UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
   
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010March 31, 2011
   
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-51397
Federal Home Loan Bank of New York
(Exact name of registrant as specified in its charter)
   
Federal 13-6400946
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   
101 Park Avenue, New York, N.Y. 10178
(Address of principal executive offices) (Zip Code)
(212) 681-6000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesþ Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yeso Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
       
Large accelerated filero Accelerated filero Non-accelerated filerþ Smaller reporting companyo
    (Do not check if a smaller reporting company)  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yeso Noþ
The number of shares outstanding of the issuer’s common stock as of October 31, 2010April 30, 2011 was 45,957,753.43,197,503.
 
 

 

 

 

FEDERAL HOME LOAN BANK OF NEW YORK
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010
Table of ContentsMARCH 31, 2011
TABLE OF CONTENTS
     
  Page 
 
PART I. FINANCIAL INFORMATION
  3 
     
ITEM 1. FINANCIAL STATEMENTS (Unaudited):
  3 
     
Statements of Condition (Unaudited) as of September 30, 2010March 31, 2011 and December 31, 20092010
  3 
     
Statements of Income (Unaudited) for the Three and Nine Months ended September 30,March 31, 2011 and 2010 and 2009
  4 
     
Statements of Capital (Unaudited) for the NineThree Months ended September 30,March 31, 2011 and 2010 and 2009
  5 
     
Statements of Cash Flows (Unaudited) for the NineThree Months ended September 30,March 31, 2011 and 2010 and 2009
  6 
     
Notes to Financial Statements (Unaudited)
  8 
     
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  5747 
     
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  122103 
     
ITEM 4T. CONTROLS AND PROCEDURES
  127106 
     
PART II. OTHER INFORMATION
  128 
     
Item 1. LEGAL PROCEEDINGS
  128107 
     
Item 1A. RISK FACTORS
  128107 
     
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  128107 
     
Item 3. DEFAULTS UPON SENIOR SECURITIES
  128107 
     
Item 4. (REMOVED AND RESERVED)
  128107 
     
Item 5. OTHER INFORMATION
  128107 
     
Item 6. EXHIBITS
  129108 
     
Exhibit 10.01
Exhibit 10.02
 Exhibit 31.01
 Exhibit 31.02
 Exhibit 32.01
 Exhibit 32.02

 

2

Federal Home Loan Bank of New York
Statements of Condition — Unaudited (in thousands, except par value of capital stock)

As of September 30, 2010March 31, 2011 and December 31, 20092010
                
 September 30, 2010 December 31, 2009  March 31, 2011 December 31, 2010 
Assets
  
Cash and due from banks (Note 3) $69,471 $2,189,252  $2,953,801 $660,873 
Federal funds sold�� 4,095,000 3,450,000  5,093,000 4,988,000 
Available-for-sale securities, net of unrealized gains (losses) of $23,816 at September 30, 2010 and ($3,409) at December 31, 2009 (Note 5) 3,373,781 2,253,153 
Available-for-sale securities, net of unrealized gains (losses) of $14,979 at March 31, 2011 and $22,965 at December 31, 2010 (Note 5) 3,719,024 3,990,082 
Held-to-maturity securities (Note 4)  
Long-term securities 8,221,246 10,519,282  8,042,487 7,761,192 
Advances (Note 6) 85,697,171 94,348,751  75,487,377 81,200,336 
Mortgage loans held-for-portfolio, net of allowance for credit losses of $5,537 at September 30, 2010 and $4,498 at December 31, 2009 (Note 7) 1,267,687 1,317,547 
Mortgage loans held-for-portfolio, net of allowance for credit losses of $6,969 at March 31, 2011 and $5,760 at December 31, 2010 (Note 7) 1,270,891 1,265,804 
Accrued interest receivable 305,763 340,510  250,454 287,335 
Premises, software, and equipment 14,550 14,792  14,919 14,932 
Derivative assets (Note 16) 32,425 8,280 
Derivative assets (Note 15) 24,964 22,010 
Other assets 16,444 19,339  16,917 21,506 
          
  
Total assets
 $103,093,538 $114,460,906  $96,873,834 $100,212,070 
          
  
Liabilities and capital
  
  
Liabilities
  
Deposits (Note 8)  
Interest-bearing demand $3,660,132 $2,616,812  $2,465,860 $2,401,882 
Non-interest bearing demand 9,725 6,499  2,971 9,898 
Term 60,400 7,200  43,800 42,700 
          
 
Total deposits 3,730,257 2,630,511  2,512,631 2,454,480 
          
  
Consolidated obligations, net (Note 10)  
Bonds (Includes $10,761,236 at September 30, 2010 and $6,035,741 at December 31, 2009 at fair value under the fair value option) 74,918,893 74,007,978 
Discount notes (Includes $1,755,901 at September 30, 2010 and $0 at December 31, 2009 at fair value under the fair value option) 17,787,908 30,827,639 
Bonds (Includes $12,605,257 at March 31, 2011 and $14,281,463 at December 31, 2010 at fair value under the fair value option) 68,529,981 71,742,627 
Discount notes (Includes $731,892 at March 31, 2011 and $956,338 at December 31, 2010 at fair value under the fair value option) 19,507,159 19,391,452 
          
  
Total consolidated obligations 92,706,801 104,835,617  88,037,140 91,134,079 
          
  
Mandatorily redeemable capital stock (Note 11) 67,348 126,294  59,126 63,219 
  
Accrued interest payable 277,647 277,788  230,109 197,266 
Affordable Housing Program (Note 12) 137,995 144,489 
Payable to REFCORP (Note 12) 20,560 24,234 
Derivative liabilities (Note 16) 784,498 746,176 
Affordable Housing Program 135,131 138,365 
Payable to REFCORP 18,735 21,617 
Derivative liabilities (Note 15) 839,710 954,898 
Other liabilities 101,448 72,506  98,225 103,777 
          
  
Total liabilities
 97,826,554 108,857,615  91,930,807 95,067,701 
          
  
Commitments and Contingencies(Notes 10, 12, 16 and 18)
 
Commitments and Contingencies(Notes 11, 15 and 17)
 
  
Capital(Note 11)
  
Capital stock ($100 par value), putable, issued and outstanding shares:  
46,636 at September 30, 2010 and 50,590 at December 31, 2009 4,663,606 5,058,956 
43,237 at March 31, 2011 and 45,290 at December 31, 2010 4,323,664 4,528,962 
Retained earnings 701,215 688,874  716,650 712,091 
Accumulated other comprehensive income (loss) (Note 13) 
Net unrealized gain (loss) on available-for-sale securities 23,815  (3,409)
Accumulated other comprehensive income (loss) (Note 12) 
Net unrealized gains on available-for-sale securities 14,979 22,965 
Non-credit portion of OTTI on held-to-maturity securities, net of accretion  (96,043)  (110,570)  (89,271)  (92,926)
Net unrealized loss on hedging activities  (17,732)  (22,683)
Employee supplemental retirement plans (Note 15)  (7,877)  (7,877)
Net unrealized losses on hedging activities  (11,468)  (15,196)
Employee supplemental retirement plans (Note 14)  (11,527)  (11,527)
          
  
Total capital
 5,266,984 5,603,291  4,943,027 5,144,369 
          
  
Total liabilities and capital
 $103,093,538 $114,460,906  $96,873,834 $100,212,070 
          
The accompanying notes are an integral part of these unaudited financial statements.

 

3

Federal Home Loan Bank of New York
Statements of Income — Unaudited (in thousands, except per share data)

For the three and nine months ended September 30,March 31, 2011 and 2010 and 2009
                
 Three months ended Nine months ended         
 September 30, September 30,  March 31, 
 2010 2009 2010 2009  2011 2010 
Interest income  
Advances (Note 6) $173,459 $240,573 $477,303 $1,094,089  $158,696 $149,640 
Interest-bearing deposits (Note 3) 1,699 1,014 3,766 19,054 
Interest-bearing deposits 966 830 
Federal funds sold 2,253 1,864 6,600 1,933  2,546 1,543 
Available-for-sale securities (Note 5) 7,580 6,590 23,128 22,881  8,639 5,764 
Held-to-maturity securities (Note 4)     
Long-term securities 84,242 111,232 274,686 355,916  71,056 98,634 
Certificates of deposit — 851 — 1,392 
Mortgage loans held-for-portfolio (Note 7) 16,333 17,405 49,689 54,679  15,486 16,741 
Loans to other FHLBanks and other — 1 — 1 
              
  
Total interest income
 285,566 379,530 835,172 1,549,945  257,389 273,152 
              
  
Interest expense  
Consolidated obligations-bonds (Note 10) 147,097 191,708 448,669 783,695  114,277 154,913 
Consolidated obligations-discount notes (Note 10) 11,456 31,647 33,069 173,228  7,816 9,657 
Deposits (Note 8) 959 516 2,813 2,002  470 892 
Mandatorily redeemable capital stock (Note 11) 879 1,807 3,051 5,478  744 1,495 
Cash collateral held and other borrowings (Note 19) 14 — 14 49 
Cash collateral held and other borrowings (Note 18) 9 — 
              
  
Total interest expense
 160,405 225,678 487,616 964,452  123,316 166,957 
              
  
Net interest income before provision for credit losses
 125,161 153,852 347,556 585,493  134,073 106,195 
              
  
Provision for credit losses on mortgage loans 231 598 1,137 1,966  1,773 709 
              
  
Net interest income after provision for credit losses
 124,930 153,254 346,419 583,527  132,300 105,486 
              
  
Other income (loss)  
Service fees 1,297 1,101 3,472 3,181 
Instruments held at fair value — Unrealized (loss) gain (Note 17) 55 426  (12,612) 8,653 
Service fees and other 1,256 1,045 
Instruments held at fair value — Unrealized gains (losses)(Note 16) 740  (8,419)
  
Total OTTI losses  (498)  (30,169)  (4,573)  (118,160) —  (3,873)
Net amount of impairment losses reclassified (from) to
Accumulated other comprehensive loss		  (2,569) 26,486  (3,164) 103,884 
Net amount of impairment losses reclassified (from) to       
Accumulated other comprehensive loss  (370) 473 
              
Net impairment losses recognized in earnings  (3,067)  (3,683)  (7,737)  (14,276)  (370)  (3,400)
              
  
Net realized and unrealized (loss) gain on derivatives and hedging activities (Note 16) 8,444 59,639  (3,344) 124,613 
Net realized gain from sale of available-for-sale securities (Note 5) — — 708 721 
Other  (624)  (39)  (1,493) 59 
Net realized and unrealized gains (losses) on derivatives and hedging activities (Note 15) 64,570  (363)
Net realized gains from sale of available-for-sale securities and redemption of held-to-maturity securities (Note 4 and 5) — 708 
Losses from extinguishment of debt and other  (51,893)  (227)
              
  
Total other income (loss)
 6,105 57,444  (21,006) 122,951  14,303  (10,656)
              
  
Other expenses  
Operating 21,657 17,810 61,245 53,970  7,530 6,342 
Compensation and Benefits 38,981 12,894 
Finance Agency and Office of Finance 2,036 1,834 6,447 5,663  3,397 2,418 
              
  
Total other expenses
 23,693 19,644 67,692 59,633  49,908 21,654 
              
  
Income before assessments
 107,342 191,054 257,721 646,845  96,695 73,176 
              
  
Affordable Housing Program (Note 12) 8,852 15,780 21,350 53,363 
REFCORP (Note 12) 19,698 35,055 47,274 118,696 
Affordable Housing Program 7,969 6,126 
REFCORP 17,745 13,410 
              
  
Total assessments
 28,550 50,835 68,624 172,059  25,714 19,536 
              
  
Net income
 $78,792 $140,219 $189,097 $474,786  $70,981 $53,640 
              
  
Basic earnings per share (Note 14)
 $1.71 $2.70 $3.98 $8.93 
Basic earnings per share (Note 13)
 $1.61 $1.09 
              
  
Cash dividends paid per share
 $1.15 $1.40 $3.60 $3.54  $1.46 $1.41 
              
The accompanying notes are an integral part of these unaudited financial statements.

 

4

Federal Home Loan Bank of New York
Statements of Capital — Unaudited (in thousands, except per share data)

For the ninethree months ended September 30,March 31, 2011 and 2010 and 2009
                                                
 Accumulated    Accumulated   
 Capital Stock1 Other Total  Capital Stock1 Other Total 
 Class B Retained Comprehensive Total Comprehensive  Class B Retained Comprehensive Total Comprehensive 
 Shares Par Value Earnings Income (Loss) Capital Income (Loss)  Shares Par Value Earnings Income (Loss) Capital Income (Loss) 
 
Balance, December 31, 2008
 55,857 $5,585,700 $382,856 $(101,161) $5,867,395 
Balance, December 31, 2009
 50,590 $5,058,956 $688,874 $(144,539) $5,603,291 
  
Proceeds from sale of capital stock 26,932 2,693,233 — — 2,693,233  3,644 364,445 — — 364,445 
Redemption of capital stock  (31,363)  (3,136,345) — —  (3,136,345)   (5,944)  (594,365) — —  (594,365) 
Shares reclassified to mandatorily redeemable capital stock  (4)  (434) — —  (434)   (14)  (1,410) — —  (1,410) 
Cash dividends ($3.54 per share) on capital stock — —  (191,405) —  (191,405) 
Cash dividends ($1.41 per share) on capital stock — —  (70,995) —  (70,995) 
Net Income — — 474,786 — 474,786 $474,786  — — 53,640 — 53,640 $53,640 
Net change in Accumulated other comprehensive income (loss):  
Non-credit portion of OTTI on held-to-maturity securities, net of accretion — — —  (100,463)  (100,463)  (100,463) — — — 3,958 3,958 3,958 
Net unrealized gains on available-for-sale securities — — — 48,335 48,335 48,335  — — — 14,930 14,930 14,930 
Hedging activities — — — 5,687 5,687 5,687  — — — 2,132 2,132 2,132 
                          
 $428,345  $74,660 
      
Balance, September 30, 2009
 51,422 $5,142,154 $666,237 $(147,602) $5,660,789 
Balance, March 31, 2010
 48,276 $4,827,626 $671,519 $(123,519) $5,375,626 
                      
  
Balance, December 31, 2009
 50,590 $5,058,956 $688,874 $(144,539) $5,603,291 
Balance, December 31, 2010
 45,290 $4,528,962 $712,091 $(96,684) $5,144,369 
  
Proceeds from sale of capital stock 13,902 1,390,257 — — 1,390,257  5,054 505,404 — — 505,404 
Redemption of capital stock  (17,553)  (1,755,299) — —  (1,755,299)   (7,106)  (710,604) — —  (710,604) 
Shares reclassified to mandatorily redeemable capital stock  (303)  (30,308) — —  (30,308)   (1)  (98) — —  (98) 
Cash dividends ($3.60 per share) on capital stock — —  (176,756) —  (176,756) 
Cash dividends ($1.46 per share) on capital stock — —  (66,422) —  (66,422) 
Net Income — — 189,097 — 189,097 $189,097  — — 70,981 — 70,981 $70,981 
Net change in Accumulated other comprehensive income (loss):  
Non-credit portion of OTTI on held-to-maturity securities, net of accretion — — — 14,527 14,527 14,527  — — — 3,655 3,655 3,655 
Net unrealized gains on available-for-sale securities — — — 27,224 27,224 27,224 
Net unrealized losses on available-for-sale securities — — —  (7,986)  (7,986)  (7,986)
Hedging activities — — — 4,951 4,951 4,951  — — — 3,728 3,728 3,728 
                          
 $235,799  $70,378 
      
Balance, September 30, 2010
 46,636 $4,663,606 $701,215 $(97,837) $5,266,984 
Balance, March 31, 2011
 43,237 $4,323,664 $716,650 $(97,287) $4,943,027 
                      
1 Putable stock
The accompanying notes are an integral part of these unaudited financial statements.

 

5

Federal Home Loan Bank of New York
Statements of Cash Flows — Unaudited (in thousands)

For the ninethree months ended September 30,March 31, 2011 and 2010 and 2009
        
 Nine months ended         
 September 30,  March 31, 
 2010 2009  2011 2010 
Operating activities
  
  
Net Income $189,097 $474,786  $70,981 $53,640 
          
 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization:  
Net premiums and discounts on consolidated obligations, investments, mortgage loans and other adjustments  (45,715)  (95,490)  (13,080)  (19,849)
Concessions on consolidated obligations 9,666 4,977  1,678 2,497 
Premises, software, and equipment 4,201 4,020  1,399 1,365 
Provision for credit losses on mortgage loans 1,137 1,966  1,773 709 
Net realized (gains) from redemption of held-to-maturity securities —  (281)
Net realized (gains) from sale of available-for-sale securities  (708)  (440) —  (708)
Credit impairment losses on held-to-maturity securities 7,737 14,276  370 3,400 
Change in net fair value adjustments on derivatives and hedging activities 406,975 68,323  97,933 145,124 
Change in fair value adjustments on financial instruments held at fair value 12,612  (8,653)  (740) 8,419 
Losses from extinguishment of debt 51,741 — 
Net change in:  
Accrued interest receivable 34,747 137,921  36,881 19,781 
Derivative assets due to accrued interest 23,230 184,842   (6,425)  (9,558)
Derivative liabilities due to accrued interest  (21,895)  (250,161)  (32,684)  (27,425)
Other assets 2,856 4,830  3,851 2,560 
Affordable Housing Program liability  (6,494) 22,373   (3,234) 1,171 
Accrued interest payable 3,235  (95,244) 32,954 54,380 
REFCORP liability  (3,674) 33,912   (2,882)  (10,361)
Other liabilities 7,933  (5,759)  (4,463)  (32,257)
          
Total adjustments 435,843 21,412  165,072 139,248 
          
Net cash provided by operating activities
 624,940 496,198  236,053 192,888 
          
Investing activities
  
Net change in:  
Interest-bearing deposits  (1,607,030) 13,471,204  795,337 3,874 
Federal funds sold  (645,000)  (3,900,000)  (105,000) 320,000 
Deposits with other FHLBanks  (29)  (84)  (62) 22 
Premises, software, and equipment  (3,959)  (4,823)  (1,386)  (619)
Held-to-maturity securities:  
Long-term securities  
Purchased  (174,048)  (2,754,476)  (988,122) — 
Repayments 2,482,959 2,283,149  712,634 916,331 
In-substance maturities — 38,251 
Net change in certificates of deposit —  (797,000)
Available-for-sale securities:  
Purchased  (1,957,867)  (613) —  (581,936)
Proceeds 838,129 420,607 
Repayments 263,990 164,325 
Proceeds from sales 33,398 132,095  144 32,993 
Advances:  
Principal collected 165,792,738 320,102,436  93,771,274 66,264,709 
Made  (155,157,849)  (308,324,718)  (89,132,005)  (60,622,185)
Mortgage loans held-for-portfolio:  
Principal collected 155,621 235,596  78,059 49,065 
Purchased and originated  (106,769)  (117,152)  (85,888)  (20,106)
Proceeds from sales of REO 150 — 
Loans to other FHLBanks  
Loans made  (27,000)  (400,000)  (100,000)  (27,000)
Principal collected 27,000 400,000  100,000 27,000 
          
Net cash provided by investing activities
 9,650,294 20,784,472  5,309,125 6,526,473 
          
The accompanying notes are an integral part of these unaudited financial statements.

 

6

Federal Home Loan Bank of New York
Statements of Cash Flows — Unaudited (in thousands)
For the ninethree months ended September 30,March 31, 2011 and 2010 and 2009
        
 Nine months ended         
 September 30,  March 31, 
 2010 2009  2011 2010 
Financing activities
  
Net change in:  
Deposits and other borrowings1
 $844,546 $531,109  $10,927 $5,238,715 
Consolidated obligation bonds:  
Proceeds from issuance 52,284,617 35,112,667  16,160,153 14,103,711 
Payments for maturing and early retirement  (52,088,457)  (47,224,995)  (19,097,193)  (15,757,412)
Net proceeds on bonds transferred from other FHLBanks 224,664 — 
Net payments on bonds transferred to other FHLBanks  (167,381) — 
Consolidated obligation discount notes:  
Proceeds from issuance 89,819,657 814,559,648  41,571,744 27,155,228 
Payments for maturing  (102,848,990)  (822,438,650)  (41,454,687)  (38,157,604)
Capital stock:  
Proceeds from issuance 1,390,257 2,693,233  505,404 364,445 
Payments for redemption / repurchase  (1,755,299)  (3,136,345)  (710,604)  (594,365)
Redemption of Mandatorily redeemable capital stock  (89,254)  (15,673)  (4,191)  (22,512)
Cash dividends paid2
  (176,756)  (191,405)  (66,422)  (70,995)
          
Net cash used by financing activities
  (12,395,015)  (20,110,411)  (3,252,250)  (7,740,789)
          
Net (decrease) increase in cash and due from banks  (2,119,781) 1,170,259 
Net increase (decrease) in cash and due from banks 2,292,928  (1,021,428)
Cash and due from banks at beginning of the period 2,189,252 18,899  660,873 2,189,252 
          
Cash and due from banks at end of the period $69,471 $1,189,158  $2,953,801 $1,167,824 
          
  
Supplemental disclosures:
  
Interest paid $492,994 $1,161,678  $127,107 $136,535 
Affordable Housing Program payments3
 $27,844 $30,990  $11,203 $4,955 
REFCORP payments $50,948 $84,784  $20,627 $23,771 
Transfers of mortgage loans to real estate owned $970 $1,091  $591 $377 
Portion of non-credit OTTI (gains) losses on held-to-maturity securities $(3,164) $103,884  $(370) $473 
1 Cash flows from derivatives containing financing elements were considered as a financing activity — $330,004 and $227,796 cash out-flowswere included in borrowing activity. Cash outflows were $107,935 and $109,565 for the ninethree months ended 20102011 and 2009.2010.
 
2 Does not include payments to holders of mandatorily redeemable capital stock.
 
3 AHP payments = (beginning accrual — ending accrual) + AHP assessment for the period; payments represent funds released to the Affordable Housing Program.
The accompanying notes are an integral part of these unaudited financial statements.

 

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Background
The Federal Home Loan Bank of New York (“FHLBNY” or “the Bank”) is a federally chartered corporation, exempt from federal, state and local taxes except local real estate taxes. It is one of twelve district Federal Home Loan Banks (“FHLBanks”). The FHLBanks are U.S. government-sponsored enterprises (“GSEs”), organized under the authority of the Federal Home Loan Bank Act of 1932, as amended (“FHLBank Act”). Each FHLBank is a cooperative owned by member institutions located within a defined geographic district. The members purchase capital stock in the FHLBank and receive dividends on their capital stock investment. The FHLBNY’s defined geographic district is New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. The FHLBNY provides a readily available, low-cost source of funds for its member institutions. The FHLBNY does not have any wholly or partially owned subsidiaries, nor does it have an equity position in any partnerships, corporations, or off-balance-sheet special purpose entities.
The FHLBNY obtains its funds from several sources. A primary source is the issuance of FHLBank debt instruments, called consolidated obligations, to the public. The issuances and servicing of consolidated obligations are performed by the Office of Finance, a joint office of the FHLBanks. These debt instruments represent the joint and several obligations of all the FHLBanks. Additional sources of FHLBNY funding are member deposits and the issuance of capital stock. Deposits may be accepted from member financial institutions and federal instrumentalities.
Members of the cooperative must purchase FHLBNY stock according to regulatory requirements (For more information, see Note 11 — Capital Capital ratios,Stock and Mandatorily redeemable capital stock)Redeemable Capital Stock). The business of the cooperative is to provide liquidity for the members (primarily in the form of loans referred to as “advances”) and to provide a return on members’ investment in FHLBNY stock in the form of a dividend. Since the members are both stockholders and customers, the Bank operates such that there is a trade-off between providing value to them via low pricing for advances with a relatively lower dividend versus higher advances pricing with a relatively higher dividend. The FHLBNY is managed to deliver balanced value to members, rather than to maximize profitability or advance volume through low pricing.
All federally insured depository institutions, insured credit unions and insurance companies engaged in residential housing finance can apply for membership in the FHLBank in their district. All members are required to purchase capital stock in the FHLBNY as a condition of membership. A member of another FHLBank or a financial institution that is not a member of any FHLBank may also hold FHLBNY stock because of having acquired an FHLBNY member. Because the Bank operates as a cooperative, the FHLBNY conducts business with related parties in the normal course of business and considers all members and non-member stockholders as related parties in addition to the other FHLBanks. For more information, see Note 1918 — Related party transactions.Party Transactions.
The FHLBNY’s primary business is making collateralized advances to members which is the principal factor that impacts the financial condition of the FHLBNY.
Since July 30, 2008, theThe FHLBNY has beenis supervised and regulated by the Federal Housing Finance Agency (“Finance Agency”), which is an independent agency in the executive branch of the U.S. government. With the passage of the “Housing and Economic Recovery Act of 2008” (“Housing Act”), the Finance Agency was established and became the new independent Federal regulator (the “Regulator”) of the FHLBanks, effective July 30, 2008. The Federal Housing Finance Board (“Finance Board”), the FHLBanks’ former regulator, was merged into the Finance Agency as of October 27, 2008. The Finance Board was abolished one year after the date of enactment of the Housing Act. Finance Board regulations, orders, determinations and resolutions remain in effect until modified, terminated, set aside or superseded in accordance with the Housing Act by the FHFA Director, a court of competent jurisdiction or by operation of the law.
The Finance Agency’s mission statement is to provide effective supervision, regulation and housing mission oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to promote their safety and soundness, support housing finance and affordable housing, and to support a stable and liquid mortgage market. However, while the Finance Agency establishes regulations governing the operations of the FHLBanks, the Bank functions as a separate entity with its own management, employees and board of directors.
Tax Status
The FHLBanks, including the FHLBNY, are exempt from ordinary federal, state, and local taxation except for local real estate taxes.
Assessments
Resolution Funding Corporation(“REFCORP”)Assessments.Although the FHLBNY is exempt from ordinary federal, state, and local taxation except for local real estate taxes, it is required to make payments to REFCORP.
Congress established REFCORP in 1989 to help facilitate the U.S. government’s bailout of failed financial institutions. The REFCORP assessments are used by the U.S. Treasury to pay a portion of the annual interest expense on long-term obligations issued to finance a portion of the cost of the bailout. Principal of those long-term obligations is paid from a segregated account containing zero-coupon U.S. government obligations, which were purchased using funds that Congress directed the FHLBanks to provide for that purpose in 1989.
Each FHLBank is required to pay 20 percentmake payments to REFCORP as described above until the total amount of income calculated in accordance with accounting principles generally accepted in the U.S. (“GAAP”) after the assessment for the Affordable Housing Program, but before the assessment for REFCORP. The Affordable Housing Program and REFCORP assessments are calculated simultaneously because of their dependence on each other. The FHLBNY accrues its REFCORP assessment onpayments actually made is equivalent to a monthly basis.

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$300 million annual annuity, whose final maturity date is April 15, 2030. The Resolution Funding Corporation has been designated as the calculation agent for the Affordable Housing Program and REFCORP assessments. Each FHLBank provides the amount of quarterly income before Affordable Housing Program and REFCORP assessments and other information to the Resolution Funding Corporation, which then performs the calculations for each quarter end. REFCORP expense is calculated on Net income after the assessment for the Affordable Housing Program, but before the assessment for REFCORP. The Affordable Housing Program and REFCORP assessments are calculated simultaneously because of their dependence on each other. The FHLBNY accrues its REFCORP assessment on a monthly basis.

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However, based on anticipated payments to be made by the 12 FHLBanks through the second quarter of 2011, it is likely that the FHLBanks will satisfy their obligation to REFCORP by the end of that period and, assuming that such is the case, further payments will not be necessary after that quarter. In anticipation of the termination of their REFCORP obligation, the FHLBanks have reached an agreement to set aside, once the obligation has ended, amounts that would have otherwise been paid to REFCORP as restricted retained earnings, with the objective of increasing the earnings reserves of the FHLBanks and enhancing the safety and soundness of the FHLBank System.
Affordable Housing Program(“AHP”)Assessments. Section 10(j) of the FHLBank Act requires each FHLBank to establish an Affordable Housing Program. Each FHLBank provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBanks must set aside for the Affordable Housing Program the greater of $100 million or 10 percent of their regulatory defined net income. Regulatory defined net income is GAAP net income before (1) interest expense related to mandatorily redeemable capital stock,and (2) the assessment for Affordable Housing Program, but after the assessment for REFCORP. The exclusion of interest expense related to mandatorily redeemable capital stock is a regulatory interpretation of the Finance Agency. The FHLBNY accrues the AHP expense monthly.
Basis of Presentation
The preparation of financial statements in accordance with generally accepted accounting principles in the U.S. requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities (if applicable), and the reported amounts of income and expense during the reported periods. Although management believes these judgments, estimates, and assumptions to be appropriate, actual results may differ. The information contained in these financial statements is unaudited. In the opinion of management, normal recurring adjustments necessary for a fair presentation of the interim period results have been made.
These unaudited financial statements should be read in conjunction with the FHLBNY’s audited financial statements for the year ended December 31, 2009,2010, included in Form 10-K filed on March 25, 2010.2011.
See Note 1 — Significant Accounting Policies and Estimates in Notes to the Financial Statements of the Federal Home Loan Bank of New York filed on Form 10-K on March 25, 2010, which contains a summary of the Bank’s significant accounting policies and estimates.
Note 1. Significant Accounting Policies and Estimates.
Significant Accounting Policies and Estimates
The FHLBNY has identified certain accounting policies that it believes are significant because they require management to make subjective judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or by using different assumptions. These policies include estimating the allowance for credit losses on the advance and mortgage loan portfolios, evaluating the impairment of the Bank’s securities portfolios, estimating the liabilities for employee benefit programs, and estimating fair values of certain assets and liabilities.
Fair Value Measurements See Note 1 — Significant Accounting Policies and Disclosures-The accounting standard on fair value measurements and disclosures discusses how entities should measure fair value based on whether the inputsEstimates in Notes to those valuation techniques are observable or unobservable. In January 2010, the Financial Accounting Standards Board (“FASB”) provided further guidelines effective January 1, 2010, that required enhanced disclosures about fair value measurements that the FHLBNY adopted in the 2010 first quarter. For more information, see Note 17 — Fair Values of financial instruments.
Observable inputs reflect market data obtained from independent sources or those that can be directly corroborated to market sources, while unobservable inputs reflect the FHLBNY’s market assumptions. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal or most advantageous market for the asset or liability between market participants at the measurement date. This definition is based on an exit price rather than transaction or entry price.
Valuation Techniques- Three valuation techniques are prescribed under the fair value measurement standards — Market approach, Income approach and Cost approach. Valuation techniques for which sufficient data is available and that are appropriate under the circumstances should be used.
In determining fair value, FHLBNY uses various valuation methods, including both the market and income approaches.
Market approach — This technique uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Income approach — This technique uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted), based on assumptions used by market participants. The present value technique used to measure fair value depends on the facts and circumstances specific to the asset or liability being measured and the availability of data.

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Cost approach — This approach is based on the amount that currently would be required to replace the service capacity of an asset (often referred to as current replacement cost).
The accounting guidance on fair value measurements and disclosures establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, and would be based on market data obtained from sources independent of FHLBNY. Unobservable inputs are inputs that reflect FHLBNY’s assumptions about the parameters market participants would use in pricing the asset or liability, and would be based on the best information available in the circumstances.
The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1- Quoted prices for identical instruments in active markets.
Level 2- Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-based valuations in which all significant inputs and significant parameters are observable in active markets.
Level 3- Valuations based upon valuation techniques in which significant inputs and significant parameters are unobservable.
The availability of observable inputs can vary from product to product and is affected by a wide variety of factors including, for example, the characteristics peculiar to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by FHLBNY in determining fair value is greatest for instruments categorized as Level 3. In certain cases, the inputs used to measure fair value may fall into different levelsStatements of the fair value hierarchy. In such cases, for disclosure purpose the level in the fair value hierarchy withinFederal Home Loan Bank of New York filed on Form 10-K on March 25, 2011, which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
In its Statements of Condition at September 30, 2010 and December 31, 2009, the FHLBNY measured and recorded fair values using the above guidance for derivatives, available-for-sale securities, and certain consolidated obligation bonds and discount notes that were designated under the fair value option accounting (“FVO”). Certain held-to-maturity securities determined to be credit impaired or other-than-temporarily impaired (“OTTI”) at September 30, 2010 and December 31, 2009 were measured and recorded at their fair values oncontains a non-recurring basis.
Fair Values of Derivative positions —The FHLBNY is an end-user of over-the-counter (“OTC”) derivatives to hedge assets and liabilities under hedge accounting rules to mitigate fair value risks. In addition, the Bank records the fair value of an insignificant amount of mortgage-delivery commitments as derivatives. For additional information, see Note 16 - Derivatives and hedging activities.
Valuations of derivative assets and liabilities reflect the valuesummary of the instrument including the value associated with counterparty risk. Derivative values also take into account the FHLBNY’s own credit standing. The computed fair values of the FHLBNY’s OTC derivatives take into consideration the effects of legally enforceable master netting agreements that allow the FHLBNY to settle positiveBank’s significant accounting policies and negative positions and offset cash collateral with the same counterparty on a net basis. The agreements include collateral thresholds that reflect the net credit differential between the FHLBNY and its derivative counterparties. On a contract-by-contract basis, the collateral and netting arrangements sufficiently mitigated the impact of the credit differential between the FHLBNY and its derivative counterparties to an immaterial level such that an adjustment for nonperformance risk was not deemed necessary. Fair values of the derivatives were computed using quantitative models and employed multiple market inputs including interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors. These multiple market inputs were predominantly actively quoted and verifiable through external sources, including brokers and market transactions.estimates.
Fair Values of investments classified as available-for-sale securities —The FHLBNY measures and records fair values of available-for-sale securities in the Statements of Condition in accordance with the fair value measurement standards. Changes in the values of available-for-sale securities are recorded in Accumulated other comprehensive income (loss) (“AOCI”), a component of members’ capital, with an offset to the recorded value of the investments in the Statements of Condition. The Bank’s investments classified as available-for-sale (“AFS”) are comprised of mortgage-backed securities that are GSE issued variable-rate collateralized mortgage obligations and are marketable at their recorded fair values. A small percentage of the AFS portfolio at September 30, 2010 and December 31, 2009 consisted of investments in equity and bond mutual funds held by grantor trusts owned by the FHLBNY. The unit prices, or the “Net asset values,” of the underlying mutual funds were available through publicly viewable websites and the units were marketable at recorded fair values.
The fair values of these investment securities are estimated by management using specialized pricing services that employ pricing models or quoted prices of securities with similar characteristics. Inputs into the pricing models are market based and observable. Examples of securities, which would generally be classified within Level 2 of the valuation hierarchy and valued using the “market approach” as defined under the accounting standard for fair value measurements and disclosures, include GSE issued collateralized mortgage obligations and money market funds.
See Note 17 — Fair Values of financial instruments — for additional disclosures about fair values and Levels associated with assets and liabilities recorded on the Bank’s Statements of Condition at September 30, 2010 and December 31, 2009.

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Fair Value of held-to-maturity securities on a Nonrecurring Basis- Certain held-to-maturity investment securities are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments when there is evidence of other-than-temporary impairment. In accordance with the guidance on recognition and presentation of other-than-temporary impairment, certain held-to-maturity mortgage-backed securities were determined to be credit impaired at September 30, 2010 and December 31, 2009 and the securities were recorded at their fair values in the Statements of Condition at those dates. For more information, see Note 4 — Held-to-maturity securities and Note 17 — Fair Values of financial instruments.
Financial Assets and Financial Liabilities recorded under the Fair Value Option- The accounting standards on the fair value option for financial assets and liabilities, created the fair value option (“FVO”) allowing, but not requiring, an entity to irrevocably elect fair value as the initial and subsequent measurement attribute for the selected financial assets and financial liabilities with changes in fair value recognized in earnings as they occur. In the third quarter of 2008 and thereafter, the FHLBNY had elected the FVO designation for certain consolidated obligations. At September 30, 2010 and December 31, 2009, the Bank had designated certain consolidated obligation debt under the FVO and recorded their fair values in the Statements of Condition at those dates. The changes in fair values of the designated bonds are economically hedged by interest rate swaps. See Note 17 — Fair Values of financial instruments for more information.
Investments
Early adoption by the FHLBNY of the guidance on disclosures about the fair value of financial instruments at January 1, 2009 required the Bank to incorporate certain clarifications and definitions in its investment policies. The guidance amended the pre-existing accounting rules for investments in debt and equity securities, and the guidance was primarily intended to provide greater clarity to investors about the credit and noncredit component of an other-than-temporary impairment (“OTTI”) event and to more effectively communicate when an OTTI event has occurred. The guidance was incorporated in the Bank’s investment policies as summarized below.
Held-to-maturity securities- The FHLBNY classifies investments for which it has both the ability and intent to hold to maturity as held-to-maturity investments. Such investments are recorded at amortized cost basis, which includes adjustments made to the cost of an investment for accretion and amortization of discounts and premiums, collection of cash, and fair value hedge accounting adjustments. If a held-to-maturity security is determined to be OTTI, the amortized cost basis of the security is adjusted for credit losses. Amortized cost basis of a held-to-maturity OTTI security is further adjusted for impairment related to all other factors (also referred to as the non-credit component of OTTI) and recognized in AOCI; the adjusted amortized cost basis is the carrying value of the OTTI security as reported in the Statements of Condition. Carrying value for a held-to-maturity security that is not OTTI is its amortized cost basis.
Under the accounting guidance for investments in debt and equity securities, changes in circumstances may cause the FHLBNY to change its intent to hold certain securities to maturity without calling into question its intent to hold other debt securities to maturity in the future. Thus, the sale or transfer of a held-to-maturity security due to changes in circumstances, such as evidence of significant deterioration in the issuer’s creditworthiness or changes in regulatory requirements, is not considered inconsistent with its original classification. Other events that are isolated, nonrecurring, and unusual for the FHLBNY that could not have been reasonably anticipated may cause the FHLBNY to sell or transfer a held-to-maturity security without necessarily calling into question its intent to hold other debt securities to maturity. The Bank did not transfer or sell any held-to-maturity securities due to changes in circumstances in any period in this report.
In accordance with accounting guidance for investments in debt and equity securities, sales of debt securities that meet either of the following two conditions may be considered as maturities for purposes of the classification of securities: (1) the sale occurs near enough to its maturity date (or call date if exercise of the call is probable) such that interest rate risk is substantially eliminated as a pricing factor and the changes in market interest rates would not have a significant effect on the security’s fair value, or (2) the sale of a security occurs after the FHLBNY has already collected a substantial portion (at least 85 percent) of the principal outstanding at acquisition.
Available-for-sale securities- The FHLBNY classifies investments that it may sell before maturity as available-for-sale and carries them at fair value.
Until available-for-sale securities are sold, changes in fair values are recorded in AOCI as Net unrealized gain or (loss) on available-for-sale securities. If available-for-sale securities had been hedged under a fair value hedge qualifying for hedge accounting, the FHLBNY would record the portion of the change in fair value related to the risk being hedged in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities together with the related change in the fair value of the derivative, and would record the remainder of the change in AOCI as a Net unrealized gain (loss) on available-for-sale securities. If available-for-sale securities had been hedged under a cash flow hedge qualifying for hedge accounting, the FHLBNY would record the effective portion of the change in value of the derivative related to the risk being hedged in AOCI as a Net unrealized gain (loss) on derivatives and hedging activities. The ineffective portion would be recorded in Other income (loss) and presented as a Net realized and unrealized gain (loss) on derivatives and hedging activities.
The FHLBNY computes gains and losses on sales of investment securities using the specific identification method and includes these gains and losses in Other income (loss). The FHLBNY treats securities purchased under agreements to resell as collateralized financings because the counterparty retains control of the securities.

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Other-than-temporary impairment (“OTTI”)-Accounting and Governance Policies — Impairment analysis, Pricing of mortgage-backed securities, and Bond insurer methodology.
The FHLBNY regularly evaluates its investments for impairment and determines if unrealized losses are temporary based in part on the creditworthiness of the issuers, and in part on the underlying collateral within the structure of the security and the cash flows expected to be collected on the security. A security is considered impaired if its fair value is less than its amortized cost basis. If management has made a decision to sell such an impaired security, OTTI is considered to have occurred. If a decision to sell the impaired investment has not been made, but management concludes that “it is more likely than not” that it will be required to sell such a security before recovery of the amortized cost basis of the security, an OTTI is also considered to have occurred.
Even if management does not intend to sell such an impaired security, an OTTI has occurred if cash flow analysis determines that a credit loss exists. The difference between the present value of the cash flows expected to be collected and the amortized cost basis is a credit loss. To determine if a credit loss exists, management compares the present value of the cash flows expected to be collected to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the security’s amortized cost, an OTTI exists, irrespective of whether management will be required to sell such a security. The Bank’s methodology to calculate the present value of expected cash flows is to discount the expected cash flows (principal and interest) of a fixed-rate security that is being evaluated for OTTI, by using the effective interest rate of the security as of the date it was acquired. For a variable-rate security that is evaluated for OTTI, the expected cash flows are computed using a forward-rate curve and discounted using the forward rates.
If the FHLBNY determines that OTTI has occurred, it accounts for the investment security as if it had been purchased on the measurement date of the other-than-temporary impairment. The investment security is written down to fair value, which becomes its new amortized cost basis. The new amortized cost basis is not adjusted for subsequent recoveries in fair value.
For securities designated as available-for-sale, subsequent unrealized changes to the fair values (other than OTTI) are recorded in AOCI. For securities designated as held-to-maturity, the amount of OTTI recorded in AOCI for the non-credit component of OTTI is amortized prospectively over the remaining life of the securities based on the timing and amounts of estimated future cash flows. Amortization out of AOCI is offset by an increase in the carrying value of securities until the securities are repaid or are sold or subsequent OTTI is recognized in earnings.
For OTTI securities that were previously impaired and have subsequently incurred additional credit losses, those credit losses are reclassified out of non-credit losses in AOCI and charged to earnings.
If subsequent evaluation indicates a significant increase in cash flows greater than previously expected to be collected or if actual cash flows are significantly greater than previously expected, the increases are accounted for as a prospective adjustment to the accretable yield through interest income. In subsequent periods, if the fair value of the investment security has further declined below its then-current carrying value and there has been a decrease in the estimated cash flows the FHLBNY expects to collect, the FHLBNY will deem the security as OTTI.
OTTI FHLBank System Governance Committee- On April 28, 2009 and May 7, 2009, the Finance Agency, the FHLBanks’ regulator, provided the FHLBanks with guidance on the process for determining OTTI with respect to the FHLBanks’ holdings of private-label MBS and for adoption of the guidance for recognition and presentation of OTTI. The goal of the guidance is to promote consistency among all FHLBanks in the process for determining and presenting OTTI for private-label MBS.
Beginning with the second quarter of 2009, consistent with the objectives of the Finance Agency, the FHLBanks formed an OTTI Governance Committee (“OTTI Committee”) with the responsibility for reviewing and approving key modeling assumptions, inputs, and methodologies to be used by the FHLBanks to generate the cash flow projections used in analyzing credit losses and determining OTTI for private-label MBS. The OTTI Committee charter was approved on June 11, 2009, and provides a formal process by which the FHLBanks can provide input on and approve the assumptions.
Although a FHLBank may engage another FHLBank to perform its OTTI analysis under the guidelines of the OTTI Committee, each FHLBank is responsible for making its own determination of impairment and the reasonableness of assumptions, inputs, and methodologies used and for performing the required present value calculations using appropriate historical cost bases and yields. FHLBanks that hold the same private-label MBS are required to consult with one another to make sure that any decision that a commonly held private-label MBS is other-than-temporarily impaired, including the determination of fair value and the credit loss component of the unrealized loss, is consistent among those FHLBanks.
The OTTI Committee’s role and scope with respect to the assessment of credit impairment for the FHLBNY’s private-label MBS are discussed further in the section “Impairment analysis of mortgage-backed securities”.
FHLBank System Pricing Committee- In an effort to achieve consistency among the FHLBanks’ pricing of investments of mortgage-backed securities, in the third quarter of 2009 the FHLBanks also formed the MBS Pricing Governance Committee, which was responsible for developing a fair value methodology for mortgage-backed securities that all FHLBanks could adopt. Consistent with the guidance from the Pricing Committee, the FHLBNY conformed its pre-existing methodology for estimating the fair value of mortgage-backed securities starting with the interim period ended September 30, 2009. Under the approved methodology, the FHLBNY requests prices for all mortgage-backed securities from four specific third-party vendors. Prior to the change, the FHLBNY used three of the four vendors specified by the Pricing Committee. Depending on the number of prices received from the four vendors for each security, the FHLBNY selects a median or average price as defined by the methodology. The methodology also incorporates variance thresholds to assist in identifying median or average prices that may require further review by the FHLBNY. In certain limited instances (i.e., when prices are outside of variance thresholds or the third-party services do not provide a price), the FHLBNY obtains a price from securities dealers that may be deemed most appropriate after consideration of all relevant facts and circumstances that would be considered by market participants. Prices for CUSIPs held in common with other FHLBanks are reviewed for consistency. The incorporation of the Pricing Committee guidelines did not have a significant impact in the FHLBNY’s estimate of the fair values of its investment securities at implementation of the policy as of September 30, 2009 and thereafter.

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Bond Insurer analysis- Certain held-to-maturity private-label MBS owned by the FHLBNY are insured by third-party bond insurers (“monoline insurers”). The bond insurance on these investments guarantees the timely payments of principal and interest if these payments cannot be satisfied from the cash flows of the underlying mortgage pool. The FHLBNY performs cash flow credit impairment tests on all of its private-label insured securities, and the analysis of the MBS protected by such third-party insurance looks first to the performance of the underlying security, and considers its embedded credit enhancements in the form of excess spread, overcollateralization, and credit subordination, to determine the collectability of all amounts due. If the embedded credit enhancement protections are deemed insufficient to make timely payment of all amounts due, then the FHLBNY considers the capacity of the third-party bond insurer to cover any shortfalls.
Certain monoline insurers have been subject to adverse ratings, rating downgrades, and weakening financial performance measures. In estimating the insurers’ capacity to provide credit protection in the future to cover any shortfall in cash flows expected to be collected for securities deemed to be OTTI, the FHLBNY has developed a methodology to assess the ability of the monoline insurers to meet future insurance obligations.
The methodology calculates the length of time a monoline is expected to remain financially viable to pay claims for securities insured. It employs, for the most part, publicly available information to identify cash flows used up by a monoline for insurance claims. Based on the monoline’s existing insurance reserves, the methodology attempts to predict the length of time over which the monoline’s claims-paying resources could sustain bond insurance losses. The methodology establishes boundaries that can be used on a consistent basis, and includes both quantitative factors and qualitative considerations that management utilizes to estimate the period of time that it is probable that the Bank’s insured securities will receive cash flow support from the monolines.
For the FHLBNY’s insured securities that are deemed to be credit impaired absent insurer protection, the methodology compares the timing and amount of the cash flow shortfall to the timing of when a monoline’s claim-paying resource is deemed exhausted. The analysis quantifies both the timing and the amount of cash flow shortfall that the insurer is unlikely to be able to cover. However, estimation of an insurer’s financial strength to remain viable over a long time horizon requires significant judgment and assumptions. Predicting when the insurers may no longer have the ability to perform under their contractual agreements, then comparing the timing and amounts of cash flow shortfalls of securities that are credit impaired absent insurer protection requires significant judgment.
Up until March 31, 2010, both Ambac Assurance Corp (“Ambac”), and MBIA Insurance Corp (“MBIA”), the two primary bond insurers for the FHLBNY, had been paying claims in order to meet any cash flow deficiency within the structure of the insured securities. On March 24, 2010, Ambac, with the consent of the Commissioner of Insurance for the State of Wisconsin (the “Commissioner”), entered into a temporary injunction to suspend payments to bond holders and to create a segregated account for bondholders. As a result, payments from Ambac to trustees of certain insured bonds owned by the FHLBNY were also temporarily suspended. The amounts suspended were not significant as of September 30, 2010. MBIA is continuing to meet claims for bonds owned by the FHLBNY.
Within the boundaries set in the methodology outlined above, which are reassessed at each quarter, the Bank believes it is appropriate to assert whether or not insurer credit support can be relied upon over a certain period of time. For Ambac that support period ended at March 31, 2010 (no-reliance after that date) based on the FHLBNY’s analysis of the temporary injunction by the Commissioner. In March 2010, S&P revised its counterparty credit rating on Ambac to “R” from below investment grade. S&P’s rating action was consistent with the level of regulatory intervention at Ambac. MBIA is currently rated below investment grade. As with all assumptions, changes to these assumptions (if bond insurers are deemed fully viable and able to fulfill their insurance obligations for bonds owned by the FHLBNY) may result in materially different outcomes.
For reasons outlined in previous paragraphs, the FHLBNY believes that bond insurance is an inherent aspect of credit support within the structure of the security itself and it is appropriate to include insurance in its evaluation of expected cash flows and determination of OTTI in future periods. The FHLBNY has also established that the terms of insurance enable the insurance to travel with the security if the security is sold in the future.
Impairment analysis of mortgage-backed securities
Securities with a fair value below amortized cost basis are considered impaired. Determining whether a decline in fair value is OTTI requires significant judgment. The FHLBNY evaluates its individual held-to-maturity investment in private-label issued mortgage- and asset-backed securities for OTTI on a quarterly basis. As part of this process, the FHLBNY assesses if it has the intent to sell the security or “it is more likely than not” that it will be required to sell the impaired investment before recovery of its amortized cost basis. To assess whether the entire amortized cost basis of the FHLBNY’s private-label MBS will be recovered in future periods, beginning with the quarter ended September 30, 2009 and thereafter, the Bank performed OTTI analysis by cash flow testing 100 percent of its private-label MBS. In the first two quarters of 2009, the FHLBNY’s methodology was to analyze all its private-label MBS to isolate securities that were considered to be at risk of OTTI and to perform cash flow analysis on securities at risk of OTTI.

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Cash flow analysis derived from the FHLBNY’s own assumptions-Assessment for OTTI employed by the FHLBNY’s own techniques and assumptions were determined primarily using historical performance data of the 53 private-label MBS at September 30, 2010. These assumptions and performance measures were benchmarked by comparing to (1) performance parameters from “market consensus”, and (2) the assumptions and parameters provided by the OTTI Committee for the FHLBNY’s private-label MBS, which represented about 50 percent of the FHLBNY’s private-label MBS portfolio.
The internal process calculates the historical average of each bond’s prepayments, defaults, and loss severities, and considered other factors such as delinquencies and foreclosures. Management’s assumptions are primarily based on historical performance statistics extracted from reports from trustees, loan servicer reports and other sources. In arriving at historical performance assumptions, which is the FHLBNY’s expected case assumptions, the FHLBNY also considers various characteristics of each security including, but not limited to, the following: the credit rating and related outlook or status; the creditworthiness of the issuers of the debt securities; the underlying type of collateral; the year of securitization or vintage, the duration and level of the unrealized loss, credit enhancements, if any; and other collateral-related characteristics such as FICO® credit scores, and delinquency rates. The relative importance of this information varies based on the facts and circumstances surrounding each security as well as the economic environment at the time of assessment.
If the security is insured by a bond insurer and the security relies on the insurer for support either currently or potentially in future periods, the FHLBNY performs another analysis to assess the financial strength of the monoline insurers. The results of the insurer financial analysis (“monoline burn-out period”) are then incorporated in the third-party cash flow model, as a key input. If the cash flow model projected cash flow shortfalls (credit impairment) on an insured security, the monoline’s burnout period (an end date for credit support), is then input to the cash flow model. The end date, also referred to as the burnout date, provides the necessary information as an input to the cash flow model for the continuation of cash flows up until the burnout date. Any cash flow shortfalls that occur beyond the “burn-out” date are considered to be not recoverable and the insured security is then deemed to be credit impaired.
Each bond’s performance parameters, primarily prepayments, defaults and loss severities, and bond insurance financial guarantee predictors, as calculated by the Bank’s internal approach are then input into the specialized bond cash flow model that allocates the projected collateral level losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. In a securitization in which the credit enhancements for the senior securities are derived from the presence of subordinate securities, losses are generally allocated first to the subordinate securities until their principal balance is reduced to zero.
Role and scope of the OTTI Governance Committee
Beginning with the third quarter of 2009, the OTTI Committee has adopted guidelines that each FHLBank should assess credit impairment by cash flow testing of 100 percent of private-label securities. Of the 53 private-label MBS owned by the FHLBNY, approximately 50 percent of MBS backed by sub-prime loans, home equity loans, and manufactured housing loans were deemed to be outside the scope of the OTTI Committee because sufficient loan level collateral data was not available to determine the assumptions under the OTTI Committee’s approach described below. The remaining securities were modeled in the OTTI Committee common platform. The FHLBNY developed key modeling assumptions and forecasted cash flows using the FHLBNY’s own assumptions for 100 percent of its private-label MBS.
Cash flow derived from the OTTI Committee common platform- Consistent with the guidelines provided by the OTTI Committee, the FHLBNY has contracted with the FHLBanks of San Francisco and Chicago to perform cash flow analyses for the securities within the scope of the OTTI Committee as a means of benchmarking the FHLBNY’s own cash flow analysis. At September 30, 2010 and December 31, 2009, FHLBanks of San Francisco and Chicago cash flow tested approximately 50 percent of the FHLBNY’s private-label MBS. Although the FHLBNY has engaged the two FHLBanks to perform the cash flow analysis, the FHLBNY is ultimately responsible for making its own determination of impairment and the reasonableness of assumptions, inputs, and methodologies used and performing the required present value calculations using appropriate historical cost bases and yields.
The FHLBanks of San Francisco and Chicago performed cash flow analysis for the FHLBNY’s private-label securities in scope using two third-party models to establish the modeling assumptions and calculate the forecasted cash flows in the structure of the MBS. The first model considered borrower characteristics and the particular attributes of the loans underlying a security in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults and loss severities. A significant input to the first model was the forecast of future housing price changes for the relevant states and core based statistical areas (“CBSAs”), which were based upon an assessment of the individual housing markets. CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and Budget; as currently defined, a CBSA must contain at least one urban area with a population of 10,000 or more people. The Bank’s housing price forecast as of September 30, 2010 assumed current-to-trough home price declines ranging from 0 percent to 10 percent over the 3- to 9-month period beginning July 1, 2010. Thereafter, home prices are projected to remain flat in the first year, and increase 1 percent in the second year, 3 percent in the third year, 4 percent in the fourth year, 5 percent in the fifth year, 6 percent in the sixth year and 4 percent in each subsequent year.
The month-by-month projections of future loan performance derived from the first model, which reflected projected prepayments, defaults and loss severities, were then input into a second model that allocated the projected loan level cash flows and losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. In a securitization in which the credit enhancement for the senior securities was derived from the presence of subordinate securities, losses were generally allocated first to the subordinate securities until their principal balance was reduced to zero.

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The projected cash flows were based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in assumptions and expectations. The scenario of cash flows determined based on model approach described above reflects a best estimate scenario and includes a base case current-to-trough housing price forecast and a base case housing price recovery path described in the prior paragraph.
GSE issued securities- The FHLBNY evaluates its individual securities issued by Fannie Mae and Freddie Mac or a government agency by considering the creditworthiness and performance of the debt securities and the strength of the GSE’s guarantees of the securities. Based on the Bank’s analysis, GSE and U.S. agency issued securities are performing in accordance with their contractual agreements. The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and Freddie Mac. In September 2008, the U.S. Treasury and the Finance Agency placed Fannie Mae and Freddie Mac into conservatorship in an attempt to stabilize their financial conditions and their ability to support the secondary mortgage market. The FHLBNY believes that it will recover its investments in GSE and agency issued securities given the current levels of collateral and credit enhancements and guarantees that exist to protect the investments.
Mortgage Loans Held-for-portfolio
The FHLBNY participates in the Mortgage Partnership Finance program® (“MPF”®) by purchasing conventional mortgage loans from its participating members, hereafter referred to as Participating Financial Institutions (“PFI”). Federal Housing Administration (“FHA”) and Veterans Administration (“VA”) insured loans purchased were not a significant total of the outstanding mortgage loans held-for-portfolio at September 30, 2010 and December 31, 2009. The FHLBNY manages the liquidity, interest rate and prepayment option risk of the MPF loans, while the PFIs retain servicing activities. The FHLBNY and the PFI share the credit risks of the uninsured MPF loans by structuring potential credit losses into layers. Collectability of the loans is first supported by liens on the real estate securing the loan. For conventional mortgage loans, additional loss protection is provided by private mortgage insurance required for MPF loans with a loan-to-value ratio of more than 80 percent at origination, which is paid for by the borrower. Credit losses are absorbed by the FHLBNY to the extent of the First Loss Account (“FLA”) for which the maximum exposure was estimated to be $11.6 million and $13.9 million at September 30, 2010 and December 31, 2009. The aggregate amount of FLA is memorialized and tracked but is neither recorded nor reported as a loan loss reserve in the FHLBNY’s financial statements. If “second losses” beyond this layer are incurred, they are absorbed through a credit enhancement provided by the PFI. The credit enhancement held by PFIs ensures that the lender retains a credit stake in the loans it sells to the FHLBNY. For assuming this risk, PFIs receive monthly “credit enhancement fees” from the FHLBNY.
The amount of the credit enhancement is computed with the use of a Standard & Poor’s model to determine the amount of credit enhancement necessary to bring a pool of uninsured loans to “AA” credit risk. The credit enhancement becomes an obligation of the PFI. For certain MPF products, the credit enhancement fee is accrued and paid each month. For other MPF products, the credit enhancement fee is accrued and paid monthly after the FHLBNY has accrued 12 months of credit enhancement fees.
Delivery commitment fees are charged to a PFI for extending the scheduled delivery period of the loans. Pair-off fees may be assessed and charged to PFI when the settlement of the delivery commitment (1) fails to occur, or (2) the principal amount of the loans purchased by the FHLBNY under a delivery commitment is not equal to the contract amount beyond established limits.
The FHLBNY records credit enhancement fees as a reduction to interest income. The FHLBNY records other non-origination fees, such as delivery commitment extension fees and pair-off fees, as derivative income over the life of the commitment. All such fees were inconsequential for all periods reported. The FHLBNY defers and amortizes premiums, costs, and discounts as interest income using the level yield method to the loan’s contractual maturities. The FHLBNY classifies mortgage loans as held-for-portfolio and, accordingly, reports them at their principal amount outstanding, net of premiums, costs and discounts, which is the fair value of the mortgage loan on settlement date.
The FHLBNY places a conventional mortgage loan (conventional loans do not include VA and FHA insured loans) on non-accrual status when the collection of the contractual principal or interest is 90 days or more past due. When a conventional mortgage loan is placed on non-accrual status, accrued but uncollected interest is reversed against interest income.
Allowance for credit losses on mortgage loans.The following summarizes (1) nature of credit risk inherent in the MPF portfolio, (2) how risk is analyzed and assessed in arriving at the allowance for credit loss, and (3) changes, if any, to the methodology to estimate allowance for credit losses.
The Bank reviews its portfolio to identify the losses inherent within the portfolio and to determine the likelihood of collection of the principal and interest. Mortgage loans, that are classified either under regulatory criteria (Special Mention, Sub-standard, or Loss) or past due, are separated from the aggregate pool and evaluated separately for impairment.
The allowances for credit losses on mortgage loans were $5.5 million and $4.5 million as of September 30, 2010 and December 31, 2009. The Bank’s analysis of the MPF portfolio concluded that the risks within the portfolio were materially the same for all MPF loans, and further segmentation and disaggregation was not necessary.
The Bank identifies inherent losses through analysis of the conventional loans (FHA and VA are insured loans, and excluded from the analysis) that are not adversely classified or past due. Reserves are based on the estimated costs to recover any portions of the MPF loans that are not FHA and VA insured. When a loan is foreclosed, the Bank will charge to the loan loss reserve account for any excess of the carrying value of the loan over the net realizable value of the foreclosed loan.

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If adversely classified, or on non-accrual status, reserves for conventional mortgage loans, except FHA and VA insured loans, are analyzed under liquidation scenarios on a loan level basis, and identified losses are reserved. FHA and VA insured mortgage loans have minimal inherent credit risk; risk generally arises mainly from the servicers defaulting on their obligations. FHA and VA insured mortgage loans, if adversely classified, would have reserves established only in the event of a default of a PFI, and would be based on aging, collateral value and estimated costs to recover any uninsured portion of the MPF loan.
Derivatives
The contractual or notional amount of derivatives reflects the involvement of the FHLBNY in the various classes of financial instruments. The notional amount of derivatives does not measure the credit risk exposure of the FHLBNY, and the maximum credit exposure of the FHLBNY is substantially less than the notional amount. The maximum credit risk is the estimated cost of replacing favorable interest-rate swaps, forward agreements, mandatory delivery contracts for mortgage loans, and purchased caps and floors if the derivative counterparties default and the related collateral, if any, is of insufficient value to the FHLBNY. Accounting for derivatives is addressed under accounting standards for derivatives and hedging. All derivatives are recognized on the balance sheet at their estimated fair values, including accrued unpaid interest as either a derivative asset or a derivative liability net of cash collateral received from and pledged to derivative counterparties.
Each derivative is designated as one of the following:
(1)a qualifying1 hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment (a “fair value” hedge);
(2)a qualifying1 hedge of a forecasted transaction or the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (a “cash flow” hedge);
(3)a non-qualifying1 hedge of an asset or liability (“economic hedge”) for asset-liability management purposes; or
(4)a non-qualifying1 hedge of another derivative (an “intermediation” hedge) that is offered as a product to members or used to offset other derivatives with non-member counterparties.
1Note: The terms “qualifying” and “non-qualifying” refer to accounting standards for derivatives and hedging.
The FHLBNY had no foreign currency assets, liabilities or hedges at September 30, 2010 or December 31, 2009.
Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk (including changes that reflect losses or gains on firm commitments), are recorded in current period’s earnings in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.
Changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge, to the extent that the hedge is effective, are reported in AOCI, a component of equity, until earnings are affected by the variability of the cash flows of the hedged transaction (i.e., until the recognition of interest on a variable rate asset or liability is recorded in earnings).
The FHLBNY records derivatives on trade date, but records the associated hedged consolidated obligations and advances on settlement date. Hedge accounting commences on trade date, at which time subsequent changes to the derivative’s fair value are recorded along with the offsetting changes in the fair value of the hedged item attributable to the risk being hedged. On settlement date, the basis adjustments to the hedged item’s carrying amount are combined with the principal amounts and the basis becomes part of the total carrying amount of the hedged item.
The FHLBNY has defined its market settlement conventions for hedged items to be five business days or less for advances and thirty calendar days or less, using a next business day convention, for consolidated obligations bonds and discount notes. These market settlement conventions are the shortest period possible for each type of advance and consolidated obligation from the time the instruments are committed to the time they settle.
The FHLBNY considers hedges of committed advances and consolidated obligation bonds eligible for the “short cut” provisions, under accounting standards for derivatives and hedging, as long as settlement of the committed asset or liability occurs within the market settlement conventions for that type of instrument. A short-cut hedge is a highly effective hedging relationship that uses an interest rate swap as the hedging instrument to hedge a recognized asset or liability and that meets the criteria under the accounting standards for derivatives and hedging to qualify for an assumption of no ineffectiveness.
To meet the short-cut provisions that assume no ineffectiveness, the fair value of the swap approximates zero on the date the FHLBNY designates the hedge.
For both fair value and cash flow hedges that qualify for hedge accounting treatment, any hedge ineffectiveness (which represents the amount by which the change in the fair value of the derivative differs from the change in the fair value of the hedged item or the variability in the cash flows of the forecasted transaction) are recorded in current period’s earnings in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities. The differentials between accruals of interest income and expense on derivatives designated as fair value or cash flow hedges that qualify for hedge accounting treatment are recognized as adjustments to the interest income or expense of the hedged advances and consolidated obligations.

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Changes in the fair value of a derivative not qualifying for hedge accounting are recorded in current period earnings with no fair value adjustment to the asset or liability being hedged. Both the net interest and the fair value adjustments on the derivative are recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities. Interest income and expense and changes in fair values of derivatives designated as economic hedges (also referred to as standalone hedges), or when executed as intermediated derivatives for members are also recorded in the manner described above.
The FHLBNY routinely issues debt to investors and makes advances to members in which a derivative instrument is “embedded”. Upon execution of these transactions, the FHLBNY assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the advance or debt (the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. If the FHLBNY determines that (1) the embedded derivative has economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) a separate, standalone instrument with the same terms would qualify as a derivative instrument, the embedded derivative would be separated from the host contract as prescribed for hybrid financial instruments under accounting standards for derivatives and hedge accounting, and carried at fair value. However, if the entire contract (the host contract and the embedded derivative) is to be measured at fair value, the changes in fair value would be reported in current earnings (such as an investment security classified as “trading”; or, if the FHLBNY cannot reliably identify and measure the embedded derivative for purposes of separating that derivative from its host contract, the entire contract would be carried on the balance sheet at fair value and no portion of the contract would be designated as a hedging instrument). The FHLBNY had no financial instruments with embedded derivatives that required bifurcation at September 30, 2010, September 30, 2009 or at December 31, 2009.
When hedge accounting is discontinued because the FHLBNY determines that the derivative no longer qualifies as an effective fair value hedge of an existing hedged item, the FHLBNY continues to carry the derivative on the balance sheet at its fair value, ceases to adjust the hedged asset or liability for changes in fair value, and amortizes the cumulative basis adjustment on the hedged item into earnings over the remaining life of the hedged item using the level-yield methodology.
When hedge accounting is discontinued because the FHLBNY determines that the derivative no longer qualifies as an effective cash flow hedge of an existing hedged item, the FHLBNY continues to carry the derivative on the balance sheet at its fair value and reclassifies the basis adjustment in AOCI to earnings when earnings are affected by the existing hedge item, which is the original forecasted transaction. Under limited circumstances, when the FHLBNY discontinues cash flow hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period plus the following two months, but it is probable the transaction will still occur in the future, the gain or loss on the derivative remains in AOCI and is recognized into earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within two months after that, the gains and losses that were included in AOCI are recognized immediately in earnings.
When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the FHLBNY would continue to carry the derivative on the balance sheet at its fair value, removing from the balance sheet any asset or liability that was recorded to recognize the firm commitment and recording it as a gain or loss in current period earnings.
Cash Collateral associated with Derivative Contracts
The Bank reports derivative assets and derivative liabilities in its Statements of Condition after giving effect to legally enforceable master netting agreements with derivative counterparties, which include interest receivable and payable on derivative contracts and the fair values of the derivative contracts. The Bank records cash collateral received and paid in the Statements of Condition as Derivative assets and liabilities in the following manner — Cash collateral pledged by the Bank is reported as a deduction to Derivative liabilities; cash collateral received from derivative counterparties is reported as a deduction to Derivative assets. No securities were either pledged or received as collateral for derivatives at September 30, 2010 and December 31, 2009.
Amortization of Premiums and Accretion of Discounts
The FHLBNY estimates prepayments for purposes of amortizing premiums and accreting discounts associated with mortgage-backed securities. Because actual prepayments of MBS often deviate from the estimates, the FHLBNY periodically recalculates the effective yield to reflect actual prepayments to date. Adjustments of the effective yields for mortgage-backed securities are recorded on a retrospective basis, meaning as if the new estimated life of the security had been known at its original acquisition date. Changes in interest rates have a direct impact on prepayment speeds and estimated life, which will result in yield adjustments and can be a source of income volatility. Reductions in interest rates generally accelerate prepayments, which accelerate the amortization of premiums and reduce current earnings. Typically, declining interest rates also accelerate the accretion of discounts, thereby increasing current earnings. On the other hand, in a rising interest rate environment, prepayments will generally extend over a longer period, shifting some of the premium amortization and discount accretion to future periods.
The Bank uses the contractual method to amortize premiums and accrete discounts on mortgage loans held-for-portfolio. The contractual method recognizes the income effects of premiums and discounts in a manner that is reflective of the actual behavior of the mortgage loans during the period in which the behavior occurs while also reflecting the contractual terms of the assets without regard to changes in estimated prepayments based upon assumptions about future borrower behavior.

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Note 2. Recently issued accounting policiesIssued Accounting Standards and interpretations.Interpretations.
Accounting for the ConsolidationA Creditor’s Determination of Variable Interest Entities- In June 2009, the Financial Accounting Standards Board (“FASB”) issued guidance to improve financial reporting by enterprises involved with variable interest entities (“VIEs”) and to provide more relevant and reliable information to users of financial statements. This guidance amends the manner in which entities evaluate whether consolidation is required for VIEs. The guidance also requires that an entity continually evaluate VIEs for consolidation, rather than making such an assessment based upon the occurrence of triggering events. Additionally, the guidance requires enhanced disclosures about how an entity’s involvement withWhether a VIE affects its financial statements and its exposure to risks. This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009 (January 1, 2010 for the FHLBNY), for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The FHLBNY has evaluated its operations and investments and has concluded that it has no VIEs and this pronouncement did not impact its financial statements, results of operations and cash flows.
Fair Value Measurements and DisclosuresRestructuring Is a Troubled Debt Restructuring.-Improving Disclosures about Fair Value Measurements —In January 2010,On April 5, 2011, the FASB issued amended guidance for fair value measurementsthat will require creditors to evaluate modifications and disclosures.restructurings of receivables using a more principles-based approach, which may result in certain modifications and restructurings being considered troubled debt restructurings. The amended guidance requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. Furthermore, this update requires a reporting entity to present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs; clarifies existing fair valuerequired disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value; and amends guidance on employers’ disclosures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. The new guidance isare effective for interim and annual reporting periods beginning on or after DecemberJune 15, 2009 (January 1, 2010 for the FHLBNY), except for the disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 (January2011 (July 1, 2011 for the FHLBNY), and for interim periods within those fiscal years. In the period. The adoption of initial adoption, entities will not be requiredthis amended guidance is likely to provide the amended disclosures for any previous periods presented for comparative purposes. Early adoption is permitted. The FHLBNY adopted this guidance as of January 1, 2010. Adoption of the guidance resultedresult in increased financial statement footnote disclosures, only. It didbut will not impactaffect the Statements of Condition, Operations, Cash Flows, or Changes in Capital or the determination of fair value.
Accounting for Transfers of Financial Assets- On June 12, 2009, the FASB issued guidance, which is intended to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in itsFHLBNY’s financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. Key provisions of the guidance include: (i) the removal of the concept of qualifying special purpose entities; (ii) the introduction of the concept of a participating interest, in circumstances in which a portion of a financial asset has been transferred; and (iii) the requirement that to qualify for sales accounting, the transferor must evaluate whether it maintains effective control over transferred financial assets either directly or indirectly. The guidance also requires enhanced disclosures about transfers of financial assets and the transferor’s continuing involvement. This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009 (January 1, 2010 for the FHLBNY), for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The FHLBNY has evaluated the effect of the adoption of this guidance and has concluded that adoption had no impact on its financial statements,condition, results of operations, andor cash flows.

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Note 3. Cash and dueDue from banks.Banks.
Cash on hand, cash items in the process of collection, and amounts due from correspondent banks and the Federal Reserve Banks are included in cash and due from banks.
Compensating balances —
The Bank maintained average required clearing balances with the Federal Reserve Banks of approximately $1.0 million as of September 30, 2010March 31, 2011 and December 31, 2009.2010. The Bank uses earnings credits on these balances to pay for services received from the Federal Reserve Banks.
Pass-through deposit reserves —
The Bank acts as a pass-through correspondent for member institutions required to deposit reserves with the Federal Reserve Banks. Pass-through reserves deposited with Federal Reserve Banks were $50.3$48.4 million and $29.3$49.5 million as of September 30, 2010March 31, 2011 and December 31, 2009.2010. The Bank includes member reserve balances in Other liabilities in the Statements of Condition.

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Note 4. Held-to-maturity securities.Held-to-Maturity Securities.
Held-to-maturity securities consist of mortgage- and asset-backed securities (collectively mortgage-backed securities, or “MBS”), and state and local housing finance agency bonds, and short-term certificates of deposit issued by highly rated banks and financial institutions (none at September 30, 2010 and December 31, 2009). At September 30, 2010 and December 31, 2009, the FHLBNY had pledged MBS of $3.0 million and $2.0 million (amortized cost basis) to the FDIC in connection with deposits maintained by the FDIC at the FHLBNY.bonds.
Mortgage-backed securities-— The FHLBNY’s investments in MBS are predominantly government sponsored enterprise issued securities. The carrying value ofgovernment-sponsored, enterprise-issued securities, as well as investments in mortgage-backed securities issued by Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corp. (“Freddie Mac”) (together, government sponsored enterprises or “GSEs”) and a U.S. government agency at September 30, 2010 was $6.6 billion, or 88.2% of the total MBS classified as held-to-maturity. The comparable carrying value of GSE issued MBS at December 31, 2009 was $8.7 billion, or 89.1% of the total MBS classified as held-to-maturity. The carrying values (amortized cost less non-credit component of OTTI) of privately issued mortgage- and asset-backed securities at September 30, 2010 and December 31, 2009 were $0.9 billion and $1.1 billion. Privately issued MBS primarily included asset-backed securities, mortgage pass-throughs and Real Estate Mortgage Investment Conduit bonds, and securities supported by manufactured housing loans.MBS.
State and local housing finance agency bonds-— Investments in primary public and private placements of taxable obligations of state and local housing finance authorities (“HFA”) were classified as held-to-maturity and the amortized cost basis were $740.3 million and $751.8 million at September 30, 2010 and December 31, 2009.held-to-maturity.

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Major Security Types
The amortized cost basis, the gross unrecognized holding gains and losses1, the fair values of held-to-maturity securities, and OTTI recognized in AOCI were as follows (in thousands):
                                                
 September 30, 2010  March 31, 2011 
 Amortized Gross Gross    OTTI Gross Gross   
 Cost OTTI Carrying Unrecognized Unrecognized Fair  Amortized Recognized Carrying Unrecognized Unrecognized Fair 
Issued, guaranteed or insured: Basis in OCI Value Holding Gains Holding Losses Value  Cost in AOCI Value Holding Gains Holding Losses Value 
Pools of Mortgages
  
Fannie Mae $939,289 $— $939,289 $54,613 $— $993,902  $795,299 $— $795,299 $43,750 $— $839,049 
Freddie Mac 269,514 — 269,514 15,240 — 284,754  226,545 — 226,545 12,332 — 238,877 
                          
Total pools of mortgages 1,208,803 — 1,208,803 69,853 — 1,278,656  1,021,844 — 1,021,844 56,082 — 1,077,926 
                          
  
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits
  
Fannie Mae 1,854,693 — 1,854,693 58,691 — 1,913,384  1,856,352 — 1,856,352 44,556 — 1,900,908 
Freddie Mac 3,184,866 — 3,184,866 106,422 — 3,291,288  2,781,565 — 2,781,565 75,258 — 2,856,823 
Ginnie Mae 127,167 — 127,167 751 — 127,918  107,456 — 107,456 416 — 107,872 
                          
Total CMOs/REMICs 5,166,726 — 5,166,726 165,864 — 5,332,590  4,745,373 — 4,745,373 120,230 — 4,865,603 
                          
  
Commercial Mortgage-Backed Securities
  
Fannie Mae 100,480 — 100,480 —  (3,763) 96,717 
Freddie Mac 173,969 — 173,969  12,556 — 186,525  607,346 — 607,346 1,726  (6,739) 602,333 
Ginnie Mae 48,953 — 48,953 2,152 — 51,105  44,408 — 44,408 1,329 — 45,737 
                          
Total commercial mortgage-backed securities 222,922 — 222,922 14,708 — 237,630  752,234 — 752,234 3,055  (10,502) 744,787 
                          
  
Non-GSE MBS
  
CMOs/REMICs 338,995  (2,014) 336,981 7,464  (1,618) 342,827  256,840  (2,046) 254,794 4,608  (795) 258,607 
Commercial MBS — — — — — —  — — — — — — 
                          
Total non-federal-agency MBS 338,995  (2,014) 336,981 7,464  (1,618) 342,827  256,840  (2,046) 254,794 4,608  (795) 258,607 
                          
  
Asset-Backed Securities
  
Manufactured housing (insured) 182,711 — 182,711 —  (22,141) 160,570  171,066 — 171,066 —  (18,998) 152,068 
Home equity loans (insured) 265,230  (68,589) 196,641 30,217  (3,064) 223,794  252,301  (63,846) 188,455 36,764  (3,078) 222,141 
Home equity loans (uninsured) 191,646  (25,440) 166,206 15,665  (24,451) 157,420  176,388  (23,379) 153,009 16,948  (18,010) 151,947 
                          
Total asset-backed securities 639,587  (94,029) 545,558 45,882  (49,656) 541,784  599,755  (87,225) 512,530 53,712  (40,086) 526,156 
                          
  
Total MBS $7,577,033 $(96,043) $7,480,990 $303,771 $(51,274) $7,733,488  $7,376,046 $(89,271) $7,286,775 $237,687 $(51,383) $7,473,079 
                          
  
Other
  
State and local housing finance agency obligations $740,256 $— $740,256 $2,537 $(86,326) $656,466  $755,712 $— $755,712 $1,277 $(77,201) $679,788 
Certificates of deposit — — — — — — 
                          
Total other $740,256 $— $740,256 $2,537 $(86,326) $656,466  $755,712 $— $755,712 $1,277 $(77,201) $679,788 
                          
  
Total Held-to-maturity securities
 $8,317,289 $(96,043) $8,221,246 $306,308 $(137,600) $8,389,954  $8,131,758 $(89,271) $8,042,487 $238,964 $(128,584) $8,152,867 
                          
                                                
 December 31, 2009  December 31, 2010 
 Amortized Gross Gross    OTTI Gross Gross   
 Cost OTTI Carrying Unrecognized Unrecognized Fair  Amortized Recognized Carrying Unrecognized Unrecognized Fair 
Issued, guaranteed or insured: Basis in OCI Value Holding Gains Holding Losses Value  Cost in AOCI Value Holding Gains Holding Losses Value 
Pools of Mortgages
  
Fannie Mae $1,137,514 $— $1,137,514 $38,378 $— $1,175,892  $857,387 $— $857,387 $48,712 $— $906,099 
Freddie Mac 335,368 — 335,368 12,903 — 348,271  244,041 — 244,041 13,316 — 257,357 
                          
Total pools of mortgages 1,472,882 — 1,472,882 51,281 — 1,524,163  1,101,428 — 1,101,428 62,028 — 1,163,456 
                          
  
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits
  
Fannie Mae 2,609,254 — 2,609,254 70,222  (2,192) 2,677,284  1,637,261 — 1,637,261 52,935 — 1,690,196 
Freddie Mac 4,400,003 — 4,400,003 128,952  (3,752) 4,525,203  2,790,103 — 2,790,103 92,746 — 2,882,849 
Ginnie Mae 171,531 — 171,531 245  (1,026) 170,750  116,126 — 116,126 936 — 117,062 
                          
Total CMOs/REMICs 7,180,788 — 7,180,788 199,419  (6,970) 7,373,237  4,543,490 — 4,543,490 146,617 — 4,690,107 
                          
  
Ginnie Mae-CMBS
 49,526 — 49,526 62 — 49,588 
Commercial Mortgage-Backed Securities
 
Fannie Mae $100,492 $— $100,492 $— $(2,516) $97,976 
Freddie Mac 375,901 — 375,901 1,031 $(5,315) 371,617 
Ginnie Mae 48,747 — 48,747 1,857 — 50,604 
             
Total commercial mortgage-backed securities 525,140 — 525,140 2,888 $(7,831) 520,197 
                          
  
Non-GSE MBS
  
CMOs/REMICs 447,367  (2,461) 444,906 2,437  (7,833) 439,510  294,686  (2,209) 292,477 6,228  (916) 297,789 
Commercial MBS — — — — — —  — — — — — — 
                          
Total non-federal-agency MBS 447,367  (2,461) 444,906 2,437  (7,833) 439,510  294,686  (2,209) 292,477 6,228  (916) 297,789 
                          
  
Asset-Backed Securities
  
Manufactured housing (insured) 202,278 — 202,278 —  (37,101) 165,177  176,592 — 176,592 —  (21,437) 155,155 
Home equity loans (insured) 307,279  (79,445) 227,834 12,795  (25,136) 215,493  257,889  (66,252) 191,637 35,550  (4,316) 222,871 
Home equity loans (uninsured) 217,981  (28,664) 189,317 3,436  (34,804) 157,949  184,284  (24,465) 159,819 17,780  (21,478) 156,121 
                          
Total asset-backed securities 727,538  (108,109) 619,429 16,231  (97,041) 538,619  618,765  (90,717) 528,048 53,330  (47,231) 534,147 
                          
  
Total MBS $9,878,101 $(110,570) $9,767,531 $269,430 $(111,844) $9,925,117  $7,083,509 $(92,926) $6,990,583 $271,091 $(55,978) $7,205,696 
                          
  
Other
  
State and local housing finance agency obligations $751,751 $— $751,751 $3,430 $(11,046) $744,135  $770,609 $— $770,609 $1,434 $(79,439) $692,604 
Certificates of deposit — — — — — — 
                          
Total other $751,751 $— $751,751 $3,430 $(11,046) $744,135  $770,609 $— $770,609 $1,434 $(79,439) $692,604 
                          
  
Total Held-to-maturity securities
 $10,629,852 $(110,570) $10,519,282 $272,860 $(122,890) $10,669,252  $7,854,118 $(92,926) $7,761,192 $272,525 $(135,417) $7,898,300 
                          
1Unrecognized gross holding gains and losses represent the difference between carrying value and fair value of a held-to-maturity security. At March 31, 2011 and December 31, 2010, the FHLBNY had pledged MBS with an amortized cost basis of $2.5 million and $2.7 million to the FDIC in connection with deposits maintained by the FDIC at the FHLBNY.

 

2010

Unrealized Losses
The following tables summarize held-to-maturity securities with fair values below their amortized cost basis. The fair values and gross unrealized holding losses1 are aggregated by major security type and by the length of time individual securities have been in a continuous unrealized loss position as follows (in thousands):
                                                
 September 30, 2010  March 31, 2011 
 Less than 12 months 12 months or more Total  Less than 12 months 12 months or more Total 
 Estimated Unrealized Estimated Unrealized Estimated Unrealized  Estimated Unrealized Estimated Unrealized Estimated Unrealized 
 Fair Value Losses Fair Value Losses Fair Value Losses  Fair Value Losses Fair Value Losses Fair Value Losses 
Non-MBS Investment Securities
  
State and local housing finance agency obligations $140,035 $(13,210) $181,819 $(73,116) $321,854 $(86,326) $— $— $319,659 $(77,201) $319,659 $(77,201)
                          
Total Non-MBS
 140,035  (13,210) 181,819  (73,116) 321,854  (86,326) — — 319,659  (77,201) 319,659  (77,201)
                          
MBS Investment Securities
  
MBS — Other US Obligations
 
Ginnie Mae — — — — — — 
MBS-GSE
  
Fannie Mae — — — — — — 
Freddie Mac — — — — — — 
Fannie Mae-CMBS 96,717  (3,763) — — 96,717  (3,763)
Freddie Mac-CMBS 345,924  (6,739) — — 345,924  (6,739)
                          
Total MBS-GSE
 — — — — — —  442,641  (10,502) — — 442,641  (10,502)
                          
MBS-Private-Label
 — — 606,453  (100,911) 606,453  (100,911)
MBS-Private-Label — CMOs
 3,705  (16) 579,340  (76,153) 583,045  (76,169)
                          
Total MBS
 — — 606,453  (100,911) 606,453  (100,911) 446,346  (10,518) 579,340  (76,153) 1,025,686  (86,671)
                          
Total
 $140,035 $(13,210) $788,272 $(174,027) $928,307 $(187,237) $446,346 $(10,518) $898,999 $(153,354) $1,345,345 $(163,872)
                          
                                                
 December 31, 2009  December 31, 2010 
 Less than 12 months 12 months or more Total  Less than 12 months 12 months or more Total 
 Estimated Unrealized Estimated Unrealized Estimated Unrealized  Estimated Unrealized Estimated Unrealized Estimated Unrealized 
 Fair Value Losses Fair Value Losses Fair Value Losses  Fair Value Losses Fair Value Losses Fair Value Losses 
Non-MBS Investment Securities
  
State and local housing finance agency obligations $212,112 $(8,611) $43,955 $(2,435) $256,067 $(11,046) $20,945 $(1,270) $309,476 $(78,169) $330,421 $(79,439)
                          
Total Non-MBS
 212,112  (8,611) 43,955  (2,435) 256,067  (11,046) 20,945  (1,270) 309,476  (78,169) 330,421  (79,439)
                          
MBS Investment Securities
  
MBS — Other US Obligations
 
Ginnie Mae 122,359  (1,020) 2,274  (6) 124,633  (1,026)
MBS-GSE
  
Fannie Mae 780,645  (2,192) — — 780,645  (2,192)
Freddie Mac 814,881  (3,752) — — 814,881  (3,752)
Fannie Mae-CMBS 97,976  (2,516) — — 97,976  (2,516)
Freddie Mac-CMBS 196,658  (5,315) — — 196,658  (5,315)
                          
Total MBS-GSE
 1,595,526  (5,944) — — 1,595,526  (5,944) 294,634  (7,831) — — 294,634  (7,831)
                          
MBS-Private-Label
 113,140  (1,523) 765,445  (196,134) 878,585  (197,657)
MBS-Private-Label — CMOs
 5,017  (19) 593,667  (87,302) 598,684  (87,321)
                          
Total MBS
 1,831,025  (8,487) 767,719  (196,140) 2,598,744  (204,627) 299,651  (7,850) 593,667  (87,302) 893,318  (95,152)
                          
Total
 $2,043,137 $(17,098) $811,674 $(198,575) $2,854,811 $(215,673) $320,596 $(9,120) $903,143 $(165,471) $1,223,739 $(174,591)
                          
1Unrealized losses represent the difference between amortized cost and fair value of a security. The baseline measure of unrealized losses is amortized cost, which is not adjusted for non-credit OTTI. Unrealized losses will not equal gross unrecognized losses, which is adjusted for non-credit OTTI.
Redemption terms
The amortized cost and estimated fair value of held-to-maturity securities, by contractual maturity, were as follows (in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
                 
  March 31, 2011  December 31, 2010 
  Amortized  Estimated  Amortized  Estimated 
  Cost  Fair Value  Cost  Fair Value 
State and local housing finance agency obligations                
Due in one year or less $—  $—  $—  $— 
Due after one year through five years  6,415   6,471   6,415   6,467 
Due after five years through ten years  61,945   60,984   61,945   60,667 
Due after ten years  687,352   612,333   702,249   625,470 
             
State and local housing finance agency obligations  755,712   679,788   770,609   692,604 
             
                 
Mortgage-backed securities         ��      
Due in one year or less  —   —   —   — 
Due after one year through five years  1,502   1,532   1,730   1,768 
Due after five years through ten years  1,458,848   1,479,854   1,324,480   1,351,936 
Due after ten years  5,915,696   5,991,693   5,757,299   5,851,992 
             
Mortgage-backed securities  7,376,046   7,473,079   7,083,509   7,205,696 
             
                 
Total Held-to-maturity securities
 $8,131,758  $8,152,867  $7,854,118  $7,898,300 
             

11

Interest rate payment terms
The following table summarizes interest rate payment terms of long-term securities classified as held-to-maturity (in thousands):
                 
  March 31, 2011  December 31, 2010 
  Amortized  Carrying  Amortized  Carrying 
  Cost  Value  Cost  Value 
Mortgage-backed securities
                
CMO
                
Fixed $2,917,582  $2,914,132  $3,064,470  $3,060,797 
Floating  2,669,981   2,669,981   2,105,272   2,105,272 
             
CMO Total  5,587,563   5,584,113   5,169,742   5,166,069 
Pass Thru
                
Fixed  1,644,915   1,560,288   1,830,665   1,742,633 
Floating  143,568   142,374   83,102   81,881 
             
Pass Thru Total  1,788,483   1,702,662   1,913,767   1,824,514 
             
Total MBS
  7,376,046   7,286,775   7,083,509   6,990,583 
             
State and local housing finance agency obligations
                
Fixed  121,442   121,442   135,344   135,344 
Floating  634,270   634,270   635,265   635,265 
             
   755,712   755,712   770,609   770,609 
             
Total Held-to-maturity securities
 $8,131,758  $8,042,487  $7,854,118  $7,761,192 
             
Impairment analysis of GSE issuedGSE-issued securities-
The FHLBNY evaluates its individual securities issued by Fannie Mae, Freddie Mac and a government agency by considering the creditworthiness and performance of the debt securities and the strength of the GSE’s guarantees of the securities. Based on the Bank’s analysis, GSE and agency issuedagency-issued securities are performing in accordance with their contractual agreements. The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and Freddie Mac. In September 2008, the U.S. Treasury and the Finance Agency placed Fannie Mae and Freddie Mac into conservatorship in an attempt to stabilize their financial conditions and their ability to support the secondary mortgage market. The FHLBNY believes that it will recover its investments in GSE and agency issued securities given the current levels of collateral, credit enhancements and guarantees that exist to protect the investments.
Impairment analysis of held-to-maturity non-agency private-label mortgage- and asset-backed securities (“PLMBS”)
Management evaluates its investments for OTTI on a quarterly basis under amendedby cash flow testing 100 percent of it private-label MBS. The credit-related OTTI guidance issued by theFinancial Accounting Standards Board(“FASB”) in the 2009 first quarter. This amended OTTI guidance, which the FHLBNY early adopted in the 2009 first quarter, results in only the credit portion of OTTI securities beingis recognized in earnings. The noncredit portion of OTTI, which representrepresents fair value losses of OTTI securities, is recognized in AOCI. Prior to 2009, if impairment was determined to be other-than-temporary, the impairment loss recognized in earnings was equal to the entire difference between the security’s amortized cost basis and its fair value. Prior to 2009, the FHLBNY had no impaired securities. Beginning with the quarter ended September 30,

21

2009, and thereafter, the FHLBNY performed its OTTI analysis by cash flow testing 100 percent of it private-label MBS.
Base case (best estimate) assumptions and adverse case scenarios —In evaluating its private-label MBS for OTTI, the FHLBNY develops a base case assumption about future changes in home prices, prepayments, default and loss severities. The base case assumptions are the Bank’s best estimate of the performance parameters of its private-label MBS. The assumptions are then input to an industry standard bond cash flow model that generates expected cash flows based on various security classes in the securitization structure of each private-label MBS. See Note 1 forFor more information with respect to critical estimates and assumptions about the Bank’s impairment methodologies.methodologies, see Note 1 — Significant Accounting Policies and Estimates in Notes to Financial Statements of the Federal Home Loan Bank of New York on Form 10-K filed on March 25, 2011. In addition to evaluating its private-label MBS under a base case scenario, the FHLBNY also performs a cash flow analysis for each security determined to be OTTI under a more stressful performance scenario. For more information, see Table: “Adverse case scenario — September 30, 2010” that summarizes the base case assumptions and OTTI results under an adverse case scenario.
Third-party Bond Insurers (Monoline insurers) —Certain held-to-maturity private-label MBS owned by the FHLBNY are insured by third-party bond insurers (“monoline insurers”). The bond insurance on these investments guarantees the timely payments of principal and interest if these payments cannot be satisfied from the cash flows of the underlying mortgage pool. The FHLBNY performs cash flow credit impairment tests on all of its private-label insured securities, and thesecurities. The analysis of the MBS protected by such third-party insurance looks first to the performance of the underlying security, and considers its embedded credit enhancements in the form of excess spread, overcollateralization, and credit subordination, to determine the collectability of all amounts due. If the embedded credit enhancement protections are deemed insufficient to make timely payment of all amounts due, then the FHLBNY considers the capacity of the third-party bond insurer to cover any shortfalls.
The two primary monoline insurers, Ambac and MBIA, have been subject to adverse ratings, rating downgrades, and weakening financial performance measures. In estimating the insurers’ capacity to provide credit protection in the future to cover any shortfall in cash flows expected to be collected for securities deemed to be OTTI, the FHLBNY has developed a methodology to assess the ability of the monoline insurers to meet future insurance obligations. Predicting when bond insurers may no longer have the ability to perform under their contractual agreements is a key impairment measurement parameter which the FHLBNY continually adjusts to factor the changing operating conditions at Ambac and MBIA. MBIA is currently rated below investment grade. Ambac’s rating was recently updated from below investment grade to “R”, which is indicative of regulatory intervention, as Ambac is under conservatorship. Financial information, cash flows and results of operations from the two monolines are closely monitored and analyzed by the management of FHLBNY. Based on on-going analysis of Ambac and MBIA at each interim period in 20092010 and the three quarters ended September 30, 2010,at March 31, 2011, the FHLBNY management has shortened the period it believes the two monolines can continue to provide insurance support as a result of the changing operating conditions at Ambac and MBIA. For OTTI assessment, the management of the Bank has effectively excluded Ambac as a reliable provider of support for any future short-falls on securities insured by Ambac, and will not rely on support from MBIA beyond June 30, 2011 for securities insured by MBIA. The FHLBNY performs this analysis and makes a re-evaluation of the bond insurance support period quarterly.

12

Up until March 31, 2010, both Ambac Assurance Corp. (“Ambac”) and MBIA Insurance Corp (“MBIA”), the two primary bond insurers for the FHLBNY, had been paying claims in order to meet any current cash flow deficiency within the structure of the insured securities. As of September 30, 2010, MBIA is continuing to meet claims. On March 24, 2010, Ambac, with the consent of the Commissioner of Insurance for the State of Wisconsin (the “Commissioner”), entered into a temporary injunction to suspend payments to bond holders and to create a segregated account for bond holders, which had no effect on payments due from Ambac through March 31, 2010.2011. As a result, payments from Ambac to trustees of certain insured bonds owned by the FHLBNY were suspended. The amounts suspended were not material. Changes to these and other key assumptions may result in materially different outcomes and the realization of additional other-than-temporary impairment charges in the future.
OTTI at September 30,— Quarters ended March 31, 2011 and 2010 —To assess whether the entire amortized cost basis of the Bank’s private-label MBS will be recovered, the Bank performed cash flow analysis for 100 percent of the FHLBNY’s private-label MBS outstanding at September 30, 2010.in all periods in this report. Cash flow assessments identified credit impairment on four HTM private-label mortgage-backed securities, and $3.1 million of other-than-temporary impairment (“OTTI”) was recorded as a charge to earningsreported in the 2010 third quarter. All fourfollowing tables. Certain securities had been previously determined to be OTTI, and the additional impairment (or re-impairment) in the 2010 third quarter was due to further deterioration in the credit performance metrics of the securities. The non-credit portion of OTTI recorded in AOCI was not significant. Insignificant as the 2010 first two quarters,fair values of almost all securities deemed OTTI were in excess of their carrying values.
The table below summarizes the FHLBNY had recorded a credit impairment chargekey characteristics of $4.6 million.

22

The tables below contain summary analysis ofthe securities1 that were deemed OTTI in the three quarters of 2010 (in thousands):
                                
 Quarter Ended Nine Months Ended                                 
 Quarter ended September 30, 2010 September 30, 2010 September 30, 2010  Quarter ended March 31, 2011 
 Insurer MBIA Insurer Ambac OTTI OTTI  Insurer MBIA Insurer Ambac Uninsured OTTI 
Security Fair Fair Credit Non-credit2 Credit Non-credit2  Fair Fair Fair Credit Non-credit 
Classification UPB Value UPB Value Loss Loss Loss Loss  UPB Value UPB Value UPB Value Loss Loss1 
  
HEL Subprime*
 $31,876 $15,050 $16,341 $8,233 $(3,067) $(2,569) $(7,737) $(3,164) $30,869 $18,285 $— $— $— $— $(370) $370 
                                  
Total
 $31,876 $15,050 $16,341 $8,233 $(3,067) $(2,569) $(7,737) $(3,164) $30,869 $18,285 $— $— $— $— $(370) $370 
                                  
                         
  Quarter ended March 31, 2010 
  Insurer MBIA  Insurer Ambac  OTTI 
Security     Fair      Fair  Credit  Non-credit 
Classification UPB  Value  UPB  Value  Loss  Loss1 
                         
HEL Subprime*
 $21,637  $9,730  $45,476  $26,015  $(3,400) $(473)
                   
Total
 $21,637  $9,730  $45,476  $26,015  $(3,400) $(473)
                   
*HEL Subprime — MBS supported by home equity loans.
                         
  Quarter ended June 30, 2010 
  Insurer MBIA  Insurer Ambac  OTTI 
Security     Fair      Fair  Credit  Non-credit2 
Classification UPB  Value  UPB  Value  Loss  Loss 
                         
HEL Subprime*
 $20,976  $9,044  $37,456  $22,564  $(1,270) $(1,068)
                   
Total
 $20,976  $9,044  $37,456  $22,564  $(1,270) $(1,068)
                   
*HEL Subprime — MBS supported by home equity loans.
                         
  Quarter ended March 31, 2010 
  Insurer MBIA  Insurer Ambac  OTTI 
Security     Fair      Fair  Credit  Non-credit2 
Classification UPB  Value  UPB  Value  Loss  Loss 
                         
HEL Subprime*
 $21,637  $9,730  $45,476  $26,015  $(3,400) $473 
                   
Total
 $21,637  $9,730  $45,476  $26,015  $(3,400) $473 
                   
* HEL Subprime — MBS supported by home equity loans.
 
1 At September 30, 2010,Positive non-credit loss represents the totalnet amount of non-credit losses reclassified from OCI to increase the carrying value of the securities prior to OTTI was $22.7 million. The carrying values and fair values of OTTI securities in a loss position prior to OTTI were $8.6 million and $8.1 million also at September 30, 2010.
2Represents net amount of impairment losses reclassified (from) to AOCI to earnings as a result of additional credit losses on securities that had been previously determined to bedeemed OTTI.
With respect to the Bank’s remaining investments, theThe Bank believes no OTTI exists other than those already recognized.for the remaining investments. The Bank’s conclusion is based upon multiple factors —factors: bond issuer MBIA’sissuers’ continued satisfaction itsof their obligations under the contractual terms of the securities; the estimated performance of the underlying collateral; and the evaluation of the fundamentals of the issuer’sissuers’ financial condition. Management has not made a decision to sell such securities at September 30, 2010. ManagementMarch 31, 2011, and has also has concluded that it is “more likely than not” that it will not be required to sell such securities before recovery of the amortized cost basis of the securities. Based on factors outlined above, the FHLBNY believes that the remaining securities classified as held-to-maturity were not other-than-temporarily impaired as of September 30, 2010. However, without continuedWithout recovery in the mortgage-backed securities market,near term such that spreads return to levels that reflect underlying credit characteristics, or if the credit losses of the underlying collateral within the mortgage-backed securitiesMBS perform worse than expected, or if the presumption of the ability of bond insurer MBIA to support certain insured securities is further negatively impacted by the insurer’s future financial performance, additional OTTI may be recognized in future periods.

23

OTTI at December 31, 2009— In the third quarter of 2009 and at December 31, 2009, the FHLBNY cash flow tested 100 percent of its private-label MBS to identify credit impairment. Certain uninsured bonds were also determined to be credit impaired based on cash flow shortfall in the interim periods of 2009. In many instances, the FHLBNY’s cash flow analysis observed additional credit impairment also referred to as credit re-impairments. Observed historical performance parameters of certain securities had deteriorated in 2009, and these factors had increased loss severities in the cash flow analyses of those private-label MBS.
The tables provide summary analysis of the securities that were deemed OTTI in the fourth quarter of 2009 and cumulatively through December 31, 2009 (in thousands):
                                         
  At December 31, 2009  Quarter ended December 31, 2009 
  Insurer MBIA  Insurer Ambac  Uninsured  OTTI  Gross Unrecognized Losses 
Security     Fair      Fair      Fair  Credit  Non-credit  Less than  More than 
Classification UPB  Value  UPB  Value  UPB  Value  Loss  Loss  12 months  12 months 
                                         
HEL Subprime*
 $—  $—  $89,092  $53,027  $20,118  $12,874  $(6,540) $(16,212) $—  $(2,663)
                               
Total
 $—  $—  $89,092  $53,027  $20,118  $12,874  $(6,540) $(16,212) $—  $(2,663)
                               
*HEL Subprime — MBS supported by home equity loans.
                                         
  Year ended December 31, 2009  Year ended December 31, 2009 
  Insurer MBIA  Insurer Ambac  Uninsured  OTTI  Gross Unrecognized Losses 
Security     Fair      Fair      Fair  Credit  Non-credit  Less than  More than 
Classification UPB  Value  UPB  Value  UPB  Value  Loss  Loss  12 months  12 months 
                                         
RMBS-Prime*
 $—  $—  $—  $—  $54,295  $51,715  $(438) $(2,766) $(1,187) $— 
HEL Subprime*
  34,425   17,161   198,532   127,470   80,774   53,783   (20,378)  (117,330)  —   (13,674)
                               
Total
 $34,425  $17,161  $198,532  $127,470  $135,069  $105,498  $(20,816) $(120,096) $(1,187) $(13,674)
                               
*RMBS-Prime — Private-label MBS supported by prime residential loans; HEL Subprime — MBS supported by home equity loans.
September 30, 2009 —Based on the management’s determination of expected cash flow shortfall of certain securities insured by Ambac concurrently with the determination that Ambac’s claim paying ability would not be sufficient in future periods, management concluded that the securities had become OTTI. The cumulative credit losses recognized year-to-date September 30, 2009 was $14.3 million.
The table below summarizes the key characteristics of the securities that were deemed OTTI in the third quarter of 2009 (in thousands):
                                         
  Q3 2009 activity 
  Insurer MBIA  Insurer Ambac  Uninsured  OTTI  Gross OTTI Losses 
Security     Fair      Fair      Fair  Credit  Non-credit  Less than  More than 
Classification UPB  Value  UPB  Value  UPB  Value  Loss  Loss  12 months  12 months 
                                         
HEL Subprime*
 $13,304  $7,680  $121,435  $79,700  $62,460  $38,392  $(3,683) $(26,486) $—  $(30,169)
                               
Total
 $13,304  $7,680  $121,435  $79,700  $62,460  $38,392  $(3,683) $(26,486) $—  $(30,169)
                               
*HEL Subprime — MBS supported by home equity loans.
The following table provides rollforward information ofabout the credit component of OTTI recognized as a charge to earnings related to held-to-maturity securities for which a significant portion of the OTTI (non-credit component) was recognized in AOCI (in thousands):
                        
 Three months ended September 30, Nine months ended September 30,  Quarter ended March 31, 
 2010 2009 2010 2009  2011 2010 
Beginning balance
 $25,486 $10,593 $20,816 $—  $29,138 $20,816 
Additions to the credit component for OTTI loss not previously recognized — 1,459 — 14,276  — — 
Additional credit losses for which an OTTI charge was previously recognized 3,067 2,224 7,737 —  370 3,400 
Increases in cash flows expected to be collected, recognized over the remaining life of the securities — — — —  — — 
              
Ending balance
 $28,553 $14,276 $28,553 $14,276  $29,508 $24,216 
              

 

2413

Key Base Assumptions — September 30, 2010
The table below summarizes the weighted average and range of Key Base Assumptions for securities determined to be OTTI in the 2010 third quarter:all private-label MBS at March 31, 2011, including those deemed OTTI:
                                                
 Key Base Assumption - OTTI Securities  Key Base Assumption — All PLMBS at Quarter End 
 CDR CPR Loss Severity %  CDR CPR Loss Severity % 
Security Classification Range Average Range Average Range Average  Range Average Range Average Range Average 
  
HEL Subprime*
 5.8-6.5 6.3 2.0-3.0 2.3 100.0-100.0 100.0 
RMBS Prime
 1.0-2.8 1.4 8.2-46.1 29.7 30.0-72.1 35.3 
Alt-A
 1.0-8.3 3.7 2.0-11.6 4.2 30.0-30.0 30.0 
HEL Subprime
 1.0-11.7 3.7 2.0-10.6 4.4 30.0-100.0 69.2 
** Conditional Prepayment Rate (CPR): 1—((1-SMM)^12) where, SMM is defined as the “Single Monthly Mortality (SMM)” = (Voluntary partial and full prepayments + repurchases + Liquidated Balances)/(Beginning Principal Balance — Scheduled Principal). Voluntary prepayment excludes the liquidated balances mentioned above.
 
** HEL Subprime Conditional Default Rate (CDR): 1— MBS supported by home equity loans.((1-MDR)^12) where, MDR is defined as the “Monthly Default Rate (MDR)” = (Beginning Principal Balance of Liquidated Loans)/(Total Beginning Principal Balance).
**Conditional Prepayment Rate (CPR): 1-((1-SMM^12)) where, SMM is defined as the “Single Monthly Mortality (SMM)” = (Voluntary partial and full prepayments + repurchases + Liquidated Balances)/Beginning Principal Balance — Scheduled Principal). Voluntary prepayment excludes the liquidated balances mentioned above.
Conditional Default Rate (CDR): 1-((1-MDR)^12) where, MDR is defined as the “Monthly Default Rate (MDR)” = (Beginning Principal Balance of Liquidated Loans)/(Total Beginning Principal Balance).
Loss Severity(Principal and interest in the current period) = Sum (Total Realized Loss Amount)/Sum (Beginning Principal and interest Balance of Liquidated Loans).
**If the present value of cash flows expected to be collected (discounted at the security’s effective yield) is less than the amortized cost basis of the security, an other-than-temporary impairment is considered to have occurred because the entire amortized cost basis of the security will not be recovered. The Bank considers whether or not it will recover the entire amortized cost of the security by comparing the present value of the cash flows expected to be collected from the security (discounted at the security’s effective yield) with the amortized cost basis of the security.
Note 5. Available-for-Sale Securities.
Major Security types— The unamortized cost, gross unrealized gains, losses, and the fair value1 of investments classified as available-for-sale were as follows (in thousands):
                     
  March 31, 2011 
      OTTI  Gross  Gross    
  Amortized  Recognized  Unrealized  Unrealized  Fair 
  Cost  in AOCI  Gains  Losses  Value 
Cash equivalents $136  $—  $—  $—  $136 
Equity funds  6,598   —   327   (460)  6,465 
Fixed income funds  3,345   —   206   —   3,551 
GSE and U.S. Obligations                    
Mortgage-backed securities                    
CMO-Floating  3,644,066   —   18,598   (3,493)  3,659,171 
CMBS-Floating  49,900   —   —   (199)  49,701 
                
Total
 $3,704,045  $—  $19,131  $(4,152) $3,719,024 
                
                     
  December 31, 2010 
      OTTI  Gross  Gross    
  Amortized  Recognized  Unrealized  Unrealized  Fair 
  Cost  in AOCI  Gains  Losses  Value 
Cash equivalents $120  $—  $—  $—  $120 
Equity funds  6,715   —   182   (651)  6,246 
Fixed income funds  3,374   —   207   —   3,581 
GSE and U.S. Obligations                    
Mortgage-backed securities                    
CMO-Floating  3,906,932   —   26,588   (3,157)  3,930,363 
CMBS-Floating  49,976   —   —   (204)  49,772 
                
Total
 $3,967,117  $—  $26,977  $(4,012) $3,990,082 
                
Adverse case scenario — September 30,1The carrying value of Available-for-sale securities equals fair value.

14

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

15

Redemption terms
The amortized cost and estimated fair value1 of investments classified as available-for-sale, by contractual maturity, were as follows (in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
                 
  March 31, 2011  December 31, 2010 
  Amortized  Fair  Amortized  Fair 
  Cost  Value  Cost  Value 
Mortgage-backed securities                
GSE/U.S. agency issued CMO                
Due after ten years $3,644,066  $3,659,171  $3,906,932  $3,930,363 
             
GSE/U.S. agency issued CMBS                
Due after five years through ten years  49,900   49,701   49,976   49,772 
Fixed income funds, equity funds and cash equivalents*  10,079   10,152   10,209   9,947 
             
                 
Total
 $3,704,045  $3,719,024  $3,967,117  $3,990,082 
             
The FHLBNY evaluated its private-label MBS under a base case (or best estimate) scenario, and under more adverse external assumptions. The stress test scenario and associated results do not represent the Bank’s current expectations and therefore should not be construed as a prediction of the Bank’s future results, market conditions or the actual performance of these securities. The results of the adverse case scenario are presented below alongside the FHLBNY’s base case scenario for the credit impaired securities (the base case) (in thousands):
                 
  Quarter ended September 30, 2010 
  Actual Results - Base Case Scenario  Pro-forma Results - Adverse Case Scenario 
      OTTI related to      OTTI related to 
  UPB  credit loss  UPB  credit loss 
RMBS Prime $—  $—  $—  $— 
Alt-A  —   —   3,338   (76)
HEL Subprime  48,217   (3,067)  145,758   (7,228)
             
                 
Total
 $48,217   (3,067) $149,096   (7,304)
             
Third-party Bond Insurer (Monoline insurer support)
The FHLBNY has identified certain MBS that have been determined
*Determined to be credit impaired despite credit protection from Ambac and MBIA to meet scheduled payments in the future. Cash flows on certain insured securities are currently experiencing cash flow shortfalls.
Monoline Analysis and Methodology- redeemable at anytime.
1The two monoline insurers have been subject to adverse ratings, rating downgrades, and weakening financial performance measures. A rating downgrade implies an increased risk that the insurer will fail to fulfill its obligations to reimburse the investor for claims under the insurance policies. Monoline insurers are segmented into two categories of claims paying ability — (1) Adequate, and (2) At Risk. These categories represent an assessment of an insurer’s ability to perform as a financial guarantor.
Adequate.Monolines determined to possess “adequate” claims paying ability are expected to provide full protection on their insured private-label mortgage-backed securities. Accordingly, bonds insured by monolines with adequate ability to cover written insurance are run with full financial guarantee set to “on” in the cashflow model.
At Risk.For monolines with at risk coverage, further analysis is performed to establish an expected case regarding the time horizon of the monoline’s ability to fulfill its financial obligations and provide credit support. Accordingly, bonds insured by monolines in the at risk category are run with a partial financial guarantee in the cashflow model. This partial claim paying condition is expressed in the cashflow model by specifying a “coverage ignore” date. The ignore date is based on the “burnout period” calculation method.
Burnout Period.The projected time horizon of credit protection provided by an insurer is a function of claims paying resources and anticipated claims in the future. This assumption is referred to as the “burnout period” and is expressed in months, and is computed by dividing each (a) insurers’ total claims paying resources by the (b) “burnout rate” projection. This variable uses monthly or aggregate dollar amount of claims each insurer has paid most recently, and additional qualitative information pertinent to the financial guarantor.
Based on the methodology, the Bank has classified FSA (name changed in 2009 to Assured Guaranty Municipal Corp.) as adequate, and MBIA and Ambac as “at risk”. The Bank analyzed Ambac and MBIA and their financial strength to perform with respect to their contractual obligations for the securities owned by the FHLBNY. As of September 30, 2010, MBIA and Assured Guaranty Municipal “AGM” were performing under the terms of their contractual agreements with respect to the FHLBNY’s insured bonds. As discussed previously, Ambac has suspended payments under regulatory orders, and the FHLBNY believes the suspension is temporary. However, estimation of an insurer’s financial strength to remain viable over a long time horizon requires significant judgment and assumptions. Predicting when the insurers may no longer have the ability to perform under their contractual agreements, then comparing the timing and amounts of cash flow shortfalls of securities that are credit impaired to when insurer protection may not be available, and determining credit impairment requires significant judgment.

25

The monoline analysis methodology resulted in the following “Burnout Period” time horizon dates for Ambac and MBIA:
         
  Burnout Period 
  Ambac  MBIA 
September 30, 2010
        
Burnout period (months)  —   9 
Coverage ignore date  9/30/2010   6/30/2011 
         
December 31, 2009
        
Burnout period (months)  18   18 
Coverage ignore date  6/30/2011   6/30/2011 
         
September 30, 2009
        
Burnout period (months)  83   31 
Coverage ignore date  7/31/2016   3/31/2012 
Note 5. Available-for-sale securities.
Major Security types- The amortized cost basis, gross unrealized gains, losses, and the faircarrying value of Available-for-sale securities equals fair value.
Interest rate payment terms
The following table summarizes interest rate payment terms of investments classified as available-for-sale securities (in thousands):
                 
  March 31, 2011  December 31, 2010 
  Amortized Cost  Fair Value  Amortized Cost  Fair Value 
Mortgage-backed securities                
Mortgage pass-throughs-GSE/U.S. agency issued                
Variable-rate* $3,644,066  $3,659,171  $3,906,932  $3,930,363 
Variable-rate CMBS*  49,900   49,701   49,976   49,772 
             
                 
   3,693,966   3,708,872   3,956,908   3,980,135 
             
Fixed income funds, equity funds and cash equivalents  10,079   10,152   10,209   9,947 
             
                 
Total
 $3,704,045  $3,719,024  $3,967,117  $3,990,082 
             
*LIBOR Indexed
Sale of available-for-sale securities
Sales of securities and investments designated as available-for-sales were not material in all periods in this Form 10-Q.
Note 6. Advances.
Redemption terms
Contractual redemption terms and yields of advances were as follows (dollars in thousands):
                         
  March 31, 2011  December 31, 2010 
      Weighted2          Weighted2    
      Average  Percentage      Average  Percentage 
  Amount  Yield  of Total  Amount  Yield  of Total 
 
Overdrawn demand deposit accounts $—   —%  —% $196   1.15%  —%
Due in one year or less  17,115,800   1.61   23.67   16,872,651   1.77   21.94 
Due after one year through two years  10,219,244   2.40   14.13   9,488,116   2.81   12.33 
Due after two years through three years  7,910,627   2.82   10.94   7,221,496   2.94   9.39 
Due after three years through four years  4,435,207   2.46   6.13   5,004,502   2.69   6.50 
Due after four years through five years  7,534,259   3.10   10.42   6,832,709   2.93   8.88 
Due after five years through six years  10,549,451   4.35   14.60   9,590,448   4.32   12.46 
Thereafter  14,535,683   3.52   20.11   21,929,421   3.68   28.50 
                   
                         
Total par value  72,300,271   2.84%  100.00%  76,939,539   3.03%  100.00%
                     
                         
Discount on AHP advances1
  (36)          (42)        
Hedging adjustments  3,187,142           4,260,839         
                       
                         
Total
 $75,487,377          $81,200,336         
                       
1Discounts on AHP advances were as follows (in thousands):
                         
  September 30, 2010 
  Amortized          Gross  Gross    
  Cost  OTTI  Carrying  Unrealized  Unrealized  Fair 
  Basis  in OCI  Value  Gains  Losses  Value 
                         
Cash equivalents $1,174  $—  $1,174  $—  $—  $1,174 
Equity funds  8,361   —   8,361   75   (1,136)  7,300 
Fixed income funds  3,928   —   3,928   420   —   4,348 
Mortgage-backed securities                        
CMO-Floating  3,336,502   —   3,336,502   24,675   (218)  3,360,959 
                   
Total
 $3,349,965  $—  $3,349,965  $25,170  $(1,354) $3,373,781 
                   
                         
  December 31, 2009 
  Amortized          Gross  Gross    
  Cost  OTTI  Carrying  Unrealized  Unrealized  Fair 
  Basis  in OCI  Value  Gains  Losses  Value 
  
Cash equivalents $1,230  $—  $1,230  $—  $—  $1,230 
Equity funds  8,995   —   8,995   57   (1,561)  7,491 
Fixed income funds  3,672   —   3,672   196   —   3,868 
Mortgage-backed securities                        
CMO-Floating  2,242,665   —   2,242,665   6,937   (9,038)  2,240,564 
                   
Total
 $2,256,562  $—  $2,256,562  $7,190  $(10,599) $2,253,153 
                   
Thereamortized to interest income using the level-yield method and were no AFS mortgage-backed securities supported by commercial loansnot significant for all periods reported. Interest rates on AHP advances ranged from 1.25% to 3.50% at September 30, 2010March 31, 2011 and December 31, 2009.

26

Unrealized Losses — MBS securities classified as available-for-sale securities (in thousands):2010.
2The weighted average yield is the weighted average coupon rates for advances, unadjusted for swaps. For floating-rate advances, the weighted average rate is the rate outstanding at the reporting dates.

16

Monitoring and evaluating credit losses
The FHLBNY closely monitors the creditworthiness of the institutions to which it lends. The FHLBNY also closely monitors the quality and value of the assets that are pledged as collateral by its members. The FHLBNY periodically assesses the mortgage underwriting and documentation standards of its borrowing members. In addition, the FHLBNY has collateral policies and restricted lending procedures in place to manage its exposure to those members experiencing difficulty in meeting their capital requirements or other standards of creditworthiness.
The FHLBNY has not experienced any losses on advances extended to any member since its inception. The FHLBank Act affords any security interest granted to the FHLBNY by a member, or any affiliate of such member, priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party) having the rights of a lien creditor. However, the FHLBNY’s security interest is not entitled to priority over claims and rights that (1) would be entitled to priority under applicable law, or (2) are held by a bona fide purchaser for value or by parties that are secured by actual perfected security interests.
The FHLBNY’s members are required to pledge collateral to secure advances. Eligible collateral includes: (1) one-to-four-family and multi-family mortgages; (2) U.S. Treasury and government-agency securities; (3) mortgage-backed securities; and (4) certain other collateral which is real estate-related and has a readily ascertainable value, and in which the FHLBNY can perfect a security interest. The FHLBNY has the right to take such steps as it deems necessary to protect its secured position on outstanding advances, including requiring additional collateral (whether or not such additional collateral would otherwise be eligible to secure a loan). The FHLBNY also has a statutory lien under the FHLBank Act on the capital stock of its members, which serves as further collateral for members’ indebtedness to the FHLBNY.
The FHLBNY has established asset classification and reserve policies. All adversely classified assets of the FHLBNY will have a reserve established for probable losses. Based upon the collateral held as security and prior repayment histories, no allowance for losses on advances is currently deemed necessary by management.
The FHLBNY uses methodologies to identify and measure credit risk arising from: creditworthiness risk arising from members, counterparties, and other entities; collateral risk arising from type, quality, and lien status; and concentration risk arising from borrower, portfolio, geographic area, industry, or product type.
Creditworthiness Risk — Advances
The FHLBNY’s potential exposure to creditworthiness risk arises from the deterioration of the financial health of FHLBNY members. The FHLBNY manages its exposure to the creditworthiness of members by monitoring their collateral and advance levels daily and by analyzing their financial health each quarter.
Collateral Risk — Advances
The FHLBNY is exposed to collateral risk if it is unable to perfect its interest in pledged collateral, or when the liquidation value of pledged collateral does not fully cover the FHLBNY’s exposure. The FHLBNY manages this risk by pricing collateral on a weekly basis, performing on-site reviews of pledged mortgage collateral from time to time, and reviewing pledged portfolio concentrations on a quarterly basis. The FHLBNY requires that members pledge a specific amount of excess collateral above the par amount of their outstanding obligations. Members provide the FHLBNY with reports of pledged collateral and the FHLBNY evaluates the eligibility and value of the pledged collateral.
The FHLBNY’s loan and collateral agreements give the FHLBNY a security interest in assets held by borrowers that is sufficient to cover their obligations to the FHLBNY. The FHLBNY may supplement this security interest by imposing additional reporting, segregation or delivery requirements on the borrower. The FHLBNY assigns specific collateral requirements to a borrower, based on a number of factors. These include, but are not limited to: (1) the borrower’s overall financial condition; (2) the degree of complexity involved in the pledging, verifying, and reporting of collateral between the borrower and the FHLBNY, especially when third-party pledges, custodians, outside service providers and pledges to other entities are involved; and (3) the type of collateral pledged.
The FHLBNY has also established collateral maintenance levels for borrower collateral that are intended to help ensure that the FHLBNY has sufficient collateral to cover credit extensions reasonable expenses arising from potential collateral liquidation and other unknown factors. Collateral maintenance levels are designated by collateral type and are periodically adjusted to reflect current market and business conditions. Maintenance levels for individual borrowers may also be adjusted based on the overall financial condition of the borrower or another, third-party entity involved in the collateral relationship with the FHLBNY. Borrowers are required to maintain an amount of eligible collateral with a liquidation value at least equal to the borrower’s current collateral maintenance level. All borrowers that pledge mortgage loans as collateral are also required to provide, on a monthly or quarterly basis, a detailed listing of mortgage loans pledged. The FHLBNY uses this detailed reporting to monitor and track payment performance of the collateral and to assess the risk profile of the pledged collateral based on mortgage characteristics, geographic concentrations and other pertinent risk factors.
Drawing on current industry standards, the FHLBNY establishes collateral valuation methodologies for each collateral type and calculates the estimated liquidation value of the pledged collateral to determine whether a borrower has satisfied its collateral maintenance requirement. The FHLBNY evaluates liquidation values on a weekly basis.
The FHLBNY makes on-site review of borrowers in connection with the evaluation of the borrowers’ pledged mortgage collateral. This review involves a qualitative assessment of risk factors that includes an examination of legal documentation, credit underwriting, and loan-servicing practices on mortgage collateral. The FHLBNY has developed the on-site review process to more accurately value each borrower’s pledged mortgage portfolio based on current secondary-market standards. The results of the review may lead to adjustments in the estimated liquidation value of pledged collateral. The FHLBNY may also make additional market value adjustments to a borrower’s pledged mortgage collateral based on the quality and accuracy of the automated data provided to the FHLBNY.

17

Credit Risk and Concentration Risk — Advances
While the FHLBNY has never experienced a credit loss on an advance, the expanded eligible collateral for Community Financial Institutions and non-member housing associates permitted, but not required, by the Finance Agency provides the potential for additional credit risk for the FHLBNY. It is the FHLBNY’s current policy not to accept “expanded” eligible collateral from Community Financial Institutions. The management of the FHLBNY has the policies and procedures in place to appropriately manage credit risk associated with the advance business. In extending credit to a member, the FHLBNY adheres to specific credit policy limits approved by its Board of Directors. The FHLBNY has not established limits for the concentrations of specific types of advances, but management reports the activity in advances to the Board each month. Each quarter, management reports the concentrations of convertible advances made to individual members. At March 31, 2011 and December 31, 2010, all advances were current. Management does not anticipate any credit losses, and accordingly, the FHLBNY has not provided an allowance for credit losses on advances. The FHLBNY’s potential credit risk from advances is concentrated in commercial banks, savings institutions and insurance companies. At March 31, 2011 and December 31, 2010, the Bank had advances of $51.5 billion and $54.1 billion outstanding to ten member institutions, representing 71.2% and 70.3% of total advances outstanding, and sufficient collateral was held to cover the advances to these institutions.
Collateral Coverage of Advances
Security Terms.The FHLBNY lends to financial institutions involved in housing finance within its district. In addition, the FHLBNY is permitted, but not required, to accept collateral in the form of small business or agricultural loans (“expanded collateral”) from Community Financial Institutions (“CFIs”). CFIs are defined in the Housing Act as those institutions that have, as of the date of the transaction at issue, less than $1,040 million in average total assets over the three years preceding that date (subject to annual adjustment by the Finance Agency director based on the Consumer Price Index). It is the FHLBNY’s policy not to accept such expanded collateral for advances. Borrowing members pledge their capital stock of the FHLBNY as additional collateral for advances. As of March 31, 2011, the FHLBNY had rights to collateral with an estimated value greater than outstanding advances. Based upon the financial condition of the member, the FHLBNY:
                         
  September 30, 2010 
  Less than 12 months  12 months or more  Total 
  Estimated  Unrealized  Estimated  Unrealized  Estimated  Unrealized 
  Fair Value  Losses  Fair Value  Losses  Fair Value  Losses 
MBS Investment Securities
                        
MBS-GSE
                        
Fannie Mae $68,494  $(83) $—  $—  $68,494  $(83)
Freddie Mac  79,386   (135)  —   —   79,386   (135)
                   
Total MBS-GSE
  147,880   (218)  —   —   147,880   (218)
                   
Total Temporarily Impaired
 $147,880  $(218) $—  $—  $147,880  $(218)
                   
                         
  December 31, 2009 
  Less than 12 months  12 months or more  Total 
  Estimated  Unrealized  Estimated  Unrealized  Estimated  Unrealized 
  Fair Value  Losses  Fair Value  Losses  Fair Value  Losses 
MBS Investment Securities
                        
MBS-GSE
                        
Fannie Mae $—  $—  $1,006,860  $(6,394) $1,006,860  $(6,394)
Freddie Mac  —   —   662,237   (2,644)  662,237   (2,644)
                   
Total MBS-GSE
  —   —   1,669,097   (9,038)  1,669,097   (9,038)
                   
Total Temporarily Impaired
 $—  $—  $1,669,097  $(9,038) $1,669,097  $(9,038)
                   
Amortized cost
(1)Allows a member to retain possession of AFS securities includes adjustments madethe collateral assigned to the cost basis of an investment for accretion, amortization, collection of cash, previous OTTI recognized in earnings and/or fair value hedge accounting adjustments. There were no AFS securities determinedFHLBNY if the member executes a written security agreement and agrees to be OTTI at September 30, 2010 and December 31, 2009. No AFS securities were hedged at September 30, 2010 and December 31, 2009. Amortization of discounts recorded to income were $1.2 million and $1.4 millionhold such collateral for the third quarters ended 2010 and 2009, and $6.3 million and $3.9 million for the nine months ended September 30, 2010 and September 30, 2009.
Managementbenefit of the FHLBNY has concluded that gross unrealized losses at September 30, 2010 and December 31, 2009, as summarized in the table above, were caused by interest rate changes, credit spreads widening and reduced liquidity in the applicable markets. The FHLBNY has reviewed the investment security holdings and determined, based on creditworthiness of the securities and including any underlying collateral and/FHLBNY; or insurance provisions of the security, that unrealized losses in the analysis above represent temporary impairment.
Impairment analysis on Available-for-sale securities- The Bank’s portfolio of mortgage-backed securities classified as available-for-sale (“AFS”) is comprised entirely of securities issued by GSEs collateralized mortgage obligations which are “pass through” securities. The FHLBNY evaluates its individual securities issued by Fannie Mae and Freddie Mac by considering the creditworthiness and performance of the debt securities and the strength of the government-sponsored enterprises’ guarantees of the securities. Based on the Bank’s analysis, GSE securities are performing in accordance with their contractual agreements. The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and Freddie Mac. The U.S. Treasury and the Finance Agency placed Fannie Mae and Freddie Mac into conservatorship in an attempt to stabilize their financial conditions and their ability to support the secondary mortgage market. The FHLBNY believes that it will recover its investments in GSE issued securities given the current levels of collateral, credit enhancements, and guarantees that exist to protect the investments. Management has not made a decision to sell such securities at September 30, 2010 or subsequently. Management also concluded that it is “more likely than not” that it will not be required to sell such securities before recovery of the amortized cost basis of the security. The FHLBNY believes that these securities were not other-than-temporarily impaired as of September 30, 2010 and December 31, 2009. The Bank established certain grantor trusts to fund current and future payments under certain supplemental pension plans and these are classified as available-for-sale. The grantor trusts invest in money market, equity and fixed-income and bond funds. Investments in equity and fixed-income funds are redeemable at short notice, and realized gains and losses from investments in the funds were not significant. No available-for-sale-securities had been pledged at September 30, 2010 and December 31, 2009.

27

Note 6. Advances.
Redemption terms
Contractual redemption terms and yields of advances were as follows (dollars in thousands):
                         
  September 30, 2010  December 31, 2009 
      Weighted2          Weighted2    
      Average  Percentage      Average  Percentage 
  Amount  Yield  of Total  Amount  Yield  of Total 
                         
Overdrawn demand deposit accounts $—   —%  —% $2,022   1.20%  —%
Due in one year or less  21,921,391   2.11   27.37   24,128,022   2.07   26.59 
Due after one year through two years  8,986,235   2.93   11.22   10,819,349   2.73   11.92 
Due after two years through three years  7,713,074   2.95   9.63   10,069,555   2.91   11.10 
Due after three years through four years  4,767,042   3.01   5.95   5,804,448   3.32   6.40 
Due after four years through five years  4,081,962   3.00   5.10   3,364,706   3.19   3.71 
Due after five years through six years  8,590,664   4.34   10.72   2,807,329   3.91   3.09 
Thereafter  24,042,443   3.74   30.01   33,742,269   3.78   37.19 
                   
                         
Total par value  80,102,811   3.11%  100.00%  90,737,700   3.06%  100.00%
                     
                         
Discount on AHP advances1
  (50)          (260)        
Hedging adjustments  5,594,410           3,611,311         
                       
                         
Total
 $85,697,171          $94,348,751         
                       
1Discounts on AHP advances were amortized to interest income using the level-yield method and were not significant for all periods reported. Interest rates on AHP advances ranged from 1.25% to 4.00% at September 30, 2010 and December 31, 2009.
2The weighted average yield is the weighted average coupon rates for advances, unadjusted for swaps. For floating-rate advances, the weighted average rate is the rate outstanding at the reporting dates.
Impact of putable advances on advance maturities
The Bank offers putable advances to members. With a putable advance, the Bank effectively purchases a put option from
(2)Requires the member that allows the Bankspecifically to terminate the fixed-rate advance, which is normally exercised when interest rates have increased from those prevailing at the time the advance was made. When the Bank exercises the put option, it will offer to extend additional credit to members at the then prevailing market rates and terms. Typically, the Bank will hedge putable advances with cancellable interest rate swaps with matching terms and will sell the exercise option that will allow swap counterparties to terminate the swaps at the same predetermined exercise dates as the advances. Asassign or place physical possession of September 30, 2010 and December 31, 2009, the Bank had putable advances outstanding totaling $36.7 billion and $41.4 billion, representing 45.8% and 45.6% of par amounts of advances outstanding at those dates.
The table below offers a view of the advance portfoliosuch collateral with the possibilityFHLBNY or its safekeeping agent.
Beyond these provisions, Section 10(e) of the FHLBank Act affords any security interest granted by a member to the FHLBNY priority over the claims or rights of any other party. The two exceptions are claims that would be entitled to priority under otherwise applicable law or perfected security interests. All member obligations with the Bank were fully collateralized throughout their entire term. The total of collateral pledged to the Bank includes excess collateral pledged above the Bank’s minimum collateral requirements. However, a “Maximum Lendable Value” is established to ensure that the Bank has sufficient eligible collateral securing credit extensions. The Maximum Lendable Value ranges from 90 percent to 70 percent for mortgage collateral and is applied to the lesser of book or market value. For securities, it ranges from 97 percent to 67 percent and is applied to the market value. There are not any Maximum Lendable Value ranges for deposit collateral pledged. It is common for members to maintain excess collateral positions with the Bank for future liquidity needs. Based on several factors (e.g. advance type, collateral type or member financial condition) members are required to comply with specified collateral requirements, including but not limited to a detailed listing of pledged mortgage collateral and/or delivery of pledged collateral to the Bank or its designated collateral custodian(s). For example, all pledged securities collateral must be delivered to the Bank’s nominee name at Citibank, N.A., its securities safekeeping custodian. Mortgage collateral that is required to be in the Bank’s possession is typically delivered to the Bank’s Jersey City, New Jersey facility. However, in certain instances, delivery to a Bank approved custodian may be allowed. In both instances, the members provide periodic listings updating the information of the mortgage collateral in possession.
The following table summarizes pledged collateral in support of advances at March 31, 2011 and December 31, 2010 (in thousands):
Collateral Supporting Advances to Members
                 
      Underlying Collateral for Advances 
      Mortgage  Securities and    
  Advances1  Loans2  Deposits2  Total2 
  
March 31, 2011
 $72,300,271  $100,212,737  $40,990,062  $141,202,799 
  
             
December 31, 2010
 $76,939,539  $99,348,492  $42,461,442  $141,809,934 
             
1Par value
2Estimated market value
The level of over-collateralization is on an aggregate basis and may not necessarily be indicative of a similar level of over-collateralization on an individual member basis. At a minimum, each member pledged sufficient collateral to adequately secure the member’s outstanding obligation with the FHLBNY. In addition, most members maintain an excess amount of pledged collateral with the FHLBNY to secure future liquidity needs.

18

The following table summarizes pledged collateral in support of other member obligations (other than advances) at March 31, 2011 and December 31, 2010 (in thousands):
Collateral Supporting Member Obligations Other Than Advances
                 
      Underlying Collateral for Other Obligations 
  Other  Mortgage  Securities and    
  Obligations1  Loans2  Deposits2  Total 2 
 
March 31, 2011
 $2,386,148  $7,035,254  $193,866  $7,229,120 
             
 
December 31, 2010
 $2,057,501  $5,772,835  $213,620  $5,986,455 
             
1Standby financial letters of the exercise of the put option that is controlled by the FHLBNY,credit, derivatives and put dates are summarized into similar maturity tenors as the previous table that summarizes advances by contractual maturities (dollars in thousands):
                 
  September 30, 2010  December 31, 2009 
      Percentage      Percentage 
  Amount  of Total  Amount  of Total 
                 
Overdrawn demand deposit accounts $—   —% $2,022   —%
Due or putable in one year or less1
  54,584,453   68.14   56,978,134   62.79 
Due or putable after one year through two years  8,609,985   10.75   14,082,199   15.52 
Due or putable after two years through three years  7,276,674   9.08   8,991,805   9.91 
Due or putable after three years through four years  4,532,542   5.66   5,374,048   5.92 
Due or putable after four years through five years  2,474,462   3.09   2,826,206   3.12 
Due or putable after five years through six years  777,664   0.97   158,329   0.18 
Thereafter  1,847,031   2.31   2,324,957   2.56 
             
                 
Total par value  80,102,811   100.00%  90,737,700   100.00%
               
                 
Discount on AHP advances  (50)      (260)    
Hedging adjustments  5,594,410       3,611,311     
               
                 
Total
 $85,697,171      $94,348,751     
               
1Due or putable in one year or less includes two callable advances.members’ credit enhancement guarantee amount. (“MPFCE”)

28

Note 7. Mortgage loans held-for-portfolio.
Mortgage Partnership Finance program loans, or (MPF) constitute the majority of the mortgage loans held-for-portfolio. The MPF program involves investment by the FHLBNY in mortgage loans that are purchased from or originated through its participating financial institutions (“PFIs”). The members retain servicing rights and may credit-enhance the portion of the loans participated to the FHLBNY. No intermediary trust is involved.
The following table presents information on mortgage loans held-for-portfolio (dollars in thousands):
                 
  September 30, 2010  December 31, 2009 
      Percentage      Percentage 
  Amount  of Total  Amount  of Total 
Real Estate:
                
Fixed medium-term single-family mortgages $344,781   27.20% $388,072   29.43%
Fixed long-term single-family mortgages  918,967   72.50   926,856   70.27 
Multi-family mortgages  3,827   0.30   3,908   0.30 
             
                 
Total par value  1,267,575   100.00%  1,318,836   100.00%
               
                 
Unamortized premiums  10,027       9,095     
Unamortized discounts  (4,700)      (5,425)    
Basis adjustment1
  322       (461)    
               
                 
Total mortgage loans held-for-portfolio  1,273,224       1,322,045     
Allowance for credit losses  (5,537)      (4,498)    
               
Total mortgage loans held-for-portfolio after allowance for credit losses
 $1,267,687      $1,317,547     
               
 
2 Estimated market value
The outstanding member obligations consisted primarily of standby letters of credit, a small amount of collateralized value of outstanding derivatives, and members’ credit enhancement guarantee amount (“MPFCE”) on loans sold to the FHLBNY through the Mortgage Partnership Finance program. The FHLBNY’s underwriting and collateral requirements for securing Letters of Credit are the same as its requirements for securing advances.
The following table shows the breakdown of collateral pledged by members between those that were specifically listed and those in the physical possession or that of its safekeeping agent (in thousands):
Location of Collateral Held
                 
  Estimated Market Values 
  Collateral in  Collateral  Collateral  Total 
  Physical  Specifically  Pledged for  Collateral 
  Possession  Listed  AHP  Received 
March 31, 2011
 $46,965,149  $101,574,225  $(107,455) $148,431,919 
             
                 
December 31, 2010
 $48,604,470  $99,289,202  $(97,283) $147,796,389 
             
Total collateral pledged to the FHLBNY includes excess collateral pledged above the FHLBNY’s minimum collateral requirements. However, the amount reported under the “Total Collateral Received column excludes collateral pledged for AHP obligations.
In addition, the FHLBNY has a lien on each member’s investment in the capital stock of the FHLBNY.
Credit Risk.The FHLBNY has never experienced a credit loss on an advance. The management of the Bank has policies and procedures in place to appropriately manage credit risk. There were no past due advances and all advances were current for all periods in this report. Management does not anticipate any credit losses, and accordingly, the Bank has not provided an allowance for credit losses on advances. The Bank’s potential credit risk from advances is concentrated in commercial banks, savings institutions and insurance companies.
Concentration of advances outstanding.Advances to the FHLBNY’s top ten borrowing member institutions are reported in Note 19, Segment Information and Concentration. The FHLBNY held sufficient collateral to cover the advances to all of these institutions and it does not expect to incur any credit losses.

19

Note 7. Mortgage Loans Held-for-Portfolio.
Mortgage Partnership Finance® program loans, or (MPF®), constitute the majority of the mortgage loans held-for-portfolio. The MPF program involves investment by the FHLBNY in mortgage loans that are purchased from its participating financial institutions (“PFIs”). The members retain servicing rights and may credit-enhance the portion of the loans participated to the FHLBNY. No intermediary trust is involved.
The following table presents information on mortgage loans held-for-portfolio (dollars in thousands):
                 
  March 31, 2011  December 31, 2010 
      Percentage of      Percentage of 
  Amount  Total  Amount  Total 
Real Estate*:
                
Fixed medium-term single-family mortgages $337,796   26.58% $342,081   27.05%
Fixed long-term single-family mortgages  932,929   73.40   918,741   72.65 
Multi-family mortgages  279   0.02   3,799   0.30 
             
                 
Total par value  1,271,004   100.00%  1,264,621   100.00%
               
                 
Unamortized premiums  11,524       11,333     
Unamortized discounts  (4,271)      (4,357)    
Basis adjustment1
  (397)      (33)    
               
                 
Total mortgage loans held-for-portfolio  1,277,860       1,271,564     
Allowance for credit losses  (6,969)      (5,760)    
               
Total mortgage loans held-for-portfolio after allowance for credit losses
 $1,270,891      $1,265,804     
               
1 Represents fair value basis of open and closed delivery commitments.
The estimated fair values
*Conventional mortgages constituted the majority of the mortgage loans as of September 30, 2010 and December 31, 2009 are reported in Note 17 — Fair Values of financial instruments.
The FHLBNY and its members share the credit risk of MPF loans by structuring potential credit losses into layers (See Note 1 — Significant Accounting Policies and Estimates). The first layer is typically 100 basis points but varies with the particular MPF program. The amount of the first layer, or First Loss Account or “FLA”, was estimated as $11.6 million and $13.9 million at September 30, 2010 and December 31, 2009. The FLA is not recorded or reported as a reserve for loan losses as it serves as a memorandum or information account. The FHLBNY is responsible for absorbing the first layer. The second layer is that amount of credit obligations that the Participating Financial Institution (“PFI”) has taken on which will equate the loan to a double-A rating. The FHLBNY pays a Credit Enhancement fee to the PFI for taking on this obligation. The FHLBNY assumes all residual risk. Credit Enhancement fees accrued were $0.4 million for the third quarters of 2010 and 2009, and $1.1 million and $1.2 million for the nine months ended September 30, 2010 and 2009, and were reported as a reduction to mortgage loan interest income. The amount of charge-offs in each period reported was insignificant and it was not necessary for the FHLBNY to recoup any losses from the PFIs.
The following provides roll-forward analysis1 of the allowance for credit losses (in thousands):
                 
  Three months ended September 30,  Nine months ended September 30, 
  2010  2009  2010  2009 
                 
Beginning balance
 $5,392  $2,760  $4,498  $1,406 
Charge-offs  (97)  —   (131)  (14)
Recoveries  11   —   33   — 
Provision for credit losses on mortgage loans  231   598   1,137   1,966 
             
Ending balance
 $5,537  $3,358  $5,537  $3,358 
             
held-for-portfolio.
1Disaggregation was deemed not necessary since the risk characteristics of loans within the MPF program are materially the same.
As of September 30, 2010 and December 31, 2009, the FHLBNY had $25.1 million and $16.0 million of non-accrual conventional loans. Mortgage loans are considered impaired when, based on current information and events, it is probable that the FHLBNY will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreements. As of September 30, 2010 and December 31, 2009, the FHLBNY had no investment in impaired mortgage loans, other than the non-accrual loans.
The following table summarizes mortgage loans held-for-portfolio past due 90 days or more and still accruing interest (in thousands):
         
  September 30, 2010  December 31, 2009 
         
Secured by 1-4 family
 $668  $570 
       
The past due loans still accruing were VA and FHA insured loans.

29

Note 8. Deposits.
The FHLBNY accepts demand, overnight and term deposits from its members, qualifying non-members and U.S. government instrumentalities.
The following table summarizes term deposits (in thousands):
         
  September 30, 2010  December 31, 2009 
         
Due in one year or less $60,400  $7,200 
       
         
Total term deposits
 $60,400  $7,200 
       
Note 9. Borrowings.
Securities sold under agreements to repurchase
The FHLBNY did not have any securities sold under agreement to repurchase as of September 30, 2010 and December 31, 2009. Terms, amounts and outstanding balances of borrowings from other Federal Home Loan Banks are described under Note 19 — Related party transactions.
Note 10. Consolidated obligations.
Consolidated obligations are the joint and several obligations of the FHLBanks and consist of bonds and discount notes. The FHLBanks issue consolidated obligations through the Office of Finance as their fiscal agent. Consolidated bonds are issued primarily to raise intermediate- and long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits on maturity. Consolidated discount notes are issued primarily to raise short-term funds. Discount notes sell at less than their face amount and are redeemed at par value when they mature.
The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligations. Although it has never occurred, to the extent that an FHLBank would make a payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank would be entitled to reimbursement from the non-complying FHLBank. However, if the Finance Agency determines that the non-complying FHLBank is unable to satisfy its obligations, then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis the Finance Agency may determine.
Based on management’s review, the FHLBNY has no reason to record actual or contingent liabilities with respect to the occurrence of events or circumstances that would require the FHLBNY to assume an obligation on behalf of other FHLBanks. The par amounts of the FHLBanks’ outstanding consolidated obligations, including consolidated obligations held by the FHLBanks, were approximately $0.8 trillion and $0.9 trillion as of September 30, 2010 and December 31, 2009.
Finance Agency regulations require the FHLBanks to maintain, in the aggregate, unpledged qualifying assets equal to the consolidated obligations outstanding. Qualifying assets are defined as cash; secured advances; assets with an assessment or rating at least equivalent to the current assessment or rating of the consolidated obligations; obligations, participations, mortgages, or other securities of or issued by the United States or an agency of the United States; and securities in which fiduciary and trust funds may invest under the laws of the state in which the FHLBank is located.
The FHLBNY met the qualifying unpledged asset requirements at each reporting dates as follows:
         
  September 30, 2010  December 31, 2009 
         
Percentage of unpledged qualifying assets to consolidated obligations
  111%  109%
       
General Terms
FHLBank consolidated obligations are issued with either fixed- or variable-rate coupon payment terms that use a variety of indices for interest rate resets. These indices include the London Interbank Offered Rate (“LIBOR”), Constant Maturity Treasury (“CMT”), 11th District Cost of Funds Index (“COFI”), and others. In addition, to meet the expected specific needs of certain investors in consolidated obligations, both fixed- and variable-rate bonds may also contain certain features that may result in complex coupon payment terms and call options.
When such consolidated obligations are issued, the FHLBNY may enter into derivatives containing offsetting features that effectively convert the terms of the bond to those of a simple variable- or fixed-rate bond. Consolidated obligations, beyond having fixed-rate or simple variable-rate coupon payment terms, may also include Optional Principal Redemption Bonds (callable bonds) that the FHLBNY may redeem in whole or in part at its discretion on predetermined call dates, according to the terms of the bond offerings.
With respect to interest payment terms, consolidated bonds may also have step-up, or step-down terms. Step-up bonds generally pay interest at increasing fixed rates for specified intervals over the life of the bond. Step-down bonds pay interest at decreasing fixed rates. These bonds generally contain provisions enabling the FHLBNY to call bonds at its option on predetermined exercise dates at par.

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The following summarizes consolidated obligations issued by the FHLBNY and outstanding (in thousands):
         
  September 30, 2010  December 31, 2009 
         
Consolidated obligation bonds-amortized cost $73,847,021  $73,436,939 
Fair value basis adjustments  1,060,537   572,537 
Fair value basis on terminated hedges  1,099   2,761 
Fair value option valuation adjustments and accrued interest  10,236   (4,259)
       
         
Total Consolidated obligation-bonds
 $74,918,893  $74,007,978 
       
         
Discount notes-amortized cost $17,784,192  $30,827,639 
Fair value option valuation adjustments  3,716   — 
       
         
Total Consolidated obligation-discount notes
 $17,787,908  $30,827,639 
       
Redemption Terms of consolidated obligation bonds
The following is a summary of consolidated bonds outstanding by year of maturity (dollars in thousands):
                         
  September 30, 2010  December 31, 2009 
      Weighted          Weighted    
      Average  Percentage      Average  Percentage 
Maturity Amount  Rate1  of total  Amount  Rate1  of total 
                         
One year or less $38,972,100   1.10%  52.86% $40,896,550   1.34%  55.75%
Over one year through two years  15,731,695   1.13   21.34   15,912,200   1.69   21.69 
Over two years through three years  9,337,130   2.24   12.66   7,518,575   2.28   10.25 
Over three years through four years  3,409,600   2.99   4.62   3,961,250   3.49   5.40 
Over four years through five years  3,224,775   3.12   4.37   2,130,300   4.27   2.90 
Over five years through six years  498,000   3.71   0.68   644,350   5.15   0.88 
Thereafter  2,556,200   4.33   3.47   2,294,700   5.06   3.13 
                   
                         
   73,729,500   1.56%  100.00%  73,357,925   1.87%  100.00%
                     
                         
Bond premiums  145,239           112,866         
Bond discounts  (27,718)          (33,852)        
Fair value basis adjustments  1,060,537           572,537         
Fair value basis adjustments on terminated hedges  1,099           2,761         
Fair value option valuation adjustments and accrued interest  10,236           (4,259)        
                       
                         
  $74,918,893          $74,007,978         
                       
1Weighted average rate represents the weighted average coupons of bonds, unadjusted for swaps. The weighted average coupon of bonds outstanding at September 30, 2010 and December 31, 2009 represent contractual coupons payable to investors.
Amortization of bond premiums and discounts resulted in net reduction of interest expense of $8.3 million and $8.7 million for the 2010 third quarter and the same period in 2009, and $22.6 million and $22.5 million for the nine months ended September 30, 2010 and 2009. Amortization of basis adjustments from terminated hedges were $1.7 million and $1.8 million, and were recorded as an expense in the 2010 third quarter and the same period in 2009, and $4.9 million and $5.3 million for the nine months ended September 30, 2010 and 2009.
Debt extinguished
No debt was retired in the first or third quarter of 2010 or in all quarters in 2009. In the second quarter of 2010, the Bank extinguished $250.0 million of consolidated obligation bond at an insignificant gain.
Transfers of consolidated obligation bonds to other FHLBanks
The Bank may transfer certain bonds at negotiated market rates to other FHLBanks to meet the FHLBNY’s asset and liability management objectives. During the 2010 third quarter, the bank assumed debt from another FHLBank totaling $193.9 million (par amounts). There was no transfer of consolidated obligation bonds to other FHLBanks or assumption of debt in the prior two quarters of 2010. Generally, when debt is transferred in exchange for a cash price that represents the fair market values of the debt. No debt was transferred to the FHLBNY or assumed from another FHLBank for the first three quarters of 2009. For more information, also, see Note 19 — Related party transactions.
When debt is transferred, at trade date, the transferring bank notifies the Office of Finance of a change in primary obligor for the transferred debt.
Impact of callable bonds on consolidated obligation bond maturities
The Bank issues callable bonds to investors. With a callable bond, the Bank effectively purchases an option from the investor that allows the Bank to terminate the consolidated obligation bond at pre-determined option exercise dates, which is normally exercised when interest rates have decreased from those prevailing at the time the bonds were issued. Typically, the Bank will hedge callable bonds with cancellable interest rate swaps with matching terms and will sell the exercise option that will allow swap counterparties to terminate the swaps at the same predetermined exercise dates as the bonds. As of September 30, 2010 and December 31, 2009, the Bank had callable bonds totaling $8.5 billion and $11.7 billion, representing 11.5% and 15.9% of par amounts of consolidated bonds outstanding at those dates.

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The following summarizes bonds outstanding by year of maturity or next call date (dollars in thousands):
                 
  September 30, 2010  December 31, 2009 
      Percentage      Percentage 
  Amount  of total  Amount  of total 
Year of Maturity or next call date
                
Due or callable in one year or less $45,488,400   61.70% $50,481,350   68.82%
Due or callable after one year through two years  14,465,695   19.62   11,352,200   15.48 
Due or callable after two years through three years  6,537,130   8.87   4,073,575   5.55 
Due or callable after three years through four years  2,659,600   3.61   3,606,250   4.91 
Due or callable after four years through five years  2,579,775   3.50   1,325,800   1.81 
Due or callable after five years through six years  232,700   0.31   529,050   0.72 
Thereafter  1,766,200   2.39   1,989,700   2.71 
             
                 
   73,729,500   100.00%  73,357,925   100.00%
               
                 
Bond premiums  145,239       112,866     
Bond discounts  (27,718)      (33,852)    
Fair value basis adjustments  1,060,537       572,537     
Fair value basis adjustments on terminated hedges  1,099       2,761     
Fair value option valuation adjustments and accrued interest  10,236       (4,259)    
               
                 
  $74,918,893      $74,007,978     
               
Discount notes
Consolidated obligation discount notes are issued to raise short-term funds. Discount notes are consolidated obligations with original maturities up to one year. These notes are issued at less than their face amount and redeemed at par when they mature.
The FHLBNY’s outstanding consolidated discount notes were as follows (dollars in thousands):
         
  September 30, 2010  December 31, 2009 
         
Par value $17,791,522  $30,838,104 
       
         
Amortized cost $17,784,192  $30,827,639 
Fair value option valuation adjustments  3,716   — 
       
         
Total
 $17,787,908  $30,827,639 
       
         
Weighted average interest rate
  0.19%  0.15%
       
Note 11. Capital, Capital ratios, and Mandatorily redeemable capital stock.
Capital
The FHLBanks, including the FHLBNY, have a cooperative structure. To access FHLBNY’s products and services, a financial institution must be approved for membership and purchase capital stock in FHLBNY. The member’s stock requirement is generally based on its use of FHLBNY products, subject to a minimum membership requirement, as prescribed by the FHLBank Act and the FHLBNY Capital Plan. FHLBNY stock can be issued, exchanged, redeemed and repurchased only at its stated par value of $100 per share. It is not publicly traded. An option to redeem capital stock that is greater than a member’s minimum requirement is held by both the member and the FHLBNY.
Under the Gramm-Leach-Bliley Act of 1999 (“GLB Act”) and the Finance Agency’s capital regulations, the FHLBNY’s Capital Plan offers two sub-classes of Class B capital stock, Class B1 and Class B2. Class B1 stock is issued to meet membership stock purchase requirements. Class B2 stock is issued to meet activity-based requirements. The FHLBNY requires member institutions to maintain Class B1 stock based on a percentage of the member’s mortgage-related assets and Class B2 stock based on a percentage of advances and acquired member assets outstanding with the FHLBank and certain commitments outstanding with the FHLBank. Class B1 and Class B2 stockholders have the same voting rights and dividend rates.
Members can redeem Class A stock by giving six months’ notice, and redeem Class B stock by giving five year’s notice. Only “permanent” capital, defined as retained earnings and Class B stock, satisfies the FHLBank risk-based capital requirement. In addition, the GLB Act specifies a 5.0 percent minimum leverage ratio based on total capital and a 4.0 percent minimum capital ratio that does not include the 1.5 weighting factor applicable to the permanent capital that is used in determining compliance with the 5.0 percent minimum leverage ratio.

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Acquisitions were not significant and no loans were transferred to the “loan-for-sale” category. From time-to-time, the Bank may request a PFI to purchase loans if the loan failed to comply with the MPF loan standards and these have been de minimis in all periods in this report.
The FHLBNY and its members share the credit risk of MPF loans by structuring potential credit losses into layers (See Note 1 — Significant Accounting Policies and Estimates in the Bank’s most recent Form 10-K filed on March 25, 2011). The first layer is typically 100 basis points but this varies with the particular MPF program. The amount of the first layer, or First Loss Account (“FLA”), was estimated as $12.3 million and $12.0 million at March 31, 2011 and December 31, 2010. The FLA is not recorded or reported as a reserve for loan losses as it serves as a memorandum or information account. The FHLBNY is responsible for absorbing the first layer. The second layer is that amount of credit obligations that the PFI has taken on which will equate the loan to a double-A rating. The FHLBNY pays a Credit Enhancement fee to the PFI for taking on this obligation. The FHLBNY assumes all residual risk. Credit Enhancement fees accrued were $0.3 million and $0.4 million for the three months ended March 31, 2011 and 2010, and reported as a reduction to mortgage loan interest income. The amount of charge-offs in each period reported was insignificant and it was not necessary for the FHLBNY to recoup any losses from the PFIs.
Allowance methodology for loan losses. The Bank performs periodic reviews of individual impaired mortgage loans within the MPF loan portfolio to identify the potential for losses inherent in the portfolio and to determine the likelihood of collection of the principal and interest. Mortgage loans that are past due 90 days or more past due or classified under regulatory criteria (Sub-standard, doubtful or Loss) are evaluated separately on a loan level basis for impairment. The FHLBNY bases its provision for credit losses on its estimate of probable credit losses inherent in the impaired MPF loan. The FHLBNY computes the provision for credit losses without considering the private mortgage insurance and other accompanying credit enhancement features (except the “First Loss Account”) to provide credit assurance to the FHLBNY. If adversely classified, or past due 90 days or more, reserves for conventional mortgage loans, except FHA- and VA-insured loans, are analyzed under liquidation scenarios on a loan level basis, and identified losses are fully reserved.
When a loan is foreclosed and the Bank takes possession of real estate, the Bank will charge to the loan loss reserve account any excess of the carrying value of the loan over the net realizable value of the foreclosed loan.
FHA- and VA- insured mortgage loans have minimal inherent credit risk. Risk of such loans generally arises from servicers defaulting on their obligations. If adversely classified, the FHLBNY will have reserves established only in the event of a default of a PFI, and reserves would be based on the estimated costs to recover any uninsured portion of the MPF loan.
Classes of the MPF loan portfolio would be subject to disaggregation to the extent that it is needed to understand the exposure to credit risk arising from these loans. The FHLBNY has determined that no further disaggregation of portfolio segments is needed, other than the methodology discussed above. The FHLBNY does not evaluate MPF loans collectively.
Allowance for loan losses have been recorded against the uninsured MPF loans. All other types of mortgage-loans were insignificant and no allowances were necessary.

20

Allowance for loan losses
The following provides a roll-forward analysis of the allowance for credit losses1 (in thousands):
         
  Three months ended March 31, 
  2011  2010 
Allowance for credit losses:
        
Beginning balance
 $5,760  $4,498 
Charge-offs  (615)  (33)
Recoveries  51   5 
Provision for credit losses on mortgage loans  1,773   709 
       
Ending balance
 $6,969  $5,179 
       
Ending balance, individually evaluated for impairment $6,969     
        
Recorded investment, end of period:
        
Individually evaluated for impairment $27,526     
        
1The Bank does not assess impairment on a collective basis.
Non-performing loans
Non-accrual loans are reported in the table below. Mortgage loans are considered impaired when, based on current information and events, it is probable that the FHLBNY will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreements. As of March 31, 2011 and December 31, 2010, the FHLBNY had no investment in impaired mortgage loans, other than the non-accrual loans.
The following table contrasts Non-performing loans and 90 day past due loans1 to total mortgage (in thousands):
         
  March 31, 2011  December 31, 2010 
Mortgage loans, net of provisions for credit losses $1,270,891  $1,265,804 
       
         
Non-performing mortgage loans $27,526  $26,781 
       
         
Insured MPF loans past due 90 days or more and still accruing interest $526  $574 
       
1Includes loans classified as sub-standard, doubtful or loss under regulatory criteria.
The following table summarizes the recorded investment, the unpaid principal balance and related allowance for impaired loans (individually assessed for impairment), and the average recorded investment of impaired loans1 & 2 (in thousands):
                     
  March 31, 2011 
      Unpaid      Average  Interest 
  Recorded  Principal  Related  Recorded  Income 
  Investment  Balance  Allowance  Investment  Recognized2 
With no related allowance:
                    
Conventional MPF Loans1
 $4,218  $4,201  $—  $4,598  $— 
                
  $4,218  $4,201  $—  $4,598  $— 
                
With an allowance:
                    
Conventional MPF Loans1
 $23,308  $23,324  $6,969  $22,861  $— 
                
  $23,308  $23,324  $6,969  $22,861  $— 
                
Total:
                    
Conventional MPF Loans1
 $27,526  $27,525  $6,969  $27,459  $— 
                
  $27,526  $27,525  $6,969  $27,459  $— 
                
                     
  December 31, 2010 
      Unpaid      Average  Interest 
  Recorded  Principal  Related  Recorded  Income 
  Investment  Balance  Allowance  Investment  Recognized2 
With no related allowance:
                    
Conventional MPF Loans1
 $5,876  $5,856  $—  $4,867  $— 
                
  $5,876  $5,856  $—  $4,867  $— 
                
With an allowance:
                    
Conventional MPF Loans1
 $20,909  $20,925  $5,760  $18,402  $— 
                
  $20,909  $20,925  $5,760  $18,402  $— 
                
Total:
                    
Conventional MPF Loans1
 $26,785  $26,781  $5,760  $23,269  $— 
                
  $26,785  $26,781  $5,760  $23,269  $— 
                
1Based on analysis of the nature of risks of the Bank’s investments in MPF loans, including its methodologies for identifying and measuring impairment, the management of the FHLBNY has determined that presenting such loans as a single class is appropriate.
2Insured loans were not considered impaired. The Bank does not recognize interest received as income from uninsured loans past due 90-days or greater.

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Mortgage loans — Interest on Non-performing loans
The FHLBNY’s interest contractually due and actually received for non-performing loans were as follows (in thousands):
         
  Three months ended March 31, 
  2011  2010 
Interest contractually due1
 $407  $310 
Interest actually received  372   279 
       
 
Shortfall $35  $31 
       
1The Bank does not recognize interest received as income from uninsured loans past due 90-days or greater.
Recorded investments1 in MPF loans that were past due loans and real-estate owned are summarized below (in thousands):
                         
  March 31, 2011  December 31, 2010 
  Conventional  Insured  Other  Conventional  Insured  Other 
  MPF Loans  Loans  Loans  MPF Loans  Loans  Loans 
Mortgage loans:
                        
Past due 30 - 59 days $22,773  $767  $—  $19,651  $768  $— 
Past due 60 - 89 days  6,011   112   —   6,437   207   — 
Past due 90 days or more  27,526   530   —   26,785   577   — 
                   
Total past due  56,310   1,409   —   52,873   1,552   — 
                   
Total current loans  1,220,268   4,865   279   1,214,725   4,119   3,799 
                   
Total mortgage loans $1,276,578  $6,274  $279  $1,267,598  $5,671  $3,799 
                   
Other delinquency statistics:
                        
Loans in process of foreclosure, included above $16,976  $325  $—  $14,615  $284  $— 
                   
Serious delinquency rate  2.21%  8.40%  —%  2.14%  10.11%  —%
                   
Serious delinquent loans total used in calculation of serious delinquency rate $28,214  $527  $—  $27,112  $573  $— 
                   
Past due 90 days or more and still accruing interest $—  $527  $—  $—  $573  $— 
                   
Loans on non-accrual status $27,526  $—  $—  $26,785  $—  $— 
                   
Troubled debt restructurings $—  $—  $—  $—  $—  $— 
                   
Real estate owned $670          $600         
                       
1Recorded investments include accrued interest receivable and would not equal reported carrying values.
Certain comparative data were reclassified to conform to the presentation adopted as of March 31, 2011, and had no impact on the financial conditions, results of operations or cash flows since the reclassification impacted disclosures only.
Note 8. Deposits.
The FHLBNY accepts demand, overnight and term deposits from its members. A member that services mortgage loans may deposit in the FHLBNY funds collected in connection with the mortgage loans, pending disbursement of such funds to the owners of the mortgage loans.
The following table summarizes term deposits (in thousands):
         
  March 31, 2011  December 31, 2010 
 
Due in one year or less $43,800  $42,700 
       
         
Total term deposits
 $43,800  $42,700 
       
Note 9. Borrowings.
Securities sold under agreements to repurchase
The FHLBNY did not have any securities sold under agreement to repurchase as of March 31, 2011 and December 31, 2010. Terms, amounts and outstanding balances of borrowings from other Federal Home Loan Banks are described under Note 18 — Related Party Transactions.
Note 10. Consolidated Obligations.
Consolidated obligations are the joint and several obligations of the FHLBanks and consist of bonds and discount notes. The FHLBanks issue consolidated obligations through the Office of Finance as their fiscal agent. Consolidated bonds are issued primarily to raise intermediate- and long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits on maturity. Consolidated discount notes are issued primarily to raise short-term funds. Discount notes sell at less than their face amount and are redeemed at par value when they mature.
Finance Agency regulations require the FHLBanks to maintain, in the aggregate, unpledged qualifying assets equal to the consolidated obligations outstanding. Qualifying assets are defined as cash; secured advances; assets with an assessment or rating at least equivalent to the current assessment or rating of the consolidated obligations; obligations, participations, mortgages, or other securities of or issued by the United States or an agency of the United States; and securities in which fiduciary and trust funds may invest under the laws of the state in which the FHLBank is located.

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The FHLBNY met the qualifying unpledged asset requirements as follows:
         
  March 31, 2011  December 31, 2010 
Percentage of unpledged qualifying assets to consolidated obligations
  110%  110%
       
The following summarizes consolidated obligations issued by the FHLBNY and outstanding at March 31, 2011 and December 31, 2010 (in thousands):
         
  March 31, 2011  December 31, 2010 
         
Consolidated obligation bonds-amortized cost $68,050,887  $71,114,070 
Fair value basis adjustments  473,369   622,593 
Fair value basis on terminated hedges  468   501 
FVO-valuation adjustments and accrued interest  5,257   5,463 
       
         
Total Consolidated obligation-bonds
 $68,529,981  $71,742,627 
       
         
Discount notes-amortized cost $19,504,022  $19,388,317 
FVO-valuation adjustments and remaining accretion  3,137   3,135 
       
         
Total Consolidated obligation-discount notes
 $19,507,159  $19,391,452 
       
Redemption Terms of consolidated obligation bonds
The following is a summary of consolidated bonds outstanding by year of maturity (dollars in thousands):
                         
  March 31, 2011  December 31, 2010 
      Weighted          Weighted    
      Average  Percentage      Average  Percentage 
Maturity Amount  Rate1  of Total  Amount  Rate1  of Total 
 
One year or less $32,657,200   0.82%  48.09% $33,302,200   0.91%  46.91%
Over one year through two years  13,108,225   1.38   19.30   17,037,375   1.12   24.00 
Over two years through three years  10,607,250   2.12   15.62   9,529,950   2.21   13.43 
Over three years through four years  4,060,080   2.65   5.98   3,689,355   2.82   5.20 
Over four years through five years  3,777,300   2.32   5.56   4,001,400   2.36   5.64 
Over five years through six years  573,700   3.22   0.85   462,500   3.34   0.65 
Thereafter  3,121,315   3.91   4.60   2,959,200   4.04   4.17 
                   
                         
   67,905,070   1.49%  100.00%  70,981,980   1.46%  100.00%
                     
                         
Bond premiums  176,028           163,830         
Bond discounts  (30,211)          (31,740)        
Fair value basis adjustments  473,369           622,593         
Fair value basis adjustments on terminated hedges  468           501         
FVO-valuation adjustments and accrued interest  5,257           5,463         
                       
                         
  $68,529,981          $71,742,627         
                       
1Weighted average rate represents the weighted average coupons of bonds, unadjusted for swaps. The weighted average coupon of bonds outstanding at March 31, 2011 and December 31, 2010 represent contractual coupons payable to investors.
Amortization of bond premiums and discounts resulted in net reduction of interest expense of $12.7 million and $7.2 million for the three months ended March 31, 2011 and 2010. Amortization of basis adjustments from terminated hedges were $1.0 million and $1.6 million, and were recorded as an expense for the three months ended March 31, 2011 and 2010.
In the three months ended March 31, 2011, the Bank transferred and retired $478.6 million of consolidated obligation bonds, resulting in a charge to Net income of $52.0 million. The transfers and retirements were at negotiated market rates. There were no retirements and transfers of debt in the same period in 2010.

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Discount Notes
Consolidated discount notes are issued to raise short-term funds. Discount notes are consolidated obligations with original maturities of up to one year. These notes are issued at less than their face amount and redeemed at par when they mature. The FHLBNY’s outstanding consolidated discount notes were as follows (dollars in thousands):
         
  March 31, 2011  December 31, 2010 
         
Par value $19,509,575  $19,394,503 
       
         
Amortized cost $19,504,022  $19,388,317 
Fair value option valuation adjustments  3,137   3,135 
       
         
Total
 $19,507,159  $19,391,452 
       
         
Weighted average interest rate
  0.11%  0.16%
       
Note 11. Capital Stock and Mandatorily Redeemable Capital Stock.
The FHLBanks, including the FHLBNY, have a cooperative structure. To access FHLBNY’s products and services, a financial institution must be approved for membership and purchase capital stock in FHLBNY. A member’s stock requirement is generally based on its use of FHLBNY products, subject to a minimum membership requirement, as prescribed by the FHLBank Act and the FHLBNY Capital Plan. FHLBNY stock can be issued, exchanged, redeemed and repurchased only at its stated par value of $100 per share. It is not publicly traded. An option to redeem capital stock that is greater than a member’s minimum requirement is held by both the member and the FHLBNY.
Under the Gramm-Leach-Bliley Act of 1999 (“GLB Act”) and the Finance Agency’s capital regulations, the FHLBNY’s Capital Plan offers two sub-classes of Class B capital stock, Class B1 and Class B2. Class B1 stock is issued to meet membership stock purchase requirements. Class B2 stock is issued to meet activity-based requirements. The FHLBNY requires member institutions to maintain Class B1 stock based on a percentage of the member’s mortgage-related assets and Class B2 stock-based on a percentage of advances and acquired member assets outstanding with the FHLBank and certain commitments outstanding with the FHLBank. Class B1 and Class B2 stockholders have the same voting rights and dividend rates.
Members can redeem Class A stock by giving six months’ notice, and redeem Class B stock by giving five years notice. Only “permanent” capital, defined as retained earnings and Class B stock, satisfies the FHLBank risk-based capital requirement. In addition, the GLB Act specifies a 5.0 percent minimum leverage ratio based on total capital and a 4.0 percent minimum capital ratio. The latter ratio does not include the 1.5 weighting factor applicable to the permanent capital used in determining compliance with the 5.0 percent minimum leverage ratio.
Capital Plan under GLB Act
The FHLBNY implemented its current capital plan on December 1, 2005 through the issuance of Class B stock. The conversion was considered a capital exchange and was accounted for at par value. Members’ capital stock held immediately prior to the conversion date was automatically exchanged for an equal amount of Class B Capital Stock, comprised of Membership Stock (referred to as “Subclass B1 Stock”) and Activity-Based Stock (referred to as “Subclass B2 Stock”).
Any member that withdraws from membership must wait five years from the divestiture date for all capital stock that is held as a condition of membership, unless the institution has cancelled its notice of withdrawal prior to that date and before being readmitted to membership in any FHLBank. Commencing in 2008, the Bank at its discretion may repay a non-member’s membership stock before the end of the five-year waiting period.
The FHLBNY is subject to risk-based capital rules. Specifically, the FHLBNY is subject to three capital requirements under its capital plan. First, the FHLBNY must maintain at all times permanent capital in an amount at least equal to the sum of its credit risk, its market risk, and operations risk capital requirements calculated in accordance with the FHLBNY policy, rules, and regulations of the Finance Agency. Only permanent capital, defined as Class B stock and retained earnings, satisfies this risk-based capital requirement. The Finance Agency may require the FHLBNY to maintain a greateran amount of permanent capital greater than what is required as defined by the risk-based capital requirements. In addition, the FHLBNY is required to maintain at least a 4.0% total capital-to-asset ratio and at least a 5.0% leverage ratio at all times. The leverage ratio is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 time divided by total assets. The FHLBNY was in compliance with the aforementioned capital rules and requirements for all periods presented.
The FHLBNY’s capital planCapital Plan allows the FHLBNYBank to recalculate the membership stock purchase requirement any time after 30 days subsequent to a merger. The planCapital Plan also permits the FHLBNY to use a zero mortgage asset base in performing the calculation, which recognizes the fact that the corporate entity that was once its member no longer exists. Under the plan,The Capital Plan would allow the FHLBNY couldto determine that all of the membership stock formerly held by the member becomes excess stock, which giveswould give the FHLBNY the discretion, but not the obligation, to repurchase that stock prior to the expiration of the five-year notice period.period.

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Capital RatiosStandards
The GLB Act specifies that the FHLBanks must meet certain minimum capital standards, including the maintenance of a minimum level of permanent capital sufficient to cover the credit, market, and operations risks to which the FHLBanks are subject. The FHLBNY must maintain: (1) a total capital ratio of at least 4.0%; (2) a leverage capital ratio of at least 5.0%; and (3) permanent capital in an amount equal to or greater than the “risk-based capital requirement” specified in the Finance Agency’s regulations. The capital requirements are described in greater detail below.
The total capital ratio is the ratio of the FHLBNY’s total capital to its total assets. Total capital is the sum of: (1) capital stock; (2) retained earnings; (3) the general allowance for losses (if any); and (4) such other amounts (if any) that the Finance Agency may decide are appropriate to include. Finance Agency regulations require that the FHLBNY maintain a minimum total capital ratio of 4.0%.
The leverage ratio is the weighted ratio of total capital to total assets. For purposes of determining this weighted average ratio, total capital is computed by multiplying the FHLBNY’s permanent capital by 1.5 and adding to this product all other components of total capital. Finance Agency regulations require that the FHLBNY maintain a minimum leverage ratio of 5.0%.
The Finance Agency has established criteria for each of the following capital classifications, based on the amount and type of capital held by an FHLBank: adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. This regulation defines critical capital levels for the FHLBanks, establishes the criteria for each of the capital classifications identified in the Housing Act and implements the Finance Agency’s prompt correction action authority over the FHLBanks. On July 20, 2009, the Finance Agency published Advisory Bulletin 2009-AB-01, which identified preliminary FHLBank capital classifications as a form of supervisory correspondence that should be treated by an FHLBank as unpublished information. Under this Advisory Bulletin, preliminary FHLBank capital classifications should be publicly disclosed only if the information is material to that FHLBank’s financial condition and business operations, provided that the disclosure is limited to a recital of the factual content of the unpublished information. (See Note 14 to the audited financial statements filed on March 25, 2011).
The FHLBNY met the “adequately capitalized” classification, which is the highest rating, under the Capital Rule. However, the Finance Agency has discretion to reclassify an FHLBank and to modify or add to the corrective action requirements for a particular capital classification.
Risk-based capital
The following table summarizes the Bank’s risk-based capital ratios (dollars in thousands):
                                
 September 30, 2010 December 31, 2009  March 31, 2011 December 31, 2010 
 Required4 Actual Required4 Actual  Required4 Actual Required4 Actual 
Regulatory capital requirements:  
Risk-based capital1
 $473,275 $5,432,169 $606,716 $5,874,125  $548,640 $5,099,440 $538,917 $5,304,272 
Total capital-to-asset ratio  4.00%  5.27%  4.00%  5.14%  4.00%  5.27%  4.00%  5.30%
Total capital2
 $4,123,742 $5,437,706 $4,578,436 $5,878,623  $3,874,953 $5,106,409 $4,008,483 $5,310,032 
Leverage ratio  5.00%  7.91%  5.00%  7.70%  5.00%  7.90%  5.00%  7.95%
Leverage capital3
 $5,154,677 $8,153,790 $5,723,045 $8,815,685  $4,843,692 $7,656,129 $5,010,604 $7,962,168 
1 Actual “Risk-based capital” is capital stock and retained earnings plus mandatorily redeemable capital stock. Section 932.2 of the Finance Agency’s regulations also refers to this amount as “Permanent Capital.”
 
2 Required “Total capital” is 4%4.0% of total assets. Actual “Total capital” is Actual “Risk-based capital” plus allowance for credit losses. Does not include reserves for the Lehman Brothers receivable which is a specific reserve.
 
3 Actual “Leverage capital” is Actual “Risk-based capital” times 1.5 plus allowance for loan losses.
 
4 Required minimum.
The Finance Agency has indicated that the accounting treatment for certain shares determined to be mandatorily redeemable will not be included in the definition of total capital for purposes of determining the Bank’s compliance with regulatory capital requirements, calculating mortgage securities investment authority (300 percent of total capital), calculating unsecured credit exposure to other GSEs (100 percent of total capital), or calculating unsecured credit limits to other counterparties (various percentages of total capital depending on the rating of the counterparty).
Mandatorily Redeemable Capital Stockredeemable capital stock
Generally, the FHLBNY’s capital stock is redeemable at the option of either the member or the FHLBNY subject to certain conditions, and is subject toincluding the provisions under the accounting guidance for certain financial instruments with characteristics of both liabilities and equity.
The FHLBNY is a cooperative whose member financial institutions own almost all of the FHLBNY’s capital stock. Member shares cannot be purchased or sold except between the Bank and its members at its $100 per share par value. Also, the FHLBNY does not have equity securities that trade in a public market. Future filingsIn accordance with the SEC will not be in anticipation of the sale of equity securities in a public market as the FHLBNY is prohibited by law from doing so, and the FHLBNY is not controlled by an entity that has equity securities traded or contemplated to be traded in a public market. Therefore, the FHLBNY is a nonpublic entity based on the definition given in the accounting guidance for certain financial instruments with characteristics of both liabilities and equity. In addition, although the FHLBNY is a nonpublic entity, the FHLBanks issue consolidated obligations that are traded in the public market. Based on this factor, the FHLBNY complies with the provisions of the accounting guidance for certain financial instruments with characteristics of both liabilities and equity, as a nonpublic SEC registrant.
In accordance with the accounting guidance, the FHLBNY generally reclassifies the stock subject to redemption from equity to a liability once a member: irrevocably exercises a written redemption right; gives notice of intent to withdraw from membership; or attains non-member status by merger or acquisition, charter termination, or involuntary termination from membership. Under such circumstances, the member shares will then meet the definition of a mandatorily redeemable financial instrument and are reclassified to a liability at fair value. Dividends on member shares are accrued and also classified as a liability in the Statements of Condition and reported as interest expense in the Statements of Income. The repayment of these mandatorily redeemable financial instruments, once settled, is reflected as financing cash outflows in the Statements of Cash Flows.

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If a member cancels its notice of voluntary withdrawal, the FHLBNY will reclassify the mandatorily redeemable capital stock from a liability to equity. After the reclassification, dividends on the capital stock will no longer be classified as interest expense.

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At September 30, 2010 and December 31, 2009, mandatorily redeemable capital stock of $67.3 million and $126.3 million were held by former members who had attained non-member status by virtue of being acquired by non-members. A small number of members had also become non-members by relocating their charters to outside the FHLBNY’s membership district.
Anticipated redemptions of mandatorily redeemable capital stock were as follows (in thousands):
                
 September 30, 2010 December 31, 2009  March 31, 2011 December 31, 2010 
 
Redemption less than one year $45,708 $102,453  $37,418 $27,875 
Redemption from one year to less than three years 14,650 16,766  4,959 17,019 
Redemption from three years to less than five years 2,037 2,118  459 2,035 
Redemption after five years or greater 4,953 4,957  16,290 16,290 
          
  
Total
 $67,348 $126,294  $59,126 $63,219 
          
Anticipated redemptions assume the Bank will follow its current practice of daily redemption of capital in excess of the amount required to support advances. Commencing January 1, 2008, the Bank mayhas exercised its discretionary authority provided under its Capital Plan to also redeem at its discretion, non-members’ membership stock.
Note 12. Affordable Housing ProgramVoluntary withdrawal from membership— As of March 31, 2011, one member had formally notified the Bank of its intent to withdraw from membership and REFCORP.voluntarily redeem its capital stock. There was one termination from membership due to insolvency for the three months ended March 31, 2011. In the same period in 2010, two members became non-members due to insolvency.
The FHLBank Act requires each FHLBank to establish an AHP. Each FHLBank provides subsidiesMembers acquired by non-members— No member became a non-member during the three months ended March 31, 2011 and in the form of direct grants and below-market interest rate advances to members who usesame period in 2010. When a member is acquired by a non-member, the funds to assist the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBanks must set aside for the AHP the greater of $100 million or 10 percent of regulatory defined income for the specific purpose of calculating AHP and REFCORP assessments. The FHLBNY charges the amount set aside for AHP to income and recognizes it as a liability. The FHLBNY relieves the AHP liability as members use the subsidies. If the resultreclassifies stock of the aggregate 10 percent calculation described above is less than $100 million for all twelve FHLBanks, then the FHLBank Act requires the shortfallmember to be allocated among the FHLBanks baseda liability on the ratio of each FHLBank’s income before AHP and REFCORP today the sum ofmember’s charter is dissolved. Under existing practice, the income before AHP and REFCORP of the twelve FHLBanks. There was no shortfall as of September 30, 2010 or at December 31, 2009.
Income for the purposes of calculating assessments is GAAP Net income before assessments, and before interest expense related to mandatorily redeemable capitalFHLBNY repurchases stock but after the assessment for REFCORP. The exclusion of interest expense related to mandatorily redeemable capitalheld by former members if such stock is a regulatory interpretationconsidered “excess” and is no longer required to support outstanding advances. Membership stock held by the Finance Agency. The AHPformer members is reviewed and REFCORP assessments are calculated simultaneously because of their interdependence on each other. Each FHLBank accrues this expense monthly based on its income before assessments. A FHLBank reduces its AHP liability as members use subsidies.repurchased annually.
The following table provides roll-forward information with respect to changes in Affordable Housing Programmandatorily redeemable capital stock liabilities (in thousands):
                        
 Three months ended September 30, Nine months ended September 30,  Three months ended March 31, 
 2010 2009 2010 2009  2011 2010 
 
Beginning balance
 $144,074 $140,037 $144,489 $122,449  $63,219 $126,294 
Additions from current period’s assessments 8,852 15,780 21,350 53,363 
Net disbursements for grants and programs  (14,931)  (10,995)  (27,844)  (30,990)
Capital stock subject to mandatory redemption reclassified from equity 98 1,410 
Redemption of mandatorily redeemable capital stock1
  (4,191)  (22,512)
              
  
Ending balance
 $137,995 $144,822 $137,995 $144,822  $59,126 $105,192 
              
 
Accrued interest payable
 $847 $1,495 
     

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1Redemption includes repayment of excess stock.
(The annualized accrual rates were 5.80% for March 31, 2011 and 5.60% for March 31, 2010.)

Note 13.12. Total comprehensive income.Comprehensive Income.
Total comprehensive income is comprised of Net income and Accumulated other comprehensive income (loss) (“AOCI”), which includes unrealized gains and losses on available-for-sale securities, cash flow hedging activities, employee supplemental retirement plans, and the non-credit portion of OTTI on HTM securities.
Changes in AOCI and total comprehensive income were as follows for the three and nine months ended September 30,March 31, 2011 and 2010 and 2009 (in thousands):
                             
  Three months ended September 30 
      Non-credit          Accumulated        
  Available-  OTTI on HTM  Cash  Supplemental  Other      Total 
  for-sale  securities,  flow  Retirement  Comprehensive  Net  Comprehensive 
  securities  net of accretion  hedges  Plans  Income (Loss)  Income  Income 
                             
Balance, June 30, 2009 $(10,129) $(77,159) $(26,402) $(6,550) $(120,240)        
                             
Net change  (5,956)  (23,304)  1,898   —   (27,362) $140,219  $112,857 
                      
                             
Balance, September 30, 2009 $(16,085) $(100,463) $(24,504) $(6,550) $(147,602)        
                        
                             
Balance, June 30, 2010 $20,182  $(101,877) $(19,614) $(7,877) $(109,186)        
                             
Net change  3,633   5,834   1,882   —   11,349  $78,792  $90,141 
                      
                             
Balance, September 30, 2010 $23,815  $(96,043) $(17,732) $(7,877) $(97,837)        
                        
                                 
      Non-credit  Reclassification          Accumulated        
  Available-  OTTI on HTM  of Non-credit  Cash  Supplemental  Other      Total 
  for-sale  Securities,  OTTI to  Flow  Retirement  Comprehensive  Net  Comprehensive 
  Securities  Net of accretion  Net Income  Hedges  Plans  Income (Loss)  Income  Income 
Balance, December 31, 2009  (3,409)  (113,562)  2,992   (22,683)  (7,877)  (144,539)        
                                 
Net change  14,930   2,363   1,595   2,132   —   21,020  $53,640  $74,660 
                         
                                 
Balance, March 31, 2010 $11,521  $(111,199) $4,587  $(20,551) $(7,877) $(123,519)        
                           
                                 
Balance, December 31, 2010  22,965   (101,560)  8,634   (15,196)  (11,527)  (96,684)        
                                 
Net change  (7,986)  3,285   370   3,728   —   (603) $70,981  $70,378 
                         
                                 
Balance, March 31, 2011 $14,979  $(98,275) $9,004  $(11,468) $(11,527) $(97,287)        
                           

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  Nine months ended September 30 
      Non-credit          Accumulated        
  Available-  OTTI on HTM  Cash  Supplemental  Other      Total 
  for-sale  securities,  flow  Retirement  Comprehensive  Net  Comprehensive 
  securities  net of accretion  hedges  Plans  Income (Loss)  Income  Income 
                             
Balance, December 31, 2008 $(64,420) $—  $(30,191) $(6,550) $(101,161)        
                             
Net change  48,335   (100,463)  5,687   —   (46,441) $474,786  $428,345 
                      
                             
Balance, September 30, 2009 $(16,085) $(100,463) $(24,504) $(6,550) $(147,602)        
                        
                             
Balance, December 31, 2009 $(3,409) $(110,570) $(22,683) $(7,877) $(144,539)        
                             
Net change  27,224   14,527   4,951   —   46,702  $189,097  $235,799 
                      
                             
Balance, September 30, 2010 $23,815  $(96,043) $(17,732) $(7,877) $(97,837)        
                        
Note 14.13. Earnings per sharePer Share of capital.Capital.
The following table sets forth the computation of earnings per share (dollars in thousands except per share amounts):
                        
 Three months ended September 30, Nine months ended September 30,  Three months ended March 31, 
 2010 2009 2010 2009  2011 2010 
 
Net income $78,792 $140,219 $189,097 $474,786  $70,981 $53,640 
              
  
Net income available to stockholders
 $78,792 $140,219 $189,097 $474,786  $70,981 $53,640 
              
  
Weighted average shares of capital 46,800 53,233 48,429 54,505  44,733 50,372 
Less: Mandatorily redeemable capital stock  (685)  (1,280)  (910)  (1,351)  (592)  (1,084)
              
Average number of shares of capital used to calculate earnings per share 46,115 51,953 47,519 53,154  44,141 49,288 
              
  
Net earnings per share of capital
 $1.71 $2.70 $3.98 $8.93 
Basic earnings per share
 $1.61 $1.09 
              
Basic and diluted earnings per share of capital are the same. The FHLBNY has no dilutive potential common shares or other common stock equivalents.

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Note 15.14. Employee retirement plans.Retirement Plans.
The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (“DB Plan”). The DB Plan is a tax-qualified multiple-employer defined benefit pension plan that covers all officers and employees of the Bank. For accounting purposes, the DB Plan is a multi-employer plan and does not segregate its assets, liabilities, or costs by participating employer. The Bank also participates in the Pentegra Defined Contribution Plan for Financial Institutions, a tax-qualified defined contribution plan. The Bank’s contributions are a matching contribution equal to a percentage of voluntary employee contributions, subject to certain limitations.
In addition, the Bank maintains a Benefit Equalization Plan (“BEP”) that restores defined benefits and contribution benefits to those employees who have had their qualified defined benefit and defined contribution benefits limited by IRS regulations. The contribution component of the BEP is a supplemental defined contribution plan. The plan’s liability consists of the accumulated compensation deferrals and accrued interest on the deferrals. The BEP is an unfunded plan. The Bank has established several grantor trustsa grantors trust to meet future benefit obligations and current payments to beneficiaries in the supplemental pension plans. The Bank also offers a Retiree Medical Benefit Plan, which is a postretirement health benefit plan. There are no funded plan assets that have been designated to provide postretirement health benefits.
On January 1, 2009, the Bank offered a Nonqualified Deferred Compensation Plan to certain officer employees and to the members of the Board of Directors of the Bank. Participants in the plan would elect to defer all or a portion of their compensation earned for a minimum period of five years. This benefit plan and other nonqualified supplemental pension plans were terminated effective November 10, 2009. Plan terminations had no material effect on the Bank’s financial results, financial position or cash flows for all reported periods.
Retirement Plan Expenses—Summary
The following table presents employee retirement plan expenses for the periodsthree months ended March 31, 2011 and 2010 (in thousands):
                        
 Three months ended September 30, Nine months ended September 30,  Three months ended March 31, 
 2010 2009 2010 2009  2011 2010 
 
Defined Benefit Plan $4,000 $1,441 $6,623 $4,324  $26,467 $1,312 
Benefit Equalization Plan (defined benefit) 570 515 1,710 1,544  695 570 
Defined Contribution Plan and BEP Thrift 528 582 1,137 1,366 
Defined Contribution Plan 351 235 
Postretirement Health Benefit Plan 281 251 843 753  285 281 
              
  
Total retirement plan expenses
 $5,379 $2,789 $10,313 $7,987  $27,798 $2,398 
              
The increase in 2010 expenses was primarily dueIn March 2011, the FHLBNY contributed $24.0 million to a short fall payment on theits Defined Benefit Plan.
Benefit Equalization Plan (BEP)
to eliminate a funding shortfall. Prior to the contribution, the DB Plan’s adjusted funding target attainment percentage (“AFTAP”) was 79.93% (80%). The plan’s liability consistedAFTAP equals DB Plan assets divided by plan liabilities. Under the Pension Protection Act of 2006 (“PPA”), if the accumulated compensation deferralsAFTAP in any future year is less than 80%, then the DB Plan will be restricted in its ability to provided increased benefits and accrued interest on/or lump sum distributions. If the deferrals. There were no plan assets that have been designatedAFTAP in any future year is less than 60%, then benefit accruals will be frozen. The contribution to the DB Plan was charged to Net income for the BEP plan.three months ended March 31, 2011. Subsequent to the contribution, the AFTAP was about 96%.
Components of the net periodic pension cost for the defined benefit component of the BEP, an unfunded plan, were as follows (in thousands):
                        
 Three months ended September 30, Nine months ended September 30,  Three months ended March 31, 
 2010 2009 2010 2009  2011 2010 
Service cost $163 $153 $489 $458  $165 $163 
Interest cost 279 263 837 789  323 279 
Amortization of unrecognized prior service cost  (17)  (36)  (50)  (108)  (13)  (17)
Amortization of unrecognized net loss 145 135 434 405  220 145 
              
  
Net periodic benefit cost
 $570 $515 $1,710 $1,544  $695 $570 
              

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Key assumptions and other information for the actuarial calculations to determine current period’s benefit obligations for the FHLBNY’s BEP plan were as follows (dollars in thousands):
                
 September 30, 2010 December 31, 2009  March 31, 2011 December 31, 2010 
  
Discount rate *  5.87%  5.87%  5.35%  5.35%
Salary increases  5.50%  5.50%  5.50%  5.50%
Amortization period (years) 8 8  8 8 
Benefits paid during the year $(739)** $(537)
Benefits paid during the period $(1,006)** $(515)
* The discount rate was based on the Citigroup Pension Liability Index at December 31, 20092010 and adjusted for duration.
 
** Forecast for the entire year.

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Postretirement Health Benefit Plan
The FHLBNY has a postretirement health benefit plan for retirees called the Retiree Medical Benefit Plan. Employees over the age of 55 are eligible provided they have completed ten years of service after age 45.
Components of the net periodic benefit cost for the postretirement health benefit plan were (in thousands):
                        
 Three months ended September 30, Nine months ended September 30,  Three months ended March 31, 
 2010 2009 2010 2009  2011 2010 
  
Service cost (benefits attributed to service during the period) $157 $139 $470 $417  $180 $157 
Interest cost on accumulated postretirement health benefit obligation 229 217 687 651  221 229 
Amortization of loss 78 78 235 234  67 78 
Amortization of prior service cost/(credit)  (183)  (183)  (549)  (549)  (183)  (183)
              
 
Net periodic postretirement health benefit cost
 $281 $251 $843 $753  $285 $281 
              
The measurement date used to determine current period’s benefit obligation was December 31, 2010.
Key assumptions and other information to determine current period’s obligation for the FHLBNY’s postretirement health benefit plan were as follows:
                
 September 30, 2010 December 31, 2009  March 31, 2011 December 31, 2010 
Weighted average discount rate at the end of the year  5.87%  5.87%
 
Weighted average discount rate  5.35%  5.35%
  
Health care cost trend rates:  
Assumed for next year  10.00%  10.00%  9.00%  9.00%
Pre 65 Ultimate rate  5.00%  5.00%  5.00%  5.00%
Pre 65 Year that ultimate rate is reached 2016 2016  2016 2016 
Post 65 Ultimate rate  6.00%  6.00%  6.00%  6.00%
Post 65 Year that ultimate rate is reached 2016 2016  2016 2016 
Alternative amortization methods used to amortize  
Prior service cost Straight - line Straight - line  Straight - line Straight - line 
Unrecognized net (gain) or loss Straight - line Straight - line  Straight - line Straight - line 
The discount rate was based on the Citigroup Pension Liability Index at December 31, 20092010 and adjusted for duration.

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Note 16.15. Derivatives and hedging activities.Hedging Activities.
General-— The FHLBNY may enter into interest-rate swaps, swaptions, and interest-rate cap and floor agreements to manage its exposure to changes in interest rates. The FHLBNY may also use callable swaps to potentially adjust the effective maturity, repricing frequency, or option characteristics of financial instruments to achieve risk management objectives. The FHLBNY uses derivatives in three ways: by designating them as a fair value or cash flow hedge of an underlying financial instrument or a forecasted transaction that qualifies for hedge accounting treatment; by acting as an intermediary; or by designating the derivative as an asset-liability management hedge (i.e., an “economic hedge”). For example, the FHLBNY uses derivatives in its overall interest-rate risk management to adjust the interest-rate sensitivity of consolidated obligations to approximate more closely the interest-rate sensitivity of assets (both advances and investments), and/or to adjust the interest-rate sensitivity of advances, investments or mortgage loans to approximate more closely the interest-rate sensitivity of liabilities. In addition to using derivatives to manage mismatches of interest rates between assets and liabilities, the FHLBNY also uses derivatives: to manage embedded options in assets and liabilities; to hedge the market value of existing assets and liabilities and anticipated transactions; to hedge the duration risk of prepayable instruments; and to reduce funding costs where possible.
In an economic hedge, a derivative hedges specific or non-specific underlying assets, liabilities or firm commitments, but the hedge does not qualify for hedge accounting under the accounting standards for derivatives and hedging; it is, however, an acceptable hedging strategy under the FHLBNY’s risk management program. These strategies also comply with the Finance Agency’s regulatory requirements prohibiting speculative use of derivatives. An economic hedge introduces the potential for earnings variability due to the changes in fair value recorded on the derivatives that are not offset by corresponding changes in the value of the economically hedged assets, liabilities, or firm commitments. The FHLBNY will execute an interest rate swap to match the terms of an asset or liability that is elected under the Fair Value Option (“FVO”) and the swap is also considered as an economic hedge to mitigate the volatility of the FVO designated asset or liability due to change in the full fair value of the designated asset or liability. In the third quarter of 2008 and periodically thereafter, theThe FHLBNY elected to use the FVO for certain consolidated obligation debt and executed interest rate swaps to offset the fair value changes of the bonds.

28

The FHLBNY, consistent with Finance Agency’s regulations, enters into derivatives to manage the market risk exposures inherent in otherwise unhedged assets and funding positions. The FHLBNY utilizes derivatives in the most cost efficient manner and may enter into derivatives as economic hedges that do not qualify for hedge accounting under the accounting standards for derivatives and hedging. As a result, when entering into such non-qualified hedges, the FHLBNY recognizes only the change in fair value of these derivatives in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities with no offsetting fair value adjustments for the hedged asset, liability, or firm commitment.
Hedging activities
Consolidated Obligations-— The FHLBNY manages the risk arising from changing market prices and volatility of a consolidated obligation by matching the cash inflows on the derivative with the cash outflow on the consolidated obligation. While consolidated obligations are the joint and several obligations of the FHLBanks, one or more FHLBanks may individually serve as counterparties to derivative agreements associated with specific debt issues. For instance, in a typical transaction, fixed-rate consolidated obligations are issued for one or more FHLBanks, and each of those FHLBanks could simultaneously enter into a matching derivative in which the counterparty pays to the FHLBank fixed cash flows designed to mirror in timing and amount the cash outflows the FHLBank pays on the consolidated obligations. When such transactions qualify for hedge accounting they are treated as fair value hedges under the accounting standards for derivatives and hedging. The FHLBNY has also elected to use the Fair Value Option (“FVO”)FVO for certain consolidated obligation bonds and discount notes and these were measured under the accounting standards forat fair value measurements, as economic hedges, and tovalue. To mitigate the volatility resulting from changes in fair values of bonds and notes designated under the FVO, the Bank has also executed interest rate swaps.swaps as economic hedges of the bonds and notes.
The FHLBNY hadhas issued variable-rate consolidated obligations bonds indexed to 1 month-LIBOR, the U.S. Prime rate, or Federal funds rate and simultaneously executeexecuted interest-rate swaps (“basis swaps”) to hedge the basis risk of the variable rate debt to 3-month LIBOR, the FHLBNY’s preferred funding base. The interest rate basis swaps were accounted for as economic hedges of the floating-rate bonds because the FHLBNY deemed that the operational cost of designating the hedges under accounting standards for derivatives and hedge accounting would outweigh the accounting benefits.
The issuance of the consolidated obligation fixed-rate bonds to investors and the execution of interest rate swaps typically results in cash flow pattern in which the FHLBNY has effectively converted the bonds’ fixed cash flows to variable cash flows that closely match the interest payments it receives on short-term or variable-rate advances. From time-to-time, this intermediation between the capital and swap markets has permitted the FHLBNY to raise funds at a lower cost than would otherwise be available through the issuance of simple fixed- or floating-rate consolidated obligations in the capital markets. The FHLBNY does not issue consolidated obligations denominated in currencies other than U.S. dollars.
Advances-—With a putable fixed-rate advance borrowed by a member, the FHLBNY may purchase from the member a put option that enables the FHLBNY to effectively convert an advance from fixed-rate to floating-rate by exercising the put option and terminating the advance at par on the pre-determined put exercise dates. Typically, the FHLBNY will exercise the option in a rising interest rate environment. The FHLBNY may hedge a putable advance by entering into a cancelable interest rate swap in which the FHLBNY pays to the swap counterparty fixed-rate cash flows and receives variable-rate cash flows. This type of hedge is treated as a fair value hedge under the accounting standards for derivatives and hedging. The swap counterparty can cancel the swap on the put date, which would

38

normally occur in a rising rate environment, and the FHLBNY can terminate the advance and extend additional credit to the member on new terms.
The optionality embedded in certain financial instruments held by the FHLBNY can create interest-rate risk. When a member prepays an advance, the FHLBNY could suffer lower future income if the principal portion of the prepaid advance were reinvested in lower-yielding assets that would continue to be funded by higher-cost debt. To protect against this risk, the FHLBNY generally charges a prepayment fee that makes it financially indifferent to a borrower’s decision to prepay an advance. When the Bank offers advances (other than short-term) that are prepayable by members may prepay without a prepayment fee, it usually finances such advances with callable debt. The Bank has not elected the FVO for any advances.
Mortgage Loans-— The FHLBNY invests in mortgage assets. The prepayment options embedded in mortgage assets can result in extensions or reductions in the expected maturities of these investments, depending on changes in estimated prepayment speeds. Net income would decline if the FHLBNY replaced the mortgages with lower yielding assets and if the Bank’s higher funding costs were not reduced concomitantly. Finance Agency regulations limit this source of interest-rate risk by restricting the types of mortgage assets the Bank may own to those with limited average life that changes under certain interest-rate shock scenarios and by establishing limitations on duration of equity and changes in market value of equity. The FHLBNY may manage against prepayment and duration risk by funding some mortgage assets with consolidated obligations that have call features. In addition, the FHLBNY may use derivatives to manage the prepayment and duration variability of mortgage assets. Net income could be reduced if the FHLBNY replaces the mortgages with lower yielding assets and if the Bank’s higher funding costs are not reduced concomitantly.
The FHLBNY manages the interest rate and prepayment risks associated with mortgages through debt issuance. The FHLBNY issues both callable and non-callable debt to achieve cash flow patterns and liability durations similar to those expected on the mortgage loans. The FHLBNY analyzes the duration, convexity and earnings risk of the mortgage portfolio on a regular basis under various rate scenarios.

29

The Bank has not elected to use the FVO for any mortgage loans. No mortgage loan has been hedged with a derivative. The Bank considers a “delivery commitment” to purchase mortgage loans to be a derivative. See description below for the accounting of delivery commitments.
Firm Commitment Strategies-— Mortgage delivery commitments are considered derivatives under the accounting standards for derivatives and hedging, and the FHLBNY accounts for them as freestanding derivatives, and recordsrecording the fair values of mortgage loan delivery commitments on the balance sheet with an offset to current period earnings. Fair values were de minimis for all periods reported.
The FHLBNY may also hedge a firm commitment for a forward starting advance through the use of an interest-rate swap. In this case, the swap will function as the hedging instrument for both the firm commitment and the subsequent advance. The basis movement associated with the firm commitment will be added to the basis of the advance at the time the commitment is terminated and the advance is issued. The basis adjustment will then be amortized into interest income over the life of the advance.
If a hedged firm commitment no longer qualified as a fair value hedge, the hedge would be terminated and net gains and losses would be recognized in current period earnings. There were no material amounts of gains and losses recognized due to disqualification of firm commitment hedges for the three and nine months ended September 30, 2010, or in 2009.any periods in this report.
Forward Settlements-— There were no forward settled securities at September 30, 2010 and December 31, 2009 that would settle outside the shortest period of time for the settlement of such securities.securities in any period ends in this report.
Anticipated Debt Issuance-— The FHLBNY enters into interest-rate swaps on the anticipated issuance of debt to “lock in” a spread between the earning asset and the cost of funding. The swap is terminated upon issuance of the debt instrument, and amounts reported in AOCI are reclassified to earnings in the periods in which earnings are affected by the variability of the cash flows of the debt that was issued.
In the three months ended March 31, 2011, the Bank entered into an interest rate swap agreement with an unrelated swap dealer and designated it as a hedge of the variable quarterly interest payments on a 9-year discount note borrowing program expected to be accomplished by a series of issuances of $150.0 million discount notes with 91-day terms. The FHLBNY will continue issuing new 91-day discount notes over the next 9 years as each outstanding discount note matures. The interest on the FHLBank discount note is expected to be highly correlated with 3-month LIBOR and will be determined each time the note is issued. The interest rate swap requires a settlement every 91 days, and the variable rate, which is based on the 3-month LIBOR, is reset immediately following each payment. The swap is expected to eliminate the risk of variability of cash flows for each forecasted discount note issuances every 91 days. The FHLBNY performs prospective hedge effectiveness analysis every 91 days and a retrospective hedge effectiveness analysis every quarter. The fair value of the interest rate swap is recorded in AOCI and ineffectiveness, if any, is measured using the “hypothetical derivative method” and recorded in earnings. The effective portion remains in AOCI. The Bank monitors the credit standing of the derivative counterparty each quarter.
Intermediation-— To meet the hedging needs of its members, the FHLBNY acts as an intermediary between the members and the other counterparties. This intermediation allows smaller members access to the derivatives market. The derivatives used in intermediary activities do not qualify for hedge accounting under the accounting standards for derivatives and hedging, and are separately marked-to-market through earnings. The net impact of the accounting for these derivatives does not significantly affect the operating results of the FHLBNY.
Derivative agreements in which the FHLBNY is an intermediary may arise when the FHLBNY: (1) enters into offsetting derivatives with members and other counterparties to meet the needs of its members, and (2) enters into derivatives to offset the economic effect of other derivative agreements that are no longer designated to either advances, investments, or consolidated obligations. The notional principal of interest rate swaps in which the FHLBNY was an intermediary was $550.0 million and $320.0 million as of September 30, 2010 and December 31, 2009. Fair values of the swaps sold to members net of the fair values of swaps purchased from derivative counterparties were not material at September 30, 2010 and December 31, 2009.any periods in this report. Collateral with respect to derivatives with member institutions includes collateral assigned to the FHLBNY as evidenced by a written security agreement and held by the member institution for the benefit of the FHLBNY.
Economic hedges -—In the three and nine months ended September 30, 2010 and in 2009, economicEconomic hedges comprised primarily of: (1) Short- and medium-term interest rate swaps that hedged the basis risk (Prime rate, Fed fund rate, and the 1-month LIBOR index) of variable-rate bonds issued by the FHLBNY. These swaps were considered freestanding and changes in the fair values of the swaps were recorded through income. The FHLBNY believes the operational cost of designating the basis hedges in a qualifying hedge would outweigh the benefits of applying hedge accounting. (2) Interest rate caps acquired in the second quarter of 2008 to hedgehedging balance sheet risk, primarily certain capped floating-rate investment securities, were considered freestanding derivatives with fair value changes recorded through Other income (loss) as a Net realized and unrealized gain or loss on derivatives and hedging activities. (3) Interest rate swaps hedging balance sheet risk. (4) Interest rate swaps that had previously qualified as hedges under the accounting standards for derivatives and hedging, but had been subsequently de-designated from hedge accounting as they were assessed as being not highly effective hedges. (5)(4) Interest rate swaps executed to offset the fair value changes of bonds designated under the FVO.

39

The FHLBNY is not a derivatives dealer and does not trade derivatives for short-term profit.
Credit Risk-— The FHLBNY is subject to credit risk due to the risk of nonperformance by counterparties to the derivative agreements. The FHLBNY transacts most of its derivatives with major financial institutions. Some of these institutions or their affiliates buy, sell, and distribute consolidated obligations. The FHLBNY is also subject to operational risks in the execution and servicing of derivative transactions. The degree of counterparty risk on derivative agreements depends on the extent to which master netting arrangements are included in such contracts to mitigate the risk. The FHLBNY manages counterparty credit risk through credit analysis and collateral requirements and by following the requirements set forth in Finance Agency’s regulations. In determining credit risk, the FHLBNY considers accrued interest receivables and payables, and the legal right to offset assets and liabilities by counterparty.

30

The contractual or notional amount of derivatives reflects the involvement of the FHLBNY in the various classes of financial instruments, but it does not measure the credit risk exposure of the FHLBNY, and the maximum credit exposure of the FHLBNY is substantially less than the notional amount. The maximum credit risk is the estimated cost of replacing favorable interest-rate swaps, forward agreements, mandatory delivery contracts for mortgage loans, and purchased caps and floors (“derivatives”) if the counterparty defaults and the related collateral, if any, is of insufficient value to the FHLBNY.
The FHLBNY uses collateral agreements to mitigate counterparty credit risk in derivatives. When the FHLBNY has more than one derivative transaction outstanding with a counterparty, and a legally enforceable master netting agreement exists with the counterparty, the exposure less(less collateral held,held) represents the appropriate measure of credit risk. Substantially all derivative contracts are subject to master netting agreements or other right of offset arrangements. At September 30, 2010March 31, 2011 and December 31, 2009,2010, the Bank’s credit exposure, representing derivatives in a fair value net gain position, was approximately $32.4$25.0 million and $8.3$22.0 million after the recognition of any cash collateral held by the FHLBNY. The credit exposureexposures at September 30, 2010March 31, 2011 and December 31, 20092010 included $25.0$19.2 million and $0.8$6.1 million in net interest receivable.
Derivative counterparties are also exposed to credit losses resulting from potential nonperformance risk of FHLBNY with respect to derivative contracts. ExposureDerivative counterparties’ exposure to counterpartiesthe FHLBNY is measured by derivatives in a fair value loss position from the FHLBNY’s perspective, which from the counterparties’ perspective is a gain. At September 30, 2010March 31, 2011 and December 31, 2009,2010, derivatives in a net unrealized loss position, which represented the counterparties’ exposure to the potential non-performance risk of the FHLBNY, were $784.5$839.7 million and $746.2$954.9 million after deducting $3.8$1.9 billion and $2.2$2.7 billion of cash collateral pledged by the FHLBNY at those dates to the exposed counterparties. The FHLBNY is exposed to the risk of derivative counterparties defaulting on the terms of the derivative contracts and failing to return cash deposited with counterparties. If such an event were to occur, the FHLBNY would be forced to replace derivatives by executing similar derivative contracts with other counterparties. To the extent that the FHLBNY receives cash from the replacement trades that is less than the amount of cash deposited with the defaulting counterparty, the FHLBNY’s cash pledged is exposed to credit risk. Derivative counterparties holding the FHLBNY’s cash as pledged collateral were rated Single ASingle-A or better at September 30, 2010,March 31, 2011, and based on credit analyses and collateral requirements, the management of the FHLBNY does not anticipate any credit losses on its derivative agreements.
Impact of rating downgrade —The FHLBNY transacts in derivative transactions directly with unaffiliated derivatives dealers under ISDA agreements. Each of the ISDA agreements also includes Credit Support Amount (“CSA”) provisions, which provide for collateral postings at various ratings and threshold levels and the continuation of the FHLBNY’s status as a government sponsored enterprise (“GSE”). The aggregate fair value of the FHLBNY’s derivative instruments that were in a net liability position at March 31, 2011 was approximately $839.7 million. Many of the CSA agreements stipulate that so long as the FHLBNY retains its GSE status, ratings downgrades would not result in the posting of additional collateral. Other CSA agreements would require the FHLBNY to post additional collateral based solely on an adverse change in the credit rating of the FHLBNY. On the assumption that the FHLBNY will retain its status as a GSE, the FHLBNY estimates that at March 31, 2011, a one-notch downgrade of FHLBNY’s credit rating (currently is assigned Triple-A by both Moody’s and S&P) to Aa by Moody’s Investor Services (Moody’s) and AA by Standard & Poor’s (S&P), would permit counterparties to make additional collateral calls of up to $440.3 million. Additional collateral postings upon downgrade are estimated based on the factors in the individual collateral posting provisions of the CSA with each counterparty and current exposure as of March 31, 2011.

 

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The following tables representedtable summarizes outstanding notional balances and estimated fair values of the derivatives outstanding at September 30, 2010 and December 31, 2009 (in thousands):
                        
 September 30, 2010  March 31, 2011 
 Notional Amount of Derivative  Notional Amount of Derivative 
 Derivatives Derivative Assets Liabilities  Derivatives Derivative Assets Liabilities 
Fair value of derivatives instruments
  
Derivatives designated in hedging relationships  
Interest rate swaps-fair value hedges $93,872,212 $1,260,136 $(5,856,880) $91,722,304 $853,120 $3,590,893 
Interest rate swaps-cash flow hedges 205,000 2,357 — 
              
Total derivatives in hedging instruments $93,872,212 $1,260,136 $(5,856,880) 91,927,304 855,477 3,590,893 
              
  
Derivatives not designated as hedging instruments  
Interest rate swaps $27,582,914 $39,722 $(9,624) 23,897,530 22,248 13,403 
Interest rate caps or floors 1,900,000 23,650  (69) 1,900,000 38,290 105 
Mortgage delivery commitments 20,675 28  (24) 25,197 73 29 
Other* 550,000 10,726  (10,000) 550,000 6,265 5,634 
              
Total derivatives not designated as hedging instruments $30,053,589 $74,126 $(19,717) 26,372,727 66,876 19,171 
              
  
Total derivatives before netting and collateral adjustments
 $123,925,801 $1,334,262 $(5,876,597) $118,300,031 922,353 3,610,064 
              
Netting adjustments $(1,301,837) $1,301,837   (897,389)  (897,389)
Cash collateral and related accrued interest — 3,790,262  —  (1,872,965)
            
Total collateral and netting adjustments $(1,301,837) $5,092,099   (897,389)  (2,770,354)
          
Total reported on the Statements of Condition
 $32,425 $(784,498) $24,964 $839,710 
          
                        
 December 31, 2009  December 31, 2010 
 Notional Amount of Derivative  Notional Amount of Derivative 
 Derivatives Derivative Assets Liabilities  Derivatives Derivative Assets Liabilities 
  
Fair value of derivatives instruments
  
Derivatives designated in hedging relationships  
Interest rate swaps-fair value hedges $98,776,447 $854,699 $(3,974,207) $93,840,813 $944,807 $4,661,102 
Interest rate swaps-cash flow hedges — — — 
              
Total derivatives in hedging instruments $98,776,447 $854,699 $(3,974,207) 93,840,813 944,807 4,661,102 
              
  
Derivatives not designated as hedging instruments  
Interest rate swaps $33,144,963 $147,239 $(73,450) 24,400,547 23,911 12,543 
Interest rate caps or floors 2,282,000 77,999  (7,525) 1,900,000 41,881 107 
Mortgage delivery commitments 4,210 —  (39) 29,993 9 523 
Other* 320,000 1,316  (956) 550,000 6,069 5,392 
              
Total derivatives not designated as hedging instruments $35,751,173 $226,554 $(81,970) 26,880,540 71,870 18,565 
              
  
Total derivatives before netting and collateral adjustments
 $134,527,620 $1,081,253 $(4,056,177) $120,721,353 1,016,677 4,679,667 
              
Netting adjustments $(1,072,973) $1,072,973   (994,667)  (994,667)
Cash collateral and related accrued interest — 2,237,028  —  (2,730,102)
            
Total collateral and netting adjustments $(1,072,973) $3,310,001   (994,667)  (3,724,769)
          
Total reported on the Statements of Condition
 $8,280 $(746,176) $22,010 $954,898 
          
* Other: Comprised of swaps intermediated for members.
The categories -“—“Fair value”, “Mortgage delivery commitment”, and “1Cash“Cash Flow” hedges — represent derivative transactions in hedging relationships. If any such hedges do not qualify for hedge accounting under the accounting standards for derivatives and hedging, they are classified as “Economic” hedges. Changes in fair values of economic hedges are recorded through the income statement without the offset of corresponding changes in the fair value of the hedged item. Changes in fair values of qualifying derivative transactions designated in fair value hedges are recorded through the income statement with the offset of corresponding changes in the fair values of the hedged items. The effective portion of changes in the fair values of derivatives designated in a qualifying cash flow hedge is recorded in AOCI.Accumulated other comprehensive income (loss).
1None outstanding at September 30, 2010 and December 31, 2009.

 

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ImpactEarnings impact of derivatives and hedging activities on earnings
Net realized and unrealized gain (loss) on derivatives and hedging activities
The FHLBNY carries all derivative instruments on the Statements of Condition at fair value as Derivative Assets and Derivative Liabilities.
If derivatives meet the hedging criteria under hedge accounting rules, including effectiveness measures, changes in fair value of the associated hedged financial instrument attributable to the risk being hedged (benchmark interest-rate risk, which is LIBOR for the FHLBNY) may also be recorded so that some or all of the unrealized fair value gains or losses recognized on the derivatives are offset by corresponding unrealized gains or losses on the associated hedged financial assets and liabilities. The net differential between fair value changes of the derivatives and the hedged items represent hedge ineffectiveness. Hedge ineffectiveness results represents the amounts by which the changes in the fair value of the derivatives differ from the changes in the fair values of the hedged items or the variability in the cash flows of forecasted transactions. The net ineffectiveness from hedges that qualify under hedge accounting rules are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income (loss) in the Statements of Income.
If derivatives do not qualify for the hedging criteria under hedge accounting rules, but are executed as economic hedges of financial assets or liabilities under a FHLBNY approvedFHLBNY-approved hedge strategy, only the fair value changes of the derivatives are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income (loss) in the Statements of Income.
When the FHLBNY elects to measure certain debt under the accounting designation for Fair Value Option (“FVO”),FVO, the Bank will typically execute a derivative as an economic hedge of the debt. Fair value changes of the derivatives are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income. Fair value changes of the debt designated under the FVO isare also recorded in Other income (loss) as an unrealized (loss) or gain from Instruments held at fair value.
The componentsComponents of hedging gains and losses from derivatives and hedging activities for the three months ended September 30, 2010 and 2009March 31, 2011 are summarized below (in thousands):
                                
 Three months ended September 30,                 
 2010 2009  Three months ended March 31, 2011 
 Effect of Effect of  Effect of 
 Derivatives on Derivatives on  Derivatives on 
 Gain (Loss) on Gain (Loss) on Earnings Net Interest Gain (Loss) on Gain (Loss) on Earnings Net Interest  Gain (Loss) on Gain (Loss) on Earnings Net Interest 
 Derivative Hedged Item Impact Income1 Derivative Hedged Item Impact Income1  Derivative Hedged Item Impact Income1 
  
Derivatives designated as hedging instruments
  
Interest rate swaps
  
Advances $(880,233) $881,448 $1,215 $(478,422) $(582,983) $583,165 $182 $(503,185) $551,846 $(495,509) $56,337 $(440,823)
Consolidated obligations-bonds 206,540  (208,047)  (1,507) 137,824 98,668  (98,501) 167 151,467 
Consolidated obligations-discount notes — — — — — — — — 
Consolidated obligations  (146,891) 148,688 1,797 134,999 
                          
Net gain (loss) related to fair value hedge ineffectiveness  (673,693) 673,401  (292)  (340,598)  (484,315) 484,664 349  (351,718)
Net gain (loss) related to fair value hedges 404,955  (346,821) 58,134  (305,824)
         
                  
Derivatives not designated as hedging instruments
  
Interest rate swaps
  
Advances  (1,203) —  (1,203) —  (1,475) —  (1,475) —  683 — 683 — 
Consolidated obligations-bonds 6,753 — 6,753 — 28,420 — 28,420 —   (211) —  (211) — 
Consolidated obligations-discount notes  (231) —  (231) —  (5,711) —  (5,711) —  — — — — 
Member intermediation 202 — 202 —  (16) —  (16) —   (46) —  (46) — 
Balance sheet-macro hedges swaps — — — — 210 — 210 —  — — — — 
Accrued interest-swaps 2,381 — 2,381 — 18,362 — 18,362 —  2,703 — 2,703 — 
Accrued interest-intermediation 42 — 42 — 20 — 20 —  46 — 46 — 
Caps and floors
  
Advances  (19) —  (19) —  (305) —  (305) —   (18) —  (18) — 
Balance sheet  (14,618) —  (14,618) — 19,196 — 19,196 —   (3,589) —  (3,589) — 
Accrued interest-options — — — —  (1,786) —  (1,786) —  — — — — 
Mortgage delivery commitments
 257 — 257 — 47 — 47 —  169 — 169 — 
Swaps economically hedging instruments designated under FVO
  
Consolidated obligations-bonds 8,025 — 8,025 — 1,549 — 1,549 —   (2,594) —  (2,594) — 
Consolidated obligations-discount notes 1,674 — 1,674 — — — — —   (861) —  (861) — 
Accrued interest on swaps 5,473 — 5,473 — 779 — 779 —  10,154 — 10,154 — 
                          
Net gain (loss) related to derivatives not designated as hedging instruments 8,736 — 8,736 — 59,290 — 59,290 —  6,436 — 6,436 — 
                          
Total
 $(664,957) $673,401 $8,444 $(340,598) $(425,025) $484,664 $59,639 $(351,718) $411,391 $(346,821) $64,570 $(305,824)
                          

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Components of hedging gains and losses from derivatives and hedging activities for the three months ended March 31, 2010 are summarized below (in thousands):
                 
  Three months ended March 31, 2010 
              Effect of 
              Derivatives on 
  Gain (Loss) on  Gain (Loss) on  Earnings  Net Interest 
  Derivative  Hedged Item  Impact  Income1 
                 
Derivatives designated as hedging instruments
                
Interest rate swaps
                
Advances $(152,087) $152,706  $619  $(530,377)
Consolidated obligations  52,236   (48,232)  4,004   172,777 
             
Net gain (loss) related to fair value hedges  (99,851)  104,474   4,623   (357,600)
             
                 
Derivatives not designated as hedging instruments
                
Interest rate swaps
                
Advances  (840)  —   (840)  — 
Consolidated obligations-bonds  (13,309)  —   (13,309)  — 
Consolidated obligations-discount notes  (2,332)  —   (2,332)  — 
Member intermediation  (3)  —   (3)  — 
Balance sheet-macro hedges swaps  173   —   173   — 
Accrued interest-swaps  29,469   —   29,469   — 
Accrued interest-intermediation  23   —   23   — 
Caps and floors
                
Advances  (289)  —   (289)  — 
Balance sheet  (30,427)  —   (30,427)  — 
Accrued interest-options  (1,989)  —   (1,989)  — 
Mortgage delivery commitments
  149   —   149   — 
Swaps economically hedging instruments designated under FVO
                
Consolidated obligations-bonds  6,638   —   6,638   — 
Consolidated obligations-discount notes  —   —   —   — 
Accrued interest on swaps  7,751   —   7,751   — 
             
Net gain (loss) related to derivatives not designated as hedging instruments  (4,986)  —   (4,986)  — 
             
Total
 $(104,837) $104,474  $(363) $(357,600)
             
1 Represents interest expense and income generated from hedge qualifying interest-rate swaps that were recorded with interest income and expense of the hedged — bonds, discount notes, and advances.

42

The components of hedging gains and losses for the nine months ended September 30, 2010 and 2009 are summarized below (in thousands):
                                 
  Nine months ended September 30, 
  2010  2009 
              Effect of              Effect of 
              Derivatives on              Derivatives on 
  Gain (Loss) on  Gain (Loss) on  Earnings  Net Interest  Gain (Loss) on  Gain (Loss) on  Earnings  Net Interest 
  Derivative  Hedged Item  Impact  Income1  Derivative  Hedged Item  Impact  Income1 
                                 
Derivatives designated as hedging instruments
                                
Interest rate swaps
                                
Advances $(2,020,332) $2,020,771  $439  $(1,519,392) $1,419,019  $(1,424,126) $(5,107) $(1,252,775)
Consolidated obligations-bonds  492,043   (489,735)  2,308   483,049   (418,734)  436,921   18,187   384,150 
Consolidated obligations-discount notes  —   —   —   —   —   —   —   474 
                         
Net gain (loss) related to fair value                                
hedge ineffectiveness  (1,528,289)  1,531,036   2,747   (1,036,343)  1,000,285   (987,205)  13,080   (868,151)
                         
Derivatives not designated as hedging instruments
                                
Interest rate swaps
                                
Advances  (3,164)  —   (3,164)  —   3,887   —   3,887   — 
Consolidated obligations-bonds  (29,762)  —   (29,762)  —   101,662   —   101,662   — 
Consolidated obligations-discount notes  (4,331)  —   (4,331)  —   409   —   409   — 
Member intermediation  357   —   357   —   (189)  —   (189)  — 
Balance sheet-macro hedges swaps  173   —   173   —   2,617   —   2,617   — 
Accrued interest-swaps  46,900   —   46,900   —   (37,772)  —   (37,772)  — 
Accrued interest-intermediation  91   —   91   —   64   —   64   — 
Caps and floors
                                
Advances  (418)  —   (418)  —   (1,056)  —   (1,056)  — 
Balance sheet  (47,901)  —   (47,901)  —   50,613   —   50,613   — 
Accrued interest-options  (2,598)  —   (2,598)  —   (3,731)  —   (3,731)  — 
Mortgage delivery commitments
  811   —   811   —   (49)  —   (49)  — 
Swaps economically hedging instruments designated under FVO
                                
Consolidated obligations-bonds  10,381   —   10,381   —   (5,825)  —   (5,825)  — 
Consolidated obligations-discount notes  2,448   —   2,448   —   —   —   —   — 
Accrued interest on swaps  20,922   —   20,922   —   903   —   903   — 
                         
Net gain (loss) related to derivatives not designated as hedging instruments  (6,091)  —   (6,091)  —   111,533   —   111,533   — 
                         
Total
 $(1,534,380) $1,531,036  $(3,344) $(1,036,343) $1,111,818  $(987,205) $124,613  $(868,151)
                         
1Represents interest expense and income generated from hedge qualifying interest-rate swaps that were recorded with interest income and expense of the hedged — bonds, discount notes, and advances.
Cash Flow hedges
For the three months ended March 31, 2011, the Bank entered into an interest rate swap agreement with an unrelated swap dealer and designated it as a hedge of the variable quarterly interest payments on a 9-year discount note borrowing program expected to be accomplished by a series of issuances of $150.0 million discount notes with 91-day terms. The FHLBNY will continue issuing new 91-day discount notes over the next 9 years as each outstanding discount note matures. The interest on the FHLBank discount note is expected to be highly correlated with 3-month LIBOR and will be determined each time the note is issued. The interest rate swap requires a settlement every 91 days, and the variable rate, which is based on the 3-month LIBOR, is reset immediately following each payment. The swap is expected to eliminate the risk of variability of in cash flows for each forecasted discount note issuances every 91 days. The FHLBNY performs prospective hedge effectiveness analysis every 91 days and a retrospective hedge effectiveness analysis every quarter. The fair value of the interest rate swap is recorded in AOCI and ineffectiveness, if any, is measured using the “hypothetical derivative method” and recorded in earnings. The effective portion remains in AOCI and is reclassified into earnings in the same period during which the hedged forecasted 91 day discount note expense affects earnings. The Bank monitors the credit standing of the derivative counterparty each quarter. The notional amount of the interest rate swap outstanding under this program was $150.0 million at March 31, 2011 and the fair value recorded in AOCI was an unrealized gain of $1.9 million.
From time-to-time, the Bank executes interest rate swaps on the anticipated issuance of debt to “lock in” a spread between the earning asset and the cost of funding. The hedges are accounted under cash flow hedging rules and the effective portion of changes in the fair values of the swaps is recorded in AOCI. The ineffective portion is recorded through net income. The swap is terminated upon issuance of the debt instrument, and amounts reported in AOCI are reclassified to earnings in the periods in which earnings are affected by the variability of the cash flows of the debt that was issued. The maximum period of time that the Bank typically hedges its exposure to the variability in future cash flows for forecasted transactions is between three and six months. At March 31, 2011, the Bank had open contracts of $55.0 million of swaps to hedge the anticipated issuances of debt. The fair values of the open contracts recorded in AOCI was an unrealized gain $0.4 million at March 31, 2011. There were no open contracts at December 31, 2010. For any periods in this report, there were no material amounts for the three and nine months ended September 30, 2010 and 2009 that were reclassified into earnings as a result of the discontinuance of cash flow hedges because it became probable that the original forecasted transactions would not occur by the end of the originally specified time period or within a two-month period thereafter. The maximum length of time over which the Bank typically hedges its exposure to the variability in future cash flows for forecasted transactions is between three and six months. There were no derivatives designated as cash flow hedges at September 30, 2010 and December 31, 2009.

34

The effective portion of the gain or loss on swaps designated and qualifying as a cash flow hedging instrument is reported as a component of AOCI and reclassified into earnings in the same period during which the hedged forecasted bond expenses affect earnings. The balancesamounts in AOCI from terminated cash flow hedges representedrepresenting net realizedunrecognized losses of $17.7were $13.4 million and $22.7$15.2 million at September 30, 2010March 31, 2011 and December 31, 2009.2010. At September 30, 2010,March 31, 2011, it is expected that over the next 12 months about $5.3$3.7 million ($6.9 million at December 31, 2009) of net losses recorded in AOCI will be recognized as a charge to earnings as a yield adjustment to consolidated bond interest expense of consolidated bonds.and a charge to earnings.

43

The effect of cash flow hedge related derivative instruments for the three and nine months ended September 30, 2010 and 2009 were as follows (in thousands):
         
 Three months ended March 31, 2011 
 AOCI 
 Gains/(Losses) 
 Location: Amount Ineffectiveness 
 Recognized Reclassified to Reclassified to Recognized in 
 in AOCI1, 2 Earnings1 Earnings1 Earnings 
The effect of cash flow hedge related to Interest rate swaps
   
Advances $— Interest Income $— $— 
Consolidated obligations-bonds 772 Interest Expense 1,038 — 
Consolidated obligations-discount notes 1,918 Interest Expense — — 
         
Total
 $2,690   $1,038 $— 
                                         
 Three months ended September 30,  
 2010 2009  Three months ended March 31, 2010 
 OCI OCI  AOCI 
 Gains/(Losses) Gains/(Losses)  Gains/(Losses) 
 Location: Amount Ineffectiveness Location: Amount Ineffectiveness  Location: Amount Ineffectiveness 
 Recorded in Reclassified to Reclassified to Recognized in Recorded in Reclassified to Reclassified to Recognized in  Recognized Reclassified to Reclassified to Recognized in 
 OCI 1, 2 Earnings1 Earnings1 Earnings OCI 1, 2 Earnings1 Earnings1 Earnings  in AOCI1, 2 Earnings1 Earnings1 Earnings 
The effect of cash flow hedge related to Interest rate swaps
    
Advances $— Interest Income $— $— $— Interest Income $— $—  $— Interest Income $— $— 
Consolidated obligations-bonds — Interest Expense 1,882 — — Interest Expense 1,898  392 Interest Expense 1,740 — 
Consolidated obligations-discount notes — Interest Expense — — 
                      
Total
 $— $1,882 $— $— $1,898 $—  $392   $1,740 $— 
                      
 
                                 
  Nine months ended September 30, 
  2010  2009 
  OCI  OCI 
  Gains/(Losses)  Gains/(Losses) 
      Location:  Amount  Ineffectiveness      Location:  Amount  Ineffectiveness 
  Recorded in  Reclassified to  Reclassified to  Recognized in  Recorded in  Reclassified to  Reclassified to  Recognized in 
  OCI 1, 2  Earnings1  Earnings1  Earnings  OCI 1, 2  Earnings1  Earnings1  Earnings 
The effect of cash flow hedge related to Interest rate swaps
                                
Advances $—  Interest Income  $—  $—  $—  Interest Income  $—  $— 
Consolidated obligations-bonds  (472) Interest Expense   5,423   —   —  Interest Expense   5,687     
                           
Total
 $(472)     $5,423  $—  $—      $5,687  $— 
                           
1 Effective portion
 
2 Represents effective portion of basis adjustments to AOCI from cash flow hedging transactions.transactions recorded in AOCI.

 

4435

Note 17.16. Fair Values of financial instruments.Financial Instruments.
Items Measured at Fair Value on a Recurring Basis
The following table presents for each hierarchy level (see note below), the FHLBNY’s assets and liabilities that were measured at fair value on its Statements of Condition at September 30, 2010 and December 31, 2009 (in thousands):
                               
 September 30, 2010  March 31, 2011 
 Netting  Netting 
 Total Level 1 Level 2 Level 3 Adjustments  Total Level 1 Level 2 Level 3 Adjustments 
Assets
  
Available-for-sale securities  
GSE issued MBS $3,360,959 $— $3,360,959 $— $— 
GSE/U.S. agency issued MBS $3,708,872 $— $3,708,872 $— $— 
Equity and bond funds 12,822 — 12,822 — —  10,152 — 10,152 — — 
Derivative assets(a)
  
Interest-rate derivatives 32,397 — 1,334,234 —  (1,301,837) 24,891 — 922,280 —  (897,389)
Mortgage delivery commitments 28 — 28 — —  73 — 73 — — 
                      
  
Total assets at fair value
 $3,406,206 $— $4,708,043 $— $(1,301,837) $3,743,988 $— $4,641,377 $— $(897,389)
                      
  
Liabilities
  
Consolidated obligations:  
Discount notes (to the extent SFAS 159 is elected) $(1,755,901) $— $(1,755,901) $— $— 
Bonds (to the extent SFAS 159 is elected)(b)
  (10,761,236) —  (10,761,236) — — 
Discount notes (to the extent FVO is elected) $(731,892) $— $(731,892) $— $— 
Bonds (to the extent FVO is elected)(b)
  (12,605,257) —  (12,605,257) — — 
Derivative liabilities(a)
  
Interest-rate derivatives  (784,474) —  (5,876,573) — 5,092,099   (839,681) —  (3,610,035) — 2,770,354 
Mortgage delivery commitments  (24) —  (24) — —   (29) —  (29) — — 
                      
  
Total liabilities at fair value
 $(13,301,635) $— $(18,393,734) $— $5,092,099  $(14,176,859) $— $(16,947,213) $— $2,770,354 
                      
 
 December 31, 2010 
 Netting 
 Total Level 1 Level 2 Level 3 Adjustments 
Assets
 
Available-for-sale securities 
GSE/U.S. agency issued MBS $3,980,135 $— $3,980,135 $— $— 
Equity and bond funds 9,947 — 9,947 — — 
Derivative assets(a)
 
Interest-rate derivatives 22,001 — 1,016,668 —  (994,667)
Mortgage delivery commitments 9 — 9 — — 
           
 
Total assets at fair value
 $4,012,092 $— $5,006,759 $— $(994,667)
           
 
Liabilities
 
Consolidated obligations: 
Discount notes (to the extent FVO is elected) $(956,338) $— $(956,338) $— $— 
Bonds (to the extent FVO is elected)(b)
  (14,281,463) —  (14,281,463) — — 
Derivative liabilities(a)
 
Interest-rate derivatives  (954,375) —  (4,679,144) — 3,724,769 
Mortgage delivery commitments  (523) —  (523) — — 
           
 
Total liabilities at fair value
 $(16,192,699) $— $(19,917,468) $— $3,724,769 
           
                     
  December 31, 2009 
                  Netting 
  Total  Level 1  Level 2  Level 3  Adjustments 
Assets
                    
Available-for-sale securities                    
GSE issued MBS $2,240,564  $—  $2,240,564  $—  $— 
Equity and bond funds  12,589   —   12,589   —   — 
Derivative assets(a)
                    
Interest-rate derivatives  8,280   —   1,081,253   —   (1,072,973)
Mortgage delivery commitments  —   —   —   —   — 
                
                     
Total assets at fair value
 $2,261,433  $—  $3,334,406  $—  $(1,072,973)
                
                     
Liabilities
                    
Consolidated obligations:                    
Discount notes (to the extent SFAS 159 is elected) $—  $—  $—  $—  $— 
Bonds (to the extent SFAS 159 is elected)(b)
  (6,035,741)  —   (6,035,741)  —   — 
Derivative liabilities(a)
                    
Interest-rate derivatives  (746,137)  —   (4,056,138)  —   3,310,001 
Mortgage delivery commitments  (39)  —   (39)  —   — 
                
                     
Total liabilities at fair value
 $(6,781,917) $—  $(10,091,918) $—  $3,310,001 
                
  Level 1 — Quoted prices in active markets for identical assets.
 
  Level 2 — Significant other observable inputs.
 
  Level 3 — Significant unobservable inputs.
 
(a) Derivative assets and liabilities were interest-rate contracts, except forincluding de minimis amount of mortgage delivery contracts. Based on an analysis of the nature of the risk, the presentation of derivatives as a single class is appropriate.
 
(b) Based on its analysis of the nature of risks of the FHLBNY’s debt measured at fair value, the FHLBNY has determined that presenting the debt as a single class is appropriate.
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities would be measured at fair value on a nonrecurring basis, and forbasis. For the FHLBNY, such items may include mortgage loans in foreclosure, or mortgage loans and held-to-maturity securities written down to fair value, and real estate owned. At September 30,March 31, 2011 and December 31, 2010, the Bank measured and recorded the fair values on a nonrecurring basis of HTM securities deemed to be OTTI;OTTI on a nonrecurring basis; that is, they arewere not measured at fair value on an ongoing basis but are subject to fair-valuefair value adjustments in certain circumstances (for example, when there is evidence of other-than-temporary impairment — OTTI) in accordance with the guidance on recognition and presentation of other-than-temporary impairment. The nonrecurring measurement basis related toAt December 31, 2010, certain private-label HTM mortgage-backedheld-to-maturity securities determined to bewere deemed OTTI at September 30, 2010, and weretheir carrying values written down and recorded at their fair values of $8.1 million and $42.9 millionon a nonrecurring basis. There were no held-to-maturity securities that had to be written down to their fair values at September 30, 2010 and DecemberMarch 31, 2009. For more information also see Note 4 — Held-to-maturity securities.2011.

 

4536

The following table summarizes the fair values of MBS for which a non-recurring1 change in fair value was recorded at September 30, 2010 (in thousands):
                                
 September 30, 2010  December 31, 2010 
 Fair Value Level 1 Level 2 Level 3  Fair Value Level 1 Level 2 Level 3 
Held-to-maturity securities  
Home equity loans $8,063 $— $— $8,063 
Private-label residential mortgage-backed securities $15,827 $— $— $15,827 
                  
Total
 $8,063 $— $— $8,063  $15,827 $— $— $15,827 
                  
Note: Certain OTTI securities were written down to their fair values ($8.1 million) when it was determined that their carrying values prior to write-down ($8.6 million) were in excess of their fair values. For Held-to-maturity securities that were previously credit impaired but no additional credit impairment were deemed necessary at September 30, 2010, the securities were recorded at their carrying values and not re-adjusted to their fair values.
The following table summarizes the fair values of MBS for which a non-recurring change in fair value was recorded at December 31, 2009 (in thousands):
                 
  December 31, 2009 
  Fair Value  Level 1  Level 2  Level 3 
Held-to-maturity securities                
Home equity loans $42,922  $—  $—  $42,922 
             
Total
 $42,922  $—  $—  $42,922 
             
The following table summarizes the fair values of MBS for which a non-recurring change in fair value was recorded at September 30, 2009 (in thousands):
                 
  September 30, 2009 
  Fair Value  Level 1  Level 2  Level 3 
Held-to-maturity securities                
Home equity loans $125,771  $—  $—  $125,771 
             
Total
 $125,771  $—  $—  $125,771 
             
Note:Certain OTTI securities were written down to their fair values ($15.8 million) when it was determined that their carrying values prior to write-down ($16.3 million) were in excess of their fair values. For Held-to-maturity securities that were previously credit impaired but no additional credit impairment were deemed necessary at December 31, 2010, the securities were recorded at their carrying values and not re-adjusted to their fair values.
1March 31, 2011 — No non-recurring fair values were recorded.
Estimated fair values — Summary Tables
The carrying valuevalues and estimated fair values of the FHLBNY’s financial instruments as of September 30, 2010 and December 31, 2009 were as follows (in thousands):
                                
 September 30, 2010 December 31, 2009  March 31, 2011 December 31, 2010 
 Carrying Estimated Carrying Estimated  Carrying Estimated Carrying Estimated 
Financial Instruments Value Fair Value Value Fair Value  Value Fair Value Value Fair Value 
Assets  
Cash and due from banks $69,471 $69,471 $2,189,252 $2,189,252  $2,953,801 $2,953,801 $660,873 $660,873 
Federal funds sold 4,095,000 4,094,993 3,450,000 3,449,997  5,093,000 5,092,998 4,988,000 4,987,976 
Available-for-sale securities 3,373,781 3,373,781 2,253,153 2,253,153  3,719,024 3,719,024 3,990,082 3,990,082 
Held-to-maturity securities  
Long-term securities 8,221,246 8,389,954 10,519,282 10,669,252  8,042,487 8,152,867 7,761,192 7,898,300 
Advances 85,697,171 85,949,019 94,348,751 94,624,708  75,487,377 75,600,168 81,200,336 81,292,598 
Mortgage loans held-for-portfolio, net 1,267,687 1,341,140 1,317,547 1,366,538  1,270,891 1,325,914 1,265,804 1,328,787 
Accrued interest receivable 305,763 305,763 340,510 340,510  250,454 250,454 287,335 287,335 
Derivative assets 32,425 32,425 8,280 8,280  24,964 24,964 22,010 22,010 
Other financial assets 3,390 3,390 3,412 3,412  3,032 3,032 3,981 3,981 
  
Liabilities  
Deposits 3,730,257 3,730,263 2,630,511 2,630,513  2,512,631 2,512,635 2,454,480 2,454,488 
Consolidated obligations:  
Bonds 74,918,893 75,261,195 74,007,978 74,279,737  68,529,981 68,679,235 71,742,627 71,926,039 
Discount notes 17,787,908 17,788,224 30,827,639 30,831,201  19,507,159 19,507,547 19,391,452 19,391,743 
Mandatorily redeemable capital stock 67,348 67,348 126,294 126,294  59,126 59,126 63,219 63,219 
Accrued interest payable 277,647 277,647 277,788 277,788  230,109 230,109 197,266 197,266 
Derivative liabilities 784,498 784,498 746,176 746,176  839,710 839,710 954,898 954,898 
Other financial liabilities 57,242 57,242 38,832 38,832  52,178 52,178 58,818 58,818 

 

4637

Fair Value Option Disclosures
The following table summarizes the activity related to consolidated obligation bonds and discount notes for which the Bank elected the fair value optionFair Value Option (in thousands):
                        
 Three months ended Nine months ended 
 September 30, September 30, 
 2010 2009 2010 2010 2009 2010                     
 Bonds Discount notes* Bonds Discount notes*  Bonds Discount Notes * 
  March 31, 2011 December 31, 2010 March 31, 2010 March 31, 2011 December 31, 2010 
Balance, beginning of the period $(9,763,246) $(550,303) $(1,753,688) $(6,035,741) $(998,942) $—  $(14,281,463) $(6,035,741) $(6,035,741) $(956,338) $— 
New transaction elected for fair value option  (6,601,000)  (1,835,000) —  (17,771,000)  (2,385,000)  (1,752,185)
New transactions elected for fair value option  (12,250,000)  (25,471,000)  (4,420,000) —  (1,851,991)
Maturities and terminations 5,600,000 — — 13,060,000 983,000 —  13,926,000 17,235,000 3,685,000 224,448 898,788 
Change in fair value 576 426  (521)  (11,118) 8,653  (1,494)
Change in accrued interest 2,434  (1,091)  (1,692)  (3,377) 6,321  (2,222)
Changes in fair value 316  (2,556)  (8,419) 424  (787)
Changes in accrued interest/unaccreted balance  (110)  (7,166)  (1,453)  (426)  (2,348)
                        
  
Balance, end of the period $(10,761,236) $(2,385,968) $(1,755,901) $(10,761,236) $(2,385,968) $(1,755,901) $(12,605,257) $(14,281,463) $(6,780,613) $(731,892) $(956,338)
                        
* Note: Discount notes were not designated under FVO at DecemberMarch 31, 20092010
The following table presents the change in fair value included in the Statements of Income for the consolidated obligation bonds and discount notes designated in accordance with the accounting standards on the fair value optionFair Value Option for financial assets and liabilities (in thousands):
                                                
 Three months ended September 30,  Three months ended March 31, 
 2010 2009  2011 2010 
 Interest Total change in fair Net gain(loss) Total change in  Net Gain(Loss) Total Change in Fair Net Gain(Loss) Total Change in Fair 
 expense on Net gain(loss) value included in Interest expense due to fair value included  Due to Value Included in Due to Value Included in 
 consolidated due to changes in current period on consolidated changes in in current period  Interest Changes in Current Period Interest Changes in Current Period 
 obligations fair value earnings obligations fair value earnings  Expense Fair Value Earnings Expense Fair Value Earnings 
  
Consolidated obligations-bonds $(10,926) $576 $(10,350) $(1,091) $426 $(665) $(13,838) $316 $(13,522) $(8,522) $(8,419) $(16,941)
Consolidated obligations-discount notes  (1,692)  (521)  (2,213) — — —   (981) 424  (557) — — — 
                          
 $(12,618) $55 $(12,563) $(1,091) $426 $(665) $(14,819) $740 $(14,079) $(8,522) $(8,419) $(16,941)
                          
                         
  Nine months ended September 30, 
  2010  2009 
  Interest              Net gain(loss)  Total change in 
  expense on  Net gain(loss)  Total change in  Interest expense  due to  fair value included 
  consolidated  due to changes in  fair value included in  on consolidated  changes in  in current period 
  obligations  fair value  current period earnings  obligations  fair value  earnings 
                         
Consolidated obligations-bonds $(30,011) $(11,118) $(41,129) $(2,380) $8,653  $6,273 
Consolidated obligations-discount notes  (2,222)  (1,494)  (3,716)  —   —   — 
                   
  $(32,233) $(12,612) $(44,845) $(2,380) $8,653  $6,273 
                   

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The following table compares the aggregate fair value, and aggregate remaining contractual principal balance outstanding of consolidated obligation bonds and discount notes for which the fair value optionFair Value Option has been elected (in thousands):
             
  September 30, 2010 
  Principal      Fair value 
  Balance  Fair value  over/(under) 
Consolidated obligations-bonds $10,751,000  $10,761,236  $10,236 
Consolidated obligations-discount notes  1,752,185   1,755,901   3,716 
          
  $12,503,185  $12,517,137  $13,952 
          
             
  December 31, 2009 
  Principal      Fair value 
  Balance  Fair value  over/(under) 
Consolidated obligations-bonds $6,040,000  $6,035,741  $(4,259)
Consolidated obligations-discount notes  —   —   — 
          
  $6,040,000  $6,035,741  $(4,259)
          
                        
             March 31, 2011 December 31, 2010 
 September 30, 2009  Principal Fair Value Principal Fair Value 
 Principal Fair value  Balance Fair Value Over/(Under) Balance Fair Value Over/(Under) 
 Balance Fair value over/(under)  
Consolidated obligations-bonds $2,385,000 $2,385,968 $968  $12,600,000 $12,605,257 $5,257 $14,276,000 $14,281,463 $5,463 
Consolidated obligations-discount notes — — —  728,755 731,892 3,137 953,203 956,338 3,135 
                    
 $2,385,000 $2,385,968 $968  $13,328,755 $13,337,149 $8,394 $15,229,203 $15,237,801 $8,598 
                    
Notes to Estimated Fair Values of financial instrumentsFinancial Instruments
The fair value of a financial instrumentsinstrument that is an asset is defined as the price FHLBNY would receive to sell an asset in an orderly transaction between market participants at the measurement date. A financial liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair values are based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices are not available, valuation models and inputs are utilized. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or markets and the instruments’ complexity.
The fair values of financial assets and liabilities reported in the tables above are discussed below. For additional information also see Significant Accounting Policies and Estimates in Note 1. The Fair Value Summary Tables above do not represent an estimate of the overall market value of the FHLBNY as a going concern, which would take into account future business opportunities and the net profitability of assets versus liabilities.
The estimated fair value amounts have been determined by the FHLBNY using procedures described below. Because an active secondary market does not exist for a portion of the FHLBNY’s financial instruments, in certain cases, fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change.
Cash and due from banks
The estimated fair value approximates the recorded book balance.
Interest-bearing deposits and Federal funds sold
The FHLBNY determines estimated fair values of certain short-term investments by calculating the present value of expected future cash flows from the investments. The discount rates used in these calculations are the current coupons of investments with similar terms.

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Investment securities
In an effort to achieve consistency among all of the FHLBanks on the pricing of investments in mortgage-backed securities, in the third quarter of 2009 the FHLBanks formed the MBS Pricing Governance Committee, which was responsible for developing a fair value methodology for mortgage-backed securities that all FHLBanks could adopt. Consistent with the guidance from the Governance Committee, the FHLBNY changed the methodology used to estimate the fair value of mortgage-backed securities as of September 30, 2009. Under the approved methodology, theThe Bank requests prices for all mortgage-backed securities from four specified third-party vendors, and depending on the number of prices received for each security, selectedselects a median or average price as defined by the methodology. If four prices are received by the FHLBNY from the pricing vendors, the average of the middle two prices is used; if three prices are received, the middle price is used; if two prices are received, the average of the two prices is used; and if one price is received, it is subject to additional validation.

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The FHLBNY routinely performs a comparison analysis of pricing to understand pricing trends and to establish a means of validating changes in pricing from period-to-period.period to period. The computed prices are tested for reasonableness using tolerance thresholds. Prices within the established thresholds are generally accepted unless strong evidence suggests that using the median pricing methodology as described above would not be appropriate. Preliminary estimated fair values that are outside the tolerance thresholds, or that management believes may not be appropriate based on all available information (including those limited instances in which only one price is received), are subject to further analysis of all relevant facts and circumstances that a market participant would consider. The Bank also runs pricing through prepayment models to test the reasonability of pricing relative to changes in the implied prepayment options of the bonds. Separately, the Bank performs comprehensive credit analysis, including the analysis of underlying cash flows and collateral.
The FHLBNY believes such methodologies — valuation comparison, review of changes in valuation parameters, and credit analysis have been designed to identify the effects of the credit crisis, which has tended to reduce the availability of certain observable market pricing or has caused the widening of the bid/offer spread of certain securities.
Prior to the adoption of the new pricing methodology in the 2009 third quarter, the Bank used a similar process that utilized three third-party vendors and similar variance thresholds. This change in pricing methodology did not have a significant impact on the Bank’s estimated fair values of its mortgage-backed securities.
As of September 30, 2010, fourFour vendor prices were received for substantially all of the FHLBNY’s MBS holdings and substantially all of those prices fell within the specified thresholds. The relative proximity of the prices received supported the FHLBNY’s conclusion that the final computed prices were reasonable estimates of fair value. While the FHLBNY adopted this common methodology, the fair values of mortgage-backed investment securities are still estimated by FHLBNY’s management which remains responsible for the selection and application of its fair value methodology and determining the reasonableness of assumptions and inputs used.
The four specialized pricing services use pricing models or quoted prices of securities with similar characteristics. The valuation techniques used by pricing services employ cash flow generators and option-adjusted spread models. Pricing spreads used as inputs in the models are based on new issue and secondary market transactions if the securities are traded in sufficient volumes in the secondary market. These pricing vendors typically employ valuation techniques that incorporate benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of like securities, sector groupings, and/or matrix pricing, as may be deemed appropriate for the security. Such inputs into the pricing models employed by pricing services for most of the Bank’s investments are market based and observable and are considered Level 2 of the fair value hierarchy.
The valuation of the FHLBNY’s private-label securities, all designated as held-to-maturity, may require pricing services to use significant inputs that are subjective and may be considered to be Level 3 of the fair value hierarchy because of the current lack of significant market activity so that the inputs may not be market based and observable. At September 30, 2010 and December 31, 2009,the reporting dates in this Form 10-Q, all private-label mortgage-backed securities were classified as held-to-maturity and were recorded in the balance sheet at their carrying values. Carrying value of a security is the same as its amortized cost unless the security is determined to be OTTI. In the period the security is determined to be OTTI, its carrying value is generally adjusted down to its fair value.
In accordance with the amended guidance under the accounting standards for investments in debt and equity securities, certain held-to-maturity private-label mortgage-backed securities were written down to their fair value at September 30, 2010 and December 31, 20092010 (none at March 31, 2011) as a result of a recognition of OTTI. For such HTM securities, their carrying values arewere recorded in the balance sheet at their fair values. The fair values andfor such securities, are classified on a nonrecurring basis, aswere considered to be Level 3 financial instruments under the valuation hierarchy. This determination was made based on management’s view that the private-label instruments may not have an active market because of the specific vintage of the securities as well as inherent conditions surrounding the trading of private-label mortgage-backed securities.
The fair value of housing finance agency bonds is estimated by management using information primarily from pricing services.
Advances
The fair values of advances are computed using standard option valuation models. The most significant inputs to the valuation model are (1) consolidated obligation debt curve (the “CO Curve”), published by the Office of Finance and available to the public, and (2) LIBOR swap curves and volatilities. The Bank considers both these inputs to be market basedmarket-based and observable as they can be directly corroborated by market participants.
Mortgage loans
The fair value of MPF loans and loans in the inactive CMA programs are priced using a valuation technique referred to as the “market approach”.approach.” Loans are aggregated into synthetic pass-through securities based on product type, loan origination year, gross coupon and loan term. Thereafter, these are compared against closing “TBA” prices extracted from independent sources. All significant inputs to the loan valuations are market basedmarket-based and observable.

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Accrued interest receivable and payable
The estimated fair values approximate the recorded book value because of the relatively short period of time between their origination and expected realization.

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Derivative assets and liabilities
The FHLBNY’s derivatives are traded in the over-the-counter market. Discounted cash flow analysis is the primary methodology employed by the FHLBNY’s valuation models to measure and record the fair values of its interest rate swaps. The valuation technique is considered as an “Income approach”.approach.” Interest rate caps and floors are valued under the “Market approach”.approach.” Interest rate swaps and interest rate caps and floors are valued in an industry-standard option adjustedoption-adjusted valuation models that utilize market inputs, which can be corroborated fromby widely accepted third-party sources. The Bank’s valuation model utilizes a modifiedBlack-Karasinskimodel that assumes that rates are distributed log normally. The log-normal model precludes interest rates turning negative in the model computations. Significant market basedmarket-based and observable inputs into the valuation model include volatilities and interest rates. These derivative positions are classified within Level 2 of the valuation hierarchy, and include interest rate swaps, swaptions, interest rate caps and floors, and mortgage delivery commitments.
The FHLBNY employs control processes to validate the fair value of its financial instruments, including those derived from valuation models. These control processes are designed to ensure that the values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, the control processes are designed to ensure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable. These control processes include reviews of the pricing model’s theoretical soundness and appropriateness by specialists with relevant expertise who are independent from the trading desks or personnel who were involved in the design and selection of model inputs. Additionally, groups that are independent from the trading desk or personnel involved in the design and selection of model inputs participate in the review and validation of the fair values generated from the valuation model. The FHLBNY maintains an ongoing review of its valuation models and has a formal model validation policy in addition to procedures for the approval and control of data inputs.
The valuation of derivative assets and liabilities reflectreflects the value of the instrument including the values associated with counterparty risk and would also take into account the FHLBNY’s own credit standing and non-performance risk. The Bank has collateral agreements with all its derivative counterparties and enforces collateral exchanges at least weekly. The computed fair values of the FHLBNY’s derivatives took into consideration the effects of legally enforceable master netting agreements that allow the FHLBNY to settle positive and negative positions and offset cash collateral with the same counterparty on a net basis. The Bank and each derivative counterparty have bilateral collateral thresholds that take into account both the Bank’s and the counterparty’s credit ratings. As a result of these practices and agreements and the FHLBNY’s assessment of any change in its own credit spread, the Bank has concluded that the impact of the credit differential between the Bank and its derivative counterparties was sufficiently mitigated to an immaterial level such that no credit adjustments were deemed necessary to the recorded fair value of derivative assets and derivative liabilities in the Statements of Condition at September 30, 2010 and December 31, 2009.Conditions in this Form 10-Q.
Deposits
The FHLBNY determines estimated fair values of deposits by calculating the present value of expected future cash flows from the deposits. The discount rates used in these calculations are the current cost of deposits with similar terms.
Consolidated obligations
The FHLBNY estimates fair values based on the cost of raising comparable term debt and prices its bonds and discount notes off of the current consolidated obligations market curve, which has a daily active market. The fair values of consolidated obligation debt (bonds and discount notes) are computed using a standard option valuation model using market based and observable inputs: (1) consolidated obligation debt curve (the “CO Curve”) that is available to the public and published by the Office of Finance, and (2) LIBOR curve and volatilities. Model adjustments that are not observable are not considered significant.
Mandatorily redeemable capital stock
The FHLBNY considers the fair value of capital subject to mandatory redemption, as the redemption value of the stock, which is generally par plus accrued estimated dividend. The FHLBNY has a cooperative structure. Stock can only be acquired by members at par value and redeemed at par value. Stock is not traded publicly and no market mechanism exists for the exchange of stock outside the cooperative structure.
Note 18.17. Commitments and contingencies.Contingencies.
The FHLBanks have jointConsolidated obligations — Joint and several liabilityliability.Although the FHLBNY is primarily liable only for its portion of consolidated obligations (i.e. those consolidated obligations issued on its behalf and those that have been transferred/assumed from other FHLBanks), it is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all of the consolidated obligations issued by the FHLBanks.
The Finance Agency, in its discretion, may require any FHLBank to make principal or interest payments due on their behalf. Accordingly, should one or moreany consolidated obligation, regardless of whether there has been a default by the FHLBanksFHLBank having primary liability. To the extent that a FHLBank makes any payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank shall be unableentitled to repay their participation inreimbursement from the consolidated obligations, each ofFHLBank with primary liability. The FHLBank with primary liability would have a corresponding liability to reimburse the other FHLBanks could be called uponFHLBank providing assistance to repay all or partthe extent of such obligations, aspayment and other associated costs (including interest to be determined or approved by the Finance Agency. NeitherAgency). As discussed more fully in Note 20 to the FHLBNY nor any other FHLBank has ever had to assume or payaudited financial statements filed on March 25, 2011, the consolidated obligations of another FHLBank. The FHLBNY does not believe that it will be called upon to pay the consolidated obligations of another FHLBank in the future. Accordingly, the FHLBNY has not recognized a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations at March 31, 2011 and December 31, 2010.

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However, if the Finance Agency determines that the primarily liable FHLBank is unable to satisfy its obligations, then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis that the Finance Agency may determine. No FHLBank has ever failed to make a payment on a consolidated obligation for which it was the primary obligor; as a result, the regulatory provisions for directing other FHLBanks to make payments on behalf of another FHLBank or allocating the liability among other FHLBanks have never been invoked. Consequently, the Bank has no means to determine how the Finance Agency might allocate among the other FHLBanks the obligations of a FHLBank that is unable to pay consolidated obligations for which such FHLBank is primarily liable. In the event the Bank is holding a consolidated obligation as an investment for which the Finance Agency would allocate liability among the 12 FHLBanks, the Bank might be exposed to a credit loss to the extent of its share of the assigned liability for that particular consolidated obligation. If principal or interest on any consolidated obligation issued by the FHLBank System is not paid in full when due, the defaulting FHLBank may not pay dividends to, or repurchase shares of stock from, any shareholder of the defaulting FHLBank. The FHLBNY did not hold any consolidated obligations of another FHLBank as investments at March 31, 2011 and December 31, 2010.
If the principal or interest on any consolidated obligation issued on behalf of the FHLBNY is not paid in full when due, the FHLBNY may not pay dividends to, or redeem or repurchase shares of stock from, any member or non-member stockholder until the Finance Agency approves the FHLBNY’s consolidated obligation payment plan or another remedy, and until the FHLBNY pays all the interest and principal currently due under all its consolidated obligations.
Because the FHLBNY is jointly and severally liable for debt issued by other FHLBanks, the FHLBNY has not identified consolidated obligations outstanding by primary obligor. The FHLBNY does not believe that the identification of particular banks as the primary obligors on these consolidated obligations is relevant, because all FHLBanks are jointly and severally obligated to pay all consolidated obligations. The identity of the primary obligor does not affect the FHLBNY’s investment decisions. The FHLBNY’s ownership of consolidated obligations in which other FHLBanks are primary obligors does not affect the FHLBNY’s “guarantee” on consolidated obligations, as there is no automatic legal right of offset. Even if the FHLBNY were to claim an “offset,” the FHLBNY would still be jointly and severally obligated for any debt service shortfall caused by the FHLBanks’ failure to pay. The par amounts of the outstanding consolidated obligations of all 12 FHLBanks were $0.8 trillion at March 31, 2011 and December 31, 2010.
Under the provisions of accounting standard for guarantees, the Bank would have been required to recognize the fair value of the FHLBNY’s joint and several liability for all the consolidated obligations, as discussed above. However, the FHLBNY considers the joint and several liabilities as similar to a related party guarantee, which meets the scope exception under the accounting standard for guarantees. Accordingly, the FHLBNY has not recognized the fair value of a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations at September 30, 2010March 31, 2011 and December 31, 2009. The par amount of the twelve FHLBanks’ outstanding consolidated obligations, including the FHLBNY’s, was approximately $0.8 trillion and $0.9 trillion at September 30, 2010 and December 31, 2009.2010.
Standby letters of credit are executed for a fee on behalf of members to facilitate residential housing, community lending, and members’ asset/liability management or to provide liquidity. A standby letter of credit is a financing arrangement between the FHLBNY and its member. Members assume an unconditional obligation to reimburse the FHLBNY for value given by the FHLBNY to the beneficiary under the terms of the standby letter of credit. The FHLBNY may, in its discretion, permit the member to finance repayment of their obligation by receiving a collateralized advance. Outstanding standby letters of credit were approximately $1,865.4 million$2.4 billion and $697.9 million$2.3 billion as of September 30, 2010March 31, 2011 and December 31, 2009,2010, and had original terms of up to 15 years, with a final expiration in 2019. Standby letters of credit are fully collateralized. Unearned fees on standby letters of credit wereare recorded in Other liabilities, and were not significant as of September 30, 2010March 31, 2011 and December 31, 2009.2010. Based on management’s credit analyses and collateral requirements, the FHLBNY does not deem it necessary to have any provision for credit losses on these commitments and letters of credit.

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Under the MPF program, the Bank was unconditionally obligated to purchase $20.7$25.2 million and $4.2$30.0 million of mortgage loans at September 30, 2010March 31, 2011 and December 31, 2009.2010. Commitments are generally for periods not to exceed 45 business days. Such commitments were recorded as derivatives at their fair value under the accounting standards for derivatives and hedging. In addition, the FHLBNY had entered into conditional agreements under “Master Commitments” with its members in the MPF program to purchase mortgage loans in aggregate of $605.9$785.5 million and $484.6$630.6 million as of September 30, 2010March 31, 2011 and December 31, 2009.2010.
The FHLBNY executes derivatives with major financial institutions and enters into bilateral collateral agreements. When counterparties are exposed, the Bank would typically pledge cash collateral to mitigate the counterparty’s credit exposure. To mitigate the counterparties’ exposures, the FHLBNY deposited $3.8$1.9 billion and $2.2$2.7 billion in cash with derivative counterparties as pledged collateral at September 30, 2010March 31, 2011 and December 31, 2009,2010, and these amounts were reported as a deduction to Derivative liabilities.
The FHLBNY was also exposed to credit risk associated with outstanding derivative transactions measured by the replacement cost of derivatives in net fair value gain positions of $32.4$25.0 million and $8.3$22.0 million at September 30, 2010March 31, 2011 and December 31, 2009.2010. At September 30,March 31, 2011 and December 31, 2010, counterparties had deposited $53.8$71.1 million and $9.3 million in cash as collateral to mitigate such an exposure. At December 31, 2009, the fair values of derivatives in a gain position were below the threshold and derivative counterparties pledged no cash to the FHLBNY.

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The FHLBNY charged to operating expenses net rental costs of approximately $0.8 million
Future benefit payments for the three months ended September 30, 2010BEP and 2009. The net rental cost for the nine months ended September 30, 2010 and 2009 was $2.5 million. Lease agreements for FHLBNY premises generally provide for increases in the basic rentals resulting from increases in property taxes and maintenance expenses. Such increasespostretirement health benefit plan are not expectedconsidered significant. The Bank expects to havefund $9.9 million over the next 12 months towards the Defined Benefit Plan, a material effect on the FHLBNY’s results of operations or financial condition.non-contributory pension plan.
The following table summarizes contractual obligations and contingencies as of September 30, 2010March 31, 2011 (in thousands):
                               
 September 30, 2010  March 31, 2011 
 Payments due or expiration terms by period  Payments Due or Expiration Terms by Period 
 Less than One year Greater than three Greater than    Less Than One Year Greater Than Three Greater Than   
 one year to three years years to five years five years Total  One Year to Three Years Years to Five Years Five Years Total 
Contractual Obligations  
Consolidated obligations-bonds at par1
 $38,972,100 $25,068,825 $6,634,375 $3,054,200 $73,729,500  $32,657,200 $23,715,475 $7,837,380 $3,695,015 $67,905,070 
Mandatorily redeemable capital stock1
 45,708 14,650 2,037 4,953 67,348  37,418 4,959 459 16,290 59,126 
Premises (lease obligations)2
 3,060 6,284 4,748 4,674 18,766  3,060 5,997 4,674 3,506 17,237 
                      
  
Total contractual obligations 39,020,868 25,089,759 6,641,160 3,063,827 73,815,614  32,697,678 23,726,431 7,842,513 3,714,811 67,981,433 
                      
  
Other commitments  
Standby letters of credit 1,824,089 20,012 17,472 3,861 1,865,434  2,366,166 19,359 41,777 3,861 2,431,163 
Consolidated obligations-bonds/ discount notes traded not settled 774,322 — — — 774,322  4,522,000 — — — 4,522,000 
Commitments to fund additional advances 16,000 — — — 16,000 
Open delivery commitments (MPF) 20,675 — — — 20,675  25,197 — — — 25,197 
                      
  
Total other commitments 2,619,086 20,012 17,472 3,861 2,660,431  6,929,363 19,359 41,777 3,861 6,994,360 
                      
  
Total obligations and commitments
 $41,639,954 $25,109,771 $6,658,632 $3,067,688 $76,476,045  $39,627,041 $23,745,790 $7,884,290 $3,718,672 $74,975,793 
                      
1 Callable bonds contain exercise date or a series of exercise dates that may result in a shorter redemption period. Mandatorily redeemable capital stock is categorized by the dates at which the corresponding advances outstanding mature. Excess capital stock is redeemed at that time, and hence, these dates better represent the related commitments than the put dates associated with capital stock, under which stock may not be redeemed until the later of five years from the date the member becomes a nonmember or the related advance matures.
 
2 Immaterial amount of commitments for equipment leases are not included.
The FHLBNY does not anticipate any credit losses from its off-balance sheet commitments and accordingly no provision for losses is required.
Impact of the bankruptcy of Lehman Brothers
As previously reported, onOn September 15, 2008, Lehman Brothers Holdings, Inc. (“LBHI”), the parent company of Lehman Brothers Special Financing Inc. (“LBSF”) and a guarantor of LBSF’s obligations, filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in the Southern District of New York. LBSF filed for protection under Chapter 11 in the same court on October 3, 2008. LBSF was a counterparty to FHLBNY on multiple derivative transactions under an International Swap Dealers Association, Inc. master agreement with a total notional amount of $16.5 billion at the time of termination of the Bank’s derivative transactions with LBSF. The net amount that was due to the Bank after giving effect to obligations that were due

51

LBSF was approximately $65 million. The FHLBNY timely filed proofs of claim in the amount of approximately $65 million as creditors of LBSF and LBHI in connection with the bankruptcy proceedings. The Bank fully reserved the LBSF receivables as the bankruptcies of LBHI and LBSF make the timing and the amount of any recovery uncertain.
As previously reported, the Bank received a Derivatives ADR Notice from LBSF dated July 23, 2010 making a Demand as of the date of the Notice of approximately $268 million owed to LBSF by the Bank. Subsequently, in accordance with the Alternative Dispute Resolution Procedure Order entered by the Bankruptcy Court dated September 17, 2009 (“Order”), the Bank responded to LBSF on August 23, 2010, denying LBSF’s Demand. LBSF served a reply on September 7, 2010, effectively reiterating its position. AThe mediation has been scheduledbeing conducted pursuant to the Order forcommenced on December 8, 2010. 2010 and concluded without settlement on March 17, 2011. Pursuant to the Order, positions taken by the parties in the ADR process are confidential.
While the Bank believes that LBSF’s position is without merit, the amount the Bank actually recovers or pays will ultimately be decided in the course of the bankruptcy proceedings.
The FHLBNY does not anticipate any credit losses from its off-balance sheet commitments and accordingly no provision for losses is required.
Note 19.18. Related party transactions.Party Transactions.
The FHLBNY is a cooperative and the members own almost all of the stock of the Bank. Stock that isAny stock not owned by members is held by former members. The majority of the members of the Board of Directors of the FHLBNY are elected by and from the membership. The FHLBNY conducts its advances business almost exclusively with members. The Bank considers its transactions with its members and non-member stockholders as related party transactions in addition to transactions with other FHLBanks, the Office of Finance, and the Finance Agency. All transactions with all members, including those whose officers may serve as directors of the FHLBNY, are at terms that are no more favorable than comparable transactions with other members. The FHLBNY may from time to time borrow or sell overnight and term Federal funds at market rates to members.

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Debt Transfers
DuringFor the three months ended March 31, 2011 and 2010, third quarter, the bank assumedBank did not assume debt from another FHLBank totaling $193.9FHLBank. The Bank transferred $150.0 million (par amounts). There was no transfer of consolidated obligation bonds to other FHLBanks or assumption of debt in the prior two quarters of 2010. Generally, when debt is transferred in exchange for a cash price that represents the fair market values of the debt. No debt was transferred to the FHLBNY or assumed from another FHLBank for the first three quarters of 2009.months ended March 31, 2011. No bonds were transferred by the FHLBNY to another FHLBank in the same period in 2010.
When debt is transferred, atAt trade date, the transferring bank notifies the Office of Finance of a change in primary obligor for the transferred debt.
Advances sold or transferred
No advances were transferred/sold to the FHLBNY or from the FHLBNY to another FHLBank in the first three quarters of 2010 orany periods in 2009.this report.
MPF Program
In the MPF program, the FHLBNY may participate out certain portions of its purchases of mortgage loans from its members. Transactions are at market rates. TheLoans participated by the FHLBNY to the FHLBank of Chicago the MPF provider’s cumulative share of interest in the FHLBNY’s MPF loanswas $75.0 million and $81.2 million at September 30, 2010March 31, 2011 and December 31, 2009 was $87.8 million and $101.2 million from inception of the program through mid-2004.2010 on a cumulative basis. Since 2004, the FHLBNY has not shared its purchases with the FHLBank of Chicago. Fees paid to the FHLBank of Chicago were $0.1 million in the third quarters of 2010 and 2009, and $0.4 million for the ninethree months end September 30, 2010ended March 31, 2011 and 2009.2010.
Mortgage-backed Securities
No mortgage-backed securities were acquired from other FHLBanks during the first three quarters of 2010 and 2009.periods in this report.
Intermediation
Notional amounts of $550.0 million and $320.0 million were outstanding both at September 30, 2010March 31, 2011 and December 31, 20092010 in which the FHLBNY acted as an intermediary to sell derivatives to members. The amountsnotionals include offsetting identical transactions with unrelated derivatives counterparties. Net fair value exposures of these transactions at September 30, 2010March 31, 2011 and December 31, 20092010 were not material. The intermediated derivative transactions were fully collateralized.
Loans to and borrowings from other Federal Home Loan Banks
In the current year first three quarters,months ended March 31, 2011, FHLBNY extended one overnight loan for a total of $100.0 million to another FHLBank. For the three months ended March 31, 2010, the FHLBNY extended one overnight loan for a total of $27.0 million to other FHLBanks and none in the same period of 2009.another FHLBank. Generally, loans made to other FHLBanks are uncollateralized. There was no outstanding balance as of September 30, 2010 or December 31, 2009. Interest income from such loans werewas not significant in any period in this report.

52

The following tables summarize outstanding balances with related parties at September 30, 2010March 31, 2011 and December 31, 2009,2010, and transactions for the three and nine months ended September 30,March 31, 2011 and 2010 and 2009 (in thousands):
Related Party: Outstanding Assets, Liabilities and Capital
                                
 September 30, 2010 December 31, 2009  March 31, 2011 December 31, 2010 
 Related Unrelated Related Unrelated  Related Unrelated Related Unrelated 
Assets
  
Cash and due from banks $— $69,471 $— $2,189,252  $— $2,953,801 $— $660,873 
Federal funds sold — 4,095,000 — 3,450,000  — 5,093,000 — 4,988,000 
Available-for-sale securities — 3,373,781 — 2,253,153  — 3,719,024 — 3,990,082 
Held-to-maturity securities  
Long-term securities — 8,221,246 — 10,519,282  — 8,042,487 — 7,761,192 
Advances 85,697,171 — 94,348,751 —  75,487,377 — 81,200,336 — 
Mortgage loans 1
 — 1,267,687 — 1,317,547  — 1,270,891 — 1,265,804 
Accrued interest receivable 269,988 35,775 299,684 40,826  220,672 29,782 256,617 30,718 
Premises, software, and equipment — 14,550 — 14,792  — 14,919 — 14,932 
Derivative assets2
 — 32,425 — 8,280  — 24,964 — 22,010 
Other assets3
 208 16,236 179 19,160  175 16,742 113 21,393 
                  
  
Total assets
 $85,967,367 $17,126,171 $94,648,614 $19,812,292  $75,708,224 $21,165,610 $81,457,066 $18,755,004 
                  
  
Liabilities and capital
  
Deposits $3,730,257 $— $2,630,511 $—  $2,512,631 $— $2,454,480 $— 
Consolidated obligations — 92,706,801 — 104,835,617  — 88,037,140 — 91,134,079 
Mandatorily redeemable capital stock 67,348 — 126,294 —  59,126 — 63,219 — 
Accrued interest payable 15 277,632 16 277,772  5 230,104 10 197,256 
Affordable Housing Program4
 137,995 — 144,489 —  135,131 — 138,365 — 
Payable to REFCORP — 20,560 — 24,234  — 18,735 — 21,617 
Derivative liabilities2
 — 784,498 — 746,176  — 839,710 — 954,898 
Other liabilities5
 50,339 51,109 29,330 43,176  48,395 49,830 49,484 54,293 
                  
  
Total liabilities
 $3,985,954 $93,840,600 $2,930,640 $105,926,975  $2,755,288 $89,175,519 $2,705,558 $92,362,143 
                  
  
Capital
 5,266,984 — 5,603,291 —  4,943,027 — 5,144,369 — 
                  
  
Total liabilities and capital
 $9,252,938 $93,840,600 $8,533,931 $105,926,975  $7,698,315 $89,175,519 $7,849,927 $92,362,143 
                  
1 Includes insignificant amounts of mortgage loans purchased from members of another FHLBank.
 
2 Derivative assets and liabilities include insignificant fair values due to intermediation activities on behalf of members.
 
3 Includes insignificant amounts of miscellaneous assets that are considered related party.
 
4 Represents funds not yet disbursed to eligible programs.
 
5 Related column includes member pass-through reserves at the Federal Reserve Bank.

 

5343

Related Party: Income and Expense transactions
                                
 Three months ended  Three months ended 
 September 30, 2010 September 30, 2009  March 31, 2011 March 31, 2010 
 Related Unrelated Related Unrelated  Related Unrelated Related Unrelated 
Interest income  
Advances $173,459 $— $240,573 $—  $158,696 $— $149,640 $— 
Interest-bearing deposits 1
 — 1,699 — 1,014  — 966 — 830 
Federal funds sold — 2,253 — 1,864  — 2,546 — 1,543 
Available-for-sale securities — 7,580 — 6,590  — 8,639 — 5,764 
Held-to-maturity securities  
Long-term securities — 84,242 — 111,232  — 71,056 — 98,634 
Certificates of deposit — — — 851 
Mortgage loans2
 — 16,333 — 17,405  — 15,486 — 16,741 
Loans to other FHLBanks and other — — 1 — 
                  
  
Total interest income
 $173,459 $112,107 $240,574 $138,956  $158,696 $98,693 $149,640 $123,512 
                  
  
Interest expense  
Consolidated obligations $— $158,553 $— $223,355  $— $122,093 $— $164,570 
Deposits 959 — 516 —  470 — 892 — 
Mandatorily redeemable capital stock 879 — 1,807 —  744 — 1,495 — 
Cash collateral held and other borrowings — 14 — —  — 9 — — 
                  
  
Total interest expense
 $1,838 $158,567 $2,323 $223,355  $1,214 $122,102 $2,387 $164,570 
                  
  
Service fees $1,297 $— $1,101 $— 
Service fees and other $1,256 $— $1,045 $— 
                  
1 Includes de minimis amounts of interest income from MPF service provider.
 
2 Includes de minimis amounts of mortgage interest income from loans purchased from members of another FHLBank.
                 
  Nine months ended 
  September 30, 2010  September 30, 2009 
  Related  Unrelated  Related  Unrelated 
Interest income                
Advances $477,303  $—  $1,094,089  $— 
Interest-bearing deposits 1
  —   3,766   —   19,054 
Federal funds sold  —   6,600   —   1,933 
Available-for-sale securities  —   23,128   —   22,881 
Held-to-maturity securities                
Long-term securities  —   274,686   —   355,916 
Certificates of deposit  —   —   —   1,392 
Mortgage loans2
  —   49,689   —   54,679 
Loans to other FHLBanks and other  —   —   1   — 
             
                 
Total interest income
 $477,303  $357,869  $1,094,090  $455,855 
             
                 
Interest expense                
Consolidated obligations $—  $481,738  $—  $956,923 
Deposits  2,813   —   2,002   — 
Mandatorily redeemable capital stock  3,051   —   5,478   — 
Cash collateral held and other borrowings  —   14   —   49 
             
                 
Total interest expense
 $5,864  $481,752  $7,480  $956,972 
             
                 
Service fees $3,472  $—  $3,181  $— 
             
1Includes de minimis amounts of interest income from MPF service provider.
2Includes de minimis amounts of mortgage interest income from loans purchased from members of another FHLBank.
Note 20.19. Segment informationInformation and concentration.Concentration.
The FHLBNY manages its operations as a single business segment. Management and the FHLBNY’s Board of Directors review enterprise-wide financial information in order to make operating decisions and assess performance. Advances to large members constitute a significant percentage of FHLBNY’s advance portfolio and its source of revenues.
The FHLBNY has a unique cooperative structure and is owned by member institutions located within a defined geographic district. The Bank’s market is the same as its membership district whichThis includes New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. Institutions that are members of the FHLBNY must have their principal places of business within this market, but may also operate elsewhere.
The FHLBNY’s primary business is making low-cost, collateralized loans, known as “advances,” to its members. Members use advances as a source of funding to supplement their deposit-gathering activities. As a cooperative, the FHLBNY prices advances at minimal net spreads above the cost of its funding to deliver maximum value to members. Advances to large members constitute a significant percentage of FHLBNY’s advance portfolio and its source of revenues.

54

The FHLBNY’s total assets and capital could significantly decrease if one or more large members were to withdraw from membership or decrease business with the Bank. Members might withdraw or reduce their business as a result of consolidating with an institution that was a member of another FHLBank, or for other reasons. The FHLBNY has considered the impact of losing one or more large members. In general, a withdrawing member would be required to repay all indebtedness prior to the redemption of its capital stock. Under current conditions, the FHLBNY does not expect the loss of a large member to impair its operations, since the FHLBank Act of 1999 does not allow the FHLBNY to redeem the capital of an existing member if the redemption would cause the FHLBNY to fall below its capital requirements. Consequently, the loss of a large member should not result in an inadequate capital position for the FHLBNY. However, such an event could reduce the amount of capital that the FHLBNY has available for continued growth. This could have various ramifications for the FHLBNY, including a possible reduction in net income and dividends, and a lower return on capital stock for remaining members.

44

The top ten advance holders at September 30, 2010,March 31, 2011, December 31, 20092010 and September 30, 2009,March 31, 2010 and associated interest income for the periods then ended are summarized as follows (dollars in thousands):
           
                     March 31, 2011 
 September 30, 2010  Percentage of   
 Percentage of    Par Total Par Value Three Months 
 Par Total Par Value Interest Income  City State Advances of Advances Interest Income 
 City State Advances of Advances Three months Nine months      
Hudson City Savings Bank, FSB* Paramus NJ $17,175,000  21.4% $178,029 $529,488  Paramus NJ $15,525,000  21.5% $158,066 
Metropolitan Life Insurance Company New York NY 13,230,000 16.5 75,674 222,705  New York NY 12,155,000 16.8 67,672 
New York Community Bank* Westbury NY 7,593,167 9.5 77,416 230,083  Westbury NY 7,293,162 10.1 75,256 
MetLife Bank, N.A. Bridgewater NJ 4,969,500 6.2 16,368 40,514  Convent Station NJ 4,284,500 5.9 19,864 
The Prudential Insurance Co. of America Newark NJ 2,500,000 3.5 15,027 
Manufacturers and Traders Trust Company Buffalo NY 3,709,163 4.6 11,607 34,369  Buffalo NY 2,257,875 3.1 4,505 
Valley National Bank Wayne NJ 2,194,500 3.0 23,987 
Astoria Federal Savings and Loan Assn. Lake Success NY 2,735,000 3.4 27,463 83,763  Lake Success NY 2,099,000 2.9 19,141 
The Prudential Insurance Co. of America Newark NJ 2,500,000 3.1 17,971 60,244 
Valley National Bank Wayne NJ 2,361,500 2.9 24,677 73,885 
Doral Bank San Juan PR 1,531,420 1.9 16,471 53,041 
Investors Savings Bank Short Hills NJ 1,677,007 2.3 11,431 
New York Life Insurance Company New York NY 1,500,000 1.9 4,274 11,166  New York NY 1,500,000 2.1 3,433 
                        
Total
     $57,304,750  71.4% $449,950 $1,339,258      $51,486,044  71.2% $398,382 
                        
* Officer of member bank also served on the Board of Directors of the FHLBNY.
           
                 December 31, 2010 
 December 31, 2009  Percentage of   
 Percentage of    Par Total Par Value Twelve Months 
 Par Total Par Value 12-months  City State Advances of Advances Interest Income 
 City State Advances of Advances Interest Income      
Hudson City Savings Bank, FSB* Paramus NJ $17,275,000  19.0% $710,900  Paramus NJ $17,025,000  22.1% $705,743 
Metropolitan Life Insurance Company New York NY 13,680,000 15.1 356,120  New York NY 12,555,000 16.3 294,526 
New York Community Bank* Westbury NY 7,343,174 8.1 310,991  Westbury NY 7,793,165 10.1 307,102 
MetLife Bank, N.A. Convent Station NJ 3,789,500 4.9 61,036 
Manufacturers and Traders Trust Company Buffalo NY 5,005,641 5.5 97,628  Buffalo NY 2,758,000 3.6 42,979 
The Prudential Insurance Co. of America Newark NJ 3,500,000 3.9 93,601  Newark NJ 2,500,000 3.3 77,544 
Astoria Federal Savings and Loan Assn. Lake Success NY 3,000,000 3.3 120,870  Lake Success NY 2,391,000 3.1 107,917 
Emigrant Bank New York NY 2,475,000 2.7 64,131 
Doral Bank San Juan PR 2,473,420 2.7 86,389 
MetLife Bank, N.A. Bridgewater NJ 2,430,500 2.7 46,142 
Valley National Bank Wayne NJ 2,322,500 2.6 103,707  Wayne NJ 2,310,500 3.0 98,680 
New York Life Insurance Company New York NY 1,500,000 2.0 14,678 
First Niagara Bank, National Association Buffalo NY 1,473,493 1.9 24,911 
                      
Total
     $59,505,235  65.6% $1,990,479      $54,095,658  70.3% $1,735,116 
                      
* At December 31, 2009,2010, officer of member bank also served on the Board of Directors of the FHLBNY.
           
                     March 31, 2010 
 September 30, 2009  Percentage of   
 Percentage of    Par Total Par Value Three Months 
 Par Total Par Value Interest Income  City State Advances of Advances Interest Income 
 City State Advances of Advances Three months Nine months      
Hudson City Savings Bank, FSB* Paramus NJ $17,325,000  18.9% $178,896 $532,100  Paramus NJ $17,275,000  20.3% $174,759 
Metropolitan Life Insurance Company New York NY 14,280,000 15.6 84,277 279,360  New York NY 13,555,000 15.9 72,407 
New York Community Bank* Westbury NY 8,148,476 8.9 78,413 233,129  Westbury NY 7,343,172 8.6 75,913 
Manufacturers and Traders Trust Company Buffalo NY 5,493,756 6.0 19,133 83,856  Buffalo NY 4,755,523 5.6 11,754 
The Prudential Insurance Co. of America Newark NJ 3,500,000 3.8 22,448 71,473  Newark NJ 3,500,000 4.1 21,577 
Astoria Federal Savings and Loan Assn. Lake Success NY 2,960,000 3.2 29,824 91,226  Lake Success NY 2,984,000 3.5 28,487 
Emigrant Bank New York NY 2,475,000 2.7 16,127 48,004 
Valley National Bank Wayne NJ 2,271,500 2.7 24,716 
Doral Bank San Juan PR 2,473,420 2.7 21,513 65,825  San Juan PR 2,119,420 2.5 19,258 
New York Life Insurance Company New York NY 2,000,000 2.4 3,075 
MetLife Bank, N.A. Bridgewater NJ 2,382,000 2.6 12,854 34,658  Convent Station NJ 1,894,500 2.2 11,693 
Valley National Bank Wayne NJ 2,338,500 2.6 25,608 78,322 
                        
Total
     $61,376,152  67.0% $489,093 $1,517,953      $57,698,115  67.8% $443,639 
                        
* At September 30, 2009,March 31, 2010, officer of member bank also served on the Board of Directors of the FHLBNY.

 

5545

The following table summarizes capital stock held by members who were beneficial owners of more than 5 percent of the FHLBNY’s outstanding capital stock as of September 30, 2010March 31, 2011 and December 31, 20092010 (shares in thousands):
                    
 Number Percent  Number Percent 
 September 30, 2010 of shares of total  March 31, 2011 of Shares of Total 
Name of beneficial owner Principal Executive Office Address owned capital stock 
Name of Beneficial Owner Principal Executive Office Address Owned Capital Stock 
Hudson City Savings Bank, FSB* West 80 Century Road, Paramus, NJ 07652 8,787  18.57% West 80 Century Road, Paramus, NJ 07652  8,044   18.35%
Metropolitan Life Insurance Company 200 Park Avenue, New York, NY 10166 7,339 15.51  200 Park Avenue, New York, NY 10166  6,855   15.64 
New York Community Bank* 615 Merrick Avenue, Westbury, NY 11590 4,002 8.46  615 Merrick Avenue, Westbury, NY 11590-6644  3,868   8.82 
Manufacturers and Traders Trust Company One M&T Plaza, Buffalo, NY 14203 2,415 5.10 
MetLife Bank N.A 501 Route 22 Bridgewater, NJ 08807 2,398 5.07 
               
             
   24,941  52.71%    18,767   42.81%
               
       
 Number Percent 
 December 31, 2010 of Shares of Total 
Name of Beneficial Owner Principal Executive Office Address Owned Capital Stock 
Hudson City Savings Bank, FSB* West 80 Century Road, Paramus, NJ 07652 8,719  18.99%
Metropolitan Life Insurance Company 200 Park Avenue, New York, NY 10166 7,035 15.32 
New York Community Bank* 615 Merrick Avenue, Westbury, NY 11590-6644 4,093 8.91 
     
 
 19,847  43.22%
     
           
    Number  Percent 
  December 31, 2009 of shares  of total 
Name of beneficial owner Principal Executive Office Address owned  capital stock 
Hudson City Savings Bank, FSB* West 80 Century Road, Paramus, NJ 07652  8,748   16.87%
Metropolitan Life Insurance Company 200 Park Avenue, New York, NY 10166  7,419   14.31 
New York Community Bank* 615 Merrick Avenue, Westbury, NY 11590  3,777   7.28 
Manufacturers and Traders Trust Company One M&T Plaza, Buffalo, NY 14203  2,952   5.69 
         
  
     22,896   44.15%
         
* Officer of member bank also served on the Board of Directors of the FHLBNY.
Note 21.20. Subsequent events.Events.
Under the final guidance issued by the FASB, in February 2010, subsequent events for the FHLBNY are events or transactions that occur after the balance sheet date but before financial statements are issued. There are two types of subsequent events:
a. The first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements (that is, recognized subsequent events).
b. The second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date (that is, nonrecognizednon-recognized subsequent events).
The FHLBNY has evaluated subsequent events through the date of this report and no significant subsequent events were identified.

 

5646

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.OPERATIONS
Forward-Looking Statements
Statements contained in this report, including statements describing the objectives, projections, estimates, or predictions of the Federal Home Loan Bank of New York (“FHLBNY” or “Bank”), may be “forward-looking statements.” All statements other than statements of historical fact are statements that could potentially be forward-looking statements. These statements may use forward-looking terminology, such as “anticipates,” “believes,” “could,” “estimates,” “may,” “should,” “will,” or other variations on these terms or their negatives. These statements may involve matters pertaining to, but not limited to: projections regarding revenue, income, earnings, capital expenditures, dividends, the capital structure and other financial items; statements of plans or objectives for future operations; expectations of future economic performance; and statements of assumptions underlying certain of the foregoing types of statements.
The Bank cautions that, by their nature, forward-looking statements involve risks or uncertainties, and actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. As a result, readers are cautioned not to place undue reliance on such statements, which are current only as of the date thereof. The Bank will not undertake to update any forward-looking statement herein or that may be made from time to time on behalf of the Bank.
These forward-looking statements may not be realized due to a variety of risks and uncertainties including, but not limited to risks and uncertainties relating to economic, competitive, governmental, technological and marketing factors, as well as other factors identified in the Bank’s filings with the Securities and Exchange Commission.

 

5747

Organization of Management’s Discussion and Analysis (“MD&A”).
The FHLBNY’s MD&A is designed to provide information that will assist the readers in better understanding the FHLBNY’s financial statements, the changes in key items in the Bank’s financial statements from periodyear to period,year, the primary factors driving those changes as well as how accounting principles affect the FHLBNY’s financial statements. The MD&A is organized as follows:
     
  Page 
 
Executive Overview
  6049 
     
Third2011 First Quarter 2010 Highlights
  6049 
     
Business Outlook
  62
Selected Financial Data
6451 
     
Results of Operations
  6655 
     
Net Income
  6655 
     
Interest Income
  6756 
     
Interest Expense
  6857 
     
Net Interest Income
  6958 
     
Analysis of AllowancesAllowance for Credit Losses and Non-Interest Income (Loss)
  7562 
     
Earnings Impact of Derivatives and Hedging Activities
  7764 
     
Non-InterestOperating Expense, Compensation and Benefits, and Other Expenses
  7966 
     
Financial Condition – Assets, Liabilities, Capital, Commitments and Contingencies
  8168 
     
Advances
  8370 
     
Investments
  8675 
     
Mortgage Loans Held-for-Portfolio
  90
Deposit Liabilities
9182 
     
Debt Financing Activity and Consolidated Obligations
  9184 
     
Stockholders’ Capital, Retained Earnings, and Mandatorily Redeemable Capital StockAOCI
  9790 
     
Derivative Instruments and Hedging Activities
  99
Asset Quality and Concentration-Advances, Investment Securities, Mortgage Loans, and Counterparty Risks
102
Commitments, Contingencies and Off-Balance Sheet Arrangements
11592 
     
Liquidity, Cash Flows, Short-Term Borrowings and Short-Term Debt
  116
Rating Actions With Respect to the FHLBNY
12096 
     
Legislative and Regulatory Developments
  12098 
MD&A TABLE REFERENCE
     
Table(s)DescriptionPage(s)
1.1 – 1.15Result of Operations55 – 66
2.1 – 2.2Assessments67
3.1 – 3.3Financial Condition68 – 69
4.1 – 4.10Advances70 – 75
5.1 – 5.10Investments76 – 81
6.1 – 6.3Mortgage Loans82 – 83
7.1 – 7.10Consolidated Obligations85 – 89
8.1 – 8.2Capital90 – 91
9.1 – 9.5Derivatives93 – 95
10.1 – 10.4Liquidity96 – 98

 

58

MD&A TABLE REFERENCE
         
Table Description Page 
 —  Selected Financial Data  64 
 1  Interest Income – Principal Sources  67 
 2  Impact of Interest Rate Swaps on Interest Income Earned from Advances  67 
 3  Interest Expenses – Principal Categories  68 
 4  Impact of Interest Rate Swaps on Consolidated Obligation Interest Expense  68 
 5  Components of Net Interest Income  69 
 6  Net Interest Adjustments from Hedge Qualifying Interest-Rate Swaps  71 
 7  GAAP Versus Economic Basis – Contrasting Net Interest Income, Net Income Spread and Return on Earning Assets  72 
 8  Spread and Yield Analysis  73 
 9  Rate and Volume Analysis  74 
 10  Provision for Credit Losses on Mortgage Loans and Other Income  75 
 11  Net Gains (Losses) from Derivatives and Hedging Activities  77 
 12  Gain/(Losses) Reclassified from AOCI to Current Period Income from Cash Flow Hedges  79 
 13  Operating Expenses  80 
 14  Statements of Condition  81 
 15  Advances by Product Type  83 
 16  Investments by Categories  86 
 17  Mortgage-Backed Securities – Held-to-Maturity by Issuer  87 
 18  Available-for-Sale Securities – Composition  87 
 19  External Rating of the Held-to-Maturity Portfolio  88 
 20  External Rating of the Available-for-Sale Portfolio  88 
 21  Mortgage-Backed Securities Weighted Average Rates by Contractual Maturities  88 
 22  Mortgage Loans by Loan Type  91 
 23  Consolidated Obligation Bonds by Type  94 
 24  Discount Notes Outstanding  97 
 25  Roll-Forward Mandatorily Redeemable Capital Stock  98 
 26  Derivative Hedging Strategies  100 
 27  Derivatives Financial Instruments by Hedge Designation  101 
 28  Derivative Financial Instruments by Product  101 
 29  Advances and Mortgage Loan Portfolios  102 
 30  Collateral Supporting Advances to Members  103 
 31  Collateral Supporting Member Obligations Other Than Advances  104 
 32  Location of Collateral Held  104 
 33  Concentration analysis – Top Ten Advance Holders  105 
 34  Period-Over-Period Change in Investments  105 
 35  NRSRO Held-to-Maturity Securities  106 
 36  NRSRO Available-for-Sale Securities  106 
 37  Carrying Value Basis of Held-to-Maturity Mortgage-Backed Securities by Issuer  107 
 38  Non-Agency Private Label Mortgage Securities  107 
 39  OTTI in 2010  108 
 40  Monoline Insurance of PLMBS  108 
 41  PLMBS by Year of Securitization and External Rating  109 
 42  Weighted-Average Market Price of MBS  110 
 43  Roll-Forward First Loss Account  111 
 44  Mortgage Loans – Past Due  111 
 45  Mortgage Loans – Interest Short-Fall  112 
 46  Mortgage Loans – Allowance for Credit Losses  112 
 47  Top Five Participating Financial Institutions – Concentration  112 
 48  Credit Exposure by Counterparty Credit Rating  114 
 49  Contractual Obligations and Other Commitments  116 
 50  Deposit Liquidity  117 
 51  Operational Liquidity  117 
 52  Contingency Liquidity  118 
 53  Consolidated Obligation – Original Maturities Less Than One Year  119 
 54  Unpledged Assets  119 
 55  FHFA MBS Limits ��119 
 56  FHLBNY Ratings  120 

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Executive Overview
This overview of management’s discussion and analysis highlights and selected information and may not contain all of the information that is important to readers of this Form 10-Q. For a more complete understanding of events, trends and uncertainties, as well as the liquidity, capital, credit and market risks, and critical accounting estimates, affecting the Federal Home Loan Bank of New York (“FHLBNY” or “Bank”), this Form 10-Q should be read in its entirety and in conjunction with the Bank’s most recent Form 10-K filed on March 25, 2010.2011.
Cooperative business model. As a cooperative, the FHLBNY seeks to maintain a balance between its public policy mission and its ability to provide adequate returns on the capital supplied by its members. The FHLBNY achieves this balance by delivering low-cost financing to members to help them meet the credit needs of their communities and by paying a dividend on the members’ capital stock. Reflecting the FHLBNY’s cooperative nature, the FHLBNY’s financial strategies are designed to enable the FHLBNY to expand and contract in response to member credit needs. The FHLBNY invests its capital in high quality, short- and medium-term financial instruments. This strategy allows the FHLBNY to maintain sufficient liquidity to satisfy member demand for short- and long-term funds, repay maturing consolidated obligations, and meet other obligations. The dividends paid by FHLBNY are largely the result of the FHLBNY’s earnings on invested member capital, net earnings on advances to members, mortgage loans and investments, offset in part by the FHLBNY’s operating expenses and assessments. FHLBNY’s board of directors and management determine the pricing of member credit and dividend policies based on the needs of its members and the cooperative.
Historical Perspective. The fundamental business of the FHLBNY is to provide member institutions and housing associates with advances and other credit products in a wide range of maturities to meet their needs. Congress created the FHLBanks in 1932 to improve the availability of funds to support home ownership. Although the FHLBanks were initially capitalized with government funds, members have provided all of the FHLBanks’ capital for over 50 years.
To accomplish its public purpose, the FHLBanks, including the FHLBNY, offer a readily available, low-cost source of funds, called advances, to member institutions and certain housing associates. Congress originally granted access to advances only to those institutions with the potential to make and hold long-term, amortizing home mortgage loans. Such institutions were primarily federally and state chartered savings and loan associations, cooperative banks, and state-chartered savings banks (thrift institutions). FHLBanks and its member thrift institutions are an integral part of the home mortgage financing system in the United States.
However, a variety of factors, including a severe recession, record-high interest rates, and deregulation, resulted in significant financial losses for thrift institutions in the 1980s. In response to the significant cost borne by the American taxpayer to resolve the failed thrift institutions, Congress restructured the home mortgage financing system in 1989 with the passage of the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”). Through this legislation, Congress reaffirmed the housing finance mission of the FHLBanks and expanded membership eligibility in the FHLBanks to include commercial banks and credit unions with a commitment to housing finance.
Different FHLBank Business Strategies. Each FHLBank is operated as a separate entity with its own management, employees and board of directors. In addition, all FHLBanks operate under the Finance Agency’s supervisory and regulatory framework. However, each FHLBank’s management and board of directors determine the best approach for meeting its business objectives and serving its members. As such, the management and board of directors of each FHLBank have developed different business strategies and initiatives to fulfill thatthe FHLBank’s mission, and they re-evaluate these strategies and initiatives from time to time.
Business segment.The FHLBNY manages its operations as a single business segment. Advances to members are the primary focus of the FHLBNY’s operations and the principal factor that impacts its operating results. The FHLBNY is exempt from ordinary federal, state, and local taxation except for local real estate tax. It is required to make payments to Resolution Funding Corporation (“REFCORP”), and set aside a percentage of its income towards an Affordable Housing Program (“AHP”). Together they are referred to as assessments.
Explanation of the use of certain non-GAAP measures of Interest Income and Expense, Net Interest income and margin.The FHLBNY has presented its results of operations in accordance with U.S. generally accepted accounting principles. The FHLBNY has also presented certain information regarding its Interest Income and Expense, Net Interest income and Net Interest spread that combines interest expense on debt with net interest paid on interest rate swaps associated with debt that were hedged on an economic basis. These are non-GAAP financial measures used by management that the FHLBNY believes are useful to investors and members of the FHLBNY in understanding the Bank’s operational performance and business and performance trends. Although the FHLBNY believes these non-GAAP financial measures enhance investor and members’ understanding of the Bank’s business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. When discussing non-GAAP measures, the Bank has provided GAAP measures in parallel.
Third2011 First Quarter 2010 Highlights
Results of Operations
The FHLBNY reported 2011 first quarter Net income of $78.8$71.0 million, or $1.71$1.61 per share for the 2010 third quarter compared with Net income of $140.2$53.6 million or $2.70$1.09 per share forin the same period in 2009.2010. The return on average equity, which is Net income divided by average Capital stock, Retained earnings, and Accumulated other comprehensive income (loss) (“AOCI”), was 6.03% for5.74% in the 2010 third quarter2011 period compared with 9.79% for3.99% in the same period in 2009.2010.

 

6049

Net income contracted duebenefited from member initiated prepayments which generated $42.7 million in prepayment fees and also contributed $52.0 million in derivative and hedging gains from termination of hedges associated with the prepayments. Two prominent charges to Net income were executed to benefit and protect future income. First, the significant declineBank absorbed $51.7 million in Netcharges when Management made tactical changes to its funding strategy and extinguished (or transferred) certain high-coupon debt to protect its future interest income. margin. Second, the Bank expensed $24.0 million to Compensation and benefits in order to reduce the funding shortfall in the defined benefit pension plan. The payment was made to reduce the likelihood of higher expenses in future periods and to avoid certain restrictions to plan participants.
Net interest income was $125.2$134.1 million in the 2010 third2011 first quarter, downup from $153.9$106.2 million or a decline of 18.6% from the same period in 2009.
The primary cause of the lower Net interest income was the decline in business volume as measured by average member advances outstanding. Average outstanding advances in the 2010 third quarter was $84.2 billion down from $96.7 billion in the same period in 2009. This adverse change2010, an increase of 26.3%. Although margins on advances were weaker relative to the 2010 first quarter and the cost of funding remained above historical levels, the increase in volume caused Net interest income was largely the result of $42.7 million in prepayment fees. In the 2011 first quarter, member-borrowers prepaid $7.1 billion of longer-term advances, in most instances, taking advantage of prevailing lower interest rates to declineborrow anew at the lower prevailing coupons. The FHLBNY records prepayment fees in interest income. Almost all of the prepaid advances were hedged, and as a result the amounts recorded as prepayment fees were after recovering the recorded fair values of those advances.
Lower margin was caused by $29.9run-off of higher yielding advances and mortgage-backed securities (“MBS”). Also, the Bank’s floating rate GSE-issued MBS are indexed to 3-month LIBOR which has remained at low levels in the 2011 first quarter. GSE-issued floating-rate MBS is a very significant component of the FHLBNY’s investment portfolio.
The low LIBOR rate has also tended to compress margins. The FHLBNY attempts to execute interest rate swaps to convert fixed-rate debt to a sub-LIBOR spread, but when the LIBOR rate is low, there is very little “room” for achieving a spread that would be ascribed to the triple-A rating of the FHLBank debt. As a result, on a swapped funding level, the low LIBOR rate has effectively driven up the cost of FHLBank consolidated obligation bonds and this has narrowed the FHLBNY’s margins. Yields sought by investors for longer-term FHLBank bonds still remain expensive and the pricing is not economical for the FHLBNY to offer longer-term advances even if demand exists. The FHLBank discount notes, which have maturities from overnight to one year, were also priced at very narrow sub-LIBOR spreads. The FHLBNY has continued to use discount notes as an important funding tool because of their ease of issuance and continued investor demand at sub-LIBOR spreads.
Credit related OTTI was insignificant in the 2011 first quarter, only $0.4 million overcompared with $3.4 million in the same period in 2009.
Net interest spread, which is2010. No new MBS were impaired and the difference between yields on interest-earning assets and yields on interest-costing liabilities, contracted by 4 basis points in the 2010 third quarter over the same period in 2009. Net interest income and net interest spread contracted to levels more typical of the years before 2009,OTTI charges were primarily because the Bank’s funding advantage weakened in 2010.
While FHLBank discount note yield volatility may have stabilized in the current quarter, discount note spreads to LIBOR have narrowed, adversely impacting FHLBNY’s interest margins. In a declining interest rate environment, the Federal Reserve Board’s bill issuance strategy has been to create a steady supply of bills that prevented yields from falling further, appears to have created a “floor” for further declines in Treasury bill yields. In turn, it has also stabilized the FHLBank discount note yields but that has not prevented discount note spreads from narrowing. Asas a result of the spread compressionadditional credit losses recognized on previously impaired private-label MBS because of slight deterioration in the current quarter, discount note issuances were further reduced, and maturing notes were replaced by floating-rate debt and short lockout callable bonds with short maturities. In much of 2009, FHLBank discount notes were issued at wide advantageous spreads to LIBOR, and was one sourceperformance parameters of the funding advantage in 2009.
Earnings from investing members’ capital and net non-interest bearing liabilities in short-term interest-yielding assets were an important contributor tosecurities. The FHLBNY earnings. In the 2010 third quarter, $9.4 billion of deployed capital potentially could have earned a yield of 17-20 basis points, the weighted average yield on money market instruments in that period. In the same period in 2009, $8.8 billion in deployed capital could potentially have earned also about 17 basis points. Short-term rates were comparable in the current and prior year quarters. Relative contribution from deployed capital depends on (1) the absolute volume of deployed capital as measured by average capital stock, retained earnings, and net non-interest bearing liabilities, and, (2) the short-term investment yields.
In the 2010 third quarter, the FHLBNY increased the impairment of four private-label mortgage-backed securities. Cashmakes quarterly cash flow assessments of the expected credit performance of the securities resulted in the recognitionits entire portfolio of $3.1 million as other-than-temporary impairment (“OTTI”) with a charge to earnings. All four securities had been previously determined to be OTTI, and the additional impairment in the 2010 third quarter was due to further deterioration in the performance parameters of the securities. Although all four securities are insured by bond insurers, Ambac and MBIA, the Bank’s analysis of the two bond insurers concluded that future credit losses due to projected collateral shortfalls of the insured securities would not be fully supported by the bond insurers. In the same period in 2009, OTTI of $3.7 million in credit impairment was charged to earnings. For more information about impairment methodology and bond insurer analysis, see Note 1 – Significant Accounting Policies and Estimates and Note 4 – Held-to-maturity securities.private-label MBS.
In the 2010 third quarter, theThe FHLBNY recognized $8.4recorded $64.6 million of net gains from derivative and hedging activities. In contrast,activities in the same period2011 first quarter, largely benefitting from the recognition of realized gains from termination of hedges contemporaneous with the prepayments. Such hedge terminations contributed $52.0 million in 2009, net gains of $59.6 million were recognized. Net hedging gains were primarily unrealized market value adjustments that resulted from (1) hedge ineffectiveness — interest rate changes that affected the market values of interest rate swaps differently than the market values of the hedged risk, and (2) derivatives designated as economic hedges. When derivatives are designated as economic hedges, changes in the fair values of the derivatives are marked to fair value through earnings with no offsetting changes in fair values of the hedged financial instruments. This effect is sometimes referred to as “one-sided marks”. Hedging gains and losses included interest income or expense paid on swaps designated as economic hedges, in compliance with hedge accounting reporting guidance, which prescribes that such interest be included in the income statement as part of derivatives and hedging activities. Interest income or expense from swaps that qualify for hedge accounting are also included in the income statement but are reported as part of the income or expense of the hedged asset or liability as part of interest margin. See Note 16 to the unaudited financial statements and Table 11 in this MD&A for more information.realized gains. In general, the FHLBNY holds derivatives and associated hedged instruments and consolidated obligation debt under the Fair Value Option accounting (“FVO”), to their maturity, call, or put dates. When such financial instruments are held to their contractual maturity (or put/call dates), nearly all of the cumulative net fair value gains and losses that are recorded as unrealized will generally reverse over time, and fair value changes will sum to zero over time. In limited instances, when the FHLBNY may terminateterminates these instruments prior to maturity or prior to call or put dates which(such as when members request prepayments of their borrowed advances), it would result in a realized gain or loss.
Concurrent with the significant member initiated prepayments, the Bank also took the opportunity to extinguish and transfer $478.6 million of certain high-coupon debt at a cost that exceeded the carrying values of the debt by $51.7 million. The Bank will replace such debt by issuing new debt at the lower prevailing interest rate for similar maturities. This is expected to benefit margin in future periods.
Operating Expenses of the FHLBNY were $21.7$7.5 million forin the 2010 third2011 first quarter, up from $17.8$6.3 million in the same period in 2009. The FHLBNY was also assessed for its share of2010.
Compensation and benefits rose to $38.9 million in the operating expenses for the Finance Agency and the Office of Finance, and those totaled $2.0 million for the 2010 third quarter,2011 period, up slightly from $1.8$12.9 million in the same period in 2009. The 12 FHLBanks2010. In March 2011, the FHLBNY contributed $24.0 million to its Defined Benefit Plan to eliminate a funding shortfall and two other GSEs share the administrative cost of the Finance Agency.amount was charged to Compensation and benefits.
REFCORP assessment payments totaled $19.7 million in the 2010 third quarter, down from $35.1 million in the same period in 2009. Affordable Housing Program (“AHP”) assessment set aside from income totaled $8.9$7.9 million in the 2010 third2011 first quarter, downup from $15.8$6.1 million in the same period in 2009.2010. REFCORP assessment payments totaled $17.7 million in the 2011 first quarter, up from $13.4 million in the same period in 2010. Assessments are calculated on Net income before assessments, and the decreasesincreases were due to the significant decreaseincrease in Net income in the 2010 third2011 first quarter Net income as compared to the same period in 2009. For more information about2010. Based on projected payments by the 12 FHLBanks through the second quarter of 2011, it is likely that the FHLBanks will have satisfied its obligation to REFCORP and AHP assessments seefurther payments would not be necessary thereafter. In anticipation of the section Assessments under Backgroundtermination of their REFCORP obligation, the FHLBanks have reached an agreement to set aside, once the obligation has ended, amounts that would have otherwise been paid to REFCORP as restricted retained earnings, with the objective of increasing the earnings reserves of the FHLBanks and enhancing the safety and soundness of the FHLBank system.
Cash dividends of $1.46 per share of capital stock (5.8% annualized return on capital stock) were paid to stockholders in this Form 10-Q, and Note 12 to the unaudited financial statements.2011 first quarter, up from $1.41, or 5.6% per share, paid in the same period in 2010.

 

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Cash dividendFinancial Condition
Net cash generated from operating activities was higher than Net income and the FHLBNY’s liquidity position remains in compliance with all regulatory requirements and Management does not foresee any changes to that position. Management also believes cash flows from operations, available cash balances and the FHLBNY’s ability to generate cash through the issuance of $1.15 per share of capital stock (4.60% annualized return on capital stock) was paidconsolidated obligation bonds and discount notes are sufficient to stockholders infund the 2010 third quarter. In the 2009 third quarter, cash dividend of $1.40 per share (5.60% annualized return on capital stock) was paid.FHLBNY’s operating liquidity needs.
The FHLBNY continued to experience balance sheet contraction, as both its lending and funding steadily declined at March 31, 2011, a continuing trend through each of the 2010 third quarter.quarters in 2010. Principal amounts of Advances to member banks declined to $85.7$72.3 billion at September 30, 2010, a level more typical of that before the credit crisis, from a peak of approximately $109.2 billion in 2008 and $94.3March 31, 2011 compared to $76.9 billion at December 31, 2009.2010. The decline has occurred gradually as member banks may have taken advantage of the improved availability of alternate funding sources such as deposits and senior unsecured borrowings in a more liquid market. MemberDecline in demand for advances hasmay also declined, asbe due to lukewarm loan demand from theirmember’s own customers may have stayed lukewarm due to nationally weak economic conditions.
Aside from advances, the FHLBNY’s primary earning assets are its investment securities portfolios, comprising mainly of GSE and U.S. agency issuedagency-issued mortgage-backed securities (“MBS”), and state and local government housing agency bonds. Such investmentInvestments in MBS and housing agency securities, which are classified as long-term investment portfolios,held-to-maturity and available-for-sale, totaled $11.6$11.8 billion, or 11.2%12.1% of Total assets at September 30, 2010,March 31, 2011, compared to $11.8 billion, or 11.7% of Total assets at December 31, 2010. GSE- and included $10.0 billionagency-issued MBS were 92.9% of GSE and agency issuedthe total balance sheet carrying value of all investments in MBS. Only $0.9$0.8 billion of private-label MBS remained outstanding. InvestmentGSE-issued investment security values have continued to improve, and previously recorded unrealized fair value losses in AOCI on GSE issued MBS reversed, and fair values were in a net unrealized gain position,improved as liquidity has gradually returned to the market.market, and fair values were generally in an unrealized gain position.
The FHLBNY’s capital remains strong. At September 30, 2010,March 31, 2011, actual risk basedrisk-based capital was $5.4$5.1 billion, compared to required risk based capital of $0.5 billion. To support $103.1$96.9 billion of Total assets at September 30, 2010,March 31, 2011, the required minimum regulatory capital was $4.1$3.9 billion, or 4.0%4.0 percent of assets. The FHLBNY’s actual regulatory capital was $5.4$5.1 billion, exceeding required capital by $1.3$1.2 billion at September 30, 2010.March 31, 2011. Aggregate capital ratio was at 5.27%,5.3 percent, or 1.27%1.3 percent more than the 4.0%4.0 percent regulatory minimum. The FHLBNY has prudently retained capital through the period of credit turmoil. Retained earnings, excluding losses in AOCI, have grown to $701.2$716.7 million at September 30, 2010.March 31, 2011. Losses in AOCI losses declinedtotaled $97.3 million compared to $97.8 million at September 30, 2010 from $144.5$96.7 million at December 31, 2009 primarily because of the improvement in the pricing of mortgage-backed securities designated as available-for-sale.
Shareholders’ equity, the sum of Capital stock, Retained earnings, and AOCI, was $5.3 billion at September 30, 2010, a decline of $336.3 million from December 31, 2009, primarily because of the decline in members’ Capital stock, which declined by $395.4 million. The decrease in Capital stock was consistent with the decrease in advances borrowed by members since members are required to purchase stock as a prerequisite to membership and to hold FHLBNY stock as a percentage of advances borrowed from the FHLBNY. The Bank’s current practice is to redeem stock in excess of the amount necessary to support advance activity on a daily basis. As a result, the amount of capital stock outstanding varies in line with members’ outstanding advance borrowings. For more information about changes in Capital, Retained earnings and AOCI, see Note 13 to the unaudited financial statements in this report.
Year-to-date 2010 Highlights
The FHLBNY reported year-to-date Net income of $189.1 million, or $3.98 per share, compared with $474.8 million, or $8.93 per share for the prior year period.
Net interest income was $347.6 million for the current year period, down $585.5 million from the prior year period. The primary causes were (1) decline in transaction volume in the current year period, (2) increases in debt costs relative to earnings from advances to members and investments, and (3) lower earnings from the deployment of members’ capital to fund interest earning-assets because of decline in member capital due to lower money-market investment yields.
Net realized and unrealized gain (loss) from derivatives and hedging activities was a loss of $3.3 million in the current year period. In contrast, the Bank recorded a gain of $124.6 million from derivatives and hedging activities in the prior year period.
Cash flow assessments of the expected credit performance of the securities resulted in the recognition of $7.7 million as OTTI charges to earnings. The non-credit component of OTTI recorded in AOCI through the third quarter was not significant. In the prior year period, credit related OTTI was $14.3 million. The non-credit component of OTTI recorded in AOCI through the prior year third quarter was $103.9 million.2010.
Business Outlook
The following forward-looking statements are based upon the current beliefs and expectations of the FHLBNY’s management and are subject to risks and uncertainties which could cause the FHLBNY’s actual results to differ materially from those set forth in such forward-looking statements.
The FHLBNY expects its full year 2011 earnings to continue to decline to ultimately reach levels more typical ofbelow the years before 2009, primarily as a result2010 earnings, because of lower net interest margins on the Bank’s core assets, primarily its advances and investments in mortgage-backed securities, assecurities.
In the Bank expects continued erosion of its funding advantages.
The Bank’s earnings will continue to be adversely impacted in 2011 in a low interest rate environment asprojected for the remainder of 2011, opportunities to invest in high-quality assets and earn a reasonable spread will be limited.limited, constraining earnings. The Bank’s core assets, primarily advances and investments in mortgage-backed securities, will yield lower interest margins as the Bank does not expect recovery of its funding advantage in 2011.

62

Advances- Management is unable to predict the timing and extent of the expected recovery in the U.S. economy, particularly the recovery in the housing market, or an expectation of continued stability in the financial markets. Against that backdrop, the management of the Bank believes it is also difficult to predict member demand for advances, which is the primary focus of the FHLBNY’s operations and the principal factor that impacts its operating results.
Generally, the growth or decline in advances is reflective of demand by members for both short-term liquidity and long-term funding driven by economic factors such as availability to the Bank’s members of alternative funding sources that are more attractive such as(e.g. consumer deposits,deposits), the interest rate environment, and the outlook for the economy. Members may choose to prepay advances, which may require prepayment fees, based on their expectations of interest rate changes and demand for liquidity. Demand for advances may also be influenced by the dividend payout rate to members on their capital stock investment in the FHLBNY. Members are required to invest in FHLBNY’s capital stock in the form of membership stock and activity-based stock. Members are required to purchase activity stock in order to borrow advances. Advance volume is also influenced by merger activity where members are either acquired by non-members or acquired by members of another FHLBank. When FHLBNY members are acquired by members of another FHLBank or a non-member, they no longer qualify for membership in the FHLBNY, which cannotcan neither renew outstanding advances or provide new advances to non-members. Subsequent to the merger, maturing advances may not be replaced, which has an immediate impact on short-term and overnight advance lending if the former member borrowed such advances.
Earnings–— As existing high-yielding fixed-rate MBS and some intermediate-term advances continue to pay down, mature or mature,be prepaid, it is unlikely they will be replaced by equivalent high yieldinghigh-yielding assets due to the low interest rate environment, and this will tend to lower the overall yield on total assets. The FHLBNY expects general advance demand from members to continue to decline, and specifically,decline. Specifically, the Bank expects limited demand for large intermediate-term advances because many members have adequate liquidity, and other members have significant amounts of intermediate-term advances that were borrowed from the FHLBNY several years ago. The FHLBNY anticipates that such members may be considering prepaying those borrowings, or to not replacing them at maturity. Members that have expressed interest in intermediate-term borrowing have not been significant borrowers in the past.
The FHLBNY earns income from investing its members’ capital and non-interest bearing liabilities, together referred to as deployed capital, to fund interest-earning assets. The two principal factors that impact earnings from deployed capital are the average amount of capital outstanding in a period and the interest rate environment in the period, which in turn impacts yields on earning assets. These factors determine the potential earnings from deployed capital, and both factors are subject to change. The Bank cannot predict with certainty the level of earnings from capital. In a lower interest rate environment, deployed capital, which consists of capital stock, retained earnings, and net non-interest bearing liabilities, will provide relatively lower income.

51

The Bank’s earnings will be adversely impacted in 2011 in the low interest rate environment as opportunities to invest in high-quality assets and to earn a reasonable spread may be limited.
Demand for FHLBank debt- The FHLBNY’s primary source of funds is the sale of consolidated obligations in the capital markets, and the FHLBNY’s ability to obtain funds through the sale of consolidated obligations depends in part on prevailing conditions in the capital markets, which are beyond the FHLBNY’s control. The FHLBNY may not be able to obtain funding on acceptable terms given the extraordinary market conditions and structural changes in the debt market. If the FHLBNY cannot access funding when needed on acceptable terms, its ability to support and continue operations could be adversely affected, which could negatively affect its financial condition and results of operations. The pricing of the FHLBanks’ longer-term debt remains at levels that are still higher than historical levels, relative to LIBOR. To the extent the FHLBanks receive sub-optimal funding, the Bank’s member institutions in turn may experience higher costs for advance borrowings. To the extent the FHLBanks may not be able to issue long-term debt at economical spreads relative to the 3-month LIBOR rate, the FHLBNY’s members borrowing choices may also be limited.
Credit Impairment of Mortgage-backed securities- OTTI charges of $7.7 million were recorded forinsignificant in the FHLBNY’s MBS portfolios through the current year2011 first quarter. However, without recovery in the near term such that liquidity returns to the mortgage-backed securities market, or if the credit losses of the underlying collateral within the mortgage-backed securities perform worse than expected, the FHLBNY could face additional credit losses. In addition, certain private-label MBS may be undergoing loan modification and forbearance proceedings at the loan level, and such processes may have an adverse impact on the amounts and timing of expected cash flows.
REFCORP Assessments —Based on projected payments by the 12 FHLBanks through the second quarter of 2011, it is likely that the FHLBanks will have satisfied its obligation to REFCORP and further payments would not be necessary thereafter. In anticipation of the termination of their REFCORP obligation, the FHLBanks have reached an agreement to set aside, once the obligation has ended, amounts that would have otherwise been paid to REFCORP as restricted retained earnings, with the objective of increasing the earnings reserves of the FHLBanks and enhancing the safety and soundness of the FHLBank system. This would also benefit the FHLBNY’s Net income.
Sovereign credit rating of the United States and impact on the FHLBanks- On April 19, 2011 Standard & Poor’s Ratings Services affirmed the ‘AAA’ rating of the FHLBank but revised its outlook on the debt issues of the Federal Home Loan Bank System to negative from stable. Concurrently, S&P revised its outlooks to negative from stable for the Federal Home Loan Banks in Atlanta, Boston, Cincinnati, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, San Francisco, and Topeka while affirming their ‘AAA’ issuer credit ratings. These rating actions reflect S&P’s revision on April 18, 2011 of the outlook on the long-term sovereign credit rating on The United States of America to negative from stable (AAA/Negative/A-1+). S&P will not raise the outlooks and ratings of the FHLB System and/or System Banks above the US sovereign rating as long as the ratings and outlook on the U.S. remain unchanged. Conversely, if the ratings on the U.S. were lowered, the ratings on the FHLB System and System Banks whose ratings are equalized to the sovereign rating could also be lowered. The FHLBNY cannot predict with certainty what impact, if any, these recent rating actions will have on the FHLBank debt and consequence of any further rating actions on the cost of debt for the FHLBNY.

 

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SELECTED FINANCIAL DATA (UNAUDITED)
                     
Statements of Condition September 30,  June 30,  March 31,  December 31,  September 30, 
(dollars in millions) 2010  2010  2010  2009  2009 
                     
Investments (1) $15,690  $14,971  $15,561  $16,222  $18,741 
Interest bearing balance at FRB **  —   —   —   —   — 
Advances  85,697   85,286   88,859   94,349   95,945 
Mortgage loans held-for-portfolio, net of allowance for credit losses (2)  1,268   1,283   1,288   1,318   1,336 
Total assets  103,094   105,183   107,239   114,461   117,604 
Deposits and borrowings  3,730   4,795   7,977   2,631   2,276 
Consolidated obligations, net                    
Bonds  74,919   66,247   72,408   74,008   69,671 
Discount notes  17,788   27,481   19,816   30,828   38,385 
Total consolidated obligations  92,707   93,728   92,224   104,836   108,056 
Mandatorily redeemable capital stock  67   70   105   126   128 
AHP liability  138   144   146   144   145 
REFCORP liability  21   14   14   24   39 
Capital                    
Capital stock  4,664   4,680   4,828   5,059   5,142 
Retained earnings  701   676   672   689   666 
Accumulated other comprehensive income (loss)  (98)  (109)  (124)  (145)  (147)
Total capital  5,267   5,247   5,376   5,603   5,661 
Equity to asset ratio (3)  5.11%  4.99%  5.01%  4.90%  4.81%
                                                
Statements of Condition           
(dollars in millions) March 31, 2011 December 31, 2010 September 30, 2010 June 30, 2010 March 31, 2010 
 
Investments1
 $16,855 $16,739 $15,690 $14,971 $15,561 
Advances 75,487 81,200 85,697 85,286 88,859 
Mortgage loans held-for-portfolio, net of allowance for credit losses2
 1,271 1,266 1,268 1,283 1,288 
Total assets 96,874 100,212 103,094 105,183 107,239 
Deposits and borrowings 2,513 2,454 3,730 4,795 7,977 
Consolidated obligations, net 
Bonds 68,530 71,743 74,919 66,247 72,408 
Discount notes 19,507 19,391 17,788 27,481 19,816 
Total consolidated obligations 88,037 91,134 92,707 93,728 92,224 
Mandatorily redeemable capital stock 59 63 67 70 105 
AHP liability 135 138 138 144 146 
REFCORP liability 19 22 21 14 14 
Capital 
Capital stock 4,323 4,529 4,664 4,680 4,828 
Retained earnings 717 712 701 676 672 
Accumulated other comprehensive income (loss)  (97)  (97)  (98)  (109)  (124)
Total capital 4,943 5,144 5,267 5,247 5,376 
Equity to asset ratio3
  5.10%  5.13%  5.11%  4.99%  5.01%
 Three months ended Nine months ended  
Statements of Condition September 30, June 30, March 31, December 31, September 30, September 30, September 30,  Three months ended 
Averages(dollars in millions) 2010 2010 2010 2009 2009 2010 2009  March 31, 2011 December 31, 2010 September 30, 2010 June 30, 2010 March 31, 2010 
  
Investments (1) $16,996 $18,757 $17,711 $18,650 $19,764 $17,811 $5,053 
Interest-bearing balance at FRB ** — — — — — — 8,062 
Investments1
 $19,127 $17,343 $16,996 $18,757 $17,711 
Advances 84,164 85,609 91,415 94,193 96,704 87,036 100,574  78,406 82,562 84,164 85,609 91,415 
Mortgage loans 1,274 1,281 1,299 1,333 1,357 1,285 1,403  1,270 1,272 1,274 1,281 1,299 
Total assets 106,179 108,325 113,116 117,289 120,754 109,181 128,215  101,662 104,891 106,179 108,325 113,116 
Interest-bearing deposits and other borrowings 5,062 5,212 5,050 2,361 2,083 5,108 2,006  2,401 3,290 5,062 5,212 5,050 
Consolidated obligations, net  
Bonds 69,817 71,738 74,297 73,264 69,604 71,934 71,388  72,417 72,734 69,817 71,738 74,297 
Discount notes 21,317 22,354 24,555 31,741 39,521 22,730 44,783  17,765 18,754 21,317 22,354 24,555 
Total consolidated obligations 91,134 94,092 98,852 105,005 109,125 94,664 116,171  90,182 91,488 91,134 94,092 98,852 
Mandatorily redeemable capital stock 68 96 108 143 128 91 135  59 58 68 96 108 
AHP liability 141 144 144 144 139 143 132  137 137 141 144 144 
REFCORP liability 10 7 9 15 23 9 23  10 11 10 7 9 
Capital  
Capital stock 4,611 4,719 4,929 5,030 5,195 4,752 5,315  4,414 4,543 4,611 4,719 4,929 
Retained earnings 679 661 658 666 611 666 522  701 687 679 661 658 
Accumulated other comprehensive income (loss)  (106)  (120)  (141)  (136)  (125)  (122)  (95)  (103)  (94)  (106)  (120)  (141)
Total capital 5,184 5,260 5,446 5,560 5,681 5,296 5,742  5,012 5,136 5,184 5,260 5,446 

 

6453

                                                
Operating Results and other data        
(dollars in millions) Three months ended Nine months ended    
(except earnings, headcount, September 30, June 30, March 31, December 31, September 30, September 30, September 30, 
and dividends per share) 2010 2010 2010 2009 2009 2010 2009 
(except earnings and dividends per Three months ended 
share, and headcount) March 31, 2011 December 31, 2010 September 30, 2010 June 30, 2010 March 31, 2010 
 
Net interest income (4) $125 $116 $106 $116 $154 $348 $585 
Net interest income4
 $134 $108 $125 $116 $106 
Net income 79 57 54 97 140 189 475  71 86 79 57 54 
Dividends paid in cash (7) 54 52 71 74 74 177 191 
Dividends paid in cash7
 66 76 54 52 71 
AHP expense 9 6 6 10 16 21 53  8 10 9 6 6 
REFCORP expense 20 14 13 24 35 47 119  18 21 20 14 13 
Return on average equity* (5)  6.03%  4.32%  3.99%  6.85%  9.79%  4.77%  11.06%
Return on average equity*5
  5.74%  6.68%  6.03%  4.32%  3.99%
Return on average assets*  0.29%  0.21%  0.19%  0.32%  0.46%  0.23%  0.50%  0.28%  0.33%  0.29%  0.21%  0.19%
Net OTTI impairment losses  (3) $(1) $(3) $(7) $(4)  (8) $(14) —  (1)  (3)  (1)  (3)
Other non-interest income (loss) 9  (15)  (8) 48 61  (13) 137  14 38 9  (15)  (8)
Total other income (loss) 6  (16)  (11) 41 57  (21) 123  14 37 6  (16)  (11)
Operating expenses 22 20 19 22 18 61 54 
Finance Agency and Office of Finance 2 2 3 2 2 6 6 
Operating expenses8
 46 24 22 20 19 
Finance Agency and Office of Finance expenses 3 4 2 2 3 
Total other expenses 24 22 22 24 20 67 60  49 28 24 22 22 
Operating expenses ratio* (6)  0.08%  0.08%  0.07%  0.07%  0.06%  0.07%  0.06%
Operating expenses ratio*6
  0.19%  0.09%  0.08%  0.08%  0.07%
Earnings per share $1.71 $1.20 $1.09 $1.94 $2.70 $3.98 $8.93  $1.61 $1.90 $1.71 $1.20 $1.09 
Dividend per share $1.15 $1.05 $1.41 $1.42 $1.40 $3.60 $3.54  $1.46 $1.64 $1.15 $1.05 $1.41 
Headcount (Full/part time) 269 270 266 264 259 269 259  269 271 269 270 266 
(1)1 Investments include held-to-maturity securities, available for-sale securities, Federal funds, loans to other FHLBanks, and other interest bearing deposits.
 
(2)2 Allowances for credit losses were $7.0 million, $5.8 million, $5.5 million, $5.4 million, $5.2 million, $4.5 million, and $3.4$5.2 million at the periods ended March 31, 2011, December 31, 2010, September 30, 2010, June 30, 2010 and March 31, 2010, December 31, 2009 and September 30, 2009.2010.
 
(3)3 Equity to asset ratio is capital stock plus retained earnings and Accumulated other comprehensive income (loss) as a percentage of total assets.
 
(4)4 Net interest income is net interest income before the provision for credit losses on mortgage loans.
 
(5)5 Return on average equity is net income as a percentage of average capital stock plus average retained earnings and average Accumulated other comprehensive income (loss).
 
(6)6 Operating expenses as a percentage of total average assets.
 
(7)7 Excludes dividends accrued to non-members classified as interest expense under the accounting standards for certain financial instruments with characteristics of both liabilities and equity.
 
*8 Annualized.Operating expenses include Compensation and Benefits.
 
** FRB program commenced in October 2008. On July 2, 2009, the Bank was no longer eligible to collect interest on excess balances.Annualized.

 

6554

Results of Operations
The following section provides a comparative discussion of the FHLBNY’s results of operations for the current yearthree months ended March 31, 2011 and prior year third quarter and year-to-date periods.2010. For a discussion of the significantCritical accounting estimates used by the FHLBNY that affect the results of operations, see Significant Accounting Policies and Estimates in Note 1 to this Form 10-Q and in the Bank’s most recent Form 10-K filed on March 25, 2010.
The FHLBNY manages its operations as a single business segment. Advances to members are the primary focus of the FHLBNY’s operations, and are the principal factor that impacts its operating results. Interest income from advances is the principal source of revenue. The primary expenses are interest paid on consolidated obligations debt, operating expenses, principally administrative and overhead expenses, and “assessments” on net income. The FHLBNY is exempt from ordinary federal, state, and local taxation except for local real estate tax. It is required to make payments to REFCORP and set aside funds from its income towards an Affordable Housing Program (“AHP”), together referred to as assessments. Other significant factors affecting the Bank’s Net income include the volume and timing of investments in mortgage-backed securities, debt repurchases and associated losses, and earnings from shareholders’ capital.2011.
Net Income
The FHLBNY manages its operations as a single business segment. Advances to members are the primary focus of the FHLBNY’s operations, and are the principal factor that impacts its operating results. Interest income from advances is the principal source of revenue. The primary expenses are interest paid on consolidated obligations debt, operating expenses, principally administrative and overhead expenses, and “assessments” on net income. The FHLBNY is exempt from ordinary federal, state, and local taxation except for local real estate tax. It is required to make payments to REFCORP and set aside funds from its income towards an Affordable Housing Program (“AHP”), together referred to as assessments. Other significant factors affecting the Bank’s Net income include the volume and timing of investments in mortgage-backed securities, debt repurchases and associated losses, gains and losses from hedging activities, and earnings from shareholders’ capital.
Summarized below are the principal components of Net income (in thousands):
Table 1.1: Principal Components of Net Income
         
  Three months ended March 31, 
  2011  2010 
         
Total interest income $257,389  $273,152 
Total interest expense  123,316   166,957 
       
Net interest income before provision for credit losses
  134,073   106,195 
Provision for credit losses on mortgage loans  1,773   709 
       
Net interest income after provision for credit losses
  132,300   105,486 
Total other income (loss)  14,303   (10,656)
Total other expenses  49,908   21,654 
       
Income before assessments
  96,695   73,176 
       
Total assessments  25,714   19,536 
       
Net income
 $70,981  $53,640 
       
Net income — 2011 first quarter compared to 2010 first quarter.
The FHLBNY reported current year third2011 first quarter Net income of $78.8$71.0 million, or $1.71$1.61 per share, compared to prior year period Net income of $140.2with $53.6 million, or $2.70$1.09 per share. Current year-to-dateshare for the same period in 2010. Net income was $189.1 million, or $3.98 per share, compared to prior year period after the deduction of AHP and REFCORP assessments, which are a fixed percentage of the FHLBNY’s pre-assessment income.
Net income of $474.8 million, or $8.93 per share.
grew due to the increase in Net interest income, a key metric for the FHLBNY and the primary contributor to Net income, was adversely affected in 2010. Net interest income in the current year quarter was $125.2 million, down by $28.7 million from the prior year period, and was the primary cause of the decline in Net income. Net interest income was $347.6 million for the current year-to-date period, down by $237.9 million from the prior year period. The Bank’s cost of debt has become more expensive in 2010 relative to prior year periods. Additionally, the volume of advance business has contracted. Another factor was the decline in member capital stock, which declined in line with advances borrowed by members. The FHLBNY typically invests member capital to fund short-term interest-earning investments and decline in capital stock reduced the potential for earning additional interest income. Hedging activities resulted in a small loss in 2010, in contrast to significant gains, mainly unrealized, that enhanced earnings in the prior year periods.
In the current year quarter, four held-to-maturity private-label MBS were credit impaired and to deemed to be OTTI and $3.1 million was recorded as a charge to Other income (loss), compared to $3.7$134.1 million in the prior year period. On a year-to-date basis, credit impairment charge of $7.7 million was recorded in the current year, compared to $14.32011 first quarter, up from $106.2 million in the prior year.same period in 2010, an increase of 26.3%. Although margins on advances were weaker and the cost of funding remained above historical pricing, the increase was largely the result of $42.7 million in prepayment fees recorded to Net interest income. In the 2011 first quarter, member-borrowers prepaid $7.1 billion of longer-term advances and, for the most part, took advantage of prevailing lower interest rates to borrow anew at the lower prevailing coupons.
Reported Net realizedThe FHLBNY recorded $64.6 million of net gains from derivative and unrealized loss from hedging activities was a gain of $8.4 million in the current year2011 first quarter, compared to gainlargely benefitting from the recognition of $59.6 million inrealized gains from termination of hedges contemporaneous with the prior year period. On a year-to-date basis, the Bank recorded a loss of $3.3 million in the current year period, in contrast to a gain of $124.6 million in the prior year period. In order to manage the FHLBNY’s interest rate risk profile, the FHLBNY routinely uses derivatives to manage the interest rate risk inherent in the Bank’s assets and liabilities. The hedging losses and gains were primarily due to (1) Fair value changes of interest rate swaps and options designated as economic hedges of debt issued by the FHLBNY, and (2) Reversal of fair value changes recorded in the prior year periods. Hedging losses are net of interest received or paid on swaps designated as economic hedges, in compliance withprepayments. Such hedge accounting reporting guidance, which prescribes that such interest is included in the income statement as part of derivatives, and hedging activities. Interest income or expense from swaps that qualify under hedge accounting are also included in the income statement but are reported as part of the income or expense of the hedged asset or liability. See Note 16 to the unaudited financial statements and Table 11 in this MD&A for more information.
The Bank recorded fair value net losses of $12.6 million on consolidated obligation debt that were designated under the Fair Value Option (“FVO”) in the 2010 year-to-date period, compared to a gain of $8.7 million in the prior year period. The debt was economically hedged by interest rate swaps, and gains and losses were largely offset by recorded fair value changes on the swaps by $12.8 million in the 2010 year-to-date period, and $5.8 million in the prior year period. In the current and prior year third quarters, gains were de minimis.
terminations contributed $52.0 million. In general, the FHLBNY holds derivatives and associated hedged instruments and consolidated obligation debt at fair values under the FVO,Fair Value Option accounting (“FVO”), to thetheir maturity, call, or put dates. When such financial instruments are held to their contractual maturity (or put/call dates), nearly all of the cumulative net fair value gains and losses that are recorded as unrealized will generally reverse over time, and fair value changes will sum to zero.zero over time. In limited instances, when the FHLBNY may terminateterminates these instruments prior to maturity or prior to call or put dates which(such as when members request prepayments of their borrowed advances), it would result in a realized gain or loss.
TotalThe remaining net gain of $12.6 million from derivatives and hedging activities was due to three factors: (1) Hedge ineffectiveness from hedges qualifying under hedge accounting rules resulted in net unrealized fair value gains (2) Net interest income associated with interest-rate swaps designated in economic hedges, including those matching debt under the FVO and (3) Interest rate caps, also designated as economic hedges, reported fair value losses in a declining interest rate environment. The impact of derivatives and hedging activities in the same period in 2010 was insignificant. In order to manage the FHLBNY’s interest rate risk profile, the FHLBNY routinely uses derivatives to manage the interest rate risk inherent in the Bank’s assets and liabilities. The FHLBNY will typically attempt to hedge an advance or consolidated obligation debt under hedge qualifying rules. Hedge ineffectiveness, the difference between changes in the fair value of the interest rate swap and the hedged advance or debt, will not be significant because under the Bank’s conservative hedging policies, the terms of the derivatives match very closely the terms of the hedged debt or advance. When it is operationally difficult to qualify for hedge accounting or when the hedge cannot be assured to be highly effective, the FHLBNY will economically hedge an advance or debt with an interest-rate derivative. Such hedges make the Bank economically hedged but also result in P&L volatility because changes in the fair values of the derivatives are not offset by offsetting changes in the fair values of hedged advances and debt. P&L volatility may arise from derivatives that are designated as economic hedges and typically would exhibit greater marked-to-market volatility when interest rates are also volatile. Also, in the course of a derivative’s existence, the derivative loses all of its fair value (gains or losses) if it is held to maturity or to its put/call exercise dates, and that can be a source of intra-period P&L volatility. The impact from changes in fair values of derivatives designated as economic hedges were not significant in the 2011 first quarter or the same period in 2010.

55

The Bank accounted for certain consolidated obligation bonds and discount notes under the FVO accounting rules. Under the FVO, the designated debt is recorded at fair values based on the cost of issuing comparable term FHLBank debt. Changes in the fair values of debt are recorded through non-interest Other income (loss) with an offset recorded to the basis of the debt in the Bank’s balance sheet. Changes in the fair values of such debt resulted in an insignificant gain of $0.7 million in the 2011 first quarter. In contrast, changes in the fair values of such debt resulted in losses of $8.4 million in the same period in 2010. In both periods, the bonds and notes were economically hedged by interest rate swaps, and gains and losses were largely offset by recorded fair value changes on the swaps.
In the 2011 first quarter, credit related OTTI was insignificant, only $0.4 million, compared with $3.4 million in the same period in 2010. No new mortgage-backed securities were impaired and the OTTI charges were primarily as a result of additional credit losses recognized on previously impaired private-label MBS because of further deterioration in the performance parameters of the securities. The FHLBNY makes quarterly cash flow assessments of the expected credit performance of its entire portfolio of private-label MBS.
Concurrent with the member initiated prepayments in the 2011 first quarter, the Bank also took the opportunity to re-align its future debt profile by extinguishing and transferring $478.6 million of certain high-coupon debt, at a cost that exceeded the carrying values of the debt by $51.7 million. This was recorded as a loss in non-interest Other income (loss). Debt will be replaced by new issuances at the lower costing debt, which will benefit Net interest income in future periods.
Operating Expenses of the FHLBNY were $7.5 million in the 2011 first quarter, up from $6.3 million in the same period in 2010. Compensation and benefits rose to $38.9 million in the 2011 period, up from $12.9 million in the same period in 2010. In March 2011, the FHLBNY contributed $24.0 million to its Defined Benefit Plan to eliminate a funding shortfall this amount was charged to Net income. The FHLBNY was also assessed for its share of the operating expenses comprised of Operating expenses and Assessments paid tofor the Finance Agency and the Office of finance, were $23.7 million for the current year quarter, up by $4.0 million from the prior year period. On a year-to-date basis, Other expenses were $67.7 million, up by $8.1 million from the prior year period.
REFCORP assessments were $19.7 million in current year quarter, down $15.4 million from the prior year period. AHP assessments were $21.4 million, down $32.0 million from the prior year period. On a year-to-date basis, the combined REFCORPFinance, and AHP assessment was $68.6those totaled $3.4 million in the current year2011 first quarter, up from $2.4 million in the same period down $103.4in 2010. The 12 FHLBanks and two other GSEs share the administrative cost of the Finance Agency.
Affordable Housing Program (“AHP”) assessment set aside from income totaled $7.9 million in the 2011 first quarter, up from $6.1 million in the prior year period.same period in 2010. REFCORP assessment payments totaled $17.7 million in the 2011 first quarter, up from $13.4 million in the same period in 2010. Assessments are calculated on Net income before assessments, and the decreasesincreases were due to lowerthe increase in Net income in current year periodsthe 2011 first quarter as compared to prior year periods.the same period in 2010.

66

Interest Income — 2011 first quarter compared to 2010 first quarter
Interest income from advances and investments in mortgage-backed securities are the principal sources of income for the FHLBNY. Changes in both rate and intermediation volume (average interest-yielding assets) explain the change in the current year periodsperiod from the prior year periods.period. The principal categories of Interest Income are summarized below (dollars in thousands):
Table 1:1.2: Interest Income — Principal Sources
                                    
 Three months ended September 30, Nine months ended September 30,  Three months ended March 31, 
 Percentage Percentage  Percentage 
 2010 2009 Variance 2010 2009 Variance  2011 2010 Variance 
Interest Income
  
Advances $173,459 $240,573  (27.90)% $477,303 $1,094,089  (56.37)% $158,696 $149,640  6.05%
Interest-bearing deposits 1,699 1,014 67.55 3,766 19,054  (80.24)
Interest-bearing deposits1
 966 830 16.39 
Federal funds sold 2,253 1,864 20.87 6,600 1,933 NM  2,546 1,543 65.00 
Available-for-sale securities 7,580 6,590 15.02 23,128 22,881 1.08  8,639 5,764 49.88 
Held-to-maturity securities  
Long-term securities 84,242 111,232  (24.26) 274,686 355,916  (22.82) 71,056 98,634  (27.96)
Certificates of deposit — 851  (100.00) — 1,392  (100.00)
Mortgage loans held-for-portfolio 16,333 17,405  (6.16) 49,689 54,679  (9.13) 15,486 16,741  (7.50)
Loans to other FHLBanks and other — 1  (100.00) — 1  (100.00)
                    
  
Total interest income
 $285,566 $379,530  (24.76)% $835,172 $1,549,945  (46.12)% $257,389 $273,152  (5.77)%
                    
1Primarily from cash collateral deposited with swap counterparties.
Reported Interest income in the Statements of Incomefrom advances was adjusted for the cash flows associated with interest rate swaps (designated in accounting hedges) in which theswaps. The Bank generally pays fixed-rate cash flows to derivative counterparties, which typically mirrors the fixed-rate coupons received from advances borrowed by members. Inand in exchange, the Bank receives variable-rate LIBOR-indexed cash flows.flows fixed-rate cash flows, which typically mirror the fixed-rate coupon received from advances borrowed by members.
The 2011 first quarter Interest income, which included $42.7 million of prepayment fees, declined compared to the same period in 2010. The primary causes were (1) lower coupons and yields from advances and investments in a declining interest rate environment, (2) lower volume of advance business, and (3) run-offs of higher yielding assets which were being replaced by assets with lower coupons. See Table 1.10 Rate and Volume Analysis for more information.

56

Impact of hedging advances- The FHLBNY executes interest rate swaps to modify the effective interest rate terms of many of its fixed-rate advance products and typically all of its putable advances. In these swaps, the FHLBNY effectively converts a fixed-rate stream of cash flows from its fixed-rate advances to a floating-rate stream of cash flows, typically indexed to LIBOR. These cash flow patterns from derivatives were in line with the Bank’s interest rate risk management practices and effectively converted fixed-rate cash flows of hedged advances to LIBOR indexedLIBOR-indexed cash flows. Derivative strategies are used to manage the interest rate risk inherent in fixed-rate advances and are designed to protect future interest income.
The table below summarizes interest income earned from advances and the impact of interest rate derivatives (in thousands):
Table 2:1.3: Impact of Interest Rate Swaps on Interest Income Earned from Advances
                
 Three months ended Nine months ended         
 September 30, September 30,  Three months ended March 31, 
 2010 2009 2010 2009  2011 2010 
Advance Interest Income
  
Advance interest income before adjustment for interest rate swaps $651,672 $743,687 $1,996,172 $2,345,699  $597,304 $679,921 
Net interest adjustment from interest rate swaps1
  (478,213)  (503,114)  (1,518,869)  (1,251,610)
         
Net interest adjustment from interest rate swaps  (438,608)  (530,281)
      
Total Advance interest income reported
 $173,459 $240,573 $477,303 $1,094,089  $158,696 $149,640 
              
1Interest portion only
In the current year periods,2011 first quarter, the FHLBNY paid swap counterparties fixed-rate cash flows, which typically mirrored the coupons on hedged advance.advances. In return, the swap counterparties paid the FHLBNY a pre-determined spread plus the prevailing 3-month LIBOR, which resets generally every three months. In the table above, the unfavorable cash flow patterns of the interest rate swaps were indicative of the declining LIBOR rates (obligation of the swap counterparty) compared to fixed-rate obligation of the FHLBNY. The Bank is generally indifferent to changes in the cash flow patterns as it typically hedges its fixed-rate consolidated obligation debt, which is the Bank’s primary funding base, and achieves its overall net interest spread objective.
Under GAAP, net interest adjustments from derivatives (as described in Table 2the table above) may be offset against the net interest accruals of the hedged financial instrument (e.g. advance) only if the derivative is in a hedge qualifyinghedge-qualifying relationship. If the hedge does not qualify forunder hedge accounting rules, and the Bank designates the hedge as an economic hedge, the net interest adjustments from derivatives would not be recorded with the advance interest revenues. Instead, the net interest adjustments from swaps would be recorded in Other income (loss) as a Net realized and unrealized gain (loss) from derivatives and hedging activities. Thus, the accounting designation of a hedge may have a significant impact on reported Interest income from advances. There were no material amounts of net interest adjustments from interest rate swaps designated as economic hedges of advances that were reported in Other income (loss) in the current year or prior year periods related to swaps associated with advances.

67

Interest Expense — 2011 first quarter compared to 2010 first quarter
The FHLBNY’s primary source of funding is through the issuance of consolidated obligation bonds and discount notes in the global debt markets. Consolidated obligation bonds are medium- and long-term bonds, while discount notes are short-term instruments. To fund its assets, the FHLBNY considers its interest rate risk and liquidity requirements in conjunction with consolidated obligation buyers’ preferences and capital market conditions when determining the characteristics of debt to be issued. Typically the Bank has used fixed-rate callable and non-callable bonds to fund mortgage-related assets and advances. Discount notes are issued to fund advances and investments with shorter-interestshorter interest rate reset characteristics.
The principal categories of Interest expense are summarized below.below (dollars in thousands). Changes in both rate and intermediation volume (average interest-costing liabilities), the mix of debt issuances between bonds and discount notes, and the impact of hedging strategies explain the changes in interest expense (dollars in thousands):expense.
Table 3:1.4: Interest Expenses — Principal Categories
                                    
 Three months ended September 30, Nine months ended September 30,  Three months ended March 31, 
 Percentage Percentage  Percentage 
 2010 2009 Variance 2010 2009 Variance  2011 2010 Variance 
Interest Expense
  
Consolidated obligations-bonds $147,097 $191,708  (23.27)% $448,669 $783,695  (42.75)% $114,277 $154,913  (26.23)%
Consolidated obligations-discount notes 11,456 31,647  (63.80) 33,069 173,228  (80.91) 7,816 9,657  (19.06)
Deposits 959 516 85.85 2,813 2,002 40.51  470 892  (47.31)
Mandatorily redeemable capital stock 879 1,807  (51.36) 3,051 5,478  (44.30) 744 1,495  (50.23)
Cash collateral held and other borrowings 14 — NM 14 49  (71.43) 9 — NM 
                    
  
Total interest expense
 $160,405 $225,678  (28.92)% $487,616 $964,452  (49.44)% $123,316 $166,957  (26.14)%
                    
Reported Interest expense in the Statements of Incomefor consolidated obligation bonds is adjusted for the cash flows associated with interest rate swaps in which theswaps. The Bank generally pays variable-rate LIBOR-indexed cash flows to derivative counterparties and, in exchange, the Bank receives fixed-rate cash flows, which typically mirror the fixed-rate coupon payments to investors holding the debt.FHLBank bonds. The Bank generally hedges its long-term fixed-rate bonds and almost all fixed-rate callable bonds with swaps that generally qualify for hedge accounting. In the current year periods and the same periods in the prior year, theThe Bank economically hedged certain floating-rate bonds that were not indexed to 3-month LIBOR and certain short-term fixed-rate debt and discount notes because itnotes. The Bank believed that the hedges would not be highly effective in offsetting changes in the fair values of the debt and the swap, and would not therefore qualify for hedge accounting.

57

Reported Interest expense in the 2011 first quarter declined compared to the same period in 2010 because of (1) lower cost of coupons paid on consolidated obligation bonds and discount notes, and (2) lower volume of debt issued because of decline in funding requirements as balance sheet assets declined, specifically advances borrowed by members. See Table 1.10, Rate and Volume Analysis for more information.
Impact of hedging debt- — The FHLBNY issues both fixed-rate callable and non-callable debt. Typically, the Bank issues callable debt with the simultaneous execution of cancellable interest rate swaps to modify the effective interest rate terms and the effective durations of its fixed-rate callable debt. A substantial percentage of non-callable fixed-rate debt is also swapped to “plain vanilla” LIBOR-indexed cash flows.
These hedging strategies benefit the Bank in two principal ways: (1) fixed-rate callable bond, in conjunction with interest rate swap containing a call feature that mirrors the option embedded in the callable bond, enables the FHLBNY to meet its funding needs at yields not otherwise directly attainable through the issuance of callable debt; and, (2) the issuance of fixed-rate debt and the simultaneous execution of an interest rate swap converts the debt to an adjustable-rate instrument tied to an index, typically 3-month LIBOR. Derivative strategies are used to manage the interest rate risk inherent in fixed-rate debt, and certain floating-rate debt that are not indexed to 3-month LIBOR rates. The strategies are designed to protect future interest income. The economic hedge of debt tied to indices other than 3-month LIBOR (Prime, Federal funds rate, and 1-month LIBOR) is designed to effectively convert the cash flows of the debt to 3-month LIBOR.
The table below summarizes interest expense paid on consolidated obligation bonds and discount notes and the impact of interest rate swaps (in thousands):
Table 4:1.5: Impact of Interest Rate Swaps on Consolidated Obligation Interest Expense
                
 Three months ended Nine months ended         
 September 30, September 30,  Three months ended March 31, 
 2010 2009 2010 2009  2011 2010 
Consolidated bonds and discount notes-Interest expense
  
Bonds-Interest expense before adjustment for swaps $285,874 $343,175 $933,744 $1,167,845  $249,744 $328,657 
Discount notes-Interest expense before adjustment for swaps 11,456 31,647 33,069 173,702  7,816 9,657 
Net interest adjustment for interest rate swaps1
  (138,777)  (151,467)  (485,075)  (384,624)
         
Net interest adjustment for interest rate swaps  (135,467)  (173,744)
      
Total Consolidated bonds and discount notes-interest expense reported
 $158,553 $223,355 $481,738 $956,923  $122,093 $164,570 
              
1Interest portion only

68

Funding environment— Pricing of FHLBank bonds and discount notes have remained at very narrow sub-LIBOR spreads, and cost of funding has remained well above historical cost of FHLBank debt. Investor demand appears to be for shorter maturity bonds and notes. The prevailing investor belief seems to be that rates will eventually rise over the next 12 months, and investors are temporarily “parking” their cash in short maturity instruments. If such sentiments continue, discount note pricing should be most attractive for notes that mature within a month. The FHLBNY has generally increased the proportion of discount notes, relative to bonds, to fund its balance sheet. Issuance of long- and medium-term FHLBank bonds has remained at all-time lows as the pricing of bonds longer than 3-4 years have been uneconomical to issue.

Net Interest Income — 2011 first quarter compared to 2010 first quarter
Net interest income is the principal source of revenue for the Bank, and represents the difference between interest income from interest-earning assets and interest expense paid on interest-costing liabilities. Net interest income is impacted by a variety of factors: Net interest income is directly impacted by transaction volumes, as measured by average balances of interest earning assets, and by the prevailing balance sheet yields, as measured by coupons on earning assets minus yields paid on interest-costing liabilities net of the cash flows paid or received on interest rate derivatives that qualified under hedge accounting rules.
Member demand for advances and investment activity, the yields from advances and investments, and the cost of consolidated obligation debt that is issued by the Bank to fund advances and investments.
The volatility of the 3-month LIBOR rate and its absolute level has a profound impact on the Bank’s cost of funding and earning assets. A stable spread between the FHLBank issued-debt and LIBOR is also an important element in the Bank’s funding tactics and also impacts the pricing of advances offered to members.
The execution of interest rate swaps in the derivative market at a constant spread to LIBOR, in effect converting fixed-rate advances and fixed-rate debt to conventional adjustable-rate instruments indexed to LIBOR, results in an important intermediation for the Bank between the capital markets and the swap market. The intermediation has typically permitted the Bank to raise funds at lower costs than would otherwise be available through the issuance of simple fixed- or floating-rate debt in the capital markets. The FHLBNY deploys hedging strategies to protect future net interest income, butincome. These strategies may reduce income in the short-run, althoughbut the FHLBNY expects them to benefit future periods.
Income earned from assets funded by member capital and retained earnings, referred to as “deployed capital”, which areis non-interest bearing, is another important contributor for the FHLBNY.
All of these factors may fluctuate based on changes in interest rates, demand by members for advances, investor demand for debt issued by the FHLBNY, the change in the spread between the yields on advances and investments, and the cost of financing these assets by the issuance of debt to investors.

58

The following table summarizes key changes in the components of Net interest income (dollars in thousands):
Table 5: Components of1.6: Net Interest Income
             
  Three months ended September 30, 
          Percentage 
  2010  2009  Variance 
Interest Income
            
Advances $173,459  $240,573   (27.90)%
Interest-bearing deposits  1,699   1,014   67.55 
Federal funds sold  2,253   1,864   20.87 
Available-for-sale securities  7,580   6,590   15.02 
Held-to-maturity securities            
Long-term securities  84,242   111,232   (24.26)
Certificates of deposit  —   851   (100.00)
Mortgage loans held-for-portfolio  16,333   17,405   (6.16)
Loans to other FHLBanks and other  —   1   (100.00)
          
             
Total interest income  285,566   379,530   (24.76)
          
             
Interest Expense
            
Consolidated obligations-bonds  147,097   191,708   (23.27)
Consolidated obligations-discount notes  11,456   31,647   (63.80)
Deposits  959   516   85.85 
Mandatorily redeemable capital stock  879   1,807   (51.36)
Cash collateral held and other borrowings  14   —   N/A 
          
             
Total interest expense  160,405   225,678   (28.92)
          
             
Net interest income before provision for credit losses
 $125,161  $153,852   (18.65)%
          
             
  Nine months ended September 30, 
          Percentage 
  2010  2009  Variance 
Interest Income
            
Advances $477,303  $1,094,089   (56.37)%
Interest-bearing deposits  3,766   19,054   (80.24)
Federal funds sold  6,600   1,933   241.44 
Available-for-sale securities  23,128   22,881   1.08 
Held-to-maturity securities            
Long-term securities  274,686   355,916   (22.82)
Certificates of deposit  —   1,392   (100.00)
Mortgage loans held-for-portfolio  49,689   54,679   (9.13)
Loans to other FHLBanks and other  —   1   (100.00)
          
             
Total interest income  835,172   1,549,945   (46.12)
          
             
Interest Expense
            
Consolidated obligations-bonds  448,669   783,695   (42.75)
Consolidated obligations-discount notes  33,069   173,228   (80.91)
Deposits  2,813   2,002   40.51 
Mandatorily redeemable capital stock  3,051   5,478   (44.30)
Cash collateral held and other borrowings  14   49   (71.43)
          
             
Total interest expense  487,616   964,452   (49.44)
          
             
Net interest income before provision for credit losses
 $347,556  $585,493   (40.64)%
          

69

In the 2010 current quarter and year-to-date periods, Net interest income declined from the same periods in 2009. Net interest income is directly impacted by transaction volumes, as measured by average balances of interest earning assets, and by the prevailing balance sheet yields, as measured by coupons on earning assets minus yields paid on interest costing liabilities net of the cash flows paid or received on interest rate derivatives that qualified under hedge accounting rules.
             
  Three months ended March 31, 
          Percentage 
  2011  2010  Variance 
Total interest income $257,389  $273,152   (5.78)%
Total interest expense  123,316   166,957   (26.14)
          
Net interest income before provision for credit losses
 $134,073  $106,195   26.25%
          
Net interest income a key metric forbenefited from prepayment fees of $42.7 million. Without the FHLBNY and the primary contributor to Net income, was adversely affected in 2010, and contracted to levels more typicalpositive impact of the years before 2009, primarily because (1) business volume as measured by advances to membersfees, Net interest income would have declined in the current year relative2011 first quarter compared to 2009, and (2) the Bank’s funding advantages experienced in 2009 weakened in 2010.
Funding environment– Pricing of FHLBank issued discount notes has deterioratedsame period in 2010, relative to 2009. In muchprimarily because of 2009, discount notes had been successfully utilized when such debt could be issued at wide advantageous spreads to LIBOR, and was one source of the funding advantage in 2009. With the easing of the credit crises and market normalization appearing to have set in, FHLBank discount note spread advantage to LIBOR seems to have returned to pre-crises ranges. At those levels, as a funding tool, discount notes were not as attractive as short-term callable bonds or floating rate debt and the FHLBNY reduced its reliance on discount notes in 2010. Discount note pricing has been relatively stable, driven by (1) increased investor demand (primarily from the money market funds) for the 60-day maturity discount notes. Demand for this particular maturity notes was due to the amendment to SEC’s Rule 2a-7 that impacted the money market industry, a major investor group for the FHLBank discount notes, and (2) Federal Reserve Board’s (“FRB”) action to support Treasury bills by issuing enough Treasury bills each week to replace maturing bills, and has tended to stabilize yield volatility, or yields to collapse to zero for bills, and has also reduced yield volatility for FHLB discount notes.
The 3-month LIBOR index is a vital indicator as the FHLBNY attempts to execute interest rate swaps to synthetically convert fixed-rate cash flows to sub-LIBOR cash flows, earning the FHLBNY a spread. The FHLBNY uses interest rate swaps to effectively change the repricing characteristics of a significant portion of its fixed-rate advances and consolidated obligation debt to match shorter-term LIBOR rates that reprice at intervals of three-months or less. When the Bank executes an interest rate swap to change the fixed payments on its debt to a LIBOR rate, the spread between the fixed payments and the LIBOR cash receipts results in the FHLBNY’s effective funding cost. Consequently, the current level of spread between the 3-month LIBOR rate and the swap rate for a fixed-rate FHLBank debt has an impact on the FHLBNY’s profitability. Also, the change in the absolute level of the index tends to impact the sub-LIBOR spread, which in turn, impacts interest margin and profitability.
Both the absolute level of the 3-month LIBOR index and the discount note spreads to swap rates have been uneven during 2010, and have caused the FHLBNY to shift its funding mix to accommodate changing circumstances. The 3-month LIBOR index declined to 29 basis points at September 30, 2010, down from 53 basis points at June 30, 2010, causing adverse spread compression in the 2010 third quarter. In response to changing interest rate market conditions, the FHLBNY made tactical changes to its funding mix by reducing issuances of discount notes in the 2010 third quarter. In mid-2010 second quarter, the increase in the 3-month LIBOR had benefited the pricing of short- and intermediate-term FHLBank bonds as well as discount notes. In the 2010 first quarter, the very low LIBOR level provided very little opportunity for FHLBank bonds and discount notes to yield their historic sub-LIBOR spreads.
Spreads on intermediate-term FHLBank issued bonds have improved in 2010 from the height of the credit crises and appear to have stabilized, although spreads have not returned to the pre-crises levels. Spreads on longer-term bonds have remained at disadvantageous levels well above the historic ranges.
Callable FHLBank issued bonds have declined to their all time lows as the low interest rate environment is fueling increased redemption, which has driven up investor liquidity in an environment in which there is already a shortage of high quality, high yielding assets. This has caused further tightening of spreads for the FHLBank callable debt. Short lockout callable bonds are an exception and have benefited from the relatively attractive funding afforded by inexpensive optionality.
Impact of business volume- Decline in member driven advancelower business volume as measured by average advances outstanding, was the contributing factor to the declineborrowed by members, and (2) prepayments, paydowns and maturities of Net interest income in the 2010 third quarter and year-to-date periods. Average outstanding advances in the 2010 third quarter was $84.2 billion down from $96.7 billion in the same period in 2009. Balance sheet contraction caused Net interest income to decline by $29.9 million over the same period in 2009. The impact of balance sheet contraction was even more significant on a year-to-date basis, and caused Net interest income to compress by $101.0 million in 2010 relative to the same period in 2009. For more information, see Table 9, Rate & Volume Analysis.
Additionally, in 2010, certain higher-yielding intermediate-term advances matured, andassets that were replaced bywith assets with lower yielding advances, and that too has tended to lower Net interest income.spreads.
Impact of lower interest income from investing member capital —The FHLBNY earns significant interest income from investing its members’ capital to fund interest-earning assets. Such earnings are sensitive to the changes in short-term interest rates (Rate effects), as well asand to changes in the average outstanding capital and non-interest bearing liabilities (Volume effects). In the 2010 year-to-date period,2011 first quarter, the FHLBNY earned less interest income from investing members’ capital and net non-interest assets compared to the same period in the prior year. The primary cause2010. This was caused by the decline in stockholders capital stock, which has declined in parallel with the lower volume of advances borrowed by members. As capital declines, the FHLBNY has lower amounts of deployed capital to invest and enhance interest income. Typically, members’ capital is invested in short-term liquid investments, and the Bank earned very low income because of much lower yields in both periods. For more information, see Table 8:1.9: Spread and Yield Analysis and Table 9:1.10: Rate and Volume Analysis.

70

Impact of qualifying hedges on Net interest income- The Bank deploys hedging strategies to protect future net interest income that may reduce income in the short-term. Net interest accruals of derivatives designated in a fair value or cash flow hedge qualifying under hedge accounting rules are recorded as adjustments to the interest income or interest expense of the hedged assets or liabilities. They can have a significant impact on Net interest income. On a GAAP basis, the impact of derivatives was to reduce Net interest income for the current quarter and year-to-date basis over the same periods in 2009.income. For more information, see Table 6, below:the table below.
The following table summarizes the impact of net interest adjustments from hedge qualifying interest-rate swaps (in thousands):
Table 6:1.7: Net Interest Adjustments from Hedge Qualifying Interest-Rate Swaps1
                
 Three months ended Nine months ended         
 September 30, September 30,  Three months ended March 31, 
 2010 2009 2010 2009  2011 2010 
  
Interest Income
 $763,779 $882,644 $2,354,041 $2,801,555  $695,997 $803,433 
Net interest adjustment from interest rate swaps  (478,213)  (503,114)  (1,518,869)  (1,251,610)  (438,608)  (530,281)
              
Reported interest income
 285,566 379,530 835,172 1,549,945  257,389 273,152 
              
  
Interest Expense
 299,182 377,145 972,691 1,349,076  258,783 340,701 
Net interest adjustment from interest rate swaps  (138,777)  (151,467)  (485,075)  (384,624)  (135,467)  (173,744)
              
Reported interest expense
 160,405 225,678 487,616 964,452  123,316 166,957 
              
  
Net interest income (Margin)
 $125,161 $153,852 $347,556 $585,493  $134,073 $106,195 
              
  
Net interest adjustment — interest rate swaps
 $(339,436) $(351,647) $(1,033,794) $(866,986) $(303,141) $(356,537)
              
Net interest accruals of derivatives designated in a fair value or cash flow hedge qualifying under the derivatives and hedge accounting rules were recorded as adjustments to the interest income or interest expense of the hedged assets or liabilities, and had a significant impact on net interest income.
As reported in the table above, the FHLBNY paid to swap counterparties increasing amounts of interest payments over the last three years, because the cash flow interest exchanges between the swap dealer and the FHLBNY have been such that the hedges of fixed-rate advances resulted in a significantly greater amounts of cash out-flows than the cash in-flows from hedges of fixed-rate consolidated obligation debt.
In a hedge of a fixed-rate advance, the FHLBNY pays the swap dealer fixed-rate interest payment (which typically mirrors the coupon of the hedged advance), and in return the swap counterparties pay the FHLBNY a pre-determined spread plus the prevailing LIBOR, which resets generally every three months.
In a hedge of a fixed-rate consolidated obligation bond, the FHLBNY pays the swap dealer a LIBOR-indexed interest payment, and in return the swap dealer pays fixed-rate interest payments (which typically mirrors the coupon paid to investors holding the FHLBank debt).
As reported in the table above, the unfavorable cash flow patterns of the interest rate swaps were indicative of the declining LIBOR rates (obligation of the swap counterparty) compared to fixed-rate obligation of the FHLBNY. The Bank is generally indifferent to changes in the cash flow patterns, as it achieves its overall net interest spread objective and remains indifferent for the most part to the volatility of interest rates.

59

1
Net interest accruals of derivatives designated in a fair value or cash flow hedge qualifying under the derivatives and hedge accounting rules were recorded as adjustments to the interest income or interest expense of the hedged assets or liabilities, and had a significant impact on Net interest income.
Impact of economic hedges on Net interest income —2011 first quarter compared to 2010 first quarter-The FHLBNY executes certain transactions designated as economic hedges, primarily as hedges of FHLBNY debt. Under existing accounting rules, the interest income or expense generated from the derivatives designated as economic hedges areis not reported as a component of Net interest income, although they have an economic impact on Net interest income. Under GAAP, interest income or expense from such derivatives are recorded as derivative gains and losses in Other income (loss).
In the 2010 current quarter, on an economic basis, the economic impact of derivatives would have been to increase GAAP Net interest income by $7.9 million. In the same period in 2009, on an economic basis, the impact would have been to decrease GAAP Net interest expense by $19.1 million. On a year-to-date basis, 2010 GAAP Net interest income would have increased by $67.8 million. In contrast, 2009 GAAP Net interest income would have declined by $36.9 million. The reporting classification of interest income or expense associated with swaps designated as economic hedges has no impact on Net income, as these adjustments are either reported as a component of Net interest income or as a component of Other income as gains or losses from hedging activities. See Table 7 for additional information.Interest rate swaps designated as economic hedges have declined as much of the swaps executed in prior years have matured. In prior years, significant amounts of swaps were designated as economic hedges of consolidated obligation debt, in a hedging strategy that converted floating-rate debt indexed to 1-month LIBOR, the Prime rate, and the Federal funds rate to 3-month LIBOR cash flows.

71

The following table contrasts Net interest income, Net income spread and Return on earning assets between GAAP and economic basis (dollar amounts in thousands):
Table 7:1.8: GAAP Versus Economic Basis — Contrasting Net Interest Income, Net Income Spread and Return on Earning Assets2
                         
  Three months ended September 30, 2010  Three months ended September 30, 2009 
  Amount  ROA  Net Spread  Amount  ROA  Net Spread 
                         
GAAP net interest income $125,161   0.47%  0.41% $153,852   0.51%  0.45%
                         
Interest income (expense)                        
Swaps not designated in a hedging relationship  7,854   0.03   0.03   19,141   0.06   0.07 
                   
                         
Economic net interest income
 $133,015   0.50%  0.44% $172,993   0.57%  0.52%
                   
                                                
 Nine months ended September 30, 2010 Nine months ended September 30, 2009  Three months ended March 31, 2011 Three months ended March 31, 2010 
 Amount ROA Net Spread Amount ROA Net Spread  Amount ROA Net Spread Amount ROA Net Spread 
  
GAAP net interest income $347,556  0.43%  0.38% $585,493  0.61%  0.53% $134,073  0.54%  0.49% $106,195  0.38%  0.33%
  
Interest income (expense)  
Swaps not designated in a hedging relationship 67,822 0.08 0.09  (36,869)  (0.03)  (0.05) 12,857 0.05 0.06 37,220 0.14 0.15 
                          
  
Economic net interest income
 $415,378  0.51%  0.47% $548,624  0.58%  0.48% $146,930  0.59%  0.55% $143,415  0.52%  0.48%
                          
Explanation of the use of certain non-GAAP measures of Interest Income and Expense, Net Interest income and margin. The FHLBNY has presented its results of operations in accordance with U.S. generally accepted accounting principles. The FHLBNY has also presented certain information regarding its Interest Income and Expense, Net Interest income and Net Interest spread that combines interest expense on debt with net interest paid on interest rate swaps associated with debt that were hedged on an economic basis. These are non-GAAP financial measures used by management that the FHLBNY believes are useful to investors and members of the FHLBNY in understanding the Bank’s operational performance as well as business and performance trends. Although the FHLBNY believes these non-GAAP financial measures enhance investor and members’ understanding of the Bank’s business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. When discussing non-GAAP measures, the Bank has provided GAAP measures in parallel.
2In the 2010 quarters and in the same periods in 2009, significant amounts of swaps were designated as economic hedges of consolidated obligation debt in a hedging strategy that converted floating-rate debt indexed to 1-month LIBOR, the Prime rate, and the Federal Funds Effective rate to 3-month LIBOR cash flows. The Bank also economically hedged certain short-term fixed-rate debt and discount notes that it also believed would not be highly effective in offsetting changes in the fair values of the debt and the swap. Aggregate swap accruals for economic hedges represented cash in-flows and out-flows. In compliance with accounting standards for derivatives and hedging, interest income and expense from derivatives that did not qualify under hedge accounting were recorded as derivative gains and losses in Other income (loss) as a Net realized and unrealized gain (loss) from derivatives and hedging activities.

 

7260

Spread and Yield Analysis
Average balance sheet information is presented below, as it is more representative of activity throughout the periods presented. For most components of the average balances, a daily weighted average was calculated for the period. When daily weighted average balance information was not available, a simple monthly average balance was calculated. Average yields were derived by dividing income by the average balances of the related assets, and average costs are derived by dividing expenses by the average balances of the related liabilities.
Table 8:1.9: Spread and Yield Analysis
                          
 Three months ended September 30,  Three months ended March 31, 
 2010 2009  2011 2010 
 Interest Interest    Interest Interest   
 Average Income/ Average Income/    Average Income/ Average Income/   
(Dollars in thousands) Balance Expense Rate1 Balance Expense Rate1  Balance Expense Rate1 Balance Expense Rate1 
Earning Assets:
  
Advances $84,163,767 $173,459  0.82% $96,703,710 $240,573  0.99% $78,406,209 $158,696  0.82% $91,414,698 $149,640  0.66%
Certificates of deposit and other 3,297,811 1,699 0.20 4,105,978 1,866 0.18  2,368,320 966 0.17 2,261,163 830 0.15 
Federal funds sold and other overnight funds 5,339,728 2,253 0.17 5,105,043 1,864 0.14  7,347,356 2,546 0.14 5,371,946 1,543 0.12 
Investments 11,633,953 91,822 3.13 12,907,450 117,822 3.62  11,762,592 79,695 2.75 12,412,612 104,398 3.41 
Mortgage and other loans 1,273,893 16,333 5.09 1,360,907 17,405 5.07  1,270,681 15,486 4.94 1,299,588 16,741 5.22 
                          
  
Total interest-earning assets
 $105,709,152 $285,566  1.07% $120,183,088 $379,530  1.25% $101,155,158 $257,389  1.03% $112,760,007 $273,152  0.98%
                          
  
Funded By:
  
Consolidated obligations-bonds $69,817,290 $147,097 0.84 $69,604,012 $191,708 1.09  $72,417,536 $114,277 0.64 $74,296,820 $154,913 0.85 
Consolidated obligations-discount notes 21,316,412 11,456 0.21 39,520,933 31,647 0.32  17,764,760 7,816 0.18 24,555,640 9,657 0.16 
Interest-bearing deposits and other borrowings 5,089,995 973 0.08 2,084,189 516 0.10  2,424,583 479 0.08 5,051,351 892 0.07 
Mandatorily redeemable capital stock 68,498 879 5.09 127,964 1,807 5.60  59,197 744 5.10 108,396 1,495 5.59 
                          
  
Total interest-bearing liabilities
 96,292,195 160,405  0.66% 111,337,098 225,678  0.80% 92,666,076 123,316  0.54% 104,012,207 166,957  0.65%
          
  
Capital and other non-interest- bearing funds 9,416,957 — 8,845,990 —  8,489,082 — 8,747,800 — 
                  
  
Total Funding
 $105,709,152 $160,405 $120,183,088 $225,678  $101,155,158 $123,316 $112,760,007 $166,957 
                  
  
Net Interest Income/Spread
 $125,161  0.41% $153,852  0.45% $134,073  0.49% $106,195  0.33%
                  
  
Net Interest Margin (Net interest income/Earning Assets)
  0.47%  0.51%
Net Interest Margin
 
(Net interest income/Earning Assets)
  0.54%  0.38%
          
1 Reported yields with respect to advances and debt may not necessarily equal the coupons on the instruments as derivatives are extensively used to change the yield and optionality characteristics of the underlying hedged items. When fixed-rate debt is issued by the Bank and hedged with an interest rate derivative, it effectively converts the debt into a simple floating-rate bond. Similarly, the Bank makes fixed-rate advances to members and hedges the advance with a pay-fixed, receive-variable interest rate derivative that effectively converts the fixed-rate asset to one that floats with prevailing LIBOR rates. Average balance sheet information is presented as it is more representative of activity throughout the periods presented. For most components of the average balances, a daily weighted average balance is calculated for the period. When daily weighted average balance information is not available, a simple monthly average balance is calculated. Average yields are derived by dividing income by the average balances of the related assets and average costs are derived by dividing expenses by the average balances of the related liabilities. Yields and rates are annualized.
                         
  Nine months ended September 30, 
  2010  2009 
      Interest          Interest    
�� Average  Income/      Average  Income/    
(Dollars in thousands) Balance  Expense  Rate1  Balance  Expense  Rate1 
Earning Assets:
                        
Advances $87,036,068  $477,303   0.73% $100,573,968  $1,094,089   1.45%
Certificates of deposit and other  2,619,259   3,766   0.19   3,244,842   20,447   0.84 
Federal funds sold and other overnight funds  5,682,315   6,600   0.16   9,640,541   1,933   0.03 
Investments  12,116,261   297,814   3.29   12,660,109   378,797   4.00 
Mortgage and other loans  1,284,879   49,689   5.17   1,404,958   54,679   5.20 
                   
                         
Total interest-earning assets
 $108,738,782  $835,172   1.03% $127,524,418  $1,549,945   1.62%
                   
                         
Funded By:
                        
Consolidated obligations-bonds $71,934,296  $448,669   0.83  $71,387,598  $783,695   1.47 
Consolidated obligations-discount notes  22,730,205   33,069   0.19   44,783,185   173,228   0.52 
Interest-bearing deposits and other borrowings  5,119,117   2,827   0.07   2,040,807   2,051   0.13 
Mandatorily redeemable capital stock  90,964   3,051   4.48   135,084   5,478   5.42 
                   
                         
Total interest-bearing liabilities
  99,874,582   487,616   0.65%  118,346,674   964,452   1.09%
                       
                         
Capital and other non-interest- bearing funds  8,864,200   —       9,177,744   —     
                     
                         
Total Funding
 $108,738,782  $487,616      $127,524,418  $964,452     
                     
                         
Net Interest Income/Spread
     $347,556   0.38%     $585,493   0.53%
                     
                         
Net Interest Margin (Net interest income/Earning Assets)
          0.43%          0.61%
                       

 

7361

Rate and Volume Analysis
The Rate and Volume Analysis presents changes in interest income, interest expense, and net interest income that are due to changes in volumes and rates. The following tables present the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected the FHLBNY’s interest income and interest expense (in thousands).
Table 9:1.10: Rate and Volume Analysis
             
  For the three months ended 
  September 30, 2010 vs. September 30, 2009 
  Increase (decrease) 
  Volume  Rate  Total 
Interest Income
            
Advances $(28,893) $(38,221) $(67,114)
Certificates of deposit and other  (397)  230   (167)
Federal funds sold and other overnight funds  89   300   389 
Investments  (10,962)  (15,038)  (26,000)
Mortgage loans and other loans  (1,115)  43   (1,072)
          
             
Total interest income  (41,278)  (52,686)  (93,964)
             
Interest Expense
            
Consolidated obligations-bonds  586   (45,197)  (44,611)
Consolidated obligations-discount notes  (11,780)  (8,411)  (20,191)
Deposits and borrowings  597   (140)  457 
Mandatorily redeemable capital stock  (777)  (151)  (928)
          
             
Total interest expense  (11,374)  (53,899)  (65,273)
          
             
Changes in Net Interest Income
 $(29,904) $1,213  $(28,691)
          
             
  For the nine months ended 
  September 30, 2010 vs. September 30, 2009 
  Increase (decrease) 
  Volume  Rate  Total 
Interest Income
            
Advances $(131,680) $(485,106) $(616,786)
Certificates of deposit and other  (3,334)  (13,347)  (16,681)
Federal funds sold and other overnight funds  (1,094)  5,761   4,667 
Investments  (15,709)  (65,274)  (80,983)
Mortgage loans and other loans  (4,645)  (345)  (4,990)
          
             
Total interest income  (156,462)  (558,311)  (714,773)
             
Interest Expense
            
Consolidated obligations-bonds  5,957   (340,983)  (335,026)
Consolidated obligations-discount notes  (61,827)  (78,332)  (140,159)
Deposits and borrowings  2,019   (1,243)  776 
Mandatorily redeemable capital stock  (1,586)  (841)  (2,427)
          
             
Total interest expense  (55,437)  (421,399)  (476,836)
          
             
Changes in Net Interest Income
 $(101,025) $(136,912) $(237,937)
          

74

Provision for Credit Losses and Analysis of Other Income (Loss)
The following table sets forth (1) changes in Provisions for credit losses, and (2) the main components of Other income (loss) (in thousands):
Table 10: Provision for Credit Losses on Mortgage Loans and Other Income
                 
  Three months ended  Nine months ended 
  September 30,  September 30, 
  2010  2009  2010  2009 
Provision for credit losses on mortgage loans
 $(231) $(598) $(1,137) $(1,966)
             
                 
Other income (loss):
                
Service fees $1,297  $1,101  $3,472  $3,181 
Instruments held at fair value-Unrealized (loss) gain  55   426   (12,612)  8,653 
                 
Total OTTI losses  (498)  (30,169)  (4,573)  (118,160)
Net amount of impairment losses reclassified (from) to Accumulated other comprehensive loss  (2,569)  26,486   (3,164)  103,884 
             
Net impairment losses recognized in earnings  (3,067)  (3,683)  (7,737)  (14,276)
             
                 
Net realized and unrealized (loss) gain on derivatives and hedging activities  8,444   59,639   (3,344)  124,613 
Net realized gain from sale of available-for-sale securities  —   —   708   721 
Other  (624)  (39)  (1,493)  59 
             
Total other income (loss)
 $6,105  $57,444  $(21,006) $122,951 
             
             
  For the three months ended 
  March 31, 2011 vs. March 31, 2010 
  Increase (Decrease) 
  Volume  Rate  Total 
Interest Income
            
Advances $(23,186) $32,242  $9,056 
Certificates of deposit and other  40   96   136 
Federal funds sold and other overnight funds  643   360   1,003 
Investments  (5,241)  (19,462)  (24,703)
Mortgage loans and other loans  (367)  (888)  (1,255)
          
             
Total interest income  (28,111)  12,348   (15,763)
             
Interest Expense
            
Consolidated obligations-bonds  (3,829)  (36,807)  (40,636)
Consolidated obligations-discount notes  (2,892)  1,051   (1,841)
Deposits and borrowings  (508)  95   (413)
Mandatorily redeemable capital stock  (629)  (122)  (751)
          
             
Total interest expense  (7,858)  (35,783)  (43,641)
          
             
Changes in Net Interest Income
 $(20,253) $48,131  $27,878 
          
Analysis of Allowances for Credit Losses, and Non-Interest Income (Loss)
The principal components are described below:
Allowance for Credit Losses — 2011 first quarter compared to 2010 first quarter
Mortgage loans held-for-portfolio- The Bank evaluates mortgage loans at least quarterly on an individual loan-by-loan basis and compares the fair values of collateral (net of liquidation costs) to recorded investment values in order to measure credit losses on impaired loans. Based on the analysis performed, a provision of $0.2$1.8 million was recorded in the 2010 third2011 first quarter and $0.6compared with $0.7 million in the same period in 20092010. Increase in the Statementsprovision was due to increase in haircut values of Income based on identification of inherent losses under a policy described more fully in Note – 1 Significant Accounting Policies and Estimates to the unaudited financial statements in this report.collateral for evaluating impaired loans. Charge offs were insignificant in all periods, and were substantially recovered through the credit enhancement provisions of MPF loans. Cumulatively, the allowance for credit losses recorded in the Statements of Condition have grown to $5.5 million at September 30, 2010, compared to $4.5 million at December 31, 2009. The FHLBNY believes the allowance for loan losses is adequate to cover the losses inherent in the FHLBNY’s mortgage loan portfolio at September 30, 2010 and December 31, 2009.portfolio.
Advances- The FHLBNY’s credit risk from advances at September 30, 2010March 31, 2011 and December 31, 20092010 were concentrated in commercial banks, savings institutions and insurance companies. All advances were fully collateralized during their entire term. In addition, borrowing members pledged their stock in the FHLBNY as additional collateral for advances. The FHLBNY has not experienced any losses on credit extended to any member since its inception. Based on the collateral held as security and prior repayment history, no allowance for losses is currently deemed necessary.
The principal components of non-interest income (loss) are summarized below (in thousands):
Table 1.11: Analysis of Non-Interest Income (Loss) — 2011 first quarter compared to 2010 first quarter
         
  Three months ended March 31, 
  2011  2010 
         
Other income (loss):
        
Service fees and other $1,256  $1,045 
Instruments held at fair value — Unrealized gains (losses)  740   (8,419)
         
Total OTTI losses  —   (3,873)
Net amount of impairment losses reclassified (from) to        
Accumulated other comprehensive loss  (370)  473 
       
Net impairment losses recognized in earnings  (370)  (3,400)
       
Net realized and unrealized gains (losses) on derivatives and hedging activities  64,570   (363)
Net realized gains from sale of available-for-sale securities and redemption of held-to-maturity securities  —   708 
Losses from extinguishment of debt and other  (51,893)  (227)
       
Total other income (loss)
 $14,303  $(10,656)
       

62

Service fees
Service fees are derived primarily from providing correspondent banking services to members and fees earned on standby letters of credit. The Bank does not consider income from such services asto be a significant element of its operations.
Redemption of financial instruments and extinguishment of debt
The Bank retires debt principally to reduce future debt costs when the associated asset is either prepaid or terminated early, and less frequently from prepayments of mortgage-backed securities. When assets are prepaid ahead of their expected or contractual maturities, the Bank also attempts to extinguish debt (consolidated obligation bonds) in order to realign asset and liability cash flow patterns. Bond retirement typically requires a payment of a premium resulting in a loss. The Bank typically receives prepayment fees when assets are prepaid, and the FHLBNY typically remains economically indifferent.
Net impairment losses recognized in earnings on held-to-maturity securities — Other-than-temporary impairment (“OTTI”)
InCredit-related OTTI was insignificant in the 2010 third2011 first quarter, just $0.4 million compared with $3.4 million in the same period in 2010. No new MBS were impaired and the OTTI charges were primarily as a result of additional credit losses caused by slight deterioration in the performance parameters of certain previously impaired private-label MBS. The FHLBNY identified credit re-impairment on four of its private-label mortgage-backed securities that had been previously impaired. Cashmakes quarterly cash flow assessments of the expected credit performance of the securities resulted in the recognitionits entire portfolio of $3.1 million ($3.7 million in the prior year period) as credit OTTI which was a charge to earnings. The re-impairment in the 2010 third quarter was due to further deterioration in certain credit parameters of the securities. On a year-to-date basis, credit related OTTI of $7.7 million was charged to earnings, compared to $14.3 million in the prior year period.private-label MBS.

75

Net realized and unrealized gain (loss) on derivatives and hedging activities and Earnings impact of derivatives and hedging activities
The Bank may designate a derivative as either a hedge of (1) the fair value of a recognized fixed-rate asset or liability or an unrecognized firm commitment (fair value hedge); (2) a forecasted transaction; or (3) the variability of future cash flows of a floating-rate asset or liability (cash flow hedge). The Bank may also designate a derivative as an economic hedge, which does not qualify for hedge accounting under the accounting standards for derivatives and hedging.
Changes in the fair value of a derivative that qualifies as a fair value hedge under the accounting standards for derivatives and hedging and the offsetting gain or loss on the hedged asset or liability that is attributable to the hedged risk are recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities. To the extent that changes in the fair value of the derivative isare not entirely offset by changes in the fair value of the hedged asset or liability, the net impact from hedging activities represents hedge ineffectiveness.
Net interest accruals of derivatives designated in qualifying fair value or cash flow hedges under the accounting standards for derivatives and hedging are recorded as adjustments to the interest income or interest expense of the hedged assets or liabilities. Net interest accruals of derivatives that do not qualify for hedge accounting under the accounting standards for derivatives and hedging and interest received from “in-the-money” options are recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities. The effective portion of changes in the fair value of a derivative that is designated and qualifies as a “cash flow” hedge under the accounting standards for derivatives and hedging are recorded in AOCI.
For all qualifying hedge relationships under the accounting standards for derivatives and hedging, hedge ineffectiveness resulting from differences between changes in fair values or cash flows of the hedged item and changes in fair value of the derivatives are recognized in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.
Net realized and unrealized gains and losses from qualifying hedging activities under the accounting standards for derivatives and hedging are typically impacted by changes in the benchmark interest rate (designated as LIBOR by the FHLBNY) and the degree of ineffectiveness of hedging relationships between the change in the fair value of derivatives and the changechanges in the fair value of the hedged assets and liabilities attributable to changes in benchmark interest rate. Typically, such gains and losses represent hedge ineffectiveness between changes in the fair value of the hedged item and changes in the fair value of the derivative.
Earnings impact of Instruments held at fair value under the Fair Value Option
Under the accounting standards for the fair value option (“FVO”) for financial assets and liabilities, the FHLBNY elected to carry certain consolidated obligation bonds and discount at fair value in the Statements of Condition. The Bank records changes in the unrealized fair value gains and losses on these liabilities in Other income.income (loss). In general, transactions elected for the fair value option are in economic hedge relationships by the execution of interest rate swaps to offset the fair value volatility of consolidated obligation debt elected under the FVO.
The recorded P&L impact of fair value adjustments onchanges of consolidated obligation debt carried at fair value inbonds and discount notes under the 2010 third quarter and year-to-date period resulted in net unrealized fair value gains and losses as reported in Table 10 above. Such debt wasFVO are primarily unrealized. Debt under the FVO designation consisted primarily of intermediate term bonds and discount notes. Gains are recorded when the debt’s market observable yields (with appropriate consideration for credit standing) are higher thenthan the contractual coupons or yields of the designated debt.debt as of the balance sheet dates. Conversely, if market interest rates fall below the contractual coupons or yields, a fair value loss is recorded. Losses and gains would also resultbe recorded in the quarter when designatedperiod the debt under the FVO matures, andcausing previously recorded unrealized gains and losses to reverse in that period. WhenSaid another way, when bonds and discount notes are recorded at fair value and are held to maturity, their cumulative fair value changes sum to zero at maturity.
The Bank hedges debt designated under the FVO on an economic basis by executing interest rate swaps with terms that match such debt. Unrealized gains and losses in the 2010 quarters and in the same periods in 2009 were almost entirely offset by fair value changes on derivatives that economically hedged the debt. For more information, see Table 111.12 below and Note 17 –16 — Fair Values of financial instruments to the unaudited financial statements in this report.Financial Instruments.

 

7663

Earnings Impact of Derivatives and Hedging Activities
The FHLBNY reported the following net gains (losses) from derivatives and hedging activities (in thousands):
Table 11: Net Gains (Losses) from Derivatives and Hedging Activities
                 
  Three months ended  Nine months ended 
  September 30,  September 30, 
  2010  2009  2010  2009 
  Gain (Loss)  Gain (Loss)  Gain (Loss)  Gain (Loss) 
Derivatives designated as hedging instruments
                
Interest rate swaps
                
Advances $1,215  $182  $439  $(5,107)
Consolidated obligations-bonds  (1,507)  167   2,308   18,187 
             
Net gain (loss) related to fair value hedge ineffectiveness  (292)  349   2,747   13,080 
             
Derivatives not designated as hedging instruments
                
Economic hedges
                
Interest rate swaps
                
Advances  (1,203)  (1,475)  (3,164)  3,887 
Consolidated obligations-bonds  6,753   28,420   (29,762)  101,662 
Consolidated obligations-discount notes  (231)  (5,711)  (4,331)  409 
Member intermediation  202   (16)  357   (189)
Balance sheet-macro hedges swaps  —   210   173   2,617 
             
Fair Values  5,521   21,428   (36,727)  108,386 
Accrued interest-swaps  2,381   18,362   46,900   (37,772)
Accrued interest-intermediation  42   20   91   64 
             
Interest accrual  2,423   18,382   46,991   (37,708)
             
Total swaps  7,944   39,810   10,264   70,678 
             
Caps and floors
                
Advances  (19)  (305)  (418)  (1,056)
Balance sheet  (14,618)  19,196   (47,901)  50,613 
             
Fair Values  (14,637)  18,891   (48,319)  49,557 
Accrued interest-options  —   (1,786)  (2,598)  (3,731)
             
Total caps and floors  (14,637)  17,105   (50,917)  45,826 
             
Mortgage delivery commitments
  257   47   811   (49)
             
Swaps economically hedging instruments designated under FVO
                
Consolidated obligations-bonds  8,025   1,549   10,381   (5,825)
Consolidated obligations-discount notes  1,674   —   2,448   — 
             
Fair values  9,699   1,549   12,829   (5,825)
Accrued interest on swaps  5,473   779   20,922   903 
             
Swaps hedging insturments designated under FVO  15,172   2,328   33,751   (4,922)
             
Net gain (loss) related to derivatives not designated as hedging instruments  8,736   59,290   (6,091)  111,533 
             
Net realized and unrealized (loss) gain on derivatives and hedging activities
 $8,444  $59,639  $(3,344) $124,613 
             
Key components of hedging gains and losses were primarily due to:
Hedge ineffectiveness from fair value hedges of advances and consolidated obligation liabilities that qualified for hedge accounting treatment. Hedge ineffectiveness is typically the difference between changes in fair values of hedged consolidated obligation bonds and advances due to changes in the benchmark rate (adopted as the 3-month LIBOR rate) and changes in the fair value of the associated derivatives.
Fair value changes of interest rate swaps designated in economic hedges of consolidated obligation debt, without the offsetting benefit of fair value changes of the hedged debt.
Fair value changes of interest rate caps designated in economic hedges of GSE issued capped floating-rate MBS. Market pricing of the tenor and strikes of caps owned by the FHLBNY has fallen steeply since December 31, 2009 primarily because of lower volatilities for such caps. As a result, purchased caps are exhibiting fair value losses. The fair values of the caps, which stood at $23.6 million at September 30, 2010, will ultimately decline to zero if the caps are held to their contractual maturities.
Swap income or expense, primarily swap interest accruals, associated with swaps designated as economic hedges.
Qualifying hedges under the accounting standards for derivatives and hedging- Hedge ineffectiveness occurs when changes in the fair value of the derivative and the associated hedged financial instrument generally(generally debt or an advance,advance) do not perfectly offset each other. Hedge ineffectiveness is associated with changes in the benchmark interest rate and volatility, and the extent of the mismatch of the structures of the derivative and the hedged financial instrument.

77

Relatively stable interest rates and volatilitiesKey components of $58.1 million in the 2010 third quarter and in the same period in 2009 kept hedge ineffectiveness to insignificant levels. On a year-to-date basis, in 2010 net ineffectivenesshedging gains from qualifying hedges resultedwere primarily due to:
Net gains from hedges of advances were $56.3 million in a gainthe 2011 first quarter, largely benefitting from the recognition of $2.7realized gains from termination of hedges contemporaneous with the prepayments of hedged advances. Such hedge terminations contributed $52.0 million.
Net gains from hedges of debt and advances and other instruments were not material in the 2011 first quarter, contributing $6.1 million. In the same period in 2009, fair value ineffectiveness resulted in significant net gains2010, a gain of $13.1$4.6 million in part due to the reversal of fair value losses of debt hedges that had matured in the prior year first two quarters (or were effectively matured when call options were exercised), and in part as a result of market volatility of interest rates causing fair values of hedged bonds to diverge from the swap fair values. was recorded.
Typically, the FHLBNY hedges its advances and bonds with structures that are almost identical, and gains and losses representedrepresent hedge ineffectiveness caused by the asymmetrical impact of interest rate volatility on hedged debt and advances and associated swaps. Besides market volatility of interest rates, gains and losses are also caused by the timing of the maturity of swaps, because all gains and losses are unrealized and reverse as swaps mature or approach maturity. Thus, a fair value loss in a reported period may be followed by a gain in the period the swap matures.
Economic hedges —– An economic hedge represents derivative transactions that are an approved risk management hedge but may not qualify for hedge accounting treatment under the accounting standards for derivatives and hedging. When derivatives are designated as economic hedges, the fair value changes due to changes in the interest rate and volatility of rates are recorded through earnings without the offsetting change in the fair values of the hedged advances and debt as would be afforded under the derivatives and hedge accounting rules. In general, the FHLBNY’s derivatives are held to maturity or to their call or put dates. At inception, the fair value is “at market” and is generally zero. Until the derivative matures or is called or put on pre-determined dates, fair values will fluctuate with changes in the interest rate environment and volatility observed in the swap market. At maturity or scheduled call or put dates, the fair value will generally reverse to zero as the Bank’s derivatives settle at par. Therefore, nearly all of the cumulative net gains and losses that are unrealized at a point in time will reverse over the remaining contractual terms so that the cumulative gains or losses will sum to zero over the contractual maturity, scheduled call, or put dates.
However, interest income and expense have economic consequences since they are the result of exchanges of cash payments or receipts. Additionally, if a derivative isderivatives are prepaid prior to maturity or at predetermined call and put dates, they are settled at the then existing fair values in cash. Under hedge accounting rules, net swap interest expense and income associated with swaps in economic hedges of assets and liabilities are recorded as hedging losses and gains. On the other hand, when swaps qualify for hedge accounting treatment, interest income and interest expense from interest rate swaps are reported as a component of Net interest income together with interest on the instrument being hedged.
Economic hedges
Interest rate swaps—Fair value changes– The principalKey components of changes in the fair values of interest rate swaps inhedging gains from derivatives designated as economic hedges often referred to as “one-sided marks” were:were primarily due to:
Consolidated bond economicEconomic hedges –of consolidated obligation bonds — Unrealized gains were not significant and losses were generated primarily by: (1) Basis swaps that synthetically converted floating-rate debt (based on non- 3-month LIBOR: Prime rate, Federal funds rate, and 1-month LIBOR rate)LIBOR) to 3-month LIBOR cash flows, and (2) Short-term callable debt swapped by mirror image interest rate swaps. The “pay-leg” of the basis swaps floats with changes to the 3-month LIBOR index. The “receive-leg” floats with changes to indices other than 3-month LIBOR. In 2010, a significant percentage of basis swaps matured, or the swaps were nearing maturity and unrealized gains at December 31, 2009 reversed. When swaps mature, all previously recorded fair value gains and losses reverse. In the 2010 third quarter, recorded gains were reversal of previously recorded net unrealized losses, primarily due to maturing short-term cancellable swaps in economic
Economic hedges of callable bonds.
Consolidatedconsolidated obligation discount note economic hedges –notes — The FHLBNY hedges the principal amounts of certain term discount notes to convert fixed cash flows to LIBOR indexed cash flows. Fair value losses are all unrealizedTheir impact was not material.
Economic hedges of balance sheet parameters, primarily hedging GSE-issued capped floating-rate mortgage-backed securities. The Bank has an inventory of $1.9 billion of interest-rate caps with final maturities in 2018 and will reverse over time. In a declining interest rate environment, the pay-fixed, receive floating swaps are exhibiting fair value losses.
Interest rate swaps — Cash flows (Net interest accruals)– Swap interest accruals are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities if the swap is designated as an economic hedge. If the swap qualifies for hedge accounting treatment, cash flows are recorded as a component of Net interest income.strikes ranging from 6.20% to 6.75% indexed mainly to 1-month LIBOR. The classification of swap accruals, either as a component of Net interest income or derivatives and hedging activities, has no impact on Net income.
In the 2010 third quarter and year-to-date period, net interest accrual income represented the net cash in-flows primarily from basis swaps hedging the basis risk of changes in floating-rate debt that were indexed to rates other than 3-month LIBOR. Under the contractual terms of the basis swaps the FHLBNY is receiving cash flows indexed to an agreed upon spread to the daily Federal funds effective rate, the 1-month LIBOR rate, and the Prime rate, and in return paying cash flows indexed to an agreed upon spread to the 3-month LIBOR rate.
Interest rate caps– Unfavorable fair values changes of purchased caps resulted in net unrealized fair value losses in 2010. In a declining interest rate environment at September 30, 2010, relative to December 31, 2009 and June 30, 2010, fair values of purchased caps are exhibiting fair value losses. Fair values of interest rate caps were $23.6 million, down from $38.2 millionpurchased at June 30, 2010, and $71.0 million at December 31, 2009.a cost of $46.9 million. The fair values of the caps will exhibit unrealized gains and losses in line with volatility and direction of interest rates, but will ultimately decline to zero over the contractual life of the caps if held to maturity. In a declining interest rate environment at March 31, 2011, relative to December 31, 2010, fair values of purchased caps were exhibiting fair value losses. At March 31, 2011, fair values of interest rate caps were $38.3 million, down from $41.9 million at December 31, 2010.
Swaps economically hedging instruments designated under the FVO –—The Bank hedges consolidated obligation bonds and discount notes under the FVO. In a declining interest rate environment, the interest rate swaps that were economic hedges of debt under the FVO were in fair value gain positions. Such swaps are structured for the Bank to receive fixed rate cash flows and pay float (indexedfloating rate (LIBOR-indexed) cash flows to LIBOR) wereswap counterparties. In a declining interest rate environment, the fair values of the swaps would be in an unrealized fair value gain position. Such gains will also decline to zero if held to maturity or to their call dates. In the 2011 first quarter, net unrealized gains were $6.7 million, compared to $14.4 million in the same period in 2010.

 

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

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Derivative gains and losses reclassified from Accumulated other comprehensive income (loss) to current period income —The following table summarizes changes in derivative gains and (losses) and reclassifications into earnings from AOCI in the Statements of Condition (in thousands):
Table 12: Gains/(Losses) Reclassified from AOCI1.13: Accumulated Other Comprehensive Income (Loss) to Current Period Income from Cash Flow Hedges
                 
  Three months ended  Nine months ended 
  September 30,  September 30, 
Accumulated other comprehensive income/(loss) from cash flow hedges 2010  2009  2010  2009 
                 
Beginning of period $(19,614) $(26,402) $(22,683) $(30,191)
Net hedging transactions  —   —   (472)  — 
Reclassified into earnings  1,882   1,898   5,423   5,687 
             
                 
End of period $(17,732) $(24,504) $(17,732) $(24,504)
             
Cash Flow Hedges
In the 2010 current quarter and year-to-date period, fair value basis were reclassified from AOCI as interest expense in parallel with the recognition of interest expense of the debt that had been hedged by “cash flow hedges” in prior years. Fair value basis from settled hedges in the 2010 current quarter and year-to-date periods were not material.
In 2010 and 2009 no material amounts were reclassified from AOCI into earnings as a result of the discontinuance of cash flow hedges because it became probable that the original forecasted transactions would not occur by the end of the originally specified time period or within a two-month period thereafter. Ineffectiveness from hedges designated as cash flow hedges was not material in any periods reported in this Form 10-Q. Over the next twelve months, it is expected that $5.3 million of net losses recorded in AOCI will be recognized as an interest expense.
There were no open anticipatory cash flow hedges at the current quarter end.
         
  Three months ended March 31, 
  2011  2010 
Accumulated other comprehensive income/(loss) from cash flow hedges
        
Beginning of period $(15,196) $(22,683)
Net hedging transactions  2,690   392 
Reclassified into earnings  1,038   1,740 
       
         
End of period $(11,468) $(20,551)
       
Debt extinguishment and salessale of available-for-saleinvestment securities
InThe Bank retires debt principally to reduce future debt costs when the second quarterassociated asset is either prepaid or terminated early, and less frequently from prepayments of 2010,mortgage-backed securities. When assets are prepaid ahead of their expected or contractual maturities, the Bank retired $250.0 millionalso attempts to extinguish debt (consolidated obligation bonds) in order to realign asset and liability cash flow patterns. Bond retirement typically requires a payment of consolidated obligation bond ata premium resulting in a loss. The Bank typically receives prepayment fees when assets are prepaid, and the FHLBNY typically remains economically indifferent. From time to time, the bank may sell investment securities classified as available-for-sale, or on an insignificant gain. No debt was retired inisolated basis may be asked by the first quarter or the third quarterissuer of 2010. In the first quarter of 2010,a security which the Bank sold mortgage-backed securities from its AFS portfolio at a gainhas classified as held-to-maturity (“HTM”) to redeem the investment security.
The following table summarizes such activities (in thousands):
Table 1.14: Gains (Losses) on Sale and Extinguishment of $0.7 million. No securities were sold in the 2010 second and third quarters.Financial Instruments
                 
  Three months ended March 31, 
  2011  2010 
  Carrying Value  Gains/(Losses)  Carrying Value  Gains/(Losses) 
Extinguishment of CO Bonds $327,345  $(34,409) $—  $— 
Transfer of CO Bonds to Other FHLBanks $150,049  $(17,332) $—  $— 
Non-Interest ExpenseOperating Expenses, Compensation and Benefits, and Other Expenses — 2011 first quarter compared to 2010 first quarter
Operating expenses included the administrative and overhead costs of operating the Bank, andas well as the operating costs of providing advances and managing collateral associated with the advances, managing the investment portfolios, and providing correspondent banking services to members. Operating Expenses of the FHLBNY were $7.5 million in the 2011 first quarter, up from $6.3 million in the same period in 2010. Compensation and benefits rose to $38.9 million in the 2011 period, up from $12.9 million in the same period in 2010. In March 2011, the FHLBNY contributed $24.0 million to its Defined Benefit Plan to eliminate a funding shortfall and this amount was charged to Net income. The FHLBNY was also assessed for its share of the operating expenses for the Finance Agency and the Office of Finance, and those totaled $3.4 million in the 2011 first quarter, up from $2.4 million in the same period in 2010. The 12 FHLBanks and two other GSEs share the administrative cost of the Finance Agency.

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Operating Expenses
The following table sets forth the major categories of operating expenses (dollars in thousands):
Table 13:1.15: Operating Expenses
                                
 Three months ended September 30,  Three months ended March 31, 
 Percentage of Percentage of  Percentage of Percentage of 
 2010 total 2009 total  2011 Total 2010 Total 
  
Salaries and employee benefits $15,648  72.25% $12,075  67.80%
Temporary workers 30 0.14 3 0.02  $47  0.62% $39  0.61%
Occupancy 1,131 5.22 1,128 6.33  1,113 14.78 1,062 16.75 
Depreciation and leasehold amortization 1,444 6.67 1,369 7.69  1,399 18.58 1,366 21.54 
Computer service agreements and contractual services 1,666 7.69 1,395 7.83  2,575 34.20 1,901 29.97 
Professional and legal fees 385 1.78 356 2.00  798 10.60 542 8.55 
Other * 1,353 6.25 1,484 8.33  1,598 21.22 1,432 22.58 
                  
Total operating expenses $7,530  100.00% $6,342  100.00%
          
Total operating expenses
 $21,657  100.00% $17,810  100.00%
Salaries $7,559  19.39% $6,963  54.00%
Employee benefits 31,422 80.61 5,931 46.00 
         
Total Compensation and Benefits $38,981  100.00% $12,894  100.00%
                  
  
Finance Agency and Office of Finance $2,036 $1,834  $3,397 $2,418 
          
                 
  Nine months ended September 30, 
      Percentage of      Percentage of 
  2010  total  2009  total 
                 
Salaries and employee benefits $41,458   67.69% $36,036   66.77%
Temporary workers  86   0.14   128   0.24 
Occupancy  3,270   5.34   3,273   6.06 
Depreciation and leasehold amortization  4,201   6.86   4,020   7.45 
Computer service agreements and contractual services  6,018   9.83   4,670   8.65 
Professional and legal fees  1,983   3.24   1,144   2.12 
Other *  4,229   6.90   4,699   8.71 
             
                 
Total operating expenses
 $61,245   100.00% $53,970   100.00%
             
                 
Finance Agency and Office of Finance $6,447      $5,663     
               
* Other primarily represents audit fees, director fees and expenses, insurance and telecommunications.

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

 

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Financial Condition: Assets, Liabilities, Capital, Commitments and Contingencies:Condition(dollars in thousands):
Table 14: 3.1:Statements of Condition — Period-Over-Period Comparison
                                
 Net change in Net change in  Net change in Net change in 
(Dollars in thousands) September 30, 2010 December 31, 2009 dollar amount percentage  March 31, 2011 December 31, 2010 dollar amount percentage 
Assets
  
Cash and due from banks $69,471 $2,189,252 $(2,119,781)  (96.83)% $2,953,801 $660,873 $2,292,928  346.95%
Federal funds sold 4,095,000 3,450,000 645,000 18.70  5,093,000 4,988,000 105,000 2.11 
Available-for-sale securities 3,373,781 2,253,153 1,120,628 49.74  3,719,024 3,990,082  (271,058)  (6.79)
Held-to-maturity securities
Long-term securities		 8,221,246 10,519,282  (2,298,036)  (21.85)
Held-to-maturity securities 
Long-term securities 8,042,487 7,761,192 281,295 3.62 
Advances 85,697,171 94,348,751  (8,651,580)  (9.17) 75,487,377 81,200,336  (5,712,959)  (7.04)
Mortgage loans held-for-portfolio 1,267,687 1,317,547  (49,860)  (3.78) 1,270,891 1,265,804 5,087 0.40 
Accrued interest receivable 305,763 340,510  (34,747)  (10.20)
Premises, software, and equipment 14,550 14,792  (242)  (1.64)
Derivative assets 32,425 8,280 24,145 NM  24,964 22,010 2,954 13.42 
Other assets 16,444 19,339  (2,895)  (14.97) 282,290 323,773  (41,483)  (12.81)
         
          
Total assets
 $103,093,538 $114,460,906 $(11,367,368)  (9.93)% $96,873,834 $100,212,070 $(3,338,236)  (3.33)%
                  
  
Liabilities
  
Deposits  
Interest-bearing demand $3,660,132 $2,616,812 $1,043,320  39.87% $2,465,860 $2,401,882 $63,978  2.66%
Non-interest bearing demand 9,725 6,499 3,226 49.64  2,971 9,898  (6,927)  (69.98)
Term 60,400 7,200 53,200 NM  43,800 42,700 1,100 2.58 
                  
 
Total deposits 3,730,257 2,630,511 1,099,746 41.81  2,512,631 2,454,480 58,151 2.37 
         
          
Consolidated obligations  
Bonds 74,918,893 74,007,978 910,915 1.23  68,529,981 71,742,627  (3,212,646)  (4.48)
Discount notes 17,787,908 30,827,639  (13,039,731)  (42.30) 19,507,159 19,391,452 115,707 0.60 
                  
Total consolidated obligations 92,706,801 104,835,617  (12,128,816)  (11.57) 88,037,140 91,134,079  (3,096,939)  (3.40)
                  
  
Mandatorily redeemable capital stock 67,348 126,294  (58,946)  (46.67) 59,126 63,219  (4,093)  (6.47)
  
Accrued interest payable 277,647 277,788  (141)  (0.05)
Affordable Housing Program 137,995 144,489  (6,494)  (4.49)
Payable to REFCORP 20,560 24,234  (3,674)  (15.16)
Derivative liabilities 784,498 746,176 38,322 5.14  839,710 954,898  (115,188)  (12.06)
Other liabilities 101,448 72,506 28,942 39.92  482,200 461,025 21,175 4.59 
                  
 
Total liabilities
 97,826,554 108,857,615  (11,031,061)  (10.13) 91,930,807 95,067,701  (3,136,894)  (3.30)
         
          
Capital
 5,266,984 5,603,291  (336,307)  (6.00) 4,943,027 5,144,369  (201,342)  (3.91)
                  
 
Total liabilities and capital
 $103,093,538 $114,460,906 $(11,367,368)  (9.93)% $96,873,834 $100,212,070 $(3,338,236)  (3.33)%
                  
Balance sheet overviewoverview- March 31, 2011 compared to December 31, 2010
The FHLBNY continued to experienceexperienced steady balance sheet contraction in the 2010 third quarter.2011 first quarter, in parallel with the decline in Advances to member banks have remained steady at September 30, 2010, after two quarters of decline. Reported Advances stood at $85.7$75.5 billion at September 30, 2010, compared to $85.3 billion at June 30, 2010, and $94.3March 31, 2011 from $81.2 billion at December 31, 2009, from a peak of approximately $109.1 billion in 2008.2010. Reported balances include fair value basis of hedged advances. The decline from the balances at December 31, 2009in demand for member borrowings has occurred as member banks have taken advantage of improved availability of alternate funding sources such as deposits and senior unsecured borrowings in a more liquid market. Member demand for borrowed advances havehas also declined, as loan demand from members’ customers may have stayed lukewarm due to nationally weak economic conditions.

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Advances-— At September 30, 2010,March 31, 2011, the FHLBNY’s Total assets were $103.1$96.9 billion, a decrease of 9.9%3.3%, or $11.4$3.3 billion from December 31, 2009.2010. The Bank’s balance sheet management strategy has been to keep balance sheet growth or decline in line with the changes in member demand for advances, which declined 9.2%7.0%.
(BAR GRAPH)Table 3.2:Advance Graph
(BAR GRAPH)

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Investments-— The FHLBNY’s investment strategies continue to be restrained, and acquisitions were limited to investments in mortgage-backed securities (“MBS”) issued by GSEs and U.S. government agencies. Acquisitions even in such securities have been made when they justified the Bank’s risk-reward preferences. No MBS acquisitions were made in the held-to-maturity (“HTM”) securities portfolio in the 2010-second and third quarters. In the 2010 first quarter, the Bank added $174.0 million of GSE issued fixed-rate MBS.
Floating-rate GSE and U.S. government issued MBS were acquired for the Bank’s available-for-sale (“AFS”) portfolio in 2010 that kept acquisitions ahead of paydowns. Market pricing of GSE issuedGSE-issued MBS improved at September 30, 2010 as liquidity appeared to return to the market place, andwas substantially all of MBS in the AFS portfolio were in net unrealized fair value gain positions. Fair values of the Bank’s private-label securities continuealso improved at March 31, 2011 relative to beDecember 31, 2010, but were still depressed, as market conditions for such securities remained uncertain. For more information about fair values of AFS and HTM securities, see Note 17 to the unaudited financial statements in this report.16 Fair Values of Financial Instruments.
Leverage-— At September 30, 2010,March 31, 2011, balance sheet leverage was 19.6 times shareholders’ equity, compared to 20.419.5 times capital at December 31, 2009.2010. The Bank’s balance sheet management strategy is to keep the balance sheet change in line with the changes in member demand for advances, although from time-to-timetime to time the Bank may maintain excess liquidliquidity investments to meet unexpected member demand for funds. Increases or decreases in investments have a direct impact on leverage, but generally growth in or shrinkage of advances does not significantly impact balance sheet leverage under existing capital stock management practices. This is because changes in shareholders’ capital are in line with changes in advances, and the ratio of assets to capital generally remains unchanged. Under existing capital management practices, members are required to purchase capital stock to support their borrowings from the Bank, and when capital stock is in excess of the amount that is required to support advance borrowings, the Bank redeems the excess capital stock immediately. Therefore, stockholders’ capital increases and decreases with members’ advance borrowings, and the capital to asset ratios remainsremain relatively unchanged. As capital increases or declines in line with higher or lower volumes of advances, the Bank may also adjust its assets by increasing or decreasing holdings of short-term investments in certificates of deposit, and, to some extent, its positions in Federal funds sold, which it inventories to accommodate unexpected member needs for liquidity.
Debt- In the 2010 third quarter and in the same period in 2009, the— The primary source of funds for the FHLBNY continued to be fromthe issuance of consolidated obligation bonds and discount notes. Discount notes are consolidated obligations with maturities up to one year, and consolidated bonds have maturities of one year or longer. The mix between the use of discount notes and bonds has fluctuated during the 2010 first three quarters and through 2009, partly because of fluctuations in the market pricing of discount notes relative to the pricing of fixed-rate bonds with similar maturities, and partly because of the price attractiveness of short-term callable and non-callable bonds that could be swapped back to 3-month LIBOR rates, as an alternative to discount notes. In the 2010 first quarter, the Bank decreased its issuances of discount notes mainly because of unfavorable pricing relative to alternative funding, primarily short-term callable bonds. On an option adjusted basis, the effective duration of such callable bonds was shorter than its contractual maturities and achievedfinance the Bank’s asset/liability management profile. Inbalance sheet assets has remained almost unchanged at March 31, 2011 from December 31, 2010.
Liquidity and Short-term Debt— The following table summarizes the second quarter, discount note pricing became favorableFHLBNY’s short-term debt (in thousands). Also see Tables 7.1 — 7.10 and 10.4 for additional information.
Table 3.3: Short—term debt
         
  Short Term Liquidity 
  March 31, 2011  December 31, 2010 
 
Consolidated Obligations-Discount Notes1
 $19,507,159  $19,391,452 
 
Consolidated Obligations-Bonds With Original Maturities of One Year or Less2
 $9,635,000  $12,410,000 
1Outstanding at end of the period — carrying value
2Outstanding at end of the period — par value
The FHLBNY’s liquid assets included cash at the FRB, federal funds sold, and a portfolio of highly rated GSE securities that were available-for-sale.
The FHLBanks’ GSE status enables the FHLBanks, including FHLBNY, to fund its consolidated obligation debt at tight margins to U.S. Treasury. These are discussed in more detail under “Debt Financing and Consolidated Obligations” in this MD&A. The FHLBNY’s internal source of liquidity position remains strong, and was in compliance with the rise in the 3-month LIBOR index, and the Bank increased its usage of discount notes, which replaced maturing/called bonds. In the 2010 third quarter, the 3-month LIBOR index declined, spreads narrowed, andall regulatory requirements. Management does not foresee any changes to that position.
Among other liquidity measures, the FHLBNY reduced issuancesis required to maintain sufficient liquidity, through short-term investments, in an amount at least equal to that Bank’s anticipated cash outflows under two different scenarios. The first scenario assumes that the FHLBNY cannot access the capital markets for 15 days and that during that time, members do not renew their maturing, prepaid and called advances. The second scenario assumes that the FHLBNY cannot access the capital market for five days and that during that period, members renew maturing and called advances. The FHLBNY was in compliance within these scenarios.
The FHLBNY also has in place other liquidity measures — Deposit Liquidity and Operational Liquidity indicated that the FHLBNY’s liquidity buffers were in excess of discount notes.required reserves. For more information about the FHLBNY’s liquidity measures and see section “Liquidity, Short-term borrowings and Short-term Debt” in this MD&A.

 

8269

Advances
The FHLBNY’s primary business is making collateralized loans, known as “advances”,“advances,” to members.
Par amounts of advances outstanding had beenMember demand for advance borrowings has steadily declining through the four quarters in 2009 and through to the 2010 second quarter. That trend was halteddeclined in the 2010 third2011 first quarter, as borrowed advances held steady, with new borrowings that replaced maturing advances, and outstanding member advances at September 30, 2010 remained almost unchangeda continuing trend from 2010. Member prepayments were significant but were largely concentrated on the balance at June 30, 2010.
Reported book valueprepayments of advances was $85.7 billion at September 30, 2010, slightly up from $85.3 billion at June 30, 2010, compared to $94.3 billion at December 31, 2009. Advance book value included fair value basis adjustments of $5.6 billion at September 30, 2010, compared to $4.7 billion at June 30, 2010 and $3.6 billion at December 31, 2009. Fair value basis adjustments of hedged advances are recorded under the hedge accounting provisions. When medium- and long-term interest rates rise or fall, the fair values ofputable fixed-rate advances, move inwhich were replaced almost immediately by medium and short-term fixed-rate advances without the opposite direction.put option.
Generally, the growth or decline in advances is reflective of demand by members for both short-term liquidity and term funding driven by economic factors such as availability to the Bank’s members of alternative funding sources that are more attractive, or by the interest rate environment and the outlook for the economy. Members may choose to prepay advances (which may generate prepayment penalty fees) based on their expectations of interest rate changes and demand for liquidity. Demand may also be influenced by the dividend payout to members on their capital stock investment in the FHLBNY. Members are required to invest in FHLBNY’s capital stock in the form of membership and activity stock. Advance volume is also influenced by merger activity where members are either acquired by non-members or acquired by members of another FHLBank. When FHLBNY members are acquired by members of another FHLBank or a non-member, the former members no longer qualify for membership and the FHLBNY may not offer renewals or additional advances to the former members. Subsequent to the merger, maturing advances may not be replaced, which has an immediate impact on short-term and overnight lending if the former member borrowed short-term and overnight advances.
Advances — Product Types
The following table summarizes par values of advances by product type (dollars in thousands):
Table 15:4.1: Advances by Product Type
                                
 September 30, 2010 December 31, 2009  March 31, 2011 December 31, 2010 
 Percentage Percentage  Percentage Percentage 
 Amounts of total Amounts of total  Amounts of Total Amounts of Total 
  
Adjustable Rate Credit — ARCs $9,190,500  11.47% $14,100,850  15.54% $8,016,000  11.09% $8,121,000  10.56%
Fixed Rate Advances 67,148,859 83.83 71,943,468 79.29  58,304,095 80.64 64,557,112 83.91 
Short-Term Advances 1,343,150 1.68 2,173,321 2.39  3,489,700 4.83 1,357,300 1.76 
Mortgage Matched Advances 539,479 0.67 606,883 0.67  466,114 0.64 479,934 0.62 
Overnight & Line of Credit (OLOC) Advances 905,786 1.13 926,517 1.02  1,024,295 1.42 1,402,696 1.82 
All other categories 975,037 1.22 986,661 1.09  1,000,067 1.38 1,021,497 1.33 
                  
  
Total par value
 80,102,811  100.00% 90,737,700  100.00% 72,300,271  100.00% 76,939,539  100.00%
          
  
Discount on AHP Advances  (50)  (260)   (36)  (42) 
Hedging adjustments 5,594,410 3,611,311  3,187,142 4,260,839 
          
  
Total
 $85,697,171 $94,348,751  $75,487,377 $81,200,336 
          
Member demand for advance products
Fixed-rate advance products declined at March 31, 2011 primarily because of the prepayment of fixed-rate putable advances. Borrowers have also remained reluctant to borrow long-term advances. Much of the prepayments were immediately replaced by medium- and short-term advances, and Adjustable-rate advances (“ARCs”) have beenwhich also explains the more significant products that have declinedincrease in 2010 relative to the balances at December 31, 2009.Short-Term fixed rate advances.
Adjustable Rate Advances (“ARC Advances”)-— Demand for ARC advances declined steadilyhas stabilized after a declining trend in 2009 and that trend has continued through the 2010 third quarter, as demand has remained weak.most of 2010. Generally, the FHLBNY’s larger members have been the more significant borrowers of ARCs.
ARC advances are medium- and long-term loans that can be linked to a variety of indices, such as 1-month LIBOR, 3-month LIBOR, the Federal funds rate, or Prime. Members use ARC advances to manage interest rate and basis risks by efficiently matching the interest rate index and repricing characteristics of floating-rate assets. The interest rate is set and reset (depending upon the maturity of the advance and the type of index) at a spread to that designated index. Principal is due at maturity and interest payments are due at each reset date, including the final payment date.

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Fixed-rate Advances- Fixed-rate advances, comprising putable and non-putable advances, remain the largest category of advances.
Member demand for fixed-rate advances has remained steady thus farbeen soft in 2010.the 2011 first quarter and borrowings have declined. Prepayments have been heavily concentrated in the fixed-rate putable advance. On aggregate, maturing and prepaid advances have been replaced by new borrowings. Demand has been concentrated aroundshort- and medium-term advances, as members remain uncertain about locking into long-term advances perhaps because of unfavorable pricing of longer-term advances or an uncertain outlook overon the direction and timing of interest rate changes, or lukewarm demand from members’ customer base for longer-term fixed-rate loans.
Fixed-rate advances are flexible funding tools that can be used by members to meet short- to long-term liquidity needs. Terms vary from two days to 30 years.

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A significant componentcomposition of Fixed-rate advances is consists of advances with a “put” option feature (“putable advances.advance”). Historically, Fixed-rate putable advances have been more competitively priced relative to fixed-rate “bullet” advances (without put option) because of the “put” feature that the Bank purchases from the member, driving down the coupon on the advance. The price advantage of a putable advance increases with the numbers of puts sold and the length of the term of a putable advance. With a putable advance, the FHLBNY has the right to exercise the put option and terminate the advance at predetermined exercise date (s)date(s), which the FHLBNY normally would exercise when interest rates rise, and the borrower may then apply for a new advance at the then prevailing coupon and terms. In the present interest rate environment, the price advantage has not been significant because of constraints in offering longer-term-advances. The price advantage of a putable advance increases with
In the numbers of puts sold2011 first quarter, maturing and the length of the term of a putable advance.
Fixed-rate advances are flexible funding tools that can be used by members to meet short- to long-term liquidity needs. Terms vary from two days to 30 years.
Member demand for the competitively priced putable advances had remained steady through the third quarter in 2009, contracted somewhat in the fourth quarter of 2009, and declined steadily through the 2010 second quarter as maturingprepaid putable advances were either not replaced or replaced by bullet advance (without the put feature). Putable advances stood at $36.7 billion at September 30, 2010, slightly below $37.4 billion at June 30, 2010 and $38.6 billion at March 31, 2010. The amount outstanding at December 31, 2009 was $41.4 billion.
Short-term Advances-— Demand for Short-term fixed-rate advances hashad remained very weak insteady through most of the 2010 three quarters, a continuing trend from 2009. Borrowed amounts stood at $1.3 billion, slightly up from $1.0 billion at June 30, 2010, but down from $2.2 billion at December 31, 2009. By way2011 first quarter and grew because borrowing member replaced some of contrast, the outstanding balance was $7.8 billion at December 31, 2008.prepaid putable advances with short-term advances to take advantage of the current low coupons.
Overnight advances -—Overnight borrowings also remained lackluster in 2010,soft, a continuation of the trend seen in 2009.2010. Member demand for the overnight Advances may also reflect the seasonal needs of certain member banks for their short-term liquidity requirements. Some large members also use overnight advances to adjust their balance sheet in line with their own leverage targets.
The overnight advances program gives members a short-term, flexible, readily accessible revolving line of credit for immediate liquidity needs. Overnight Advances mature on the next business day, at which time the advance is repaid.
Merger Activity
Merger activity is an important factor and, if significant, would contribute to an uneven pattern in advance balances. Merger activity may result in the loss of new business if thea member is acquired by a non-member. The FHLBank Act does not permit new advances to replace maturing advances to former members. Advances held by members who are acquired by non-members may remain outstanding until their contractual maturities. Merger activity may also result in a decline in the advance book if the acquired member decides to prepay existing advances partially or in full depending on the post-merger liquidity needs. One member was acquired by a non-member financial institution thus far
The following table summarizes merger activity (dollars in 2010. thousands):
Table 4.2: Merger Activity
         
  Merger Activity 
  Three months ended March 31, 
  2011  2010 
         
Number of Non-Members1
  9   11 
         
Non-member advances outstanding at period end $833,928  $1,840,960 
       
1Members who became non-members because of mergers.
The former member ismembers are not considered to have a significant borrowing potential.
Early Prepayment of Advances
Early prepaymentPrepayment initiated by members andor former members is another important factor that impacts advances to members.advances. The FHLBNY charges a member a prepayment fee when the member or a former member prepays certain advances before the original maturity. Member initiated prepayments in the 2010 third quarter was $0.5 billion (par amount of advances). In the prior year third quarter, prepayments were only $92.0 million. On a year-to-date basis, prepayments totaled $3.0 billion in 2010, compared to $3.2 billion in the same period in 2009.
The following table summarizes prepayment activity (in thousands):
Table 4.3: Prepayment fees recorded to Interest income were $3.7 million in the 2010 third quarter, compared to $0.2 million in the same period in 2009. On a year-to-date basis, prepayment fees were $9.7 million in 2010, compared to $21.2 million in the same period in 2009.Activity
         
  Prepayment Activity 
  Three months ended March 31, 
  2011  2010 
         
Advances pre-paid at par $7,107,367  $180,000 
       
         
Prepayment fees $42,743  $701 
       
For advances that are prepaid and hedged under hedge accounting rules, the FHLBNY generally terminates the hedging relationship upon prepayment and adjusts the prepayment fees received for the associated fair value basis of the hedged prepaid advance.

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

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Impact of Derivatives and hedging activities to the balance sheet carrying values of Advances
Advance book values included fair value basis adjustments (“hedging adjustments”), which are recorded under the hedge accounting provisions on hedged advances. When medium- and long-term interest rates rise or fall, the fair values of fixed-rate advances move in the opposite direction.
The Bank hedges certain advances by the use of both cancellable and non-cancellable interest rate swaps. These qualify as fair value hedges under the derivatives and hedge accounting rules. Recorded fair value basis adjustments to advances in the Statements of Condition were a result of these hedging activities. The Bank hedges the risk of changes in the benchmark rate, which the FHLBNY has adopted as LIBOR and is also the discounting basis for computing changes in fair values of hedged advances. Fair value changes of qualifying hedged advances under the derivatives and hedge accounting rules are recorded in the Statements of Income as a Net realized and unrealized gain (loss) on derivative and hedging activities, a component of Other income (loss). An offset is recorded as a fair value basis adjustment to the carrying amount of the advances in the Statements of Condition.

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Derivative transactions are employed to hedge fixed-rate advances in the following manner and to achieve the following principal objectives:
objectives. The FHLBNY:
Makes extensive use of the derivatives to restructure interest rates on fixed-rate advances, both putable and non-putable (“bullet”), to better match the FHLBNY’s cash flows, to enhance yields, and to manage risk from a changing interest rate environment.
Converts at the time of issuance, certain simple fixed-rate bullet and putable fixed-rate advances into synthetic floating-rate advances by the simultaneous execution of interest rate swaps that convert the cash flows of the fixed-rate advances to conventional adjustable rate instruments tied to an index, typically 3-month LIBOR.
Uses derivatives to manage the risks arising from changing market prices and volatility of a fixed coupon advance by matching the cash flows of the advance to the cash flows of the derivative, and making the FHLBNY indifferent to changes in market conditions. Putable advances are typically hedged by an offsetting derivative with a mirror-image call option with identical terms.
Adjusts the reported carrying value of hedged fixed-rate advances for changes in their fair value (“fair value basis” or “fair value”) that are attributable to the risk being hedged in accordance with hedge accounting rules. Amounts reported for advances in the Statements of Condition include fair value hedge basis adjustments.
The most significant element that impacts balance sheet reporting of advances is the recording of fair value basis adjustments to the carrying value of advances in the Statements of Condition. In addition, when putable advances are hedged by cancellable swaps, the possibility of exercise of the call shortens the expected maturity of the advance. The impact of derivatives to the Bank’s income is discussed in this MD&A under “Results of Operations”.Operations.” Fair value basis adjustments as measured under the hedging rules are impacted by hedge volume, the interest rate environment, and the volatility of the interest rates.
Hedge volume-— The Bank primarily hedges putable advances and certain “bullet” fixed-rate advances that qualify under the hedging provisions of the accounting standards for derivatives and hedging, and as economic hedges when the hedge accounting provisions are operationally difficult to establish or a high degree of hedge effectiveness cannot be asserted.
At September 30, 2010, $61.6 billionThe following table summarizes hedged advances by type of interest rate swaps hedged fixed-rate advances, compared to $66.0 billion at December 31, 2009 (See option features (in thousands):
Table 28: Derivative Financial Instruments4.7: Hedged Advances by Product). Type
         
  Advances 
Par Amount March 31, 2011  December 31, 2010 
Qualifying Hedges        
Fixed-rate bullets $29,590,412  $26,562,821 
Fixed-rate putable  26,877,062   33,612,162 
Fixed-rate callable  305,000   150,000 
       
Total Qualifying Hedges $56,772,474  $60,324,983 
       
Aggregate par amount of advances hedged1
 $56,866,249  $60,461,327 
       
Fair value basis (Qualifying hedging adjustments) $3,187,142  $4,260,839 
       
1Either hedged economically or qualified under a hedge accounting rules
Except for an insignificant notional amount of derivatives that were designated as economic hedges of advances, the swapshedged advances were in a qualifying hedging relationship under the accounting standards for derivatives and hedging. Decline in(See Tables 9.1 — 9.5). No advances were designated under the use of derivatives was consistent with the contraction ofFVO. The FHLBNY typically hedges fixed-rate advances which the FHLBNY typically hedgesin order to convert fixed-rate cash flows to LIBOR-indexed cash flows through the use of interest rate swaps.
The largest component of interest rate swaps hedging advances at September 30, 2010 and December 31, 2009 was comprised of cancellable swaps that hedged a significant percentage of the $36.7 billion and $41.4 billion ofFHLBNY has allowed its fixed-rate putable advances at those dates (See Table 26: Derivative Hedging Strategies). Typically, the Bank hedgesto decline, and since almost all putable advances with a cancellable interest rate swap.put or call features are hedged, the decline in hedged advances was consistent with the contraction of fixed-rate putable advances. The put option in the advance is ownedpurchased by the FHLBNY from the borrowing member and mirrors the cancellable swap option terms owned by the swap counterparty. The Bank’s putable advance contains a put option purchased by the Bank from the member. Under the terms of the put option, the Bank has the right to terminate the advance at agreed uponagreed-upon dates. The period until the option is exercisable is known as the lockout period. If the advance is put by the FHLBNY at the end of the lockout period, the member can borrow an advance product of the member’s choice at the then prevailingthen-prevailing market rates and at the then existingthen-existing terms and conditions. Notional amounts of non-cancellable swaps were $27.1 billion at September 30, 2010, compared to $26.0 billion at December 31, 2009.

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Fair value basis adjustments- The Bank uses interest rate derivatives to hedge the risk of changes in the benchmark rate, which the FHLBNY has adopted as LIBOR, and is also the discounting basis for computing changes in fair values of hedged advances. Recorded fair value basis adjustments in the Statements of Condition were associated with hedging activities under the hedge accounting provisions. Advances designated at inception as economic hedges do not have any basis adjustments, and were insignificant. The reported carrying values of advances at September 30, 2010 included net unrealized fair value basis gains of $5.6 billion up from $3.6 billion at December 31, 2009 associated with hedged advances that qualified under hedge accounting rules at those dates. Fair value gains were consistent with the downward sloping forward yield curvehigher contractual coupons of hedged long-and medium-term fixed-rate advances. These advances had been issued at September 30, 2010 and December 31, 2009prior years at the then-prevailing higher interest rate environment compared to the lower interest rate environment at the balance sheet dates that were projecting forward rates below the contractual coupons of hedged fixed-rate advances. Hedged-fixed rateFixed-rate advances, had been issued in prior periods at the then prevailing higher interest-rate environment, and since hedged advances are typically fixed-rate, in a lower interest rate environment relative to the coupons of the advances, fixed-rate advances will exhibit net unrealized fair value basis gains.
The increaseperiod-over-period decrease in net fair value basis adjustments of hedged Advances was primarily caused by (1) the flatteningupward shift (albeit small) of the forward swap interest rates at September 30, 2010, relativethe current period end compared to December 31, 2009, with2010, as displayed below. As future swap rates increase, the forward rates well belowhigher contractual coupons of the same yields projected at December 31, 2009. At September 30, 2010, the yield curve was forecasting 0.64%, 1.29%,advances become less “valuable” and 1.92% on the 3-year, 5-yearfair value gains decline, and 7-year swap curves, compared to 1.67%, 2.68% and 3.38% at December 31, 2009. Fair values(2) lower amounts (volume effects) of hedged fixed-rate advances typically gain value when interest rates decline.advances.

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(BAR GRAPH)

Unrealized gains from fair value basis adjustments to advances were almost entirely offset by net fair value unrealized losses of the derivatives associated with the fair value hedges of advances, thereby achieving the Bank’s hedging objectives of mitigating fair value basis risk.

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Advances — Call Dates and Exercise Options
The table below offers a view of the advance portfolio with the possibility of the exercise of the put option that is controlled by the FHLBNY, and put dates are summarized into similar maturity tenors as the previous table that summarizes advances by contractual maturities (dollars in thousands).
Table 4.9: Advances by Put/Call Date
                 
  March 31, 2011  December 31, 2010 
     Percentage of     Percentage of 
  Amount  Total  Amount  Total 
                 
Overdrawn demand deposit accounts $—   —% $196   —%
Due or putable\callable in one year or less1
  42,893,112   59.33   49,443,712   64.26 
Due or putable after one year through two years  10,116,744   13.99   8,889,867   11.55 
Due or putable after two years through three years  7,502,977   10.38   6,959,596   9.05 
Due or putable after three years through four years  4,276,457   5.91   4,744,502   6.17 
Due or putable after four years through five years  4,428,259   6.12   4,145,209   5.39 
Due or putable after five years through six years  694,951   0.96   815,948   1.06 
Thereafter  2,387,771   3.31   1,940,509   2.52 
             
                 
Total par value  72,300,271   100.00%  76,939,539   100.00%
               
                 
Discount on AHP advances  (36)      (42)    
Hedging adjustments  3,187,142       4,260,839     
               
                 
Total
 $75,487,377      $81,200,336     
               
1Due or putable in one year or less includes five callable advances.
Contrasting advances by contractual maturity dates (See Tables 4.1 — 4.9) with potential put dates illustrates the impact of hedging on the effective duration of the Bank’s advances. The Bank’s advances borrowed by members include a significant amount of putable advances in which the Bank has purchased from members the option to terminate advances at agreed-upon dates. Typically, almost all putable advances are hedged by cancellable interest rate swaps in which the derivative counterparty has the right to exercise and terminate the swap at par at agreed upon dates. Under current hedging practices, when the swap counterparty exercises its right to call the cancellable swap, the Bank would typically also exercise its right to put the advance at par. Under this hedging practice, on a put option basis, the potential exercised maturity is significantly accelerated, and is an important factor in the Bank’s current hedge strategy.
The following table summarizes notional amounts of advances that were still putable or callable (one or more pre-determined option exercise dates remaining) (in thousands):
Table 4.10: Putable and Callable Advances
         
  Advances 
  March 31, 2011*  December 31, 2010* 
Putable $27,787,662  $34,651,912 
       
No-longer putable $2,383,600  $2,581,100 
       
Callable $305,000  $150,000 
       
*Par value
The FHLBNY has allowed its fixed-rate putable advances to decline and member borrowings have been weak for putable advances, which are typically medium and long-term. Significant prepayment of putable advances was the primary cause of the decline.
Investments
The FHLBNY maintains investments for liquidity purposes, to manage capital stock repurchases and redemptions, to provide additional earnings, and to ensure the availability of funds to meet the credit needs of its members. The FHLBNY also maintains longer-term investment portfolios, which are principally mortgage-backed securities issued by government-sponsored mortgage agencies, a smaller portfolio of MBS issued by private enterprises, and securities issued by state or local housing finance agencies. Finance Agency regulations prohibit the FHLBanks, including the FHLBNY, from investing in certain types of securities and limit the investment in mortgage- and asset-backed securities.
Investments -Policies—Policies and practicesPractices
Finance Agency regulations limit investment in housing-related obligations of state and local governments and their housing finance agencies to obligations that carry ratings of double-A or higher. Mortgage- and asset-backed securities acquired must carry the highest ratings from Moody’s Investors Service (“Moody’s”) or Standard & Poor’s Rating Services (“S&P”) at the time of purchase. Finance Agency regulations further limit the mortgage- and asset-backed investments of each FHLBank to 300 percent of that FHLBank’s capital. The FHLBNY was within the 300 percent limit for all periods reported. The FHLBNY’s investment in mortgage-backed securities during all periods reported complied with FHLBNY’s Board-approved policy of acquiring mortgage-backed securities issued or guaranteed by the government-sponsored housing enterprises, or prime residential mortgages rated triple-A by both Moody’s and Standard & Poor’s rating services at acquisition.

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The FHLBNY’s practice is not to lend unsecured funds to members, including overnight Federal funds and certificates of deposit. The FHLBNY does not preclude or specifically seek out investments any differently than it would in the normal course of acquiring securities for investments, unless it is prohibited by existing regulations. Unsecured lending to members is not prohibited by Finance Agency regulations or Board of Directors’ policy. The FHLBNY is prohibited from purchasing a consolidated obligation issued directly by another FHLBank, but may acquire consolidated obligations for investment in the secondary market after the bond settles. There were no investments in consolidated obligations by the FHLBNY at September 30, 2010 or December 31, 2009. On March 24, 2008, the Board of Directors of the Federal Housing Finance Board, predecessor to the Finance Agency adopted Resolution 2008-08, which temporarily expanded the authority of a FHLBank to purchase mortgage-backed securities (“MBS”) under certain conditions. The resolution allowed a FHLBank to increase its investmentsperiods in MBS issued by Fannie Mae and Freddie Mac by an amount equal to three times its capital, which is to be calculated in addition to the existing limit. The expanded authority permitted MBS investments to be as much as 600 percent of the FHLBNY’s capital. The FHLBNY did not exercise the expanded authority provided under the temporary regulations to purchase MBS issued by Fannie Mae and Freddie Mac. The expanded authority expired in March 2010.this report.
The following table summarizes changes in investments by categories (including held-to-maturity securities, available-for-sale securities, and money market investments). Amounts are after writing down (at the time of credit related OTTI) held-to-maturity impaired securities to fair values. No securities classified as available-for-sale were OTTI (dollars in thousands):
Table 16:5.1: Investments by Categories
                                
 September 30, December 31, Dollar Percentage  March 31, December 31, Dollar Percentage 
 2010 2009 Variance Variance  2011 2010 Variance Variance 
  
State and local housing finance agency obligations1
 $740,256 $751,751 $(11,495)  (1.53)% $755,712 $770,609 $(14,897)  (1.93)%
Mortgage-backed securities  
Available-for-sale securities, at fair value 3,360,959 2,240,564 1,120,395 50.01  3,708,872 3,980,135  (271,263)  (6.82)
Held-to-maturity securities, at carrying value 7,480,990 9,767,531  (2,286,541)  (23.41) 7,286,775 6,990,583 296,192 4.24 
                  
Total securities 11,582,205 12,759,846  (1,177,641)  (9.23) 11,751,359 11,741,327 10,032 0.09 
  
Grantor trusts2
 12,822 12,589 233 1.85  10,152 9,947 205 2.06 
Federal funds sold 4,095,000 3,450,000 645,000 18.70  5,093,000 4,988,000 105,000 2.11 
                  
  
Total investments $15,690,027 $16,222,435 $(532,408)  (3.28)% $16,854,511 $16,739,274 $115,237  0.69%
                  
1 Classified as held-to-maturity securities, at carrying value.
 
2 Classified as available-for-sale securities, at fair value and represents investments in registered mutual funds and other fixed-income securities maintained under the grantor trusts.

86

Long-term investmentsLong-Term Investments
Investments with original long-term contractual maturities were comprised of mortgage- and asset-backed securities, and investment in securities issued by state and local housing agencies. These investments were classified either as “Held-to-maturity” or as “Available-for-sale” securities in accordance with accounting standard on investments in debt and equity securities as amended by the guidance on recognition and presentation of other-than-temporary impairments. SeveralThe Bank owns a grantor trusts have been established and owned by the FHLBNYtrust to fund current and potential future payments to retirees for supplemental pension plan obligations. The trust funds arefund is invested in fixed-income and equity funds, which were classified as available-for-sale.
Mortgage-backed securitiesMortgage-Backed Securities — By issuerIssuer
Issuer composition of held-to-maturity mortgage-backed securities was as follows (carrying values; dollars in thousands):
Table 17: Mortgage-Backed5.2: Held-to-maturity mortgage-backed Securities — Held-to-Maturity byBy Issuer
                                
 September 30, Percentage December 31, Percentage  March 31, Percentage December 31, Percentage 
 2010 of total 2009 of total  2011 of Total 2010 of Total 
  
U.S. government sponsored enterprise residential mortgage-backed securities $6,248,361  83.52% $8,482,139  86.84% $5,659,761  77.67% $5,528,792  79.09%
U.S. agency residential mortgage-backed securities 127,168 1.70 171,531 1.76  107,456 1.47 116,126 1.66 
U.S. government sponsored enterprise commercial mortgage-backed securities 173,969 2.33 — —  707,826 9.71 476,393 6.81 
U.S. agency commercial mortgage-backed securities 48,953 0.65 49,526 0.51  44,408 0.61 48,748 0.70 
Private-label issued securities backed by home equity loans 362,847 4.85 417,151 4.27  341,464 4.69 351,455 5.03 
Private-label issued residential mortgage-backed securities 336,981 4.51 444,906 4.55  254,794 3.50 292,477 4.18 
Private-label issued securities backed by manufactured housing loans 182,711 2.44 202,278 2.07  171,066 2.35 176,592 2.53 
                  
 
Total Held-to-maturity securities-mortgage-backed securities $7,480,990  100.00% $9,767,531  100.00% $7,286,775  100.00% $6,990,583  100.00%
                  

76

Held-to-maturity mortgage- and asset-backed securities(“MBS”)-— The Bank’s conservative purchasing practicepractices over the years isare evidenced by the high concentration of MBS issued by the GSEs. Privately issued mortgage-backed securities made up the remaining 11.8% and 10.9% at September 30, 2010 and December 31, 2009.
Local and housing finance agency bonds-—The FHLBNY had investments in primary public and private placements of taxable obligations of state and local housing finance authorities (“HFA”) classified as held-to-maturity. Investments in state and local housing finance bonds help to fund mortgages that finance low- and moderate-income housing. No additions were made in the 2010 three quarters.
Available-for-sale securities-— The FHLBNY classifies investments that it may sell before maturity as available-for-sale (“AFS”) and carries them at fair value. Fair value changes are recorded in AOCI until the security is sold or is anticipated to be sold. Composition of FHLBNY’s available-for-sale securities was as follows (dollars in thousands):
Table 18:5.3: Available-for-Sale Securities — Composition
                
 September 30, Percentage December 31, Percentage                 
 2010 of total 2009 of total  March 31, Percentage December 31, Percentage 
  2011 of Total 2010 of Total 
Fannie Mae $2,275,326  67.70% $1,544,500  68.93% $2,309,122  62.26% $2,478,313  62.26%
Freddie Mac 1,085,633 32.30 696,064 31.07  1,329,160 35.84 1,429,900 35.93 
Ginnie Mae 70,590 1.90 71,922 1.81 
                  
Total AFS mortgage-backed securities 3,360,959  100.00% 2,240,564  100.00% 3,708,872  100.00% 3,980,135  100.00%
          
Grantor Trusts — Mutual funds 12,822 12,589  10,152 9,947 
          
Total Available-for-sale portfolio $3,373,781 $2,253,153 
Total AFS portfolio $3,719,024 $3,990,082 
          
One hundred percentAll of the mortgage-backed securities in the AFS portfolio of mortgage-backed securities was comprised of securitieswere issued by Fannie Mae, and Freddie Mac. The Bank acquired $2.0 billion of GSE issued, triple-A rated MBS in the 2010 first three quarters.Mac, or a U.S. agency. The Bank also has grantor trustsa grantors trust designed to fund current and potential future payments to retirees for supplemental pension plan obligations. The trustsfunds are invested in money market funds, fixed-income and equity funds, and are designated as available-for-sale.
For more information and analysis with respect to investment securities, see Investment Quality in the section captioned Asset Quality and Concentration — Advances, Investment securities, Mortgage loans, and Counterparty risks in this MD&A. Also, see Notes 4 and 5 to the unaudited financial statements in this report.

87

External rating information of the held-to-maturity portfolio was as follows. (Carrying values; in thousands):
Table 19:5.4: External RatingRatings of the Held-to-Maturity Portfolio
                         
  September 30, 2010 
                  Below    
                  Investment    
  AAA-rated  AA-rated  A-rated  BBB-rated  Grade  Total 
Long-term securities                        
Mortgage-backed securities $6,977,063  $275,025  $44,215  $18,129  $166,557  $7,480,990 
State and local housing finance agency obligations  71,596   592,594   19,845   56,221   —   740,256 
                   
              ��          
Total Long-term securities  7,048,660   867,619   64,060   74,350   166,557   8,221,246 
                   
                         
Total
 $7,048,660  $867,619  $64,060  $74,350  $166,557  $8,221,246 
                   
                                     
 December 31, 2009  March 31, 2011 
 Below    Below
Investment		   
 Investment    AAA-rated AA-rated A-rated BBB-rated Grade Total 
 AAA-rated AA-rated A-rated BBB-rated Grade Total  
Long-term securities  
Mortgage-backed securities $9,205,018 $299,314 $65,921 $31,261 $166,017 $9,767,531  $6,737,651 $264,513 $105,873 $4,668 $174,070 $7,286,775 
State and local housing finance agency obligations 72,992 601,109 21,430 56,220 — 751,751  71,344 617,163 — 67,205 — 755,712 
                          
  
Total Long-term securities 9,278,010 900,423 87,351 87,481 166,017 10,519,282  $6,808,995 $881,676 $105,873 $71,873 $174,070 $8,042,487 
                          
  
Total
 $9,278,010 $900,423 $87,351 $87,481 $166,017 $10,519,282 
              
 December 31, 2010 
 Below
Investment		   
 AAA-rated AA-rated A-rated BBB-rated Grade Total 
 
Long-term securities 
Mortgage-backed securities $6,463,552 $266,567 $87,796 $17,446 $155,222 $6,990,583 
State and local housing finance agency obligations 71,461 631,943 — 67,205 — 770,609 
             
 
Total Long-term securities
 $6,535,013 $898,510 $87,796 $84,651 $155,222 $7,761,192 
             
External rating information of the available-for-sale portfolio was as follows (Carrying(the carrying values of AFS investments are at fair values; in thousands):
Table 20:5.5: External RatingRatings of the Available-for-Sale Portfolio
              
                         March 31, 2011 
 September 30, 2010  AAA-rated AA-rated A-rated BBB-rated Unrated Total 
 AAA-rated AA-rated A-rated BBB-rated Unrated Total  
Available-for-sale securities  
Mortgage-backed securities $3,360,959 $— $— $— $— $3,360,959 
Mortgage-backed securities1
 $3,708,872 $— $— $— $— $3,708,872 
Other — Grantor trusts — — — — 12,822 12,822  — — — — 10,152 10,152 
                          
  
Total
 $3,360,959 $— $— $— $12,822 $3,373,781  $3,708,872 $— $— $— $10,152 $3,719,024 
                          
 
 December 31, 2010 
 AAA-rated AA-rated A-rated BBB-rated Unrated Total 
 
Available-for-sale securities 
Mortgage-backed securities1
 $3,980,135 $— $— $— $— $3,980,135 
Other — Grantor trusts — — — — 9,947 9,947 
             
 
Total
 $3,980,135 $— $— $— $9,947 $3,990,082 
             
                         
  December 31, 2009 
  AAA-rated  AA-rated  A-rated  BBB-rated  Unrated  Total 
Available-for-sale securities                        
Mortgage-backed securities $2,240,564  $—  $—  $—  $—  $2,240,564 
Other — Grantor trusts  —   —   —   —   12,589   12,589 
                   
                         
Total
 $2,240,564  $—  $—  $—  $12,589  $2,253,153 
                   
1GSE and U.S. Obligations

77

Weighted average rates — Mortgage-backed securities (HTM and AFS)
The following table summarizes weighted average rates and amounts by contractual maturities. A significant portion of the MBS portfolio consisted of floating-rate securities and the weighted average rates will change in parallel with changes in the indexed LIBOR rate (dollars in thousands):
Table 21:5.6: Mortgage-Backed Securities Weighted Average Rates by Contractual Maturities
                                
 September 30, 2010 December 31, 2009  March 31, 2011 December 31, 2010 
 Amortized Weighted Amortized Weighted  Amortized Weighted Amortized Weighted 
 Cost Average rate Cost Average rate  Cost Average Rate Cost Average Rate 
Mortgage-backed securities  
Due in one year or less $—  —% —  —% $—  —% $—  —%
Due after one year through five years 1,927 6.25 2,663 6.25  1,502 6.25 1,730 6.25 
Due after five years through ten years 1,096,896 4.69 1,140,153 4.78  1,508,748 4.28 1,374,456 4.36 
Due after ten years 9,814,713 2.79 10,977,950 3.21  9,559,762 2.37 9,664,231 2.57 
                  
  
Total mortgage-backed securities $10,913,536  2.98% $12,120,766  3.36% $11,070,012  2.63% $11,040,417  2.79%
                  

88

Credit Impairment analysis (Other-than-temporary Impairment — OTTI)Adverse Case Scenario- OTTI securities
Management evaluates its investments for OTTI on a quarterly basis, under amended OTTI guidance issued in the prior year first quarter by theFinancial Accounting Standards Board(“FASB”). This amended OTTI guidance, which the FHLBNY early adopted in the 2009 first quarter, results in only the credit portion of OTTI securities being recognized in earnings. The non-credit portion of OTTI, which represent fair value losses of OTTI securities, is recognized in AOCI. Prior to the adoption of the amended guidance, if an impairment was determined to be other-than-temporary, the impairment loss recognized in earnings was equal to the entire difference between the security’s amortized cost basis and its fair value. The FHLBNY had not determined any security as impaired prior to 2009. Beginning with the quarter ended September 30, 2009, at each subsequent quarter, the FHLBNY performed its OTTI analysis by cash flow testing 100 percent of itits private-label MBS. At December 31, 2008, and atIn addition, the two interim quarters ended June 30, 2009, the FHLBNY’s methodology was to analyze all ofFHLBNY evaluated its credit-impaired private-label MBS to isolate securities that were considered to be at risk of OTTIunder a base case (or best estimate) scenario, and to performalso performed a cash flow analysis onfor each of those securities at riskunder more adverse external assumptions that forecasted a larger home price decline and a slower rate of OTTI.
2010 vs. 2009 current quarter- In 2010, the FHLBNY identified credit re-impairment on four HTM private-label MBS. Cash flow assessments of the expected credit performance of the four securities resulted in the recognition of $3.1 million as credit related OTTIhousing price recovery. The stress test scenario and was a charge to earnings. All four securities had been previously determined to be OTTI, and the additional impairment (re-impairment) was due to further deterioration in the credit performance measures of the impaired securities. The non-credit portion of OTTI recorded in AOCI wasassociated results do not significant. In the prior year current quarter,represent the Bank’s cash flow impairment analysis resulted in credit related OTTI of $3.7 million,current expectations and the non-credit portion of OTTI recorded in AOCI was $26.5 million.
2010 vs. 2009 year-to-date- In 2010, cumulative credit impairment charged to income was $7.7 million. Non-credit OTTI was not significant. In the same period in the prior year, cumulative credit impairment was $14.3 million and non-credit OTTI was a loss of $103.9 million.
Bond insurers Ambac and MBIA insure the four MBS credit securities impaired in the 2010 current quarter. The Bank’s analysis of Ambac concluded that the bond insurer couldtherefore should not be relied upon to pay future credit losses due to projected collateral shortfalls of the impaired securities. Analysis of MBIA concluded that insurance support could be relied upon for shortfalls up until June 30, 2011, beyond which date MBIA’s financial resources would be such that insurance protection could not be relied upon.
Based on detailed cash flow credit analysis onconstrued as a security level at the current quarter-end, the Bank has concluded the gross unrealized losses for the remainderprediction of the Bank’s investmentfuture results, market conditions or the actual performance of these securities.
The results of the adverse case scenario are presented below alongside the FHLBNY’s expected outcome for the credit impaired securities (other(the base case) (in thousands):
Table 5.7: Base and Adverse Case Stress Scenarios
                 
  As of March 31, 2011 
  Actual Results — Base Case Scenario  Adverse Case Scenario 
      OTTI Related to Credit      OTTI Related to Credit 
  UPB  Loss  UPB  Loss 
RMBS Prime $—  $—  $—  $— 
Alt-A  —   —   —   — 
HEL Subprime  30,869   (370)  30,869   (390)
             
Total
 $30,869  $(370) $30,869  $(390)
             
                 
  As of March 31, 2010 
  Actual Results — Base Case Scenario  Adverse Case Scenario 
      OTTI related to credit      OTTI related to credit 
  UPB  loss  UPB  loss 
RMBS Prime $—  $—  $—  $— 
Alt-A  —   —   —   — 
HEL Subprime  67,114   3,400   67,114   5,028 
             
Total
 $67,114  $3,400  $67,114  $5,028 
             
                 
  As of December 31, 2010 
  Actual Results — Base Case Scenario  Adverse Case Scenario 
      OTTI related to credit      OTTI related to credit 
  UPB  loss  UPB  loss 
RMBS Prime $16,477   (176) $16,477  $(272)
Alt-A  —   —   —   — 
HEL Subprime  17,641   (409)  17,641   (421)
             
Total
 $34,118   (585) $34,118  $(693)
             
In the adverse case scenario, expected losses were not significantly greater than the four securities credit impaired) were primarily caused by interest rate changes, credit spread wideningthose assessed and reduced liquidity, and the securities were temporarily impaired as definedrecorded under the new guidance for recognition and presentation of other-than-temporary impairment.
Fair values of investment securitiesbase case expected loss scenario.
In an effort to achieve consistency among all of the FHLBanks on the pricing of investments in mortgage-backed securities, in the third quarter of 2009 the FHLBanks formed the MBS Pricing Governance Committee, which was responsible for developing a fair value methodology for mortgage-backed securities that all FHLBanks could adopt. Consistent with the guidance from the Governance Committee, the FHLBNY changed the methodology used to estimate the fair value of mortgage-backed securities starting as of September 30, 2009. Under the approved methodology, the Bank requests prices for all mortgage-backed securities from four specified third-party vendors, and, depending on the number of prices received for each security, selected a median or average price as defined by the methodology. If four prices are received by the FHLBNY from the pricing vendors, the average of the middle two prices is used; if three prices are received, the middle price is used; if two prices are received, the average of the two prices is used; and if one price is received, it is used subject to additional validation. The computed prices are tested for reasonableness using tolerance thresholds. Prices within the established thresholds are generally accepted unless strong evidence suggests that using the median pricing methodology as described above would not be appropriate. Preliminary estimated fair values that are outside the tolerance thresholds, or that management believes may not be appropriate based on all available information (including those limited instances in which only one price is received), are subject to further analysis of all relevant facts and circumstances that a market participant would consider.
To compute fair values at September 30, 2010, four vendor prices were received for substantially all of the FHLBNY’s MBS holdings and substantially all of those prices fell within the specified thresholds. The relative proximity of the prices received supported the FHLBNY’s conclusion that the final computed prices were reasonable estimates of fair value. While the FHLBNY adopted this common methodology, the fair values of mortgage-backed investment securities are estimated by FHLBNY’s management which remains responsible for the selection and application of its fair value methodology and the reasonableness of assumptions and inputs used.
The four specialized pricing services use pricing models or quoted prices of securities with similar characteristics. The valuation techniques used by pricing services employ cash flow generators and option-adjusted spread models. Pricing spreads used as inputs in the models are based on new issue and secondary market transactions if the securities are traded in sufficient volumes in the secondary market.
These pricing vendors typically employ valuation techniques that incorporate benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of like securities, sector groupings, and/or matrix pricing, as may be deemed appropriate for the security. Such inputs into the pricing models employed by pricing services for most of the Bank’s investments are market based and observable and are considered Level 2 of the fair value hierarchy.

 

8978

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

79

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

80

Weighted-average market activity so that the inputs may not be market based and observable. All private-label mortgage-backed securities were classified as held-to-maturity and were recorded in the balance sheet at their carrying values. Carrying valueprice offers an analysis of a security is the same as its amortized cost, unless the security is determined to be OTTI. In the period the security is determined to be OTTI, its carrying value is generally adjusted down to its fair value.
Prior to the adoption of the new pricing methodology in the prior year third quarter, the Bank used a similar process that utilized three third-party vendors and similar variance thresholds. This change in pricing methodology did not have a significant impact on the Bank’s estimated fair values of its mortgage-backed securities.
Forunrealized loss percentage; a comparison of carrying values and fair valuesthe weighted-average credit support to weighted-average collateral delinquency percentage is another indicator of the credit support available to absorb potential cash flow shortfalls.
Table 5.10: Weighted-Average Market Price of MBS
             
  March 31, 2011 
  Original       
  Weighted-  Weighted-  Weighted-Average 
  Average Credit  Average Credit  Collateral 
Private-label MBS Support %  Support %  Delinquency % 
RMBS
            
Prime
            
2006  3.84%  5.32%  8.32%
2005  2.46   4.55   3.50 
2004 and earlier  1.59   3.68   0.81 
          
Total RMBS Prime  2.08   4.09   2.42 
Alt-A
            
2004 and earlier  11.23   33.59   8.20 
          
Total RMBS  2.39   5.09   2.61 
          
HEL
            
Subprime
            
2004 and earlier  57.42   32.08   17.26 
          
Manufactured Housing Loans
            
Subprime
            
2004 and earlier  100.00   27.15   3.25 
          
Total Private-label MBS
  49.54%  23.25%  10.28%
          
             
  December 31, 2010 
  Original       
  Weighted-  Weighted-  Weighted-Average 
  Average Credit  Average Credit  Collateral 
Private-label MBS Support %  Support %  Delinquency % 
RMBS
            
Prime
            
2006  3.81%  5.30%  6.94%
2005  2.52   4.29   3.05 
2004 and earlier  1.56   3.40   0.65 
          
Total RMBS Prime  2.08   3.86   2.04 
Alt-A
            
2004 and earlier  11.11   33.38   7.42 
          
Total RMBS  2.36   4.76   2.20 
          
HEL
            
Subprime
            
2004 and earlier  57.15   64.57   17.26 
          
Manufactured Housing Loans
            
Subprime
            
2004 and earlier  100.00   100.00   3.51 
          
Total Private-label MBS
  47.90%  52.36%  9.95%
          
Definitions:
Original Weighted-Average Credit Support percentagerepresents the arithmetic mean of a cohort of securities by vintage; credit support is defined as the credit protection level at the time the mortgage-backed securities see Notes 4 and 5 to the unaudited financial statements in this report.
In the Statement of Conditions in this Form 10Q, the carrying values of certain HTM securities determined to be OTTI were written down to $8.1 million, their fair values, which were classifiedclosed. Support is expressed as Level 3 financial instruments within the fair value hierarchy. This determination was made based on management’s view that the private-label instruments may not have an active market becausea percentage of the specific vintagesum of: subordinate bonds, reserve funds, guarantees, overcollateralization, divided by the original collateral balance.
Weighted-Average Credit Support percentagerepresents the arithmetic mean of a cohort of securities by vintage; credit support is defined as the credit protection level as of the impairedmortgage-backed securities most current payment date. Support is expressed as well as inherent conditions surroundinga percentage of the trading of private-label mortgage-backed securities.
For more information about the corroboration and other analytical procedures performedsum of: subordinate bonds, reserve funds, guarantees, overcollateralization, divided by the FHLBNY, see Note 1 — Significant Accounting Policies and Estimates, and Note 17 — Fair valuesmost current unpaid collateral balance.
Weighted-average collateral delinquency percentagerepresents the arithmetic mean of financial instruments to the financial statements accompanying this report. Examplesa cohort of securities priced under such a valuation technique, which are classified within Level 2by vintage: collateral delinquency is defined as the sum of the valuation hierarchy and valued usingunpaid principal balance of loans underlying the “market approach” as definedmortgage-backed security where the borrower is 60 or more days past due, or in bankruptcy proceedings, or the accounting standards for fair value measurements and disclosures, include GSE issued collateralized mortgage obligations and money market funds.loan is in foreclosure, or has become real estate owned divided by the aggregate unpaid collateral balance.

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Short-term investments
The FHLBNY typically maintains substantial investments in high quality, short- and intermediate-term financial instruments, such as certificates of deposit, as well as overnight and term Federal funds sold to highly rated financial institutions. These investments provide the liquidity necessary to meet members’ credit needs. Short-term investments also provide a flexible means of implementing the asset/liability management decisions to increase liquidity. The Bank investsmay also invest in certificates of deposit with maturities not exceeding 270 days and issued by major financial institutions. Certificates of deposit areinstitutions, and would be recorded at amortized cost basis and designated as held-to maturityheld-to-maturity investment. No certificates of deposit were outstanding at the current quarter-end or at December 31, 2009.
Federal funds sold- Historically, the FHLBNY has been a provider of Federal funds to its members, allowing the FHLBNY to warehouse and provide balance sheet liquidity to meet unexpected member borrowing demands. See Table 16, Investment by Categories, forFor more details.information, see Tables 5.1— 5.10.
Cash collateral pledged-— Cash deposited by the FHLBNY as pledged collateral to derivative counterparties is reported as a deduction to Derivative liabilities in the Statements of Condition. The FHLBNY generally executes derivatives with major financial institutions and typically enters into bilateral collateral agreements. When the FHLBNY’s derivatives are in a net unrealized loss position, as a liability from the FHLBNY’s perspective, counterparties are exposed and the FHLBNY would be called upon to pledge cash collateral to mitigate the counterparties’ credit exposure. Collateral agreements include certain thresholds and pledge requirements that are generally triggered if exposures exceed the agreed upon thresholds. At the current quarter-end and at December 31, 2009, the Bank had deposited $3.8 billion and $2.2 billion in interest-earning cash as pledged collateral to derivative counterparties. Typically, such cash deposit pledges earn interest at the overnight Federal funds rate. For more information, see Table 27: Derivative Financial Instruments by Hedge Designation.Tables 9.1 — 9.5.
Mortgage Loans Held-for-Portfolio
The portfolio of mortgage loans was primarily comprised of investments in Mortgage Partnership Finance loans (“MPF” or “MPF Program”) and Community Mortgage Asset loans (“CMA”). More details about the MPF program can be found in Mortgage Partnership Finance Program under the caption Acquired Member Assets Program in the Bank’s most recent Form 10-K filed on March 25, 2010. In the CMA program, the FHLBNY holds participation interests in residential and community development mortgage loans. Acquisition of participations under the CMA program was suspended indefinitely in November 2001 and the loans are being paid down under their contractual terms.2011.
MPF Program- Paydowns slightly outpaced acquisitions in 2010. The FHLBNY does not expect the MPF loans to increase substantially, and the Bank provides this product to its members as another alternative for them to sell their mortgage production.
CMA Program- The amortized cost basisfollowing table summarizes Mortgage Partnership Finance Loans (“MPF” or “Mortgage Partnership Finance program”) by loss layer structure product types (in thousands):
Table 6.1: MPF by Loss Layers
         
  March 31, 2011  December 31, 2010 
         
Original MPF $358,201  $343,925 
MPF 100  22,170   23,591 
MPF 125  421,467   392,780 
MPF 125 Plus  462,675   494,917 
Other  6,491   9,408 
       
Total MPF Loans * $1,271,004  $1,264,621 
       
*Par amount of total mortgage loan held-for-portfolio includes CMA, par amount at March 31, 2011 was $0.3 million.
Original MPF— The first layer of losses is applied to the First Loss Account provided by the Bank. The member then provides a credit enhancement up to “AA” rating equivalent. Any credit losses beyond the first two layers, though a remote possibility, would be absorbed by the FHLBNY.
MPF 100— The first layer of losses is applied to the First Loss Account provided by the Bank. Losses incurred in the First Loss Account are deducted from credit enhancement fees payable to the member after the third year. The member then provides a credit enhancement up to “AA” rating equivalent less the amount placed in the FLA. The Bank absorbs any losses incurred in the FLA that are not recovered through credit enhancement fees (should the pool liquidate prior to repayment of losses). Credit losses beyond the first two layers, though a remote possibility, would be absorbed by the FHLBNY.
MPF 125— The first layer of losses is applied to the First Loss Account provided by the Bank. Losses incurred in the First Loss Account are deducted from the credit enhancement fees payable to the member. The member then provides a credit enhancement up to “AA” rating equivalent less the amount placed in the FLA. The Bank absorbs any losses incurred in the FLA that are not recovered through credit enhancement fees (should the pool liquidate prior to repayment of losses). Credit losses beyond the first two layers, though a remote possibility would be absorbed by the FHLBNY.
MPF Plus— The first layer of losses is applied to the First Loss Account (“FLA”) in an amount equal to a specified percentage of loans in the CMA program, which haspool as of the sale date. Losses incurred in the First Loss Account are deducted from the credit enhancement fees payable to the member. The Bank absorbs any losses incurred in the FLA that are not been active since 2001, has been declining steadily over time, and wasrecovered through credit enhancement fees (should the pool liquidate prior to repayment of losses) The member acquires an additional Credit Enhancement (“CE”) coverage through a supplemental mortgage insurance policy (“SMI”) to cover second-layer losses that exceed the deductible (“FLA”) of the Supplemental Mortgage Insurance policy. Losses not material.covered by the First Loss Account or Supplemental Mortgage Insurance coverage will be paid by the member’s Credit Enhancement obligation up to “AA” rating equivalent. The Bank would absorb losses that exceeded the Credit Enhancement obligation, though such losses are a remote possibility.

 

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Mortgage loans by loan type— Conventional and Insured Loans.
The following table presents information onclassifies mortgage loans held-for-portfolio (dollars inbetween conventional loans and loans insured by FHA/VA (in thousands):
Table 22:6.2: Mortgage Loans by Loan Type— Conventional and Insured Loans
                 
  September 30, 2010  December 31, 2009 
      Percentage      Percentage 
  Amount  of Total  Amount  of Total 
Real Estate:
                
Fixed medium-term single-family mortgages $344,781   27.20% $388,072   29.43%
Fixed long-term single-family mortgages  918,967   72.50   926,856   70.27 
Multi-family mortgages  3,827   0.30   3,908   0.30 
             
                 
Total par value  1,267,575   100.00%  1,318,836   100.00%
               
                 
Unamortized premiums  10,027       9,095     
Unamortized discounts  (4,700)      (5,425)    
Basis adjustment1
  322       (461)    
               
                 
Total mortgage loans held-for-portfolio  1,273,224       1,322,045     
Allowance for credit losses  (5,537)      (4,498)    
               
Total mortgage loans held-for-portfolio after allowance for credit losses
 $1,267,687      $1,317,547     
               
         
  March 31, 2011  December 31, 2010 
         
Federal Housing Administration and Veteran Administration insured loans $6,212  $5,610 
Conventional loans  1,264,513   1,255,212 
Others  279   3,799 
       
Total par value
 $1,271,004  $1,264,621 
       
1Represents fair value basis of open and closed delivery commitments.
Mortgage Loans — Credit Enhancement
The amount of the credit enhancement is computed with the use of a Standard & Poor’s model to determine the amount of credit enhancement necessary to bring a pool of uninsured loans to “AA” credit risk. The credit enhancement becomes an obligation of the Participating Financial Institution. For taking on the credit enhancement obligation, the Participating Financial Institution receives a credit enhancement fee that is paid by the FHLBNY. For certain Mortgage Partnership Finance products, the credit enhancement fee is accrued and paid each month. For other Mortgage Partnership Finance products, the credit enhancement fee is accrued and paid monthly after the FHLBNY has accrued 12 months of credit enhancement fees.
The portion of the credit enhancement that is an obligation of the Participating Financial Institution (“PFI”) must be fully secured with pledged collateral. A portion of the credit enhancement may also be covered by insurance, subject to limitations specified in the Acquired Member Assets regulation. Each member or housing associate that participates in the Mortgage Partnership Finance program must meet financial performance criteria established by the FHLBNY. In addition, each approved PFI must have a financial review performed by the FHLBNY on an annual basis.
The second layer is that amount of credit obligation that the Participating Financial Institution has taken on, which will equate the loan to a double-A rating. The FHLBNY pays a Credit Enhancement fee to the Participating Financial Institution for taking on this obligation. The FHLBNY assumes all residual risk.
Loan concentration was in New York State, which is to be expected since the largest two PFIs are located in New York.
Table 6.3: Concentration of MPF Loans
                 
  Concentration of MPF Loans 
  March 31, 2011  December 31, 2010 
  Number of  Amounts  Number of  Amounts 
  loans %  outstanding %  loans %  outstanding % 
                 
New York State  72.9%  66.3%  73.3%  67.7%
Deposit Liabilities
Deposit liabilities comprised of member deposits and, from time-to-time,time to time, may also include unsecured overnight borrowings from other FHLBanks.
Member deposits-— The FHLBNY operates deposit programs for the benefit of its members. Deposits are primarily short-term in nature, with the majority maintained in demand accounts that reprice daily based upon rates prevailing in the overnight Federal funds market. Members’ liquidity preferences are the primary determinant of the level of deposits. Deposits at current quarter-endMarch 31, 2011 stood at $3.7$2.5 billion, an increase of $1.0 billion fromslightly above the balancebalances at December 31, 2009, primarily due to deposits placed by a U.S. government agency.2010. The Bank may accept deposits from governmental and semi-governmental institutions in addition to member deposit. Fluctuations in member deposits have little impact on the Bank and are not a significant source of liquidity for the Bank.
Borrowings from other FHLBanksFHLBanks — The Bank borrows from other FHLBanks, generally for a period of one day and at market terms. There were no significant borrowings in the 2010 three quarters.any periods in this report.

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Debt Financing Activity and Consolidated Obligations
Consolidated obligations, which consist of consolidated bonds and consolidated discount notes, are the joint and several obligations of the FHLBanks and are the principal funding source for the FHLBNY’s operations and consist of consolidated bonds and consolidated discount notes.operations. Discount notes are consolidated obligations with maturities of up to 365 days, and consolidated bonds have maturities of one year or longer. Member deposits, capital, and to a lesser extent borrowings from other FHLBanks, are also funding sources.
Consolidated Obligation Liabilities
The issuance and servicing of consolidated obligations debt are performed by the Office of Finance, a joint office of the FHLBanks established by the Finance Agency. Each FHLBank independently determines its participation in each issuance of consolidated obligations based on, among other factors, its own funding and operating requirements, maturities, interest rates, and other terms available for consolidated obligations in the market place. Although the FHLBNY is primarily liable for its portion of consolidated obligations (i.e., those issued on its behalf), the FHLBNY is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks. The FHLBanks, including the FHLBNY, have emphasized diversification of funding sources and channels as the need for funding from the capital markets has grown.
The two major debt programs offered by the Office of Finance are the Global Debt Program and the TAP issue programs as described below. The FHLBNY participates in both programs.
The Global Debt Program provides the FHLBanks with the ability to distribute debt into multiple primary markets across the globe. The FHLBank global debt issuance facility has been in place since July 1994. FHLBank global bonds are known for their variety and flexibility; all can be customized to meet changing market demand with different structures, terms and currencies. Global Debt Program bonds are available in maturities ranging from one year to 30 years with the majority of global issues between one and five years. The most common Global Debt Program structures are bullets, floaters and fixed-rate callable bonds with maturities of one through ten years. Issue sizes are typically from $500 million to $5 billion and individual bonds can be reopened to meet additional demand. Bullets are the most common global bonds, particularly in sizes of $3 billion or larger.

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In mid-1999, the Office of Finance implemented the TAP issue program on behalf of the FHLBanks. This program consolidates domestic bullet bond issuance through daily auctions of common maturities by reopening previously issued bonds. Effectively, the program has reduced the number of separate FHLBanks bullet issues and individual issues have grown as large as $1.0 billion. The increased issue sizes have a number of market benefits for investors, dealers and the 12 FHLBanks. TAP issues have improved market awareness, expanded secondary market trading opportunities, improved liquidity and stimulated greater demand from investors and dealers seeking high-quality Government Sponsored Enterprises securities with U.S. Treasury-like characteristics. The TAP issues follow the same 3-month quarterly cycles used for the issuance of “on-the-run” Treasury securities and also have semi-annual coupon payment dates (March, June, September and December). The coupons for new issues are determined by the timing of the first auction during a given quarter.
The FHLBanks also issue global consolidated obligations-bonds.obligation bonds. Effective in January 2009, a debt issuance process was implemented by the FHLBanks and the Office of Finance to provide a scheduled monthly issuance of global bullet consolidated obligation bonds. As part of this process, management from each of the FHLBanks will determine and communicate a firm commitment to the Office of Finance for an amount of scheduled global debt to be issued on its behalf. If the FHLBanks’ orders do not meet the minimum debt issue size, the proceeds are allocated to all FHLBanks based on the larger of the FHLBank’s commitment or allocated proceeds based on the individual FHLBank’s capital to total system capital. If the FHLBanks’ commitments exceed the minimum debt issue size, the proceeds are allocated based on relative capital of the FHLBanks’FHLBanks with the allocation limited to the lesser of the allocation amount or actual commitment amount. The Finance Agency and the U.S. Secretary of the Treasury have oversight over the issuance of FHLBank debt through the Office of Finance. The FHLBanks can, however, pass on any scheduled calendar slot and not issue any global bullet consolidated obligation bonds upon agreement of eight of the 12 FHLBanks.
The FHLBanks, including the FHLBNY, continue to issue debt that is both competitive and attractive in the marketplace. In addition, the FHLBanks continuously monitor and evaluate their debt issuance practices to ensure that consolidated obligations are efficiently and competitively priced.
Consolidated obligations are issued with either fixed- or variable-rate coupon payment terms that use a variety of indices for interest rate resets. These indices may include the London Interbank Offered Rate (“LIBOR”), Constant Maturity Treasury (“CMT”), 11th District Cost of Funds Index (“COFI”), Prime rate, the Federal funds rate, and others. In addition, to meet the expected specific needs of certain investors in consolidated obligations, both fixed- and variable-rate bonds may also contain certain features that will result in complex coupon payment terms and call options. When the FHLBNY cannot use such complex coupons to hedge its assets, FHLBNY enters into derivative transactions containing offsetting features that effectively convert the terms of the bond to those of a simple variable-rate bond.
The consolidated obligations, beyond having fixed- or variable-rate coupon payment terms, may also be Optional Principal Redemption Bonds (callable bonds) that the FHLBNY may redeem in whole or in part at its discretion on predetermined call dates according to the terms of the bond offerings.

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Highlights — Debt issuance and funding management
The FHLBNY’s consolidated obligations outstanding has contracted, at current quarter-end from December 31, 2009 in part due to the contraction of the Bank’s advance business and in part due to reduction in overall funding requirements, as the Bank has also been cautious about increasing its investment portfolios. However, the primary source of funds for the FHLBNY continued to be through issuance of consolidated bonds and discount notes. Reported amounts
Financing (utilization of consolidated obligations outstanding, comprising of bonds and discount notes, at September 30, 2010 and December 31, 2009, were $92.7 billion and $104.8 billion, and funded 89.9% and 91.6% of Total assets at those dates. These financing ratios haveFHLBank issued debt) ratio has remained substantially unchanged over the years at around 90 percent, indicative of the stable funding strategy pursued by the FHLBNY. Fixed-rate non-callable debt remains the largest component of consolidated obligation debt. Earlier in the 2010In early 2011 first quarter, in response to market conditions for FHLBank debt, the FHLBNY shifted its funding strategy, reducing its issuance of discount notes while increasing the utilization of callable debt. In the second quarter, as market pricing of discount notes became relatively more attractive, the FHLBNY increased issuance of discount notes to replace callable bonds that had been called or had naturally matured. In the third quarter, as discount note pricing and spreads became less attractive, issuances of discount notes declined.
Market trends for FHLBank bonds and discount notes and tactical changes in funding mix
While in 2009, key investors from Asia had reduced acquisitions of FHLBank debt and limited their participation in debt issuances, in 2010, there is now encouraging signs of the return of central banks from Asia to FHLBank debt issuances and increased participation in the debt offerings. In 2010, central banks in the Americas have also been strong buyers of “Global” FHLBank bonds in the 2010 second quarter. The most active issues were the 3-year and 2-year new issue Global bullets. The cost of long-term debt issuance has continued to be under pressure through the 2010 third quarter.
FHLBank consolidated obligation bonds
2010 first quarter- Several government support programs, including the Federal Reserve’s Agency debt program, expired during the 2010 first quarter. With the absence of Fed purchasing GSE debt, spreads deteriorated, with March 2010 witnessing the lowest weighted-average monthly bond pricing spreads since February 2009. At the same time, compression of swapped funding levels of FHLBank consolidated bonds to LIBOR had effectively driven up the cost of funding for the FHLBank debt, as much of FHLBank fixed-rate debt is swapped back to LIBOR.

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2010 second quarter- Several factors helped improve the pricing of FHLBank issued discount notes were not favorable and spreads to LIBOR were generally in the FHLBank debt. First, the 3-month LIBOR index had risensingle digits. In March 2011 pricing improved, and spreads widened to 53around 15-18 basis points from around 25 basis points at March 31, 2010. That brought some relief to the FHLBank debt spreads (to LIBOR). Second, a decline in the availability of competing GSE issued debt in the 2010 second quarter also helped to improve funding costs of FHLBank debt. Lastly, the credit concerns in Europe heightened credit risk about sovereign debt and inter-bank lending, resulting in a flight to quality to FHLBank short-term debt. By the close of the 2010 second quarter, debt costs had improved for almost all short-term FHLBank debt. Cost of bullet bonds (non-callable, non-amortizing) was more favorable for all maturities with the exception of longer-term maturities. Investor demand had been particularly strong for bullets with maturities of less than 15 months. Cost ofbelow LIBOR. Short-term callable bonds improved onwith ultra short lock-out periods (before option exercise) were also popular as they provided a swapped out basis to 3-month LIBOR in parallel with the 3-month LIBOR rising to 53 basis points. Cost of callable step-up bonds also improved and“yield pick-up” for investors. With a short-lockout, investor interest warmed as the structure can be used as an effective hedge by investors in a rising rate environment. Some investors also saw opportunities in investing in step-up bonds on the assumptionexpectation is that the step-up callable bond wouldwill be called onat the first callexercise date, and the investor would benefit from the higher yield on the step-up bond relative to alternativea “yield pick-up” over an equivalent tenor short-term investment. Investor demand for floating-rateTerm FHLBank bonds was weak and volume was down.
2010 third quarter- Shrinking FHLBanks’ balance sheets and the resulting lower issuances have adversely compressed spreads. Evidence of a slowing economy has caused yields to fall for potential investors, who are, for the most part, cash rich. At the same time, callable bond redemptions are on the rise in a low interest rate environment, and this too has added to investor’s liquidity. All of these factors have driven investors to seek out ways to reinvest, driving intermediate-term callable bond spreads tighter. As a result of these factors, investor demand has shifted towards the shorter lockout (3-months or shorter) short-maturity callable bonds, also on the assumption that the callable bonds would be called on the first call date and investor would benefit from higher yield on the callable bond. Bullet bond issuances have declined for the same reason — investor perception of relatively low yields.
The outlook for the issuances of longer-term debt is still uncertain. It remains uneconomical for the FHLBanks to issue longer-term debt. Yields demanded by investors for longer-term FHLBank debt and spreads between 3-month LIBOR and FHLBank long-term debt yield have remainedwere priced at levels that make it expensive for the FHLBNY to issue term debt and offer longer-term advances to members even if there was sufficient investor demand for such debt.
FHLBank consolidated obligation discount notes
2010 first quarter- In the prior year, the U.S. money market funds had become key drivers of the increased demand for FHLBank discount notes. That changed in the 2010 first quarter as money market funds experienced a steady outflow of funds, limiting additional demand for discount notes longer than 2-months. With credit markets returning to normalcy in early 2010, money market fund balances declined, demand for discount notes declined, resulting in lower volumes of issuances of discount notes in the 2010 first quarter.
2010 second quarter- However, relief was in sight for the FHLBank discount notes with the amendments to SEC’s Rule 2a-7, effective May 28, 2010, that tightened the credit restrictions on money market funds, who are now required to purchase a greater percentage of “first tier” securities. This benefited FHLBank issued discount notes due to the triple A rating ascribed to the debt. The FHLBank discount notes also benefited as money market funds actively purchased discount notes out to 60 days, since these maturities are categorized as weekly liquid assets under the revised Rule 2a-7. The combination of the liquidity and maturity requirements coupled with limits on second tier securities had a favorable impact on pricing levels in the short end of the FHLBank discount note curve. Pricing along the longer end of the discount note curve had also improved. Investors sought out the high credit quality of FHLBank discount notes because of heightened inter-bank counterparty credit risk in light of European sovereign concerns. The cost of discount notes in June 2010 was lower for the length of the discount note curve, relative to equivalent term LIBOR, a key benchmark for the FHLBanks.
2010 third quarter -The 3-month LIBOR declined to levels in the first quarter. Since the FHLBank discount note is offered at yields below the equivalent LIBOR, declining rates tend to compress the spread to LIBOR and typically results in adverse pricing for the FHLBank debt. Further declines in short-term yields would have created further erosion of discount notevery tight spreads to LIBOR but it appears that yield volatility may have been stabilizedall through the 2011 first quarter. Longer term bond pricing remains prohibitively expensive as investors are reluctant to take the risk of locking in long-term investments without a step-up option which would protect yields when rates eventually rise.
Debt extinguishment— The following table summarizes debt transferred to or from another FHLBank and debt retired by the FRB’s actionFHLBNY (in thousands):
Table 7.1: Transferred and Retired Debt
         
  Three months ended March 31, 
  2011*  2010* 
Debt transferred to another FHLBank $150,000  $— 
       
Debt transferred from another FHLBank $—  $— 
       
Debt extinguished $328,560  $— 
       
*Par value
In the 2011 first quarter, debt transfer and retirement resulted in a charge to ensure support for Treasury bills by weekly auctionNet income of bills, just sufficient to meet maturing bills. That action will stabilize Treasury bill supply, stabilize Repo yields, and should prevent further discount note spread erosion.$52.0 million.

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Consolidated obligation bonds
The following summarizes types of bonds issued and outstanding (dollars in thousands):
Table 23:7.2: Consolidated Obligation Bonds by Type
                                
 September 30, 2010 December 31, 2009  March 31, 2011 December 31, 2010 
 Percentage Percentage  Percentage Percentage 
 Amount of Total Amount of Total  Amount of Total Amount of Total 
 
Fixed-rate, non-callable $46,800,200  63.48% $48,647,625  66.31% $38,662,070  56.93% $43,307,980  61.01%
Fixed-rate, callable 6,321,300 8.57 8,374,800 11.42  9,260,000 13.64 8,821,000 12.43 
Step Up, non-callable — — 53,000 0.07  — — — — 
Step Up, callable 2,180,000 2.96 3,305,000 4.51  3,015,000 4.44 2,725,000 3.84 
Single-index floating rate 18,428,000 24.99 12,977,500 17.69  16,968,000 24.99 16,128,000 22.72 
                  
 
Total par value 73,729,500  100.00% 73,357,925  100.00% 67,905,070  100.00% 70,981,980  100.00%
          
  
Bond premiums 145,239 112,866  176,028 163,830 
Bond discounts  (27,718)  (33,852)   (30,211)  (31,740) 
Fair value basis adjustments 1,060,537 572,537  473,369 622,593 
Fair value basis adjustments on terminated hedges 1,099 2,761  468 501 
Fair value option valuation adjustments and accrued interest 10,236  (4,259)  5,257 5,463 
          
  
Total bonds
 $74,918,893 $74,007,978  $68,529,981 $71,742,627 
          
FHLBNY — Tactical changes in the funding mix
In 2010, theThe FHLBNY issued fixed-ratefixed- and floating-rate bonds, and discount notes in a mix of issuances to achieve its asset/liability management goals and to be responsive to the changing market dynamics. The issuance of bonds has been the primary financing vehicle for the Bank, although the use of term and overnight discount notes remains vital sources of funding because of the ease of issuance of discount notes as a flexible funding tool for day-to-day operations.
2010 first quarter- As investor demand The 3-month LIBOR index is a vital indicator as the FHLBNY attempts to execute interest rate swaps to synthetically convert fixed-rate cash flows to sub-LIBOR cash flows, earning the FHLBNY a spread. In addition, the use of interest rate swaps effectively changes the repricing characteristics of a significant portion of the FHLBNY’s fixed-rate consolidated obligation debt (and fixed rate medium and long-term advances offered to members) to match shorter-term LIBOR rates that reprice at intervals of three months or less. When the Bank executes an interest rate swap to change the fixed payments on its debt to a LIBOR rate, it results in the 2010 first quarter shifted away from discount notes to callable debt, the FHLBNY was also opportunistic in pursuing the debt structure most in demand at a reasonable price consistent with the Bank’s asset/liability match. The Bank shifted its funding mix between bonds and discount notes, reducing its issuance of discount notes. The money-market sector, which had become a significant investor segment for FHLBank discount notes during muchrecognition of the credit crisis, was seeking short-term investments that offered a higher rate of return. As a result, discount note pricing was adversely impacted, spreads to LIBOR narrowed, and as a funding tool, discount notes were no longer as attractive as they had been inspread (between the prior year.
In the 2010 first quarter, spread deterioration was not just isolated to FHLBank discounts notes but across to short-callable bonds as well, although not as significantly. Since December 31, 2009, the weighted-average bond funding costs deteriorated relative 3-month LIBOR and resulted in increased funding costs on debt swapped to 3-month LIBOR. While short-term callable bond spreads to LIBOR also worsened, the spread compression had been relatively small compared to other FHLBank debt structures. Callable bonds became an attractive funding alternative in the 2010 first quarter. Investor demand for short and medium-term callable bonds with call lock-outs of 1-year or less was encouragingfixed payments and the FHLBNY increased issuance of callable bonds. These structures tended to fill inLIBOR cash receipts) as a substitute for discount notes. Swapped short-lockout callable bonds offeredthe FHLBNY’s effective durations that could be as short as a term discount note. In the falling interest rate environment, the swap counterparty is likely to exercise its rights to terminate the swap at the first exercise opportunity, and the FHLBNY would also exercise its right and terminate the debt.
2010 Second quarter- Discount notes made a comeback with increased investor demand for the 60-day maturity notes as a result of the amendment to SEC’s Rule 2a-7 that impacted the money market industry, and resulted in improved pricing for FHLBank discount notes. Cost of funding on the long-end of the discount note curve also improved as investors shifted from bank certificates of deposit and other form of debt to higher quality FHLBank debt because of sovereign and increased counterparty risk concerns in Europe. In response, the FHLBNY increased issuance of discount notes in June 2010, replacing significant amounts of called and maturing bonds with new issuances of discount notes.
2010 Third quarter -As interest rates declined further incost. Consequently, the current quarter,level of spread between the 3-month LIBOR rate and the swap rate for a fixed-rate FHLBank debt has an important benchmark forimpact on the FHLBNY’s funding strategy declinedprofitability. Also, the change in the absolute level of the index tends to impact the sub-LIBOR spread, which in turn impacts interest margin and resulted in adverse spread compression. In response, the FHLBNY reduced issuance of discount notes, instead relying on floating-rate notes and bullet bonds to replace maturing discount notes.
The principal tactical funding strategy changes employed in executing issuances of FHLBank bonds are outlined below:
•Floating rate bonds- Floating-rate bonds had declined steadily through the four quarters in 2009 and in the 2010 first two quarter. In those periods, maturing floating-rate bonds in general were not replaced because of marketplace perception of a pricing advantage of comparable GSE issued LIBOR-indexed floaters. In the 2010 third quarter, the Bank added (net of maturities) $7.6 billion of floating-rate debt. As a result, floating-rate bonds outstanding at September 30, 2010 increased to $18.4 billion, up from $10.8 billion at June 30, 2010 and $13.0 billion at December 31, 2009. The outstanding debt at September 30, 2010 consisted of $12.8 billion indexed to the 1-month LIBOR, the Prime rate and the Federal funds effective rates. By executing interest rate swaps concurrently with the issuances of the floating-rate bonds and swapping the non 3-month LIBOR indices for 3-month LIBOR, the Bank effectively created variable funding that was indexed to 3-month LIBOR, at spreads more favorable than it could have achieved by issuing a simple 3-month LIBOR floating-rate bond.
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•Non-callable bonds- Non-callable bond remains the primary funding vehicle for the FHLBNY. Issuances of non-callable debt are predicated partly on pricing of such debt and investor demand, and partly on the need to achieve asset/liability management goals. The Bank has made a strong effort to issue fixed-rate longer-term debt and lock-in the relative low rates in the current interest-rate environment. This has been a challenge as investor appetite for term debt has continued to be lukewarm, given investor preference for discount notes, short-term bullets and short lock-out callable debt.
•Callable-bonds- In 2010, investors were receptive to the FHLBank short lockout callable bonds with short maturities as an alternative to comparable debt available in the capital markets, and execution pricing fared relatively better even under deteriorating pricing conditions for other types of bond structures. Fixed-rate callable bonds with maturities up to 15 months and a short lockout call option have been the more popular FHLBank bond structure. Responding to investor preference, the FHLBNY issued short lockout callables, with call dates as short as 3 months from issue date. Such debt structures offer an alternative at an attractive pricing to similar maturity discount notes. FHLBank longer-term fixed-rate callable-bonds have not been an attractive investment asset for investors over the last several years, and have continued to be under price pressure.
With a callable bond, the Bank purchases a call option from the investor and the option allows the Bank to terminate the bond at predetermined call dates at par. When the Bank purchases the call option from investors, it typically lowers the cost to the investor, who has traditionally been receptive to callable-bond yields offered by the FHLBNY.
Debt extinguishment- In 2010, the FHLBNY extinguished $250.0 million consolidated obligation bond at an insignificant gain.
Impact of hedging fixed-rates consolidated obligation bonds
The Bank hedges certain fixed-rate debt by the use of both cancellable and non-cancellable interest rate swaps in fair value hedges under the accounting standards for derivatives and hedging. The Bank may also hedge the anticipatory issuance of bonds under the provisions of “cash flow” hedging rules as provided in the accounting standards for derivatives and hedging.
Net interest accruals from qualifying interest rate swaps under the derivatives and hedge accounting rules are recorded together with interest expense of consolidated obligation bonds in the Statements of Income. Fair value changes of debt in a qualifying fair value hedge are recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivative and hedging activities. An offset is recorded as a fair value basis adjustment to the carrying amount of the debt in the balance sheet. Net interest accruals associated with derivatives not qualifying under derivatives and hedge accounting rules are recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.
Derivatives are employed to hedge consolidated bonds in the following manner to achieve the indicated principal objectives:
The FHLBNY:
Makes extensive use of the derivatives to restructure interest rates on consolidated obligation bonds, both callable and non-callable, to better meet its members’ funding needs, to reduce funding costs, and to manage risk in a changing market environment.
Converts, at the time of issuance, certain simple fixed-rate bullet and callable bonds into synthetic floating-rate bonds by the simultaneous execution of interest rate swaps that convert the cash flows of the fixed-rate bonds to conventional adjustable rate instruments tied to an index, typically 3-month LIBOR.
Uses derivatives to manage the risk arising from changing market prices and volatility of a fixed coupon bond by matching the cash flows of the bond to the cash flows of the derivative and making the FHLBNY indifferent to changes in market conditions. Except when issued to fund MBS and MPF loans, callable bonds are typically hedged by an offsetting derivative with a mirror-image call option and identical terms.
Adjusts the reported carrying value of hedged consolidated bonds for changes in their fair value (“fair value basis adjustments” or “fair value”) that are attributable to the risk being hedged in accordance with hedge accounting rules. Amounts reported for consolidated obligation bonds in the Statements of Condition include fair value basis adjustments.
Lowers its funding cost by the issuance of a callable bond and the execution of an associated interest rate swap with mirrored call options, which results in funding at a lower cost than the FHLBNY would otherwise have achieved. The issuance of callable bonds and the simultaneous swapping with a derivative instrument depends on the price relationships in both the bond and the derivatives markets.

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The most significant element that impacts balance sheet reporting of debt is the recording of fair value basis and valuation adjustments. In addition, when callable bonds are hedged by cancellable swaps, the possibility of exercise of the call shortens the expected maturity of the bond. The impact of hedging debt on recorded interest expense is discussed in this MD&A under “Results of Operations”. Its impact as a risk management tool is discussed under ItemITEM 3. Quantitative andAnd Qualitative Disclosures aboutDisclosure About Market Risk.
Fair value basis and valuation adjustments- The Bank uses interest rate derivatives to hedge the risk of changes in the benchmark rate, which the FHLBNY has adopted as LIBOR, and is also the discounting basis for computing changes in fair values of hedged bonds. The Bank recorded net unrealized fair value basis losses of $1.1 billion and $0.6 billion as partwhich were not significant for all periods in this report primarily because of the carrying valuesrelatively short durations of consolidated obligation bonds in the Statements of Condition at September 30, 2010 and December 31, 2009.hedged bonds. Carrying values of bonds designated under the FVO are also adjusted for valuation adjustments to recognize changes in the full fair value of the bonds elected under the FVO. At September 30, 2010, the fair value basis recorded was in an unrealized loss position of $10.2 million. At December 31, 2009, the fair value basis was in an unrealized gain position of $4.3 million.
Changes in fair value basis reflect changes in the term structure of interest rates, the shape of the yield curve at the measurement dates, the value and implied volatility of call options of callable bonds, and from the growth or decline in hedge volume.
Hedge volume- As— The following table summarizes par amounts of September 30, 2010 and December 31, 2009,bonds hedged (in thousands):
Table 7.3: Bonds Hedged
         
  Consolidated Obligations Bonds 
Par Amount March 31, 2011  December 31, 2010 
Qualifying Hedges1
        
Fixed-rate bullet bonds $26,664,830  $27,610,830 
Fixed-rate callable bonds  8,285,000   5,905,000 
       
  $34,949,830  $33,515,830 
       
1Under hedge accounting rules

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The following table summarizes par amounts of bonds under the Bank hadFVO (in thousands):
Table 7.4: Bonds under the Fair Value Option (FVO)
         
  Consolidated Obligations Bonds 
Par Amount March 31, 2011  December 31, 2010 
         
Bonds designated under FVO $12,600,000  $14,276,000 
       
The FHLBNY continued to hedge a significant percentage of its fixed-rate non-callable bonds (also referred to as bullet bonds) under hedge accounting rules. Bonds hedged $32.3 billion and $32.9 billion of fixed-rate consolidated bonds with interest rate swaps. The swaps hedgedunder the fair value hedge accounting rule are to mitigate the fair value risk from changes in the benchmark rate, and were in hedge relationships that qualified under derivatives and hedge accounting rules. These hedges effectively convertedconverts the fixed-rate exposure of the bonds to a variable-rate exposure, generally indexed to 3-month LIBOR. The Bank’s callable bonds contain a call option purchased by the Bank from the investor. Generally, the call option terms mirror the call option terms embedded in a cancellable swap. Under the terms of the call option, the Bank has the right to terminate the bond at agreed upon dates, and the swap counterparty has the right to cancel the swap.
At September 30, 2010 and December 31, 2009, outstanding par valueThe Bank also hedges certain bonds under the FVO. Under this accounting rule, the carrying values of consolidated obligation bonds electeddebt (designated under the FVO) are adjusted for changes in the full fair values of the debt, not just for changes in the benchmark rate. Bonds designated under the FVO was $10.8 billion and $6.0 billion. These bonds were alsoeconomically hedged by interest rate swaps, designated as economic hedges, as discusseddescribed below.
Economic hedges-—AtIf at inception of the hedges, the Bank did not believe that the hedges would be highly effective in offsetting fair value changes between the derivative and the bondsdebt (hedged item), and the FHLBNY accountedwould account for the derivatives as freestanding (economic hedge)hedges). UnlessWhen derivatives are designated as an economic hedge of a debt, the Bank may designate the debt under the FVO economic hedges of debt do not generate basis adjustments for the hedged instruments since their carrying values are not adjusted for fair value changes. The carrying values of debt designated under the FVO are adjusted for changes inif operationally practical, and the full fair values of both the derivative and debt would be marked through P&L. The recorded balance sheet value of debt under the FVO would include the fair value basis adjustments so that the debt’s balance sheet carrying values would be its fair value. In other instances, the Bank may decide that the operational cost of designating debt under the FVO (or fair value hedge accounting) is not operationally practical and would opt to hedge the debt on an economic basis to mitigate the economic risks. In this scenario, the balance sheet carrying value of the debt would not just forinclude fair value basis since the debt is recorded at amortized cost. All derivatives, however, are recorded in the balance sheets at fair value with changes in fair values recorded through P&L.
The following table summarizes the benchmark rate.bonds that were economically hedged (in thousands):
Principal economic hedges are summarized below:Table 7.5: Economically Hedged Bonds
         
  Consolidated Obligations Bonds 
Par Amount March 31, 2011  December 31, 2010 
Bonds designated as economically hedged        
Floating-rate bonds $10,053,000  $8,928,000 
Fixed-rate bonds  430,000   115,000 
       
  $10,483,000  $9,043,000 
       
Floating-rate debt- At September 30, 2010 and at December 31, 2009, the FHLBNY had hedged $13.4 billion and $8.0 billion of— Hedged floating-rate bonds that were indexed to interest rates other than 3-month LIBOR by entering into swap agreements with derivative counterparties that synthetically converted the floating rate debt cash flows to 3-month LIBOR. The hedge objective was to reduce the basis risk from any asymmetrical changes between 3-month LIBOR and the Prime, Federal funds rate, or the 1-month LIBOR. Such bonds were hedged by interest-rate swaps with mirror image terms and the swaps were designated a stand-alone derivatives because the operational cost of designating the swaps in a hedge qualifying relationship outweighed the benefits.
Fixed-rate debt- At September 30, 2010— In a less volatile interest-rate environment at March 31, 2011 and December 31, 2009,2010, the FHLBNY hadwas able to comply with the hedge effectiveness standards under accounting rules, and fewer fixed-rate bonds were designated as hedged $1.5 billion and $13.1 billion of short-term fixed-rate debt.
FVOon an economic hedge- At September 30, 2010 and December 31, 2009, the FHLBNY had hedged $10.8 billion and $6.0 billion of short-term bonds designated under the FVO.basis.
Impact of changes in interest raterates to the balance sheet carrying values of hedged bonds- The carrying amounts of consolidated obligation bonds included relative insignificant amounts of fair value basis losses of $1.1 billion at September 30, 2010 and $0.6 billion at December 31, 2009.losses. Changes in fair value basis from one period to another reflect changes in the term structure of interest rates, the shape of the yield curve at the two measurement dates, and the value and implied volatility of call options of callable bonds.
Unrealized fair value basis losses were consistent with the forward yield curves at those dates that were projecting forward rates below the fixed-rate coupons of hedge qualifying bonds and bonds designated under the FVO. The flattening of the yield curve at September 30, 2010, with the forward rates well below the same yields projected at December 31, 2009, caused bond fair values to be in a loss position. At September 30, 2010, the yield curve was forecasting 0.64%, 1.29%, and 1.92% on the 3-year, 5-year and 7-year swap curves, compared to 1.67%, 2.68% and 3.38% at December 31, 2009.
Most of the hedged bonds had been issued in prior years at the then prevailing higher interest-rate environment. Since such bonds were typically fixed-rate, in a declining interest rate environment fixed-rate bonds exhibited unrealized fair value basis losses, which were recorded as part of the balance sheet carrying values of the hedged debt. In the Statements of Income, such unrealized losses from fair value basis adjustments on hedged bonds were almost entirely offset by net fair value unrealized gains from derivatives associated with the hedged bonds, thereby achieving the Bank’s hedging objectives of mitigating fair value basis risk.
Fair value losses were not significant because the hedged bonds were short- and medium-term on average, and their contractual coupons were not so different than the market interest rates at the balance sheet dates. For the same reason, the period-over-period net fair value basis losses of hedged bonds remained almost unchanged because the FHLBNY has continued to replace maturing and called short-term and medium-term hedged bonds with equivalent term bonds.

 

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

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The following summarizes discount notes issued and outstanding (dollars in thousands):
Table 24:7.8: Discount Notes Outstanding
                
 September 30, 2010 December 31, 2009  March 31, 2011 December 31, 2010 
  
Par value $17,791,522 $30,838,104  $19,509,575 $19,394,503 
          
  
Amortized cost $17,784,192 $30,827,639  $19,504,022 $19,388,317 
Fair value option valuation adjustments 3,716 —  3,137 3,135 
          
  
Total
 $17,787,908 $30,827,639  $19,507,159 $19,391,452 
          
  
Weighted average interest rate
  0.19%  0.15%  0.11%  0.16%
          
Discount notes remainremained a popular funding vehicle for the FHLBNY. The efficiency of issuing discount notes is an important element in its use to alter funding tactics relatively rapidly, as discount notes can be issued any time and in a variety of amounts and maturities in contrast to other short-term funding sources, such as the issuance of callable debt with an associated interest rate derivative with matching terms.
During the three quarters of 2010, the Bank has shifted its funding mix between bonds and discountDiscount notes reducing or increasing issuance— The following table summarizes hedges of discount notes depending(in thousands):
Table 7.9: Hedges of Discount Notes
         
  Consolidated Obligations Discount Notes 
Principal Amount March 31, 2011  December 31, 2010 
Discount notes hedged under qualifying hedge $150,000  $— 
       
Discount notes under FVO $728,755  $953,202 
       
In the first quarter of 2011, the Bank entered into an interest rate swap agreement with an unrelated swap dealer and designated it as a hedge of the variable quarterly interest payments on changes in pricing and spreadsa 9-year discount note borrowing program expected to be accomplished by a series of discount notes. In 2010, investor demand forissuances of $150.0 million discount notes has declined relative to 2009.with 91-day terms. The money-market sector, which had become a significant investor segment for FHLBankFHLBNY will continue issuing new 91-day discount notes during muchover the next 9 years as each outstanding discount note matures. The fair value recorded as part of the credit crisis, is now seeking short-term investments that offer a higher ratecarrying value of return. The prevailing low interest rate environment in 2010 has also adversely impactedthe hedged discount note spreadswas an unrealized gain of $1.9 million with an offset to LIBOR, and as a funding tool, discount notes are no longer as attractive as they had been in 2009. In large part, the FHLBNY has stopped the issuance of overnight discount notes, in part because of shortage of a ready source of a risk-free overnight asset to fund profitably, in part as a result of worsening pricing of overnight discount note, and in part because the FHLBNY has determined that term discount notes would better match its regulatory liquidity profile.AOCI.
Discount notes outstanding at September 30, 2010 declined to $17.8 billion when spreads narrowed adversely to levels observed in the 2010 first quarter. In the 2010 second quarter, spreads to LIBOR had widened making the funding more attractive, discount notes outstanding rose to $27.5 billion from $19.8 billion at March 31, 2010.
Economic hedges of discount notes- As of September 30, 2010 and December 31, 2009, no discount notes were hedged under the accounting standards for derivatives and hedging. The Bank generally hedgeshad also hedged discount notes in economic hedges under the FVO accounting rules to convert the fixed-rate exposure of the discount notes to a variable-rate exposure, generally indexed to LIBOR. At September 30, 2010, theThe discount notes outstanding as designated under the FVO was $1.8 billion in principal amounts and were economically hedged by interest rate swaps to mitigate fair value risk due to changes in their fair valuesvalues.
Rating Actions With Respect to the FHLBNY are outlined below:
On April 19, 2011 Standard & Poor’s Ratings Services today affirmed the ‘AAA’ rating of the notes. There were no discount notes designated underFHLBank but revised its outlooks on the FVO at December 31, 2010.
debt issues of the Federal Home Loan Bank System to negative from stable. Concurrently, S&P revised its outlook to negative from stable for the Federal Home Loan Banks in Atlanta, Boston, Cincinnati, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, San Francisco, and Topeka while affirming their ‘AAA’ issuer credit ratings. These rating actions reflect S&P’s revision on April 18, 2011 of the outlook on the long-term sovereign credit rating on the United States of America to negative from stable (AAA/Negative/A-1+).
Stockholders’ Capital and Mandatorily Redeemable Capital StockTable 7.10: FHLBNY Ratings
Capital Resources — Stockholders’ CapitalShort-Term Ratings:
The FHLBanks, including FHLBNY, have a unique cooperative structure. To access FHLBNY’s products and services, a financial institution must be approved for membership and purchase capital stock in FHLBNY. The member’s stock requirement is based on the amount of mortgage-related assets on the member’s balance sheet and its use of FHLBNY advances, as prescribed by the FHLBank Act, which reflects the value of having ready access to FHLBNY as a reliable source of low-cost funds. FHLBNY stock can be issued, exchanged, redeemed and repurchased only at its stated par value of $100 per share. The shares are not publicly traded. See Note 11 for more information about Capital and Capital ratios.
At September 30, 2010, total capital stock $100 par value, putable and issued and held by members was 46,636,000 shares compared to 50,590,000 shares at December 31, 2009. Members are required to purchase FHLBNY stock in proportion to the volume of advances borrowed. Decrease in capital stock is in line with the decrease in advances borrowed by members.
Stockholders’ Capital- Stockholders’ Capital comprised of capital stock, retained earnings and Accumulated other comprehensive income (loss) (“AOCI”) decreased by $336.3 million at September 30, 2010 from December 31, 2009 primarily because of decrease in capital stock. Retained earnings, after payment of dividends, grew by $12.3 million to $701.2 million at September 30, 2010. For more information about the Bank’s retained earnings policy, refer to the section Retained Earnings and Dividend in the Bank’s Form 10-K filed on March 25, 2010. The loss in AOCI declined by $46.7 million from December 31, 2009. The principal components of AOCI are summarized in Note 13 to the unaudited financial statements accompanying this report.
Moody’s Investors ServiceS & P
YearOutlookRatingShort-Term OutlookRating
2010June 17, 2010 – AffirmedP-1July 21, 2010Short-Term rating affirmedA-1+
2009June 19, 2009 – AffirmedP-1July 13, 2009Short-Term rating affirmedA-1+
February 2, 2009 – AffirmedP-1
2008October 29, 2008 – AffirmedP-1June 16, 2008Short-Term rating affirmedA-1+
April 17, 2008 – AffirmedP-1
Long-Term Ratings:
Moody’s Investors ServiceS & P
YearOutlookRatingLong-Term OutlookRating
2010June 17, 2010 – AffirmedAaa/StableJuly 21, 2010Long-Term rating affirmedoutlook stableAAA/Stable
2009June 19, 2009 – AffirmedAaa/StableJuly 13, 2009Long-Term rating affirmedoutlook stableAAA/Stable
February 2, 2009 – AffirmedAaa/Stable
2008October 29, 2008 – AffirmedAaa/StableJune 16, 2008Long-Term rating affirmedoutlook stableAAA/Stable
April 17, 2008 – AffirmedAaa/Stable

 

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Stockholders’ Capital, stockRetained Earnings, and AOCI-Capital stock, par value $100, was $4.7 billion at September 30, 2010, a decline
The following table summarizes the components of $395.4 million from December 31, 2009.Stockholders’ capital (in thousands):
Table 8.1: Stockholders’ Capital
         
  March 31, 2011  December 31, 2010 
Capital Stock $4,323,664  $4,528,962 
Retained Earnings  716,650   712,091 
Accumulated Other Comprehensive Income (Loss)  (97,287)  (96,684)
       
Total Capital $4,943,027  $5,144,369 
       
Stockholders’ Capital— The declinedecrease in capital stock was consistent with decreases in advances borrowed by members. Since members are required to purchase stock as a percentage of advances borrowed from the FHLBNY, a decline in advances will typically result in a decline in capital stock. In addition, under the Bank’sour present practice, stock in excess of the amount necessary to support advance activity is redeemed daily by the FHLBNY. Therefore, the amount of capital stock outstanding varies directly with members’ outstanding borrowings under the provisions requiring members to purchase stock to support borrowingsexisting regulations and its practice of redeeming excess capital stock.Bank practices.
Mandatorily RedeemableRetained earnings— Retained earnings grew marginally as the FHLBNY paid its member/stockholders a significant dividend payout. Net income in the 2011 first quarter was $71.0 million; dividends paid in the period were $66.4 million.
Restricted retained earnings— On February 28, 2011, the FHLBNY entered into a Joint Capital StockEnhancement Agreement (the Agreement) with the other eleven FHLBanks to allocate 20 percent of its Net income (after setting aside funds for the Affordable Housing Program) to restricted retained earnings. The Agreement essentially requires each FHLBank to allocate approximately the same amount from Net income as was historically paid to REFCORP. The FHLBanks’ REFCORP obligations are expected to be fully satisfied in 2011. Currently, an FHLBank is required to contribute 20 percent of its Net income towards payment of interest on REFCORP bonds (after setting aside AHP assessments). Under the Agreement, each FHLBank will continue to allocate from Net income to restricted retained earnings up to a minimum of one percent of consolidated obligations for which the FHLBank is the primary obligor.
The FHLBNY’s capital stock is redeemable atAgreement includes provisions that would (1) allow the optionuse of bothrestricted retained earnings if an FHLBank incurs a quarterly or annual net loss, (2) allow the member and the FHLBNY subject to certain conditions. Such capital is considered to be mandatorily redeemable and a liability under the accounting guidance for certain financial instruments with characteristicsrelease of both liabilities and equity. Dividends related to capital stock classified as mandatorily redeemable are accrued at an estimated dividend rate and reported as interest expenserestricted retained earnings in the Statementsevent of Income. Mandatorily redeemable capital stock at September 30, 2010a decline in amount of consolidated obligations with certain restrictions, and December 31, 2009 represented stock held primarily(3) disallow the payments of dividends from restricted retained earnings. The Agreement can be voluntarily terminated by former members who were no longer members by virtuean affirmative vote of being acquired by members of other FHLBanks. Under existing practice, such stock will be repurchased when the stock is no longer required to support outstanding transactions with the FHLBNY.
The FHLBNY reclassifies the stock subject to redemption from equity to liability once a member: irrevocably exercises a written redemption right; gives notice of intent to withdraw from membership; or attains non-member status by merger or acquisition, charter termination, or involuntary termination from membership.
One member was acquired by a non-member financial institution thus far in 2010. Reduction in mandatorily redeemable stock reflects the fact that the FHLBNY redeemed stock held by former members when advances to the former members matured or were prepaid. Under existing practice, capital stock held by non-members is repurchased at maturitytwo-thirds of the advances borrowed by former members. In accordance withBoards of Directors of the FHLBanks; or automatically, if a change in the Act, Finance Agency regulations, former members and non-members cannot renew their advance borrowings at maturity. Such capital is consideredor other applicable law creates an alternate form of taxation or mandatory level of retained earnings.
The Agreement further requires each FHLBank to be a liability and mandatorily redeemable and subjectsubmit an application to the Finance Agency for approval to amend its capital plan or capital plan submission, as applicable, consistent with the terms of the Agreement. Under the Agreement, if the FHLBanks’ REFCORP obligation terminates before the Finance Agency has approved all proposed capital plan amendments submitted pursuant to the Agreement, each FHLBank will nevertheless be required to commence the required allocation to its separate restricted retained earnings account beginning as of the end of the calendar quarter in which the final payments are made by the FHLBanks with respect to their REFCORP obligations. Depending on the earnings of the FHLBanks, the REFCORP obligations could be satisfied as of the end of the second quarter of 2011. As of the date of this report, the Bank is considering amending its capital plan to incorporate the terms of the Agreement, which, if approved by the Finance Agency, would result in conforming amendments to the Agreement, including, among other things, possible revisions to the termination provisions underand related provisions affecting restrictions on the accounting guidance for certain financial instruments with characteristics of both liabilities and equity.separate restricted retained earnings account.

90

The following table provides roll-forward information with respect to changes in mandatorily redeemable capital stock liabilitiessummarizes the components of AOCI (in thousands):
Table 25: Roll-Forward Mandatorily Redeemable Capital Stock
                 
  Three months ended September 30,  Nine months ended September 30, 
  2010  2009  2010  2009 
Beginning balance
 $69,569  $128,254  $126,294  $143,121 
Capital stock subject to mandatory redemption reclassified from equity  42   434   30,308   434 
Redemption of mandatorily redeemable capital stock1
  (2,263)  (806)  (89,254)  (15,673)
             
                 
Ending balance
 $67,348  $127,882  $67,348  $127,882 
             
                 
Accrued interest payable
 $794  $1,807  $794  $1,807 
             
  
1Redemption includes repayment of excess stock.
(The annualized accrual rates were 4.60% for September 30, 2010 and 5.60% for September 30, 2009.Table 8.2: Accumulated other comprehensive income (loss) (“AOCI”)
         
  Three months ended March 31, 
  2011  2010 
         
Accumulated other comprehensive income (loss)
        
Non-credit portion of OTTI on held-to-maturity securities, net of accretion $(89,271) $(106,612)
Net unrealized gains on available-for-sale securities  14,979   11,521 
Net unrealized losses on hedging activities  (11,468)  (20,551)
Employee supplemental retirement plans  (11,527)  (7,877)
       
Total Accumulated other comprehensive income (loss) $(97,287) $(123,519)
       
Losses in AOCI primarily represent non-credit portion of OTTI. No new non-credit OTTI losses on private-label securities were identified in the 2011 first quarter. At March 31, 2011, additional OTTI losses recorded on previously impaired securities did not result in additional non-credit OTTI because the market pricing of the credit impaired private-label securities were greater than the carrying values of the OTTI securities. The net decline in the non-credit component of OTTI was due to accretion recorded as a reduction in AOCI losses and a corresponding addition to the balance sheet carrying values of the OTTI securities.
Cash flow hedging losses recorded in AOCI will be reclassified in future years as an expense over the terms of the hedged bonds as a yield adjustment to the fixed coupons of the debt. The loss in AOCI will continue to decline unless additional losses from cash flow hedges are recognized in AOCI. Minimum additional actuarially determined pension liabilities were recognized for the Bank’s supplemental pension plans.

 

9891

Derivative Instruments and Hedging Activities
Interest rate swaps, swaptions, and cap and floor agreements (collectively, derivatives) enable the FHLBNY to manage its exposure to changes in interest rates by adjusting the effective maturity, repricing frequency, or option characteristics of financial instruments. The FHLBNY, to a limited extent, also uses interest rate swaps to hedge changes in interest rates prior to debt issuance and essentially lock in the FHLBNY’s funding cost.
Finance Agency regulations prohibit the speculative use of derivatives. The FHLBNY does not take speculative positions with derivatives or any other financial instruments, or trade derivatives for short-term profits. The FHLBNY does not have any special purpose entities or any other types of off-balance sheet conduits.
The notional amounts of derivatives are not recorded as assets or liabilities in the Statements of Condition, ratherCondition. Rather the fair values of all derivatives are recorded as either a derivative asset or a derivative liability. Although notional principal is a commonly used measure of volume in the derivatives market, it is not a meaningful measure of market or credit risk since the notional amount does not change hands (other than in the case of currency swaps, of which the FHLBNY has none).
All derivatives are recorded on the Statements of Condition at their estimated fair values and designated as either fair value or cash flow hedges for qualifying hedges, or as non-qualifying hedges (economic hedges or customer intermediations) under the accounting standards for derivatives and hedging. In an economic hedge, the Bank retains or executes derivative contracts, which are economically effective in reducing risk. Such derivatives are designated as economic hedges either because a qualifying hedge is not available, the difficulty to demonstrateof demonstrating that the hedge would be effective on an ongoing basis as a qualifying hedge, or the cost of a qualifying hedge is not economical. Changes in the fair value of a derivative are recorded in current period earnings for a fair value hedge, or in AOCI for the effective portion of fair value changes of a cash flow hedge.
Interest income and interest expense from interest rate swaps used for hedging are reported together with interest on the instrument being hedged if the swap qualifies for hedge accounting. If the swap is designated as an economic hedge, interest accruals are recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.
The FHLBNY uses derivatives in three ways: (1) as a fair value or cash flow hedge of an underlying financial instrument or as a cash flow hedge of a forecasted transaction; (2) as intermediation hedges to offset derivative positions (e.g., caps) sold to members; and (3) as an economic hedge, defined as a non-qualifying hedge of an asset or liability and used as an asset/liability management tool.
The FHLBNY uses derivatives to adjust the interest rate sensitivity of consolidated obligations to more closely approximate the sensitivity of assets or to adjust the interest rate sensitivity of advances to more closely approximate the sensitivity of liabilities. In addition, the FHLBNY uses derivatives to (1) offset embedded options in assets and liabilities; (2) hedge the market value of existing assets, liabilities and anticipated transactions; and (3) reduce funding costs. For additional information, see Note 16 –15 — Derivatives and hedging activities to the financial statements accompanying this report.Hedging Activities.

 

9992

The following table summarizestables provide information about the principal derivativesderivative hedging strategies:
Table 26:9.1: Derivative Hedging Strategies — Advances
                     
 September 30, 2010 December 31, 2009  March 31, 2011 December 31, 2010 
 Notional Amount Notional Amount  Notional Amount Notional Amount 
Derivatives/Terms Hedging Strategy Accounting Designation (in millions) (in millions)  Hedging Strategy Accounting Designation (in millions) (in millions) 
Pay fixed, receive floating interest rate swap To convert fixed rate on a fixed rate advance to a LIBOR floating rate Economic Hedge of Fair Value Risk   $115  $123 
Pay fixed, receive floating To convert fixed rate on a fixed rate Economic Hedge of Fair Value Risk $86 $128 
interest rate swap advance to a LIBOR floating rate   
Pay fixed, receive floating interest rate swap cancelable by FHLBNY To convert fixed rate on a fixed rate advance to a LIBOR floating rate callable advance Fair Value Hedge   $150  $—  To convert fixed rate on a fixed rate advance to a LIBOR floating rate callable advance Fair Value Hedge $305 $150 
Pay fixed, receive floating interest rate swap cancelable by counterparty To convert fixed rate on a fixed rate advance to a LIBOR floating rate putable advance Fair Value Hedge   $34,231  $40,252  To convert fixed rate on a fixed rate advance to a LIBOR floating rate putable advance Fair Value Hedge $26,877 $33,612 
Pay fixed, receive floating interest rate swap no longer cancelable by counterparty To convert fixed rate on a fixed rate advance to a LIBOR floating rate no-longer putable advance Fair Value Hedge   $4,064  $2,283  To convert fixed rate on a fixed rate advance to a LIBOR floating rate no-longer putable advance Fair Value Hedge $2,539 $2,839 
Pay fixed, receive floating interest rate swap non-cancelable To convert fixed rate on a fixed rate advance to a LIBOR floating rate non-putable advance Fair Value Hedge   $23,109  $23,367  To convert fixed rate on a fixed rate advance to a LIBOR floating rate non-putable advance Fair Value Hedge $27,051 $23,724 
Purchased interest rate cap  To offset the cap embedded in the variable rate advance Economic Hedge of Fair Value Risk $8  $390  To offset the cap embedded in the variable rate advance Economic Hedge of Fair Value Risk $8 $8 
 
Table 9.2: Derivative Hedging Strategies — Consolidated Obligation Liabilities
Table 9.2: Derivative Hedging Strategies — Consolidated Obligation Liabilities
 
 March 31, 2011 December 31, 2010 
 Notional Amount Notional Amount 
Derivatives/Terms Hedging Strategy Accounting Designation (in millions) (in millions) 
Receive fixed, pay floating interest rate swap To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate Economic Hedge of Fair Value Risk   $5,300  $13,113  To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate Economic Hedge of Fair Value Risk $430 $115 
Receive fixed, pay floating interest rate swap cancelable by counterparty To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate callable bond Fair Value Hedge   $4,970  $6,785  To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate callable bond Fair Value Hedge $8,285 $5,905 
Receive fixed, pay floating interest rate swap no longer cancelable To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate no-longer callable Fair Value Hedge   $440  $108  To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate no-longer callable Fair Value Hedge $15 $15 
Receive fixed, pay floating interest rate swap non-cancelable To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate non-callable Fair Value Hedge   $26,908  $25,982  To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate non-callable Fair Value Hedge $26,650 $27,596 
Receive fixed, pay floating interest rate swap (non-callable) To convert the fixed rate consolidated obligation discount note debt to a LIBOR floating rate non-callable Economic Hedge of Fair Value Risk   $87  $3,784 
Pay fixed, receive LIBOR interest rate swap To offset the variability of cash flows associated with interest payments on forecasted issuance of fixed rate consolidated obligation bond debt. Cash flow hedge $55 $— 
Pay fixed, receive LIBOR interest rate swap To offset the variability of cash flows associated with interest payments on forecasted issuance of fixed rate consolidated obligation discount note debt. Cash flow hedge $150 $— 
Basis swap  To convert non-LIBOR index to LIBOR to reduce interest rate sensitivity and repricing gaps Economic Hedge of Cash Flows   $8,128  $6,035  To convert non-LIBOR index to LIBOR to reduce interest rate sensitivity and repricing gaps Economic Hedge of Cash Flows $8,003 $6,878 
Basis swap  To convert 1M LIBOR index to 3M LIBOR to reduce interest rate sensitivity and repricing gaps Economic Hedge of Cash Flows   $1,450  $1,950  To convert 1M LIBOR index to 3M LIBOR to reduce interest rate sensitivity and repricing gaps Economic Hedge of Cash Flows $2,050 $2,050 
Receive fixed, pay floating interest rate swap cancelable by counterparty  Fixed rate callable bond converted to a LIBOR floating rate; matched to callable bond accounted for under fair value option Fair Value Option     $3,101  $5,690  Fixed rate callable bond converted to a LIBOR floating rate; matched to callable bond accounted for under fair value option Fair Value Option $6,700 $5,576 
Receive fixed, pay floating interest rate swap no longer cancelable Fixed rate callable bond converted to a LIBOR floating rate; matched to bond no -longer callable accounted for under fair value option. Fair Value Option $1,000 $1,000 
Receive fixed, pay floating interest rate swap non-cancelable  Fixed rate non-callable bond converted to a LIBOR floating rate; matched to non-callable bond accounted for under fair value option Fair Value Option     $7,650  $350  Fixed rate non-callable bond converted to a LIBOR floating rate; matched to non-callable bond accounted for under fair value option Fair Value Option $4,900 $7,700 
Receive fixed, pay floating interest rate swap non-cancelable  Fixed rate consolidated obligation discount note converted to a LIBOR floating rate; matched to discount note accounted for under fair value option Fair Value Option     $1,752  $—  Fixed rate consolidated obligation discount note converted to a LIBOR floating rate; matched to discount note accounted for under fair value option Fair Value Option $729 $953 
Pay fixed, receive floating interest rate swap Economic hedge on the Balance Sheet   Economic Hedge   $—  $1,050 
Receive fixed, pay floating interest rate swap Economic hedge on the Balance Sheet   Economic Hedge   $—  $1,050 
 
Table 9.3: Derivative Hedging Strategies — Balance Sheet and Intermediation
Table 9.3: Derivative Hedging Strategies — Balance Sheet and Intermediation
 
 March 31, 2011 December 31, 2010 
 Notional Amount Notional Amount 
Derivatives/Terms Hedging Strategy Accounting Designation (in millions) (in millions) 
Purchased interest rate cap Economic hedge on the Balance Sheet Economic Hedge $1,892  $1,892  Economic hedge on the Balance Sheet Economic Hedge $1,892 $1,892 
     
Intermediary positions interest rate swaps and caps  To offset interest rate swaps and caps executed with members by executing offsetting derivatives with counterparties Economic Hedge of Fair Value Risk     $550  $320  To offset interest rate swaps and caps executed with members by executing offsetting derivatives with counterparties Economic Hedge of Fair Value Risk $550 $550 
The accounting designation “economic” hedges represented derivative transactions under hedge strategies that do not qualify for hedge accounting but are an approved risk management hedge.

 

10093

Derivatives Financial Instruments by hedge designation
The following table summarizes the notional amounts and estimated fair values of derivative financial instruments (excluding accrued interest) by hedge designation. The table also provides a reconciliation of fair value basis gains and (losses) of derivatives to the Statements of Condition (in thousands):
Table 27: Derivatives Financial Instruments by Hedge Designation
                 
  September 30, 2010  December 31, 2009 
      Estimated      Estimated 
  Notional  Fair Value  Notional  Fair Value 
Interest rate swaps
                
Derivatives in fair value hedging relationships $93,872,212  $(4,556,517) $98,776,447  $(3,056,718)
Derivatives not designated as hedging instruments  15,079,729   117   27,104,963   31,723 
Derivatives matching designated under FVO  12,503,185   10,198   6,040,000   (2,632)
Interest rate caps/floors
                
Economic-fair value changes  1,900,000   23,593   2,282,000   71,494 
Mortgage delivery commitments (MPF)
                
Economic-fair value changes  20,675   4   4,210   (39)
Other
                
Intermediation  550,000   709   320,000   352 
             
Total
 $123,925,801  $(4,521,896) $134,527,620  $(2,955,820)
             
Total derivatives, excluding accrued interest     $(4,521,896)     $(2,955,820)
Cash collateral pledged to counterparties      3,844,058       2,237,028 
Cash collateral received from counterparties      (53,796)      — 
Accrued interest      (20,439)      (19,104)
               
Net derivative balance
     $(752,073)     $(737,896)
               
                 
Net derivative asset balance     $32,425      $8,280 
Net derivative liability balance      (784,498)      (746,176)
               
                 
Net derivative balance
     $(752,073)     $(737,896)
               
Derivative Financial Instruments by Product
The following table summarizes the notional amounts and estimated fair values of derivative financial instruments (excluding accrued interest) by product and type of accounting treatment. The table also provides a reconciliation of fair value basis gains and (losses) of derivatives to the Statements of Condition (in thousands):
Table 28: Derivative Financial Instruments by Product
                 
  September 30, 2010  December 31, 2009 
      Total estimated      Total estimated 
      fair value      fair value 
      (excluding      (excluding 
  Total notional  accrued  Total notional  accrued 
  amount  interest)  amount  interest) 
Derivatives designated as hedging instruments
                
Advances-fair value hedges $61,554,507  $(5,604,763) $65,901,667  $(3,622,141)
Consolidated obligations-fair value hedges  32,317,705   1,048,246   32,874,780   565,423 
Derivatives not designated as hedging instruments
                
Advances-economic hedges  122,659   (3,861)  513,089   (196)
Consolidated obligations-economic hedges  14,965,070   3,978   24,881,874   36,954 
MPF loan-commitments  20,675   4   4,210   (39)
Balance sheet  1,892,000   23,593   1,892,000   71,494 
Intermediary positions-economic hedges  550,000   709   320,000   352 
Balance sheet-macro hedges swaps  —   —   2,100,000   (5,035)
Derivatives matching COs designated under FVO
                
Interest rate swaps-consolidated obligations-bonds  10,751,000   7,750   6,040,000   (2,632)
Interest rate swaps-consolidated obligations-discount notes  1,752,185   2,448   —   — 
             
                 
Total notional and fair value
 $123,925,801  $(4,521,896) $134,527,620  $(2,955,820)
             
                 
Total derivatives, excluding accrued interest     $(4,521,896)     $(2,955,820)
Cash collateral pledged to counterparties      3,844,058       2,237,028 
Cash collateral received from counterparties      (53,796)      — 
Accrued interest      (20,439)      (19,104)
               
                 
Net derivative balance
     $(752,073)     $(737,896)
               
                 
Net derivative asset balance     $32,425      $8,280 
Net derivative liability balance      (784,498)      (746,176)
               
                 
Net derivative balance
     $(752,073)     $(737,896)
               
The categories of “Fair value” “Commitment”value,” “Commitment,” andCash “Cash flow” hedges represented derivative transactions accounted for as hedges. The category of “Economic” hedges represented derivative transactions under hedge strategies that did not qualify for hedge accounting treatment but were an approved risk management strategy.No cash flow hedges were outstanding at September 30, 2010 or December 31, 2009.

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Asset Quality The table also provides a reconciliation of fair value basis gains and Concentration– Advances, Investment Securities, Mortgage Loans, and Counterparty Risks
The FHLBNY incurs credit risk —(losses) of derivatives to the riskStatements of loss due to default — in its lending, investing, and hedging activities. It has instituted processes to help manage and mitigate this risk. Despite such processes, some amount of credit risk will always exist. External events, such as severe economic downturns, declining real estate values (both residential and non-residential), changes in monetary policy, adverse events in the capital markets, and other developments, could lead to member or counterparty default or impact the creditworthiness of investments. Such events would have a negative impact upon the FHLBNY’s income and financial performance.
The following table sets forth five-year history of the FHLBNY’s advances and mortgage loan portfoliosCondition (in thousands):
Table 29: Advances and Mortgage Loan Portfolios9.4: Derivative Financial Instruments by Product
                         
  September 30,  December 31, 
  2010  2009  2008  2007  2006  2005 
                         
Advances $85,697,171  $94,348,751  $109,152,876  $82,089,667  $59,012,394  $61,901,534 
                   
Mortgage loans before allowance for credit losses $1,273,224  $1,322,045  $1,459,291  $1,492,261  $1,484,012  $1,467,525 
                   
                 
  March 31, 2011  December 31, 2010 
      Total Estimated      Total Estimated 
      Fair Value      Fair Value 
      (Excluding      (Excluding 
  Total Notional  Accrued  Total Notional  Accrued 
  Amount  Interest)  Amount  Interest) 
Derivatives designated as hedging instruments1
                
Advances-fair value hedges $56,772,474  $(3,180,464) $60,324,983  $(4,269,037)
Consolidated obligations-fair value hedges  34,949,830   465,504   33,515,830   614,739 
Cash Flow-anticipated transactions  205,000   2,357   —   — 
Derivatives not designated as hedging instruments2
                
Advances hedges  93,775   (2,432)  136,345   (3,115)
Consolidated obligations hedges  10,483,000   1,999   9,043,000   1,675 
Mortgage delivery commitments  25,197   44   29,993   (514)
Balance sheet  1,892,000   38,196   1,892,000   41,785 
Intermediary positions hedges  550,000   614   550,000   659 
Derivatives matching COs designated under FVO3
                
Interest rate swaps-consolidated obligations-bonds  12,600,000   (3,099)  14,276,000   (505)
Interest rate swaps-consolidated obligations-discount notes  728,755   421   953,202   1,282 
             
                 
Total notional and fair value
 $118,300,031  $(2,676,860) $120,721,353  $(3,613,031)
             
                 
Total derivatives, excluding accrued interest     $(2,676,860)     $(3,613,031)
Cash collateral pledged to counterparties      1,944,065       2,739,402 
Cash collateral received from counterparties      (71,100)      (9,300)
Accrued interest      (10,851)      (49,959)
               
                 
Net derivative balance
     $(814,746)     $(932,888)
               
                 
Net derivative asset balance     $24,964      $22,010 
Net derivative liability balance      (839,710)      (954,898)
               
                 
Net derivative balance
     $(814,746)     $(932,888)
               
Advances
The FHLBNY closely monitors the creditworthiness of the institutions to which it lends. The FHLBNY also closely monitors the quality and value of the assets that are pledged as collateral by its members. The FHLBNY periodically assesses the mortgage underwriting and documentation standards of its borrowing members. In addition, the FHLBNY has collateral policies and restricted lending procedures in place to manage its exposure to those members experiencing difficulty in meeting their capital requirements or other standards of creditworthiness.
The FHLBNY has not experienced any losses on advances extended to any member since its inception. The FHLBank Act affords any security interest granted to the FHLBNY by a member, or any affiliate of such member, priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party) having the rights of a lien creditor. However, the FHLBNY’s security interest is not entitled to priority over claims and rights that (1) would be entitled to priority under applicable law, or (2) are held by a bona fide purchaser for value or by parties that are secured by actual perfected security interests.
The FHLBNY’s members are required to pledge collateral to secure advances. Eligible collateral includes: (1) one-to-four-family and multi-family mortgages; (2) U.S. Treasury and government-agency securities; (3) mortgage-backed securities; and (4) certain other collateral which is real estate-related and has a readily ascertainable value, and in which the FHLBNY can perfect a security interest. The FHLBNY has the right to take such steps, as it deems necessary, to protect its secured position on outstanding advances, including requiring additional collateral (whether or not such additional collateral would otherwise be eligible to secure a loan). The FHLBNY also has a statutory lien under the FHLBank Act on the capital stock of its members, which serves as further collateral for members’ indebtedness to the FHLBNY.
The FHLBNY has established asset classification and reserve policies. All adversely classified assets of the FHLBNY will have a reserve established for probable losses. Based upon the collateral held as security and prior repayment histories, no allowance for losses on advances is currently deemed necessary by management.
The FHLBNY uses methodologies to identify and measure credit risk from creditworthiness risk arising from members, counterparties, and other entities; collateral risk arising from type, quality, and lien status; and concentration risk arising from borrower, portfolio, geographic area, industry, or product type.
Creditworthiness Risk — Advances
The FHLBNY’s potential exposure to creditworthiness risk arises from the deterioration of the financial health of FHLBNY members. The FHLBNY manages its exposure to the creditworthiness of members by monitoring their collateral and advance levels daily and by analyzing their financial health each quarter.
Collateral Risk — Advances
The FHLBNY is exposed to collateral risk if it is unable to perfect its interest in pledged collateral, or when the liquidation value of pledged collateral does not fully cover the FHLBNY’s exposure. The FHLBNY manages this risk by pricing collateral on a weekly basis, performing on-site reviews of pledged mortgage collateral from time to time, and reviewing pledged portfolio concentrations on a quarterly basis. The FHLBNY requires that members pledge a specific amount of excess collateral above the par amount of their outstanding obligations. Members provide the FHLBNY with reports of pledged collateral and the FHLBNY evaluates the eligibility and value of the pledged collateral.
The FHLBNY’s loan and collateral agreements give the FHLBNY a security interest in assets held by borrowers that is sufficient to cover their obligations to the FHLBNY. The FHLBNY may supplement this security interest by imposing additional reporting, segregation or delivery requirements on the borrower. The FHLBNY assigns specific collateral requirements to a borrower, based on a number of factors. These include, but are not limited to: (1) the borrower’s overall financial condition; (2) the degree of complexity involved in the pledging, verifying, and reporting of collateral between the borrower and the FHLBNY, especially when third-party pledges, custodians, outside service providers and pledges to other entities are involved; and (3) the type of collateral pledged. The FHLBNY has also established collateral maintenance levels for borrower collateral that are intended to help ensure that the FHLBNY has sufficient collateral to cover credit extensions and reasonable expenses arising from potential collateral liquidation and other unknown factors. Collateral maintenance levels are designated by collateral type and are periodically adjusted to reflect current market and business conditions. Maintenance levels for individual borrowers may also be adjusted, based on the overall financial condition of the borrower or another, third-party entity involved in the collateral relationship with the FHLBNY. Borrowers are required to maintain an amount of eligible collateral with a liquidation value at least equal to the borrower’s current collateral maintenance level. All borrowers that pledge mortgage loans as collateral are also required to provide, on a monthly or quarterly basis, a detailed listing of mortgage loans pledged. The FHLBNY uses this detailed reporting to monitor and track payment performance of the collateral and to assess the risk profile of the pledged collateral based on mortgage characteristics, geographic concentrations and other pertinent risk factors.

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Drawing on current industry standards, the FHLBNY establishes collateral valuation methodologies for each collateral type and calculates the estimated liquidation value of the pledged collateral to determine whether a borrower has satisfied its collateral maintenance requirement. The FHLBNY evaluates liquidation values on a weekly basis.
The FHLBNY makes on-site reviews of borrowers in connection with the evaluation of the borrowers’ pledged mortgage collateral. This review involves a qualitative assessment of risk factors that includes an examination of legal documentation, credit underwriting, and loan-servicing practices on mortgage collateral. The FHLBNY has developed the on-site review process to more accurately value each borrower’s pledged mortgage portfolio based on current secondary-market standards. The results of the review may lead to adjustments in the estimated liquidation value of pledged collateral. The FHLBNY may also make additional market value adjustments to a borrower’s pledged mortgage collateral based on the quality and accuracy of the automated data provided to the FHLBNY. See Tables 30-32 for more information.
Credit Risk and Concentration Risk — Advances
While the FHLBNY has never experienced a credit loss on an advance, the expanded eligible collateral for Community Financial Institutions and non-member housing associates permitted, but not required, by the Finance Agency provides the potential for additional credit risk for the FHLBNY. It is the FHLBNY’s current policy not to accept “expanded” eligible collateral from Community Financial Institutions. The management of the FHLBNY has the policies and procedures in place to appropriately manage credit risk associated with the advance business. In extending credit to a member, the FHLBNY adheres to specific credit policy limits approved by its Board of Directors. The FHLBNY has not established limits for the concentrations of specific types of advances, but management reports the activity in advances to the Board each month. Each quarter, management reports the concentrations of putable advances made to individual members. There were no past due advances and all advances were current at any periods in this report. Management does not anticipate any credit losses, and accordingly, the FHLBNY has not provided an allowance for credit losses on advances. The FHLBNY’s potential credit risk from advances is concentrated in commercial banks, savings institutions and insurance companies. At September 30, 2010, the top ten member institutions had borrowed advances aggregating $57.3 billion or 71.4% of total advances outstanding (par). The comparable amount at December 31, 2009 was $59.5 billion, or 65.6% of total advance outstanding. Sufficient collateral was held to cover the advances to these institutions. See Table 33 below for more information.
Collateral Coverage of Advances
The FHLBNY lends to financial institutions involved in housing finance within its district. In addition, the FHLBNY is permitted, but not required, to accept collateral in the form of small business or agricultural loans (“expanded collateral”) from Community Financial Institutions (“CFIs”). Borrowing members pledge their capital stock of the FHLBNY as additional collateral for advances. All member obligations with the FHLBNY must be fully collateralized throughout their entire term.
As of September 30, 2010 and December 31, 2009, the FHLBNY had rights to collateral with an estimated value greater than outstanding advances. Based upon the financial condition of the member, the FHLBNY:
Allows a member to retain possession of the collateral assigned to the FHLBNY, if the member executes a written security agreement and agrees to hold such collateral for the benefit of the FHLBNY; or
Requires the member specifically to assign or place physical possession of such collateral with the FHLBNY or its safekeeping agent.
The following table summarizes pledged collateral in support of advances (in thousands):
Table 30: Collateral Supporting Advances to Members
                 
      Underlying Collateral for Advances 
      Mortgage  Securities and    
  Advances1  Loans2  Deposits2  Total2 
September 30, 2010
 $80,102,811  $102,314,450  $44,596,206  $146,910,656 
                 
December 31, 2009
 $90,737,700  $111,346,235  $49,564,456  $160,910,691 
Note1Par value
Note2Estimated market value

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The level of over-collateralization is on an aggregate basis and may not necessarily be indicative of a similar level of over-collateralization on an individual transaction basis. At a minimum, each member pledged sufficient collateral to adequately secure the member’s outstanding obligation with the FHLBNY. In addition, most members maintain an excess amount of pledged collateral with the FHLBNY to secure future liquidity needs.
The following table summarizes pledged collateral in support of other member obligations (other than advances) (in thousands):
Table 31: Collateral Supporting Member Obligations Other Than Advances
                 
      Underlying Collateral for Other Obligations 
  Other      Securities and    
  Obligations1  Mortgage Loans2  Deposits2  Total 2 
September 30, 2010
 $1,899,440  $4,686,068  $323,262  $5,009,330 
  
December 31, 2009
 $720,622  $2,257,204  $126,970  $2,384,174 
Note1Standby financial letters of credit, derivatives and members’ credit enhancement guarantee amount. (“MPFCE”)
Note2Estimated market value
The outstanding member obligations consisted principally of standby letters of credit, and a small amount of collateralized value of outstanding derivatives, and members’ credit enhancement guarantee amount (“MPFCE”) on loans sold to the FHLBNY through the Mortgage Partnership Finance program. The FHLBNY’s underwriting and collateral requirements for securing Letters of Credit are the same as its requirements for securing advances.
The following table shows the breakdown of collateral pledged by members between those that were specifically listed and those in the physical possession or that of its safekeeping agent (in thousands):
Table 32: Location of Collateral Held
                 
  Estimated Market Values 
  Collateral in  Collateral  Collateral  Total 
  Physical  Specifically  Pledged for  Collateral 
  Possession  Listed  AHP  Received 
September 30, 2010
 $51,752,820  $100,449,622  $(282,455) $151,919,987 
                 
December 31, 2009
 $57,660,864  $105,714,763  $(80,762) $163,294,865 
The total of collateral pledged to the FHLBNY includes excess collateral pledged above the FHLBNY’s maximum Lendable value. These Lendable value requirements range from 60% to 97% of the collateral pledged, based on the collateral type. It is common for members to maintain excess collateral positions with the FHLBNY for future liquidity needs. Based on several factors (e.g. advance type, collateral type or member financial condition) members are required to comply with specified collateral requirements, including but not limited to, a detailed listing of pledged mortgage collateral and/or delivery of pledged collateral to FHLBNY or its designated collateral custodian(s). For example, all pledged securities collateral must be delivered to the FHLBNY’s nominee name at Citibank, N.A., the FHLBNY’s securities safekeeping custodian. Mortgage collateral that is required to be in the FHLBNY’s possession is typically delivered to the FHLBNY’s Jersey City, N.J. facility. However, in certain instances, delivery to an FHLBNY approved custodian may be allowed.

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Table 33: Concentration analysis — Top Ten Advance Holders
The following tables provide summary data for the top ten advance holders (dollars in thousands):
                     
  September 30, 2010 
          Percentage of    
      Par  Total Par Value  Interest Income 
  City State Advances  of Advances  Three months  Nine months 
Hudson City Savings Bank, FSB* Paramus NJ $17,175,000   21.4% $178,029  $529,488 
Metropolitan Life Insurance Company New York NY  13,230,000   16.5   75,674   222,705 
New York Community Bank* Westbury NY  7,593,167   9.5   77,416   230,083 
MetLife Bank, N.A. Bridgewater NJ  4,969,500   6.2   16,368   40,514 
Manufacturers and Traders Trust Company Buffalo NY  3,709,163   4.6   11,607   34,369 
Astoria Federal Savings and Loan Assn. Lake Success NY  2,735,000   3.4   27,463   83,763 
The Prudential Insurance Co. of America Newark NJ  2,500,000   3.1   17,971   60,244 
Valley National Bank Wayne NJ  2,361,500   2.9   24,677   73,885 
Doral Bank San Juan PR  1,531,420   1.9   16,471   53,041 
New York Life Insurance Company New York NY  1,500,000   1.9   4,274   11,166 
                 
Total
     $57,304,750   71.4% $449,950  $1,339,258 
                 
*Officer of member bank also served on the Board of Directors of the FHLBNY.
                 
  December 31, 2009 
          Percentage of    
      Par  Total Par Value  12-months 
  City State Advances  of Advances  Interest Income 
Hudson City Savings Bank, FSB* Paramus NJ $17,275,000   19.0% $710,900 
Metropolitan Life Insurance Company New York NY  13,680,000   15.1   356,120 
New York Community Bank* Westbury NY  7,343,174   8.1   310,991 
Manufacturers and Traders Trust Company Buffalo NY  5,005,641   5.5   97,628 
The Prudential Insurance Co. of America Newark NJ  3,500,000   3.9   93,601 
Astoria Federal Savings and Loan Assn. Lake Success NY  3,000,000   3.3   120,870 
Emigrant Bank New York NY  2,475,000   2.7   64,131 
Doral Bank San Juan PR  2,473,420   2.7   86,389 
MetLife Bank, N.A. Bridgewater NJ  2,430,500   2.7   46,142 
Valley National Bank Wayne NJ  2,322,500   2.6   103,707 
              
Total
     $59,505,235   65.6% $1,990,479 
              
*At December 31, 2009, officer of member bank also served on the Board of Directors of the FHLBNY.
                     
  September 30, 2009 
          Percentage of    
      Par  Total Par Value  Interest Income 
  City State Advances  of Advances  Three months  Nine months 
Hudson City Savings Bank, FSB* Paramus NJ $17,325,000   18.9% $178,896  $532,100 
Metropolitan Life Insurance Company New York NY  14,280,000   15.6   84,277   279,360 
New York Community Bank* Westbury NY  8,148,476   8.9   78,413   233,129 
Manufacturers and Traders Trust Company Buffalo NY  5,493,756   6.0   19,133   83,856 
The Prudential Insurance Co. of America Newark NJ  3,500,000   3.8   22,448   71,473 
Astoria Federal Savings and Loan Assn. Lake Success NY  2,960,000   3.2   29,824   91,226 
Emigrant Bank New York NY  2,475,000   2.7   16,127   48,004 
Doral Bank San Juan PR  2,473,420   2.7   21,513   65,825 
MetLife Bank, N.A. Bridgewater NJ  2,382,000   2.6   12,854   34,658 
Valley National Bank Wayne NJ  2,338,500   2.6   25,608   78,322 
                 
Total
     $61,376,152   67.0% $489,093  $1,517,953 
                 
*At September 30, 2009, officer of member bank also served on the Board of Directors of the FHLBNY.
Investment quality
The FHLBNY’s investments are summarized below (dollars in thousands):
Table 34: Period-Over-Period Change in Investments
                 
  September 30,  December 31,  Dollar  Percentage 
  2010  2009  Variance  Variance 
                 
State and local housing finance agency obligations1
 $740,256  $751,751  $(11,495)  (1.53)%
Mortgage-backed securities                
Available-for-sale securities, at fair value  3,360,959   2,240,564   1,120,395   50.01 
Held-to-maturity securities, at carrying value  7,480,990   9,767,531   (2,286,541)  (23.41)
             
Total securities  11,582,205   12,759,846   (1,177,641)  (9.23)
                 
Grantor trusts2
  12,822   12,589   233   1.85 
Federal funds sold  4,095,000   3,450,000   645,000   18.70 
             
                 
Total investments $15,690,027  $16,222,435  $(532,408)  (3.28)%
             
1Classified as held-to-maturity securities, at carrying value.
2Classified as available-for-sale securities, at fair value and represents investments in registered mutual funds and other fixed-income securities maintained under the grantor trusts.
Long-term investments were principally comprised of (1) Mortgage-backed securities classified as held-to-maturity at a carrying value of $7.5 billion, of which 88.2% comprised of securities issued by government sponsored enterprises and a U.S. government agency, (2) Mortgage-backed securities classified as available-for-sale securities at recorded fair values of $3.4 billion, 100 percent of which was comprised of GSE issued mortgage-backed securities. In addition, the FHLBNY had investments of $740.3 million in primary public and private placements of taxable obligations of state and local housing finance authorities classified as held-to-maturity. Short-term investments consisted of Federal funds sold.

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Investment rating
External ratings and the changes in a security’s external rating are factors in the FHLBNY’s assessment of impairment; a rating or a rating change alone is not necessarily indicative of impairment or absence of impairment.
The following tables contain information about credit ratings of the Bank’s investments in Held-to-maturity and Available-for-sale securities (in thousands). Also see, Table 20 rating information:
Table 35: NRSRO Held-to-Maturity Securities
External ratings — Held-to-maturity securities — September 30, 2010:
                         
                        
                      Below 
  Carrying  NRSRO Ratings - September 30, 2010  Investment 
Issued, guaranteed or insured: Value  AAA  AA  A  BBB  Grade 
Pools of Mortgages
                        
Fannie Mae $939,288  $939,288  $—  $—  $—  $— 
Freddie Mac  269,515   269,515   —   —   —   — 
                   
Total pools of mortgages  1,208,803   1,208,803   —   —   —   — 
                   
Collateralized Mortgage Obligations/Real
                        
Estate Mortgage Investment Conduits
                        
Fannie Mae  1,854,692   1,854,692   —   —   —   — 
Freddie Mac  3,184,866   3,184,866   —   —   —   — 
Ginnie Mae  127,168   127,168   —   —   —   — 
                   
Total CMOs/REMICs  5,166,726   5,166,726   —   —   —   — 
                   
Commercial Mortgage-Backed Securities
                        
Freddie Mac  173,969   173,969   —   —   —   — 
Ginnie Mae  48,954   48,954   —   —   —   — 
                   
Total commercial mortgage-backed securities  222,923   222,923   —   —   —   — 
                   
Non-GSE MBS
                        
CMOs/REMICs  336,980   218,579   9,688   20,989   —   87,724 
Asset-Backed Securities
                        
Manufactured housing loans (insured)  182,711   —   182,711   —   —   — 
Home equity loans (insured)  196,641   9,710   70,835   23,226   14,037   78,833 
Home equity loans (uninsured)  166,206   150,323   11,791   —   4,092   — 
                   
Total asset-backed securities  545,558   160,033   265,337   23,226   18,129   78,833 
                   
Total HTM mortgage-backed securities $7,480,990  $6,977,064  $275,025  $44,215  $18,129  $166,557 
                   
                         
Other
                        
State and local housing finance agency obligations $740,256  $71,597  $592,594  $19,845  $56,220  $— 
                   
Total other $740,256  $71,597  $592,594  $19,845  $56,220  $— 
                   
Total Held-to-maturity securities
 $8,221,246  $7,048,661  $867,619  $64,060  $74,349  $166,557 
                   
Table 36: NRSRO Available-for-Sale Securities
External ratings — Available-for-sale securities — September 30, 2010:
                 
      NRSRO Ratings - September 30, 2010 
Issued, guaranteed or insured: Fair Value  AAA  AA  A 
Pools of Mortgages
                
Fannie Mae $—  $—  $—  $— 
Freddie Mac  —   —   —   — 
             
Total pools of mortgages  —   —   —   — 
             
Collateralized Mortgage Obligations/Real
                
Estate Mortgage Investment Conduits
                
Fannie Mae  2,275,326   2,275,326   —   — 
Freddie Mac  1,085,633   1,085,633   —   — 
Ginnie Mae  —   —   —   — 
             
Total CMOs/REMICs  3,360,959   3,360,959   —   — 
             
Non-GSE MBS
                
CMOs/REMICs  —   —   —   — 
Commercial mortgage-backed securities  —   —   —   — 
             
Total non-federal-agency MBS  —   —   —   — 
             
Asset-Backed Securities
                
Manufactured housing loans (insured)  —   —   —   — 
Home equity loans (insured)  —   —   —   — 
Home equity loans (uninsured)  —   —   —   — 
             
Total asset-backed securities  —   —   —   — 
             
Total AFS mortgage-backed securities $3,360,959  $3,360,959  $—  $— 
             
                 
Other
                
Fixed income funds, equity funds and cash equivalents*
 $12,822             
                
Total Available-for-sale securities
 $3,373,781             
                
*Unrated

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Fannie Mae and Freddie Mac Securities
The FHLBNY’s mortgage-backed securities were predominantly issued by Fannie Mae and Freddie Mac.
The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are in conservatorship, with the Finance Agency named as conservator, who will manage Fannie Mae and Freddie Mac in an attempt to stabilize their financial conditions and their ability to support the secondary mortgage market.
Available-for-sale securities –100 percent of MBS outstanding and classified as AFS were issued by Fannie Mae and Freddie Mac.
Held-to-maturity securities –Comprised of 88.2% and 89.1% of MBS also issued by Fannie Mae, Freddie Mac and a U.S. government agency at September 30, 2010 and December 31, 2009.
The following table summarizes the carrying value basis of held-to-maturity mortgage-backed securities by issuer (dollars in thousands):
Table 37: Carrying Value Basis of Held-to-Maturity Mortgage-Backed Securities by Issuer
                 
  September 30,  Percentage  December 31,  Percentage 
  2010  of total  2009  of total 
                 
U.S. government sponsored enterprise residential mortgage-backed securities                
Fannie Mae $2,793,981   37.35% $3,746,768   38.36%
Freddie Mac  3,454,380   46.17   4,735,371   48.48 
U.S. agency residential mortgage-backed securities  127,168   1.70   171,531   1.76 
U.S. government sponsored enterprise commercial mortgage-backed securities  173,969   2.33   —   — 
U.S. agency commercial mortgage-backed securities  48,953   0.65   49,526   0.51 
Private-label issued securities  882,539   11.80   1,064,335   10.89 
             
Total Held-to-maturity securities-mortgage-backed securities $7,480,990   100.00% $9,767,531   100.00%
             
Non-Agency Private label mortgage — and asset-backed securities
The Bank also held MBS that were privately issued, and were classified as held-to-maturity. The following table summarizes private-label mortgage- and asset-backed securities by fixed- or variable-rate coupon types (Unpaid principal balance; in thousands):
Table 38: Non-Agency Private Label Mortgage Securities
                         
  September 30, 2010  December 31, 2009 
Private-label MBS Fixed Rate  Variable Rate  Total  Fixed Rate  Variable Rate  Total 
Private-label RMBS                        
Prime $328,579  $4,068  $332,647  $435,913  $4,359  $440,272 
Alt-A  6,123   3,338   9,461   7,229   3,713   10,942 
                   
Total PL RMBS  334,702   7,406   342,108   443,142   8,072   451,214 
                   
Home Equity Loans                        
Subprime  399,922   85,256   485,178   437,042   108,801   545,843 
                   
Total Home Equity Loans  399,922   85,256   485,178   437,042   108,801   545,843 
                   
Manufactured Housing Loans                        
Subprime  182,731   —   182,731   202,299   —   202,299 
                   
Total Manufactured Housing Loans  182,731   —   182,731   202,299   —   202,299 
                   
Total UPB of private-label MBS $917,355  $92,662  $1,010,017  $1,082,483  $116,873  $1,199,356 
                   
Unpaid principal balance (UPB) is also known as the current face or par amount of a mortgage-backed security.
Other-Than-Temporarily Impaired Securities
OTTI at 2010 third quarter —To assess whether the entire amortized cost basis of the Bank’s private-label MBS will be recovered, the Bank performed cash flow analysis on 100 percent of the its private-label MBS outstanding at September 30, 2010. Cash flow assessments identified credit impairment on four HTM private-label mortgage-backed securities, and $3.1 million as other-than-temporary impairment (“OTTI”) was recorded as a charge to earnings. All four securities had been previously determined to be OTTI, and the additional impairment (or re-impairment) in the 2010 third quarter was due to further deterioration in the credit performance metrics of the securities. The non-credit portion of OTTI recorded in AOCI was not significant. Year-to-date credit OTTI was $7.7 million.

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The tables below provide the key characteristics of the securities1that were deemed OTTI in the 2010 (dollars in thousands):
Table 39: OTTI in 2010
                                 
                  Quarter Ended  Nine Months Ended 
  Quarter ended September 30, 2010  September 30, 2010  September 30, 2010 
  Insurer MBIA  Insurer Ambac  OTTI  OTTI 
Security     Fair      Fair  Credit  Non-credit2  Credit  Non-credit2 
Classification UPB  Value  UPB  Value  Loss  Loss  Loss  Loss 
                                 
HEL Subprime*
 $31,876  $15,050  $16,341  $8,233  $(3,067) $(2,569) $(7,737) $(3,164)
                         
Total
 $31,876  $15,050  $16,341  $8,233  $(3,067) $(2,569) $(7,737) $(3,164)
                         
*HEL Subprime — MBS supported by home equity loans.
                         
  Quarter ended June 30, 2010 
  Insurer MBIA  Insurer Ambac  OTTI 
Security     Fair      Fair  Credit  Non-credit2 
Classification UPB  Value  UPB  Value  Loss  Loss 
                         
HEL Subprime*
 $20,976  $9,044  $37,456  $22,564  $(1,270) $(1,068)
                   
Total
 $20,976  $9,044  $37,456  $22,564  $(1,270) $(1,068)
                   
*HEL Subprime — MBS supported by home equity loans.
                         
  Quarter ended March 31, 2010 
  Insurer MBIA  Insurer Ambac  OTTI 
Security     Fair      Fair  Credit  Non-credit2 
Classification UPB  Value  UPB  Value  Loss  Loss 
                         
HEL Subprime*
 $21,637  $9,730  $45,476  $26,015  $(3,400) $473 
                   
Total
 $21,637  $9,730  $45,476  $26,015  $(3,400) $473 
                   
*HEL Subprime — MBS supported by home equity loans.
1 At September 30, 2010, the total carrying value of the securities prior to OTTI was $22.7 million. The carrying values and fair values of OTTI securities in a loss position prior to OTTI were $8.6 million and $8.1 million also at September 30, 2010.Qualifying under hedge accounting rules.
 
2 Represents net amount of impairment losses reclassified (from) to AOCI to earningsNot qualifying under hedge accounting rules but used as a result of additional credit losses on securities that had been previously determined to be OTTI.an economic hedge (“standalone”).
All four credit impaired securities at September 30, 2010 are insured by bond insurers Ambac and MBIA. The Bank’s analysis of Ambac concluded that the bond insurer could not be relied upon to make whole credit losses. Analysis of MBIA concluded that insurance support could be relied upon for shortfalls up until June 30, 2011, beyond which date, MBIA’s financial resources would be such that insurance protection could not be relied upon.
The following table summarizes the key characteristics of securities insured by MBIA, Ambac, and Assured Guaranty Municipal Trust (formerly FSA) (in thousands):
Table 40: Monoline Insurance of PLMBS
                         
  September 30, 2010 
  AMBAC  MBIA  AGM * 
      Unrealized      Unrealized      Unrealized 
Private-label MBS UPB  Losses  UPB  Losses  UPB  Losses 
HEL
                        
Subprime
                        
2004 and earlier $179,287  $(31,202) $34,450  $(8,414) $77,981  $(2,577)
Manufactured Housing Loans
                        
Subprime
                        
2004 and earlier  —   —   —   —   182,731   (22,141)
                   
Total of all Private-label MBS
 $179,287  $(31,202) $34,450  $(8,414) $260,712  $(24,718)
                   
*Assured Guaranty Municipal Trust (formerly FSA)

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The following tables present additional information of the fair values and gross unrealized losses of PLMBS by year of securitization and external rating (in thousands):
Table 41: PLMBS by Year of Securitization and External Rating
                                         
  September 30, 2010               
  Unpaid Principal Balance               
                      Below      Gross        
  Ratings                  Investment  Amortized  Unrealized      Total OTTI 
Private-label MBS Subtotal  Triple-A  Double-A  Single-A  Triple-B  Grade  Cost  (Losses)  Fair Value  Losses 
RMBS
                                        
Prime
                                        
2006 $46,480  $—  $—  $—  $—  $46,480  $46,029  $(407) $45,710  $— 
2005  66,409   —   —   21,223   —   45,186   64,699   (716)  64,575   — 
2004 and earlier  219,758   209,866   9,892   —   —   —   218,805   (443)  223,795   — 
                               
Total RMBS Prime  332,647   209,866   9,892   21,223   —   91,666   329,533   (1,566)  334,080   — 
                               
Alt-A
                                        
2004 and earlier  9,461   9,461   —   —   —   —   9,462   (768)  8,746   — 
                               
Total RMBS  342,108   219,327   9,892   21,223   —   91,666   338,995   (2,334)  342,826   — 
                               
HEL
                                        
Subprime
                                        
2004 and earlier  485,178   180,811   89,111   42,759   28,932   143,565   456,876   (76,438)  381,214   (4,573)
                               
Manufactured
                                        
Housing Loans
                                        
Subprime
                                        
2004 and earlier  182,731   —   182,731   —   —   —   182,712   (22,141)  160,571   — 
                               
Total PLMBS
 $1,010,017  $400,138  $281,734  $63,982  $28,932  $235,231  $978,583  $(100,913) $884,611  $(4,573)
                               
                                         
  December 31, 2009               
  Unpaid Principal Balance               
                      Below      Gross        
  Ratings                  Investment      Unrealized      Total OTTI 
Private-label MBS Subtotal  Triple-A  Double-A  Single-A  Triple-B  Grade  Amortized Cost  (Losses)  Fair Value  Losses 
RMBS
                                        
Prime
                                        
2006 $63,276  $—  $—  $38,689  $—  $24,587  $62,654  $(2,396) $60,258  $— 
2005  82,982   28,687   —   —   —   54,295   80,996   (1,708)  79,288   (3,204)
2004 and earlier  294,014   281,240   12,774   —   —   —   292,773   (3,696)  289,958   — 
                               
Total RMBS Prime  440,272   309,927   12,774   38,689   —   78,882   436,423   (7,800)  429,504   (3,204)
                               
Alt-A
                                        
2004 and earlier  10,942   10,942   —   —   —   —   10,944   (938)  10,006   — 
                               
Total RMBS  451,214   320,869   12,774   38,689   —   78,882   447,367   (8,738)  439,510   (3,204)
                               
HEL
                                        
Subprime
                                        
2004 and earlier  545,843   205,480   91,782   48,838   43,035   156,708   525,260   (151,818)  373,442   (137,708)
                               
Manufactured
                                        
Housing Loans
                                        
Subprime
                                        
2004 and earlier  202,299   —   202,299   —   —   —   202,278   (37,101)  165,177   — 
                               
Total PLMBS
 $1,199,356  $526,349  $306,855  $87,527  $43,035  $235,590  $1,174,905  $(197,657) $978,129  $(140,912)
                               

109

Weighted-average market price offers an analysis of unrealized loss percentage; a comparison of the weighted-average credit support to weighted-average collateral delinquency percentage is another indicator of the credit support available to absorb potential cash flow shortfalls.
Table 42: Weighted-Average Market Price of MBS
             
  September 30, 2010 
  Original       
  Weighted-  Weighted-  Weighted-Average 
  Average Credit  Average Credit  Collateral 
Private-label MBS Support %  Support %  Delinquency % 
RMBS
            
Prime
            
2006  3.73%  5.29%  6.30%
2005  2.59   4.13   2.56 
2004 and earlier  1.58   3.21   0.65 
          
Total RMBS Prime  2.08   3.69   1.82 
Alt-A
            
2004 and earlier  10.97   33.36   10.89 
          
Total RMBS  2.32   4.51   2.07 
          
HEL
            
Subprime
            
2004 and earlier  57.14   64.72   17.24 
          
Manufactured Housing Loans
            
Subprime
            
2004 and earlier  100.00   100.00   3.14 
          
Total Private-label MBS
  46.33%  50.71%  9.55%
          
             
  December 31, 2009 
  Original       
  Weighted-  Weighted-  Weighted-Average 
  Average Credit  Average Credit  Collateral 
Private-label MBS Support %  Support %  Delinquency % 
RMBS
            
Prime
            
2006  3.74%  5.16%  5.47%
2005  2.67   3.82   2.32 
2004 and earlier  1.58   2.82   0.79 
          
Total RMBS Prime  2.10   3.35   1.75 
Alt-A
            
2004 and earlier  10.73   32.35   11.22 
          
Total RMBS  2.30   4.05   1.98 
          
HEL
            
Subprime
            
2004 and earlier  57.86   65.34   17.40 
          
Manufactured Housing Loans
            
Subprime
            
2004 and earlier  57.78   55.56   3.64 
          
Total Private-label MBS
  36.95%  40.63%  9.28%
          
Definitions:
Original Weighted-Average Credit Support percentagerepresents the arithmetic mean of a cohort of securities by vintage; credit support is defined as the credit protection level at the time the mortgage-backed securities closed. Support is expressed as a percentage of the sum of: subordinate bonds, reserve funds, guarantees, overcollateralization, divided by the original collateral balance.
Weighted-Average Credit Support percentagerepresents the arithmetic mean of a cohort of securities by vintage; credit support is defined as the credit protection level as of the mortgage-backed securities most current payment date. Support is expressed as a percentage of the sum of: subordinate bonds, reserve funds, guarantees, overcollateralization, divided by the most current unpaid collateral balance.
Weighted-average collateral delinquency percentagerepresents the arithmetic mean of a cohort of securities by vintage: collateral delinquency is defined as the sum of the unpaid principal balance of loans underlying the mortgage-backed security where the borrower is 60 or more days past due, or in bankruptcy proceedings, or the loan is in foreclosure, or has become real estate owned divided by the aggregate unpaid collateral balance.

110

Mortgage Loans — Held-for-portfolio
Through the Mortgage Partnership Finance Program or MPF program, the FHLBNY invests in home mortgage loans originated by or through members or approved state and local housing finance agencies (“housing associates”). The FHLBNY purchases these mortgages loans under the Finance Agency’s Acquired Member Assets (“AMA”) regulation. These assets may include whole loans eligible to secure advances (excluding mortgages above the conforming-loan limit); whole loans secured by manufactured housing; or bonds issued by housing associates.
Underwriting standards- Summarized below are the principal underwriting criteria for the Bank’s MPF Program through which the Bank acquires mortgage loans for its own portfolio. For a fuller description of the MPF loan mortgage loan standards, refer to pages 8 through 19 of the Bank’s most recent Form 10-K filed on March 25, 2010.
Mortgage loans delivered under the MPF Program must meet certain underwriting and eligibility requirements. Loans must be qualifying 5- to 30-year conforming conventional or Government fixed-rate, fully amortizing mortgage loans, secured by first liens on owner-occupied one-to-four family residential properties and single unit second homes. Not eligible for delivery under the MPF Program are mortgage loans that are not ratable by S&P, or loans that are classified as high cost, high rate, or high risk. Satisfaction Collectability of mortgage loans is supported by liens on real estate securing the loan. For conventional loans, defined as mortgage loans other than VA and FHA insured loans, additional loss protection is provided by private mortgage insurance required for MPF loans with a loan-to-value ratio of more than 80 percent at origination, which is paid for by the borrower. The FHLBNY is responsible for losses up to the “first loss level”. Losses beyond this layer are absorbed through credit enhancement provided by the member participating in the Mortgage Partnership Program. All residual credit exposure is FHLBNY’s responsibility. The amount of credit enhancement is computed with the use of a Standard & Poor’s model to bring a pool of uninsured loans to “AA” credit risk. The credit enhancement is an obligation of the member.
The following table provides roll-forward information with respect to the First Loss Account (in thousands):
Table 43: Roll-Forward First Loss Account
                 
  Three months ended September 30,  Nine months ended September 30, 
  2010  2009  2010  2009 
                 
Beginning balance
 $11,513  $13,948  $13,934  $13,765 
Additions  187   19   340   216 
Resets*  —   —   (2,540)  — 
Charge-offs  (97)  —   (131)  (14)
Recoveries  —   —   —   — 
             
Ending balance
 $11,603  $13,967  $11,603  $13,967 
             
*For the Original MPF, MPF 100, MPF 125 and MPF Plus products, the Credit Enhancement is periodically recalculated. If the recalculated Credit Enhancement would result in a PFI Credit Enhancement obligation lower than the remaining obligation, the PFI’s Credit Enhancement obligation will be reset to the new, lower level.
The aggregate amount of the First Loss Account is memorialized and tracked but is neither recorded nor reported as a credit loss reserve in the FHLBNY’s financial statements. If “second losses” beyond this layer are incurred, they are absorbed through a credit enhancement provided by the Participating Financial Institutions. The credit enhancement held by PFIs ensures that the lender retains a credit stake in the loans it originates. For managing this risk, PFIs receive monthly “credit enhancement fees” from the FHLBNY.
Mortgage loans — Past due
In the FHLBNY’s outstanding mortgage loans held-for-portfolio, non-performing loans and loans 90 days or more past due and accruing interest were as follows (in thousands):
Table 44: Mortgage Loans — Past Due
         
  September 30, 2010  December 31, 2009 
         
Secured by 1-4 family
 $668  $570 
       
The past due loans still accruing were VA and FHA insured loans.
Non-performing mortgage loans were conventional mortgage loans that were placed on non-accrual/non-performing status when the collection of the contractual principal or interest from the borrower was 90 days or more past due. FHLBNY considers conventional loans that are 90 days or more past due as non-accrual loans. Conventional loans exclude Federal Housing Administration (“FHA”) and Veteran Administration (“VA”) insured loans. FHA and VA insured loans that were past due 90 days or more were not significant at any period reported, and interest was still being accrued because of VA and FHA insurance (See Table 45: Mortgage Loans — Interest Short-fall). No loans were impaired for any periods covered in this report, other than the non-accrual loans.

111

Mortgage loans — Interest on Non-performing loans
The FHLBNY’s interest contractually due and actually received for non-performing loans were as follows (in thousands):
Table 45: Mortgage Loans — Interest Short-Fall
                 
  Three months ended September 30,  Nine months ended September 30, 
  2010  2009  2010  2009 
                 
Interest contractually due1
 $373  $200  $973  $505 
Interest actually received  344   179   898   452 
             
                 
Shortfall $29  $21  $75  $53 
             
 
13 The Bank does not recognize interest received as income from uninsured loans past due 90-days or greater.Economic hedge of debt designated under the FVO.
Table 46: Mortgage Loans — Allowance for Credit Losses
                 
  Three months ended September 30,  Nine months ended September 30, 
  2010  2009  2010  2009 
                 
Beginning balance
 $5,392  $2,760  $4,498  $1,406 
Charge-offs  (97)  —   (131)  (14)
Recoveries  11   —   33   — 
Provision for credit losses on mortgage loans  231   598   1,137   1,966 
             
  
Ending balance
 $5,537  $3,358  $5,537  $3,358 
             
Participating Financial Institution Risk
The members or housing associates that are approved as Participating Financial Institutions continue to bear a significant portion of the credit risk through credit enhancements that they provide to the FHLBNY. The Acquired Member Assets regulation requires that these credit enhancements be sufficient to protect the FHLBNY from excess credit risk exposure. Specifically, the FHLBNY exposure must be no greater than it would be with an asset rated in the fourth-highest credit rating category by a Nationally Recognized Statistical Rating Organization (“NRSRO”), or such higher rating category as the FHLBNY may require. The MPF program is constructed to provide the Bank with assets that are credit-enhanced to the second-highest credit rating category (double-A).
The top five Participating Financial Institutions (PFI) and the outstanding MPF loan balances are listed below (dollars in thousands):
Table 47: Top Five Participating Financial Institutions — Concentration
         
  September 30, 2010 
  Mortgage  Percent of Total 
  Loans  Mortgage Loans 
         
Manufacturers and Traders Trust Company $533,689   42.23%
Astoria Federal Savings and Loan Association  210,404   16.65 
Community Bank fka Elmira Svgs & Ln Assn  51,694   4.09 
OceanFirst Bank  50,658   4.01 
CFCU Community Credit Union  40,802   3.23 
All Others  376,501   29.79 
       
         
Total1
 $1,263,748   100.00%
       
         
  December 31, 2009 
  Mortgage  Percent of Total 
  Loans  Mortgage Loans 
         
Manufacturers and Traders Trust Company $607,072   46.17%
Astoria Federal Savings and Loan Association  220,268   16.75 
Elmira Savings and Loan F.A.  61,663   4.69 
Ocean First Bank  51,277   3.90 
CFCU Community Credit Union  42,344   3.22 
All Others  332,304   25.27 
       
         
Total1
 $1,314,928   100.00%
       
Note1Totals do not include CMA loans.

112

Derivative Credit Risk Exposure on MPF Loans — Mortgage insurer default risk
CreditIn addition to market risk, on MPF loans is the potential for financial loss due to borrower default or depreciation in the value of the real estate collateral securing the MPF Loan, offset by the PFI’s credit enhancement protection, which may take the form of a contingent performance based credit enhancement fees as well as the credit enhancement amount. The credit enhancement amount is a direct liability of the PFI to pay credit losses; the PFI may also arrange with an insurer for a SMI policy insuring a portion of the credit losses. To the extent credit losses are not recoverable from PMI, the FHLBNY has potential credit exposure should the loan default and the PFI directly or indirectly is unable to recover credit losses.
The MPF Program uses certain mortgage insurance companies to provide both primary mortgage insurance (“PMI”) and supplemental mortgage insurance (“SMI”) for MPF loans. The FHLBNY is exposed to the performance of mortgage insurers to the extent PFI’s rely on insurer credit protection. Credit exposure is defined as the total of PMI and SMI coverage written by a mortgage insurer on MPF loans held by FHLBNY that are delinquent.
All mortgage insurance providers have had their external ratings for insurer financial strength downgraded below AA- by one or more NRSROs since December 31, 2008. If a mortgage insurer fails to fulfill its obligations, the FHLBNY may bear any remaining loss of the borrowers’ default on the related mortgage loans not covered by the PFI.
The FHLBNY has stopped accepting new loans under master commitments with SMI from mortgage insurers that no longer meet MPF insurer requirements. If an SMI provider is downgraded below an “AA-” rating under the MPF Plus product, the PFI has six months to either replace the SMI policy or provide its own undertaking; or it may forfeit its performance based CE Fees. If a PMI provider is downgraded, the FHLBNY may request the servicer to obtain replacement PMI coverage with a different provider. However, it is possible that replacement coverage may be unavailable or result in additional cost to the FHLBNY.
Derivative Counterparty Ratings
The FHLBNY is subject to credit risk duein derivative transactions because of the potential for non-performance by the counterparties, which could result in the FHLBNY having to the risk of nonperformance by counterparties to theacquire a replacement derivative agreements.from a different counterparty at a cost. The FHLBNY transacts most of its derivatives with major financial institutions. Some of these institutions or their affiliates buy, sell, and distribute consolidated obligations. The FHLBNYalso is also subject to operational risks in the execution and servicing of derivative transactions.
The degree of counterparty credit risk may depend, among other factors, on the extent to which netting procedures and/or the provision of collateral are used to mitigate the risk. The FHLBNY manages counterparty credit risk through credit analysis and collateral requirements and by following the requirements set forth in Finance Agency’s regulations. The contractual or notional amount of derivatives reflects the involvement of the FHLBNY in the various classes of financial instruments, but it does not measure the credit risk exposure of the FHLBNY, and the maximum credit exposure of the FHLBNY is substantially less than the notional amount. The maximum credit risk is the estimated cost of replacing derivatives in favorable fair value gain positions if the counterparty defaults and the related collateral, if any, is of insufficient value to the FHLBNY.
The FHLBNY uses collateral agreements to mitigate counterparty credit risk in derivatives. When the FHLBNY has more than one derivative transaction outstanding with a counterparty, and a legally enforceable master netting agreement exists with the counterparty, the exposure, less collateral held, represents the appropriate measure of credit risk. Substantially all derivative contracts are subject to master netting agreements or other right of offset arrangements.

113

The following table summarizes the FHLBNY’s credit exposure by counterparty credit rating (in thousands, except number of counterparties).
See Table 48: Credit Exposure by Counterparty Credit Rating9.5 below for summarized information.
                 
  September 30, 2010 
          Total Net    
  Number of  Notional  Exposure at  Net Exposure after 
Credit Rating Counterparties  Balance  Fair Value  Cash Collateral3 
                 
AAA  —  $—  $—  $— 
AA  8   45,406,173   40,342   18,346 
A  8   78,223,953   35,340   3,540 
Members (Note1 and Note2)
  2   275,000   10,535   10,535 
Delivery Commitments  —   20,675   4   4 
             
                 
Total
  18  $123,925,801  $86,221  $32,425 
             
                 
  December 31, 2009 
          Total Net    
  Number of  Notional  Exposure at  Net Exposure after 
Credit Rating Counterparties  Balance  Fair Value  Cash Collateral3 
                 
AAA  —  $—  $—  $— 
AA  7   45,652,167   684   684 
A  8   88,711,243   —   — 
Members (Note1 and Note2)
  2   160,000   7,596   7,596 
Delivery Commitments  —   4,210   —   — 
             
                 
Total
  17  $134,527,620  $8,280  $8,280 
             
Note1:Fair values of $10.5 million and $7.6 million comprising of intermediated transactions with members and interest-rate caps sold to members (with capped floating-rate advances) were collateralized at September 30, 2010 and December 31, 2009.
Note2:Members are required to pledge collateral to secure derivatives purchased by the FHLBNY as an intermediary on behalf of its members. Eligible collateral includes: (1) one-to-four-family and multi-family mortgages; (2) U.S. Treasury and government-agency securities; (3) mortgage-backed securities; and (4) certain other collateral which is real estate-related and has a readily ascertainable value, and in which the FHLBNY can perfect a security interest. As a result of the collateral agreements with its members, the FHLBNY believes that its maximum credit exposure due to the intermediated transactions was $0 at September 30, 2010 and December 31, 2009.
Note3:As reported in the Statements of Condition.
Risk measurement-— Although notional amount is a commonly used measure of volume in the derivatives market, it is not a meaningful measure of market or credit risk since derivative counterparties do not exchange the notional amount (except in the case of foreign currency swaps, of which the FHLBNY has none). Counterparties use the notional amounts of derivative instruments to calculate contractual cash flows to be exchanged. The fair value of a derivative in a gain position is a more meaningful measure of the FHLBNY’s current market exposure on derivatives. The FHLBNY estimates exposure to credit loss on derivative instruments by calculating the replacement cost, on a present value basis, to settle at current market prices all outstanding derivative contracts in a gain position, net of collateral pledged by the counterparty to mitigate the FHLBNY’s exposure. All derivative contracts with non-members are also subject to master netting agreements or other right of offset arrangements.
Exposure-— In determining credit risk, the FHLBNY considers accrued interest receivable and payable, and the legal right to offset assets and liabilities by counterparty. The FHLBNY attempts to mitigate its exposure by requiring derivative counterparties to pledge cash collateral if the amount of exposure is above the collateral threshold agreements. At September 30, 2010, counterparties had deposited $53.8 million in cash as collateralThe FHLBNY is also required to mitigate such an exposure. At December 31, 2009, the fair values of derivatives in a gain position were below the threshold and derivative counterparties pledged no cash to the FHLBNY.
At September 30, 2010 and December 31, 2009, the FHLBNY had posted $3.8 billion and $2.2 billion inpost cash as collateral to derivative counterparties to mitigate the risk faced by derivatives that are in a net fair value liability (unfavorable) position. The FHLBNY is exposed to the extent that a counterparty may not pay the posted cash collateral to the FHLBNY under unforeseen circumstances, such as bankruptcy; in such an event the FHLBNY would then exercise its rights under the “International Swaps and Derivatives Association agreement” (“ISDA”). To the extent the FHLBNY may not receive cash equal to the amount posted, the FHLBNY could face losses.

94

Derivative counterparty ratings-— The Bank’s credit exposures (derivatives in a net gain position) at September 30, 2010 were to counterparties rated Single A or better and to member institutions on whose behalf the FHLBNY had acted as an intermediary or had sold interest rate caps at the request of members to create capped floating rate advance borrowings. The exposures were collateralized under standard collateral agreements with the FHLBNY’s member. Acting as an intermediary, the Bank had also purchased equivalent notional amounts of derivatives from unrelated derivative counterparties. See Table 48:9.5: Derivatives Counterparty Notional Balance by Credit Exposure by Counterparty Credit Rating.Ratings.
Risk mitigation-— The FHLBNY attempts to mitigate derivative counterparty credit risk by contracting only with experienced counterparties with investment-grade credit ratings. Annually, the FHLBNY’s management and Board of Directors review and approve all non-member derivative counterparties. Management monitors counterparties on an ongoing basis for significant business events, including ratings actions taken by nationally recognized statistical rating organizations. All approved derivatives counterparties must enter into a master ISDA agreement with the FHLBNY and, in addition, execute the Credit Support Annex to the ISDA agreement that provides for collateral support at predetermined thresholds. These annexes contain enforceable provisions for requiring collateral on certain derivative contracts that are in gain positions. The annexes also define the maximum net unsecured credit exposure amounts that may exist before collateral delivery is required. Typically, the maximum amount is based upon an analysis of individual counterparty’s rating and exposure. The FHLBNY also attempts to manage counterparty credit risk through credit analysis, collateral management and other credit enhancements, such as guarantees, and by following the requirements set forth in the Finance Agency’s regulations.
Derivatives Counterparty Credit Ratings
The following table summarizes the FHLBNY’s credit exposure by counterparty credit rating (in thousands, except number of counterparties).
Table 9.5: Derivatives Counterparty Notional Balance by Credit Ratings
                         
  March 31, 2011 
          Total Net  Credit Exposure  Other  Net 
  Number of  Notional  Exposure at  Net of  Collateral  Credit 
Credit Rating Counterparties  Balance  Fair Value  Cash Collateral3  Held2  Exposure 
                         
AAA  —  $—  $—  $—  $—  $— 
AA  8   45,423,489   20,319   14,619   —   14,619 
A  9   72,576,345   71,507   6,107   —   6,107 
Members (Notes1&2)
  2   275,000   4,194   4,194   4,194   — 
Delivery Commitments  —   25,197   44   44   44   — 
                   
                         
Total
  19  $118,300,031  $96,064  $24,964  $4,238  $20,726 
                   
                         
  December 31, 2010 
          Total Net  Credit Exposure  Other  Net 
  Number of  Notional  Exposure at  Net of  Collateral  Credit 
Credit Rating Counterparties  Balance  Fair Value  Cash Collateral3  Held2  Exposure 
                         
AAA  —  $—  $—  $—  $—  $— 
AA  8   43,283,429   25,385   16,085   —   16,085 
A  8   77,132,931   —   —   —   — 
Members (Notes1&2)
  2   275,000   5,925   5,925   5,925   — 
Delivery Commitments  —   29,993   —   —   —   — 
                   
                         
Total
  18  $120,721,353  $31,310  $22,010  $5,925  $16,085 
                   
Note1:Fair values of $4.2 million and $5.9 million comprising ofintermediated transactions with members and interest-rate caps sold to members (with capped floating-rate advances) were collateralized at March 31, 2011 and December 31, 2010.
Note2:Members are required to pledge collateral to securederivatives purchased by the FHLBNY as an intermediary on behalf of its members. Eligible collateral includes: (1) one-to-four-family and multi-family mortgages; (2) U.S. Treasury and government-agency securities; (3) mortgage-backed securities; and (4) certain other collateral which is real estate-related and has a readily ascertainable value, and in which the FHLBNY can perfect a security interest. As a result of the collateral agreements with its members, the FHLBNY believes that its maximum credit exposure due to the intermediated transactions was $0 at March 31, 2011 and December 31, 2010.
Note3:As reported in the Statements of Condition.

 

11495

Commitments, Contingencies and Off-Balance Sheet Arrangements
Consolidated obligations — Joint and several liability
Although the Bank is primarily liable only for its portion of consolidated obligations (i.e., those consolidated obligations issued on its behalf and those that have been transferred/assumed from other FHLBanks), it is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all of the consolidated obligations issued by the FHLBanks.
The Finance Agency, in its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligation, regardless of whether there has been a default by a FHLBank having primary liability. To the extent that a FHLBank makes any payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank shall be entitled to reimbursement from the FHLBank with primary liability. The FHLBank with primary liability would have a corresponding liability to reimburse the FHLBank providing assistance to the extent of such payment and other associated costs (including interest to be determined by the Finance Agency). However, if the Finance Agency determines that the primarily liable FHLBank is unable to satisfy its obligations, then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis that the Finance Agency may determine. No FHLBank has ever failed to make a payment on a consolidated obligation for which it was the primary obligor; as a result, the regulatory provisions for directing other FHLBanks to make payments on behalf of another FHLBank or allocating the liability among other FHLBanks have never been invoked. Consequently, the Bank has no means to determine how the Finance Agency might allocate among the other FHLBanks the obligations of a FHLBank that is unable to pay consolidated obligations for which such FHLBank is primarily liable. In the event the Bank is holding a consolidated obligation as an investment for which the Finance Agency would allocate liability among the 12 FHLBanks, the Bank might be exposed to a credit loss to the extent of its share of the assigned liability for that particular consolidated obligation (the Bank did not hold any consolidated obligations of other FHLBanks as investments at September 30, 2010 and December 31, 2009). If principal or interest on any consolidated obligation issued by the FHLBank System is not paid in full when due, the Bank may not pay dividends to, or repurchase shares of stock from, any shareholder of the Bank.
Although the FHLBNY is primarily liable for those consolidated obligations issued on its behalf, it is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks. If the principal or interest on any consolidated obligation issued on behalf of the FHLBNY is not paid in full when due, the FHLBNY may not pay dividends to, or redeem or repurchase shares of stock from, any member or non-member stockholder until the Finance Agency approves the FHLBNY’s consolidated obligation payment plan or another remedy, and until the FHLBNY pays all the interest and principal currently due under all its consolidated obligations. The par amounts of the outstanding consolidated obligations of all 12 FHLBanks were $0.8 trillion and $0.9 trillion at September 30, 2010 and December 31, 2009.
The FHLBNY does not believe that the identification of particular banks as the primary obligors on these consolidated obligations is relevant because all FHLBanks are jointly and severally obligated to pay all consolidated obligations. The identity of the primary obligor does not affect the FHLBNY’s investment decisions. The FHLBNY’s ownership of consolidated obligations in which other FHLBanks are primary obligors does not affect the FHLBNY’s “guarantee” on consolidated obligations as there is no automatic legal right of offset. Even if the FHLBNY were to claim an “offset,” the FHLBNY would still be jointly and severally obligated for any debt service shortfall caused by the FHLBanks’ failure to pay.
Off-balance sheet arrangements with respect to derivatives are discussed in detail in Note 16 to the unaudited financial statements in this report. Also, see Item 1 Legal Proceedings.

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The following table summarizes contractual obligations and other commitments as of September 30, 2010 (in thousands):
Table 49: Contractual Obligations and Other Commitments
(For more information, see Note 18 to the unaudited financial statements in this report.)
                     
  September 30, 2010 
  Payments due or expiration terms by period 
  Less than  One year  Greater than three  Greater than    
  one year  to three years  years to five years  five years  Total 
Contractual Obligations                    
Consolidated obligations-bonds at par1
 $38,972,100  $25,068,825  $6,634,375  $3,054,200  $73,729,500 
Mandatorily redeemable capital stock1
  45,708   14,650   2,037   4,953   67,348 
Premises (lease obligations)2
  3,060   6,284   4,748   4,674   18,766 
                
                     
Total contractual obligations  39,020,868   25,089,759   6,641,160   3,063,827   73,815,614 
                
                     
Other commitments                    
Standby letters of credit  1,824,089   20,012   17,472   3,861   1,865,434 
Consolidated obligations-bonds/ discount notes traded not settled  774,322   —   —   —   774,322 
Open delivery commitments (MPF)  20,675   —   —   —   20,675 
                
                     
Total other commitments  2,619,086   20,012   17,472   3,861   2,660,431 
                
                     
Total obligations and commitments
 $41,639,954  $25,109,771  $6,658,632  $3,067,688  $76,476,045 
                
1Callable bonds contain exercise date or a series of exercise dates that may result in a shorter redemption period. Mandatorily redeemable capital stock is categorized by the dates at which the corresponding advances outstanding mature. Excess capital stock is redeemed at that time, and hence, these dates better represent the related commitments than the put dates associated with capital stock, under which stock may not be redeemed until the later of five years from the date the member becomes a nonmember or the related advance matures.
2Immaterial amount of commitments for equipment leases are not included.
Liquidity, Cash Flows, Short-Term Borrowings and Short-Term Debt
The FHLBNY’s primary source of liquidity is the issuance of consolidated obligation bonds and discount notes. To refinance maturing consolidated obligations, the Bank relies on the willingness of the investors to purchase new issuances. The FHLBNY has access to the discount note market and the efficiency of issuing discount notes is an important factor as a source of liquidity, since discount notes can be issued any time and in a variety of amounts and maturities. Member deposits and capital stock purchased by members are another source of funds. Short-term unsecured borrowings from other FHLBanks and in the Federal funds market provide additional sources of liquidity. WithIn addition, the passageSecretary of the Housing Act on July 30, 2008, the U.S. Treasury wasis authorized to purchase up to $4.0 billion of consolidated obligations issued byfrom the FHLBanks, in any amount deemed appropriate by the U.S. Treasury. This temporary authorization expired December 31, 2009 and supplemented the existing limit of $4 billion. See Note 18 to the unaudited financial statements for more information.FHLBanks.
The FHLBNY’s liquidity position remains in compliance with all regulatory requirements and management does not foresee any changes to that position.
Finance Agency Regulations — Liquidity
Beginning December 1, 2005, with the implementation of the Capital Plan, the Financial Management Policy rules of the Finance Agency with respect to liquidity were superseded by regulatory requirements that are specified in Parts 917, 932 and 965 of Finance Agency regulations and are summarized below. Each FHLBank shall at all times have at least an amount of liquidity equal to the current deposits received from its members that may be invested in:
•Obligations of the United States;
•Deposits in banks or trust companies; or
•Advances with a maturity not to exceed five years.
Obligations of the United States;
Deposits in banks or trust companies; or
Advances with a maturity not to exceed five years.
In addition, each FHLBank shall provide for contingency liquidity, which is defined as the sources of cash an FHLBank may use to meet its operational requirements when its access to the capital markets is impeded. The FHLBNY met its contingency liquidity requirements and liquidityrequirements. Liquidity in excess of requirements is summarized in the table titled Contingency Liquidity.
Violations of the liquidity requirements would result in non-compliance penalties under discretionary powers given to the Finance Agency under applicable regulations, which include other corrective actions.
Liquidity Management
The FHLBNY actively manages its liquidity position to maintain stable, reliable, and cost-effective sources of funds while taking into account market conditions, member demand, and the maturity profile of the FHLBNY’s assets and liabilities. The FHLBNY recognizes that managing liquidity is critical to achieving its statutory mission of providing low-cost funding to its members. In managing liquidity risk, the FHLBNY is required to maintain certain liquidity measures in accordance with the FHLBank Act and policies developed by the FHLBNY management and approved by the FHLBNY’s Board of Directors. The specific liquidity requirements applicable to the FHLBNY are described in the next four sections:sections.

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Deposit Liquidity.The FHLBNY is required to invest an aggregate amount at least equal to the amount of current deposits received from the FHLBNY’s members in: (1) obligations of the U.S. government; (2) deposits in banks or trust companies; or (3) advances to members with maturities not exceeding five years. In addition to accepting deposits from its members, the FHLBNY may accept deposits from other FHLBank or from any other governmental instrumentality.
Deposit liquidity is calculated daily. Quarterly average reserve requirements and actual reserves are summarized below (in millions). The FHLBNY met its requirements at all times.
Table 50:10.1: Deposit Liquidity
             
  Average Deposit  Average Actual    
For the quarters ended Reserve Required  Deposit Liquidity  Excess 
September 30, 2010 $5,055  $46,304  $41,249 
June 30, 2010  5,227   48,055   42,828 
March 31, 2010  5,032   51,987   46,955 
December 31, 2009  2,364   53,089   50,725 
             
  Average Deposit  Average Actual    
For the Quarters Ended Reserve Required  Deposit Liquidity  Excess 
March 31, 2011 $2,404  $44,982  $42,578 
December 31, 2010  3,304   44,945   41,641 
Operational Liquidity. The FHLBNY must be able to fund its activities as its balance sheet changes from day to day. The FHLBNY maintains the capacity to fund balance sheet growth through its regular money market and capital market funding activities. Management monitors the Bank’s operational liquidity needs by regularly comparing the Bank’s demonstrated funding capacity with its potential balance sheet growth. Management then takes such actions as may be necessary to maintain adequate sources of funding for such growth.
Operational liquidity is measured daily. The FHLBNY met the requirements at all times.
The following table summarizes excess operational liquidity (in millions):
Table 51:10.2: Operational Liquidity
             
  Average Balance Sheet  Average Actual    
For the quarters ended Liquidity Requirement  Operational Liquidity  Excess 
September 30, 2010 $3,915  $15,127  $11,212 
June 30, 2010  2,665   16,051   13,386 
March 31, 2010  2,283   15,796   13,513 
December 31, 2009  6,710   16,388   9,678 
             
  Average Balance Sheet  Average Actual    
For the Quarters Ended Liquidity Requirement  Operational Liquidity  Excess 
March 31, 2011 $2,352  $17,796  $15,444 
December 31, 2010  2,937   15,500   12,563 
Contingency Liquidity.The FHLBNY is required by Finance Agency regulations to hold “contingency liquidity” in an amount sufficient to meet its liquidity needs if it is unable, by virtue of a disaster, to access the consolidated obligation debt markets for at least five business days. Contingency liquidity includes (1) marketable assets with a maturity of one year or less; (2) self-liquidating assets with a maturity of one year or less; (3) assets that are generally acceptable as collateral in the repurchase market; and (4) irrevocable lines of credit from financial institutions receiving not less than the second-highest credit rating from a nationally recognized statistical rating organization. The FHLBNY consistently exceeded the regulatory minimum requirements for contingency liquidity.

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Contingency liquidity is reported daily. The FHLBNY met the requirements at all times.

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The following table summarizes excess contingency liquidity (in millions):
Table 52:10.3: Contingency Liquidity
             
  Average Five Day  Average Actual    
For the quarters ended Requirement  Contingency Liquidity  Excess 
September 30, 2010 $1,967  $14,859  $12,892 
June 30, 2010  2,047   15,821   13,774 
March 31, 2010  2,424   15,463   13,039 
December 31, 2009  2,188   15,309   13,121 
             
  Average Five Day  Average Actual    
For the Quarters Ended Requirement  Contingency Liquidity  Excess 
March 31, 2011 $3,024  $17,586  $14,562 
December 31, 2010  2,239   15,289   13,050 
The FHLBNY sets standards in its risk management policy that address its day-to-day operational and contingency liquidity needs. These standards enumerate the specific types of investments to be held by the FHLBNY to satisfy such liquidity needs and are outlined above. These standards also establish the methodology to be used by the FHLBNY in determining the FHLBNY’s operational and contingency needs. Management continually monitors and projects the FHLBNY’s cash needs, daily debt issuance capacity, and the amount and value of investments available for use in the market for repurchase agreements. Management uses this information to determine the FHLBNY’s liquidity needs and to develop appropriate liquidity plans.
Advance “Roll-Off” and “Roll-Over” Liquidity guidelines. In September 2009, theThe Finance Agency finalized itsAgency’s Minimum Liquidity Requirement Guidelines. The guidelinesGuidelines expanded the existing liquidity requirements under Parts 917, 932 and 965 of the Finance Agency regulations to include additional cash flow requirements under two scenarios —- Advance “Roll-Over” and Roll-Off” scenarios. Each FHLBank, including the FHLBNY, must have positive cash balances to be able to maintain positive cash flows for 15 days under the Roll-Off scenario, and for five days under the Roll-Over scenario. The Roll-Off scenario assumes that advances maturing under their contractual terms would mature, and in that scenario the FHLBNY would maintain positive cash flows for a minimum of 5 days on a daily basis. The Roll-Over scenario assumes that the FHLBNY’s maturing advances would be rolled over, and in that scenario the FHLBNY would maintain positive cash flows for a minimum of 15 days on a daily basis. The FHLBNY calculates the amount of cash flows under each scenario on a daily basis and has been in compliance with the guidelines.
Other Liquidity Contingencies. As discussed more fully under the section Debt Financing - Consolidated Obligations, the FHLBNY is primarily liable for consolidated obligations issued on its behalf. The FHLBNY is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks. If the principal or interest on any consolidated obligation issued on behalf of the FHLBNY is not paid in full when due, the following rules apply: the FHLBNY may not pay dividends to, or redeem or repurchase shares of stock of any member or non-member stockholder until the Finance Agency approves the FHLBNY’s consolidated obligation payment plan or other remedy and until the FHLBNY pays all the interest or principal currently due on all its consolidated obligations. The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligations. The par amount of the outstanding consolidated obligations of all 12 FHLBanks was $0.8 trillion at September 30, 2010. The FHLBNY does not believe that it will be called upon to pay the consolidated obligations of another FHLBank in the future.
Finance Agency regulations also state that the FHLBanks must maintain, free from any lien or pledge, the following types of assets in an amount at least equal to the amount of consolidated obligations outstanding:
•
Cash;
•
Obligations of, or fully guaranteed by, the United States;
•
Secured advances;
•
Mortgages that have any guaranty, insurance, or commitment from the United States or any agency of the United States;
•
Investments described in section 16(a) of the FHLBank Act, including securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located; and
•
Other securities that are rated Aaa by Moody’s or AAA by Standard & Poor’s.
Cash flows
Cash and due from banks was $2.9 billion at March 31, 2011, compared to $0.7 billion at March 31, 2010. Cash balances were primarily maintained at the Federal Reserve Banks at those dates for liquidity purposes for the Bank’s members. The following discussion highlights the major activities and transactions that affected FHLBNY’s cash flows for the current year period in this report. Also see Statements of Cash Flows to the financial statements accompany this MD&A.
Cash flows from operating activities
FHLBNY’s operating assets and liabilities support the Bank’s lending activities to members. Operating assets and liabilities can vary significantly in the normal course of business due to the amount and timing of cash flows, which are affected by member-driven borrowing, investment strategies and market conditions. Management believes cash flows from operations, available cash balances and the FHLBNY’s ability to generate cash through the issuance of consolidated obligation bonds and discount notes are sufficient to fund the FHLBNY’s operating liquidity needs.
In the 2011 first quarter, net cash provided by operating activities was $236.1 million driven by Net income and adjustments for non-cash items such as the amount set aside for Affordable Housing Program, OTTI and other provisions for mortgage credit losses, depreciation and amortization.

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Net cash generated from operating activities was higher than net income, largely as a result of adjustments for cash flows from certain interest rate swaps that were characterized as operating cash in-flows because of the financing element of the interest rate swaps, in addition to non-cash items.
Cash flows from investing activities
The FHLBNY’s investing activities predominantly include advances originated to be held for portfolio, the AFS and HTM securities portfolios and other short-term interest-earning assets. In the 2011 first quarter, investing activities provided net cash of $5.3 billion. This resulted primarily from decreases in advances borrowed by members. Partially offsetting these cash proceeds was an increase in investment securities purchased.
Short-term Borrowings and Short-term Debt.The primary source of fund,funds, as discussed under the section Debt Financing Activity and Consolidation Obligation bonds and discount notes, in this MD&A is the issuance of FHLBank debt to the public.
Consolidated obligation discount notes are issued with maturities up to one year and provide the FHLBNY with short-term funds andfunds. Discount notes are principally used in funding short-term advances, some long-term advances, as well as money market instruments. The FHLBNY also issues short-term consolidated obligation bonds as part of its asset-liability management strategy.
The FHLBNY may also borrow from another FHLBanks,FHLBank, generally for a period of one day. Such borrowings have been insignificant historically.

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The following table summarizes short-term debt and their key characteristics (in thousands):
Table 53: Consolidated Obligations — Original Maturities Less Than One Year10.4: Short-term Debt
                 
          Consolidated Obligations-Bonds With 
  Consolidated Obligations-Discount Notes  Original Maturities of One Year or Less 
  September 30, 2010  December 31, 2009  September 30, 2010  December 31, 2009 
                 
Outstanding at end of the period1
 $17,784,192  $30,827,639  $13,054,985  $17,987,974 
Weighted-average coupon rate at end of the period  0.19%  0.15%  0.31%  0.56%
Monthly-average outstanding for the period2
 $22,729,663  $41,495,856  $11,885,428  $15,626,249 
Highest outstanding at any month-end2
 $27,479,446  $52,040,302  $17,537,976  $17,987,974 
                 
          Consolidated Obligations-Bonds With Original 
  Consolidated Obligations-Discount Notes  Maturities of One Year or Less 
  March 31, 2011  December 31, 2010  March 31, 2011  December 31, 2010 
                 
Outstanding at end of the period1
 $19,507,159  $19,391,452  $9,635,000  $12,410,000 
Average outstanding for the period1
 $17,764,760  $21,727,968  $11,601,6672 $12,266,929 
Highest outstanding at any month-end1
 $19,507,159  $27,480,949  $12,835,000  $17,538,000 
1 Outstanding balances represents the amortized costcarrying value of short-term debtdiscount notes and par value of bonds (less than 1-year)1 year) issued and outstanding at the reported dates.
 
2 MonthlyThe amount represents monthly average outstanding and highest outstanding represent amounts duringbalance for the 9-monthsthree months ended September 30, 2010, and 12-months ended DecemberMarch 31, 2009.2011.
Leverage Limits and Unpledged Asset Requirements
The FHLBNY met the Finance Agency’s requirement that unpledged assets, as defined under regulations, exceed the total of consolidated obligations as follows (in thousands):
Table 54: Unpledged Assets
         
  September 30, 2010  December 31, 2009 
Consolidated Obligations:        
Bonds $74,918,893  $74,007,978 
Discount Notes  17,787,908   30,827,639 
       
         
Total consolidated obligations  92,706,801   104,835,617 
       
         
Unpledged assets        
Cash  69,471   2,189,252 
Less: Member pass-through reserves at the FRB  (50,339)  (29,331)
Secured Advances 2
  85,697,171   94,348,751 
Investments1
  15,690,234   16,222,615 
Mortgage loans  1,267,687   1,317,547 
Accrued interest receivable on advances and investments  305,763   340,510 
Less: Pledged Assets  (2,981)  (2,045)
       
         
   102,977,006   114,387,299 
       
Excess unpledged assets
 $10,270,205  $9,551,682 
       
1The Bank pledged $3.0 million and $2.0 million at September 30, 2010 and December 31, 2009 to the FDIC. See Note 4 — Held-to-maturity securities.
2The Bank also provided to the U.S. Treasury a listing of $0.0 and $10.3 billion in advances with respect to a lending agreement at September 30, 2010 and December 31, 2009.
Finance Agency regulations require the FHLBanks to maintain, in the aggregate, unpledged qualifying assets equal to the consolidated obligations outstanding. Qualifying assets are defined as cash; secured advances; assets with an assessment or rating at least equivalent to the current assessment or rating of the consolidated obligations; obligations, participations, mortgages, or other securities of or issued by the United States or an agency of the United States; and such securities in which fiduciary and trust funds may invest under the laws of the state in which the FHLBank is located.
Purchases of MBS.Finance Agency investment regulations limit the purchase of mortgage-backed securities to 300 percent of capital. The FHLBNY was in compliance withmet the regulationFinance Agency’s requirement that unpledged assets, as defined under regulations, exceed the total of consolidated obligations at all times.periods in this report.
Table 55: FHFA MBS Limits
                 
  September 30, 2010  December 31, 2009 
  Actual  Limits  Actual  Limits 
                 
Mortgage securities investment authority  209%  300%  213%  300%
             
On March 24, 2008, the Board of Directors of the Federal Housing Finance Board (“Finance Board”), predecessor to the Finance Agency, adopted Resolution 2008-08, which temporarily expanded the authority of a FHLBank to purchase mortgage-backed securities (“MBS”) under certain conditions. The resolution had allowed an FHLBank to increase its investments in MBS issued by Fannie Mae and Freddie Mac by an amount equal to three times its capital, which is to be calculated in addition to the existing regulatory limit. The expanded authority permitted MBS to be as much as 600 percent of the FHLBNY’s capital.
All mortgage loans underlying any securities purchased under this expanded authority must have been originated after January 1, 2008. The Finance Board believed that such loans are generally of higher credit quality than loans originated at an earlier time, particularly in 2005 and 2006. The loans underlying any Fannie Mae and Freddie Mac issued MBS acquired pursuant to the new authority must have been underwritten to conform to standards imposed by the federal banking agencies in the "Interagency Guidance on Nontraditional Mortgage Product Risks”dated October 4, 2006 and the "Statement on Subprime Mortgage Lending”dated July 10, 2007.

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The Bank has not notified or exercised Resolution 2008-08, therefore no separate calculation was required. The expanded authority expired in March 2010.
Rating Actions With Respect to the FHLBNY are outlined below:
Table 56:FHLBNY Ratings
Short-Term Ratings:
Moody’s Investors ServiceS & P
YearOutlookRatingShort-Term OutlookRating
2010June 17, 2010 - AffirmedP-1July 21, 2010Short-Term rating affirmedA-1+
2009June 19, 2009 - AffirmedP-1July 13, 2009Short-Term rating affirmed��A-1+
February 2, 2009 - AffirmedP-1
2008October 29, 2008 - AffirmedP-1June 16, 2008Short-Term rating affirmedA-1+
April 17, 2008 - AffirmedP-1
Long-Term Ratings:
Moody’s Investors ServiceS & P
YearOutlookRatingLong-Term OutlookRating
2010June 17, 2010 - AffirmedAaa/StableJuly 21, 2010Long-Term rating affirmedoutlook stableAAA/Stable
2009June 19, 2009 - AffirmedAaa/StableJuly 13, 2009Long-Term rating affirmedoutlook stableAAA/Stable
February 2, 2009 - AffirmedAaa/Stable
2008October 29, 2008 - AffirmedAaa/StableJune 16, 2008Long-Term rating affirmedoutlook stableAAA/Stable
April 17, 2008 - AffirmedAaa/Stable

Legislative and Regulatory Developments

The most important legislative development duringand regulatory environment for the period covered by this report was the enactment ofBank continues to change as financial regulators issue proposed and/or final rules to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) on(Dodd-Frank Act) enacted in July 21, 2010, which is discussed in greater detail below together with a presentation of certain regulatory actions resulting from the Dodd-Frank Act that may have an important impact on the Bank. Other important developments during the period covered by this report include certain Finance Agency regulatory actions, certain proposed legislation that would permit the Bank to continue to issue certain tax exempt letters of credit past December 31, 2010 and Basel Committee activity that may ultimately impact member demandCongress begins to debate proposals for advanceshousing finance and investor demand for COs, each discussed in greater detail below.

GSE reform.

Dodd-Frank Act

The Dodd-Frank Act, among other things: (1) creates an interagency oversight council (the “Oversight Council”) that is charged with identifying

As discussed under Legislative and regulating systemically important financial institutions; (2) regulatesRegulatory Developments on page 37 in the over-the-counter derivatives market; (3) imposes new executive compensation proxy and disclosure requirements; (4) establishes new requirements for MBS, including a risk-retention requirement; (5) reforms the credit rating agencies; (6) makes a number of changes to the federal deposit insurance system; and (7) creates a consumer financial protection bureau. Although the FHLBanks were exempted from several notable provisions ofBank’s 2010 Form 10-K, the Dodd-Frank Act will likely impact the FHLBanks’FHLBNY’s business operations, funding costs, rights, obligations, andand/or the environment in which FHLBanks carrythe FHLBNY carries out their housing-finance mission are likely to be impacted by the Dodd-Frank Act.its housing finance mission. Certain regulatory actions during the period covered by this report resulting from the Dodd-Frank Act that may have an important impact on the Bank are summarized below, although the full impacteffect of the Dodd-Frank Act will become known only after the required regulations, studies and reports are issued and finalized.
New Requirements for the Bank’s Derivatives Transactions
The Dodd-Frank Act provides for new statutory and regulatory requirements for derivative transactions, including those utilized by the Bank to hedge its interest rate and other risks. As a result of these requirements, certain derivative transactions will be required to be cleared through a third-party central clearinghouse and traded on regulated exchanges or new swap execution facilities. Such cleared trades are expected to be subject to initial and variation margin requirements established by the clearinghouse and its clearing members. While clearing swaps may reduce counterparty credit risk, the margin requirements for cleared trades have the potential of making derivative transactions more costly.

Regulatory Activity98

The Dodd-Frank Act will also change the regulatory landscape for derivative transactions that are not subject to mandatory clearing requirements (uncleared trades). While the FHLBNY expects to continue to enter into uncleared trades on a bilateral basis, such trades are expected to be subject to new regulatory requirements, including new mandatory reporting requirements, new documentation requirements and new minimum margin and capital requirements imposed by other federal regulators. Under the proposed margin rules, the FHLBNY will have to post both initial margin and variation margin to its swap dealer counterparties. Pursuant to additional FHFA provisions, the Dodd-Frank Act

Proposed CommoditiesBank will be required to collect both initial margin and variation margin from its swap dealer counterparties, without any thresholds. These margin requirements and any related capital requirements could adversely impact the liquidity and pricing of certain uncleared derivative transactions entered into by the Bank and thus also make uncleared trades more costly.

The Commodity Futures Trading Commission (“CFTC”) — Securities and Exchange Commission (“SEC “) Rule—Certain Key Definitions for Derivatives.On August 20, 2010, the CFTC and the SEC jointly(CFTC) has issued a proposed rule which requested commentsrequiring that collateral posted by swaps customers to a clearinghouse in connection with cleared swaps be legally segregated on a customer basis. However, in connection with this proposed rule the CFTC has left open the possibility that customer collateral would not have to be legally segregated but could instead be commingled with all collateral posted by other customers of the clearing member. Such commingling would put the Bank’s collateral at risk in the event of a default by another customer of our clearing member. To the extent that the CFTC’s final rule places the Bank’s posted collateral at greater risk of loss in the clearing structure than under the current over-the-counter market structure, we may be adversely impacted.
The Dodd-Frank Act will require swap dealers and certain key terms necessary to regulate the use and clearingother large users of derivatives to register as required“swap dealers” or “major swap participants,” as the case may be, with the CFTC and/or the SEC. Based on the definitions in the proposed rules jointly issued by the Dodd-Frank Act by September 20, 2010. The definitions of those terms may adversely impactCFTC and SEC, it does not appear likely that the Bank. For example, in additionFHLBNY will be required to the clearing and exchange trading requirements for certain standardized derivatives transactions, if the Bank is determined to beregister as a “major swap participant,” although this remains a possibility. Also, based on the definitions in the proposed rules, it does not appear likely that the FHLBNY will be required to register as a “swap dealer” as a result of the derivative transactions that the Bank will also haveenters into with dealer counterparties for the purpose of hedging and managing the Bank’s interest rate risk, which constitute the great majority of the Bank’s derivative transactions. However, based on the proposed rules, it is possible that the FHLBNY could be required to register with the CFTC as a swap dealer based on the intermediated “swaps” that the Bank has historically entered into with the Bank’s members.
It is also unclear how the final rule will treat caps, floors and other derivatives embedded in advances to the FHLBNY’s members. The CFTC and SEC have issued joint proposed rules further defining the term “swap” under the Dodd-Frank Act. These proposed rules and accompanying interpretive guidance clarify that certain products will or will not be regulated as “swaps.” However, at this time it remains unclear whether certain transactions between the Bank and our member customers will be treated as “swaps.” Depending on how the terms “swap” and “swap dealer” are finally defined in the final regulations, the FHLBNY may be faced with the business decision of whether to continue to offer “swaps” to member customers if those transactions would require the Bank to register as a swap dealer. Designation as a swap dealer would subject the Bank to significant additional regulation and cost including, registration with the CFTC, new internal and external business conduct standards, of conductadditional reporting requirements and additional reporting and swap-based capital and margin requirements. In addition, derivatives transactionsEven if the Bank is designated as a swap dealer, the proposed regulation would permit the Bank to apply to the CFTC to limit such designation to those specified activities for which the Bank is acting as a swap dealer. Upon such designation, the hedging activities of the Bank would not subject to exchange trading or centralized clearing will also be subject to additional marginthe full requirements and all derivatives transactions couldthat will generally be subject to new reporting requirements. Such additional requirements would likely increaseimposed on traditional swap dealers.
The FHLBNY, together with the costother FHLBanks, is actively participating in the development of the Bank’s hedging activitiesregulations under the Dodd-Frank Act by formally commenting to the regulators regarding a variety of rulemakings that could impact the FHLBanks. It is not expected that final rules implementing the Dodd-Frank Act will become effective until the latter half of 2011 and may adversely affect the Bank’s ability to hedge its interest rate risk exposure, to achieve its risk management objectives, and to act as an intermediary between its members and counterparties.

delays beyond that time are possible.

Regulation of Certain Nonbank Financial Companies
Federal Reserve Board Proposed CFTC Rule on Eligible Investments for Derivatives Clearing OrganizationsRegulatory Oversight of Nonbank Financial Companies.. On November 3, 2010,February 11, 2011, the CFTCFederal Reserve Board issued a proposed rule withthat would define certain key terms to determine which nonbank financial companies will be subject to the Federal Reserve’s regulatory oversight. The proposed rule provides that a comment deadlinecompany is “predominantly engaged in financial activities” if:
the annual gross financial revenue of December 3, 2010, which, among other changes,the company represents 85 percent or more of the company’s gross revenue in either of its two most recent completed fiscal years; or
the company’s total financial assets represent 85 percent or more of the company’s total assets as of the end of either of its two most recently completed fiscal years.
Comments on this proposed rule were due by March 30, 2011.
The FHLBNY would eliminatebe predominantly engaged in financial activities under either prong of the abilityproposed test. In pertinent part to the Bank, the proposed rule also defines “significant nonbank financial company” to mean a nonbank financial company that had $50 billion or more in total assets as of futures commissions’ merchants and derivatives clearing organizations to invest customer funds in GSE securities that are not explicitly guaranteed by the U.S. government. Currently, GSE securities are eligible investments under CFTC regulations. If this change is adopted as proposed, then the demand for FHLBank debt may be adversely impacted.

end of its most recently completed fiscal year.

Oversight Council Notice of Proposed Rule RegardingRulemaking on Authority to Supervise and Regulate Certain Nonbank Financial Companies.Companies. On October 6, 2010,January 26, 2011, the Oversight Council created by the Dodd-Frank Act issued a proposed rule with a comment deadline of November 5, 2010 that if implemented, will givewould implement the Oversight Council theCouncil’s authority to require a ‘nonbanksubject nonbank financial company’ (a termcompanies to be defined by the Oversight Council) to be supervised by the Board of Governorssupervision of the Federal Reserve SystemBoard and subject to certain prudential standards. The proposed rule defines “nonbank financial company” broadly enough to likely cover the Bank. Also, under the proposed rule, the Oversight Council shall make this determination based onwill consider certain factors in determining whether materialto subject a nonbank financial distress at a given firm, orcompany to supervision and prudential standards. Some factors identified include: the nature, scope, size, scale, concentration, interconnectedness, or mixavailability of the activities of the firm, could pose a threat tosubstitutes for the financial stability ofservices and products the United States.entity provides as well as the entity’s size; interconnectedness with other financial firms; leverage, liquidity risk; and maturity mismatch and existing regulatory scrutiny. If the FHLBanks areFHLBNY is determined to be a nonbank financial companiescompany subject to the Oversight Council’s regulatory requirements, then the FHLBanks’its operations and business are likely to be impacted.

affected. Comments on this proposed rule were due by February 25, 2011.

 

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Oversight Council Request for InformationRecommendations on Implementing the ‘Volcker Rule’.Volcker Rule.On October 6, 2010,In January 2011, the Oversight Council issued a public requestrecommendations for information in connection with the Oversight Council’s study on implementing certain prohibitions on proprietary trading, which prohibitions are commonly referred to as the ‘Volcker Rule’.Volcker Rule. Institutions covered bysubject to the Volcker Rule may be subject to higher capital requirements and quantitativevarious limits with regard to their proprietary trading.trading and various regulatory requirements to ensure compliance with the Volcker Rule. If the FHLBNY is made subject to the Volcker Rule, is implemented in a way that subjects FHLBanks to it, then the Bank may be subject to additional limitations on the composition of its investment portfolio beyond those to which it is already subject under existing Finance Agency regulations, which in turn couldFHFA regulations. These limitations may potentially result in less profitable investment alternatives.

Further, complying with related regulatory requirements would be likely to increase the Bank’s regulatory requirements and incremental costs. The FHLBank System’s consolidated obligations generally are exempt from the operation of this rule, subject to certain limitations, including the absence of conflicts of interest and certain financial risks.

FDIC Regulatory Actions
Federal Deposit Insurance Corporation (“FDIC”) ProposedFDIC Interim Final Rule on Unlimited Deposit Insurance for Non-interest Bearing Transaction Accounts.The Dodd-Frank Act requires the FDIC and the National Credit Union Administration to provide unlimited deposit insurance for non-interest bearing transaction accounts. This requirement is in effect for FDIC-insured institutions from December 31, 2010 untilOrderly Liquidation Resolution Authority.On January 1, 2013 and for insured credit unions from the effective date of the Dodd-Frank Act until January 1, 2013. On September 27, 2010,25, 2011, the FDIC issued a proposedan interim final rule to implement this provision of the Dodd-Frank Act. Deposits are a source of liquidity for our members, and a rise in deposits, which may occur due to the FDIC’s unlimited support of non-interest bearing transaction accounts if the proposed rule is adopted, would tend to weaken member demand for Bank advances.

FDIC Proposed Rule on Dodd-Frank Resolution Authority.On October 12, 2010, the FDIC issued a proposed rule with a comment deadline of November 18, 2010 on how the FDIC would treat certain creditor claims under the new orderly liquidation authority established by the Dodd-Frank Act. The Dodd-Frank Act provides for the appointment of the FDIC as receiver for a financial company, not including FDIC-insured depository institutions, in instances where the failure of the company and its liquidation under other insolvency procedures (such as bankruptcy) would pose a significant risk to the financial stability of the United States. The proposedinterim final rule provides, among other things, that:

things:

a valuation standard for collateral on secured claims;
that all unsecured creditors must expect to absorb losses in any liquidation and that secured creditors will only be protected to the extent of the fair value of their collateral;

to
a clarification of the extent treatment for contingent claims; and
that any portion of a secured creditor’s claim is unsecured, it will absorb losses along with other unsecured creditors; and

secured obligations collateralized with USU.S. government obligations will be valued at par.fair market value.

Comments on this interim final rule were due by March 28, 2011. Valuing most collateral at fair value, rather than par, could adversely impact the value of the Bank’s investments in the event of the issuer’s insolvency.
FDIC Final Rule on Assessment System. On February 25, 2011, the FDIC issued a final rule to revise the assessment system applicable to FDIC insured financial institutions. The rule, among other things, implements a provision in the Dodd-Frank Act to redefine the assessment base used for calculating deposit insurance assessments. Specifically, the rule changes the assessment base for most institutions from adjusted domestic deposits to average consolidated total assets minus average tangible equity. This rule became effective on April 1, 2011, so the FHLBNY advances are now included in its members’ assessment base. The rule also eliminates an adjustment to the base assessment rate paid for secured liabilities, including the FHLBNY advances, in excess of 25% of an institution’s domestic deposits since these are now part of the assessment base. To the extent that increased assessments increase the cost of advances for some members, it may negatively impact their demand for the Bank’s advances.
Finance AgencyJoint Regulatory Actions

Proposed Rule on Incentive-based Compensation Arrangements. On April 14, 2011, seven federal financial regulators, including the FHFA, published a proposed rule that would prohibit “covered financial institutions” from entering into incentive-based compensation arrangements that encourage inappropriate risks.
Applicable to the FHLBanks and the Office of Finance, Agency Regulationthe rule would:
prohibit excessive compensation;
prohibit incentive compensation that could lead to material financial loss;
require an annual report;
require policies and procedures; and
require mandatory deferrals of 50% of incentive compensation over three years for executive officers.
Covered persons under the rule would include senior management responsible for the oversight of firm wide activities or material business lines and non-executive employees or groups of those employees whose activities may expose the institution to a material loss.
Under the proposed rule, covered financial institutions would be required to comply with three key risk management principles related to the design and governance of incentive-based compensation: balanced design, independent risk management controls and strong governance.
The proposed rule identifies four methods to balance compensation design and make it more sensitive to risk: risk adjustment of awards, deferral of payment, longer performance periods and reduced sensitivity to short-term performance. Larger covered financial institutions, like the Bank, would also be subject to a mandatory 50% deferral of incentive-based compensation for executive officers and board oversight of incentive-based compensation for certain risk-taking employees who are not executive officers. The proposed rule would impact the design of the Bank’s compensation policies and practices, including its incentive compensation policies and practices, if adopted as proposed. Comments on Conservatorshipthe proposed rule are due by May 31, 2011.

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Proposed Rule on Credit Risk Retention for Asset-Backed Securities. On April 29, 2011, the Federal banking agencies, the FHFA, the Department of Housing and Receivership.On July 9, 2010,Urban Development and the Finance AgencySecurities and Exchange Commission jointly issued a proposed regulationrule, which proposes requiring sponsors of asset-backed securities to retain a minimum of five percent economic interest in a portion of the credit risk of the assets collateralizing asset-backed securities, unless all the assets securitized satisfy specified qualifications.
The proposed rule specifies criteria for qualified residential mortgage, commercial real estate, auto and commercial loans that would make them exempt from the risk retention requirement. The criteria for qualified residential mortgages is described in the proposed rulemaking as those underwriting and product features which, based on historical data, are associated with low risk even in periods of decline of housing prices and high unemployment.
Key issues in the conservatorshipproposed rule include: (1) the appropriate terms for treatment as a qualified residential mortgage; (2) the extent to which Fannie Mae and receivershipFreddie Mac related securitizations will be exempt from the risk retention rules; and (3) the possibility of creating a category of high quality non-qualified residential mortgage loans that would have less than a five percent risk retention requirement.
If adopted as proposed, the rule could reduce the number of loans originated by the FHLBNY’s members, which could negatively impact member demand for the Bank’s products. Comments on this proposed rule are due on June 10, 2011.
Housing Finance and GSE Reform
In the wake of the financial crisis and related housing problems, both Congress and the Obama Administration are considering changes to the U.S. housing finance structure, specifically reforming or eliminating Fannie Mae and Freddie Mac. These efforts may have implications for the FHLBanks.
On February 11, 2011, the Department of the Treasury and the U.S. Department of Housing and Urban Development issued a report to Congress entitledReforming America’s Housing Finance Market. The report’s primary focus is to provide options for Congressional consideration regarding the long-term structure of housing finance, including reforms specific to Fannie Mae and Freddie Mac. In addition, the Obama Administration noted it would work, in consultation with the FHFA and Congress, to restrict the areas of mortgage finance in which Fannie Mae, Freddie Mac and the FHLBanks operate so that overall government support of the mortgage market will be substantially reduced over time.
Although the FHLBanks are not the primary focus of this report, they are recognized as playing a vital role in helping smaller financial institutions access liquidity and capital to compete in an increasingly competitive marketplace. The report suggests the following possible reforms for the FHLBank System:
focus the FHLBanks on small- and medium-sized financial institutions;
restrict membership by allowing each institution eligible for membership to be an active member in only a single FHLBank;
limit the level of outstanding advances to larger members; and
reduce FHLBank investment portfolios and their composition, focusing FHLBanks on providing liquidity for insured depository institutions.
The report also supports exploring additional means to provide funding to housing lenders, including potentially the development of a covered bond market.
In response, several bills have been introduced in Congress. While none propose specific changes to the FHLBanks, the FHLBNY could nonetheless be affected in numerous ways by changes to the U.S. housing finance structure and to Fannie Mae and Freddie Mac. For example, the FHLBanks traditionally have allocated a significant portion of their investment portfolio to investments in Fannie Mae and Freddie Mac debt securities. Accordingly, the FHLBanks’ investment strategies would likely be affected by winding down those entities. Winding down these two GSEs, or limiting the amount of mortgages they purchase, also could increase demand for the FHLBank advances if the FHLBank members responded by retaining more of their mortgage loans in portfolio, using advances to fund the loans.
It is also possible that Congress will consider any or all of the specific changes to the FHLBanks suggested by the Administration’s proposal. If legislation is enacted incorporating these changes, the FHLBanks could be significantly limited in their ability to make advances to their members and subject to additional limitations on their investment authority. Additionally, if Congress enacts legislation encouraging the development of a covered bond market, FHLBank advances could be reduced in time as larger members use covered bonds as an alternative form of wholesale mortgage financing. The potential effect of housing finance and GSE reform on the FHLBanks is unknown at this time and will depend on the legislation, if any, that is ultimately enacted.
FHFA Regulatory Actions
Final Rule on Temporary Increases in Minimum Capital Levels. On March 3, 2011, the FHFA issued a final rule effective April 4, 2011 authorizing the Director of the FHFA to increase the minimum capital level for an FHLBank if the Director determines that the current level is insufficient to address such FHLBank’s risks. The rule provides the factors that the Director may consider in making this determination including the FHLBank’s:

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•current or anticipated declines in the value of assets held by it;
•ability to access liquidity and funding;
•credit, market, operational and other risks;
•current or projected declines in its capital;
•material compliance with regulations, written orders, or agreements;
•housing finance market conditions;
•level of retained earnings;
•initiatives, operations, products or practices that entail heightened risk;
•ratio of market value of equity to the par value of capital stock; and/or
•other conditions as notified by the Director.
The rule provides that the Director shall consider the need to maintain, modify or rescind any such increase no less than every 12 months. If the FHLBNY is required to increase its minimum capital level, the Bank may need to lower or suspend dividend payments to increase retained earnings to satisfy such increase. Alternatively, the FHLBNY could satisfy an increased capital requirement by disposing of assets to decrease the size of its balance sheet relative to total outstanding stock, which may adversely impact the Bank’s results of operations and financial condition and ability to satisfy the Bank’s mission.
Final Rule on FHLBank Liabilities. On April 4, 2011, the FHFA issued a final rule that would, set forthamong other things:
•reorganize and re-adopt Finance Board regulations dealing with consolidated obligations, as well as related regulations addressing other authorized FHLBank liabilities and book entry procedures for consolidated obligations;
•implement recent statutory amendments that removed authority from the FHFA to issue consolidated obligations;
•specify that the FHLBanks issue consolidated obligations that are the joint and several obligations of the FHLBanks as provided for in the statute rather than as joint and several obligations of the FHLBanks as provided for in the current regulation; and
•provide that consolidated obligations are issued under Section 11(c) of the FHLBank Act rather than under Section 11(a) of the FHLBank Act.
This rule is not expected to have any adverse impact on the basic authoritiesFHLBanks’ joint and several liability for the principal and interest payments on consolidated obligations. This rule became effective May 4, 2011.
Regulatory Policy Guidance on Reporting of the Finance Agency as conservator or receiver, including the enforcement and repudiation of contracts; establishment of procedures for conservators and receivers and priorities of claims for contract parties and other claimants; and address whether and to what extent claims by current and former holders of equity interests in the regulated entities will be paid.

Proposed Finance Agency Regulation on Rules of Practice and Procedure for Enforcement Proceedings.Fraudulent Financial Instruments.On August 12,January 27, 2010, the Finance AgencyFHFA issued a regulation requiring the FHLBanks to report to the FHFA upon the discovery of any fraud or possible fraud related to the purchase or sale of financial instruments or loans. On March 29, 2011, the FHFA issued immediately effective final guidance which sets forth fraud reporting requirements for the FHLBanks under the regulation. The guidance, among other things, provides examples of fraud that should be reported to the FHFA and the FHFA’s Office of Inspector General. In addition, the guidance requires FHLBanks to establish and maintain effective internal controls, policies, procedures and operational training to discover and report fraud or possible fraud. Although complying with the guidance will increase the FHLBNY’s regulatory requirements, the Bank does not expect any material incremental costs or adverse impact to its business.

Proposed Rule on Private Transfer Fee Covenants. On February 8, 2011, the FHFA issued a proposed regulation with a comment deadline of October 12, 2010rule that would if adopted, amend existing regulations implementing stronger Finance Agency enforcement powersrestrict the Bank from purchasing, investing in, or taking security interests in, mortgage loans on properties encumbered by private transfer fee covenants, securities backed by such mortgage loans, and procedures.

Additional Developments

Tax-Exempt Bonds Supportedsecurities backed by FHLBank Lettersthe income stream from such covenants, except for certain transfer fee covenants. Excepted transfer fee covenants would include covenants to pay a private transfer fees to covered associations (including organizations comprising owners of Credit.Legislation has been introducedhome, condominiums, or cooperatives or certain other tax-exempt organizations) that use the private transfer fees exclusively for the direct benefit of the property. The foregoing restrictions would allow an FHLBank,apply only to mortgages on behalf of oneproperties encumbered by private transfer fee covenants created on or more members,after February 8, 2011, and to issue letters of creditsuch securities backed by such mortgages, and to support non-housing related tax-exempt state and local bond issuancessecurities issued after December 31, 2010. If enacted, thisthat date and backed by revenue from private transfer fees regardless of when the covenants were created. The FHLBNY would be an extension of the Bank’s authority to issue such letters of credit that was first granted to the FHLBanks by the Housing and Economic Recovery Act of 2008, which authority is otherwise set to expire on December 31, 2010.

Basel Committee on Banking Supervision Capital Framework.The Basel Committee on Banking Supervision (the “Basel Committee”) has developed a new capital regime for internationally-active banks. Banks subject to the new regime will be required to have increased amounts of capital with core capital being more strictly defined to include only common equity and other capital assets that are able to fully absorb losses. While it is uncertain how the new capital regime or other standards being developed by the Basel Committee, such as liquidity standards, will be implemented by the U.S. regulatory authorities, the new regime could require some of our members to divest assets in order to comply with the more stringentregulation within 120 days of the publication of the final rule. To the extent that a final rule limits the type of collateral the Bank accept for advances and the type of loans eligible for purchase under the MPF Xtra product, the Bank’s business may be adversely impacted. Comments on the proposed rule were due by April 11, 2011.

Advance Notice of Proposed Rulemaking on Use of NRSRO Credit Ratings.On January 31, 2011, the FHFA issued an advanced notice of proposed rulemaking that would implement a provision in Dodd-Frank Act that requires all federal agencies to remove regulations that require use of NRSRO credit ratings in the assessment of a security. The notice seeks comment regarding certain specific FHFA regulations applicable to FHLBanks including risk-based capital requirements, thereby decreasing their need for advances. Likewise, any new liquidityprudential requirements, may also adversely impact member demand for advances and/or investor demand for COs.

investments, and consolidated obligations. Comments on this advance notice of rulemaking were due on March 17, 2011.
Advance Notice of Proposed Rulemaking on FHLBank Members.On December 27, 2010, the FHFA issued an advance notice of proposed rulemaking to address its regulations on FHLBank membership to ensure such regulations are consistent with maintaining a nexus between FHLBank membership and the housing and community development mission of the FHLBanks, as further discussed on page 41 in theLegislative and Regulatory Developmentssection in the FHLBNY’s 2010 Form 10-K.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Management.Market risk or interest rate risk (“IRR”) is the risk of loss ofto market value or future earnings that may result from changes in the interest rate environment. Embedded in IRR is a tradeoff of risk versus reward wherein thereward. The FHLBNY could earn higher income by having higher IRR through greater mismatches between its assets and liabilities at the cost of potentially significant declines in market value and future income if the interest rate environment turned against the FHLBNY’s expectations. The FHLBNY has opted to retain a modest level of IRR which allows it to preserve its capital value while generating steady and predictable income. In keeping with that philosophy, the FHLBNY’s balance sheet consists of predominantly short-term and LIBOR-based assets and liabilities. More than 8085 percent of the FHLBNY’s financial assets are either short-term or LIBOR-based, and a similar percentage of its liabilities are also either short-term or LIBOR based. These positions protect the FHLBNY’s capital from large changes in value arising from interest rate or volatility changes.
The primary tool used by management to achieve the desired risk profile is the use of interest rate exchange agreements (“Swaps”). All the LIBOR-based advances are long-term advances that are swapped to 3- or 1-month LIBOR or possess adjustable rates which periodically reset to a LIBOR index. Similarly, a majority of the long-term consolidated obligations are swapped to 3- or 1-month LIBOR. These features create a relatively steady income that changes in concert with prevailing interest rate changes to maintain a spread to short-term rates.
Despite its conservative philosophy, IRR does arise from a number of aspects of the FHLBNY’s portfolio. These include the embedded prepayment rights, refunding needs, rate resets between the FHLBNY’s short-term assets and liabilities, and basis risks arising from differences between the yield curves associated with the FHLBNY’s assets and its liabilities. To address these risks, the FHLBNY uses certain key IRR measures including re-pricing gaps, duration of equity (“DOE”), value at risk (“VaR”), net interest income (“NII”) at risk, key rate durations (“KRD”), and forecasted dividend rates.
Risk Measurements.The FHLBNY’s Risk Management Policy sets up a series of risk limits that the FHLBNY calculates on a regular basis. The risk limits are as follows:
 • The option-adjusted DOE is limited to a range of +/- four+2.0 years to -3.5 years in the rates unchanged case and to a range of +/- six-6.0 years in the +/-200bps shock cases. Due to the low interest rate environment beginning in early 2008, through the third quarter ofMarch 2010, June 2010, September 2010, December 2010, and March 2011 rates were too low for a meaningful parallel down-shock measurement.
 
 • The one-year cumulative re-pricing gap is limited to 10 percent of total assets.
 
 • The sensitivity of expected net interest income over a one-year period is limited to a -15 percent change under both the +/-200bps shocks compared to the rates unchanged case.
 
 • The potential decline in the market value of equity is limited to a 10 percent change under the +/-200bps shocks.
 
 • KRD exposure at any of nine term points (3-month, 1-year, 2-year, 3-year, 5-year, 7-year, 10-year, 15-year, and 30-year) is limited to between +/-12 months.months through the 3-year term point and a cumulative limit of +/-30 months from the 5-year through 30-year term points.
The FHLBNY’s portfolio, including its derivatives, is tracked and the overall mismatch between assets and liabilities is summarized by using a DOE measure. The FHLBNY’s last five quarterly DOE results are shown in years in the table below:below (note that, due to the on-going low interest rate environment, there was no down-shock measurement performed between the first quarter of 2010 and the first quarter of 2011):
                      
 Base Case DOE -200bps DOE* +200bps DOE  Base Case DOE -200bps DOE +200bps DOE 
March 31, 2010 -0.51 N/A 3.81 
June 30, 2010 -1.20 N/A 2.80 
September 30, 2010 -2.13 N/A 1.46  -2.13 N/A 1.46 
June 30, 2010 -1.20 N/A 2.80 
March 31, 2010 -0.51 N/A 3.81 
December 31, 2009 0.42 N/A 3.68 
September 30, 2009 -0.39 N/A 3.88 
December 31, 2010 -1.09 N/A 2.92 
March 31, 2011 -0.29 N/A 3.48 
*Due to the on-going low interest rate environment, there were no down-shock measurements performed between the third quarter of 2009 and the third quarter of 2010.
The DOE has remained within its limits. Duration indicates any cumulative re-pricing/maturity imbalance in the FHLBNY’s financial assets and liabilities. A positive DOE indicates that, on average, the liabilities will re-price or mature sooner than the assets while a negative DOE indicates that, on average, the assets will re-price or mature earlier than the liabilities. The FHLBNY measures its DOE using software that incorporates any optionality within the FHLBNY’s portfolio using well-known and tested financial pricing theoretical models.

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The FHLBNY does not solely rely on the DOE measure as a mismatch measure between its assets and liabilities. It also performs the more traditional gap measure that subtracts re-pricing/maturing liabilities from re-pricing/maturing assets over time. The FHLBNY observes the differences over various horizons, but has set a 10 percent of assets limit on cumulative re-pricings at the one-year point. This quarterly observation of the one-year cumulative re-pricing gap is provided in the table below and all values are below 10 percent of assets;assets well within the limit:
     
  One Year Re-
  pricing Gap
September 30, 2010 $6.888 Billion
June 30, 2010 $4.939 Billion
March 31, 2010 $4.753 Billion
December 31, 2009 $4.626 Billion
September 30, 2009 $5.480 Billion
One Year Re-
pricing Gap
March 31, 2010$4.753 Billion
June 30, 2010$4.939 Billion
September 30, 2010$6.888 Billion
December 31, 2010$5.565 Billion
March 31, 2011$5.123 Billion

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The FHLBNY’s review of potential interest rate risk issues also includes the effect of changes in interest rates on expected net income. The FHLBNY projects asset and liability volumes and spreads over a one-year horizon and then simulates expected income and expenses from those volumes and other inputs. The effects of changes in interest rates are measured to test whether the FHLBNY has too much exposure in its net interest income over the coming twelve-month period. To measure the effect, the change to the spread in the shocks is calculated and compared against the base case and subjected to a -15 percent limit. The quarterly sensitivity of the FHLBNY’s expected net interest income under both +/-200bps shocks over the next twelve months is provided in the table below:below (due to the ongoing low interest rate environment, the down-shock measurement was not performed between the first quarter of 2010 and the first quarter of 2011):
       
  Sensitivity in Sensitivity in 
  the -200bps the +200bps 
  Shock * Shock 
September 30,March 31, 2010 N/A  12.963.13%
June 30, 2010 N/A  12.20%
March 31,September 30, 2010 N/A  3.1312.96%
December 31, 20092010 N/A  4.539.05%
September 30, 2009March 31, 2011 N/A  9.233.90%
*Due to the on-going low interest rate environment, there were no down-shock measurements performed between the third quarter of 2009 and the third quarter of 2010.
Aside from net interest income, the other significant impact on changes in the interest rate environment is the potential impact on the value of the portfolio. These calculated and quoted market values are estimated based upon their financial attributes including optionality and then re-estimated under the assumption that interest rates suddenly rise or fall by 200bps. The worst effect, whether it is the up or the down shock, is compared to the internal limit of 10 percent. The quarterly potential maximum decline in the market value of equity under these 200bps shocks is provided below:below (due to the ongoing low interest rate environment, the down-shock measurement was not performed between the first quarter of 2010 and the first quarter of 2011):
       
  Down-shock +200bps Change in 
  Change in MVE * MVE 
September 30,March 31, 2010 N/A  1.63-4.53%
June 30, 2010 N/A  -1.62%
March 31,September 30, 2010 N/A  -4.531.63%
December 31, 20092010 N/A  -5.08-2.75%
September 30, 2009March 31, 2011 N/A  -4.68-3.96%
*Due to the on-going low interest rate environment, there were no down-shock measurements performed between the third quarter of 2009 and the third quarter of 2010.
As noted, the potential declines under these shocks are within the FHLBNY’s limits of a maximum 10 percent.

 

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The following table displays the FHLBNY’s maturity/re-pricing gaps as of September 30,March 31, 2011 and December 31, 2010 (in millions):
                                        
 Interest Rate Sensitivity  Interest Rate Sensitivity 
 September 30, 2010  March 31, 2011 
 More than More than More than    More Than More Than More Than   
 Six months six months to one year to three years to More than  Six Months Six Months to One Year to Three Years to More Than 
 or less one year three years five years five years  or Less One Year Three Years Five Years Five Years 
  
Interest-earning assets:  
Non-MBS Investments $8,899 $315 $417 $184 $186  $10,807 $144 $364 $253 $454 
MBS Investments 7,636 1,548 1,035 241 481  7,395 667 1,391 432 1,214 
Adjustable-rate loans and advances 9,191 — — — —  8,016 — — — — 
                      
Net unswapped 25,726 1,863 1,452 425 667  26,218 811 1,755 685 1,668 
  
Fixed-rate loans and advances 14,117 4,201 13,883 7,780 30,932  9,934 4,915 15,597 10,902 22,944 
Swaps hedging advances 55,269  (3,905)  (12,857)  (7,590)  (30,917) 52,721  (4,402)  (14,776)  (10,618)  (22,924)
                      
Net fixed-rate loans and advances 69,386 296 1,026 190 15  62,655 513 821 284 20 
Loans to other FHLBanks — — — — —  — — — — — 
                      
  
Total interest-earning assets
 $95,112 $2,159 $2,478 $615 $682  $88,873 $1,324 $2,576 $969 $1,688 
                      
  
Interest-bearing liabilities:  
Deposits $3,773 $1 $— $— $—  $2,581 $— $— $— $— 
  
Discount notes 17,156 630 — — —  19,170 337 — — — 
Swapped discount notes 629  (629) — — —  100  (100) — — — 
                      
Net discount notes 17,785 1 — — —  19,270 237 — — — 
                      
  
Consolidated Obligation Bonds  
FHLB bonds 28,034 14,522 21,510 6,741 3,040  21,085 11,590 23,771 7,927 3,684 
Swaps hedging bonds 39,771  (13,505)  (19,119)  (5,097)  (2,050) 41,358  (11,048)  (21,648)  (6,422)  (2,240)
                      
Net FHLB bonds 67,805 1,017 2,391 1,644 990  62,443 542 2,123 1,505 1,444 
  
Total interest-bearing liabilities
 $89,363 $1,019 $2,391 $1,644 $990  $84,294 $779 $2,123 $1,505 $1,444 
                      
Post hedge gaps1:
  
Periodic gap $5,749 $1,140 $87 $(1,029) $(308) $4,579 $545 $453 $(536) $244 
Cumulative gaps $5,749 $6,889 $6,976 $5,947 $5,639  $4,579 $5,124 $5,577 $5,041 $5,285 
                     
  Interest Rate Sensitivity 
  December 31, 2010 
      More Than  More Than  More Than    
  Six Months  Six Months to  One Year to  Three Years to  More Than 
  or Less  One Year  Three Years  Five Years  Five Years 
                     
Interest-earning assets:                    
Non-MBS Investments $9,240  $169  $374  $245  $399 
MBS Investments  7,306   874   1,485   411   993 
Adjustable-rate loans and advances  8,121   —   —   —   — 
                
Net unswapped  24,667   1,043   1,859   656   1,392 
                     
Fixed-rate loans and advances  10,994   3,469   13,971   10,561   29,824 
Swaps hedging advances  56,262   (3,041)  (13,069)  (10,347)  (29,805)
                
Net fixed-rate loans and advances  67,256   428   902   214   19 
Loans to other FHLBanks  —   —   —   —   — 
                
                     
Total interest-earning assets
 $91,923  $1,471  $2,761  $870  $1,411 
                
                     
Interest-bearing liabilities:                    
Deposits $2,454  $—  $—  $—  $— 
                     
Discount notes  19,120   271   —   —   — 
Swapped discount notes  100   (100)  —   —   — 
                
Net discount notes  19,220   171   —   —   — 
                
                     
Consolidated Obligation Bonds                    
FHLB bonds  21,722   14,333   23,856   7,793   3,410 
Swaps hedging bonds  43,497   (13,567)  (21,638)  (6,167)  (2,125)
                
Net FHLB bonds  65,219   766   2,218   1,626   1,285 
                     
Total interest-bearing liabilities
 $86,893  $937  $2,218  $1,626  $1,285 
                
Post hedge gaps1:
                    
Periodic gap $5,030  $534  $543  $(756) $126 
Cumulative gaps $5,030  $5,564  $6,107  $5,351  $5,477 
   
1 Re-pricing gaps are estimated at the scheduled rate reset dates for floating rate instruments, and at maturity for fixed rate instruments. For callable instruments, the re-pricing period is estimated by the earlier of the estimated call date under the current interest rate environment or the instrument’s contractual maturity.

 

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The following tables display the FHLBNY’s maturity/re-pricing gaps as of December 31, 2009 (in millions):
                     
  Interest Rate Sensitivity 
  December 31, 2009 
      More than  More than  More than    
  Six months  six months to  one year to  three years to  More than 
  or less  one year  three years  five years  five years 
                     
Interest-earning assets:                    
Non-MBS Investments $8,621  $124  $371  $249  $587 
MBS Investments  6,773   903   2,420   1,167   879 
Adjustable-rate loans and advances  14,101   —   —   —   — 
                
Net unswapped  29,495   1,027   2,791   1,416   1,466 
                     
Fixed-rate loans and advances  9,588   7,853   16,124   8,254   34,814 
Swaps hedging advances  63,852   (6,722)  (14,389)  (7,950)  (34,791)
                
Net fixed-rate loans and advances  73,440   1,131   1,735   304   23 
Loans to other FHLBanks  —   —   —   —   — 
                
                     
Total interest-earning assets
 $102,935  $2,158  $4,526  $1,720  $1,489 
                
                     
Interest-bearing liabilities:                    
Deposits $2,590  $—  $—  $—  $— 
                     
Discount notes  28,770   2,057   —   —   — 
Swapped discount notes  1,422   (1,422)  —   —   — 
                
Net discount notes  30,192   635   —   —   — 
                
                     
Consolidated Obligation Bonds                    
FHLB bonds  25,717   16,014   22,829   6,033   2,844 
Swaps hedging bonds  39,617   (14,298)  (19,513)  (4,501)  (1,305)
                
Net FHLB bonds  65,334   1,716   3,316   1,532   1,539 
                     
Total interest-bearing liabilities
 $98,116  $2,351  $3,316  $1,532  $1,539 
                
Post hedge gaps1:
                    
Periodic gap $4,819  $(193) $1,210  $188  $(50)
Cumulative gaps $4,819  $4,626  $5,836  $6,024  $5,974 
1Re-pricing gaps are estimated at the scheduled rate reset dates for floating rate instruments, and at maturity for fixed rate instruments. For callable instruments, the re-pricing period is estimated by the earlier of the estimated call date under the current interest rate environment or the instrument’s contractual maturity.

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Operational Risk Management.Operational risk is the risk of loss resulting from the failures or inadequacies of internal processes, people, and systems, or resulting from external events. Operational risks include those arising from fraud, human error, computer system failures and a wide range of external events — from adverse weather to terrorist attacks. The management of these risks is the responsibility of the senior managers at the operating level. To assist them in discharging this responsibility and to ensure that operational risk is managed consistently throughout the organization, the FHLBNY has developed an operational risk management framework, which evolves as warranted by circumstances and changing conditions. The FHLBNY’s Operational Risk Management framework defines the core governing principles for operational risk management and provides the framework to identify, control, monitor, measure, and report operational risks in a consistent manner across the FHLBNY.
Risk and Control Self-Assessment. FHLBNY’s Risk and Control Self-Assessment incorporates standards for risk and control self-assessment which apply to all businesses and establish Risk and Control Self-Assessment as the process for identifying the risks inherent in a business’ activities and for evaluating and monitoring the effectiveness of the controls over those risks. It is the policy of the FHLBNY to require businesses and staff functions to perform a Risk and Control Self-Assessment on a periodic basis. The Risk and Control Self-Assessment must include documentation of the control environment as well as policies for assessing risks and controls, testing commensurate with risk level and tracking corrective action for control breakdowns or deficiencies. The Risk and Control Self-Assessment also must require periodic reporting to senior management and to the Board’s Audit Committee.

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ITEM 4T. CONTROLS AND PROCEDURES
ITEM 4T.CONTROLS AND PROCEDURES.
 (a) Evaluation of Disclosure Controls and Procedures: An evaluation of the Bank’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Act”)) was carried out under the supervision and with the participation of the Bank’s President and Chief Executive Officer, Alfred A. DelliBovi, and Senior Vice President and Chief Financial Officer, Patrick A. Morgan, at September 30, 2010.March 31, 2011. Based on this evaluation, they concluded that as of September 30, 2010,March 31, 2011, the Bank’s disclosure controls and procedures were effective, at a reasonable level of assurance, in ensuring that the information required to be disclosed by the Bank in the reports it files or submits under the Act is (i) accumulated and communicated to the Bank’s management (including the President and Chief Executive Officer and Senior Vice President and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
 
 (b) Changes in Internal Control Over Financial Reporting: There were no changes in the Bank’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the Bank’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.

 

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Part II.PART II OTHER INFORMATION
Item 1.LEGAL PROCEEDINGS
From time to time, the Federal Home Loan Bank of New York is involved in disputes or regulatory inquiries that arise in the ordinary course of business. There has been no change with respect to a continuing legal proceeding involving the FHLBNY that was previously disclosed in Part 1, Item 1. LEGAL PROCEEDINGS
As previously reported, on September 15, 2008, Lehman Brothers Holdings, Inc. (“LBHI”), the parent company of Lehman Brothers Special Financing Inc. (“LBSF”) and a guarantor of LBSF’s obligations, filed for protection under Chapter 113 of the United States Bankruptcy Code in the United States Bankruptcy Court in the Southern District of New York. LBSFFHLBNY’s 2010 Annual Report on Form 10-K filed for protection under Chapter 11 in the same court on October 3, 2008. LBSF was a counterparty to FHLBNY on multiple derivative transactions under an International Swap Dealers Association, Inc. master agreement with a total notional amount of $16.5 billion at the time of termination of the Bank’s derivative transactions with LBSF. The net amount that was due to the Bank after giving effect to obligations that were due LBSF was approximately $65 million. The FHLBNY timely filed proofs of claim in the amount of approximately $65 million as creditors of LBSF and LBHI in connection with the bankruptcy proceedings. The Bank fully reserved the LBSF receivables as the bankruptcies of LBHI and LBSF make the timing and the amount of any recovery uncertain.
As previously reported, the Bank received a Derivatives ADR Notice from LBSF dated July 23, 2010 making a Demand as of the date of the Notice of approximately $268 million owed to LBSF by the Bank. Subsequently, in accordance with the Alternative Dispute Resolution Procedure Order entered by the Bankruptcy Court dated September 17, 2009 (“Order”), the Bank responded to LBSF on August 23, 2010, denying LBSF’s Demand. LBSF served a reply on September 7, 2010, effectively reiterating its position. A mediation has been scheduled pursuant to the Order for December 8, 2010.
While the Bank believes that LBSF’s position is without merit, the amount the Bank actually recovers or pays will ultimately be decided in the course of the bankruptcy proceedings.March 25, 2011.
Item 1A. RISK FACTORS
Item 1A.RISK FACTORS
There have been no material changes from risk factors included in the FHLBNY’s Form 10-K for the fiscal year ended December 31, 2009.2010.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Item 3.DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. (REMOVED AND RESERVED)
Item 4.(REMOVED AND RESERVED)
Item 5. OTHER INFORMATION
Item 5.OTHER INFORMATION
None.None

 

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Item 6. EXHIBITS
Item 6.Exhibits
     
Exhibit Filed with
No. Identification of Exhibit Descriptionthis Form 10-QFormFile No.Date Filed
10.01
Bank Benefit Equalization Plana
X
10.02
Bank 2011 Incentive Compensation Plana *
X
10.03Joint Capital Enhancement Agreement8-K000-513973/1/2011
     
 31.01  Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 byfor the President and Chief Executive OfficerX
     
 31.02  Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 byfor the Senior Vice President and Chief Financial OfficerX
     
 32.01  Certification ofby the President and Chief Executive Officer furnished pursuantPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350X
     
 32.02  Certification ofby the Senior Vice President and Chief Financial Officer furnished pursuantPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350X
Notes:
aThis exhibit includes a management contract, compensatory plan or arrangement required to be noted herein.
*Portions of the exhibit have been omitted and separately filed with the U.S. Securities and Exchange Commission with a request for confidential treatment.

 

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
     
 Federal Home Loan Bank of New York
(Registrant)
 		 
 /s/ Patrick A. Morgan   
 Patrick A. Morgan  
 Senior Vice President and Chief Financial Officer
Federal Home Loan Bank of New York (on behalf of the
registrant and as the Principal Financial Officer) 
 
Date: November 12, 2010
Date: May 12, 2011

 

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