| Derivatives and Hedging Activities. | Note 15. Derivatives and Hedging Activities.
General — The FHLBNY accounts for its hedging activities in accordance with ASC 815, Derivatives and Hedging (formerly SFAS 133). As a general rule, hedge accounting is permitted where the FHLBNY is exposed to a particular risk, such as 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. For more information, see Derivatives in Note 1. Significant Accounting Polices and Estimates in the Bank’s most recent Form 10-K filed on March 23, 2015 .
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.
We use derivatives in three ways — by designating them as a fair value or cash flow hedge of an underlying financial instrument or a forecasted transaction that qualifies for hedge accounting treatment; by acting as an intermediary; or by designating the derivative as an asset-liability management hedge (i.e., an “economic hedge”).
When we designates a derivative as an economic hedge, the choice represents the most cost effective manner of hedging a risk, and is after considering the operational costs and benefits of executing a hedge that would qualify for hedge accounting. When entering into such hedges that do not qualify for hedge accounting, changes in fair value of the derivatives is recorded in earnings with no offsetting fair value adjustments for the hedged asset, liability, or firm commitment. As a result, an economic hedge introduces the potential for earnings variability. 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.
Principal hedging activities are summarized below :
Consolidated Obligations
The FHLBNY may manage the risk arising from changing market prices and volatility of a consolidated obligation debt by matching the cash inflows on the derivative with the cash outflow on the consolidated obligation debt.
Fair value hedges — In a typical transaction, fixed-rate consolidated obligations are issued by the FHLBNY and we would concurrently enter into a matching interest rate swap in which the counterparty pays to the FHLBNY fixed cash flows designed to mirror, in timing and amounts, the cash outflows the FHLBNY pays to the holders of the consolidated obligations.
When such a transaction qualifies for hedge accounting, it is treated as a “Fair value hedge” under the accounting standards for derivatives and hedging. By electing to use fair value hedge accounting, the carrying value of the debt is adjusted for changes in the benchmark interest rate, with any such changes in fair value recorded in current earnings. The interest-rate swap that hedges the interest rate risk of the debt is also recorded on the balance sheet at fair value, with any changes in fair value reflected in earnings.
Cash flow hedges — The FHLBNY also hedges variable cash flows resulting from rollover (re-issuance) of 3-month consolidated obligation discount notes. Variable cash flows from those liabilities are converted to fixed-rate cash flows by entering into receive-variable, pay-fixed interest rate swaps. We also hedge the variability of cash flows of anticipated issuance of fixed-rate debt to changes in the benchmark rate.
When such a transaction qualifies for hedge accounting, the hedge is accounted for under the provisions of a “Cash flow hedge”. The interest-rate swaps are recorded at fair values on the balance sheet as a derivative asset or liability, with the offset in AOCI. Changes in fair values of the hedging derivatives are reflected in AOCI to the extent the hedges are effective. Hedge ineffectiveness, if any, is recorded in current earnings. Fair values of swaps in the cash flow hedge programs are reclassified from AOCI to earnings as an interest expense at the same time as when the interest expense from the discount note or the anticipated debt impacts interest expense. Since efforts are made to match the terms of the derivatives to those of the hedged forecasted cash flows as closely as possible, the amount of hedge ineffectiveness is not significant. The two Cash flow strategies are described below:
·
Cash flow hedges of “Anticipated Consolidated Bond Issuance” — The FHLBNY enters into interest-rate swaps to hedge the anticipated issuance of debt, and to “lock in” the interest to be paid for the cost of funding. The swaps are terminated upon issuance of the debt instrument, and gains or losses upon termination are recorded in AOCI. Gains and losses are reclassified to earnings in the periods in which earnings are affected by the variability of the cash flows of the debt that was issued.
·
Cash flow hedges of “Rolling Issuance of Discount Notes” — The FHLBNY executes long-term pay-fixed, receive-variable interest rate swaps as hedges of the variable quarterly interest payments on the discount note borrowing program. In this program, we issue a series of discount notes with 91-day terms over periods typically up to 15 years. We will continue issuing new 91-day discount notes over the terms of the swaps as each outstanding discount note matures. The interest rate swaps require a settlement every 91 days, and the variable rate, which is based on the 3-month LIBOR, is reset immediately following each payment. The swaps are expected to eliminate the risk of variability of cash flows for each forecasted discount note issuance every 91 days. The fair values of the interest rate swaps are recorded in AOCI and ineffectiveness, if any, is recorded in earnings. Amounts recorded in AOCI are reclassified to earnings in the same periods in which interest expenses are affected by the variability of the cash flows of the discount notes.
Economic hedges of consolidated obligation debt — When we issue variable-rate consolidated obligation bonds indexed to 1-month LIBOR, the U.S. Prime rate, or Federal funds rate, we will generally simultaneously execute interest-rate swaps (“basis swaps”) to hedge the basis risk of the variable rate debt to 3-month LIBOR, the FHLBNY’s preferred funding base. The basis swaps are designated as economic hedges of the floating-rate bonds. The choice of an economic hedge is made because the FHLBNY has determined that the operational cost of designating the hedges under accounting standards for derivatives and hedge accounting would outweigh the accounting benefits. In this economic hedge, only the interest rate swap is carried at fair value, with changes in fair values recorded though earnings.
Consolidated obligation debt elected under the Fair Value Option — An alternative to hedge accounting, which permits the debt to be carried at the benchmark (LIBOR) fair value, is to elect debt under the FVO. Once the irrevocable election is made upon issuance of the debt, the entire change in fair value of the debt is reported in earnings. We have elected to carry certain fixed-rate consolidated bonds and discount notes under the FVO. For more information, see Fair Value Option Disclosures in Note 16. Fair Values of Financial Instruments. Typically, we would also execute interest rate swaps (to convert the fixed-rate cash flows of the FVO debt to variable-rate cash flows), and changes in the fair values of the swaps are also recorded in earnings, creating a natural offset to the debt’s fair value changes through earnings. The interest rate swap would be designated as an economic hedge of the debt.
Advances
We offer a wide array of advances structures to meet members’ funding needs. These advances may have maturities up to 30 years with fixed or adjustable rates and may include early termination features or options. We may use derivatives to adjust the repricing and/or options characteristics of advances to more closely match the characteristics of its funding liabilities.
Fair value hedges — In general, whenever a member executes a longer-term fixed rate advance, or a fixed or variable-rate advance with call or put or other embedded options, we will simultaneously execute a derivative transaction, generally an interest rate swap, with terms that offset the terms of the fixed rate advance, or terms of the advance with embedded put or call options or other options. When such instruments are conceived, designed and structured, our control procedures require the identification and evaluation of embedded derivatives, as defined under accounting standards for derivatives and hedging activities.
When a fixed-rate advance is hedged, the combination of the fixed rate advance and the derivative transaction effectively creates a variable rate asset, indexed to LIBOR. With a putable advance borrowed by a member, we would purchase from the member a put option that is embedded in the advance. We may hedge a putable advance by entering into a cancellable interest rate swap in which we pay to the swap counterparty fixed-rate cash flows, and in return the swap counterparty pays us variable-rate cash flows. The swap counterparty can cancel the swap on the put date, which would normally occur in a rising rate environment, and we can terminate the advance and extend additional credit to the member on new terms. We also offer callable advances to members, which is a fixed-rate advance borrowed by a member. Within the structure of the advance, the FHLBNY sells to the member an embedded call option that enables the member to terminate the advance at pre-determined exercise dates. The call option is embedded in the advance. We hedge such advances by executing interest rate swaps with cancellable option features that would allow us to terminate the swaps also at pre-determined option exercise dates.
Advances elected under the Fair Value Option — We have elected to carry certain advances under the FVO. Once the irrevocable election is made upon issuance of the advance, the entire change in fair value of the advance is reported in earnings, and provides a natural economic offset when a consolidated obligation debt is elected under the FVO.
Economic hedges of variable rate capped advances — We offer variable rate advances with an embedded option that caps the interest rate payable by the borrower. The FHLBNY would typically offset the risk presented by the embedded cap by executing a matching standalone cap.
Mortgage Loans
Mortgage loans are fixed-rate MPF loans held-for-portfolio, and the FHLBNY manages the interest rate and prepayment risk associated with mortgages through debt issuance, without the use of derivatives. Firm commitments to purchase or deliver mortgage loans are accounted for as a derivative. See “Firm Commitment Strategies” described below.
Firm Commitment Strategies — Mortgage delivery commitments are considered derivatives under the accounting standards for derivatives and hedging. We account for them as freestanding derivatives, and record the fair values of mortgage loan delivery commitments on the balance sheet with an offset to Other income (loss) as a Net realized and unrealized gains (losses) on derivatives and hedging activities. Fair values were not significant for all periods in this report.
Member Intermediation
To meet the hedging needs of its members, the FHLBNY acts as an intermediary between the members and the other counterparties. This intermediation allows smaller members to access the derivatives market. The derivatives used in intermediary activities do not qualify for hedge accounting, and fair value changes are recorded in earnings. Since the FHLBNY mitigates the fair value exposure of these positions by executing identical offsetting transactions, the net impact in earnings is not significant. The notional principal of interest rate swaps outstanding were $31.0 million and $110.0 million at September 30, 2015 and December 31, 2014. The FHLBNY’s exposure with respect to the transactions with members was fully collateralized.
Other Economic Hedges
The derivatives in economic hedges are considered freestanding and changes in the fair values of the swaps are recorded through income. In general, economic hedges comprised of (1) interest rate caps to hedge balance sheet risk, specifically interest rate risk from certain capped floating rate investment securities, and (2) interest rate swaps that had previously qualified as hedges under the accounting standards for derivatives and hedging, but had been subsequently de-designated from hedge accounting as they were assessed as being not highly effective hedges.
Credit Risk Due to Non-performance by Counterparties
The contractual or notional amount of derivatives reflects the involvement of the FHLBNY in the various classes of financial instruments, and serves 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 majority of OTC derivative contracts are primarily bilateral contracts between the FHLBNY and the swap counterparties that are executed and settled bilaterally with counterparties, rather than settling the transaction with a derivative clearing house (“DCO”). Certain of the FHLBNY’s OTC derivatives are executed bilaterally with executing swap counterparties, then cleared and settled through one or more DCOs as mandated under the Dodd-Frank Act. When transacting a derivative for clearing, the FHLBNY utilizes a designated clearing agent, the Futures Clearing Merchant (“FCM”) that acts on behalf of the FHLBNY to clear and settle the interest rate exchange transaction through the DCO. Once the transaction is accepted for clearing by the FCM, acting in the capacity of an intermediary between the FHLBNY and the DCO, the original transaction between the FHLBNY and the executing swap counterparty is extinguished, and is replaced by an identical transaction between the FHLBNY and the DCO. The DCO becomes the counterparty to the FHLBNY. However, the FCM remains as the principal operational contact and interacts with the DCO through the life cycle events of the derivative transaction on behalf of the FHLBNY.
Credit risk on bilateral OTC derivative contracts — For derivatives that are not eligible for clearing with a DCO under the Dodd-Frank Act, the FHLBNY is subject to credit risk as a result of non-performance by swap counterparties to the derivative agreements. The FHLBNY enters into master netting arrangements and bilateral security agreements with all active derivative counterparties that provide for delivery of collateral at specified levels to limit the net unsecured credit exposure to these counterparties. The FHLBNY makes judgments on each counterparty’s creditworthiness, and makes estimates of the collateral values in analyzing counterparty non-performance credit risk. Bilateral agreements consider the credit risks and the agreement specifies thresholds to post or receive collateral with changes in credit ratings. When the FHLBNY has more than one derivative transaction outstanding with the counterparty, and a legally enforceable master netting agreement exists with the counterparty, the net exposure (less collateral held) represents the appropriate measure of credit risk. The FHLBNY conducts all its derivative transactions under ISDA master netting agreements.
Credit risk on OTC cleared derivative transactions — The FHLBNY’s derivative transactions that are eligible for clearing are subject to mandatory clearing rules under the Commodity Futures Trading Commission (“CFTC”) as provided under the Dodd-Frank Act. If a derivative transaction is listed as eligible for clearing, the FHLBNY must abide by the CFTC rules to clear the transaction through a DCO. The FHLBNY’s cleared derivatives are also initially executed bilaterally with a swap dealer (the executing swap counterparty), in the OTC market. The clearing process requires all parties to the derivative transaction to novate the contracts to a DCO, which then becomes the counterparty to all parties, including the FHLBNY, to the transaction.
The enforceability of offsetting rights incorporated in the agreements for the cleared derivative transactions has been analyzed by the FHLBNY to establish the extent to which supportive legal opinion, obtained from counsel of recognized standing, provides the requisite level of certainty regarding the enforceability of these agreements. Further analysis was performed to reach a view that the exercise of rights by the non-defaulting party under these agreements would not be stayed, or avoided under applicable law upon an event of default including bankruptcy, insolvency or similar proceeding involving the DCO or the FHLBNY’s clearing agents or both. Based on the analysis of the rules, and legal analysis obtained, the FHLBNY has made a determination that it has the right of setoff that is enforceable under applicable law that would allow it to net individual derivative contracts executed through a specific clearing agent, the FCM, to a designated DCO, so that a net derivative receivable or payable will be recorded for the DCO; that exposure (less margin held) would be represented by a single amount receivable from the DCO, and that amount be the appropriate measure of credit risk. This policy election for netting cleared derivatives is consistent with the policy election for netting bilaterally settled derivative transactions under master netting agreements.
Typically, margin consists of “Initial margin” and “Variation margin”. Variation margin fluctuates with the fair values of the open contracts. Initial margin fluctuates with the volatility of the FHLBNY’s portfolio of cleared derivatives, and volatility is measured by the speed and severity of market price changes of the portfolio. Initial margin and Variation margins are posted in cash by the FHLBNY.
Offsetting of Derivative Assets and Derivative Liabilities — Net Presentation
The following table 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 (“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. Where such a legal analysis has not been either sought or obtained, the receivables were not netted, and were reported as Derivative instruments - Not Nettable (in thousands):
September 30, 2015
December 31, 2014
Derivative Assets
Derivative Liabilities
Derivative Assets
Derivative Liabilities
Derivative instruments -Nettable
Gross recognized amount
Bilateral derivatives
$
$
$
$
Cleared derivatives
Total gross recognized amount
Gross amounts of netting adjustments and cash collateral
Bilateral derivatives
)
)
)
)
Cleared derivatives
)
)
)
)
Total gross amounts of netting adjustments and cash collateral
)
)
)
)
Net amounts after offsetting adjustments
Bilateral derivatives
Cleared derivatives
—
—
Total net amounts after offsetting adjustments
Derivative instruments -Not Nettable
Delivery commitments (a)
Total derivative assets and total derivative liabilities presented in the Statements of Condition
$
$
$
$
Non-cash collateral received or pledged not offset (c)
Cannot be sold or repledged
Bilateral derivatives
$
$
—
$
$
—
Delivery commitments (a)
—
—
Total cannot be sold or repledged
—
—
Net unsecured amount
Bilateral derivatives
Cleared derivatives
—
—
Total net amount (b)
$
$
$
$
(a)
Derivative instruments without legal right of offset 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 receivable from payables, and net presentation was adopted. No cash collateral was involved with the mortgage delivery commitments accounted as derivatives.
(b)
Unsecured amounts represent Derivative assets and liabilities recorded in the Statements of Condition at September 30, 2015 and December 31, 2014. The amounts primarily represent (1) the aggregate credit support thresholds that were waived under ISDA Credit Support and Master netting agreements between the FHLBNY and derivative counterparties for uncleared derivative contracts, and (2) Initial margins posted by the FHLBNY to DCO on cleared derivative transactions.
(c)
Non-Cash collateral received or pledged not offset — Amounts represent exposure arising from derivative positions with member counterparties where we acted as an intermediary, and a small amount of delivery commitments (see footnote a). Amounts are collateralized by pledged non-cash collateral, primarily 1-4 family housing collateral.
The gross derivative exposures as represented by derivatives in fair value gain positions for the FHLBNY, before netting and offsetting cash collateral, were $582.5 million and $602.0 million at September 30, 2015 and December 31, 2014. Fair values amounts that were netted as a result of master netting agreements, or as a result of a determination that netting requirements had been met (including obtaining a legal analysis supporting the enforceability of the netting for cleared OTC derivatives), totaled $496.2 million and $563.0 million at those dates. These netting adjustments included $34.7 million and $143.2 million in cash posted by counterparties to mitigate the FHLBNY’s exposures at September 30, 2015 and December 31, 2014, and the net exposures after offsetting adjustments were $86.5 million and $39.1 million at those dates.
Derivative counterparties are also exposed to credit losses resulting from potential non-performance risk of the FHLBNY with respect to derivative contracts, and their exposure, due to a potential default or non-performance by the FHLBNY, is measured by derivatives in a fair value loss position from the FHLBNY’s perspective (and a gain position from the counterparty’s perspective). Net fair values of derivatives in unrealized loss positions were $290.0 million and $345.2 million, after deducting $1.1 billion of cash collateral posted to the exposed counterparties at September 30, 2015 and December 31, 2014. With respect to cleared derivatives, cash posted to the DCO were in excess of required margins, primarily due to the requirement to post Initial margin. The DCO was exposed to the extent of the failure of the FHLBNY to deliver cash margin, which is typically paid one day following the execution of a cleared derivative, and that specific exposure was not significant at September 30, 2015.
The FHLBNY is also exposed to the risk of derivative counterparties failing to return cash collateral deposited with counterparties due to counterparty bankruptcy or other similar scenarios. If such an event were to occur, the FHLBNY would be forced to replace derivatives by executing similar derivative contracts with other counterparties. To the extent that the FHLBNY receives cash from the replacement trades that is less than the amount of cash deposited with the defaulting counterparty, the FHLBNY’s cash pledged as a deposit is exposed to credit risk of the defaulting counterparty. Derivative counterparties, including the DCO, holding the FHLBNY’s cash as posted collateral, were analyzed from a credit performance perspective, and based on credit analysis and collateral requirements, the management of the FHLBNY does not anticipate any credit losses on its derivative agreements.
Offsetting of Derivative Assets and Derivative Liabilities
The following tables represent outstanding notional balances and estimated fair values of the derivatives outstanding at September 30, 2015 and December 31, 2014 (in thousands):
September 30, 2015
Notional Amount of Derivatives
Derivative Assets
Derivative Liabilities
Fair value of derivative instruments (a)
Derivatives designated in hedging relationships
Interest rate swaps-fair value hedges
$
$
$
Interest rate swaps-cash flow hedges
Total derivatives in hedging instruments
Derivatives not designated as hedging instruments
Interest rate swaps
Interest rate caps or floors
—
Mortgage delivery commitments
Other (b)
Total derivatives not designated as hedging instruments
Total derivatives before netting and collateral adjustments
$
Netting adjustments and cash collateral (c)
)
)
Net after cash collateral reported on the Statements of Condition
$
$
December 31, 2014
Notional Amount of Derivatives
Derivative Assets
Derivative Liabilities
Fair value of derivative instruments (a)
Derivatives designated in hedging relationships
Interest rate swaps-fair value hedges
$
$
$
Interest rate swaps-cash flow hedges
Total derivatives in hedging instruments
Derivatives not designated as hedging instruments
Interest rate swaps
Interest rate caps or floors
—
Mortgage delivery commitments
Other (b)
Total derivatives not designated as hedging instruments
Total derivatives before netting and collateral adjustments
$
Netting adjustments and cash collateral (c)
)
)
Net after cash collateral reported on the Statements of Condition
$
$
(a)
All derivative assets and liabilities with swap dealers and counterparties are collateralized by cash; derivative instruments are subject to legal right of offset under master netting agreements.
(b)
Other category comprised of swaps intermediated for member, and notional amounts represent purchases from dealers and an offsetting purchase by the members from us.
(c)
Cash collateral and related accrued interest posted by counterparties to the FHLBNY of $34.7 million and $143.2 million at September 30, 2015 and December 31, 2014 were netted in Netting adjustments on Derivative assets; cash collateral posted by the FHLBNY of $1.1 billion at September 30, 2015 and December 31, 2014 were netted in Netting adjustments on Derivative liabilities.
Earnings Impact of Derivatives and Hedging Activities
The FHLBNY carries all derivative instruments on the Statements of Condition at fair value as Derivative Assets and Derivative Liabilities. If derivatives meet the hedging criteria under hedge accounting rules, including effectiveness measures, changes in fair value of the associated hedged financial instrument attributable to the risk being hedged (benchmark interest-rate risk, which is LIBOR for the FHLBNY) may also be recorded so that some or all of the unrealized fair value gains or losses recognized on the derivatives are offset by corresponding unrealized gains or losses on the associated hedged financial assets and liabilities. The net differential between fair value changes of the derivatives and the hedged items represents hedge ineffectiveness. The net ineffectiveness from hedges that qualify under hedge accounting rules is recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income (loss) in the Statements of Income. If derivatives do not qualify for the hedging criteria under hedge accounting rules, but are executed as economic hedges of financial assets or liabilities under a FHLBNY-approved hedge strategy, only the fair value changes of the derivatives are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income (loss) in the Statements of Income.
The FHLBNY has elected to measure certain debt under the accounting designation for FVO, and has executed interest rate swaps as economic hedges of the debt. While changes in fair values of the interest rate swap and the debt elected under the FVO are recorded in earnings in Other income (loss), the changes in the fair value changes of the swaps are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities. Fair value changes of debt and advances elected under the FVO are recorded as an Unrealized (losses) or gains from Instruments held at fair value.
Components of net gains/ (losses) on Derivatives and hedging activities as presented in the Statements of Income are summarized below (in thousands):
Three months ended September 30,
2015
2014
Gains (Losses) on Derivative
Gains (Losses) on Hedged Item
Earnings Impact
Effect of Derivatives on Net Interest Income
Gains (Losses) on Derivative
Gains (Losses) on Hedged Item
Earnings Impact
Effect of Derivatives on Net Interest Income
Derivatives designated as hedging instruments Interest rate swaps
Advances
$
)
$
$
)
$
)
$
$
)
$
$
)
Consolidated obligation bonds
)
)
Net (losses) gains related to fair value hedges
)
)
$
)
)
$
)
Cash flow hedges
)
)
$
)
—
—
$
)
Derivatives not designated as hedging instruments Interest rate swaps (a)
)
)
)
)
Caps or floors
)
)
Mortgage delivery commitments
Swaps economically hedging instruments designated under FVO
)
)
Accrued interest-swaps (a)
Net gains (losses) related to derivatives not designated as hedging instruments
)
)
Net (losses) gains on derivatives and hedging activities
$
)
$
$
$
$
)
$
)
Nine months ended September 30,
2015
2014
Gains (Losses) on Derivative
Gains (Losses) on Hedged Item
Earnings Impact
Effect of Derivatives on Net Interest Income
Gains (Losses) on Derivative
Gains (Losses) on Hedged Item
Earnings Impact
Effect of Derivatives on Net Interest Income
Derivatives designated as hedging instruments Interest rate swaps
Advances
$
)
$
$
)
$
)
$
$
)
$
$
)
Consolidated obligation bonds
)
)
Net gains (losses) related to fair value hedges
)
$
)
)
$
)
Cash flow hedges
)
)
$
)
$
)
Derivatives not designated as hedging instruments Interest rate swaps (a)
)
)
Caps or floors
)
)
)
)
Mortgage delivery commitments
)
)
Swaps economically hedging instruments designated under FVO
)
)
Accrued interest-swaps (a)
Net gains (losses) related to derivatives not designated as hedging instruments
)
)
Net gains (losses) on derivatives and hedging activities
$
$
)
$
$
$
)
$
)
(a)
Derivative gains and losses from interest rate swaps that did not qualify as hedges under accounting rules were designated as economic hedges. Gains and losses include interest expenses and income associated with the interest rate swap.
Cash Flow Hedges
The effect of interest rate swaps in cash flow hedging relationships was as follows (in thousands):
Three months ended September 30,
2015
2014
AOCI
AOCI
Gains/(Losses)
Gains/(Losses)
Recognized in AOCI (c)(d)
Location: Reclassified to Earnings (c)
Amount Reclassified to Earnings (c)
Ineffectiveness Recognized in Earnings
Recognized in AOCI (c)(d)
Location: Reclassified to Earnings (c)
Amount Reclassified to Earnings (c)
Ineffectiveness Recognized in Earnings
Consolidated obligation bonds (a)
$
)
Interest Expense
$
$
)
$
—
Interest Expense
$
$
—
Consolidated obligation discount notes (b)
)
Interest Expense
—
—
Interest Expense
—
—
$
)
$
$
)
$
$
$
—
Nine months ended September 30,
2015
2014
AOCI
AOCI
Gains/(Losses)
Gains/(Losses)
Recognized in AOCI (c)(d)
Location: Reclassified to Earnings (c)
Amount Reclassified to Earnings (c)
Ineffectiveness Recognized in Earnings
Recognized in AOCI (c)(d)
Location: Reclassified to Earnings (c)
Amount Reclassified to Earnings (c)
Ineffectiveness Recognized in Earnings
Consolidated obligation bonds (a)
$
)
Interest Expense
$
$
)
$
Interest Expense
$
$
Consolidated obligation discount notes (b)
)
Interest Expense
—
—
)
Interest Expense
—
—
$
)
$
$
)
$
)
$
$
(a)
Hedges of anticipated issuance of debt — Amounts represented changes recorded in AOCI and earnings during the periods. The maximum period of time that the FHLBN |
