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ITEMItem 1.   BUSINESS.Business.

General

The Federal Home Loan Bank of New York (“we,” “us,” “our,” “the Bank” or the “FHLBNY”) is a federally chartered corporation exempt from federal, state and local taxes except local real property taxes.  It is one of eleven 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.  Our defined geographic district is New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands.  We provide a readily available, low-cost source of funds for our member institutions.

The FHLBNY is managed to deliver balanced value to members, rather than to maximize profitability or advance volume through low pricing.  Our members must purchase FHLBNY stock according to regulatory requirements as a condition of membership.  For more information, see financial statements, Note 12.13.  Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings.  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 members are both stockholders and customers, our management operates the Bank 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.

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.  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 also eligible to become members of a FHLBank.  TwoThree CDFIs were members of the FHLBNY at December 31, 2015.2016.

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 one of our members.  Because we operate as a cooperative, we conduct business with related parties in the normal course of business and consider all members and non-member stockholders as related parties in addition to the other FHLBanks.  For more information, see financial statements, Note 18.19.  Related Party Transactions, 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 our financial condition.  We also serve the public through our mortgage programs, which enable our members to liquefy certain mortgage loans by selling them to the Bank.  We also provide 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 prepay or mature.

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, the fiscal agent for the issuance and servicing of consolidated obligations on behalf of the 11 FHLBanks.  These debt instruments represent the joint and several obligations of all the FHLBanks.  Because the FHLBanks’ consolidated obligations are rated Aaa/P-1 with a stable outlook by Moody’s Investors Service (Moody’s) and AA+/A-1+ with a stable outlook by Standard & Poor’s Rating Services (“S&P” or “Standard & Poor’s”) and because of the FHLBanks’ GSE status, the FHLBanks are generally able to raise funds at rates that are typically at a small to moderate spread above U.S. Treasury security yields.  Additional sources of 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 our member financial institutions with a reliable flow of credit and other services for housing and community development, and our cooperative ownership structure allows us to pass along the benefit of these low funding rates to our members.  By supplying additional liquidity to our members, we enhance the availability of residential mortgages and community investment credit.  Members also benefit from our affordable housing and economic development programs, which provide grants and below-market-rate loans that support members’ involvement in creating affordable housing and revitalizing communities.

We do not have any wholly or partially owned subsidiaries, nor do we have an equity position in any partnerships, corporations, or off-balance-sheetoff-balance sheet special purpose entities.  We have a grantor trust related to employee benefits programs, more fully described in financial statements, Note 14.15. Employee Retirement Plans.

In 2011, the 11 FHLBanks entered into a Joint Capital Enhancement Agreement (“Capital Agreement”).  The Capital Agreement is intended to enhance the capital position of each FHLBanks, each FHLBanks will contribute 20% of its Net income each quarter to its own restricted retained earnings account at the FHLBank 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.  These restricted retained earnings will not be available to pay dividends.

The FHLBNY is supervised by the Federal Housing Finance Agency (“FHFA” or the “Finance Agency”), the independent Federal regulator of the FHLBanks, the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae).  The FHFA’s stated mission with respect to the

FHLBanks is

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to provide effective supervision, regulation and housing mission oversight of the FHLBanks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market.

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 they 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.

Our website is www.fhlbny.com.  We have adopted, and posted on our website, a Code of Business Conduct and Ethics applicable to all employees and directors.

Market Area

Our market area is the same as the membership district — New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands.  Institutions that are members of the FHLBNY must have their charter or principal places of business within this market area but may also operate elsewhere.  We had 329 and 332328 members at December 31, 20152016 and 2014.329 members at December 31, 2015.

The most recent market analysis performed using September 30, 2015 data indicated that in our district, there were approximately 38 non-member bank and thrift institutions and approximately 493 non-member credit unions.  Of these, we consider approximately 33 as appropriate candidates for membership.  Due to the high rating requirements,deeply penetrated market, there are few opportunities to gain new bank and credit union members.  However, we continue to engage the few prospects that are eligible to join.  In 2016, Health Insurance Companies became a limited numbernewly eligible member type and the Sales and Marketing department began initiatives to court these prospects.  In addition, foreign banks with charters based in our membership district are another potential pool of non-member insuranceprospects.  This is not a new trend as we currently have 11 members who have parent companies eligible for membership. An institution is deemed eligible if they meet FHFA and FHLBNY requirements.outside the USA.

An appropriate candidate for membership is an institution that is likely to transact advance business with us 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 experience with the FHLBanks during previous employment.

We actively market membership through a series of targeted, on-going sales and marketing initiatives.  We compete for business by offering competitively priced products, services and programs that provide financial flexibility to the membership.  The dominant reason institutions join the FHLBNY is 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, home equity, and commercial real estate mortgages held in portfolio, to create liquidity.  Advances are attractively priced because of our access to capital markets as a GSE and our strategy of providing balanced value to members.

The following table summarizes our members(a) by type of institution:

(a) Includes three captive insurance companies, which were considered in 2016 as non-members.

Business Segments

We manage our operations as a single business segment.  Management and our Board of Directors review enterprise-wide financial information in order to make operating decisions and assess performance.

Our cooperative structure permits us 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, we collect fees that make us financially indifferent to the prepayment.  Our operating expenses are low, about 8 basis points on average assets.low.  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 we will be able to meet our financial obligations and continue to deliver balanced value to members, even if advance demand drops significantly or if membership declines.

Products and Services

Advances to members are the primary focus of our operations, and are also the principal factor that impacts our financial condition.  Revenues from advances to members are the largest and the most significant element in our operating results.  Providing advances to members, supporting the products and associated collateral and credit operations, and funding and swapping the funds are the focus of our operations.

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.  We also issue standby letters of credit on behalf of members for a fee.  The total income derived from all such sources, and other incidental income and expenses was about $10.7 millionwere not material in 2015, $10.3 million and $9.1 millionthe periods in 2014 and 2013.  On an infrequent basis, we may act as an intermediary to purchase derivative instruments for members.

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We provide our members with an alternative to originating and selling long-term, fixed-rate mortgages in the secondary market.  We accomplish this by purchasing eligible conforming fixed-rate mortgages originated or purchased by our members.  Purchases are at negotiated market rates.  For more information, see Acquired Member Assets Programs below and in the financial statements, Note 8.9.  Mortgage Loans Held-for-portfolio.  However, we do not expect the program to become a significant factor in our operations.  The interest revenues derived from this program were $86.8 million in 2016, $81.1 million in 2015 and $71.5 million and $68.3 million in 2014 and 2013.2014.  The revenues were not a significant source of interest income.

We invest in short-term assets to bolster our liquidity, and invest in long-term mortgage-related securities, primarily mortgage-backed securities to enhance earnings.  The interest income derived from investments were $288.7 million, $286.0 million and $274.8 million in 2015, 2014 and 2013 represented 28.9%, 34.2% and 34.9% of total interest income for those years.

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.  Our primary business is making secured loans, called advances, to members.  These advances are available as short- and long-term loans with adjustable-variable and fixed-rate features (including option-embedded and amortizing advances).

Advances to members, including former members, constituted 76.2%76.1% and 74.4%76.2% of our total assets of $123.2$143.6 billion and $132.8$123.2 billion at December 31, 20152016 and 2014.2015.  In terms of revenues, interest income derived from advances were $919.9 million, $627.9 million and $478.7 million, representing 67.6%, 62.9% and $444.6 million, representing 62.9%, 57.2% and 56.4% of total interest income in 2016, 2015 2014 and 2013.2014.  Most of our critical functions are directed at supporting the borrowing needs of our members and monitoring the members’ associated collateral positions.  For more information about advances, including our underwriting standards, see financial statements, Note 7.8. Advances; also see Tables 3.1 to 3.9 and the accompanying discussions in this MD&A.

Members use advances as a source of funding to supplement their deposit gathering activities.  Advances borrowed by members have been 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, we price advances at minimal net spreads above the cost of our funding in order to deliver more value to members.

Letters of Credit

We may issue standby financial 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.  Our underwriting and collateral requirements for securing letters of credit are the same as our requirements for securing advances.

Derivatives

To assist members in managing their interest rate and basis risks in both rising and falling interest-rate environments, we will act as an intermediary between the member and derivatives counterparty.  We do not act as a dealer and view this as an additional service to our members.  Participating members must comply with our documentation requirements and meet our underwriting and collateral requirements.  Volume of such requests has been insignificant.

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, we purchase conforming fixed-rate mortgages originated or purchased by our members.  Members are then paid a fee for assuming a portion of the credit risk of the mortgages that we acquired.  Members assume credit risk by providing a credit enhancement to us or providing and paying for a supplemental mortgage insurance policy insuring us 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.  We assume the remainder of the credit risk along with the interest rate risk of holding the mortgages in the MPF loan 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.

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For additional discussion on our mortgage loans and their related credit risk, see financial statements, Note 8.9. Mortgage Loans Held-for-Portfolio.  Also see Tables 5.1 to 5.6 and accompanying discussions in this MD&A.

Correspondent Banking Services

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 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 wire transfers, including third-party transfers.  Settlement services include automated clearinghouse and other transactions received through our accounts at the Federal Reserve Bank as correspondent for members and passed through to our customers’ Overnight Investment Accounts with us.  Through a third party, we offer customers a range of securities custodial services, such as settlement of book entry (electronically held) and physical securities.  We encourage members to access these products through 1Linksm, an Internet-based delivery system we developed as a proprietary 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 1292.5 (“Community Investment Cash Advance Programs”) states in general that each FHLBank shall establish an Affordable Housing Program in accordance with Part 1291, and a Community Investment Program.  As more fully discussed under the section “Assessments” in this Form 10-K, the 11 FHLBanks together, must annually allocate for the Affordable Housing Program the greater of $100 million or 10% of regulatory defined net income.  For more information, see Background in the MD&A, and financial statements, Note 11.12.  Affordable Housing Program.

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”).  We meet this requirement by allocating 10% of regulatory defined net income to our Affordable Housing Program each year.  The Affordable Housing Program helps our members 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, we have established a set-aside program for first-time homebuyers called the First Home Clubsm.  The FHLBNY may set aside annually, in aggregate, up to the greater of $4.5 million or 35% of the Bank’s annual required AHP contributions.  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.  For each household that completes the purchase of their first home, wecounseling.  We may provide up to $500 to the sponsoring member bank to defray the cost of the nonprofit housing agency that provides counseling.

Other Mission—Related Activities. The Bank offers three distinct Community Lending Programs (“CLP”) that support our member’s community-oriented mortgage lending, which was established under the Community Investment Cash Advance Programs.  The Bank provides reduced interest rate advances to members for lending activity that meet the CLP requirements, under the following individual programs: Community Investment Program (“CIP”), Rural Development Advance (“RDA”), and Urban Development Advance are community-lending programs that provide(“UDA”).  The CLP provides additional support to members in their affordable housing and economic development lending activities.  These community-lending programs support affordable housing and economic development activityactivities within low- and moderate-income neighborhoods as well as other activities that benefit low- and moderate-income households.   Through the Community Investment Program, Rural Development Advance, and Urban Development Advance programs, we provide reduced interest rate advances to members for lending activity that meets the program requirements.  WeThe Bank also provideprovides letters of credit in support of projects that meet the CIP, Rural Development Advance,CLP program requirements 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,CLP Advances and Letters of Credit)Credit at advantaged pricing that is discounted from our market interest rates and fees represents an additional allocation of our income in support of the Bank’s affordable housing and community economic development efforts.mission. In addition, overhead costs and administrative expenses associated with the implementation of our Affordable Housing and community lending programsCLP are absorbed as general operating expenses and are not charged back to the AHP allocation.allocation set-aside. 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 our capacity to fund Affordable Housing Program projects, and to cover operating expenditures. To help ensure the availability of funds to meet member credit needs, we maintain a portfolio of short-term investments issued by highly-rated, high credit quality financial institutions.  The investments may include overnight Federal funds, term Federal funds, securities purchased under agreements to resell, interest-bearing deposits, and certificates of deposit.  We further enhance 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.  Our long-term investments also include a small portfolio of privately issued mortgage-backed and residential asset-backed securities that were primarily acquired prior to 2004, bonds issued by housing finance agencies, and a FHLBNY owned Grantor Trust.

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For more information, see financial statements, Note 4. Federal Funds Sold, Interest-bearing Deposits, and Securities Purchased Under Agreements to Resell, Note 5.7. Held-To-Maturity Securities, and Note 6. Available-for-Sale Securities.  Also see Tables 4.1 through 4.114.12 and accompanying discussions in this MD&A.

Debt Financing — Consolidated Obligations

Our primary source of funds is the sale of debt securities, known as consolidated obligations, in the U.S. and global capital markets.  Consolidated obligations are the joint and several obligations of the FHLBanks, backed only by the financial resources of the 11 FHLBanks.  Consolidated obligations are not obligations of the United States, and the United States does not guarantee them.  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.  The Office of Finance (or the “OF”) has authority to issue joint and several debt on behalf of the FHLBanks.  At December 31, 20152016 and 2014,2015, the par amounts of consolidated obligations outstanding, bonds and discount notes for all 11 FHLBanks was $1.0 trillion and $0.9 trillion, and $0.8 trillion, including $114.1$133.7 billion and $123.1$114.1 billion issued by the FHLBNY and outstanding at those dates.

For more information, see financial statements, Note 10.11.  Consolidated Obligations.  Also see Tables 6.1 to 6.96.10 and accompanying discussions in this MD&A.

Finance Agency regulations state that the FHLBanks must maintain, free from any lien or pledge, qualifying assets at least equal to the face amount of 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 of or fully guaranteed by the United States, obligations, participations, or other instruments of or issued by Federal National Mortgage Association (“Fannie Mae”) or the Government National Mortgage Association (“Ginnie Mae”); mortgages, obligations, or other securities which are or ever have been sold by the Federal Home Loan Mortgage Corporation (“Freddie Mac”) under the FHLBank Act; and such securities as fiduciary and trust funds may invest in under the laws of the state in which the FHLBank is located.  Any assets subject to a lien or pledge for the benefit of holders of any issue of consolidated obligations are treated as if they were free from lien or pledge for purposes of compliance with these regulations.

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 Office of Finance 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 our issuance request, and the requests of other FHLBanks, to raise funds through the issuance of consolidated obligations on particular terms and conditions.  We have never been denied access under this policy for all periods reported.  The Office of Finance serves as a source of information for the FHLBanks on capital market developments, and manages the FHLBanks’ relationship with the rating agencies with respect to the consolidated obligations.

Consolidated Obligation Liabilities

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.  The FHLBanks have emphasized diversification of funding sources and channels as the need for funding from the capital markets has grown.

Consolidated Obligations Bonds. Consolidated bonds are issued primarily to raise intermediate- and long-term funds for the FHLBanks. They can be issued and distributed through negotiated or competitive bidding transactions with approved underwriters or bidding group members.  Consolidated bonds generally carry fixed- or variable-rate payment terms and have maturities ranging from one month to 30 years.

The Global Debt Program — The FHLBanks issue global bullet consolidated bonds. The FHLBanks and the Office of Finance maintain a debt issuance process for scheduled issuance of global bullet consolidated bonds. As part of this process, management from each FHLBank will determine and communicate a firm commitment to the Office of Finance for an amount of scheduled global bullet debt to be issued on its behalf. If the FHLBanks’ orders do not meet the minimum debt issue size, each FHLBank receives an allocation of proceeds equal to either the larger of the FHLBank’s commitment or the ratio of the individual FHLBank’s regulatory capital to total regulatory capital of all of the FHLBanks.  If the FHLBanks’ commitments exceed the minimum debt issue size, then the proceeds are allocated based on relative regulatory capital of the FHLBanks, with the allocation limited to either the lesser of the allocation amount or the actual commitment amount.  The FHLBanks can, however, pass on any scheduled calendar slot and decline to issue any global bullet consolidated bonds upon agreement of at least eight of the FHLBanks.

TAP Issue Program — The FHLBanks use the TAP Issue Program to issue fixed-rate, noncallable (bullet) bonds. This program uses specific maturities that may be reopened daily through competitive auctions.  The goal of the TAP Issue Program is to aggregate frequent smaller fixed-rate funding needs into a larger bond issue that may have greater market liquidity.

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Consolidated Obligation Discount Notes. On a daily basis, FHLBanks may request that specific amounts of consolidated discount notes with specific maturity dates be offered by the Office of Finance for sale through certain securities dealers.  The Office of Finance commits to issue consolidated discount notes on behalf of the requesting FHLBanks after dealers submit orders for the specific consolidated discount notes offered for sale.  The FHLBanks

receive funding based on the time of their request, the rate requested for issuance, the trade date, the settlement date, and the maturity date. However, ana FHLBank may receive less than requested (or may not receive any funding) because of investor demand and competing FHLBank requests for the particular funding that the FHLBank is requesting.  These consolidated discount notes have a maturity range of one day to one year, are generally issued at or below par, and mature at par.

Twice weekly, one or more of the FHLBanks may also request that specific amounts of consolidated discount notes with fixed maturities of four, nine, 13, and 26 weeks be offered by the Office of Finance through competitive auctions conducted with securities dealers in the consolidated discount note selling group.  The consolidated 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, ana FHLBank receives funding based on that FHLBank’s regulatory capital relative to the regulatory capital of other FHLBanks offering consolidated discount notes.

Deposits

The FHLBank Act allows us to accept deposits from its members, other FHLBanks and government instrumentalities.  For us, member deposits are also a source of funding, but we do not rely on member deposits to meet our funding requirements.  For members, deposits are a low-risk earning asset that may satisfy their regulatory liquidity requirements.  We offer several types of deposit programs to our members, including demand and term deposits.

Retained Earnings and Dividends

The Bank’s Retained Earnings and Dividends policy (the “Policy”) is a Board approved policy, the objectives of which isare to preserve the value of our members’ investment with us, and to provide members with a reasonable dividend.   The Policy also states that we want to provide returns on the investment in the Bank’s stock that are sufficient to attract and retain members, and that do not discourage member borrowing.   The Bank’s minimum level of Unrestricted retained earningsRetained Earnings should provide management with a high degree of confidence that estimable losses under simulated stressful conditions and scenarios will not impair paid-in capital, thereby preserving the par value of the stock.   Additionally, Unrestricted retained earningsRetained Earnings should be available to supplement dividends when earnings are low or losses occur.   Our ability to pay dividends and any other distributions may be affected by standards under the Policy.

The Policy establishes (1) a minimumminimum level of Unrestricted retained earningsRetained Earnings equal to the Bank’s “Total Risk Exposure”.“Retained Earnings Sufficiency” distinguished as the quantification of the Bank’s risk exposures.  The Total Risk ExposureRetained Earnings Sufficiency is estimated under simulated stressful conditions and scenarios, within a defined confidence interval, on market, credit, and operational risks, as well as GAAP accounting exposures related to the fair values of certain financial instruments; (2) the priority of contributions to retained earnings relative to other distributions of income; (3) the target level of Unrestricted retained earnings,Retained Earnings, based on the Total Risk Exposure,Retained Earnings Sufficiency level, and (4) a timeline to achieve the targets and to ensure maintenance of appropriate levels of unrestricted retained earnings. Retained Earnings.

The Bank may pay dividends from Unrestricted retained earningsRetained Earnings and current net income.   Per Finance Agency regulations, our Board of Directors may declare and pay dividends in either cash or capital stock; our practice has been to pay dividends in cash.   Our dividends and our dividend policy are subject to Federal Housing Finance Agency regulations and policies.

To achieve the Bank’s strategic plans and business objectives within the Bank’s risk appetite, Management had determined the Unrestricted retained earningsRetained Earnings target to be $865 million and $840$885.0 million for 20152016 and 2014.$865.0 million for 2015.   At December 31, 20152016 and 2014,2015, actual Unrestricted retained earningsRetained Earnings was $1,028.7 million and $967.1 million respectively and $862.7Restricted Retained Earnings was $383.3 million and Restricted retained earnings was $303.1 million and $220.1 million at the two dates.   The balance in Accumulated other comprehensive incomeOther Comprehensive Income (AOCI), a component of stockholders’stockholder’s equity, was a loss of $135.7$95.6 million and $136.7$135.7 million at December 31, 20152016 and 2014.2015.  Throughout 20152016 and 2014,2015, actual Unrestricted retained earningsRetained Earnings were greater than the Bank’s Total Risk Exposure.Retained Earnings Sufficiency level.   As of December 31, 2016 and 2015, and 2014, the Total Risk ExposureRetained Earnings Sufficiency level was measured at $743.2$588.7 million and $583$743.2 million.  For 2016, Management has established an Unrestricted retained earnings target of $885 million.

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The following table summarizes the impact of dividends on our retained earnings for the years ended December 31, 2016, 2015 2014 and 20132014 (in thousands):

(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 and wholesale funding options such as brokered deposits, repurchase agreements and Federal Funds.funds.  Historically, members have grown their assets at a faster pace than retail deposits and capital creating a funding gap.  We compete with both secured and unsecured suppliers of wholesale funding to fill these potential funding gaps.  Such other suppliers of funding may include Wall Street dealers, commercial banks, regional broker-dealers 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, depositdeposits thru listing service, and sales of securities under agreements to repurchase.  Of these wholesale funding sources, the brokered CD market is our number one threat as members continue to increase their usage.  An emerging competitor is DepositDeposits Thru Listing Services, which are financial institutions that charge a subscription fee to help banks gather deposits.  We have seen a gradual uptick of these wholesale deposits and thus, have added them to our Market Share Analysis and will enhance our monitoring of the service.  CDARs borrowing activity has been flat, while Repo and Fed FundsFederal funds have subsided compared to pre-crisis volume; we expect this trend to extend as advances and brokered CDs continue to take market share.  Large members may also have 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.  Finally, in the most recent year, other FHLBanks have surfaced as a new competitor as they seek to court REITs and specialty finance companies in our district for membership through the formation of captive insurance companies in their districts.

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 Fannie Mae, Freddie Mac, and the Federal Farm Credit Banks (“FFCB”).  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 historically kept pace with the fundingliquidity needs of our members, there can be no assurance that this will continue to be the case indefinitely.

There is considerable competition among high credit quality issuers in the markets for callable debt and derivatives.debt.  The sale of callable debt and the simultaneous execution of callable derivatives that mirror the debt have been, when available, an importanta valuable source of competitively priced funding for the FHLBNY.  Therefore, the liquidity of markets for callable debt and derivatives is a determinantone of the determinants of our relative cost of funds.  There can be no assurance that the current breadth and depth of these markets will be sustained as it is heavily influenced by investor sentiment concerning rising rates and yields and availability of alternative investments.

We compete for the purchase of mortgage loans held-for-sale.  For single-family products, competition is primarily with Fannie Mae and Freddie Mac, principally on the basis of price, products, structures, and services offered.

Competition among the 11 member banks of the FHLBanks is limited.  A bank holding company with multiple banking charters may operate in more than one FHLBank.  If the member has a centralized treasury function, it is possible that there could be competition for advances.  A limited number of our member institutions are subsidiaries of financial holding companies with multiple charters and FHLBank memberships.  We do not believe, however, that the amount of advances borrowed by these entities, or the amount of capital stock held, is material in the context of its competitive environment.  Certain large member financial institutions operating in our district may borrow unsecured Federal funds from other FHLBanks.  We are not prohibitedpermitted by regulation from purchasingto purchase short-term investments from our members, but we are not permitted to allow members to borrow unsecured funds from us.

Another source of competition is the acquisition of a FHLBNY member bank by a member of another FHLBank or by a non-member.  Under Finance Agency regulations, if the charter residing within our district is dissolved, the acquired institution is considered as a non-member and cannot borrow additional funds from us.  In addition, the non-member may not renew advances when they mature.  Our former members, who attained non-member status by virtue of being acquired, had advances borrowed and outstanding of $368.4 million and $362.1 million at December 31, 2015 and 2014.  Capital stock held by a former members is a non-member stock, which under Generally Accepted Accounting Principles in the United States (“GAAP”) is a liability.  The outstanding balances of such stock were $19.5 million and $19.2 million at December 31, 2015 and 2014.

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Oversight, Audits, and Examinations

We are supervised and regulated by theThe Federal Housing Finance Agency (“Finance Agency” or “FHFA”), which was created on July 30, 2008, whenan independent agency in the President signed the Housing and Economic Recovery Act of 2008 into law, which created a regulator with allexecutive branch of the authorities necessaryU.S. government, supervises and regulates the FHLBanks.  The Housing Act created the FHFA with regulatory authority over FHLBank matters such as: board of director composition, executive compensation, risk-based capital standards and prompt corrective action enforcement provisions, membership eligibility, and low-income housing goals.  The FHFA’s mission, with respect to oversee vital componentsthe FHLBanks, is to ensure that the FHLBanks operate in a safe and sound manner so that the FHLBanks serve as a reliable source of our country’s housing GSEs-Fannie Mae, Freddie Mac,liquidity 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 was intended to promote a stronger, safer U.S.funding for housing finance system, affordable housing and community investment through safety and soundness oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

investment.

We carry out our 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, the Housing Act and the FHLBank Act.

Our shares of Class B stock are registered with the SEC under the Exchange Act, and we are subject to the information, disclosure, insider trading restrictions and other requirements under the Exchange Act.  We are not subject to the provisions of the Securities Act as amended.

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.

The FHLBNY has an internal audit department, and our Board of Directors has an Audit Committee.  An independent registered public accounting firm audits our annual financial 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.  We 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 our 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 Bank.  The Comptroller General may also conduct his or her own audit of any of our financial statements.

Personnel

As of December 31, 2015,2016, we had 273280 full-time and no part-time employees.  As of December 31, 2014,2015, we had 258273 full-time and no part-time employees.  The employees are not represented by a collective bargaining unit, and we consider our relationship with employees to be good.

Tax Status

The FHLBanks, including the FHLBNY, are exempt from ordinary federal, state, and local taxation except for real property taxes.

Assessments

Affordable Housing Program (“AHP”) Assessments. — Section 10(j) of the FHLBank Act requires each FHLBank to establish an Affordable Housing Program.  Each FHLBank provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households.  Annually, the FHLBanks must allocate for the AHP the greater of $100 million or 10% 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.  The exclusion of interest expense related to mandatorily redeemable capital stock is a regulatory interpretation of the Finance Agency.  We accrue the AHP expense monthly.

We charge the amount allocated for the Affordable Housing Program to income and recognize the amounts allocated as a liability.  We relieve the AHP liability as members use subsidies.  In periods where our regulatory income before Affordable Housing Program is zero or less, the amount of AHP liability is equal to zero.  If the result of the aggregate 10% calculation described above is less than $100 million for all 11 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 to the sum of the income before Affordable Housing Program of the 11 FHLBanks.  There was no shortfall in the years ended 2016, 2015 2014 and 2013.2014.

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ITEM 1A.                                       RISK FACTORS.

The following discussion sets forth the material risk factors that could affect the FHLBNY’s financial condition and results of operations.  Readers should not consider any descriptions of such factors to be a complete set of all potential risks that could affect the FHLBNY.

Regulatory Risks

The FHLBanks are governed by federal laws and regulations, which could change or be applied in a manner detrimental to 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 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 our ability to conduct business or our cost of doing business. Due to recent changes in the U.S. government administration and recent executive actions, there are additional uncertainties in the legislative and regulatory environment.

Changes in regulatory or statutory requirements, or in their application, could result in, among other things, changes in: our cost of funds; retained earnings requirements; debt issuance; dividend payments; capital redemption and repurchases; permissible business activities; the size, scope, or nature of our lending, investment, or mortgage purchase programs; or our compliance costs.  Changes that restrict dividend payments, the growth of our current business, or the creation of new products or services could negatively affect our 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 our capital stock or take advantage of our products and services.

As a result of these factors, the FHLBank System may have to pay a higher rate of interest on consolidated obligations.  The resulting increase in the cost of issuing consolidated obligations could cause our advances to be less profitable and reduce our net interest margins (the difference between the interest rate received on advances and the interest rate paid on consolidated obligations).  If we change the pricing of our advances, they may no longer be attractive to members and outstanding advances may decrease.  In any case, the increased cost of issuing consolidated obligations could negatively affect our financial condition and results of operations.

Negative information about us, the FHLBanks or housing GSEs, in general, could adversely impact our cost and availability of financing. Negative information impacting us or any other FHLBank, such as material losses or increased risk of losses, could also adversely impact our cost of funds. More broadly, negative information about housing GSEs, in general, could adversely impact us. The housing GSEs — Fannie Mae, Freddie Mac, and the FHLBanks — issue highly rated agency debt to fund their operations. From time to time, negative announcements by any of the housing GSEs concerning accounting problems, risk-management issues, and regulatory enforcement actions have created pressure on debt pricing for all GSEs, as investors have perceived such instruments as bearing increased risk. Similar announcements by the FHLBanks may contribute to this pressure on debt pricing.  One possible source of information that impacts us could come from plans for housing GSE reform.  Such plans, including those introduced by the U.S. Treasury and HUD proposed certain recommendations for the reform of the housing GSEs.  Although the focus of those recommendations is on Fannie Mae and Freddie Mac, the proposal includes certain recommendations for the FHLBanks.  The proposed reforms could affect the FHLBanks’ current business activities with their members, particularly large financial institutions.  These recommendations include reducing and altering the composition of FHLBanks investment portfolios, limiting the level of advances outstanding to individual members and restricting membership to allow each financial institution, inclusive of its affiliates, to be an active member in only a single FHLBank.  Other recommendations or other plans could result in market uncertainty regarding the status of U.S. federal government support of housing GSEs, in general, including the FHLBanks, and our cost of financing could be adversely impacted as a result.

Any such negative information or other factors could result in the FHLBanks having to pay a higher rate of interest on COs to make them attractive to investors. If we maintain our existing pricing on our advances products and other services notwithstanding increases in CO interest rates, the spreads we earn would fall and our results of operations would be adversely impacted.  If, in response to this decrease in spreads, we change the pricing of our advances, the advances may be less attractive to members and the amount of new advances and our outstanding advance balances may decrease.  In either case, the increased cost of issuing COs could adversely impact our financial condition and results of operations.

Loan modification programs could adversely impact the value of the FHLBNY’s mortgage-backed securities.securities or our investment values in the MPF loans. 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 may adversely affect the value of and the returns on our mortgage-backed securities.

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Table of Contentssecurities or MPF loans under our Acquired Member Assets Programs.

Business Risks

A loss or change of business activities with large members could adversely affect the FHLBNY’s results of operations and financial condition.  We have a high concentration of advances with three member institutions, and a loss or change of business activities with any of these institutions could adversely affect our results of operations and financial condition.  Concentration risk for the FHLBNY is defined as the exposure to loss arising from a

disproportionately large number of financial transactions with a limited number of individual customers, with a particular focus on members that have outstanding advances that account for more than 10% of advances by par value to the total par value of all advances outstanding as of a given date.   At December 31, 2015, three members accounted for 43.6% of total advances - Citibank, N.A. (15.8%), Metropolitan Life Insurance Company (13.4%),For more information about concentration, see Note 20.  Segment Information and combined holding by New York Community Bank and NY Commercial Bank (14.4%).Concentration to Financial Statements.

Future changes in the regulatory environment for larger members that fall into the category of a Global Systemically Important Bank, may impact our business.  As an example, in November 2014, the Financial Stability Board (“FSB”) issued consultative document that defined a global standard for minimum amounts of Total Loss Absorbency Capacity (“TLAC”) to be held by Global Systemically Important Banks (G-SIBs), with the objective of ensuring that G-SIBs have the loss absorbing and recapitalization capacity so that critical functions continue without requiring taxpayer support or threatening financial stability.  G-SIBs will have until 2019 to meet certain leverage and other thresholds, and for certain G-SIBs that may require changes in balance sheet management, including issuances of additional senior and Tier 2 debt.  Depending on how soon the balance sheet adjustments are made, they could have an impact on our business even in the near term.

Withdrawal of one or more large members from our membership could result in a reduction of our total assets, capital, and net income.  If one or more of our large members were to prepay their 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 our total assets, capital, and net income.  In the 2015 first quarter, $6.8 billionprior years, we experienced significant prepayments of advances were prepaid by a large member.members.  In 2016, we also experienced prepayments due to the 2015 third quarter, Hudson City Savings Bank, FSB,acquisition of a member bank was acquired by another member and $4.0 billion was prepaid in the 2015 fourth quarter.member.

While our analysis of the impact of the prepayments do not indicate a material adverse impact on our business and results of operations, however, these are the types of events that we consider to be potential negative factors that may arise from a high concentration of advances.  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 our short- and long-term investments; and

·                  the extent to which consolidated obligations (funding) matured as the advances were prepaid or repaid.

At December 31, 2015,2016, advances borrowed by insurance companies accounted for 17.0%18.7% of total advances (17.4%(17.0% at December 31, 2014).  (See financial statements, Note 19. Segment Information and Concentration)2015).  Lending to insurance companies poses a number of unique risks not present in lending to federally insured depository institutions.  For example, there is no single federal regulator for insurance companies.  They are supervised by state regulators and subject to state insurance codes and regulations.  There is uncertainty about whether a state insurance commissioner would try to void FHLBNY’s claims on collateral in the event of an insurance company failure.  Even if ultimately unsuccessful, such a legal challenge could result in a delay in the liquidation of collateral and a loss of market value.  Also see Note 8 Advances to Financial Statements for more information.

The FHLBNY has 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 U.S. 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 FHLBNY relies upon derivative instruments to reduce its interest-rate risk, and changes in our credit ratings may adversely affect our ability to enter into derivative instruments on acceptable terms.  Our financial strategies are highly dependent on our ability to enter into derivative instruments on acceptable terms to reduce our interest-rate risk.  Rating agencies may from time to time change a rating or issue negative reports, which may adversely affect our ability to enter into derivative instruments with acceptable parties on satisfactory terms in the quantities necessary to manage our interest-rate risk on consolidated obligations or other financial instruments.  This could negatively affect our financial condition and results of operations.

Changes in regulatory requirements related to derivative instruments may adversely affect our ability to enter into derivative instruments on acceptable terms.  The ongoing implementation of derivatives regulation under the Dodd-Frank Act could adversely impact the FHLBNY’s ability to execute derivatives to hedge interest

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rate risk, and would increase our compliance costs and negatively impact our results of operations.  Derivatives regulations under the Dodd-Frank Act have impacted and will continue to substantially impact the derivatives markets by, among other things: (i) requiring extensive regulatory and public reporting of derivatives transactions; (ii) requiring a wide range of over-the-counter derivatives to be cleared through recognized clearing facilities and traded on exchanges or exchange-like facilities; (iii) requiring the collection and segregation of collateral for most uncleared derivatives; and (iv) significantly broadening limits on the size of positions that may be maintained in specified derivatives.  These market structure reforms will make many derivatives products more costly to execute, may significantly reduce the liquidity of certain derivatives markets and could diminish customer demand for covered derivatives.  ThoseThose changes could negatively impact the FHLBNY’s ability to execute derivatives in a cost

efficient manner, which could have an adverse impact on its results of operations.  Numerous aspects of the new derivatives regime require costly and extensive compliance systems to be put in place and maintained.

The FHLBNY faces competition for advances, loan purchases, and access to funding, which could adversely affect its businesses and the FHLBNY’s efforts to make advance pricing attractive to its members as well as it may adversely affect earnings.  Our primary business is making advances to our members, and we compete with other suppliers of wholesale funding, both secured and unsecured, including investment banks, commercial banks and, in certain circumstances, other FHLBanks.  Our members have access to alternative funding sources, which may offer more favorable terms than the ones we offer on our advances, including more flexible credit or collateral standards.  We 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 we are not able to offer.

The availability of alternative funding sources that are more attractive to our members may significantly decrease the demand for our 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 our advances or a decrease in our profitability on advances could adversely affect our financial condition and results of operations.

Certain FHLBanks, including the FHLBNY, also compete (primarily with Fannie Mae and Freddie 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.  We offer the MPF Program to our 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 we are able to purchase and adversely impact 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 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 our ability to have access to funding, reduce the amount of funding available to us, or increase the cost of funding available to us.  Any of these effects could adversely affect our financial condition and results of operations.

Market and Economic Risks

The FHLBNY’s funding depends on its ability to access the capital markets.  Our primary source of funds is the sale of consolidated obligations in the capital markets.  Our 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 our control.  Accordingly, we may not be able to obtain funding on acceptable terms, if at all.  If we cannot access funding when needed on acceptable terms, our ability to support and continue operations could be adversely affected, which could negatively affect our financial condition and results of operations.  If additional reforms are legislated over money market funds, they may have an adverse impact on the FHLBank discount note pricing, given that the funds are significant sponsors of short-term FHLBank debt.  Ongoing changes to the regulatory environment that affect bank counterparties and debt underwriters could adversely affect our ability to access the debt markets or the cost of that funding.

Changes in interest rates could significantly affect the FHLBNY’s financial condition and results of operations.  We earn income primarily from the spread between interest earned on our outstanding advances, investments and shareholders’ capital, and interest paid on our consolidated obligations and other interest-bearing liabilities.  Although we use various methods and procedures to monitor and manage our exposure to changes in interest rates, we may experience instances when either our 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 our position could negatively affect our financial condition and results of operations.  Moreover, the effect of changes in interest rates can be exacerbated by prepayment and extension risk, a 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.  The possibility of negative interest rates on U.S. Treasury or other market instruments could adversely affect our results of operations by, for example, reducing asset yields or spreads, creating operating and operating system issues, or having other adverse impacts on our business.

Economic downturns and changes in federal monetary policy could have an adverse effect on the FHLBNY’s business and its results of operations.  Our 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

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economies in which we conduct our business.  If any of these conditions deteriorate, our businesses and results of operations could be adversely affected.  For example, a prolonged economic downturn could result in members needing fewer advances.  In addition, our 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.

Credit Risks

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 AA+/A-1+ ratings by Moody’s and S&P.  The outlook for the FHLBank debt by both S&P and Moody’s is stable.  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 our financial condition and results of operations.  Rating agency downgrades of the debt of the United States could also cause a downgrade in the rating of the FHLBanks.

The FHLBNY’s financial condition and results of operations could be adversely affected by FHLBNY’s exposure to credit risk.  We 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, we assume secured and unsecured credit risk exposure associated with the risk that a borrower or counterparty or a derivative clearing organization could default and we could suffer a loss if we could not fully recover amounts owed to us on a timely basis.  A credit loss, if material, will have an adverse effect on the FHLBNY’s financial condition and results of operations.

We are subject to credit-risk exposures related to the loans that back our investments. Increased delinquency rates and credit losses beyond those currently expected could adversely impact the yield on or value of those investments.  The carrying value of our portfolio of private-label MBS was $282.2$233.4 million at December 31, 2015.2016.  Since 2006, we have made no acquisitions of private-label MBS.  Our investments in private-label MBS are primarily backed by prime, subprime mortgage loans, and many of these securities are projected to sustain credit losses under current assumptions, and have been downgraded by various NRSROs.  See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a description of our portfolio of investments in these securities.

Credit losses have not been significant in all periods in this report, but if we were to experience high rates of delinquency and an increase in loss severity trends on the loans underlying the private-label MBS, and face challenging macroeconomic factors, such as continuing high unemployment levels and higher than expected troubled residential mortgage loans, we may have to recognize additional credit losses.

We have also invested in securities issued by Housing Finance Agencies (“HFA”), which are held-to-maturity, with a carrying value of $825.1 million$1.1 billion as of December 31, 2015.2016.  Generally, the cash flows on these securities are based on the performance of the underlying loans, although these securities generally do include additional credit enhancements.  At the time of purchase, the HFA securities were rated double-A (or its equivalent rating), some have since been downgraded.  Further, the fair values of some of our HFA securities have also fallen, and gross unrealized losses on these securities totaled $42.4$37.0 million at December 31, 2015.2016.  Although we have determined that none of these securities is other-than-temporarily impaired, should the underlying loans underperform our projections, we could realize credit losses from these securities.

A rise in delinquency rates on our investments in MPF loans or related adverse trends could adversely impact our results of operation and financial condition.  As discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, our methodology for determining our allowance for loan losses is determined based on our investments in MPF loans and considers factors relevant to those investments.  Important factors in determining this allowance are the collateral values supporting our investments in conventional mortgage loans.  The allowance of $326 thousand$1.6 million at December 31, 20152016 may prove insufficient if macroeconomic factors worsen, housing prices fall and collateral values decline.  To the extent those risks are realized, we may determine to increase our allowance for loan losses, which would adversely impact our results of operations and financial condition.

Insufficient collateral protection could adversely affect the FHLBNY’s financial condition and results of operations.  We require that all outstanding advances be fully collateralized. In addition, for mortgage loans that we purchased under the MPF Program, we require that members fully collateralize the outstanding credit enhancement obligations not covered through the purchase of supplemental mortgage insurance. We evaluate the types of collateral pledged by our members and assign borrowing capacities to the collateral based on the risks associated with that type of collateral.  If we have insufficient collateral before or after an event of payment default by the member, or we are unable to liquidate the collateral for the value assigned to it in the event of a payment default by a member, we could experience a credit loss on advances, which could adversely affect our financial condition and results of operations.

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.  We are jointly and severally liable along with the other FHLBanks for the consolidated obligations issued through the Office of Finance.  Dividends on, redemption of, or repurchase of shares of our capital stock are not permitted unless the principal and interest due on all consolidated obligations have been paid in full.  If another Federal Home Loan

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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 FHLBanks on a pro rata basis or on any other basis the Finance Agency may determine.  As a result, our 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 FHLBanks.  However, no FHLBank has ever defaulted on its debt and no FHLBank has ever been asked to assume the debt payments of another FHLBank since the FHLB System was established in 1932.

Liquidity Risks

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.  We seek to be in a position to meet our members’ credit and liquidity needs and pay our obligations without maintaining excessive holdings of low-yielding liquid investments or being forced to incur unnecessarily high borrowing costs.  In addition, we maintain a contingent liquidity plan designed to enable us to meet our obligations and the liquidity needs of members in the event of operational disruptions or short-term disruptions in the capital markets.  Our ability to manage our liquidity position or our contingent liquidity plan may not enable us to meet our obligations and the credit and liquidity needs of our members, which could have an adverse effect on our financial condition and results of operations.

Operational Risks

The FHLBNY relies heavily on information systems and other technology.  We rely heavily on information systems and other technology to conduct and manage our business.  We have implemented a business continuity plan that includes the maintenance of alternate sites 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 we were to experience a failure or interruption in any of these systems or other technology and our disaster recovery capabilities were also impacted, it would affect our ability to conduct and manage our business effectively, including advance and hedging activities.  This may adversely affect member relations, risk management, and negatively affect our financial condition and results of operations.

The FHLBNY’s operational systems and networks continue to be vulnerable to an increasing risk of continually evolving cybersecurity or other technological risks which could result in the disclosure of confidential client or customer information, damage to the FHLBNY’s reputation, additional costs to the FHLBNY, regulatory penalties and financial losses.  A significant portion of FHLBNY’s operations relies heavily on the secure processing, storage and transmission of financial and other information.  The FHLBNY’s computer systems, software and networks will continue to be vulnerable to unauthorized access, loss or destruction of data, unavailability of service, computer viruses or other malicious code, cyber attacks and other events.  These threats may derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure.  If one or more of these events occurs, it could result in the disclosure of confidential information, damage to FHLBNY’s reputation with its customers, additional costs to the FHLBNY (such as repairing systems or adding new personnel or protection technologies), regulatory penalties and financial losses, to the FHLBNY.  Such events could also cause interruptions or malfunctions in the operations of the FHLBNY data systems (such as the lack of availability of FHLBNY’s online advance transaction system with members).

Deteriorating market conditions increase the risk that the FHLBNY’s models may produce unreliable results.  We use market-based information as inputs to our financial models, which are used in making operational decisions and to derive estimates for use in our 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 our models could produce unreliable results or estimates that vary widely or prove to be inaccurate.

The departure of 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, whether due to resignation or normal retirement.

A natural disaster in the Bank’s region could adversely affect the Bank’s profitability and financial condition. A severe natural disaster could damage the Bank’s physical infrastructure and have an adverse effect on the FHLBNY’s business.  Furthermore, portions of the Bank’s region are subject to risks from hurricanes, tornadoes, floods or other natural disasters.  These natural disasters could damage or dislocate the facilities of the Bank’s members, may damage or destroy collateral that members have pledged to secure advances, may adversely affect the viability of the Bank’s mortgage purchase programs or the livelihood of borrowers of the Bank’s members, or otherwise could cause significant economic dislocation in the affected areas of the Bank’s region.  As an example, in 2012, Hurricane Sandy struck sections of the New York and New Jersey coast line, and our market area was significantly impacted by the storm which resulted in widespread flooding, wind damage, and power outages.

Failures of critical vendors and other third parties could disrupt the Banks’ ability to conduct and manage its businesses.  We rely on vendors and other third parties to perform certain critical services.  A failure in, or an interruption to, one of more of those services could adversely affect the business operations of the Bank.  The use of vendors and other third parties also exposes the Bank to the risk of loss of confidential information or other harm.  To the extent that vendors do not conduct their activities under appropriate standards, the Bank could also be exposed to reputational risk.

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ITEMItem 1B.                                                UNRESOLVED STAFF COMMENTS.Unresolved Staff Comments.

Not applicable.

ITEMItem 2.                                                         PROPERTIES.Properties.

We occupyAt December 31, 2016, we occupied approximately 41,000 square feet of leased office space at 101 Park Avenue, New York, New York.  We also maintain 30,000 square feet of leased office space at 30 Montgomery Street, Jersey City, New Jersey, principally as an operations center.

ITEMItem 3.                                                         LEGAL PROCEEDINGS.Legal Proceedings.

From time to time, the FHLBNY is involved in disputes or regulatory inquiries that arise in the ordinary course of business.  At the present time, except as noted below, there are no pending claims against the FHLBNY that, if established, are reasonably likely to have a material effect on the FHLBNY’s financial condition, results of operations or cash flows.

On September 15, 2008, Lehman Brothers Holdings, Inc. (“LBHI”), the parent company of Lehman Brothers Special Financing Inc. (“LBSF”), 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 on October 3, 2008.  A Chapter 11 plan became effective on March 6, 2012.

At the time of LBHI’s bankruptcy filing, the FHLBNY had 356 interest rate swap and other derivative transactions outstanding with LBSF, with a total notional amount of $16.5 billion.  LBHI guaranteed LBSF’s contractual obligations to the FHLBNY.  On September 18, 2008, the FHLBNY terminated these transactions as permitted in the wake of LBHI’s bankruptcy filing.  The FHLBNY provided LBSF with a calculation showing that LBSF owed the FHLBNY approximately $65 million as a result of the termination, after giving effect to collateral posted by the FHLBNY with LBSF.  The FHLBNY filed timely proofs of claim as a creditor of LBSF and LBHI in the bankruptcy proceedings.  Given the dispute described below, the FHLBNY fully reserved the LBSF and LBHI receivables, as the timing and amount of any recovery is uncertain.

On July 23, 2010, the FHLBNY received a notice from LBSF claiming that the FHLBNY improperly calculated the termination payment, and that the FHLBNY owed LBSF a substantial amount.  Pursuant to bankruptcy court procedures, the parties mediated their dispute commencing in late 2010 and again in early 2015.  Both mediations concluded without a settlement.

On May 13, 2015, LBHI, on behalf of itself and LBSF, filed a complaint against the FHLBNY in the bankruptcy court, alleging, among other things, that the FHLBNY’s calculation of the termination payment breached its contract with LBSF and violated section 562 of the Bankruptcy Code.  The complaint seeks damages in excess of $150 million, plus pre-judgment contractual interest.  On August 3, 2015, the FHLBNY filed amended proofs of claim reducing the FHLBNY’s claims against LBSF and LBHI, as LBSF’s guarantor, to approximately $45 million.  On September 24, 2015, the bankruptcy court denied the FHLBNY’s motion to dismiss certain of the claims alleged in LBHI’s complaint.

On September 21, 2016, LBHI served a disclosure calculating its damages to be $116 million, plus accrued contractual interest totaling $232 million.  On September 23, 2016, the FHLBNY filed a partial summary judgment motion seeking dismissal of LBHI’s claim that the FHLBNY violated section 562 of the Bankruptcy Code in calculating its claim, and also seeking dismissal of LBHI’s claim for contractual interest.  The parties are now engaged in pre-trial discovery proceedings, including the exchange of documents, and trial is currently scheduled to commence in April 2017.

The FHLBNY is pursuing its claims against LBSF and LBHI in the LBHI litigation.  The FHLBNY intends to vigorously defend against LBHI’s complaint, which it believeswe believe to be without merit.

ITEMItem 4.                                                         MINE SAFETY DISCLOSURES.Mine Safety Disclosures.

Not applicable.

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PART II

ITEMItem 5.                                                         Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

All of the capital stock of the FHLBNY is owned by our members.  Stock may also be held by former members as a result of having been acquired by a non-member institution.  We conduct our business in advances and mortgages exclusively with stockholder members and housing associates (1).  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, 2016, we had 325 members (excluding three “captive insurance companies” who are considered to be non-members from a regulatory perspective), who held 63,077,657 shares of capital stock between them.  At December 31, 2016, former members held 314,347 shares.  At December 31, 2015, we had 329 members, who held 55,850,305 shares of capital stock between them.  At December 31, 2015, former members held 194,986 shares.  At December 31, 2014, we had 332 members, who held 55,800,730 shares of capital stock between them.  At December 31, 2014, former members held 192,004 shares.  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 be determined by our Board of Directors, at its discretion, and within the regulatory framework promulgated by the Finance Agency.  Our Retained Earnings and Dividends Policy outlined in the section titled Retained Earnings and Dividends under Part I, Item 1 of this Annual Report on Form 10-K provides additional information.

(1)         Housing associates are defined as entities that (i) are approved mortgagees under Title II of the National Housing Act, (ii) are chartered under law and have succession, (iii) are subject to inspection and supervision by a governmental agency, (iv) lend their own funds as their principal activity in the mortgage field, and (v) have a financial condition such that advances may be safely made to that entity.  At December 31, 2015,2016, we had 9 housing associates as members.  Advances made to housing associates totaled $5.7$5.6 million, and the mortgage loans acquired from housing associates were immaterial in any periods in this report.

Dividends from a calendar quarter’s earnings are paid (a) subsequent to the end of that calendar quarter as summarized below. Dividend payments reported below are on Class B Stock, which includes payments to non-members on capital stock reported as mandatorily redeemable capital stock in the Statements of Condition. (dollars in thousands):

(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 $1.6 million, $0.8 million $0.9 million and $1.0$0.9 million for the years ended December 31, 2016, 2015 2014 and 20132014.

(b)  Includes dividends paid to non-members; payments to non-members are classified as interest expense for accounting purposes.

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.  Dividends are paid in arrears typically 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, weWe 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 Item 701 of the SEC’s Regulation S-K.  By the same no-action letter, we are also exempt from disclosure of securities repurchases by the issuer that otherwise would have been required under Item 703 of Regulation S-K.

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ITEMItem 6.                                                         SELECTED FINANCIAL DATA.Selected Financial Data.

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.

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(a)         Investments include held-to-maturitytrading securities, available-for-sale securities, held-to-maturity securities, securities purchased under agreements to resell, federal funds, loans to other FHLBanks, and other interest-bearing deposits.

(b)         Allowances for credit losses were $1.6 million, $0.3 million, $4.5 million, $5.7 million $7.0 million and $6.8$7.0 million for the years ended December 31, 2016, 2015, 2014, 2013 2012 and 2011.2012.

(c)          Equity to asset ratio is capital stock plus retained earnings and Accumulated other comprehensive income (loss) as a percentage of total assets.

(d)         Net interest income is net interest income before the provision for credit losses on mortgage loans.

(e)          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.

(f)            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).

(g)         Operating expenses include Compensation and Benefits.

(h)         Operating expenses as a percentage of total average assets.

(i)            All percentage calculations are performed using amounts in thousands, and may not agree if calculations are performed using amounts in millions.

Supplementary financial data for each quarter for the years ended December 31, 20152016 and 20142015 are presented below (in thousands):