Equalization Plan (3) | 13.50 | $ | 1,108,000 | — | ||||||||||
| Paul B. Héroux | Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan | 26.50 | $ | 1,013,000 | — | |||||||||
| Nonqualified Defined Benefit Portion of the Benefit Equalization Plan | 26.50 | $ | 928,000 | — | ||||||||||
| Patrick A. Morgan | Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan | 11.50 | $ | 843,000 | — | |||||||||
| Nonqualified Defined Benefit Portion of the Benefit Equalization Plan | 11.50 | $ | 830,000 | — | ||||||||||
| Kevin M. Neylan | Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan | 9.33 | $ | 401,000 | — | |||||||||
| Nonqualified Defined Benefit Portion of the Benefit Equalization Plan | 9.33 | $ | 375,000 | — | ||||||||||
|
| Pension Benefits for Fiscal Year 2011 |
| ||||||||
|
|
|
| Number of |
| Present Value |
| Payment During |
| ||
|
| Plan |
| Years Credited |
| of Accumulated |
| Last |
| ||
Name |
| Name |
| Service [1] |
| Benefit [2] |
| Fiscal Year |
| ||
|
|
|
|
|
|
|
|
|
| ||
Alfred A. DelliBovi |
| Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan |
| 18.75 |
| $ | 1,635,000 |
| $ | — |
|
|
| Nonqualified Defined Benefit Portion of the Benefit Equalization Plan |
| 18.75 |
| $ | 6,122,000 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
| ||
Peter S. Leung |
| Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan |
| 14.50 |
| $ | 981,000 |
| $ | — |
|
|
| Nonqualified Defined Benefit Portion of the Benefit Equalization Plan (3) |
| 14.50 |
| $ | 1,622,000 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
| ||
Paul B. Héroux |
| Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan |
| 27.50 |
| $ | 1,406,000 |
| $ | — |
|
|
| Nonqualified Defined Benefit Portion of the Benefit Equalization Plan |
| 27.50 |
| $ | 1,357,000 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
| ||
Patrick A. Morgan |
| Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan |
| 12.50 |
| $ | 1,001,000 |
| $ | — |
|
|
| Nonqualified Defined Benefit Portion of the Benefit Equalization Plan |
| 12.50 |
| $ | 1,047,000 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
| ||
John F. Edelen |
| Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan |
| 14.25 |
| $ | 605,000 |
| $ | — |
|
|
| Nonqualified Defined Benefit Portion of the Benefit Equalization Plan |
| 14.25 |
| $ | 301,000 |
| $ | — |
|
(1) Number of years of credited service pertains toeligibility/participation in the qualified plan. Years of credited service for the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan are the same as for the Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan.
(2) As of 12/31/11.
(3)Mr. Leung’s 14.5 years of credited service includes 3.6 of credited service working for the Office of Thrift Supervision; 3.0 years of credited service working for the Federal Home Loan Bank of Dallas (including two months of severance) and 7.9 years of credited service working for the Federal Home Loan Bank of New York
The following discussions provide more information with respect to the compensation and pension benefits tables in the preceding pages.
214
The Pentegra Qualified Defined Benefit Plan for Financial Institutions (“DB Plan”), as adopted by the Bank, is an IRS-qualified defined benefit plan which covers all Bank employees who have achieved four months of service. The DB Plan is part of a multiple-employer defined benefit program administered by Pentegra Retirement Services.
Participants, who as of July 1, 2008 had five years of DB Plan service and were age 50 years or older, are provided with a benefit of 2.50% of a participant’s highest consecutive 3-year average earnings, multiplied by the participant’s years of benefit service, not to exceed 30 years. Earnings are defined as base salary plus short-term incentives, and overtime, subject to the annual Internal Revenue Code limit. These participants are identified herein as “Grandfathered”.
For all other participants (identified herein as “Non-Grandfathered”), the DB Plan provides a benefit of 2.0% (as opposed to 2.5% provided to Grandfathered participants) of a participant’s highest consecutive 5-year average earnings (as opposed to consecutive 3-year average earnings as previously provided to Grandfathered participants), multiplied by the participant’s years of benefit service, not to exceed 30 years. The Normal Form of Payment is a life annuity (i.e., an annuity paid until the death of the participant), as opposed to a guaranteed twelve-year payout as previously provided to Grandfathered participants. Also,In addition, for the Non-Grandfathered participants, the cost of living adjustments (“COLAs”) are no longer provided on future accruals (as opposed to a 1% simple interest COLA beginning at age 66 as previously provided).
The table below summarizes the DB Plan changes affecting the Non-Grandfathered employees that went into effect on July 1, 2008. For purposes of the following table, please note the following definitions:
“Defined Benefit Plan”— An Internal Revenue Code qualified deferred compensation arrangement that pays an employee and his/her designated beneficiary upon retirement a lifetime annuity or the lump sum actuarial equivalent of that annuity.
Benefit Multiplier— The annuity paid from the Bank’s DB Plan is calculated on an employee’s years of service, up to a maximum of 30 years, multiplied by 2.5% per year. Beginning July 1, 2008, the Benefit Multiplier changed to 2.0% for Non-Grandfathered Employees.
Final Average Pay Period— Is thatThe period of time that an employee’s salary is used in the calculation of that employee’s benefit. For Grandfathered Employees, the Benefit Multiplier, 2.5%, is multiplied by the average of the employee’s three highest consecutive years of salary multiplied by that employee’s years of service, not to exceed thirty years at the date of termination. For Non-Grandfathered Employees, any accrued benefits prior to July 1, 2008, the accrued Benefit Multiplier mirrors the Grandfathered Employees at 2.5%. For benefits accrued after July 1, 2008 a Benefits Multiplier of 2% is multiplied by the employee’s years of service (total service not to exceed thirty years) multiplied by the average of the employee’s five highest consecutive years of salary.
Normal Form of Payment— The DB Plan must state the form of the annuity to be paid to the retiring employee. For unmarried Grandfathered retirees, the Normal Form of Payment is a life annuity with a 12 year guaranteed payment (“Guaranteed-12 Year Payout”) which means that if the unmarried Grandfathered retiree dies prior to receiving 12 years of annuity payments, the retiree’s beneficiary will receive a lump sum equal to the remaining unpaid payments in the 12-year period. For married Grandfathered retirees, the Normal Form of Payment is a 50% joint and survivor annuity which provides a continuation of half of the monthly annuity to the surviving beneficiary. The initial 50% Joint and Survivor Annuity monthly payment is actuarially equivalent to the 12-year guaranteed payment provided to single retirees under the formula. Effective July 1, 2008, the DB Plan provides single Non-Grandfathered retirees with a straight “Life Annuity” as the Normal Form of Payment, which means that, once a retiree dies, the annuity terminates. For married Non-Grandfathered retirees, the Normal Form of Payment will be a 50% Joint and Survivor Annuity that is actuarially equivalent to the straight Life Annuity.
Cost of Living Adjustments (or “COLAs”)— Once a Grandfathered Employee retiree reaches age 65, in each succeeding year he/she will receive an extra payment annually equal to one percent of the original benefit amount multiplied by the number of years in pay status after age 65. As of July 1, 2008, this adjustment is no longer offered to Non-Grandfathered Employees on benefits accruing after that date.
Early Retirement Subsidy:
Early retirement under the plan is available after age 45.
Grandfathered Employees
Grandfathered Employee retirees who retire prior to normal retirement age (65) are eligible for subsidized early retirement reduction factors. Any participant who retires early and elects to draw pension benefits prior to age 65, and who has a combined age and length of service of at least 70 years, will realize a reduction of 1.5% to his/her early retirement benefit for each year benefits commence earlier than age 65. If that employee had not accumulated a total of 70 years, the reduction would be 3% for each year benefits commence earlier than age 65.
Grandfathered employees who were enrolled in the plan prior to July 1, 1983 and retired on or after age 55 are entitled to a Retirement Adjustment Payment. This is a one-time payment equivalent to three months of the regular retirement allowance, payable at the time of benefit commencement.
Non-Grandfathered Employees
Effective as of July 1, 2008, if an employee on the date of his/her retirement, before 65, had accumulated a total of 70 or more years of age plus service, the reduction will be 3% for every year between his/her age at commencement and age 65. However, if a Non-Grandfathered Employee on the date of his/her retirement, before 65, had not accumulated 70 or more years of age plus service, the reduction will be the actuarial equivalent between his/her age at commencement and age 65. At early retirement, the new early retirement factors will apply to the Non-Grandfathered Employee’s total service benefit. The retiree will be entitled to receive the greater of this early retirement benefit or the early retirement benefit accrued as of July 1, 2008 under the old plan formula.
215
DEFINED BENEFIT PLAN |
| GRANDFATHERED |
| NON-GRANDFATHERED |
|
PROVISIONS |
| EMPLOYEES |
| EMPLOYEES |
|
|
|
|
|
|
|
Benefit Multiplier |
| 2.5% |
| 2.0% |
|
Final Average Pay Period |
| High 3 Year |
| High 5 Year |
|
Normal Form of Payment |
| Guaranteed 12 Year Payout |
| Life Annuity |
|
| DEFINED BENEFIT PLAN | GRANDFATHERED | NON-GRANDFATHERED | ||
| PROVISIONS | EMPLOYEES | EMPLOYEES | ||
| Benefit Multiplier | 2.5% | 2.0% | ||
| Final Average Pay Period | High 3 Year | High 5 Year | ||
| Normal Form of Payment | Guaranteed 12 Year Payout | Life Annuity | ||
| Cost of Living Adjustments | 1% Per Year Cumulative | None | ||
| Commencing at Age 66 | ||||
| Early Retirement Subsidy<65: | ||||
| a) Rule of 70 | 1.5% Per Year | 3% Per Year | ||
| b) Rule of 70 Not Met | 3% Per Year | Actuarial Equivalent | ||
| *Vesting | 20% Per Year Commencing | 5 Year Cliff | ||
| Second Year of Employment |
Cost of Living Adjustments | 1% Per Year Cumulative Commencing at Age 66 | None | |||
Early Retirement Subsidy<65: | |||||
a) Rule of | 1.5% Per Year | 3% Per Year | |||
b) Rule of 70 Not Met | 3% Per Year | Actuarial Equivalent | |||
*Vesting | 20% Per Year Commencing Second Year of Employment | 5 Year Cliff |
*Greater of DB Plan Vesting or New Plan Vesting applied to employees participating in the DB Plan prior to July 1, 2008.
Earnings under the Bank’s DB Plan continue to be defined as base salary plus short-term incentives, and overtime, subject to the annual IRC limit. The IRC limit on earnings for calculation of the DB Plan benefit for 20102011 was $245,000.
In 2012, the IRC increased the earnings limit for the DB Plan to $250,000.
The DB Plan pays monthly annuities, or a lump sum amount available at or after age 59-1/2, calculated on an actuarial basis, to vested participants or the beneficiaries of deceased vested participants. Annual benefits provided under the DB Plan also are subject to IRC limits, which vary by age and benefit payment option selected.
Nonqualified Defined Benefit Portion of the Benefit Equalization Plan
Employees at the rank of Vice President and above who exceed income limitations established by the IRC for three out of five consecutive years and who are also approved for inclusion by the Bank’s Nonqualified Plan Committee are eligible to participate in the BEP, commonly referred to as a “Supplemental Executive Retirement Plan,” a non-qualified retirement plan that in many respects mirrors the DB Plan.
The primary objective of the Nonqualified Defined Benefit Portion of the BEP is to ensure that participants receive the full benefit to which they would have been entitled under the DB Plan in the absence of limits on maximum benefit levels imposed by the IRC.
The Nonqualified Defined Benefit Portion of the BEP utilizes the identical benefit formulas applicable to the Bank’s DB Plan. In the event that the benefits payable from the Bank’s DB Plan have been reduced or otherwise limited by government regulations, the employee’s “lost” benefits are payable under the terms of the defined benefit portion of the BEP.
The Nonqualified Defined Benefit Portion of the BEP is an unfunded arrangement. However, the Bankwe established a grantor truststrust to assist in financing the payment of benefits under these plans. The trust were approved by the Nonqualified Plan Committee in March of 2006 and established in June of 2007.
Although other nonqualified plans were terminated on November 10, 2009, the Nonqualified Defined Benefit Portion of the BEP was not terminated on that day, and remains in effect as of the date of this Annual Report on Form 10-K.
216
| Nonqualified Defined Contribution Portion of the Defined Benefit Plan for Fiscal Year 2010 | ||||||||||||||||||||
| Executive | Registrant | Aggregate | Aggregate | Aggregate | ||||||||||||||||
| Contributions in | Contributions in | Earnings in | Withdrawals/ | Balance at | ||||||||||||||||
| Name | Last FY | Last FY | Last FY (1) | Distributions | Last FYE | |||||||||||||||
| Alfred A. DelliBovi | — | — | $ | 100,998 | $ | 1,225,654 | — | |||||||||||||
| Patrick A. Morgan | — | — | $ | 7,232 | $ | 93,441 | — | |||||||||||||
| Paul B. Héroux | — | — | $ | 15,712 | $ | 189,517 | — | |||||||||||||
| Peter S. Leung | — | — | $ | 18,602 | $ | 218,154 | — | |||||||||||||
| Kevin M. Neylan | — | — | $ | 23,146 | $ | 255,417 | — | |||||||||||||
| Nonqualified Deferred Compensation Plan for Fiscal Year 2010 | ||||||||||||||||||||
| Executive | Registrant | Aggregate | Aggregate | Aggregate | ||||||||||||||||
| Contributions in | Contributions in | Earnings in | Withdrawals/ | Balance at | ||||||||||||||||
| Name | Last FY | Last FY | Last FY (1) | Distributions | Last FYE | |||||||||||||||
| Peter S. Leung | — | — | $ | 5,119 | $ | 294,767 | — | |||||||||||||
| Nonqualified Profit Sharing Plan for Fiscal Year 2010 | ||||||||||||||||||||
| Executive | Registrant | Aggregate | Aggregate | Aggregate | ||||||||||||||||
| Contributions in | Contributions in | Earnings in | Withdrawals/ | Balance at | ||||||||||||||||
| Name | Last FY | Last FY | Last FY (1) | Distributions | Last FYE | |||||||||||||||
| Paul B. Héroux | — | — | $ | 2,849 | $ | 21,034 | — | |||||||||||||
217
Severance Plan
The Bank has a formal Board-approved Severance Plan (“Severance Plan”) available to all Bank employees who work twenty or more hours a week and have at least one year of employment.
Severance benefits are paid to employees who:
(i) are part of a reduction in force;
(ii) have resigned from the Bank following a reduction in salary grade, level, or rank;
(iii) refuse a transfer of fifty miles or more;
(iv) have their position eliminated; or
(v) are unable to perform his/her duties in a satisfactory manner and is warranted that the employee would not be discharged for cause.
An Officer of the Bankofficer shall be eligible for two (2) weeks of severance benefits for each six month period of service with the Bank,bank, but not less than six (6) weeks of severance benefits. Non-officers are eligible for severance benefits in accordance with different formulas.
An Officerofficer is eligible to receive severance benefits, in the aggregate for all six month periods of service, whether or not continuous, totaling more than the lesser of (i) thirty-six (36) weeks or (ii) two (2) times the lesser of (a) the sum of the employee’s annualized compensation based upon his or her annual rate of pay for services as an employee for the year preceding the year in which the employment of the employee by the Bank terminated (adjusted for any increase during that year that was expected to continue indefinitely if the employment of the employee had not terminated) or (b) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the IRC for the year in which the employment of the employee terminated.
Payment of severance benefits under the Severance Plan is contingent on an employee executing a severance agreement which includes a release of any claim the employee may have against the Bank and any present and former director, officer and employee of the Bank.
The following table describes estimated severance payout information for each NEO assuming that severance would have occurred on December 31, 2010:2011: (amounts in whole dollars)
| Number of Weeks Used to | 2010 Annual | |||||||||||
| Calculate Severance Amount | Base Salary | Severance Amount | ||||||||||
| Alfred A. DelliBovi | 36 | $ | 678,721 | $ | 469,884 | |||||||
Peter S. Leung(1) (2) | 26 | $ | 438,109 | $ | 219,055 | |||||||
| Patrick A. Morgan | 36 | $ | 330,324 | $ | 228,686 | |||||||
| Paul B. Héroux | 36 | $ | 311,514 | $ | 215,664 | |||||||
| Kevin M. Neylan | 36 | $ | 321,280 | $ | 222,425 | |||||||
|
| Number of Weeks Used to |
| 2011 Annual |
|
|
| ||
|
| Calculate Severance Amount |
| Base Salary |
| Severance Amount |
| ||
|
|
|
|
|
|
|
| ||
Alfred A. DelliBovi |
| 36 |
| $ | 709,263 |
| $ | 491,028 |
|
Peter S. Leung |
| 28 |
| $ | 453,443 |
| $ | 244,162 |
|
Patrick A. Morgan |
| 36 |
| $ | 341,885 |
| $ | 236,690 |
|
Paul B. Héroux |
| 36 |
| $ | 322,417 |
| $ | 223,212 |
|
John F. Edelen |
| 36 |
| $ | 325,000 |
| $ | 225,000 |
|
In addition, former employees receiving severance benefits also receive, if applicable, life insurance for the severance period and, if the former employee elects to purchase health insurance continuation coverage, through the Bank, reimbursement during the severance period covering the difference between (i) the cost to the former employee of such health insurance continuation coverage and (ii) what the cost of such health insurance coverage would have been had the former employee remained employed with the Bank. Reimbursements are made monthly coinciding with the monthly invoice processing and upon receipt of payment by the employee receiving severance.
Life insurance premiums paid on behalf of employees on severance are paid monthly, by the Bank, coinciding with the monthly invoice processing.
Other Potential Post-Employment Payments
DIRECTOR COMPENSATION
The following table summarizes the compensation paid by the Bankus to each of itsour Directors for the year ended December 31, 20102011 (whole dollars):
| Change in Pension | ||||||||||||||||||||||||||||
| Value and | ||||||||||||||||||||||||||||
| Fees | Non-Equity | Nonqualified | All | |||||||||||||||||||||||||
| Earned or | Stock | Option | Incentive Plan | Deferred Compensation | Other | |||||||||||||||||||||||
| Name | Paid in Cash | Awards | Awards | Compensation | Earnings | Compensation | Total | |||||||||||||||||||||
| Michael M. Horn | $ | 60,000 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 60,000 | ||||||||||||||
| José R. González | 55,000 | — | — | — | — | — | 55,000 | |||||||||||||||||||||
| John R. Buran | 4,500 | — | — | — | — | — | 4,500 | |||||||||||||||||||||
| Anne E. Estabrook | 50,000 | — | — | — | — | — | 50,000 | |||||||||||||||||||||
| Joseph R. Ficalora | 45,000 | — | — | — | — | — | 45,000 | |||||||||||||||||||||
| Jay M. Ford | 45,000 | — | — | — | — | — | 45,000 | |||||||||||||||||||||
| James W. Fulmer | 45,000 | — | — | — | — | — | 45,000 | |||||||||||||||||||||
| Ronald E. Hermance, Jr. | 50,000 | — | — | — | — | — | 50,000 | |||||||||||||||||||||
| Katherine J. Liseno | 45,000 | — | — | — | — | — | 45,000 | |||||||||||||||||||||
| Kevin J. Lynch | 50,000 | — | — | — | — | — | 50,000 | |||||||||||||||||||||
| Joseph J. Melone | 45,000 | — | — | — | — | 45,000 | ||||||||||||||||||||||
| Richard S. Mroz | 50,000 | — | — | — | — | — | 50,000 | |||||||||||||||||||||
| Thomas M. O’Brien | 45,000 | — | — | — | — | — | 45,000 | |||||||||||||||||||||
| C. Cathleen Raffaeli | 50,000 | — | — | — | — | — | 50,000 | |||||||||||||||||||||
| Edwin C. Reed | 45,000 | — | — | — | — | — | 45,000 | |||||||||||||||||||||
| John M. Scarchilli | 13,500 | — | — | — | — | — | 13,500 | |||||||||||||||||||||
| DeForest B. Soaries, Jr. | 45,000 | — | — | — | — | — | 45,000 | |||||||||||||||||||||
| George Strayton | 50,000 | — | — | — | — | — | 50,000 | |||||||||||||||||||||
| $ | 793,000 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 793,000 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| Change in Pension |
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
| Value and |
|
|
|
|
| |||||||
|
| Fees |
|
|
|
|
| Non-Equity |
| Nonqualified |
| All |
|
|
| |||||||
|
| Earned or |
| Stock |
| Option |
| Incentive Plan |
| Deferred Compensation |
| Other |
|
|
| |||||||
Name |
| Paid in Cash |
| Awards |
| Awards |
| Compensation |
| Earnings |
| Compensation |
| Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Michael M. Horn |
| $ | 100,000 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 100,000 |
|
José R. González |
| 85,000 |
| — |
| — |
| — |
| — |
| — |
| 85,000 |
| |||||||
John R. Buran |
| 75,000 |
| — |
| — |
| — |
| — |
| — |
| 75,000 |
| |||||||
Anne E. Estabrook |
| 85,000 |
| — |
| — |
| — |
| — |
| — |
| 85,000 |
| |||||||
Joseph R. Ficalora |
| 75,000 |
| — |
| — |
| — |
| — |
| — |
| 75,000 |
| |||||||
Jay M. Ford |
| 75,000 |
| — |
| — |
| — |
| — |
| — |
| 75,000 |
| |||||||
James W. Fulmer |
| 75,000 |
| — |
| — |
| — |
| — |
| — |
| 75,000 |
| |||||||
Ronald E. Hermance, Jr. |
| 85,000 |
| — |
| — |
| — |
| — |
| — |
| 85,000 |
| |||||||
Katherine J. Liseno |
| 75,000 |
| — |
| — |
| — |
| — |
| — |
| 75,000 |
| |||||||
Kevin J. Lynch |
| 85,000 |
| — |
| — |
| — |
| — |
| — |
| 85,000 |
| |||||||
Joseph J. Melone |
| 75,000 |
| — |
| — |
| — |
| — |
| — |
| 75,000 |
| |||||||
Richard S. Mroz |
| 85,000 |
| — |
| — |
| — |
| — |
| — |
| 85,000 |
| |||||||
Thomas M. O’Brien |
| 66,664 |
| — |
| — |
| — |
| — |
| — |
| 66,664 |
| |||||||
C. Cathleen Raffaeli |
| 85,000 |
| — |
| — |
| — |
| — |
| — |
| 85,000 |
| |||||||
Edwin C. Reed |
| 75,000 |
| — |
| — |
| — |
| — |
| — |
| 75,000 |
| |||||||
DeForest B. Soaries, Jr. |
| 75,000 |
| — |
| — |
| — |
| — |
| — |
| 75,000 |
| |||||||
George Strayton |
| 85,000 |
| — |
| — |
| — |
| — |
| — |
| 85,000 |
| |||||||
Total Fees |
| $ | 1,361,664 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 1,361,664 |
|
Director Compensation Policy: Director Fees
The Board establishes on an annual basis a Director Compensation Policy governing compensation for Board meeting attendance. This policy is established in accordance with the provisions of the Federal Home Loan Bank Act (“Bank Act”) and related Federal Housing Finance Agency regulations that were amended as a result of the Housing and Economic Recovery Act of 2008 (“HERA”) to remove a statutory cap on director compensation. In sum, the applicable statutes and regulations now allow each FHLBank to pay its directors reasonable compensation and expenses, subject to the authority of the Director of the Finance Agency to object to, and to prohibit prospectively, compensation and/or expenses that the Director of the Finance Agency determines are not reasonable. The Director Compensation Policy provides that directors shall be paid a meeting fee for their attendance at meetings of the Board of Directors up to a maximum annual compensation amount as set forth in the Director Compensation Policy.
In initially determining reasonable compensation for itsour directors in the aftermath of HERA for the year 2009, the FHLBankwe participated in, and utilized the results of, an FHLB System review of director compensation, which included a study prepared by McLagan Partners. FHLBankThe director compensation that was established by the Board under the 2010 Director Compensation Policy also reflected this analysis. In 2010, McLagan performed another director compensation study for the FHLBanks, which formed the basis for theour Board’s determination of 2011 director compensation.
Director Fees — 2010 (in whole dollars)
| Fees For Each Board | ||||
| Meeting Attended (Paid | ||||
| Quarterly | ||||
| Position | in Arrears) | |||
| Chairman | $ | 6,000 | ||
| Vice Chairman | $ | 5,500 | ||
| Committee Chair * | $ | 5,500 | ||
| All Other Directors | $ | 4,500 | ||
Director Annual Compensation Limits — 2010 (in whole dollars)
| Position | Annual Limit | |||
| Chairman | $ | 60,000 | ||
| Vice Chairman | $ | 55,000 | ||
| Committee Chair | $ | 50,000 | ||
| All Other Directors | $ | 45,000 | ||
| Fees For Each Board | ||||
| Meeting Attended (Paid | ||||
| Quarterly | ||||
| Position | in Arrears)** | |||
| Chairman | $ | 11,111 | ||
| Vice Chairman | $ | 9,444 | ||
| Committee Chair * | $ | 9,444 | ||
| All Other Directors | $ | 8,333 | ||
Position |
| Fees For Each Board |
| |
Chairman |
| $ | 11,111 |
|
Vice Chairman |
| $ | 9,444 |
|
Committee Chair ** |
| $ | 9,444 |
|
All Other Directors |
| $ | 8,333 |
|
Director Annual Compensation Limits — 2011 (in whole dollars)
| Position | Annual Limit | |||
| Chairman | $ | 100,000 | ||
| Vice Chairman | $ | 85,000 | ||
| Committee Chair | $ | 85,000 | ||
| All Other Directors | $ | 75,000 | ||
Position |
| Annual Limit |
| |
Chairman |
| $ | 100,000 |
|
Vice Chairman |
| $ | 85,000 |
|
Committee Chair |
| $ | 85,000 |
|
All Other Directors |
| $ | 75,000 |
|
220
Position |
| Fees For Each Board |
| |
Chairman |
| $ | 11,111 |
|
Vice Chairman |
| $ | 9,444 |
|
Committee Chair ** |
| $ | 9,444 |
|
All Other Directors |
| $ | 8,333 |
|
Director Annual Compensation Limits — 2012 (in whole dollars)
Position |
| Annual Limit |
| |
Chairman |
| $ | 100,000 |
|
Vice Chairman |
| $ | 85,000 |
|
Committee Chair |
| $ | 85,000 |
|
All Other Directors |
| $ | 75,000 |
|
* The numbers in this column represent payments for each of eight meetings attended. If a ninth meeting is attended, payments for the ninth meeting shall be as follows: Chairman, $11,112; Vice Chairman, $9,448; Committee Chair, $9,448; and all other Directors, $8,336.
** A Committee Chair does not receive any additional payment if he or she serves as the Chair of more than one Board Committee. In addition, the Board Chair and Board Vice Chair do not receive any additional compensation if they serve as a Chair of one or more Board Committees.
Director Compensation Policy: Director Expenses
The Director Compensation Policy also authorizes the FHLBNYus to reimburse Directors for necessary and reasonable travel, subsistence, and other related expenses incurred in connection with the performance of their official duties. For expense reimbursement purposes, Directors’ official duties can include:
·Meetings of the Board and Board Committees
·Meetings requested by the Federal Housing Finance Agency
·Meetings of Federal Home Loan Bank System committees
·Federal Home Loan Bank System director orientation meetings
·Meetings of the Council of Federal Home Loan Banks and Council committees
·Attendance at other events on behalf of the Bank with prior approval of the Board of Directors
The following table, which is included here pursuant to FHFA regulations, includes information about reimbursed expenses for 20102011 (whole dollars):
| Directors’ Expenses | ||||
| Reimbursed | ||||
| Name | (Paid in Cash) | |||
| Michael M. Horn | $ | 6,104 | ||
| José R. González | 20,797 | |||
| John R. Buran | — | |||
| Anne E. Estabrook | 3,974 | |||
| Joseph R. Ficalora | — | |||
| Jay M. Ford | 4,539 | |||
| James W. Fulmer | 5,028 | |||
| Ronald E. Hermance, Jr. | — | |||
| Katherine J. Liseno | 3,425 | |||
| Kevin J. Lynch | 3,746 | |||
| Joseph J. Melone | 805 | |||
| Richard S. Mroz | 4,686 | |||
| Thomas M. O’Brien | 356 | |||
| C. Cathleen Raffaeli | — | |||
| Edwin C. Reed | — | |||
| John M. Scarchilli | 130 | |||
| DeForest B. Soaries, Jr. | 3,846 | |||
| George Strayton | 1,595 | |||
| �� | ||||
| $ | 59,031 | |||
|
| Directors’ Expenses |
| |
|
| Reimbursed |
| |
Name |
| (Paid in Cash) |
| |
|
|
|
| |
Michael M. Horn |
| $ | 6,073 |
|
José R. González |
| 19,874 |
| |
John R. Buran |
| — |
| |
Anne E. Estabrook |
| 10,437 |
| |
Joseph R. Ficalora |
| — |
| |
Jay M. Ford |
| 1,953 |
| |
James W. Fulmer |
| 7,548 |
| |
Ronald E. Hermance, Jr. |
| — |
| |
Katherine J. Liseno |
| 2,113 |
| |
Kevin J. Lynch |
| 2,183 |
| |
Joseph J. Melone |
| 181 |
| |
Richard S. Mroz |
| 3,872 |
| |
Thomas M. O’Brien |
| 1,282 |
| |
C. Cathleen Raffaeli |
| 4,219 |
| |
Edwin C. Reed |
| 8,330 |
| |
DeForest B. Soaries, Jr. |
| 1,706 |
| |
George Strayton |
| 209 |
| |
Total Directors’ Expenses Reimbursed |
| $ | 69,980 |
|
Total expenses incurred by the FHLBNYus for our Board expenses, including amounts reimbursed in cash to Directors, totaled $169,000 $127,000 and $134,000 in 2011, 2010 and $124,000 in 2010, 2009, and 2008, respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
FHLBNY stock can only be held by member financial institutions. No person, including directors and executive officers of the FHLBNY, may own the Bank’sour capital stock. As such, the FHLBNY doeswe do not offer any compensation plan to any individuals under which equity securities of the Bank are authorized for issuance. The following tables provide information about those members who were beneficial owners of more than 5% of the FHLBNY’sour outstanding capital stock (shares in thousands) as of:
|
|
|
| Number |
| Percent |
|
|
| February 29, 2012 |
| of Shares |
| of Total |
|
Name of Beneficial Owner |
| Principal Executive Office Address |
| Owned |
| Capital Stock |
|
|
|
|
|
|
|
|
|
Metropolitan Life Insurance Company |
| 200 Park Avenue, New York, NY 10166 |
| 6,556 |
| 14.58 | % |
Hudson City Savings Bank, FSB* |
| West 80 Century Road, Paramus, NJ 07652 |
| 4,881 |
| 10.86 |
|
New York Community Bank* |
| 615 Merrick Avenue, Westbury, NY 11590-6644 |
| 4,293 |
| 9.55 |
|
Citibank, N.A. |
| 399 Park Avenue, New York, NY 10043 |
| 3,962 |
| 8.81 |
|
|
|
|
|
|
|
|
|
|
|
|
| 19,692 |
| 43.80 | % |
|
|
|
| Number |
| Percent |
|
|
| December 31, 2011 |
| of Shares |
| of Total |
|
Name of Beneficial Owner |
| Principal Executive Office Address |
| Owned |
| Capital Stock |
|
|
|
|
|
|
|
|
|
Metropolitan Life Insurance Company |
| 200 Park Avenue, New York, NY 10166 |
| 6,579 |
| 14.47 |
|
Hudson City Savings Bank, FSB* |
| West 80 Century Road, Paramus, NJ 07652 |
| 5,106 |
| 11.23 |
|
New York Community Bank* |
| 615 Merrick Avenue, Westbury, NY 11590-6644 |
| 4,546 |
| 10.00 |
|
Citibank, N.A. |
| 399 Park Avenue, New York, NY 10043 |
| 3,647 |
| 8.02 |
|
MetLife Bank, N.A. |
| 334 Madison Avenue, Convent Station, NJ 07961 |
| 2,343 |
| 5.16 |
|
|
|
|
|
|
|
|
|
|
|
|
| 22,221 |
| 48.88 | % |
* At February 29, 2012 and December 31, 2011, officer of member bank also served on the Board of Directors of the FHLBNY.
| Number | Percent | |||||||||
| February 28, 2011 | of Shares | of Total | ||||||||
| Name of Beneficial Owner | Principal Executive Office Address | Owned | Capital Stock | |||||||
| Hudson City Savings Bank, FSB* | West 80 Century Road, Paramus, NJ 07652 | 8,697 | 19.55 | % | ||||||
| Metropolitan Life Insurance Company | 200 Park Avenue, New York, NY 10166 | 6,934 | 15.59 | |||||||
| New York Community Bank* | 615 Merrick Avenue, Westbury, NY 11590-6644 | 3,867 | 8.70 | |||||||
| 19,498 | 43.84 | % | ||||||||
| Number | Percent | |||||||||
| December 31, 2010 | of Shares | of Total | ||||||||
| Name of Beneficial Owner | Principal Executive Office Address | Owned | Capital Stock | |||||||
| Hudson City Savings Bank, FSB* | West 80 Century Road, Paramus, NJ 07652 | 8,719 | 18.99 | % | ||||||
| Metropolitan Life Insurance Company | 200 Park Avenue, New York, NY 10166 | 7,035 | 15.32 | |||||||
| New York Community Bank* | 615 Merrick Avenue, Westbury, NY 11590-6644 | 4,093 | 8.91 | |||||||
| 19,847 | 43.22 | % | ||||||||
The following table sets forth information with respect to capital stock outstanding to members whose officers or directors served as Directors of the FHLBNY as of December 31, 2010,2011, the most practicable date for the information provided (shares in thousands):
| Number | Percent | |||||||||||||
| of Shares | of Total | |||||||||||||
| Name | Director | City | State | Owned | Capital Stock | |||||||||
| Hudson City Savings Bank, FSB | Ronald E. Hermance, Jr. | Paramus | NJ | 8,719 | 18.99 | % | ||||||||
| New York Community Bank | Joseph R. Ficalora | Westbury | NY | 4,093 | 8.91 | |||||||||
| Flushing Savings Bank, FSB | John R. Buran | Lake Success | NY | 316 | 0.69 | |||||||||
| Oritani Bank | Kevin J. Lynch | Township of Washington | NJ | 308 | 0.67 | |||||||||
| Provident Bank | George Strayton | Montebello | NY | 233 | 0.51 | |||||||||
| Oriental Bank and Trust | José R. González | San Juan | PR | 225 | 0.49 | |||||||||
| AXA Equitable Life Insurance Company | Joseph J. Melone | New York | NY | 125 | 0.27 | |||||||||
| State Bank of Long Island | Thomas M. O’Brien | Jericho | NY | 30 | 0.06 | |||||||||
| Crest Savings Bank | Jay M. Ford | Wildwood | NJ | 26 | 0.06 | |||||||||
| The Bank of Castile | James W. Fulmer | Batavia | NY | 23 | 0.05 | |||||||||
| Metuchen Savings Bank | Katherine J. Liseno | Metuchen | NJ | 15 | 0.03 | |||||||||
| 14,113 | 30.73 | % | ||||||||||||
|
|
|
|
|
|
|
| Number |
| Percent |
|
|
|
|
|
|
|
|
| of Shares |
| of Total |
|
Name |
| Director |
| City |
| State |
| Owned |
| Capital Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hudson City Savings Bank, FSB |
| Ronald E. Hermance, Jr. |
| Paramus |
| NJ |
| 5,105 |
| 11.23 | % |
New York Community Bank |
| Joseph R. Ficalora |
| Westbury |
| NY |
| 4,546 |
| 10.00 |
|
Oritani Bank |
| Kevin J. Lynch |
| Township of Washington |
| NJ |
| 350 |
| 0.77 |
|
Flushing Savings Bank, FSB |
| John R. Buran |
| Lake Success |
| NY |
| 302 |
| 0.66 |
|
Oriental Bank and Trust |
| Jose Ramon Gonzalez |
| San Juan |
| PR |
| 238 |
| 0.51 |
|
Provident Bank |
| George Strayton |
| Montebello |
| NY |
| 218 |
| 0.48 |
|
AXA Equitable Life Insurance Company |
| Joseph J. Melone |
| New York |
| NY |
| 112 |
| 0.25 |
|
New York Commerical Bank |
| Joseph R. Ficalora |
| Westbury |
| NY |
| 78 |
| 0.17 |
|
Crest Saving Bank |
| Jay M. Ford |
| Wildwood |
| NJ |
| 25 |
| 0.06 |
|
The Bank of Castile |
| James W. Fulmer |
| Castile |
| NY |
| 25 |
| 0.06 |
|
State Bank of Long Island |
| Thomas M. O’Brien |
| Jericho |
| NY |
| 21 |
| 0.05 |
|
Metuchen Savings Bank |
| Katherine J. Liseno |
| Metuchen |
| NJ |
| 8 |
| 0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 11,028 |
| 24.26 | % |
All capital stock held by each member of the FHLBNY is by law automatically pledged to the FHLBNY as additional collateral for all indebtedness of each such member to the FHLBNY.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The FHLBNY is a cooperative and its customers own the entity’s capital stock. Capital stock ownership is a prerequisite to the transaction by members of any business with the FHLBNY. The majority of the members of the Board of Directors of the FHLBNY are Member Directors (i.e., directors elected by the Bank’s members who are officers or directors of Bank members). The remaining members of the Board are Independent Directors (i.e., directors elected by the Bank’s members who arenot officers or directors of Bank members). The FHLBNY conducts its advances business almost exclusively with members. Therefore, in the normal course of business, the FHLBNY extends credit to members, whose officers or directors may serve as directors of the FHLBNY. All loans extended by the FHLBNY to such members are at market terms that are no more favorable to them than the terms of comparable transactions with other members. In addition, the FHLBNY also extends credit to members who own more than 5% of the FHLBNY’s stock. Under the provisions of Section 7(j) of the FHLBank Act (12 U.S.C. § 1427(j)), the Bank’s Board is required to administer the business of the Bank with its members without discrimination in favor of or against any member. For more information about transactions with stockholders, see ‘Note 2119 - Related Party Transactions’, in the notes to the audited financial statements included in this Form 10-K.
The review and approval of transactions with related persons is governed by the Bank’s written Code of Ethics and Business Conduct (“Code”), which is posted on the Corporate Governance Section of the FHLBNY’s website at http://www.fhlbny.com. Under the Code, each director is required to disclose to the Board of Directors all actual or apparent conflicts of interest, including any personal financial interest that he or she has, as well as such interests of any immediate family member or business associate of the director known to the director, in any matter to be considered by the Board of Directors or in which another person does, or proposes to do, business with the Bank. Following such disclosure, the Board of Directors is empowered to determine whether an actual conflict exists. In the event the Board of Directors determines the existence of a conflict with respect to any matter, the affected director must recuse himself or herself from all further considerations relating to that matter. Issues under the Code regarding conflicts of interests involving directors are administered by the Board or, in the Board’s discretion, the Board’s Corporate Governance Committee.
The Code also provides that, subject to certain limited exceptions for, among other items, interests arising through ownership of mutual funds and certain financial interests acquired prior to employment by the Bank, no Bank employee may have a financial interest in any Bank member. Extensions of credit from members to employees are acceptable that are entered into or established in the ordinary, normal course of business, so long as the terms are no more favorable than would be available in like circumstances to persons who are not employees of the Bank. Employees provide disclosures regarding financial interests and financial relationships on a periodic basis. These disclosures are provided to and reviewed by the Director of Human Resources, who is (along with the Chief Audit Officer) one of the Bank’s two Ethics Officers; the Ethics Officers have responsibility for enforcing the Code of Ethics with respect to employees on a day-to-day basis.
Director Independence
In General
During the period from January 1, 20102011 through and including the date of this annual report on Form 10-K, the Bank had a total of 1819 directors serving on its Board, 1112 of whom were Member Directors (i.e., directors elected by the Bank’s members who are officers or directors of Bank members) and 7 of whom were Independent Directors (i.e., directors who were, until the enactment of the Housing and Economic Recovery Act of 2008, appointed by the Bank’s former safety and soundness regulator, the Federal Housing Finance Board, and who are now subject to election by the Bank’s members andnot officers or directors of Bank members). All of the Bank’s directors were independent of management from the standpoint that they were not, and could not serve as, Bank employees or officers. Also, all individuals, including the Bank’s directors, are prohibited by law from personally owning stock or stock options in the Bank. In addition, the Bank is required to determine whether its directors are independent under two distinct director independence standards. First, Federal Housing Finance Agency (“Finance Agency”) regulations establish independence criteria for directors who serve as members of the Audit Committee of the Board of Directors. Second, the Securities and Exchange Commission’s (“SEC”) regulations require that the Bank’s Board of Directors apply the independence criteria of a national securities exchange or automated quotation system in assessing the independence of its directors.
Finance Agency Regulations Regarding Independence
The Finance Agency director independence standards prohibit individuals from serving as members of the Bank’s Audit Committee if they have one or more disqualifying relationships with the Bank or its management that would interfere with the exercise of that individual’s independent judgment. Under Finance Agency regulations, disqualifying relationships can include, but are not limited to: employment with the Bank at any time during the last five years; acceptance of compensation from the Bank other than for service as a director; being a consultant, advisor, promoter, underwriter or legal counsel for the Bank at any time within the last five years; and being an immediate family member of an individual who is or who has been within the past five years, a Bank executive officer. The Board of Directors has assessed the independence of all directors under the Finance Agency’s independence standards, regardless of whether they serve on the Audit Committee. From January 1, 20102011 through and including the date of this Annual Report on Form 10-K, all of the persons who served as a director of the Bank, including all directors who served as members of the Audit Committee, were independent under these criteria.
In addition, pursuant to SEC regulations, the Board has adopted the independence standards of the New York Stock Exchange (“NYSE”) to determine which of its directors are independent and which members of its Audit Committee are not independent.
After applying the NYSE independence standards, the Board has determined that all of the Bank’s Independent Directors who served at any time during the period from January 1, 20102011 through and including the date of this annual report on Form 10-K (i.e., Anne Evans Estabrook, Michael M. Horn, Joseph J. Melone, Richard S. Mroz,
C. Cathleen Raffaeli, Edwin C. Reed and DeForest B. Soaries, Jr.) were independent.
Separately, the Board was unable to affirmatively determine that there were no material relationships (as defined in the NYSE rules) between the Bank and its Member Directors, and has therefore concluded that none of the Bank’s Member Directors who served at any time during the aforementioned period (i.e., John R. Buran, Joseph R. Ficalora, Jay M. Ford, James W. Fulmer, José R. González, Ronald E. Hermance, Thomas L. Hoy, Katherine J. Liseno, Kevin J. Lynch, José R. González, Thomas M. O’Brien, John M. ScarchilliVincent F. Palagiano, and George Strayton) were independent under the NYSE independence standards.
In making this determination, the Board considered the cooperative relationship between the Bank and its members. Specifically, the Board considered the fact that each of the Bank’s Member Directors are officers of a Bank member institution, and that each member institution has access to, and is encouraged to use, the Bank’s products and services.
Furthermore, the Board acknowledges that under NYSE rules, there are certain objective tests that, if not passed, would preclude a finding of independence. One such test pertains to the amount of business conducted with the Bank by the Member Director’s institution. It is possible that a Member Director could satisfy this test on a particular day. However, because the amount of business conducted by a Member Director’s institution may change frequently, and because the Bank generally desires to increase the amount of business it conducts with each member, the directors deemed it inappropriate to draw distinctions among the Member Directors based solely upon the amount of business conducted with the Bank by any director’s institution at a specific time.
Notwithstanding the foregoing, the Board believes that it functions as a governing body that can and does act with good judgment with respect to the corporate governance and business affairs of the Bank. The Board is aware of its statutory responsibilities under Section 7(j) of the Federal Home Loan Bank Act, which specifically provides that the Board of Directors of a Federal Home Loan Bank must administer the affairs of the Home Loan Bank fairly and impartially and without discrimination in favor of or against any member borrower.
The Board has a standing Audit Committee. For the reasons noted above, the Board has determined that none of the Member Directors who served at any time as members of the Bank’s Audit Committee during the period from January 1, 20102011 through and including the date of this annual report on Form 10-K (John R. Buran, Joseph R. Ficalora, Jay M. Ford, José R. González, Thomas L. Hoy, and Katherine J. Liseno, and John M. Scarchilli)Liseno) were independent under the NYSE standards for audit committee members. The Board also determined that the Independent Directors who served at any time as members of the Bank’s Audit Committee during the period from January 1, 20102011 through and including the date of this annual report on Form 10-K (Anne Evans Estabrook, Michael M. Horn, and Joseph J. Melone)Melone and Richard S. Mroz) were independent under the NYSE independence standards for audit committee members.
Section 10A(m) of the 1934 Act
In addition to the independence rules and standards above, on July 30, 2008, the Housing and Economic Recovery Act of 2008 amended the Securities Exchange Act of 1934 to require the Federal Home Loan Banks to comply with the rules issued by the SEC under Section 10A(m) of the 1934 Act, which includes a substantive independence rule prohibiting a director from being a member of the Audit Committee if he or she is an “affiliated person” of the Bank as defined by the SEC rules (i.e., the person controls, is controlled by, or is under common control with, the Bank). All Audit Committee members serving in 20102011 met and all current Audit Committee members meet the substantive independence rules under Section 10A(m) of the 1934 Act.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the fees paid to the FHLBNY’sour independent registered public accounting firm, PricewaterhouseCoopers, LLP (“PwC”), during years ended December 31, 2011, 2010 2009 and 20082009 (in thousands):
|
| Years ended December 31, |
| |||||||
|
| 2011 (a) |
| 2010 (a) |
| 2009 (a) |
| |||
|
|
|
|
|
|
|
| |||
Audit Fees |
| $ | 937 |
| $ | 835 |
| $ | 1,139 |
|
Audit-related Fees |
| 49 |
| 66 |
| 54 |
| |||
Tax Fees |
| — |
| 20 |
| 57 |
| |||
All Other Fees |
| 260 |
| 4 |
| 2 |
| |||
Total |
| $ | 1,246 |
| $ | 925 |
| $ | 1,252 |
|
| Years ended December 31, | ||||||||||||
| 20101 | 20091 | 20081 | ||||||||||
| Audit Fees | $ | 835 | $ | 1,139 | $ | 1,341 | ||||||
| Audit-related Fees | 66 | 54 | 56 | |||||||||
| Tax Fees | 20 | 57 | — | |||||||||
| All Other Fees | 4 | 2 | 2 | |||||||||
| $ | 925 | $ | 1,252 | $ | 1,399 | |||||||
(a) | ||
The amounts in the table do not include the assessment from the Office of Finance (“OF”) for the Bank’s share of the audit fees of approximately $58 thousand, $56 thousand and $83 thousand, for 2011, 2010 and |
Audit Fees
Audit fees relate to professional services rendered in connection with the audit of the FHLBNY’s annual financial statements, and review of interim financial statements included in quarterly reports on Form 10-Q.
Audit-Related Fees
Audit-related fees primarily relate to consultation services provided in connection with respect to certain accounting and reporting standards.
Tax Fees
Tax fees relate to consultation services provided primarily with respect to tax withholding matters.
All Other Fees
These other fees in 2011 primarily relate to PwC’s attendance at FHLBank Accounting Conferences,consultation services for the review of payroll operations and access to PwC’s accounting research and reference tools.
Policy on Audit Committee Pre-approval of Audit and Non-Audit Services Performed by the Independent Registered Public Accounting Firm.
We have adopted an independence policy that prohibits its independent registered public accounting firm from performing non-financial consulting services, such as information technology consulting and internal audit services. This policy also mandates that the audit and non-audit services and related budget be approved by the Audit Committee in advance, and that the Audit Committee be provided with quarterly reporting on actual spending. In accordance with this policy, all services to be performed by PwC were pre-approved by the Audit Committee.
Subsequent to the enactment of the Sarbanes-Oxley Act of 2002 (the “Act”), the Audit Committee has met with PwC to further understand the provisions of that Act as it relates to independence. PwC will rotate the lead audit partner and other partners as appropriate in compliance with the Act. The Audit Committee will continue to monitor the activities undertaken by PwC to comply with the Act.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)1. Financial Statements
The financial statements included as part of this Form 10-K are identified in the index to the Financial Statements appearing in ITEM 8 of this Form 10-K, which index is incorporated in this ITEM 15 by reference.
2. Financial Statement Schedules
Financial statement schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes, under ITEM 8, “Financial Statements and Supplementary Data.”
3. Exhibits
No. | Exhibit | Filed with this | Form | File | Date Filed | |||||
3.01 | ||||||
Restated Organization Certificate of the Federal Home Loan Bank of New York (“Bank”) | 8-K | 000-51397 | 12/1/2005 | |||||||||
3.02 | Bylaws of the Bank | 8-K | 000-51397 | 9/23/2009 | ||||||||
4.01 | Amended and Restated Capital Plan of the Bank | 8-K | 000-51397 | 8/5/2011 | ||||||||
10.01 | ||||||||||||
Bank 2010 Incentive Compensation Plan* | 10-Q | 000-51397 | 5/12/2010 | |||||||||
10.02 | Bank 2011 Incentive Compensation Plan*(a) | 10-Q/A | 000-51397 | 10/13/2011 | ||||||||
10.03 | 2010 Director Compensation Policy | 10-K | 000-51397 | 3/25/2010 | ||||||||
10.04 | 2011 Director Compensation Policy | 10-K | 000-51397 | 3/25/2011 | ||||||||
10.05 | 2012 Director Compensation Policy(a)(b) | X | ||||||||||
10.06 | Bank Severance Pay Plan | 10-K | 000-51397 | 3/25/2011 | ||||||||
10.07 | Qualified Defined Benefit Plan | 10-K | 000-51397 | 3/25/2010 | ||||||||
10.08 | Qualified Defined Contribution Plan | X | ||||||||||
10.09 | Bank Amended and Restated Benefit Equalization Plan | 10-Q | 000-51397 | 5/12/2011 | ||||||||
10.10 | Nonqualified Profit Sharing Plan | 10-K | 000-51397 | 3/25/2010 | ||||||||
10.11 | Nonqualified | 10-K | 000-51397 | 3/25/2010 | ||||||||
Deferred Compensation Plan | ||||||||||||
10.12 | Thrift Restoration Plan | 10-Q | 000-51397 | 8/12/2010 | ||||||||
10.13 | Profit Sharing Plan | 10-Q | 000-51397 | 8/12/2010 | ||||||||
10.14 | Compensatory Arrangements for Named Executive Officers | X | ||||||||||
10.15 | Federal Home Loan Banks P&I Funding and Contingency Plan Agreement | 8-K | 000-51397 | 6/27/2006 | ||||||||
10.16 | ||||||||||||
Amended Joint Capital Enhancement Agreement among the Federal Home Loan Banks | 8-K | 000-51397 | 8/5/2011 | |||||||||
12.01 | Computation of Ratio of Earnings to Fixed Charges | X | ||||||||||
31.01 | Certification of | X | ||||||||||
31.02 | Certification of the | X | ||||||||||
31.03 | Certification of | X | ||||||||||
32.01 | Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as | X | ||||||||||
32.02 | Certification of | X | ||||||||||
32.03 | Certification of the Senior Vice President, Strategy and Finance pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
99.01 | Audit Committee Report | X | ||||||||||
99.02 | Audit Committee Charter | X | ||||||||||
101.01 | The following financial information from the Bank’s Annual Report on Form 10-K for the year ended December 31, 2011, is formatted in XBRL interactive data files: (i) Balance Sheets at December 31, 2011 and December 31, 2010; (ii) Statements of Income for the three years ended December 31, 2011, 2010 and 2009; (iii) Statements of Capital for the three years | X |
ended December 31, 2011, 2010 and 2009; (iv) Statements of Cash Flows for the three years ended December 31, 2011, 2010 and 2009; and (v) Notes to Financial Statements for the three years ended December 31, 2011, 2010 and 2009. Pursuant to Rule 406T of Regulation S-T, the interactive data files contained in Exhibit 101.01 are deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended and otherwise not subject to the liability of that section. |
Notes:
* | ||
Confidential treatment has been | ||
(a) | This exhibit includes a management contract, compensatory plan or arrangement required to be noted herein. | |
(b) | Amendments to the 2012 Director Compensation Plan clarifying conditions for reimbursement of spousal expenses were approved by the Board of Directors on February 16, 2012, and a copy of the amended Plan will be included as an exhibit to our next Form 10-Q. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Federal Home Loan Bank of New York | |||||
By: | /s/ Alfred A. DelliBovi | ||||
Alfred A. DelliBovi | |||||
President and Chief Executive Officer | |||||
(Principal Executive Officer) | |||||
Date: March 23, 2012 | |||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below:
Signature | Title | Date | ||||
/s/ Alfred A. DelliBovi | President and Chief Executive Officer | March | ||||
Alfred A. DelliBovi | (Principal Executive Officer) | |||||
/s/ Patrick A. Morgan | Senior Vice President and Chief Financial Officer | March | ||||
Patrick A. Morgan | (A Principal Financial Officer) | |||||
/s/ Kevin M. Neylan | Senior Vice President, Strategy and Finance | March 23, 2012 | ||||
Kevin M. Neylan | (A Principal Financial Officer) | |||||
/s/ Backer Ali | Vice President and Controller | March | ||||
Backer Ali | (Principal Accounting Officer) | |||||
/s/ Michael M. Horn | Chairman of the Board of Directors | March | ||||
Michael M. Horn | ||||||
/s/ José R. González | Vice Chairman of the Board of Directors | March | ||||
José R. González | ||||||
/s/ John R. Buran | Director | March 23, 2012 | ||||
John R. Buran | ||||||
/s/ Anne Evans Estabrook | Director | March 23, 2012 | ||||
Anne Evans Estabrook | ||||||
/s/ Joseph R. Ficalora | Director | March 23, 2012 | ||||
Joseph R. Ficalora | ||||||
/s/ Jay M. Ford | Director | March 23, 2012 | ||||
Jay M. Ford | ||||||
/s/ James W. Fulmer | Director | March 23, 2012 | ||||
James W. Fulmer | ||||||
Director | ||||||
Ronald E. Hermance, Jr. |
/s/ Thomas L. Hoy | Director | March 23, 2012 | ||
Thomas L. Hoy | ||||
/s/ Katherine J. Liseno | Director | March 23, 2012 | ||
Katherine J. Liseno |
227
/s/ Kevin J. Lynch | Director | March 23, 2012 | ||
Kevin J. Lynch | ||||
Director | ||||
Joseph J. Melone | ||||
/s/ Richard S. Mroz | Director | March 23, 2012 | ||
Richard S. Mroz | ||||
/s/ Vincent F. Palagiano | Director | March 23, 2012 | ||
Vincent F. Palagiano | ||||
/s/ C. Cathleen Raffaeli | Director | March 23, 2012 | ||
C. Cathleen Raffaeli | ||||
/s/ Edwin C. Reed | Director | March 23, 2012 | ||
Edwin C. Reed | ||||
/s/ DeForest B. Soaries, Jr. | Director | March 23, 2012 | ||
DeForest B. Soaries, Jr. |
Filed with | ||||||||||
No. | Exhibit Description | this Form 10-K | Form | File No. | Date Filed | |||||
3.01 | Restated Organization Certificate of the Federal Home Loan Bank of New York (“Bank”) | 8-K | 000-51397 | 12/1/2005 | ||||||
3.02 | Bylaws of the Bank | 8-K | 000-51397 | 9/23/2009 | ||||||
4.01 | Amended and Restated Capital Plan of the Bank | 8-K | 000-51397 | 8/5/2011 | ||||||
10.01 | Bank 2010 Incentive Compensation Plan* (a) | 10-Q | 000-51397 | 5/12/2010 | ||||||
10.02 | Bank 2011 Incentive Compensation Plan* (a) | 10-Q/A | 000-51397 | 10/13/2011 | ||||||
10.03 | 2010 Director Compensation Policy (a) | 10-K | 000-51397 | 3/25/2010 | ||||||
10.04 | 2011 Director Compensation Policy (a) | 10-K | 000-51397 | 3/25/2011 | ||||||
10.05 | 2012 Director Compensation Policy (a)(b) | X | ||||||||
10.06 | Bank Severance Pay Plan (a) | 10-K | 000-51397 | 3/25/2011 | ||||||
10.07 | Qualified Defined Benefit Plan (a) | 10-K | 000-51397 | 3/25/2010 | ||||||
10.08 | Qualified Defined Contribution Plan (a) | X | ||||||||
10.09 | Bank Amended and Restated Benefit Equalization Plan (a) | 10-Q | 000-51397 | 5/12/2011 | ||||||
10.10 | Nonqualified Profit Sharing Plan (a) | 10-K | 000-51397 | 3/25/2010 | ||||||
10.11 | Nonqualified Deferred Compensation Plan (a) | 10-K | 000-51397 | 3/25/2010 | ||||||
10.12 | Thrift Restoration Plan(a) | 10-Q | 000-51397 | 8/12/2010 | ||||||
10.13 | Profit Sharing Plan (a) | 10-Q | 000-51397 | 8/12/2010 | ||||||
10.14 | Compensatory Arrangements for Named Executive Officers (a) | X |
10.15 | Federal Home Loan Banks P&I Funding and Contingency Plan Agreement | 8-K | 000-51397 | 6/27/2006 | ||||||
10.16 | Amended Joint Capital Enhancement Agreement among the Federal Home Loan Banks | 8-K | 000-51397 | 8/5/2011 | ||||||
12.01 | Computation of Ratio of Earnings to Fixed Charges | X | ||||||||
31.01 | Certification of Registrant’s Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||
31.02 | Certification of Registrant’s Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||
31.03 | Certification of Registrant’s Senior Vice President, Strategy and Finance as required by Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||
32.01 | Certification of Registrant’s Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||
32.02 | Certification of Registrant’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of | X |
2002 | ||||||||||
32.03 | Certification of Registrant’s Senior Vice President, Strategy and Finance as required by Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||
99.01 | Audit Committee Report | X | ||||||||
99.02 | Audit Committee Charter | X | ||||||||
101.01 | The following financial information from the Bank’s Annual Report on Form 10-K for the year ended December 31, 2011, is formatted in XBRL interactive data files: (i) Balance Sheets at December 31, 2011 and December 31, 2010; (ii) Statements of Income for the three years ended December 31, 2011, 2010 and 2009; (iii) Statements of Capital for the three years ended December 31, 2011, 2010 and 2009; (iv) Statements of Cash Flows for the three years ended December 31, 2011, 2010 and 2009; and (v) Notes to Financial Statements for the three years ended December 31, 2011, 2010 and 2009. Pursuant to Rule 406T of Regulation S-T, the interactive data files contained in Exhibit 101.01 are deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended and otherwise not subject to the liability of that section. | X |
Notes:
* | Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. |
(a) | This exhibit includes a management contract, compensatory plan or arrangement required to be noted herein. |
(b) | Amendments to the 2012 Director Compensation Plan clarifying conditions for reimbursement of spousal expenses were approved by the Board of Directors on February 16, 2012, and a copy of the amended Plan will be included as an exhibit to the next Form 10-Q filed by the Bank. |