UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended JuneSeptember 30, 2020

or

 

¨oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission file number: 000-51397

 

FEDERAL HOME LOAN BANK OF NEW YORK

(Exact name of registrant as specified in its charter)

 

Federally chartered corporation 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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each classTrading Symbol(s)Name of each exchange on which
registered
NoneN/AN/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x     No ¨o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x     No ¨o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨o Accelerated filer ¨o
Non-accelerated filer x Smaller reporting company ¨o
  Emerging growth company ¨o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o ¨No x

 

The number of shares outstanding of issuer’s Class B capital stock as of JulyOctober 31, 2020 was 62,922,241.59,069,911.

 

 

 

 

 

FEDERAL HOME LOAN BANK OF NEW YORK

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNESEPTEMBER 30, 2020

 

Table of Contents

 

 Page
 Page
PART I. FINANCIAL INFORMATION 
  
Item 1. Financial Statements (Unaudited): 
Statements of Condition (Unaudited) as of JuneSeptember 30, 2020 and December 31, 20193
Statements of Income (Unaudited) for the Three and SixNine Months Ended JuneSeptember 30, 2020 and 20194
Statements of Comprehensive Income (Unaudited) for the Three and SixNine Months Ended JuneSeptember 30, 2020 and 20195
Statements of Capital (Unaudited) for the Three and SixNine Months Ended JuneSeptember 30, 2020 and 20196
Statements of Cash Flows (Unaudited) for the SixNine Months Ended JuneSeptember 30, 2020 and 20197
Notes to Financial Statements (Unaudited)9
  
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations6157
  
Item 3. Quantitative and Qualitative Disclosures about Market Risk120117
  
Item 4. Controls and Procedures125122
  
PART II. OTHER INFORMATION126123
  
Item 1. Legal Proceedings126123
  
Item 1A. Risk Factors126123
  
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds127124
  
Item 3. Defaults Upon Senior Securities127124
  
Item 4. Mine Safety Disclosures127124
  
Item 5. Other Information127124
  
Item 6. Exhibits128125
  
Signatures129126

 

2


 

Federal Home Loan Bank of New York

Statements of Condition — Unaudited (In Thousands, Except Par Value of Capital Stock)

As of JuneSeptember 30, 2020 and December 31, 2019

 

  June 30, 2020  December 31, 2019 
Assets        
Cash and due from banks (Note 3) $44,308  $603,241 
Interest-bearing deposits (Note 3)  925,000   - 
Securities purchased under agreements to resell (Note 4)  4,950,000   14,985,000 
Federal funds sold (Note 4)  5,355,000   8,640,000 
Trading securities (Note 5) (Includes $635,775 pledged as collateral at June 30, 2020 and $251,177 at December 31, 2019)  12,923,831   15,318,809 
Equity Investments (Note 6)  63,852   60,047 
Available-for-sale securities, net of unrealized gains (losses) of $278,980 at June 30, 2020 and $97,868 at December 31, 2019 (Note 7)  2,874,107   2,653,418 
Held-to-maturity securities, net of allowance for credit losses of $1,058 at June 30, 2020 (Note 8) (Includes $3,233 pledged as collateral at June 30, 2020 and $3,719 at December 31, 2019)  14,348,334   15,234,482 
Advances (Note 9) (Includes $0 at June 30, 2020 and December 31, 2019 at fair value under the fair value option)  113,788,556   100,695,241 
Mortgage loans held-for-portfolio, net of allowance for credit losses of $6,534 at June 30, 2020 and $653 at December 31, 2019 (Note 10)  3,164,709   3,173,352 
Loans to other FHLBanks (Note 20)  -   - 
Accrued interest receivable  225,556   312,559 
Premises, software, and equipment  68,979   63,426 
Operating lease right-of-use assets (Note 19)  73,036   75,464 
Derivative assets (Note 17)  55,829   237,947 
Other assets  10,945   9,036 
         
Total assets $158,872,042  $162,062,022 
         
Liabilities and capital        
         
Liabilities        
Deposits (Note 11)        
Interest-bearing demand $1,497,431  $1,144,519 
Non-interest-bearing demand  59,926   34,890 
Term  33,000   15,000 
         
Total deposits  1,590,357   1,194,409 
         
Consolidated obligations, net (Note 12)        
Bonds (Includes $1,302,385 at June 30, 2020 and $12,134,043 at December 31, 2019 at fair value under the fair value option)  59,032,487   78,763,309 
Discount notes (Includes $20,159,341 at June 30, 2020 and $2,186,603 at December 31, 2019 at fair value under the fair value option)  89,499,893   73,959,205 
         
Total consolidated obligations  148,532,380   152,722,514 
         
Mandatorily redeemable capital stock (Note 14)  3,841   5,129 
         
Accrued interest payable  131,432   156,889 
Affordable Housing Program (Note 13)  159,464   153,894 
Derivative liabilities (Note 17)  70,726   32,411 
Other liabilities  158,795   175,516 
Operating lease liabilities (Note 19)  86,939   89,365 
Total liabilities  150,733,934   154,530,127 
         
Commitments and Contingencies (Notes 14, 17 and 19)        
         
Capital (Note 14)        
Capital stock ($100 par value), putable, issued and outstanding shares:        
63,342 at June 30, 2020 and 57,787 at December 31, 2019        
Retained earnings  6,334,135   5,778,666 
Unrestricted  1,150,181   1,115,236 
Restricted (Note 14)  734,325   685,798 
Total retained earnings  1,884,506   1,801,034 
Total accumulated other comprehensive income (loss)  (80,533)  (47,805)
         
Total capital  8,138,108   7,531,895 
         
Total liabilities and capital $158,872,042  $162,062,022 

The accompanying notes are an integral part of these financial statements.

3

Federal Home Loan Bank of New York
Statements of Income — (In Thousands, Except Per Share Data)
For the Three and Six Months Ended June 30, 2020 and 2019 

  Three months ended
June 30,		  Six months ended
June 30,		 
  2020  2019  2020  2019 
Interest income                
Advances, net (Note 9) $326,230  $704,936  $790,795  $1,396,832 
Interest-bearing deposits  482   935   2,609   1,318 
Securities purchased under agreements to resell (Note 4)  350   52,320   26,700   82,242 
Federal funds sold (Note 4)  1,726   56,767   30,661   130,656 
Trading securities (Note 5)  50,884   46,929   125,881   87,802 
Available-for-sale securities (Note 7)  14,564   17,118   31,717   32,301 
Held-to-maturity securities (Note 8)  83,737   118,173   183,603   238,331 
Mortgage loans held-for-portfolio (Note 10)  24,332   25,274   50,358   50,454 
Loans to other FHLBanks (Note 20)  -   104   33   154 
                 
Total interest income  502,305   1,022,556   1,242,357   2,020,090 
                 
Interest expense                
Consolidated obligation bonds (Note 12)  176,926   495,987   533,483   994,582 
Consolidated obligation discount notes (Note 12)  95,477   356,705   322,810   672,021 
Deposits (Note 11)  146   5,976   3,374   11,941 
Mandatorily redeemable capital stock (Note 14)  56   108   135   208 
Cash collateral held and other borrowings  12   204   74   546 
               
Total interest expense  272,617   858,980   859,876   1,679,298 
                
Net interest income before provision for credit losses  229,688   163,576   382,481   340,792 
                
Provision (Reversal) for credit losses  3,030   (275)  3,166   (292)
                 
Net interest income after provision for credit losses  226,658   163,851   379,315   341,084 
                 
Other income (loss)                
Service fees and other  4,589   4,660   9,240   9,074 
Instruments held under the fair value option gains (losses) (Note 18)  10,564   (2,360)  (11,390)  (2,824)
Net amount of impairment losses reclassified to (from) Accumulated other comprehensive income (loss)  -   (384)  -   (384)
Derivative gains (losses) (Note 17)  (3,921)  (39,069)  (168,091)  (51,349)
Trading securities gains (losses) (Note 5)  (41,377)  33,924   155,875   50,994 
Equity investments gains (losses) (Note 6)  7,328   1,926   (722)  6,364 
                 
Total other income (loss)  (22,817)  (1,303)  (15,088)  11,875 
                 
Other expenses                
Operating  18,132   15,451   31,565   28,301 
Compensation and benefits  22,265   20,462   45,642   41,900 
Finance Agency and Office of Finance  4,593   4,199   9,044   8,141 
Other expenses  6,039   2,333   8,370   4,683 
Total other expenses  51,029   42,445   94,621   83,025 
                 
Income before assessments  152,812   120,103   269,606   269,934 
           -     
Affordable Housing Program Assessments (Note 13)  15,287   12,021   26,974   27,014 
                 
Net income $137,525  $108,082  $242,632  $242,920 
                 
                 
Basic earnings per share (Note 15) $2.02  $1.86  $3.82  $4.27 
  September 30, 2020  December 31, 2019 
Assets        
Cash and due from banks (Note 3) $487,719  $603,241 
Interest-bearing deposits (Note 4)  685,000   - 
Securities purchased under agreements to resell (Note 4)  3,400,000   14,985,000 
Federal funds sold (Note 4)  7,674,000   8,640,000 
Trading securities (Note 5)        
(Includes $633,220 pledged as collateral at September 30, 2020 and $251,177 at December 31, 2019)  12,598,027   15,318,809 
Equity Investments (Note 6)  69,961   60,047 
Available-for-sale securities, net of unrealized gains (losses)  of $285,196 at September 30, 2020 and $97,868 at December 31, 2019 (Note 7)  3,275,768   2,653,418 
Held-to-maturity securities, net of allowance for credit losses of $1,028 at September 30, 2020 (Note 8)        
(Includes $2,902 pledged as collateral at September 30, 2020 and $3,719 at December 31, 2019)  13,815,615   15,234,482 
Advances (Note 9)        
 (Includes $0 at September 30, 2020 and December 31, 2019 at fair value under the fair value option)  106,215,738   100,695,241 
Mortgage loans held-for-portfolio, net of allowance for credit losses of $9,100 at September 30, 2020 and $653 at December 31, 2019 (Note 10)  3,054,003   3,173,352 
Loans to other FHLBanks (Note 20)  -   - 
Accrued interest receivable  195,753   312,559 
Premises, software, and equipment  71,726   63,426 
Operating lease right-of-use assets (Note 19)  71,984   75,464 
Derivative assets (Note 17)  71,462   237,947 
Other assets  7,106   9,036 
         
Total assets $151,693,862  $162,062,022 
         
Liabilities and capital        
         
Liabilities        
Deposits (Note 11)        
Interest-bearing demand $1,686,801  $1,144,519 
Non-interest-bearing demand  73,559   34,890 
Term  49,980   15,000 
Total deposits  1,810,340   1,194,409 
         
Consolidated obligations, net (Note 12)        
Bonds (Includes $14,776,973 at September 30, 2020 and $12,134,043 at December 31, 2019 at fair value under the fair value option)  71,742,105   78,763,309 
Discount notes (Includes $12,853,069 at September 30, 2020 and $2,186,603 at December 31, 2019 at fair value under the fair value option)  69,709,787   73,959,205 
Total consolidated obligations  141,451,892   152,722,514 
         
Mandatorily redeemable capital stock (Note 14)  3,334   5,129 
         
Accrued interest payable  117,280   156,889 
Affordable Housing Program (Note 13)  158,352   153,894 
Derivative liabilities (Note 17)  59,643   32,411 
Other liabilities  168,263   175,516 
Operating lease liabilities (Note 19)  85,799   89,365 
Total liabilities  143,854,903   154,530,127 
         
Commitments and Contingencies (Notes 14, 17 and 19)        
         
Capital (Note 14)        
Capital stock ($100 par value), putable, issued and outstanding shares:        
59,957 at September 30, 2020 and 57,787 at December 31, 2019  5,995,663   5,778,666 
Retained earnings        
Unrestricted  1,135,704   1,115,236 
Restricted (Note 14)  754,564   685,798 
Total retained earnings  1,890,268   1,801,034 
Total accumulated other comprehensive income (loss)  (46,972)  (47,805)
Total capital  7,838,959   7,531,895 
Total liabilities and capital $151,693,862  $162,062,022 

 

The accompanying notes are an integral part of these financial statements.

 


Federal Home Loan Bank of New York

Statements of Income — (In Thousands, Except Per Share Data)

For the Three and Nine Months Ended September 30, 2020 and 2019 

  Three months ended  Nine months ended 
  September 30,  September 30, 
  2020  2019  2020  2019 
Interest income                
Advances, net (Note 9) $193,003  $599,554  $983,798  $1,996,386 
Interest-bearing deposits (Note 4)  581   1,856   3,190   3,174 
Securities purchased under agreements to resell (Note 4)  957   55,340   27,657   137,582 
Federal funds sold (Note 4)  2,082   60,073   32,743   190,729 
Trading securities (Note 5)  48,708   57,944   174,589   145,746 
Available-for-sale securities (Note 7)  14,742   18,009   46,459   50,310 
Held-to-maturity securities (Note 8)  73,303   113,926   256,906   352,257 
Mortgage loans held-for-portfolio (Note 10)  21,336   25,224   71,694   75,678 
Loans to other FHLBanks (Note 20)  -   1   33   155 
Total interest income  354,712   931,927   1,597,069   2,952,017 
                 
Interest expense                
Consolidated obligation bonds (Note 12)  110,066   429,738   643,549   1,424,320 
Consolidated obligation discount notes (Note 12)  63,582   333,413   386,392   1,005,434 
Deposits (Note 11)  208   6,053   3,582   17,994 
Mandatorily redeemable capital stock (Note 14)  65   87   200   295 
Cash collateral held and other borrowings  28   242   102   788 
Total interest expense  173,949   769,533   1,033,825   2,448,831 
Net interest income before provision for credit losses  180,763   162,394   563,244   503,186 
Provision (Reversal) for credit losses  2,536   134   5,702   (158)
Net interest income after provision for credit losses  178,227   162,260   557,542   503,344 
                 
Other income (loss)                
Service fees and other  4,133   4,665   13,373   13,739 
Instruments held under the fair value option gains (losses) (Note 18)  7,107   (694)  (4,283)  (3,518)
Net amount of impairment losses reclassified to (from) Accumulated other comprehensive income (loss)  -   (256)  -   (640)
Derivative gains (losses) (Note 17)  10,849   (4,269)  (157,242)  (55,618)
Trading securities gains (losses) (Note 5)  (39,693)  (4,000)  116,182   46,994 
Equity investments gains (losses) (Note 6)  3,096   381   2,374   6,745 
Litigation settlement  225   -   225   - 
Total other income (loss)  (14,283)  (4,173)  (29,371)  7,702 
                 
Other expenses                
Operating  17,037   17,151   48,602   45,452 
Compensation and benefits  22,957   21,870   68,599   63,770 
Finance Agency and Office of Finance  4,850   3,997   13,894   12,138 
Other expenses  6,654   2,379   15,024   7,062 
Total other expenses  51,498   45,397   146,119   128,422 
Income before assessments  112,446   112,690   382,052   382,624 
Affordable Housing Program Assessments (Note 13)  11,251   11,278   38,225   38,292 
Net income $101,195  $101,412  $343,827  $344,332 
Basic earnings per share (Note 15) $1.64  $1.91  $5.46  $6.19 

The accompanying notes are an integral part of these financial statements.

4 

Federal Home Loan Bank of New York

Statements of Comprehensive Income — Unaudited (In Thousands)

For the Three and SixNine Months Ended JuneSeptember 30, 2020 and 2019

 

 Three months ended
June 30,		  Six months ended
June 30,		  Three months ended
September 30,		  Nine months ended
September 30,		 
 2020  2019  2020  2019  2020  2019  2020  2019 
Net Income $137,525  $108,082  $242,632  $242,920  $101,195  $101,412  $343,827  $344,332 
Other Comprehensive income (loss)                                
Net change in unrealized gains (losses) on available-for-sale securities  52,711   61,039   181,112   93,147   6,216   43,143   187,328   136,290 
Net change in non-credit accretion portion of held-to-maturity securities                                
Reclassification of non-credit portion included in net income  -   384   -   384   -   256   -   640 
Accretion of non-credit portion  506   935   1,057   1,792   478   559   1,535   2,351 
Total net change in non-credit portion of other-than-temporary impairment losses on held-to-maturity securities  506   1,319   1,057   2,176   478   815   1,535   2,991 
Net change due to hedging activities                                
Cash flow hedges (a)  (5,780)  (69,670)  (158,612)  (112,361)  18,070   (41,143)  (140,542)  (153,503)
Fair value hedges (b)  (3,853)  (11,469)  (58,838)  (13,362)  7,520   (12,909)  (51,318)  (26,272)
Total net change due to hedging activities  (9,633)  (81,139)  (217,450)  (125,723)  25,590   (54,052)  (191,860)  (179,775)
Net change in pension and postretirement benefits  1,277   654   2,553   1,310   1,277   656   3,830   1,966 
Total other comprehensive income (loss)  44,861   (18,127)  (32,728)  (29,090)  33,561   (9,438)  833   (38,528)
Total comprehensive income (loss) $182,386  $89,955  $209,904  $213,830  $134,756  $91,974  $344,660  $305,804 

 

(a)Represents changes in the fair values of derivatives in cash flow hedging programs, primarily from open contracts in the hedging of rolling issuance of CO discount notes, and any open contracts in cash flow hedges of anticipatory issuance of CO bonds. Also includes unamortized gains and losses related to closed cash flow hedges that will be amortized in future periods from AOCI to Interest expense. For more information, see table “Cash flow hedge gains and losses” in Note 17. Derivatives and Hedging Activities.
(b)Represents cumulative hedge valuation basis adjustments on fair value hedges of AFS securities under the partial-term hedging provisions of ASU 2017-12. The amount represents the change in the unrealized fair values of the hedged securities due to changes in the benchmark rate component elected in the hedging strategy. Quarterly changes in the benchmark rate will be recorded through AOCI with an offset to earnings until the hedged securities mature or are sold.

 

The accompanying notes are an integral part of these financial statements.

 


Federal Home Loan Bank of New York

Statements of Capital — Unaudited (In Thousands)

For the Three and SixNine Months Ended JuneSeptember 30, 2020 and 2019

 

            Accumulated                Accumulated    
 Capital Stock (a)         Other     Capital Stock (a)         Other    
 Class B  Retained Earnings  Comprehensive  Total  Class B Retained Earnings Comprehensive Total 
 Shares  Par Value  Unrestricted  Restricted  Total  Income (Loss)  Capital  Shares Par Value Unrestricted Restricted Total Income (Loss) Capital 
Balance, March 31, 2019  56,711  $5,671,075  $1,109,437  $618,248  $1,727,685  $(24,222) $7,374,538 
Balance, June 30, 2019  58,412  $5,841,247  $1,108,387  $639,865  $1,748,252  $(42,349) $7,547,150 
                                                        
Proceeds from issuance of capital stock  20,227   2,022,647   -   -   -   -   2,022,647   22,004   2,200,344   -   -   -   -   2,200,344 
Repurchase/redemption of capital stock  (18,486)  (1,848,538)  -   -   -   -   (1,848,538)  (25,676)  (2,567,573)  -   -   -   -   (2,567,573)
Shares reclassified to mandatorily
redeemable capital stock		    (40 )    (3,937 )    -      -      -      -      (3,937 )  -   -   -   -   -   -   - 
Cash dividends ($1.57 per share) on
capital stock		   -      -      (87,515 )    -      (87,515 )   -      (87,515 )
Cash dividends ($1.58 per share) on capital stock  -   -   (92,073)  -   (92,073)  -   (92,073)
Comprehensive income (loss)  -   -   86,465   21,617   108,082   (18,127)  89,955   -   -   81,130   20,282   101,412   (9,438)  91,974 
                                                        
Balance, June 30, 2019  58,412  $5,841,247  $1,108,387  $639,865  $1,748,252  $(42,349) $7,547,150 
Balance, September 30, 2019  54,740  $5,474,018  $1,097,444  $660,147  $1,757,591  $(51,787) $7,179,822 
                                                        
Balance, March 31, 2020  73,127  $7,312,703  $1,107,833  $706,820  $1,814,653  $(125,394) $9,001,962 
Balance, June 30, 2020  63,342  $6,334,135  $1,150,181  $734,325  $1,884,506  $(80,533) $8,138,108 
                                                        
Adjustments to opening balances (b)  -   -   18,204   -   18,204   -   18,204 
Proceeds from issuance of capital stock  7,122   712,159   -   -   -   -   712,159   6,721   672,165   -   -   -   -   672,165 
Repurchase/redemption of capital stock  (16,907)  (1,690,727)  -   -   -   -   (1,690,727)  (10,079)  (1,007,894)  -   -   -   -   (1,007,894)
Cash dividends ($1.47 per share) on
capital stock		    -      -      (85,876 )    -      (85,876 )   -      (85,876 )
Shares reclassified to mandatorily redeemable capital stock  (27)  (2,743)  -   -   -   -   (2,743)
Cash dividends ($1.39 per share) on capital stock  -   -   (95,433)  -   (95,433)  -   (95,433)
Comprehensive income (loss)  -   -   110,020   27,505   137,525   44,861   182,386   -   -   80,956   20,239   101,195   33,561   134,756 
                                                        
Balance, June 30, 2020  63,342  $6,334,135  $1,150,181  $734,325  $1,884,506  $(80,533) $8,138,108 
Balance, September 30, 2020  59,957  $5,995,663  $1,135,704  $754,564  $1,890,268  $(46,972) $7,838,959 

 

            Accumulated                Accumulated    
 Capital Stock (a)         Other     Capital Stock (a)         Other    
 Class B  Retained Earnings  Comprehensive  Total  Class B Retained Earnings Comprehensive Total 
 Shares  Par Value  Unrestricted  Restricted  Total  Income (Loss)  Capital  Shares Par Value Unrestricted Restricted Total Income (Loss) Capital 
Balance, December 31, 2018  60,658  $6,065,799  $1,102,801  $591,281  $1,694,082  $(13,259) $7,746,622   60,658  $6,065,799  $1,102,801  $591,281  $1,694,082  $(13,259) $7,746,622 
                                                        
Proceeds from issuance of capital stock  36,722   3,672,176   -   -   -   -   3,672,176   58,726   5,872,520   -   -   -   -   5,872,520 
Repurchase/redemption of capital stock  (38,927)  (3,892,679)  -   -   -   -   (3,892,679)  (64,603)  (6,460,252)  -   -   -   -   (6,460,252)
Shares reclassified to mandatorily
redeemable capital stock		    (41 )    (4,049 )    -      -      -      -      (4,049 )  (41)  (4,049)  -   -   -   -   (4,049)
Cash dividends ($3.31 per share) on
capital stock		    -      -       (188,750 )    -      (188,750 )    -      (188,750 )
Cash dividends ($4.89 per share) on capital stock  -   -   (280,823)  -   (280,823)  -   (280,823)
Comprehensive income (loss)  -   -   194,336   48,584   242,920   (29,090)  213,830   -   -   275,466   68,866   344,332   (38,528)  305,804 
                                                        
Balance, June 30, 2019  58,412  $5,841,247  $1,108,387  $639,865  $1,748,252  $(42,349) $7,547,150 
Balance, September 30, 2019  54,740  $5,474,018  $1,097,444  $660,147  $1,757,591  $(51,787) $7,179,822 
                                                        
Balance, December 31, 2019  57,787  $5,778,666  $1,115,236  $685,798  $1,801,034  $(47,805) $7,531,895   57,787  $5,778,666  $1,115,236  $685,798  $1,801,034  $(47,805) $7,531,895 
                                                        
Adjustments to opening balances (b)  -   -   14,431   -   14,431   -   14,431   -   -   14,431   -   14,431   -   14,431 
Proceeds from issuance of capital stock  43,309   4,330,884   -   -   -   -   4,330,884   50,030   5,003,049   -   -   -   -   5,003,049 
Repurchase/redemption of capital stock  (37,754)  (3,775,415)  -   -   -   -   (3,775,415)  (47,833)  (4,783,309)  -   -   -   -   (4,783,309)
Cash dividends ($3.07 per share) on
capital stock		     -      -      (173,591 )    -      (173,591 )   -       (173,591 )
Shares reclassified to mandatorily redeemable capital stock  (27)  (2,743)  -   -   -   -   (2,743)
Cash dividends ($4.46 per share) on capital stock  -   -   (269,024)  -   (269,024)  -   (269,024)
Comprehensive income (loss)  -   -   194,105   48,527   242,632   (32,728)  209,904   -   -   275,061   68,766   343,827   833   344,660 
                                                        
Balance, June 30, 2020  63,342  $6,334,135  $1,150,181  $734,325  $1,884,506  $(80,533) $8,138,108 
Balance, September 30, 2020  59,957  $5,995,663  $1,135,704  $754,564  $1,890,268  $(46,972) $7,838,959 

 

(a)Putable stock. Cash dividends paid — Dividends per share and aggregate dividends were paid on a single class of shares of capital stock. For more information, see Note 14. Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings.

(b)Adjustments include a charge to retained earnings of $3.8 million at the adoption of ASU 2016-13 (CECL framework) on January 1, 2020; in June 2020, we recorded an increase to retained earnings of $18.2 million, which represented the FHLBNY’s share of cash distribution received when Financing Corporation (FICO), an entity established by Congress in 1987 was dissolved and surplus funds distributed to the 11 FHLBanks. For more information, see Distribution received from Financing Corporation in Note 14. Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings.

The accompanying notes are an integral part of these financial statements.

6


 

Federal Home Loan Bank of New York

Statements of Cash Flows — Unaudited (In Thousands)

For the SixNine Months Ended JuneSeptember 30, 2020 and 2019

 Six months ended June 30,  Nine months ended September 30, 
 2020  2019  2020 2019 
Operating activities              
              
Net Income $242,632  $242,920  $343,827 $344,332 
      
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 (a)  (258,125)  (48,960)  (243,626) (218,314)
Concessions on consolidated obligations  2,192   1,266   3,500 2,277 
Premises, software, and equipment  5,277   4,113   7,946 6,344 
Provision (Reversal) for credit losses  3,166   (292)  5,702 (158)
Credit impairment losses on held-to-maturity securities  -   384   - 640 
Change in net fair value adjustments on derivatives and hedging activities (b)  (649,667)  (324,340)  (603,475) (307,368)
Net realized and unrealized (gains) losses on trading securities  (155,875)  (50,994)  (116,182) (46,994)
Change in fair value on Equity Investments  1,172   (5,877)  (1,716) (6,012)
Change in fair value adjustments on financial instruments held at fair value  11,390   2,824   4,283 3,518 
Net change in:              
Accrued interest receivable  86,933   (86,362)  116,976 1,735 
Derivative assets due to accrued interest  184,331   4,227   240,239 41,852 
Derivative liabilities due to accrued interest  (113,722)  35,316   (125,660) (1,951)
Other assets  (1,729)  (330)  1,773 3,170 
Affordable Housing Program liability  5,570   2,544   4,458 (1,194)
Accrued interest payable  (25,457)  (16,768)  (39,609) (40,434)
Other liabilities (a)  (7,335)  1,644   2,557  6,411 
Total adjustments  (911,879)  (481,605)  (742,834) (556,478)
Net cash provided by (used in) operating activities  (669,247)  (238,685) $(399,007)$(212,146)
Investing activities              
Net change in:              
Interest-bearing deposits  (1,519,009)  (205,237) $(1,237,918)$(379,145)
Securities purchased under agreements to resell  10,035,000   (5,190,000)  11,585,000 (5,840,000)
Federal funds sold  3,285,000   (1,600,000)  966,000 3,710,000 
Deposits with other FHLBanks  (150)  (52)  (72) (89)
Premises, software, and equipment  (10,830)  (9,391)  (16,245) (15,401)
Trading securities:              
Purchased  (3,108,539)  (4,650,582)  (3,333,433) (7,991,883)
Repayments  1,350,723   1,714,147   1,850,738 1,714,159 
Proceeds from sales  4,292,913   748,301   4,292,913 748,301 
Equity Investments:              
Purchased  (6,048)  (3,072)  (10,024) (4,101)
Proceeds from sales  1,071   960   1,825 1,478 
Available-for-sale securities:              
Purchased  (74,156)  (438,539)  (489,130) (521,965)
Repayments  31,534   42,830   49,363 60,830 
Held-to-maturity securities:              
Long-term securities              
Purchased  (246,116)  (1,072,620)  (286,053) (1,524,044)
Repayments  1,124,103   1,482,781   1,693,437 2,275,156 
Advances:              
Principal collected  345,370,203   578,923,574   450,650,767 868,256,828 
Made  (356,975,684)  (575,518,705)  (454,872,494) (856,562,006)
Mortgage loans held-for-portfolio:              
Principal collected  286,776   119,457   515,139 204,891 
Purchased  (288,479)  (180,255)  (411,852) (336,487)
Proceeds from sales of REO  -   1,468   442 2,388 
Net change in loans to other FHLBanks  -   250,000   -  250,000 
Net cash provided by (used in) investing activities  3,548,312   (5,584,935) $10,948,403 $4,048,910 

The accompanying notes are an integral part of these financial statements.

7


Federal Home Loan Bank of New York

Statements of Cash Flows — Unaudited (In Thousands)

For the SixNine Months Ended JuneSeptember 30, 2020 and 2019

 Six months ended June 30,  Nine months ended September 30, 
 2020  2019  2020  2019 
Financing activities                
Net change in:                
Deposits and other borrowings $481,265  $121,693  $690,210  $402,828 
Partial recovery of prior capital distribution to Financing Corporation  18,204   -   18,204   - 
Derivative contracts with financing element  (4,065)  (9,746)  (5,049)  (14,811)
Consolidated obligation bonds:                
Proceeds from issuance  37,393,814   41,556,527   59,823,060   67,059,485 
Payments for maturing and early retirement  (57,286,952)  (47,127,264)  (66,949,288)  (75,378,234)
Consolidated obligation discount notes:        
Consolidated obligation discount notes:        
Proceeds from issuance  501,373,428   605,334,521   734,342,359   935,812,989 
Payments for maturing  (485,794,282)  (593,674,687)  (738,530,592)  (930,878,032)
Capital stock:                
Proceeds from issuance of capital stock  4,330,884   3,672,176   5,003,049   5,872,520 
Payments for repurchase/redemption of capital stock  (3,775,415)  (3,892,679)  (4,783,309)  (6,460,252)
Redemption of mandatorily redeemable capital stock  (1,288)  (4,380)  (4,538)  (4,562)
Cash dividends paid (c)  (173,591)  (188,750)  (269,024)  (280,823)
Net cash provided by (used in) financing activities  (3,437,998)  5,787,411  $(10,664,918) $(3,868,892)
Net increase (decrease) in cash and due from banks  (558,933)  (36,209)  (115,522)  (32,128)
Cash and due from banks at beginning of the period (d)  603,241   85,406   603,241   85,406 
Cash and due from banks at end of the period (d) $44,308  $49,197  $487,719  $53,278 
                
Supplemental disclosures:                
Interest paid $698,687  $996,635  $858,482  $1,502,674 
Interest paid for Discount Notes (e) $390,456  $579,318  $445,801  $1,029,127 
Affordable Housing Program payments (f) $21,404  $24,470  $33,767  $39,486 
Transfers of mortgage loans to real estate owned $135  $366  $135  $459 
Net amount of impairment losses reclassified to (from) Accumulated other comprehensive income (loss) $-  $(384) $-  $(640)
Capital stock subject to mandatory redemption reclassified from equity $-  $4,049  $2,743  $4,049 
Securities traded but not settled $-  $100,922 
Transfers of HTM securities to AFS that are not other-than-temporarily impaired (g) $-  $1,597,207  $-  $1,597,207 

 

Notes to Supplemental Disclosure:

 

(a)The adoption of ASU 2016-02, Leases (Topic 842) resulted in the recognition of non-cash right-of-use operating assets of $71.6 million and lease liabilities of $83.9 million as of January 1, 2019. For cash flow information on operating leases outstanding at JuneSeptember 30, 2020 and December 31, 2019, including additions, see Operating Lease Commitments in Note 19. Commitments and Contingencies.
(b)Negative adjustments to operating cash flows of $649.7$603.5 million and $324.3$307.4 million for the sixnine months ended JuneSeptember 30, 2020 and 2019 represented fair value adjustments on derivatives and hedging activities and the increase was due to higher variation margin posted to derivative counterparties.
(c)Does not include payments to holders of mandatorily redeemable capital stock. Such payments are considered as interest expense and reported within operating cash flows.
(d)Cash and due from Banks includes pass-thru reserves at the Federal Reserve Bank of New York. See Note 3. Cash and Due from Banks for further information. Interest-bearing deposits are considered investments, and are not included in cash or cash equivalent.
(e)Interest paid for Discount Notes, is the portion of the cash payments at settlement of zero-coupon Consolidated obligation discount notes.
(f)AHP payments = (beginning accrual - ending accrual) + AHP assessment for the period; payments represent funds released to the Affordable Housing Program.
(g)As of January 1, 2019, the FHLBNY elected (as permitted under ASU 2017-12) and transferred $1.6 billion (amortized cost basis) of fixed-rate MBS from HTM classification to AFS classification.

 

The accompanying notes are an integral part of these financial statements.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited 

 

Background

 

The Federal Home Loan Bank of New York (FHLBNY or the Bank) is a federally chartered corporation, and is one of 11 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 FHLBNY’s defined geographic district is New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands.

 

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

 

Assessments. Affordable Housing Program (AHP) Assessments — Each FHLBank, including the FHLBNY, 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 11 FHLBanks must allocate the greater of $100 million or 10% of their regulatory defined net income for the Affordable Housing Program.

 

Note 1.           Critical Accounting Policies and Estimates.

Note 1.Critical Accounting Policies and Estimates.

 

Basis of Presentation

 

The accompanying financial statements of the Federal Home Loan Bank of New York have been prepared in accordance with Generally Accepted Accounting Principles in the United States (GAAP) and with the instructions provided by the Securities and Exchange Commission (SEC).

 

The FHLBNY has identified certain accounting policies that it believes are critical 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. The most significant of these critical policies include derivatives and hedging relationships, estimating the fair values of assets and liabilities, estimating the allowance for credit losses on the advance, mortgage loan portfolios and our portfolios of investment securities.

 

Financial Instruments with Legal Right of Offset

 

The FHLBNY has derivative instruments, and securities purchased under agreements to resell that are subject to enforceable master netting arrangements.  The FHLBNY has elected to offset its derivative asset and liability positions, as well as cash collateral received or pledged, when it has the legal right of offset under these master agreements.  The FHLBNY did not have any offsetting liabilities related to its securities purchased under agreements to resell for the periods presented.

 

The net exposure for these financial instruments can change on a daily basis; therefore, there may be a delay between the time this exposure change is identified and additional collateral is requested, and the time when this collateral is received or pledged.  Likewise, there may be a delay for excess collateral to be returned.  For derivative instruments, any excess cash collateral received or pledged is recognized as a derivative liability or as a derivative asset based on the terms of the individual master agreement between the FHLBNY and its derivative counterparty. Additional information regarding these agreements is provided in Note 17.  Derivatives and Hedging Activities in this Form 10-Q and in the most recent Form 10-K for the year ended December 31, 2019 filed on March 20, 2020. For securities purchased under agreements to resell, the FHLBNY did not have any unsecured amounts based on the fair value of the related collateral held at the end of the periods presented.  Additional information about the FHLBNY’s investments in securities purchased under agreements to resell is disclosed in Note 4. Interest-bearing Deposits, Federal Funds Sold and Securities Purchased Under Agreements to Resell.

 

9


 

Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited 

 

Fair Value Measurements and Disclosures

 

The accounting standards on fair value measurements and disclosures discuss how entities should measure fair value based on whether the inputs to those valuation techniques are observable or unobservable.  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.

 

The FHLBNY complied with the accounting guidance on fair value measurements and disclosures and has established 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 independent sources.  Unobservable inputs are inputs that reflect our 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.  Our pricing models are subject to periodic validations, and we periodically review and refine, as appropriate, our assumptions and valuation methodologies to reflect market indications as closely as possible.  We have the appropriate personnel, technology, and policies and procedures in place to value financial instruments in a reasonable and consistent manner and in accordance with established accounting policies.

 

For more information about methodologies used by the FHLBNY to validate vendor pricing, and fair value “Levels” associated with assets and liabilities recorded on the FHLBNY’s Statements of Condition, see financial statements, Note 18.  Fair Values of Financial Instruments in this Form 10-Q and in the most recent Form 10-K for the year ended December 31, 2019 filed on March 20, 2020.

 

Derivatives and Hedging Activities

 

We enter into derivatives primarily to manage our exposure to changes in interest rates. Through the use of derivatives, we may adjust the effective maturity, repricing frequency, or option characteristics of financial instruments to achieve our risk management objectives. The accounting guidance related to derivatives and hedging activities is complex and contains prescriptive documentation requirements. At the inception of each hedge transaction, we formally document the hedge relationship, its risk management objective, and strategy for undertaking the hedge.

 

In compliance with accounting standards, primarily ASC 815, the accounting for derivatives requires us to make the following assumptions and estimates:  (i) assessing whether the hedging relationship qualifies for hedge accounting, (ii) assessing whether an embedded derivative should be bifurcated, (iii) calculating the effectiveness of the hedging relationship, (iv) evaluating exposure associated with counterparty credit risk, and (v) estimating the fair value of the derivatives.  Our assumptions and judgments include subjective estimates based on information available as of the date of the financial statements and could be materially different based on different assumptions, calculations, and estimates.

 

To qualify as an accounting hedge under the hedge accounting rules (versus an economic hedge where hedge accounting is not sought), a derivative must be highly effective in offsetting the risk designated as being hedged. The hedge relationship must be formally documented at inception, detailing the particular risk management objective and strategy for the hedge, which includes the item and risk that is being hedged and the derivative that is being used, as well as how effectiveness will be assessed and measured.  The effectiveness of these hedging relationships is evaluated on a retrospective and prospective basis, typically using quantitative measures of correlation. For hedges that are highly effective, changes in the fair values of the hedging instrument and the offsetting changes in the fair values of the hedged item are recorded in current earnings.  If a hedge relationship is found to be not highly effective, it will no longer qualify as an accounting hedge and hedge accounting would be prospectively withdrawn. When hedge accounting is discontinued, the offsetting changes of fair values of the hedged item are also discontinued.

 


Federal Home Loan Bank of New York
Notes to Financial Statements — Unaudited

For more information about the FHLBNY’s hedging activities, see financial statements, Note 17. Derivatives and Hedging Activities in this Form 10-Q and in the most recent Form 10-K for the year ended December 31, 2019 filed on March 20, 2020.

 

10 

Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited 

Credit Losses under ASU 2016-13 — Recently Adopted Accounting Guidance

 

The FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), which became effective for the Bank as of January 1, 2020. The adoption of this guidance established a single allowance framework for all financial assets carried at amortized cost, including advances, loans, held-to-maturity securities, other receivables and certain off-balance sheet credit exposures. We have elected to evaluate expected credit losses on interest receivable separately. For available-for-sale securities where fair value is less than cost, credit related impairment, if any, will be recognized in an allowance for credit losses and adjusted each period for changes in expected credit risk. This framework requires that management’s estimate reflects credit losses over the full remaining expected life and considers expected future changes in macroeconomic conditions.

 

For a description of how expected losses are developed including interest receivable, refer to notes to financial statements:

 

Note 4.    Interest-bearing Deposits, Federal Funds Sold and Securities Purchased Under Agreements to Resell.

Note 7.    Available-for-Sale Securities.

Note 8.    Held-to-Maturity Securities.

Note 9.    Advances.

Note 10.  Mortgage Loans Held-for-Portfolio.

Note 19.  Commitments and Contingencies (for off-balance sheet).

 

Adoption of ASU 2016-13 did not have a material impact on financial condition or cash flows. The following table presents the impacts to allowance for credit losses and retained earnings at January 1, 2020, the adoption date of this guidance, and at JuneSeptember 30, 2020 (in thousands):

 

  December 31, 2019  CECL Adoption Impact  January 1, 2020  June 30, 2020 
Allowance for Credit Losses                
     PLMBS Held-to-maturity $-  $-  $-  $257 
     Mortgage loans  653   2,972   2,972   6,534 
     Municipal securities  -   801   801   801 
     Federal funds sold and                
     Repurchase agreements  -   -   -   - 
  $653  $3,773  $3,773  $7,592 
                 
Retained Earnings                
     Allowance for credit losses     $3,773  $3,773     
     Decrease in retained earnings     $3,773  $3,773     

  December 31, 2019  CECL Adoption Impact  January 1, 2020  September 30, 2020 
Allowance for Credit Losses                
     PLMBS Held-to-maturity $-  $-  $-  $257 
     Mortgage loans  653   2,972   2,972   9,100 
     Municipal securities  -   801   801   771 
     Federal funds sold and                
     Repurchase agreements  -   -   -   - 
  $653  $3,773  $3,773  $10,128 
                 
Retained Earnings                
     Allowance for credit losses     $3,773  $3,773     
     Decrease in retained earnings     $3,773  $3,773     

  

No off-balance sheet credit loss allowance was necessary at JuneSeptember 30, 2020 and December 31, 2019.

 

11


 

Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited 

Note 2.           FASB Standards Issued But Not Yet Adopted.

 

Note 2.FASB Standards Issued But Not Yet Adopted.

Standard Summary of Guidance Effective Date Effects on the Financial Statements
Facilitation of the Effects of Reference Rate Reform on Financial Reporting      
       
ASU 2020-04, Reference Rate Reform (Topic
(Topic 848)
Issued in March 2020		 This guidance provides temporary optional guidance to ease the potential burden in accounting for reference rate reform.  The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met.  These transactions include:

• contract modifications,
• hedging relationship, and
• sale or transfer of debt securities classified as HTM.

This guidance is effective for the FHLBNY beginning on March 12, 2020, and we may elect to apply the amendments prospectively through December 31, 2022.

We are actively engaged in reviewing LIBOR-indexed contracts, including the processapplication of evaluatingpermissable expedients offered under the ASU to streamline an orderly transition to SOFR.

While we have not yet concluded a comprehensive review, we believe the adoption of the guidance will streamline the transition broadly, and its effect onspecifically ease the financial condition, resultsadministrative burden for the accounting for the effects of operations, and cash flows.

While reference rate reform is not expected to havereform.   If elected, a one-time expedient allowing transfer/sale of LIBOR-indexed securities from  HTM could potentially result in a material accounting impact on the FHLBNY’s financial position or results of operations, the standard will ease the administrative burden in accounting for the future effectsoperations.

• contract modifications,
• hedging relationship, and
• sale or transfer of reference rate reform.debt securities classified as HTM.

 

Note 3.Cash and Due from Banks.

Note 3.Cash and Due from Banks.

 

Cash on hand, cash items in the process of collection, and amounts due from correspondent banks and the Federal Reserve Banks are recorded as cash and cash equivalent in the Statements of Cash Flows. The FHLBNY is exempted from maintaining any required clearing balance at the Federal Reserve Bank of New York.

 

Compensating Balances

 

The FHLBNY has arrangements with Citibank (a member/stockholder of the FHLBNY) to maintain compensating collected cash balances in return for certain fee based safekeeping and back office operational services that the counterparty provides to the FHLBNY. There are no restrictions on the withdrawal of funds in this arrangement. There were no compensating balances at JuneSeptember 30, 2020 and December 31, 2019. There were no restricted cash balances at JuneSeptember 30, 2020 and December 31, 2019.

 

Pass-through Deposit Reserves

 

The FHLBNY acts as a pass-through correspondent for member institutions who are required by banking regulations to deposit reserves with the Federal Reserve Banks. Pass-through reserves deposited with Federal Reserve Banks on behalf of the members by the FHLBNY were $35.4$34.2 million at JuneSeptember 30, 2020 and $45.4 million at December 31, 2019. The liabilities offsetting the pass-through reserves were due to member institutions and were recorded in Other liabilities in the Statements of Condition.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

Note 4.Interest-bearing Deposits, Federal Funds Sold and Securities Purchased Under Agreements to Resell.

 

The Bank invests in interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold to provide short-term liquidity. These investments are generally transacted with counterparties that have received a credit rating of triple-B or higher (investment grade) by a nationally recognized statistical rating organization.

 

Interest-bearing deposits — Investments are typically short-term deposits placed with highly-rated large financial institutions and are recorded at amortized cost. Deposits placed were uncollateralized. At JuneSeptember 30, 2020, deposits placed were $0.9$0.7 billion. Deposits are evaluated quarterly for expected credit losses based on the probability of default of the borrowing counterparty and the terms to maturity of the outstanding investments at the measurement dates. Based on analysis performed, no allowance for credit losses was recorded at JuneSeptember 30, 2020 and December 31, 2019. Accrued interest receivable was $3.9$3.0 thousand as of JuneSeptember 30, 2020, and no allowance for credit losses was recorded as interest due was collected.

 

12 

Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited 

Federal funds sold — Federal funds sold are unsecured advances to highly-rated large financial institutions. Federal funds sold are unsecured loans that are generally transacted on an overnight term and recorded at amortized cost basis. FHFA regulations include a limit on the amount of unsecured credit an individual Bank may extend to a counterparty. At JuneSeptember 30, 2020 and December 31, 2019, federal funds sold were $5.4$7.7 billion and $8.6 billion, and were repaid according to their contractual terms. Investments are evaluated quarterly for expected credit losses based on the probability of default of the borrowing counterparty and the terms to maturity of the outstanding investments at the measurement dates. Generally, federal funds are short-term and typically overnight. Counterparties are highly-rated. Based on analysis, no allowance for credit losses was recorded for Federal funds sold at JuneSeptember 30, 2020 and December 31, 2019. Accrued interest receivable was $13.6$17.1 thousand and $0.4 million as of JuneSeptember 30, 2020 and December 31, 2019, and no allowance for credit losses was recorded as interest due was collected.

 

Securities purchased under agreements to resell — At JuneSeptember 30, 2020 and December 31, 2019, the outstanding balances of Securities purchased under agreements to resell were recorded at amortized cost basis of $5.0$3.4 billion and $15.0 billion. The investments typically matured overnight, and were executed through a tri-party arrangement that involved transfer of overnight funds to a segregated safekeeping account at the Bank of New York (BONY). BONY, acting as an independent agent on behalf of the FHLBNY and the counterparty to the transactions, assumes the responsibility of receiving eligible securities as collateral and releasing funds to the counterparty. The amount of cash loaned against the collateral is a function of the liquidity and quality of the collateral. The collateral is typically in the form of securities that meet the FHLBNY’s credit quality standards, are highly-rated and readily marketable. The FHLBNY has the ability to call for additional collateral if the value of the securities falls below a pre-defined haircut. The FHLBNY can terminate the transaction and liquidate the collateral if the counterparty fails to post the additional margin. Agreements generally allow the FHLBNY to repledge securities under certain conditions. No adjustments for instrument-specific credit risk were deemed necessary as market values of collateral were in excess of principal amounts loaned. Accrued interest receivable was $10.8$7.4 thousand and $0.6 million at JuneSeptember 30, 2020 and December 31, 2019, and no allowance for credit losses was recorded as interest due was collected.

 

U.S. Treasury securities at market values of $5.0$3.5 billion and $15.2 billion were received at BONY to collateralize the overnight investments at JuneSeptember 30, 2020 and December 31, 2019. Securities purchased under agreements to resell averaged $2.2$4.0 billion and $4.7$4.5 billion for the three and sixnine months ended JuneSeptember 30, 2020. For the twelve months ended December 31, 2019, transaction balances averaged $8.3 billion. Interest income from securities purchased under agreements to resell were $0.4$1.0 million and $26.7$27.7 million for the three and sixnine months ended JuneSeptember 30, 2020 compared to $52.3$55.3 million and $82.2$137.6 million for the same periods in the prior year. No overnight investments had been executed bilaterally with counterparties at those dates. Transactions recorded as Securities purchased under agreements to resell (reverse repos) were accounted as collateralized financing transactions.

 

Investments are evaluated quarterly for expected credit losses based on the probability of default of the borrowing counterparty and the terms to maturity of the outstanding investments at the measurement dates. A credit loss would also be recognized if there is a collateral shortfall which the FHLBNY does not believe the counterparty will replenish in accordance with its contractual terms. The credit loss would be limited to the difference between the fair value of the collateral and the investment’s amortized cost. Generally, repurchase agreements are short-term and generally overnight and counterparties are highly-rated. Based on analysis performed, no allowance for credit losses was recorded for these assets at JuneSeptember 30, 2020 and December 31, 2019.


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Note 5.Trading Securities.

 

The carrying value of a trading security equals its fair value.  The following table provides major security types at JuneSeptember 30, 2020 and December 31, 2019 (in thousands):

 

Fair value June 30, 2020  December 31, 2019  September 30, 2020 December 31, 2019 
Corporate notes $2,158  $3,217  $2,166  $3,217 
U.S. Treasury notes  11,172,698   15,315,592   11,346,168   15,315,592 
U.S. Treasury bills  1,748,975   -   1,249,693   - 
Total trading securities $12,923,831  $15,318,809  $12,598,027  $15,318,809 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited 

 

The carrying values of trading securities included net unrealized fair value gains of $170.6$130.9 million at JuneSeptember 30, 2020, and $53.1 million at December 31, 2019. We have classified investments acquired for purposes of meeting short-term contingency and other liquidity needs as trading securities. In accordance with Finance Agency guidance, we do not participate in speculative trading practices.

 

Trading Securities Pledged

 

The FHLBNY had pledged marketable securities at fair values of $635.8$633.2 million at JuneSeptember 30, 2020 and $251.2 million at December 31, 2019 to derivative clearing organizations to fulfill the FHLBNY’s initial margin requirements as mandated under margin rules of the Commodity Futures Trading Commission (CFTC). The clearing organizations have rights to sell or repledge the collateral securities under certain conditions.

 

The following tables present redemption terms of the major types of trading securities (dollars in thousands):

 

Redemption Terms

 

 June 30, 2020  September 30, 2020 
 Due in one year or less  Due after one year through five years  Total Fair Value  

Due in one year

or less

  Due after one year
through five years		  Total Fair Value 
Corporate notes $-  $2,158  $2,158  $-  $2,166  $2,166 
U.S. Treasury notes  6,678,814   4,493,884   11,172,698   9,855,917   1,490,251   11,346,168 
U.S. Treasury bills  1,748,975   -   1,748,975   1,249,693   -   1,249,693 
Total trading securities $8,427,789  $4,496,042  $12,923,831  $11,105,610  $1,492,417  $12,598,027 
Yield on trading securities  1.74%  1.88%      1.70%  1.83%   

 

  December 31, 2019 
  Due in one year or less  Due after one year through five years  Total Fair Value 
Corporate notes $869  $2,348  $3,217 
U.S. Treasury notes  6,176,952   9,138,640   15,315,592 
Total trading securities $6,177,821  $9,140,988  $15,318,809 
Yield on trading securities  2.36%  2.36%    


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

  December 31, 2019 
  

Due in one year

or less

  Due after one year
through five years		  Total Fair Value 
Corporate notes $869  $2,348  $3,217 
U.S. Treasury notes  6,176,952   9,138,640   15,315,592 
Total trading securities $6,177,821  $9,140,988  $15,318,809 
Yield on trading securities  2.36%  2.36%    

 

Note 6.Equity Investments.

 

The FHLBNY has classified its grantor trust as equity investments. The carrying value of equity investments in the Statements of Condition, and the types of assets in the grantor trust were as follows (in thousands):

 

  June 30, 2020 
     Gross  Gross    
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains (b)  Losses (b)  Value (c) 
             
Cash equivalents $5,487  $-  $-  $5,487 
Equity funds  28,985   8,256   (2,608)  34,633 
Fixed income funds  22,581   1,245   (94)  23,732 
Total Equity Investments (a) $57,053  $9,501  $(2,702) $63,852 

  September 30, 2020 
     Gross  Gross    
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains (b)  Losses (b)  Value (c) 
Cash equivalents $8,255  $-  $-  $8,255 
Equity funds  29,254   10,909   (2,546)  37,617 
Fixed income funds  22,766   1,413   (90)  24,089 
Total Equity Investments (a) $60,275  $12,322  $(2,636) $69,961 
                 
   December 31, 2019 
       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains (b)   Losses (b)   Value (c) 
Cash equivalents $1,322  $-  $-  $1,322 
Equity funds  28,650   8,312   (623)  36,339 
Fixed income funds  22,104   412   (130)  22,386 
Total Equity Investments (a) $52,076  $8,724  $(753) $60,047 

 

  December 31, 2019 
     Gross  Gross    
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains (b)  Losses (b)  Value (c) 
             
Cash equivalents $1,322  $-  $-  $1,322 
Equity funds  28,650   8,312   (623)  36,339 
Fixed income funds  22,104   412   (130)  22,386 
Total Equity Investments (a) $52,076  $8,724  $(753) $60,047 

(a)The intent of the grantor trust is to set aside cash to meet current and future payments for supplemental unfunded pension plans. Neither the pension plans nor employees of the FHLBNY own the trust.
(b)Changes in unrealized gains and losses are recorded through earnings, specifically in Other income in the Statements of Income.
(c)The grantor trust invests in money market, equity and fixed income and bond funds. Daily net asset values (NAVs) are readily available and investments are redeemable at short notice. NAVs are the fair values of the funds in the grantor trust. The grantor trust is owned by the FHLBNY.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

In the Statements of Income gains and losses related to outstanding Equity Investments were as follows (in thousands):

 

  Three Months Ended June 30,  Six Months Ended June 30, 
  2020  2019  2020  2019 
Unrealized gains (losses) recognized during the reporting period on equity investments still held at the reporting date $7,111  $1,667  $(1,172) $5,877 
Net dividend and other  217   259   450   487 
Net gains (losses) recognized during the period $7,328  $1,926  $(722) $6,364 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

  Three Months Ended September 30,  Nine Months Ended September 30, 
  2020  2019  2020  2019 
Unrealized gains (losses) recognized during the reporting period on equity investments still held at the reporting date $2,888  $135  $1,716  $6,012 
Net gains (losses) recognized during the period on equity investments sold during the period  -   17   -   17 
Net dividend and other  208   229   658   716 
Net gains (losses) recognized during the period $3,096  $381  $2,374  $6,745 

 

Note 7.Available-for-Sale Securities.

 

No AFS security was impaired in any periods in this report, and no credit loss allowance was necessary at JuneSeptember 30, 2020 or upon adoption of ASU 2017-12 at January 1, 2020.

 

The following tables provide major security types (in thousands):

 

 June 30, 2020 
    Gross Gross     September 30, 2020 
 Amortized Unrealized Unrealized Fair     Gross Gross    
 Cost  Gains  Losses  Value  Amortized Unrealized Unrealized Fair 
          Cost  Gains  Losses  Value 
GSE and U.S. Obligations                                
Mortgage-backed securities                                
Floating                                
CMO $310,854  $2,657  $(3) $313,508  $294,269  $4,221  $-  $298,490 
CMBS  311   -   -   311   36   -   -   36 
Total Floating  311,165   2,657   (3)  313,819   294,305   4,221   -   298,526 
Fixed                                
CMBS  2,283,962   276,326   -   2,560,288   2,696,267   283,627   (2,652)  2,977,242 
Total Fixed  2,283,962   276,326   -   2,560,288   2,696,267   283,627   (2,652)  2,977,242 
                
AFS Before Hedging Adjustments  2,595,127   278,983(a)  (3)(a)  2,874,107   2,990,572   287,848 (a) $(2,652) (a) $3,275,768 
Hedging Basis Adjustments in AOCI  70,431   70,431(b)  -   -   62,911   (62,911) (b)        
Total Available-for-sale securities $2,665,558  $208,552  $(3) $2,874,107  $3,053,483  $224,937         

 

 December 31, 2019 
    Gross Gross     December 31, 2019 
 Amortized Unrealized Unrealized Fair     Gross  Gross    
 Cost  Gains  Losses  Value  Amortized Unrealized  Unrealized Fair 
          Cost  Gains  Losses  Value 
GSE and U.S. Obligations                                
Mortgage-backed securities                                
Floating                                
CMO $339,419  $2,164  $(74) $341,509  $339,419  $2,164  $(74) $341,509 
CMBS  2,539   1   -   2,540   2,539   1   -   2,540 
Total Floating  341,958   2,165   (74)  344,049   341,958   2,165   (74)  344,049 
Fixed                                
CMBS  2,213,592   99,532   (3,755)  2,309,369   2,213,592   99,532   (3,755)  2,309,369 
Total Fixed  2,213,592   99,532   (3,755)  2,309,369   2,213,592   99,532   (3,755)  2,309,369 
                
AFS Before Hedging Adjustments  2,555,550   101,697(a)  (3,829)(a)  2,653,418   2,555,550   101,697 (a)  (3,829) (a)  2,653,418 
Hedging Basis Adjustments in AOCI  11,593   14,925(b)  3,332(b)  -   11,593   14,925 (b)  3,332 (b)  - 
Total Available-for-sale securities $2,567,143  $86,772  $(497) $2,653,418  $2,567,143  $86,772  $(497) $2,653,418 

 

(a)Amounts represents specialized third party pricing vendors’ estimates of gains/losses of AFS securities; market pricing is based on historical amortized cost adjusted for pay downs and amortization of premiums and discounts; amountsfair value unrealized gains and losses are before adjusting book values for hedge basis adjustments and will equal market values of AFS securities recorded in AOCI. Fair value hedges were executed to mitigate the interest rate risk of the hedged fixed-rate securities due to changes in the designated benchmark rate.
(b)Amounts represent fair value hedging basis that were recorded as an adjustment to the amortized cost of hedged securities, impacting unrealized gains and losses reported in the table above. Securities in a fair value hedging relationship at JuneSeptember 30, 2020 and December 31, 2019 reported $70.4$62.9 million and $11.6 million as hedging basis as disclosed in the table above, with an offset to AOCI.  The hedging basis adjustment had no impact on market based fair values.

 


15 

Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Credit Loss Analysis of AFS Securities

 

The FHLBNY’s portfolio of MBS classified as AFS is comprised primarily of GSE-issued collateralized mortgage obligations and CMBS. The FHLBNY evaluates its GSE-issued securities by considering the creditworthiness and performance of the debt securities and the strength of the government-sponsored enterprises’ guarantees of the securities.

 

Based on credit and performance analysis, GSE-issued securities are performing in accordance with their contractual agreements. 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. At JuneSeptember 30, 2020 and December 31, 2019, unrealized fair value losses have been aggregated in the table below by the length of time a security was in a continuous unrealized loss position.

 

The Bank evaluates its individual AFS securities for impairment by comparing the security’s fair value to its amortized cost. Impairment may exist when the fair value of the investment is less than its amortized cost (i.e. in an unrealized loss position). As noted in the table below, AFS securities in an unrealized loss position for 12-months or longer were not material. These losses are considered temporary as the Bank expects to recover the entire amortized cost basis on these AFS investment securities and neither intends to sell these securities nor considers it more likely than not that it will be required to sell these securities before its anticipated recovery of each security's remaining amortized cost basis. We have not experienced any payment defaults on the instruments. As noted previously, substantially all of these securities are GSE-issued and carry an implicit or explicit U.S. government guarantee. Based on the analysis, no allowance for credit losses was recorded on these AFS securities at JuneSeptember 30, 2020 and December 31, 2019. Accrued interest receivable was $6.0$6.4 million and $6.1 million at JuneSeptember 30, 2020 and December 31, 2019, and no allowance for credit losses was recorded as interest due was collected.

 

No credit loss allowance was necessary at JuneSeptember 30, 2020 based on analysis as noted above. The following table summarizes available-for-sale securities with estimated fair values below their amortized cost basis (in thousands):

 

 June 30, 2020  September 30, 2020 
 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 
MBS Investment Securities                                                
MBS-GSE                                                
Fannie Mae-CMO $4,409  $(3) $-  $-  $4,409  $(3)
Fannie Mae-CMBS  311   -   -   -   311   - 
Freddie Mac-CMO  842   -   -   -   842   - 
Freddie Mac-CMBS $412,121  $(2,652) $                   -  $-  $412,121  $(2,652)
Total MBS-GSE  5,562   (3)  -   -   5,562   (3)  412,121   (2,652)  -                 -   412,121   (2,652)
Total Temporarily Impaired $5,562  $(3) $-  $-  $5,562  $(3) $412,121  $(2,652) $-  $-  $412,121  $(2,652)

 

  December 31, 2019 
  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-CMO $32,012  $(65) $-  $-  $32,012  $(65)
Freddie Mac-CMO  7,071   (9)                       -   -   7,071   (9)
Freddie Mac-CMBS  129,496   (423)  -                 -   129,496   (423)
Total MBS-GSE  168,579   (497)  -   -   168,579   (497)
Total Temporarily Impaired $168,579  $(497) $-  $-  $168,579  $(497)

17

Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Redemption Terms

 

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees. The amortized cost and estimated fair value (a) of investments classified as AFS, by contractual maturity, were as follows (in thousands):

 

 June 30, 2020  December 31, 2019  September 30, 2020 December 31, 2019 
 Amortized Cost (b)  Fair Value  Amortized Cost (b)  Fair Value  Amortized Cost (b) Fair Value Amortized Cost (b) Fair Value 
Mortgage-backed securities                                
Due in one year or less $311  $311  $2,539  $2,540  $36  $36  $2,539  $2,540 
Due after one year through five years  243,223   263,114   -   -   313,885   342,105   -   - 
Due after five year through ten years  2,071,428   2,257,326   2,189,350   2,273,352   2,405,839   2,595,275   2,189,350   2,273,352 
Due after ten years  350,596   353,356   375,254   377,526   333,723   338,352   375,254   377,526 
Total Available-for-sale securities $2,665,558  $2,874,107  $2,567,143  $2,653,418  $3,053,483  $3,275,768  $2,567,143  $2,653,418 

 

(a)The carrying value of AFS securities equals fair value.
(b)Amortized cost is UPB after adjusting for net unamortized premiums of $29.5$37.8 million and net unamortized premiums of $30.4 million at JuneSeptember 30, 2020 and December 31, 2019. Additionally, historical amortized cost in the table above is after adjustment for hedging basis.

 


Federal Home Loan Bank of New York
Notes to Financial Statements — Unaudited

Interest Rate Payment Terms

 

The following table summarizes interest rate payment terms of investments in mortgage-backed securities classified as AFS securities (in thousands):

 

 June 30, 2020  December 31, 2019  September 30, 2020  December 31, 2019 
 Amortized Cost  Fair Value  Amortized Cost  Fair Value  Amortized Cost  Fair Value  Amortized Cost  Fair Value 
Mortgage-backed securities                                
Floating                                
CMO - LIBOR $310,854  $313,508  $339,419  $341,509  $294,269  $298,490  $339,419  $341,509 
CMBS - LIBOR  311   311   2,539   2,540   36   36   2,539   2,540 
Total Floating  311,165   313,819   341,958   344,049   294,305   298,526   341,958   344,049 
Fixed                                
CMBS  2,354,393   2,560,288   2,225,185   2,309,369   2,759,178   2,977,242   2,225,185   2,309,369 
                                
Total Mortgage-backed securities $2,665,558  $2,874,107  $2,567,143  $2,653,418  $3,053,483  $3,275,768  $2,567,143  $2,653,418 

Note 8.Held-to-Maturity Securities.

 

Major Security Types (in thousands) 

18

 

  September 30, 2020 
     Allowance  OTTI     Gross  Gross    
  Amortized  for Credit  Recognized  Carrying  Unrecognized  Unrecognized  Fair 
Issued, guaranteed or insured: Cost (d)  Loss (ACL)  in AOCI  Value  Holding Gains (a)  Holding Losses (a)  Value 
Pools of Mortgages                     
Fannie Mae $50,954  $-  $-  $50,954  $6,846  $-  $57,800 
Freddie Mac  10,163   -   -   10,163   1,282   -   11,445 
Total pools of mortgages  61,117   -   -   61,117   8,128   -   69,245 
                             
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits                            
Fannie Mae  1,071,810   -   -   1,071,810   10,994   (826)  1,081,978 
Freddie Mac  680,437   -   -   680,437   6,487   (401)  686,523 
Ginnie Mae  7,191   -   -   7,191   115   -   7,306 
Total CMOs/REMICs  1,759,438   -   -   1,759,438   17,596   (1,227)  1,775,807 
                             
Commercial Mortgage-Backed Securities (b)                            
Fannie Mae  1,622,958   -   -   1,622,958   50,553   (1,506)  1,672,005 
Freddie Mac  9,170,498   -   -   9,170,498   620,009   (6,392)  9,784,115 
Total commercial mortgage-backed securities  10,793,456   -   -   10,793,456   670,562   (7,898)  11,456,120 
                             
Non-GSE MBS (c)                            
CMOs/REMICs  3,929   (257)  (303)  3,369   251   (83)  3,537 
                             
Asset-Backed Securities (c)                            
Manufactured housing (insured)  25,152   -   -   25,152   834   -   25,986 
Home equity loans (insured)  54,936   -   (3,492)  51,444   13,969   (49)  65,364 
Home equity loans (uninsured)  18,742   -   (2,241)  16,501   2,526   (322)  18,705 
Total asset-backed securities  98,830   -   (5,733)  93,097   17,329   (371)  110,055 
Total MBS  12,716,770   (257)  (6,036)  12,710,477   713,866   (9,579)  13,414,764 
                             
Other                            
State and local housing finance agency obligations (e)  1,105,138   -   -   1,105,138   169   (22,086)  1,083,221 
Total Held-to-maturity securities $13,821,908  $(257) $(6,036) $13,815,615  $714,035  $(31,665) $14,497,985 


 

Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Note 8. Held-to-Maturity Securities.

Major Security Types (in thousands)

  June 30, 2020 
     Allowance  OTTI     Gross  Gross    
  Amortized  for Credit  Recognized  Carrying  Unrecognized  Unrecognized  Fair 
Issued, guaranteed or insured: Cost (d)  Loss (ACL)  in AOCI  Value  Holding Gains (a)  Holding Losses(a)  Value 
Pools of Mortgages                            
Fannie Mae $55,122  $-  $-  $55,122  $7,324  $-  $62,446 
Freddie Mac  10,670   -   -   10,670   1,319   -   11,989 
Total pools of mortgages  65,792   -   -   65,792   8,643   -   74,435 
                             
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits                            
Fannie Mae  1,203,111   -   -   1,203,111   9,584   (2,197)  1,210,498 
Freddie Mac  757,604   -   -   757,604   4,412   (1,304)  760,712 
Ginnie Mae  8,166   -   -   8,166   117   -   8,283 
Total CMOs/REMICs  1,968,881   -   -   1,968,881   14,113   (3,501)  1,979,493 
                             
Commercial Mortgage-Backed Securities (b)                            
Fannie Mae  1,690,448   -   -   1,690,448   51,403   (1,890)  1,739,961 
Freddie Mac  9,414,648   -   -   9,414,648   630,089   (9,639)  10,035,098 
Total commercial mortgage-backed securities  11,105,096   -   -   11,105,096   681,492   (11,529)  11,775,059 
                             
Non-GSE MBS (c)                            
CMOs/REMICs  4,010   (257)  (312)  3,441   239   (86)  3,594 
Commercial MBS  -   -   -   -   -   -   - 
Total non-federal-agency MBS  4,010   (257)  (312)  3,441   239   (86)  3,594 
                             
Asset-Backed Securities (c)                            
Manufactured housing (insured)  26,209   -   -   26,209   877   -   27,086 
Home equity loans (insured)  56,958   -   (3,672)  53,286   15,599   (40)  68,845 
Home equity loans (uninsured)  20,115   -   (2,530)  17,585   2,827   (373)  20,039 
Total asset-backed securities  103,282   -   (6,202)  97,080   19,303   (413)  115,970 
                             
Total MBS  13,247,061   (257)  (6,514)  13,240,290   723,790   (15,529)  13,948,551 
                             
Other                            
State and local housing finance agency obligations (e)  1,108,044   -   -   1,108,044   177   (22,595)  1,085,626 
Total other  1,108,044   -   -   1,108,044   177   (22,595)  1,085,626 
                             
Total Held-to-maturity securities $14,355,105  $(257) $(6,514) $14,348,334  $723,967  $(38,124) $15,034,177 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 December 31, 2019  December 31, 2019 
    OTTI     Gross Gross        OTTI   Gross Gross    
 Amortized Recognized Carrying Unrecognized Unrecognized Fair  Amortized Recognized Carrying Unrecognized Unrecognized Fair 
Issued, guaranteed or insured: Cost (d) in AOCI Value Holding Gains (a) Holding Losses (a) Value  Cost (d) in AOCI Value Holding Gains (a) Holding Losses (a) Value 
Pools of Mortgages                                     
Fannie Mae $61,990  $-  $61,990  $6,255  $-  $68,245  $61,990  $-  $61,990  $6,255  $-  $68,245 
Freddie Mac  11,526   -   11,526   1,135   -   12,661   11,526   -   11,526   1,135   -   12,661 
Total pools of mortgages  73,516   -   73,516   7,390   -   80,906   73,516   -   73,516   7,390   -   80,906 
                                                
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits                                                
Fannie Mae  1,403,787   -   1,403,787   4,281   (3,130)  1,404,938   1,403,787   -   1,403,787   4,281   (3,130)  1,404,938 
Freddie Mac  878,068   -   878,068   2,871   (2,526)  878,413   878,068   -   878,068   2,871   (2,526)  878,413 
Ginnie Mae  9,265   -   9,265   113   -   9,378   9,265   -   9,265   113   -   9,378 
Total CMOs/REMICs  2,291,120   -   2,291,120   7,265   (5,656)  2,292,729   2,291,120   -   2,291,120   7,265   (5,656)  2,292,729 
                                                
Commercial Mortgage-Backed Securities (b)                                                
Fannie Mae  1,822,310   -   1,822,310   16,796   (1,372)  1,837,734   1,822,310   -   1,822,310   16,796   (1,372)  1,837,734 
Freddie Mac  9,815,215   -   9,815,215   215,919   (18,584)  10,012,550   9,815,215   -   9,815,215   215,919   (18,584)  10,012,550 
Total commercial mortgage-backed securities  11,637,525   -   11,637,525   232,715   (19,956)  11,850,284   11,637,525   -   11,637,525   232,715   (19,956)  11,850,284 
                                                
Non-GSE MBS (c)                                                
CMOs/REMICs  4,451   (331)  4,120   56   (30)  4,146   4,451   (331)  4,120   56   (30)  4,146 
Commercial MBS  -   -   -   -   -   - 
Total non-federal-agency MBS  4,451   (331)  4,120   56   (30)  4,146 
                                                
Asset-Backed Securities (c)                                                
Manufactured housing (insured)  28,618   -   28,618   1,175   -   29,793   28,618   -   28,618   1,175   -   29,793 
Home equity loans (insured)  61,186   (4,062)  57,124   17,912   -   75,036   61,186   (4,062)  57,124   17,912   -   75,036 
Home equity loans (uninsured)  23,322   (3,178)  20,144   4,209   (146)  24,207   23,322   (3,178)  20,144   4,209   (146)  24,207 
Total asset-backed securities  113,126   (7,240)  105,886   23,296   (146)  129,036   113,126   (7,240)  105,886   23,296   (146)  129,036 
                                                
Total MBS  14,119,738   (7,571)  14,112,167   270,722   (25,788)  14,357,101   14,119,738   (7,571)  14,112,167   270,722   (25,788)  14,357,101 
                                                
Other                                                
State and local housing finance agency obligations  1,122,315   -   1,122,315   400   (23,210)  1,099,505   1,122,315   -   1,122,315   400   (23,210)  1,099,505 
                        
Total Held-to-maturity securities $15,242,053  $(7,571) $15,234,482  $271,122  $(48,998) $15,456,606  $15,242,053  $(7,571) $15,234,482  $271,122  $(48,998) $15,456,606 

 

(a)Unrecognized gross holding gains and losses represent the difference between fair value and carrying value.
(b)Commercial mortgage-backed securities (CMBS) are Agency issued securities, collateralized by income-producing “multifamily properties”. Eligible property types include standard conventional multifamily apartments, affordable multifamily housing, seniors housing, student housing, military housing, and rural rent housing.
(c)The amounts represent non-agency private-label mortgage- and asset-backed securities.
(d)Amortized cost — For securities that were deemed impaired, amortized cost represents unamortized cost less credit losses, net of credit recoveries (reversals) due to improvements in cash flows.
(e)Amortized cost at JuneSeptember 30, 2020 includes allowance for credit loss of $0.8 million recorded at January 1, 2020, the adoption date of ASU 2016-13.

 

Securities Pledged

 

The FHLBNY had pledged MBS, with an amortized cost basis of $3.2$2.9 million at JuneSeptember 30, 2020 and $3.7 million at December 31, 2019, to the FDIC in connection with deposits maintained by the FDIC at the FHLBNY. The FDIC does not have rights to sell or repledge the collateral unless the FHLBNY defaults under the terms of its deposit arrangements with the FDIC.

 


18 

Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Credit Loss Allowances on Held-to-maturity Securities

 

GSE-issued securities — The FHLBNY evaluates its individual securities issued by Fannie Mae, Freddie Mac and U.S. government agency, (collectively GSE-issued securities), by considering the creditworthiness and performance of the debt securities and the strength of the GSEs’ guarantees of the securities. Based on analysis, GSE-issued securities are performing in accordance with their contractual agreements, and we will recover our investments in GSE-issued securities given the current levels of collateral, credit enhancements and guarantees that exist to protect the investments. Numbers of investment positions that were in an unrealized loss position were 6742 and 120 at JuneSeptember 30, 2020 and December 31, 2019.

 

Housing finance agency bonds — The FHLBNY’s investments in housing finance agency bonds reported gross unrealized losses of $22.6$22.1 million and $23.2 million at JuneSeptember 30, 2020 and December 31, 2019. Investments are evaluated quarterly for expected credit losses based on the probability of default of the borrowing counterparty and the terms to maturity of the outstanding investments at the measurement dates. A credit loss would also be recognized if there is a collateral shortfall which the FHLBNY does not believe the counterparty will replenish in accordance with its contractual terms. The credit loss would be limited to the difference between the fair value of the collateral and the investment’s amortized cost. Our analysis identified no collateral shortfall. Number of investment positions that were in an unrealized loss position were 1514 and 12 at JuneSeptember 30, 2020 and December 31, 2019.

 

Based on analysis performed at January 1, 2020, the adoption date of the guidance under ASU 2016-13, a credit loss of $0.8 million was recognized as a charge to beginning retained earnings at January 1, 2020. At JuneSeptember 30, 2020, the probability default analysis reported cumulative credit loss of $0.8 million, materially unchanged from the evaluation at adoption date. The portfolio composition has not changed and no acquisitions or sales were made in the sixnine months ended JuneSeptember 30, 2020. Additionally, our counterparty default analysis at JuneSeptember 30, 2020 identified no material changes from those at adoption date.

 

Accrued interest receivable was $2.1$1.4 million and $4.5 million at JuneSeptember 30, 2020 and December 31, 2019, and no allowance for credit losses was recorded as interest due is expected to be collected.

 

Our investments are performing to their contractual terms, and management has concluded that the gross unrealized losses on its housing finance agency bonds are temporary because the underlying collateral and credit enhancements are sufficient to protect the FHLBNY from losses based on current expectations. The credit enhancements may include additional support from Monoline Insurance, reserve and investment funds allocated to the securities that may be used to make principal and interest payments in the event that the underlying loans pledged for these securities are not sufficient to make the necessary payments and the general obligation of the State issuing the bond.

 

Private-label mortgage-backed securities — Management evaluates its investments in private-label MBS (PLMBS) for credit losses on a quarterly basis by performing cash flow tests on its entire portfolio of PLMBS. No allowance for credit loss was recognized in the secondthird quarter of 2020. An OTTI of $0.4$0.3 million was recorded in the same period in 2019. Our investments in PLMBS were less than 1% of our investments in MBS. No acquisitions or sale of PLMBS were made in 2020; balances declined due to paydowns, and the portfolio composition remains largely unchanged. Based on cash flow testing, the Bank believes no material credit losses remains. Certain securities are insured by monoline insurers, and we have analyzed their guarantees with appropriate haircuts. The Bank’s conclusions are also based upon multiple factors, but not limited to the expected performance of the underlying collateral, and the evaluation of the fundamentals of the issuers’ financial condition. Management has not made a decision to sell such securities at JuneSeptember 30, 2020, and has concluded that it will not be required to sell such securities before recovery of the amortized cost basis of the securities. Number of investment positions that were in an unrealized loss position was 12 and 8 at JuneSeptember 30, 2020 and December 31, 2019.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Redemption Terms

 

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment features. The amortized cost and estimated fair value of held-to-maturity securities, arranged by contractual maturity, were as follows (in thousands):

 

  June 30, 2020  December 31, 2019 
  Amortized  Estimated  Amortized  Estimated 
  Cost (a)  Fair Value  Cost (a)  Fair Value 
State and local housing finance agency obligations                
Due after one year through five years $10,648  $10,646  $9,770  $9,781 
Due after five years through ten years  25,100   24,933   36,810   36,250 
Due after ten years  1,072,296   1,050,047   1,075,735   1,053,474 
State and local housing finance agency obligations  1,108,044   1,085,626   1,122,315   1,099,505 
                 
Mortgage-backed securities                
Due in one year or less  1,050,689   1,061,967   613,863   619,948 
Due after one year through five years  3,415,357   3,535,726   4,102,650   4,142,443 
Due after five years through ten years  6,394,678   6,912,305   6,648,746   6,815,921 
Due after ten years  2,386,337   2,438,553   2,754,479   2,778,789 
Mortgage-backed securities  13,247,061   13,948,551   14,119,738   14,357,101 
                 
Total Held-to-Maturity Securities $14,355,105  $15,034,177  $15,242,053  $15,456,606 

  September 30, 2020  December 31, 2019 
  Amortized  Estimated  Amortized  Estimated 
  Cost (a)  Fair Value  Cost (a)  Fair Value 
State and local housing finance agency obligations                
Due after one year through five years $10,671  $10,676  $9,770  $9,781 
Due after five years through ten years  25,100   24,956   36,810   36,250 
Due after ten years  1,069,367   1,047,589   1,075,735   1,053,474 
State and local housing finance agency obligations  1,105,138   1,083,221   1,122,315   1,099,505 
                 
Mortgage-backed securities                
Due in one year or less  953,177   959,383   613,863   619,948 
Due after one year through five years  3,341,975   3,469,434   4,102,650   4,142,443 
Due after five years through ten years  6,246,911   6,755,882   6,648,746   6,815,921 
Due after ten years  2,174,707   2,230,065   2,754,479   2,778,789 
Mortgage-backed securities  12,716,770   13,414,764   14,119,738   14,357,101 
                 
Total Held-to-Maturity Securities $13,821,908  $14,497,985  $15,242,053  $15,456,606 

 

(a)Amortized cost is UPB after adjusting for net unamortized premiums of $66.1$61.7 million at JuneSeptember 30, 2020 and $72.5 million at December 31, 2019 (net of unamortized discounts) and before adjustments for allowance for credit losses.  

 

Note 9.   Advances.

Note 9.Advances.

 

The FHLBNY offers to its members a wide range of fixed- and adjustable-rate advance loan products with different maturities, interest rates, payment characteristics, and optionality.

 

Redemption Terms

 

Contractual redemption terms and yields of advances were as follows (dollars in thousands):

 

 September 30, 2020 December 31, 2019 
   Weighted (a)      Weighted (a)   
 June 30, 2020  December 31, 2019    Average Percentage    Average Percentage 
 Amount  

Weighted (a)

Average

Yield

 

 

 

Percentage

of Total

  Amount  

Weighted (a)

Average

Yield

  

Percentage

of Total

   Amount  Yield  of Total  Amount  Yield  of Total 
Overdrawn demand deposit accounts $-   -%  -% $-   -%  -% $-   -%  -% $-   -%  -%
Due in one year or less  64,701,355   0.75   57.77   69,206,283   1.99   68.93   63,317,219   0.67   60.52   69,206,283   1.99   68.93 
Due after one year through two years  19,059,688   1.51   17.02   8,727,277   2.16   8.69   13,552,063   1.58   12.95   8,727,277   2.16   8.69 
Due after two years through three years  7,412,850   1.86   6.62   6,214,853   2.32��  6.19   7,202,990   1.70   6.89   6,214,853   2.32   6.19 
Due after three years through four years  2,899,637   2.35   2.59   3,032,507   2.68   3.02   4,032,322   1.95   3.86   3,032,507   2.68   3.02 
Due after four years through five years  5,468,615   1.54   4.88   2,709,805   2.02   2.70   4,407,544   1.57   4.21   2,709,805   2.02   2.70 
Thereafter  12,459,414   1.99   11.12   10,505,353   2.13   10.47   12,105,666   1.88   11.57   10,505,353   2.13   10.47 
                                                
Total par value  112,001,559   1.17%  100.00%  100,396,078   2.06%  100.00%  104,617,804   1.08%  100.00%  100,396,078   2.06%  100.00%
Hedge valuation basis adjustments (b)  1,786,997           299,163           1,597,934           299,163         
                                                
Total $113,788,556          $100,695,241          $106,215,738          $100,695,241         

 

(a)The weighted average yield is the weighted average coupon rates for advances, unadjusted for swaps. For floating-rate advances, the weighted average rate is the rate outstanding at the reporting dates.
(b)Hedge valuation basis adjustments under ASC 815 hedges represent changes in the fair values of fixed-rate advances due to changes in designated benchmark rates.interest rates, the remaining terms to maturity or to next call and the notional amounts of advances in a hedging relationship.  The FHLBNY’s benchmark rates are LIBOR, OIS/FF index and OIS/SOFR index.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Monitoring and Evaluating Credit Losses on Advances

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326). The ASU introduced a new accounting framework, which was adopted effective January 1, 2020.

 

Advances borrowed by members have increased in the aftermath of the global Coronavirus-19 pandemic, resulting in an unprecedented demand for liquidity (advances) from our borrowing members. The increase largely occurred in March 2020 and carrying value of advances borrowed stood at $136.2 billion at March 31, 2020. Since then demand has declined with maturing advances not replaced by borrowing members. Carrying values were $113.8$106.2 billion at JuneSeptember 30, 2020 compared to $100.7 billion at December 31, 2019.

 

Demand for funds have been generally from a wide base of member financial institutions, although the larger members were the significant borrowers. For more information about borrower concentration, see Note 21. Segment Information and Concentration. Our collateral monitoring and valuation processes have remained robust through the increase in borrowing activities. We experienced a similar spike in demand during the 2008-9 financial crisis, and our operations were able to process, then as now, such growth in demand and maintain a robust and vigilant credit and collateral monitoring and operating environment.

 

Our credit and collateral practices have not identified allowance for credit losses at December 31, 2019, or at January 1, 2020, the date ASU 2016-13 was adopted, or in the periods in 2020. Accrued interest receivable was $119.8$97.6 million and $181.8 million at JuneSeptember 30, 2020 and December 31, 2019, and no allowance for credit losses was recorded as interest due is well collateralized and interest due is expected to be collected. No subsequent events have occurred that would require us to report a credit loss on advances.

 

The FHLBNY’s (or the Bank’s) advances are primarily made to member financial institutions, which include commercial banks and insurance companies. The Bank manages its credit exposure to advances through an integrated approach that includes establishing a credit limit for each borrower. This approach includes an ongoing review of each borrower's financial condition, in conjunction with the Bank's collateral and lending policies to limit risk of loss, while balancing borrowers' needs for a reliable source of funding.

 

In addition, the Bank lends to eligible borrowers in accordance with federal law and FHFA regulations. Specifically, the Bank is required to obtain sufficient collateral to fully secure credit products up to the counterparty’s total credit limit. Collateral eligible to secure new or renewed advances includes:

 

• one-to-four family and multifamily mortgage loans (delinquent for no more than 90 days) and securities representing such mortgages;

• securities issued, insured, or guaranteed by the U.S. government or any U.S. government agency (for example, mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae);

• cash or deposits in the Bank;

• certain other collateral that is real estate-related, provided that the collateral has a readily ascertainable value and that the Bank can perfect a security interest in it; and

• qualifying securities.

·one-to-four family and multifamily mortgage loans (delinquent for no more than 90 days) and securities representing such mortgages;
·securities issued, insured, or guaranteed by the U.S. government or any U.S. government agency (for example, mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae);
·cash or deposits in the Bank;
·certain other collateral that is real estate-related, provided that the collateral has a readily ascertainable value and that the Bank can perfect a security interest in it; and
·qualifying securities.

 

Residential mortgage loans are the principal form of collateral for advances. The estimated value of the collateral required to secure each member's credit products is calculated by applying collateral discounts, or haircuts, to the market value or unpaid principal balance of the collateral, as applicable. In addition, community financial institutions are eligible to use expanded statutory collateral provisions for small business, agriculture loans, and community development loans. The Bank’s capital stock owned by each borrower is also pledged as collateral. Collateral arrangements may vary depending upon borrower credit quality, financial condition, and performance; borrowing capacity; and overall credit exposure to the borrower. The Bank can also require additional or substitute collateral to protect its security interest. The Bank also has policies and procedures for validating the reasonableness of our collateral valuations.

 


21 

 

Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Summarized below are the FHLBNY’s credit loss allowance methodologies:

 

Adoption of the guidance under ASU 2016-13, resulted in formalizing the governance stipulated under the new guidance. Our pre-existing processes - collateral monitoring, valuation of collateral and haircuts in addition to borrower credit analysis - are extensive and remain key to our operations. We devote considerable resources towards these procedures and processes.

 

The FHLBNY closely monitors the creditworthiness of the institutions to which it lends. The FHLBNY also closely monitors the quality and value of the assets that are pledged as collateral by its members. The FHLBNY’s members are required to pledge collateral to secure advances. Eligible collateral includes: (1) one-to-four-family and multi-family mortgages; (2) U.S. Treasury and government-agency securities; (3) mortgage-backed securities; and (4) certain other collateral which is real estate related and has a readily ascertainable value, and in which the FHLBNY can perfect a security interest. The FHLBNY has the right to take such steps, as it deems necessary to protect its secured position on outstanding advances, including requiring additional collateral (whether or not such additional collateral would otherwise be eligible to secure a loan; and the provision would benefit the FHLBNY in a scenario when a member defaults). The FHLBNY also has a statutory lien under the FHLBank Act on members’ capital stock, which serves as further collateral for members’ indebtedness to the FHLBNY.

 

Allowance for Credit Risk. The FHLBNY has policies and procedures in place to manage credit risk. The FHLBNY has a continuous process of evaluating collateral supporting advances and to make changes to its collateral guidelines, as necessary, based on current market conditions. In the periods in 2020 and December 31, 2019, noneNone of the FHLBNY’s advances were past due, on non-accrual status, or considered impaired.impaired as of December 31, 2019 and in any reporting period in 2020. In addition, there were no troubled debt restructurings related to advances at the FHLBNY at any time in this report.

 

In theAs of December 31, 2019, and in all reporting periods in 2020, and at December 31, 2019, the FHLBNY had collateral on a borrower-by-borrower basis with a value equal to, or greater than, its outstanding advances. Based on the collateral held as security, the FHLBNY’s management's credit extension and collateral policies, and repayment history on advances, the FHLBNY did not expect any losses on its advances at any time in the periods in 2020 and through the filing date on this report, andreport; therefore, no allowance for credit losses on advances was recorded. For the same reasons, the FHLBNY did not record any allowance for credit losses on advances atas of December 31, 2019.

 

Concentration of Advances Outstanding. Advances to the FHLBNY’s top ten borrowing member institutions are reported in Note 21. Segment Information and Concentration. The FHLBNY held sufficient collateral to cover the advances to all institutions and it does not expect to incur any credit losses.

 

Advances borrowed by insurance companies accounted for 30.7%30.6% and 24.9% of total advances at JuneSeptember 30, 2020 and December 31, 2019. Lending to insurance companies poses a number of unique risks not present in lending to federally insured depository institutions. For example, there is no single federal regulator for insurance companies. They are supervised by state regulators and subject to state insurance codes and regulations. There is uncertainty about whether a state insurance commissioner would try to void the FHLBNY’s claims on collateral in the event of an insurance company failure. As with all members, insurance companies are also required to purchase the FHLBNY’s capital stock as a prerequisite to membership and borrowing activity. The FHLBNY’s management takes a number of steps to mitigate the unique risk of lending to insurance companies. At the time of membership, the FHLBNY requires an insurance company to be highly-rated and to meet the FHLBNY’s credit quality standards. The FHLBNY performs quarterly credit analysis of the insurance borrower. Insurance companies are required to successfully complete an on-site review prior to pledging collateral. Additionally, in order to ensure its position as a first priority secured creditor, FHLBNY typically requires insurance companies to place physical possession of all pledged eligible collateral with FHLBNY or deposit it with a third party custodian or control agent. Such collateral must meet the FHLBNY’s credit quality standards, with appropriate minimum margins applied.

 

Security Terms. The FHLBNY lends to financial institutions involved in housing finance within its district. Borrowing members are required to purchase capital stock of the FHLBNY and pledge collateral for advances. During all periods in this report and as of December 31, 2019, the FHLBNY had rights to collateral with an estimated value greater than outstanding advances. Based upon the financial condition of the member, the FHLBNY:

 

(1)Allows a member to retain possession of the mortgage collateral pledged to the FHLBNY if the member executes a written security agreement, provides periodic listings and agrees to hold such collateral for the benefit of the FHLBNY; however, securities and cash collateral are always in physical possession; or
(2)Requires the member specifically to assign or place physical possession of such mortgage collateral with the FHLBNY or its custodial agent.

 


Federal Home Loan Bank of New York


Notes to Financial Statements — Unaudited

 

Beyond these provisions, Section 10(e) of the FHLBank Act affords any security interest granted by a member to the FHLBNY’s 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 FHLBNY were fully collateralized throughout their entire term. The total of collateral pledged to the FHLBNY includes excess collateral pledged above the minimum collateral requirements. However, a “Maximum Lendable Value” is established to ensure that the FHLBNY has sufficient eligible collateral securing credit extensions.

 

Note 10.Mortgage Loans Held-for-Portfolio.

 

Mortgage Partnership Finance®program loans, or (MPF®), are the mortgage loans held-for-portfolio. The FHLBNY participates in the MPF program by purchasing and originating conventional mortgage loans from its participating members, hereafter referred to as Participating Financial Institutions (PFI). The FHLBNY manages the liquidity, interest rate and prepayment option risk of the MPF loans, while the PFIs retain servicing activities, and may credit-enhance the portion of the loans participated to the FHLBNY. No intermediary trust is involved.

 

The FHLBNY classifies mortgage loans as held for investment, and accordingly reports them at their principal amount outstanding net of unamortized premiums, discounts, and unrealized gains and losses from loans initially classified as mortgage loan commitments.

 

The following table presents information on mortgage loans held-for-portfolio (dollars in thousands):

 

 June 30, 2020  December 31, 2019  September 30, 2020  December 31, 2019 
 Carrying Amount  Percentage of Total  Carrying Amount  Percentage of Total  Carrying
Amount		  Percentage
of Total		  Carrying
Amount		  Percentage
of Total		 
Real Estate (a):                                
Fixed medium-term single-family mortgages $174,468   5.58% $174,291   5.57% $178,716   5.92% $174,291   5.57%
Fixed long-term single-family mortgages  2,950,018   94.42   2,953,453   94.43   2,837,975   94.08   2,953,453   94.43 
                
Total unpaid principal balance  3,124,486   100.00%  3,127,744   100.00%  3,016,691   100.00%  3,127,744   100.00%
                                
Unamortized premiums  46,039       46,442       44,985       46,442     
Unamortized discounts  (1,424)      (1,562)      (1,359)      (1,562)    
Basis adjustment (b)  2,142       1,381       2,786       1,381     
                                
Total mortgage loans held-for-portfolio  3,171,243       3,174,005       3,063,103       3,174,005     
Allowance for credit losses (c)  (6,534)      (653)      (9,100)      (653)    
Total mortgage loans held-for-portfolio at carrying value $3,164,709      $3,173,352      $3,054,003      $3,173,352     

 

(a)Conventional mortgages represent the majority of mortgage loans held-for-portfolio, with the remainder invested in FHA and VA insured loans (also referred to as government loans).
(b)Balances represent unamortized fair value basis of closed delivery commitments. A basis adjustment is recorded at the settlement of the loan and it represents the difference in trade price paid for acquiring the loan and the price at the settlement date for a similar loan. The basis adjustment is amortized as a yield adjustment to Interest income.
(c)The Bank’s methodology for determining the allowance for credit losses on mortgage loans changed on January 1, 2020 with the adoption of CECL, the new accounting framework for the measurement of credit losses on financial instruments. Consistent with the modified retrospective method of adoption, the prior period has not been revised to conform to the new basis of accounting.


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

The FHLBNY and its members share the credit risk of MPF loans by structuring potential credit losses into layers. The first layer is typically 100 bps, but this varies with the particular MPF product. The amount of the first layer, or First Loss Account (FLA), was estimated at $42.5$43.2 million and $40.2 million at JuneSeptember 30, 2020 and December 31, 2019. 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 agreed to assume at the “Master Commitment” level. 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 $0.7 million and $1.4$2.0 million for the three months and sixnine months ended JuneSeptember 30, 2020 and $0.6 million and $1.2$1.9 million for the same periods in the prior year. These fees were reported as a reduction to mortgage loan interest income.


Federal Home Loan Bank of New York
Notes to Financial Statements — Unaudited

 

In terms of the credit enhancement waterfall, the MPF program structures potential credit losses on conventional MPF loans into layers on each loan pool as follows:

 

(1)The first layer of protection against loss is the liquidation value of the real property securing the loan.
(2)The next layer of protection comes from the primary mortgage insurance (PMI) that is required for loans with a loan-to-value ratio greater than 80% at origination.
(3)Losses that exceed the liquidation value of the real property and any PMI will be absorbed by the FHLBNY, limited to the amount of the FLA available under the Master Commitment. For certain MPF products, the FHLBNY could recover previously absorbed losses by withholding future credit enhancement fees (CE Fees) otherwise payable to the PFI, and applying the amounts to recover losses previously absorbed. In effect, the FHLBNY may recover losses allocated to the FLA from CE Fees. The amount of CE Fees depends on the MPF product and the outstanding balances of loans funded in the Master Commitment. CE Fees payable (potentially available for loss recovery) will decline as the outstanding loan balances in the Master Commitment declines.
(4)The second layeror portion of credit losses is incurred by the PFI and/or the Supplemental Mortgage Insurance (SMI) provider as follows: The PFI absorbs losses in excess of any FLA up to the amount of the PFI’s credit obligation amount and/or to the SMI provider for MPF 125 Plus products if the PFI has selected SMI coverage.
(5)The third layerof losses is absorbed by the FHLBNY.

 

Allowance Methodology for Mortgage Loan Losses under New Accounting Framework under ASU 2016-13.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326). The ASU introduced a new accounting framework, which was adopted effective January 1, 2020. With the adoption of the CECL guidance the estimate of expected credit losses for MPF will be forward-looking, which will require the use of forecasts about future economic conditions to estimate the expected credit loss over the remaining life of an instrument. The estimated credit loss is recorded upon initial recognition of the asset, even if the asset is performing at the time of purchase, in anticipation of a future event that will lead to a loss being realized (including consideration of remote scenarios as required under ASC 326-20-30-10). The objective of the estimate is to record the net amount expected to be collected for the asset, while considering available relevant information about the collectability of cash flows.

 

Mortgage loans are evaluated for credit losses on an individual basis. The following table presents the impacts to the allowance for credit losses and retained earnings upon adoption of this guidance on January 1, 2020 and at JuneSeptember 30, 2020. Amounts represent cumulative loan loss allowances at each of the dates (in thousands):

 

  December 31, 2019  CECL Adoption Impact  January 1, 2020  June 30, 2020 
Allowance for Credit Losses $653  $2,972  $2,972  $6,534 
  December 31, 2019  CECL Adoption Impact  January 1, 2020  September 30, 2020 
Allowance for Credit Losses $653  $2,972  $2,972  $9,100 

 

The impact of adoption of ASU 2016-13 — Upon adoption at January 1, 2020, the Bank recorded $3.0 million as the incremental expected life-time losses.

 

Our allowance for credit loss of $6.5$9.1 million at the current quarter-end takes into consideration several factors. First, the Bank’s mortgage loan portfolio has a history of incurred losses that accumulates to less than $4$5 million in life-time losses. Second, loss sharing and insurance mitigates forecasted losses. Lastly, forbearance processes are likely to be temporary for the MPF loans.


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Evaluation of Credit Losses under the new framework— MPF loans are evaluated for credit losses using the practical expedient for collateral dependent assets. We consider a conventional mortgage loan as a collateral dependent loan because we expect repayment to be provided by the sale of the underlying property, that is, if it is considered likely that the borrower will default. We may estimate the applicable fair value of this collateral by applying an appropriate loss severity rate or using third party estimates or property valuation model. The expected credit loss of a collateral dependent mortgage loan is equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs. We will either reserve for these estimated losses or record a direct charge-off of the loan balance, if certain triggering criteria are exceeded. Expected recoveries of prior charge-offs would be included in the allowance for credit loss.


Federal Home Loan Bank of New York
Notes to Financial Statements — Unaudited

 

The Bank’s credit risk model (model) estimates the probabilities of prepayments and defaults concurrently. Prepayments represent the probability that an individual loan will voluntarily prepay while defaults represent the probability that an individual loan will transition to involuntary payoffs. Defaults transition from one delinquency status to another (e.g., Currentcurrent to 30 Days,days, 30 Daysdays to 60 Days,days, etc.) until the loan is involuntarily paid off. The transition probabilities are a function of collateral types, borrower characteristics, and economic factors. The model utilizes economic data files that provide interest rates, the applicable house price index, and applicable foreclosure timeline, which are used in simulating transition probabilities. The Bank’s third party credit loss model provides the ability to update assumptions and calculate the probability of default of each individual mortgage loan. The model also uses loan and borrower information along with economic assumptions about applicable housing prices and interest rates as inputs to generate a distribution of projected cash flows over the life of the mortgage. The model estimates the loss given default (LGD) for each loan during the simulation based on assumptions adopted in the model by projecting loan status probabilities and aggregating projected cash flows for each loan in the portfolio. A loan in foreclosure or REO sale is considered to be a default.

 

Accrued interest receivable was $16.3$14.8 million and $15.5 million at JuneSeptember 30, 2020 and December 31, 2019. Delinquency and non-accruals are factors that are applied in estimating expected credit losses. Refer to discussions on non-accrual and delinquent loans.

 

Government mortgages which carry FHA, VA or USDA guarantees presents a minimal risk of loss are therefore excluded from CECL analysis. Additionally, as part of the service agreement between FHLBNY and members selling government loans, those membermembers will buy back delinquent government loans.

 

Credit enhancements under the MPF Program may include primary mortgage insurance, supplemental mortgage insurance, in addition to recoverable performance-based credit enhancement fees. Potential recoveries from credit enhancements for conventional loans are evaluated at the individual master commitment level to determine the credit enhancements available to recover losses on loans under each individual master commitment. However, expected recoveries from credit enhancements are not factored into the calculation of expected credit losses. The MPF program’s actual loss experience has been immaterial and inclusion of recoveries in the allowance calculations would result in an immaterial change.

 

Allowance Methodology for Loan Losses under Methodology Prior to the Adoption of ASU 2016-13.

 

Allowance Policy — Mortgage loans were considered impaired when, based on current information and events, it was probable that the FHLBNY would be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreements. The FHLBNY considered a loan to be seriously delinquent when it was past due 90 days or more, and was a primary confirming event of a credit loss. When a loan was seriously delinquent, or in bankruptcy or in foreclosure, the FHLBNY measured estimated credit losses on an individual loan basis by looking to the value of the real property collateral. For such loans, the FHLBNY believed it was probable that we would be unable to collect all contractual interest and principal in accordance with the terms of the loan agreement.

 

We computed the provision for credit losses without considering the private mortgage insurance and other accompanying credit enhancement features that provide credit assurance to the FHLBNY.


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

For loans that were not individually measured for estimated credit losses (i.e. they are not seriously delinquent, or in bankruptcy or in foreclosure), the FHLBNY measured estimated incurred credit losses on a collective basis and recorded a valuation reserve. We reviewed government insured loans (FHA- and VA-insured MPF loans) on a collective basis.

 

Under pre-CECL policies, we collectively evaluated the majority of our conventional mortgage loan portfolio for impairment (excluding those individually evaluated), and estimated an allowance for credit losses based primarily upon the following factors: (i) loan delinquencies, and (ii) actual historical loss severities. We had utilized a roll-rate methodology when estimating allowance for credit losses. This methodology projected loans migrating to charge off status (180 days delinquency) based on historical average rates of delinquency. We then applied a loss severity factor to calculate an estimate of credit losses.

 


Federal Home Loan Bank of New York
Notes to Financial Statements — Unaudited 

We collectively evaluated government insured loans (Federal Housing Administration, the Department of Veterans Affairs, and/or the Rural Housing Service of the Department of Agriculture). Any losses incurred on these loans that are not recovered from the insurer/guarantor are absorbed by the servicers. The FHLBNY’s credit risk for these loans is if the servicer or PFI fails to pay for losses not covered by the guarantee or insurance. We evaluated the credit worthiness of our member, the PFI.

 

Rollforward Analysis of Allowance for Credit Losses

 

The following table provides a rollforward analysis of the allowance for credit losses (in thousands):

 

 Three months ended June 30, Six months ended June 30,  Three months ended September 30,  Nine months ended September 30, 
 2020 2019  2020  2019  2020  2019  2020  2019 
Allowance for credit losses:                                
Beginning balance $3,504  $797  $653  $814  $6,534  $522  $653  $814 
Adjustment for cumulative effect of accounting change  -   -   2,972   -   -   -   2,972   - 
Charge-offs  -   -   -   -   -   (19)  -   (19)
Recoveries  -   -   -   -   -   -   -   - 
Provision (Reversal) for credit losses on mortgage loans  3,030   (275)  2,909   (292)  2,566   134   5,475   (158)
Balance, at end of period $6,534  $522  $6,534  $522  $9,100  $637  $9,100  $637 

 

 June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019       
Ending balance, individually evaluated for impairment $6,534  $160  $9,100  $160         
Ending balance, collectively evaluated for impairment  -   493   -   493         
Total Allowance for credit losses $6,534  $653  $9,100  $653         

 

The FHLBNY’s total MPF loans and impaired MPF loans were as follows (in thousands):

 

      
 June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
Total Mortgage loans, carrying values net (a) $3,164,709  $3,173,352  $3,054,003  $3,173,352 
Non-performing mortgage loans - Conventional (a)(b) $10,574  $6,899  $70,726  $6,899 
Insured MPF loans past due 90 days or more and still accruing interest (a)(b) $6,961  $3,935  $17,061  $3,935 

 

(a)Includes loans classified as special mention, sub-standard, doubtful or loss under regulatory criteria, net of amounts charged-off if delinquent for 180 days or more.
(b)Data in this table represents UPB, and would not agree to data reported in other tables at “amortized cost”.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

Under the new framework, the FHLBNY evaluates all loans, including non-performing conventional loans, on an individual basis for lifetime credit losses.

 

FHFAFHA and VA loans are considered as insured MPF loans, and while the loans are evaluated on an individual basis, we have deemed that FHFA and VA loans as collectively insured. Additionally, based on the Bank's assessment of its servicers and the collateral backing the insured loans, the risk of loss was deemed immaterial. The Bank has not recorded an allowance for credit losses for government-guaranteed or -insured mortgage loans in any periods in 2020 or December 31, 2019. Furthermore, none of these mortgage loans has been placed on non-accrual status because of the U.S. government guarantee or insurance on these loans and the contractual obligation of the loan servicer to repurchase the loans when certain criteria are met.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited 

The following table summarizes the unpaid principal balance, the related allowance, the amortized cost after allowance (excluding insured FHA/VA loans), and the average amortized cost after allowances of loans at JuneSeptember 30, 2020 (in thousands):

 

       Three months ended Six months ended         Three months ended Nine months ended 
 June 30, 2020 June 30, 2020 June 30, 2020  September 30, 2020  September 30, 2020  September 30, 2020 
 Unpaid      Average  Unpaid       Average 
 Principal Related Amortized Cost Amortized Cost  Principal Related Amortized Cost Amortized Cost 
 Balance Allowance After Allowance After Allowance (d)  Balance  Allowance  After Allowance  After Allowance (d) 
Conventional MPF Loans (a)(c)                                      
No related allowance (b) $1,904,813  $-  $1,932,105 $1,941,883 $1,942,423  $1,873,630  $-  $1,900,897  $1,896,497  $1,927,114 
With a related allowance  1,009,042   6,534   1,018,161  1,030,808  1,036,166   939,390   9,100   945,782   980,129   1,017,487 
Total measured for impairment $2,913,855  $6,534  $2,950,266 $2,972,691 $2,978,589  $2,813,020  $9,100  $2,846,679  $2,876,626  $2,944,601 

 

The following table summarizes the unpaid principal balance, the related allowance, recorded investment (excluding insured FHA/VA loans) and the average recorded investment of loans at December 31, 2019 (in thousands):

 

  December 31, 2019 
  Unpaid        Average 
  Principal  Related  Recorded  Recorded 
  Balance  Allowance  Investment  Investment (d) 
Conventional MPF Loans (a)(c)                
No related allowance  (b) $9,025  $-  $9,061  $10,169 
With a related allowance  2,901,719   653   2,958,205   2,795,017 
Total measured for impairment $2,910,744  $653  $2,967,266  $2,805,186 

 

(a)Based on analysis of the nature of risks of the FHLBNY’s investments in MPF loans, including its methodologies for identifying and measuring impairment, management has determined that presenting such loans as a single class is appropriate.
(b)Collateral values, net of estimated costs to sell, exceeded the amortized cost/recorded investments in impaired loans and no allowances were deemed necessary.
(c)Interest received is not recorded as Interest income if an uninsured loan is past due 90 days or more. Cash received is recorded as a liability on the assumption that cash was remitted by the servicer to the FHLBNY that could potentially be recouped by the borrower in a foreclosure.
(d)Represents the average amortized cost after allowance for the three and sixnine months ended JuneSeptember 30, 2020 and average recorded investment for the twelve months ended December 31, 2019.

 

The following table summarizes mortgage loans held-for-portfolio by collateral/guarantee type (in thousands):

  September 30, 2020  December 31, 2019 
Mortgage Loans Held for Portfolio by Collateral/Guarantee Type:        
Conventional MPF mortgage loans $2,813,020  $2,910,744 
Government-guaranteed or -insured mortgage loans  203,671   217,000 
Total unpaid principal balance $3,016,691  $3,127,744 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

The following table summarizes mortgage loans held-for-portfolio by collateral/guarantee type (in thousands):

  June 30, 2020  December 31, 2019 
Mortgage Loans Held for Portfolio by Collateral/Guarantee Type:        
Conventional MPF mortgage loans $2,913,855  $2,910,744 
Government-guaranteed or -insured mortgage loans  210,631   217,000 
Total unpaid principal balance $3,124,486  $3,127,744 

Payment Status of Mortgage Loans

 

Payment status is the key credit quality indicator for conventional mortgage loans and allows the Bank to monitor the migration of past due loans. Past due loans are those where the borrower has failed to make timely payments of principal and/or interest in accordance with the terms of the loan. Other delinquency statistics include non-accrual loans and loans in process of foreclosure. The following tables present the payment status for conventional mortgage loans and other delinquency statistics for the Bank’s mortgage loans at JuneSeptember 30, 2020 and December 31, 2019.

 

Credit Quality Indicator for Conventional Mortgage Loans (in thousands):

 June 30, 2020  September 30, 2020 
 Conventional MPF Loans  Conventional MPF Loans 
 Origination Year     Origination Year   
 Prior to 2016 2016 to 2020 Total  Prior to 2016 2016 to 2020 Total 
Payment Status, at Amortized Cost:                        
Conventional MPF Loans                        
Past due 30 - 59 days $33,238  $28,250  $61,488  $8,995  $11,377  $20,372 
Past due 60 - 89 days  25,876   33,366   59,242   7,003   7,192   14,195 
Past due 90 days or more  7,745   2,893   10,638   35,364   36,128   71,492 
Total past due mortgage loans  66,859   64,509   131,368   51,362   54,697   106,059 
Current mortgage loans  1,233,966   1,591,466   2,825,432   1,147,551   1,602,169   2,749,720 
Total Conventional MPF Loans $1,300,825  $1,655,975  $2,956,800  $1,198,913  $1,656,866  $2,855,779 

 

  December 31, 2019 
  Conventional 
  MPF Loans 
Payment Status, at Recorded Investment:    
Conventional MPF Loans    
Past due 30 - 59 days $15,775 
Past due 60 - 89 days  3,424 
Past due 90 days or more  6,919 
Total past due mortgage loans  26,118 
Current mortgage loans  2,941,148 
Total Conventional MPF Loans $2,967,266 

 

Other Delinquency Statistics (dollars in thousands):

30

 

  September 30, 2020 
  Conventional  Government-Guaranteed    
  MPF Loans  or -Insured Loans  Total 
Amortized Cost:            
In process of foreclosure (a) $69,974  $6,859  $76,833 
Serious delinquency rate (b)  3.61%  9.90%  4.03%
Past due 90 days or more and still accruing interest $—  $17,351  $17,351 
Loans on non-accrual status $71,492  $—  $71,492 
Troubled debt restructurings:            
Loans discharged from bankruptcy (c) $6,967  $937  $7,904 
Modified loans under MPF® program $935  $—  $935 
Real estate owned (d) $206  $—  $206 

  December 31, 2019 
  Conventional  Government-Guaranteed    
  MPF Loans  or -Insured Loans  Total 
Recorded Investment:            
In process of foreclosure (a) $4,198  $2,408  $6,606 
Serious delinquency rate (b)  0.24%  1.87%  0.36%
Past due 90 days or more and still accruing interest $—  $4,147  $4,147 
Loans on non-accrual status $6,919  $—  $6,919 
Troubled debt restructurings:            
Loans discharged from bankruptcy (c) $7,711  $1,028  $8,739 
Modified loans under MPF® program $1,138  $—  $1,138 
Real estate owned (d) $293  $—  $293 

(a)Includes loans where the decision of foreclosure or a similar alternative, such as pursuit of deed-in-lieu, has been reported.
(b)Represents seriously delinquent loans as a percentage of total mortgage loans. Seriously delinquent loans are comprised of all loans past due 90 days or more delinquent or loans that are in the process of foreclosure.
(c)Loans discharged from Chapter 7 bankruptcies are considered as TDRs.
(d)REO is reported at carrying value.


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Other Delinquency Statistics (dollars in thousands):

  June 30, 2020 
  Conventional
MPF Loans		  Government-Guaranteed
or -Insured Loans		  Total 
Amortized Cost:            
In process of foreclosure (a) $49,431  $11,133  $60,564 
Serious delinquency rate (b)  1.80%  6.93%  2.14%
Past due 90 days or more and still accruing interest $-  $7,079  $7,079 
Loans on non-accrual status $10,638  $-  $10,638 
Troubled debt restructurings:            
Loans discharged from bankruptcy (c) $7,398  $935  $8,333 
Modified loans under MPF® program $1,115  $-  $1,115 
Real estate owned (d) $358  $-  $358 

  December 31, 2019 
  Conventional
MPF Loans		  Government-Guaranteed
or -Insured Loans		  Total 
Recorded Investment:            
In process of foreclosure (a) $4,198  $2,408  $6,606 
Serious delinquency rate (b)  0.24%  1.87%  0.36%
Past due 90 days or more and still accruing interest $-  $4,147  $4,147 
Loans on non-accrual status $6,919  $-  $6,919 
Troubled debt restructurings:            
Loans discharged from bankruptcy (c) $7,711  $1,028  $8,739 
Modified loans under MPF® program $1,138  $-  $1,138 
Real estate owned (d) $293  $-  $293 

(a) Includes loans where the decision of foreclosure or a similar alternative, such as pursuit of deed-in-lieu, has been reported.

(b) Represents seriously delinquent loans as a percentage of total mortgage loans. Seriously delinquent loans are comprised of all loans past due 90 days or more delinquent or loans that are in the process of foreclosure.

(c) Loans discharged from Chapter 7 bankruptcies are considered as TDRs.

(d) REO is reported at carrying value.

Note 11.       Deposits.

Note 11. Deposits.

 

The FHLBNY accepts demand, overnight and term deposits from its members. Also, a member that services mortgage loans may deposit funds collected in connection with the mortgage loans as a pending disbursement to the owners of the mortgage loans. The following table summarizes deposits (in thousands):

 

 June 30, 2020 December 31, 2019  September 30, 2020 December 31, 2019 
Interest-bearing deposits                
Interest-bearing demand $1,497,431  $1,144,519  $1,686,801  $1,144,519 
Term (a)  33,000   15,000   49,980   15,000 
Total interest-bearing deposits  1,530,431   1,159,519   1,736,781   1,159,519 
Non-interest-bearing demand  59,926   34,890   73,559   34,890 
Total deposits (b) $1,590,357  $1,194,409  $1,810,340  $1,194,409 

 

(a)Term deposits were for periods of one year or less.
(b)Specific disclosures about deposits that exceed FDIC limits have been omitted as deposits are not insured by the FDIC. Deposits are received in the ordinary course of the FHLBNY’s business. The FHLBNY has pledged securities to the FDIC to collateralize deposits maintained at the FHLBNY by the FDIC; for more information, see Securities Pledged in Note 8. Held-to-Maturity Securities.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

Interest rate payment terms for deposits are summarized below (dollars in thousands):

 

 June 30, 2020  December 31, 2019  September 30, 2020  December 31, 2019 
 

Amount Outstanding

  Average Interest Rate (b)  

Amount Outstanding

 

Average Interest Rate (b)

  Amount
Outstanding		 Average
Interest Rate (b)		 Amount
Outstanding		 Average
Interest Rate (b)		 
Due in one year or less                           
Interest-bearing deposits (a) $1,530,431   0.51% $1,159,519   2.03% $1,736,781   0.35% $1,159,519   2.03%
Non-interest-bearing deposits  59,926       34,890       73,559       34,890     
Total deposits $1,590,357      $1,194,409      $1,810,340      $1,194,409     

 

(a)Primarily adjustable rate.
(b)The weighted average interest rate is calculated based on the average balance.

 

Note 12.   Consolidated Obligations.

Note 12. Consolidated Obligations.

 

The FHLBanks have joint and several liability for all the Consolidated obligations issued on their behalf (for more information, see Note 19. Commitments and Contingencies). Consolidated obligations consist of bonds and discount notes. The FHLBanks issue Consolidated obligations through the Office of Finance as their fiscal agent. In connection with each debt issuance, a FHLBank specifies the amount of debt it wants issued on its behalf. The Office of Finance tracks the amount of debt issued on behalf of each FHLBank. Each FHLBank separately tracks and records as a liability for its specific portion of Consolidated obligations for which it is the primary obligor. Consolidated obligation bonds (CO bonds or 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 obligation discount notes (CO discount notes, Discount notes, or 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 following table summarizes carrying amounts of Consolidated obligations issued by the FHLBNY and outstanding at June 30, 2020 and December 31, 2019 (in thousands):

  June 30, 2020  December 31, 2019 
Consolidated obligation bonds-amortized cost $58,273,828  $78,179,661 
Hedge valuation basis adjustments  620,391   377,000 
Hedge basis adjustments on de-designated hedges  135,883   139,605 
FVO - valuation adjustments and accrued interest  2,385   67,043 
Total Consolidated obligation bonds $59,032,487  $78,763,309 
         
Discount notes-amortized cost $89,457,724  $73,955,552 
Hedge value basis adjustments  3,822   (105)
FVO - valuation adjustments and remaining accretion  38,347   3,758 
Total Consolidated obligation discount notes $89,499,893  $73,959,205 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

The following table summarizes carrying amounts of Consolidated obligations issued by the FHLBNY and outstanding at September 30, 2020 and December 31, 2019 (in thousands):

  September 30, 2020  December 31, 2019 
Consolidated obligation bonds-amortized cost $71,032,645  $78,179,661 
Hedge valuation basis adjustments  573,307   377,000 
Hedge basis adjustments on de-designated hedges  134,180   139,605 
FVO - valuation adjustments and accrued interest  1,973   67,043 
Total Consolidated obligation bonds $71,742,105  $78,763,309 
         
Discount notes-amortized cost $69,682,141  $73,955,552 
Hedge value basis adjustments  959   (105)
FVO - valuation adjustments and remaining accretion  26,687   3,758 
Total Consolidated obligation discount notes $69,709,787  $73,959,205 

Redemption Terms of Consolidated Obligation Bonds

 

The following table is a summary of carrying amounts of Consolidated obligation bonds outstanding by year of maturity (dollars in thousands):

 

 June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
Maturity Amount 

Weighted Average

Rate (a)

 

Percentage

of Total

 Amount 

Weighted Average

Rate (a)

 

Percentage

of Total

  Amount Weighted
Average
Rate (a)		 Percentage
of Total		 Amount Weighted
Average
Rate (a)		 Percentage
of Total		 
One year or less $37,081,435   0.53%  63.75% $62,319,595   1.77%  79.79% $48,539,580   0.26%  68.44% $62,319,595   1.77%  79.79%
Over one year through two years  8,287,550   1.11   14.24   4,061,125   2.10   5.20   8,900,925   0.97   12.55   4,061,125   2.10   5.20 
Over two years through three years  3,786,425   1.99   6.51   2,817,715   2.22   3.61   4,572,540   1.89   6.45   2,817,715   2.22   3.61 
Over three years through four years  1,680,440   2.22   2.89   1,538,835   2.69   1.97   1,589,665   2.17   2.24   1,538,835   2.69   1.97 
Over four years through five years  1,186,585   2.26   2.04   1,240,735   2.60   1.58   956,585   1.81   1.35   1,240,735   2.60   1.58 
Thereafter  6,148,500   3.28   10.57   6,130,800   3.34   7.85   6,363,200   3.19   8.97   6,130,800   3.34   7.85 
Total par value  58,170,935   1.08%  100.00%  78,108,805   1.96%  100.00%  70,922,495   0.78%  100.00%  78,108,805   1.96%  100.00%
                                                
Bond premiums (b)  128,950           95,560           136,957           95,560         
Bond discounts (b)  (26,057)          (24,704)          (26,807)          (24,704)        
Hedge valuation basis adjustments (c)  620,391           377,000           573,307           377,000         
Hedge basis adjustments on de-designated hedges (d)  135,883           139,605           134,180           139,605         
FVO (e) - valuation adjustments and accrued interest  2,385           67,043           1,973           67,043         
Total Consolidated obligation-bonds $59,032,487          $78,763,309          $71,742,105          $78,763,309         

 

(a)Weighted average rate represents the weighted average contractual coupons of bonds, unadjusted for swaps.
(b)Amortization of CO bond premiums and discounts are recorded in interest expense as yield adjustments.
(c)Hedge valuation basis adjustments under ASC 815 fair value hedges represent changes in the fair values of fixed-rate CO bonds due to changes in the designated benchmark rate.interest rate, remaining terms to maturity or next call, and the notional amounts of CO bonds designated in hedge relationship. LIBOR is the primary benchmark index; the FHLBNYwe also hedgeshedge to the FF/OIS index and the FF/SOFR index.
(d)Hedge basis adjustments on de-designated hedges represent the unamortized balances of valuation basis of fixed-rate CO bonds that were previously in a fair value hedging relationship. Generally, when a hedging relationship is de-designated, the valuation basis is no longer adjusted for changes in the valuation of the debt for changes in the benchmark rate; instead, the basis is amortized over the debt’s remaining life, so that at maturity of the debt the unamortized basis is reversed to zero.
(e)Valuation adjustments on FVO designated bonds represent changes in the entire fair values of CO bonds elected under the FVO.FVO plus accrued unpaid interest. Changes in the timing of coupon payments impact outstanding accrued interest.  Changes in benchmark interest rates, notional amounts of CO bonds elected under FVO and remaining terms to maturity or next call will impact hedge valuation adjustments.    

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

Interest Rate Payment Terms

 

The following table summarizes par amounts of major types of Consolidated obligation bonds issued and outstanding (dollars in thousands):

 

  June 30, 2020  December 31, 2019 
  Amount  

Percentage

of Total

  Amount  

Percentage

of Total

 
Fixed-rate, non-callable $21,932,435   37.70% $32,588,805   41.72%
Fixed-rate, callable  1,424,000   2.45   4,803,000   6.15 
Step Up, callable            -   -   15,000   0.02 
Single-index floating rate  34,814,500   59.85   40,702,000   52.11 
Total par value $58,170,935   100.00% $78,108,805  100.00%


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

  September 30, 2020  December 31, 2019 
  Amount  Percentage
of Total		  Amount  Percentage
of Total		 
Fixed-rate, non-callable $41,551,995   58.59% $32,588,805   41.72%
Fixed-rate, callable  1,381,000   1.95   4,803,000   6.15 
Step Up, callable  —   —   15,000   0.02 
Single-index floating rate  27,989,500   39.46   40,702,000   52.11 
Total par value $70,922,495   100.00% $78,108,805   100.00%

 

Discount Notes

 

Consolidated obligation 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 obligation discount notes were as follows (dollars in thousands):

 

 June 30, 2020 December 31, 2019  September 30, 2020 December 31, 2019 
Par value $89,545,947  $74,094,586  $69,731,892  $74,094,586 
Amortized cost $89,457,724  $73,955,552  $69,682,141  $73,955,552 
Hedge value basis adjustments (a)  3,822   (105)  959   (105)
FVO (b) - valuation adjustments and remaining accretion  38,347   3,758   26,687   3,758 
Total discount notes $89,499,893  $73,959,205  $69,709,787  $73,959,205 
Weighted average interest rate  0.26%  1.60%  0.19%  1.60%

 

(a)Hedging valuation basis adjustments — The reported carrying values of hedged CO discount notes are adjusted for changes in their fair values (fair value basis adjustments or fair value) that are attributable to changes in the benchmark risk being hedged. In the hedging relationships, a specific benchmark is elected on an instrument-by-instrument basis and becomes the discounting basis under ASC 815 for computing changes in fair values for the hedged CO discount notes. Notional amounts of $16.1 billion of CO discount notes were hedged under ASC 815 qualifying fair value hedges at June 30, 2020. The application of ASC 815 accounting methodology resulted in the recognition of a net cumulative hedge valuation basis lossesloss of $3.9$1.0 million at JuneSeptember 30, 2020; hedge basis adjustments on de-designated hedges were2020 and a de minimis gain of $0.1 million. Comparative balancesmillion at December 31, 2019 were immaterial. Cumulative basis adjustments have increased in line with the increase2019. Changes in the volumedesignated benchmark interest rate, notional amounts of hedged CO discount notes. Additionally, the benchmark curves, specifically OIS/FF and OIS/SOFR declined at the measurement date. As hedge valuation basis of fixed-rate CO liabilities move with the rise and fall of the forward benchmark curves, the decline in forward curves caused valuation losses to increase. Generally, hedge valuation basis gains and losses are unrealized and will reverse to zero if the CO discount notes are heldin hedging relationships and remaining terms to maturity.maturity or next call will impact hedge valuation adjustments.

(b)FVO valuation adjustments — Valuation basis adjustment losses are recorded to recognize changes in the entire or full fair values (includingincluding unaccreted discounts on CO discount notes elected under the FVO.  The discounting basis for computing changesChanges in fair valuesbenchmark interest rates, notional amounts of CO discount notes elected under the FVO is the observable FHLBank discount note yield curve. Valuation losses were largely unaccreted discounts. Other than unaccreted discount, changes in the valuation adjustments (clean prices) were not material. Clean prices represent fair value changes due to changes in the term structure of interest rates, the shape of the yield curve at the measurement dates, and the growth or decline in volume of hedged CO discount notes. When heldremaining terms to maturity unaccreted discounts will be fully accreted to par, and unrealized fair value gains and losses will sum to zero over the term to maturity.impact hedge valuation adjustments.    

 

Note 13.   Affordable Housing Program.

Note 13. Affordable Housing Program.

 

The FHLBNY charges the amount allocated for the Affordable Housing Program (AHP) to expense and recognizes it as a liability.  The FHLBNY relieves the AHP liability as members use the subsidies.

 

The following table provides rollforward information with respect to changes in Affordable Housing Program liabilities (in thousands):

 

 Three months ended September 30, Nine months ended September 30, 
 Three months ended June 30, Six months ended June 30,  2020 2019 2020 2019 
 2020 2019 2020 2019          
Beginning balance $155,611  $161,129  $153,894  $161,718  $159,464  $164,262  $153,894  $161,718 
Additions from current period's assessments  15,287   12,021   26,974   27,014   11,251   11,278   38,225   38,292 
Net disbursements for grants and programs  (11,434)  (8,888)  (21,404)  (24,470)  (12,363)  (15,016)  (33,767)  (39,486)
Ending balance $159,464  $164,262  $159,464  $164,262  $158,352  $160,524  $158,352  $160,524 

 


Federal Home Loan Bank of New York


Notes to Financial Statements — Unaudited

 

Note 14.   Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings.

Note 14.Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings.

 

The FHLBanks, including the FHLBNY, have a cooperative structure. To access the FHLBNY’s products and services, a financial institution must be approved for membership and purchase capital stock in the 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’s Capital Plan. FHLBNY stock can be issued, exchanged, redeemed and repurchased only at its stated par value of $100 per share. It is not publicly traded. An option to redeem capital stock that is greater than a member’s minimum requirement is held by both the member and the FHLBNY. The FHLBNY’s Capital Plan offers two sub-classes of Class B capital stock, membership and activity-based capital stock, and members can redeem Class B stock by giving five years notice. The FHLBNY’s Class B capital stock issued and outstanding was $6.3$6.0 billion at JuneSeptember 30, 2020 and $5.8 billion at December 31, 2019.

 

Membership and Activity-based Class B capital stocks have the same voting rights and dividend rates. (See Statements of Capital):

 

ŸMembership stock is issued to meet membership stock purchase requirements. The FHLBNY requires member institutions to maintain membership stock based on a percentage of the member’s mortgage-related assets. The current capital stock purchase requirement for membership is 12.5 basis points. In addition, notwithstanding this requirement, the FHLBNY has a $100 million cap on membership stock per member.
Membership stock is issued to meet membership stock purchase requirements. The FHLBNY requires member institutions to maintain membership stock based on a percentage of the member’s mortgage-related assets. The current capital stock purchase requirement for membership is 12.5 basis points. In addition, notwithstanding this requirement, the FHLBNY has a $100 million cap on membership stock per member.

 

ŸActivity based stock is issued on a percentage of outstanding balances of advances, MPF loans and certain commitments. The FHLBNY’s current capital plan requires a stock purchase of 4.5% of the member’s borrowed amount. Excess activity-based capital stock is repurchased daily.
Activity based stock is issued on a percentage of outstanding balances of advances, MPF loans and certain commitments. The FHLBNY’s current capital plan requires a stock purchase of 4.5% of the member’s borrowed amount. Excess activity-based capital stock is repurchased daily.

 

The FHLBNY is subject to risk-based capital rules of the Finance Agency, the regulator of the FHLBanks. 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, market risk, and operations risk capital requirements as calculated in accordance with the FHLBNY policy, and rules and regulations of the Finance Agency. Only permanent capital, defined as Class B stock and retained earnings, satisfies this risk-based capital requirement. The capital plan does not provide for the issuance of Class A capital stock. The Finance Agency may require the FHLBNY to maintain an amount of permanent capital greater than what is required by the risk-based capital requirements. Second, the FHLBNY is required to maintain at least a 4.0% total capital-to-asset ratio; and third, the FHLBNY will maintain at least a 5.0% leverage ratio at all times. The FHFA’s regulatory leverage ratio is defined as the sum of permanent capital weighted 1.5 times and non-permanent capital weighted 1.0 times divided by total assets.

 

The FHLBNY was in compliance with the aforementioned capital rules and requirements for all periods presented, and met the “adequately capitalized” classification, which is the highest rating, under the capital rule. The Director of the Finance Agency has discretion to add to or modify the corrective action requirements for each capital classification other than adequately capitalized if the Director of the Finance Agency determines that such action is necessary to ensure the safe and sound operation of the FHLBank and the FHLBank’s compliance with its risk-based and minimum capital requirements.

 


Federal Home Loan Bank of New York


Notes to Financial Statements — Unaudited

 

Risk-based Capital — The following table summarizes the FHLBNY’s risk-based capital ratios (dollars in thousands):

 

 June 30, 2020 December 31, 2019  September 30, 2020 December 31, 2019 
 Required (d) Actual Required (d) Actual  Required (d) Actual Required (d) Actual 
Regulatory capital requirements:                                
Risk-based capital (a)(e) $1,061,863  $8,222,482  $1,107,356  $7,584,829  $1,034,233  $7,889,266  $1,107,356  $7,584,829 
Total capital-to-asset ratio  4.00%  5.18%  4.00%  4.68%  4.00%  5.20%  4.00%  4.68%
Total capital (b) $6,354,882  $8,222,482  $6,482,481  $7,584,829  $6,067,754  $7,889,266  $6,482,481  $7,584,829 
Leverage ratio  5.00%  7.76%  5.00%  7.02%  5.00%  7.80%  5.00%  7.02%
Leverage capital (c ) $7,943,602  $12,333,723  $8,103,101  $11,377,244 
Leverage capital (c) $7,584,693  $11,833,899  $8,103,101  $11,377,244 

 

(a)Actual “Risk-based capital” is capital stock and retained earnings plus mandatorily redeemable capital stock. Section 1277.3 of the Finance Agency’s regulations (superseding section 932.2 effective January 1, 2020) also refers to this amount as “Permanent Capital.”
(b)Required “Total capital” is 4.0% of total assets.
(c)The required leverage ratio of total capital to total assets should be at least 5.0%. For the purposes of determining the leverage ratio, total capital shall be computed by multiplying the Bank’s Permanent Capital by 1.5.
(d)Required minimum.
(e)Under regulatory guidelines issued by the Finance Agency in August 2011 that was consistent with guidance provided by other federal banking agencies with respect to capital rules, risk weights are maintained at AAA for U.S. Treasury securities and other securities issued or guaranteed by the U.S. Government, government agencies, and government-sponsored entities for purposes of calculating risk-based capital.

 

Mandatorily Redeemable Capital Stock 

 

Generally, the FHLBNY’s capital stock is redeemable at the option of either the member or the FHLBNY subject to certain conditions, including the provisions under the accounting guidance for certain financial instruments with characteristics of both liabilities and equity. In accordance with the accounting guidance, 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. Estimated redemption periods were as follows (in thousands):

 

 September 30, 2020 December 31, 2019 
 June 30, 2020 December 31, 2019      
Redemption less than one year $146  $835  $135  $835 
Redemption from one year to less than three years  338   371   313   371 
Redemption from three years to less than five years  366   402   338   402 
Redemption from five years or greater  2,991   3,521   2,548   3,521 
        
Total $3,841  $5,129  $3,334  $5,129 

 

The following table provides rollforward information with respect to changes in mandatorily redeemable capital stock liabilities (in thousands):

 

 Three months ended June 30, Six months ended June 30,  Three months ended September 30, Nine months ended September 30, 
 2020 2019 2020 2019  2020 2019 2020 2019 
Beginning balance $4,924  $5,755  $5,129  $5,845  $3,841  $5,514  $5,129  $5,845 
Capital stock subject to mandatory redemption reclassified from equity  -   3,937   -   4,049   2,743   -   2,743   4,049 
Redemption of mandatorily redeemable capital stock (a)  (1,083)  (4,178)  (1,288)  (4,380)  (3,250)  (182)  (4,538)  (4,562)
Ending balance $3,841  $5,514  $3,841  $5,514  $3,334  $5,332  $3,334  $5,332 
Accrued interest payable (b) $61  $117  $61  $117  $69  $87  $69  $87 

 

(a)Redemption includes repayment of excess stock.
(b)The annualized accrual rate was 5.90%5.60% for the three months ended JuneSeptember 30, 2020 and 6.35% for the three months ended JuneSeptember 30, 2019. Accrual rates are based on estimated dividend rates.

 

36


Federal Home Loan Bank of New York


Notes to Financial Statements — Unaudited

 

Distribution received from Financing Corporation (FICO) — FICO was established by Congress in 1987 as a vehicle for recapitalizing the Federal Savings and Loan Insurance Corporation. FICO issued $8.2 billion of 30-year bonds (Obligations) with maturity dates between 2017 and 2019, the principal of which was to be repaid with the proceeds from zero-coupon U.S. Treasury bonds that FICO purchased with $680 million contributed by the Federal Home Loan Banks (FHLBanks), as FICO’s only stockholders, in exchange for nonvoting FICO stock. FICO was dissolved in 2019 in accordance with statute following payment in full of the Obligations and all creditor claims. Funds remaining were distributed in June 2020 to the FHLBanks in proportion to the amounts of FICO stock owned by each FHLBank. The FHLBNY’s share was $18.2 million, which was credited to Unrestricted retained earnings. The initial purchase of FICO capital stock in 1987 was charged-off to retained earnings; the subsequent recovery of the cost of the capital stock is also viewed as a capital transaction. In accordance with ASC 505-10-25-2 Equity, capital transactions are excluded from the determination of net income or the results of operations.

 

Restricted Retained Earnings

 

Under the FHLBank Joint Capital Enhancement Agreement (Capital Agreement), each FHLBank is required to set aside 20% of its Net income each quarter to a restricted retained earnings account until the balance of that account equals at least one percent of that FHLBank’s average balance of outstanding Consolidated obligations.obligations as calculated as of the last date of the calendar quarter. The Capital Agreement is intended to enhance the capital position of each FHLBank. These restricted retained earnings will not be available to pay dividends. Retained earnings included $734.3$754.6 million and $685.8 million as restricted retained earnings in the FHLBNY’s Total Capital at JuneSeptember 30, 2020 and December 31, 2019.

 

Note 15.Earnings Per Share of Capital.

Note 15.Earnings Per Share of Capital.

 

The FHLBNY has a single class of capital stock, and earnings per share computation is for the Class B capital stock.

 

The following table sets forth the computation of earnings per share. Basic and diluted earnings per share of capital are the same. The FHLBNY has no dilutive potential common shares or other common stock equivalents (dollars in thousands except per share amounts):

 

 Three months ended September 30, Nine months ended September 30, 
 Three months ended June 30, Six months ended June 30,  2020 2019 2020 2019 
 2020 2019 2020 2019          
Net income $137,525  $108,082  $242,632  $242,920  $101,195  $101,412  $343,827  $344,332 
                                
Net income available to stockholders $137,525  $108,082  $242,632  $242,920  $101,195  $101,412  $343,827  $344,332 
                                
Weighted average shares of capital  68,083   58,232   63,587   56,998   61,837   53,044   62,999   55,732 
Less: Mandatorily redeemable capital stock  (42)  (74)  (46)  (66)  (49)  (54)  (47)  (62)
Average number of shares of capital used to calculate earnings per share  68,041   58,158   63,541   56,932   61,788   52,990   62,952   55,670 
                                
Basic earnings per share $2.02  $1.86  $3.82  $4.27  $1.64  $1.91  $5.46  $6.19 

 

Note 16.Employee Retirement Plans.

Note 16.Employee Retirement Plans.

 

The FHLBNY participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra DB Plan), a tax-qualified, defined-benefit multiemployer pension plan that covers all FHLBNY officers and employees. The FHLBNY also participates in the Pentegra Defined Contribution Plan for Financial Institutions, a tax-qualified defined contribution plan. The FHLBNY offers two non-qualified Benefit Equalization Plans, which are retirement plans. The two plans restore and enhance defined benefits for those employees who have had their qualified Defined Benefit Plan and their Defined Contribution Plan limited by IRS regulations. The two non-qualified Benefit Equalization Plans (BEP) are unfunded.

 

3734 

 

 

Federal Home Loan Bank of New York
Notes to Financial Statements — Unaudited

Retirement Plan Expenses — Summary

 

The following table presents employee retirement plan expenses for the periods ended (in thousands):

 

 Three months ended June 30, Six months ended June 30,  Three months ended September 30, Nine months ended September 30, 
 2020 2019 2020 2019  2020 2019 2020 2019 
Defined Benefit Plan $2,500  $2,494  $5,000  $4,988  $2,500  $2,494  $7,500  $7,482 
Benefit Equalization Plans (defined benefit and defined contribution)  3,105   1,838   4,661   3,770   2,753   1,796   7,414   5,566 
Defined Contribution Plans  658   616   1,394   1,277   664   615   2,058   1,892 
Postretirement Health Benefit Plan  61   84   122   167   62   83   184   250 
              
Total retirement plan expenses $6,324  $5,032  $11,177  $10,202  $5,979  $4,988  $17,156  $15,190 

Benefit Equalization Plan (BEP)

 

The BEP restores and enhances certain defined benefits for those employees who have had their qualified defined benefits limited by IRS regulations. The method for determining the accrual expense and liabilities of the plan is the Projected Unit Credit Accrual Method. Under this method, the liability of the plan is composed mainly of two components, Projected Benefit Obligation (PBO) and Service Cost accruals. The total liability is determined by projecting each person’s expected plan benefits. These projected benefits are then discounted to the measurement date. Finally, the liability is allocated to service already worked (PBO) and service to be worked (Service Cost). There were no plan assets (this is an unfunded plan) that have been designated for the BEP plan.

 

Components of the net periodic pension cost for the defined benefit component of the BEP were as follows (in thousands):

 

 Three months ended June 30, Six months ended June 30,  Three months ended September 30, Nine months ended September 30, 
 2020 2019 2020 2019  2020 2019 2020 2019 
Service cost $392  $316  $784  $632  $391  $317  $1,175  $949 
Interest cost  587   636   1,174   1,272   587   636   1,761   1,908 
Amortization of unrecognized net loss  1,140   720   2,280   1,440   1,141   719   3,421   2,159 
Amortization of unrecognized past service (credit)/cost  174   -   348   -   175   -   523   - 
                
Net periodic benefit cost -Defined Benefit BEP  2,293   1,672   4,586   3,344   2,294   1,672   6,880   5,016 
                
Benefit Equalization plans - Thrift and Deferred
incentive compensation plans		  812   166   75   426   459   124   534   550 
Total $3,105  $1,838  $4,661  $3,770  $2,753  $1,796  $7,414  $5,566 

 

Postretirement Health Benefit Plan

 

The Retiree Medical Benefit Plan (the Plan) is for retired employees and for employees who are eligible for retirement benefits.  The Plan is unfunded.  The Plan, as amended, is offered to active employees who have completed 10 years of employment service at the FHLBNY and attained age 55 as of January 1, 2015.

 

Components of the net periodic benefit cost for the postretirement health benefit plan were as follows (in thousands):

 

 Three months ended September 30, Nine months ended September 30, 
 Three months ended June 30, Six months ended June 30,  2020 2019 2020 2019 
 2020 2019 2020 2019          
Service cost (benefits attributed to service during the period) $21  $21  $42  $42  $21  $20  $63  $62 
Interest cost on accumulated postretirement health benefit obligation  78   127   156   254   79   128   235   382 
Amortization of (gain)/loss  (38)  -   (76)  -   (38)  -   (114)  - 
Amortization of prior service (credit)/cost  -   (64)  -   (129)  -   (65)  -   (194)
Net periodic postretirement health benefit (income) $61  $84  $122  $167  $62  $83  $184  $250 

 


Federal Home Loan Bank of New York
Notes to Financial Statements — Unaudited

Note 17.               Derivatives and Hedging Activities.

Note 17.Derivatives and Hedging Activities.

 

The FHLBNY, consistent with the Finance Agency’s regulations, may enter into interest-rate swaps, swaptions, and interest-rate cap and floor agreements to manage its interest rate exposure inherent in otherwise unhedged assets and funding positions. We are not a derivatives dealer and do not trade derivatives for short-term profit. Refer to Note 17. Derivatives and Hedging Activities in the 2019 Form 10-K for a further discussion of the FHLBNY’s use of and accounting policies regarding derivative instruments.

 

The contractual or notional amount of derivatives reflects the involvement of the FHLBNY in the various classes of financial instruments, and serve as a basis for calculating periodic interest payments or cash flows. Notional amount of a derivative does not measure the credit risk exposure, and the maximum credit exposure is substantially less than the notional amount. The maximum credit risk is the estimated cost of replacing interest-rate swaps, forward agreements, mandatory delivery contracts for mortgage loans and purchased caps and floors (derivatives) in a gain position if the counterparty defaults and the related collateral, if any, is of insufficient value to the FHLBNY.

 

Derivatives are instruments that derive their value from underlying asset prices, indices, reference rates and other inputs, or a combination of these factors. The FHLBNY executes derivatives with swap dealers and financial institution swap counterparties as negotiated contracts, which are usually referred to as over-the-counter (OTC) derivatives.

 

The following table presents the FHLBNY’s derivative activities based on notional amounts (in thousands):

 

Derivative Notionals

 

 Hedging Instruments Under ASC 815  Hedging Instruments Under ASC 815 
 June 30, 2020 December 31, 2019  September 30, 2020 December 31, 2019 
Interest rate contracts                
Interest rate swaps $153,806,725  $107,837,925  $147,059,796  $107,837,925 
Interest rate caps  800,000   800,000   800,000   800,000 
Mortgage delivery commitments  49,196   44,768   38,619   44,768 
Total interest rate contracts notionals $154,655,921  $108,682,693  $147,898,415  $108,682,693 

 


Federal Home Loan Bank of New York
Notes to Financial Statements — Unaudited

Offsetting of Derivative Assets and Derivative Liabilities — Net Presentation

The table below presents the gross and net derivatives receivables by contract type and amount for those derivatives contracts for which netting is permissible under U.S. GAAP as Derivative instruments — nettable. Derivatives receivables have been netted with respect to those receivables as to which the netting requirements have been met, including obtaining a legal analysis with respect to the enforceability of the netting (in thousands):

 

 June 30, 2020 December 31, 2019  September 30, 2020 December 31, 2019 
 Derivative
Assets		 Derivative
Liabilities		 Derivative
Assets		 Derivative
Liabilities		  Derivative
Assets		 Derivative
Liabilities		 Derivative
Assets		 Derivative
Liabilities		 
Derivative instruments - nettable                                
Gross recognized amount                                
Uncleared derivatives $279,113  $1,115,931  $241,501  $365,397  $256,853  $1,044,190  $241,501  $365,397 
Cleared derivatives  305,417   297,175   367,202   352,576   231,338   214,360   367,202   352,576 
Total gross recognized amount  584,530   1,413,106   608,703   717,973   488,191   1,258,550   608,703   717,973 
Gross amounts of netting adjustments and cash collateral                                
Uncleared derivatives  (232,381)  (1,045,786)  (104,011)  (333,471)  (202,490)  (984,605)  (104,011)  (333,471)
Cleared derivatives  (296,594)  (296,594)  (266,850)  (352,092)  (214,308)  (214,308)  (266,850)  (352,092)
Total gross amounts of netting adjustments and cash collateral  (528,975)  (1,342,380)  (370,861)  (685,563)  (416,798)  (1,198,913)  (370,861)  (685,563)
Net amounts after offsetting adjustments and cash collateral $55,555  $70,726  $237,842  $32,410  $71,393  $59,637  $237,842  $32,410 
                                
Uncleared derivatives $46,732  $70,145  $137,490  $31,926  $54,363  $59,585  $137,490  $31,926 
Cleared derivatives  8,823   581   100,352   484   17,030   52   100,352   484 
Total net amounts after offsetting adjustments and cash collateral $55,555  $70,726  $237,842  $32,410  $71,393  $59,637  $237,842  $32,410 
                                
Derivative instruments - not nettable                                
Uncleared derivatives (a) $274  $-  $105  $1  $69  $6  $105  $1 
Total derivative assets and total derivative liabilities                                
Uncleared derivatives $47,006  $70,145  $137,595  $31,927  $54,432  $59,591  $137,595  $31,927 
Cleared derivatives  8,823   581   100,352   484   17,030   52   100,352   484 
Total derivative assets and total derivative liabilities presented
in the Statements of Condition (b)		 $55,829  $70,726  $237,947  $32,411  $71,462  $59,643  $237,947  $32,411 
                                
Non-cash collateral received or pledged (c)                                
Can be sold or repledged                                
Security pledged as initial margin to Derivative Clearing Organization (d) $635,775  $-  $251,177  $-  $633,220  $-  $251,177  $- 
Cannot be sold or repledged                                
Uncleared derivatives securities received  (32,871)  -   (115,238)  -   (30,280)  -   (115,238)  - 
                                
Total net amount of non-cash collateral received or repledged $602,904  $-  $135,939  $-  $602,940  $-  $135,939  $- 
                                
Total net exposure cash and non-cash (e) $658,733  $70,726  $373,886  $32,411  $674,402  $59,643  $373,886  $32,411 
                                
Net unsecured amount - Represented by:                                
Uncleared derivatives $14,135  $70,145  $22,357  $31,927  $24,152  $59,591  $22,357  $31,927 
Cleared derivatives  644,598   581   351,529   484   650,250   52   351,529   484 
Total net exposure cash and non-cash (e) $658,733  $70,726  $373,886  $32,411  $674,402  $59,643  $373,886  $32,411 

 

(a)Not nettable derivative instruments are without legal right of offset, and were synthetic derivatives representing forward mortgage delivery commitments of 45 business days or less. Amounts were not material, and it was operationally not practical to separate receivables from payables; net presentation was adopted. No cash collateral was involved with the mortgage delivery commitments.
(b)Amounts represented Derivative assets and liabilities that were recorded in the Statements of Condition. Derivative cash balances were not netted with non-cash collateral received or pledged, since legal ownership of the non-cash collateral remains with the pledging counterparty (see footnote (c) below).
(c)Non-cash collateral received or pledged — For certain uncleared derivatives, counterparties have pledged U.S. Treasury securities to the FHLBNY as collateral. Amounts also included non-cash mortgage collateral on derivative positions with member counterparties where we acted as an intermediary. For certain cleared derivatives, we have pledged marketable securities to satisfy initial margin or collateral requirements.
(d)Amounts represented securities pledged to Derivative Clearing Organization (DCO) to fulfill our initial margin obligations on cleared derivatives. Securities pledged may be sold or repledged if the FHLBNY defaults on its obligations under rules established by the CFTC.

(e)Amounts represented net exposure after applying non-cash collateral pledged to and by the FHLBNY. Since legal ownership and control over the securities are not transferred, the net exposure represented in the table above is for information only and is not reported as such in the Statements of Condition.

 

 Note on variation margin — For all cleared derivative contracts that have not matured, “Variation margin” is exchanged between the FHLBNY and the Future Commission Merchant (FCM), acting as agents on behalf of DCOs. Variation margin is determined by the DCO and fluctuates with the fair values of the open contracts. When the aggregate contract value of open derivatives is “in-the-money” for the FHLBNY (gain position), the FHLBNY would receive variation margin from the DCO. If the value of the open contracts is “out-of-the-money” (liability position), the FHLBNY would post variation margin to the DCO. At JuneSeptember 30, 2020, the FHLBNY posted $1.0 billion$920.1 million in cash as settlement variation margin to FCMs. At December 31, 2019, the FHLBNY posted $100.1 million in cash as settlement variation margin to FCMs. As noted, variation margin is not considered as collateral, rather as the daily settlement amounts of outstanding derivative contracts.

 


Federal Home Loan Bank of New York
Notes to Financial Statements — Unaudited

Fair Value of Derivative Instruments

 

The following tables represent outstanding notional balances and estimated fair values of the derivatives outstanding at JuneSeptember 30, 2020 and December 31, 2019 (in thousands):

 

 June 30, 2020  September 30, 2020 
 Notional Amount
of Derivatives		 Derivative
Assets		 Derivative
Liabilities		  Notional Amount
of Derivatives		  Derivative
Assets		  Derivative
Liabilities		 
Fair value of derivative instruments (a)                   
Derivatives designated as hedging instruments under ASC 815            
interest rate swaps $74,017,512  $461,048  $1,325,470 
Derivatives designated as hedging instruments under ASC 815 interest rate swaps $71,666,837  $403,937  $1,209,432 
Total derivatives in hedging relationships under ASC 815  74,017,512   461,048   1,325,470   71,666,837   403,937   1,209,432 
                        
Derivatives not designated as hedging instruments                        
Interest rate swaps  78,711,213   89,001   85,819   74,314,959   52,731   48,020 
Interest rate caps  800,000   54   -   800,000   17   - 
Mortgage delivery commitments  49,196   274   -   38,619   69   6 
Other (b)  1,078,000   34,427   1,817   1,078,000   31,506   1,098 
Total derivatives not designated as hedging instruments  80,638,409   123,756   87,636   76,231,578   84,323   49,124 
                        
Total derivatives before netting and collateral adjustments $154,655,921   584,804   1,413,106  $147,898,415   488,260   1,258,556 
Netting adjustments      (405,720)  (405,720)      (303,343)  (303,343)
Cash collateral and related accrued interest      (123,255)  (936,660)      (113,455)  (895,570)
Total netting adjustments and cash collateral      (528,975)  (1,342,380)      (416,798)  (1,198,913)
Total derivative assets and total derivative liabilities     $55,829  $70,726      $71,462  $59,643 
Security collateral pledged as initial margin to Derivative Clearing Organization (c)     $635,775          $633,220     
Security collateral received from counterparty (c)      (32,871)          (30,280)    
Net security      602,904           602,940     
Net exposure     $658,733          $674,402     

 

 December 31, 2019  December 31, 2019 
 Notional Amount
of Derivatives		 Derivative
Assets		 Derivative
Liabilities		  Notional Amount
of Derivatives		  Derivative
Assets		  Derivative
Liabilities		 
Fair value of derivative instruments (a)                        
Derivatives designated as hedging instruments under ASC 815            
interest rate swaps $59,361,080  $414,480  $550,758 
Derivatives designated as hedging instruments under ASC 815 interest rate swaps $59,361,080  $414,480  $550,758 
Total derivatives in hedging relationships under ASC 815  59,361,080   414,480   550,758   59,361,080   414,480   550,758 
                        
Derivatives not designated as hedging instruments                        
Interest rate swaps  47,404,845   179,784   162,702   47,404,845   179,784   162,702 
Interest rate caps  800,000   50   -   800,000   50   - 
Mortgage delivery commitments  44,768   105   1   44,768   105   1 
Other (b)  1,072,000   14,389   4,513   1,072,000   14,389   4,513 
Total derivatives not designated as hedging instruments  49,321,613   194,328   167,216   49,321,613   194,328   167,216 
                        
Total derivatives before netting and collateral adjustments $108,682,693   608,808   717,974  $108,682,693   608,808   717,974 
Netting adjustments      (342,911)  (342,911)      (342,911)  (342,911)
Cash collateral and related accrued interest      (27,950)  (342,652)      (27,950)  (342,652)
Total netting adjustments and cash collateral      (370,861)  (685,563)      (370,861)  (685,563)
Total derivative assets and total derivative liabilities     $237,947  $32,411      $237,947  $32,411 
Security collateral pledged as initial margin to Derivative Clearing Organization (c)     $251,177          $251,177     
Security collateral received from counterparty (c)      (115,238)          (115,238)    
Net security      135,939           135,939     
Net exposure     $373,886          $373,886     

 

(a)All derivative assets and liabilities with swap dealers and counterparties are executed under collateral agreements; derivative instruments executed bilaterally are subject to legal right of offset under master netting agreements.
(b)The Other category comprised of interest rate swaps intermediated for member, and notional amounts represent purchases by the FHLBNY from dealers and an offsetting purchase from us by the members.

(c)Non-cash security collateral is not permitted to be offset on the balance sheet, but would be eligible for offsetting in an event of default. Amounts represent U.S. Treasury securities pledged to and received from counterparties as collateral at JuneSeptember 30, 2020 and December 31, 2019.

 

Accounting for Derivative Hedging

 

The FHLBNY accounts for its hedging activities in accordance with ASC 815, Derivatives and Hedging. As a general rule, hedge accounting is permitted where the FHLBNY is exposed to a particular risk, typically interest-rate risk that causes changes in the fair value of an asset or liability or variability in the expected future cash flows of an existing asset, liability or a forecasted transaction that may affect earnings. Derivative contracts hedging the risks associated with the changes in fair value are referred to as Fair value hedges, while contracts hedging the risks affecting the expected future cash flows are called Cash flow hedges.

 

41


 

Federal Home Loan Bank of New York
Notes to Financial Statements — Unaudited 

In 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (Topic 815). We adopted the guidance prospectively effective January 1, 2019, and adoption primarily impacted the FHLBNY’s accounting for derivatives designated as cash flow hedges and fair value hedges.  Other than to elect the amendments under ASU 2017-12, which expanded the strategies that qualify for hedge accounting and simplified the application of hedge accounting, no other changes were made to hedge accounting strategies.

 

The FASB issued ASU 2018-16, Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes (Topic 815), which adds the OIS rate based on SOFR as an approved U.S. benchmark rate to facilitate the LIBOR to SOFR transition. The other interest rates in the United States that are eligible benchmarks under Topic 815 are interest rates on direct Treasury obligations of the U.S. government (UST), the London Interbank Offered Rate (LIBOR) swap rate, the Overnight Index Swap (OIS) Rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. The FHLBNY’s primary benchmark is LIBOR, and the Fed funds indexed rate is an alternative benchmark. The FHLBNY implemented the SOFR rate as another benchmark rate for interest rate hedging in the third quarter of 2019.

 

Refer to Note 17. Derivatives and Hedging Activities in the 2019 Form 10-K for a further discussion of the accounting policies regarding derivative instruments.

 

Fair value hedge gains and losses

 

Gains and Losses on Fair value hedges under ASC 815 are summarized below (in thousands):

 

 Gains (Losses) on Fair Value Hedges  Gains (Losses) on Fair Value Hedges 
 Three months ended June 30,  Three months ended September 30, 
 2020 2019  2020 2019 
 Recorded in
Interest
Income/Expense		 Recorded in
Interest
Income/Expense		   Recorded in
Interest
Income/Expense		  Recorded in
Interest
Income/Expense		 
Gains (losses) on derivatives in designated and qualifying fair value hedges:                
Interest rate hedges $(80,987) $(360,128) $133,360  $(118,358)
                
Gains (losses) on hedged item in designated and qualifying fair value hedges:                
Interest rate hedges $87,549  $359,340  $(133,685) $118,834 

 

 Gains (Losses) on Fair Value Hedges  Gains (Losses) on Fair Value Hedges 
 Six months ended June 30,   Nine months ended September 30,
 2020 2019   2020  2019 
 Recorded in
Interest
Income/Expense		 Recorded in
Interest
Income/Expense		   Recorded in
Interest
Income/Expense		  Recorded in
Interest
Income/Expense		 
Gains (losses) on derivatives in designated and qualifying fair value hedges:                
Interest rate hedges $(1,313,783) $(521,712) $(1,180,423) $(640,070)
                
Gains (losses) on hedged item in designated and qualifying fair value hedges:                
Interest rate hedges $1,311,857  $519,612  $1,178,172  $638,446 


Federal Home Loan Bank of New York
Notes to Financial Statements — Unaudited 

 

Gains (losses) represent changes in fair values of derivatives and hedged items due to changes in the designated benchmark interest rates, the risk being hedged. Beginning in 2019, gains and losses on ASC 815 hedges are recorded in the same line in the Statements of income as the hedged assets and hedged liabilities. Prior to the adoption of ASU 2017-12 (on January 1, 2019), gains and losses on derivatives and hedged items were recorded in Other income (loss).


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Cumulative Basis Adjustment

 

Upon electing to apply ASC 815 fair value hedge accounting, the carrying value of the hedged item is adjusted to reflect the cumulative impact of changes in the hedged risk. The hedge basis adjustment, whether arising from an active or de-designated hedge relationship, remains with the hedged item until the hedged item is derecognized from the balance sheet.

 

The tables below present the carrying amount of FHLBNY’s assets and liabilities under active ASC 815 qualifying fair value hedges at JuneSeptember 30, 2020 and December 31, 2019, as well as the hedged item’s cumulative hedge basis adjustments, which were included in the carrying value of assets and liabilities in active hedges. The tables also present unamortized cumulative basis adjustments from discontinued hedges where the previously hedged item remains on the FHLBNY’s Statements of condition (in thousands):

 

 June 30, 2020  September 30, 2020 
    Cumulative Fair Value Hedging
Adjustment Included in the Carrying
Amount of Hedged Items Gains (Losses)		     Cumulative Fair Value Hedging
Adjustment Included in the Carrying
Amount of Hedged Items Gains (Losses)		 
 Carrying Amount of
Hedged
Assets/Liabilities (a)		 Active Hedging
Relationship		 Discontinued
Hedging
Relationship		  Carrying Amount of
Hedged
Assets/Liabilities (a)		  Active Hedging
Relationship		  Discontinued
Hedging
Relationship		 
Assets:              
Hedged advances $45,363,596  $1,786,414  $-  $41,666,452  $1,596,447  $- 
Hedged AFS debt securities(a)  618,434   70,431   -   997,875   62,911   - 
De-designated advances(b)  -   -   583   -   -   1,487 
 $45,982,030  $1,856,845  $583  $42,664,327  $1,659,358  $1,487 
                        
Liabilities:                        
Hedged consolidated obligation bonds $8,557,856  $(620,391) $-  $14,708,438  $(573,307) $- 
Hedged consolidated obligation discount notes  16,162,993   (3,911)  -   11,696,668   (992)  - 
De-designated consolidated obligation bonds(b)  -   -   (135,883)  -   -   (134,180)
De-designated consolidated obligation discount notes(b)  -   -   89   -   -   33 
 $24,720,849  $(624,302) $(135,794) $26,405,106  $(574,299) $(134,147)

 

 December 31, 2019  December 31, 2019 
    Cumulative Fair Value Hedging
Adjustment Included in the Carrying
Amount of Hedged Items Gains (Losses)		     Cumulative Fair Value Hedging
Adjustment Included in the Carrying
Amount of Hedged Items Gains
(Losses)		 
 Carrying Amount of
Hedged
Assets/Liabilities (a)		 Active Hedging
Relationship		 Discontinued
Hedging
Relationship		  Carrying Amount of
Hedged
Assets/Liabilities (a)		 Active Hedging
Relationship		 Discontinued
Hedging
Relationship		 
Assets:                   
Hedged advances $40,722,558  $298,818  $-  $40,722,558  $298,818  $- 
Hedged AFS debt securities(a)  547,807   11,593   -   547,807   11,593   - 
De-designated advances(b)  -   -   345   -   -   345 
 $41,270,365  $310,411  $345  $41,270,365  $310,411  $345 
Liabilities:                        
Hedged consolidated obligation bonds $11,366,044  $(377,000) $-  $11,366,044  $(377,000) $- 
Hedged consolidated obligation discount notes  3,493,297   105   -   3,493,297   105   - 
De-designated consolidated obligation bonds(b)  -   -   (139,605)  -   -   (139,605)
 $14,859,341  $(376,895) $(139,605) $14,859,341  $(376,895) $(139,605)

 

(a)Carrying amounts represent amortized cost adjusted for cumulative fair value hedging basis. For AFS securities in a fair value partial-term hedge, changes in the fair values due to changes in the benchmark rate were recorded as an adjustment to amortized cost and an offset to interest income from the hedged AFS securities.
(b)Basis valuation adjustments of de-designated (discontinued hedging relationships) on advances and debt were reported in the same line as the carrying amounts of hedged assets/liabilities. Par amounts of de-designated advances were $1.0$1.2 billion; par amounts of de-designated CO bonds were approximately $1.2$1.3 billion; par amounts of de-designated CO discount notes were approximately $1.7$1.0 billion. Cumulative fair value hedging adjustments for active and discontinued hedging relationships will remain on the balance sheet until the items are derecognized.

 


Federal Home Loan Bank of New York


Notes to Financial Statements — Unaudited

 

Cash flow hedge gains and losses

 

The following tables present derivative instruments used in cash flow hedge accounting relationships and the gains and losses recorded on such derivatives (in thousands):

 

  Derivative Gains (Losses) Recorded in Income and Other Comprehensive Income/Loss 
  Three months ended June 30, 
  2020  2019 
  Amounts
Reclassified from
AOCI to
Interest Expense (b)		  Amounts
Reclassified from
AOCI to Other
Income (Loss) (c)		  Amounts
Recorded in
OCI (d)		  Total Change
in OCI for
Period		  Amounts
Reclassified from
AOCI to
Interest Expense (b)		  Amounts
Reclassified from
AOCI to Other
Income (Loss) (c)		  Amounts
Recorded in
OCI (d)		  Total Change
in OCI for
Period		 
Interest rate contracts (a) $(348) $-  $(6,128) $(5,780) $(116) $-  $(69,786) $(69,670)
  Derivative Gains (Losses) Recorded in Income and Other Comprehensive Income/Loss 
  Three months ended September 30, 
  2020  2019 
  Amounts
Reclassified from
AOCI to
Interest Expense (b)		  Amounts
Reclassified from
AOCI to Other
Income (Loss) (c)		  Amounts
Recorded in
OCI (d)		  Total Change
in OCI for
Period		  Amounts
Reclassified from
AOCI to
Interest Expense (b)		  Amounts
Reclassified from
AOCI to Other
Income (Loss) (c)		  Amounts
Recorded in
OCI (d)		  Total Change
in OCI for
Period		 
Interest rate contracts (a) $(363) $-  $17,707  $18,070  $(214) $-  $(41,356) $(41,142)

 

  Derivative Gains (Losses) Recorded in Income and Other Comprehensive Income/Loss 
  Six months ended June 30, 
  2020  2019 
   Amounts Reclassified from AOCI to
Interest Expense (b)		   Amounts Reclassified from AOCI to Other Income (Loss) (c)   Amounts Recorded in OCI (d)   Total Change in OCI for Period   Amounts Reclassified from AOCI to
Interest Expense (b)		   Amounts Reclassified from AOCI to Other Income (Loss) (c)   Amounts Recorded in OCI (d)   Total Change in OCI for Period 
Interest rate contracts (a) $(621) $-  $(159,233) $(158,612) $(139) $-  $(112,500) $(112,361)

  Derivative Gains (Losses) Recorded in Income and Other Comprehensive Income/Loss 
  Nine months ended September 30, 
  2020  2019 
  Amounts
Reclassified from
AOCI to
Interest Expense (b)		  Amounts
Reclassified from
AOCI to Other
Income (Loss) (c)		  Amounts
Recorded in
OCI (d)		  Total Change
in OCI for
Period		  Amounts
Reclassified from
AOCI to
Interest Expense (b)		  Amounts
Reclassified from
AOCI to Other
Income (Loss) (c)		  Amounts
Recorded in
OCI (d)		  Total Change
in OCI for
Period		 
Interest rate contracts (a) $(984) $-  $(141,526) $(140,542) $(353) $-  $(153,856) $(153,503)

 

(a)Amounts represent cash flow hedges of CO debt hedged with benchmark interest rate swaps indexed to LIBOR. Beginning January 1, 2019 post implementation of ASU 2017-12, the FHLBNY includes the gain and loss on the hedging derivatives in the same line in the Statements of income as the change in cash flows on the hedged item.
(b)Amounts represent amortization of gains (losses) related to closed cash flow hedges of anticipated issuance of CO bonds that were reclassified during the period to interest expense as a yield adjustment. Losses reclassified represent losses in AOCI that were amortized as an expense to debt interest expense. If debt is held to maturity, losses in AOCI will be relieved through amortization. It is expected that over the next 12 months, $1.4$1.5 million of the unrecognized losses in AOCI will be recognized as yield adjustments to debt interest expense.
(c)Subsequent to the adoption of ASU 2017-12, hedge ineffectiveness (as defined under ASC 815) is reclassified only if the original transaction would not occur by the end of the specified time period or within a two-month period thereafter. There were no amounts that were reclassified into earnings due to discontinuation of cash flow hedges. Reclassification would occur if 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.
(d)Amounts represent changes in the fair values of open interest rate swap contracts in cash flow hedges of CO debt, primarily those hedging the rolling issuance of CO discount notes.


Federal Home Loan Bank of New York
Notes to Financial Statements — Unaudited 

 

Economic Hedges

 

FHLBNY often uses economic hedges when hedge accounting would be too complex or operationally burdensome. Derivatives that are economic hedges are carried at fair value, with changes in value included in Other income (loss), a line item, which is below Net interest income. For hedges that either do not meet the ASC 815 hedging criteria or for which management decides not to apply ASC 815 hedge accounting, the derivative is recorded at fair value on the balance sheet with the associated changes in fair value recorded in earnings, while the “hedged” instrument continues to be carried at amortized cost. Therefore, current earnings are affected by the interest rate shifts and other factors that cause a change in the swap’s value, but for which no offsetting change in value is recorded on the hedged instrument. Economic hedges are an acceptable hedging strategy under the FHLBNY’s risk management program, and the strategies comply with the Finance Agency’s regulatory requirements prohibiting speculative use of derivatives.


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Gains and losses on economic hedges are presented below (in thousands):

 

 Gains (Losses) on Economic Hedges  Gains (Losses) on Economic Hedges 
 Recorded in Other Income (Loss)  Recorded in Other Income (Loss) 
 Three months ended June 30, Six months ended June 30,  Three months ended September 30, Nine months ended September 30, 
 2020 2019 2020 2019  2020 2019 2020 2019 
Gains (losses) on derivatives designated in economic hedges                                
Interest rate hedges $(5,081) $(39,497) $(169,215) $(51,632) $10,352  $(3,891) $(158,863) $(55,523)
Caps  (84)  125   5   (217)  (38)  (410)  (33)  (627)
Mortgage delivery commitments  1,244   303   1,119   500   535   32   1,654   532 
Total gains (losses) on derivatives in economic hedges (a) $(3,921) $(39,069) $(168,091) $(51,349) $10,849  $(4,269) $(157,242) $(55,618)

 

(a)Valuation changes and accrued interest on the swaps (also referred to as swap interest settlement) on derivatives not eligible for hedge accounting under ASC 815 continue to be reported in Other income (loss) in the Statements of income, and total derivative gains (losses) in the table above will reconcile to the line item – “Derivative gains (losses)” in Other income in the Statements of income.

 

Note 18.         Fair Values of Financial Instruments.

Note 18. Fair Values of Financial Instruments.

 

Estimated Fair Values — Summary Tables — Carrying values, the estimated fair values and the levels within the fair value hierarchy were as follows (in thousands):

 

 June 30, 2020  September 30, 2020 
    Estimated Fair Value        Estimated Fair Value    
Financial Instruments Carrying
Value		 Total Level 1 Level 2 Level 3 (a) Netting
Adjustment and
Cash Collateral		  Carrying
Value		  Total  Level 1  Level 2  Level 3 (a)  Netting
Adjustment and
Cash Collateral		 
Assets                          
Cash and due from banks $44,308  $44,308  $44,308  $-  $-  $-  $487,719  $487,719  $487,719  $-  $-  $- 
Interest-bearing deposits  925,000   925,001   -   925,001   -   -   685,000   685,001   -   685,001   -   - 
Securities purchased under agreements to resell  4,950,000   4,949,997   -   4,949,997   -   -   3,400,000   3,399,998   -   3,399,998   -   - 
Federal funds sold  5,355,000   5,354,999   -   5,354,999   -   -   7,674,000   7,673,996   -   7,673,996   -   - 
Trading securities  12,923,831   12,923,831   12,921,673   2,158   -   -   12,598,027   12,598,027   12,595,861   2,166   -   - 
Equity Investments  63,852   63,852   63,852   -   -   -   69,961   69,961   69,961   -   -   - 
Available-for-sale securities  2,874,107   2,874,107   -   2,874,107   -   -   3,275,768   3,275,768   -   3,275,768   -   - 
Held-to-maturity securities  14,348,334   15,034,177   -   13,828,987   1,205,190   -   13,815,615   14,497,985   -   13,301,172   1,196,813   - 
Advances  113,788,556   113,792,086   -   113,792,086   -   -   106,215,738   106,366,241   -   106,366,241   -   - 
Mortgage loans held-for-portfolio, net  3,164,709   3,278,261   -   3,278,261   -   -   3,054,003   3,157,363   -   3,157,363   -   - 
Accrued interest receivable  225,556   225,556   -   225,556   -   -   195,753   195,753   -   195,753   -   - 
Derivative assets  55,829   55,829   -   584,804   -   (528,975)  71,462   71,462   -   488,260   -   (416,798)
Other financial assets  358   358   -   -   358   -   206   206   -   -   206   - 
                                                
Liabilities                                                
Deposits  1,590,357   1,590,364   -   1,590,364   -   -   1,810,340   1,810,344   -   1,810,344   -   - 
Consolidated obligations                                                
Bonds  59,032,487   59,934,238   -   59,934,238   -   -   71,742,105   72,685,863   -   72,685,863   -   - 
Discount notes  89,499,893   89,514,606   -   89,514,606   -   -   69,709,787   69,720,863   -   69,720,863   -   - 
Mandatorily redeemable capital stock  3,841   3,841   3,841   -   -   -   3,334   3,334   3,334   -   -   - 
Accrued interest payable  131,432   131,432   -   131,432   -   -   117,280   117,280   -   117,280   -   - 
Derivative liabilities  70,726   70,726   -   1,413,106   -   (1,342,380)  59,643   59,643   -   1,258,556   -   (1,198,913)
Other financial liabilities  35,400   35,400   35,400   -   -   -   34,162   34,162   34,162   -   -   - 

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

  December 31, 2019 
     Estimated Fair Value       
Financial Instruments Carrying
Value		  Total  Level 1  Level 2  Level 3 (a)  Netting
Adjustment and
Cash Collateral		 
Assets                  
Cash and due from banks $603,241  $603,241  $603,241  $-  $-  $- 
Securities purchased under agreements to resell  14,985,000   14,984,909   -   14,984,909   -   - 
Federal funds sold  8,640,000   8,639,966   -   8,639,966   -   - 
Trading securities  15,318,809   15,318,809   15,315,592   3,217   -   - 
Equity Investments  60,047   60,047   60,047   -   -   - 
Available-for-sale securities  2,653,418   2,653,418   -   2,653,418   -   - 
Held-to-maturity securities  15,234,482   15,456,606   -   14,223,919   1,232,687   - 
Advances  100,695,241   100,738,675   -   100,738,675   -   - 
Mortgage loans held-for-portfolio, net  3,173,352   3,190,109   -   3,190,109   -   - 
Accrued interest receivable  312,559   312,559   -   312,559   -   - 
Derivative assets  237,947   237,947   -   608,808   -   (370,861)
Other financial assets  293   293   -   -   293   - 
                         
Liabilities                        
Deposits  1,194,409   1,194,419   -   1,194,419   -   - 
Consolidated obligations                        
Bonds  78,763,309   78,980,672   -   78,980,672   -   - 
Discount notes  73,959,205   73,961,316   -   73,961,316   -   - 
Mandatorily redeemable capital stock  5,129   5,129   5,129   -   -   - 
Accrued interest payable  156,889   156,889   -   156,889   -   - 
Derivative liabilities  32,411   32,411   -   717,974   -   (685,563)
Other financial liabilities  45,388   45,388   45,388   -   -   - 

                   
  December 31, 2019 
     Estimated Fair Value    
Financial Instruments Carrying Value  Total  Level 1  Level 2  Level 3 (a)  Netting
Adjustment and
Cash Collateral		 
Assets                  
Cash and due from banks $603,241  $603,241  $603,241  $-  $-  $- 
Securities purchased under agreements to resell  14,985,000   14,984,909   -   14,984,909   -   - 
Federal funds sold  8,640,000   8,639,966   -   8,639,966   -   - 
Trading securities  15,318,809   15,318,809   15,315,592   3,217   -   - 
Equity Investments  60,047   60,047   60,047   -   -   - 
Available-for-sale securities  2,653,418   2,653,418   -   2,653,418   -   - 
Held-to-maturity securities  15,234,482   15,456,606   -   14,223,919   1,232,687   - 
Advances  100,695,241   100,738,675   -   100,738,675   -   - 
Mortgage loans held-for-portfolio, net  3,173,352   3,190,109   -   3,190,109   -   - 
Accrued interest receivable  312,559   312,559   -   312,559   -   - 
Derivative assets  237,947   237,947   -   608,808   -   (370,861)
Other financial assets  293   293   -   -   293   - 
                         
Liabilities                        
Deposits  1,194,409   1,194,419   -   1,194,419   -   - 
Consolidated obligations                        
Bonds  78,763,309   78,980,672   -   78,980,672   -   - 
Discount notes  73,959,205   73,961,316   -   73,961,316   -   - 
Mandatorily redeemable capital stock  5,129   5,129   5,129   -   -   - 
Accrued interest payable  156,889   156,889   -   156,889   -   - 
Derivative liabilities  32,411   32,411   -   717,974   -   (685,563)
Other financial liabilities  45,388   45,388   45,388   -   -   - 

 

The fair value amounts recorded on the Statements of Condition or presented in the table above have been determined by the FHLBNY using available market information and our reasonable judgment of appropriate valuation methods.

 

(a)Level 3 Instruments — The fair values of non-Agency private-label MBS and housing finance agency bonds were estimated by management based on pricing services. Valuations may have required pricing services to use significant inputs that were subjective because of the current lack of significant market activity; the inputs may not be market based and observable.

  

Fair Value Hierarchy

 

The FHLBNY records trading securities, equity investments, available-for-sale securities, derivative instruments, and Consolidated obligations and advances elected under the FVO at fair values on a recurring basis. On a non-recurring basis for the FHLBNY, when mortgage loans held-for-portfolio are written down or are foreclosed as Other real estate owned (REO or OREO), they are recorded at the fair values of the real estate collateral supporting the mortgage loans.

 

The accounting standards under Fair Value Measurement defines fair value, establishes a consistent framework for measuring fair value and requires disclosures about fair value measurements. 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 between market participants at the measurement date. Among other things, the standard requires the FHLBNY to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard specifies a hierarchy of inputs based on whether the inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the FHLBNY’s market assumptions.


 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

These two types of inputs have created the following fair value hierarchy, and an entity must disclose the level within the fair value hierarchy in which the measurements are classified for all assets and liabilities measured on a recurring or non-recurring basis:

 

 ·Level 1 Inputs — Quoted prices (unadjusted) for identical assets or liabilities in an active market that the reporting entity can access on the measurement date.
 ·Level 2 Inputs — Inputs other than quoted prices within Level 1 that are observable inputs for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; (3) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals, and volatilities).
 ·Level 3 Inputs — Inputs that are unobservable and significant to the valuation of the asset or liability.

 

The inputs are evaluated on an overall level for the fair value measurement to be determined. This overall level is an indication of market observability of the fair value measurement for the asset or liability. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities. These reclassifications are reported as transfers in/out as of the beginning of the quarter in which the changes occur. There were no such transfers in any periods in this report.

 

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 the FHLBNY in determining fair value is greatest for instruments categorized as Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

 

Summary of Valuation Techniques and Primary Inputs

 

The fair value of a financial instrument that is an asset is defined as the price the FHLBNY would receive to sell the asset in an orderly transaction with market participants. A financial liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair values are based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices are not available, valuation models and inputs are utilized. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or markets and the instruments’ complexity. Because an active secondary market does not exist for a portion of the FHLBNY’s financial instruments, in certain cases, fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change.

 

For assets and liabilities carried at fair value, the FHLBNY measures fair value using the procedures set out below:

 

Mortgage-backed securities classified as available-for-sale — The fair value of such securities is estimated by the FHLBNY using pricing primarily from specialized pricing services. The pricing vendors typically use market multiples derived from a set of comparables, including matrix pricing, and other techniques. The FHLBNY’s valuation technique incorporates prices from up to three designated third-party pricing services at JuneSeptember 30, 2020 and December 31, 2019. The FHLBNY’s base investment pricing methodology establishes a median price for each security using a formula that is based on the number of prices received. 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, typically subject to further validation. Vendor prices that are outside of a defined tolerance threshold of the median price are identified as outliers and subject to additional review, including, but not limited to, comparison to prices provided by an additional third-party valuation service, prices for similar securities, and/or non-binding dealer estimates, or use of internal model prices, which are deemed to be reflective of all relevant facts and circumstances that a market participant would consider. Such analysis is also applied in those limited instances where no third-party vendor price or only one third-party vendor price is available in order to arrive at an estimated fair value.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

The FHLBNY has also concluded that the pricing vendors use methods that generally employ, but are not limited to benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of like securities, sector groupings, and/or matrix pricing.

 

Based on the FHLBNY’s review processes, management has concluded that inputs into the pricing models employed by pricing services for the FHLBNY’s investments in GSE securities classified as available-for-sale are market based and observable and are considered to be within Level 2 of the fair value hierarchy.

 

Fair values of Mortgage-backed securities deemed impaired — When a PLMBS is deemed to be impaired, it is recorded at fair value. The valuation of PLMBS may require pricing services to use significant inputs that are subjective and are considered by management to be within Level 3 of the fair value 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 MBS, so that the inputs may not be market based and observable. Historically, impairments have been de minimis. The portfolio of PLMBS has declined as the FHLBNY has ceased acquiring PLMBS.

 

Trading Securities — The FHLBNY classifies trading securities as Level 1 of the fair value hierarchy when we use quoted market prices in active markets to determine the fair value of trading securities, such as U.S. government securities. We classify trading securities as Level 2 of the fair value hierarchy when we use quoted market prices in less active markets to determine the fair value of trading securities.

 

Equity Investments — The FHLBNY has a grantor trust, which invest in money market, equity and fixed income and bond funds. Daily net asset values (NAVs) are readily available and investments are redeemable at short notice. NAVs are the fair values of the funds in the grantor trust. Because of the highly liquid nature of the investments at their NAVs, they are categorized as Level 1 financial instruments under the valuation hierarchy.

 

Advances elected under the FVO — When the FHLBNY elects the FVO designation for certain advances, the advances are recorded at their fair values in the Statements of Condition. The fair values are computed using standard option valuation models. The most significant inputs to the valuation model are (1) Consolidated obligation debt curve (CO Curve), published by the Office of Finance and available to the public, and (2) LIBOR swap curves and volatilities. Both these inputs are considered to be market based and observable as they can be directly corroborated by market participants.

 

The CO Curve is the primary input, which is market based and observable. Inputs to apply spreads, which are FHLBNY specific, were not material. Fair values were classified within Level 2 of the valuation hierarchy.

 

The FHLBNY determines the fair values of advances elected under the FVO by calculating the present value of expected future cash flows from the advances, a methodology also referred to as the Income approach under the Fair Value Measurement standards. The discount rates used in these calculations are equivalent to the replacement advance rates for advances with similar terms. In accordance with the Finance Agency’s “Advances” regulations, an advance with a maturity or repricing period greater than six months requires a prepayment fee sufficient to make a FHLBank financially indifferent to the borrower’s decision to prepay the advance. Therefore, the fair value of an advance does not assume prepayment risk.

 

The inputs used to determine fair value of advances elected under the FVO are as follows:

 

 ··CO Curve. The FHLBNY uses the CO Curve, which represents its cost of funds, as an input to estimate the fair value of advances, and to determine current advance rates. This input is considered market observable and therefore a Level 2 input.

 

 ··Volatility assumption. To estimate the fair value of advances with optionality, the FHLBNY uses market-based expectations of future interest rate volatility implied from current market prices for similar options. This input is considered a Level 2 input as it is market based and market observable.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 ··Spread adjustment. Adjustments represent the FHLBNY’s mark-up based on its pricing strategy. The input is considered as unobservable, and is classified as a Level 3 input. The spread adjustment is not a significant input to the overall fair value of an advance.


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Consolidated Obligations elected under the FVO — The FHLBNY estimates the fair values of Consolidated obligations elected under the FVO based on the present values of expected future cash flows due on the debt obligations. Calculations are performed by using the FHLBNY’s industry standard option adjusted valuation models. Inputs are based on the cost of comparable term debt. The FHLBNY’s internal valuation models use standard valuation techniques and estimate fair values based on the following inputs:

 

 ··CO Curve and LIBOR Swap Curve. The Office of Finance constructs an internal curve, referred to as the CO Curve, using the U.S. Treasury Curve as a base curve that is then adjusted by adding indicative spreads obtained from market observable sources. These market indications are generally derived from pricing indications from dealers, historical pricing relationships, recent GSE trades and secondary market activity. The FHLBNY considers the inputs as Level 2 inputs as they are market observable.

 

 ··Volatility assumptions. To estimate the fair values of Consolidated obligations with optionality, the FHLBNY uses market-based expectations of future interest rate volatility implied from current market prices for similar options. These inputs are also considered Level 2 as they are market based and observable. No CO debt elected under the FVO were structured with options in any periods in this report.

 

Derivative Assets and Liabilities — The FHLBNY’s derivatives (cleared derivatives and bilaterally executed derivatives) are executed in the over-the-counter market and are valued using internal valuation techniques as no quoted market prices exist for such instruments. Discounted cash flow analysis is the primary methodology employed by the FHLBNY’s valuation models to measure the fair values of interest rate swaps. The valuation technique is considered as an “Income approach”. Interest rate caps and floors are valued under the “Market approach”. Interest rate swaps and interest rate caps and floors, collectively “derivatives”, were valued in industry-standard option adjusted valuation models, which generated fair values. The valuation models employed multiple market inputs including interest rates, prices and indices to create continuous yield or pricing curves and volatility factors. These multiple market inputs were corroborated by management to independent market data, and to relevant benchmark indices. In addition, derivative valuations were compared by management to counterparty valuations received as part of the collateral exchange process. These derivative positions were classified within Level 2 of the valuation hierarchy at JuneSeptember 30, 2020 and December 31, 2019.

 

The FHLBNY’s valuation model utilizes a modified Black-Karasinski methodology. Significant market based and observable inputs into the valuation model include volatilities and interest rates. The Bank’s valuation model employs industry standard market-observable inputs (inputs that are actively quoted and can be validated to external sources). Inputs by class of derivative were as follows:

 

Interest-rate related:

 

 ¨LIBOR Swap Curve.
 ¨Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.
 ¨Prepayment assumption (if applicable).
 ¨Federal funds curve (FF/OIS curve).
 ¨SOFR curve (SOFR/OIS)

 

Mortgage delivery commitments (considered a derivative) — TBA security prices are adjusted for differences in coupon, average loan rate and seasoning. To be announced (TBA) is the term describing forward-settling MBS trades issued by Freddie Mac, Fannie Mae, and Ginnie Mae trade in the TBA market. The FHLBNY incorporates the overnight indexed swap (FF/OIS) curves as fair value measurement inputs for the valuation of its derivatives, as the FF/OIS curves reflect the interest rates paid on cash collateral provided against the fair value of these derivatives. The FHLBNY believes using relevant FF/OIS curves as inputs to determine fair value measurements provides a more representative reflection of the fair values of these collateralized interest-rate related derivatives. The FF/OIS curve is an input to the valuation model. The input for the federal funds curve is obtained from industry standard pricing vendors and the input is available and observable over its entire term structure.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

Management considers the federal funds curve to be a Level 2 input. The FHLBNY’s valuation model utilizes industry standard OIS methodology. The model generates forecasted cash flows using the FF/OIS calibrated 3-month LIBOR curve. The model then discounts the cash flows by the FF/OIS curve to generate fair values.

46 

Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Credit risk and credit valuation adjustments

 

The FHLBNY is subject to credit risk in derivatives transactions due to the potential non-performance of its derivatives counterparties or a DCO. To mitigate this risk, the FHLBNY has entered into master netting agreements and credit support agreements with its derivative counterparties for its bilaterally executed derivative contracts that provide for the delivery of collateral at specified levels at least weekly. The computed fair values of the 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. For derivative transactions executed as a cleared derivative, the transactions are fully collateralized in cash and for the most part exchanged and settled daily with the DCO. The FHLBNY has also established the enforceability of offsetting rights incorporated in the agreements for the cleared derivative transactions.

 

As a result of these practices and agreements and the FHLBNY’s assessment of any change in its own credit spread, the FHLBNY has concluded that the impact of the credit differential between the FHLBNY and its derivative counterparties and DCO was sufficiently mitigated to an immaterial level that no credit adjustments were deemed necessary to the recorded fair value of Derivative assets and Derivative liabilities in the Statements of Condition at JuneSeptember 30, 2020 and December 31, 2019.

 

Fair Value Measurement

 

The tables below present the fair value of those assets and liabilities that are recorded at fair value on a recurring or non-recurring basis at JuneSeptember 30, 2020 and December 31, 2019, by level within the fair value hierarchy. Certain mortgage loans that were partially charged-off were recorded at their collateral values on a non-recurring basis. Other real estate owned (OREO) is measured at fair value when the asset’s fair value less costs to sell is lower than its carrying amount.

 

50


 

Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Items Measured at Fair Value on a Recurring Basis (in thousands):

 

 June 30, 2020  September 30, 2020 
 Total Level 1 Level 2 Level 3 Netting
Adjustment and
Cash Collateral		  Total Level 1 Level 2 Level 3 Netting
Adjustment and
Cash Collateral		 
Assets                                        
Trading securities                                        
Corporate notes $2,158  $-  $2,158  $           -  $           -  $2,166  $-  $2,166  $-  $- 
U.S. Treasury securities  12,921,673   12,921,673   -   -   -   12,595,861   12,595,861   -   -   - 
Equity Investments  63,852   63,852   -   -   -   69,961   69,961   -   -   - 
Available-for-sale securities                                        
GSE/U.S. agency issued MBS  2,874,107   -   2,874,107   -   -   3,275,768   -   3,275,768   -   - 
Derivative assets (a)                                        
Interest-rate derivatives  55,555   -   584,530   -   (528,975)  71,393   -   488,191   -   (416,798)
Mortgage delivery commitments  274   -   274   -   -   69   -   69   -   - 
                    
Total recurring fair value measurement - Assets $15,917,619  $12,985,525  $3,461,069  $-  $(528,975) $16,015,218  $12,665,822  $3,766,194  $-  $(416,798)
                    
Liabilities                                        
Consolidated obligation:                                        
Discount notes (to the extent FVO is elected) $(20,159,341) $-  $(20,159,341) $-  $-  $(12,853,069) $-  $(12,853,069) $-  $- 
Bonds (to the extent FVO is elected) (b)  (1,302,385)  -   (1,302,385)  -   -   (14,776,973)  -   (14,776,973)  -   - 
Derivative liabilities (a)                                        
Interest-rate derivatives  (70,726)  -   (1,413,106)  -   1,342,380   (59,637)  -   (1,258,550)  -   1,198,913 
                    
Mortgage delivery commitments  (6)  -   (6)  -   - 
Total recurring fair value measurement - Liabilities $(21,532,452) $-  $(22,874,832) $-  $1,342,380  $(27,689,685) $-  $(28,888,598) $-  $1,198,913 

 

  December 31, 2019 
  Total  Level 1  Level 2  Level 3  Netting
Adjustment and
Cash Collateral		 
Assets                    
Trading securities                    
Corporate notes $3,217  $-  $3,217  $-  $- 
U.S. Treasury securities  15,315,592   15,315,592   -   -   - 
Equity Investments  60,047   60,047   -   -   - 
Available-for-sale securities                    
GSE/U.S. agency issued MBS  2,653,418   -   2,653,418   -   - 
Derivative assets (a)                    
Interest-rate derivatives  237,842   -   608,703   -   (370,861)
Mortgage delivery commitments  105   -   105   -   - 
Total recurring fair value measurement - Assets $18,270,221  $15,375,639  $3,265,443  $-  $(370,861)
Liabilities                    
Consolidated obligation:                    
Discount notes (to the extent FVO is elected) $(2,186,603) $-  $(2,186,603) $-  $- 
Bonds (to the extent FVO is elected) (b)  (12,134,043)  -   (12,134,043)  -   - 
Derivative liabilities (a)                    
Interest-rate derivatives  (32,410)  -   (717,973)  -   685,563 
Mortgage delivery commitments  (1)  -   (1)  -   - 
Total recurring fair value measurement - Liabilities $(14,353,057) $-  $(15,038,620) $-  $685,563 

 

(a)Based on analysis of the nature of the risk, the presentation of derivatives as a single class is appropriate.
(b)Based on analysis of the nature of risks of Consolidated obligation bonds measured at fair value, the FHLBNY has determined that presenting the bonds as a single class is appropriate.

 

51

Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

Items Measured at Fair Value on a Non-recurring Basis (in thousands):

 

  During the period ended June 30, 2020 
  Fair Value  Level 1  Level 2  Level 3 
Real estate owned $           135  $           -  $           -  $           135 
Total non-recurring assets at fair value $135  $-  $-  $135 

  During the period ended September 30, 2020 
  Fair Value  Level 1  Level 2  Level 3 
Real estate owned $65  $-  $-  $65 
Total non-recurring assets at fair value $65  $       -  $-  $65 
                 
  During the period ended December 31, 2019 
  Fair Value  Level 1  Level 2  Level 3 
Mortgage loans held-for-portfolio $80  $-  $80  $- 
Real estate owned  306   -   -   306 
Total non-recurring assets at fair value $386  $     -  $80  $306 

 

  During the period ended December 31, 2019 
  Fair Value  Level 1  Level 2  Level 3 
Mortgage loans held-for-portfolio $           80  $           -  $           80  $           - 
Real estate owned  306   -   -   306 
Total non-recurring assets at fair value $386  $-  $80  $306 

Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Mortgage loans and real estate owned (OREO or REO) — The FHLBNY measured and recorded certain impaired mortgage loans and Real estate owned (foreclosed properties) on a non-recurring basis. These assets were subject to fair value adjustments in certain circumstances at the occurrence of the events during the periods in this report. Impaired loans were primarily loans that were delinquent for 180 days or more, partially charged-off, with the remaining loans recorded at their collateral values at the dates the loans were charged off. Fair value adjustments on the impaired loans and real estate owned assets were based primarily on broker price opinions.

 

In accordance with disclosure provisions, we have reported changes in fair values of such assets as of the date the fair value adjustments were recorded during the period ended JuneSeptember 30, 2020 and December 31, 2019, and reported fair values were not as of the period end dates.

 

Fair Value Option Disclosures

 

From time to time, the FHLBNY will elect the FVO for advances and Consolidated obligations on an instrument-by-instrument basis with changes in fair value reported in earnings. Customarily, the election is made when either the instruments do not qualify for hedge accounting or may be at risk for not meeting hedge effectiveness requirements; the objective is primarily to mitigate the potential income statement volatility that can arise from economic hedging relationships in which the carrying value of the hedged item is not adjusted for changes in fair value. We may also elect advances under the FVO when analysis indicates that changes in the fair values of the advance would be an offset to fair value volatility of debt elected under the FVO. The FVO election is made at inception of the contracts for advances and debt obligations.

 

For instruments for which the fair value option has been elected, the related contractual interest income, contractual interest expense and the discount amortization on fair value option discount notes are recorded as part of net interest income in the Statements of Income. The remaining changes in fair value for instruments for which the fair value option has been elected are recorded as net gains (losses) on financial instruments held under fair value option in the Statements of Income. The change in fair value does not include changes in instrument-specific credit risk. The FHLBNY has determined that no adjustments to the fair values of its instruments recorded under the fair value option for instrument-specific credit risk were necessary at JuneSeptember 30, 2020 and December 31, 2019.

 

As with all advances, when advances are elected under the FVO, they are also fully collateralized through their terms to maturity. We consider our Consolidated obligation debt as high credit-quality, highly-rated instruments, and changes in fair values are generally related to changes in interest rates and investor preference, including investor asset allocation strategies. The FHLBNY believes the credit-quality of Consolidated obligation debt has remained stable, and changes in fair value attributable to instrument-specific credit risk, if any, were not material given that the debt elected under the FVO had been issued within the recent past periods, and no adverse changes have been observed in their credit characteristics.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

The following tables summarize the activity related to financial instruments for which the FHLBNY elected the fair value option (in thousands):

 

 Three months ended June 30,  Three months ended September 30,    
 2020 2019 2020 2019  2020 2019 2020    
 Bonds Discount Notes  Bonds Discount Notes    
Balance, beginning of the period $(4,606,885) $(7,367,064) $(18,068,215) $(994,773) $(1,302,385) $(3,238,857) $(20,159,341)    
New transactions elected for fair value option  (500,000)  4,110,000   (4,271,624)  987,355   (14,275,000)  (9,820,000)  (2,498,439)    
Maturities and terminations  3,775,000   -   2,182,845   -   800,000   2,700,000   9,793,052     
Net gains (losses) on financial instruments held
under fair value option		  6,190   (2,653)  4,374   293   770   (694)  6,337     
Change in accrued interest/unaccreted balance  23,310   20,860   (6,721)  7,125   (358)  (10,410)  5,322     
                
Balance, end of the period $(1,302,385) $(3,238,857) $(20,159,341) $-  $(14,776,973) $(10,369,961) $(12,853,069)    

 

 Six months ended June 30,  Nine months ended September 30, 
 2020 2019 2020 2019  2020 2019 2020 2019 
 Bonds Discount Notes  Bonds  Discount Notes 
Balance, beginning of the period $(12,134,043) $(5,159,792) $(2,186,603) $(3,180,086) $(12,134,043) $(5,159,792) $(2,186,603) $(3,180,086)
New transactions elected for fair value option  (1,300,000)  (3,220,000)  (20,120,994)  -   (15,575,000)  (13,040,000)  (22,619,434)  - 
Maturities and terminations  12,067,000   5,145,000   2,182,845   3,170,915   12,867,000   7,845,000   11,975,897   3,170,915 
Net gains (losses) on financial instruments held
under fair value option		  2,132   (2,711)  (13,522)  (113)  2,902   (3,405)  (7,185)  (113)
Change in accrued interest/unaccreted balance  62,526   (1,354)  (21,067)  9,284   62,168   (11,764)  (15,744)  9,284 
Balance, end of the period $(1,302,385) $(3,238,857) $(20,159,341) $-  $(14,776,973) $(10,369,961) $(12,853,069) $- 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

The following tables present the change in fair value included in the Statements of Income for financial instruments for which the fair value option has been elected (in thousands):

 

 Three months ended June 30,  Three months ended September 30, 
 2020 2019  2020 2019 
 Interest
Expense		 Net Gains
(Losses) Due to
Changes in
Fair Value		 Fair Value
Included in
Current Period
Earnings		 Interest
Expense		 Net Gains
(Losses) Due to Changes in
Fair Value		 Fair Value
Included in
Current Period
Earnings		  Interest
Expense		 Net Gains
(Losses) Due to
Changes in Fair
Value		 Total Change in
Fair Value Included
in Current Period
Earnings		 Interest
Expense		 Net Gains
(Losses) Due to
Changes in Fair
Value		 Total Change in
Fair Value Included
in Current Period
Earnings		 
Consolidated obligation bonds $(8,312) $6,190  $(2,122) $(33,398) $(2,653) $(36,051) $(3,643) $770  $(2,873) $(40,337) $(694) $(41,031)
Consolidated obligation discount notes  (21,808)  4,374   (17,434)  (5,519)  293   (5,226)  (15,654)  6,337   (9,317)  -   -   - 
                         $(19,297) $7,107  $(12,190) $(40,337) $(694) $(41,031)
 $(30,120) $10,564  $(19,556) $(38,917) $(2,360) $(41,277)

 

  Six months ended June 30, 
  2020  2019 
  Interest
Expense		  Net Gains
(Losses) Due to
Changes in
Fair Value		  Fair Value
Included in
Current Period
Earnings		  Interest
Expense		  Net Gains
(Losses) Due to
Changes in
Fair Value		  Fair Value
Included in
Current Period
Earnings		 
Consolidated obligation bonds $(45,402) $2,132  $(43,270) $(66,879) $(2,711) $(69,590)
Consolidated obligation discount notes  (36,134)  (13,522)  (49,656)  (22,800)  (113)  (22,913)
                         
  $(81,536) $(11,390) $(92,926) $(89,679) $(2,824) $(92,503)


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

  Nine months ended September 30, 
  2020  2019 
  Interest
Expense		  Net Gains
(Losses) Due to
Changes in Fair
Value		  Total Change in
Fair Value Included
in Current Period
Earnings		  Interest
Expense		  Net Gains
(Losses) Due to
Changes in Fair
Value		  Total Change in
Fair Value Included
in Current Period
Earnings		 
Consolidated obligation bonds $(49,045) $2,902  $(46,143) $(107,216) $(3,405) $(110,621)
Consolidated obligation discount notes  (51,788)  (7,185)  (58,973)  (22,800)  (113)  (22,913)
  $(100,833) $(4,283) $(105,116) $(130,016) $(3,518) $(133,534)

 

The following tables compare the aggregate fair value and aggregate remaining contractual principal balance outstanding of financial instruments for which the fair value option has been elected (a) (in thousands):

 

 June 30, 2020  September 30, 2020 
 Aggregate Unpaid
Principal Balance		 Aggregate Fair
Value		 Fair Value Over/(Under)
Aggregate Unpaid
Principal Balance		  Aggregate Unpaid
Principal Balance		 Aggregate Fair
Value		 Fair Value Over/(Under)
Aggregate Unpaid
Principal Balance		 
Consolidated obligation bonds (b) $1,300,000  $1,302,385  $2,385  $14,775,000  $14,776,973  $1,973 
Consolidated obligation discount notes (c)  20,120,995   20,159,341   38,346   12,826,382   12,853,069   26,687 
 $21,420,995  $21,461,726  $40,731  $27,601,382  $27,630,042  $28,660 

 

  December 31, 2019 
  Aggregate Unpaid
Principal Balance		  Aggregate Fair
Value		  Fair Value Over/(Under)
Aggregate Unpaid
Principal Balance		 
Consolidated obligation bonds (b) $12,067,000  $12,134,043  $67,043 
Consolidated obligation discount notes (c)  2,182,845   2,186,603   3,758 
  $14,249,845  $14,320,646  $70,801 

 

  June 30, 2019 
  Aggregate Unpaid
Principal Balance		  Aggregate Fair
Value		  Fair Value Over/(Under)
Aggregate Unpaid
Principal Balance		 
Consolidated obligation bonds (b) $3,215,000  $3,238,857  $23,857 
  September 30, 2019 
  Aggregate Unpaid
Principal Balance		  Aggregate Fair
Value		  Fair Value Over/(Under)
Aggregate Unpaid
Principal Balance		 
Consolidated obligation bonds (b) $10,335,000  $10,369,961  $34,961 

 

(a)Advances – No advances elected under the FVO were outstanding at JuneSeptember 30, 2020 and December 31, 2019.  From time to time, the FHLBNY has elected the FVO for advances on an instrument by instrument basis with terms that were primarily short-and intermediate-term.  
(b)CO bonds – The FHLBNY has elected the FVO on an instrument-by-instrument basis for CO bonds, primarily fixed-rate, intermediate- and short-term debt, because management was not able to assert with confidence that the debt would qualify for hedge accounting as such short-term debt may not remain highly effective hedges through the maturity of the bonds.
(c)Discount notes were elected under the FVO because management was not able to assert with confidence that the debt would qualify for hedge accounting as the short-term discount note debt may not remain highly effective hedges through maturity.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

Note 19. Note 19.Commitments and Contingencies.

 

Consolidated obligations — The FHLBanks have joint and several liability for all the Consolidated obligations issued on their behalf. Accordingly, should one or more of the FHLBanks be unable to repay their participation in the Consolidated obligations, each of the other FHLBanks could be called upon to repay all or part of such obligations, as determined or approved by the Finance Agency. Neither the FHLBNY nor any other FHLBank has ever had to assume or pay the Consolidated obligations of another FHLBank. The FHLBNY does not believe that it will be called upon to pay the Consolidated obligations of another FHLBank in the future. Under the provisions of accounting standards for guarantees, the FHLBNY 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, which in aggregate were par amounts of $0.9$0.8 trillion and $1.0 trillion as of JuneSeptember 30, 2020 and December 31, 2019.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

Affordable Housing Program — The 11 FHLBanks are expected to contribute $100 million in aggregate annually to the AHP. If the aggregate assessment is less than $100 million for all the FHLBanks, each FHLBank would be required to assure that the aggregate contributions of the FHLBanks equal $100 million. The proration would be made on the basis of the FHLBank’s income in relation to the income of all FHLBanks for the previous year. There have been no shortfalls in any periods in this report.

 

The following table summarizes contractual obligations and contingencies as of JuneSeptember 30, 2020 (in thousands):

 

 June 30, 2020  September 30, 2020 
 Payments Due or Expiration Terms by Period  Payments Due or Expiration Terms by Period 
    Greater Than Greater Than          Greater Than Greater Than      
 Less Than One Year Three Years Greater Than     Less Than One Year Three Years Greater Than    
 One Year to Three Years to Five Years Five Years Total  One Year to Three Years to Five Years Five Years Total 
Contractual Obligations                                        
Consolidated obligation bonds at par (a) $37,081,435  $12,073,975  $2,867,025  $6,148,500  $58,170,935  $48,539,580  $13,473,465  $2,546,250  $6,363,200  $70,922,495 
Consolidated obligation discount notes at par  89,545,947   -   -   -   89,545,947   69,731,892   -   -   -   69,731,892 
Mandatorily redeemable capital stock (a)  146   338   366   2,991   3,841   135   313   338   2,548   3,334 
Premises (lease obligations) (b)  6,904   15,442   16,150   66,159   104,655   6,907   15,559   16,176   64,127   102,769 
Remote backup site  670   1,224   542   -   2,436   689   1,296   421   -   2,406 
Other liabilities (c)  69,524   10,594   8,563   70,114   158,795   78,723   10,594   8,563   70,383   168,263 
                                        
Total contractual obligations  126,704,626   12,101,573   2,892,646   6,287,764   147,986,609   118,357,926   13,501,227   2,571,748   6,500,258   140,931,159 
                    
Other commitments                                        
Standby letters of credit (d)  20,728,398   169,001   6,598   -   20,903,997   21,520,647   182,044   6,598   -   21,709,289 
Consolidated obligation bonds/discount notes traded not settled   6,189,000      -      -   -   6,189,000      135,190      -       -       -       135,190  
Commitments to fund additional advances  200,000   -   -   -   200,000   398,500   -   -   -   398,500 
Commitments to fund pension  10,000   -   -   -   10,000   10,000   -   -   -   10,000 
Open delivery commitments (MPF)  49,196   -   -   -   49,196   38,619   -   -   -   38,619 
                                        
Total other commitments  27,176,594   169,001   6,598   -   27,352,193   22,102,956   182,044   6,598   -   22,291,598 
                                        
Total obligations and commitments $153,881,220  $12,270,574  $2,899,244  $6,287,764  $175,338,802  $140,460,882  $13,683,271  $2,578,346  $6,500,258  $163,222,757 

 

(a)Callable bonds contain an exercise date or a series of exercise dates that may result in a shorter redemption period. Redemption dates of mandatorily redeemable capital stock are assumed to correspond to maturity dates of member advances. 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. While interest payments on CO bonds and discount notes are contractual obligations, they are deemed to be not material and, therefore, amounts were omitted from the table.  
(b)Amounts represent undiscounted obligations. The Bank adopted ASU 2016-02, Leases (Topic 842) on January 1, 2019. Upon adoption, all lease obligations, including legacy leases were recorded in the Statements of Condition as a Right-of-use (ROU) asset and a corresponding lease liability. Under legacy pre-ASU GAAP, lease obligations were reported as off-balance sheet commitments. Immaterial amounts of equipment and other leases have been excluded in the table above.
(c)Includes accounts payable and accrued expenses, liabilities recorded for future settlements of investments, Pass-through reserves due to member institutions held at the FRB, and projected payment obligations for pension plans. Where it was not possible to estimate the exact timing of payment obligations, they were assumed to be due within one year; amounts were not material. For more information about employee retirement plans in general, see Note 16. Employee Retirement Plans.
(d)Financial letters of credit — 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.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

Effective January 1, 2020, we adopted the framework for credit losses under ASU 2016-13 (Topic 326), which did not result in a recognition of credit losses on off-balance arrangements as of January 1, 2020 or periods in this report.

 

55

Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

Operating Lease Commitments

 

Effective January 1, 2019, the FHLBNY adopted new guidance under ASU 2016-02, Leases (Topic 842) that requires lessees to recognize on the balance sheet all leases with lease terms greater than twelve months as a lease liability with a corresponding right-of-use (ROU) asset.

 

At JuneSeptember 30, 2020 and December 31, 2019, the FHLBNY was obligated under a number of noncancelable leases, predominantly operating leases for premises. These leases generally have terms of 15 years or less that contain escalation clauses that will increase rental payments. Operating leases also include backup datacenters and certain office equipment. Operating lease liabilities and ROU are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term. The future lease payments are discounted at a rate that represents the FHLBNY’s borrowing rate for its own debt (Consolidated obligation bonds) of a similar term. ROU includes any lease prepayments made, plus any initial direct costs incurred, less any lease incentives received. Rental expense associated with operating leases is recognized on a straight-line basis over the lease term. Premise rental expense is included in occupancy expense, and datacenter and other lease expenses are included in other operating expense in the Statements of income. ROU and lease liabilities are reported in the Statements of condition.

 

The following tables provide summarized information on our leases (dollars in thousands):

 

 June 30, 2020 December 31, 2019  September 30, 2020 December 31, 2019 
Operating Leases (a)                
Right-of-use assets $73,036  $75,464  $71,984  $75,464 
Lease Liabilities $86,939  $89,365  $85,799  $89,365 

 

 Three months ended June 30, Six months ended June 30,  Three months ended September 30,  Nine months ended September 30, 
 2020 2019 2020 2019  2020  2019  2020  2019 
Operating Lease Expense $1,940  $1,899  $3,880  $3,716  $1,944  $1,940  $5,823  $5,645 
Operating cash flows - Cash Paid $1,982  $1,658  $3,878  $3,191  $1,997  $1,697  $5,874  $4,937 

 

 June 30, 2020  December 31, 2019  September 30, 2020 December 31, 2019 
Weighted Average Discount Rate  3.29%   3.29%   3.29%  3.29%
Weighted Average Remaining Lease Term  12.50Years   12.98Years   12.24 Years   12.98 Years 

 

 Remaining maturities through  Remaining maturities through 
Operating lease liabilities June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
Remainder of 2020 $4,008  $7,886  $2,025  $7,886 
2021  8,107   8,107   8,148   8,107 
2022  8,205   8,205   8,246   8,205 
2023  8,575   8,575   8,615   8,575 
2024  8,282   8,282   8,298   8,282 
Thereafter  69,886   69,886   69,886   69,886 
Total undiscounted lease payments  107,063   110,941   105,218   110,941 
Imputed interest  (20,124)  (21,576)  (19,419)  (21,576)
Total operating lease liabilities $86,939  $89,365  $85,799  $89,365 

 

(a)We have elected to exclude immaterial amounts of short-term operating lease liabilities in the Right-of-use assets and lease liabilities.

 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Note 20.Related Party Transactions.

 

The FHLBNY is a cooperative and the members own almost all of the stock of the FHLBNY. Stock issued and outstanding that is not owned by members is held by former members. The majority of the members of the Board of Directors of the FHLBNY are elected by and from the membership. The FHLBNY conducts its advances business almost exclusively with members, and 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. The FHLBNY conducts all transactions with members and non-members in the ordinary course of business. All transactions with all members, including those whose officers may serve as directors of the FHLBNY, are at terms that are no more favorable than comparable transactions with other members. The FHLBNY may from time to time borrow or sell overnight and term federal funds at market rates to members.

 

Debt Assumptions and Transfers. When debt is transferred or assumed, the transactions would be executed in the ordinary course of the FHLBNY’s business and at negotiated market pricing.

 

Debt assumptions — No debt was assumed from another FHLBank in the sixnine months ended JuneSeptember 30, 2020 and in the same period in the prior year.

 

Debt transfers — No debt was transferred to another FHLBank in the sixnine months ended JuneSeptember 30, 2020 and in the same period in the prior year.

 

Advances Sold or Transferred

 

No advances were transferred or sold to the FHLBNY or from the FHLBNY to another FHLBank in any periods in this report. When an advance is transferred or assumed, the transactions would be executed in the ordinary course of the FHLBNY’s business and at negotiated market pricing.

 

MPF Program

 

In the MPF program, the FHLBNY may participate to the FHLBank of Chicago portions of its purchases of mortgage loans from its members. Transactions are participated at market rates. Since 2004, the FHLBNY has not shared its purchases with the FHLBank of Chicago. From the inception of the program through 2004, the cumulative share of MPF Chicago’s participation in the FHLBNY’s MPF loans that has remained outstanding was $6.7$6.3 million and $7.3 million at JuneSeptember 30, 2020 and December 31, 2019.

 

Fees paid to the FHLBank of Chicago for providing MPF program services were approximately $0.7 million and $1.3$2.0 million for the three and sixnine months ended JuneSeptember 30, 2020, compared to $0.6 million and $1.2$1.9 million for the same periods in the prior year.

 

Mortgage-backed Securities

 

No mortgage-backed securities were acquired from other FHLBanks during the periods in this report.

 

We pay an annual fee of $6.0 thousand to the FHLBank of Chicago for the use of MBS cash flow models in connection with impairment analysis performed by the FHLBNY for certain of our private-label MBS.

 

Intermediation

 

From time to time, the FHLBNY acts as an intermediary to purchase derivatives to accommodate its smaller members. At JuneSeptember 30, 2020 and December 31, 2019, outstanding notional amounts were $539.0 million and $536.0 million, representing derivative contracts in which the FHLBNY acted as an intermediary to execute derivative contracts with members. Separately, the contracts were offset with contracts purchased from unrelated derivatives dealers. Net fair value exposures of these transactions were not significant. The intermediated derivative transactions with members and derivative counterparties were collateralized.

 

5753 

 

 

Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Loans to Other Federal Home Loan Banks

 

There were no overnight loans extended to other FHLBanks in the three months ended JuneSeptember 30, 2020. In the sixnine months ended JuneSeptember 30, 2020, overnight loans extended to other FHLBanks averaged $4.1$2.7 million compared to loans that averaged $17.0$0.2 million and $12.7$8.5 million in the three and sixnine months ended JuneSeptember 30, 2019. Generally, loans made to other FHLBanks are uncollateralized. Interest income from such loans was immaterial in the periods in this report.

 

Borrowings from Other Federal Home Loan Banks

 

The FHLBNY borrows from other FHLBanks, generally for a period of one day. There were no borrowings from other FHLBanks in the sixnine months ended JuneSeptember 30, 2020. In the sixnine months ended JuneSeptember 30, 2019, the FHLBNY borrowed a total of $750.0 million$2.1 billion in overnight loans from other FHLBanks. The borrowings averaged $2.8$20.7 million and $8.8 million for the sixthree and nine months ended JuneSeptember 30, 2019. Interest expense was immaterial.

Sub-lease of Office Space to Another Federal Home Loan Bank

The FHLBNY is a lessor of shared office space to another FHLBank for a term through August 2028 at an estimated $0.1 million in annual lease receipts.

 

Cash and Due from Banks

 

At JuneSeptember 30, 2020 and December 31, 2019, there was no compensating cash balances held at Citibank.  Citibank is a member and stockholder of the FHLBNY. For more information, see Note 3. Cash and Due from Banks.

 

The following tables summarize significant balances and transactions with related parties at JuneSeptember 30, 2020 and December 31, 2019 and transactions for the three and sixnine months ended JuneSeptember 30, 2020 and JuneSeptember 30, 2019 (in thousands):

 

Related Party: Outstanding Assets, Liabilities and Capital

 

 June 30, 2020 December 31, 2019  September 30, 2020 December 31, 2019 
 Related Related  Related Related 
Assets                
Advances $113,788,556  $100,695,241  $106,215,738  $100,695,241 
Accrued interest receivable  119,801   181,792   97,588   181,792 
                
Liabilities and capital                
Deposits $1,590,357  $1,194,409  $1,810,340  $1,194,409 
Mandatorily redeemable capital stock  3,841   5,129   3,334   5,129 
Accrued interest payable  170   140   74   140 
Affordable Housing Program (a)  159,464   153,894   158,352   153,894 
Other liabilities (b)  35,400   45,388   34,162   45,388 
                
Capital $8,138,108  $7,531,895  $7,838,959  $7,531,895 

 

(a)Represents funds not yet allocated or disbursed to AHP programs.
(b)Includes member pass-through reserves at the Federal Reserve Bank of New York.


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

 

Related Party: Income and Expense Transactions

 

  Three months ended June 30,  Six months ended June 30, 
  2020  2019  2020  2019 
  Related  Related  Related  Related 
Interest income                
Advances $326,230  $704,936  $790,795  $1,396,832 
Interest-bearing deposits  -   2   1   3 
Loans to other FHLBanks  -   104   33   154 
                 
Interest expense                
Deposits $146  $5,976  $3,374  $11,941 
Mandatorily redeemable capital stock  56   108   135   208 
Cash collateral held and other borrowings  -   -   -   50 
                 
Service fees and other $4,622  $4,117  $9,322  $8,248 


Federal Home Loan Bank of New York

Notes to Financial Statements — Unaudited

  Three months ended September 30,  Nine months ended September 30, 
  2020  2019  2020  2019 
  Related  Related  Related  Related 
Interest income                
Advances $193,003  $599,554  $983,798  $1,996,386 
Interest-bearing deposits  -   2   1   5 
Loans to other FHLBanks  -   1   33   155 
                 
Interest expense                
Deposits $208  $6,053  $3,582  $17,994 
Mandatorily redeemable capital stock  65   87   200   295 
Cash collateral held and other borrowings  -   115   -   165 
                 
Service fees and other $4,459  $4,169  $13,781  $12,417 

 

Note 21.Segment Information and Concentration.

 

The FHLBNY manages its operations as a single business segment. Management and the FHLBNY’s Board of Directors review enterprise-wide financial information in order to make operating decisions and assess performance. Advances to large members constitute a significant percentage of the FHLBNY’s advance portfolio and its source of revenues.

 

The FHLBNY’s total assets and capital could significantly decrease if one or more large members were to withdraw from membership or decrease business with the FHLBNY. 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, as amended, 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.

 

The top ten advance holders at JuneSeptember 30, 2020, December 31, 2019 and JuneSeptember 30, 2019 and associated interest income for the periods then ended are summarized as follows (dollars in thousands):

 

 September 30, 2020
 June 30, 2020     Percentage of          
       Percentage of Three Months Six Months        Total Par Three Months Nine Months 
 City State Par
Advances		 Total Par Value
of Advances		 Interest
Income		 Percentage (a) Interest
Income		 Percentage (a)  City State Par
Advances		 Value of
Advances		 Interest
Income		 Percentage (a) Interest
Income		 Percentage (a) 
Citibank, N.A.  New York   NY  $26,450,000   23.62% $99,454   33.02% $206,533   31.78% New York NY $23,950,000   22.89% $42,786   18.45% $249,319   27.41%
MetLife, Inc.:                                                        
Metropolitan Life Insurance Company  New York   NY   15,245,000   13.61   52,741   17.51   126,712   19.49  New York NY  15,245,000   14.57   44,351   19.12   171,063   18.81 
Metropolitan Tower Life Insurance Company  New York   NY   955,000   0.85   633   0.21   633   0.10  New York NY  955,000   0.91   1,281   0.55   1,914   0.21 
Subtotal MetLife, Inc.          16,200,000   14.46   53,374   17.72   127,345   19.59    16,200,000   15.48   45,632   19.67   172,977   19.02 
New York Community Bank (b)  Westbury   NY   13,552,661   12.10   58,381   19.38   123,458   18.99  Westbury NY  14,227,661   13.60   55,981   24.14   179,439   19.73 
Equitable Financial Life Insurance Company (c)  New York   NY   6,692,475   5.98   18,184   6.04   47,371   7.29  New York NY  6,840,415   6.54   15,290   6.59   62,661   6.89 
HSBC Bank USA, National Association  New York   NY   5,750,000   5.13   14,001   4.65   19,856   3.05  New York NY  5,250,000   5.02   11,690   5.04   31,546   3.47 
Investors Bank (b)  Short Hills   NJ   4,175,319   3.73   16,056   5.33   40,036   6.16  Short Hills NJ  3,850,279   3.68   12,477   5.38   52,513   5.77 
Valley National Bank (b) Wayne NJ  3,397,352   3.25   12,018   5.18   38,626   4.24 
Prudential Insurance Company of America Newark NJ  3,040,725   2.91   9,056   3.90   22,139   2.43 
Signature Bank  New York   NY   3,884,245   3.47   14,643   4.86   36,450   5.61  New York NY  2,839,245   2.71   10,640   4.59   47,090   5.18 
Prudential Insurance Company of America  Newark   NJ   3,564,325   3.18   9,343   3.10   13,083   2.01 
Teachers Ins. & Annuity Assoc of America  New York   NY   3,387,600   3.02   4,614   1.53   9,284   1.43 
Valley National Bank (b)  Wayne   NJ   3,362,352   3.00   13,177   4.37   26,608   4.09 
New York Life Insurance Company New York NY  2,825,000   2.70   16,369   7.06   53,284   5.86 
Total         $87,018,977   77.69% $301,227   100.00% $650,024   100.00%  $82,420,677   78.78% $231,939   100.00% $909,594   100.00%

 

(a)Interest income percentage is the member’s interest income from advances as a percentage of the top 10 members.
(b)At JuneSeptember 30, 2020, an officer of this member bank also served on the Board of Directors of the FHLBNY.
(c)AXA Equitable Life Insurance Company changed name to Equitable Financial Life Insurance Company in the second quarter of 2020.

 


Federal Home Loan Bank of New York


Notes to Financial Statements — Unaudited

 

 December 31, 2019 
          Percentage of    December 31, 2019
          Total Twelve Months       Par 

Percentage of

Total Par Value 

 Twelve Months 
 City State Par
Advances		 Par Value
of Advances		 Interest
Income		 Percentage (a)  City  State Advances of Advances Interest Income Percentage (a) 
Citibank, N.A.  New York   NY  $23,045,000   22.95% $486,275   27.71% New York  NY  $23,045,000   22.95% $486,275   27.71%
Metropolitan Life Insurance Company  New York   NY   14,445,000   14.39   367,507   20.94  New York  NY   14,445,000   14.39   367,507   20.94 
New York Community Bank (b)  Westbury   NY   13,102,661   13.05   259,207   14.77  Westbury  NY   13,102,661   13.05   259,207   14.77 
AXA Equitable Life Insurance Company  New York   NY   6,900,415   6.87   111,997   6.38  New York  NY   6,900,415   6.87   111,997   6.38 
Investors Bank (b)  Short Hills   NJ   4,986,397   4.97   115,789   6.60  Short Hills  NJ   4,986,397   4.97   115,789   6.60 
Signature Bank  New York   NY   4,142,144   4.13   127,299   7.26  New York  NY   4,142,144   4.13   127,299   7.26 
New York Life Insurance Company  New York   NY   2,825,000   2.81   81,348   4.64  New York  NY   2,825,000   2.81   81,348   4.64 
Valley National Bank (b)  Wayne   NJ   2,397,769   2.39   88,389   5.04  Wayne  NJ   2,397,769   2.39   88,389   5.04 
Sterling National Bank  Montebello   NY   2,245,000   2.24   76,029   4.33  Montebello  NY   2,245,000   2.24   76,029   4.33 
ESL Federal Credit Union  Rochester   NY   1,739,823   1.73   40,937   2.33  Rochester  NY   1,739,823   1.73   40,937   2.33 
Total         $75,829,209   75.53% $1,754,777   100.00%    $75,829,209   75.53% $1,754,777   100.00%

  

 (a)Interest income percentage is the member’s interest income from advances as a percentage of the top 10 members.
 (b)At December 31, 2019, an officer of this member bank also served on the Board of Directors of the FHLBNY.

 

 September 30, 2019
 June 30, 2019       Percentage of          
        Percentage of Three Months Six Months         Total Par Three Months Nine Months 
 City State Par
Advances		 Total ParValue
of Advances		 Interest
Income		 Percentage (a) Interest
Income		 Percentage (a)  City  State Par
Advances		 Value of
Advances		 Interest
Income		 Percentage (a) Interest
Income		 Percentage (a) 
Citibank, N.A.
  New York   NY  $23,150,000   22.69% $172,617   34.49% $306,535   31.77% New York  NY  $14,945,000   15.94% $83,931   20.99% $390,466   28.95%
Metropolitan Life Insurance Company  New York   NY   14,245,000   13.96   97,123   19.41   192,359   19.94  New York  NY   14,245,000   15.20   92,351   23.10   284,710   21.11 
New York Community Bank (b)  Westbury   NY   11,627,661   11.40   64,027   12.79   128,552   13.33  Westbury  NY   12,171,661   12.98   65,192   16.30   193,744   14.37 
AXA Equitable Life Insurance Company New York  NY   6,500,415   6.93   27,547   6.89   77,494   5.75 
Investors Bank (b)  Short Hills   NJ   5,635,474   5.52   31,527   6.30   59,733   6.19  Short Hills  NJ   5,174,436   5.52   29,539   7.39   89,271   6.62 
Signature Bank  New York   NY   5,362,364   5.26   35,219   7.04   68,317   7.08  New York  NY   4,467,144   4.77   32,646   8.17   100,963   7.49 
AXA Equitable Life Insurance Company  New York   NY   3,990,415   3.91   25,004   5.00   49,947   5.18 
Valley National Bank (b) Wayne  NJ   2,985,000   3.18   22,477   5.62   64,182   4.76 
Manufacturers and Traders Trust Company Buffalo  NY   2,879,198   3.07   6,317   1.58   21,941   1.63 
New York Life Insurance Company New York  NY   2,825,000   3.01   19,982   5.00   62,949   4.67 
Sterling National Bank  Montebello   NY   3,765,000   3.69   18,677   3.73   42,937   4.45  Montebello  NY   2,800,000   2.99   19,834   4.96   62,770   4.65 
Valley National Bank (b)  Wayne   NJ   3,530,000   3.46   21,846   4.36   41,705   4.32 
New York Life Insurance Company  New York   NY   3,000,000   2.94   20,974   4.19   42,967   4.45 
HSBC Bank USA, National Association (c)  New York   NY   2,000,000   1.96   13,478   2.69   31,776   3.29 

Total

         $76,305,914   74.79% $500,492   100.00% $964,828   100.00%    $68,992,854   73.59% $399,816   100.00% $1,348,490   100.00%

  

 (a)Interest income percentage is the member’s interest income from advances as a percentage of the top 10 members.
 (b)At JuneSeptember 30, 2019, an officer of this member bank also served on the Board of Directors of the FHLBNY.
(c)Effective second quarter 2019, location changed from McLean, VA to New York, NY.

6056 

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

Statements contained in this Quarterly Report on Form 10-Q, including statements describing the objectives, projections, estimates, or predictions of the Federal Home Loan Bank of New York (“we” “us,” “our,” “the Bank” or the “FHLBNY”) may be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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. The Bank cautions that, by their nature, forward-looking statements are subject to a number of risks or uncertainties, including the Risk Factors set forth in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 20, 2020 (the “2019 Annual Report”), Part II, Item 1A of this quarterly report on Form 10-Q, and the risks set forth below, and that actual results could differ materially from those expressed or implied in these forward-looking statements. As a result, you are cautioned not to place undue reliance on such statements. These forward-looking statements speak only as of the date they were made, and the Bank does not undertake to update any forward-looking statement herein. Forward-looking statements include, among others, the following:

 

•the Bank’s projections regarding income, retained earnings, dividend payouts, and the repurchase of excess capital stock;
•the Bank’s statements related to gains and losses on derivatives, future credit and impairment charges, and future classification of securities;
•the Bank’s expectations relating to future balance sheet growth;
•the LIBOR interest rate transition to other alternatives;
•the Bank’s targets under the Bank’s retained earnings plan;
•the Bank’s expectations regarding the size of its mortgage loan portfolio, particularly as compared to prior periods; and
•the Bank’s statements related to reform legislation, including without limitation, housing, government-sponsored enterprise or COVID-19 pandemic legislation.

 

Actual results may differ from forward-looking statements for many reasons, including, but not limited to, the risk factors set forth in Part I, Item 1A – Risk Factors of the 2019 Annual Report, Part II, Item 1A – Risk Factors of this Quarterly Report on Form 10-Q, and the risks set forth below:

 

•changes in economic and market conditions, including the evolving risks relating to the current coronavirus pandemic;
•changes in demand for Bank advances and other products resulting from changes in members’ deposit flows and credit demands or otherwise;

•an increase in advance prepayments as a result of changes in interest rates (including negative interest rates) or other factors;
•the volatility of market prices, rates, and indices that could affect the value of collateral held by the Bank as security for obligations of Bank members and counterparties to interest rate exchange agreements and similar agreements;
•political events, including legislative developments that affect the Bank, its members, counterparties, and/or investors in the Consolidated obligations (“COs”) of the FHLBanks;
•competitive forces including, without limitation, other sources of funding available to Bank members, other entities borrowing funds in the capital markets, and the ability to attract and retain skilled employees;
•the pace of technological change and the ability of the Bank to develop and support technology and information systems, including the internet, sufficient to manage the risks of the Bank’s business effectively;
•changes in investor demand for COs and/or the terms of interest rate exchange agreements and similar agreements;
•timing and volume of market activity;
•ability to introduce new or adequately adapt current Bank products and services and successfully manage the risks associated with those products and services, including new types of collateral used to secure advances;

 


•risk of loss arising from litigation filed against one or more of the FHLBanks;
•realization of losses arising from the Bank’s joint and several liability on COs;
•risk of loss due to fluctuations in the housing market;
•inflation or deflation;
•issues and events within the FHLBank System and in the political arena that may lead to regulatory, judicial, or other developments that may affect the marketability of the COs, the Bank’s financial obligations with respect to COs, and the Bank’s ability to access the capital markets;
•the availability of derivative financial instruments of the types and in the quantities needed for risk management purposes from acceptable counterparties;
•significant business disruptions resulting from natural or other disasters (including, but not limited to, health emergencies such as pandemics or epidemics, including the current coronavirus pandemic), acts of war or terrorism;
•the effect of new accounting standards, including the development of supporting systems;

•membership changes, including changes resulting from mergers or changes in the principal place of business of Bank members;
•the soundness of other financial institutions, including Bank members, nonmember borrowers, other counterparties, and the other FHLBanks; and
•the willingness of the Bank’s members to do business with the Bank whether or not the Bank is paying dividends or repurchasing excess capital stock.

 

Risks and other factors could cause actual results of the Bank to differ materially from those implied by any forward-looking statements. These risk factors are not exhaustive. The Bank operates in changing economic and regulatory environments, and new risk factors will emerge from time to time. Management cannot predict such new risk factors nor can it assess the impact, if any, of such new risk factors on the business of the Bank or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those implied by any forward-looking statements.

  


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Organization of Management’s Discussion and Analysis (“MD&A”).

 

This 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 period to period and 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 Overview6460
Recent Developments6460
2020 SecondThird Quarter Financial Results6561
Financial Condition7269
Advances7673
Investments8178
Mortgage Loans Held-for-Portfolio, Net8582
Debt Financing Activity and Consolidated Obligations8784
Stockholders’ Capital9391
Derivative Counterparty Credit Ratings9593
Liquidity, Cash Flows, Short-Term Borrowings and Short-Term Debt9795
Results of Operations10098
Net Income10098
Net Interest Income, Margin and Interest Rate Spreads102101
Interest Income108106
Interest Expense110109
Analysis of Non-Interest Income (Loss)114112
Operating Expenses, Compensation and Benefits, and Other Expenses116114
Assessments117114
Legislative and Regulatory Developments118115

 

MD&A TABLE REFERENCEMD&A TABLE REFERENCEMD&A TABLE REFERENCE
Table(s) Description Page(s)  Description Page(s)
 Selected Financial Data  70-71  Selected Financial Data 67-68
 Replacement of London Interbank Offered Rates (LIBOR)  75-76  Replacement of London Interbank Offered Rates (LIBOR) 72-73
1.1 Financial Condition  72  Financial Condition 69
2.1 - 2.8 Advances  77-80  Advances 73-77
3.1 - 3.8 Investments  81-85  Investments 78-82
4.1 - 4.3 Mortgage Loans  86-87  Mortgage Loans 82-84
5.1 - 5.11 Consolidated Obligations  88-92  Consolidated Obligations 86-90
6.1 - 6.4 Capital  93-95  Capital 91-93
7.1 Derivatives  96  Derivatives 94
8.1 - 8.3 Liquidity  97-98  Liquidity 95-96
8.4 Short Term Debt  99  Short Term Debt 98
9.1 - 9.13 Results of Operations  100-116  Results of Operations 98-114
10.1 Assessments  117  Assessments 114

  

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Executive Overview 

 

This overview of management’s discussion and analysis highlights selected information and may not contain all of the information that is important to readers of this Form 10-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 2019 Form 10-K filed on March 20, 2020.

 

Cooperative business model. As a cooperative, we seek to maintain a balance between our public policy mission and our ability to provide adequate returns on the capital supplied by our members. We achieve this balance by delivering low-cost financing to members to help them meet the credit needs of their communities and also by paying a dividend on members’ capital stock. Our financial strategies are designed to enable us to expand and contract in response to member credit needs. By investing capital in high-quality, short- and medium-term financial instruments, we maintain sufficient liquidity to satisfy member demand for short- and long-term funds, repay maturing Consolidated obligations (CO bonds and CO discount notes), and meet other obligations. The dividends we pay are largely the result of earnings on invested member capital, net earnings on advances to members, mortgage loans and investments, offset in part by operating expenses and assessments. Our Board of Directors and Management determine the pricing of member credit and dividend policies based on the needs of our members and the cooperative as well as current and forecasted conditions in the marketplace.

 

Business segment.We manage our operations as a single business segment. Advances to members are our primary focus and the principal factor that impacts our operating results.

 

Recent Developments

 

Primarily due to the COVID-19 pandemic (or, coronavirus, Coronavirus-19), conditions in the financial markets deteriorated significantly beginning in late February and into March 2020, creating substantial uncertainty about future economic activity and the global and national economic environment. The Federal Reserve or the Fed undertook a number of emergency actions starting in March 2020 to, among other things, help facilitate liquidity and support stability in the fixed income markets while volatility across global capital markets dramatically increased. Notably, the Federal Reserve increased substantially its provision of liquidity to the repurchase agreement and U.S. Treasury markets via open market operations while also providing liquidity to related markets, such as the commercial paper market, via an array of new programs, as part of its commitment to using its full range of tools to support households, businesses, and the U.S. economy overall in this challenging time. Governmental and public actions taken in response to the effects of the coronavirus pandemic seemed to have helped steady the markets and the global and U.S. economy. However, the situation continues to evolve, and the full duration and impact of the pandemic remains uncertain.

 

Advance demand increased notably in March 2020 as members increased their liquidity and responded to their customers’ needs for cash. Subsequently, advances demand has declined as members received an influx of deposits and had other governmental support mechanisms available to them. Future demand from our members for advances is difficult to forecast as it is uncertain what the impact will be on our members’ businesses from factors such as lower market interest rates, unusual relationships among market rate curves, credit market conditions, uncertainties on valuation of assets, demand for loans from members’ customers, supply of deposits and other funding to members’ businesses, risk of credit losses, and other potential disruptions to our members’ businesses.

 

The Bank continued to manage its operations inthrough the secondthird quarter of 2020 in response to the COVID-19 pandemic. In connection with the Bank’s Business Continuity Program (“BCP”), the Bank’s staff successfully worked and conducted operations fully remotely throughoutthrough the secondthird quarter and beyond,continuing, without any significant operational problems to date. The BCP is intended to help ensure the safety and welfare of our employees, to safeguard the Bank’s assets, including physical property and information, and to permit the continued operations of the Bank in the event of a short-term disruption or long-term catastrophic event. The BCP contains operating procedures for critical processes and identifies resources and staff necessary to continue operations based on business defined recovery time objectives and communication requirements for internal and external stakeholders.


The Bank continued to meet its funding needs throughout recent events. The disruptions in the funding markets during March has largely subsided, during the second quarter, as spreads between the Bank’s consolidated obligations and U.S. Treasury securities returned to more normalized levels and market access for required funding stabilized. The FHLBanks continued to coordinate and cooperate to ensure orderly access for the FHLBanks to the funding markets in the issuance of System consolidated obligations. As a consequence of the Federal Reserve’s Open Market Operations in response to market disruptions, the unusual relationships among interest rate curves largely normalized and funding marketsmarket stability improved duringas early as in the second quarter. However, as the future path of the pandemic is unpredictable, so is its potential impact on the capital markets and the FHLBanks’ funding conditions.

 


The impact of the Covid-19 pandemic on the Bank’s future earnings and dividends continues to be difficult to forecast given the uncertainties about the health crisis, the actions of national and local policymakers, the impact on the economy, markets, and the business climate, and the potential impact of changes in consumer and business behavior on our members’ business. These and other factors may reduce the volume of assets on the Bank’s balance sheet and the spreads we earn on those assets. LowContinued low market interest rates will reduce the income we earn from deploying capital. Changes in market conditions affecting CO issuance spreads have been volatile.  Uncertainty with regard to future investor appetite for increased Treasury and GSE issuance may indicate higher future debt costs and reduce the Bank’s margins as issuance amounts rise.

 

The market disruption caused by the pandemic has negatively affected mortgage collateral valuations, and the Bank has responded by applying updated mortgage valuations to pledged mortgage collateral. Where necessary, members have pledged additional qualifying collateral to reflect current market conditions and/or to address increased advance demand in order to comply with their collateral maintenance requirements. The Bank remainedremains adequately collateralized throughout the second quarter, and will continue to monitor credit and collateral conditions and endeavor to make adjustments as needed. In addition, the Bank has implemented certain relief measures to help members serve their customers affected by the COVID-19 pandemic. These measures include forbearance and modification for MPF program loans, forbearance and modifications for pledged loan collateral, and allowing electronic signatures on loan documentation in certain circumstances.

 

In May 2020, the Bank began offering a variety of loan and grant programs to help assist members in responding to the challenges brought about by the COVID-19 pandemic. Also, in response to the COVID-19 pandemic, the Finance Agency took certain actions to allow the Federal Home Loans Banks to provide various forms of relief in response to the effects of the pandemic. The Bank established a small business relief program and has disbursed cash grants of $8.0 million through September 30, 2020.

 

See “Legislative and Regulatory Developments” in this section for more information.

Credit Losses under ASU 2016-13 (CECL) — Effective January 1, 2020, we adopted the new accounting standard on current expected credit losses (CECL), under which the allowance is measured based on management’s best estimate of lifetime expected credit losses. Prior to adoption of this framework, allowance was based on management’s estimate of probable incurred credit losses. Adoption of the new framework did not have a material impact on our financial results of operations and cash flows. For more information, see Note 1. Critical Accounting Policies and Estimates in notes to Financial Statements.

 

2020 SecondThird Quarter Financial Results

 

Net income — Net income for 2020 secondthird quarter was $137.5$101.2 million, an increase of $29.4almost flat compared to $101.4 million or 27.2% compared toin the same period in the prior year. Our Net income is primarily driven by Net interest income, which is the spread between costing yields on debt and the yields earned on advances, mortgage-backed securities other investments, and other investments. The Fed has continued with its wide-ranging stimulus plans and interest earning assets.rates remain very low. Our interest revenues and interest expenses have declined. Spreads remain very low for investments in the overnight Federal funds markets and repurchase programs, two principal investment vehicles of our balance sheet liquidity programs.

Interest income from advances is our principal source of interest income. Transaction volume of advances, as measured by quarterly average balances, was $110.4 billion in the 2020 third quarter, $125.3 billion in the second quarter and $102.8 billion in the first quarter, compared to $90.4 billion in the prior year third quarter.

 

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Net interest income — 2020 secondthird quarter Net interest income, before loan loss provision, was $229.7$180.8 million, an increase of $66.1$18.4 million, or 40.4%, driven primarily by increase11.3% from the prior year third quarter. Primary drivers were higher earning-assets, specifically advances. Net interest income in advance volume, as measured by average outstanding balances;the quarterly periods in 2020 were strong despite the volatility in the financial markets; $180.8 million in the current quarter, $229.7 million in the second quarter and by favorable funding spreads, specifically$152.8 million in the first quarter, compared to $162.4 million in the prior year third quarter. CO debt costing yields ondeclined with the steep decline in interest rates in parallel with the Fed’s fiscal relief efforts. For the FHLBNY, our debt cost declined also in part due a shift to greater use of discount notes and in part due to advantageous pricing of CO discount notes which benefited fromdriven by investor demand for high-quality liquid FHLBank discount notes.short-term debt instruments.

 


Period-over-period changes in Net interest income are largely a factor of the prevailing interest rates and their impact on interest income and interest expense, as well as the volume of interest-earning assets. Volume-related increases in earning assets and changes in funding mix made a favorable impact of $51.6 million in the 2020 second quarter. Average interest-earning assets totaled $173.7 billion in the 2020 second quarter, compared to $147.7 billion in the same period last year. Higher advance volume was a key contributor. Yield related changes made a small, but a positive contribution of $14.5 million, due to better funding utilizing favorably priced CO discount notes. Net interest spread, which is the yield from earning assets minus interest paid to fund earning assets, was strong despite the volatility in financial markets: 43 basis points in the 2020 third quarter, 49 basis points in the 2020 second quarter, compared to 3231 basis points in the same period last year.first quarter, compared to 34 basis points in the third quarter of 2019.

 

Stockholders’ capital, which is typically employed to fund short-term interest-earning assets, increased to $8.7$8.1 billion in the 2020 secondthird quarter, up from $7.5$7.0 billion in the same period last year (computed as average outstanding during a positive change for interest margin.period). Increase in Capital stock was in line with increase in advances in the 2020 period as borrowing members are required to purchase capital stock in proportion to amounts borrowed.

 

2020 second quarter Net interest income was adversely impacted by interest rate hedging, primarily due to the effects of interest settlements. Interest settlements and fair values in aggregate recorded a loss of $60.7 million. In contrast, in the same period last year, a net favorable contribution of $51.2 million was recorded. The impact of fair values was not material in either period. Net interest settlements (interest accruals) on swaps hedging assets and liabilities under ASC 815 fluctuate with changes in the benchmark rates as designed and achieve our interest rate risk management objectives.

Other income (loss) — 2020 secondthird quarter Other income (loss) reported a loss of $22.8$14.3 million, compared to a loss of $1.3$4.2 million in the same period last year. The more significant components are noted below:

 

Liquidity “trading” securitiesService fees and other — Portfolio of U.S. Treasury securities held for liquidity reported a net lossService fees were $4.6 million in the 2020 secondthird quarter, of $41.4 million, which comprised of realized gains of $29.5 million on securities sold and unrealized valuation losses of $70.9 million on inventories outstanding at June 30, 2020. Fed’s intentioncompared to continue open market purchasing U.S. Treasury securities and recovery prospects pushed market yields higher at June 30, 2020, causing valuation losses on our fixed-rate Treasury securities. In contrast, the portfolio recorded net gains of $33.9$4.4 million in the same period lastin the prior year. Fees were primarily earned on letters of credit issued on behalf of members.

Instruments held at fair value under the Fair Value Option — Fair value gains of $7.1 million were recorded in the 2020 third quarter, compared to a loss of $0.7 million in the same period in the prior year. Gains and losses represented changes in fair values of CO debt elected under the FVO, primarily CO discount notes. Fluctuations in fair value gains and losses are reflective of the short-term nature of discount notes as gains and losses in one period are expected to reverse in subsequent periods when the instruments mature.

Derivative gains and losses (Standalone derivative instruments) — Standalone derivativesA net gain of $10.8 million was recorded net losses of $3.9 million in the 2020 secondthird quarter, compared to a net loss of $39.1$4.3 million in the same quarter in the prior year. Gains and losses included realized and unrealized fair values and swap interest settlements on derivatives designated as standalone hedging instruments. The derivatives, typically interest-rate swaps, were designated in economic hedges, not eligible under ASC 815 hedge accounting. Such derivatives are marked-to-market and changes in fair values are recorded in Other income (loss). Primary drivers were: (1) interest rate swaps in economic hedges of U.S. Treasury fixed-rate securities recorded fair value gains of $43.4 million in the current year third quarter, compared to derivative fair value losses of $4.6 million in the same period last year. Recorded losses wereyear; the aggregate effectsswaps are structured to mitigate the volatility of price changes in fair values andof the impactliquidity portfolio of interest settlements (accruals) on derivatives in economic hedges. 2020 second quarter net loss was primarily due to unfavorable interest settlements (accruals), which reported an expense of $39.2 million, partly offset by net fair value gains onfixed-rate U.S. Treasury notes; (2) Interest rate swaps in economic hedges of assets and liabilities. More information is presented in Table 9.12: Other Income (Loss) – Impactfixed-rate debt elected under the FVO reported fair value losses of Derivatives Gains and Losses.

Market value gains and losses on grantor trust — Equity and bond mutual funds held in grantor trust to fund certain payments to retirees participating in non-qualified retirement plans reported net gains of $7.3$13.9 million and $1.9$0.7 million in the secondthird quarter of 2020 and 2019.

Other expenses were $51.0 million2019; interest rate swaps hedging advances and $42.4debt, primarily basis swaps recorded net fair value losses $2.6 million in the second2020 third quarter, compared to net gains of $1.0 million in the same period last year; and, (3) Interest settlement losses of $16.6 million in the 2020 third quarter, compared to a gain of $0.4 million in the same period in the prior year.

Net gains (losses) on liquidity trading securities — We recorded a net loss of $39.7 million in the 2020 third quarter compared to a loss of $4.0 million in the same period in the prior year. Quarterly losses represent decline in unrealized market values on $12.6 billion and $11.4 billion of U.S. Treasury securities outstanding at September 30, 2020 and September 30, 2019. We have invested in short- and medium-term fixed-rate U.S. Treasury securities. The securities are not held for speculative trading, rather held for liquidity in compliance with FHFA regulatory requirements.

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Fair value gains (losses) on Equity Investments — The FHLBNY owned grantor trust invests in money market, equity and fixed income and bond funds reported gains of $3.1 million and $0.4 million in the third quarter of 2020 and the same period in the prior year. Gains are typically unrealized, and primarily represent changes in portfolio valuations. The trust was established with the objective of providing liquidity to pay for pension benefits to retirees vested in retirement plans.

Other expenses were $51.5 million and $45.4 million in the third quarters of 2020 and 2019. Other expenses are primarily Operating expenses, Compensation and benefits, and our share of expenses of the Office of Finance and the Federal Housing Finance Agency. Compensation and benefit expense were higher. Also, includes $3.6Other expenses also include $4.3 million in grants paid in the secondthird quarter of 2020 totowards a Small Business Relief Grant program, which was established by usprovides cash assistance to provide funding forsmall businesses and communities affected by COVID-19.

 

Affordable Housing Program Assessments (AHP) allocated from Net income were $15.3$11.3 million and $12.0$11.3 million in the secondthird quarter of 2020 and 2019. Assessments are calculated as a percentage of Net income, and changes in allocations were in parallel with changes in Net income.

 

Dividend payments — A quarterly cash dividend of $1.47$1.39 per share (5.90%(5.60% annualized) was paid in the secondthird quarter of 2020, compared to $1.57$1.58 per share (6.35% annualized) in the same period in 2019.

 

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Financial Condition — JuneSeptember 30, 2020 compared to December 31, 2019

Our financial condition is characterized by a solid balance sheet and ample liquidity readily available for our member institutions.

 

Total assets declined to $158.9were $151.7 billion at June 30, 2020 fromand $162.1 billion at September 30, 2020 and December 31, 2019, a decrease of $3.2 billion, or 2.0%.

2019. Cash at banks was $44.3$487.7 million at JuneSeptember 30, 2020, compared to $603.2 million at December 31, 2019.

Interest-bearing deposits are generally overnight

Liquidity investments at highly-rated financial institutions. Balances were $925.0 million

We invest in liquid money market investments and $0 at Junereadily marketable U.S. Treasury notes and bills. At September 30, 2020, and December 31, 2019.

Moneymoney market investments at June 30, 2020 were $5.4$7.7 billion in federal funds sold and $5.0$3.4 billion in overnight resale agreements. At December 31, 2019, money market investments were $8.6 billion in federal funds sold and $15.0 billion in overnight resale agreements. In 2020, we have also established a program to invest in interest-earning deposits at highly-rated financial institutions that are readily available as liquid funds; at September 30, 2020, the balance outstanding was $685.0 million.

For liquidity, we maintain a portfolio of U.S. Treasury securities designated as trading to meet short-term contingency liquidity needs. Trading investments are carried at fair value, with changes recorded through earnings. Trading investments were $12.6 billion and $15.3 billion in U.S. Treasury securities at September 30, 2020 and December 31, 2019.

 

Our liquidity position remains strong, and in compliance with all regulatory requirements, and we do not foresee any changes to that position. In addition to the liquidity trading portfolio and assets discussed above, liquid assets at September 30, 2020 included $3.3 billion of high credit quality GSE-issued available-for-sale securities that are investment quality and readily marketable. The Finance Agency’s Liquidity Advisory Bulletin 2018-07 has specific initial liquidity levels to be maintained within certain ranges defined in an accompanying supervisory letter. We also have other liquidity measures in place, deposit liquidity and operational liquidity, and other liquidity buffers. We remain in compliance with the Advisory Bulletin and all liquidity regulations.

For more information about the Advisory Bulletin and our liquidity measures, see section Liquidity, Cash Flows, Short-Term Borrowings and Short-Term Debt, and Tables 8.1 through Table 8.3 in this MD&A.

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Advances — Interest income from advances to members is our primary source of revenues and the principal focus of our operations. Par balances increased at JuneSeptember 30, 2020 to $112.0was $104.6 billion, compared to $100.4 billion at December 31, 2019. Short-term fixed-rate advances decreased by 24.4%36.6% to $18.4$15.5 billion at JuneSeptember 30, 2020, down from $24.4 billion at December 31, 2019. ARC advances, which are adjustable-rate borrowings, increased by 77.9%60.3% to $29.1$26.2 billion at JuneSeptember 30, 2020, compared to $16.4 billion at December 31, 2019. Given that advances are well collateralized at all times, a provision for credit loss was not necessary.

While demand for advances in the immediate months following the onset of COVID-19 pandemic was unprecedented and balance outstanding stood at $134.4 billion at March 31, 2020, member borrowings have since declined and the balance was $112.0 billion as of June 30, 2020 and $104.6 billion at September 30, 2020, specifically driven by large members who have prepaid certain advances or have not rolled-over maturing advances.

 

Long-term investment debt securities — Long-term investment debt securities are designated as available-for-sale (AFS) or held-to-maturity (HTM). The heavy concentration of GSE and Agency issued (GSE-issued) securities, and a declining balance of private-label MBS, less than 1%, is our investment profile.

 

In the AFS portfolio, long-term investments of floating-rate GSE-issued mortgage-backed securities were carried on the balance sheet at fair values of $313.8$298.5 million and $344.0 million at JuneSeptember 30, 2020 and December 31, 2019.

Fixed-rate long-term investments in the AFS portfolio, comprising of fixed-rate GSE-issued mortgage-backed securities, were carried on the balance sheet at fair values of $2.6$3.0 billion and $2.3 billion at JuneSeptember 30, 2020 and December 31, 2019.

 

In the HTM portfolio, long-term investments were predominantly GSE-issued fixed- and floating-rate mortgage-backed securities and a small portfolio of housing finance agency bonds. Securities in the HTM portfolio are recorded at amortized cost, adjusted for credit and non-credit losses from the application of pre-ASU 2016-13 credit loss standards (formerly referred to as OTTI), and, beginning January 1, 2020, adjusted for allowances for credit losses under the new framework. Fixed- and floating-rate mortgage-backed securities, in the HTM portfolio were $13.2$12.7 billion and $14.1 billion at JuneSeptember 30, 2020 and December 31, 2019. Investments in PLMBS were less than 1% of the HTM portfolio. Credit loss allowance was considered for the PLMBS portfolio but was deemed not necessary in the 2020 third quarter. On a year-to-date basis, credit loss on PLMBS was $0.3 milllion.

 

Housing finance agency bonds, primarily New York and New Jersey, were carried at an amortized cost basis of $1.1 billion at JuneSeptember 30, 2020 and at December 31, 2019. De minimis amount of credit loss allowance was recorded at September 30, 2020 and December 31, 2019.

 

Trading securities (liquidity portfolio) — The objective of the trading portfolio is to meet short-term contingency liquidity needs. During the current year period, we continued to invest in highly liquid U.S. Treasury securities. Trading investments are carried at fair value, with changes recorded through earnings. At June 30, 2020, trading investments were $12.9 billion in U.S. Treasury securities and $2.2 million in Ambac corporate notes. At December 31, 2019, trading investments were $15.3 billion in U.S. Treasury securities and $3.2 million in Ambac corporate notes.

Equity Investments — We own a grantor trust that invests in highly-liquid registered mutual funds. Funds are classified as Equity Investments and were carried on the balance sheet at fair values of $63.9$70.0 million and $60.0 million at JuneSeptember 30, 2020 and December 31, 2019.

 

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Mortgage loans held-for-portfolio — Mortgage loans were investments in Mortgage Partnership Finance loans (MPF or MPF Program). Unpaid principal balance of MPF loans stood at $3.1$3.0 billion at JuneSeptember 30, 2020, a decrease of $3.3$111.1 million from the balance at December 31, 2019. Loans are primarily fixed-rate, single-family mortgages acquired through the MPF Program. Serious delinquencies at JuneSeptember 30, 2020 were not materially different from prior periods, although we are seeing a rise in delinquencies. Rising delinquencies have resulted in increase in credit losses under the CECL methodology. Allowance for credit losses increased to $6.5$9.1 million at JuneSeptember 30, 2020, compared to $0.7 million at December 31, 2019.

Capital ratios — Our capital position remains strong. At JuneSeptember 30, 2020, actual risk-based capital was $8.2$7.9 billion, compared to required risk-based capital of $1.1$1.0 billion. To support $158.9$151.7 billion of total assets at JuneSeptember 30, 2020, the minimum required total capital was $6.4$6.1 billion or 4.0% of assets. Our actual regulatory risk-based capital was $8.2$7.9 billion, exceeding required total capital by $1.8 billion. These ratios have remained consistently above the required regulatory ratios through all periods in this report. For more information, see financial statements, Note 14. Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings.

 

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Leverage — At JuneSeptember 30, 2020, balance sheet leverage (based on U.S. GAAP) was 19.519.4 times shareholders’ equity. Balance sheet leverage has generally remained steady over the last several years, although from time to time we have maintained excess liquidity in highly liquid investments, or cash balances at the Federal Reserve Bank of New York (FRBNY) to meet unexpected member demand for funds.

Liquidity — Our liquidity position remains strong, and in compliance with all regulatory requirements, and we do not foresee any changes to that position. In addition to the liquidity trading portfolio discussed previously, liquid assets at June 30, 2020 included $42.5 million as demand cash balances at the Federal Reserve Bank of New York (FRBNY), $10.3 billion in short-term and overnight investments in the federal funds and the repo markets, and

$2.9 billion of high credit quality GSE-issued available-for-sale securities that are investment quality and readily marketable. For more information about the Advisory Bulletin and our liquidity measures, see section Liquidity, Cash Flows, Short-Term Borrowings and Short-Term Debt, and Tables 8.1 through Table 8.3 in this MD&A.

Other Developments

 

Replacement of London Interbank Offered Rates (LIBOR) — and Interbank Offered Rates (IBOR)

We are actively reviewing LIBOR-indexed contracts to enable us to plan an orderly transition to SOFR.

We are reviewing permissible expedients offered under ASU 2020-04, Reference Rate Reform (Topic 848), including a one-time election to transfer/sell LIBOR-indexed securities in our held-to-maturity portfolio. If the one-time expedient is elected, it is possible that its impact could be material. Other than the possible impact of the adoption of the one-time transfer/sell, we do not expect adoption of SOFR to replace LIBOR will have a material impact on our financial position and cash flows.

Central banks and regulators in a number of major jurisdictions have convened working groups to find and to implement the transition to suitable replacements for LIBOR. More informationWe are actively participating with the various industry groups, including the International Swaps and Derivatives Association (ISDA) to align our derivative contracts with IBOR Fallbacks Supplement and IBOR Fallbacks Protocol (protocol) recommended by the ISDA. The protocol was launched on October 23, 2020 and is provideda major step in reducing the systemic impact of LIBOR becoming unavailable while market participants, including the FHLBNY, continue to have exposure. The FHLBNY adhered to the protocol beginning in the Balance Sheet Overview in this MD&A.two-week pre-launch “escrow period”.

 

The implementation of fallbacks for alternative derivative interest measures may mitigate the risk and uncertainty if LIBOR rates are no longer published or determined to be no longer a reliable interest rate measure. With the fallbacks in place, derivatives market participants will be able move forward with transitioning plans for their LIBOR exposures in accordance with ISDA market standards.

In mid-October 2020, LCH and the CME, the two major derivative clearing organizations switched to using SOFR to value and pay interest on cash collateral for cleared US dollar swaps. The FHLBNY participated with the CME and LCH and also switched the discounting to SOFR to align its derivative valuations. The impact of the change had an immaterial impact on our financial positions, cash flows and operations.

Rating — The U.S. Government's credit is rated by Moody's as Aaa with outlook as stable, and AA+ and stable by Standard & Poor's (S&P). Consolidated obligations of the FHLBanks are rated Aaa/P-1 by Moody's and AA+/A- 1+A-1+ by S&P. Fitch Ratings has rated the U.S. sovereign debt as AAA, but recentlyin July 2020 revised the outlook on its U.S. sovereign rating to “negative” from “stable” to reflect what Fitch described as “the ongoing deterioration in the U.S. public finances and the absence of a credible fiscal consolidation plan.” Any negative rating actions on the U.S. Government could potentially result in all individual FHLBanks' long-term deposit ratings and the FHLBank System long-term bond rating moving in lock step with any U.S. sovereign rating action.

 

Distribution received from Financing Corporation (FICO) — FICO was established by Congress in 1987 as a vehicle for recapitalizing the Federal Savings and Loan Insurance Corporation. FICO was dissolved in 2019 in accordance with statute following payment in full of its obligations and all creditor claims. Funds remaining were distributed in June 2020 to the FHLBanks in proportion to the amounts of FICO stock owned by each FHLBank. The FHLBNY’s share was $18.2 million and was credited to Unrestricted retained earnings. More information is provided in financial statements Note 14. Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings.

65 

New Mortgage Program

 

In the fourth quarter of 2020, the FHLBNY willWe intend to offer to our members a new mortgage participation program.program in 2021.  The new program, Mortgage Asset Programsm (MAP), was created based on feedback from members and willis expected to better serve the needs of our district. MAP will replace the MPF Program® beginning in 2021.  Legacy MPF loans will continue to be supported by the FHLBNY and the FHLBank of Chicago as MPF Provider. In the MAP program, we will purchase investment grade, conventional one-to-four family or government-insured loans from participating members. Due to the unique credit enhancement structure and MAP program requirements of acquiring loans with strong credit quality indicators, we expect loan performance to remain within its credit quality indicators. To capitalize this activity, member sellers will also be required to purchase stock, as mandated by the FHLBNY’s capital plan, equal to 4.5% of the outstanding principal balance of the MAP assets sold by the member to the FHLBNY.  At this point, we cannot forecast with certainty the volume of loans or the income from this program. We do not expect the new program to have a significant impact on our earnings, cash flows or our operations.  MAP will help fulfill our mission by providing an off-balance sheet option of providing liquidity in all operating environments.

 


Distribution received from Financing Corporation (FICO) — FICO was established by Congress in 1987 as a vehicle for recapitalizing the Federal Savings and Loan Insurance Corporation. FICO was dissolved in 2019 in accordance with statute following payment in full of its obligations and all creditor claims. Funds remaining were distributed in June 2020 to the FHLBanks in proportion to the amounts of FICO stock owned by each FHLBank. The FHLBNY’s share was $18.2 million and was credited to Unrestricted retained earnings. More information is provided in financial statements Note 14. Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings.

Recently Issued Accounting Standards and Interpretations and Critical Accounting Policies and Estimates &

Recently issued Accounting Standards and Interpretations.

For a discussion of recently issued accounting standards and interpretations, see financial statements, Note 2. FASB Standards Issued But Not Yet Adopted.

 

Critical Accounting Policies and Estimates

 

We have identified certain accounting policies that we believe are critical 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 fair values of certain assets and liabilities, evaluating the impairment of our securities portfolios, estimating the allowance for credit losses on the advance and mortgage loan portfolios, and accounting for derivatives and hedging activities. We have discussed each of these critical accounting policies, the related estimates and its judgment with the Audit Committee of the Board of Directors. Refer to Note 1. Critical Accounting Policies and Estimates in this Form 10-Q and in the 2019 Form 10-K filed on March 20, 2020.

 


66 

Selected Financial Data (Unaudited).

 

Statements of Condition June 30, March 31, December 31, September 30, June 30,  September 30, June 30, March 31, December 31, September 30, 
(dollars in millions) 2020 2020 2019 2019 2019  2020  2020  2020  2019  2019 
Investments (a) $41,440  $42,385  $56,892  $43,025  $44,474  $41,518  $41,440  $42,385  $56,892  $43,025 
Advances  113,789   136,151   100,695   94,301   102,429   106,216   113,789   136,151   100,695   94,301 
Mortgage loans held-for-portfolio, net (b)  3,165   3,210   3,173   3,055   2,986   3,054   3,165   3,210   3,173   3,055 
Total assets  158,872   182,733   162,062   141,062   150,574   151,694   158,872   182,733   162,062   141,062 
Deposits and borrowings  1,590   1,703   1,194   1,537   1,256   1,810   1,590   1,703   1,194   1,537 
Consolidated obligations, net                                        
Bonds  59,032   81,089   78,764   76,044   78,729   71,742   59,032   81,089   78,764   76,044 
Discount notes  89,500   90,250   73,959   55,534   62,380   69,710   89,500   90,250   73,959   55,534 
Total consolidated obligations  148,532   171,339   152,723   131,578   141,109   141,452   148,532   171,339   152,723   131,578 
Mandatorily redeemable capital stock  4   5   5   5   6   3   4   5   5   5 
AHP liability  159   156   154   161   164   158   159   156   154   161 
Capital                                        
Capital stock  6,334   7,313   5,779   5,474   5,841   5,996   6,334   7,313   5,779   5,474 
Retained earnings                                        
Unrestricted  1,150   1,108   1,116   1,097   1,108   1,136   1,150   1,108   1,116   1,097 
Restricted  734   706   685   660   640   754   734   706   685   660 
Total retained earnings  1,884   1,814   1,801   1,757   1,748   1,890   1,884   1,814   1,801   1,757 
Accumulated other comprehensive income (loss)  (80)  (125)  (48)  (51)  (42)  (47)  (80)  (125)  (48)  (51)
Total capital  8,138   9,002   7,532   7,180   7,547   7,839   8,138   9,002   7,532   7,180 
Equity to asset ratio (c)(j)  5.12%  4.93%  4.65%  5.09%  5.01%  5.17%  5.12%  4.93%  4.65%  5.09%

 

 Three months ended Six months ended  Three months ended  Nine months ended 
Statements of Condition June 30, March 31, December 31, September 30, June 30, June 30, June 30,  September 30,  June 30, March 31, December 31, September 30,  September 30,  September 30, 
Averages (See note below; dollars in millions) 2020 2020 2019 2019 2019 2020 2019  2020  2020  2020  2019  2019  2020  2019 
Investments (a) $44,504  $49,984  $49,857  $48,091  $43,253  $47,244  $42,422  $43,571  $44,504  $49,984  $49,857  $48,091  $46,011  $44,333 
Advances  125,320   102,777   94,352   90,402   101,562   114,048   99,357   110,391   125,320   102,777   94,352   90,402   112,821   96,339 
Mortgage loans held-for-portfolio, net  3,201   3,201   3,117   3,017   2,963   3,201   2,948   3,105   3,201   3,201   3,117   3,017   3,169   2,972 
Total assets  174,578   157,442   148,434   142,552   148,615   166,010   145,518   158,471   174,578   157,442   148,434   142,552   163,479   144,519 
Interest-bearing deposits and other borrowings  1,471   1,193   1,230   1,187   1,050   1,332   1,051   1,485   1,471   1,193   1,230   1,187   1,383   1,097 
Consolidated obligations, net                                                        
Bonds  73,182   83,985   75,249   74,310   80,528   78,583   80,611   63,601   73,182   83,985   75,249   74,310   73,553   78,488 
Discount notes  89,559   63,399   63,372   58,832   58,537   76,479   55,487   83,653   89,559   63,399   63,372   58,832   78,888   56,614 
Total consolidated obligations  162,741   147,384   138,621   133,142   139,065   155,062   136,098   147,254   162,741   147,384   138,621   133,142   152,441   135,102 
Mandatorily redeemable capital stock  4   5   5   5   7   5   7   5   4   5   5   5   5   6 
AHP liability  157   154   154   163   161   155   160   156   157   154   154   163   156   161 
Capital                                                        
Capital stock  6,854   5,854   5,480   5,299   5,816   6,354   5,703   6,179   6,854   5,854   5,480   5,299   6,295   5,567 
Retained earnings                                                        
Unrestricted  1,114   1,099   1,090   1,093   1,095   1,106   1,092   1,135   1,114   1,099   1,090   1,093   1,116   1,092 
Restricted  717   692   668   648   626   705   613   741   717   692   668   648   717   625 
Total retained earnings  1,831   1,791   1,758   1,741   1,721   1,811   1,705   1,876   1,831   1,791   1,758   1,741   1,833   1,717 
Accumulated other comprehensive income (loss)  (114)  (56)  (49)  (47)  (30)  (85)  (24)  (67)  (114)  (56)  (49)  (47)  (79)  (32)
Total capital  8,571   7,589   7,189   6,993   7,507   8,080   7,384   7,988   8,571   7,589   7,189   6,993   8,049   7,252 

 

Note — Average balance calculation. For most components of the average balances, a daily weighted average balance is calculated for the period. When daily weighted average balance information is not available, a simple monthly average balance is calculated.

 


Operating Results and Other Data
(dollars in millions) Three months ended  Six months ended 
(except earnings and dividends per June 30,  March 31,  December 31,  September 30,  June 30,  June 30,  June 30, 
share, and headcount) 2020  2020  2019  2019  2019  2020  2019 
Net income $138  $105  $129  $101  $108  $243  $243 
Net interest income (d)  230   153   164   162   164   383   341 
Dividends paid in cash (e)  86   88   85   92   88   174   189 
AHP expense  15   12   14   11   12   27   27 
Return on average equity (f)(g)(j)  6.45%  5.57%  7.08%  5.75%  5.77%  6.04%  6.63%
Return on average assets (g)(j)  0.32%  0.27%  0.34%  0.28%  0.29%  0.29%  0.34%
Net OTTI impairment losses  -   -   (1)  -   -   -   - 
Other non-interest income (loss)  (23)  8   27   (4)  (1)  (15)  12 
Total other income (loss)  (23)  8   26   (4)  (1)  (15)  12 
Operating expenses (h)  40   37   42   39   36   77   70 
Finance Agency and                            
Office of Finance expenses  4   5   5   4   4   9   8 
Total other expenses (k)  51   44   48   45   43   95   83 
Operating expenses ratio (g)(i)(j)  0.09%  0.09%  0.11%  0.11%  0.10%  0.09%  0.10%
Earnings per share $2.02  $1.80  $2.34  $1.91  $1.86  $3.82  $4.27 
Dividends per share $1.47  $1.60  $1.60  $1.58  $1.57  $3.07  $3.31 
Headcount (Full/part time)  346   344   342   334   337   346   337 

Operating Results and Other Data

 Three months ended  Nine months ended 
(dollars in millions) September 30,  June 30,  March 31,  December 31,  September 30,  September 30,  September 30, 
(except earnings and dividends per share, and headcount) 2020  2020  2020  2019  2019  2020  2019 
Net income $101  $138  $105  $129  $101  $344  $344 
Net interest income (d)  180   230   153   164   162   563   503 
Dividends paid in cash (e)  95   86   88   85   92   269   281 
AHP expense  11   15   12   14   11   38   38 
Return on average equity (f)(g)(j)  5.04%  6.45%  5.57%  7.08%  5.75%  5.71%  6.35%
Return on average assets (g)(j)  0.25%  0.32%  0.27%  0.34%  0.28%  0.28%  0.32%
Net OTTI impairment losses  -   -   -   (1)  -   -   - 
Other non-interest income (loss)  (14)  (23)  8   27   (4)  (29)  8 
Total other income (loss)  (14)  (23)  8   26   (4)  (29)  8 
Operating expenses (h)  40   40   37   42   39   117   109 
Finance Agency and                            
Office of Finance expenses  5   4   5   5   4   14   12 
Total other expenses (k)  51   51   44   48   45   146   128 
Operating expenses ratio (g)(i)(j)  0.10%  0.09%  0.09%  0.11%  0.11%  0.10%  0.10%
Earnings per share $1.64  $2.02  $1.80  $2.34  $1.91  $5.46  $6.19 
Dividends per share $1.39  $1.47  $1.60  $1.60  $1.58  $4.46  $4.89 
Headcount (Full/part time)  351   346   344   342   334   351   334 

 

(a)Investments include trading securities, available-for-sale securities, held-to-maturity securities, equity investments in grantor trusts owned by the FHLBNY, securities purchased under agreements to resell, federal funds, loans to other FHLBanks, and other interest-bearing deposits.
(b)Allowances for credit losses on mortgage loans were $9.1 million, $6.5 million, $3.5 million, $0.7 million $0.6 million and $0.5$0.6 million for the periods ended September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019 September 30, 2019 and JuneSeptember 30, 2019.  
(c)Equity to asset ratio is Capital stock plus Retained earnings and Accumulated other comprehensive income (loss) as a percentage of Total assets.
(d)Net interest income is net interest income before the provision for credit losses on mortgage loans.
(e)Excludes dividends accrued to non-members classified as interest expense under the accounting standards for certain financial instruments with characteristics of both liabilities and equity.
(f)Return on average equity is Net income as a percentage of average Capital Stock plus average retained earnings and average Accumulated other comprehensive income (loss).
(g)Annualized.
(h)Operating expenses include Compensation and Benefits.

(i)Operating expenses as a percentage of Total average assets.
(j)All percentage calculations are performed using amounts in thousands and may not agree if calculations are performed using amounts in millions.
(k)Includes Operating expenses, Compensation and benefits, Finance Agency and Office of Finance expenses and Other expenses.


Financial Condition

Table 1.1:Statements of Condition — Period-Over-Period Comparison

 (Dollars in thousands)  September 30, 2020    December 31, 2019    Net change in
dollar amount		    Net change in
percentage		  
Assets                
Cash and due from banks $487,719  $603,241  $(115,522)        (19.15)%
Interest-bearing deposits  685,000   -   685,000   NM   
Securities purchased under agreements to resell  3,400,000   14,985,000   (11,585,000)  (77.31)
Federal funds sold  7,674,000   8,640,000   (966,000)  (11.18)
Trading securities  12,598,027   15,318,809   (2,720,782)  (17.76)
Equity Investments  69,961   60,047   9,914   16.51 
Available-for-sale securities  3,275,768   2,653,418   622,350   23.45 
Held-to-maturity securities  13,815,615   15,234,482   (1,418,867)  (9.31)
Advances  106,215,738   100,695,241   5,520,497   5.48 
Mortgage loans held-for-portfolio  3,054,003   3,173,352   (119,349)  (3.76)
Loans to other FHLBanks  -   -   -   NM   
Accrued interest receivable  195,753   312,559   (116,806)  (37.37)
Premises, software, and equipment  71,726   63,426   8,300   13.09 
Operating lease right-of-use assets  71,984   75,464   (3,480)  (4.61)
Derivative assets  71,462   237,947   (166,485)  (69.97)
Other assets  7,106   9,036   (1,930)  (21.36)
                 
Total assets $151,693,862  $162,062,022  $(10,368,160)  (6.40)%
                 
Liabilities                
Deposits                
Interest-bearing demand $1,686,801  $1,144,519  $542,282   47.38%
Non-interest-bearing demand  73,559   34,890   38,669   110.83 
Term  49,980   15,000   34,980   233.20 
                 
Total deposits  1,810,340   1,194,409   615,931   51.57 
                 
Consolidated obligations                
Bonds  71,742,105   78,763,309   (7,021,204)  (8.91)
Discount notes  69,709,787   73,959,205   (4,249,418)  (5.75)
Total consolidated obligations  141,451,892   152,722,514   (11,270,622)  (7.38)
                 
Mandatorily redeemable capital stock  3,334   5,129   (1,795)  (35.00)
                 
Accrued interest payable  117,280   156,889   (39,609)  (25.25)
Affordable Housing Program  158,352   153,894   4,458   2.90 
Derivative liabilities  59,643   32,411   27,232   84.02 
Other liabilities  168,263   175,516   (7,253)  (4.13)
Operating lease liabilities  85,799   89,365   (3,566)  (3.99)
                 
Total liabilities  143,854,903   154,530,127   (10,675,224)  (6.91)
                 
Capital  7,838,959   7,531,895   307,064   4.08 
                 
Total liabilities and capital $151,693,862  $162,062,022  $(10,368,160)  (6.40)%

 

Table1.1:      Statements of Condition — Period-Over-Period Comparison

             
(Dollars in thousands) June 30, 2020  December 31, 2019  Net change in
dollar amount		  Net change in
percentage		 
Assets                
Cash and due from banks $44,308  $603,241  $(558,933)  (92.66)%
Interest-bearing deposits  925,000   -   925,000   NM   
Securities purchased under agreements to resell  4,950,000   14,985,000   (10,035,000)  (66.97)
Federal funds sold  5,355,000   8,640,000   (3,285,000)  (38.02)
Trading securities  12,923,831   15,318,809   (2,394,978)  (15.63)
Equity Investments  63,852   60,047   3,805   6.34 
Available-for-sale securities  2,874,107   2,653,418   220,689   8.32 
Held-to-maturity securities  14,348,334   15,234,482   (886,148)  (5.82)
Advances  113,788,556   100,695,241   13,093,315   13.00 
Mortgage loans held-for-portfolio  3,164,709   3,173,352   (8,643)  (0.27)
Loans to other FHLBanks  -   -   -   NM   
Accrued interest receivable  225,556   312,559   (87,003)  (27.84)
Premises, software, and equipment  68,979   63,426   5,553   8.76 
Operating lease right-of-use assets  73,036   75,464   (2,428)  (3.22)
Derivative assets  55,829   237,947   (182,118)  (76.54)
Other assets  10,945   9,036   1,909   21.13 
                 
Total assets $158,872,042  $162,062,022  $(3,189,980)  (1.97)%
                 
Liabilities                
Deposits                
Interest-bearing demand $1,497,431  $1,144,519  $352,912   30.83%
Non-interest-bearing demand  59,926   34,890   25,036   71.76 
Term  33,000   15,000   18,000   120.00 
                 
Total deposits  1,590,357   1,194,409   395,948   33.15 
                 
Consolidated obligations                
Bonds  59,032,487   78,763,309   (19,730,822)  (25.05)
Discount notes  89,499,893   73,959,205   15,540,688   21.01 
Total consolidated obligations  148,532,380   152,722,514   (4,190,134)  (2.74)
                 
Mandatorily redeemable capital stock  3,841   5,129   (1,288)  (25.11)
                 
Accrued interest payable  131,432   156,889   (25,457)  (16.23)
Affordable Housing Program  159,464   153,894   5,570   3.62 
Derivative liabilities  70,726   32,411   38,315   118.22 
Other liabilities  158,795   175,516   (16,721)  (9.53)
Operating lease liabilities  86,939   89,365   (2,426)  (2.71)
                 
Total liabilities  150,733,934   154,530,127   (3,796,193)  (2.46)
                 
Capital  8,138,108   7,531,895   606,213   8.05 
                 
Total liabilities and capital $158,872,042  $162,062,022  $(3,189,980)  (1.97)%

NM — Not meaningful.

 

7269 

 

 

Balance Sheet overview JuneSeptember 30, 2020 and December 31, 2019

 

Total assets declined to $158.9$151.7 billion at JuneSeptember 30, 2020 from $162.1 billion at December 31, 2019, a decrease of $3.2$10.4 billion, or 2.0%6.4%.

 

Cash at banks was $44.3$487.7 million at JuneSeptember 30, 2020, compared to $603.2 million at December 31, 2019. Interest-bearing deposits are generally overnight investments at highly-rated financial institutions. Balances were $925.0$685.0 million and $0 at JuneSeptember 30, 2020 and December 31, 2019.

 

Money market investments at JuneSeptember 30, 2020 were $5.4$7.7 billion in federal funds sold and $5.0$3.4 billion in overnight resale agreements. At December 31, 2019, money market investments were $8.6 billion in federal funds sold and $15.0 billion in overnight resale agreements. Federal funds sold averaged $10.7$8.6 billion, $9.0 billion and $9.3$10.6 billion in the secondthird quarter of 2020, fourth quarter of 2019 and secondthird quarter of 2019, respectively. Resale agreements averaged $2.2$4.0 billion, $9.9 billion and $8.6$9.7 billion in the secondthird quarter of 2020, fourth quarter of 2019 and secondthird quarter 2019, respectively.

 

Advances — Par balances increased at JuneSeptember 30, 2020 to $112.0$104.6 billion, compared to $100.4 billion at December 31, 2019. Short-term fixed-rate advances decreased by 24.4%36.6% to $18.4$15.5 billion at JuneSeptember 30, 2020, down from $24.4 billion at December 31, 2019. ARC advances, which are adjustable-rate borrowings, increased by 77.9%60.3% to $29.1$26.2 billion at JuneSeptember 30, 2020, compared to $16.4 billion at December 31, 2019.

 

Long-term investment debt securities — Long-term investment debt securities are designated as available-for-sale (AFS) or held-to-maturity (HTM). The heavy concentration of GSE and Agency issued (GSE-issued) securities, and a declining balance of private-label MBS, less than 1%, is our investment profile.

 

In the AFS portfolio, long-term investments of floating-rate GSE-issued mortgage-backed securities were carried on the balance sheet at fair values of $313.8$298.5 million and $344.0 million at JuneSeptember 30, 2020 and December 31, 2019. Fixed-rate long-term investments in the AFS portfolio, comprising of fixed-rate GSE-issued mortgage-backed securities, were carried on the balance sheet at fair values of $2.6$3.0 billion and $2.3 billion at JuneSeptember 30, 2020 and December 31, 2019. We acquired $72.0$477.0 million of fixed-rate GSE-issued MBS in the first halfthree quarters of 2020. As permitted under the new hedging guidance, effective January 1, 2019 we made a one-time transfer of $1.6 billion of fixed-rate MBS from HTM to AFS. The transfer enhanced balance sheet management.

 

In the HTM portfolio, long-term investments were predominantly GSE-issued fixed- and floating-rate mortgage-backed securities and a small portfolio of housing finance agency bonds. Securities in the HTM portfolio are recorded at amortized cost, adjusted for credit and non-credit losses from the application of pre-ASU 2016-13 credit loss standards (formerly referred to as OTTI), and, beginning January 1, 2020, adjusted for allowances for credit losses under the new framework. Fixed- and floating-rate mortgage-backed securities in the HTM portfolio were $13.2$12.7 billion and $14.1 billion at JuneSeptember 30, 2020 and December 31, 2019. Investments in PLMBS were less than 1% of the HTM portfolio. We acquired $243.0$282.9 million of fixed-rate GSE-issued MBS in the first halfthree quarters of 2020.

 

Housing finance agency bonds, primarily New York and New Jersey, were carried at an amortized cost basis of $1.1 billion at JuneSeptember 30, 2020 and at December 31, 2019. There were no new acquisitions in the 2020 and 2019 quarterly periods.

 

Trading securities (liquidity portfolio) — The objective of the trading portfolio is to meet short-term contingency liquidity needs. During the current year period, we continued to invest in highly liquid U.S. Treasury securities. Trading investments are carried at fair value, with changes recorded through earnings. At JuneSeptember 30, 2020, trading investments were $12.9$12.6 billion in U.S. Treasury securities and $2.2 million in Ambac corporate notes. We acquired $3.1$3.3 billion of U.S. Treasury securities in the sixnine months ended JuneSeptember 30, 2020. During the same period in 2020, we soldproceeds from sales were $4.3 billion of the securities at a net gain of $38.3 million. In the 2019 period, we sold $750.0acquired $8.0 billion; proceeds from sales were $748.3 million at a gain of U.S. Treasury securities at an immaterial gain.$0.3 million. At December 31, 2019, trading investments were $15.3 billion in U.S. Treasury securities and $3.2 million in Ambac corporate notes.

 


We will periodically evaluate our liquidity needs and may add to or dispose these liquidity investments as deemed prudent based on liquidity and market conditions. The Finance Agency prohibits speculative trading practices but allows permitted securities to be deemed held for liquidity if invested in a trading portfolio.

 

Equity Investments — We own a grantor trust that invests in highly-liquid registered mutual funds. Funds are classified as Equity Investments and were carried on the balance sheet at fair values of $63.9$70.0 million and $60.0 million at JuneSeptember 30, 2020 and December 31, 2019.

 

Mortgage loans held-for-portfolio — Mortgage loans were investments in Mortgage Partnership Finance loans (MPF or MPF Program). Unpaid principal balance of MPF loans stood at $3.1$3.0 billion at JuneSeptember 30, 2020, a decrease of $3.3$111.1 million from the balance at December 31, 2019. Loans are primarily fixed-rate, single-family mortgages acquired through the MPF Program. Paydowns in the sixnine months of 2020 were $286.8$515.1 million, compared to $119.5$204.9 million in the prior year same period. Acquisitions in the sixnine months of 2020 were $288.5$411.9 million, compared to $180.3$336.5 million in the prior year same period. Historically, credit performance has been strong and delinquency low. Loan origination by members and acceptable pricing are key factors that drive acquisitions. Residential collateral values have remained stable in the New York and New Jersey sectors, the primary geographic concentration for our MPF portfolio, and historical loss experience remains very low. Serious delinquencies at JuneSeptember 30, 2020 were not materially different from prior periods, although we are seeing a rise in delinquencies. Rising delinquencies have resulted in increase in credit losses under the CECL methodology. Allowance for credit losses increased to $6.5$9.1 million at JuneSeptember 30, 2020, compared to $0.7 million at December 31, 2019.

 

Capital ratios — Our capital position remains strong. At JuneSeptember 30, 2020, actual risk-based capital was $8.2$7.9 billion, compared to required risk-based capital of $1.1$1.0 billion. To support $158.9$151.7 billion of total assets at JuneSeptember 30, 2020, the minimum required total capital was $6.4$6.1 billion or 4.0% of assets. Our actual regulatory risk-based capital was $8.2$7.9 billion, exceeding required total capital by $1.8 billion. These ratios have remained consistently above the required regulatory ratios through all periods in this report. For more information, see financial statements, Note 14. Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings.

 

Leverage — At JuneSeptember 30, 2020 balance sheet leverage (based on U.S. GAAP) was 19.519.4 times shareholders’ equity. Balance sheet leverage has generally remained steady over the last several years, although from time to time we have maintained excess liquidity in highly liquid investments, or cash balances at the Federal Reserve Bank of New York (FRBNY) 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. Members are required to purchase activity-based capital stock to support their borrowings from us, and when activity-based capital stock is in excess of the amount that is required to support advance borrowings, we redeem the excess capital stock immediately. Therefore, stockholders’ capital increases and decreases with members’ advance borrowings, and the capital to asset ratio remains relatively unchanged.

 

Liquidity — Our liquidity position remains strong, and in compliance with all regulatory requirements, and we do not foresee any changes to that position. In addition to the liquidity trading portfolio discussed previously, liquid assets at JuneSeptember 30, 2020 included $42.5$485.9 million as demand cash balances at the FRBNY, $10.3$11.1 billion in short-term and overnight investments in the federal funds and the repo markets, and $2.9$3.3 billion of high credit quality GSE-issued available-for-sale securities that are investment quality and readily marketable.

 

The Finance Agency’s Liquidity Advisory Bulletin 2018-07 has specific initial liquidity levels to be maintained within certain ranges defined in an accompanying supervisory letter. We also have other regulatory liquidity measures in place, deposit liquidity and operational liquidity, and other liquidity buffers. We remain in compliance with the Advisory Bulletin and all liquidity regulations.

 

For more information about the Advisory Bulletin and our liquidity measures, see section Liquidity, Cash Flows, Short-Term Borrowings and Short-Term Debt, and Tables 8.1 through Table 8.3 in this MD&A.

 

7471 

 

 

Replacement of London Interbank Offered Rates (LIBOR) — Central banks and regulators in a number of major jurisdictions have convened working groups to find and to implement the transition to suitable replacements for LIBOR. The Alternative Reference Rates Committee (ARRC) in the U.S. has settled on the establishment of the Secured Overnight Financing Rate (SOFR) as its recommended alternative to U.S. dollar LIBOR. As noted throughout this report, much of the FHLBNY’s assets, liabilities and derivatives are indexed to LIBOR. More information is provided under Market and Economic Risks in Item 1A. Risk Factors in the most recent Form 10-K for 2019 filed on March 20, 2020.

 

On March 12, 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting in light of the expected market transition from LIBOR and other reference interest rates to alternatives, such as SOFR. The relief in the amendments are effective as of March 12, 2020 through December 31, 2022. We are continuing to reviewactively reviewing optional expedients and elections under the relief.relief available under the ASU to facilitate the accounting and operational aspects of changing LIBOR-indexed contracts to SOFR. More information is provided in our Executive Summary and highlights in this MD&A — Other Developments — Replacement of London Interbank Offered Rate (LIBOR).

 

Under the proposal,

We are actively reviewing LIBOR-indexed contracts to plan an entity could choose notorderly transition to apply certain modification accounting requirements in U.S. GAAP to contracts affected by what the proposal calls reference rate reform, if certain criteria are met. An entity that made this election would present and account for a modified contract as a continuationSOFR. Adoption of the existing contract.

guidance under ASU 2020-04 is expected to minimize the operational impact of modifying LIBOR-Indexed contracts absent provisions offered under ASU 2020-04.

 

The proposal would also provide optional expedients that would enable entities to continue to apply hedge accounting for hedging relationships in which the critical terms change due to reference rate reform, if certain criteria are met.
·Under the guidance, we could choose not to apply certain modification accounting requirements in U.S. GAAP to contracts affected by what the proposal calls reference rate reform, if certain criteria are met. If we made this election, we would present and account for a modified contract as a continuation of the existing contract.

·The guidance provides optional expedients that would enable us to continue to apply hedge accounting for hedging relationships in which the critical terms change due to reference rate reform, if certain criteria are met.

 

We are also assessing the benefits to our LIBOR transitioning efforts if we adopted the one-time election under the ASU to re-classify/sell LIBOR-indexed securities in our held-to-maturity portfolio. If the one-time expedient is elected, it is possible that its impact could be material.

On September 27, 2019, the FHFA, our regulator issued a supervisory letter that directed the Federal Home Loan Banks to cease, by March 31, 2020 entering into new LIBOR –— referenced instruments with maturities beyond December 31, 2021 (other than for investments and option embedded products, the date was extended to June 30, 2020). See Legislative and Regulatory Developments in our most recent Form 10-K for 2019 filed on March 20, 2020. The following data provides an overview of LIBOR-indexed assets, liabilities and derivatives with remaining maturities beyond the expected LIBOR transition date:

 

  June 30, 2020 
In thousands Variable-rate
LIBOR-indexed
Advances		 
Total Par $29,013,967 
Maturing in 2022 and thereafter $6,906,500 

 

 June 30, 2020 
 Variable-rate
LIBOR-indexed Debt		  September 30, 2020 
In thousands CO Bonds  Variable-rate
LIBOR-indexed
Advances		 
Total Par $22,207,500  $26,413,967 
Maturing in 2022 and thereafter $-  $6,906,500 

 

 June 30, 2020 
 Interest rate swaps  September 30, 2020 
In thousands LIBOR-indexed  Variable-rate
LIBOR-indexed Debt
CO Bonds		 
Total Par $93,409,418  $18,207,500 
Maturing in 2022 and thereafter $22,640,190  $- 


 June 30, 2020 
 Variable-rate LIBOR-indexed Securities 
 Liquidity trading portfolio       September 30, 2020 
In thousands Corporate bonds and HFA  MBS/AFS  MBS/HTM  Variable-rate
LIBOR-indexed
Interest rate swaps		 
Total UPB $913,132  $312,265  $4,408,004 
Total Par $87,122,715 
Maturing in 2022 and thereafter $913,132  $311,954  $4,297,959  $21,044,187 

  September 30, 2020 
  Variable-rate LIBOR-indexed Securities 
  Liquidity trading portfolio       
In thousands Corporate bonds and HFA  MBS/AFS  MBS/HTM 
Total UPB $910,571  $295,334  $4,168,117 
Maturing in 2022 and thereafter $910,571  $295,298  $4,087,147 

 

Advances

 

Our primary business is making collateralized loans to members, referred to as advances. Generally, the growth or decline in advances is reflective of demand by members for both short-term liquidity and term funding. This demand is driven by economic factors such as availability of alternative funding sources that are more attractive, or by the interest rate environment and the outlook for the economy. Members may choose to prepay advances (which may generate prepayment penalty fees) based on their expectations of interest rate changes and demand for liquidity.

 

Advance volume is also influenced by merger activity, where members are either acquired by non-members or acquired by members of another FHLBank. When our members are acquired by members of another FHLBank or by non-members, these former members no longer qualify for membership and we may not offer renewals or additional advances to the former members. If maturing advances are not replaced, it willmay have an impact on business volume.

 

Interest rate hedging and basis adjustments — A significant percentage of fixed-rate, longer-term advances and all putable advances were designated under an ASC 815 fair value accounting hedge. Also, certain advances were hedged by interest rate swaps in economic hedges. From time to time, we have also elected the fair value option (FVO) on an instrument by instrument basis for advances.

 

Carrying value of advances outstanding at JuneSeptember 30, 2020 and December 31, 2019 were $113.8$106.2 billion and $100.7 billion. Carrying values included cumulative hedging basis adjustment gains of $1.8$1.6 billion and $299.2 million at JuneSeptember 30, 2020 and December 31, 2019. For more information about basis adjustments, see Table 2.6 Advances by Maturity and Yield Type in this MD&A.

 


Table 2.1:2.1:Advance Trends

 

 

Member demand for advance products

 

Par amount of advances outstanding was $104.6 billion at September 30, 2020, down from $112.0 billion at June 30, 2020, down from $134.4 billion at March 31, 2020 and up from $100.4 billion at December 31, 2019. Advance demand had increased notably in March 2020 as the larger members borrowed in anticipation of their customers’ needs for cash in the face of deterioration in the financial markets caused by COVID-19 pandemic 2020.pandemic. In Junethe 2020 third quarter, the same larger member banks that had borrowed short-term advances in March 2020 are now allowing thecertain short-term borrowings to roll-off at maturity.

 

Future demand from our members for advances is difficult to forecast as it is uncertain what the impact will be on our members’ businesses from multiple uncertainties, including supply of deposits and other funding to members’ businesses, risk of credit losses, and other potential disruptions to our members’ businesses. For more information on how the risks related to COVID-19 may adversely affect our business, results of operations and financial condition, see Part II, Item 1A. Risk Factors.

 

Advances — Product Types

 

The following table summarizes par values of advances by product type (dollars in thousands):

 

Table 2.2:2.2:        Advances by Product Type

 

 June 30, 2020  December 31, 2019  September 30, 2020 December 31, 2019 
    Percentage     Percentage     Percentage     Percentage 
 Amounts  of Total  Amounts  of Total  Amounts of Total Amounts of Total 
Adjustable Rate Credit - ARCs $29,110,467   25.99% $16,364,967   16.30% $26,240,467   25.08% $16,364,967   16.30%
Fixed Rate Advances  57,011,408   50.90   49,548,877   49.35   55,085,893   52.65   49,548,877   49.35 
Short-Term Advances  18,437,077   16.46   24,401,935   24.31   15,473,080   14.79   24,401,935   24.31 
Mortgage Matched Advances  212,351   0.19   240,182   0.24   187,869   0.18   240,182   0.24 
Overnight & Line of Credit (OLOC) Advances  457,650   0.41   3,407,551   3.39   1,138,765   1.09   3,407,551   3.39 
All other categories  6,772,606   6.05   6,432,566   6.41   6,491,730   6.21   6,432,566   6.41 
                
Total par value  112,001,559   100.00%  100,396,078   100.00%  104,617,804   100.00%  100,396,078   100.00%
                
Hedge valuation basis adjustments  1,786,997       299,163       1,597,934       299,163     
                
Total $113,788,556      $100,695,241      $106,215,738      $100,695,241     

 

Collateral Security

 

Our member borrowers are required to maintain an amount of eligible collateral that adequately secures their outstanding obligations with the FHLBNY.  Eligible collateral includes: (1) one-to-four-family and multi-family mortgages; (2) Treasury and U.S. government agency securities; (3) mortgage-backed securities; and (4) certain other collateral that is real estate-related, provided that such collateral has a readily ascertainable value and the Bank can perfect a security interest in that collateral. We also have a statutory lien priority with respect to certain member assets under the FHLBank Act as well as a claim on FHLBNY capital stock held by our members.

 

The FHLBNY’s loan and collateral agreements give us a security interest in assets held by borrowers that is sufficient to cover their obligations to the FHLBNY.  We may supplement this security interest by imposing additional reporting, segregation or delivery requirements on the borrower.  We assign 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.

 


In order to ensure that the FHLBNY has sufficient collateral to cover credit extensions, the FHLBNY has established a Collateral Lendable Value methodology.  This methodology determines the lendable value or amount of borrowing capacity assigned to each specific type of collateral.  Key components of the Lendable Value include measures of Market, Credit, Price Volatility and Operational Risk associated with the unique collateral types pledged to the FHLBNY.  Lendable Values are periodically adjusted to reflect current market and business conditions.

 


COVID-19 pandemic related market disruption has negatively affected mortgage collateral valuations, and the FHLBNY has responded by applying updated mortgage valuations to pledged mortgage collateral. Where necessary, members have pledged additional qualifying collateral to reflect current market conditions and/or to address increased advance demand in order to comply with their collateral maintenance requirements. The FHLBNY will continue to monitor credit and collateral conditions and endeavor to make adjustments as needed.

 

The FHLBNY has or will be implementing certain relief measures to help members serve their customers affected by the COVID-19 pandemic. These measures include forbearance and modifications for pledged loan collateral.

 

The following table summarizes pledged collateral at JuneSeptember 30, 2020 and December 31, 2019 (in thousands):

 

Table 2.3:2.3:        Collateral Supporting Indebtedness to Members

 

 Indebtedness  Collateral (a)  Indebtedness Collateral (a) 
 Advances (b)  Other
Obligations (c)		  Total
Indebtedness		  
Loans (d)		  Securities and
Deposits (d)		  Total (d)   Advances (b)   Other
Obligations (c)		   Total Indebtedness   
Loans (d)		   Securities and
Deposits (d)		   Total (d) 
June 30, 2020 $112,001,559  $21,056,993  $133,058,552  $314,346,340  $57,292,586  $371,638,926 
September 30, 2020 $104,617,804  $21,863,498  $126,481,302  $321,565,732  $56,721,946  $378,287,678 
December 31, 2019 $100,396,078  $22,108,414  $122,504,492  $308,663,555  $45,016,365  $353,679,920  $100,396,078  $22,108,414  $122,504,492  $308,663,555  $45,016,365  $353,679,920 

 

(a)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.
(b)Par value.
(c)Standby financial letters of credit, derivatives and members’ credit enhancement guarantee amount (MPFCE).
(d)Estimated market value.

 

The following table shows the breakdown of collateral pledged by members between those in the physical possession of the FHLBNY or its safekeeping agent, and those that were specifically listed (in thousands):

 

Table 2.4:2.4:        Location of Collateral Held

 

 Estimated Market Values  Estimated Market Values 
 Collateral in
Physical
Possession		  Collateral
Specifically
Listed		  Total
Collateral
Received		  Collateral in
Physical
Possession		 Collateral
Specifically Listed		 Total
 Collateral
Received		 
June 30, 2020 $58,219,215  $313,419,711  $371,638,926 
September 30, 2020 $57,590,686  $320,696,992  $378,287,678 
December 31, 2019 $45,876,619  $307,803,301  $353,679,920  $45,876,619  $307,803,301  $353,679,920 

7875 

 

 

Advances — Interest Rate Terms 

 

The following table summarizes interest-rate payment terms for advances (dollars in thousands):

 

Table2.5:        Advances by Interest-Rate Payment Terms

 

 June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
    Percentage     Percentage     Percentage       Percentage   
 Amount of Total Amount of Total  Amount   of Total  Amount   of Total  
Fixed-rate (a) $82,887,592   74.01% $84,027,611   83.70% $78,373,837   74.91% $84,027,611   83.70%
Variable-rate (b)  29,113,967   25.99   16,368,467   16.30   26,243,967   25.09   16,368,467   16.30 
Variable-rate capped or floored (c)  -   -   -   -   -   -   -   - 
Overdrawn demand deposit accounts  -   -   -   -   -   -   -   - 
                                
Total par value  112,001,559   100.00%  100,396,078   100.00%  104,617,804   100.00%  100,396,078   100.00%
                                
Hedge valuation basis adjustments  1,786,997       299,163       1,597,934       299,163     
                                
Total $113,788,556      $100,695,241      $106,215,738      $100,695,241     

  

(a)Fixed-rate borrowings remained the largest category of advances borrowed by members, and includes long-term and short-term fixed-rate advances. Long-term advances remain a small segment of the portfolio at JuneSeptember 30, 2020, with only 11.1%11.6% of advances in the remaining maturity bucket of greater than 5 years (10.5% at December 31, 2019). For more information, see financial statements Note 9. Advances.
(b)Variable-rate advances are ARC advances, which are typically indexed to LIBOR. The FHLBNY’s larger members are generally borrowers of variable-rate advances.
(c)Category represents ARCs with options that “cap” increase or “floor” decrease in the LIBOR index at predetermined strikes (We have also purchased cap/floor options that mirror the terms of the options embedded in the advances sold to members, offsetting our exposure on the advance).

 

The following table summarizes maturity and yield characteristics of advances (dollars in thousands):

 

Table2.6:        Advances by Maturity and Yield Type

 

 June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
    Percentage     Percentage     Percentage      Percentage   
 Amount of Total Amount of Total  Amount  of Total Amount of Total  
Fixed-rate                         
Due in one year or less $46,490,555   41.51% $54,411,782   54.20% $44,226,419   42.27% $54,411,782   54.20%
Due after one year  36,397,037   32.50   29,615,829   29.50   34,147,418   32.64   29,615,829   29.50 
                
Total Fixed-rate  82,887,592   74.01   84,027,611   83.70   78,373,837   74.91   84,027,611   83.70 
Variable-rate                                
Due in one year or less  18,210,800   16.26   14,794,500   14.74   19,090,800   18.25   14,794,500   14.74 
Due after one year  10,903,167   9.73   1,573,967   1.56   7,153,167   6.84   1,573,967   1.56 
                
Total Variable-rate  29,113,967   25.99   16,368,467   16.30   26,243,967   25.09   16,368,467   16.30 
Total par value  112,001,559   100.00%  100,396,078   100.00%  104,617,804   100.00%  100,396,078   100.00%
Hedge valuation basis adjustments (a)  1,786,997       299,163       1,597,934       299,163     
Total $113,788,556      $100,695,241      $106,215,738      $100,695,241     

 

Fair value basis and valuation adjustments — Key determinants of valuation adjustments are factors such as advance run offs and new transactions designated in hedging relationships.

 

(a)Hedging valuation basis adjustments — The reported carrying values of hedged advances are adjusted for changes in their fair values (fair value basis adjustments or fair value) that are attributable to changes in the benchmark risk being hedged.  LIBOR is our primary benchmark.  We have also adopted OIS-Fed funds and OIS-SOFR as additional benchmarks.  When an advance is hedged under ASC 815, the selectedelected benchmark becomes the discounting basis for computing changes in the fair values of the hedged advance. Table 2.7 Hedged Advances by Type discloses notional amounts of advances hedged.  The application of ASC 815 accounting methodology resulted in the recognition of net unrealized hedge valuation basis gains of $1.8$1.6 billion and $299.2 million at JuneSeptember 30, 2020 and December 31, 2019.  The forward benchmark yield curves, primarily LIBOR, declined sharply at JuneSeptember 30, 2020 relative to December 31, 2019.  As hedge valuation basis of fixed-rate advances move inversely with the rise and fall of the forward interest rates, fair value gains increased as the forward swap discounting curve declined.  Generally, hedge valuation basis gains and losses are unrealized and willare expected to reverse to zero if the advance is held to maturity or is put or called on the early option exercise dates.


Hedge volume — We hedge putable advances and certain “vanilla” fixed-rate advances under the hedge accounting provisions when they qualify under those standards and as economic hedges when the hedge accounting provisions are operationally difficult to establish or a high degree of hedge effectiveness cannot be asserted. The following table summarizes advances hedged under ASC 815 qualifying hedge by type of structure (in thousands):

 

Table2.7:        Hedged Advances by Type

 

Par Amount June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
Qualifying hedges                
Fixed-rate bullets (a) $36,592,760  $32,335,675  $33,350,615  $32,335,675 
Fixed-rate putable (b)  8,400,750   8,365,750   7,945,750   8,365,750 
Fixed-rate with embedded cap  370,000   20,000   370,000   20,000 
Total qualifying hedges $45,363,510  $40,721,425  $41,666,365  $40,721,425 
                
Aggregate par amount of advances hedged (c) $61,868,511  $40,721,425  $54,603,316  $40,721,425 
Fair value basis (hedging adjustments) $1,786,997  $299,163  $1,597,934  $299,163 

 

(a)Generally, fixed-rate medium- and longer termlonger-term advances are hedged to mitigate the risk in fixed-rate lending.
(b)Putable advances are hedged by cancellable swaps, and the paired long put option mitigate the put option risks; in the hedge, fixed-rate cash flows are also synthetically converted to benchmark floating-rate. In a rising rate environment, swap dealers would likely exercise their call option, and the FHLBNY will exercise its put option with the member and both instruments terminate at par. Members may borrow new advances at the then prevailing rate.
(c)Represents par values of advances in ASC 815 hedge relationships. Amounts do not include advances that were in ASC 815 hedge but have since been de-designated or advances that are in economic hedges (not qualifying as ASC 815 accounting hedge).   

 

Economic hedges of floating-rate advances — We issue floating-rate advances indexed to one or more benchmark rates (LIBOR, OIS/FF and OIS/SOFR) and may then execute interest rate basis swaps that would synthetically convert the cash flows to the desired floating-rate cash flows indexed to another benchmark to meet our asset/liability funding strategies. At JuneSeptember 30, 2020, notional amounts of basis swaps were $15.5$11.7 billion with maturities generally within two years. The carrying value of the advances in the economic hedge would not include fair value basis since the advance is recorded at amortized cost. The operational cost of designating the advances in an ASC 815 qualifying hedge outweighed the accounting benefits of marking the debt and the swap to fair values. We opted instead to designate the hedging basis swaps as standalone derivatives, and recorded changes in their fair values through earnings.

 

Putable Advances —The following table summarizes par amounts of advances that were still putable or callable, with one or more pre-determined option exercise dates remaining (in thousands):

 

Table2.8:        Putable and Callable Advances

 

 Advances  Advances 
Par Amount June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
Putable (a) $8,400,750  $8,365,750  $7,945,750  $8,365,750 
No-longer putable/callable $5,000  $5,000  $460,000  $5,000 

 

(a)Putable advances were typically long-term advances with one or more put options exercisable by the FHLBNY.  Putable advances are hedged in an ASC 815 qualifying fair value hedge with mirror image terms, including mirror image put option terms.

 

80


 

Investments

 

We maintain long-term investment portfolios of debt securities, which are principally mortgage-backed securities issued by GSEs and U.S. Agency (GSE-issued). Investments include a small portfolio of MBS issued by private enterprises, and bonds issued by state or local housing finance agencies. We also maintain short-term investments for our liquidity resources, for funding daily stock repurchases and redemptions, for ensuring the availability of funds to meet the credit needs of our members, and to provide additional earnings. We also invest in a liquidity trading portfolio, the purpose of which is to augment our liquidity needs. Investments in the trading portfolio are typically U.SU.S. Treasury securities, and from time to time we have also invested in GSE-issued securities, all carried at their fair values. The Finance Agency prohibits speculative investments but allows the designation of a trading portfolio for liquidity purposes. We may dispose such investments if liquidity needs are met and market conditions deem the sale as advantageous.

 

We are subject to credit risk on our investments, generally transacted with GSEs and large financial institutions that are considered to be investment quality. The Finance Agency defines investment quality as a security with adequate financial backing so that full and timely payment of principal and interest on such security is expected and there is minimal risk that the timely payment of principal and interest would not occur because of adverse changes in economic and financial conditions during the projected life of the security.

 

The following table summarizes changes in investments by categories: Interest-bearing deposits, Money market investments, Trading securities, Equity investments in Grantor trust, Available-for-sale securities and Held-to-maturity securities (Carrying values, dollars in thousands):

 

Table3.1:        Investments by Categories

 

 June 30, December 31, Dollar Percentage  September 30, December 31, Dollar Percentage 
 2020 2019 Variance Variance  2020  2019  Variance  Variance 
State and local housing finance agency obligations, net (a) $1,108,044  $1,122,315  $(14,271)  (1.27)% $1,105,138  $1,122,315  $(17,177)  (1.53)%
Trading securities (b)  12,923,831   15,318,809   (2,394,978)  (15.63)  12,598,027   15,318,809   (2,720,782)  (17.76)
Mortgage-backed securities                                
Available-for-sale securities, at fair value (c)  2,874,107   2,653,418   220,689   8.32   3,275,768   2,653,418   622,350   23.45 
Held-to-maturity securities, at carrying value, net (c)  13,240,290   14,112,167   (871,877)  (6.18)  12,710,477   14,112,167   (1,401,690)  (9.93)
Total securities  30,146,272   33,206,709   (3,060,437)  (9.22)  29,689,410   33,206,709   (3,517,299)  (10.59)
                                
Equity investments in Grantor trust (d)  63,852   60,047   3,805   6.34   69,961   60,047   9,914   16.51 
Interest-bearing deposits  925,000   -   925,000   NM   685,000   -   685,000   NM   
Securities purchased under agreements to resell  4,950,000   14,985,000   (10,035,000)  (66.97)  3,400,000   14,985,000   (11,585,000)  (77.31)
Federal funds sold  5,355,000   8,640,000   (3,285,000)  (38.02)  7,674,000   8,640,000   (966,000)  (11.18)
                                
Total Investments $41,440,124  $56,891,756  $(15,451,632)  (27.16)% $41,518,371  $56,891,756  $(15,373,385)  (27.02)%

 

(a)State and local housing finance agency bonds wereare designated as HTM and wereare carried at amortized cost. There were no acquisitions in the sixnine months ending JuneSeptember 30, 2020 and paydowns were $13.5$16.4 million.
(b)Trading securities comprised of U.S. Treasury securities and corporate notes at JuneSeptember 30, 2020.2020 and are carried at fair value. Trading portfolio is for liquidity and not for speculative purposes. We acquired $3.1$3.3 billion of U.S. Treasury notes in the sixnine months ended JuneSeptember 30, 2020.  
(c)Mortgage-backed securities classified as AFS includes $1.6 billion of Fixed-rate CMBS transferred at January 1, 2019 from the HTM category. AFS securities outstanding were GSE and U.S. Agency issued MBS and carried at fair values. MBS in the HTM portfolio were predominantly GSE-issued, and less than 1% are PLMBS (private-label MBS).
(d)Funds in the grantor trust are designated as equity investments.investments and are carried at fair value.  Trust fund balances represent investments in registered mutual funds and other fixed-income and equity funds. Funds are highly liquid and readily redeemable at their NAVs, which are the fair values of the investments. The funds are owned by the FHLBNY, and the intent is to utilize investments to fund current and potential future payment obligations of the non-qualified employee retirement plans.

 

NM — Not meaningful.

 


81

 

Mortgage-Backed Securities — By Issuer

 

The following table summarizes our investment debt securities issuer concentration (dollars in thousands):

 

Table3.2:        Investment Debt Securities Issuer Concentration

 

 June 30, 2020 December 31, 2019  September 30, 2020 December 31, 2019 
      Carrying value as       Carrying value as        Carrying
value as		       Carrying
value as		 
 Carrying (a)     a Percentage Carrying (a)     a Percentage  Carrying (a)     a Percentage Carrying (a)     a Percentage 
Long Term Investment (c) Value Fair Value of Capital Value Fair Value of Capital  Value Fair Value of Capital Value Fair Value of Capital 
MBS                                     
Fannie Mae $3,676,424  $3,740,648   45.18% $4,008,977  $4,031,807   53.23% $3,466,229  $3,532,290   44.22% $4,008,977  $4,031,807   53.23%
Freddie Mac  12,321,157   12,946,034   151.40   12,628,143   12,826,958   167.66   12,409,218   13,030,202   158.30   12,628,143   12,826,958   167.66 
Ginnie Mae  16,295   16,412   0.20   18,459   18,572   0.25   14,332   14,448   0.18   18,459   18,572   0.25 
All Others - PLMBS  100,521   119,564   1.24   110,006   133,182   1.46   96,466   113,592   1.23   110,006   133,182   1.46 
Non-MBS, net (b)  1,108,044   1,085,626   13.62   1,122,315   1,099,505   14.90   1,105,138   1,083,221   14.10   1,122,315   1,099,505   14.90 
                                                
Total Investment Debt Securities $17,222,441  $17,908,284   211.63% $17,887,900  $18,110,024   237.50% $17,091,383  $17,773,753   218.03% $17,887,900  $18,110,024   237.50%
                                                
                        
Categorized as:                                                
                                                
Available-for-Sale Securities $2,874,107  $2,874,107      $2,653,418  $2,653,418      $3,275,768  $3,275,768      $2,653,418  $2,653,418     
                                                
Held-to-Maturity Securities, net $14,348,334  $15,034,177      $15,234,482  $15,456,606      $13,815,615  $14,497,985      $15,234,482  $15,456,606     

 

(a)Carrying values include fair values for AFS securities.
(b)Non-MBS — Includes Housing finance agency bonds.
(c)Excludes Trading portfolio.

 

External rating information of the held-to-maturity portfolio was as follows (carrying values in thousands): 

 

Table3.3:        External Rating of the Held-to-Maturity Portfolio

  June 30, 2020 
              Below    
              Investment    
  AAA-rated (a)  AA-rated (b)  A-rated  BBB-rated  Grade  Total 
Mortgage-backed securities $427  $13,140,422  $64,017  $8,357  $27,067  $13,240,290 
State and local housing finance agency obligations  25,000   1,072,451   4,858   5,735   -   1,108,044 
                         
Total Long-term securities $25,427  $14,212,873  $68,875  $14,092  $27,067  $14,348,334 

 December 31, 2019 
             Below    
             Investment     September 30, 2020 
 AAA-rated (a) AA-rated (b) A-rated BBB-rated  Grade  Total  AAA-rated (a)  AA-rated (b)  A-rated BBB-rated  Below
Investment
Grade		  Total 
Mortgage-backed securities $520  $14,003,384  $69,701  $9,049  $29,513  $14,112,167  $397  $12,614,520  $61,339 $7,884  $26,337  $12,710,477 
State and local housing finance agency obligations  25,000   1,085,875   5,055   6,385   -   1,122,315   25,000   1,072,061   2,319  5,758   -   1,105,138 
                                               
Total Long-term securities $25,520  $15,089,259  $74,756  $15,434  $29,513  $15,234,482  $25,397  $13,686,581  $63,658 $13,642  $26,337  $13,815,615 

 

 December 31, 2019 
  AAA-rated (a)  AA-rated (b)  A-rated BBB-rated  Below
Investment
Grade		  Total 
Mortgage-backed securities $520  $14,003,384  $69,701 $9,049  $29,513  $14,112,167 
State and local housing finance agency obligations  25,000   1,085,875   5,055  6,385   -   1,122,315 
                        
Total Long-term securities $25,520  $15,089,259  $74,756 $15,434  $29,513  $15,234,482 

See footnotes (a) and (b) under Table 3.4.


External rating information of the AFS portfolio was as follows (the carrying values of AFS investments are at fair values; in thousands):

 

Table3.4:        External Rating of the Available-for-Sale Portfolio

 

  June 30, 2020  December 31, 2019 
  AA-rated (b)  Unrated  Total  AA-rated (b)  Unrated  Total 
Available-for-sale securities                        
Mortgage-backed securities $2,874,107  $-  $2,874,107  $2,653,418  $-  $2,653,418 

 

  September 30, 2020  December 31, 2019 
  AA-rated (b)  Unrated  Total  AA-rated (b)  Unrated  Total 
Available-for-sale securities                        
Mortgage-backed securities $3,275,768  $-  $3,275,768  $2,653,418  $-  $2,653,418 

Footnotes to Table 3.3 and Table 3.4.

 

(a)Certain PLMBS and housing finance bonds have been assigned AAA, based on the ratings by S&P and Moody’s.
(b)We have assigned GSE-issued MBS a rating of AA+ based on the credit rating assigned to long-term senior debt issued by Fannie Mae, Freddie Mac and U.S. Agency. The debt ratings are based on S&P’s rating of AA+ for the GSE Senior long-term debt and AA+ for the debt issued by the U.S. government; Moody’s debt rating is Aaa for the GSE Senior long-term debt and the U.S. government.

 

External credit rating information has been provided in Table 3.3 and Table 3.4 as the information is used as another data point to supplement our credit quality indicators, and they serve as a useful indicator when analyzing the degree of credit risk to which we are exposed. Significant changes in credit ratings classifications of our investment debt securities portfolio could indicate increased credit risk for us that could be accompanied by a reduction in the fair values of our investment debt securities portfolio.

 

Fair Value Levels of Investment Debt Securities

 

To compute fair values, multiple vendor prices were received for substantially all of our MBS holdings, and substantially all of those prices fell within specified thresholds. The relative proximity of the prices received from the multiple vendors supported our conclusion that the final computed prices were reasonable estimates of fair values. GSE securities priced under such a valuation technique using the market approach are typically classified within Level 2 of the valuation hierarchy. For a comparison of carrying values and fair values of investment debt securities, see financial statements, Note 5. Trading securities, Note 7. Available-for-Sale Securities and Note 8. Held-to-Maturity Securities. For more information about the corroboration and other analytical procedures performed, see Note 18. Fair Values of Financial Instruments. Also see Note 7. Available-for-sale securities for an explanation of amortized cost for securities hedged under ASC 815 fair value hedge.

 

Weighted average rates — Mortgage-backed securities (HTM and AFS) — The following table summarizes weighted average rates (yields) and amortized cost by contractual maturities (dollars in thousands):

 

Table3.5:        Mortgage-Backed Securities Weighted Average Rates by Contractual Maturities

 

 June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
 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 $1,051,000   3.75% $616,402   3.93% $953,213   3.64% $616,402   3.93%
Due after one year through five years  3,658,580   2.32   4,102,650   2.79   3,655,860   2.37   4,102,650   2.79 
Due after five years through ten years  8,466,106   2.60   8,838,096   2.97   8,652,750   2.51   8,838,096   2.97 
Due after ten years  2,736,933   1.48   3,129,733   2.59   2,508,430   1.47   3,129,733   2.59 
                                
Total mortgage-backed securities $15,912,619   2.42% $16,686,881   2.89% $15,770,253   2.38% $16,686,881   2.89%

 

A significant portion of the MBS portfolio consists of floating-rate securities and the weighted average rates will change in parallel with changes in the LIBOR rate.


80 

Fair Value Hedges of Fixed-rate Available-for-sale Mortgage-backed Securities

 

The adoption of ASU 2017-12 provided an alternative guidance in the application of partial-term hedging. The ASU also provided a new approach that allows entities to hedge only the benchmark rate instead of the entire coupon of a fixed-rate instrument in a fair value hedge. We have adopted the guidance in the ASU to hedge designated available-for-sale fixed-rate CMBS. The following table summarizes key data (in thousands):

 

Table3.6:        Fair Value Hedges of Fixed-Rate Prepayable CMBS

Table3.6:        Fair Value Hedges of Fixed-Rate Prepayable CMBS

  Fair Value Hedges of Fixed-Rate Prepayable CMBS 
  September 30, 2020  December 31, 2019 
 Current face value of hedged CMBS $1,079,000  $602,000 
 Partial-term hedge face value of hedged CMBS $973,000  $532,000 
 Cumulative basis adjustment Gains (losses) $62,911  $11,593 
 Interest rate swap contracts (par) $973,000  $532,000 

 

  Fair Value Hedges of Fixed-Rate Prepayable CMBS 
  June 30, 2020  December 31, 2019 
 Current face value of hedged CMBS $674,000  $602,000 
 Partial-term hedge face value of hedged CMBS $602,000  $532,000 
 Cumulative basis adjustment Gains (losses) $70,431  $11,593 
 Interest rate swap contracts (par) $602,000  $532,000 

Short-term investments

 

We typically maintain substantial investments in high quality short- and intermediate-term financial instruments such as secured overnight transactions collateralized by securities, and unsecured overnight and term federal funds sold to highly-rated financial institutions who also satisfy other credit quality factors. 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 adjust liquidity. We also invest in a liquidity trading portfolio, consisting of US treasury securities, with the objective of satisfying our liquidity requirements and expanding our choice of investing for liquidity.

 

Monitoring — We actively monitor our credit exposures and the credit quality of our counterparties, including an assessment of each counterparty’s financial performance, capital adequacy, and sovereign support as well as related market signals, and actively limit or suspend existing exposures, as appropriate. In addition, we are required to manage our unsecured portfolio subject to regulatory limits prescribed by our regulator, the Finance Agency. The Finance Agency regulations include limits on the amount of unsecured credit that may be extended to a counterparty or a group of affiliated counterparties, based upon a percentage of eligible regulatory capital and the counterparty’s overall credit rating. Under these regulations, the level of eligible regulatory capital is determined as the lesser of our regulatory capital or the eligible amount of regulatory capital of the counterparty determined in accordance with Finance Agency regulations.

 

The Finance Agency regulations also permit us to extend additional unsecured credit, which could be comprised of overnight extensions and sales of federal funds subject to continuing contract. Our total unsecured overnight exposure to a single counterparty may not exceed twice the regulatory limit for term exposures. We are prohibited by Finance Agency regulation from investing in financial instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks, and we did not own any financial instruments issued by foreign sovereign governments, including those countries that are members of the European Union in any periods in this report.

 

Securities purchased under agreements to resell — As part of our banking activities with counterparties, we have entered into secured financing transactions that mature overnight, and can be extended only at our discretion. These transactions involve the lending of cash against securities, which are accepted as collateral. The balances outstanding under such agreements were $5.0$3.4 billion at JuneSeptember 30, 2020 and $15.0 billion at December 31, 2019. Resale agreements averaged $2.2$4.0 billion, $9.9 billion and $8.6$9.7 billion in the secondthird quarter of 2020, fourth quarter of 2019 and secondthird quarter of 2019, respectively. For more information, see financial statements, Note 4. Interest-bearing Deposits, Federal Funds Sold and Securities Purchased under Agreements to Resell.

 

8481 

 

 

Federal funds sold — Federal funds sold was $5.4$7.7 billion at JuneSeptember 30, 2020, and $8.6 billion at December 31, 2019, and averaged $10.7$8.6 billion, $9.0 billion and $9.3$10.6 billion in the secondthird quarter of 2020, fourth quarter of 2019 and secondthird quarter of 2019, respectively. Investments represent unsecured lending to major banks and financial institutions. We are a major lender in this market, particularly in the overnight market. The amount of unsecured credit risk that may be extended to individual counterparties is commensurate with the counterparty’s credit quality as assessed by our management, and the assessment would include reviews of credit ratings of counterparty’s debt securities or deposits as reported by NRSROs. Overnight and short-term federal funds allow us to warehouse funds and provide balance sheet liquidity to meet unexpected member borrowing demands.

 

The following table summarizes par value, amortized cost and the carrying value (fair value) of the trading portfolio (in thousands):

 

Table3.7:        Trading Securities

 

 Trading Securities  Trading Securities 
 June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
Par value $12,712,177  $15,232,900  $12,437,161  $15,232,900 
Amortized cost $12,753,191  $15,265,745  $12,467,081  $15,265,745 
Carrying/Fair value $12,923,831  $15,318,809  $12,598,027  $15,318,809 

 

The Finance Agency prohibits speculative investments but allows permitted securities to be deemed held for liquidity if invested in a trading portfolio. We may dispose such investments if liquidity needs are met and market conditions deem the sale as advantageous. For more information about fair values of securities in the trading portfolio, see Note 5. Trading Securities in the Notes to the Financial Statements.

 

The following table summarizes economic hedges of fixed-rate trading securities held for liquidity (in thousands):

 

Table3.8:        Economic Hedges of Fixed-rate Liquidity Trading Securities

Table3.8:        Economic Hedges of Fixed-rate Liquidity Trading Securities

 

  Economic Hedges of Fixed-Rate Trading Securities 
  June 30, 2020  December 31, 2019 
Par amount of Trading securities hedged (a) $12,710,000  $15,230,000 
Par amount of interest rate swaps $12,707,650  $15,230,000 
  Economic Hedges of Fixed-Rate Trading
Securities		 
  September 30, 2020  December 31, 2019 
Par/Face amounts of portfolio of U.S. Treasury fixed-rate securities (a) $12,435,000  $15,230,000 
Par amounts of interest rate swaps $12,433,066  $15,230,000 

 

(a)Balances represent outstanding amounts of U.S. Treasury securities.notes and bills.  

 

Mortgage Loans Held-for-Portfolio, Net

 

Mortgage loans are carried in the Statements of Condition at amortized cost, less allowance for credit losses. The outstanding unpaid principal balance was $3.1$3.0 billion at JuneSeptember 30, 2020, a decrease of $3.3$111.1 million (net of acquisitions and paydowns) from the balance at December 31, 2019. Mortgage loans were investments in Mortgage Partnership Finance loans (MPF or MPF Program). Serious delinquencies at JuneSeptember 30, 2020 were not materially different from prior periods, although we are seeing a rise in delinquencies. Rising delinquencies have resulted in increase in credit losses under the CECL methodology. Allowance for credit losses increased to $9.1 million at September 30, 2020, compared to $6.5 million at June 30, 2020, compared to $3.5 million at March 31, 2020 and $0.7 million at December 31, 2019.

 


Mortgage Partnership Finance Program — We invest in mortgage loans through the MPF Program, which is a secondary mortgage market structure under which eligible mortgage loans are purchased or funded from or through members who are Participating Financial Institutions (PFI). We may also acquire MPF loans through participations with other FHLBanks, although our current acquisition strategy is to limit acquisitions through our PFIs. MPF loans are conforming conventional and Government i.e., insured or guaranteed by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA) or the Rural Housing Service of the Department of Agriculture (RHS), fixed-rate mortgage loans secured primarily by single-family residential properties with maturities ranging from five to 30 years or participations in such mortgage loans. The FHLBank of Chicago (MPF Provider) developed the MPF Program in order to help fulfill the housing mission and to provide an additional source of liquidity to FHLBank members that choose to sell mortgage loans into the secondary market rather than holding them in their own portfolios. Finance Agency regulations define the acquisition of Acquired Member Assets (AMA) as a core mission activity of the FHLBanks. In order for MPF loans to meet the AMA requirements, the purchase and funding are structured so that the credit risk associated with MPF loans is shared with PFIs.

 

We provide this product to members as another alternative for them to sell their mortgage production. Loan origination by members and acceptable pricing are key factors that drive growth.

 

In response to the COVID-19 pandemic, the Federal Government and various states have taken certain actions to allow the Federal Home Loans Banks to provide various forms of relief in response to the effects of the pandemic. These measures include forbearance and modification for MPF program loans. Serious delinquencies at JuneSeptember 30, 2020 were not materially different from prior periods, although we are seeing a rise in delinquencies. TheConfirmation of forbearance terms and agreements remain under review, and the MPF provider is actively continuing to resolve status of COVID-19 and non-COVID related delinquent loans along with monitoring and confirmation of loans in forbearance status. As collection of forbearance information is ongoing, and we cannot say with certainty the aggregate amounts that are likely to be approved, other than to report that we do not expect its impact to be material since the MPF program has certain restrictions.to our financial statements and cash flows.

 

Mortgage loans — Conventional and Insured Loans — The following table classifies mortgage loans between conventional loans and loans insured by FHA/VA (in thousands):

 

Table4.1:        MPF by Conventional and Insured Loans

Table4.1:        MPF by Conventional and Insured Loans

 

 June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
Federal Housing Administration and Veteran Administration insured loans $214,443  $220,990  $207,324  $220,990 
Conventional loans  2,956,800   2,953,015   2,855,779   2,953,015 
Allowance for credit losses on mortgage loans (a)  (6,534)  (653)  (9,100)  (653)
Mortgage loans held for portfolio, net $3,164,709  $3,173,352  $3,054,003  $3,173,352 

 

(a)The FHLBanks’ methodology for determining the allowance for credit losses on mortgage loans changed on January 1, 2020 with the adoption of new accounting guidance on measurement of credit losses on financial instruments. Consistent with the modified retrospective method of adoption, the prior period has not been revised to conform to the new basis of accounting.

(a) The FHLBanks’ methodology for determining the allowance for credit losses on mortgage loans changed on January 1, 2020 with the adoption of new accounting guidance on measurement of credit losses on financial instruments. Consistent with the modified retrospective method of adoption, the prior period has not been revised to conform to the new basis of accounting.

 

Mortgage Loans — Loss Sharing and the Credit Enhancement Waterfall — For all loans acquired prior to June 1, 2017, the credit enhancement was computed as the amount that would bring an uninsured loan to “Double A” credit risk. For loans acquired after June 1, 2017, the credit enhancement is computed to a “Single A” credit risk. In the credit enhancement waterfall, we are responsible for the first loss layer. The second loss layer is the credit obligation of the PFI. We assume all residual risk. Also, see financial statements, Note 10. Mortgage Loans Held-for-Portfolio.

 

Loan and PFI Concentration — Loan concentration was in New York State, which is to be expected since the largest PFIs are located in New York. The tables below summarize concentrations — Geographic and PFI:

 

Table 4.2:        Geographic Concentration of MPF Loans

Table4.2:        Geographic Concentration of MPF Loans

 

  June 30, 2020  December 31, 2019 
    Number of loans %      Amounts outstanding %      Number of loans %      Amounts outstanding %   
New York State  68.9%  62.0%  68.6%  61.1%
  September 30, 2020  December 31, 2019 
  Number of loans %  Amounts outstanding %  Number of loans %  Amounts outstanding % 
New York State  69.8%  63.4%  68.6%  61.1%

 


Table4.3:        Top Five Participating Financial Institutions — Concentration (par value, dollars in thousands)

Table 4.3:        Top Five Participating Financial Institutions — Concentration (par value, dollars in thousands)

 

 June 30, 2020  September 30, 2020 
 Mortgage Percent of Total  Mortgage Percent of Total 
 Loans Mortgage Loans  Loans  Mortgage Loans 
Bethpage Federal Credit Union $320,320   10.25% $299,454   9.93%
Investors Bank  287,356   9.20   266,290   8.83 
Teachers Federal Credit Union  270,536   8.65   262,374   8.70 
Sterling National Bank  206,075   6.60   197,137   6.53 
New York Community Bank  178,591   5.72 
Manasquan Bank  177,680   5.89 
All Others  1,861,608   59.58   1,813,756   60.12 
                
Total $3,124,486   100.00% $3,016,691   100.00%

 

  December 31, 2019 
  Mortgage  Percent of Total 
  Loans  Mortgage Loans 
Bethpage Federal Credit Union $331,970   10.61%
Investors Bank  296,289   9.47 
Teachers Federal Credit Union  240,850   7.70 
Sterling National Bank  219,814   7.03 
New York Community Bank  219,729   7.03 
All Others  1,819,092   58.16 
         
Total $3,127,744   100.00%

 

Debt Financing Activity and Consolidated Obligations

 

Our primary source of funds continues to be the issuance of Consolidated obligation bonds and discount notes. In aggregate, carrying balances of CO bonds and CO discount notes were $148.5$141.5 billion and $152.7 billion at JuneSeptember 30, 2020 and December 31, 2019.

 

CO bonds and CO discount notes — The carrying value of Consolidated obligation bonds (CO bonds or Consolidated obligation bonds) was $59.0$71.7 billion (par, $58.2$70.9 billion) at JuneSeptember 30, 2020, compared to $78.8 billion (par, $78.1 billion) at December 31, 2019. The carrying value of Consolidated obligation discount notes outstanding was $89.5$69.7 billion at JuneSeptember 30, 2020 and $74.0 billion at December 31, 2019.

 

Interest rate hedging — Significant amounts of CO bonds have been designated under an ASC 815 fair value accounting hedge. Also, certain CO bonds were hedged by interest rate swaps in economic hedges. From time to time, we have also hedged the anticipatory issuance of fixed-rate CO bonds in a cash flow hedge under ASC 815. Certain CO bonds were elected under the FVO. As a result of hedging elections under ASC 815 and the elections under the FVO, carrying values of CO bonds included valuation basis adjustments. For more information about valuation basis adjustments on CO bonds, see Table 5.1.5.1 CO Bonds by Type.

 

From time to time, we hedge discount notes under an ASC 815 fair value accounting; additionally, certain discount notes are also hedged under an ASC 815 cash flow accounting hedge. Certain discount notes were elected under the FVO. As a result of accounting elections, carrying values of discount notes may include valuation basis adjustments. For more information about valuation basis adjustments on discount notes, see Table 5.7 Discount Notes Outstanding. Also, see financial statements, Note 17. Derivatives and Hedging Activities.

 

87

Debt Ratings — A FHLBank’s ability to access the capital markets to issue debt, as well as our cost of funds, is dependent on credit ratings from Nationally Recognized Statistical Rating Organizations. Consolidated obligations of FHLBanks are rated Aaa/P-1 by Moody’s, and AA+/A-1+ by S&P. Any rating actions on the US Government would likely result in all individual FHLBanks’ long-term deposit ratings and the FHLBank System long-term bond rating moving in lock step with any US sovereign rating action.


 

Joint and Several Liability — Although we are primarily liable for our portion of Consolidated obligations (i.e. those issued on our behalf), we are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the Consolidated obligations of all the FHLBanks. For more information, see financial statements, Note 19. Commitments and Contingencies.

 

SOFR CO Bonds —The SOFR market continues to develop, and successful issuances of FHLBank System SOFR-linked floaters (Floating-rate notes or FRNs) have been an important development for the FHLBank debt and its support for SOFR.

 

The FHLBNY’s shareFHLBNY is an active participant in the issuance of SOFR-linked CO bonds has increased; outstandingbonds. Outstanding balances were $9.8 billion at September 30, 2020, $12.6 billion at June 30, 2020 up fromand $8.2 billion at December 31, 2019, andup from $950.0 million at December 31, 2018.

 

85 

Consolidated obligation bonds

 

The following table summarizes types of Consolidated obligation bonds (CO Bonds) issued and outstanding (dollars in thousands):

 

Table5.1:        CO Bonds by Type

Table5.1:        CO Bonds by Type

 

 June 30, 2020  December 31, 2019 
 Amount Percentage
of Total		 Amount Percentage
of Total		  September 30, 2020  December 31, 2019 
          Amount Percentage
of Total		 Amount Percentage
of Total		 
Fixed-rate, non-callable $21,932,435   37.70% $32,588,805   41.72% $41,551,995   58.59% $32,588,805   41.72%
Fixed-rate, callable  1,424,000   2.45   4,803,000   6.15   1,381,000   1.95   4,803,000   6.15 
Step Up, callable  -   -   15,000   0.02   -   -   15,000   0.02 
Single-index floating rate  34,814,500   59.85   40,702,000   52.11   27,989,500   39.46   40,702,000   52.11 
                                
Total par value  58,170,935   100.00%  78,108,805   100.00%  70,922,495   100.00%  78,108,805   100.00%
                                
                
Bond premiums  128,950       95,560       136,957       95,560     
Bond discounts  (26,057)      (24,704)      (26,807)      (24,704)    
Hedge valuation basis adjustments (a)  620,391       377,000       573,307       377,000     
Hedge basis adjustments on de-designated hedges (b)  135,883       139,605       134,180       139,605     
FVO (c) - valuation adjustments and accrued interest  2,385       67,043       1,973       67,043     
                
Total Consolidated obligation-bonds $59,032,487      $78,763,309      $71,742,105      $78,763,309     

 

Fair value basis and valuation adjustments — Key determinants are factors such as run-offs and new transactions designated under an ASC 815 hedge or elected under the FVO, the forward swap curve, the volatility of the swap rates, the remaining duration to maturity, and for bonds elected under the FVO, the changes in the spread between the swap rate and the Consolidated obligation debt yields, and changes in interest payable, which is a component of the entire fair value of FVO bonds.

 

(a)Hedging valuation basis adjustments — The reported carrying values of hedged CO bonds are adjusted for changes in their fair values (fair value basis adjustments or fair value) that are attributable to changes in the benchmark risk being hedged. LIBOR is our primary benchmark. We have also adopted OIS/FF and OIS/SOFR as other benchmarks. In the hedging relationships, a benchmark is elected on an instrument-by-instrument basis and becomes the discounting basis under ASC 815 for computing changes in fair values for hedged CO bonds. Table 5.2 CO Bonds Hedged under Qualifying Fair Value Hedges discloses notional amounts of CO bonds hedged. The application of ASC 815 accounting methodology resulted in the recognition of net cumulative hedge valuation basis losses of $620.4$573.3 million and $377.0 million at JuneSeptember 30, 2020 and December 31, 2019. The benchmark curves, specifically the forward LIBOR yield curve, declined sharply at JuneSeptember 30, 2020. As hedge valuation basis of fixed-rate liabilities move with the rise and fall of the forward benchmark curves, the decline in the forward curves caused valuation losses to increase. Generally, hedge valuation basis gains and losses are unrealized and willare expected to reverse to zero if the CO bonds are held to maturity or are called on the early option exercise dates.

(b)Valuation basis of terminated hedges — Represents unamortized cumulative valuation basis of certain CO bonds that were no longer in fair value hedge relationships. When hedging relationships for the debt were de-designated, the net unrealized cumulative losses at the hedge termination dates were no longer adjusted for changes in the benchmark rate. Instead, the valuation basis areis being amortized on a level yield method, and the net amortization is recorded as a reduction of Interest expense. If the CO bonds are held to maturity, the basis losses will be fully amortized as interest expense.


(c)FVO valuation adjustments — Valuation basis adjustments and accrued interest payable are recorded to recognize changes in the entire fair value (the full fair value) of CO bonds elected under the FVO. Table 5.3 CO Bonds Elected under the Fair Value Option (FVO) discloses par amounts of CO bonds elected under the FVO. Valuation adjustments at JuneSeptember 30, 2020 and December 31, 2019 were largely the accumulation of semi-annual accrued unpaid interest included in the full fair value of the debt. Cumulative basis adjustments and unpaid interest have declined in line with the decline in the volume of CO bonds elected under FVO.

 

The discounting basis for computing the change in fair value basis of bonds elected under the FVO is the observable (FHLBank) CO bond yield curve. All FVO bonds were short- and intermediate-term, and fluctuations in their “clean prices” (without accumulated unpaid interest) valuations were not significant as the bonds re-priced relatively frequently to market indices, keeping valuations near to par, although inter-period valuation volatility is likely.

 

We have elected the FVO on an instrument-by-instrument basis. For bonds elected under the FVO, it was not necessary to estimate changes attributable to instrument-specific credit risk, as we consider the credit worthiness of the FHLBanks to be secure and credit related adjustments unnecessary. More information about debt elected under the FVO is provided in financial statements, Note 18. Fair Values of Financial Instruments (See Fair Value Option Disclosures).

 

86 

 

Hedge volume — Tables 5.2 – 5.4 provide information with respect to par amounts of CO bonds based on accounting designation: (1) under hedge qualifying rules, (2) under the FVO, and (3) as an economic hedge (in thousands):hedge.

 

The following table provides information on CO bonds in an ASC 815 qualifying hedge relationship (in thousands):

 

Table5.2:        CO Bonds Hedged under Qualifying Fair Value Hedges

Table5.2:        CO Bonds Hedged under Qualifying Fair Value Hedges

 

Qualifying hedges — Generally, fixed-rate (bullet and callable) medium and long-term Consolidated obligation bonds are hedged in a Fair value ASC 815 qualifying hedge.

 

 Consolidated Obligation Bonds  Consolidated Obligation Bonds 
Par Amount June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
Qualifying hedges                
Fixed-rate bullet bonds $9,244,090  $11,802,950  $14,688,475  $11,802,950 
Fixed-rate callable bonds  -   70,000   -   70,000 
 $9,244,090  $11,872,950  $14,688,475  $11,872,950 

 

The following table provides information on CO bonds elected under the fair value option (in thousands):

 

Table5.3:        CO Bonds Elected under the Fair Value Option (FVO)

Table5.3:        CO Bonds Elected under the Fair Value Option (FVO)

 

CO bonds elected under the FVO — If at inception of a hedge we do not believe that a hedge would be highly effective in offsetting fair value changes between the derivative and the debt (hedged item), we may designate the debt under the FVO if operationally practical. We would record fair value changes of the FVO debt through earnings, and to the extent the debt is economically hedged, record changes in the fair values of the interest rate swap through earnings. 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 full fair value.

 

 Consolidated Obligation Bonds  Consolidated Obligation Bonds 
Par Amount June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
Bonds designated under FVO $1,300,000  $12,067,000  $14,775,000  $12,067,000 

 

CO bonds elected under the FVO were generally in economic hedges by the execution of interest rate swaps that converted the fixed-rate bonds to a variable-rate instrument. We elected to account for the bonds under the FVO when we were generally unable to assert with confidence that the short- and intermediate-term bonds, or callable bonds, with short lock-out periods to the exercise of call options, would remain effective hedges as required under hedge accounting rules. Designation of CO bonds under the FVO is an asset-liability management decision. For more information, see financial statements, Fair Value Option Disclosures in Note 18. Fair Values of Financial Instruments.

 


The following table provides information on CO bonds in an economic hedge relationship (in thousands):

 

Table5.4:     Economic Hedges of CO Bonds (data in table excludes CO bonds elected under the FVO)

Table5.4:     Economic Hedges of CO Bonds (data in table excludes CO bonds elected under the FVO)

 

Economic hedges of CO bonds — We issue floating-rate debt indexed to a benchmark rate (LIBOR, OIS/FF and OIS/SOFR) and may then execute interest rate swaps that would synthetically convert the cash flows to the desired floating-rate funding indexed to another benchmark to meet our asset/liability funding strategies. The operational cost of designating the debt instruments in an ASC 815 qualifying hedge outweighed the accounting benefits of marking the debt and the swap to fair values. We opted instead to designate the hedging basis swaps as standalone derivatives, and recorded changes in their fair values through earnings. The carrying value of the debt would not include fair value basis since the debt is recorded at amortized cost.

 

 Consolidated Obligation Bonds  Consolidated Obligation Bonds 
Par Amount June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
Bonds designated as economically hedged             
Floating-rate bonds (a) $26,375,000  $17,875,000  $20,375,000  $17,875,000 
Fixed-rate bonds (b)  -   50,000   15,000   50,000 
 $26,375,000  $17,925,000  $20,390,000  $17,925,000 

 

(a)Floating-rate debt — Floating-rate bonds were typically indexed to 1-month LIBOR.LIBOR and OIS-SOFR. With the execution of basis hedges, certain floating-rate bonds were swapped in economic hedges to 3-month LIBOR, to OIS/FFindices (OIS-SOFR and OIS/SOFR to meetOIS FF) that met our asset/liability interest rate risk management objectives, mitigating the basis risk between the 1-month LIBORindex attached to the debt and the target benchmark.
(b)Fixed-rate debt —Bonds that were previously hedged and have fallen out of effectiveness.

 

CO Bonds — Maturity or Next Call Date (a)

 

Callable bonds contain an exercise date or a series of exercise dates that may result in a shorter redemption period. The following table summarizes par amounts of Consolidated bonds outstanding by years to maturity or next call date (dollars in thousands):

 

Table5.5:        CO Bonds — Maturity or Next Call Date

Table5.5:        CO Bonds — Maturity or Next Call Date

 

 June 30, 2020  December 31, 2019  September 30, 2020  December 31, 2019 
 Amount Percentage
of Total		  Amount  Percentage
of Total		  Amount  Percentage
of Total		  Amount  Percentage
of Total		 
Year of maturity or next call date                  
Due or callable in one year or less $37,891,435   65.14% $63,261,595   80.99% $49,341,580   69.57% $63,261,595   80.99%
Due or callable after one year through two years  8,550,550   14.70   4,266,125   5.46   9,133,925   12.88   4,266,125   5.46 
Due or callable after two years through three years  4,021,425   6.91   2,970,715   3.80   4,802,540   6.77   2,970,715   3.80 
Due or callable after three years through four years  1,306,440   2.25   1,388,835   1.78   1,405,665   1.98   1,388,835   1.78 
Due or callable after four years through five years  1,083,585   1.86   1,001,735   1.28   941,585   1.33   1,001,735   1.28 
Thereafter  5,317,500   9.14   5,219,800   6.69   5,297,200   7.47   5,219,800   6.69 
                
Total par value $58,170,935   100.00% $78,108,805   100.00% $70,922,495   100.00% $78,108,805   100.00%

 

(a)Contrasting Consolidated obligation bonds by contractual maturity dates (see financial statements, Note 12. Consolidated Obligations — Redemption Terms of Consolidated Obligation Bonds) with potential call dates (as reported in table above) illustrates the impact of hedging on the effective duration of the bond. With a callable bond, we have purchased the option to terminate debt at agreed upon dates from investors. The call options are exercisable as either a one-time option or quarterly. Our current practice is to exercise our option to call a bond when the swap counterparty exercises its option to call the cancellable swap hedging the callable bond. Thus, issuance of a callable bond with an associated callable swap significantly alters the contractual maturity characteristics of the original bond and introduces the possibility of an exercise call date that is significantly shorter than the contractual maturity.

 


The following table summarizes callable bonds versus non-callable CO bonds outstanding (par amounts, in thousands):

 

Table5.6:        Outstanding Callable CO Bonds versus Non-callable CO bonds

Table5.6:        Outstanding Callable CO Bonds versus Non-callable CO bonds

 

 June 30, 2020 December 31, 2019  September 30, 2020 December 31, 2019 
Callable $1,424,000  $4,818,000  $1,381,000  $4,818,000 
Non-Callable $56,746,935  $73,290,805  $69,541,495  $73,290,805 

 


CO Discount Notes

 

The following table summarizes discount notes issued and outstanding (dollars in thousands):

 

Table5.7:        Discount Notes Outstanding

  June 30, 2020  December 31, 2019 
Par value $89,545,947  $74,094,586 
Amortized cost $89,457,724  $73,955,552 
Hedge value basis adjustments (a)  3,822   (105)
FVO (b) - valuation adjustments and remaining accretion  38,347   3,758 
Total discount notes $89,499,893  $73,959,205 
Weighted average interest rate  0.26%  1.60%

Table5.7:        Discount Notes Outstanding

  September 30, 2020  December 31, 2019 
Par value $69,731,892  $74,094,586 
Amortized cost $69,682,141  $73,955,552 
Hedge value basis adjustments (a)  959   (105)
FVO (b) - valuation adjustments and remaining accretion  26,687   3,758 
Total discount notes $69,709,787  $73,959,205 
         
Weighted average interest rate  0.19%  1.60%

(a)Hedging valuation basis adjustments — The reported carrying values of hedged CO discount notes are adjusted for changes in their fair values (fair value basis adjustments or fair value) that are attributable to changes in the benchmark risk being hedged. In the hedging relationships, a specific benchmark is elected on an instrument-by-instrument basis and becomes the discounting basis under ASC 815 for computing changes in fair values for the hedged CO discount notes. Notional amounts of $16.1$11.7 billion of CO discount notesand $3.5 billion were hedged under ASC 815 qualifying fair value hedges at JuneSeptember 30, 2020.2020 and December 31, 2019. The application of ASC 815 accounting methodology resulted in the recognitionimmaterial amounts of net cumulative hedge valuation basis losses of $3.9 million at June 30, 2020; hedge basis adjustments on de-designated hedges were a de minimis gain of $0.1 million. Comparative period balances were immaterial. Cumulative basis adjustments have increased in line with the increaseas noted in the volume of hedged CO discount notes. Additionally, the benchmark curves, specifically OIS/FF and OIS/SOFR declined at the measurement date. As hedge valuation basis of fixed-rate CO liabilities move with the rise and fall of the forward benchmark curves, the decline in forward curves caused valuation losses to increase.table above. Generally, hedge valuation basis gains and losses are unrealized and willare expected to reverse to zero if the CO bonds are held to maturity or are called on the early option exercise dates.

 

(b)FVO valuation adjustments — Valuation basis adjustment losses are recorded to recognize changes in the entire or full fair values, including unaccreted discounts on CO discount notes elected under the FVO.  Notional amounts elected under the FVO were $12.8 billion and $2.2 billion at September 30, 2020 and December 31, 2019. The discounting basis for computing changes in fair values of discount notes elected under the FVO is the observable FHLBank discount note yield curve. Valuation losses were largely liability balances representing unaccreted discounts. Other than unaccreted discount, changes in the valuation adjustments (clean prices) were not material. Clean prices represent fair value changes due to changes in the term structure of interest rates, the shape of the yield curve at the measurement dates, and the growth or decline in volume of hedged discount notes. When held to maturity, unaccreted discounts will be fully accreted to par, and unrealized fair value gains and losses will sum to zero over the term to maturity.

 

The following table summarizes Fair Value hedges of discount notes (in thousands):

 

Table5.8:        Fair Value Hedges of Discount Notes

Table5.8:        Fair Value Hedges of Discount Notes

 

 Consolidated Obligation Discount Notes  Consolidated Obligation Discount Notes 
Principal Amount June 30, 2020  December 31, 2019  September 30, 2020 December 31, 2019 
Discount notes hedged under qualifying hedge $16,143,912  $3,481,705  $11,674,997  $3,481,705 

 


The following table summarizes Economiceconomic hedges of discount notes (in thousands):

 

Table5.9:        Economic Hedges of Discount Notes

Table5.9:        Economic Hedges of Discount Notes

 

 Consolidated Obligation
Discount Notes		  Consolidated Obligation Discount
Notes		 
Par Amount June 30, 2020  September 30, 2020 
Discount notes designated as economic hedges (a) $1,702,572  $953,559 

 

(a)Represents CO discount notes that were de-designated; unamortized hedge basis adjustments were not material.

 


The following table summarizes discount notes elected and outstanding under the FVO (in thousands):

 

Table5.10:    Discount Notes under the Fair Value Option (FVO)

Table5.10:    Discount Notes under the Fair Value Option (FVO)

 

 Consolidated Obligation Discount Notes  Consolidated Obligation Discount Notes 
Par Amount June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
Discount notes designated under FVO (a) $20,120,995  $2,182,845  $12,826,382  $2,182,845 

 

(a)For CO discount notes elected under the FVO, it has not been necessary to estimate changes attributable to instrument-specific credit risk, as we consider the credit worthiness of the FHLBank debt to be secured and credit related adjustments unnecessary.

 

CO Discountdiscount notes elected under the FVO were generally in economic hedges with the execution of interest rate swaps that converted the fixed-rate notes to a variable-rate instrument. We elected to account for the discount notes under the FVO when we were generally unable to assert with confidence that the discount notes would remain effective hedges as required under hedge accounting rules. See financial statements, Fair Value Option Disclosures in Note 18. Fair Values of Financial Instruments.

 

The following table summarizes Cash flow hedges of discount notes (in thousands):

 

Table5.11:    Cash Flow Hedges of Discount Notes

Table5.11:    Cash Flow Hedges of Discount Notes

 

 Consolidated Obligation Discount Notes  Consolidated Obligation Discount Notes 
Principal Amount June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
Discount notes hedged under qualifying hedge (a) $2,664,000  $2,664,000  $2,664,000  $2,664,000 

 

(a)Amounts represent discounts notes issued in cash flow “rollover” hedge strategies that hedged the variability of 91-day discount notes issued in sequence. The original maturities of the interest rate swaps typically ranged from 10-15 years. In this strategy, the discount note expense, which resets every 91 days, is synthetically converted to fixed cash flows over the hedge periods, thereby achieving hedge objectives. For more information, see financial statements, Cash Flow Hedges in Note 17. Derivatives and Hedging Activities.

 

Accrued interest payable

 

Accrued interest payable — Amounts outstanding were $131.4$117.3 million at JuneSeptember 30, 2020 and $156.9 million at December 31, 2019. Accrued interest payable was comprised primarily of interest due and unpaid on CO bonds, which are generally payable on a semi-annual basis. Fluctuations in unpaid interest balances on bonds are due to the timing of semi-annual coupon accruals and payments at the balance sheet dates.

 


Other Liabilities

 

Other liabilities — Amounts outstanding were $158.8$168.3 million at JuneSeptember 30, 2020 and $175.5 million at December 31, 2019. Other liabilities comprised of unfunded pension liabilities, Federal Reserve pass-through reserves held on behalf of members, and miscellaneous payables.

 


Stockholders’ Capital 

 

The following table summarizes the components of Stockholders’ capital (in thousands):

 

Table6.1:        Stockholders’ Capital

Table6.1:        Stockholders’ Capital

 

 June 30, 2020 December 31, 2019  September 30, 2020 December 31, 2019 
Capital Stock (a) $6,334,135  $5,778,666  $5,995,663  $5,778,666 
Unrestricted retained earnings (b)  1,150,181   1,115,236   1,135,704   1,115,236 
Restricted retained earnings (c)  734,325   685,798   754,564   685,798 
Accumulated Other Comprehensive Income (Loss)  (80,533)  (47,805)  (46,972)  (47,805)
Total Capital $8,138,108  $7,531,895  $7,838,959  $7,531,895 

 

(a)Stockholders’ Capital — Capital stock increased in line with the increase in advances borrowed. When an advance matures or is prepaid, the excess capital stock is repurchased by the FHLBNY. When an advance is borrowed or a member joins the FHLBNY’s membership, the member is required to purchase capital stock.
(b)Unrestricted retained earnings — Net income is added to this balance. Dividends are paid out of this balance. Funds are transferred to Restricted retained earnings balances that are determined in line with the approved provisions of the conduct of restricted retained earnings account.
(c)Restricted retained earnings — Restricted retained earnings balance at JuneSeptember 30, 2020 has grown to $734.3$754.6 million from the time the provisions were implemented in 2011 when the FHLBanks, including the FHLBNY, agreed to set up a restricted retained earnings account. The FHLBNY will allocate at least 20% of its net income to the FHLBNY’s Restricted retained earnings account until the balance of the account equals at least 1% of FHLBNY’s average balance of outstanding Consolidated Obligations for the previous quarter.

 

The following table summarizes the components of AOCI (in thousands):

 

Table6.2:        Accumulated Other Comprehensive Income (Loss) (AOCI)

Table6.2:        Accumulated Other Comprehensive Income (Loss) (AOCI)

 

 June 30, 2020 December 31, 2019  September 30, 2020  December 31, 2019 
Accumulated other comprehensive income (loss)                
Non-credit portion on held-to-maturity securities, net (a) $(6,514) $(7,571) $(6,036) $(7,571)
Net market value unrealized gains (losses) on available-for-sale securities (b)  278,980   97,868   285,196   97,868 
Net Fair value hedging gains (losses) on available-for-sale securities (b)  (70,431)  (11,593)  (62,911)  (11,593)
Net Cash flow hedging gains (losses) (c)  (253,128)  (94,516)  (235,058)  (94,516)
Employee supplemental retirement plans (d)  (29,440)  (31,993)  (28,163)  (31,993)
Total Accumulated other comprehensive income (loss) $(80,533) $(47,805) $(46,972) $(47,805)

 

(a)Represents cumulative unamortized non-credit losses (also referred to as non-credit OTTI) recorded prior to the application of the framework under ASU 2016-13.  Balances in AOCI have declined due to accretion recorded as a reduction in AOCI (and a corresponding increase in the balance sheet carrying values of the impaired securities).
(b)Fair values of available-for-sale securities — Fair value amounts of $279.0$285.2 million and $97.9 million at JuneSeptember 30, 2020 and December 31, 2019 represent market value net unrealized gains of securities designated as AFS.  Amounts of $70.4$62.9 million and $11.6 million at JuneSeptember 30, 2020 and December 31, 2019 represent hedging valuation basis losses of AFS securities designated in ASC 815 fair value hedges. The hedge valuation losses were due to changes in the benchmark rates, representing the risks being hedged.
(c)Cash flow hedging losses recorded in AOCI were primarily the result of cash flow hedges of sequential issuance of discount notes; also included immaterial valuation basis of cash flow hedges of anticipatory issuance of CO bonds. See Table 6.3 AOCI Rollforward due to ASC 815 Hedging Programs.
(d)Employee supplemental plans — Balances represent actuarially determined supplemental pension and postretirement health benefit liabilities that were not recognized through earnings.

 

9391 

 

 

Table6.3:        AOCI Rollforward due to ASC 815 Hedging Programs

Table6.3:        AOCI Rollforward due to ASC 815 Hedging Programs

 

The following table presents amounts recognized in and reclassified out of AOCI due to cash flow and fair value hedges (in thousands): Gains/ (losses) are recorded in AOCI.

 

  June 30, 2020 
  Cash Flow Hedges  Fair Value Hedges 
  Rollover Hedge
Program		  Anticipatory Hedge
Program		  AFS Securities 
Beginning balance $(89,083) $(5,433) $(11,593)
Changes in fair values (a)  (154,893)  (1,109)  (58,838)
Amount reclassified  -   621   - 
Fair Value - closed contract  -   (3,231)  - 
Ending balance $(243,976) $(9,152) $(70,431)
             
Notional amount of  swaps outstanding $2,664,000  $-  $602,000 

  September 30, 2020 
  Cash Flow Hedges  Fair Value Hedges 
  Rollover Hedge
Program		  Anticipatory Hedge
Program		  AFS Securities 
Beginning balance $(89,083) $(5,433) $(11,593)
Changes in fair values (a)  (136,886)  (1,109)  (51,318)
Amount reclassified  -   984   - 
Fair Value - closed contract  -   (3,531)  - 
Ending balance $(225,969) $(9,089) $(62,911)
             
Notional amount of  swaps outstanding $2,664,000  $-  $973,000 

 

  December 31, 2019 
  Cash Flow Hedges  Fair Value Hedges 
   Rollover Hedge
Program		   Anticipatory Hedge
Program		    AFS Securities 
Beginning balance $17,412  $(653) $- 
Changes in fair values (a)  (106,495)  5,478   (11,593)
Amount reclassified  -   613   - 
Fair Value - closed contract  -   (10,871)  - 
Ending balance $(89,083) $(5,433) $(11,593)
             
Notional amount of  swaps outstanding $2,664,000  $89,000  $532,000 

 

 June 30, 2019  September 30, 2019 
 Cash Flow Hedges Fair Value Hedges  Cash Flow Hedges Fair Value Hedges 
 Rollover Hedge
Program		 Anticipatory Hedge
Program		 AFS Securities   Rollover Hedge
Program		   Anticipatory Hedge
Program		    AFS Securities 
Beginning balance $17,412  $(653) $-  $17,412  $(653) $- 
Changes in fair values (a)  (108,101)  2,937   (13,362)  (147,213)  4,369   (26,272)
Amount reclassified  -   139   -   -   353   - 
Fair Value - closed contract  -   (7,336)  -   -   (11,012)  - 
Ending balance $(90,689) $(4,913) $(13,362) $(129,801) $(6,943) $(26,272)
                        
Notional amount of swaps outstanding $2,664,000  $190,000  $377,000  $2,664,000  $-  $452,000 

 

(a)Represents fair value changes of open swap contracts in cash flow hedges. For more information see Financial Statements, Note 17. Derivatives and Hedging Activities.

 

9492 

 

 

Dividends— By Finance Agency regulation, dividends may be paid out of current earnings or if certain conditions are met, may be paid out of previously retained earnings. We may be restricted from paying dividends if we do not comply with any of the Finance Agency’s minimum capital requirements or if payment would cause us to fail to meet any of the minimum capital requirements, including our Retained earnings target as established by the Board of Directors of the FHLBNY. In addition, we may not pay dividends if any principal or interest due on any Consolidated obligations has not been paid in full, or if we fail to satisfy certain liquidity requirements under applicable Finance Agency regulations. None of these restrictions applied for any period presented.

 

The following table summarizes dividends paid and payout ratios:

 

Table 6.4:6.4:        Dividends Paid and Payout Ratios

 

 Six months ended  Nine months ended 
 June 30, 2020 June 30, 2019  September 30, 2020 September 30, 2019 
Cash dividends paid per share $3.07  $3.31  $4.46  $4.89 
Dividends paid (a) (c) $173,591  $188,750  $269,024  $280,823 
Pay-out ratio (b)  71.54%  77.70%  78.24%  81.56%

 

(a)In thousands.

(b)DividendDividends paid during the period divided by net income for the period.

(c)Does not include dividends paid to non-members; for accounting purposes, such dividends are recorded as interest expense.

 

Derivative Instruments and Hedging Activities

 

Interest rate swaps, swaptions, cap and floor agreements (collectively, derivatives) enable us to manage our exposure to changes in interest rates by adjusting the effective maturity, repricing frequency, or option characteristics of financial instruments. To a limited extent, we also use interest rate swaps to hedge changes in interest rates prior to debt issuance and essentially lock in funding costs. Finance Agency regulations prohibit the speculative use of derivatives. For additional information about the methodologies adopted for the fair value measurement of derivatives, see financial statements, Note 18. Fair Values of Financial Instruments.

 

Derivatives Counterparty Credit Ratings

 

For information, and an analysis of our exposure due to non-performance of swap counterparties, see Table “Offsetting of Derivative Assets and Derivative Liabilities — Net Presentation” in Note 17. Derivatives and Hedging Activities to financial statements. For information about the methodologies adopted for the fair value measurement of derivatives, see financial statements, Note 18. Fair Values of Financial Instruments.

 


The following tables summarize notional amounts and fair values for the FHLBNY’s derivative exposures as represented by derivatives in fair value gain positions (in thousands):

 

Table 7.1:7.1:        Derivatives Counterparty Credit Ratings

 

  June 30, 2020 
Credit Rating Notional Amount  Net Derivatives Fair Value Before Collateral  Cash Collateral Pledged To (From) Counterparties (a)  Balance Sheet Net Credit Exposure  Non-Cash Collateral Pledged To (From) Counterparties (b)  Net Credit Exposure to Counterparties 
Non-member counterparties                        
Asset positions with credit exposure                        
Uncleared derivatives                        
Single A asset (c) $2,515,000  $22,010  $(9,985) $12,025  $-  $12,025 
Cleared derivatives assets (d)  98,453,355   8,823   -   8,823   571,929   580,752 
   100,968,355   30,833   (9,985)  20,848   571,929   592,777 
Liability positions with credit exposure                        
Uncleared derivatives                        
Single A liability (c)  63,725   (1,232)  1,310   78   -   78 
Triple B liability (c)  2,853,000   (364,268)  366,300   2,032   -   2,032 
Cleared derivatives liability (d)  42,248,376   -   -   -   63,846   63,846 
   45,165,101   (365,500)  367,610   2,110   63,846   65,956 
Total derivative positions with non-member counterparties to which the Bank had credit exposure146,133,456  (334,667) 357,62522,958  635,775 658,733 
Member institutions                        
Derivative positions with member counterparties to which the Bank had credit exposure  539,000   32,597   -   32,597   (32,597)  - 
Delivery commitments                        
Derivative position with delivery commitments  49,196   274   -   274   (274)  - 
Total derivative position with members  588,196   32,871   -   32,871   (32,871)  - 
Total $146,721,652  $(301,796) $357,625  $55,829  $602,904  $658,733 
Derivative positions without credit exposure  7,934,269                     
Total notional $154,655,921                     

  September 30, 2020 
Credit Rating Notional Amount  Net Derivatives
Fair Value
Before
Collateral		  Cash Collateral
Pledged To (From)
Counterparties (a)		  Balance Sheet Net
Credit Exposure		  Non-Cash Collateral
Pledged To (From)
Counterparties (b)		  Net Credit
Exposure to
Counterparties		 
Non-member counterparties                        
Asset positions with credit exposure                        
Uncleared derivatives                        
Single A asset (c) $2,515,000  $18,284  $(4,585) $13,699  $-  $13,699 
Cleared derivatives assets (d)  101,461,952   17,030   -   17,030   578,908   595,938 
   103,976,952   35,314   (4,585)  30,729   578,908   609,637 
Liability positions with credit exposure                        
Uncleared derivatives                        
Single A liability (c)  3,814,262   (231,638)  232,000   362   -   362 
Triple B liability (c)  2,853,000   (344,759)  354,850   10,091   -   10,091 
Cleared derivatives liability (d)  32,549,122   -   -   -   54,312   54,312 
   39,216,384   (576,397)  586,850   10,453   54,312   64,765 
Total derivative positions with non-member counterparties to which the Bank had credit exposure  143,193,336   (541,083)  582,265   41,182   633,220   674,402 
Member institutions                        
Derivative positions with member counterparties to which the Bank had credit exposure  539,000   30,217   -   30,217   (30,217)  - 
Delivery commitments                        
Derivative position with delivery commitments  38,619   63   -   63   (63)  - 
Total derivative position with members  577,619   30,280   -   30,280   (30,280)  - 
Total $143,770,955  $(510,803) $582,265  $71,462  $602,940  $674,402 
Derivative positions without credit exposure  4,127,460                     
Total notional $147,898,415                     

 

 December 31, 2019  December 31, 2019 
Credit Rating Notional Amount Net Derivatives Fair Value Before Collateral Cash Collateral Pledged To (From) Counterparties (a) Balance Sheet Net Credit Exposure Non-Cash Collateral Pledged To (From) Counterparties (b) Net Credit Exposure to Counterparties  Notional Amount  Net Derivatives
Fair Value
Before
Collateral		  Cash Collateral
Pledged To (From)
Counterparties (a)		  Balance Sheet Net
Credit Exposure		  Non-Cash Collateral
Pledged To (From)
Counterparties (b)		  Net Credit
Exposure to
Counterparties		 
Non-member counterparties                                                
Asset positions with credit exposure                                                
Uncleared derivatives                                                
Double A asset (c) $25,000  $6  $-  $6  $-  $6  $25,000  $6  $-  $6  $-  $6 
Single A asset (c)  4,415,000   122,157   (4,400)  117,757   (105,667)  12,090   4,415,000   122,157   (4,400)  117,757   (105,667)  12,090 
Cleared derivatives assets (d)  80,839,066   15,111   85,241   100,352   251,177   351,529   80,839,066   15,111   85,241   100,352   251,177   351,529 
  85,279,066   137,274   80,841   218,115   145,510   363,625   85,279,066   137,274   80,841   218,115   145,510   363,625 
Liability positions with credit exposure                                                
Uncleared derivatives                          ��                     
Single A liability (c)  4,270,446   (43,240)  47,310   4,070   -   4,070   4,270,446   (43,240)  47,310   4,070   -   4,070 
Triple B liability (c)  2,893,000   (128,059)  134,250   6,191   -   6,191   2,893,000   (128,059)  134,250   6,191   -   6,191 
  7,163,446   (171,299)  181,560   10,261   -   10,261   7,163,446   (171,299)  181,560   10,261   -   10,261 
                        
Total derivative positions with non-member counterparties to which the Bank had credit exposure  92,442,512   (34,025)  262,401   228,376   145,510   373,886   92,442,512   (34,025)  262,401   228,376   145,510   373,886 
Member institutions                                                
Derivative positions with member counterparties to which the Bank had credit exposure  536,000   9,467   -   9,467   (9,467)  -   536,000   9,467   -   9,467   (9,467)  - 
Delivery commitments                                                
Derivative position with delivery commitments  44,768   104   -   104   (104)  -   44,768   104   -   104   (104)  - 
Total derivative position with members  580,768   9,571   -   9,571   (9,571)  -   580,768   9,571   -   9,571   (9,571)  - 
Total $93,023,280  $(24,454) $262,401  $237,947  $135,939  $373,886  $93,023,280  $(24,454) $262,401  $237,947  $135,939  $373,886 
Derivative positions without credit exposure  15,659,413                       15,659,413                     
Total notional $108,682,693                      $108,682,693                     

 

(a)When collateral is posted to counterparties in excess of fair value liabilities that are due to counterparties, the excess collateral is classified as a component of derivative assets, as the excess represents a receivable and an exposure for the FHLBNY.
(b)Non-cash collateral securities. Non-cash collateral was not deducted from net derivative assets on the balance sheet as control over the securities was not transferred.
(c)NRSRO Ratings.
(d)On cleared derivatives, we are required to pledge initial margin (considered as collateral) to Derivative Clearing Organizations (DCOs) in cash or securities. At JuneSeptember 30, 2020 and December 31, 2019, we had pledged $635.8$633.2 million and $251.2 million in marketable securities.��  No cash was posted on cleared swaps at JuneSeptember 30, 2020; $85.2 million was posted at December 31, 2019.

 

9694 

 

 

Liquidity, Cash Flows, Short-Term Borrowings and Short-Term Debt

 

Our primary source of liquidity is the issuance of Consolidated Obligation bonds and discount notes. To refinance maturing Consolidated obligations, we rely on the willingness of our investors to purchase new issuances. We have access to the discount note market, and the efficiency of issuing discount notes is an important source of liquidity, since discount notes can be issued any time and in a variety of amounts and maturities. Member deposits and capital stock purchased by members are another source of funds. Short-term unsecured borrowings from other FHLBanks and in the federal funds market provide additional sources of liquidity. In addition, the Secretary of the Treasury is authorized to purchase up to $4.0 billion of Consolidated obligations from the FHLBanks. Our liquidity position remains in compliance with all regulatory requirements and management does not foresee any changes to that position.

 

Finance Agency Regulations — Liquidity

 

Regulatory requirements are specified in Parts 1239, 1270 and 1277 of the Finance Agency regulations and Advisory Bulletin 2018-07. 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: (1) Obligations of the United States; (2) Deposits in banks or trust companies; and (3) Advances with a remaining maturity not to exceed five years that are made to members in conformity with part 1266. We are required to hold positive cash flow assuming no access to capital markets and assuming renewal of all maturing advances for a period of between ten to thirty calendar days and to maintain liquidity limits to reduce the risks associated with a mismatch in asset and liability maturities, including an undue reliance on short-term debt funding.

 

In addition, each FHLBank shall providethe Bank provides for Contingency Liquidity, which is defined as the sources of cash a FHLBankthe Bank may use to meet its operational requirements when its access to the capital markets is impeded. We met our Contingency Liquidity requirements during all periods in this report. 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. Advisory Bulletin 2018-07 concerning liquidity was by policy implemented in phases and was fully implemented on December 31, 2019.

 

Liquidity Management

 

We actively manage our liquidity position to maintain stable, reliable, and cost-effective sources of funds while taking into account market conditions, member demand and the maturity profile of our assets and liabilities. We recognize that managing liquidity is critical to achieving our statutory mission of providing low-cost funding to our members. In managing liquidity risk, we are required to maintain certain liquidity measures in accordance with the FHLBank Act, an Advisory Bulletin and policies developed by management and approved by our Board of Directors. The applicable liquidity requirements are described in the next four sections. See Liquidity Management in the MD&A in the Bank’s most recent Form 10-K for 2019 filed on March 20, 2020.

 

Deposit Liquidity. We are required to invest an aggregate amount at least equal to the amount of current deposits received from members in: (1) Obligations of the United States; (2) Deposits in banks or trust companies; or (3) Advances with a remaining maturity not to exceed five years that are made to members in conformity with 12 CFR part 1266. In addition to accepting deposits from our members, we may accept deposits from other FHLBanks or from any other governmental instrumentality. We met these requirements at all times. Quarterly average reserves and actual reserves are summarized below (in millions):

 

Table8.1:Deposit Liquidity

 

 Average Deposit Average Actual    
For the Quarters Ended Average Deposit
Reserve Required		 Average Actual
Deposit Liquidity		 Excess  Reserve Required Deposit Liquidity Excess 
September 30, 2020 $1,553  $96,315  $94,762 
June 30, 2020 $1,532  $111,263  $109,731   1,532   111,263   109,731 
March 31, 2020  1,229   90,508   89,279   1,229   90,508   89,279 
December 31, 2019  1,271   84,245   82,974   1,271   84,245   82,974 


Operational Liquidity. We must be able to fund our activities as our balance sheet changes from day-to-day. We maintain the capacity to fund balance sheet growth through regular money market and capital market funding and investment activities. We monitor our operational liquidity needs by regularly comparing our demonstrated funding capacity with potential balance sheet growth. We take such actions as may be necessary to maintain adequate sources of funding for such growth. Operational liquidity is measured daily. We met these requirements at all times.

 

The following table summarizes excess operational liquidity (in millions):

 

Table8.2:Operational Liquidity

 

 Average Balance Sheet Average Actual    
For the Quarters Ended Average Balance Sheet
Liquidity Requirement		 Average Actual
Operational Liquidity		 Excess  Liquidity Requirement Operational Liquidity Excess 
September 30, 2020 $11,786  $27,822  $16,036 
June 30, 2020 $21,874  $29,604  $7,730   21,874   29,604   7,730 
March 31, 2020  17,786   33,910   16,124   17,786   33,910   16,124 
December 31, 2019  17,138   35,360   18,222   17,138   35,360   18,222 

 

Contingency Liquidity. We are required by Finance Agency regulations to holdThe Bank holds “contingency liquidity” in an amount sufficient to meet our liquidity needs if we are unable 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 NRSRO. We consistently exceeded the regulatory minimum requirements for contingency liquidity. Contingency liquidity is measured daily. We met these requirements at all times.

 

The following table summarizes excess contingency liquidity (in millions):

 

Table 8.3:Contingency Liquidity

 

 Average Five Day Average Actual    
For the Quarters Ended Average Five Day
Requirement		 Average Actual
Contingency Liquidity		 Excess  Requirement Contingency Liquidity Excess 
September 30, 2020 $4,207  $24,714  $20,507 
June 30, 2020 $4,149  $25,978  $21,829   4,149   25,978   21,829 
March 31, 2020  4,568   29,883   25,315   4,568   29,883   25,315 
December 31, 2019  4,764   30,966   26,202   4,764   30,966   26,202 

 

Cash flows

 

Cash and due from Banks was $44.3$487.7 million at JuneSeptember 30, 2020, $53.3 million at September 30, 2019 and $603.2 million at December 31, 2019; balances exclude short-term interest-bearing deposits, at unrelated financial institutionsfederal funds sold, and securities purchased under agreements to resell that we consider to be investments. The following discussion highlights the major activities and transactions that affected our cash flows.

 

Cash flows from operating activities — Operating assets and liabilities support our lending activities to members, and 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, our investment strategies, and market conditions. Management believes cash flows from operations, available cash balances and our ability to generate cash through the issuance of Consolidated obligation bonds and discount notes are sufficient to fund our operating liquidity needs.

 


Net cash used in operating activities in the sixnine months ended JuneSeptember 30, 2020 were outflows of ($669.2399.0 million) and ($238.7($212.1 million) in the same period in 2019. By way of comparison, Net income was $242.6$343.8 million in the sixnine months ended JuneSeptember 30, 2020 and $242.9$344.3 million in the same period in the prior year. Outflows in operating cash flows were driven by two primary factors. First, changes in fair values on derivatives and hedging activities in the Statements of Cash Flows reported negative adjustments to operating cash flow of ($649.7603.5 million) and ($324.3307.4 million) in the sixnine months ended JuneSeptember 30, 2020 and 2019, primarily due to the increase in variation margin posted; variation margin increased with the increase in the notional amounts of derivatives utilized at JuneSeptember 30, 2020. Second, we reported negative adjustments to operating cash flows of ($155.9 million)$116.2 million and ($51.0 million)$47.0 million to recognize unrealized valuation gains on U.S. Treasury securities at JuneSeptember 30, 2020 and 2019.

 


Cash flows provided by/(used (used in) investing activities — Investing activities resulted in $3.5$10.9 billion in net cash inflows in the sixnine months ended JuneSeptember 30, 2020, compared to $5.6$4.0 billion in net cash outflowsinflows in the same period in 2019. In the 2020 period, Securities purchased under agreements to resell and federal funds sold declined; investments in U.S. Treasury securities declined. Investing activities was driven largely by new advances exceeding maturing advances.

 

Cash flows provided by/(used (used in) financing activities — Our primary source of funding is the issuance of Consolidated obligation debt. Issuance of capital stock is another source. Financing activities reported net cash increases of $3.4$10.7 billion and $3.9 billion used in Financing activities representing decline in use of our primary funding sources in the sixnine months ended JuneSeptember 30, 2020 compared to net cash of $5.8 billion provided by Financing activities in the same period in the prior year.and 2019.

 

For more information, see Statements of Cash Flows in the financial statements.

 

97 

Short-term Borrowings and Short-term Debt

 

Our primary source of funds is the issuance of FHLBank debt. Consolidated obligation discount notes are issued with maturities up to one year and provide us with short-term funds. Discount notes are principally used in funding short-term advances, some long-term advances, as well as money market instruments. We also issue short-term Consolidated obligation bonds as part of our asset-liability management strategy. We may also borrow from another FHLBank, generally for a period of one day. Such borrowings have been historically insignificant.

 

The following table summarizes short-term debt and their key characteristics (dollars in thousands):

 

Table 8.4:Short-term Debt

 

 Consolidated Obligations-Discount Notes Consolidated Obligations-Bonds With
Original Maturities of One Year or Less		  Consolidated Obligations-Discount Notes Consolidated Obligations-Bonds With
Original Maturities of One Year or Less		 
 June 30, 2020 December 31, 2019 June 30, 2020 December 31, 2019  September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019 
Outstanding at end of the period (a) $89,499,893  $73,959,205  $17,657,500  $48,087,050  $69,709,786  $73,959,205  $34,307,440  $48,087,050 
Weighted-average rate at end of the period (b)  0.26%  1.60%  0.40%  1.74%  0.19%  1.60%  0.12%  1.74%
Average outstanding for the period (a) $76,479,028  $58,317,547  $38,879,057  $46,409,731  $78,887,612  $58,317,547  $36,563,630  $46,409,731 
Weighted-average rate for the period  0.81%  2.15%  1.33%  2.25%  0.60%  2.15%  1.07%  2.25%
Highest outstanding at any month-end (a) $90,249,660  $73,959,205  $52,277,550  $51,728,000  $90,249,660  $73,959,205  $52,277,550  $51,728,000 

 

(a)Outstanding balances represent the carrying value of discount notes and par value of bonds (one year or less) issued and outstanding at the reported dates.

(b)Weighted-average rate is calculated on outstanding balances at period-end.

 

Off-Balance Sheet Arrangements, Guarantees, and Other Commitments — In accordance with regulations governing the operations of the FHLBanks, each FHLBank, including the FHLBNY, is jointly and severally liable for the FHLBank System’s Consolidated obligations issued under sections 11(a) and 11(c) of the FHLBank Act. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on Consolidated obligations for which another FHLBank is the primary obligor.

 

In addition, in the ordinary course of business, the FHLBNY engages in financial transactions that, in accordance with U.S. GAAP, are not recorded on the FHLBNY’s balance sheet or may be recorded on the FHLBNY’s balance sheet in amounts that are different from the full contract or notional amount of the transactions. For example, the Bank routinely enters into commitments to purchase MPF loans from PFIs, and issues standby letters of credit.

 

These commitments may represent future cash requirements of the Bank, although the standby letters of credit usually expire without being drawn upon. For more information about contractual obligations and commitments, see financial statements, Note 19. Commitments and Contingencies.

 

99

Results of Operations

 

The following section provides a comparative discussion of the FHLBNY’s results of operations for the 2020 secondthird quarter and the 2019 secondthird quarter. For a discussion of the critical accounting estimates used by the FHLBNY that affect the results of operations, see financial statements, Note 1. Critical Accounting Policies and Estimates.

 

Net Income

 

Interest income from advances is the principal source of revenue. Other sources of revenue are interest income from investment debt securities, liquidity trading securities, mortgage loans in the MPF portfolio, securities purchased under agreements to resell and federal funds sold. The primary expense is interest paid on Consolidated obligation debt. Other expenses are Compensation and benefits, Operating expenses, our share of operating expenses of the Office of Finance and the FHFA, and affordable housing program assessments on Net income. Other significant factors affecting our Net income include the volume and timing of investments in mortgage-backed securities, prepayments of advances, charges due to debt repurchased, gains and losses from derivatives and hedging activities, and earnings from investing our shareholders’ capital.

 


Summarized below are the principal components of Net income (in thousands):

 

Table 9.1:Principal Components of Net Income

 

 Three months ended
June 30,		 Six months ended
June 30,		  Three months ended
September 30,		 Nine months ended
September 30,		 
 2020 2019 2020 2019  2020 2019 2020 2019 
Total interest income $502,305  $1,022,556  $1,242,357  $2,020,090  $354,712  $931,927  $1,597,069  $2,952,017 
Total interest expense  272,617   858,980   859,876   1,679,298   173,949   769,533   1,033,825   2,448,831 
Net interest income before provision for credit losses  229,688   163,576   382,481   340,792   180,763   162,394   563,244   503,186 
Provision (Reversal) for credit losses  3,030   (275)  3,166   (292)  2,536   134   5,702   (158)
Net interest income after provision for credit losses  226,658   163,851   379,315   341,084   178,227   162,260   557,542   503,344 
Total other income (loss)  (22,817)  (1,303)  (15,088)  11,875   (14,283)  (4,173)  (29,371)  7,702 
Total other expenses  51,029   42,445   94,621   83,025   51,498   45,397   146,119   128,422 
Income before assessments  152,812   120,103   269,606   269,934   112,446   112,690   382,052   382,624 
Affordable Housing Program Assessments  15,287   12,021   26,974   27,014   11,251   11,278   38,225   38,292 
Net income $137,525  $108,082  $242,632  $242,920  $101,195  $101,412  $343,827  $344,332 

 

Net Income — 2020 SecondThird Quarter Compared to 2019 SecondThird Quarter

 

Net income — For the FHLBNY, Net income is Net interest income, minus Provision (Reversal) for credit losses, plus Other income (loss), less Other expenses and Assessments set aside for the FHLBNY’s Affordable Housing Program.

 

In the secondthird quarter of the current year, Net income was $137.5$101.2 million, an increasea decrease of $29.4$0.2 million, or 27.2%0.2% compared to the same period in the prior year. Summarized below are the primary components of our Net income:

 

In the secondthird quarter of the current year, Net interest income was $229.7$180.8 million, an increase of $66.1$18.4 million, or 40.4%11.3%. Net interest spread was 4943 basis points in the secondthird quarter of the current year, compared to 3234 basis points in the same period in the prior year. For more information, see Table 9.2 Net Interest Income and accompanying discussions in this MD&A.

 

Other income (loss) — In the secondthird quarter of the current year, Other income (loss) reported a loss of $22.8$14.3 million, compared to a loss of $1.3$4.2 million in the same period in the prior year.

 


¨·Service fees and otherare primarily correspondent banking fees and fee revenues from financial letters of credit.  Such revenues were $4.6$4.1 million in the secondthird quarter of the current year, compared to $4.7 million in the same period in the prior year. Service fees and others are primarily fee revenues from financial letters of credit.

 

¨·Financial instruments carried at fair valuesreported a net valuation gain of $10.6$7.1 million in the secondthird quarter of the current year, compared to a net loss of $2.4$0.7 million in the same period in the prior year. For more information, see financial statements, Fair Value Option Disclosures in Note 18. Fair Values of Financial Instruments. Also see Table 9.10 Other Income (Loss) and accompanying discussions in this MD&A.

 

¨·Derivative activities reported a net lossgain of $3.9$10.8 million in the secondthird quarter of the current year, compared to a net loss of $39.1$4.3 million in the same period of the prior year. For more information, see financial statements, Note 17. Derivatives and Hedging Activities. Also see Table 9.12 Other Income (Loss) — Impact of Derivative Gains and Losses and accompanying discussions in this MD&A.

 

¨·U.S. Treasury Securities held for liquidity(classified (classified as trading) reported net losses of $41.4$39.7 million in the secondthird quarter of the current year, compared to net gainslosses of $33.9$4.0 million in the same period in the prior year.

 

¨·Equity Investments, held to fundfinance payments to retirees in non-qualified pension plans, reported net gains of $7.3$3.1 million in the secondthird quarter of the current year, compared to net gains of $1.9$0.4 million in the same period in the prior year.

 


Other expenses were $51.0$51.5 million in the secondthird quarter of the current year, compared to $42.4$45.4 million in the same period in the prior year. Other expenses are primarily Operating expenses, Compensation and benefits, and our share of expenses of the Office of Finance and the Federal Housing Finance Agency.

 

¨·Operating expenses were $18.1$17.0 million in the secondthird quarter of the current year, updown from $15.5$17.2 million in the same period in the prior year.

 

¨·Compensation and benefits expenses were $22.3$23.0 million in the secondthird quarter of the current year, up from $20.5$21.9 million in the same period in the prior year.This was driven by additions of staff to continue support of our long-term technology enhancement effort.

¨·The expenses allocated for our share of the costs to operate the Office of Finance and the Federal Housing Finance Agency were $4.6$4.9 million in the secondthird quarter of the current year, compared to $4.2$4.0 million in the same period in the prior year.

 

¨·Other expenses were $6.0$6.7 million in the secondthird quarter of the current year, compared to $2.3$2.4 million in the same period in the prior year. In the 2020 period, Other expenses included $4.3 million in cash grants to assist small business impacted by the COVID-19 pandemic.

 

AHP assessmentsAffordable Housing Program Assessments (AHP) allocated from Net income were $15.3$11.3 million and $11.3 million in the second quarterthird quarters of the current year, compared to $12.0 million in the same period in the prior year.2020 and 2019. Assessments are calculated as a percentage of Net income, and changes in allocations were in parallel with changes in Net income.

 

Net Income — Year-to-Date Period Ended JuneSeptember 30, 2020 Compared to JuneSeptember 30, 2019

 

Net income in the year-to-date period in the current year was $242.6$343.8 million, a decrease of $0.3$0.5 million, or 0.1% compared to the same period in the prior year.

 

Net interest income in the year-to-date period in the current year was $382.5$563.2 million, an increase of $41.7$60.0 million, or 12.2%11.9%. Net interest spread was 4041 basis points in the current year, compared to 35 basis points in the same period in the prior year. For more information, see Table 9.2 Net Interest Income and accompanying discussions in this MD&A.

 


Other income (loss) — Other income (loss) in the year-to-date period ended JuneSeptember 30, the aggregate impact was a loss of $15.1$29.4 million in the 2020 period compared to a gain of $11.9$7.7 million in the same period in the prior year.

 

The primary changes year-over-year were — standalone derivatives in economic hedges of balance sheet assets and liabilities, primarily fixed ratefixed-rate U.S. Treasury securities, recorded fair value losses of $168.1$157.2 million and $51.3$55.6 million in the 2020 and 2019 period; and gains on trading securities (held for liquidity) were $155.9$116.2 million and $51.0$47.0 million in the 2020 and 2019 period.periods.

 

Other expenses were $94.6$146.1 million in the year-to-date period in the current year, compared to $83.0$128.4 million in the same period in the prior year. Operating expenses were $31.6$48.6 million in the current year, up from $28.3$45.5 million in the prior year period due to consulting expenses incurred in the period to implement several multi-year technology enhancement initiatives.period. Compensation and benefits were $45.6$68.6 million in the current period, up from $41.9$63.8 million in the prior year period due to increase in head count. Other expenses were $8.4$15.0 million and $4.7$7.1 million in the 2020 and 2019 period.periods. Other expenses included contributions to homeowners and small businesses, the non-service elements of Net periodic pension benefit costs, and derivative clearing fees. The increase was primarily due to relief$8.0 million cash grants to small businesses.businesses impacted by the COVID-19 pandemic.

 

AHP assessments allocated from Net income were $27.0$38.2 million and $38.3 million in the year-to-datenine months period in the current year, slightly lower than the assessments in the same period in the prior year.ended 2020 and 2019.

 

100 

Net Interest Income, Margin and Interest Rate Spreads.

Net interest income is our principal source of Net income. It represents the difference between income on interest-earning assets and expense on interest-bearing liabilities.

 

Changes in Net interest income are typically driven by changes in the volume of earning assets, as measured by average balances of earning assets, and the impact of market interest rates on earnings assets and funding costs. Interest income and expense accruals on interest rate swaps that qualified under the ASC 815 hedge accounting rules may impact year-over-year changes. Shareholders’ capital stock and retained earnings are also factors that impact net interest income as they provide interest free funding. Earnings on capital typically move directly with changes in short-term market interest rates. In a period when members prepay advances, the prepayment fees, which we receive may cause fluctuations in net interest income. For more information about factors that impact Interest income and Interest expense, see Table 9.3 Net Interest Adjustments from Hedge Qualifying Interest Rate Swaps and discussions thereto. Also, see Table 9.4 Spread and Yield Analysis, and Table 9.5 Rate and Volume Analysis.

 

The following table summarizes Net interest income (dollars in thousands):

 

Table9.2:Net Interest Income

 

 Three months ended June 30, Six months ended June 30,  Three months ended September 30,  Nine months ended September 30, 
      Percentage       Percentage       Percentage       Percentage 
 2020 2019 Change 2020 2019 Change  2020  2019  Change  2020  2019  Change 
Total interest income (a) $502,305  $1,022,556   (50.88)% $1,242,357  $2,020,090   (38.50)% $354,712  $931,927   (61.94)% $1,597,069  $2,952,017   (45.90)%
Total interest expense (a)  272,617   858,980   (68.26)  859,876   1,679,298   (48.80)  173,949   769,533   (77.40)  1,033,825   2,448,831   (57.78)
Net interest income before provision for credit losses $229,688  $163,576   40.42% $382,481  $340,792   12.23% $180,763  $162,394   11.31% $563,244  $503,186   11.94%

 

(a)Total Interest Income and Total Interest Expense — See Tables 9.6 and 9.8 and accompanying discussions

 

Net Interest Income — 2020 SecondThird Quarter Vs. 2019 SecondThird Quarter

 

Financial markets in the secondthird quarter continued to be under stress, although exhibiting less volatility. The Fed has continued with its wide-ranging stimulus plansto provide support to the economy and financial markets; interest rates remain low, impacting ourvery low. Our interest revenues and interest expenses have declined. The Fed’s acquisition program in the mortgage-backed securities market has driven up pricing and limited the opportunities for acquiring investments.investments that would meet our risk/reward targets. Spreads remain very low for investments in the overnight Federal funds markets and repurchase programs, two principal investment vehicles for our balance sheet liquidity programs.


2020 third quarter Net interest income, increased by 40.4%before loan loss provisions, was $180.8 million, an increase of $18.4 million, or 11.3% from the prior year third quarter. Primary drivers were higher earning-assets, specifically advances,advances. Net interest income in the quarterly periods in 2020 were strong despite the volatility in the financial markets; $180.8 million in the current quarter, $229.7 million in the second quarter and lower cost$152.8 million in the first quarter, compared to $162.4 million in the prior year third quarter. Net interest income growth in the last two quarters were largely driven by incremental spreads earned from the post COVID-19 increase in advance volume, and by the decline in debt expense. CO debt costing yields declined in part due to a shift to greater use of funding.discount notes to fund short-maturity assets, and in part due to advantageous pricing of CO discount notes driven by investor demand for high-quality short-term debt instruments.

 

Period-over-period changes in Net interest income are largely a factor ofdriven by the prevailing interest rates and their impact on interest income and interest expense, as well as changes in the volume of interest-earning assets. In the 2020 secondthird quarter, volume-related increases in earning assets and changes in funding mix made a favorable impact of $51.6$35.5 million to margin.margin, partly offset by decline of $17.1 million due to yield-related changes. Average interest-earning assets was $173.7$157.6 billion in the 2020 secondthird quarter, compared to $147.7$141.6 billion in the same period last year, benefiting from higher advance volume.the growth driven by significant increase in advances in the post COVID-19 period compared to last year third quarter. Average advance balances increased to $125.3were $110.4 billion in the current year third quarter, up from $101.6$90.4 billion in the prior year third quarter. Yield related changes made a small positive contribution of $14.5 million.


Net interest spread, which is the yield from earning assets minus interest paid to fund earning assets,on costing liabilities, was strong despite the volatility in financial markets: 43 basis points in the 2020 third quarter, 49 basis points in the 2020 second quarter, compared to 3231 basis points in the same period last year. first quarter, compared to 34 basis points in the prior year third quarter.

Net interest margin, a measure of margin efficiency, which is calculated as Net interest income divided by average earning assets, was 5346 basis points in the 2020 secondthird quarter compared to 44 basis points inand was unchanged from the same period last year.

 

Increased volume aside, pro-active tactical changechanges in funding mix in 2020 to a greater utilization of CO discount notes was an important shift in funding that benefited our spread. In the 2020 secondthird quarter, CO discount notes funded 51.6%53.1% of earning-assets, up from 40.5%41.6% in the first quarter and 39.6%same period in the 2019 second quarterprior year (calculations are based on average balances). In the current volatile market, caused by COVID-19, investor demand for FHLBank issued high-quality CO discount notes pushed yields down, resulting in favorable spreads and favorable funding in the current year period.periods. Margins widened between yields on assets, specifically overnight, short-term and floating-rate investments and short- and floating-rate advances, and the corresponding yields paid on funding those assets.

 

Stockholders’ capital, which is typically employeddeployed to fund short-term interest-earning assets, increased to $8.7$8.1 billion in the 2020 secondthird quarter, up from $7.5$7.0 billion in the same period last year a positive change for interest margin.(as measured by average outstanding balance in the period). Increase in Capital stock was in line with increase in advances in the 2020 period as borrowing members are required to purchase capital stock in proportion to amounts borrowed.

 

2020 second quarter Net interest income was adversely impacted by interest rate hedging, primarily due to the effects of interest settlements (also referred to as interest accruals). Interest settlements and fair values on swaps designated in aggregateASC 815 hedging relationships recorded a loss of $60.7$116.6 million in the current year period.third quarter. In the same period last year, a net favorable contribution of $51.2$39.4 million was recorded. Hedging losses and gains were largely driven by net interest settlements and the impact of fair values of hedged assets and liabilities minus the fair values of hedging derivatives was not material. Interest settlements are impacted by the net differential between fixed-rates associated with hedging swaps and the benchmark variable-rates associated with the swap’s floating-leg. The declining LIBOR has driven down the LIBOR-indexed cash flows received on fair value hedges of advances, such that the net cash flows we received were less than the fixed-rate cash flows paid on the swap contracts. While the declining LIBOR had a favorable impact on LIBOR-indexed cash flows paid on swaps hedging debt, the favorable impact was not as significant. Although netNet interest settlements on swaps hedging assets and liabilities under ASC 815 fluctuated as expected in line with changes in the benchmark rates,rates; the hedging transactions achieved our interest rate risk management objectives.

 

Net Interest Income — 2020 Year-to-Date Period Vs. 2019 Year-to-Date Period

 

Net interest income in the current year-to-date period (before loan loss provisions) increased by 12.2 %$60.1 million, or 11.9% from the same period in the prior year,year. The improved results were driven primarily by resultstwo consecutive quarters of strong interest margins earned in the second quarter of 2020. Net interest spread earned in the year-to-date period was higher, 4041 basis points in the current year period, compared to 35 basis points in the prior year period. Earning assets were higher in the 2020 period, contributing $97.7 million in increased Net interest income, partly offset by yield related interest margin decline of $37.7 million. The effects of hedging actives under ASC 815, primarily interest rate settlements on interest rate swaps, recorded a loss of $67.9$184.4 million andin the 2020 year-to-date period, in contrast to a gain of $113.9$153.3 million in the year-to-date period in 2020 and 2019. FluctuationsAs discussed in the previous paragraphs, fluctuations in the benchmark rates were the primary drivers. The declining LIBOR has driven down the LIBOR-indexed cash flows received on fair value hedges of advances.

 


102 

Impact of Qualifying Hedges on Net Interest Income

 

The following table summarizes the impact of net interest adjustments from hedge qualifying interest-rate swaps (in thousands):

 

Table 9.3:Net Interest Adjustments from Hedge Qualifying Interest Rate Swaps

 

  Three months ended June 30,  Six months ended June 30, 
  2020  2019  2020  2019 
Interest income $596,652  $967,781  $1,364,719  $1,893,997 
Fair value hedging effects  8,970   (36)  (2,515)  723 
Amortization of basis  (208)  (14)  (222)  (28)
Interest rate swap accruals  (103,109)  54,825   (119,625)  125,398 
Reported interest income  502,305   1,022,556   1,242,357   2,020,090 
                 
Interest expense  306,246   855,452   914,385   1,667,104 
Fair value hedging effects  2,408   751   (589)  2,822 
Amortization of basis  (1,438)  (1,455)  (2,985)  (2,899)
Interest rate swap accruals  (34,599)  4,232   (50,935)  12,271 
Reported interest expense  272,617   858,980   859,876   1,679,298 
Net interest income $229,688  $163,576  $382,481  $340,792 
                 
Net interest adjustment - interest rate swaps $(60,718) $51,247  $(67,853) $113,899 

  Three months ended September 30,  Nine months ended September 30, 
  2020  2019  2020  2019 
Interest income $482,540  $893,993  $1,847,259  $2,787,990 
Fair value hedging effects  814   (39)  (1,701)  684 
Amortization of basis  (180)  (14)  (402)  (42)
Interest rate swap accruals  (128,462)  37,987   (248,087)  163,385 
Reported interest income  354,712   931,927   1,597,069   2,952,017 
                 
Interest expense  185,215   770,950   1,099,600   2,438,054 
Fair value hedging effects  1,139   (516)  550   2,306 
Amortization of basis  (1,315)  (1,258)  (4,300)  (4,157)
Interest rate swap accruals  (11,090)  357   (62,025)  12,628 
Reported interest expense  173,949   769,533   1,033,825   2,448,831 
Net interest income $180,763  $162,394  $563,244  $503,186 
Net interest adjustment - interest rate swaps $(116,562) $39,351  $(184,415) $153,250 

Spread and Yield Analysis — 2020 Periods Vs. 2019 Periods

 

Table 9.4:Spread and Yield Analysis

 

 Three months ended June 30,  Three months ended September 30, 
 2020 2019  2020 2019 
    Interest       Interest        Interest       Interest    
 Average Income/     Average Income/     Average Income/     Average Income/    
(Dollars in thousands) Balance Expense Rate (a) Balance Expense Rate (a)  Balance Expense Rate (a) Balance Expense Rate (a) 
Earning Assets:                                                
Advances $125,319,819  $326,230   1.05% $101,561,849  $704,936   2.78% $110,391,489  $193,003   0.70% $90,401,801  $599,554   2.63%
Interest bearing deposits and others  1,826,910   482   0.11   150,551   935   2.49   1,661,515   581   0.14   361,732   1,856   2.04 
Federal funds sold and other overnight funds  12,909,396   2,076   0.06   17,926,538   109,087   2.44   12,672,913   3,039   0.10   20,300,326   115,413   2.26 
Investments                                                
Trading securities  13,136,997   50,884   1.56   7,366,065   46,929   2.56   12,793,851   48,708   1.51   9,742,458   57,944   2.36 
Mortgage-backed securities                                                
Fixed  11,259,275   80,515   2.88   9,770,120   75,874   3.11   11,270,182   78,177   2.76   10,398,672   80,288   3.06 
Floating  4,897,842   13,629   1.12   6,832,714   50,340   2.96   4,613,316   7,449   0.64   6,225,222   43,364   2.76 
State and local housing finance agency obligations  1,115,834   4,157   1.50   1,160,744   9,077   3.14   1,107,617   2,419   0.87   1,142,351   8,283   2.88 
Mortgage loans held-for-portfolio  3,200,637   24,332   3.06   2,963,463   25,274   3.42   3,105,313   21,336   2.73   3,017,248   25,224   3.32 
Loans to other FHLBanks  -   -   NM   17,033   104   2.45   -   -   NM   217   1   1.83 
                        
Total interest-earning assets $173,666,710  $502,305   1.16% $147,749,077  $1,022,556   2.78% $157,616,196  $354,712   0.90% $141,590,027  $931,927   2.61%
                        
Funded By:                                                
Consolidated obligation bonds                                                
Fixed $27,665,246  $108,074   1.57% $27,306,121  $171,933   2.53% $31,949,748  $94,992   1.18% $29,038,192  $171,113   2.34%
Floating  45,516,966   68,852   0.61   53,221,666   324,054   2.44   31,651,519   15,074   0.19   45,272,098   258,625   2.27 
Consolidated obligation discount notes  89,558,982   95,477   0.43   58,537,131   356,705   2.44   83,652,419   63,582   0.30   58,831,496   333,413   2.25 
Interest-bearing deposits and                        
other borrowings  1,455,363   158   0.04   1,051,782   6,180   2.36 
Interest-bearing deposits and other borrowings  1,486,782   236   0.06   1,187,709   6,295   2.10 
Mandatorily redeemable capital stock  4,176   56   5.39   7,361   108   5.86   4,874   65   5.31   5,433   87   6.35 
                        
Total interest-bearing liabilities  164,200,733   272,617   0.67%  140,124,061   858,980   2.46%  148,745,342   173,949   0.47%  134,334,928   769,533   2.27%
                        
Other non-interest-bearing funds  780,958   -       87,762   -       815,709   -       215,691   -     
Capital  8,685,019   -       7,537,254   -       8,055,145   -       7,039,408   -     
                        
Total Funding $173,666,710  $272,617      $147,749,077  $858,980      $157,616,196  $173,949      $141,590,027  $769,533     
                        
Net Interest Income/Spread     $229,688   0.49%     $163,576   0.32%     $180,763   0.43%     $162,394   0.34%
                        
Net Interest Margin                                                
(Net interest income/Earning Assets)          0.53%          0.44%          0.46%          0.46%

 


 Six months ended June 30,  Nine months ended September 30, 
 2020 2019  2020 2019 
    Interest       Interest        Interest       Interest    
 Average Income/     Average Income/     Average Income/     Average Income/    
(Dollars in thousands) Balance Expense Rate (a) Balance Expense Rate (a)  Balance Expense Rate (a) Balance Expense Rate (a) 
Earning Assets:                                                
Advances $114,048,462  $790,795   1.39% $99,356,503  $1,396,832   2.84% $112,820,573  $983,798   1.16% $96,338,801  $1,996,386   2.77%
Interest bearing deposits and others  1,411,904   2,609   0.37   106,697   1,318   2.49   1,495,715   3,190   0.28   192,643   3,174   2.20 
Federal funds sold and other overnight funds  14,659,484   57,361   0.79   17,533,873   212,898   2.45   13,992,460   60,400   0.58   18,466,158   328,311   2.38 
Investments                                                
Trading securities  14,268,203   125,881   1.77   6,949,993   87,802   2.55   13,773,165   174,589   1.69   7,891,043��  145,746   2.47 
Mortgage-backed securities                                                
Fixed  11,251,073   163,404   2.92   9,537,115   148,462   3.14   11,257,490   241,581   2.87   9,827,457   228,750   3.11 
Floating  5,079,637   41,294   1.63   7,058,227   103,978   2.97   4,923,062   48,743   1.32   6,777,507   147,342   2.91 
State and local housing finance agency obligations  1,118,686   10,622   1.91   1,164,414   18,192   3.15   1,114,970   13,041   1.56   1,156,978   26,475   3.06 
Mortgage loans held-for-portfolio  3,200,589   50,358   3.16   2,948,288   50,454   3.45   3,168,599   71,694   3.02   2,971,527   75,678   3.41 
Loans to other FHLBanks  4,121   33   1.61   12,707   154   2.45   2,737   33   1.61   8,498   155   2.45 
                        
Total interest-earning assets $165,042,159  $1,242,357   1.51% $144,667,817  $2,020,090   2.82% $162,548,771  $1,597,069   1.31% $143,630,612  $2,952,017   2.75%
                        
Funded By:                                                
Consolidated obligation bonds                                                
Fixed $31,410,233  $277,062   1.77% $27,997,753  $353,998   2.55% $31,591,384  $372,054   1.57% $28,348,377  $525,111   2.48%
Floating  47,173,149   256,421   1.09   52,612,979   640,584   2.46   41,961,507   271,495   0.86   50,139,129   899,209   2.40 
Consolidated obligation discount notes  76,479,028   322,810   0.85   55,487,338   672,021   2.44   78,887,611   386,392   0.65   56,614,307   1,005,434   2.37 
Interest-bearing deposits and                        
other borrowings  1,325,081   3,448   0.52   1,054,359   12,487   2.39 
Interest-bearing deposits and other borrowings  1,379,374   3,684   0.36   1,099,297   18,782   2.28 
Mandatorily redeemable capital stock  4,598   135   5.90   6,608   208   6.35   4,691   200   5.70   6,212   295   6.35 
                        
Total interest-bearing liabilities  156,392,089   859,876   1.11%  137,159,037   1,679,298   2.47%  153,824,567   1,033,825   0.90%  136,207,322   2,448,831   2.40%
                        
Other non-interest-bearing funds  484,915   -       100,161   -       595,986   -       139,094   -     
Capital  8,165,155   -       7,408,619   -       8,128,218   -       7,284,196   -     
                        
Total Funding $165,042,159  $859,876      $144,667,817  $1,679,298      $162,548,771  $1,033,825      $143,630,612  $2,448,831     
                        
Net Interest Income/Spread     $382,481   0.40%     $340,792   0.35%     $563,244   0.41%     $503,186   0.35%
                        
Net Interest Margin                                                
(Net interest income/Earning Assets)          0.47%          0.48%          0.46%          0.47%

 

(a)Reported yields with respect to advances and Consolidated obligations may not necessarily equal the coupons on the instruments as derivatives are extensively used to change the yield and optionality characteristics of the underlying hedged items. When we issue fixed-rate debt that is hedged with an interest rate swap, the hedge effectively converts the debt into a simple floating-rate bond. Similarly, we make fixed-rate advances to members and hedge the advances with a pay-fixed and receive-variable interest rate swap that effectively converts the fixed-rate asset to one that floats with the designated benchmark rate (LIBOR, OIS/FF or OIS/SOFR) in the hedging relationship. 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 spreads are annualized.

 

106104 

 

 

Rate and Volume Analysis — 2020 Periods Vs. 2019 Periods

 

The Rate and Volume Analysis presents changes in interest income, interest expense and net interest income that are due to changes in both interest rates and the volume of interest-earning assets and interest-bearing liabilities, and their impact on interest income and interest expense (in thousands):

 

Table 9.5:Rate and Volume Analysis

 

 For the three months ended  For the three months ended 
 June 30, 2020 vs. June 30, 2019  September 30, 2020 vs. September 30, 2019 
 Increase (Decrease)  Increase (Decrease) 
 Volume  Rate  Total  Volume  Rate  Total 
Interest Income                        
Advances $136,834  $(515,540) $(378,706) $110,029  $(516,580) $(406,551)
Interest bearing deposits and others  1,232   (1,685)  (453)  1,733   (3,008)  (1,275)
Federal funds sold and other overnight funds  (23,894)  (83,117)  (107,011)  (31,661)  (80,713)  (112,374)
Investments                        
Trading securities  27,160   (23,205)  3,955   15,109   (24,345)  (9,236)
Mortgage-backed securities                        
Fixed  10,962   (6,321)  4,641   6,420   (8,531)  (2,111)
Floating  (11,481)  (25,230)  (36,711)  (9,054)  (26,861)  (35,915)
State and local housing finance agency obligations  (339)  (4,581)  (4,920)  (245)  (5,619)  (5,864)
Mortgage loans held-for-portfolio  1,930   (2,872)  (942)  718   (4,606)  (3,888)
Loans to other FHLBanks  (52)  (52)  (104)  -   (1)  (1)
                        
Total interest income  142,352   (662,603)  (520,251)  93,049   (670,264)  (577,215)
                        
Interest Expense                        
Consolidated obligation bonds                        
Fixed  2,232   (66,091)  (63,859)  15,726   (91,847)  (76,121)
Floating  (41,218)  (213,984)  (255,202)  (60,185)  (183,366)  (243,551)
Consolidated obligation discount notes  128,037   (389,265)  (261,228)  100,763   (370,594)  (269,831)
Deposits and borrowings  1,717   (7,739)  (6,022)  1,268   (7,327)  (6,059)
Mandatorily redeemable capital stock  (43)  (9)  (52)  (8)  (14)  (22)
                        
Total interest expense  90,725   (677,088)  (586,363)  57,564   (653,148)  (595,584)
                        
Changes in Net Interest Income $51,627  $14,485  $66,112  $35,485  $(17,116) $18,369 

 

 For the six months ended  For the nine months ended 
 June 30, 2020 vs. June 30, 2019  September 30, 2020 vs. September 30, 2019 
 Increase (Decrease)  Increase (Decrease) 
 Volume  Rate  Total  Volume  Rate  Total 
Interest Income                        
Advances $182,907  $(788,944) $(606,037) $296,436  $(1,309,024) $(1,012,588)
Interest bearing deposits and others  3,303   (2,012)  1,291   4,910   (4,894)  16 
Federal funds sold and other overnight funds  (30,294)  (125,243)  (155,537)  (64,940)  (202,971)  (267,911)
Investments                        
Trading securities  70,775   (32,696)  38,079   84,656   (55,813)  28,843 
Mortgage-backed securities                        
Fixed  25,378   (10,436)  14,942   31,595   (18,764)  12,831 
Floating  (24,121)  (38,563)  (62,684)  (32,973)  (65,626)  (98,599)
State and local housing finance agency obligations  (689)  (6,881)  (7,570)  (929)  (12,505)  (13,434)
Mortgage loans held-for-portfolio  4,138   (4,234)  (96)  4,810   (8,794)  (3,984)
Loans to other FHLBanks  (81)  (40)  (121)  (81)  (41)  (122)
                        
Total interest income  231,316   (1,009,049)  (777,733)  323,484   (1,678,432)  (1,354,948)
                        
Interest Expense                        
Consolidated obligation bonds                        
Fixed  39,399   (116,335)  (76,936)  54,842   (207,899)  (153,057)
Floating  (60,462)  (323,701)  (384,163)  (127,602)  (500,112)  (627,714)
Consolidated obligation discount notes  193,388   (542,599)  (349,211)  294,719   (913,761)  (619,042)
Deposits and borrowings  2,587   (11,626)  (9,039)  3,849   (18,947)  (15,098)
Mandatorily redeemable capital stock  (60)  (13)  (73)  (67)  (28)  (95)
                        
Total interest expense  174,852   (994,274)  (819,422)  225,741   (1,640,747)  (1,415,006)
                        
Changes in Net Interest Income $56,464  $(14,775) $41,689  $97,743  $(37,685) $60,058 

 

107


Interest Income

 

Interest income from advances is our principal source of interest income. We also earn interest income from investments in mortgage-backed securities and mortgage loans, (“MPF”), liquidity portfolios of U.S. Treasury securities, federal funds and repurchase agreements.agreements also held for liquidity. Changes in both interest rate and intermediation volume (average interest-yielding assets) explain the change in the current year periods compared to the prior year.year periods.

 

Reported interest income includes the impact of ASC 815 qualifying hedges. In the periods in this report,Although, the fair value impact of hedging (fair value of hedged items minus the fair value of hedging derivatives) has not been significant, a reflection of a highly-effective hedging relationships. Swaprelationships, swap interest settlements (interest accruals) have been significant and have fluctuated in the volatile interest rate environment.

Certain fixed-rate advances and certain fixed-rate MBS have been elected as the hedged items under ASC 815 fair value hedges. The hedging relationships have synthetically converted the fixed-rate cash flows to floating-rate, indexed primarily to short-term LIBOR or the overnight benchmark indices, SOFR and Fed funds. The interest settlements (swap accruals) are included in reported Interest income.

 

The principal categories of Interest Income are summarized below (dollars in thousands):

 

Table 9.6:9.6:        Interest Income — Principal Sources

 

 Three months ended June 30,  Six months ended June 30,  Three months ended September 30,  Nine months ended September 30, 
     Percentage      Percentage       Percentage       Percentage 
 2020 2019 Change 2020 2019  Change  2020  2019  Change  2020  2019  Change 
Interest Income                                     
Advances $326,230 $704,936 (53.72)% $790,795 $1,396,832 (43.39)% $193,003  $599,554   (67.81)% $983,798  $1,996,386   (50.72)%
Interest-bearing deposits 482 935 (48.45) 2,609 1,318 97.95   581   1,856   (68.70)  3,190   3,174   0.50 
Securities purchased under agreements to resell 350 52,320 (99.33) 26,700 82,242 (67.53)  957   55,340   (98.27)  27,657   137,582   (79.90)
Federal funds sold 1,726 56,767 (96.96) 30,661 130,656 (76.53)  2,082   60,073   (96.53)  32,743   190,729   (82.83)
Trading securities 50,884 46,929 8.43 125,881 87,802 43.37   48,708   57,944   (15.94)  174,589   145,746   19.79 
Mortgage-backed securities                                     
Fixed 80,515 75,874 6.12 163,404 148,462 10.06   78,177   80,288   (2.63)  241,581   228,750   5.61 
Floating 13,629 50,340 (72.93) 41,294 103,978 (60.29)  7,449   43,364   (82.82)  48,743   147,342   (66.92)
State and local housing finance agency obligations 4,157 9,077 (54.20) 10,622 18,192 (41.61)  2,419   8,283   (70.80)  13,041   26,475   (50.74)
Mortgage loans held-for-portfolio 24,332 25,274 (3.73) 50,358 50,454 (0.19)  21,336   25,224   (15.41)  71,694   75,678   (5.26)
Loans to other FHLBanks  -  104 (100.00)  33  154 (78.57)  -   1   (100.00)  33   155   (78.71)
                                     
Total interest income $502,305 $1,022,556 (50.88)% $1,242,357 $2,020,090 (38.50)% $354,712  $931,927   (61.94)% $1,597,069  $2,952,017   (45.90)%

Interest Income — 2020 Periods Vs. 2019 Periods

 

During the secondthird quarter of 2020, conditions in the financial markets remained stressed, albeit not as volatile as was the case in the March 2020.2020 and early second quarter. The Federal Open Market Committee (FOMC) acted twice in March to lower the target range for the federal funds rate from 1.50% to 1.75%, to a target range of 0.0% to 0.25%, noting that the COVID-19 pandemic had harmed communities and disrupted economic activity. In subsequent meetings through the secondthird quarter of 2020, the FOMC has maintained its target rates as unchanged.

 

Interest income in the current year secondthird quarter was $354.7 million, which declined by 50.9%$577.2 million, or 61.9% compared to the same period lastin the prior year. To provide context, interest expense declined by 77.4% year-over-year in the quarterly period. Changes in interest income and interest expense were in line with the steep decline in interest rates.


Interest revenues earned from higher balance sheet earning assets, primarily volume of advance business contributed a favorable increase of $93.0 million, offset entirely by yield (rate) related decline of $670.3 million. In successive 2020 quarters, we have reported declining revenues; first quarter was $740.1 million; second quarter was $502.3 million; and the current quarter (third quarter) reported $354.7 million.

Interest revenue decline was in line with lower yields earned in very low interest rate environment in the periods after FOMC rate actions. Aggregate yield earned in the 2020 current year third quarter was 90 basis points, compared to 261 basis points in the same period in the prior year. In successive 2020 quarters, earned yields have declined, 116 basis points in the second quarter and 190 basis points in the first quarter, illustrating the dramatic and rapid decline in rates due to the Federal Reserve’s accommodative fiscal relief measures.

On a year-to-date basis, interest income in the current year period declined by 38.5%was $1.6 billion, a decline of $1.4 billion, or 45.9% compared to the same period in the prior year impacted mainly(Interest expense declined by second quarter revenues. 67.8% year-over-year in the same period).

Interest revenues earned from higher balance sheet earning assets in the current year, due primarily to the volume of advance business, contributed to a favorable increase of $323.5 million, offset entirely by yield (rate) decline of $1.7 billion.

Our interest revenues are generated from an asset mix of longer term assets, such as fixed-rate advances, long-term fixed-ratefixed- and floating-rate investments, long-term 15-year and 30-year mortgage loans, and revenues generated from portfolios of overnight and short-term assets. TheseThe overnight, and short-term assets and floating-rate investments in particular are sensitive to changes in market yields, and such assets have rapidly repriced to lower market yields in the 2020 secondquarters, including the third quarter. The more significant revenue categories are discussed below.

 

Advance — Interest income from advances declined by 53.7%67.8% in the 2020 secondthird quarter, compared to the same period in the prior year. The favorable impact of higher transaction volume in the 2020 period was offset by significant decline in interest income due to very low market yields. Transaction volume of advances, as measured by quarterly average balances, was $110.4 billion in the 2020 third quarter, up from $90.4 billion in the prior year third quarter. Average advance balance sheet volume in the first two quarters in 2020 was $125.3 billion in the 2020 second quarter up fromand $102.8 billion in the 2020 first quarter and $101.6 billion in the 2019 second quarter. The favorable impact of higher transaction volume was offset by the significant decline in interest income due to very low market yields in the 2020 second quarter.


 

Declining market yields impacted earnings from overnight advances, short-term advances and variable-rate advances that reset to lower rates. Aggregate yield wasTotal advances yielded 70 basis points in the 2020 third quarter, down from 263 basis points in the 2019 third quarter. Yield has declined through the quarters in 2020: 105 basis points in the 2020 second quarter, down from 182 basis points in the first quarter, and 278 basis points in the 2019 second quarter. Decliningdriven by coupons resetting to lower rates along a declining advance yield curve. In addition, declining benchmark rates (LIBOR, SOFR and FF-OIS) caused swap interest settlement cash flows to become negative, and to reducewhich reduced interest income from hedged advances.

Swap interest settlements on swaps hedging fixed-rate advances recorded a net loss of $100.6$125.9 million in the 2020 secondthird quarter, compared to a gainnet positive contribution of $54.7$37.7 million in the 2019 third quarter. Interest settlement losses have increased through the quarters in 2020; losses of $100.6 million and $15.8 million were recorded in the second and first quarter. In a fair value hedge of advances, we pay to swap counterparties fixed-rate coupons and in exchange we receive declining floating-rate cash flows. The fair value impactcomponent of ASC 815 hedgeshedging that impacted earnings was a net gain of $8.8 millionnot material in the third quarters of 2020 second quarter, compared to a de minimis loss amount in the same period in the prior year.and 2019.

 

On a year-to-date basis, interest income from advances declined by 43.4%50.7%. Volume, as measured by average balances, was up in the current year period. Volume relatedVolume-related increases in interest revenues were offset by rate relatedrate-related decline in interest revenues. Average transaction volume of advance business was $114.0$112.8 billion at an aggregate yield of 139116 basis points in the 2020 period, compared to an average transaction volumeadvance balance of $99.4$96.3 billion at an aggregatea yield of 284277 basis points in the 2019 period.2019.

Liquidity investments — Interest income from federalovernight invested funds, andspecifically repurchase agreements declined due to lower invested balances and sharp declines in market yields.yields in the current year third quarter and year-to-date period compared to the same periods in 2019. Investments in federal funds and repurchase agreements yielded 10 basis points in aggregate in the current year third quarter. Interest income from fixed-rate U. S.U.S. Treasury securities was $48.7 million in the current year third quarter, down from $57.9 million in the same period in 2019 despite higher average invested balances; the lower revenues reflecting lower yields on new acquisitions.


On a year-to-date basis, interest income earned from overnight investments in the 2020 period was lower relative to the same period in 2019. Interest income earned from U.S. Treasury securities was higher and the prime driver was higher invested balances although yields in the 2020 periods compared to same periodscurrent year period were lower than in 2019 in parallel with increase in investments.the prior year period. The liquidity trading portfolio is comprised primarily of shorter-term,medium-term, highly liquid fixed-rate U.S. Treasury securities that are available to enhance and meet our liquidity objectives; securities were not acquired for speculative purpose. Market value gains and losses and realized gains and losses on sale are recorded in Other income (below the margin).

 

Mortgage-backed-securities — By policy, no floating-rate LIBOR-indexed MBS are being acquired, a decision driven by our goal to reduce our inventory of LIBOR-indexed instruments. Interest income from fixed-ratefloating-rate MBS has increased indeclined year-over-year for the periods in this report due to steady acquisitions.in line with falling rates and declining inventory.

We have focused our acquisition efforts on acquiring fixed-rate MBS. Transaction volume of fixed-rate MBS, as measured by average outstanding balance was $11.3 billion in the 2020 secondthird quarter up from $11.2and year-to-date period; in the prior year, balances were $10.4 billion in the 2020 firstthird quarter and $9.8 billion in the 2019 second quarter. The hedging impact of fixed-rate prepayable CMBS elected under ASC 815 was not material.year-to-date period. Investment opportunities remain limited given our price/return targets. Interest income from floating-ratefixed-rate MBS has declined as we have ceased acquiring LIBOR-indexed floating-ratewas a little lower in the 2020 third quarter compared to the same quarter in the prior year. Volume related increase was $6.4 million. Rate related decline was $8.5 million, for a net decline of $2.1 million in revenues from fixed-rate MBS year-over-year in the quarterly period. On a policy decisionyear-to-date basis, interest income from fixed-rate MBS increased relative to restrain growththe same period in the prior year due to increase in invested balances.

The ASC 815 hedging impact of LIBOR assets.fixed rate, prepayable CMBS was not material. The hedging strategy synthetically converts fixed-rate yields to benchmark-indexed variable yields.

 

Mortgage-loans held-for-portfolio — Interest income from mortgage loans held-for-portfolio declined a little(MPF) was $21.3 million in the current year second2020 third quarter, fromcompared to $25.2 million in the 2020 first quarter and 2019 second quarter.same period in the prior year. Investment volume has remained relatively flat, with acquisitions replacinga little ahead of paydowns. MPF loans are primarily 15 and 30-year conventional loans. The small declineportfolio averaged $3.1 billion, yielding 273 basis points in the 2020 third quarter, compared to 332 basis points in the same period in 2019. In the declining interest revenuesrate environment, we are observing elevated levels of prepayments, causing accelerated amortization of premiums, specifically 20-year and 30-year high-balance mortgage loans. Net amortization expense was due$3.8 million in the 2020 third quarter, compared to lower market yields on new loans acquirednet amortization of $1.6 million in the same period in the prior year. The Bank’s portfolio is largely at a premium price and amortization is sensitive to replace paydowns. changes in prepayment speeds particularly in a volatile interest rate environment

On a year-to-date basis, interest revenues has remained flatrevenue was $71.7 million in the 2020 period yielding 302 basis points, compared to 2019.$75.7 million in the 2019 period yielding 341 basis points. Net amortization expense was $8.9 million in the 2020 year-to-date period, compared to net amortization of $4.2 million in the same period in the prior year.

 

For information about the effects of changes in rates and business volume, see Table 9.4 Spread and Yield Analysis and Table 9.5 Rate and Volume analysis.

 

Impact of hedging on Interest income from advances — 2020 periods Vs. 2019 periods

 

Declining interest rates unfavorably impacted hedging effects of ASC 815 hedges in the 2020 periods, primarily due to unfavorable interest settlements in the periods. The fair value hedging impact was not material. Our interest-rate hedging strategies have generally remained unchanged, although in the volatile environment we have increased the execution of interest-rate basis swaps to protect our spreads and margins.unchanged.

 

We execute interest rate swaps to modify the effective interest rate terms of many of our fixed-rate advance products and typically all of our putable advances, effectively converting a fixed-rate stream of cash flows from fixed-rate advances to a floating-rate stream of cash flows, indexed primarily to LIBOR, or OIS Fed funds and OIS SOFR. In the periods in this report, hedging relationships including those in economic hedges achieved desired cash flow patterns and met our interest rate risk management practice of synthetically converting much of our fixed-rate interest exposures to the adopted benchmark. See Table below for more information.

 


The table below summarizes interest income earned from advances and the impact of interest rate derivatives (in thousands):

 

Table 9.7:9.7:        Impact of Interest Rate Swaps on Interest Income Earned from Advances

 

 Three months ended June 30, Six months ended June 30,  Three months ended September 30,  Nine months ended September 30, 
 2020 2019 2020 2019  2020  2019  2020  2019 
Advance interest income                                
Advance interest income before adjustment for interest rate swaps $418,074  $650,278  $909,929  $1,270,851  $318,248  $561,911  $1,228,177  $1,832,762 
Fair value hedging effects  8,972   (7)  (2,551)  770   856   (43)  (1,695)  727 
Amortization of basis  (208)  (14)  (222)  (28)  (180)  (14)  (402)  (42)
Interest rate swap accruals  (100,608)  54,679   (116,361)  125,239   (125,921)  37,700   (242,282)  162,939 
Total advance interest income reported $326,230  $704,936  $790,795  $1,396,832  $193,003  $599,554  $983,798  $1,996,386 

 

Interest Expense

 

Our primary source of funding is through the issuance of Consolidated obligation bonds and discount notes to investors in the global debt markets through the Office of Finance, the FHLBank’s fiscal agent. Consolidated obligation bonds are generally medium- and long-term bonds, while discount notes are short-term instruments. To fund our assets, our management considers our 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, we have used fixed-rate callable and non-callable CO bonds to fund mortgage-related assets and advances. CO discount notes are generally issued to fund advances and investments with shorter interest rate reset characteristics.

 

Changes in bond market rates, changes in intermediation volume (average interest-costing liabilities and interest earning assets), the mix of debt issuances between CO bonds and CO discount notes, and the impact of hedging strategies are the primary factors that drive period-over-period changes in interest expense.

 

While LIBOR is currently our primary benchmark rate for hedging under ASC 815, we are transitioning away from LIBOR to the OIS/SOFR benchmark in line with an industry-wide transition effort. As part of the transition away fromOur adopted hedging benchmarks are OIS/SOFR, LIBOR in 2019 we adopted OIS/FF and OIS/SOFR as additional benchmarks.FF.

 

For ASC 815 qualifying hedges of debt, swap interest settlements and fair value gains and losses are recorded in interest incomeexpense together with the interest expense accrued on the hedged CO debt.

 

The principal categories of Interest expense are summarized below (dollars in thousands):

 

Table 9.8:9.8:        Interest Expenses — Principal Categories

 

  Three months ended June 30,   Six months ended June 30, 
       Percentage       Percentage 
  2020 2019 Change  2020 2019  Change 
Interest Expense              
Consolidated obligations bonds              
Fixed $108,074 $171,933  (37.14)% $277,062 $353,998  (21.73)%
Floating  68,852  324,054  (78.75)  256,421  640,584  (59.97)
Consolidated obligations discount notes  95,477  356,705  (73.23)  322,810  672,021  (51.96)
Deposits  146  5,976  (97.56)  3,374  11,941  (71.74)
Mandatorily redeemable capital stock  56  108  (48.15)  135  208  (35.10)
Cash collateral held and other borrowings  12  204  (94.12)  74  546  (86.45)
                     
Total interest expense $272,617 $858,980  (68.26)% $859,876 $1,679,298  (48.80)%

  Three months ended September 30,  Nine months ended September 30, 
        Percentage        Percentage 
  2020  2019  Change  2020  2019  Change 
Interest Expense                        
Consolidated obligations bonds                        
Fixed $94,992  $171,113   (44.49)% $372,054  $525,111   (29.15)%
Floating  15,074   258,625   (94.17)  271,495   899,209   (69.81)
Consolidated obligations discount notes  63,582   333,413   (80.93)  386,392   1,005,434   (61.57)
Deposits  208   6,053   (96.56)  3,582   17,994   (80.09)
Mandatorily redeemable capital stock  65   87   (25.29)  200   295   (32.20)
Cash collateral held and other borrowings  28   242   (88.43)  102   788   (87.06)
                         
Total interest expense $173,949  $769,533   (77.40)% $1,033,825  $2,448,831   (57.78)%

 

110109 

 

 

Interest Expense — 2020 Periods Vs. 2019 Periods

 

Interest expense in the current year secondthird quarter declined by 68.3%was $173.9 million, a decline of $595.6 million or 77.4% compared to the prior year period (Interest income declined by 61.9% year-over-year in the same quarterly period); the decline was in parallel with the significant decline in market debtyields in the financial markets. Attribution of funding expense changes year-over-year third quarter was increase of $57.6 million due to funding volume increase in line with higher balance sheet assets in the 2020 period, entirely offset by decline in funding expense of $653.1 million due to lower costing yields. On a year-to-date basis, interest expense in the current yearyear-to-date period declined by 48.8%was $1.0 billion, a decline of $1.4 billion or 57.8% compared to the same period in the prior year.

Funding Rate-related decline in interest expenses was the substantial increasepredominant factor for the change in member borrowings was largely accommodated by the issuances of short tenor CO discount notes. We have also continued to effectively deploy our CO bond portfolios of fixed-rate bullet CO bonds, fixed-rate callable CO bonds and floating-rate CO bonds.year-over-year periods.

 

In March 2020, the Federal Open Market Committee acted twice to lower the target range for the federal funds rate from 1.50% to 1.75%, to a target range of 0.0% to 0.25%, noting that the COVID-19 outbreak had harmed communities and disrupted economic activity. In the weeks before and after the Federal Reserve's cuts in the federal funds target rate, interest rates declined significantly, widening the spreads of the FHLBank CO bonds relative to U.S. Treasury securities, adversely impacting the cost of FHLBank CO bonds. In subsequent meetings through the secondthird quarter of 2020, the FOMC has maintained its target rates as unchanged. For

Funding the FHLBNYsubstantial increase in member borrowings has largely been accommodated by the full impact is likelyissuances of CO discount notes, which have maturities up to filter through in future periodsa year and are issued as a zero-coupon instrument. Discount notes sell at less than their face amount and are redeemed at par value when they mature. Fixed-rate bullet CO bonds, maturefixed-rate callable CO bonds and replaced by new issuance at higher spreads to U.S. Treasury securities.floating-rate CO bonds are also utilized in our funding strategies.

 

In response to very significant changes in the 2020 second quarter,financial markets, we made several tactical changes in funding. funding strategies beginning with the COVID-19 market disruption at the end of the first quarter of 2020 and continuing through the 2020 third quarter.

One key decision was to change the funding mix to a greater utilization of CO discount notes as we sensed a shift innotes. With the onset of COVID-19 driven debt market volatility, investor appetite was very favorable for high-quality liquid assets, such as FHLBank CO discount notes. In the 2020 second quarter, CO discount notes funded 51.6% of earning-assets, up from 40.5% in the first quarter and 39.6% in the 2019 second quarter (calculations are based on average balances). In the current volatile market caused by COVID-19, investor demand for FHLBank issued high-quality CO discount notes pushed yields down, resulting in favorable spreads and favorable funding. InvestorsAdditionally, institutional investors appear to have excess cash and willingness to strengthen their balance sheet liquidity and earn a safe return. Our response to the new realities in need of high-quality liquid assets, such asthe financial markets was to align our debt issuances to investor demand for FHLBank CO discount notes. The shift to the greater use of discount notes is well illustrated by comparing utilization of discount notes (as calculated by average balances) through each of the three quarters in 2020 and comparing to the utilization in the prior year third quarter. In the first quarter of 2020, discount notes funded 40.5% of earning-assets, 51.6% in the second quarter and 53.1% in the third quarter. In the prior year third quarter, the utilization was 41.6%. Our discount note funding cost has also benefited in the continued low interest rate environment for high-credit quality short-term debt. Costing yields on CO discount notes declined toin 2020 were 30 basis points in the third quarter, 43 basis points in 2020 second quarter down fromand 144 basis points in the 2020 first quarter. In the prior year third quarter, and 244discount note costing yield was 225 basis points.

Floating-rate CO bonds have also repriced at short intervals along a declining yield curve to lower costing yields. Usage year-over-year has declined significantly as we have opted to shift to the use of discount notes whenever the funding strategy met our maturity/repricing profile. Floating-rate costing yield was 19 basis points in the 2019 second quarter. CO discount note spreads2020 third quarter compared to equivalent maturity LIBOR have fluctuated227 basis points in the secondprior year third quarter.

Fixed-rate CO bond costing yields have also declined driven by debt that matured and replaced by lower costing debt in the low interest rate environment. Usage of fixed-rate CO bonds has increased a little in the 2020 third quarter although at levelscompared to the same period in the prior year. Costing yield was 118 basis points in 2020 third quarter, compared to 234 basis points in the prior year third quarter.

Year-to-date debt expense has declined for all categories of debt driven in parallel with very low rates in 2020, and ranges that were attractive. We cannot predict if the attractiveshift to greater use of discount notes, which replaced maturing floating-rate CO discount levels will remain at these levels. bonds.

We have made other tactical changes to our asset/liability postures to stay nimble, including increased execution of interest-rate swaps to protect our spreads and margins through the use of basis swaps and vanilla short-term swaps. As the spreads in the various indices, SOFR, OIS and LIBOR were constantly moving in relationship to one another as didmargins. We adjusted our assets and liabilities that were also indexed to those indices, we employedexecuting basis swaps to optimize the management of such changes. While current market conditions have stabilized somewhat at the tail-end of the second quarter, longer-term funding remains limited in term and size and remain prohibitively expensive. In the 2020 second quarter, costing yields on floating-rate CO bonds and short-maturity CO bonds declined in line with the very low market yields on short-maturity, high-quality debt.

Funding volume was higher in the 2020 second quarter and the year-to-date period compared to the same periods in the prior year as advance demand grew in the 2020 periods requiring increased funding. The impact on interest expense from higher volume was offset by deep decline in funding rates in line with very low market rates for CO debt.

Our debt repricing strategies are significantly impacted by our interest rate hedging strategies. Hedging strategies under ASC 815 have remained effective and are operating as designed, although in preparation for the market transition away from LIBOR, we have increased the use of OIS/FF OIS/SOFR as the alternative hedging benchmarks. See Table below and discussions thereto for an understanding of the hedging impact under ASC 815 qualifying hedges.


Impact of Hedging on Interest Expense on Debt — 2020 Periods Vs. 2019 Periods

Generally, the longer-term fixed-rate CO bonds and bonds with call options are hedged under ASC 815 fair value hedge, i.e. cash flows are swapped from fixed-rate to benchmark indexed variable-rate cash flows, synthetically converting fixed debt expense to a sub-LIBOR level. Cash flow hedges have also been executed to hedge rolling-issuances of discount notes to long-term fixed predictable interest expense. The aggregate hedging impact, fair value gains and losses and interest settlements, recorded a net gain of $33.6 million (reduction of debt expense) in the 2020 second quarter compared to a net loss of $3.5 million (increase in debt expense) in the same period in the prior year. Interest settlements were the primary components of gains and losses. The hedging impact due to fair values of the hedged debt minus the fair values of derivatives were not material, an indication of the highly-effective nature of the hedge relationships. On a year-to-date basis, ASC 815 hedging recorded a net gain of $54.5 million in the 2020 period, compared to a loss of $12.2 million in the prior year period, primarily resulting from swap interest settlements.


ASC 815 fair value hedging impact on CO debt expense due to changes in fair values of hedged CO bonds and CO discount notes minus hedging instruments was immaterial.

Impact of Hedging on Interest Expense on Debt — 2020 Periods Vs. 2019 Periods

Declining interest rates favorably impacted hedging effects of ASC 815 hedges. Swap interest settlements and fair value effects recorded in interest expense was a gain of $33.6 million in the current year second quarter, in contrast to a loss of $3.5 million in the prior year period. On a year-to-date basis, the impact was a gain of $54.5 million in the 2020 period compared to a loss of $12.2 million in the 2019 period. Gains and losses were primarily impacted by net interest settlements and the impact of changes in fair values were not material. In the fair value hedges of debt, we paid to swap counterparties the declining floating-rate coupons and in exchange we received fixed-rate cash flows.

Derivative strategies are primarily used to manage the interest rate risk inherent in fixed-rate debt by converting the fixed-rate funding to floating-rate debt that is indexed to 3-month LIBOR, which has historically been our preferred funding base. The strategies are designed to protect future interest margins. A significant percentage of non-callable fixed-rate debt is swapped primarily to plain vanilla 3-month LIBOR indexed cash flows and to OIS/FF and OIS/SOFR benchmark indices. We also issue fixed-rate callable debt that is typically issued with the simultaneous execution of cancellable interest rate swaps to modify the effective interest rate terms and the effective durations of our fixed-rate callable debt.

We achieve our cash flow objectives by utilizing the fair value hedging strategy under ASC 815, which benefits us in two principal ways. First, the issuance of fixed-rate debt and the simultaneous execution of interest rate swap converts the debt to an adjustable-rate instrument tied to the designated benchmark rate, primarily LIBOR. Second, fixed-rate callable bond issued in conjunction with the execution of interest rate swap containing a call feature (that mirrors the option embedded in the callable bond), enables us to meet our funding needs at yields not otherwise directly attainable through the issuance of callable debt. We may also issue floating rate debt indexed to other than the 3-month LIBOR (SOFR, Federal funds rate and 1-month LIBOR) and may then execute interest rate swaps that would synthetically convert the cash flows to the desired floating-rate funding index, and designate the hedge as an economic hedge.

We also create synthetic long-term fixed-rate funding to fund long-term investments, utilizing a Cash Flow hedging strategy under ASC 815 that converts forecasted long-term discount note variable-rate funding to fixed-rate funding by the use of long-term swaps. For such discount notes, the recorded interest expense is equivalent to long-term fixed rate coupons. Cash Flow hedging strategies are also discussed in Financial Statements Note 17. Derivatives and Hedging Activities.

 

Hedging impact on interest expense was primarily driven by interest settlements. The impact of fair value changes of hedged debt minus fair value changes of the hedging derivative was not material an affirmation that our ASC 815 hedges were highly effective.

Declining interest rates in the 2020 periods favorably impacted net interest settlements on fair value hedges, which are determined by benchmark-indexed payments to swap counterparties in exchange for receipt of fixed-rate cash from counterparties. When the interest rate environment is low, as in the current year periods, cash flows paid would be generally lower than the fixed cash flows received, and that impact of interest settlements has been significant from time to time. The impact of changes in fair values have not been material.

The impact of hedging debt — fair value gains and losses and interest settlements — recorded a net gain of $11.3 million (hedging adjustments that reduced interest expense) in the 2020 third quarter compared to a net gain of $1.4 million in the same period in the prior year. Interest settlements were the primary components of gains and losses. The hedging impact due to fair values of the hedged debt minus the fair values of derivatives was not material, an indication of the highly-effective nature of the hedge relationships. On a year-to-date basis, ASC 815 hedging recorded a net gain of $65.8 million in the 2020 period, compared to a loss of $10.8 million in the prior year period, primarily resulting from swap interest settlements. ASC 815 fair value hedging impact on CO debt expense due to changes in fair values of hedged CO bonds and CO discount notes minus hedging instruments was not material in the year-to-date period.

The table below summarizes interest expense paid on Consolidated obligation bonds and discount notes and the impact of interest rate swaps (in thousands):

 

Table 9.9:9.9:        Impact of Interest Rate Swaps on Consolidated Obligations Interest Expense

 

 Three months ended June 30, Six months ended June 30,  Three months ended September 30,  Nine months ended September 30, 
 2020 2019 2020 2019  2020  2019  2020  2019 
Bonds and discount notes - interest expense                                
Bonds - interest expense before adjustment for swaps $213,523  $492,564  $590,403  $982,010  $136,293  $433,622  $726,696  $1,415,632 
Discount notes - interest expense before adjustment for swaps  92,509   356,600   320,399   672,399   48,621   330,946   369,020   1,003,345 
Fair value hedging effect on CO bonds  2,382   973   (29)  3,044   1,137   (515)  1,108   2,529 
Fair value hedging effect on discount notes  26   (222)  (560)  (222)  2   (1)  (558)  (223)
Amortization of basis adjustments on CO bonds  (1,455)  (1,455)  (3,167)  (2,899)  (1,371)  (1,453)  (4,538)  (4,352)
Amortization of basis adjustments on discount notes  17   -   182   -   56   195   238   195 
Net interest adjustment for swaps hedging CO bonds  (37,522)  3,905   (53,723)  12,428   (25,994)  (1,916)  (79,717)  10,512 
Net interest adjustment for swaps hedging discount notes  2,923   327   2,788   (157)  14,904   2,273   17,692   2,116 
Total bonds and discount notes - interest expense $272,403  $852,692  $856,293  $1,666,603  $173,648  $763,151  $1,029,941  $2,429,754 

 


Allowance for Credit Losses — 2020 Periods Vs. 2019 Periods

 

The FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), which became effective for the Bank as of January 1, 2020. The adoption of this guidance established a single allowance framework for all financial assets carried at amortized cost, including advances, purchased mortgage loans, held-to-maturity securities, other receivables and certain off-balance sheet credit exposures. We have elected to evaluate expected credit losses on interest receivable separately. For available-for-sale securities where fair value is less than cost, credit related impairment if any, will be recognized as an allowance for credit losses and adjusted each period for changes in expected credit risk. This framework requires that management’s estimate reflects credit losses over the full remaining expected life and considers expected future changes in macroeconomic conditions.

For a description of how expected losses are developed including interest receivable, refer to notes to financial statements:

 


Note 1. Critical Accounting Policies and Estimates – Credit Losses under ASU 2016-13.

Note 4. Interest-bearing Deposits, Federal Funds Sold and Securities Purchased Under Agreements to Resell.

Note 7 Available-for-Sale Securities.

Note 8 Held-To-Maturity Securities.

Note 9 Advances.

Note 10 Mortgage Loans Held-for-Portfolio.

Note 19 Commitments and Contingencies (for off-balance sheet).

 

Adoption of ASU 2016-13 did not have a material impact on our financial condition or cash flows. In the 2020 secondthird quarter, we recorded a total provision of $3.0$2.5 million under the CECL guidance, primarily against our mortgage-loan portfolio. In the prior year secondthird quarter, a de minimis recoveryprovision of $0.3$0.1 million was recorded based on pre-CECL policies. On a year-to-date basis, we recorded a net provision of $3.2$5.7 million in 2020, compared to a net reversal of $0.3$0.2 million in the same period in the prior year.

 


Analysis of Non-Interest Income (Loss)

 

The principal components of non-interest income (loss) are summarized below (in thousands):

 

Table9.10:        Other Income (Loss)

Table 9.10:Other Income (Loss)

 

 Three months ended June 30, Six months ended June 30,  Three months ended September 30,  Nine months ended September 30, 
 2020 2019 2020 2019  2020  2019  2020  2019 
Other income (loss):                                
Service fees and other (a) $4,589  $4,660  $9,240  $9,074  $4,133  $4,665  $13,373  $13,739 
Instruments held under the fair value option gains (losses) (b)  10,564   (2,360)  (11,390)  (2,824)  7,107   (694)  (4,283)  (3,518)
Net amount of impairment losses reclassified to (from)                                
Accumulated other comprehensive income (loss)  -   (384)  -   (384)  -   (256)  -   (640)
Derivative gains (losses) (c)  (3,921)  (39,069)  (168,091)  (51,349)  10,849   (4,269)  (157,242)  (55,618)
Trading securities gains (losses) (d)  (41,377)  33,924   155,875   50,994   (39,693)  (4,000)  116,182   46,994 
Equity investments gains (losses) (e)  7,328   1,926   (722)  6,364   3,096   381   2,374   6,745 
Litigation settlement  225   -   225   - 
Total other income (loss) $(22,817) $(1,303) $(15,088) $11,875  $(14,283) $(4,173) $(29,371) $7,702 

 

(a)Service fees and other, net — Service fees are from providing correspondent banking services to members, primarily fees earned on standby financial letters of credit. Fee income earned on financial letters of credit were $4.8$4.6 million in the secondthird quarter of the current year compared to $4.3$4.4 million in the same period in the prior year. On a year-to-date basis through JuneSeptember 30, Service fees earned on financial letters of credit were $9.7$14.4 million in the current year, compared to $8.7$13.1 million in the same period in the prior year. Letters of credit are primarily issued on behalf of members to units of state and local governments to collateralize their deposits at member banks. De minimis amounts of associated fee expenses were adjusted toincluded in reported revenues.
(b)Represents Fair value gains in the 2020 third quarter are changes in fair values of CO bonds and CO discount notesdebt elected under the FVO;FVO, primarily CO discount notes; gains and losses are a factor of the CO discounting curve at period-end dates and the volume of instruments outstanding. Discount notes elected under the FVO was $12.8 billion at September 30, 2020 compared to $0 at September 30, 2019 and $2.2 billion at December 31, 2019. Fluctuations in fair value gains and losses are reflective of the short-term nature of discount notes as gains and losses in one period are expected to reverse in subsequent periods when the instruments mature. Fair values of debt instruments record losses when the forward discounting yield curve declines. Fair values are the full fair values of the debt instruments, including unaccreted discount and unpaid interest. Year-to-date change in the current year compared to the prior year was not material.
(c)See Table 9.129.12. Other Income (Loss) — Impact of Derivative Gains and Losses.
(d)Net gains (losses) on Trading securities — The loss in the 2020 third quarter represents decline in market values on $12.6 billion of U.S. Treasury securities outstanding at September 30, 2020, compared to a net loss of $4.0 million for the same period in the prior year. The losses are unrealized and valuation declines were driven by lower market pricing. The year-to-date net gain of $116.2 million in 2020 includes realized gains of $38.3 million recorded in the 2020 first two quarters. We have invested in short- and medium-term fixed-rate U.S. Treasury securities. Gains/(losses) are valuation gains/(losses) net of realized gains on sales. The securities are not held for speculative trading, rather held for liquidity in compliance with FHFA regulatory requirements. The portfolio of securities has grown in line with our expanded liquidity objectives. Fluctuations in valuations are a factor of market demand and market yields of fixed-rate U.S. Treasury securities.
(e)Fair value gains (losses) on Equity Investments — The grantor trust invests in money market, equity and fixed income and bond funds, and funds are classified as equity investments. Daily net asset values (NAVs) are readily available and investments are redeemable at short notice. NAVs are the fair values of the funds in the grantor trust. Gains and losses are typically unrealized, and primarily represent changes in portfolio valuations. The grantor trust is owned by the FHLBNY with the objective of providing liquidity to pay for pension benefits to retirees vested in retirement plans.

 


The following table summarizes unrealized and realized gains (losses) in the trading portfolio (in thousands):

 

Table9.11:        Net Gains (Losses) on Trading Securities Recorded in the Statements of Income (a)

Table 9.11:Net Gains (Losses) on Trading Securities Recorded in the Statements of Income (a)

 

 Three months ended
June 30,		 Six months ended
June 30,		  Three months ended September 30,  Nine months ended September 30, 
 2020 2019 2020 2019  2020  2019  2020  2019 
Net unrealized gains (losses) on trading securities held at period-end $(39,614) $33,669  $140,981  $48,975  $(39,693) $(4,000) $77,883  $46,684 
Net unrealized and realized gains (losses) on trading securities sold/matured during the period  (1,763)  255   14,894   2,019 
Net realized gains (losses) on trading securities sold/matured during the period  -   -   38,299   310 
Net gains (losses) on trading securities $(41,377) $33,924  $155,875  $50,994  $(39,693) $(4,000) $116,182  $46,994 

 

(a)Securities classified as trading are held for liquidity objectives and carried at fair values. We record changes in fair values of the securities together with realized gains (losses) in the Statements of Income as Other income. FHFA regulations prohibit trading in or the speculative use of financial instruments.

 

114

Other income (loss) — Derivatives and Hedging Activities — 2020 Periods Vs. 2019 Periods

 

For derivatives that are not designated in a hedging relationship (i.e. in an economic hedge), the derivatives are considered as a “standalone” instrument and fair value changes are recorded in Other income (loss), without the offset of a hedged item. Gains and losses recorded in Other income (loss) on standalone derivatives include net interest accruals.

 

The table presents fair value changes of derivatives in economic hedges (i.e. not in an ASC 815 qualifying hedge) in Other income (loss):

 

Table9.12:        Other Income (Loss) — Impact of Derivative Gains and Losses (in thousands)

Table 9.12:Other Income (Loss) — Impact of Derivative Gains and Losses (in thousands)

 

 Impact on Other Income (Loss)  Impact on Other Income (Loss) 
 Three months ended June 30, Six months ended June 30,  Three months ended September 30,  Nine months ended September 30, 
 2020 2019 2020 2019  2020  2019  2020  2019 
Derivatives not designated as hedging instruments                         
Interest rate swaps (a) $19,184  $(42,516) $(144,074) $(53,406) $40,746  $(3,551) $(103,328) $(56,957)
Caps or floors  (84)  125   5   (220)  (38)  (410)  (33)  (630)
Mortgage delivery commitments  1,244   303   1,119   500   535   32   1,654   532 
Swaps economically hedging instruments designated under FVO (b)  14,862   1,940   24,090   2,687   (13,861)  (717)  10,229   1,970 
Accrued interest on derivatives in economic hedging relationships (c)  (39,154)  1,079   (49,522)  (910)  (16,572)  377   (66,094)  (533)
Net gains (losses) related to derivatives not designated as                                
hedging instruments $(3,948) $(39,069) $(168,382) $(51,349) $10,810  $(4,269) $(157,572) $(55,618)
Price alignment interest paid on variation margin  27   -   291   -   39   -   330   - 
Net gains (losses) on derivatives and hedging activities $(3,921) $(39,069) $(168,091) $(51,349) $10,849  $(4,269) $(157,242) $(55,618)

 

Losses and gains in the table above were realized and unrealized fair value net gains and losses and swap interest settlements on derivatives designated as standalone hedging instruments. The derivatives, typically interest-rate swaps, were designated in economic hedges, not eligible under ASC 815 hedge accounting. Such derivatives are marked-to-market and changes in fair values are recorded in Other income (loss) as reported in the table above.

 

(a)Primary drivers in the 2020 second quarter were:were (1) interest rate swaps in economic hedges of U.S. Treasury fixed-rate securities recorded derivative fair value gains of $34.8$43.4 million in the current year period,third quarter, compared to derivative fair value losses of $39.4$4.6 million in the same period last year; interestthe swaps are structured to mitigate the volatility of price changes of the liquidity portfolio of fixed-rate U.S. Treasury notes. (2) Interest rate swaps in economic hedges of advances and debt, primarily basis swaps recorded net fair value losses $15.6$2.6 million in the 2020 period,third quarter, compared to net lossesgains of $3.2$1.0 million in the same period last year.

In the year-to-date period ended JuneSeptember 30, derivatives fair values in economic hedges of U.S. Treasury securities recorded net losses $163.8$120.4 million and $53.3$57.9 million in the 2020 and 2019 periods. Derivative fair values of swaps hedging advances and debt, primarily basis swaps, recorded a net gain of $19.7$17.2 million and $0.8 million in the 2020 period and a de minimis loss in the 2019 period.periods.

For context also see fair value gains of fixed-rate U.S. Treasury securities in the Bank’s liquidity trading portfolio in Table 9.11 aboveNet Gains (Losses) on Trading Securities Recorded in the Statements of Income and Note 5. Trading Securities.

(b)Represents derivative fair value of interest rate swaps hedging fixed-rate debt elected under the FVO.

(c)Represents impact to earnings of net interest settlements recorded in Other Income (Loss). Net interest settlements are the interest accruals;accruals on swaps in economic hedges and are recorded in Other Income (Loss).

 

115113 

 

 

Operating Expenses, Compensation and Benefits, and Other Expenses — 2020 Periods Vs. 2019 Periods

 

The following table sets forth the major categories of operating expenses (dollars in thousands):

 

Table 9.13:Operating Expenses, and Compensation and Benefits

Table9.13:        Operating Expenses, and Compensation and Benefits

 

 Three months ended June 30,  Three months ended September 30, 
 2020 Percentage
of Total		 2019 Percentage
of Total		  2020  Percentage of
Total		  2019  Percentage of
Total		 
Operating Expenses (a)                                
Occupancy $2,351   12.97% $2,102   13.60% $2,345   13.76% $2,211   12.89%
Depreciation and leasehold amortization  2,678   14.77   2,153   13.93   2,669   15.67   2,230   13.00 
All others (b)  13,103   72.26   11,196   72.47   12,023   70.57   12,710   74.11 
Total Operating Expenses $18,132   100.00% $15,451   100.00% $17,037   100.00% $17,151   100.00%
                                
Total Compensation and Benefits (c) $22,265      $20,462      $22,957      $21,870     
Finance Agency and Office of Finance (d) $4,593      $4,199      $4,850      $3,997     
Other expenses (e) $6,039      $2,333      $6,654      $2,379     
                

 

 Six months ended June 30,  Nine months ended September 30, 
 2020 Percentage
of Total		 2019 Percentage
of Total		  2020  Percentage of
Total		  2019  Percentage of
Total		 
Operating Expenses (a)                                
Occupancy $4,432   14.04% $3,945   13.94% $6,777   13.94% $6,156   13.54%
Depreciation and leasehold amortization  5,277   16.72   4,114   14.54   7,946   16.35   6,344   13.96 
All others (b)  21,856   69.24   20,242   71.52   33,879   69.71   32,952   72.50 
Total Operating Expenses $31,565   100.00% $28,301   100.00% $48,602   100.00% $45,452   100.00%
                                
Total Compensation and Benefits (c) $45,642      $41,900      $68,599      $63,770     
Finance Agency and Office of Finance (d) $9,044      $8,141      $13,894      $12,138     
Other expenses (e) $8,370      $4,683      $15,024      $7,062     

 

(a)Operating expenses included the administrative and overhead costs of operating the FHLBNY, as well as the operating costs of providing advances and managing collateral associated with the advances, managing the investment portfolios, and providing correspondent banking services to members.
(b)The category “All others” included temporary workers, computer service agreements, contractual services, professional and legal fees, audit fees, director fees and expenses, insurance and telecommunications.
(c)Compensation expense increased driven by staff additions toin support of our long-term technology enhancement effort.
(d)We are also assessed for our share of the operating expenses for the Finance Agency and the Office of Finance. The FHLBanks and two other GSEs share the entire cost of the Finance Agency. Expenses are allocated by the Finance Agency and the Office of Finance.
(e)The category Other expenses included COVID-19 charitable contributions$4.3 million in the 2020 third quarter and contributions$8.0 million in the year-to-date period that were disbursed to homeowners andassist small businesses under a newly established multi-year disaster relief grant program;impacted by COVID-19 pandemic; also included the non-service elements of Net periodic pension benefit costs, and derivative clearing fees.

 

116

Assessments — 2020 Periods Vs. 2019 Periods

 

For more information about assessments, see Affordable Housing Program and Other Mission Related Programs and Assessments under Part I Item 1 Business in the most recent Form 10-K filed on March 20, 2020.

 

The following table provides rollforward information with respect to changes in Affordable Housing Program liabilities (in thousands):

 

Table10.1:    Affordable Housing Program Liabilities

Table 10.1:Affordable Housing Program Liabilities

 

 Three months ended June 30, Six months ended June 30,  Three months ended September 30,  Nine months ended September 30, 
 2020 2019 2020 2019  2020  2019  2020  2019 
Beginning balance $155,611  $161,129  $153,894  $161,718  $159,464  $164,262  $153,894  $161,718 
Additions from current period's assessments  15,287   12,021   26,974   27,014   11,251   11,278   38,225   38,292 
Net disbursements for grants and programs  (11,434)  (8,888)  (21,404)  (24,470)  (12,363)  (15,016)  (33,767)  (39,486)
Ending balance $159,464  $164,262  $159,464  $164,262  $158,352  $160,524  $158,352  $160,524 

 

AHP assessments allocated from net income totaled $15.3$11.3 million in the second quarter offor both the current quarter and prior year compared to $12.0 million for the same period in the prior year.quarter. On a year-to-date basis, AHP assessments allocated from net income totaled $27.0$38.2 million for both the current period, andcompared to $38.3 million for the prior year period. Assessments are calculated as a percentage of Net income, and the changes in allocations were in parallel with changes in Net income.

 


Legislative and Regulatory Developments

 

LIBOR Transition – ISDA 2020 IBOR Fallbacks Protocol and Supplement to the 2006 ISDA Definitions. On October 23, 2020, the International Swaps and Derivatives Association, Inc. (ISDA), launched the Supplement to the 2006 ISDA Definitions (“Supplement”) and the ISDA 2020 IBOR Fallbacks Protocol (“Protocol”). Both the Supplement and the Protocol will take effect on January 25, 2021. On that date, all legacy bilateral derivatives transactions subject to Protocol-covered agreements (including ISDA agreements) that incorporate certain covered ISDA definitional booklets and reference a covered IBORs, including US Dollar LIBOR, will be amended to apply the new ISDA-recommended IBOR fallbacks in the event of the relevant IBOR’s cessation. Both an FHLBank and its relevant counterparty must have adhered to the Protocol in order to effectively amend legacy derivative contracts, otherwise the parties must bilaterally agree to include amended legacy contracts to address LIBOR fallbacks. The Protocol will remain open for adherence after this effective date. As of January 25, 2021, new and future derivative contracts will be subject to the relevant IBOR fallbacks set forth in the Supplement.

On October 21, 2020, the FHFA issued a Supervisory Letter to the FHLBanks that requires each FHLBank to adhere to the Protocol no later than December 31, 2020, and to the extent necessary, to amend any bilateral agreements regarding the adoption of the Protocol by December 15, 2020.

The Bank has adhered to the Protocol and will work with its counterparties, as necessary, to address its over-the-counter derivative agreements referencing US Dollar LIBOR as a part of its LIBOR Transition efforts. At this time, the Bank does not expect the Protocol to have a material impact on the results of its operations.

Margin and Capital Requirements for Covered Swap Entities. On July 1, 2020, the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), the Farm Credit Administration, and the Federal Housing Finance Agency (Finance Agency) (collectively, Prudential Banking Regulators) jointly published a final rule, effective August 31, 2020, amending regulations that established minimum margin and capital requirements for uncleared swaps for covered swap entities under the jurisdiction of the Prudential Banking Regulators (Prudential Margin Rules). In addition to which, among other changes, the final rule:changes: (1) allows swaps entered into by a covered swap entity prior to an applicable compliance date to retain their legacy status and not become subject to the Prudential Margin Rules in the event that the legacy swaps are amended to replace an interbank offered rate (such as LIBOR) or other discontinued rate, or due to other technical amendments such as notional reductions or portfolio compression exercises;rate; and (2) introduces a new Phase 6 compliance date for initial margin requirements for covered swap entities and their counterparties with an average daily aggregate notional amount (AANA) of uncleared swaps from $8 billion to $50 billion, and limits Phase 5 to counterparties with an AANA of uncleared swaps from $50 billion to $750 billion; and (3) clarifies that initial margin trading documentation does not need to be executed prior to a counterparty reaching the initial margin threshold.

 

On the same date, the Prudential Banking Regulators issued an interim final rule, effective September 1, 2020, extending the initial margin compliance date for Phase 5 counterparties to September 1, 2021 and extending the initial margin compliance date for Phase 6 counterparties to September 1, 2022. On July 10, 2020, the Commodity Futures Trading Commission (CFTC) issued a final rule and a proposed rule to amend the minimum margin and capital requirements for uncleared swaps under the jurisdiction of the CFTC (CFTC Margin Rules) which collectively, among other things, extend the initial margin compliance date for Phase 5 counterparties to September 1, 2021 and extend the initial margin compliance date for Phase 6 counterparties to September 1, 2022, thereby aligning with the Prudential Banking Regulators.

 

On September 22, 2020, the CFTC issued a proposed rule to amend the CFTC Margin Rules which would permit, among other changes, covered swap entities to maintain separate minimum transfer amounts (MTA) for initial and variation margin for each swap counterparty, provided the combined MTA does not exceed $500,000. Separately, on September 23, 2020, the CFTC issued a proposed rule to address concerns by covered entities related to determining IM compliance across different regulators and jurisdictions. The CFTC’s proposed rule would, among other things, require entities subject to the CFTC’s jurisdiction to calculate the AANA for uncleared swaps during March, April and May of the current year, based on an average of month-end dates, as opposed to the existing requirement which requires the calculation of AANA during June, July and August of the prior year, based on daily calculations. Parties would continue to be expected to exchange IM based on the AANA totals as of September 1 of the current year. The proposed change aligns with the recommendation of the Basel Committee on Banking Supervision and Board of the International Organization of Securities Commission.


The Bank does not expect these final rules or the proposed rules, if adopted as proposed, to have a material effect on its financial condition or results of operations.

 

Finance Agency Final Rule on FHLBank Housing Goals Amendments.  On June 3, 2020, the Finance Agency issued a final rule, effective August 24, 2020, amending the FHLBank housing goals regulation.  Enforcement of the final rule will phase in over three years.  The final rule replaces the four existing retrospective housing goals with a single prospective mortgage purchase housing goal target in which 20% of Acquired Member Asset (AMA) mortgages purchased in a year must be comprised of loans to low-income or very low-income families, or to families in low-income areas. The final rule also establishes a separate small member participation housing goal with a target level in which 50% of the members selling AMA loans in a calendar year must be small members.  The final rule provides that an FHLBank may request Finance Agency approval of alternative target levels for either or both of the goals. The final rule also establishes that housing goals apply to each FHLBank that acquires any AMA mortgages during a year, eliminating the existing $2.5 billion volume threshold that previously triggered the application of housing goals for each FHLBank. 

The Bank is continuing to analyze the impact of the final rule.

Legislative and Regulatory Developments Related to COVID-19 Pandemic

 

Finance Agency Supervisory Letter - Paycheck Protection Program (PPP) Loans as Collateral for FHLBank Advances. On July 1, 2020, Congress approved an extension of the Paycheck Protection Program until August 8, 2020. The April 23, 2020 Supervisory Letter from the Finance Agency allowing FHLBanks to accept PPP loans as collateral remains in effect; theeffect. The Bank has been accepting such loans as collateral.

Federal Reserve Lending Facilities. The Federal Reserve announced on July 28, 2020 that its lending facilities scheduled to expire on or around September 30, 2020 would be extended through December 31, 2020.

Coronavirus Aid, Relief, and Economic Security Act. The CARES Act provisions began to expire in July 2020, but some have been extended by regulatory action:action.

 

-Additional federal unemployment funds expired July 31, 2020.
-Statutory eviction freeze for federally-backed properties expired July 25, 2020.
-Foreclosure moratorium on federally-backed properties and on evictions was extended by the Finance Agency on June 17,August 27, 2020 to until “at least” AugustDecember 31, 2020.

 


Additional phases of the CARES Act or other COVID-19 pandemic relief legislation may be enacted by Congress. The Bank continues to evaluate the potential impact of the CARES Act on its business, including its continued impact to the U.S. economy; impacts to mortgages held or serviced by the Bank’s members and that the Bank accepts as collateral; and the impacts on the Bank’s MPF program.

 

Additional COVID-19 Presidential, Legislative and Regulatory Developments. In light of the COVID-19 pandemic, the President, through executive orders, governmental agencies, including the Securities and Exchange Commission, OCC, Federal Reserve, FDIC, National Credit Union Administration, CFTC and the Finance Agency, as well as state governments and agencies, have taken, and may continue to take, actions to provide various forms of relief from, and guidance regarding, the financial, operational, credit, market, and other effects of the pandemic, some of which may have a direct or indirect impact on the Bank or its members. Many of these actions are temporary in nature. The Bank continues to monitor these actions and guidance as they evolve and to evaluate their potential impact on the Bank.

 


Item 3.Quantitative and Qualitative Disclosures about Market Risk.

 

Market Risk Management. Market risk or interest rate risk (IRR) is the risk of change to market value or future earnings due to a change in the interest rate environment. IRR arises from the Banks operation due to maturity mismatches between interest rate sensitive cash-flows of assets and liabilities. As the maturity mismatch increases so does the level of IRR. The Bank has opted to retain a modest level of IRR which allows for the preservation of capital value while generating steady and predictable income. Accordingly, the balance sheet consists of predominantly short-term instruments and assets and liabilities synthetically swapped to floating-rate indices. A conservative and limited maturity gap profile of asset and liability positions protect our capital from changes in value arising from a volatile interest rate environment.

 

The desired risk profile is primarily affected by the use of interest rate exchange agreements (Swaps) which the Bank uses to match asset and liability index exposure. Historically the index concentration was 1- or 3-month LIBOR driven; however as the Bank strategizes to address LIBOR cessation, the SOFR and OIS indices are increasingly being utilized. Index matching allows for a relatively steady income that changes in concert with prevailing interest rate changes to maintain a spread to short-term rates.

 

Although the Bank maintains a conservative IRR profile, income variability does arise from structural aspects in our portfolio. These include: embedded prepayment rights, basis risk on asset and liability positions, yield curve risk, liquidity and funding risks. These varied risks are controlled by monitoring 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 rate sensitivities.

Risk Measurements.Our Risk Management Policy assigns comprehensive risk limits which we calculate on a regular basis. The below limits were established in 2019 based on an anticipated market condition for 2020 which did not take into account the COVID-19 pandemic and the resulting low interest rates. Management believes that the reported metrics below in the near term are less meaningful because the model establishes a hard floor for the rate at near zero, and the model therefore does not fully capture the resulting downward shocks in rates. The Bank is including these metrics as of JuneSeptember 30, 2020 for completeness and comparative purposes, and currently investigating model and scenario changes to take account of the existing low rate environment and potential for negative rates. The current risk limits are as follows:

 

 ·The option-adjusted DOE is limited to a range of +3.0 years to -5 years in the rates unchanged case, and to a range of +/-5.0 years in the +/-200bps shock cases.
 ·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 the +200bps shock compared to the rates in the unchanged case.  The sensitivity of expected net interest income over a one-year period is limited to a -40 percent change under the -100bps shock compared to the rates in the unchanged case.  This limit was revised in late 2019 for 2020 and made consistent with expected market conditions for the year.  This metric modelsgauges the Bank’s sensitivity of earnings to changes in the level of rates along the yield curve.  The model results will reflect the impact of net interest income compression when the Bank’s floating rate advances and related debt both decline towards zero.
 ·The potential decline in the market value of equity (MVE) 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 +/-20 months through the 3-year term point and a cumulative limit of +/-30 months from the 5-year through 30-year term points specific to the investment portfolio.

 

120


Our portfolio, including derivatives, is tracked and the overall mismatch net of derivatives between assets and liabilities is summarized by using a DOE measure. The base case DOE takes into account the current low rate level. Our last five quarterly DOE results are shown in years in the table below:

 

  Base Case DOE  -200bps DOE  -100bps DOE  +200bps DOE   Base Case DOE  -200bps DOE  -100bps DOE  +200bps DOE 
September 30, 2020   -0.64   1.03   0.49   0.03 
June 30, 2020   -1.86   0.24   -0.08   0.49    -1.86   0.24   -0.08   0.49 
March 31, 2020   -3.18   -0.12   -0.91   -0.17    -3.18   -0.12   -0.91   -0.17 
December 31, 2019   -0.87   0.12   -2.11   0.37    -0.87   0.12   -2.11   0.37 
September 30, 2019   0.06   1.64   0.88   0.72    0.06   1.64   0.88   0.72 
June 30, 2019   -0.28   0.82   -1.09   0.44 

 

The DOE has remained within policy limits. The -100/200bps scenarios impose a near zero rate condition and produced results that Bank management does not consider meaningful given the current low rate market environment.

 

Duration indicates any cumulative re-pricing/maturity imbalance in the portfolio’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. DOE captures sensitivity of MVE. We measure DOE using software that generates a full revaluation incorporating optionality within our portfolio using well-known and tested financial pricing theoretical models. The DOE calculation also incorporates non-interest bearing financial asset and liabilities.

 

We do not solely rely on the DOE measure as a mismatch measure between assets and liabilities. We analyze open key rate duration exposure across maturity buckets while also performing a more traditional gap measure that subtracts re-pricing/maturing liabilities from re-pricing/maturing assets over time. We observe the differences over various horizons, butand have set a 10 percent of assets limit on asset on cumulative re-pricings at the one-year point. This quarterly observation of the one-year cumulative re-pricing gap is provided in the table below and all values are below 10 percent of assets, well within the limit:

 

   One Year
Re-pricing Gap
September 30, 2020 $5.826 Billion
June 30, 2020 $$5.589 Billion
March 31, 2020 $$6.299 Billion
December 31, 2019 $$5.936 Billion
September 30, 2019 $$5.632 Billion
June 30, 2019$5.818 Billion

 


Our review of potential interest rate risk issues also includes the effect of changes in interest rates on expected net income. We project asset and liability volumes and spreads over a one-year horizon and then simulate expected income and expenses from those volumes and other inputs. The effects of changes in interest rates are generated to measure the Bank’s net interest income sensitivity over the coming 12-month period. To measure the effect, a parallel shift of +200bps is calculated and compared against the base case and subjected to a -15 percent limit. The sensitivity of expected net interest income over a one-year period is limited to a -40 percent change under the -100bps shock compared to the rates in the unchanged case. This limit was technically breached at March 31, 2020 due to significant dislocation of rates and spreads as of the end of March 2020. The sensitivity analysis assumes that rates/spreads as of the end of March 2020 are held unchanged for the remainder of the year, and, as a consequence, the model generates significantly higher net interest income for the Bank. When spread relationships were normalized in the current low rate environment and for JuneSeptember 30, 2020, this limit was within threshold. The existing measure is subject to significant model limitations due to the assumption of floored rate levels against an already low rate environment. The Bank is further refining the model in future periods to be more meaningful in light of current market conditions. 

 

  Sensitivity in
the -200bps
Shock		  Sensitivity in
the -100bps
Shock		  Sensitivity in
the +200bps
Shock		  Sensitivity in
the -200bps
Shock		  Sensitivity in
the -100bps
Shock		  Sensitivity in
the +200bps
Shock		 
September 30, 2020  N/A   -4.36%  3.27%
June 30, 2020   N/A   -23.83%  -1.62%  N/A   -23.83%  -1.62%
March 31, 2020   N/A   -47.79%  12.14%  N/A   -47.79%  12.14%
December 31, 2019   -32.91%  -5.55%  6.96%  -32.91%  -5.55%  6.96%
September 30, 2019   -31.16%  -3.05%  2.72%  -31.16%  -3.05%  2.72%
June 30, 2019   -14.30%  -7.37%  11.10%

 

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. Management believes that the reported metrics below in the near term are less meaningful because the model establishes a hard floor for the rate at near zero, and the model therefore does not fully capture the resulting downward shocks in rates. The Bank is including these metrics as of JuneSeptember 30, 2020 for completeness and comparative purposes, and currently investigating model and scenario changes to take account of the existing low rate environment and potential for negative rates. The quarterly potential maximum decline in the MVE under these 200bps shocks is provided below:

 

  -200bps Change
in MVE		  -100bps Change
in MVE		  +200bps Change
in MVE		  -200bps Change
in MVE		  -100bps Change
in MVE		  +200bps Change
in MVE		 
September 30, 2020  1.95%  1.27%  1.24%
June 30, 2020   2.47%  1.76%  2.05%  2.47%  1.76%  2.05%
March 31, 2020   2.89%  1.32%  3.60%  2.89%  1.32%  3.60%
December 31, 2019   -1.93%  -1.60%  0.19%  -1.93%  -1.60%  0.19%
September 30, 2019   -0.55%  -0.63%  -0.95%  -0.55%  -0.63%  -0.95%
June 30, 2019   -1.51%  -0.81%  -0.34%

 

As noted, the potential declines under these shocks are within our limits of a maximum 10 percent.

 


The following tables display the portfolio’s maturity/re-pricing gaps as of JuneSeptember 30, 2020 and December 31, 2019 (in millions):

 

 Interest Rate Sensitivity  Interest Rate Sensitivity 
 June 30, 2020  September 30, 2020 
    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 $12,829  $406  $793  $388  $1,136  $13,821  $424  $744  $357  $1,066 
MBS investments  5,662   733   1,911   1,564   5,985   5,520   597   1,864   1,676   6,063 
Swaps hedging MBS  602   -   -   -   (602)  973   -   -   -   (973)
Adjustable-rate loans and advances  29,114   -   -   -   -   26,244   -   -   -   - 
Net investments, adjustable rate loans and advances  48,207   1,139   2,704   1,952   6,519   46,558   1,021   2,608   2,033   6,156 
                                        
Liquidity trading portfolio  1,801   6,550   4,402   -   -   4,117   6,894   1,456   -   - 
Swaps hedging investments  10,909   (6,529)  (4,380)  -   -   8,319   (6,864)  (1,455)  -   - 
Net liquidity trading portfolio  12,710   21   22   -   -   12,436   30   1   -   - 
                                        
Fixed-rate loans and advances  37,896   8,580   16,695   8,205   11,511   37,393   6,819   14,727   8,277   11,157 
Swaps hedging fixed-rate advances  40,091   (6,486)  (14,859)  (7,281)  (11,465)  37,514   (6,250)  (12,712)  (7,439)  (11,113)
Net fixed-rate loans and advances  77,987   2,094   1,836   924   46   74,907   569   2,015   838   44 
                                        
Total interest-earning assets $138,904  $3,254  $4,562  $2,876  $6,565  $133,901  $1,620  $4,624  $2,871  $6,200 
                                        
Interest-bearing liabilities:                                        
Deposits $1,530  $-  $-  $-  $-  $1,737  $-  $-  $-  $- 
                                        
Discount notes  78,169   11,314   -   -   -   69,203   499   -   -   - 
Swapped hedging discount notes  7,417   (9,223)  198   209   1,399   (1,537)  (269)  198   209   1,399 
Net discount notes  85,586   2,091   198   209   1,399   67,666   230   198   209   1,399 
                                        
Consolidated Obligation Bonds                                        
FHLBank bonds  29,933   10,960   9,741   2,410   5,372   34,004   18,270   11,182   2,367   5,349 
Swaps hedging bonds  16,253   (9,784)  (5,381)  (413)  (675)  24,861   (17,073)  (6,585)  (528)  (675)
Net FHLBank bonds  46,186   1,176   4,360   1,997   4,697   58,865   1,197   4,597   1,839   4,674 
                                        
Total interest-bearing liabilities $133,302  $3,267  $4,558  $2,206  $6,096  $128,268  $1,427  $4,795  $2,048  $6,073 
Post hedge gaps (a):                                        
Periodic gap $5,602  $(13) $4  $670  $469  $5,633  $193  $(171) $823  $127 
Cumulative gaps $5,602  $5,589  $5,593  $6,263  $6,732  $5,633  $5,826  $5,655  $6,478  $6,605 

 


  Interest Rate Sensitivity 
  December 31, 2019 
       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 $25,527  $234  $646  $472  $1,639 
MBS investments  5,781   943   2,167   1,657   6,142 
Swaps hedging MBS  532   -   -   -   (532)
Adjustable-rate loans and advances  16,368   -   -   -   - 
Net investments, adjustable rate loans and advances  48,208   1,177   2,813   2,129   7,249 
                     
Liquidity trading portfolio  2,446   3,708   9,109   2   - 
Swaps hedging investments  12,780   (3,710)  (9,070)  -   - 
Net liquidity trading portfolio  15,226   (2)  39   2   - 
                     
Fixed-rate loans and advances  49,892   4,502   14,493   5,557   9,584 
Swaps hedging fixed-rate advances  31,083   (4,008)  (12,966)  (4,566)  (9,543)
Net fixed-rate loans and advances  80,975   494   1,527   991   41 
                     
Total interest-earning assets $144,409  $1,669  $4,379  $3,122  $7,290 
                     
Interest-bearing liabilities:                    
Deposits $1,155  $5  $-  $-  $- 
                     
Discount notes  73,942   -   -   -   - 
Swapped hedging discount notes  (2,664)  525   531   90   1,518 
Net discount notes  71,278   525   531   90   1,518 
                     
Consolidated Obligation Bonds                    
FHLBank bonds  57,598   6,463   6,518   2,424   5,320 
Swaps hedging bonds  8,601   (5,483)  (2,305)  (88)  (725)
Net FHLBank bonds  66,199   980   4,213   2,336   4,595 
                     
Total interest-bearing liabilities $138,632  $1,510  $4,744  $2,426  $6,113 
Post hedge gaps (a):                    
Periodic gap $5,777  $159  $(365) $696  $1,177 
Cumulative gaps $5,777  $5,936  $5,571  $6,267  $7,444 

 

(a)Re-pricing gaps are estimated at the scheduled rate reset dates for floating rate instruments, and at maturity for fixed rate instruments. For callable instruments, the re-pricing period is estimated by the earlier of the estimated call date under the current interest rate environment or the instrument’s contractual maturity.

 


Item 4.Controls and Procedures.

 

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, José R. González, and Senior Vice President and Chief Financial Officer, Kevin M. Neylan, as of JuneSeptember 30, 2020. Based on this evaluation, they concluded that as of JuneSeptember 30, 2020, 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.

 

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.

 

125


Part II. Other Information.

Part II.Other Information.

 

Item 1. Legal Proceedings

 

The Bank is not aware of any legal proceedings that are expected to have a material effect on its financial condition or results of operations or that are otherwise material to the Bank.

 

Item 1A. Risk Factors

 

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of the FHLBNY’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 other than as set forth below:

 

The COVID-19 crisis has adversely affected the economy and the markets, and could adversely affect the Bank’s operations, business activities, results of operations and financial condition.

 

The COVID-19 crisis has created economic and financial disruptions and uncertainties, which may lead to reduced demand for advances and an increased risk of credit losses for the Bank and may adversely affect its cost of funding or access to funding. These events may also lead to operational difficulties that could adversely affect the ability of the Bank and the Office of Finance to conduct and manage their businesses. Any of these factors could adversely affect the Bank’s business activities and results of operations.

 

In particular, the current COVID-19 pandemic has disrupted the credit markets in which the Bank operates, and the volatility in interest rates has affected the fair values of the Bank’s assets, liabilities and valuation of collateral. In the Bank’squarterly periods through the third quarter of 2020 the Bank has reported relatively stable member demand for advances and reported steady net income and capital and the valuationnet interest income. However, we cannot forecast with any certainty that earnings would not be negatively impacted by a prolonged continuation of collateral. A prolonged COVID-19 outbreak may continue to have adverse effects on the Bank’s profitability and financial condition.pandemic. Market volatility and economic stress during a prolonged COVID-19 outbreak may also adversely affect the Bank’s access to the debt markets, and possibly affect the Bank’s liquidity.

 

The Bank’s decision in accordance with its Business Continuity Plan to have all employees work remotely may, despite the inclusion of risk mitigants in the Plan, create additional cybersecurity risks and operational challenges that could affect the Bank’s ability to conduct business or increase the risk of operational incidents and errors.

 


In addition, the Bank relies on vendors and other third parties to perform certain critical services, and if one of our critical vendors or third parties experiences a failure or any interruption to their business due to the COVID-19 pandemic, the Bank may be unable to conduct and manage its business effectively.

 

The outlook for the remainder of 2020 is uncertain, and there is a possibility that if the Federal Reserve keeps interest rates low, or if negative interest rates are realized in the market, this could significantly affect the Bank’s business and profitability.

 

Impact of COVID-19 Crisis on Financial Models and Accounting Estimates.

The valuation methodology for our fair value and loan loss reserve determinations are sensitive to, among other things, management's estimates and forecasts of future economic and market conditions. The Bank uses its best judgement when estimating fair values and loan losses using its models and quantitative and qualitative factors. There is currently great uncertainty in the financial markets since the COVID-19 crisis has had an unforeseeable negative impact on the global and national economies. Some models and their inputs are inherently less reliable during times of market disruptions such as we are currently experiencing. Our actual results could be materially different from the estimates and assumptions in our models.

 


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

 

None.

 

127124 

 

 

Item 6.Exhibit

 

No.  Exhibit Description Filed with
this Form 
10-Q		 Form* Date Filed
3.01 Restated Organization Certificate of the Federal Home Loan Bank of New York (“Bank”)   8-K 12/1/2005
3.02 Amended and Restated Bylaws of the Bank   8-K 3/21/2019
4.01 Amended and Restated Capital Plan of the Bank   8-K 1/8/20189/2/2020
31.1 Certification of Registrant’s Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 X    
31.2 Certification of the Registrant’s Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 X    
32.1 Certification of Registrant’s Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 X    
32.2 Certification of Registrant’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 X    
101.INS XBRL Instance Document X    
101.SCH XBRL Taxonomy Extension Schema Document X    
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document X    
101.LAB XBRL Taxonomy Extension Label Linkbase Document X    
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X    
101.DEF XBRL Taxonomy Extension Definition Linkbase Document X    

 

Notes:

 

* Means that this exhibit is incorporated by reference from the named Form; the filing date of such named Form is listed in the next column.

 


SIGNATURES

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/ Kevin M. Neylan
 Kevin M. Neylan
 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: August 10,November 12, 2020