UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
| | x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2020
or
| | ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-51397
Federal Home Loan Bank of New York
(Exact name of registrant as specified in its charter)
| Federally chartered corporation | | 13-6400946 |
| (State or other jurisdiction of | | (I.R.S. Employer |
| incorporation or organization) | | Identification No.) |
| | | |
| 101 Park Avenue, New York, New York | | 10178 |
| (Address of principal executive offices) | | (Zip Code) |
(212) 681-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act:
Class B Stock, putable, par value $100
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 ¨
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
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 ¨ | | Accelerated filer ¨ |
| | | |
| Non-accelerated filer x | | Smaller reporting company ¨ |
| | | |
| | | Emerging growth company ¨ |
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. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
Registrant’s stock is not publicly traded and is only issued to members of the registrant. Such stock is issued and redeemed at par value, $100 per share, subject to certain regulatory and statutory limits. At June 30, 2020, the aggregate par value of the common stock held by members of the registrant was approximately $6,334,135,100. At February 28, 2021, 53,093,420 shares of common stock were outstanding.
FEDERAL HOME LOAN BANK OF NEW YORK
2020 Annual Report on Form 10-K
Table of Contents
PART I
General
The Federal Home Loan Bank of New York (“we,” “us,” “our,” “the Bank” or the “FHLBNY”) is a federally chartered corporation exempt from federal, state and local taxes except local real property taxes. It is one of eleven district Federal Home Loan Banks (FHLBanks). The FHLBanks are U.S. government-sponsored enterprises (GSEs), organized under the authority of the Federal Home Loan Bank Act of 1932, as amended (FHLBank Act). Each FHLBank is a cooperative owned by member institutions located within a defined geographic district. The members purchase capital stock in the FHLBank and generally receive dividends on their capital stock investment. Our defined geographic district is New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. We provide a readily available, low-cost source of funds for our member institutions.
The FHLBNY is managed to deliver balanced value to members, rather than to maximize profitability or advance volume through low pricing. Our members must purchase FHLBNY stock according to regulatory requirements as a condition of membership. For more information, see financial statements, Note 14. Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings. The business of the cooperative is to provide liquidity for our members (primarily in the form of loans referred to as “advances”) and to provide a return on members’ investment in FHLBNY stock in the form of a dividend. Since members are both stockholders and customers, our management operates the Bank such that there is a trade-off between providing value to them via low pricing for advances with a relatively lower dividend versus higher advances pricing with a relatively higher dividend.
All federally insured depository institutions, federally insured credit unions and insurance companies engaged in residential housing finance can apply for membership in the FHLBank in their district. Community development financial institutions (CDFIs) that have been certified by the CDFI Fund of the U.S. Treasury Department, including community development loan funds, community development venture capital funds, and state-chartered credit unions without federal insurance, are also eligible to become members of a FHLBank. Five CDFIs were members of the FHLBNY at December 31, 2020.
A member of another FHLBank or a financial institution that is not a member of any FHLBank may also hold FHLBNY stock as a result of having acquired one of our members. Because we operate as a cooperative, we conduct business with related parties in the normal course of business and consider all members and non-member stockholders as related parties in addition to the other FHLBanks. For more information, see financial statements, Note 20. Related Party Transactions and Item 13. Certain Relationships and Related Transactions, and Director Independence in this Form 10-K.
Our primary business is making collateralized loans or advances to members and is also the principal factor that impacts our financial condition. We also serve the public through our mortgage programs, which enable our members to liquefy certain mortgage loans by selling them to the Bank. We also provide members with such correspondent services as safekeeping, wire transfers, depository, and settlement services. Non-members that have acquired members have access to these services up to the time that their advances outstanding prepay or mature.
We obtain our funds from several sources. A primary source is the issuance of FHLBank debt instruments, called Consolidated obligations, to the public. The issuance and servicing of Consolidated obligations are performed by the Office of Finance, the fiscal agent for the issuance and servicing of Consolidated obligations on behalf of the 11 FHLBanks. These debt instruments represent the joint and several obligations of all the FHLBanks. Because the FHLBanks’ Consolidated obligations are rated Aaa/P-1 with a stable outlook by Moody’s Investors Service (Moody’s) and AA+/A-1+ with a stable outlook by Standard & Poor’s Rating Services (S&P or Standard & Poor’s) and because of the FHLBanks’ GSE status, the FHLBanks are generally able to raise funds at rates that are typically at a small to moderate spread above U.S. Treasury security yields. Additional sources of funding are member deposits, other borrowings, and the issuance of capital stock. Deposits may be accepted from member financial institutions and federal instrumentalities.
We combine private capital and public sponsorship as a GSE to provide our member financial institutions with a reliable flow of credit and other services for housing and community development, and our cooperative ownership structure allows us to pass along the benefit of these low funding rates to our members. By supplying additional liquidity to our members, we enhance the availability of residential mortgages and community investment credit. Members also benefit from our affordable housing and economic development programs, which provide grants and below-market-rate loans that support members’ involvement in creating affordable housing and revitalizing communities.
We do not have any wholly or partially owned subsidiaries, nor do we have an equity position in any partnerships, corporations, or off-balance sheet special purpose entities. We own a grantor trust to fund certain non-qualified employee retirement programs, more fully described in financial statements Note 16. Employee Retirement Plans and Note 6. Equity Investments.
A Joint Capital Enhancement Agreement (Capital Agreement) among the 11 FHLBanks requires each FHLBank to enhance its capital position, and each FHLBank will contribute 20% of its Net income each quarter to its own restricted retained earnings account at the FHLBank until the balance of that account equals at least one percent of that FHLBank’s average balance of outstanding Consolidated obligations for the previous quarter. These restricted retained earnings will not be available to pay dividends.
The FHLBNY is supervised by the Federal Housing Finance Agency (FHFA or the Finance Agency), the independent Federal regulator of the FHLBanks, the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae). The FHFA’s stated mission with respect to the FHLBanks is to provide effective supervision, regulation, and housing mission oversight of the FHLBanks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market.
Each FHLBank carries out its statutory mission only through activities that are authorized under and consistent with the Safety and Soundness Act and the FHLBank Act; and the activities of each FHLBank and the manner in which they are operated is consistent with the public interest. The Finance Agency also ensures that the FHLBNY carries out its housing and community development mission, remains adequately capitalized and able to raise funds in the capital markets. However, while the Finance Agency establishes regulations governing the operations of the FHLBanks, the Bank functions as a separate entity with its own management, employees and board of directors.
Our website is www.fhlbny.com. We have adopted, and posted on our website, a Code of Business Conduct and Ethics applicable to all employees and directors.
Market Area
Our market area is the same as the membership district — New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. Institutions that are members of the FHLBNY must have their charter or principal places of business within this market area but may also operate elsewhere. We had 330 members at December 31, 2020 and 328 at December 31, 2019.
Due to the penetrated market, there are few opportunities to gain members. However, we continue to engage the member prospects who are eligible to join. In addition, foreign banks with charters based in our membership district are another potential pool of prospects. This is not a new trend as we currently have members who have parent companies outside the United States.
An appropriate candidate for membership is an institution that is likely to transact advance business with us within a reasonable period of time, so that the capital stock of the potential member will likely be required to purchase under membership provisions will not dilute the dividend on the existing members’ capital stock. Characteristics that identify attractive candidates include institutions with assets “of size”, an established practice of wholesale funding, a high loan-to-deposit ratio, strong asset growth, sufficient eligible collateral, and management that might have had experience with the FHLBanks during previous employment.
We actively market membership through a series of targeted, on-going sales and marketing initiatives. We compete for business by offering competitively priced products, services and programs that provide financial flexibility to the membership. The dominant reason institutions join the FHLBNY is access to a reliable source of liquidity. While liquidity is provided in a variety of ways, advances are one of the most attractive sources of liquidity because they permit members to pledge relatively illiquid assets, such as 1-4 family, multifamily, home equity, and commercial real estate mortgages held in portfolio, to create liquidity. Advances are attractively priced because of our access to capital markets as a GSE and our strategy of providing balanced value to members.
The following table summarizes our members by type of institution:
| | | | | | | | | | | | | | | | Community | | | | |
| | | | | | | | | | | | | | | | Development | | | | |
| | | | Commercial | | | Thrift | | | Credit | | | Insurance | | | Financial | | | | |
| | | | Banks | | | Institutions | | | Unions | | | Companies | | | Institution | | | Total | |
| December 31, 2020 | | | | 111 | | | | 68 | | | | 104 | | | | 42 | | | | 5 | | | | 330 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | | | 121 | | | | 71 | | | | 100 | | | | 31 | | | | 5 | | | | 328 | |
Business Segments
We manage our operations as a single business segment. Management and our Board of Directors review enterprise-wide financial information in order to make operating decisions and assess performance.
Our cooperative structure permits us to expand and contract with demand for advances and changes in membership. When advances are paid down, because the member no longer needs the funds or because the member has been acquired by a non-member and the former member decides to prepay advances, the stock associated with the advances is immediately redeemed. When advances are paid before maturity, we collect fees that make us financially indifferent to the prepayment. Our operating expenses are low. Dividend capacity, which is a function of net income and the amount of stock outstanding, is largely unaffected by the prepayment since future stock and future income are reduced more or less proportionately. We believe that we will be able to meet our financial obligations and continue to deliver balanced value to members, even if advance demand contracts or if membership declines.
Products and Services
Introduction — Advances to members are the primary focus of our operations and are also the principal factor that impacts our financial condition. Revenues from advances to members are the largest and the most significant element in our operating results. Providing advances to members, supporting the products, and associated collateral and credit operations, and funding and swapping the funds are the focus of our operations.
We offer our members several correspondent banking services as well as safekeeping services. The fee income that is generated from these services is not significant. We also issue standby letters of credit on behalf of members for a fee. The total income derived from all such sources, and other incidental income and expenses were not material in the periods in this report.
We provide our members with an alternative to originating and selling long-term, fixed-rate mortgages in the secondary market. We accomplish this by purchasing eligible conforming fixed-rate mortgages originated or purchased by our members. Purchases are at negotiated market rates. For more information, see Acquired Member Assets Programs below and in the financial statements, Note 10. Mortgage Loans Held-for-Portfolio. We do not expect the program to become a significant factor in our operations. The interest revenues derived from this program were $92.0 million in 2020, $101.2 million in 2019 and $97.5 million in 2018. Relative to interest income from advances, revenues from mortgage loans have not been a significant source of interest income.
Advances
We offer a wide range of credit products to help members meet local credit needs, manage interest rate and liquidity risk, and serve their communities. Our primary business is making secured loans, called advances, to members. These advances are available as short- and long-term loans with adjustable, variable, and fixed-rate features (including option-embedded and amortizing advances).
Advances to members, including former members, constituted 67.2% and 62.1% of our total assets of $137.0 billion and $162.1 billion at December 31, 2020 and 2019. In terms of revenues, interest income derived from advances were $1.2 billion, $2.5 billion, and $2.5 billion, representing 60.3%, 66.8%, and 70.3% of total interest income in 2020, 2019 and 2018. Most of our critical functions are directed at supporting the borrowing needs of our members and monitoring the members’ associated collateral positions. For more information about advances, including our underwriting standards, see financial statements, Note 9. Advances; also see Tables 3.1 to 3.8 and the accompanying discussions in this MD&A.
Members use advances as a source of funding to supplement their deposit gathering activities. Advances borrowed by members have generally increased over the last decade because many members have not been able to increase their deposits in their local markets as quickly as they have increased their assets. To close this funding gap, members have preferred to obtain reasonably priced advances rather than increasing their deposits by offering higher rates or foregoing asset growth. Because of the wide range of advance types, terms, and structures available to them, members have also used advances to enhance their asset/liability management. As a cooperative, we price advances at minimal net spreads above the cost of our funding in order to deliver more value to members.
Letters of Credit
We may issue standby financial letters of credit on behalf of members to facilitate members’ residential and community lending, provide members with liquidity, or assist members with asset/liability management. Where permitted by law, members may utilize FHLBNY letters of credit to collateralize deposits made by units of state and local governments. Our underwriting and collateral requirements for securing letters of credit are the same as our requirements for securing advances.
Derivatives
To assist members in managing their interest rate and basis risks in both rising and falling interest-rate environments, we will act as an intermediary between the member and derivatives counterparty. We do not act as a dealer and view this as an additional service to our members. Participating members must comply with our documentation requirements and meet our underwriting and collateral requirements. Volume of such requests has been insignificant.
Acquired Member Assets Programs
Utilizing a risk-sharing structure, the FHLBanks are permitted to acquire certain assets from or through their members. These initiatives are referred to as Acquired Member Assets (AMA) programs. At the FHLBNY, the Acquired Member Assets initiative is the Mortgage Partnership Finance (MPF®) Program, which provides members with an alternative to originating and selling long-term, fixed-rate mortgages in the secondary market. In the MPF Program, we purchase conforming fixed-rate mortgages originated or purchased by our members. Members are then paid a fee for assuming a portion of the credit risk of the mortgages that we acquired. Members assume credit risk by providing a credit enhancement to us or providing and paying for a supplemental mortgage insurance policy insuring us for some portion of the credit risk involved. Prior to June 1, 2017, the mortgage loans acquired were credit enhanced to a double-A equivalent level of creditworthiness. For loans acquired after June 1, 2017, the credit enhancement is computed to a “Single A” credit risk. The amount of this credit enhancement is fully collateralized by the member. We assume the remainder of the credit risk along with the interest rate risk of holding the mortgages in the MPF loan portfolio.
After several years of research and development, we introduced a new AMA investment program called Mortgage Asset Program sm (MAP) in the fourth quarter of 2020. MAP purchases will be investment grade, conforming one-to-four family or government insured long-term, fix-rate home mortgages. MAP, like MPF, is structured to provide secondary mortgage market liquidity to the selling member, the participating financial institution (PFI).
MAP will be fully rolled out in late March 2021 and we will stop purchasing MPF loans. Legacy MPF loans will remain on the FHLBNY’s balance sheet and will continue to be supported by the FHLBNY and the FHLBank of Chicago as MPF Provider.
Income from both MPF and MAP are derived primarily from the difference, or spread, between the yield on the purchased mortgage loans and the borrowing cost of Consolidated Obligations.
Under MAP, the PFI’s credit enhancement is created by the FHLBNY through the establishment of an individual or, in certain cases as pooled, member performance account (MPA). The FHLBNY sets aside funds in the MPA account; funds are unsecured for the PFI and serves as the selling member’s credit enhancement for future credit losses experienced on that MAP loan pool. This first loss credit enhancement provided by the member, or a group of members through pool aggregation, brings the FHLBNY purchased loans to at least investment grade at the time of sale. We offer pool aggregation under MAP to reduce the credit enhancement cost to small and mid-sized PFIs when they sell mortgages into combined pools. These credit enhancements apply after a homeowner’s equity, and if applicable, private mortgage insurance has first been exhausted. For FHA and other government insured home mortgages that we purchase under MAP, we do not establish an additional MPA credit enhancement because the credit risk is insured by the United States government.
We do not service the mortgage loans we purchase under MPF and MAP. PFIs may elect to retain servicing rights for the loans sold to us, or they may elect to sell servicing rights to an FHLBNY approved servicer. We do not pay a PFI any fees other than the servicing fee when the PFI retains the servicing rights. We closely monitor the servicers because we are exposed to credit and operational risk if they fail to properly perform.
Those PFIs that retain servicing rights receive a monthly servicing fee and may be required to undergo a review by a third-party quality control contractor that advises the PFIs of any deficiencies in servicing procedures or processes and then notifies us so that we can monitor the PFIs’ performance. The PFIs that retain servicing rights can sell those rights at a later date with our approval. If we deem servicing to be inadequate, we can require that the servicing of those loans be transferred to a servicer that is acceptable to us.
The servicers are responsible for all aspects of servicing, including, among other responsibilities, the administration of any foreclosure and claims processes from the date we purchase the loan until the loan has been fully satisfied. As the servicer progresses through the process from foreclosure to liquidation, the servicer remits the P&I collected from the borrower. On a small percentage of loans that are remittance type “schedule/schedule”, the servicer will advance P&I “on account” if P&I is not collected from the borrower. At foreclosure, any unpaid P&I and advances received are then settled.
It is the servicer’s responsibility to initiate claims for losses on the loans. If a loss is expected, no claims are settled until the claim has been reviewed and approved by the FHLBNY. Under MAP, the MPA first absorbs the credit loss after a homeowner’s equity, and if applicable, private mortgage insurance has first been exhausted. If the MPA has been depleted, based on our contractual arrangement, the FHLBNY takes the ultimate credit loss, and the servicer is reimbursed for an approved claim amount.
The Bank Act requires the Finance Agency to establish low-income housing goals for mortgage purchases. Under its current housing goals regulation, the Finance Agency establishes low-income housing goals for the FHLBNY for conventional mortgages purchased through the AMA programs. If we do not meet any affordable housing goals established by the Finance Agency, we may be required to submit a housing plan to the Finance Agency.
The Acquired Member Assets Regulation does not specifically address the disposition of Acquired Member Assets. The main intent of that regulation is the purchase of assets for investment rather than for trading purposes. The FHLBNY’s present intent for MPF and MAP is to hold these investment in portfolio. However, the FHLBanks have the legal authority to sell Mortgage Partnership Finance loans and MAP pursuant to the granting of incidental powers in Section 12 of the FHLBank Act. Section 12(a) of the FHLBank Act specifically provides that each FHLBank shall have all such incidental powers, not inconsistent with the provisions of this chapter, as are customary and usual in corporations generally. General corporate law principles permit the sale of investments.
For additional discussion on our mortgage loans and their related credit risk, see financial statements, Note 10. Mortgage Loans Held-for-Portfolio. Also see Tables 5.1 to 5.3 and accompanying discussions in this MD&A.
Correspondent Banking Services
We offer our members an array of correspondent banking services, including depository services, wire transfers, settlement services, and safekeeping services. Depository services include processing of customer transactions in “Overnight Investment Accounts,” the interest-bearing demand deposit account each customer has with us. All customer-related transactions (e.g. deposits, Federal Reserve Bank settlements, advances, securities transactions, and wires) are posted to these accounts each business day. Wire transfers include processing of incoming and outgoing domestic wire transfers, including third-party transfers. Settlement services include automated clearinghouse and other transactions received through our accounts at the Federal Reserve Bank as correspondent for members and passed through to our customers’ Overnight Investment Accounts with us. Through a third party, we offer customers a range of securities custodial services, such as settlement of book entry (electronically held) and physical securities. We encourage members to access these products through 1Linksm, an Internet-based delivery system we developed as a proprietary service. Members access the 1Link system to obtain account activity information or process wire transfers, book transfers, security safekeeping and advance transactions.
Affordable Housing Program and Other Mission Related Programs
Federal Housing Finance Agency regulation 12 CFR Part 1292.5 (Community Investment Cash Advance Programs) states in general that each FHLBank shall establish an Affordable Housing Program (AHP) in accordance with Part 1291, and a Community Investment Program. The 11 FHLBanks together must annually allocate for the AHP the greater of $100 million or 10 percent of regulatory defined net earnings. The FHLBank may also offer a Rural Development Advance program, an Urban Development Advance program, and other Community Investment Cash Advance programs.
| · | Affordable Housing Program (AHP). We meet this requirement by allocating 10 percent of regulatory defined net income to our AHP to support the creation and preservation of housing for lower income families and individuals through the Affordable Housing Program (AHP). The program is offered primarily in two forms: a competitive program and a homeownership program. In the competitive program, AHP funds are awarded through a competitive process to members who submit applications on behalf of project sponsors who are planning to purchase, rehabilitate, or construct affordable homes or apartments. In the homeownership program, we require households to have income at or below 80% of the area median income, and we may set aside annually, in aggregate, up to the greater of $4.5 million or 35% of the Bank’s annual required AHP contributions. The Homebuyer Dream Program® (HDP) was established in 2019 to replace the First Home Clubsm (FHC), which is expected to sunset in 2021. The homeownership programs are to assist first time homebuyers with closing costs and/or down payment assistance. The HDP provides grant assistance up to $14,500 to eligible households through an annual round on a first come, first served basis. New homebuyers are eligible under the program to receive up to $500 to defray the cost of counseling provided by a nonprofit housing agency. |
See financial statements, Note 13. Affordable Housing Program for assessments allocated from earnings for the periods in this report.
| · | Other Mission — Related Activities. The Bank offers three distinct Community Lending Programs (CLP) that support our member’s community-oriented mortgage lending, which was established under the Community Investment Cash Advance Programs. The Bank provides reduced interest rate advances to members for lending activity that meet the CLP requirements, under the following individual programs: Community Investment Program (CIP), Rural Development Advance (RDA), and Urban Development Advance (UDA). The CLP provides additional support to members in their affordable housing and economic development lending activities within low- and moderate-income neighborhoods as well as other activities that benefit low- and moderate-income households. The Bank also provides letters of credit in support of projects that meet the CLP program requirements and are offered at reduced fees. Providing CLP Advances and Letters of Credit at advantaged pricing that is discounted from our market interest rates and fees represents an additional allocation of our income in support of the Bank’s affordable housing and community economic development mission. In addition, overhead costs and administrative expenses associated with the implementation of our Affordable Housing and CLP are absorbed as general operating expenses and are not charged back to the AHP allocation set aside. The foregone interest and fee income, as well as the administrative and operating costs, are above and beyond the annual income contribution to the AHP grants and advances offered under these programs. |
Investments
We maintain portfolios of investments to provide additional earnings and for liquidity purposes. Investment income also bolsters our capacity to fund Affordable Housing Program projects, and to cover operating expenditures. To help ensure the availability of funds to meet member credit needs, we maintain interest-bearing deposits and portfolios of short-term investments issued by highly-rated, high credit quality financial institutions. The investments may include overnight Federal funds, term Federal funds, securities purchased under agreements to resell, and we are a major lender in this market, particularly in the overnight market. We further enhance our interest income by holding long-term investments classified as either held-to-maturity or as available-for-sale. These portfolios primarily consist of mortgage-backed securities issued by government-sponsored mortgage enterprises. Our long-term investments also include a small portfolio of privately issued mortgage-backed and residential asset-backed securities that were primarily acquired prior to 2006, bonds issued by housing finance agencies, and Grantor Trust owned by the FHLBNY that invests in mutual funds. We have a liquidity trading portfolio invested primarily in highly-liquid U.S. Treasury securities to enhance our short-term liquidity positions. The trading portfolio is not for speculative purposes.
For more information, see financial statements, Note 4. Interest-bearing Deposits, Federal Funds Sold and Securities Purchased Under Agreements to Resell, Note 5. Trading Securities, Note 6. Equity Investments, Note 7. Available-for-Sale Securities, and Note 8. Held-To-Maturity Securities. Also see Tables 4.1 through 4.9 and accompanying discussions in this MD&A.
Debt Financing — Consolidated Obligations
Our primary source of funds is the sale of debt securities, known as Consolidated obligations, in the U.S. and global capital markets. Consolidated obligations are the joint and several obligations of the FHLBanks, backed only by the financial resources of the 11 FHLBanks. Consolidated obligations are not obligations of the United States, and the United States does not guarantee them. The issuance and servicing of Consolidated obligations debt are performed by the Office of Finance, a joint office of the FHLBanks established by the Finance Agency. The Office of Finance (or the “OF”) has authority to issue joint and several debt on behalf of the FHLBanks. At December 31, 2020 and 2019, the par amounts of Consolidated obligations outstanding, bonds and discount notes for all 11 FHLBanks was $0.7 trillion and $1.0 trillion, including $126.6 billion and $152.2 billion issued for the FHLBNY and outstanding at those dates. For more information, see financial statements, Note 12. Consolidated Obligations. Also see Tables 6.1 to 6.11 and accompanying discussions in this MD&A.
Finance Agency regulations state that the FHLBanks must maintain, free from any lien or pledge, qualifying assets at least equal to the face amount of Consolidated obligations outstanding. Qualifying assets are defined as cash; secured advances; assets with an assessment or rating at least equivalent to the current assessment or rating of the Consolidated obligations; obligations of or fully guaranteed by the United States, obligations, participations, or other instruments of or issued by Federal National Mortgage Association (Fannie Mae) or the Government National Mortgage Association (Ginnie Mae); mortgages, obligations, or other securities which are or ever have been sold by the Federal Home Loan Mortgage Corporation (Freddie Mac) under the FHLBank Act; and such securities as fiduciary and trust funds may invest in under the laws of the state in which the FHLBank is located. Any assets subject to a lien or pledge for the benefit of holders of any issue of Consolidated obligations are treated as if they were free from lien or pledge for purposes of compliance with these regulations.
Consolidated obligations are distributed through dealers selected by the Office of Finance using various methods including competitive auction and negotiations with individual or syndicates of underwriters. Some debt issuance is in response to specific inquiries from underwriters. Many Consolidated obligations are issued with the FHLBank concurrently entering into derivatives agreements, such as interest rate swaps. To facilitate issuance, the Office of Finance may coordinate communication between underwriters, individual FHLBanks, and financial institutions executing derivative agreements with the FHLBanks. Issuance volume is not concentrated with any particular underwriter.
The Office of Finance is mandated by the Finance Agency to ensure that Consolidated obligations are issued efficiently and at the lowest all-in cost of funds over time. If the Office of Finance determines that its action is consistent with its Finance Agency’s mandated policies, it may reject our issuance request, and the requests of other FHLBanks, to raise funds through the issuance of Consolidated obligations on particular terms and conditions. We have never been denied access under this policy for all periods reported. The Office of Finance serves as a source of information for the FHLBanks on capital market developments and manages the FHLBanks’ relationship with the rating agencies with respect to the Consolidated obligations.
Consolidated Obligation Liabilities
Each FHLBank independently determines its participation in each issuance of Consolidated obligations based on (among other factors) its own funding and operating requirements, maturities, interest rates, and other terms available for Consolidated obligations in the market place. The FHLBanks have emphasized diversification of funding sources and channels as the need for funding from the capital markets has grown.
Consolidated Obligations Bonds. Consolidated bonds are issued primarily to raise intermediate- and long-term funds for the FHLBanks. They can be issued and distributed through negotiated or competitive bidding transactions with approved underwriters or bidding group members. Consolidated bonds (COs or CO bonds) generally carry fixed- or variable-rate payment terms and have maturities ranging from one month to 30 years.
| · | The Global Debt Program — The FHLBanks issue global bullet Consolidated bonds. The FHLBanks and the Office of Finance maintain a debt issuance process for scheduled issuance of global bullet Consolidated bonds. As part of this process, management from each FHLBank will determine and communicate a firm commitment to the Office of Finance for an amount of scheduled global bullet debt to be issued on its behalf. If the FHLBanks’ orders do not meet the minimum debt issue size, each FHLBank receives an allocation of proceeds equal to either the larger of the FHLBank’s commitment or the ratio of the individual FHLBank’s regulatory capital to total regulatory capital of all of the FHLBanks. If the FHLBanks’ commitments exceed the minimum debt issue size, then the proceeds are allocated based on relative regulatory capital of the FHLBanks, with the allocation limited to either the lesser of the allocation amount or the actual commitment amount. The FHLBanks can, however, pass on any scheduled calendar slot and decline to issue any global bullet Consolidated bonds upon agreement of at least eight of the FHLBanks. |
| · | TAP Issue Program — The FHLBanks use the TAP Issue Program to issue fixed-rate, non-callable (bullet) bonds. This program uses specific maturities that may be reopened daily through competitive auctions. The goal of the TAP Issue Program is to aggregate frequent smaller fixed-rate funding needs into a larger bond issue that may have greater market liquidity. |
Consolidated Obligation Discount Notes. Discount notes may be offered into the market though the “discount note window”, or through regularly scheduled competitive auctions. These CO discount notes have a maturity range of one day to one year, are generally issued at or below par, and mature at par.
| · | Discount notes issued through the discount note window are priced daily and distributed through FHLBank authorized dealers. FHLBanks may request that specific amounts of Consolidated discount notes (CO discount notes or discount notes) with specific maturity dates be offered by the Office of Finance for sale through authorized securities dealers. The Office of Finance commits to issue CO discount notes on behalf of the requesting FHLBanks after dealers submit orders for the specific CO discount notes offered for sale. The FHLBanks receive funding based on the time of their request, the rate requested for issuance, the trade date, the settlement date, and the maturity date. However, a FHLBank may receive less than requested (or may not receive any funding) because of investor demand and competing FHLBank requests for the particular funding that the FHLBank is requesting. |
| · | Twice weekly, one or more of the FHLBanks may also request that specific amounts of CO discount notes with fixed maturities of 4, 8, 13, and 26 weeks be offered by the Office of Finance through single-price (Dutch) auctions conducted with securities dealers in the discount note selling group. Issuance is contingent on FHLBank demand for funding with these terms. Auction sizes and maturity categories are announced to dealers during the auction process on Reuters and other major wire services. The discount notes offered for sale through Dutch auctions are not subject to a limit on the maximum costs the FHLBanks are willing to pay. Bids will be accepted from the lowest bid rate until the auction size is met, and all winning bids will be awarded at the highest bid rate accepted, so that the FHLBanks receive funding based on their requests at the highest bid rate accepted. If the bids submitted are less than the total of the FHLBanks’ requests, the FHLBank receives funding based on that FHLBank’s regulatory capital relative to the regulatory capital of other FHLBanks offering CO discount notes. |
Deposits
The FHLBank Act allows us to accept deposits from its members, other FHLBanks and government instrumentalities. For us, member deposits are also a source of funding, but we do not rely on member deposits to meet our funding requirements. For members, deposits are a low risk earning asset that may satisfy their regulatory liquidity requirements. We offer several types of deposit programs to our members, including demand and term deposits.
Capital
From its enactment in 1932, the FHLBank Act provided for a subscription-based capital structure for the FHLBanks. The amount of capital stock that each FHLBank issued was determined by a statutory formula establishing how much FHLBank capital stock each member was required to purchase. With the enactment of the Gramm-Leach-Bliley Act of 1999, Congress replaced the statutory subscription-based member capital stock purchase formula with requirements for total capital, leverage capital, and risk-based capital for the FHLBanks and required the FHLBanks to develop new capital plans to replace the previous statutory structure.
The FHLBNY’s capital plan bases the stock purchase requirement on the level of activity a member has with the Bank, subject to a minimum membership requirement that is intended to reflect the value to the member of having access to the Bank as a funding source. With the approval of the Board of Directors, we may adjust these requirements from time to time within the ranges established in the capital plan. Any changes to our capital plan must be approved by our Board of Directors and the Finance Agency.
Bank capital stock cannot be publicly traded, and under the capital plan, may be issued, transferred, redeemed, and repurchased only at its par value of $100 per share, subject to certain regulatory and statutory limits. Under the capital plan, a member’s capital stock will be redeemed by the Bank upon five years notice from the member, subject to certain conditions. In addition, we have the discretion to repurchase excess capital stock from members. Our current practice is to acquire excess activity-based capital stock daily.
For more information, see Table 7.1 Stockholders’ Capital in this MD&A, and Note 14. Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings in the notes to the audited financial statements.
Retained Earnings and Dividends
The Bank’s Retained Earnings and Dividends policy (the “Policy”) is a Board approved policy, the objectives of which are to preserve the value of our members’ investment with us, and to provide members with a reasonable dividend. The Policy also states that we want to provide returns on the investment in the Bank’s stock that are sufficient to attract and retain members, and that do not discourage member borrowing. The Bank’s minimum level of retained earnings provides management with a high degree of confidence that estimable losses under simulated stressful conditions and scenarios will not impair paid-in capital, thereby preserving the par value of the stock. Additionally, Unrestricted Retained Earnings should be available to supplement dividends when earnings are low, or losses occur. Our ability to pay dividends and any other distributions may be affected by standards under the Policy.
The Policy establishes (1) a minimum level of Retained Earnings equal to the Bank’s “Retained Earnings Sufficiency”, which is the FHLBNY’s measure of estimating the Bank’s risk exposures; it is estimated under simulated stressful conditions and scenarios, within a defined confidence interval, on market, credit and operational risks, as well as GAAP accounting exposures related to the fair values of certain financial instruments; (2) the priority of contributions to retained earnings relative to other distributions of income; (3) the target level of Retained Earnings, based on the Retained Earnings Sufficiency level, and (4) a timeline to achieve the targets and to ensure maintenance of appropriate levels of Retained Earnings.
The Bank may pay dividends from Unrestricted Retained Earnings and current net income. Per Finance Agency regulations, our Board of Directors may declare and pay dividends in either cash or capital stock; our practice has been to pay dividends in cash. Our dividends and our dividend policy are subject to Federal Housing Finance Agency regulations and policies. Any dividend payments declared by our Board are a function of these policies, and our financial condition and performance.
To achieve the Bank’s strategic plans and business objectives within the Bank’s risk appetite, the Board-approved Retained Earnings target was $1,812 million for 2020 (including $743 million of Restricted retained earnings (RRE) allocated to Risk Bearing Capacity) and $1,760 million for 2019. For more information about Restricted retained earnings, see Table 7.1 Stockholder’s Capital in this MD&A.
Unrestricted Retained Earnings was $1,135.3 million and $1,115.2 million at December 31, 2020 and 2019. Restricted Retained Earnings was $774.3 million and $685.8 million at the two dates. The balance in Accumulated Other Comprehensive Income (AOCI), a component of stockholder’s equity, were losses of $19.7 million and $47.8 million at December 31, 2020 and 2019. At December 31, 2020 and 2019, our actual retained earning balances exceeded the required Bank’s Retained Earnings Sufficiency level and was in compliance with the Retained Earnings and Dividend Policy.
The following table summarizes the impact of dividends on our retained earnings for the years ended December 31, 2020, 2019 and 2018 (in thousands):
| | | December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Retained earnings, beginning of year | | $ | 1,801,034 | | | $ | 1,694,082 | | | $ | 1,546,282 | |
| Adjustments to opening balance (a) | | | 14,431 | | | | - | | | | 4,924 | |
| Net Income for the year | | | 442,385 | | | | 472,588 | | | | 560,478 | |
| | | | 2,257,850 | | | | 2,166,670 | | | | 2,111,684 | |
| Dividends paid in the year (b) | | | (348,234 | ) | | | (365,636 | ) | | | (417,602 | ) |
| | | | | | | | | | | | | |
| Retained earnings, end of year | | $ | 1,909,616 | | | $ | 1,801,034 | | | $ | 1,694,082 | |
| (a) | Represents the effects of a cumulative catch up charge to opening balances with the adoption of ASU 2016-13 effective January 1, 2020, and a recovery in 2020 of prior capital distribution to FICO. For more information, see Statements of Capital in the Financial Statements. |
| (b) | Dividends are paid quarterly in arrears in the second month after quarter-end. Dividends are not accrued at quarter-end. |
Competition
Demand for advances is affected by many factors including, but not exclusive to the availability and cost to members of alternate sources of liquidity, including retail deposits and wholesale funding options such as brokered deposits, repurchase agreements, Federal Funds lines of credit, Federal Reserve Bank liquidity facilities, wholesale CD programs, and deposits through listing service. Historically, members have grown their assets at a faster pace than retail deposits and capital resulting in the creation of a funding gap. We compete with both secured and unsecured suppliers of wholesale funding to fill these potential funding gaps. Such other suppliers of funding may include Wall Street dealers, commercial banks, regional broker-dealers, and firms capitalizing on wholesale funding platforms. Of these wholesale funding sources, the brokered CD market is our main threat as members continue to increase their usage and counterparties extend available maturities.
An emerging competitor is Deposits through Listing Services, which are financial institutions that charge a subscription fee to help banks gather deposits. We have seen a gradual uptick in the use of these wholesale deposits using this vehicle. The Federal Reserve funding programs are no longer a liquidity facility of “last resort” and has emerged as competition for our short-term advances. Repo and Federal Funds usage has been stable, though demand for certain members has both increased and decreased as a result of the various changes in the regulatory liquidity requirements and we expect this trend to extend as advances and brokered CDs continue to pressure market share. Our larger members may also have access to the national and global credit markets. The availability of alternative funding sources can vary as a result of market conditions, member creditworthiness, availability of collateral and suppliers’ appetite for the business, as well as other factors. However, we believe the competitive landscape will continue and will be reflected in the balances and market share.
In the debt markets, we compete for funds in the national and global debt markets. Competitors include corporations, sovereigns, the U.S. Treasury, supranational entities, and Government Sponsored Enterprises including Fannie Mae, Freddie Mac, and the Federal Farm Credit Banks (FFCB). Increases in the supply of competing debt products could, in the absence of increases in demand, result in higher debt costs or lesser amounts of debt issued at the same cost than would otherwise be the case. In addition, the availability and cost of funds can be adversely affected by regulatory initiatives that could reduce
demand for Federal Home Loan Bank System debt. Although the available supply of funds has historically kept pace with the liquidity needs of our members, there can be no assurance this will continue to be the case.
In certain market conditions, there is considerable competition among high credit quality issuers in the markets for callable debt. The issuance of callable debt and the simultaneous execution of callable derivatives that mirror the debt have been, when available, a valuable source of competitively priced funding for the FHLBNY. However, since Money Market Fund Reform, the dominant System issuance has been in simple floating-rate debt as money market funds migrated assets from Prime to Government Funds; thereby creating demand for eligible assets such as FHLB debt. Floaters have been one of the main determinants of our relative cost of funds. There can be no assurance that the current breadth and depth of these markets will be sustained as it is heavily influenced by investor sentiment concerning rates and yields, LIBOR cessation and availability of alternative investments, particularly in the Repo sector.
Since November 2018, the FHLB System has been a major participant in the issuance of floaters using the proposed LIBOR replacement index, the Secured Overnight Financing Rate (SOFR). SOFR-floaters are potentially a major source of funding for the System as issuance grows and a broader derivative market develops in anticipation of a cessation of LIBOR. See LIBOR replacement discussions in Item 1A. Risk Factors.
We compete for the purchase of mortgage loans held-for-sale. For single-family products, competition is primarily with Fannie Mae and Freddie Mac, principally on the basis of price, products, structures, and services offered.
Competition for certain aspects of the FHLBank business model among the 11 FHLBanks is limited, although a bank holding company with multiple banking charters may operate in more than one FHLBank’s district. If the member has a centralized treasury function, it is possible that there could be competition for advances. A limited number of our member institutions are subsidiaries of financial holding companies with multiple charters and FHLBank memberships. The amount of advances borrowed by these entities and the amount of capital stock held, could be material to the business. Certain large member financial institutions operating in our district may borrow unsecured Federal funds or source deposits from other FHLBanks. We are permitted by regulation to purchase short-term investments from our members, though we choose to not permit members to borrow unsecured funds from us.
Oversight, Audits, and Examinations
Our business is subject to extensive regulation and supervision. The laws and regulations to which we are subject cover all key aspects of our business, and directly and indirectly affect our product and service offerings, pricing, competitive position and strategic plan, relationship with members and third parties, capital structure, cash needs and uses, and information security. As a result, such laws and regulations have a significant effect on key drivers of our results of operations, including, for example, our capital and liquidity, product and service offerings, risk management, and costs of compliance. An overview of our regulatory environment is discussed below.
The Federal Housing Finance Agency (Finance Agency or FHFA), an independent agency in the executive branch of the U.S. government, supervises and regulates the FHLBanks. The Housing Act created the FHFA with regulatory authority over FHLBank matters such as: board of director composition, executive compensation, risk-based capital standards and prompt corrective action enforcement provisions, membership eligibility, and low-income housing goals. The FHFA’s mission, with respect to the FHLBanks, is to ensure that the FHLBanks operate in a safe and sound manner so that the FHLBanks serve as a reliable source of liquidity and funding for housing finance and community investment.
We carry out our statutory mission only through activities that comply with the rules, regulations, guidelines, and orders issued under the Federal Housing Enterprises Financial Safety and Soundness Act, the Housing Act and the FHLBank Act.
Our shares of Class B stock are registered with the SEC under the Exchange Act, and we are subject to the information, disclosure, insider trading restrictions and other requirements under the Exchange Act. We are not subject to the provisions of the Securities Act.
The Government Corporation Control Act provides that, before a government corporation may issue and offer obligations to the public, the Secretary of the Treasury shall prescribe the form, denomination, maturity, interest rate and conditions of the obligations; the way and time issued; and the selling price. The U.S. Department of the Treasury receives the Finance Agency’s annual report to Congress, monthly reports reflecting securities transactions of the FHLBanks, and other reports reflecting the operations of the FHLBanks. The FHLBNY has an internal audit department, and our Board of Directors has an
Audit Committee. An independent registered public accounting firm audits our annual financial statements. The independent registered public accounting firm conducts these audits following auditing standards established by the Public Company Accounting Oversight Board (PCAOB). The FHLBanks, the Finance Agency, and Congress all receive the audit reports. We must also submit annual management reports to Congress, the President, the Office of Management and Budget, and the Comptroller General. These reports include: Statements of financial condition, operations, and cash flows; a Statement of internal accounting and administrative control systems; and the Report of the independent registered public accounting firm on the financial statements and internal controls over financial reporting.
The Comptroller General has authority under the FHLBank Act to audit or examine the Finance Agency and the FHLBanks, including the FHLBNY, and to decide the extent to which they fairly and effectively fulfill the purpose of the FHLBank Act. Furthermore, the Government Corporation Control Act provides that the Comptroller General may review any audit of our financial statements conducted by a registered independent public accounting firm. If the Comptroller General conducts such a review, then he or she must report the results and provide his or her recommendations to Congress, the Office of Management and Budget and the Bank. The Comptroller General may also conduct his or her own audit of any of our financial statements.
For a discussion regarding the risks related to our regulatory environment, see the description of “Risk Factors — Regulatory Risks” in Part I, Section 1A of this Form 10-K, and for a discussion of recent regulatory developments that may impact the Bank, see “Management’s Discussion and Analysis — Legislative and Regulatory Developments” in Part II, Item 7 of this Form 10-K.
Tax Status
The FHLBanks, including the FHLBNY, are exempt from ordinary federal, state, and local taxation except for real property taxes.
Assessments
Affordable Housing Program (AHP) Assessments. — Section 10(j) of the FHLBank Act requires each FHLBank to establish an Affordable Housing Program. Each FHLBank provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBanks must allocate for the AHP the greater of $100 million or 10% of regulatory net income. Regulatory net income is defined as GAAP net income before interest expense related to mandatorily redeemable capital stock and the assessment for Affordable Housing Program. The exclusion of interest expense related to mandatorily redeemable capital stock is a regulatory interpretation of the Finance Agency. We accrue the AHP expense monthly.
We charge the amount allocated for the Affordable Housing Program to income and recognize the amounts allocated as a liability. We relieve the AHP liability as members use subsidies. In periods where our regulatory income before Affordable Housing Program is zero or less, the amount of AHP liability is equal to zero. If the result of the aggregate 10% calculation described above is less than $100 million for all 11 FHLBanks, then the Act requires the shortfall to be allocated among the FHLBanks based on the ratio of each FHLBank’s income before Affordable Housing Program to the sum of the income before Affordable Housing Program of the 11 FHLBanks. There were no shortfalls in 2020, 2019 and 2018.
Human Capital Resources
The Bank’s human capital is a significant contributor to the success of the Bank’s strategic business objectives. In managing the Bank’s human capital, the Bank focuses on its workforce profile and the various programs and philosophies described below.
Workforce Profile
The Bank’s workforce is primarily comprised of corporate employees, with the Bank’s principal operations in two locations. As of December 31, 2020, the Bank had 354 full-time and no part-time employees. As of December 31, 2020, approximately 41% of the Bank’s workforce were women, 59% men, 44% non-minority and 56% minority. Given the size of assets under management, the Bank’s workforce is lean, and historically has included a number of longer-tenured employees. The Bank strives to both develop talent from within the organization and supplement with external hires. The Bank believes that
developing talent internally results in institutional strength and continuity and promotes loyalty and commitment in the Bank’s employee base, which furthers its success, while adding new employees contributes to new ideas, continuous improvement, and the Bank’s goals of a diverse and inclusive workforce. As of December 31, 2020, the average tenure of the Bank’s employees was 9.17 years. There are no collective bargaining agreements with the Bank’s employees.
Total Rewards
The Bank seeks to attract, develop, engage and retain talented employees to achieve its strategic business initiatives, enhance business performance and increase shareholder value. The Bank effects this objective through a combination of inclusion and development programs, benefits and employee wellness programs and recognizing and rewarding performance. Specifically, the Bank’s programs include:
| · | Cash compensation (i.e., base salary, and, for exempt employees, "variable" or "at risk" short-term incentive compensation) |
| · | Health Benefits – Healthcare insurance, Life and Accidental Death & Dismemberment insurance, Short-Term and Long-Term Disability benefits |
| · | Retirement Benefits – 401(k) retirement savings plans with employer match, and pension benefits |
| · | Wellness program – Fitness Reimbursement, Health Management and Employee Assistance Programs |
| · | Time away from work – including time off for vacation, personal, holiday, and volunteer opportunities |
| · | Culture – Culture and Activity Committees events, Diversity and Inclusion initiatives |
| · | Work/Life balance – parental leave, bereavement and jury duty |
| · | Development programs and training – Tuition Reimbursement Program, Corporate Toastmasters Club, Online Training Platform, Internal Educational and Development program, and Management Development Program |
| · | Management succession planning – the Bank’s board and leadership actively engage in management succession planning |
The Bank’s Performance Management framework includes a mid-year checkpoint, as well as an annual performance review. Overall annual ratings are calibrated and merit and incentive payments are differentiated for the Bank’s highest performers.
The Bank is committed to the health, safety and wellness of its employees. In response to the COVID-19 pandemic, the Bank has implemented significant operating environment changes, safety protocols and procedures that it determined were in the best interest of the Bank’s employees and members, and which comply with government regulations. This includes having the Bank’s employees work remotely, while implementing additional safety measures for volunteer employees on-site.
Diversity and Inclusion Program
Diversity and Inclusion (“D&I”) is a strategic business priority for the Bank. The Bank’s Head of Corporate Services/Director of Diversity & Inclusion is a Member of the Management Committee, reporting to the President and Chief Executive Officer and serves as a liaison to the Board of Directors. The Bank recognizes that diversity increases capacity for innovation and creativity. Additionally, inclusion allows the Bank to leverage the unique perspectives of all employees and strengthens the Bank’s retention efforts. The Bank operationalizes its commitment through the development and execution of a three-year diversity and inclusion strategic plan that includes quantifiable metrics to measure its success and it reports regularly on its performance to management and the Board of Directors. The Bank also offers a range of opportunities for its employees to connect and grow personally and professionally through the Office of Diversity and Inclusion Workplace Inclusion Team. The Bank considers learning an important component of its D&I strategic plan and regularly offers educational opportunities to its employees and evaluates inclusive behaviors as part of the Bank’s annual performance management process.
Available Information
The Federal Home Loan Bank of New York maintains a website located at www.fhlbny.com where we make available our annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the Securities and Exchange Commission (the SEC), and other information regarding us and our products free of charge. We are required to file with the SEC an annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. The SEC maintains a website that contains these reports and other information regarding our electronic filings located at www.sec.gov. Information on these websites, or that can be accessed through these websites, does not constitute a part of this annual report.
The following discussion sets forth the material risk factors that could affect the FHLBNY’s financial condition and results of operations. Readers should not consider any descriptions of such factors to be a complete set of all potential risks that could affect the FHLBNY.
Market and Economic Risks
Changes to and replacement of the London Interbank Offered Rate (LIBOR) benchmark interest rate could adversely affect FHLBNY’s business, financial condition, and results of operations. In July 2017, the United Kingdom's Financial Conduct Authority (FCA), which regulates LIBOR, announced that after 2021 it will no longer persuade or compel banks to submit rates for the calculation of LIBOR. The announcement indicated that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR will cease to be published or supported before or after 2021, or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. There is no assurance that LIBOR will continue to be accepted or used by the markets generally or by any issuers, investors, or counterparties at any time, even if LIBOR continues to be available.
In September 2019, the FHFA issued a supervisory letter (the Supervisory Letter) to the FHLBank and the Office of Finance relating to their planning for the LIBOR phase-out. Under the Supervisory Letter, with limited exceptions, FHLBanks, including the FHLBNY, should, by December 31, 2019, stop purchasing investments that reference LIBOR and mature after December 31, 2021, and should, by June 30, 2020, no longer enter into any other new financial assets, liabilities, and derivatives that reference LIBOR and mature after December 31, 2021. As we align our business strategies to the Supervisory Letter, we may experience less flexibility in our access to funding, higher funding costs, or lower overall demand or increased costs for our advances, which may, in turn, negatively affect the future composition of our balance sheet, capital stock levels, core mission asset ratios, and net income. In addition, as we are generally not permitted to continue to use instruments that reference LIBOR for hedging and risk-mitigating purposes, we will have to alter our hedging and interest-rate risk management strategies, which may have a negative effect on our financial condition and results of operations.
On October 23, 2020, the International Swaps and Derivatives Association, Inc. (ISDA) published a Supplement to the 2006 ISDA Definitions (the Supplement) and the ISDA 2020 IBOR Fallbacks Protocol (the Protocol). Both the Supplement and the Protocol took effect on January 25, 2021. On that date, all legacy bilateral derivative transactions subject to Protocol-covered agreements (including ISDA agreements) that incorporate certain covered ISDA definitional booklets and reference a covered Interbank Offered Rate (IBOR), including U.S. Dollar LIBOR, were effectively amended to apply the new ISDA-recommended IBOR fallbacks in the event of the relevant IBOR’s cessation. Both the Bank and our counterparty must have adhered to the Protocol in order to effectively amend legacy derivatives contracts, otherwise the parties must bilaterally amend legacy covered agreements (including ISDA agreements) to address LIBOR fallbacks. The Protocol will remain open for adherence after the effective date. As of January 25, 2021, all new derivative contracts are subject to the relevant IBOR fallbacks set forth in the Supplement.
On October 21, 2020, the Finance Agency issued a Supervisory Letter to the FHLBanks that required each FHLBank to adhere to the Protocol by December 31, 2020, and to the extent necessary, to amend any bilateral agreements regarding the adoption of the Protocol by December 15, 2020. We adhered to the Protocol on October 22, 2020, and all of our counterparties have adhered to the Protocol. We also amended all outstanding bilateral over-the-counter derivative agreements referencing U.S. Dollar LIBOR with our members to adopt the Protocol.
In December 2020, ICE Benchmark Administration (IBA) published its consultation on its intention to cease the publication of: (i) one-week and two-month U.S. Dollar LIBOR settings immediately following the LIBOR publication on December 31, 2021; and (ii) the remaining U.S. Dollar LIBOR settings (i.e., overnight and 1-, 3-, 6-, and 12-month) immediately following the LIBOR publication on June 30, 2023. The IBA consultation period ended on January 25, 2021.
On March 5, 2021, the FCA announced that certain LIBOR will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021 (on, in the case of some more frequently used U.S. Dollar LIBOR settings, immediately after June 30, 2023). Although the FCA does not expect LIBOR to become unrepresentative before the applicable cessation date and intends to consult on requiring the administrator of LIBOR to continue publishing LIBOR of certain currencies and tenors on a non-representative, synthetic basis for a period after the applicable cessation date, there is no assurance that LIBOR, of any particular currency or tenor, will continue to be published or be representative through any
particular date. On the same day, the IBA also published a summary of the feedback it received on its December 2020 consultation regarding its intention to cease publication of the LIBOR tenors.
In the United States, the Federal Reserve Board and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (“ARRC”) to identify a set of alternative reference interest rates for possible use as market benchmarks. This committee has proposed the Secured Overnight Financing Rate (SOFR) as its recommended alternative to U.S. Dollar LIBOR, and the Federal Reserve Bank of New York began publishing SOFR rates in the second quarter of 2018. SOFR is based on a broad segment of the overnight Treasury repurchase market and is intended to be a measure of the cost of borrowing cash overnight collateralized by Treasury securities. Since 2018, market activity in SOFR-linked financial instruments has continued to develop. The FHLBanks, including the FHLBNY, have offered SOFR-linked consolidated obligations on an ongoing basis and have started offering SOFR-linked advances. In March 2021, the ARRC confirmed that in its opinion the March 5, 2021 announcements by IBA and the FCA on future cessation and loss of representativeness of the LIBOR benchmarks constituted a “Benchmark Transition Event” with respect to all U.S. Dollar LIBOR settings.
As many of our assets, liabilities, and derivatives are indexed to LIBOR, the FHLBanks, including the FHLBNY and the Office of Finance have developed a LIBOR transition plan, which addresses considerations such as LIBOR exposure, fallback language, operational preparedness, and balance sheet management. However, the market transition away from LIBOR and towards SOFR or another alternate reference rate is expected to be complicated, including the development of term and credit adjustments to accommodate differences between LIBOR and SOFR or any other alternate reference rate. During the market transition away from LIBOR, LIBOR may experience increased volatility or become less representative. In addition, the overnight Treasury repurchase market underlying SOFR has experienced and may experience disruptions from time to time, which has resulted and may result in unexpected fluctuations in SOFR. Introduction of an alternate reference rate also may create challenges in hedging and asset liability management and introduce additional basis risk and increased volatility for the FHLBNY and other market participants. While market activity in SOFR-linked financial instruments has continued to develop, there can be no guarantee that SOFR will become widely accepted and used across market segments and financial products in a timely manner and any other alternative reference rate may or may not be developed. Any disruption in the market transition away from LIBOR and towards SOFR or another alternate reference rate could result in increased financial, operational, legal, reputational, or compliance risks for the FHLBNY. We are not able to predict the effect of a possible transition to SOFR or another alternate reference rate will have on our business, financial condition, and results of operations.
Changes in interest rates could significantly affect the FHLBNY’s financial condition and results of operations. The level of interest rates and the impact on our balance sheet spreads are important factors affecting the Bank’s interest rate risk management, profitability, and returns. We earn income from capital, and the level of market interest rates as impacted by the Federal Reserve and the capital markets directly affects these earnings.
We earn income from the spread between interest earned on our outstanding advances, investments and shareholders’ capital, and interest paid on our Consolidated obligations and other interest-bearing liabilities. Although we use various methods and procedures to monitor and manage our exposure to changes in interest rates, we may experience instances when either our interest-bearing liabilities will be more sensitive to changes in interest rates than our interest-earning assets, or vice versa. In either case, interest rate movements contrary to our position could negatively affect our financial condition and results of operations. Moreover, the effect of changes in interest rates can be exacerbated by prepayment and extension risk, a risk that mortgage related assets will be refinanced by the mortgagor in low interest rate environments or will remain outstanding longer than expected at below market yields when interest rates increase.
The possibility of negative interest rates on U.S. Treasury or other market instruments could adversely affect our results of operations by, for example, reducing asset yields or spreads, creating operating and operating system issues, or having other adverse impacts on our business.
The FHLBNY’s funding depends on its ability to access the capital markets. Our primary source of funds is the sale of Consolidated obligations in the capital markets. Our ability to obtain funds through the sale of Consolidated obligations depends in part on prevailing conditions in the capital markets, which are, for the most part, beyond our control. Accordingly, we may not be able to obtain funding on acceptable terms, if at all. If we cannot access funding when needed on acceptable terms, our ability to support and continue operations could be adversely affected, which could negatively affect our financial condition and results of operations. If additional reforms are legislated over money market funds, they may have an adverse impact on the FHLBank discount note pricing, given that the funds are significant sponsors of short-term
FHLBank debt. Ongoing changes to the regulatory environment that affect bank counterparties and debt underwriters could adversely affect our ability to access the debt markets or the cost of that funding.
Economic downturns, macro-economic events, and changes in federal monetary policy, including those related to widespread health emergencies or similar events, could have an adverse effect on the FHLBNY’s business and its results of operations. Our businesses and results of operations are sensitive to general business and economic conditions. These conditions include short- and long-term interest rates, inflation, money supply, fluctuations in both debt and equity capital markets, and the strength of the United States economy and the local economies in which we conduct our business. If any of these conditions deteriorate, our businesses and results of operations could be adversely affected. For example, a prolonged economic downturn could result in members needing fewer advances. In addition, our business and results of operations are significantly affected by the fiscal and monetary policies of the federal government and its agencies, including the Federal Reserve Board, which regulates the supply of money and credit in the United States. The Federal Reserve Board’s policies directly and indirectly influence the yield on interest-earning assets and the cost of interest-bearing liabilities, and can have far reaching impacts on the U.S. economy as a whole.
We note here that the Federal Open Market Committee (FOMC) recently approved emergency reductions to the target range for the Federal Funds rate and implemented other initiatives in response to the COVID-19 coronavirus outbreak and the potential negative impact on the U.S. economy. Further or similar action in response to this or any widespread health emergency or similar event, or impacts on the economy as a result of such event, could adversely affect our financial condition and results of operations.
Regulatory Risks
Determinations regarding compensation may impede the FHLBNY’s ability to hire and retain qualified senior management. Each Federal Home Loan Bank’s Board of Directors has the statutory authority to select, employ and fix the compensation of its officers and employees in order to help ensure the hiring and retention of qualified staff. However, as the regulator of the Federal Home Loan Banks, the Finance Agency has the authority to determine whether compensation paid to any executive officer is in its view not reasonable and comparable with compensation for employment in other similar businesses involving similar duties and responsibilities. Depending on how such authority is exercised, the FHLBNY’s ability to hire and retain qualified executive officers could be adversely affected.
The FHLBanks are governed by federal laws and regulations, which could change or be applied in a manner detrimental to FHLBNY’s operations. The FHLBanks are government-sponsored enterprises (GSEs), organized under the authority of the FHLBank Act, and, as such, are governed by federal laws and regulations of the Finance Agency, an independent agency in the executive branch of the federal government. From time to time, Congress has amended the FHLBank Act in ways that significantly affected the FHLBanks and the manner in which the FHLBanks carry out their housing finance mission and business operations. New or modified legislation enacted by Congress or regulations adopted by the Finance Agency could have a negative effect on our ability to conduct business or our cost of doing business. Due to recent changes in the U.S. government administration and recent executive actions, there are additional uncertainties in the legislative and regulatory environment.
Changes in regulatory or statutory requirements, or in their application, could result in, among other things, changes in: our cost of funds; retained earnings requirements; liquidity requirements, debt issuance; dividend payments; capital redemption and repurchases; permissible business activities; the size, scope, or nature of our lending, investment, or mortgage purchase programs; our ability to appropriately compensate, recruit and retain our employees; or our compliance costs. Changes that restrict dividend payments, the growth of our current business, or the creation of new products or services could negatively affect our results of operations and financial condition. Further, the regulatory environment affecting members could be changed in a manner that would negatively affect their ability to acquire or own our capital stock or take advantage of our products and services.
As a result of these factors, the FHLBank System may have to pay a higher rate of interest on Consolidated obligations. The resulting increase in the cost of issuing Consolidated obligations could cause our advances to be less profitable and reduce our net interest margins (the difference between the interest rate received on advances and the interest rate paid on Consolidated obligations). If we change the pricing of our advances, they may no longer be attractive to members and outstanding advances may decrease. In any case, the increased cost of issuing Consolidated obligations could negatively affect our financial condition and results of operations.
Negative information about us, the FHLBanks or housing GSEs, in general, could adversely impact our cost and availability of financing. Negative information impacting us or any other FHLBank, such as material losses or increased risk of losses, could also adversely impact our cost of funds. More broadly, negative information about housing GSEs, in general, could adversely impact us. The housing GSEs — Fannie Mae, Freddie Mac, and the FHLBanks — issue highly rated agency debt to fund their operations. From time to time, negative announcements by any of the housing GSEs concerning accounting problems, risk-management issues, and regulatory enforcement actions have created pressure on debt pricing for all GSEs, as investors have perceived such instruments as bearing increased risk. Similar announcements by the FHLBanks may contribute to this pressure on debt pricing. One possible source of information that impacts us could come from plans for housing GSE reform. Such plans, including those introduced by the U.S. Treasury and HUD proposed certain recommendations for the reform of the housing GSEs. Although the focus of those recommendations is on Fannie Mae and Freddie Mac, the proposal includes certain recommendations for the FHLBanks. The proposed reforms could affect the FHLBNY’s current business activities with its members, particularly large financial institutions. These recommendations include reducing and altering the composition of FHLBanks investment portfolios, limiting the level of advances outstanding to individual members and restricting membership to allow each financial institution, inclusive of its affiliates, to be an active member in only a single FHLBank. Other recommendations or other plans could result in market uncertainty regarding the status of U.S. federal government support of housing GSEs, in general, including the FHLBanks, and our cost of financing could be adversely impacted as a result.
Any such negative information or other factors could result in the FHLBanks having to pay a higher rate of interest on COs to make them attractive to investors. If we maintain our existing pricing on our advances products and other services notwithstanding increases in CO interest rates, the spreads we earn would fall and our results of operations would be adversely impacted. If, in response to this decrease in spreads, we change the pricing of our advances, the advances may be less attractive to members and the amount of new advances and our outstanding advance balances may decrease. In either case, the increased cost of issuing COs could adversely impact our financial condition and results of operations.
Business Risks
A loss or change of business activities with large members could adversely affect the FHLBNY’s results of operations and financial condition. We have a high concentration of advances with three member institutions, and a loss or change of business activities with any of these institutions could adversely affect our results of operations and financial condition. Concentration risk for the FHLBNY is defined as the exposure to loss arising from a disproportionately large number of financial transactions with a limited number of individual customers, with a particular focus on members that have outstanding advances that account for more than 10% of advances by par value to the total par value of all advances outstanding as of a given date. For more information about concentration, see Note 21. Segment Information and Concentration to Financial Statements.
Withdrawal of one or more large members from our membership could result in a reduction of our total assets, capital, and net income. If one or more of our large members were to prepay their advances or repay the advances as they came due and no other advances were made to replace them, it could also result in a reduction of our total assets, capital, and net income. In prior years, we experienced significant prepayments of advances by large members, and prepayments due to the acquisition of a member by another bank.
Our analysis of the impact of the prepayments do not indicate a material adverse impact on our business and results of operation. However, these are the types of events that we consider to be potential negative factors that may arise from a high concentration of advances. The timing and magnitude of the effect of a reduction in the amount of advances would depend on a number of factors, including:
| · | the amount and the period over which the advances were prepaid or repaid; |
| · | the amount and timing of any corresponding decreases in activity-based capital; |
| · | the profitability of the advances; |
| · | the size and profitability of our short- and long-term investments; and |
| · | the extent to which Consolidated obligations (funding) matured as the advances were prepaid or repaid. |
At December 31, 2020, advances borrowed by insurance companies accounted for 35.6% of total advances (24.9% at 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 FHLBNY’s claims on collateral in the event of an insurance company failure. Even if ultimately unsuccessful, such a legal challenge could result in a delay in the liquidation of collateral and a loss of market value. For more information, see Financial Statements Note 9. Advances.
The FHLBNY has geographic concentrations that may adversely impact its business operations and/or financial condition. By nature of our regulatory charter and our business operations, we are exposed to credit risk as the result of limited geographic diversity. Our advance lending is limited by charter to operations to the four areas — New Jersey, New York, Puerto Rico and the U.S. Virgin Islands. We employ conservative credit rating and collateral policies to limit exposure, but a decline in regional economic conditions could create an exposure to us in excess of collateral held.
We have concentrations of mortgage loans in some geographic areas based on our investments in MPF loans, MAP loans, and private-label MBS and on the receipt of collateral pledged for advances. To the extent that any of these geographic areas experiences significant declines in the local housing markets, declining economic conditions, or a natural disaster, we could experience increased losses on our investments in the MPF loans, MAP loans, or MBS, or be exposed to a greater risk that the pledged collateral securing related advances would be inadequate in the event of default on such an advance.
The FHLBNY relies upon derivative instruments to reduce its interest-rate risk, and changes in our credit ratings may adversely affect our ability to enter into derivative instruments on acceptable terms. Our financial strategies are highly dependent on our ability to enter into derivative instruments on acceptable terms to reduce our interest-rate risk. Rating agencies may from time to time change a rating or issue negative reports, which may adversely affect our ability to enter into derivative instruments with acceptable parties on satisfactory terms in the quantities necessary to manage our interest-rate risk on Consolidated obligations or other financial instruments. This could negatively affect our financial condition and results of operations.
Changes in regulatory requirements related to derivative instruments may adversely affect our ability to enter into derivative instruments on acceptable terms. The ongoing implementation of derivatives and clearinghouse regulations could adversely impact the FHLBNY’s ability to execute derivatives to hedge interest rate risk, and increase our compliance costs and negatively impact our results of operations. Such regulations have impacted, and will continue to substantially impact, the derivatives markets by, among other things: (i) requiring extensive regulatory and public reporting of derivatives transactions; (ii) requiring a wide range of over-the-counter derivatives to be cleared through recognized clearing facilities and traded on exchanges or exchange-like facilities; (iii) requiring the collection and segregation of collateral for most uncleared derivatives; and (iv) significantly broadening limits on the size of positions that may be maintained in specified derivatives. These market structure reforms could make many derivatives products more costly to execute, may significantly reduce the liquidity of certain derivatives markets and could diminish customer demand for covered derivatives. Those changes could negatively impact the FHLBNY’s ability to execute derivatives in a cost efficient manner, which could have an adverse impact on its results of operations.
The FHLBNY faces competition for advances, loan purchases, and access to funding, which could adversely affect its businesses and the FHLBNY’s efforts to make advance pricing attractive to its members as well as it may adversely affect earnings. Our primary business is making advances to our members, and we compete with other suppliers of wholesale funding, both secured and unsecured, including investment banks, commercial banks and, in certain circumstances, other FHLBanks. Our members have access to alternative funding sources, which may offer more favorable terms than the ones we offer on our advances, including more flexible credit or collateral standards. We may make changes in policies, programs, and agreements affecting members from time to time, including, affecting the availability of and conditions for access to advances and other credit products, the MPF Program, MAP, the AHP, and other programs, products, and services, which could cause members to obtain financing from alternative sources. In addition, many of our competitors are not subject to the same regulations, which may enable those competitors to offer products and terms that we are not able to offer.
The availability of alternative funding sources that are more attractive to our members may significantly decrease the demand for our advances. Lowering the price of the advances to compete with these alternative funding sources may decrease the profitability of advances. A decrease in the demand for our advances or a decrease in our profitability on advances could adversely affect our financial condition and results of operations. In addition, changes to regulations governing our members’ businesses that reduce liquidity or capital requirements could serve to reduce demand for advances from the FHLBNY.
Certain FHLBanks, including the FHLBNY, also compete (primarily with Fannie Mae and Freddie Mac) for the purchase of mortgage loans from members. Some FHLBanks may also compete with other FHLBanks with which their members have a relationship through affiliates. We offer the MPF Program and MAP to our members. Competition among FHLBanks for MPF and MAP business may be affected by the requirement that a member and its affiliates can sell loans into the MPF Program through only one FHLBank relationship at a time. Increased competition can result in a reduction in the amount of mortgage loans we are able to purchase and adversely impact income from this part of its business.
The FHLBanks, including the FHLBNY, also compete with the U.S. Department of the Treasury, Fannie Mae, Freddie Mac, and other GSEs, as well as corporate, sovereign, and supranational entities, for funds raised through the issuance of debt in the national and global debt markets. Increases in the supply of competing debt products may, in the absence of increases in demand, result in higher debt costs or lower amounts of debt issued at the same cost than otherwise would be the case. Increased competition could adversely affect our ability to have access to funding, reduce the amount of funding available to us, or increase the cost of funding available to us. Any of these effects could adversely affect our financial condition and results of operations.
Credit Risks
Changes in the credit ratings on FHLBank System Consolidated obligations may adversely affect the cost of Consolidated obligations, which could adversely affect FHLBNY’s financial condition and results of operations. FHLBank System Consolidated obligations have been assigned Aaa/P-1 and AA+/A-1+ ratings by Moody’s and S&P. The outlook for the FHLBank debt by both S&P and Moody’s is stable. Rating agencies may from time to time change a rating or issue negative reports, which may adversely affect the cost of funds of one or more FHLBanks, including the FHLBNY, and the ability to issue Consolidated obligations on acceptable terms. A higher cost of funds or the impairment of the ability to issue Consolidated obligations on acceptable terms could also adversely affect our financial condition and results of operations. Rating agency downgrades of the debt of the United States could also cause a downgrade in the rating of the FHLBanks.
The FHLBNY’s financial condition and results of operations could be adversely affected by FHLBNY’s exposure to credit risk. We have exposure to credit risk in that the market value of an obligation may decline as a result of deterioration in the creditworthiness of the obligor or the credit quality of a security instrument. In addition, we assume secured and unsecured credit risk exposure associated with the risk that a borrower or counterparty or a derivative clearing organization could default and we could suffer a loss if we could not fully recover amounts owed to us on a timely basis. A credit loss, if material, will have an adverse effect on the FHLBNY’s financial condition and results of operations.
We are subject to credit-risk exposures related to the loans that back our investments. Increased delinquency rates and credit losses beyond those currently expected could adversely impact the yield on or value of those investments. We have invested in securities issued by Housing Finance Agencies (HFA) as held-to-maturity investments. The cash flows on these securities are based on the performance of the underlying loans, although these securities generally do include additional credit enhancements. At the time of purchase, the HFA securities were rated double-A (or its equivalent rating), some have since been downgraded. The portfolio of HFA securities (carrying value was $1.1 billion at December 31, 2020 and 2019) reported gross unrealized losses of $21.6 million at December 31, 2020 and $23.2 million at December 31, 2019. Although we have determined that none of the securities is other-than-temporarily impaired, we could realize credit losses from these securities should the underlying loans underperform our projections.
A rise in delinquency rates on our investments in MPF and MAP loans or related adverse trends could adversely impact our results of operation and financial condition. As discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, our methodology for determining our allowance for loan losses is determined based on our investments in MPF and MAP loans and considers factors relevant to those investments. Important factors in determining this allowance are the collateral values supporting our investments in conventional mortgage loans. The credit loss allowance may prove insufficient if macroeconomic factors worsen, housing prices fall and collateral values decline. While we have recorded reserves for credit exposures, such reserves are subject to judgments and estimates that could be incorrect or differ from actual future events. Under the new CECL accounting standard, which became effective January 1, 2020, the allowance for credit losses would reflect expected losses, rather than incurred losses, which could lead to more volatility in the allowance and the provision for credit losses as forecasts of economic conditions change.
Insufficient collateral protection could adversely affect the FHLBNY’s financial condition and results of operations. We require that all outstanding advances be fully collateralized. In addition, for mortgage loans that we purchased under the MPF Program and MAP, we require that members fully collateralize the outstanding credit enhancement obligations not covered through the purchase of supplemental mortgage insurance. We evaluate the types of collateral pledged by our members and assign borrowing capacities to the collateral based on the risks associated with that type of collateral. If we have insufficient collateral before or after an event of payment default by the member, or we are unable to liquidate the collateral for the value assigned to it in the event of a payment default by a member, we could experience a credit loss on advances, which could adversely affect our financial condition and results of operations.
The FHLBNY may become liable for all or a portion of the Consolidated obligations of the FHLBanks, which could negatively impact the FHLBNY’s financial condition and results of operations. We are jointly and severally liable along with the other FHLBanks for the Consolidated obligations issued through the Office of Finance. Dividends on, redemption of, or repurchase of shares of our capital stock are not permitted unless the principal and interest due on all Consolidated obligations have been paid in full. If another Federal Home Loan Bank were to default on its obligation to pay principal or interest on any Consolidated obligations, the Finance Agency may allocate the outstanding liability among one or more of the remaining FHLBanks on a pro rata basis or on any other basis the Finance Agency may determine. As a result, our ability to pay dividends on, to redeem, or to repurchase shares of capital stock could be affected by the financial condition of one or more of the other FHLBanks. However, no FHLBank has ever defaulted on its debt and no FHLBank has ever been asked to assume the debt payments of another FHLBank since the FHLB System was established in 1932.
Liquidity Risks
The FHLBNY may not be able to meet its obligations as they come due or meet the credit and liquidity needs of its members in a timely and cost-effective manner. We seek to be in a position to meet our members’ credit and liquidity needs and pay our obligations without maintaining excessive holdings of low-yielding liquid investments or being forced to incur unnecessarily high borrowing costs. In addition, we maintain a contingent liquidity plan designed to enable us to meet our obligations and the liquidity needs of members in the event of operational disruptions or short-term disruptions in the capital markets. Liquidity Regulations addressing liquidity requirements are in place for the Federal Home Loan Banks, and compliance with these regulations are closely monitored by our management and Board of Directors. However, our ability to manage our liquidity position or our contingent liquidity plan may not enable us to meet our obligations and the credit and liquidity needs of our members, which could have an adverse effect on our financial condition and results of operations.
Operational Risks
Deteriorating market conditions increase the risk that the FHLBNY’s models may produce unreliable results. We use market-based information as inputs to our financial models, which are used in making operational decisions and to derive estimates for use in our financial reporting processes. The downturn in the housing and mortgage markets created additional risk regarding the reliability of the models, particularly since the models are regularly adjusted in response to rapid changes in the actions of consumers and mortgagees to changes in economic conditions. This may increase the risk that our models could produce unreliable results or estimates that vary widely or prove to be inaccurate.
A natural disaster or similar events in the Bank’s region, or with widespread impacts, such as the ongoing COVID-19 pandemic, could adversely affect the Bank’s profitability and financial condition. The frequency and severity of natural disasters has increased in recent years, possibly due to the effects of climate change. A severe natural disaster could damage the Bank’s physical infrastructure and have an adverse effect on the FHLBNY’s business. Furthermore, portions of the Bank’s region are subject to risks from hurricanes, tornadoes, floods or other natural disasters. These natural disasters could damage or dislocate the facilities of the Bank’s members, may damage or destroy collateral that members have pledged to secure advances, may adversely affect the viability of the Bank’s mortgage purchase programs or the livelihood of borrowers of the Bank’s members, or otherwise could cause significant economic dislocation in the affected areas of the Bank’s region.
Additionally, the impact of widespread health emergencies, such as the recent outbreak of the COVID-19 coronavirus, which has now spread to many countries around the world, including the United States, could adversely impact the FHLBNY’s financial condition and results of operations. If a widespread health emergency leads to a situation that impacts the FHLBNY’s employees or vendors, the FHLBNY’s members, the borrowers of the FHLBNY’s members, and/or economic growth generally, the Bank’s financial condition and results of operations could be adversely affected.
The Bank notes here in particular that, as of the date of the filing of this Annual Report on Form 10-K, the full effects of the COVID-19 coronavirus are evolving and unknowable. The rapid and diffuse spread of COVID-19 has had severe negative impacts on, among other things, financial markets, liquidity, economic conditions and trade and could continue to do so or could worsen for an unknown period of time, which could in turn have a material adverse impact on our results of operations or financial condition. The timeliness and effectiveness of actions taken or not taken to contain and mitigate the effects of COVID-19 both in the U.S. and internationally by governments, central banks, healthcare providers, health system participants, other businesses and individuals could greatly affect outcomes. There are many current and potential issues, and we cannot predict them all or the extent to which they will affect the Bank and its business. Since March 16, 2020, most of our employees have been working remotely, and the long-term ramifications of this, including negative effects on our operations and our employees, may not yet be fully understood.
General Risk Factors
Failures of critical vendors and other third parties, including but not limited to, the Federal Reserve Banks, could disrupt the Banks’ ability to conduct and manage its businesses. We rely on vendors and other third parties to perform certain critical services. A failure in, or an interruption to, one of more of those services could adversely affect the business operations of the Bank. The use of vendors and other third parties also exposes the Bank to the risk of loss of confidential information or other harm. To the extent that vendors do not conduct their activities under appropriate standards, the Bank could also be exposed to reputational risk.
The departure of key personnel could adversely impact the Bank’s operations. We rely on key personnel for many of our functions. Our success in retaining such personnel is important to our ability to conduct our operations and measure and maintain risk and financial controls. The ability to retain key personnel could be challenged as the U.S. employment market improves. We maintain a succession planning program in which we attempt to identify and develop employees who can potentially replace key personnel in the event of their departure, whether due to resignation or normal retirement.
The FHLBNY relies heavily on information systems and other technology. We rely heavily on information systems and other technology to conduct and manage our business. We have implemented a business continuity plan that includes the maintenance of alternate sites for data processing and office functions. All critical systems are tested annually for recovery readiness and all business units update and test their respective disaster recovery plans annually. If we were to experience a failure or interruption in any of these systems or other technology and our disaster recovery capabilities were also impacted, it would affect our ability to conduct and manage our business effectively, including advance and hedging activities. This may adversely affect member relations, risk management, and negatively affect our financial condition and results of operations.
Continually evolving cybersecurity or other technological risks could result in the disclosure of confidential client or customer information, damage to the FHLBNY’s reputation, additional costs to the FHLBNY, regulatory penalties and financial losses. A significant portion of FHLBNY’s operations relies heavily on the secure processing, storage and transmission of financial and other information. The FHLBNY’s computer systems, software and networks are subject to similar vulnerabilities as other companies highly reliant on technology for operational processing. These risks include unauthorized access, loss or destruction of data, unavailability of service, computer viruses or other malicious code, cyber-attacks and other events. These threats may derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. If one or more of these events occurs, it could result in the disclosure of confidential information, damage to FHLBNY’s reputation with its customers, additional costs to the FHLBNY (such as repairing systems or adding new personnel or protection technologies), regulatory penalties and financial losses to the FHLBNY. Such events could also cause interruptions or malfunctions in the operations of the FHLBNY data systems (such as the lack of availability of FHLBNY’s online advance transaction system with members).
| Item 1B | Unresolved Staff Comments. |
Not applicable.
At December 31, 2020, we occupied approximately 73,294 square feet of leased office space at 101 Park Avenue, New York, New York as the Bank’s headquarters, 52,041 square feet of leased office space in Jersey City, New Jersey, principally as an operations center, and 2,521 square feet of leased office space in Washington, D.C.
| Item 3. | Legal Proceedings. |
From time to time, the FHLBNY is involved in disputes or regulatory inquiries that arise in the ordinary course of business. At the present time, there are no pending claims against the FHLBNY that, if established, are reasonably likely to have a material effect on the FHLBNY’s financial condition, results of operations or cash flows or that are otherwise reasonably likely to be material to the FHLBNY.
| Item 4. | Mine Safety Disclosures. |
Not applicable.
PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
All of the capital stock of the FHLBNY, which is issued only at a par value of $100 per share, is owned by our members. Stock may also be held by former members as a result of having been acquired by a non-member institution. We conduct our business in advances and mortgages exclusively with stockholder members and housing associates (1). There is no established marketplace for FHLBNY stock as FHLBNY stock is not publicly traded. It may be redeemed at par value upon request, subject to regulatory limits. These shares of stock in the FHLBNY are registered under the Securities Exchange Act of 1934, as amended. At December 31, 2020, we had 330 members who held 53,668,298 shares of capital stock between them. At December 31, 2020, former members held 29,915 shares. At December 31, 2019, we had 328 members who held 57,786,659 shares of capital stock between them. At December 31, 2019, former members held 51,295 shares. Capital stock held by former members is classified as a liability, and deemed to be mandatorily redeemable under the accounting guidance for certain financial instruments with characteristics of both liabilities and equity.
Our recent quarterly cash dividends are outlined in the table below. No dividends were paid in the form of stock. Dividend payments and earnings retention are subject to be determined by our Board of Directors, at its discretion, and within the regulatory framework promulgated by the Finance Agency. Our Retained Earnings and Dividends Policy outlined in the section titled Retained Earnings and Dividends under Part I, Item 1 of this Annual Report on Form 10-K provides additional information.
Dividends from a calendar quarter’s earnings are paid (a) subsequent to the end of that calendar quarter as summarized below. Dividend payments reported below are on Class B Stock, which includes payments to non-members on capital stock reported as mandatorily redeemable capital stock in the Statements of Condition (dollars in thousands):
| | | 2020 | | | 2019 | | | 2018 | |
| Month Paid | | Amount | | | Dividend Rate | | | Amount | | | Dividend Rate | | | Amount | | | Dividend Rate | |
| November | | $ | 79,272 | | | | 5.10 | % | | $ | 84,900 | | | | 6.35 | % | | $ | 107,373 | | | | 6.90 | % |
| August | | | 95,491 | | | | 5.60 | | | | 92,189 | | | | 6.35 | | | | 103,573 | | | | 6.75 | |
| May | | | 85,950 | | | | 5.90 | | | | 87,607 | | | | 6.35 | | | | 105,329 | | | | 6.50 | |
| February | | | 87,799 | | | | 6.35 | | | | 101,347 | | | | 6.90 | | | | 102,484 | | | | 6.50 | |
| | | $ | 348,512 | (b) | | | | | | $ | 366,043 | (b) | | | | | | $ | 418,759 | (b) | | | | |
| (a) | The table above reports dividend on a paid basis and includes payments to former members as well as members. Dividends paid to former members were $0.3 million, $0.4 million and $1.2 million for the years ended December 31, 2020, 2019 and 2018. |
| (b) | Includes dividends paid to non-members; payments to non-members are classified as interest expense for accounting purposes. Dividends are accrued for former members and recorded as interest expense on mandatorily redeemable capital stock held by former members and is a charge to Net income. Dividends on capital stock held by members are not accrued. Dividends are paid in arrears typically in the second month after the quarter end in which the dividend is earned and is a direct charge to retained earnings. |
Issuer Purchases of Equity Securities
We are exempt from disclosures of unregistered sales of common equity securities or securities issued through the Office of Finance that otherwise would have been required under Item 701 of the SEC’s Regulation S-K. By the same no-action letter, we are also exempt from disclosure of securities repurchases by the issuer that otherwise would have been required under Item 703 of Regulation S-K.
| (1) | Housing associates are defined as non-stockholder entities that (i) are approved mortgagees under Title II of the National Housing Act, (ii) are chartered under law and have succession, (iii) are subject to inspection and supervision by a governmental agency, (iv) lend their own funds as their principal activity in the mortgage field, and (v) have a financial condition such that advances may be safely made to that entity. At December 31, 2020, we had 9 housing associates as customers. Advances made to housing associates totaled $5.0 million, and the mortgage loans acquired from housing associates were immaterial in any periods in this report. |
| Item 6. | Selected Financial Data. |
| Statements of Condition | | Years ended December 31, | |
| (dollars in millions) | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| Investments (a) | | $ | 39,748 | | | $ | 56,892 | | | $ | 35,741 | | | $ | 33,069 | | | $ | 30,939 | |
| Advances | | | 92,067 | | | | 100,695 | | | | 105,179 | | | | 122,448 | | | | 109,257 | |
| Mortgage loans held-for-portfolio, net of allowance for credit losses (b) | | | 2,900 | | | | 3,173 | | | | 2,927 | | | | 2,897 | | | | 2,747 | |
| Total assets | | | 136,996 | | | | 162,062 | | | | 144,381 | | | | 158,918 | | | | 143,606 | |
| Deposits and borrowings | | | 1,753 | | | | 1,194 | | | | 1,063 | | | | 1,196 | | | | 1,241 | |
| Consolidated obligations, net | | | | | | | | | | | | | | | | | | | | |
| Bonds | | | 69,716 | | | | 78,764 | | | | 84,154 | | | | 99,288 | | | | 84,785 | |
| Discount notes | | | 57,659 | | | | 73,959 | | | | 50,640 | | | | 49,614 | | | | 49,358 | |
| Total consolidated obligations | | | 127,375 | | | | 152,723 | | | | 134,794 | | | | 148,902 | | | | 134,143 | |
| Mandatorily redeemable capital stock | | | 3 | | | | 5 | | | | 6 | | | | 20 | | | | 31 | |
| AHP liability | | | 149 | | | | 154 | | | | 162 | | | | 132 | | | | 125 | |
| Capital | | | | | | | | | | | | | | | | | | | | |
| Capital stock | | | 5,367 | | | | 5,779 | | | | 6,066 | | | | 6,750 | | | | 6,308 | |
| Retained earnings | | | | | | | | | | | | | | | | | | | | |
| Unrestricted | | | 1,135 | | | | 1,116 | | | | 1,103 | | | | 1,067 | | | | 1,029 | |
| Restricted | | | 774 | | | | 685 | | | | 591 | | | | 479 | | | | 383 | |
| Total retained earnings | | | 1,909 | | | | 1,801 | | | | 1,694 | | | | 1,546 | | | | 1,412 | |
| Accumulated other comprehensive income (loss) | | | (20 | ) | | | (48 | ) | | | (13 | ) | | | (55 | ) | | | (96 | ) |
| Total capital | | | 7,256 | | | | 7,532 | | | | 7,747 | | | | 8,241 | | | | 7,624 | |
| Equity to asset ratio (c) | | | 5.30 | % | | | 4.65 | % | | | 5.37 | % | | | 5.19 | % | | | 5.31 | % |
| Statements of Condition | | Years ended December 31, | |
| Averages (See note below; dollars in millions) | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| Investments (a) | | $ | 45,150 | | | $ | 45,725 | | | $ | 43,370 | | | $ | 36,835 | | | $ | 29,337 | |
| Advances | | | 109,117 | | | | 95,838 | | | | 107,971 | | | | 109,188 | | | | 96,201 | |
| Mortgage loans held-for-portfolio, net of allowance for credit losses | | | 3,123 | | | | 3,008 | | | | 2,899 | | | | 2,838 | | | | 2,631 | |
| Total assets | | | 158,811 | | | | 145,506 | | | | 154,795 | | | | 149,581 | | | | 129,260 | |
| Interest-bearing deposits and other borrowings | | | 1,442 | | | | 1,131 | | | | 1,032 | | | | 1,768 | | | | 1,431 | |
| Consolidated obligations, net | | | | | | | | | | | | | | | | | | | | |
| Bonds | | | 73,097 | | | | 77,671 | | | | 93,529 | | | | 93,352 | | | | 73,174 | |
| Discount notes | | | 74,759 | | | | 58,318 | | | | 51,657 | | | | 45,895 | | | | 46,508 | |
| Total consolidated obligations | | | 147,856 | | | | 135,989 | | | | 145,186 | | | | 139,247 | | | | 119,682 | |
| Mandatorily redeemable capital stock | | | 4 | | | | 6 | | | | 14 | | | | 22 | | | | 24 | |
| AHP liability | | | 155 | | | | 159 | | | | 147 | | | | 123 | | | | 114 | |
| Capital | | | | | | | | | | | | | | | | | | | | |
| Capital stock | | | 6,129 | | | | 5,545 | | | | 6,166 | | | | 6,259 | | | | 5,712 | |
| Retained earnings | | | | | | | | | | | | | | | | | | | | |
| Unrestricted | | | 1,119 | | | | 1,091 | | | | 1,076 | | | | 1,019 | | | | 977 | |
| Restricted | | | 728 | | | | 636 | | | | 532 | | | | 423 | | | | 337 | |
| Total retained earnings | | | 1,847 | | | | 1,727 | | | | 1,608 | | | | 1,442 | | | | 1,314 | |
| Accumulated other comprehensive income (loss) | | | (67 | ) | | | (36 | ) | | | 16 | | | | (86 | ) | | | (181 | ) |
| Total capital | | | 7,909 | | | | 7,236 | | | | 7,790 | | | | 7,615 | | | | 6,845 | |
| Note | — | Average balance calculation. For most components of the average balances, a daily weighted average balance is calculated for the period. When daily weighted average balance information is not available, a simple monthly average balance is calculated. |
| Operating Results and Other Data | |
| (dollars in millions) | | | | | | |
| (except earnings and dividends per | | Years ended December 31, | |
| share, and headcount) | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| Net income | | $ | 442 | | | $ | 473 | | | $ | 560 | | | $ | 479 | | | $ | 401 | |
| Net interest income (d) | | | 753 | | | | 667 | | | | 797 | | | | 722 | | | | 556 | |
| Dividends paid in cash (e) | | | 348 | | | | 366 | | | | 417 | | | | 345 | | | | 259 | |
| AHP expense | | | 49 | | | | 52 | | | | 62 | | | | 53 | | | | 45 | |
| Return on average equity (f)(i) | | | 5.59 | % | | | 6.53 | % | | | 7.20 | % | | | 6.30 | % | | | 5.86 | % |
| Return on average assets (i) | | | 0.28 | % | | | 0.32 | % | | | 0.36 | % | | | 0.32 | % | | | 0.31 | % |
| Net OTTI impairment losses | | | - | | | | (1 | ) | | | - | | | | - | | | | - | |
| Other non-interest income (loss) | | | (51 | ) | | | 35 | | | | (24 | ) | | | (58 | ) | | | 7 | |
| Total other income (loss) | | | (51 | ) | | | 34 | | | | (24 | ) | | | (58 | ) | | | 7 | |
| Operating expenses (g) | | | 170 | | | | 151 | | | | 127 | | | | 112 | (j) | | | 99 | (j) |
| Finance Agency and | | | | | | | | | | | | | | | | | | | | |
| Office of Finance expenses | | | 19 | | | | 17 | | | | 16 | | | | 15 | | | | 13 | |
| Total other expenses (k) | | | 207 | | | | 176 | | | | 151 | | | | 131 | | | | 115 | |
| Operating expenses ratio (h)(i) | | | 0.11 | % | | | 0.10 | % | | | 0.08 | % | | | 0.07 | %(j) | | | 0.08 | % |
| Earnings per share | | $ | 7.22 | | | $ | 8.52 | | | $ | 9.09 | | | $ | 7.66 | | | $ | 7.02 | |
| Dividends per share | | $ | 5.74 | | | $ | 6.49 | | | $ | 6.66 | | | $ | 5.54 | | | $ | 4.73 | |
| Headcount (Full/part time) (l) | | | 354 | | | | 342 | | | | 314 | | | | 308 | | | | 280 | |
| (a) | Investments include trading securities, available-for-sale securities, held-to-maturity securities, grantor trust 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 were $7.1 million, $0.7 million, $0.8 million, $1.0 million and $1.6 million for the years ended December 31, 2020, 2019, 2018, 2017 and 2016. |
| (c) | Equity to asset ratio is Capital stock plus Retained earnings and Accumulated other comprehensive income (loss) as a percentage of Total assets. |
| (d) | Net interest income is net interest income before the provision for credit losses on mortgage loans. |
| (e) | Excludes dividends accrued to non-members classified as interest expense under the accounting standards for certain financial instruments with characteristics of both liabilities and equity. |
| (f) | Return on average equity is Net income as a percentage of average Capital Stock plus average retained earnings and average Accumulated other comprehensive income (loss). |
| (g) | Operating expenses include Compensation and Benefits. |
| (h) | Operating expenses as a percentage of Total average assets. |
| (i) | All percentage calculations are performed using amounts in thousands and may not agree if calculations are performed using amounts in millions. |
| (j) | Previously reported comparative numbers have been reclassified to conform to the retrospective adoption of ASU 2017-07 Compensation — Retirement Benefits (Topic 715). The ASU requires only the service cost component of Net periodic benefit cost of pension expenses to be included in compensation costs. |
| (k) | Includes Operating expenses, Compensation and benefits, Finance Agency and Office of Finance expenses and Other expenses. |
| (l) | Head count has increased for strategizing and executing the implementation of multiple, multi-year projects designed to modernize and streamline our technology systems and technology infrastructures. |
Supplementary financial data for each quarter for the years ended December 31, 2020 and 2019 are presented below (in thousands):
| | | 2020 | |
| | | 4th Quarter | | | 3rd Quarter | | | 2nd Quarter (a) | | | 1st Quarter | |
| Interest income | | $ | 336,796 | | | $ | 354,712 | | | $ | 502,305 | | | $ | 740,052 | |
| Interest expense | | | (147,084 | ) | | | (173,949 | ) | | | (272,617 | ) | | | (587,259 | ) |
| | | | | | | | | | | | | | | | | |
| Net interest income | | | 189,712 | | | | 180,763 | | | | 229,688 | | | | 152,793 | |
| | | | | | | | | | | | | | | | | |
| Provision (Reversal) for credit losses | | | (1,981 | ) | | | 2,536 | | | | 3,030 | | | | 136 | |
| Other income | | | (21,448 | ) | | | (14,283 | ) | | | (22,817 | ) | | | 7,729 | |
| Other expenses and assessments | | | (71,687 | ) | | | (62,749 | ) | | | (66,316 | ) | | | (55,279 | ) |
| Net other expenses | | | (91,154 | ) | | | (79,568 | ) | | | (92,163 | ) | | | (47,686 | ) |
| Net income | | $ | 98,558 | | | $ | 101,195 | | | $ | 137,525 | | | $ | 105,107 | |
| | | 2019 | |
| | | 4th Quarter (b) | | | 3rd Quarter (c) | | | 2nd Quarter (c) | | | 1st Quarter | |
| Interest income | | $ | 828,929 | | | $ | 931,927 | | | $ | 1,022,556 | | | $ | 997,534 | |
| Interest expense | | | (665,025 | ) | | | (769,533 | ) | | | (858,980 | ) | | | (820,318 | ) |
| | | | | | | | | | | | | | | | | |
| Net interest income | | | 163,904 | | | | 162,394 | | | | 163,576 | | | | 177,216 | |
| | | | | | | | | | | | | | | | | |
| Provision (Reversal) for credit losses | | | 16 | | | | 134 | | | | (275 | ) | | | (17 | ) |
| Other income | | | 26,186 | | | | (4,173 | ) | | | (1,303 | ) | | | 13,178 | |
| Other expenses and assessments | | | (61,818 | ) | | | (56,675 | ) | | | (54,466 | ) | | | (55,573 | ) |
| Net other expenses | | | (35,648 | ) | | | (60,982 | ) | | | (55,494 | ) | | | (42,378 | ) |
| Net income | | $ | 128,256 | | | $ | 101,412 | | | $ | 108,082 | | | $ | 134,838 | |
Interim period — Infrequently occurring items recognized.
| (a) | 2020 second quarter Net income was driven by significant increase in Net interest income, which grew in parallel with a surge in member borrowings of advances. Advances balances declined in the third and fourth quarters of 2020. |
| (b) | Fourth quarter 2019 — Net income benefited from valuation gains recorded in Other income (loss) on standalone derivatives and U.S. Treasury Securities. Operating expenses were higher primarily due to increase in head count and technology related expenses related to multiple, multi-year technology modernization initiatives. |
| (c) | 2019 Net income declined after the first quarter primarily due to lower net interest income, which was impacted by price reductions on advances effective January 1, 2019 and higher funding cost through most of 2019. |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Forward-Looking Statements
Statements contained in this Annual Report on Form 10-K, 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 Item 1A and the risks set forth below, and that actual results could differ materially from those expressed or implied in these forward-looking statements. As a result, you are cautioned not to place undue reliance on such statements. 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 Item 1A - Risk Factors 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.
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 our financial statements, the changes in key items in our financial statements from year to year, the primary factors driving those changes as well as how accounting principles affect our financial statements. The MD&A is organized as follows:
| MD&A TABLE REFERENCE |
| Table(s) | | Description | | Page(s) |
| | | Selected Financial Data | | 27-28 |
| | | Supplementary Financial Data | | 29 |
| | | Replacement of London Interbank Offered Rates (LIBOR) | | 52 |
| 1.1 | | Market Interest Rates | | 39 |
| 2.1 | | Financial Condition | | 49 |
| 3.1 - 3.8 | | Advances | | 53-57 |
| 4.1 - 4.9 | | Investments | | 58-62 |
| 5.1 - 5.3 | | Mortgage Loans Held-for-Portfolio | | 64-65 |
| 6.1 - 6.11 | | Consolidated Obligations | | 66-70 |
| 6.12 | | FHLBNY Ratings | | 71 |
| 7.1 - 7.4 | | Capital | | 71-73 |
| 8.1 - 8.8 | | Derivatives Instruments and Hedging Activities | | 73-76 |
| 9.1 - 9.3 | | Liquidity | | 77-78 |
| 9.4 | | Short Term Debt | | 80 |
| 9.5 - 9.6 | | FHFA MBS Limits and Core Mission Achievement | | 80-81 |
| 10.1 - 10.13 | | Results of Operations | | 82-98 |
| 11.1 | | Assessments | | 98 |
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-K. For a more complete understanding of events, trends and uncertainties, as well as the liquidity, capital, credit and market risks, and critical accounting estimates, affecting the Federal Home Loan Bank of New York (FHLBNY or Bank), this Form 10-K should be read in its entirety.
Cooperative business model. As a cooperative, 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 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. Our Business Continuity Program (BCP) has been fully deployed and operational throughout the COVID-19 pandemic and the market uncertainties without any significant operational problems through the date of this report. 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. We continue to operate our business and serve our members remotely
COVID-19 and Business Continuity
In response to the COVID-19 pandemic, we activated and successfully executed on our business continuity protocols and continue to monitor the COVID-19 pandemic under such protocols. We have endeavored to protect our employees and customers and to safeguard the Bank’s assets, including physical property and information, and to permit the continued operations of the Bank. Substantially all our employees continue to work remotely. We continue to monitor conditions and are developing a phased approach to reopening our offices based on regional indicators of infection positivity rates and will continue to operate in compliance with all applicable laws and regulations.
The Bank continued to meet its funding needs throughout recent events. The disruptions in the funding markets during March has largely subsided, as spreads between the Bank’s consolidated debt 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 debt obligations. As a consequence of the Federal Reserve’s Open Market Operations in response to market disruptions, the unusual relationships among interest rate curves seen at the height of the disruption has now largely normalized and funding market stability began to improve as early as in the second quarter of 2020. 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 our balance sheet and the spreads we earn on those assets. Continued low market interest rates will reduce the income we earn from deploying capital. Changes in market conditions affecting CO issuance spreads may once again become volatile. Uncertainty about future investor appetite for increased Treasury and GSE issuance may indicate higher future debt costs and reduce our margins as issuance amounts rise.
We also note that the market disruption caused by the pandemic negatively affected mortgage collateral valuations. We 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 to comply with their collateral maintenance requirements. We remain adequately collateralized and will continue to monitor credit and collateral conditions and endeavor to make adjustments as needed. In addition, we have implemented certain relief measures to help members serve their customers affected by the COVID-19 pandemic. These accommodations include forbearance and deferrals for MPF program loans, forbearance, and modifications for pledged loan collateral, and allowing electronic signatures on loan documentation in certain circumstances.
In May 2020, we 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. 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. We have established a small business relief program and has disbursed cash grants of $8.0 million through December 31, 2020.
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. An adjustment to opening retained earnings of $3.8 million for credit loss allowance was recorded with the adoption of CECL at January 1, 2020. In the four quarters of 2020, we charged $3.4 million to earnings as the provision for credit losses under the new framework on mortgage loans, and $0.3 million as the provision for credit losses on certain held-to-maturity securities. No provision was deemed necessary on advances.
2020 Financial Results
Net income — 2020 Net income was $442.4 million, a decrease of $30.2 million, or 6.4% from 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, and other investments. The Fed has continued with its wide-ranging stimulus plans and interest rates remain very low, adversely impacting margin and net interest income.
Net Interest Income — Our 2020 results were impacted by the March 2020 rate cuts. The Federal Reserve decreased its benchmark short-term interest rate to a range of 0-0.25%, a decrease of 150 basis points. These decreases were in addition to the three rate cuts implemented during 2019 (225 basis points in total).
2020 Net interest income, before loan loss provisions, was $753.0 million, an increase of $85.9 million, or 12.9% from the prior year. Primary driver was higher earning assets, specifically advances in the 2020 second and third quarters.
Financial markets in the third and fourth quarter exhibited less volatility. The Fed continued to provide support to the economy and the financial markets; interest rates remained very low. Given the relationship between our interest-sensitive assets and liabilities, decreases in short-term interest rates generally resulted in an overall decrease in our net interest margin, although the magnitude of the impact to our net interest margin depends on the yields on interest-earning assets relative to the cost of interest-bearing liabilities and yields earned on capital. Conversely, any increases in short-term interest rates generally have a positive impact on our net interest margin. Furthermore, the Fed’s acquisition program in the agency-issued mortgage-backed securities market has driven up pricing and limited the opportunities for acquiring investments that would meet our risk/reward targets. Spreads remained very low on our investments in U.S. Treasury securities, overnight Federal funds markets and repurchase programs, the principal investment vehicles for our balance sheet liquidity programs.
Net interest income during the quarters in 2020 were strong, despite the volatility in the financial markets: $152.8 million in the first quarter; $229.7 million in the second quarter; $180.8 million in the third quarter and $189.7 million in the fourth quarter. Fourth quarter 2020 net interest benefitted from $30.2 million in prepayment fees, although lower average earning assets, specifically lower advance balances in the fourth quarter of 2020 negatively impacted net interest income and margin (before prepayment fees). Net interest income grew in the middle two quarters largely driven by spreads earned from the surge in demand for advances at the onset of COVID-19 pandemic, and by favorable Consolidated obligation debt expense. CO debt costing yields/expenses declined in part due to a shift to greater use of discount notes to fund short-maturity assets, and in part due to advantageous pricing of CO discount notes. In 2020, CO discount notes funded 47.3% of our earning assets, up from 40.3% in the prior year (calculations are based on average balances). Discount note costing yield was 57 basis points in 2020, down from 221 basis points in the prior year. In the current volatile market, investor demand for FHLBank issued high-quality CO discount notes pushed yields down, resulting in favorable spreads and favorable funding through most of 2020.
In summary, volume related increases in earning assets and changes in funding mix together made a favorable impact of $91.6 million to margin, partly offset by decline of $5.8 million due to yield-related changes. We funded average interest-earning assets of $157.9 billion in 2020, compared to $144.6 billion in the prior year, the asset growth driven by significant increase in advances at the onset of COVID-19 in March 2020. However, starting in late second quarter of 2020, advance balances began to decline, gradually at first, when members did not roll over maturing short-term funds and began to prepay advances, followed by significant prepayments late in the fourth quarter of 2020. The decline adversely impacted fourth quarter 2020 net interest income. We ended 2020 with par advances at $90.7 billion, compared to $100.4 billion when we began the year. Average advance balance was $109.1 billion in 2020, up from $95.8 billion average in the prior year.
Stockholders’ capital stock, which is typically deployed to fund short-term interest-earning assets, increased to $8.0 billion in 2020, up from $7.3 billion in the prior year (as measured by average outstanding balance in the period). Increase in Capital stock was in line with increase in advances in 2020, as borrowing members are required to purchase capital stock in proportion to amounts borrowed.
Other income (loss) — Other income (loss) reported a loss of $50.8 million in 2020 compared to a gain of $33.9 million in 2019.
| · | Service fees and other were $17.9 million in 2020 compared to $18.2 million in 2019. Service fees and others are primarily fee revenues from financial letters of credit. |
| · | Financial instruments carried at fair values reported a net valuation gain of $0.1 million in 2020 compared to a net valuation loss of $4.1 million in 2019. |
| · | Derivative activities reported a charge to Other income of $151.7 million in 2020, compared to a charge of $40.7 million in 2019. The charges included net accrued interest expense on standalone swaps of $93.7 million and $12.5 million in 2020 and 2019, respectively. Fair value losses on standalone swaps hedging U.S. Treasury securities were $80.7 million and $33.2 million in 2020 and 2019, respectively. We also recorded net fair value gains of $16.7 million and $3.5 million in 2020 and 2019, respectively, on standalone swaps designated primarily to mitigate basis risks on certain advances and bonds. |
| · | U.S. Treasury Securities held for liquidity (classified as trading) reported gains of $72.8 million and $51.3 million in 2020 and 2019, respectively. Gains included realized gains of $38.3 million and $1.9 million in 2020 and 2019, respectively. |
| · | Equity Investments, held to finance payments to retirees in non-qualified pension plans, reported net valuation gains of $9.8 million in 2020, a little lower than 2019. |
Other expenses were $206.9 million in 2020, compared to $176.0 million in 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.
| · | Operating expenses were $69.8 million in 2020, up from $62.8 million in 2019. Increase was primarily due to software and technology system contracts, including payments to professional staff. |
| · | Compensation and benefits expenses were $100.2 million in 2020, up from $88.2 million in 2019. Increase was primarily due to addition of staff to design and execute on our long-term technology enhancement plans. |
| · | The expenses allocated for our share of the costs to operate the Office of Finance and the Federal Housing Finance Agency were $19.4 million in 2020, compared to $16.8 million in 2019. |
| · | Other expenses were $17.5 million in 2020, compared to $8.3 million in 2019. In 2020, Other expenses included $8.0 million in cash grants to assist small business impacted by the COVID-19 pandemic. |
Affordable Housing Program Assessments (AHP) allocated from Net income were $49.2 million in 2020, compared to $52.6 million in 2019. Assessments are calculated as a percentage of Net income, and changes in allocations were in parallel with changes in Net income.
Dividend payments — Four quarterly cash dividends were paid in 2020 for a total of $5.74 per share of capital, compared to $6.49 per share of capital paid in 2019.
Financial Condition — December 31, 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 $137.0 billion at December 31, 2020 from $162.1 billion at December 31, 2019, a decrease of $25.1 billion, or 15.5%. Cash at banks was $1.9 billion at December 31, 2020, compared to $603.2 million at December 31, 2019.
Liquidity investments
Money market investments at December 31, 2020 were $6.3 billion in federal funds sold and $4.7 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 $8.8 billion and $9.0 billion in the fourth quarter of 2020 and 2019, respectively. Resale agreements averaged $4.1 billion and $9.9 billion in the fourth quarter of 2020 and 2019, respectively. In 2020, we also established a program to invest in interest-earning deposits at highly rated financial institutions that are readily available as liquid funds; at December 31, 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 primarily U.S. Treasury securities of $11.7 billion and $15.3 billion at December 31, 2020 and 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 December 31, 2020 included $3.5 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 9.1 through Table 9.3 in this MD&A.
Advances — The pre-pandemic par balance of $93.0 billion at February 2020, surged to $134.4 billion at March 31, 2020, a 44.5% increase within a few weeks. However, soon after, advance balances began to decline, gradually at first, when members did not roll over maturing short-term funds and prepaid advances ahead of maturities, followed by significant prepayments late in the fourth quarter. We ended the year with par advances at $90.7 billion, compared to $100.4 billion at the beginning of the year. Advance transaction volume, as measured by average balance, was $109.1 billion in 2020, compared to $95.8 billion in the prior year.
Short-term fixed-rate advances decreased by 47.2% to $12.9 billion at December 31, 2020, down from $24.4 billion at December 31, 2019. ARC advances, which are adjustable-rate borrowings, increased by 4.2% to $17.1 billion at December 31, 2020, compared to $16.4 billion at December 31, 2019.
Given that advances are always well collateralized, a provision for credit loss was not necessary. We have no history of credit losses on 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 $281.3 million and $344.0 million at December 31, 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 $3.2 billion and $2.3 billion at December 31, 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 allowances for credit losses under the new credit loss framework. Fixed- and floating-rate GSE-issued mortgage-backed securities in the HTM portfolio were $11.8 billion and $14.1 billion at December 31, 2020 and December 31, 2019.
No allowance for credit losses were deemed necessary for GSE-issued investments. Credit loss allowance of $0.3 million was recorded on PLMBS at December 31, 2020.
Housing finance agency bonds, primarily New York and New Jersey, were carried at an amortized cost basis of $1.1 billion at December 31, 2020 and December 31, 2019. Credit loss allowance of $0.7 million was recorded on the investments at December 31, 2020.
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 $80.4 million and $60.0 million at December 31, 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 $2.9 billion at December 31, 2020, a decrease of $265.8 million from the balance at December 31, 2019. Loans are primarily fixed-rate, single-family mortgages acquired through the MPF Program. 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. Rising delinquencies have resulted in increase in credit losses under the CECL methodology. Allowance for credit losses increased to $7.1 million at December 31, 2020, compared to $0.7 million at December 31, 2019.
We have introduced a new mortgage program, the Mortgage Asset Program sm (MAP) and plan to fully roll out the program in late March 2021. At December 31, 2020, MAP loans were $0.3 million. Effective March 31, 2021, we will cease to accept mortgage commitments to purchase loans under the MPF program; the MAP will become our alternative to MPF. The outstanding MPF portfolio will continue to be serviced, managed under its existing contractual and customary agreements and contracts.
Capital ratios — Our capital position remains strong. At December 31, 2020, actual risk-based capital was $7.3 billion, compared to required risk-based capital of $1.1 billion. To support $137.0 billion of total assets at December 31, 2020, the minimum required total capital was $5.5 billion or 4.0% of assets. Our actual regulatory risk-based capital was $7.3 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 December 31, 2020 balance sheet leverage (based on U.S. GAAP) was 18.9 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.
Other Developments
Replacement of London Interbank Offered Rates (LIBOR)
As noted throughout this report, much of the FHLBNY’s assets, liabilities and derivatives are indexed to LIBOR. We are actively reviewing LIBOR-indexed contracts to enable us to plan an orderly transition to SOFR.
On March 5, 2021 the ICE Benchmark Administration (IBA) announced its intentions to cease the publication of one week and two month USD LIBOR following the LIBOR publication on December 31, 2021, and to cease the publication of overnight, one, three, six, and 12 month USD LIBOR following the LIBOR publication on June 30, 2023. The Alternative Reference Rates Committee (ARRC) has confirmed that in its opinion the March 5, 2021 announcements by ICE Benchmarks Administration and the U.K. Financial Conduct Authority on future cessation and loss of representativeness of the LIBOR benchmarks constitutes a “Benchmark Transition Event” with respect to all USD LIBOR settings pursuant to the ARRC previous recommendations regarding fallback language for new issuances or originations of LIBOR floating rate notes, securitizations, syndicated business loans, and bilateral business loans.
The new cessation date on June 30, 2023 for LIBOR indices allows the FHLBNY more time to plan an orderly transition.
The FASB has issued two Accounting Standards Updates to Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and we are reviewing permissible expedients offered under Topic 848, including a one-time election to transfer/sell LIBOR-indexed securities in our held-to-maturity portfolio.
We are actively participating with the various industry groups, including the International Swaps and Derivatives Association (ISDA) and the ARRC to align our derivative contracts with IBOR Fallbacks Supplement and IBOR Fallbacks Protocol; the ISDA protocol was a major step in reducing the potentially systemic impact of LIBOR becoming unavailable while market participants, including the FHLBNY, continue to have exposure. The FHLBNY has elected to adhere to the ISDA protocol.
Legislative and Regulatory Developments in this MD&A includes more information.
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+ by S&P. Fitch Ratings has rated the U.S. sovereign debt as AAA, but in 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.
Trends in the Financial Markets
Conditions in Financial Markets. The primary external factors that affect net interest income are market interest rates and the general state of the economy. The following table presents changes in key rates over the course of 2020 and 2019 (rates in percent):
| Table | 1.1 Market Interest Rates |
| | | December 31, | |
| | | 2020 | | | 2019 | | | 2020 | | | 2019 | |
| | | Average | | | Average | | | Ending Rate | | | Ending Rate | |
| Federal Funds Target Rate | | | 0.53 | % | | | 2.28 | % | | | 0.25 | % | | | 1.75 | % |
| Federal Funds Effective Rate (a) | | | 0.36 | | | | 2.16 | | | | 0.09 | | | | 1.55 | |
| 1-Month LIBOR | | | 0.52 | | | | 2.22 | | | | 0.14 | | | | 1.76 | |
| 3-Month LIBOR | | | 0.65 | | | | 2.33 | | | | 0.24 | | | | 1.91 | |
| 2-Year U.S.Treasury | | | 0.39 | | | | 1.97 | | | | 0.12 | | | | 1.57 | |
| 5-Year U.S.Treasury | | | 0.53 | | | | 1.95 | | | | 0.36 | | | | 1.69 | |
| 10-Year U.S.Treasury | | | 0.89 | | | | 2.14 | | | | 0.91 | | | | 1.92 | |
| 15-Year Residential Mortgage Note Rate | | | 2.82 | | | | 3.35 | | | | 2.35 | | | | 3.41 | |
| 30-Year Residential Mortgage Note Rate | | | 3.33 | | | | 3.98 | | | | 2.87 | | | | 3.86 | |
| (a) | Source: Board of Governors Federal Reserve System; all other sources are Bloomberg L.L.P. |
During the fourth quarter, the markets continued to struggle with the fall-out from the COVID-19 pandemic. At its November meeting, the Fed maintained the target for the federal funds rate at a range between 0% and 0.25% and committed to continuing the programs in place to support the economy and increase purchases of U.S. Treasuries, and mortgage-backed securities. At its December meeting, the Fed maintained the federal funds rate at the same range and stated its intent to increase its holdings of Treasuries by $80 billion per month and mortgage-backed securities by $40 billion per month “until substantial further progress is made towards the Committee’s maximum employment and price stability goals”.
During the fourth quarter of 2020, yields on U.S. Treasuries decreased in the short end of the curve, but increased for maturities 2-years and longer relative to the prevailing yields at the end of the third quarter.
Impact of general level of interest rates on the FHLBNY. The level of interest rates during a reporting period impacts our profitability, due primarily to the relatively shorter-term structure of earning assets and the impact of interest rates on invested capital. We invest in Federal funds sold and repurchase agreements that typically are overnight investments. We also use derivatives to effectively change the repricing characteristics of a significant proportion of our advances and Consolidated obligation debt to match shorter-term benchmark interest rates or overnight indices (LIBOR, Federal funds effective rate and SOFR) that reprice at intervals of three month or as frequently as daily. Consequently, the current level of short-term interest rates, as represented by the overnight Federal funds target rate, the overnight SOFR, and the 3-month LIBOR rate, has an impact on profitability.
The level of interest rates also directly affects our earnings on invested capital. Compared to other banking institutions, we operate at comparatively low net spreads between the yield we earn on assets and the cost of our liabilities. Therefore, we generate a relatively higher proportion of our income from the investment of member-supplied capital at the average asset yield. As a result, changes in asset yields tend to have a greater effect on our profitability than they do on the profitability of other banking institutions.
In summary, our average asset yields and the returns on capital invested in these assets largely reflect the short-term interest rate environment because the maturities of our assets are generally short-term in nature, have rate resets that reference short-term rates, or have been hedged with derivatives in which a short-term or overnight rate is received. Changes in rates paid on Consolidated obligations and the spread of these rates relative to LIBOR, SOFR, and the Federal funds rate or to U.S. Treasury securities may also impact profitability. The rates and prices at which we are able to issue Consolidated obligations, and their relationship to other products such as Treasury securities, change frequently and are affected by a multitude of factors including: overall economic conditions; volatility of market prices, rates, and indices; the level of interest rates and shape of the Treasury curve; the level of asset swap rates and shape of the swap curve; supply from other issuers (including GSEs such as Fannie Mae and Freddie Mac, supra/sovereigns, and other highly-rated borrowers); the rate and price of other products in the market such as mortgage-backed securities, repurchase agreements, and commercial paper; investor preferences; the total volume, timing, and characteristics of issuance by the FHLBanks; the amount and type of advance demand from our members; political events, including legislation and regulatory action; press interpretations of market conditions and issuer news; the presence of inflation or deflation; and actions by the Federal Reserve.
Recently Issued Accounting Standards and Interpretations and Critical Accounting Policies and Estimates
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-K.
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 our financial instruments in a reasonable and consistent manner and in accordance with established accounting policies.
Valuation of Financial Instruments — The following assets and liabilities, including those for which the FHLBNY has elected the fair value option, were carried at fair value on the Statement of Condition as of December 31, 2020:
| · | Fair values of derivative instruments — Derivatives are valued using internal valuation techniques as no quoted market prices exist for such instruments, and we employ industry standard option adjusted valuation models that generate fair values of interest rate derivatives. We have classified derivatives as Level 2. |
| · | Fair values of instruments elected under the Fair Value Option — When the FHLBNY elects the FVO, the election is made on an instrument-by-instrument basis on Consolidated obligation debt and advances, which are fair valued using the Bank’s industry standard option adjusted models. We have classified instruments elected under the FVO as Level 2. |
| · | Fair values of available-for-sale mortgage-backed securities — We request prices for all mortgage-backed securities from third-party vendors. Typically, fair values are classified as Level 2. |
| · | 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 and GSE 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 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. Because of the highly liquid nature of the investments at their NAVs, they are categorized as Level 1 financial instruments under the valuation hierarchy. |
Provision for Credit Losses
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. 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. We have established controls and validation processes over models pertaining to expected losses, including policies and control procedures.
The expected loss framework was applied to develop credit loss provisions in 2020. Incurred loss methodology was applied to develop provisions in 2019 and 2018. For an understanding of credit loss methodologies under ASU 2016-13 in 2020 and incurred loss methodologies applied in prior years, see financial statements and notes thereto: Note 8. Held-to-Maturity Securities, Note 9. Advances, and Note 10. Mortgage Loans Held-for-Portfolio.
We adopted the guidance under ASU 2016-13 effective January 1, 2020 by recording a credit loss allowances of $3.8 million directly to beginning retained earnings, conforming with the adoption rules under the ASU 2016-13. In the four quarters of 2020, additional provisions of $3.4 million were recorded through earnings on mortgage loans, and $0.3 million on certain held-to-maturity securities. No provisions for credit losses on advances were necessary in 2020, and no provision has been necessary in the history of the advance program.
Determining the amount of the provision for credit losses is considered a critical accounting estimate because management’s evaluation of the adequacy of the provision is subjective and requires significant estimates, including the amounts and timing of estimated future cash flows, estimated losses based on historical loss experience, and consideration of current economic trends, all of which are susceptible to change. These assumptions and judgments on our provision for credit losses are based on information available as of the date of the financial statements. Actual losses could differ from these estimates.
Advances — No provisions for credit losses were necessary at December 31, 2020 and 2019. We have policies and procedures in place to manage our credit risk effectively. Outlined below are the underlying factors that we use for evaluating our exposure to credit loss.
| · | Monitoring the creditworthiness and financial condition of the institutions to which we lend funds. |
| · | Reviewing the quality and value of collateral pledged by members. |
| · | Estimating borrowing capacity based on collateral value and type for each member, including assessment of margin requirements based on factors such as cost to liquidate, and inherent risk exposure based on collateral type. |
| · | Evaluating historical loss experience. |
We are required by Finance Agency regulations to obtain sufficient collateral on advances to protect against losses, and to accept only certain kinds of collateral on our advances, such as U.S. government or government-agency securities, residential mortgage loans, deposits, and other real estate related assets. We have never experienced a credit loss on an advance. Based on the collateral held as security for advances, management’s credit analyses, and prior repayment history, no allowance for credit losses on advances was deemed necessary by management at December 31, 2020, 2019 and 2018. During the periods in this report, we had the rights to collateral, either loans or securities, on a member-by-member basis, with an estimated liquidation value in excess of outstanding advances.
Significant changes to any of the factors described above could materially affect our provision for losses on advances. For example, our current assumptions about the financial strength of any member may change due to various circumstances, such as new information becoming available regarding the member’s financial strength or future changes in the national or regional economy. New information may require us to place a member on credit watch and require collateral to be delivered, adjust our current margin requirement, or provide for losses on advances.
For additional discussion regarding underwriting standards, including collateral held to support advances, see Tables 3.3 and 3.4 and accompanying discussions in this MD&A.
Mortgage Loans — MPF Program. We have policies and procedures in place (pre-existing to CECL at December 31, 2019 and 2018, including policies and procedures that comply with the new CECL standards effective January 1, 2020) to manage our credit risk effectively. The pre-existing, pre-CECL standards included:
| · | Evaluation of members to ensure that they meet the eligibility standards for participation in the MPF Program. |
| · | Evaluation of the purchased and originated loans to ensure that they are qualifying conventional, conforming fixed-rate, first lien mortgage loans with fully amortizing loan terms of up to 30 years, secured by owner-occupied, single-family residential properties. |
| · | Estimation of loss exposure and historical loss experience to establish an adequate level of loss reserves. |
We assign a non-accrual status to a mortgage loan when the collection of the contractual principal or interest is 90-days or more past due. When a mortgage loan is placed on non-accrual status, accrued but uncollected interest is reversed against interest income. For additional discussion regarding underwriting standards, allowances for credit losses and credit quality metrics, see financial statements, Note 10. Mortgage Loans Held-for-portfolio. Also, see Tables 5.1 to 5.3 and accompanying discussions in this MD&A.
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.
We record and report our hedging activities in accordance with ASC 815. All derivatives are recorded on the statements of condition at their fair values. Changes in the fair value of all derivatives, excluding those designated as cash flow hedges, are recorded in current period earnings, while changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in other comprehensive income (OCI) until earnings are affected by the variability of the cash flows of the hedged transaction. If our hedges do not qualify for hedge accounting, also known as economic hedges, then the changes in the fair value of the derivatives in the economic hedge would be recorded in earnings, without an offsetting change in the fair value of the hedged item. As a result, economic hedges have the potential to cause significant volatility on our results of operations. If hedges qualify under a qualifying ASC 815 hedge, we may use two approaches to hedge accounting: short-cut hedge accounting and long-haul hedge accounting.
A short-cut hedging relationship assumes no ineffectiveness and implies that the hedge between an interest-rate swap and an interest-bearing financial instrument is perfectly correlated. Therefore, it is assumed that changes in the fair value of the interest-rate swap and the interest-bearing financial instrument will perfectly offset one another; therefore, no ineffectiveness is recorded in earnings or OCI. To qualify for short-cut accounting treatment, a number of restrictive conditions must be met.
A long-haul hedging relationship requires us to assess, retrospectively and prospectively, on at least a quarterly basis, whether the derivative and hedged item have been and are expected to be highly effective in offsetting changes in fair value or cash flows attributable to the hedged risk. We perform a prospective analysis based on a quantitative method at the inception of the hedge, and subsequently each quarter, we also perform retrospective hedge effectiveness analysis using regression to support our assertion that a hedge was and will remain effective. If the hedge fails the effectiveness test any time during its life, the hedge relationship no longer qualifies for hedge accounting and the derivative is marked to fair value through current period earnings without any offsetting changes in fair value related to the hedged item.
In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (Topic 815). On October 25, 2018, 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). ASU 2018-16 added the OIS rate based on SOFR as a U.S. benchmark rate to facilitate the LIBOR to SOFR transition, and the amendments became effective concurrently with the FHLBNY’s adoption of ASU 2017-12 effective January 1, 2019. In addition, the amendments in this ASU also made certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP.
For more information about policies for our derivatives and hedging activities, see financial statements, Note 1. Critical Accounting Policies and Estimates and Note 17. Derivatives and Hedging Activities.
Legislative and Regulatory Developments
Finance Agency Final Rule on FHLBank Housing Goals Amendments
On June 25, 2020, the Finance Agency published 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 and is working diligently to meet the requirements of the rule through its AMA programs.
Finance Agency Final Rule on Stress Testing
On March 24, 2020, the Finance Agency published a final rule, effective upon issuance, to amend its stress testing rule, consistent with section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (EGRRCPA). The final rule (i) raises the minimum threshold for entities regulated by the Finance Agency to conduct periodic stress tests from $10 billion to $250 billion or more in total consolidated assets; (ii) removes the requirements for FHLBanks to conduct stress testing; and (iii) removes the adverse scenario from the list of required scenarios. FHLBanks are currently excluded from this regulation because no FHLBank has total consolidated assets over $250 billion, but the Finance Agency reserved its discretion to require an FHLBank with total consolidated assets below the $250 billion threshold to conduct stress testing. These amendments align the Finance Agency’s stress testing rule with rules adopted by other financial institution regulators that implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) stress testing requirements, as amended by EGRRCPA.
This rule eliminates these stress testing requirements for the Bank, unless the Finance Agency exercises its discretion to require stress testing in the future. The Bank does not expect this rule to have a material effect on our financial condition or results of 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 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 other changes, the final rule: (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, notional reductions or portfolio compression exercises; (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 of at least $8 billion; and (3) clarifies that initial margin (IM) trading documentation does not need to be executed prior to the parties becoming obligated to exchange IM.
On the same date, the Prudential Banking Regulators published an interim final rule, effective September 1, 2020, extending the IM compliance date for Phase 6 counterparties to September 1, 2022. On November 9, 2020, the Commodity Futures Trading Commission (CFTC) published a final rule extending the IM compliance date for Phase 6 counterparties to September 1, 2022, thereby aligning with the Prudential Banking Regulators.
Further, on January 5, 2021, the CFTC published a final rule, effective February 4, 2021, that primarily amends the minimum margin and capital requirements for uncleared swaps under the jurisdiction of the CFTC (CFTC Margin Rules) by requiring covered entities to use a revised AANA calculation starting on September 1, 2022. The amendments, 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 previous requirement which required 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. These amendments align with the recommendation of the Basel Committee on Banking Supervision and Board of the International Organization of Securities Commissions. Separately, on January 25, 2021, the CFTC published a final rule, effective February 24, 2021, that amends the CFTC Margin Rules to permit, among other changes, covered swap entities to maintain separate minimum transfer amounts (MTA) for IM and variation margin for each swap counterparty, provided the combined MTA does not exceed $500,000.
We do not expect these rules to have a material effect on our financial condition or results of operations.
FDIC Brokered Deposits Restrictions
On January 22, 2021, the FDIC published a final rule, effective April 1, 2021, that amends its brokered deposits regulations that apply to less than well-capitalized insured depository institutions. The FDIC stated that the amendments are intended to modernize and clarify the FDIC’s brokered deposit regulations and they establish a new framework for analyzing the deposit broker definition, which determines whether deposits placed through deposit placement arrangements qualify as brokered deposits. These deposit placement arrangements include those between insured depository institutions and third parties, such as financial technology companies, for a variety of business purposes, including access to deposits. The amendments to the FDIC’s brokered deposit regulations, among other things, clarify what it means to be engaged in the business of facilitating the placement of deposits and expand the scope of the primary purpose exception. The rule amendments are expected to have the effect of narrowing the definition of deposit broker and excluding more deposits from treatment as brokered deposits. The amendments also establish an application and reporting process with respect to the primary purpose exception for businesses that do not meet one of several bright-line tests, and they affirm the FDIC’s position that the brokering of certificates of deposit constitutes deposit brokering.
This rule may have an effect on member demand for advances in certain changing interest rate environments, but we cannot predict the extent of the impact.
Finance Agency Advisory Bulletin 2020-01 Federal Home Loan Bank Risk Management of AMA
On January 31, 2020, the Finance Agency released guidance on risk management of AMA. The guidance communicates the Finance Agency’s expectations with respect to an FHLBank’s funding of its members through the purchase of eligible mortgage loans and includes expectations that an FHLBank will have board-established limits on AMA portfolios and management-established thresholds to serve as monitoring tools to manage AMA-related risk exposure. The guidance provides that the board of an FHLBank should ensure that the bank serves as a liquidity source for members, and an FHLBank should ensure that its portfolio limits do not result in the FHLBank’s acquisition of mortgages from smaller members being “crowded out” by the acquisition of mortgages from larger members. The advisory bulletin contains the expectation that the board of an FHLBank should set limits on the size and growth of portfolios and on acquisitions from a single participating financial institution. In addition, the guidance provides that the board of an FHLBank should consider concentration risk in the areas of geographic area, high-balance loans, and in third-party loan originations.
We do not expect this advisory bulletin to materially affect our financial condition or results of operations.
LIBOR Transition
Finance Agency Supervisory Letter – Planning for LIBOR Phase-Out
On September 27, 2019, the Finance Agency issued a Supervisory Letter (LIBOR Supervisory Letter) to the FHLBanks that the Finance Agency stated is designed to ensure the FHLBanks will be able to identify and prudently manage the risks associated with the termination of LIBOR in a safe and sound manner. The LIBOR Supervisory Letter provided that the FHLBanks should, by March 31, 2020, cease entering into new LIBOR referenced financial assets, liabilities, and derivatives with maturities beyond December 31, 2021 for all product types except investments. With respect to investments, the FHLBanks were required, by December 31, 2019, to stop purchasing investments that reference LIBOR and mature after December 31, 2021. These phase-out dates did not apply to collateral accepted by the FHLBanks. The LIBOR Supervisory Letter also directed the FHLBanks to update their pledged collateral certification reporting requirements by March 31, 2020, in an effort to encourage members to distinguish LIBOR-linked collateral maturing after December 31, 2021. The FHLBanks were expected to cease entering into LIBOR-indexed financial instruments maturing after December 31, 2021, by the deadlines specified in the LIBOR Supervisory Letter, subject to limited exceptions granted by the FHFA for LIBOR-linked products serving compelling mission, risk mitigating, and/or hedging purposes that do not currently have readily available alternatives.
As a result of the market volatility experienced during 2020 due in part by the COVID-19 pandemic, the Finance Agency extended the FHLBanks’ authority to enter into LIBOR-based instruments that mature after December 31, 2021 from March 31, 2020 to June 30, 2020, except for investments and option embedded products. In addition, the Finance Agency extended the requirement to update pledged collateral certification reporting requirements from March 31, 2020, to September 30, 2020. The Bank has ceased purchasing investments that reference LIBOR and mature after December 31, 2021.
The Bank continues to evaluate the potential impact of the LIBOR Supervisory Letter and other LIBOR transition factors (including federal and international regulatory guidance, as well as financial market conditions) on its financial condition and results of operations. The Bank may experience lower overall demand or increased costs for its advances, which in turn may negatively impact the future composition of the Bank’s balance sheet, capital stock levels, primary mission assets ratio, and net income.
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), published a Supplement to the 2006 ISDA Definitions (Supplement) and the ISDA 2020 IBOR Fallbacks Protocol (Protocol). Both the Supplement and the Protocol took effect on January 25, 2021. On that date, all legacy bilateral derivative transactions subject to Protocol-covered agreements (including ISDA agreements) that incorporate certain covered ISDA definitional booklets and reference a covered Interbank Offered Rate (IBOR), including U.S. Dollar LIBOR, were effectively amended to apply the new ISDA-recommended IBOR fallbacks in the event of the relevant IBOR’s cessation. Both the Bank and our counterparty must have adhered to the Protocol in order to effectively amend legacy derivatives contracts, otherwise the parties must bilaterally amend legacy covered agreements (including ISDA agreements) to address LIBOR fallbacks. The Protocol will remain open for adherence after the effective date. As of January 25, 2021, all new derivative contracts are subject to the relevant IBOR fallbacks set forth in the Supplement.
On October 21, 2020, the Finance Agency issued a Supervisory Letter to the FHLBanks that required each FHLBank to adhere to the Protocol by 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 adhered to the Protocol on October 22, 2020, and all of its counterparties have adhered to the Protocol. The Bank also amended all outstanding bilateral over-the-counter derivative agreements referencing U.S. Dollar LIBOR with members to adopt the Protocol.
In December 2020, ICE Benchmark Administration (IBA) published its consultation on its intention to cease the publication of: (i) one-week and two-month U.S. dollar LIBOR settings immediately following the LIBOR publication on December 31, 2021; and (ii) the remaining U.S. dollar LIBOR settings (i.e., overnight and 1-, 3-, 6-, and 12-month) immediately following the LIBOR publication on June 30, 2023. The IBA consultation period ended on January 25, 2021. If adopted as proposed, the IBA consultation would extend certain U.S. dollar LIBOR transition date.
In March 2021, the United Kingdom’s Financial Conduct Authority (FCA) announced that LIBOR will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021 (or, in the case of some more frequently used U.S. dollar LIBOR settings, immediately after June 30, 2023). Although the FCA does not expect LIBOR to become unrepresentative before the applicable cessation date and intends to consult on requiring the administrator of LIBOR to continue publishing LIBOR of certain currencies and tenors on a non-representative, synthetic basis for a period after the applicable cessation date, there is no assurance that LIBOR, of any particular currency or tenor, will continue to be published or be representative through any particular date.
Securities and Exchange Commission (SEC) Extended the Deadline to Implement Financial Industry Regulatory Authority (FINRA) Rule 4210 Margin Requirements for the TBA Market
On January 11, 2021, the SEC published a notice of filing and immediate effectiveness of a proposed rule change to extend the deadline for compliance with the margining requirements imposed on “Covered Agency Transaction” (i.e., the purchase/sale of “to-be-announced” (“TBA”) agency mortgage-backed securities transactions) by the FINRA Rule 4210. The compliance date has been delayed several times, and the notice extended the current deadline of March 25, 2021, to October 26, 2021.
The FINRA Rule 4210, approved by the SEC on June 15, 2016, required FINRA members to collect from, but not post to, their customer’s maintenance margin (i.e., IM) and variation margin on transactions that are Covered Agency Transactions, subject to certain exemptions. A Covered Agency Transaction includes (certain terms are defined under FINRA rules):
| · | TBA transactions inclusive of ARM transactions, and Specified Pool Transactions, for which the difference between the trade date and contractual settlement date is greater than one business days; and |
| · | Collateralized mortgage obligations issued in conformity with program of an agency or a GSE for which the difference between the trade date and contractual settlement date is greater than three business days. |
Covered Agency Transactions with a counterparty in multifamily housing securities are exempt from the margin requirements provided that certain requirements are met.
Under the rule, the Bank is exempt from posting IM but would be required to post variation margin to its FINRA-member counterparty in connection with covered transactions, provided the Bank has more than $10 million in gross open positions with the counterparty. FINRA members were required to comply with the new margin requirements beginning in December 2017.
The Bank continues to evaluate the potential impact of the rule on its financial condition and results on operations, but does not expect the rule to materially affect the associated operations or availability of Covered Agency Transactions.
FHLB Membership Request for Input
On February 24, 2020, the Finance Agency issued a Request for Input on FHLB membership (the Membership RFI). The Membership RFI, as part of a holistic review of FHLB membership, seeks public input on whether the Finance Agency’s existing regulation on FHLB membership, located at 12 CFR part 1263, remains adequate to ensure: (i) the FHLB System remains safe and sound and able to provide liquidity to members in a variety of conditions; and (ii) the advancement of the FHLBs’ housing finance and community development mission. The Finance Agency sought input on several broad questions relating to FHLB membership requirements, as well as on certain more specific questions related to the implementation of the current membership regulation. Responses were due on June 23, 2020.
While it is uncertain what actions, if any, the Finance Agency will take as a result of the responses received from the Membership RFI, any rulemaking actions to update the current FHLB membership regulation may impact FHLB membership eligibility or requirements, and ultimately our business, business opportunities, and results of operation.
COVID-19 Developments
Finance Agency Supervisory Letter – Paycheck Protection Program (PPP) Loans as Collateral for FHLBank Advances
On April 23, 2020, the Finance Agency issued a Supervisory Letter (PPP Supervisory Letter) permitting the FHLBanks to accept PPP loans as collateral for advances as “Agency Securities,” given the Small Business Administration’s (SBA) 100 percent guarantee of the unpaid principal balance. On April 20, 2020, the SBA published its third interim final rule related to PPP loans, which explicitly waived certain regulatory requirements that must be satisfied before a member could pledge PPP loans to the FHLBanks as collateral. The PPP Supervisory Letter establishes a series of conditions under which the FHLBanks may accept PPP loans as collateral, which conditions focus on the financial condition of members, collateral discounts, and pledge dollar limits.
On December 27, 2020, the President signed into law an extension of the PPP until March 31, 2021. The April 23, 2020 Supervisory Letter from the Finance Agency allowing FHLBanks to accept PPP loans as collateral remains in effect. The Bank has been accepting such loans as collateral.
Coronavirus Aid, Relief, and Economic Security Act
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27, 2020. The $2.2 trillion package was the largest stimulus bill in U.S. history. The CARES Act is in addition to previous relief legislation passed by Congress in March 2020. The legislation provides the following:
| • | Assistance to businesses, states, and municipalities. |
| • | Creates a loan program for small businesses, non-profits and physician practices that can be forgiven through employee retention incentives. |
| • | Provides the Treasury Secretary authority to make loans or loan guarantees to states, municipalities, and eligible businesses and loosens some regulations imposed through the Dodd-Frank Act. |
| • | Direct payments to eligible taxpayers and their families. |
| • | Expands eligibility for unemployment insurance and payment amounts. |
| • | Includes mortgage forbearance provisions and eviction and foreclosure moratoriums. In this regard, the Bank notes that a number of states, including New York and New Jersey, have also taken actions regarding forbearances and eviction and foreclosure moratoriums. The Bank, through its Mortgage Partnership Finance (MPF) servicers, has been applying these provisions. |
Funding for the PPP, which was created by the CARES Act, was increased with the enactment of subsequent laws, most recently by the American Rescue Plan Act of 2021, which was signed into law by President Biden on March 11, 2021 and which, among other items, appropriates another $7.25 billion for the PPP. Although not material to our operations, it is possible that the Bank may receive more PPP loans as collateral with the passage of this legislation. While some provisions of the CARES Act have expired, others have been extended by regulatory and legislative action. 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 such legislation 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 COVD-19 Presidential, Legislative and Regulatory Developments
In light of the COVID-19 pandemic, President Biden (and before him, President Trump), through executive orders, governmental agencies, including the SEC, 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 our 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.
Financial Condition
Table 2.1 Statements of Condition — Period-Over-Period Comparison
| | | | | | | | | Net change in | | | Net change in | |
| (Dollars in thousands) | | December 31, 2020 | | | December 31, 2019 | | | dollar amount | | | percentage | |
| Assets | | | | | | | | | | | | | | | | |
| Cash and due from banks | | $ | 1,896,155 | | | $ | 603,241 | | | $ | 1,292,914 | | | | 214.33 | % |
| Interest-bearing deposits | | | 685,000 | | | | - | | | | 685,000 | | | | NM | |
| Securities purchased under agreements to resell | | | 4,650,000 | | | | 14,985,000 | | | | (10,335,000 | ) | | | (68.97 | ) |
| Federal funds sold | | | 6,280,000 | | | | 8,640,000 | | | | (2,360,000 | ) | | | (27.31 | ) |
| Trading securities | | | 11,742,965 | | | | 15,318,809 | | | | (3,575,844 | ) | | | (23.34 | ) |
| Equity Investments | | | 80,369 | | | | 60,047 | | | | 20,322 | | | | 33.84 | |
| Available-for-sale securities | | | 3,435,945 | | | | 2,653,418 | | | | 782,527 | | | | 29.49 | |
| Held-to-maturity securities | | | 12,873,646 | | | | 15,234,482 | | | | (2,360,836 | ) | | | (15.50 | ) |
| Advances | | | 92,067,104 | | | | 100,695,241 | | | | (8,628,137 | ) | | | (8.57 | ) |
| Mortgage loans held-for-portfolio | | | 2,899,712 | | | | 3,173,352 | | | | (273,640 | ) | | | (8.62 | ) |
| Loans to other FHLBanks | | | - | | | | - | | | | - | | | | NM | |
| Accrued interest receivable | | | 189,454 | | | | 312,559 | | | | (123,105 | ) | | | (39.39 | ) |
| Premises, software, and equipment | | | 77,628 | | | | 63,426 | | | | 14,202 | | | | 22.39 | |
| Operating lease right-of-use assets | | | 70,733 | | | | 75,464 | | | | (4,731 | ) | | | (6.27 | ) |
| Derivative assets | | | 36,669 | | | | 237,947 | | | | (201,278 | ) | | | (84.59 | ) |
| Other assets | | | 11,003 | | | | 9,036 | | | | 1,967 | | | | 21.77 | |
| | | | | | | | | | | | | | | | | |
| Total assets | | $ | 136,996,383 | | | $ | 162,062,022 | | | $ | (25,065,639 | ) | | | (15.47 | )% |
| | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| Deposits | | | | | | | | | | | | | | | | |
| Interest-bearing demand | | $ | 1,677,526 | | | $ | 1,144,519 | | | $ | 533,007 | | | | 46.57 | % |
| Non-interest-bearing demand | | | 70,437 | | | | 34,890 | | | | 35,547 | | | | 101.88 | |
| Term | | | 5,000 | | | | 15,000 | | | | (10,000 | ) | | | (66.67 | ) |
| | | | | | | | | | | | | | | | | |
| Total deposits | | | 1,752,963 | | | | 1,194,409 | | | | 558,554 | | | | 46.76 | |
| | | | | | | | | | | | | | | | | |
| Consolidated obligations | | | | | | | | | | | | | | | | |
| Bonds | | | 69,716,298 | | | | 78,763,309 | | | | (9,047,011 | ) | | | (11.49 | ) |
| Discount notes | | | 57,658,838 | | | | 73,959,205 | | | | (16,300,367 | ) | | | (22.04 | ) |
| Total consolidated obligations | | | 127,375,136 | | | | 152,722,514 | | | | (25,347,378 | ) | | | (16.60 | ) |
| | | | | | | | | | | | | | | | | |
| Mandatorily redeemable capital stock | | | 2,991 | | | | 5,129 | | | | (2,138 | ) | | | (41.68 | ) |
| | | | | | | | | | | | | | | | | |
| Accrued interest payable | | | 117,982 | | | | 156,889 | | | | (38,907 | ) | | | (24.80 | ) |
| Affordable Housing Program | | | 148,827 | | | | 153,894 | | | | (5,067 | ) | | | (3.29 | ) |
| Derivative liabilities | | | 70,760 | | | | 32,411 | | | | 38,349 | | | | 118.32 | |
| Other liabilities | | | 186,550 | | | | 175,516 | | | | 11,034 | | | | 6.29 | |
| Operating lease liabilities | | | 84,475 | | | | 89,365 | | | | (4,890 | ) | | | (5.47 | ) |
| Total liabilities | | | 129,739,684 | | | | 154,530,127 | | | | (24,790,443 | ) | | | (16.04 | ) |
| Capital | | | 7,256,699 | | | | 7,531,895 | | | | (275,196 | ) | | | (3.65 | ) |
| Total liabilities and capital | | $ | 136,996,383 | | | $ | 162,062,022 | | | $ | (25,065,639 | ) | | | (15.47 | )% |
NM — Not meaningful.
Balance Sheet overview December 31, 2020 and December 31, 2019
Total assets declined to $137.0 billion at December 31, 2020 from $162.1 billion at December 31, 2019, a decrease of $25.1 billion, or 15.5%.
Cash at banks was $1.9 billion at December 31, 2020, compared to $603.2 million at December 31, 2019.
Money market investments at December 31, 2020 were $6.3 billion in federal funds sold and $4.7 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 $8.8 billion and $9.0 billion in the fourth quarter of 2020 and 2019, respectively. Resale agreements averaged $4.1 billion and $9.9 billion in the fourth quarter of 2020 and 2019, respectively. Money market investments also included interest-bearing deposits at highly rated financial institutions. Balances were $685.0 million and $0 at December 31, 2020 and December 31, 2019.
Advances — Par balances decreased at December 31, 2020 to $90.7 billion, compared to $100.4 billion at December 31, 2019. Short-term fixed-rate advances decreased by 47.2% to $12.9 billion at December 31, 2020, down from $24.4 billion at December 31, 2019. ARC advances, which are adjustable-rate borrowings, increased by 4.2% to $17.1 billion at December 31, 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 $281.3 million and $344.0 million at December 31, 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 $3.2 billion and $2.3 billion at December 31, 2020 and December 31, 2019. We acquired $657.0 million of fixed-rate GSE-issued MBS in 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 $11.8 billion and $14.1 billion at December 31, 2020 and December 31, 2019. Investments in PLMBS were less than 1% of the HTM portfolio. We acquired $297.9 million of fixed-rate GSE-issued MBS in 2020.
Housing finance agency bonds, primarily New York and New Jersey, were carried at an amortized cost basis of $1.1 billion at December 31, 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 December 31, 2020, trading investments were $11.7 billion in U.S. Treasury securities and $2.2 million in Ambac corporate notes. We acquired $3.8 billion of U.S. Treasury securities in 2020. During the same period in 2020, proceeds from sales were $4.3 billion at a net gain of $38.3 million. In the 2019 period, we acquired $13.3 billion of U.S. Treasury securities; proceeds from sales were $1.2 billion at a gain of $1.9 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 $80.4 million and $60.0 million at December 31, 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 $2.9 billion at December 31, 2020, a decrease of $265.8 million from the balance at December 31, 2019. Loans are primarily fixed-rate, single-family mortgages acquired through the MPF Program. Paydowns in the twelve months of 2020 were $785.1 million, compared to $313.8 million in the prior year same period. Acquisitions in the twelve months of 2020 were $530.0 million, compared to $566.4 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 December 31, 2020 were not materially different from prior periods, although we are seeing a rise in delinquencies. Rising delinquencies have resulted in increased credit losses under the CECL methodology. Allowance for credit losses increased to $7.1 million at December 31, 2020, compared to $0.7 million at December 31, 2019.
Capital ratios — Our capital position remains strong. At December 31, 2020, actual risk-based capital was $7.3 billion, compared to required risk-based capital of $1.1 billion. To support $137.0 billion of total assets at December 31, 2020, the minimum required total capital was $5.5 billion or 4.0% of assets. Our actual regulatory risk-based capital was $7.3 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 December 31, 2020 balance sheet leverage (based on U.S. GAAP) was 18.9 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 December 31, 2020 included $1.9 billion as demand cash balances at the FRBNY, $10.9 billion in short-term and overnight investments in the federal funds and the repo markets, and $3.4 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 9.1 through Table 9.3 in this MD&A.
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.
On March 5, 2021 the ICE Benchmark Administration’s announcement to extend the cessation date for certain critical U.S. dollar LIBOR indexes have provided us with additional time to plan the transition and we have updated our plans. The IBA had previously released a consultation on its intent to cease the publication of U.S. dollar settings following their publication on December 31, 2021.
| · | LIBOR rates are derived from an average of submissions by panel banks. The underlying market that LIBOR seeks to reflect has become increasingly less active. Therefore, given the decrease in transactions, the Financial Stability Board (FSB) has observed that submissions used to determine LIBOR are increasingly based upon expert judgment. The United Kingdom's Financial Conduct Authority (FCA), which oversees LIBOR, has announced that the FCA would no longer persuade or compel member panel banks to make LIBOR quote submissions for 1-week and 2-months U.S. dollar setting will permanently cease after 2021. |
| · | For publication of the overnight and 12-month U.S. dollar LIBOR settings will permanently cease after June 30, 2023. The 1-month, 3-month and 6-month U.S. dollar LIBOR settings will cease to be provided or, subject to the FCA’s consideration, may be provided on a synthetic basis and will no longer be representative of the underlying market and economic reality they are intended to measure and that representativeness will not be restored. |
In March 2020, the FASB had issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provided 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.
In January 2021, the FASB issued Accounting Standards Update 2021-01, Reference Rate Reform (Topic 848), which refines the scope of AC 848 and clarifies some of its guidance. The amendments in this ASU 2021-01 are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments in ASU 2021-01 are effective immediately for all entities.
Entities should use either of the following approaches to apply the amendments to modifications to the terms of the derivatives affected by the discounting transition:
| | · | Retrospective as of any date from the beginning of an interim period that includes March 12, 2020. |
| | · | Prospective from any date within an interim period that includes or is after January 7, 2021, up to the date that the financial statements are available to be issued. |
Entities should apply the amendments to either of the following types of eligible hedging relationships affected by the discounting transition:
| | · | Those existing as of the beginning of the interim period that includes March 12, 2020. |
| | · | Those entered into after the beginning of the interim period that includes March 12, 2020. |
We are actively reviewing optional expedients and elections under the relief available under the ASU to facilitate the accounting and operational aspects of changing LIBOR-indexed contracts to SOFR.
We are actively reviewing LIBOR-indexed contracts to plan an orderly transition to SOFR. Adoption of the guidance under the two ASU 2020’s will minimize the operational impact of modifying LIBOR-Indexed contracts absent provisions offered under ASU 2020-04.
| · | 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.
The following data provides an overview of LIBOR-indexed instruments outstanding at December 31, 2020 with maturities beyond June 30, 2023, which is the relevant LIBOR cessation date for the FHLBNY (in thousands):
| | | Outstanding at | |
| Maturing after June 30, 2023 | | December 31, 2020 | |
| LIBOR indexed Derivatives (notionals) | | $ | 13,228,852 | |
| | | | | |
| LIBOR indexed Variable-rate mortgage-backed securities (UPB) | | $ | 3,833,756 | |
| | | | | |
| LIBOR indexed Variable-rate housing finance agency bonds (UPB) | | $ | 900,440 | |
| | | | | |
| LIBOR indexed Variable-rate Other securities (UPB) | | $ | - | |
| | | | | |
| Variable-rate Advances | | $ | 1,165,000 | |
| | | | | |
| LIBOR indexed Variable-rate CO bonds (UPB) | | $ | - | |
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 may 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 December 31, 2020 and December 31, 2019 were $92.1 billion and $100.7 billion. Carrying values included cumulative hedging basis adjustment gains of $1.3 billion and $299.2 million at December 31, 2020 and December 31, 2019. For more information about basis adjustments, see Table 3.6 Advances by Maturity and Yield Type in this MD&A.
Member demand for advance products
Par amount of advances outstanding was $90.7 billion at December 31, 2020, down from $104.6 billion at September 30, 2020, $112.0 billion at June 30, 2020, $134.4 billion at March 31, 2020 and $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 the COVID-19 pandemic. In the 2020 fourth quarter, the same larger member banks that had borrowed short-term advances in March 2020 were prepaying advances or not rolling over certain short-term borrowings 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 3.2 | Advances by Product Type |
| | | December 31, 2020 | | | December 31, 2019 | |
| | | | | | Percentage | | | | | | Percentage | |
| | | Amounts | | | of Total | | | Amounts | | | of Total | |
| Adjustable Rate Credit - ARCs | | $ | 17,050,467 | | | | 18.79 | % | | $ | 16,364,967 | | | | 16.30 | % |
| Fixed Rate Advances | | | 54,632,262 | | | | 60.21 | | | | 49,548,877 | | | | 49.35 | |
| Short-Term Advances | | | 12,883,629 | | | | 14.20 | | | | 24,401,935 | | | | 24.31 | |
| Mortgage Matched Advances | | | 176,373 | | | | 0.19 | | | | 240,182 | | | | 0.24 | |
| Overnight & Line of Credit (OLOC) Advances | | | 678,438 | | | | 0.75 | | | | 3,407,551 | | | | 3.39 | |
| All other categories | | | 5,319,990 | | | | 5.86 | | | | 6,432,566 | | | | 6.41 | |
| Total par value | | | 90,741,159 | | | | 100.00 | % | | | 100,396,078 | | | | 100.00 | % |
| Hedge valuation basis adjustments | | | 1,325,945 | | | | | | | | 299,163 | | | | | |
| Total | | $ | 92,067,104 | | | | | | | $ | 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 December 31, 2020 and December 31, 2019 (in thousands):
| Table 3.3 | Collateral Supporting Indebtedness to Members |
| | | Indebtedness | | | Collateral (a) | |
| | | Advances (b) | | | Other
Obligations (c) | | | Total
Indebtedness | | |
Loans (d) | | | Securities and
Deposits (d) | | | Total (d) | |
| December 31, 2020 | | $ | 90,741,159 | | | $ | 20,247,993 | | | $ | 110,989,152 | | | $ | 324,273,676 | | | $ | 56,685,358 | | | $ | 380,959,034 | |
| December 31, 2019 | | $ | 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. |
| (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 3.4 | Location of Collateral Held |
| | | Estimated Market Values | |
| | | Collateral in
Physical Possession | | | Collateral Specifically Listed | | | Total
Collateral Received | |
| December 31, 2020 | | $ | 57,601,060 | | | $ | 323,357,974 | | | $ | 380,959,034 | |
| December 31, 2019 | | $ | 45,876,619 | | | $ | 307,803,301 | | | $ | 353,679,920 | |
Advances — Interest Rate Terms
The following table summarizes interest-rate payment terms for advances (dollars in thousands):
| Table 3.5 | Advances by Interest-Rate Payment Terms |
| | | December 31, 2020 | | | December 31, 2019 | |
| | | | | | Percentage | | | | | | Percentage | |
| | | Amount | | | of Total | | | Amount | | | of Total | |
| Fixed-rate (a) | | $ | 73,687,192 | | | | 81.21 | % | | $ | 84,027,611 | | | | 83.70 | % |
| Variable-rate (b) | | | 17,053,967 | | | | 18.79 | | | | 16,368,467 | | | | 16.30 | |
| Variable-rate capped or floored (c) | | | - | | | | - | | | | - | | | | - | |
| Overdrawn demand deposit accounts | | | - | | | | - | | | | - | | | | - | |
| Total par value | | | 90,741,159 | | | | 100.00 | % | | | 100,396,078 | | | | 100.00 | % |
| Hedge valuation basis adjustments | | | 1,325,945 | | | | | | | | 299,163 | | | | | |
| Total | | $ | 92,067,104 | | | | | | | $ | 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 December 31, 2020, with only 13.4% 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):
| Table 3.6 | Advances by Maturity and Yield Type |
| | | December 31, 2020 | | | December 31, 2019 | |
| | | | | | Percentage | | | | | | Percentage | |
| | | Amount | | | of Total | | | Amount | | | of Total | |
| Fixed-rate | | | | | | | | | | | | | | | | |
| Due in one year or less | | $ | 40,885,180 | | | | 45.06 | % | | $ | 54,411,782 | | | | 54.20 | % |
| Due after one year | | | 32,802,012 | | | | 36.15 | | | | 29,615,829 | | | | 29.50 | |
| Total Fixed-rate | | | 73,687,192 | | | | 81.21 | | | | 84,027,611 | | | | 83.70 | |
| Variable-rate | | | | | | | | | | | | | | | | |
| Due in one year or less | | | 10,317,467 | | | | 11.37 | | | | 14,794,500 | | | | 14.74 | |
| Due after one year | | | 6,736,500 | | | | 7.42 | | | | 1,573,967 | | | | 1.56 | |
| Total Variable-rate | | | 17,053,967 | | | | 18.79 | | | | 16,368,467 | | | | 16.30 | |
| Total par value | | | 90,741,159 | | | | 100.00 | % | | | 100,396,078 | | | | 100.00 | % |
| Hedge valuation basis adjustments (a) | | | 1,325,945 | | | | | | | | 299,163 | | | | | |
| Total | | $ | 92,067,104 | | | | | | | $ | 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. SOFR and LIBOR are our primary benchmarks in addition to OIS-Fed Funds. We are actively engaged in transitioning away from LIBOR. When an advance is hedged under ASC 815, the elected benchmark becomes the discounting basis for computing changes in the fair values of the hedged advance. Table 3.7 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 $1.3 billion and $299.2 million at December 31, 2020 and 2019. The forward benchmark yield curves declined sharply at December 31, 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 are 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):
| Table 3.7 | Hedged Advances by Type |
| Par Amount | | December 31, 2020 | | | December 31, 2019 | |
| Qualifying hedges | | | | | | | | |
| Fixed-rate bullets (a) | | $ | 29,969,694 | | | $ | 32,335,675 | |
| Fixed-rate putable (b) | | | 7,945,750 | | | | 8,365,750 | |
| Fixed-rate with embedded cap | | | 360,000 | | | | 20,000 | |
| | | | | | | | | |
| Total qualifying hedges | | $ | 38,275,444 | | | $ | 40,721,425 | |
| | | | | | | | | |
| Aggregate par amount of advances hedged (c) | | $ | 47,962,396 | | | $ | 40,721,425 | |
| Fair value basis (hedging adjustments) | | $ | 1,325,945 | | | $ | 299,163 | |
| (a) | Generally, fixed-rate medium- and longer-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 hedges 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 December 31, 2020, notional amounts of basis swaps were $8.5 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):
| | Table 3.8 | Putable and Callable Advances |
| | | Advances | |
| Par Amount | | December 31, 2020 | | | December 31, 2019 | |
| Putable (a) | | $ | 7,945,750 | | | $ | 8,365,750 | |
| No-longer putable/callable | | $ | 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. |
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.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):
| Table 4.1 | Investments by Categories |
| | | December 31, | | | December 31, | | | Dollar | | | Percentage | |
| | | 2020 | | | 2019 | | | Variance | | | Variance | |
| State and local housing finance agency obligations, net (a) | | $ | 1,097,752 | | | $ | 1,122,315 | | | $ | (24,563 | ) | | | (2.19 | )% |
| Trading securities (b) | | | 11,742,965 | | | | 15,318,809 | | | | (3,575,844 | ) | | | (23.34 | ) |
| Mortgage-backed securities | | | | | | | | | | | | | | | | |
| Available-for-sale securities, at fair value (c) | | | 3,435,945 | | | | 2,653,418 | | | | 782,527 | | | | 29.49 | |
| Held-to-maturity securities, at carrying value, net (c) | | | 11,775,894 | | | | 14,112,167 | | | | (2,336,273 | ) | | | (16.56 | ) |
| Total securities | | | 28,052,556 | | | | 33,206,709 | | | | (5,154,153 | ) | | | (15.52 | ) |
| | | | | | | | | | | | | | | | | |
| Equity investments in Grantor trust (d) | | | 80,369 | | | | 60,047 | | | | 20,322 | | | | 33.84 | |
| Interest-bearing deposits | | | 685,000 | | | | - | | | | 685,000 | | | | NM | |
| Securities purchased under agreements to resell | | | 4,650,000 | | | | 14,985,000 | | | | (10,335,000 | ) | | | (68.97 | ) |
| Federal funds sold | | | 6,280,000 | | | | 8,640,000 | | | | (2,360,000 | ) | | | (27.31 | ) |
| | | | | | | | | | | | | | | | | |
| Total Investments | | $ | 39,747,925 | | | $ | 56,891,756 | | | $ | (17,143,831 | ) | | | (30.13 | )% |
| (a) | State and local housing finance agency bonds are designated as HTM and are carried at amortized cost. There were no acquisitions in the twelve months ending December 31, 2020 and paydowns were $23.8 million. |
| (b) | Trading securities comprised of U.S. Treasury securities and corporate notes at December 31, 2020 and are carried at fair value. Trading portfolio is for liquidity and not for speculative purposes. We acquired $3.8 billion of U.S. Treasury notes in 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 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.
The following table summarizes our investment debt securities issuer concentration (dollars in thousands):
| Table 4.2 | Investment Debt Securities Issuer Concentration |
| | | December 31, 2020 | | | December 31, 2019 | |
| | | | | | | | | Carrying value as | | | | | | | | | Carrying value as | |
| | | Carrying (a) | | | | | | a Percentage | | | Carrying (a) | | | | | | a Percentage | |
| Long Term Investment (c) | | Value | | | Fair Value | | | of Capital | | | Value | | | Fair Value | | | of Capital | |
| MBS | | | | | | | | | | | | | | | | | | | | | | | | |
| Fannie Mae | | $ | 3,271,007 | | | $ | 3,338,484 | | | | 45.08 | % | | $ | 4,008,977 | | | $ | 4,031,807 | | | | 53.23 | % |
| Freddie Mac | | | 11,836,507 | | | | 12,429,508 | | | | 163.11 | | | | 12,628,143 | | | | 12,826,958 | | | | 167.66 | |
| Ginnie Mae | | | 12,871 | | | | 12,979 | | | | 0.18 | | | | 18,459 | | | | 18,572 | | | | 0.25 | |
| All Others - PLMBS | | | 91,454 | | | | 107,889 | | | | 1.26 | | | | 110,006 | | | | 133,182 | | | | 1.46 | |
| Non-MBS, net (b) | | | 1,097,752 | | | | 1,076,266 | | | | 15.13 | | | | 1,122,315 | | | | 1,099,505 | | | | 14.90 | |
| Total Investment Debt Securities | | $ | 16,309,591 | | | $ | 16,965,126 | | | | 224.75 | % | | $ | 17,887,900 | | | $ | 18,110,024 | | | | 237.50 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Categorized as: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-Sale Securities | | $ | 3,435,945 | | | $ | 3,435,945 | | | | | | | $ | 2,653,418 | | | $ | 2,653,418 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Held-to-Maturity Securities, net | | $ | 12,873,646 | | | $ | 13,529,181 | | | | | | | $ | 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):
| Table 4.3 | External Rating of the Held-to-Maturity Portfolio |
| | | December 31, 2020 | |
| | | AAA-rated (a) | | | AA-rated (b) | | | A-rated | | | BBB-rated | | | Below
Investment
Grade | | | Total | |
| Mortgage-backed securities | | $ | 363 | | | $ | 11,684,817 | | | $ | 58,130 | | | $ | 7,486 | | | $ | 25,098 | | | $ | 11,775,894 | |
| State and local housing finance agency obligations | | | 23,100 | | | | 1,069,068 | | | | 1,946 | | | | 3,638 | | | | - | | | | 1,097,752 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Long-term securities | | $ | 23,463 | | | $ | 12,753,885 | | | $ | 60,076 | | | $ | 11,124 | | | $ | 25,098 | | | $ | 12,873,646 | |
| | | 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 4.4.
External rating information of the AFS portfolio was as follows (the carrying values of AFS investments are at fair values; in thousands):
| Table 4.4 | External Rating of the Available-for-Sale Portfolio |
| | | December 31, 2020 | | | December 31, 2019 | |
| | | AA-rated (b) | | | Unrated | | | Total | | | AA-rated (b) | | | Unrated | | | Total | |
| Available-for-sale securities | | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage-backed securities | | $ | 3,435,945 | | | $ | - | | | $ | 3,435,945 | | | $ | 2,653,418 | | | $ | - | | | $ | 2,653,418 | |
Footnotes to Table 4.3 and Table 4.4.
| (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 4.3 and Table 4.4 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):
| Table 4.5 | Mortgage-Backed Securities Weighted Average Rates by Contractual Maturities |
| | | December 31, 2020 | | | December 31, 2019 | |
| | | Amortized | | | Weighted | | | Amortized | | | Weighted | |
| | | Cost | | | Average Rate | | | Cost | | | Average Rate | |
| Mortgage-backed securities | | | | | | | | | | | | | | | | |
| Due in one year or less | | $ | 690,206 | | | | 3.10 | % | | $ | 616,402 | | | | 3.93 | % |
| Due after one year through five years | | | 3,323,857 | | | | 2.39 | | | | 4,102,650 | | | | 2.79 | |
| Due after five years through ten years | | | 8,687,883 | | | | 2.50 | | | | 8,838,096 | | | | 2.97 | |
| Due after ten years | | | 2,279,164 | | | | 1.47 | | | | 3,129,733 | | | | 2.59 | |
| | | | | | | | | | | | | | | | | |
| Total mortgage-backed securities | | $ | 14,981,110 | | | | 2.35 | % | | $ | 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.
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):
| Table 4.6 | Fair Value Hedges of Fixed-Rate Prepayable CMBS |
| | | Fair Value Hedges of Fixed-Rate Prepayable CMBS | |
| | | December 31, 2020 | | | December 31, 2019 | |
| Current face value of hedged CMBS | | $ | 1,259,000 | | | $ | 602,000 | |
| Partial-term hedge face value of hedged CMBS | | $ | 1,134,000 | | | $ | 532,000 | |
| Cumulative basis adjustment Gains (losses) | | $ | 44,052 | | | $ | 11,593 | |
| Interest rate swap contracts (par) | | $ | 1,134,000 | | | $ | 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, including unsecured overnight and term deposits and 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 U.S. 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 $4.7 billion at December 31, 2020 and $15.0 billion at December 31, 2019. Resale agreements averaged $4.1 billion and $9.9 billion in the fourth quarter of 2020 and 2019, respectively. For more information, see financial statements, Note 4. Interest-bearing Deposits, Federal Funds Sold and Securities Purchased under Agreements to Resell.
Federal funds sold — Federal funds sold was $6.3 billion at December 31, 2020, and $8.6 billion at December 31, 2019, and averaged $8.8 billion and $9.0 billion in the fourth quarter of 2020 and 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 table below presents federal funds sold, the counterparty credit ratings, and the domicile of the counterparty or the domicile of the counterparty’s parent for U.S. branches and agency offices of foreign commercial banks in the U.S. (in thousands):
| Table 4.7 | Federal Funds Sold by Domicile of the Counterparty (a) |
| | | December 31, 2020 | | December 31, 2019 | | Year ended December 31, 2020 | | Year ended December 31, 2019 | |
| Foreign Counterparties | | S&P
Rating | | Moody's
Rating | | S&P
Rating | | Moody's
Rating | | Daily Average Balance | | Balance at period end | | Daily Average Balance | | Balance at period end | |
| Australia | | AA- | | AA3 | | AA- | | AA3 | | $ | 1,726,503 | | $ | 1,795,000 | | $ | 1,648,123 | | $ | 1,870,000 | |
| Austria | | A | | A2 | | A | | A2 | | | 546,940 | | | - | | | 563,630 | | | - | |
| Canada | | A to AA- | | A3 to AA2 | | A to AA- | | A3 to AA2 | | | 2,819,167 | | | 3,115,000 | | | 2,910,110 | | | 2,755,000 | |
| Finland | | AA- | | AA3 | | AA- | | AA3 | | | 390,150 | | | - | | | 225,959 | | | 1,000,000 | |
| France | | A to A+ | | A1 to AA3 | | A to A+ | | A1 to AA3 | | | 858,115 | | | 500,000 | | | 894,466 | | | - | |
| Netherlands | | A+ | | AA3 | | A+ | | AA3 | | | 804,352 | | | 870,000 | | | 798,608 | | | 500,000 | |
| Norway | | AA- | | AA2 | | AA- | | AA2 | | | 524,833 | | | - | | | 430,562 | | | 100,000 | |
| Sweden | | A+ to AA- | | AA3 to AA2 | | A+ to AA- | | AA2 | | | 322,773 | | | - | | | 664,068 | | | - | |
| Switzerland | | A+ | | AA3 | | A+ | | A1 | | | 598,552 | | | - | | | 292,521 | | | 880,000 | |
| UK | | A | | A1 | | A | | A2 | | | 25,301 | | | - | | | 15,644 | | | - | |
| | | | | | | | | | | | | | | | | | | | | | |
| Subtotal | | | | | | | | | | | 8,616,686 | | | 6,280,000 | | | 8,443,691 | | | 7,105,000 | |
| | | | | | | | | | | | | | | | | | | | | | |
| USA | | A- to AA- | | A3 to AA2 | | A- to AA- | | A3 to AA2 | | | 733,896 | | | - | | | 1,847,268 | | | 1,535,000 | |
| Total | | | | | | | | | | $ | 9,350,582 | | $ | 6,280,000 | | $ | 10,290,959 | | $ | 8,640,000 | |
| | (a) | Average investment in federal funds sold has typically been greater than the period-end balance as counterparties appear to have less demand at quarter-end than during the quarter. |
The following table summarizes par value, amortized cost and the carrying value (fair value) of the trading portfolio (in thousands):
| Table 4.8 | Trading Securities |
| | | Trading Securities | |
| | | December 31, 2020 | | | December 31, 2019 | |
| Par value | | $ | 11,637,153 | | | $ | 15,232,900 | |
| Amortized cost | | $ | 11,655,374 | | | $ | 15,265,745 | |
| Carrying/Fair value | | $ | 11,742,965 | | | $ | 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):
| Table 4.9 | Economic Hedges of Fixed-rate Liquidity Trading Securities |
| | | Economic Hedges of Fixed-Rate Trading Securities | |
| | | December 31, 2020 | | | December 31, 2019 | |
| Par/Face amounts of portfolio of U.S. Treasury fixed-rate securities (a) | | $ | 11,635,000 | | | $ | 15,230,000 | |
| Par amounts of interest rate swaps | | $ | 11,634,166 | | | $ | 15,230,000 | |
| (a) | Balances represent outstanding amounts of U.S. Treasury 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 $2.9 billion at December 31, 2020, a decrease of $265.8 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 December 31, 2020 were not materially different from prior periods, although we are seeing a rise in delinquencies. Rising delinquencies have resulted in increased credit losses under the CECL methodology. Allowance for credit losses was $7.1 million at December 31, 2020 compared to $9.1 million at September 30, 2020, $6.5 million at June 30, 2020, $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.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law. Section 4013 of the CARES Act provides optional, temporary relief from the accounting and reporting requirements for TDRs for certain loan modifications for which borrowers were adversely affected by COVID-19 (hereinafter referred to as COVID-related modifications) granted to borrowers that were not more than 30 days past due on payments as of December 31, 2019. Specifically, the CARES Act provides that a financial institution may elect to suspend: (1) the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR, and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. TDR relief applies to COVID-related modifications made from March 1, 2020, until the earlier of December 31, 2020, or 60 days following the termination of the national emergency declared by the President of the United States on March 13, 2020. On December 27, 2020, the Consolidated Appropriations Act, 2021, was signed into law, extending the applicable period to the earlier of January 1, 2022, or 60 days following the termination of the national emergency declared on March 13, 2020. In the second quarter of 2020, the FHLBanks elected to apply the TDR relief provided by the CARES Act. As such, all COVID-related modifications meeting the provisions of the CARES Act are excluded from TDR classification and accounting, and the FHLBanks consider these loans to have a current payment status as long as payments are being made in accordance with the new terms. Alternatively, COVID-related modifications that do not meet the provisions of the CARES Act continue to be assessed for TDR classification under the FHLBanks’ existing accounting policies. Additionally, the FHLBanks continue to apply their delinquency, non-accrual loans, and charge-off policies during the forbearance plan period. The FHLBanks estimate the allowance for credit losses for COVID-related modifications in the same manner as other mortgage loans held for portfolio.
We have received requests from a small number of borrowers for forbearance, or deferral of their loan payments to us, driven or exacerbated by the economic impacts of the COVID-19 pandemic. Loan modification requests received have been limited, short-term and within terms allowable under the MPF program and these were not considered TDR. Based on outstanding principal balances as of the end of December 31, 2020, we have active short-term payment deferrals on approximately $250 thousand of MPF loans.
The aggregate amount of loans in forbearance including COVID-19 related delinquent loans at December 31, 2020 was approximately $105 million. Confirmation 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. Loans are well collateralized, and we have generally received contractual cash flows from servicers. Projected credit losses on the loans were not material. When loans are seriously delinquent (typically delinquent for 90-days or more), we cease to recognize interest income, reverse cash received and record a liability. Amounts reversed were not material. If such loans are past-due for 180 days or more, we will apply our standard charge-off policies and consider the value of collateral to process charge-offs. As collection of forbearance information is ongoing, 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 to our financial statements and cash flows.
We are continuing to apply our policies, and not delaying the recognition of charge-offs, delinquencies, and nonaccruals status for the borrowers who would have otherwise moved into past due or nonaccruals status.
Life-time loan losses recorded at December 31, 2020 on such loans were not material. Serious delinquent triggers (90-days plus past due) at December 31, 2020 were not material.
Mortgage loans — Conventional and Insured Loans — The following table classifies mortgage loans between conventional loans and loans insured by FHA/VA (in thousands):
| Table 5.1 | MPF by Conventional and Insured Loans |
| | | December 31, 2020 | | | December 31, 2019 | |
| Federal Housing Administration and Veteran Administration insured loans | | $ | 198,795 | | | $ | 220,990 | |
| Conventional loans | | | 2,707,676 | | | | 2,953,015 | |
| Allowance for credit losses on mortgage loans (a) | | | (7,073 | ) | | | (653 | ) |
| MPF loans held-for-portfolio, net (b) | | $ | 2,899,398 | | | $ | 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. |
| (b) | Balances represent MPF portfolio; MAP portfolio balance of $0.3 million as of December 31, 2020 is not included. |
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 5.2 | Geographic Concentration of MPF Loans |
| | | December 31, 2020 | | | December 31, 2019 | |
| | | Number of loans % | | | Amounts outstanding % | | | Number of loans % | | | Amounts outstanding % | |
| New York State (a) | | | 70.8 | % | | | 64.7 | % | | | 68.6 | % | | | 61.1 | % |
| (a) | MAP loans are not included in the above calculation. |
| Table 5.3 | Top Five Participating Financial Institutions — Concentration (par value, dollars in thousands) |
| | | December 31, 2020 | |
| | | Mortgage | | | Percent of Total | |
| | | Loans | | | Mortgage Loans | |
| Bethpage Federal Credit Union | | $ | 264,322 | | | | 9.24 | % |
| Teachers Federal Credit Union | | | 243,599 | | | | 8.51 | |
| Investors Bank | | | 239,069 | | | | 8.35 | |
| Sterling National Bank | | | 186,289 | | | | 6.51 | |
| Manasquan Bank | | | 163,396 | | | | 5.71 | |
| All Others | | | 1,765,248 | | | | 61.68 | |
| | | | | | | | | |
| Total (a) | | $ | 2,861,923 | | | | 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 | % |
| (a) | MAP unpaid principal balance of $0.3 million is not included. |
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 $127.4 billion and $152.7 billion at December 31, 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 $69.7 billion (par, $68.9 billion) at December 31, 2020, compared to $78.8 billion (par, $78.1 billion) at December 31, 2019. The carrying value of Consolidated obligation discount notes outstanding was $57.7 billion at December 31, 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 6.1 CO Bonds by Type.
From time to time, we hedge discount notes under ASC 815 fair value accounting; additionally, certain discount notes are also hedged under 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 6.7 Discount Notes Outstanding. Also, see financial statements, Note 17. Derivatives and Hedging Activities.
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 U.S. 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 U.S. 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 is an active participant in the issuance of SOFR-linked CO bonds. Outstanding balances were $8.6 billion at December 31, 2020, $9.8 billion at September 30, 2020, $12.6 billion at June 30, 2020 and $8.2 billion at December 31, 2019.
Consolidated obligation bonds
The following table summarizes types of Consolidated obligation bonds (CO Bonds) issued and outstanding (dollars in thousands):
| Table 6.1 | CO Bonds by Type |
| | December 31, 2020 | | | December 31, 2019 | |
| | | Amount | | | Percentage of Total | | | Amount | | | Percentage of Total | |
| Fixed-rate, non-callable | | $ | 49,275,530 | | | | 71.51 | % | | $ | 32,588,805 | | | | 41.72 | % |
| Fixed-rate, callable | | | 1,434,000 | | | | 2.08 | | | | 4,803,000 | | | | 6.15 | |
| Step Up, callable | | | - | | | | - | | | | 15,000 | | | | 0.02 | |
| Single-index floating rate | | | 18,197,000 | | | | 26.41 | | | | 40,702,000 | | | | 52.11 | |
| | | | | | | | | | | | | | | | | |
| Total par value | | | 68,906,530 | | | | 100.00 | % | | | 78,108,805 | | | | 100.00 | % |
| | | | | | | | | | | | | | | | | |
| Bond premiums | | | 184,084 | | | | | | | | 95,560 | | | | | |
| Bond discounts | | | (26,666 | ) | | | | | | | (24,704 | ) | | | | |
| Hedge valuation basis adjustments (a) | | | 514,436 | | | | | | | | 377,000 | | | | | |
| Hedge basis adjustments on de-designated hedges (b) | | | 132,450 | | | | | | | | 139,605 | | | | | |
| FVO (c) - valuation adjustments and accrued interest | | | 5,464 | | | | | | | | 67,043 | | | | | |
| Total Consolidated obligation-bonds | | $ | 69,716,298 | | | | | | | $ | 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. Our benchmarks are LIBOR, SOFR and OIS/FedFunds, although we are actively transitioning away from LIBOR. 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 6.2 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 $514.4 million and $377.0 million at December 31, 2020 and 2019. The benchmark curves, specifically the forward LIBOR yield curve, declined sharply at December 31, 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 are 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 is 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 6.3 CO Bonds Elected under the Fair Value Option (FVO) discloses par amounts of CO bonds elected under the FVO. Valuation adjustments at December 31, 2020 and 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).
Hedge volume — Tables 6.2 - 6.4 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.
The following table provides information on CO bonds in an ASC 815 qualifying hedge relationship (in thousands):
| Table 6.2 | 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 | |
| Par Amount | | December 31, 2020 | | | December 31, 2019 | |
| Qualifying hedges | | | | | | | | |
| Fixed-rate bullet bonds | | $ | 20,757,635 | | | $ | 11,802,950 | |
| Fixed-rate callable bonds | | | 15,000 | | | | 70,000 | |
| | | $ | 20,772,635 | | | $ | 11,872,950 | |
The following table provides information on CO bonds elected under the fair value option (in thousands):
| Table 6.3 | 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 | |
| Par Amount | | December 31, 2020 | | | December 31, 2019 | |
| Bonds designated under FVO | | $ | 16,575,000 | | | $ | 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):
| Table 6.4 | 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 | |
| Par Amount | | December 31, 2020 | | | December 31, 2019 | |
| Bonds designated as economically hedged | | | | | | | | |
| Floating-rate bonds (a) | | $ | 10,875,000 | | | $ | 17,875,000 | |
| Fixed-rate bonds (b) | | | 265,000 | | | | 50,000 | |
| | | $ | 11,140,000 | | | $ | 17,925,000 | |
| (a) | Floating-rate debt — Floating-rate bonds were typically indexed to 1-month LIBOR and OIS-SOFR. With the execution of basis hedges, certain floating-rate bonds were swapped in economic hedges to indices (OIS-SOFR and OIS-FF) that met our asset/liability interest rate risk management objectives, mitigating the basis risk between the index 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):
| Table 6.5 | CO Bonds — Maturity or Next Call Date |
| | | December 31, 2020 | | | December 31, 2019 | |
| | | Amount | | | Percentage
of Total | | | Amount | | | Percentage
of Total | |
| Year of maturity or next call date | | | | | | | | | | | | | | | | |
| Due or callable in one year or less | | $ | 46,411,150 | | | | 67.36 | % | | $ | 63,261,595 | | | | 80.99 | % |
| Due or callable after one year through two years | | | 10,750,545 | | | | 15.60 | | | | 4,266,125 | | | | 5.46 | |
| Due or callable after two years through three years | | | 4,334,660 | | | | 6.29 | | | | 2,970,715 | | | | 3.80 | |
| Due or callable after three years through four years | | | 1,477,355 | | | | 2.14 | | | | 1,388,835 | | | | 1.78 | |
| Due or callable after four years through five years | | | 772,620 | | | | 1.12 | | | | 1,001,735 | | | | 1.28 | |
| Thereafter | | | 5,160,200 | | | | 7.49 | | | | 5,219,800 | | | | 6.69 | |
| | | | | | | | | | | | | | | | | |
| Total par value | | $ | 68,906,530 | | | | 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):
| Table 6.6 | Outstanding Callable CO Bonds versus Non-callable CO bonds |
| | | | December 31, 2020 | | | December 31, 2019 | |
| Callable | | | $ | 1,434,000 | | | $ | 4,818,000 | |
| Non-Callable | | | $ | 67,472,530 | | | $ | 73,290,805 | |
CO Discount Notes
The following table summarizes discount notes issued and outstanding (dollars in thousands):
| Table 6.7 | Discount Notes Outstanding |
| | | December 31, 2020 | | | December 31, 2019 | |
| Par value | | $ | 57,668,646 | | | $ | 74,094,586 | |
| Amortized cost | | $ | 57,642,972 | | | $ | 73,955,552 | |
| Hedge value basis adjustments (a) | | | 321 | | | | (105 | ) |
| FVO (b) - valuation adjustments and remaining accretion | | | 15,545 | | | | 3,758 | |
| Total discount notes | | $ | 57,658,838 | | | $ | 73,959,205 | |
| Weighted average interest rate | | | 0.15 | % | | | 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 $7.6 billion and $3.5 billion were hedged under ASC 815 qualifying fair value hedges at December 31, 2020 and 2019. The application of ASC 815 accounting methodology resulted in immaterial amounts of net cumulative hedge valuation adjustments as noted in the table above. Generally, hedge valuation basis gains and losses are unrealized and are 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 $7.1 billion and $2.2 billion at December 31, 2020 and 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):
| Table 6.8 | Fair Value Hedges of Discount Notes |
| | | Consolidated Obligation Discount Notes | |
| Principal Amount | | December 31, 2020 | | | December 31, 2019 | |
| Discount notes hedged under qualifying hedge | | $ | 7,564,742 | | | $ | 3,481,705 | |
The following table summarizes economic hedges of discount notes (in thousands):
| Table 6.9 | Economic Hedges of Discount Notes |
| | | Consolidated Obligation Discount Notes | |
| Par Amount | | December 31, 2020 | |
| Discount notes designated as economic hedges (a) | | $ | 149,718 | |
| (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):
| Table 6.10 | Discount Notes under the Fair Value Option (FVO) |
| | | Consolidated Obligation Discount Notes | |
| Par Amount | | December 31, 2020 | | | December 31, 2019 | |
| Discount notes designated under FVO (a) | | $ | 7,118,211 | | | $ | 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 discount 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):
| Table 6.11 | Cash Flow Hedges of Discount Notes |
| | | Consolidated Obligation Discount Notes | |
| Principal Amount | | December 31, 2020 | | | December 31, 2019 | |
| Discount notes hedged under qualifying hedge (a) | | $ | 2,139,000 | | | $ | 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 hedge gains and losses in Note 17. Derivatives and Hedging Activities. |
Recent Rating Actions
Table 6.12 below presents FHLBank’s long-term credit rating, short-term credit rating and outlook at February 28, 2021.
| | | | S&P | | | | Moody's |
| | | | Long-Term/ Short-Term | | | | Long-Term/ Short-Term |
| Year | | | Rating | | Outlook | | | | Rating | | Outlook |
| 2020 | July 21, 2020 | | AA+/A-1+ | | Stable/Affirmed | | December 23, 2020 | | Aaa/P-1 | | Stable/Affirmed |
| | | | | | | | | | | | |
| 2019 | August 22, 2019 | | AA+/A-1+ | | Stable/Affirmed | | October 23, 2019 | | Aaa/P-1 | | Stable/Affirmed |
| | | | | | | | | | | | |
| 2018 | August 2, 2018 | | AA+/A-1+ | | Stable/Affirmed | | October 24, 2018 | | Aaa/P-1 | | Stable/Affirmed |
Accrued interest payable
Accrued interest payable — Amounts outstanding were $118.0 million at December 31, 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 $186.6 million at December 31, 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):
| Table 7.1 | Stockholders’ Capital |
| | | December 31, 2020 | | | December 31, 2019 | |
| Capital Stock (a) | | $ | 5,366,830 | | | $ | 5,778,666 | |
| Unrestricted retained earnings (b) | | | 1,135,341 | | | | 1,115,236 | |
| Restricted retained earnings (c) | | | 774,275 | | | | 685,798 | |
| Accumulated Other Comprehensive Income (Loss) | | | (19,747 | ) | | | (47,805 | ) |
| Total Capital | | $ | 7,256,699 | | | $ | 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 December 31, 2020 has grown to $774.3 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. By way of reference, if the Restricted retained earnings target was to be calculated at December 31, 2020, the target amount would be $1.3 billion based on the FHLBNY’s average consolidated obligations outstanding during the current quarter, as compared to actual Restricted retained earnings of $774.3 million at December 31, 2020. Also see Note 14. Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings. |
The following table summarizes the components of AOCI (in thousands):
| Table 7.2 | Accumulated Other Comprehensive Income (Loss) (AOCI) |
| | | December 31, 2020 | | | December 31, 2019 | |
| Accumulated other comprehensive income (loss) | | | | | | | | |
| Non-credit portion on held-to-maturity securities, net (a) | | $ | (5,588 | ) | | $ | (7,571 | ) |
| Net market value unrealized gains (losses) on available-for-sale securities (b) | | | 280,626 | | | | 97,868 | |
| Net Fair value hedging gains (losses) on available-for-sale securities (b) | | | (44,052 | ) | | | (11,593 | ) |
| Net Cash flow hedging gains (losses) (c) | | | (207,204 | ) | | | (94,516 | ) |
| Employee supplemental retirement plans (d) | | | (43,529 | ) | | | (31,993 | ) |
| Total Accumulated other comprehensive income (loss) | | $ | (19,747 | ) | | $ | (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 $280.6 million and $97.9 million at December 31, 2020 and December 31, 2019 represent market value net unrealized gains of securities designated as AFS. Amounts of $44.1 million and $11.6 million at December 31, 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. Hedging basis will reverse to zero if hedges are allowed to mature. |
| (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 7.3 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. |
| Table 7.3 | 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.
| | | December 31, 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) | | | (109,411 | ) | | | (1,109 | ) | | | (32,459 | ) |
| Amount reclassified | | | - | | | | 1,352 | | | | - | |
| Fair Value - closed contract | | | - | | | | (3,520 | ) | | | - | |
| Ending balance | | $ | (198,494 | ) | | $ | (8,710 | ) | | $ | (44,052 | ) |
| | | | | | | | | | | | | |
| Notional amount of swaps outstanding | | $ | 2,139,000 | | | $ | - | | | $ | 1,134,000 | |
| | | 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 | |
| (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. |
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 7.4 | Dividends Paid and Payout Ratios |
| | | Twelve months ended | |
| | | December 31, 2020 | | | December 31, 2019 | |
| Cash dividends paid per share | | $ | 5.74 | | | $ | 6.49 | |
| Dividends paid (a) (c) | | $ | 348,234 | | | $ | 365,636 | |
| Pay-out ratio (b) | | | 78.72 | % | | | 77.37 | % |
| (a) | In thousands. |
| (b) | Dividend 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.
The following tables summarize the principal derivatives hedging strategies outstanding as of December 31, 2020 and December 31, 2019:
| Table 8.1 | Derivative Hedging Strategies — Advances |
| Hedged Item / Hedging Instrument | | Hedging Objective | | Hedge Accounting
Designation | | December 31, 2020
Notional Amount
(in millions) | | | December 31, 2019
Notional Amount
(in millions) | |
| Pay-fixed, receive float interest rate swap (without options) | | Converts the advance’s fixed rate to a variable-rate index. | | Fair Value | | $ | 29,969 | | | $ | 32,336 | |
| | | | Economic | | $ | 1,237 | | | $ | - | |
| Pay-fixed, receive float interest rate swap (with options) | | Converts the advance’s fixed rate to a variable-rate index and offsets option risk in the advance. | | Fair Value | | $ | 7,946 | | | $ | 8,366 | |
| Pay-fixed with embedded features, receive-float interest-rate swap (non-callable) | | Reduces interest-rate sensitivity and repricing gaps by converting the advance’s fixed rate to a variable-rate index and/or offsets embedded option risk in the advance. | | Fair Value | | $ | 360 | | | $ | 20 | |
| Pay float, receive float basis swap | | Reduces interest-rate sensitivity and repricing gaps by converting the advance’s variable-rate to a different variable-rate index. | | Economic | | $ | 8,450 | | | $ | - | |
| Table 8.2 | Derivative Hedging Strategies — Investments |
| Hedged Item / Hedging Instrument | | Hedging Objective | | Hedge Accounting
Designation | | December 31, 2020
Notional Amount
(in millions) | | | December 31, 2019
Notional Amount
(in millions) | |
| Pay-fixed, receive float interest-rate swap | | Converts the investment’s fixed rate to a variable-rate index. | | Fair Value | | $ | 1,134 | | | $ | 532 | |
| | | | | Economic | | $ | 11,634 | | | $ | 15,230 | |
| Table 8.3 | Derivative Hedging Strategies — Consolidated Obligation Bonds |
| Hedged Item / Hedging Instrument | | Hedging Objective | | Hedge Accounting
Designation | | December 31, 2020
Notional Amount
(in millions) | | | December 31, 2019
Notional Amount
(in millions) | |
| Receive-fixed or -structured, pay float interest rate swap (without options) | | Converts the bond’s fixed or structured rate to a variable-rate index. | | Fair Value | | $ | 20,758 | | | $ | 11,803 | |
| | | | | Economic | | $ | 16,840 | | | $ | 9,075 | |
| Receive-fixed or -structured, pay float interest rate swap (with options) | | Converts the bond’s fixed- or structured-rate to a variable-rate index and offsets option risk in the bond. | | Fair Value | | $ | 15 | | | $ | 70 | |
| | | | | Economic | | $ | - | | | $ | 3,042 | |
| Receive-float, pay-float basis swap | | Reduces interest-rate sensitivity and repricing gaps by converting the bond’s variable-rate to a different variable-rate index. | | Economic | | $ | 10,875 | | | $ | 17,875 | |
| Forward-starting interest rate swap | | Locks in the cost of funding on anticipated issuance of debt. | | Cash Flow | | $ | - | | | $ | 89 | |
| Table 8.4 | Derivative Hedging Strategies — Consolidated Obligation Discount Notes |
| Hedged Item / Hedging Instrument | | Hedging Objective | | Hedge Accounting
Designation | | December 31, 2020
Notional Amount
(in millions) | | | December 31, 2019
Notional Amount
(in millions) | |
| Receive-fixed, pay float interest-rate swap | | Converts the discount note’s fixed rate to a variable-rate index. | | Fair Value | | $ | 7,565 | | | $ | 3,482 | |
| | | | | Economic | | $ | 7,268 | | | $ | 2,183 | |
| Pay-fixed, receive float interest-rate swap | | Hedging sequential issuance of discount notes to reduce interest-rate sensitivity. | | Cash Flow | | $ | 2,139 | | | $ | 2,664 | |
| Table 8.5 | Derivative Hedging Strategies — Balance Sheet |
| Hedged Item / Hedging Instrument | | Hedging Objective | | Hedge Accounting
Designation | | December 31, 2020
Notional Amount
(in millions) | | | December 31, 2019
Notional Amount
(in millions) | |
| Interest-rate cap or floor | | Protects against changes in income of certain assets due to changes in interest rates. | | Economic | | $ | 800 | | | $ | 800 | |
| Table 8.6 | Derivative Hedging Strategies — Intermediation |
| Hedged Item / Hedging Instrument | | Hedging Objective | | Hedge Accounting
Designation | | December 31, 2020
Notional Amount
(in millions) | | | December 31, 2019
Notional Amount
(in millions) | |
| Pay-fixed, receive-float interest rate swap, and receive-fixed, pay-float interest rate swap | | To offset interest-rate swaps executed with members by executing interest rate swaps with derivatives counterparties. | | Economic | | $ | 888 | | | $ | 1,072 | |
| Table 8.7 | Derivative Hedging Strategies — Stand-Alone |
| Hedged Item / Hedging Instrument | | Hedging Objective | | Hedge Accounting
Designation | | December 31, 2020
Notional Amount
(in millions) | | | December 31, 2019
Notional Amount
(in millions) | |
| Mortgage delivery commitment | | Exposed to fair-value risk associated with fixed-rate mortgage purchase commitments. | | Economic | | $ | 10 | | | $ | 45 | |
Derivative Credit Risk Exposure and Concentration
In addition to market risk, we are subject to credit risk in derivative transactions because of the potential for non-performance by the counterparties, which could result in the FHLBNY having to acquire a replacement derivative from a different counterparty at a cost that may exceed its recorded fair values. We are also subject to operational risks in the execution and servicing of derivative transactions. The degree of counterparty credit risk may depend on, among other factors, the extent to which netting procedures and/or the provision of collateral are used to mitigate the risk. Summarized below are our risk measurement and mitigation processes:
Risk measurement — We estimate exposure to credit loss on derivative instruments by calculating the replacement cost, on a present value basis, to settle at current market prices all outstanding derivative contracts in a gain position, net of collateral pledged by the counterparty. All derivative contracts with non-members are also subject to master netting agreements or other right of offset arrangements.
Exposure — In determining credit risk, we consider accrued interest receivable and payable, and the legal right to offset assets and liabilities by counterparty. We attempt to mitigate exposure by requiring derivative counterparties to pledge cash collateral if the amount of exposure is above the collateral threshold agreements. When we post excess cash collateral, we consider the excess collateral as our derivative exposure.
Our credit exposures (derivatives in a net gain position) were to highly-rated counterparties and Derivative Clearing Organizations (DCO) that met our credit quality standards. Our exposures also included open derivative contracts executed on behalf of member institutions, and the exposures were collateralized under standard advance collateral agreements with our members. For such transactions, acting as an intermediary, we offset the transaction by purchasing equivalent notional amounts of derivatives from unrelated derivative counterparties. For more information, see financial statements, Credit Risk due to non-performance by counterparties, in Note 17. Derivatives and Hedging Activities.
Risk mitigation — We attempt to mitigate derivative counterparty credit risk by contracting only with experienced counterparties with investment-quality credit ratings that meet our credit quality standards. Annually, our management and Board of Directors review and approve all non-member derivative counterparties. We monitor counterparties on an ongoing basis for significant business events, including ratings actions taken by a Nationally Recognized Statistical Rating Organization (NRSRO). All approved derivatives counterparties must enter into a master ISDA agreement with us before we execute a trade through that counterparty. In addition, for all bilateral OTC derivatives, we have executed the Credit Support Annex to the ISDA agreement that provides for collateral support at predetermined thresholds. For Cleared-OTC derivatives, margin requirements are mandated under the Dodd-Frank Act. We believe that such arrangements — margin requirements, the selection of experienced, highly-rated counterparties and ongoing monitoring — have sufficiently mitigated our exposures, and we do not anticipate any credit losses on derivative contracts.
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 8.8 | Derivatives Counterparty Credit Ratings |
| | | December 31, 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 | | | $ | 28,880 | | | $ | (18,385 | ) | | $ | 10,495 | | | $ | - | | | $ | 10,495 | |
| Cleared derivatives assets (d) | | | 20,297,279 | | | | 1,670 | | | | - | | | | 1,670 | | | | 43,519 | | | | 45,189 | |
| | | | 22,812,279 | | | | 30,550 | | | | (18,385 | ) | | | 12,165 | | | | 43,519 | | | | 55,684 | |
| Liability positions with credit exposure | | | | | | | | | | | | | | | | | | | | | | | | |
| Uncleared derivatives | | | | | | | | | | | | | | | | | | | | | | | | |
| Single A liability (c) | | | 10,000 | | | | (300 | ) | | | 300 | | | | - | | | | - | | | | - | |
| Triple B liability (c) | | | 2,833,000 | | | | (305,483 | ) | | | 309,300 | | | | 3,817 | | | | - | | | | 3,817 | |
| Cleared derivatives liability (d) | | | 94,431,914 | | | | - | | | | - | | | | - | | | | 586,853 | | | | 586,853 | |
| | | | 97,274,914 | | | | (305,783 | ) | | | 309,600 | | | | 3,817 | | | | 586,853 | | | | 590,670 | |
| Total derivative positions with non-member counterparties to which the Bank had credit exposure | | | 120,087,193 | | | | (275,233 | ) | | | 291,215 | | | | 15,982 | | | | 630,372 | | | | 646,354 | |
| Member institutions | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative positions with member counterparties to which the Bank had credit exposure | | | 444,000 | | | | 20,659 | | | | - | | | | 20,659 | | | | (20,659 | ) | | | - | |
| Delivery commitments | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative position with delivery commitments | | | 9,777 | | | | 28 | | | | - | | | | 28 | | | | (28 | ) | | | - | |
| Total derivative position with members | | | 453,777 | | | | 20,687 | | | | - | | | | 20,687 | | | | (20,687 | ) | | | - | |
| Total | | $ | 120,540,970 | | | $ | (254,546 | ) | | $ | 291,215 | | | $ | 36,669 | | | $ | 609,685 | | | $ | 646,354 | |
| Derivative positions without credit exposure | | | 7,346,674 | | | | | | | | | | | | | | | | | | | | | |
| Total notional | | $ | 127,887,644 | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | |
| Non-member counterparties | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset positions with credit exposure | | | | | | | | | | | | | | | | | | | | | | | | |
| Uncleared derivatives | | | | | | | | | | | | | | | | | | | | | | | | |
| Double A asset (c) | | $ | 25,000 | | | $ | 6 | | | $ | - | | | $ | 6 | | | $ | - | | | $ | 6 | |
| Single A asset (c) | | | 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 | |
| | | | 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 | |
| Triple B liability (c) | | | 2,893,000 | | | | (128,059 | ) | | | 134,250 | | | | 6,191 | | | | - | | | | 6,191 | |
| | | | 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 | |
| Member institutions | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative positions with member counterparties to which the Bank had credit exposure | | | 536,000 | | | | 9,467 | | | | - | | | | 9,467 | | | | (9,467 | ) | | | - | |
| Delivery commitments | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative position with delivery commitments | | | 44,768 | | | | 104 | | | | - | | | | 104 | | | | (104 | ) | | | - | |
| Total derivative position with members | | | 580,768 | | | | 9,571 | | | | - | | | | 9,571 | | | | (9,571 | ) | | | - | |
| Total | | $ | 93,023,280 | | | $ | (24,454 | ) | | $ | 262,401 | | | $ | 237,947 | | | $ | 135,939 | | | $ | 373,886 | |
| Derivative positions without credit exposure | | | 15,659,413 | | | | | | | | | | | | | | | | | | | | | |
| Total notional | | $ | 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. |
| (d) | On cleared derivatives, we are required to pledge initial margin (considered as collateral) to Derivative Clearing Organizations (DCOs) in cash or securities. At December 31, 2020 and 2019, we had pledged $630.4 million and $251.2 million in marketable securities. No cash was posted on cleared swaps at December 31, 2020; $85.2 million was posted at December 31, 2019. |
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 also sources of funds. Short-term unsecured borrowings from other FHLBanks and in the federal funds market, as well as secured borrowings in the repo 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, the Bank provides for Contingency Liquidity, which is defined as the sources of cash the 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. 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 ready liquidity 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.
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):
| Table 9.1 | Deposit Liquidity |
| | | Average Deposit | | | Average Actual | | | | |
| For the Quarters Ended | | Reserve Required | | | Deposit Liquidity | | | Excess | |
| December 31, 2020 | | $ | 1,698 | | | $ | 84,479 | | | $ | 82,781 | |
| September 30, 2020 | | | 1,553 | | | | 96,315 | | | | 94,762 | |
| June 30, 2020 | | | 1,532 | | | | 111,263 | | | | 109,731 | |
| March 31, 2020 | | | 1,229 | | | | 90,508 | | | | 89,279 | |
| December 31, 2019 | | | 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):
| Table 9.2 | Operational Liquidity |
| | | Average Balance Sheet | | | Average Actual | | | | |
| For the Quarters Ended | | Liquidity Requirement | | | Operational Liquidity | | | Excess | |
| December 31, 2020 | | $ | 9,367 | | | $ | 27,629 | | | $ | 18,262 | |
| September 30, 2020 | | | 11,786 | | | | 27,822 | | | | 16,036 | |
| June 30, 2020 | | | 21,874 | | | | 29,604 | | | | 7,730 | |
| March 31, 2020 | | | 17,786 | | | | 33,910 | | | | 16,124 | |
| December 31, 2019 | | | 17,138 | | | | 35,360 | | | | 18,222 | |
Contingency Liquidity. The 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 exceed the 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 9.3 | Contingency Liquidity |
| | | Average Five Day | | | Average Actual | | | | |
| For the Quarters Ended | | Requirement | | | Contingency Liquidity | | | Excess | |
| December 31, 2020 | | $ | 3,448 | | | $ | 24,494 | | | $ | 21,046 | |
| September 30, 2020 | | | 4,207 | | | | 24,714 | | | | 20,507 | |
| June 30, 2020 | | | 4,149 | | | | 25,978 | | | | 21,829 | |
| March 31, 2020 | | | 4,568 | | | | 29,883 | | | | 25,315 | |
| December 31, 2019 | | | 4,764 | | | | 30,966 | | | | 26,202 | |
The Liquidity standards in our risk management policy address our day-to-day operational and contingency liquidity needs. These standards enumerate the specific types of investments to be held to satisfy such liquidity needs and are outlined above. These standards also establish the methodology to be used in determining our operational and contingency needs. We continually monitor and project our cash needs, daily debt issuance capacity, and the amount and value of investments available for use in the market for repurchase agreements. We use this information to determine our liquidity needs and to develop appropriate liquidity plans.
The Finance Agency’s Liquidity Advisory Bulletin 2018-07 requires the Bank to maintain between 10 and 30 business days of positive cash flow assuming all advances renew. The Advisory Bulletin also requires us to hold liquidity in a range between 1% and 20% of the notional of our outstanding standby financial letters of credit. In addition, the Advisory Bulletin provides guidance on maintaining appropriate funding gaps for three-month (-10% to -20% of total assets) and one-year (-25% to -35% of total assets) maturity horizons. The FHFA has communicated specific initial liquidity levels to be maintained within these ranges in an accompanying supervisory letter and may provide updated guidance in future supervisory letters. We remain in compliance with the Advisory Bulletin and all Liquidity regulations.
Other Liquidity Contingencies. As discussed more fully under the section Debt Financing Activity and Consolidated Obligations, we are primarily liable for Consolidated Obligations 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. If the principal or interest on any Consolidated Obligation issued on our behalf is not paid in full when due, we may not pay dividends, redeem or repurchase shares of stock of any member or non-member stockholder until the Finance Agency approves our Consolidated Obligation payment plan or other remedy and until we pay all the interest or principal currently due on all our Consolidated Obligations. The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any Consolidated Obligations.
Finance Agency regulations also state that the FHLBanks must maintain, free from any lien or pledge, the following types of assets in an amount at least equal to the amount of Consolidated Obligations outstanding: Cash; Obligations of, or fully guaranteed by, the United States; Secured advances; Mortgages that have any guaranty, insurance, or commitment from the United States or any agency of the United States; and investments described in section 16(a) of the FHLBank Act, including securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located.
Cash flows
Cash and due from Banks was $1.9 billion at December 31, 2020 and $0.6 billion at December 31, 2019. Cash and cash equivalents exclude short-term interest-bearing deposits, federal funds sold, and securities purchased under agreements to resell. The following discussion highlights the major activities and transactions that affected our cash flows.
Cash flows provided by/ (used in) 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 twelve months ended December 31, 2020 were outflows of $97.2 million and inflows of $14.6 million in the prior year. By way of comparison, Net income was $442.4 million in the twelve months ended December 31, 2020 and $472.6 million in the prior year. Outflows in operating cash flows in 2020 were due to three 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 $488.4 million in 2020, compared to $249.5 million in 2019; in both years, the negative cash outflows were due to increase in variation margin posted on derivative contracts; variation margin increased with the increase in the notional amounts of derivatives utilized at December 31, 2020. Second, we reported negative adjustments to operating cash flows of $72.8 million and $51.3 million to recognize unrealized valuation gains on U.S. Treasury securities at December 31, 2020 and 2019. Third, we adjust discount note accretion expense in operating cash flows with an offset to financing activities in the Statements of Cash flows on discount notes in the year they mature. The net adjustment to accretion expense was larger in 2020, causing Net premiums and discounts to record negative operating cash flows of $238.7 million in 2020, compared to negative $88.7 million in 2019.
Cash flows provided by/ (used in) investing activities — Investing activities resulted in $26.8 billion in net cash inflows in the twelve months ended December 31, 2020, compared to $16.6 billion in net cash outflows in the same period in 2019. In 2020, Securities purchased under agreements to resell and federal funds sold declined; investments in U.S. Treasury securities declined.
Cash flows provided by/ (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 outflows of $25.4 billion in the twelve months ended December 31, 2020 compared to net inflows of $17.1 billion in the prior year.
For more information, see Statements of Cash Flows in the financial statements.
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):
| | | Consolidated Obligations-Discount Notes | | | Consolidated Obligations-Bonds With
Original Maturities of One Year or Less | |
| | | December 31, 2020 | | | December 31, 2019 | | | December 31, 2020 | | | December 31, 2019 | |
| Outstanding at end of the period (a) | | $ | 57,658,838 | | | $ | 73,959,205 | | | $ | 30,772,940 | | | $ | 48,087,050 | |
| Weighted-average rate at end of the period (b) | | | 0.15 | % | | | 1.60 | % | | | 0.12 | % | | | 1.74 | % |
| Average outstanding for the period (a) | | $ | 74,759,309 | | | $ | 58,317,547 | | | $ | 35,920,800 | | | $ | 46,409,731 | |
| Weighted-average rate for the period | | | 0.51 | % | | | 2.15 | % | | | 0.84 | % | | | 2.25 | % |
| Highest outstanding at any month-end (a) | | $ | 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.
Purchases of MBS. Finance Agency investment regulations limit the purchase of mortgage-backed securities to 300% of capital. We were in compliance with the regulation at all times.
| | | December 31, 2020 | | | December 31, 2019 | |
| | | Actual | | | Limits | | | Actual | | | Limits | |
| Mortgage securities investment authority | | | 206 | % | | | 300 | % | | | 220 | % | | | 300 | % |
| Table 9.6 | Core Mission Achievement |
The Finance Agency has established a ratio by which the Finance Agency will assess each FHLBank’s core mission achievement. Core mission achievement is determined using a ratio of primary mission assets, which include advances and acquired member assets (mortgage loans acquired from members), to Consolidated obligations. The ratio will be determined at each year-end and will be calculated using annual average par values.
| | | December 31, 2020 | | | December 31, 2019 | |
| Par Values (dollars in thousands) | | Annual Average | | | Annual Average | |
| Advances | | $ | 107,681,243 | | | $ | 95,615,681 | |
| Mortgage Loans | | | 3,082,252 | | | | 2,963,520 | |
| Total Primary Mission Assets | | $ | 110,763,495 | | | $ | 98,579,201 | |
| Total Consolidated Obligations | | $ | 147,104,411 | | | $ | 135,589,946 | |
| U.S. Treasury obligations qualifying as HQLA under AB 2018-07 (a) | | $ | 12,619,764 | | | $ | 8,915,081 | |
| | | | | | | | | |
| Core Mission Achievement Ratio | | | 82 | % | | | 78 | % |
| Target Ratio | | | 70 | % | | | 70 | % |
| (a) | The annual average par value of the U.S. Treasury Securities that are held as Trading securities is deducted from the denominator of the Primary Core Mission Asset ratio, as allowed under the FHFA guidelines. |
Operational Risk Management
Operational risk is the risk of loss resulting from inadequate or failed internal processes, systems, or human factors, or from external events. Operational risk is inherent in our business activities and, as with other risk types, is managed through an overall framework designed to balance strong management oversight with well-defined independent risk management. This framework includes: policies and procedures for managing operational risks; recognized ownership of the risk by the business; a compliance group that evaluates compliance with board and regulatory policies, including the evaluation and reporting of operational risk incidents, and an internal audit function, which regularly reports directly to the Audit Committee of the Bank’s Board of Directors regarding compliance with policies and procedures, including those related to managing operational risks.
Information Security and Business Continuity. The Bank has an Information Security Department that is responsible for the policy, procedures, reviews, education, and management of the information security program. The Bank also has a department that is responsible for the overall business continuity program, which includes training, testing, coordination, and continual updates. Information security and the protection of confidential customer data, and business continuity are priorities for the FHLBNY, and we have implemented processes that will help secure confidential data and continuity of operations. The information security program is reviewed and enhanced periodically to address emerging threats to data integrity and cyber attacks. The business continuity program includes annual testing of our capabilities. Results of business continuity testing and information security are routinely presented to senior management of the FHLBNY and its Board of Directors.
The FHLBNY’s Information Technology group maintains and regularly reviews controls to ensure that technology assets are well managed and secure from unauthorized access and in accordance with approved policies and procedures.
Results of Operations
The following section provides a comparative discussion of the FHLBNY’s results of operations for the three years ended December 31, 2020, 2019 and 2018. 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. Fair value gains and losses on liquidity trading securities and equity investments also impact Net income. 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 10.1 | Principal Components of Net Income |
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Total interest income | | $ | 1,933,865 | | | $ | 3,780,946 | | | $ | 3,586,484 | |
| Total interest expense | | | 1,180,909 | | | | 3,113,856 | | | | 2,789,459 | |
| Net interest income before provision for credit losses | | | 752,956 | | | | 667,090 | | | | 797,025 | |
| Provision (Reversal) for credit losses | | | 3,721 | | | | (142 | ) | | | (371 | ) |
| Net interest income after provision for credit losses | | | 749,235 | | | | 667,232 | | | | 797,396 | |
| Total other income (loss) | | | (50,819 | ) | | | 33,888 | | | | (23,871 | ) |
| Total other expenses | | | 206,851 | | | | 175,980 | | | | 150,665 | |
| Income before assessments | | | 491,565 | | | | 525,140 | | | | 622,860 | |
| Affordable Housing Program Assessments | | | 49,180 | | | | 52,552 | | | | 62,382 | |
| Net income | | $ | 442,385 | | | $ | 472,588 | | | $ | 560,478 | |
Net Income — 2020 Vs. 2019
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.
Net income was $442.4 million in 2020, a decrease of $30.2 million, or 6.4% compared to 2019. Summarized below are the primary components of our Net income:
Net interest income was $753.0 million in 2020, an increase of $85.9 million, or 12.9% compared to 2019. Net interest spread was 43 basis points for 2020 compared to 35 basis points for 2019. For more information, see Table 10.2 Net Interest Income and accompanying discussions in this MD&A.
Other income (loss) — Other income (loss) reported a loss of $50.8 million in 2020 compared to a gain of $33.9 million in 2019.
| ● | Service fees and other were $17.9 million in 2020 compared to $18.2 million in 2019. Service fees and others are primarily fee revenues from financial letters of credit. |
| ● | Financial instruments carried at fair values reported a net valuation gain of $0.1 million in 2020 compared to a net loss of $4.1 million in 2019. For more information, see financial statements, Fair Value Option Disclosures in Note 18. Fair Values of Financial Instruments. Also see Table 10.10 Other Income (Loss) and accompanying discussions in this MD&A. |
| ● | Derivative activities reported a charge to Other income of $151.7 million in 2020, compared to a charge of $40.7 million in 2019. The charges included net accrued interest expense on standalone swaps of $93.7 million and $12.5 million in 2020 and 2019, respectively. Fair value losses on standalone swaps hedging U.S. Treasury securities were $80.7 million and $33.2 million in 2020 and 2019, respectively. We also recorded net fair value gains of $16.7 million and $3.5 million in 2020 and 2019, respectively, on standalone swaps designated primarily to mitigate basis risks on certain advances and bonds. Also see Table 10.12 Other Income (Loss) — Impact of Derivative Gains and Losses and accompanying discussions in this MD&A. |
| ● | U.S. Treasury Securities held for liquidity (classified as trading) reported net gains of $72.8 million in 2020 compared to net gains of $51.3 million in 2019. |
| ● | Equity Investments, held to finance payments to retirees in non-qualified pension plans, reported net gains of $9.8 million in 2020 that was slightly lower than 2019. |
Other expenses were $206.9 million in 2020, compared to $176.0 million in 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.
| ● | Operating expenses were $69.8 million in 2020, up from $62.8 million in 2019. |
| ● | Compensation and benefits expenses were $100.2 million in 2020, up from $88.2 million in 2019. This was driven by additions of staff to 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 $19.4 million in 2020 compared to $16.8 million in 2019. |
| ● | Other expenses were $17.5 million in 2020 compared to $8.3 million in 2019. In 2020, Other expenses included $8.0 million in cash grants to assist small business impacted by the COVID-19 pandemic. |
Affordable Housing Program Assessments (AHP) allocated from Net income were $49.2 million in 2020, compared to $52.6 million in 2019. Assessments are calculated as a percentage of Net income, and changes in allocations were in parallel with changes in Net income.
Net Income — 2019 Vs. 2018
Net income in 2019 was $472.6 million, a decrease of $87.9 million, or 15.7%, compared to 2018.
Net interest income in 2019 was $667.1 million, a decrease of $129.9 million, or 16.3%. Net interest spread was 35 basis points in 2019, compared to 42 basis points in 2018. For more information, see Table 10.2 Net Interest Income and accompanying discussions in this MD&A.
Other income (loss) — Other income (loss) in 2019 was a gain of $33.9 million, compared to a loss of $23.9 million in 2018.
The primary changes year-over-year were contributed by net realized and unrealized gains of $51.3 million on trading securities (held for liquidity) in 2019, compared to $3.2 million in 2018.
Other expenses were $176.0 million in 2019, compared to $150.7 million in 2018. Operating expenses were $62.8 million in 2019, up from $47.9 million in 2018. Compensation and benefits were $88.2 million in 2019, up from $79.0 million in 2018 due to increase in head count. Other expenses were $8.3 million in 2019 and $8.0 million in 2018.
AHP assessments allocated from Net income were $52.6 million in 2019 and $62.4 million in 2018.
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 10.3 Net Interest Adjustments from Hedge Qualifying Interest Rate Swaps and discussions thereto. Also, see Table 10.4 Spread and Yield Analysis, and Table 10.5 Rate and Volume Analysis.
The following table summarizes Net interest income (dollars in thousands):
| Table 10.2 | Net Interest Income |
| | | | | | Percentage | | | Percentage | |
| | | Years ended December 31, | | | Change | | | Change | |
| | | 2020 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | |
| Total interest income (a) | | $ | 1,933,865 | | | $ | 3,780,946 | | | $ | 3,586,484 | | | | (48.85 | )% | | | 5.42 | % |
| Total interest expense (a) | | | 1,180,909 | | | | 3,113,856 | | | | 2,789,459 | | | | (62.08 | ) | | | 11.63 | |
| Net interest income before provision for credit losses | | $ | 752,956 | | | $ | 667,090 | | | $ | 797,025 | | | | 12.87 | % | | | (16.30 | )% |
| (a) | Total Interest Income and Total Interest Expense — See Tables 10.6 and 10.8 and accompanying discussions |
Net Interest Income — 2020 Vs. 2019
Our 2020 results were impacted by the March 2020 rate cuts. The Federal Reserve decreased its benchmark short-term interest rate to a range of 0-0.25%, a decrease of 150 basis points. These decreases were in addition to the three rate cuts implemented during 2019 (225 basis points in total).
Given the relationship between our interest-sensitive assets and liabilities, decreases in short-term interest rates generally result in an overall decrease in our net interest margin, although the magnitude of the impact to our net interest margin depends on the yields on interest-earning assets relative to the cost of interest-bearing liabilities and yields earned on capital. Conversely, any increases in short-term interest rates generally have a positive impact on our net interest margin.
Financial markets in the third and fourth quarter exhibited less volatility after a tumultuous and challenging environment starting in March 2020. The Fed has continued to provide support to the economy and financial markets; interest rates remain very low. Our interest revenues and interest expenses have declined in 2020, relative to last year. The Fed’s acquisition program in the agency-issued mortgage-backed securities market has driven up pricing and limited the opportunities for acquiring investments that would meet our risk/reward targets. Spreads remain very low on our investments in overnight Federal funds markets and repurchase programs, two principal investment vehicles for our balance sheet liquidity programs.
2020 Net interest income, before loan loss provisions, was $753.0 million, an increase of $85.9 million, or 12.9% from the prior year. Primary driver was higher earning assets, specifically advances. Net interest income during the quarters in 2020 were strong, despite the volatility in the financial markets: $152.8 million in the first quarter; $229.7 million in the second quarter; $180.8 million in the third quarter and $189.7 million in the fourth quarter. Fourth quarter 2020 net interest benefitted from $30.2 million in prepayment fees. Absent the fees, net interest income declined due to lower average earning assets, specifically lower advance balances in the quarter due to advance prepayments. Prepayment fees recorded in the fourth quarter offset the full impact of declining net interest income and margin.
Net interest income grew in the middle two quarters largely driven by spreads earned from the increase in advance volume at the onset of COVID-19 in March 2020. Margins also benefitted by the decline in debt expense in 2020. CO debt costing expense and yields declined in part due to a shift to greater use of discount notes to fund short-maturity assets, and in part due to advantageous pricing of CO discount notes. In 2020, CO discount notes funded 47.3% of our earning assets, up from 40.3% in the prior year (calculations are based on average balances). Discount note costing yield was 57 basis points in 2020, down from 221 basis points in the prior year. In the current volatile market, investor demand for FHLBank issued high-quality CO discount notes pushed yields down, resulting in favorable spreads and favorable funding through most of 2020.
Margins widened favorably between yields on assets, specifically overnight, short-term, and floating-rate investments and short-term and floating-rate advances, and the corresponding yields paid on funding those assets. Net interest margin, a measure of margin efficiency, which is calculated as Net interest income divided by average earning assets, was 48 basis points in 2020, compared to 46 basis points in the prior year. Net interest spread in 2020 was 43 basis points, representing the yield from earning assets minus interest paid on costing liabilities. In the prior year, the net interest spread was 35 basis points. Spreads earned in the 2020 quarters were consistently strong, despite the volatility in financial markets: 31 basis points in pre-COVID-19 first quarter; 49 basis points in the second quarter; 43 basis points and 50 basis points in the third and fourth quarters, respectively. Fourth quarter 2020 net interest income benefitted from significant prepayment fees of $30.2 million.
Volume related increases in earning assets and changes in funding mix made a favorable impact of $91.6 million to margin, partly offset by decline of $5.8 million due to yield-related adverse changes. Average interest-earning assets was $157.9 billion in 2020, compared to $144.6 billion in the prior year, the growth driven by significant increase in advances at the outset of COVID-19. However, starting late in the second quarter of 2020, advance balances began to decline, gradually at first, when members did not roll over maturing short-term funds and began to prepay advances, followed by significant prepayments late in the fourth quarter. The decline adversely impacted fourth quarter 2020 net interest income. We ended 2020 with par advances at $90.7 billion, compared to $100.4 billion when we began the year. Average advance balance was $109.1 billion in 2020, up from $95.8 billion average in the prior year.
Stockholders’ capital stock, which is typically deployed to fund short-term interest-earning assets, increased to $8.0 billion in 2020, up from $7.3 billion in the prior year (as measured by average outstanding balance in the period). Increase in Capital stock was in line with increase in advances in 2020 as borrowing members are required to purchase capital stock in proportion to amounts borrowed.
Swap interest settlements, and to a much lesser extent the fair values on swaps designated in ASC 815 hedging relationships, recorded a loss of $298.5 million in 2020. In the prior year, a net favorable contribution of $162.8 million was recorded. In both years, 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 benchmark interest rate indices have driven down the benchmark-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 benchmarks had a favorable impact on benchmark-indexed cash flows paid on swaps hedging debt, the favorable impact was not as significant. Net interest settlements on swaps hedging assets and liabilities under ASC 815 fluctuated as expected in line with changes in the benchmark rates; the hedging transactions achieved our interest rate risk management objectives.
Net Interest Income — 2019 Vs. 2018
2019 Net interest income declined by $129.9 million, or 16.3% from the prior year. The decline in net interest income and margin was due to three primary factors. Lower advance balances in 2019, relative to 2018 negatively impacted net interest income. The funding environment in 2019 was generally less favorable, resulting in a higher cost of funding on a spread basis. Finally, management’s decision to lower advances pricing spreads for 2019 reduced yields and revenues. Additionally, beginning in 2019 we stopped acquiring LIBOR-indexed floating-rate MBS as a policy decision to restrain growth of LIBOR assets. Acquisition of fixed-rate MBS was also constrained due to tight pricing and relatively lower yields. Such constraints had a negative impact on margins, spreads, and revenues. Increased investments in U.S. Treasury securities for liquidity management purposes and overnight repurchase agreements made a positive contribution to net interest income, although margins were quite low.
In summary in 2019, volume-related declines in assets and funding mix made an unfavorable impact of $32.4 million on net interest income. Average interest-earning assets totaled $144.6 billion in 2019, compared to $154.1 billion in 2018. Yield related changes also resulted in an unfavorable impact of $97.5 million on net interest income in 2019. Net interest spread, which is the yield from earning assets minus interest paid to fund earning assets, was 35 basis points in 2019, compared to 42 basis points in 2018. The impact of net interest settlements (interest accruals) on swaps hedging assets and liabilities under ASC 815 were favorable to net interest income, contributing $162.8 million and $144.4 million to interest accruals in 2019 and 2018, respectively.
Impact of Qualifying Hedges on Net Interest Income — 2020, 2019 and 2018
The following table summarizes the impact of net interest adjustments from hedge qualifying interest-rate swaps (in thousands):
| Table 10.3 | Net Interest Adjustments from Hedge Qualifying Interest Rate Swaps |
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Interest income | | $ | 2,303,422 | | | $ | 3,609,475 | | | $ | 3,396,087 | |
| Fair value hedging effects | | | (401 | ) | | | 863 | | | | - | |
| Amortization of basis | | | (557 | ) | | | (56 | ) | | | 88 | |
| Interest rate swap accruals | | | (368,599 | ) | | | 170,664 | | | | 190,309 | |
| Reported interest income | | | 1,933,865 | | | | 3,780,946 | | | | 3,586,484 | |
| | | | | | | | | | | | | |
| Interest expense | | | 1,255,874 | | | | 3,109,530 | | | | 2,749,302 | |
| Fair value hedging effects | | | 763 | | | | 2,001 | | | | - | |
| Amortization of basis | | | (5,626 | ) | | | (5,558 | ) | | | (5,729 | ) |
| Interest rate swap accruals | | | (70,102 | ) | | | 7,883 | | | | 45,886 | |
| Reported interest expense | | | 1,180,909 | | | | 3,113,856 | | | | 2,789,459 | |
| Net interest income | | $ | 752,956 | | | $ | 667,090 | | | $ | 797,025 | |
| Net interest adjustment - interest rate swaps | | $ | (294,592 | ) | | $ | 167,145 | | | $ | 150,240 | |
Spread and Yield Analysis — 2020, 2019 and 2018
| Table 10.4 | Spread and Yield Analysis |
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| | | | | | Interest | | | | | | | | | Interest | | | | | | | | | Interest | | | | |
| | | Average | | | Income/ | | | | | | Average | | | Income/ | | | | | | Average | | | Income/ | | | | |
| (Dollars in thousands) | | Balance | | | Expense | | | Rate (a) | | | Balance | | | Expense | | | Rate (a) | | | Balance | | | Expense | | | Rate (a) | |
| Earning Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Advances | | $ | 109,116,805 | | | $ | 1,166,745 | | | | 1.07 | % | | $ | 95,837,983 | | | $ | 2,526,662 | | | | 2.64 | % | | $ | 107,970,634 | | | $ | 2,522,040 | | | | 2.34 | % |
| Interest bearing deposits and others | | | 1,483,314 | | | | 3,615 | | | | 0.24 | | | | 243,800 | | | | 4,561 | | | | 1.87 | | | | 21,240 | | | | 420 | | | | 1.98 | |
| Federal funds sold and other overnight funds | | | 13,726,052 | | | | 63,364 | | | | 0.46 | | | | 18,570,561 | | | | 406,953 | | | | 2.19 | | | | 21,125,197 | | | | 390,619 | | | | 1.85 | |
| Investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Trading securities | | | 13,336,034 | | | | 221,780 | | | | 1.66 | | | | 9,155,523 | | | | 215,583 | | | | 2.35 | | | | 3,585,110 | | | | 74,412 | | | | 2.08 | |
| Mortgage-backed securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fixed | | | 11,235,921 | | | | 315,731 | | | | 2.81 | | | | 10,109,341 | | | | 310,849 | | | | 3.07 | | | | 8,700,768 | | | | 260,608 | | | | 3.00 | |
| Floating | | | 4,780,783 | | | | 55,586 | | | | 1.16 | | | | 6,499,680 | | | | 181,330 | | | | 2.79 | | | | 8,616,252 | | | | 209,447 | | | | 2.43 | |
| State and local housing finance agency obligations | | | 1,111,139 | | | | 15,047 | | | | 1.35 | | | | 1,148,680 | | | | 33,620 | | | | 2.93 | | | | 1,184,453 | | | | 31,329 | | | | 2.65 | |
| Mortgage loans held-for-portfolio | | | 3,122,825 | | | | 91,964 | | | | 2.94 | | | | 3,008,225 | | | | 101,223 | | | | 3.36 | | | | 2,898,749 | | | | 97,479 | | | | 3.36 | |
| Loans to other FHLBanks | | | 2,049 | | | | 33 | | | | 1.61 | | | | 6,904 | | | | 165 | | | | 2.39 | | | | 6,671 | | | | 130 | | | | 1.95 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total interest-earning assets | | $ | 157,914,922 | | | $ | 1,933,865 | | | | 1.22 | % | | $ | 144,580,697 | | | $ | 3,780,946 | | | | 2.62 | % | | $ | 154,109,074 | | | $ | 3,586,484 | | | | 2.33 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Funded By: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated obligation bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fixed | | $ | 35,846,973 | | | $ | 467,820 | | | | 1.31 | % | | $ | 29,764,963 | | | $ | 707,408 | | | | 2.38 | % | | $ | 26,650,358 | | | $ | 556,003 | | | | 2.09 | % |
| Floating | | | 37,250,201 | | | | 280,094 | | | | 0.75 | | | | 47,906,230 | | | | 1,090,759 | | | | 2.28 | | | | 66,878,818 | | | | 1,252,229 | | | | 1.87 | |
| Consolidated obligation discount notes | | | 74,759,309 | | | | 428,864 | | | | 0.57 | | | | 58,317,547 | | | | 1,291,576 | | | | 2.21 | | | | 51,656,594 | | | | 960,833 | | | | 1.86 | |
| Interest-bearing deposits and other borrowings | | | 1,439,485 | | | | 3,896 | | | | 0.27 | | | | 1,132,147 | | | | 23,734 | | | | 2.10 | | | | 1,035,303 | | | | 19,430 | | | | 1.88 | |
| Mandatorily redeemable capital stock | | | 4,318 | | | | 235 | | | | 5.44 | | | | 5,973 | | | | 379 | | | | 6.35 | | | | 13,962 | | | | 964 | | | | 6.90 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total interest-bearing liabilities | | | 149,300,286 | | | | 1,180,909 | | | | 0.79 | % | | | 137,126,860 | | | | 3,113,856 | | | | 2.27 | % | | | 146,235,035 | | | | 2,789,459 | | | | 1.91 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other non-interest-bearing funds | | | 638,162 | | | | - | | | | | | | | 181,382 | | | | - | | | | | | | | 100,509 | | | | - | | | | | |
| Capital | | | 7,976,474 | | | | - | | | | | | | | 7,272,455 | | | | - | | | | | | | | 7,773,530 | | | | - | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Funding | | $ | 157,914,922 | | | $ | 1,180,909 | | | | | | | $ | 144,580,697 | | | $ | 3,113,856 | | | | | | | $ | 154,109,074 | | | $ | 2,789,459 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Interest Income/Spread | | | | | | $ | 752,956 | | | | 0.43 | % | | | | | | $ | 667,090 | | | | 0.35 | % | | | | | | $ | 797,025 | | | | 0.42 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Interest Margin | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Net interest income/Earning Assets) | | | | | | | | | | | 0.48 | % | | | | | | | | | | | 0.46 | % | | | | | | | | | | | 0.52 | % |
| (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. |
Rate and Volume Analysis — 2020, 2019 and 2018
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 10.5 | Rate and Volume Analysis |
| | | For the years ended | |
| | | December 31, 2020 vs. December 31, 2019 | |
| | | Increase (Decrease) | |
| | | Volume | | | Rate | | | Total | |
| Interest Income | | | | | | | | | | | | |
| Advances | | $ | 310,745 | | | $ | (1,670,662 | ) | | $ | (1,359,917 | ) |
| Interest bearing deposits and others | | | 5,967 | | | | (6,913 | ) | | | (946 | ) |
| Federal funds sold and other overnight funds | | | (85,347 | ) | | | (258,242 | ) | | | (343,589 | ) |
| Investments | | | | | | | | | | | | |
| Trading securities | | | 80,842 | | | | (74,645 | ) | | | 6,197 | |
| Mortgage-backed securities | | | | | | | | | | | | |
| Fixed | | | 32,958 | | | | (28,076 | ) | | | 4,882 | |
| Floating | | | (39,229 | ) | | | (86,515 | ) | | | (125,744 | ) |
| State and local housing finance agency obligations | | | (1,065 | ) | | | (17,508 | ) | | | (18,573 | ) |
| Mortgage loans held-for-portfolio | | | 3,744 | | | | (13,003 | ) | | | (9,259 | ) |
| Loans to other FHLBanks | | | (90 | ) | | | (42 | ) | | | (132 | ) |
| | | | | | | | | | | | | |
| Total interest income | | | 308,525 | | | | (2,155,606 | ) | | | (1,847,081 | ) |
| | | | | | | | | | | | | |
| Interest Expense | | | | | | | | | | | | |
| Consolidated obligation bonds | | | | | | | | | | | | |
| Fixed | | | 124,223 | | | | (363,811 | ) | | | (239,588 | ) |
| Floating | | | (202,110 | ) | | | (608,555 | ) | | | (810,665 | ) |
| Consolidated obligation discount notes | | | 289,773 | | | | (1,152,485 | ) | | | (862,712 | ) |
| Deposits and borrowings | | | 5,110 | | | | (24,948 | ) | | | (19,838 | ) |
| Mandatorily redeemable capital stock | | | (95 | ) | | | (49 | ) | | | (144 | ) |
| | | | | | | | | | | | | |
| Total interest expense | | | 216,901 | | | | (2,149,848 | ) | | | (1,932,947 | ) |
| | | | | | | | | | | | | |
| Changes in Net Interest Income | | $ | 91,624 | | | $ | (5,758 | ) | | $ | 85,866 | |
| | | For the years ended | |
| | | December 31, 2019 vs. December 31, 2018 | |
| | | Increase (Decrease) | |
| | | Volume | | | Rate | | | Total | |
| Interest Income | | | | | | | | | | | | |
| Advances | | $ | (300,400 | ) | | $ | 305,022 | | | $ | 4,622 | |
| Interest bearing deposits and others | | | 4,164 | | | | (23 | ) | | | 4,141 | |
| Federal funds sold and other overnight funds | | | (50,692 | ) | | | 67,026 | | | | 16,334 | |
| Investments | | | | | | | | | | | | |
| Trading securities | | | 129,927 | | | | 11,244 | | | | 141,171 | |
| Mortgage-backed securities | | | | | | | | | | | | |
| Fixed | | | 43,049 | | | | 7,192 | | | | 50,241 | |
| Floating | | | (56,079 | ) | | | 27,962 | | | | (28,117 | ) |
| State and local housing finance agency obligations | | | (968 | ) | | | 3,259 | | | | 2,291 | |
| Mortgage loans held-for-portfolio | | | 3,685 | | | | 59 | | | | 3,744 | |
| Loans to other FHLBanks | | | 5 | | | | 30 | | | | 35 | |
| | | | | | | | | | | | | |
| Total interest income | | | (227,309 | ) | | | 421,771 | | | | 194,462 | |
| | | | | | | | | | | | | |
| Interest Expense | | | | | | | | | | | | |
| Consolidated obligation bonds | | | | | | | | | | | | |
| Fixed | | | 69,107 | | | | 82,298 | | | | 151,405 | |
| Floating | | | (398,805 | ) | | | 237,335 | | | | (161,470 | ) |
| Consolidated obligation discount notes | | | 133,427 | | | | 197,316 | | | | 330,743 | |
| Deposits and borrowings | | | 1,912 | | | | 2,392 | | | | 4,304 | |
| Mandatorily redeemable capital stock | | | (513 | ) | | | (72 | ) | | | (585 | ) |
| | | | | | | | | | | | | |
| Total interest expense | | | (194,872 | ) | | | 519,269 | | | | 324,397 | |
| | | | | | | | | | | | | |
| Changes in Net Interest Income | | $ | (32,437 | ) | | $ | (97,498 | ) | | $ | (129,935 | ) |
Interest Income — 2020, 2019 and 2018
Interest income from advances is our principal source of interest income. We also earn interest income from investments in mortgage-backed securities, mortgage loans held-for-portfolio, U.S. Treasury securities held for liquidity, and federal funds and repurchase agreements held for liquidity. Changes in both interest rate and intermediation volume (average interest-yielding assets) explain the change in the current year compared to the prior year.
Reported interest income includes the impact of ASC 815 qualifying hedges. Although, the fair value impact of hedging (fair value of hedged items minus the fair value of hedging derivatives) was not significant, a reflection of highly-effective hedging relationships, 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 benchmark indices, SOFR LIBOR and Fed funds, although we are transitioning away from LIBOR. The interest settlements (swap accruals) and fair value changes of hedged advances and MBS minus fair values of the hedging swaps are included in reported Interest income.
Reported interest income also includes prepayment fees, primarily fees recorded when advances are prepaid ahead of their contractual maturities.
The principal categories of Interest Income are summarized below (dollars in thousands):
| Table 10.6 | Interest Income — Principal Sources |
| | | Years ended December 31, | | | Percentage | | | Percentage | |
| | | | | | | | | | | | Change | | | Change | |
| | | 2020 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | |
| Interest Income | | | | | | | | | | | | | | | | | | | | |
| Advances | | $ | 1,166,745 | | | $ | 2,526,662 | | | $ | 2,522,040 | | | | (53.82 | )% | | | 0.18 | % |
| Interest-bearing deposits | | | 3,615 | | | | 4,561 | | | | 420 | | | | (20.74 | ) | | | 985.95 | |
| Securities purchased under agreements to resell | | | 28,573 | | | | 178,565 | | | | 78,341 | | | | (84.00 | ) | | | 127.93 | |
| Federal funds sold | | | 34,791 | | | | 228,388 | | | | 312,278 | | | | (84.77 | ) | | | (26.86 | ) |
| Trading securities | | | 221,780 | | | | 215,583 | | | | 74,412 | | | | 2.87 | | | | 189.72 | |
| Mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
| Fixed | | | 315,731 | | | | 310,849 | | | | 260,608 | | | | 1.57 | | | | 19.28 | |
| Floating | | | 55,586 | | | | 181,330 | | | | 209,447 | | | | (69.35 | ) | | | (13.42 | ) |
| State and local housing finance agency obligations | | | 15,047 | | | | 33,620 | | | | 31,329 | | | | (55.24 | ) | | | 7.31 | |
| Mortgage loans held-for-portfolio | | | 91,964 | | | | 101,223 | | | | 97,479 | | | | (9.15 | ) | | | 3.84 | |
| Loans to other FHLBanks | | | 33 | | | | 165 | | | | 130 | | | | (80.00 | ) | | | 26.92 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total interest income | | $ | 1,933,865 | | | $ | 3,780,946 | | | $ | 3,586,484 | | | | (48.85 | )% | | | 5.42 | % |
Interest Income — 2020 Vs. 2019
Our interest revenues are generated from an asset mix of long-term assets, such as fixed-rate advances, long-term fixed- and floating-rate investments, long-term 15-year and 30-year mortgage loans, and revenues generated from portfolios of overnight and short-term assets and U.S. Treasury securities held for liquidity.
In response to macroeconomic concerns resulting from the COVID-19 pandemic, the Federal Reserve decreased its benchmark short-term interest rate in March 2020 to a range of 0.0% to 0.25%, a decrease of 150 basis points. In subsequent meetings through the fourth quarter of 2020, the Federal Reserve has maintained its target rates as unchanged. These decreases were in addition to the three rate cuts implemented during calendar 2019. Our overnight and short-term advances and assets and floating-rate investments are particularly sensitive to changes in market yields, and such assets have rapidly repriced to lower market yields in each successive 2020 quarter.
Interest income in 2020 was $1.9 billion, a decline of $1.8 billion, or 48.9 % compared to the prior year. To provide context, interest expense declined by 62.1% compared to the prior year.
Interest revenues earned from higher balance sheet earning assets (primarily the increase in volume of advance business) made a small favorable revenue increase of $308.5 million, offset entirely by yield (rate) related revenue decline of $2.2 billion. In successive 2020 quarters, we have reported declining interest revenues: first quarter revenue was $740.1 million; second quarter was $502.3 million; third and fourth quarter revenues were $354.7 million and $336.8 million, respectively.
Yields earned on assets declined sharply in the periods after FOMC rate actions in March 2020. Aggregate yield earned on earning assets in 2020 was 122 basis points, compared to 262 basis points in the prior year. In successive 2020 quarters, earned yields have declined. Interest income yielded 190 basis points in the first quarter of 2020, 116 basis points in the second quarter, and 90 basis points and 93 basis points in the third and fourth quarters, respectively, illustrating the impact to our yields due to the dramatic and rapid decline in rates triggered by Federal Reserve’s accommodative fiscal relief measures.
The more significant revenue categories are discussed below. For information about the effects of changes in rates and business volume, see Table 10.4 Spread and Yield Analysis and Table 10.5 Rate and Volume analysis.
Advance — Interest income from advances declined by 53.8% in 2020, compared to the prior year.
Advance transaction volume, as measured by average balance, was $109.1 billion in 2020, compared to $95.8 billion in the prior year. The pre-pandemic par balance of $93.0 billion at February 2020, surged to $134.4 billion at March 31, 2020, a 44.5% increase within a few weeks. However, soon after, advance balances began to decline, gradually at first, when members did not roll over maturing short-term funds and prepaid advances ahead of maturities, followed by significant prepayments late in the fourth quarter. We ended the year with par advances at $90.7 billion, compared to $100.4 billion at the beginning of the year.
Higher transaction volume in 2020 resulted in a favorable impact of $310.7 million on interest income from advances, relatively small compared to $1.7 billion decline in interest income due to the very low prevailing market yields. In summary, declining market interest rates negatively impacted yields earned from advances, primarily on overnight and short-term advances and variable-rate advances that reset to lower rates. Advances yielded 107 basis points in 2020, down from 264 basis points in the prior year. Yields declined through the quarters in 2020: 182 basis points and 105 basis points in the first and second quarters, respectively; and, 70 basis points and 74 basis points in the third and fourth quarters, respectively. Prepayment fee recorded in Interest income from advances was $45.3 million in 2020, up from $23.7 million in the prior year.
Declining benchmark rates (LIBOR, SOFR and FF-OIS) caused swap interest settlement cash flows to turn negative in 2020, reducing interest income earned on fixed-rate advances net of the hedging effects that synthetically converted the fixed yield to a variable yield. Swap interest settlements on swaps hedging fixed-rate advances recorded a net loss of $360.0 million in 2020, compared to a net positive contribution of $170.5 million in the prior year. In a fair value hedge of advances under ASC 815, we pay to swap counterparties fixed-rate coupons; in exchange, we received the declining floating-rate cash flows, negatively impacting yields, although preserving our hedging objectives of converting fixed cash flows to variable cash flows. The impact on interest income from changes in fair values in the ASC 815 hedging was not material in 2020 and 2019.
Liquidity Investments — Money Market Investments and U.S. Treasury Securities — We derive interest income from inventorying highly-liquid portfolios of investments to meet liquidity regulatory requirements. Interest income from overnight invested funds, specifically federal funds sold and repurchase agreements, declined due to lower invested balances and sharp declines in market yields in 2020 compared to the prior year. Investments in federal funds and repurchase agreements yielded 46 basis points in aggregate in 2020, compared to 219 basis points in the prior year. Interest income from fixed-rate U.S. Treasury securities was $221.8 million in 2020, up from $215.6 million in the prior year benefiting from higher average invested balances; although yields declined to 166 basis points, compared to 235 basis points in the prior year. The lower yields on the fixed-rate securities reflected lower yields on new acquisitions. The liquidity trading portfolio is comprised primarily of medium-term, highly liquid fixed-rate U.S. Treasury securities that are available to enhance and meet our liquidity objectives; securities are not acquired for speculative purpose.
The earnings impact due to changes in market values of the securities outstanding (unrealized gains and losses) and realized gains and losses on securities sold are recorded in Other income (below the margin) and are noted in Table 10.11 Net Gains (Losses) on Trading Securities Recorded in the Statements of Income, and discussions thereto. Fixed-rate treasury securities are hedged under economic hedges utilizing swap contracts to synthetically convert fixed cash flows to variable cash flows. The interest settlements on the swaps and changes in the fair values of the swap contracts are recorded in Other income (below the margin); our accounting policies require us to record in Other income the cash flows and fair values on hedging that do not qualify under ASC 815 hedging (economic hedges).
Mortgage-backed-securities
Interest income from floating-rate MBS declined by 69.3% year-over-year in line with falling rates and declining inventory. 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. Until GSE-issued floating-rate SOFR-indexed MBS become widely traded, we will likely continue to see declining balances of variable-rate MBS.
Interest income from fixed-rate MBS increased a little in 2020 relative to the prior year, benefitting from increase in invested balances, partly offset by decline in interest revenues due to lower aggregate yield, which was 281 basis points in 2020, down from 307 basis points in the prior year. Our acquisitions of fixed-rate MBS have been constrained. The Federal Reserve purchases of Fannie and Freddie securities have driven down yields, so that target acquisitions would not always meet our risk/reward targets. Transaction volume of fixed-rate MBS, as measured by average outstanding balance was $11.2 billion in 2020, compared to $10.1 billion in the prior year.
In 2020, our acquisitions were primarily fixed-rate commercial-mortgage backed securities (CMBS). We utilized the swap market to synthetically create variable-rate cash flows indexed to SOFR and Federal funds applying ASC 815 fair value accounting hedge treatment. The impact to interest income from changes in fair values in the ASC 815 hedging was not material in 2020 and 2019.
Mortgage loans held-for-portfolio — Interest income from mortgage loans (MPF program) was $92.0 million in 2020, compared to $101.2 million in the prior year. Investment volume has remained almost flat, with paydowns exceeding acquisitions. MPF loans are primarily 15 and 30-year conventional loans. The portfolio averaged $3.1 billion, yielding 294 basis points in 2020, compared to 336 basis points in the prior year. In the declining interest rate environment, we are observing elevated levels of prepayments, causing accelerated amortization of premiums, specifically on 20-year and 30-year high-balance mortgage loans. Net amortization expense was $13.2 million in 2020, compared to net amortization of $6.3 million in the prior year. The Bank’s portfolio is largely at a premium price and amortization is sensitive to changes in prepayment speeds particularly in a volatile interest rate environment. The Bank does not hedge mortgage loans in an ASC 815 hedge or an economic hedge.
As noted in the audited financial statements under Note 1. Critical Accounting Policies and Estimates, we have implemented a new mortgage program, the Mortgage Asset Program sm (MAP) and plan to roll it out fully in late March 2021. At December 31, 2020, mortgage loans under MAP were $0.3 million. Effective March 31, 2021, we will cease to accept mortgage commitments to purchase loans under the MPF program; the MAP will become our alternative to MPF. The outstanding MPF portfolio will continue to be serviced, managed under its existing contractual and customary agreements and contracts.
Interest Income — 2019 Vs. 2018
Interest income was higher in 2019 by $194.5 million, or 5.4%, in 2019, compared to 2018. In the first six months of 2019, interest income grew 21.8% compared to the same six month period in 2018, despite the effects of lower pricing on advances and declining advance balances, the increase in interest income primarily driven by higher market yields earned in the 2019 periods prior to FOMC rate cuts in July and September 2019. In the last six months of 2019, interest income declined by 8.6%, compared to the same last six months in 2018. FOMC rate cuts in late July and September in 2019 impacted yields on assets, as did the lagged impact of pricing reduction, specifically on short-term advances that repriced to lower coupons.
Impact of hedging on Interest income from advances — 2020, 2019 and 2018
Declining interest rates unfavorably impacted interest accrual (swap interest settlements) on swap contracts in ASC 815 hedges of fixed-rate advances in 2020. The fair value hedging impact was not material.
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 to a benchmark rate. 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.
The table below summarizes interest income earned from advances and the impact of interest rate derivatives (in thousands):
| Table 10.7 | Impact of Interest Rate Swaps on Interest Income Earned from Advances |
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Advance interest income | | | | | | | | | | | | |
| Advance interest income before adjustment for interest rate swaps | | $ | 1,527,613 | | | $ | 2,355,337 | | | $ | 2,331,643 | |
| Fair value hedging effects | | | (330 | ) | | | 929 | | | | - | |
| Amortization of basis | | | (557 | ) | | | (56 | ) | | | 88 | |
| Interest rate swap accruals | | | (359,981 | ) | | | 170,452 | | | | 190,309 | |
| Total advance interest income reported | | $ | 1,166,745 | | | $ | 2,526,662 | | | $ | 2,522,040 | |
Interest Expense
Our primary source of funding is the issuance of Consolidated obligation bonds and discount notes to investors in the global debt markets issued through the Office of Finance, the FHLBank’s fiscal agent. Consolidated obligation bonds are generally medium- and long-term bonds, while Consolidated obligation 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.
Derivative strategies are used to manage the interest rate risk inherent in fixed-rate debt. We execute our strategies by converting the fixed-rate funding to floating-rate debt using swap contracts indexed to a risk-free benchmark interest rate. Our adopted hedging benchmarks are OIS/SOFR, LIBOR and OIS/FF. We are transitioning away from LIBOR to OIS/SOFR benchmark in line with an industry-wide transition effort. For ASC 815 qualifying hedges of debt, swap interest settlements and fair value gains and losses are recorded in interest expense together with the interest expense accrued on the hedged CO debt.
For more information about our hedging results, see discussions below “Impact of Hedging on Interest Expense on debt in 2020, 2019 and 2018 and Table 10.9 Impact of Interest Rate Swaps on Consolidated Obligations Interest Expense.
The principal categories of Interest expense are summarized below (dollars in thousands):
| Table 10.8 | Interest Expenses — Principal Categories |
| | | Years ended December 31, | | | Percentage | | | Percentage | |
| | | | | | | | | | | | Change | | | Change | |
| | | 2020 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | |
| Interest Expense | | | | | | | | | | | | | | | | | | | | |
| Consolidated obligations bonds | | | | | | | | | | | | | | | | | | | | |
| Fixed | | $ | 467,820 | | | $ | 707,408 | | | $ | 556,003 | | | | (33.87 | )% | | | 27.23 | % |
| Floating | | | 280,094 | | | | 1,090,759 | | | | 1,252,229 | | | | (74.32 | ) | | | (12.89 | ) |
| Consolidated obligations discount notes | | | 428,864 | | | | 1,291,576 | | | | 960,833 | | | | (66.80 | ) | | | 34.42 | |
| Deposits | | | 3,768 | | | | 22,839 | | | | 17,816 | | | | (83.50 | ) | | | 28.19 | |
| Mandatorily redeemable capital stock | | | 235 | | | | 379 | | | | 964 | | | | (37.99 | ) | | | (60.68 | ) |
| Cash collateral held and other borrowings | | | 128 | | | | 895 | | | | 1,614 | | | | (85.70 | ) | | | (44.55 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total interest expense | | $ | 1,180,909 | | | $ | 3,113,856 | | | $ | 2,789,459 | | | | (62.08 | )% | | | 11.63 | % |
Interest Expense — 2020 Vs. 2019
Interest expense in 2020 was $1.2 billion, a decline of $1.9 billion or 62.1% compared to the prior year. The decline was in parallel with the significant decline in bond yields in the financial markets. Rate-related funding expense declined by $2.1 billion in line with the dramatic decline in rates in the bond markets triggered primarily by the range of actions undertaken by the FOMC and the U.S. administration. Volume-related funding expense increased by $216.9 million due to funding the higher balance sheet assets in 2020.
Funding the substantial increase in member borrowings beginning in mid-March 2020 was largely accommodated by the issuances of CO discount notes, which have maturities up to a 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. Discount notes supplemented fixed-rate bullet CO bonds, fixed-rate callable CO bonds and floating-rate CO bonds, which were also utilized in our funding strategies. 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 fourth quarter of 2020, the funding ratio was 43.3% as markets stabilized and we re-balanced our funding profile.
Fixed-rate CO bond costing yield was 131 basis points in 2020, compared to 238 basis points in the prior year; costing yield on CO floating-rate notes was 75 basis points in 2020, compared to 228 basis points in the prior year.
Funding expenses also benefitted from favorable pricing of discount notes as investors sought out the high-credit quality and flexibility offered by CO discount notes; favorable investor sentiments and a declining rate environment had a dramatic effect of driving down CO discount note costing, which declined to 57 basis points in 2020, compared to 221 basis points in the prior year.
We made other tactical changes to our asset/liability postures to respond to changing market conditions, including increased execution of interest-rate swaps to protect our spreads and margins. We converted indexes on certain of our variable-rate liabilities, executing basis swaps to optimize the management of such changes. We employed interest rate hedging strategies to also mitigate the risk posed by volatile interest rate market movements. 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/SOFR as the alternative hedging benchmarks.
Interest Expense — 2019 Vs. 2018
Interest expense in 2019 increased by $324.4 million, or 11.6% from 2018. Interest expense in 2019, relative to 2018 was higher in large part due to the higher market rates in the debt markets in the first half of 2019, before the FOMC action to lower rates in July and September of 2019. After the FOMC actions, costing yields declined with the general decline in CO debt yields. The weighted average costing yields on discount notes was 244 basis points in the first half of 2019. On a full year basis, costing yields in 2019 declined to 221 basis points post FOMC actions. Similar fluctuations were observable for floating-rate debt and for short-term fixed-rate CO bonds issued post Fed rate actions in 2019.
Impact of Hedging on Interest Expense on Debt — 2020, 2019 and 2018
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 variable-rate. We also create synthetic long-term fixed-rate funding to fund long-term investments, utilizing a Cash Flow hedging strategy under ASC 815. The strategy converts the variability of forecasted long-term fixed-rate discount notes to variable-rate funding using 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.
Declining interest rates in 2020 favorably impacted net interest settlements on fair value hedges on debt; interest settlements (also referred to as interest accruals) 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 was in 2020, cash flows paid would be generally lower than the fixed cash flows received, and the impact of interest settlements has been significant from time to time. Interest settlements or accruals are recorded as a reduction of interest expense on debt (favorable impact) if payments to swap counterparties are less than fixed-rate interest receipts. Fair values are also recorded within interest expense on debt hedges qualifying under ASC 815. The impact of changes in fair values were not been material.
The impact of hedging debt reported a net gain of $70.1 million (reduced interest expense) in 2020, compared to a net loss of $7.9 million and $45.9 million in 2019 and 2018, respectively. The primary driver in 2020 was net interest settlements on the hedging swaps that benefitted from declining payments to swap counterparties in a low interest rate environment. 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.
The table below summarizes interest expense paid on Consolidated obligation bonds and discount notes and the impact of interest rate swaps (in thousands):
| Table 10.9 | Impact of Interest Rate Swaps on Consolidated Obligations Interest Expense |
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Bonds and discount notes - interest expense | | | | | | | | | | | | |
| Bonds - interest expense before adjustment for swaps | | $ | 854,285 | | | $ | 1,799,624 | | | $ | 1,779,595 | |
| Discount notes - interest expense before adjustment for swaps | | | 397,458 | | | | 1,285,793 | | | | 949,313 | |
| Fair value hedging effect on CO bonds | | | 1,302 | | | | 2,220 | | | | - | |
| Fair value hedging effect on discount notes | | | (539 | ) | | | (219 | ) | | | - | |
| Amortization of basis adjustments on CO bonds | | | (5,897 | ) | | | (5,753 | ) | | | (5,729 | ) |
| Amortization of basis adjustments on discount notes | | | 271 | | | | 195 | | | | - | |
| Net interest adjustment for swaps hedging CO bonds | | | (101,777 | ) | | | 2,076 | | | | 34,366 | |
| Net interest adjustment for swaps hedging discount notes | | | 31,675 | | | | 5,807 | | | | 11,520 | |
| Total bonds and discount notes - interest expense | | $ | 1,176,778 | | | $ | 3,089,743 | | | $ | 2,769,065 | |
Allowance for Credit Losses — 2020, 2019 and 2018
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 on January 1, 2020 did not have a material impact on our financial condition or cash flows. In 2020, we recorded a total provision (as a charge against earnings in the Statements of Income) of $3.7 million under the CECL guidance, primarily against our mortgage-loan portfolio. In the prior year, a de minimis recovery of $0.1 million was recorded based on pre-CECL policies. Rising delinquencies driven by COVID-19 forbearance programs were largely the basis for the increase in provision.
Allowance for credit losses recorded on mortgage-loans in the Statements of Condition was $7.1 million at December 31, 2020, compared to $0.7 million at December 31, 2019. Allowance for credit losses recorded on investments was $1.0 million at December 31, 2020. No allowance was necessary on advances, other assets, and commitments.
Analysis of Non-Interest Income (Loss) — 2020, 2019 and 2018
The principal components of non-interest income (loss) are summarized below (in thousands):
| Table 10.10 | Other Income (Loss) |
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Other income (loss): | | | | | | | | | | | | |
| Service fees and other (a) | | $ | 17,924 | | | $ | 18,224 | | | $ | 18,442 | |
| Instruments held under the fair value option gains (losses) (b) | | | 123 | | | | (4,146 | ) | | | 209 | |
| Total OTTI losses | | | - | | | | - | | | | (398 | ) |
| Net amount of impairment losses reclassified to (from) | | | | | | | | | | | | |
| Accumulated other comprehensive income (loss) | | | - | | | | (640 | ) | | | 257 | |
| Derivative gains (losses) (c) | | | (151,709 | ) | | | (40,720 | ) | | | (40,778 | ) |
| Trading securities gains (losses) (d) | | | 72,826 | | | | 51,327 | | | | 3,216 | |
| Equity investments gains (losses) (e) | | | 9,792 | | | | 9,843 | | | | (4,819 | ) |
| Litigation settlement | | | 225 | | | | - | | | | - | |
| Total other income (loss) | | $ | (50,819 | ) | | $ | 33,888 | | | $ | (23,871 | ) |
| (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. Letters of credit are generally issued on behalf of members to units of state and local governments to collateralize their deposits at member banks. Fee income earned on financial letters of credit was $19.0 million in 2020, compared to $17.9 million in 2019 and $15.3 million in 2018. Immaterial amounts of fees paid, and other expenses were included in reported revenues. |
| (b) | FVO Instruments — Net fair value gains and losses represented changes in fair values of CO bonds and discount notes elected under the FVO. Fluctuations in fair value gains and losses were reflective of the short-term nature of instruments elected under the FVO that fluctuated with declining market yields. For more information, see Fair Value Option Disclosures in Note 18. Fair Values of Financial Instruments in the audited financial statements in this Form 10-K. |
| (c) | See Table 10.12. Other Income (Loss) — Impact of Derivative Gains and Losses. |
| (d) | Net gains (losses) on Trading securities — Recorded net gains include both unrealized and realized gains and losses. See Table 10.11 below for sources of gains and losses. U.S. Treasury securities balances were $11.7 billion and $15.3 billion at December 31, 2020 and 2019, respectively. We have invested in short- and medium-term fixed-rate U.S. Treasury securities. The securities are not held for speculative trading, rather held to satisfy liquidity requirements. 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):
| | Table 10.11 | Net Gains (Losses) on Trading Securities Recorded in the Statements of Income (a) |
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Net unrealized gains (losses) on trading securities held at period-end | | $ | 34,527 | | | $ | 49,402 | | | $ | 2,494 | |
| Net realized gains (losses) on trading securities sold/matured during the period | | | 38,299 | | | | 1,925 | | | | 722 | |
| Net gains (losses) on trading securities | | $ | 72,826 | | | $ | 51,327 | | | $ | 3,216 | |
| (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. |
Other income (loss) — Derivatives and Hedging Activities — 2020, 2019 and 2018
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):
| Table 10.12 | Other Income (Loss) — Impact of Derivative Gains and Losses (in thousands) |
| | | Impact on Other Income (Loss) | |
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Derivatives designated as hedging instruments under ASC 815 interest rate swaps | | | | | | | | | |
| Advances | | | | | | | | | | $ | 1,255 | |
| Consolidated obligation bonds | | | | | | | | | | | (1,758 | ) |
| Net gains (losses) related to fair value hedges | | | | | | | | | | | (503 | ) |
| Cash flow hedges | | | | | | | | | | | (278 | ) |
| ASC 815 hedging impact | | | | | | | | | | $ | (781 | ) |
| | | | | | | | | | | | | |
| Derivatives not designated as hedging instruments | | | | | | | | | | | | |
| Interest rate swaps (a) | | $ | (64,012 | ) | | $ | (29,688 | ) | | $ | (9,863 | ) |
| Caps or floors | | | (6 | ) | | | (599 | ) | | | (268 | ) |
| Mortgage delivery commitments | | | 1,693 | | | | 709 | | | | (145 | ) |
| Swaps economically hedging instruments designated under FVO (b) | | | 3,945 | | | | 1,359 | | | | (414 | ) |
| Accrued interest on derivatives in economic hedging relationships (c) | | | (93,691 | ) | | | (12,501 | ) | | | (17,125 | ) |
| Net gains (losses) related to derivatives not designated as hedging instruments | | $ | (152,071 | ) | | $ | (40,720 | ) | | $ | (27,815 | ) |
| Price alignment interest paid on variation margin | | | 362 | | | | - | | | | (12,182 | ) |
| Net gains (losses) on derivatives and hedging activities | | $ | (151,709 | ) | | $ | (40,720 | ) | | $ | (40,778 | ) |
Derivative losses and gains in the table above include both realized and unrealized fair value net gains and losses. Also, includes 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 noted in the table above.
| (a) | Represents fair value changes recorded in Other income, primarily: (1) interest rate swaps in economic hedges of U.S. Treasury fixed-rate securities recorded derivative fair value losses of $80.7 million in 2020, compared to losses of $33.2 million and $1.7 million in 2019 and 2018, respectively. The swaps are structured to mitigate the volatility of price changes of the liquidity portfolio of fixed-rate U.S. Treasury notes. To provide context, the net unrealized gain on securities marked-to-market was $34.8 million at December 31, 2020, $50.0 million and $3.4 million in 2019 and 2018, respectively. For more information, see Note 5. Trading Securities in audited financial statements included in this Form 10-K, (2) Interest rate swaps in economic hedges of advances and debt, primarily basis swaps, which generated net fair value gains of $16.7 million in 2020, compared to net gains of $3.5 million and net losses of $8.2 million in 2019 and 2018, respectively. |
| (b) | Represents fair value changes recorded in Other income on interest rate swaps hedging CO debt elected under the FVO. |
| (c) | Represents impact on Other income due to net interest settlements on standalone swap contracts. Net interest settlements are the interest accruals on swaps in economic hedges and are recorded in Other Income (Loss). The adverse impact has grown in 2020 as our payments to swap counterparties continue to exceed amounts we receive in the interest rate swap contracts, although the exchanges met our interest rate risk mitigation strategies. |
Operating Expenses, Compensation and Benefits, and Other Expenses — 2020, 2019 and 2018
The following table sets forth the major categories of operating expenses (dollars in thousands):
| | Table 10.13 | Operating Expenses, and Compensation and Benefits |
| | | Years ended December 31, | |
| | | 2020 | | | Percentage of
Total | | | 2019 | | | Percentage of
Total | | | 2018 | | | Percentage of
Total | |
| Operating Expenses (a) | | | | | | | | | | | | | | | | | | | | | | | | |
| Occupancy | | $ | 9,510 | | | | 13.62 | % | | $ | 8,305 | | | | 13.23 | % | | $ | 8,211 | | | | 17.15 | % |
| Depreciation and leasehold amortization | | | 10,669 | | | | 15.29 | | | | 8,773 | | | | 13.97 | | | | 5,492 | | | | 11.47 | |
| All others (b) | | | 49,627 | | | | 71.09 | | | | 45,704 | | | | 72.80 | | | | 34,179 | | | | 71.38 | |
| Total Operating Expenses | | $ | 69,806 | | | | 100.00 | % | | $ | 62,782 | | | | 100.00 | % | | $ | 47,882 | | | | 100.00 | % |
| Total Compensation and Benefits (c) | | $ | 100,200 | | | | | | | $ | 88,192 | | | | | | | $ | 78,950 | | | | | |
| Finance Agency and Office of Finance (d) | | $ | 19,392 | | | | | | | $ | 16,752 | | | | | | | $ | 15,874 | | | | | |
| Other expenses (e) | | $ | 17,453 | | | | | | | $ | 8,254 | | | | | | | $ | 7,959 | | | | | |
| (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 in 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 $8.0 million in 2020 that were disbursed to assist small businesses impacted by COVID-19 pandemic; also included the non-service elements of Net periodic pension benefit costs, and derivative clearing fees. |
Assessments — 2020, 2019 and 2018
For more information about assessments, see Affordable Housing Program and Other Mission Related Programs and Assessments under Part I Item 1 Business in this Form 10-K.
The following table provides rollforward information with respect to changes in Affordable Housing Program liabilities (in thousands):
| Table 11.1 | Affordable Housing Program Liabilities |
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Beginning balance | | $ | 153,894 | | | $ | 161,718 | | | $ | 131,654 | |
| Additions from current period's assessments | | | 49,180 | | | | 52,552 | | | | 62,382 | |
| Net disbursements for grants and programs | | | (54,247 | ) | | | (60,376 | ) | | | (32,318 | ) |
| Ending balance | | $ | 148,827 | | | $ | 153,894 | | | $ | 161,718 | |
AHP assessments allocated from net income totaled $49.2 million in 2020, compared to $52.6 million and $62.4 million in 2019 and 2018. Assessments are calculated as a percentage of Net income, and the changes in allocations were in parallel with changes in Net income.
| Item 7A. | 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 December 31, 2020 for completeness and comparative purposes. The Bank has updated modeling and implemented scenario changes to take account of the existing low rate environment and potential for negative rates in 2021. 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 gauges 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. Both of these quarterly observations are well within their limits. |
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 | |
| December 31, 2020 | | | -0.47 | | | | 1.12 | | | | 0.31 | | | | 0.24 | |
| September 30, 2020 | | | -0.64 | | | | 1.03 | | | | 0.49 | | | | 0.03 | |
| June 30, 2020 | | | -1.86 | | | | 0.24 | | | | -0.08 | | | | 0.49 | |
| March 31, 2020 | | | -3.18 | | | | -0.12 | | | | -0.91 | | | | -0.17 | |
| December 31, 2019 | | | -0.87 | | | | 0.12 | | | | -2.11 | | | | 0.37 | |
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, and have set a 10 percent 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 | |
| December 31, 2020 | | $ | 5.792 Billion | |
| September 30, 2020 | | $ | 5.826 Billion | |
| June 30, 2020 | | $ | 5.589 Billion | |
| March 31, 2020 | | $ | 6.299 Billion | |
| December 31, 2019 | | $ | 5.936 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 subsequent quarters, the 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 has updated its 2021 modelling framework to account for the existing low rate environment and potential negative rates.
| | | Sensitivity in
the -200bps
Shock | | | Sensitivity in
the -100bps
Shock | | | Sensitivity in
the +200bps
Shock | |
| December 31, 2020 | | | N/A | | | | -5.52 | % | | | 7.65 | % |
| September 30, 2020 | | | N/A | | | | -4.36 | % | | | 3.27 | % |
| June 30, 2020 | | | N/A | | | | -23.83 | % | | | -1.62 | % |
| March 31, 2020 | | | N/A | | | | -47.79 | % | | | 12.14 | % |
| December 31, 2019 | | | -32.91 | % | | | -5.55 | % | | | 6.96 | % |
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 developed an improved, repeatable and more complete monthly process to report the non-interest-bearing component of the Bank’s MVE starting December 2020. The Bank concludes there is an immaterial impact to historical MVE sensitivity measures as reported in the Bank’s, Item 3 of the10Q for the periods March 2020, June 2020 and September 2020 and Item 7A of the Bank’s 10K for the period ending December 2019. The Bank is including these metrics as of December 31, 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 | |
| December 31, 2020 | | | 0.78 | % | | | 0.21 | % | | | 1.00 | % |
| September 30, 2020 | | | 1.95 | % | | | 1.27 | % | | | 1.24 | % |
| June 30, 2020 | | | 2.47 | % | | | 1.76 | % | | | 2.05 | % |
| March 31, 2020 | | | 2.89 | % | | | 1.32 | % | | | 3.60 | % |
| December 31, 2019 | | | -1.93 | % | | | -1.60 | % | | | 0.19 | % |
As noted, the potential declines under these shocks are within our limits of a maximum 10 percent.
With regard to KRD interest rate exposure limits, the Bank remained in compliance with these limits in 2020.
The following tables display the portfolio’s maturity/re-pricing gaps as of December 31, 2020 and December 31, 2019 (in millions):
| | | Interest Rate Sensitivity | |
| | | December 31, 2020 | |
| | | | | | More Than | | | More Than | | | More Than | | | | |
| | | Six Months | | | Six Months to | | | One Year to | | | Three Years to | | | More Than | |
| | | or Less | | | One Year | | | Three Years | | | Five Years | | | Five Years | |
| Interest-earning assets: | | | | | | | | | | | | | | | | | | | | |
| Non-MBS investments | | $ | 15,119 | | | $ | 447 | | | $ | 733 | | | $ | 309 | | | $ | 905 | |
| MBS investments | | | 4,854 | | | | 608 | | | | 1,749 | | | | 1,670 | | | | 6,068 | |
| Swaps hedging MBS | | | 1,134 | | | | - | | | | - | | | | - | | | | (1,134 | ) |
| Adjustable-rate loans and advances | | | 17,054 | | | | - | | | | - | | | | - | | | | - | |
| Net investments, adjustable rate loans and advances | | | 38,161 | | | | 1,055 | | | | 2,482 | | | | 1,979 | | | | 5,839 | |
| | | | | | | | | | | | | | | | | | | | | |
| Liquidity trading portfolio | | | 6,538 | | | | 3,464 | | | | 1,653 | | | | - | | | | - | |
| Swaps hedging investments | | | 5,105 | | | | (3,450 | ) | | | (1,655 | ) | | | - | | | | - | |
| Net liquidity trading portfolio | | | 11,643 | | | | 14 | | | | (2 | ) | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Fixed-rate loans and advances | | | 36,333 | | | | 4,537 | | | | 13,634 | | | | 8,019 | | | | 11,163 | |
| Swaps hedging fixed-rate advances | | | 34,252 | | | | (4,140 | ) | | | (11,505 | ) | | | (7,477 | ) | | | (11,130 | ) |
| Net fixed-rate loans and advances | | | 70,585 | | | | 397 | | | | 2,129 | | | | 542 | | | | 33 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total interest-earning assets | | $ | 120,389 | | | $ | 1,466 | | | $ | 4,609 | | | $ | 2,521 | | | $ | 5,872 | |
| | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | |
| Deposits | | $ | 1,683 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Discount notes | | | 57,656 | | | | - | | | | - | | | | - | | | | - | |
| Swapped hedging discount notes | | | (1,806 | ) | | | 113 | | | | 85 | | | | 241 | | | | 1,367 | |
| Net discount notes | | | 55,850 | | | | 113 | | | | 85 | | | | 241 | | | | 1,367 | |
| | | | | | | | | | | | | | | | | | | | | |
| Consolidated Obligation Bonds | | | | | | | | | | | | | | | | | | | | |
| FHLBank bonds | | | 37,400 | | | | 11,964 | | | | 12,361 | | | | 2,265 | | | | 5,212 | |
| Swaps hedging bonds | | | 19,719 | | | | (10,666 | ) | | | (7,775 | ) | | | (603 | ) | | | (675 | ) |
| Net FHLBank bonds | | | 57,119 | | | | 1,298 | | | | 4,586 | | | | 1,662 | | | | 4,537 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total interest-bearing liabilities | | $ | 114,652 | | | $ | 1,411 | | | $ | 4,671 | | | $ | 1,903 | | | $ | 5,904 | |
| Post hedge gaps (a): | | | | | | | | | | | | | | | | | | | | |
| Periodic gap | | $ | 5,737 | | | $ | 55 | | | $ | (62 | ) | | $ | 618 | | | $ | (32 | ) |
| Cumulative gaps | | $ | 5,737 | | | $ | 5,792 | | | $ | 5,730 | | | $ | 6,348 | | | $ | 6,316 | |
| | | 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 8. | Financial Statements and Supplementary Data. |
Supplementary Data
Supplementary financial data for each full quarter within the two years ended December 31, 2020 are included in Item 6. Selected Financial Data.
Federal Home Loan Bank of New York
Management’s Report on Internal Control over Financial Reporting
The management of the Federal Home Loan Bank of New York (the “Bank”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Bank’s internal control over financial reporting is designed by, or under the supervision of, the Principal Executive Officer and the Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. The Bank’s management assessed the effectiveness of the Bank’s internal control over financial reporting as of December 31, 2020. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on its assessment, management of the Bank determined that as of December 31, 2020, the Bank’s internal control over financial reporting was effective based on those criteria.
PricewaterhouseCoopers LLP, the Bank’s independent registered public accounting firm that audited the accompanying Financial Statements has also issued an audit report on the effectiveness of internal control over financial reporting. Their report appears on the following page.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of the Federal Home Loan Bank of New York
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying statements of condition of the Federal Home Loan Bank of New York (the “Company”) as of December 31, 2020 and 2019, and the related statements of income, of comprehensive income, of capital and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Interest-Rate Derivatives and Hedged Items
As described in Notes 17 and 18 to the financial statements, the Company uses derivatives to manage its interest rate exposure. The total notional amount of derivatives as of December 31, 2020 was $128 billion, of which 55% were designated as hedging instruments, and the fair value of derivative assets and liabilities as of December 31, 2020 was $37 million and $71 million, respectively. The fair values of interest-rate derivatives and hedged items are primarily estimated using a discounted cash-flow model. The discounted cash-flow model uses market observable inputs such as interest rate curves, volatility, and, if applicable, prepayment assumptions.
The principal considerations for our determination that performing procedures relating to the valuation of interest-rate derivatives and hedged items is a critical audit matter are the significant audit effort in evaluating the interest rate curves, volatility, and, if applicable, prepayment assumptions used to fair value these derivatives and hedged items, and the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the effectiveness of controls relating to the valuation of interest-rate derivatives and hedged items, including controls over the model, data and assumptions. These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in developing an independent range of prices for a sample of interest-rate derivatives and hedged items and comparison of management’s estimate to the independently developed ranges. Developing the independent range of prices involved testing the completeness and accuracy of data provided by management and independently developing the interest rate curves, volatility, and, if applicable, prepayment assumptions.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 19, 2021
We have served as the Company’s auditor since 1990.
Federal Home Loan Bank of New York
Statements of Condition — (In Thousands, Except Par Value of Capital Stock)
As of December 31, 2020 and December 31, 2019
| | | December 31, 2020 | | | December 31, 2019 | |
| Assets | | | | | | | | |
| Cash and due from banks (Note 3) | | $ | 1,896,155 | | | $ | 603,241 | |
| Interest-bearing deposits (Note 4) | | | 685,000 | | | | - | |
| Securities purchased under agreements to resell (Note 4) | | | 4,650,000 | | | | 14,985,000 | |
| Federal funds sold (Note 4) | | | 6,280,000 | | | | 8,640,000 | |
| Trading securities (Note 5) (Includes $630,372 pledged as collateral at December 31, 2020 and $251,177 at December 31, 2019) | | | 11,742,965 | | | | 15,318,809 | |
| Equity Investments (Note 6) | | | 80,369 | | | | 60,047 | |
| Available-for-sale securities, net of unrealized gains (losses) of $280,626 at December 31, 2020 and $97,868 at December 31, 2019 (Note 7) | | | 3,435,945 | | | | 2,653,418 | |
| Held-to-maturity securities, net of allowance for credit losses of $980 at December 31, 2020 (Note 8) (Includes $2,680 pledged as collateral at December 31, 2020 and $3,719 at December 31, 2019) | | | 12,873,646 | | | | 15,234,482 | |
Advances (Note 9) (Includes $0 at December 31, 2020 and December 31, 2019 at fair value under the fair value option) | | | 92,067,104 | | | | 100,695,241 | |
| Mortgage loans held-for-portfolio, net of allowance for credit losses of $7,073 at December 31, 2020 and $653 at December 31, 2019 (Note 10) | | | 2,899,712 | | | | 3,173,352 | |
| Loans to other FHLBanks (Note 20) | | | - | | | | - | |
| Accrued interest receivable | | | 189,454 | | | | 312,559 | |
| Premises, software, and equipment | | | 77,628 | | | | 63,426 | |
| Operating lease right-of-use assets (Note 19) | | | 70,733 | | | | 75,464 | |
| Derivative assets (Note 17) | | | 36,669 | | | | 237,947 | |
| Other assets | | | 11,003 | | | | 9,036 | |
| | | | | | | | | |
| Total assets | | $ | 136,996,383 | | | $ | 162,062,022 | |
| | | | | | | | | |
| Liabilities and capital | | | | | | | | |
| | | | | | | | | |
| Liabilities | | | | | | | | |
| Deposits (Note 11) | | | | | | | | |
| Interest-bearing demand | | $ | 1,677,526 | | | $ | 1,144,519 | |
| Non-interest-bearing demand | | | 70,437 | | | | 34,890 | |
| Term | | | 5,000 | | | | 15,000 | |
| | | | | | | | | |
| Total deposits | | | 1,752,963 | | | | 1,194,409 | |
| | | | | | | | | |
| Consolidated obligations, net (Note 12) | | | | | | | | |
| Bonds (Includes $16,580,464 at December 31, 2020 and $12,134,043 at December 31, 2019 at fair value under the fair value option) | | | 69,716,298 | | | | 78,763,309 | |
| Discount notes (Includes $7,133,755 at December 31, 2020 and $2,186,603 at December 31, 2019 at fair value under the fair value option) | | | 57,658,838 | | | | 73,959,205 | |
| | | | | | | | | |
| Total consolidated obligations | | | 127,375,136 | | | | 152,722,514 | |
| | | | | | | | | |
| Mandatorily redeemable capital stock (Note 14) | | | 2,991 | | | | 5,129 | |
| | | | | | | | | |
| Accrued interest payable | | | 117,982 | | | | 156,889 | |
| Affordable Housing Program (Note 13) | | | 148,827 | | | | 153,894 | |
| Derivative liabilities (Note 17) | | | 70,760 | | | | 32,411 | |
| Other liabilities | | | 186,550 | | | | 175,516 | |
| Operating lease liabilities (Note 19) | | | 84,475 | | | | 89,365 | |
| | | | | | | | | |
| Total liabilities | | | 129,739,684 | | | | 154,530,127 | |
| | | | | | | | | |
| Commitments and Contingencies (Notes 14, 17 and 19) | | | | | | | | |
| | | | | | | | | |
| Capital (Note 14) | | | | | | | | |
| Capital stock ($100 par value), putable, issued and outstanding shares: 53,669 at December 31, 2020 and 57,787 at December 31, 2019 | | | 5,366,830 | | | | 5,778,666 | |
| Retained earnings | | | | | | | | |
| Unrestricted | | | 1,135,341 | | | | 1,115,236 | |
| Restricted (Note 14) | | | 774,275 | | | | 685,798 | |
| Total retained earnings | | | 1,909,616 | | | | 1,801,034 | |
| Total accumulated other comprehensive income (loss) | | | (19,747 | ) | | | (47,805 | ) |
| | | | | | | | | |
| Total capital | | | 7,256,699 | | | | 7,531,895 | |
| | | | | | | | | |
| Total liabilities and capital | | $ | 136,996,383 | | | $ | 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)
Years Ended December 31, 2020, 2019 and 2018
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Interest income | | | | | | | | | | | | |
| Advances, net (Note 9) | | $ | 1,166,745 | | | $ | 2,526,662 | | | $ | 2,522,040 | |
| Interest-bearing deposits (Note 4) | | | 3,615 | | | | 4,561 | | | | 420 | |
| Securities purchased under agreements to resell (Note 4) | | | 28,573 | | | | 178,565 | | | | 78,341 | |
| Federal funds sold (Note 4) | | | 34,791 | | | | 228,388 | | | | 312,278 | |
| Trading securities (Note 5) | | | 221,780 | | | | 215,583 | | | | 74,412 | |
| Available-for-sale securities (Note 7) | | | 61,580 | | | | 68,053 | | | | 12,161 | |
| Held-to-maturity securities (Note 8) | | | 324,784 | | | | 457,746 | | | | 489,223 | |
| Mortgage loans held-for-portfolio (Note 10) | | | 91,964 | | | | 101,223 | | | | 97,479 | |
| Loans to other FHLBanks (Note 20) | | | 33 | | | | 165 | | | | 130 | |
| | | | | | | | | | | | | |
| Total interest income | | | 1,933,865 | | | | 3,780,946 | | | | 3,586,484 | |
| | | | | | | | | | | | | |
| Interest expense | | | | | | | | | | | | |
| Consolidated obligation bonds (Note 12) | | | 747,914 | | | | 1,798,167 | | | | 1,808,232 | |
| Consolidated obligation discount notes (Note 12) | | | 428,864 | | | | 1,291,576 | | | | 960,833 | |
| Deposits (Note 11) | | | 3,768 | | | | 22,839 | | | | 17,816 | |
| Mandatorily redeemable capital stock (Note 14) | | | 235 | | | | 379 | | | | 964 | |
| Cash collateral held and other borrowings | | | 128 | | | | 895 | | | | 1,614 | |
| | | | | | | | | | | | | |
| Total interest expense | | | 1,180,909 | | | | 3,113,856 | | | | 2,789,459 | |
| | | | | | | | | | | | | |
| Net interest income before provision for credit losses | | | 752,956 | | | | 667,090 | | | | 797,025 | |
| | | | | | | | | | | | | |
| Provision (Reversal) for credit losses | | | 3,721 | | | | (142 | ) | | | (371 | ) |
| | | | | | | | | | | | | |
| Net interest income after provision for credit losses | | | 749,235 | | | | 667,232 | | | | 797,396 | |
| | | | | | | | | | | | | |
| Other income (loss) | | | | | | | | | | | | |
| Service fees and other | | | 17,924 | | | | 18,224 | | | | 18,442 | |
| Instruments held under the fair value option gains (losses) (Note 18) | | | 123 | | | | (4,146 | ) | | | 209 | |
| Total OTTI losses | | | - | | | | - | | | | (398 | ) |
| Net amount of impairment losses reclassified to (from) | | | | | | | | | | | | |
| Accumulated other comprehensive income (loss) | | | - | | | | (640 | ) | | | 257 | |
| Derivative gains (losses) (Note 17) | | | (151,709 | ) | | | (40,720 | ) | | | (40,778 | ) |
| Trading securities gains (losses) (Note 5) | | | 72,826 | | | | 51,327 | | | | 3,216 | |
| Equity investments gains (losses) (Note 6) | | | 9,792 | | | | 9,843 | | | | (4,819 | ) |
| Litigation settlement | | | 225 | | | | - | | | | - | |
| | | | | | | | | | | | | |
| Total other income (loss) | | | (50,819 | ) | | | 33,888 | | | | (23,871 | ) |
| | | | | | | | | | | | | |
| Other expenses | | | | | | | | | | | | |
| Operating | | | 69,806 | | | | 62,782 | | | | 47,882 | |
| Compensation and benefits | | | 100,200 | | | | 88,192 | | | | 78,950 | |
| Finance Agency and Office of Finance | | | 19,392 | | | | 16,752 | | | | 15,874 | |
| Other expenses | | | 17,453 | | | | 8,254 | | | | 7,959 | |
| Total other expenses | | | 206,851 | | | | 175,980 | | | | 150,665 | |
| | | | | | | | | | | | | |
| Income before assessments | | | 491,565 | | | | 525,140 | | | | 622,860 | |
| | | | | | | | | | | | | |
| Affordable Housing Program Assessments (Note 13) | | | 49,180 | | | | 52,552 | | | | 62,382 | |
| | | | | | | | | | | | | |
| Net income | | $ | 442,385 | | | $ | 472,588 | | | $ | 560,478 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Basic earnings per share (Note 15) | | $ | 7.22 | | | $ | 8.52 | | | $ | 9.09 | |
The accompanying notes are an integral part of these financial statements.
Federal Home Loan Bank of New York
Statements of Comprehensive Income — (In Thousands)
Years Ended December 31, 2020, 2019 and 2018
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Net Income | | $ | 442,385 | | | $ | 472,588 | | | $ | 560,478 | |
| Other Comprehensive income (loss) | | | | | | | | | | | | |
| Net change in unrealized gains (losses) on available-for-sale securities | | | 182,758 | | | | 93,834 | | | | (1,220 | ) |
| Net change in non-credit accretion portion of held-to-maturity securities | | | | | | | | | | | | |
| Non-credit portion of other-than-temporary impairment gains (losses) | | | - | | | | - | | | | (257 | ) |
| Reclassification of non-credit portion included in net income | | | - | | | | 640 | | | | - | |
| Accretion of non-credit portion | | | 1,983 | | | | 2,850 | | | | 3,999 | |
| Total net change in non-credit portion of other-than-temporary impairment losses on held-to-maturity securities | | | 1,983 | | | | 3,490 | | | | 3,742 | |
| Net change due to hedging activities | | | | | | | | | | | | |
| Cash flow hedges (a) | | | (112,688 | ) | | | (111,275 | ) | | | 36,636 | |
| Fair value hedges (b) | | | (32,459 | ) | | | (11,593 | ) | | | - | |
| Total net change due to hedging activities | | | (145,147 | ) | | | (122,868 | ) | | | 36,636 | |
| Net change in pension and postretirement benefits | | | (11,536 | ) | | | (9,002 | ) | | | 7,756 | |
| Total other comprehensive income (loss) | | | 28,058 | | | | (34,546 | ) | | | 46,914 | |
| Total comprehensive income (loss) | | $ | 470,443 | | | $ | 438,042 | | | $ | 607,392 | |
| (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. 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 — (In Thousands, Except Per Share Data)
Years Ended December 31, 2020, 2019 and 2018
| | | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | Capital Stock (a) | | | | | | | | | | | | Other | | | | |
| | | Class B | | | Retained Earnings | | | Comprehensive | | | Total | |
| | | Shares | | | Par Value | | | Unrestricted | | | Restricted | | | Total | | | Income (Loss) | | | Capital | |
| Balance, December 31, 2017 | | | 67,500 | | | $ | 6,750,005 | | | $ | 1,067,097 | | | $ | 479,185 | | | $ | 1,546,282 | | | $ | (55,249 | ) | | $ | 8,241,038 | |
| Adjustments to opening balances (b) | | | - | | | | - | | | | 4,924 | | | | - | | | | 4,924 | | | | (4,924 | ) | | | - | |
| Proceeds from issuance of capital stock | | | 79,779 | | | | 7,977,851 | | | | - | | | | - | | | | - | | | | - | | | | 7,977,851 | |
| Repurchase/redemption of capital stock | | | (86,533 | ) | | | (8,653,301 | ) | | | - | | | | - | | | | - | | | | - | | | | (8,653,301 | ) |
| Shares reclassified to mandatorily redeemable capital stock | | | (88 | ) | | | (8,756 | ) | | | - | | | | - | | | | - | | | | - | | | | (8,756 | ) |
| Cash dividends ($6.66 per share) on capital stock | | | - | | | | - | | | | (417,602 | ) | | | - | | | | (417,602 | ) | | | - | | | | (417,602 | ) |
| Comprehensive income (loss) | | | - | | | | - | | | | 448,382 | | | | 112,096 | | | | 560,478 | | | | 46,914 | | | | 607,392 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2018 | | | 60,658 | | | $ | 6,065,799 | | | $ | 1,102,801 | | | $ | 591,281 | | | $ | 1,694,082 | | | $ | (13,259 | ) | | $ | 7,746,622 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from issuance of capital stock | | | 82,801 | | | | 8,280,054 | | | | - | | | | - | | | | - | | | | - | | | | 8,280,054 | |
| Repurchase/redemption of capital stock | | | (85,630 | ) | | | (8,563,003 | ) | | | - | | | | - | | | | - | | | | - | | | | (8,563,003 | ) |
| Shares reclassified to mandatorily redeemable capital stock | | | (42 | ) | | | (4,184 | ) | | | - | | | | - | | | | - | | | | - | | | | (4,184 | ) |
| Cash dividends ($6.49 per share) on capital stock | | | - | | | | - | | | | (365,636 | ) | | | - | | | | (365,636 | ) | | | - | | | | (365,636 | ) |
| Comprehensive income (loss) | | | - | | | | - | | | | 378,071 | | | | 94,517 | | | | 472,588 | | | | (34,546 | ) | | | 438,042 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2019 | | | 57,787 | | | $ | 5,778,666 | | | $ | 1,115,236 | | | $ | 685,798 | | | $ | 1,801,034 | | | $ | (47,805 | ) | | $ | 7,531,895 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cumulative effect adjustment (b) | | | - | | | | - | | | | (3,773 | ) | | | - | | | | (3,773 | ) | | | - | | | | (3,773 | ) |
| Recovery of prior capital distribution (c) | | | - | | | | - | | | | 18,204 | | | | - | | | | 18,204 | | | | - | | | | 18,204 | |
| Proceeds from issuance of capital stock | | | 56,408 | | | | 5,640,764 | | | | - | | | | - | | | | - | | | | - | | | | 5,640,764 | |
| Repurchase/redemption of capital stock | | | (60,499 | ) | | | (6,049,857 | ) | | | - | | | | - | | | | - | | | | - | | | | (6,049,857 | ) |
| Shares reclassified to mandatorily redeemable capital stock | | | (27 | ) | | | (2,743 | ) | | | - | | | | - | | | | - | | | | - | | | | (2,743 | ) |
| Cash dividends ($5.74 per share) on capital stock | | | - | | | | - | | | | (348,234 | ) | | | - | | | | (348,234 | ) | | | - | | | | (348,234 | ) |
| Comprehensive income (loss) | | | - | | | | - | | | | 353,908 | | | | 88,477 | | | | 442,385 | | | | 28,058 | | | | 470,443 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2020 | | | 53,669 | | | $ | 5,366,830 | | | $ | 1,135,341 | | | $ | 774,275 | | | $ | 1,909,616 | | | $ | (19,747 | ) | | $ | 7,256,699 | |
| (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) | Charge to retained earnings was a cumulative effect adjustment to the opening balance upon adoption of ASU 2016 – 13, representing the difference between credit loss calculations based on the incurred loss methodology and the Currently Expected Credit Losses (CECL) framework. |
| (c) | Credit to retained earnings represents 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.
Federal Home Loan Bank of New York
Statements of Cash Flows — (In Thousands)
Years Ended December 31, 2020, 2019 and 2018
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Operating activities | | | | | | | | | | | | |
| Net Income | | $ | 442,385 | | | $ | 472,588 | | | $ | 560,478 | |
| 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) | | | (238,735 | ) | | | (88,742 | ) | | | 87,628 | |
| Concessions on consolidated obligations | | | 4,399 | | | | 3,223 | | | | 2,586 | |
| Premises, software, and equipment | | | 10,669 | | | | 8,773 | | | | 5,492 | |
| Provision (Reversal) for credit losses | | | 3,721 | | | | (142 | ) | | | (371 | ) |
| Credit impairment losses on held-to-maturity securities | | | - | | | | 640 | | | | 141 | |
| Change in net fair value adjustments on derivatives and hedging activities (b) | | | (488,369 | ) | | | (249,537 | ) | | | 33,840 | |
| Net realized and unrealized (gains) losses on trading securities | | | (72,826 | ) | | | (51,327 | ) | | | (3,216 | ) |
| Change in fair value on Equity Investments | | | (6,481 | ) | | | (7,866 | ) | | | 4,819 | |
| Change in fair value adjustments on financial instruments held at fair value | | | (123 | ) | | | 4,146 | | | | (209 | ) |
| Net change in: | | | | | | | | | | | | |
| Accrued interest receivable | | | 123,351 | | | | (38,012 | ) | | | (49,850 | ) |
| Derivative assets due to accrued interest | | | 247,471 | | | | (223 | ) | | | (150,869 | ) |
| Derivative liabilities due to accrued interest | | | (99,649 | ) | | | 12,436 | | | | 93,482 | |
| Other assets | | | (2,228 | ) | | | (883 | ) | | | (1,429 | ) |
| Affordable Housing Program liability | | | (5,067 | ) | | | (7,824 | ) | | | 30,064 | |
| Accrued interest payable | | | (38,907 | ) | | | (66,681 | ) | | | 61,394 | |
| Other liabilities (a) | | | 23,225 | | | | 24,057 | | | | 7,828 | |
| Total adjustments | | | (539,549 | ) | | | (457,962 | ) | | | 121,330 | |
| Net cash provided by (used in) operating activities | | $ | (97,164 | ) | | $ | 14,626 | | | $ | 681,808 | |
| Investing activities | | | | | | | | | | | | |
| Net change in: | | | | | | | | | | | | |
| Interest-bearing deposits | | $ | (1,104,928 | ) | | $ | (278,148 | ) | | $ | (53,440 | ) |
| Securities purchased under agreements to resell | | | 10,335,000 | | | | (10,890,000 | ) | | | (1,395,000 | ) |
| Federal funds sold | | | 2,360,000 | | | | (1,000,000 | ) | | | 2,686,000 | |
| Deposits with other FHLBanks | | | (6 | ) | | | 46 | | | | 255 | |
| Premises, software, and equipment | | | (24,870 | ) | | | (20,627 | ) | | | (27,366 | ) |
| Trading securities: | | | | | | | | | | | | |
| Purchased | | | (3,833,164 | ) | | | (13,258,945 | ) | | | (5,550,105 | ) |
| Repayments | | | 3,150,747 | | | | 2,489,363 | | | | 1,216,237 | |
| Proceeds from sales | | | 4,292,913 | | | | 1,199,179 | | | | 349,383 | |
| Equity Investments: | | | | | | | | | | | | |
| Purchased | | | (16,379 | ) | | | (6,055 | ) | | | (3,846 | ) |
| Proceeds from sales | | | 2,538 | | | | 2,054 | | | | 1,825 | |
| Available-for-sale securities: | | | | | | | | | | | | |
| Purchased | | | (674,519 | ) | | | (621,869 | ) | | | - | |
| Repayments | | | 67,924 | | | | 76,499 | | | | 105,551 | |
| Held-to-maturity securities: | | | | | | | | | | | | |
| Long-term securities | | | | | | | | | | | | |
| Purchased | | | (301,052 | ) | | | (2,382,169 | ) | | | (3,520,254 | ) |
| Repayments | | | 2,647,288 | | | | 3,015,579 | | | | 3,858,408 | |
| Advances: | | | | | | | | | | | | |
| Principal collected | | | 538,451,834 | | | | 1,125,987,329 | | | | 1,107,754,440 | |
| Made | | | (528,796,915 | ) | | | (1,120,949,550 | ) | | | (1,090,480,856 | ) |
| Mortgage loans held-for-portfolio: | | | | | | | | | | | | |
| Principal collected | | | 785,100 | | | | 313,813 | | | | 264,643 | |
| Purchased | | | (529,956 | ) | | | (566,416 | ) | | | (301,694 | ) |
| Proceeds from sales of REO | | | 712 | | | | 2,666 | | | | 2,799 | |
| Net change in loans to other FHLBanks | | | - | | | | 250,000 | | | | (250,000 | ) |
| Net cash provided by (used in) investing activities | | $ | 26,812,267 | | | $ | (16,637,251 | ) | | $ | 14,656,980 | |
The accompanying notes are an integral part of these financial statements.
Federal Home Loan Bank of New York
Statements of Cash Flows — (In Thousands)
Years Ended December 31, 2020, 2019 and 2018
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Financing activities | | | | | | | | | | | | |
| Net change in: | | | | | | | | | | | | |
| Deposits and other borrowings | | $ | 627,679 | | | $ | 62,195 | | | $ | (123,357 | ) |
| Partial recovery of prior capital distribution to Financing Corporation | | | 18,204 | | | | - | | | | - | |
| Derivative contracts with financing element | | | (5,948 | ) | | | (16,542 | ) | | | (8,457 | ) |
| Consolidated obligation bonds: | | | | | | | | | | | | |
| Proceeds from issuance | | | 69,673,063 | | | | 99,473,389 | | | | 111,130,060 | |
| Payments for maturing and early retirement | | | (79,761,238 | ) | | | (105,040,533 | ) | | | (126,220,249 | ) |
| Payments on bonds (transferred to) or assumed from other FHLBanks (c) | | | 1,005,990 | | | | - | | | | - | |
| Consolidated obligation discount notes: | | | | | | | | | | | | |
| Proceeds from issuance | | | 952,058,230 | | | | 1,272,192,911 | | | | 1,177,557,595 | |
| Payments for maturing | | | (968,275,961 | ) | | | (1,248,877,475 | ) | | | (1,176,600,469 | ) |
| Capital stock: | | | | | | | | | | | | |
| Proceeds from issuance of capital stock | | | 5,640,764 | | | | 8,280,054 | | | | 7,977,851 | |
| Payments for repurchase/redemption of capital stock | | | (6,049,857 | ) | | | (8,563,003 | ) | | | (8,653,301 | ) |
| Redemption of mandatorily redeemable capital stock | | | (4,881 | ) | | | (4,900 | ) | | | (22,856 | ) |
| Cash dividends paid (d) | | | (348,234 | ) | | | (365,636 | ) | | | (417,602 | ) |
| Net cash provided by (used in) financing activities | | $ | (25,422,189 | ) | | $ | 17,140,460 | | | $ | (15,380,785 | ) |
| Net increase (decrease) in cash and due from banks | | | 1,292,914 | | | | 517,835 | | | | (41,997 | ) |
| Cash and due from banks at beginning of the period (e) | | | 603,241 | | | | 85,406 | | | | 127,403 | |
| Cash and due from banks at end of the period (e) | | $ | 1,896,155 | | | $ | 603,241 | | | $ | 85,406 | |
| | | | | | | | | | | | | |
| Supplemental disclosures: | | | | | | | | | | | | |
| Interest paid | | $ | 964,205 | | | $ | 1,905,145 | | | $ | 1,714,564 | |
| Interest paid for Discount Notes (f) | | $ | 482,595 | | | $ | 1,268,051 | | | $ | 878,103 | |
| Affordable Housing Program payments (g) | | $ | 54,247 | | | $ | 60,376 | | | $ | 32,318 | |
| Transfers of mortgage loans to real estate owned | | $ | 135 | | | $ | 773 | | | $ | 1,090 | |
| Net amount of impairment losses reclassified to (from) Accumulated other comprehensive income (loss) | | $ | - | | | $ | (640 | ) | | $ | 257 | |
Capital stock subject to mandatory redemption reclassified
from equity | | $ | 2,743 | | | $ | 4,184 | | | $ | 8,756 | |
| Securities traded but not settled | | $ | - | | | $ | - | | | $ | 149,874 | |
| Transfers of HTM securities to AFS that are not other-than-temporarily impaired (h) | | $ | - | | | $ | 1,597,207 | | | $ | - | |
Notes to Supplemental Disclosure:
| (a) | We adjust discount note accretion expense within operating cash flows with an offset to financing activities in the Statements of Cash flows on discount notes in the year they mature. The net adjustment to accretion expense was larger in 2020, causing Net premiums and discounts to record negative operating cash flows of $238.7 million in 2020, compared to negative $88.7 million in 2019. In 2019, 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. For cash flow information on operating leases outstanding at December 31, 2020 and 2019, including additions, see Operating Lease Commitments in Note 19. Commitments and Contingencies. |
| (b) | Negative adjustments to operating cash flows of $488.4 million and $249.5 million for twelve months ended December 31, 2020 and 2019 and a positive adjustment of $33.8 million for the twelve months ended December 31, 2018, represented fair value adjustments on derivatives and hedging activities and the increase was due to higher variation margin posted to derivative counterparties. |
| (c) | For information about bonds (transferred to) or assumed from FHLBanks and other related party transactions, see Note 20. Related Party Transactions. |
| (d) | Does not include payments to holders of mandatorily redeemable capital stock. Such payments are considered as interest expense and reported within operating cash flows. |
| (e) | 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. |
| (f) | Interest paid for Discount Notes, is the portion of the cash payments at settlement of zero-coupon Consolidated obligation discount notes. |
| (g) | AHP payments = (beginning accrual - ending accrual) + AHP assessment for the period; payments represent funds released to the Affordable Housing Program. |
| (h) | 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
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. |
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. 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.
Federal Home Loan Bank of New York
Notes to Financial Statements
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.
Valuation Techniques — Three valuation techniques are prescribed under the fair value measurement standards — Market approach, Income approach and Cost approach. Valuation techniques for which sufficient data is available and that are appropriate under the circumstances should be used.
In determining fair value, the FHLBNY uses various valuation methods, including both the market and income approaches.
| • | Market approach — This technique uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. |
| • | Income approach — This technique uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted), based on assumptions used by market participants. When the income approach is used, the fair value measurement reflects current market expectations about those future amounts. The present value technique used to measure fair value depends on the facts and circumstances specific to the asset or liability being measured and the availability of data. |
| • | Cost approach — This approach is based on the amount that currently would be required to replace the service capacity of an asset (often referred to as current replacement cost). |
The FHLBNY has complied with the accounting standards under Fair Value Measurement that defines fair value, establishes a consistent framework for measuring fair value, and requires disclosure about fair value measurement on assets and liabilities recorded at fair value on the balance sheet.
For more information about the fair value hierarchy, and the hierarchy levels of the FHLBNY’s financial instruments, see Note 18. Fair Values of Financial Instruments.
On a recurring basis, fair values were measured and recorded in the Statements of Condition for derivatives, available-for-sale securities (AFS or AFS securities), securities designated as trading, equity investments, and financial instruments elected under the Fair Value Option (FVO).
On a non-recurring basis, credit impaired (formerly OTTI) held-to-maturity securities were measured and recorded at their fair values in the Statements of Condition. When credit impaired mortgage loans held-for-portfolio were partially charged off, the loans were written down to their collateral values on a non-recurring basis.
Fair values of derivative positions — The FHLBNY is an end-user of over-the-counter (OTC) derivatives to hedge assets, liabilities, and certain firm commitments to mitigate fair value risks. Valuations of derivative assets and liabilities reflect the value of the instrument including the value associated with counterparty risk. Derivative values also take into account the FHLBNY’s own credit standing. The computed fair values of the FHLBNY’s OTC derivatives take into consideration the effects of legally enforceable master netting agreements that allow the FHLBNY to settle positive and negative positions and
Federal Home Loan Bank of New York
Notes to Financial Statements
offset cash collateral with the same counterparty on a net basis. The agreements include collateral thresholds that reflect the net credit differential between the FHLBNY and its derivative counterparties. On a contract-by-contract basis, the collateral and netting arrangements sufficiently mitigated the impact of the credit differential between the FHLBNY and its derivative counterparties to an immaterial level such that an adjustment for nonperformance risk was not deemed necessary.
Fair values of investments classified as AFS securities — The FHLBNY’s investments classified as AFS are primarily GSE-issued mortgage-backed securities (MBS), which are recorded at fair values. The MBS fair values are estimated by management using specialized pricing services that employ pricing models or quoted prices of securities with similar characteristics. The FHLBNY has established that the pricing vendors use methods that generally employ, but are not limited to, benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of like securities, sector groupings, and/or matrix pricing.
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 at December 31, 2020 and 2019, see financial statements, Note 18. Fair Values of Financial Instruments.
Derivatives and Hedging Activities
The FHLBNY hedges the risk of changes in benchmark interest rates under the provisions of ASC 815. In years prior to 2020, the benchmark rate has been primarily LIBOR; LIBOR rates are derived from an average of submissions by panel banks. The underlying market that LIBOR seeks to reflect has become increasingly less active. A significant numbers of the FHLBNY derivatives are indexed to 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. The United Kingdom's Financial Conduct Authority (FCA), which oversees LIBOR, has announced that the FCA would no longer persuade or compel member panel banks to make LIBOR quote submissions for U.S. dollar LIBOR setting of 1-month and 3-month, two key LIBOR settings, so that submissions will permanently cease after June 30, 2023.
The FASB has issued Accounting Standard Updates to facilate the transition to SOFR. See Note 2. FASB Standards Issued But Not Yet Adopted. We are continuing to review expedients offered under the updates for opportunities to streamline the transition to SOFR without impacting ASC 815 accounting. In October 2020, we elected to adopt SOFR as the appropriate index to discount interest rate swaps cleared by the two major central swap clearing organizations as a start to an orderly transition to SOFR.
Generally, 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
The FHLBNY records derivatives on trade date, and hedge accounting commences on trade date, at which time subsequent changes to the derivative’s fair value are recorded along with the offsetting changes in the fair value of the hedged item attributable to the risk being hedged. On settlement date, the basis adjustments to the hedged item’s carrying amount are combined with the principal amounts and the basis becomes part of the total carrying amount of the hedged item. The FHLBNY has defined its market settlement conventions for hedged items to be five business days or less for advances and thirty calendar days or less, using a next business day convention, for Consolidated obligations bonds and discount notes. These market settlement conventions are the shortest period possible for each type of advance and Consolidated obligations from the time the instruments are committed to the time they settle.
The FHLBNY reports derivative assets and derivative liabilities in its Statements of Condition after giving effect to legally enforceable master netting, or when an agreement is not available as with OTC cleared derivatives, enforceability is based on a legal analysis or legal opinion. Reported Derivative assets and liabilities include interest receivable and payable on derivative contracts and the fair values of the derivative contracts. The Bank records cash collateral received and posted in the Statements of Condition as an adjustment to Derivative assets and liabilities in the following manner — Cash collateral posted by the FHLBNY is reported as a deduction to Derivative liabilities; cash collateral received from derivative counterparties is reported as a deduction to Derivative assets. Cash posted by the FHLBNY in excess of margin requirements is recorded as a receivable in Derivative assets. Variation margin exchanged with Derivative Clearing Organizations on cleared derivatives is treated as a settlement of the derivative itself, a reduction of the fair value of the derivative, and not as collateral.
When derivative counterparties pledge marketable securities, they typically retain title and the securities are treated as non-cash collateral. When the FHLBNY pledges securities to counterparties, we also retain title to the securities and treat the securities as collateral. Securities pledged or received are not netted against the derivative exposures on the Statements of Condition.
The FHLBNY routinely issues debt to investors and makes advances to members. In certain such instruments, the FHLBNY may embed a derivative. Typically, such derivatives are call and put options to early terminate the instruments at par on pre-determined dates. The FHLBNY may also embed interest rate caps and floors, or step-up or step-down interest rate features within the instruments. The FHLBNY also routinely structures interest rate swaps to hedge the FHLBank debt and advances, and the FHLBNY may also embed derivative instruments, such as those identified in the previous discussion, in the swaps. 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. This evaluation will consider whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the advance or debt (the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument.
Typically, we execute derivatives under three hedging strategies — 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”). Derivative contracts hedging the risks associated with changes in fair value are referred to as fair value hedges, while contracts hedging the variability of expected future cash flows are cash flow 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.
Fair Value Hedges.
Hedging of Benchmark interest Rate Risk — The FHLBNY’s fair value hedges are primarily hedges of fixed-rate Consolidated obligation bonds and fixed-rate advances, and beginning in 2019 we have executed fair value hedges of available-for-sale securities. For qualifying fair value hedges of interest rate risk, the changes in the fair value of the derivative and the changes in the fair value of the hedged item attributable to the hedged risk, either total cash flows or
benchmark only cash flows, are presented within Interest income or Interest expense based on whether the hedged item is an asset or a liability. Prior to the adoption of ASU 2017-12, changes to the fair value of the derivative and the qualifying hedged item were presented in Other income (loss), a line item below the Net interest income line in the Statements of income.
Federal Home Loan Bank of New York
Notes to Financial Statements
The two principal fair value 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 and may include early termination features or options. In general, whenever we issue a longer-term fixed-rate debt, or a fixed-rate debt 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 debt, or terms of the debt with embedded put or call options or other options. When a fixed-rate debt is hedged, the combination of the fixed-rate debt and the derivative transaction effectively creates a variable rate liability, indexed to a benchmark interest rate.
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. In general, whenever a member executes a longer term fixed-rate advance, or a fixed-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 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 a benchmark interest rate.
In the twelve months ended December 31, 2020 and 2019, the FHLBNY executed interest rate hedges employing strategies under the new guidance for “partial-term hedges” and “benchmark rate component hedging”. The two strategies are among several hedging strategies permitted under the recently adopted ASU 2017-12.
The partial-term hedging strategy makes it possible to hedge selected fixed-rate payments in a fair value hedge of interest rate risk. While U.S. GAAP has long permitted entities to designate one or more contractual cash flows in a financial instrument, the hedge strategy could result in hedge ineffectiveness. This is because the fair value of the hedging instrument and the hedged item would react differently to changes in interest rates because the principal repayment of the debt occurs on a different date than the swap’s maturity. ASU 2017-12 addressed this issue by allowing entities to calculate the change in the fair value of the hedged item in a partial-term hedge of a fixed-rate financial instrument using an assumed term that begins when the first hedged cash flow begins to accrue and ends when the last hedged cash flow is due and payable. Similar to other fair value hedges, where the hedged item is an asset, the fair value of the hedged item attributable to interest rate risk is recorded in P&L and presented in Interest income from investments along with the change in the fair value of the hedging instrument. The new strategy has been utilized by the FHLBNY for hedging certain AFS designated mortgage-backed securities.
Benchmark rate component hedging is permitted under the ASU, which addressed the issue that measuring changes in the fair value of the hedged item using the total coupon cash flows misrepresents the true effectiveness of these hedging relationships. Additionally, these hedging relationships are not meant to manage credit risk, and that using the total contractual cash flows to determine the change in the fair value of the hedged item attributable to the change in the benchmark interest rate creates an earnings mismatch that reflects the portion of the financial instrument that the entity does not intend to hedge. The new guidance addresses these issues by allowing entities to use either (1) the full contractual coupon cash flows or (2) the benchmark rate component of the contractual coupon cash flows to calculate the change in the fair value of the hedged item attributable to changes in the benchmark interest rate in a fair value hedge of interest rate risk. We have used the concept selectively.
Discontinuation of Hedge Accounting. When hedge accounting is discontinued because the FHLBNY determines that the derivative no longer qualifies as an effective Fair value hedge of an existing hedged item, the FHLBNY continues to carry the derivative on the balance sheet at its fair value, ceases to adjust the hedged asset or liability for changes in fair value, and amortizes the cumulative basis adjustment on the hedged item into earnings over the remaining life of the hedged item (for callable as well as non-callable previously hedged debt and advances) using the level-yield methodology. When the hedged item is a firm commitment, and hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the FHLBNY would continue to carry the derivative on the balance sheet at its fair value, removing from the balance sheet any asset or liability that was recorded to recognize the firm commitment and recording it as a gain or loss in current period earnings.
Federal Home Loan Bank of New York
Notes to Financial Statements
When hedge accounting is discontinued because the FHLBNY determines that the derivative no longer qualifies as an effective Cash flow hedge of an existing hedged item, the FHLBNY continues to carry the derivative on the balance sheet at its fair value; fair value marks previously recorded as basis adjustment in AOCI are reclassified to earnings when earnings are affected by the existing hedge item, which is the original forecasted transaction. Fair value changes on derivatives that are no longer in a hedge relationship are charged directly to earnings. Under limited circumstances, when the FHLBNY discontinues cash flow hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period plus the following two months, but it is probable the transaction will still occur in the future, the gain or loss on the derivative remains in AOCI and is recognized into earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within two months after that, the gains and losses that were included in AOCI are recognized immediately in earnings.
The FHLBNY treats modifications of hedged items (e.g. reduction in par amounts, change in maturity date, and change in strike rates) that are other than minor as a termination of a hedge relationship, and previously recorded hedge basis adjustments of the hedged items are amortized over the life of the hedged item.
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 10. | Mortgage Loans Held-for-Portfolio. |
| Note 19. | Commitments and Contingencies (for off-balance sheet). |
Applications of the incurred loss methodology to develop credit loss provisions prior to the adoption of ASU 2016-13 are also described in the notes to financial statements.
Classification of Investment Securities
The FHLBNY classifies a debt security at the date of acquisition as trading, held-to-maturity or available-for-sale. Investments designated as held-to-maturity and available-for-sale are primarily GSE-issued mortgage-backed securities, and a small portfolio of bonds issued by housing finance agencies. Investments designated as trading are primarily U.S. Treasury securities. Purchases and sales of securities are recorded on a trade date basis. Prepayments are estimated for purposes of amortizing premiums and accreting discounts on investment securities in accordance with accounting standards for investments in debt securities, which requires premiums and discounts to be recognized in income at a constant effective yield over the life of the instrument. Because actual prepayments often deviate from the estimates, the effective yield is recalculated periodically to reflect actual prepayments to date. Adjustments of the effective yields for mortgage-backed securities are recorded on a retrospective basis, as if the new estimated life of the security had been known at its original acquisition date.
The Bank’s trading portfolio is to enhance the FHLBNY’s liquidity position, and is invested typically in U.S. Treasury securities and GSE-issued bonds. The securities are carried at fair value with changes in the fair value of these investments recorded in Other income. The Bank does not participate in speculative trading practices and holds these investments indefinitely as the FHLBNY periodically evaluates its liquidity needs.
Federal Home Loan Bank of New York
Notes to Financial Statements
Held-to-Maturity Securities — The FHLBNY classifies debt securities for which it has both the ability and intent to hold to maturity as held-to-maturity investments. Such investments are recorded at amortized cost basis, which includes adjustments made to the cost of an investment for accretion and amortization of discounts and premiums, collection of cash and, if hedged, the fair value hedge accounting adjustments. If a held-to-maturity security is determined to be credit impaired or other-than-temporarily impaired (formerly OTTI), the amortized cost basis of the security is adjusted for credit losses. Amortized cost basis of a held-to-maturity OTTI security is further adjusted for impairment related to all other factors (also referred as the non-credit component of OTTI) and recognized in AOCI; the adjusted amortized cost basis is the carrying value of the OTTI security as reported in the Statements of Condition. Carrying value of a held-to-maturity security that is not OTTI is its amortized cost basis. Interest earned on such securities is included in Interest income.
In accordance with accounting standards for investments in debt securities, sales of debt securities that meet either of the following two conditions may be considered as maturities for purposes of the classification of securities: (1) the sale occurs near enough to its maturity date (or call date if exercise of the call is probable) such that interest rate risk is substantially eliminated as a pricing factor and the changes in market interest rates would not have a significant effect on the security’s fair value, or (2) the sale of a security occurs after the FHLBNY has already collected a substantial portion (at least 85%) of the principal outstanding at acquisition. As permitted by the new hedge accounting guidance under ASU 2017-12, effective January 1, 2019 the FHLBNY made a one-time election and transferred $1.6 billion (amortized cost basis) of unimpaired fixed-rate GSE-issued commercial mortgage-backed securities from HTM to AFS.
Available-for-Sale Securities — The FHLBNY classifies debt securities that it may sell before maturity as AFS and carries them at fair value. Until AFS securities are sold, changes in fair values are recorded in AOCI as Net unrealized gain or (loss) on AFS securities. The FHLBNY computes gains and losses on sales of debt securities using the specific identification method and includes these gains and losses in Other income (loss).
Trading Securities — Debt securities classified as trading are held for liquidity purposes and carried at fair value. We record changes in the fair value of these investments through Other income as net realized and unrealized gains or losses on trading securities. The Finance Agency prohibits speculative trading practices but allows permitted securities to be deemed held for liquidity if invested in a trading portfolio. We periodically evaluate our liquidity needs and may dispose these investments as deemed prudent by liquidity and market conditions.
Equity Securities — Adoption at January 1, 2018 of ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, as an amendment to Financial Instruments — Overall (Subtopic 825-10) provided guidance on the measurement and classification of equity investments. Effective with the adoption of the ASU, the FHLBNY measures its equity investments at fair value with changes in fair value recognized in net income, thus eliminating eligibility for the available-for-sale category. Prior to the adoption of the ASU, the FHLBNY classified its equity investments as AFS. The FHLBNY’s equity investments comprise of mutual fund assets in grantor trust owned by the FHLBNY. The intent of the grantor trust is to set aside cash to meet current and future payments for supplemental unfunded retirement plans. Prior period financial statements were not required to be restated under the transition provisions of this ASU.
Federal Funds Sold. Federal funds sold are recorded at cost on settlement date and interest is accrued using contractual rates.
Securities Purchased under Agreements to Resell. As part of the FHLBNY’s banking activities with counterparties, the FHLBNY may enter into secured financing transactions that mature overnight, and can be extended only at the discretion of the FHLBNY. These transactions involve the lending of cash, against which securities are taken as collateral. The FHLBNY does not have the right to repledge the securities received. Securities purchased under agreements to resell generally do not constitute a transfer of the underlying securities. The FHLBNY treats securities purchased under agreements to resell as collateralized financings because the counterparty retains control of the securities. Interest from such securities is included in Interest income. The FHLBNY did not have any offsetting liabilities related to its securities purchased under agreements to resell for the periods presented.
Federal Home Loan Bank of New York
Notes to Financial Statements
Advances
Accounting for Advances. The FHLBNY reports advances at amortized cost, net of any discounts and premiums (discounts are generally associated with advances for the Affordable Housing Program). If the advance is hedged in an ASC 815 qualifying hedge, its carrying value will include hedging valuation adjustments, which will typically be the result of changes in designated benchmark index. If an advance is accounted under the Fair Value Option, the carrying value of the advances elected will be its full fair value.
The FHLBNY records interest on advances to income as earned, and amortizes the premium and accretes the discounts on a contractual basis to interest income using a level-yield methodology. Typically, advances are issued at par.
Impairment Analysis of Advances. An advance will be considered impaired when, based on current information and events, it is probable that the FHLBNY will be unable to collect all amounts due according to the contractual terms of the advance agreement. The FHLBNY has established asset classification and reserve policies. All adversely classified assets of the FHLBNY will have a reserve established for probable losses. Following the requirements of the Federal Home Loan Bank Act of 1932 (FHLBank Act), as amended, the FHLBNY obtains sufficient collateral on advances to protect it from losses. The FHLBank Act limits eligible collateral to certain investment securities, residential mortgage loans, cash or deposits with the FHLBNY, and other eligible real estate related assets. Borrowing members pledge their capital stock of the FHLBNY as additional collateral for advances.
The FHLBNY has not incurred any credit losses on advances since its inception. Based upon the financial condition of its borrowers, the collateral held as security on the advances and repayment history, management of the FHLBNY believes that an allowance for credit losses on advances is unnecessary.
Advance Modifications. From time to time, the FHLBNY will enter into an agreement with a member to modify the terms of an existing advance. The FHLBNY evaluates whether the modified advance meets the accounting criteria under ASC 310-20 to qualify as a modification of an existing advance or as a new advance in accordance with provisions under creditor’s accounting for a modification or exchange of debt instruments. The evaluation includes analysis of (i) whether the effective yield on the new advance is at least equal to the effective yield for a comparable advance to a similar member that is not refinancing or restructuring, and (ii) whether the modification of the original advance is more than minor. If the FHLBNY determines that the modification is more than minor, the transaction is treated as an advance termination and the subsequent funding of a new advance, with gains or losses recognized in earnings for the period. If the advance is in a hedging relationship, and the modification is more than minor, the FHLBNY will consider the hedge relationship as terminated and previously recorded hedge basis adjustments are amortized over the life of the hedged advance through interest income as a yield adjustment. If the modification of the hedged item and the derivative instrument is considered minor, and if the hedge relationship is de-designated and contemporaneously re-designated, the FHLBNY would not require amortization of previously recorded hedge basis adjustments, although the assumption of no ineffectiveness is removed if the hedge was previously designated as a short-cut hedge.
The FHLBNY performs a “test of a modification” under the guidance provided in ASC 310-20-35-11 each time a new advance is borrowed within a short-period of time, typically 5 business days after a prepayment. If a prepayment fee is received on an advance that is determined to be a modification of the original advance, the fee would be deferred, recorded in the basis of the modified advance, and amortized over the life of the modified advance using the level-yield method. This amortization would be recorded as a component of interest income from advances.
Prepayment Fees on Advances. Generally, advances are prepaid by members at their fair values. The FHLBNY also charges the member a prepayment fee to make the FHLBNY financially indifferent to the early termination of the advance.
For a prepaid advance that had been hedged under a qualifying fair value hedge, the FHLBNY would terminate the hedging relationship. Typically, the FHLBNY would terminate the interest rate swap, and would record the fair value exchanged with the swap counterparty as its settlement value. Prepayment fees received from the prepaying member to make the FHLBNY financially indifferent is recognized in earnings as interest income from advances.
For prepaid advances that are not hedged or that are economically hedged, the FHLBNY would also charge the member the fair value of the advance, in addition to a prepayment fee that would make the FHLBNY financially indifferent to the early termination.
Federal Home Loan Bank of New York
Notes to Financial Statements
The FHLBNY offers a rebate, which is typically a portion of the prepayment fee. The rebate is contingent upon the prepaying member borrowing new advances within a 30-day period following prepayment, also satisfying conditions to qualify for the rebate, and complying with the then prevailing terms and conditions for borrowing new advances. At the time a prepayment fee is received from the borrowing member, a portion of the fee, deemed to be potentially rebatable, is not recognized in earnings. The rebatable amount is deferred as a liability as the FHLBNY considers the rebate opportunity for the member a contingency for the FHLBNY. Until no likelihood exists, such that the member has a potential claim to a rebate within the 30-day rebate period, the potential rebatable amount will be considered to be contingently payable. That amount will be deferred, based on the supposition that the rebatable portion of the prepayment fee may not be recognized as a revenue in its entirety because it may be subject to a claim payable to a third party, the borrowing member. Amounts would be recorded once the contingency has been resolved, i.e. when any future potential claims to rebatable funds have expired (30-day rebate period has expired) or has been otherwise settled and resolved (member enters into new qualifying advances within the 30-day period). Only after the member has no further claims on the funds, and the FHLBNY has no obligations to rebate funds, the deferred amounts may only then be released to earnings. The actual rebate would depend on the amount and the maturity duration of the new advance.
Mortgage Loans Held-for-Portfolio
Mortgage Partnership Finance® program loans, or (MPF®), are mortgage loans held-for-portfolio. The FHLBNY participates in the MPF program by purchasing and originating conventional mortgage loans from its participating members (Participating Financial Institutions or PFIs).
We introduced a new mortgage purchase program in 2020. Amount outstanding was $0.3 million at December 31, 2020. We plan to roll out the new program fully in late March 2021. The new program, Mortgage Asset Programsm (MAP), was created based on feedback from members and is expected to better serve the needs of our district. We will cease to purchase loans in MPF Program® beginning late March 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. Because of the immateriality of loans acquired, certain disclosures are omitted at December 31, 2020.
The remaining disclosures pertain to mortgage loans under the MPF program.
Credit Enhancement Obligations and Loss Layers. The FHLBNY and the PFI share the credit risks of the uninsured MPF loans by structuring potential credit losses into layers. Collectability of the loans is first supported by liens on the real estate securing the loan. For conventional mortgage loans, additional loss protection is provided by private mortgage insurance required for MPF loans with a loan-to-value ratio of more than 80% at origination, which is paid for by the borrower. Credit losses are absorbed by the FHLBNY to the extent of the First Loss Account (FLA) for which the maximum exposure is estimated to be $43.9 million at December 31, 2020 and $40.2 million at December 31, 2019. The aggregate amount of FLA is memorialized and tracked but is neither recorded nor reported as a loan loss reserve in the FHLBNY’s financial statements. If “second losses” beyond this layer are incurred, they are absorbed through a credit enhancement provided by the PFI. The credit enhancement held by PFIs ensures that the lender retains a credit stake in the loans it sells to the FHLBNY, or for the MPF 100 product that the PFI originates as an agent for the FHLBNY. For assuming the second loss credit risk, PFIs receive monthly credit enhancement fees from the FHLBNY. For most MPF products, the credit enhancement fee is accrued and paid monthly after the FHLBNY has accrued 12 months of credit enhancement fees. For loans acquired after May 2017, the amount of the credit enhancement is computed with the use of a Standard & Poor’s model to determine the amount of credit enhancement necessary to bring a pool of uninsured loans to a “Single A” credit risk. Prior to May 2017, the credit enhancement was calculated to a “Double A” credit risk. The credit enhancement becomes an obligation of the PFI.
Federal Home Loan Bank of New York
Notes to Financial Statements
Delivery commitment fees are charged to a PFI for extending the scheduled delivery period of the loans. Pair-off fees may be assessed and charged to a PFI when the settlement of the delivery commitment (1) fails to occur, or (2) the principal amount of the loans purchased by the FHLBNY under a delivery commitment is not equal to the contract amount beyond established limits.
Accounting for Mortgage Loans. The FHLBNY has the intent and ability to hold these mortgage loans for the foreseeable future or until maturity or payoff, and classifies mortgage loans as held-for-portfolio. Loans are reported at their principal amount outstanding, net of premiums and discounts, which is the fair value of the mortgage loan on settlement date. The FHLBNY defers premiums and discounts, and uses the contractual method to amortize premiums and accrete discounts on mortgage loans. The contractual method recognizes the income effects of premiums and discounts in a manner that is reflective of the actual behavior of the mortgage loans during the period in which the behavior occurs while also reflecting the contractual terms of the assets without regard to changes in estimated prepayments based upon assumptions about future borrower behavior.
Mortgage loans are written down to their fair values either at foreclosure or to their collateral values when collectability is doubtful, typically when delinquent 180 days or greater and the loan is not well collateralized. When a loan is partially charged off, the remaining loan balance is typically written down and recorded at its collateral value on a non-recurring basis (see Note 18. Fair Values of Financial Instruments).
The FHLBNY records credit enhancement fees as a reduction to mortgage loan interest income. Other non-origination fees, such as delivery commitment extension fees and pair-off fees, are considered as derivative income and recorded over the life of the commitment; all such fees were insignificant for all periods reported.
Non-Accrual Mortgage Loans. The FHLBNY places a mortgage loan on non-accrual status when the collection of the contractual principal or interest is seriously delinquent, which for the FHLBNY is typically 90-days or more past due. When a mortgage loan is placed on non-accrual status, accrued but uncollected interest is reversed against interest income. A loan on non-accrual status may be restored to accrual when (1) principal and interest is no longer delinquent, (2) the FHLBNY expects to collect the remaining interest and principal, and (3) the collection is not under legal proceedings. For mortgage loans on non-accrual status, impairment calculations would consider if the collection of the remaining principal and interest due is determined to be doubtful, and any cash received would be applied first to principal until the remaining principal amount due is collected, and then as a recovery of any charge-offs. Any remaining cash flows would be recorded as interest income. If the FHLBNY determines that the loan servicer on a non-accrual loan has paid the accrued interest receivable as an advance, which is likely to be subject to recovery by the borrower, the FHLBNY would consider the cash received as a liability until the impaired loan returns to a performing status. The cumulative amounts of cash received and recorded as a liability was $1.9 million at December 31, 2020 and $1.6 million at December 31, 2019. The FHLBNY is continuing to apply its existing non-accrual standards, which is to consider a loan to be in a non-accrual status if the loan is seriously delinquent (90-days plus delinquent) on loans impacted by forbearance and deferral programs due to COVID-19.
Impairment Methodology and Portfolio Segmentation and Disaggregation — Except for VA and FHA insured mortgage loans, all MPF loans are measured for impairment and analyzed for credit losses. Measurement of credit losses is based on current information and events and when it is probable that the FHLBNY will be unable to collect all amounts due according to the contractual terms of the loan agreement. Credit losses are measured for impairment based on the fair value of the underlying property less estimated selling costs. It is assumed that repayment is expected to be provided solely by the sale of the underlying property, that is, there is no other available and reliable source of repayment. To the extent that the net fair value of the property (collateral) is less than the recorded investment in the loan, a loan loss allowance is recorded. FHA and VA are insured loans, and are excluded from the loan-by-loan analysis. FHA and VA insured mortgage loans have minimal inherent credit risk; risk generally arises mainly from the servicers defaulting on their obligations. FHA and VA insured mortgage loans, if adversely classified, would have reserves established only in the event of a default of a PFI, and reserves would be based on aging, collateral value and estimated costs to recover any uninsured portion of the MPF loan.
Aside from separating conventional mortgage loans from FHA and VA insured loans, the FHLBNY has determined that no further disaggregation or portfolio segmentation is needed as the credit risk is measured at the individual loan level.
Federal Home Loan Bank of New York
Notes to Financial Statements
Charge-Off Policy — The FHLBNY complies with the guidance provided by the FHFA to perform a charge-off analysis when a loan is on non-accrual status for 180 days or more and the loan is not well collateralized. The charge-off is calculated as the amount of the shortfall of the fair value of the underlying collateral, less estimated selling costs, compared to the recorded investment in the loan.
Real Estate Owned (REO) — REO includes assets that have been received in satisfaction of mortgage loans through foreclosure. REO is recorded at the lower of cost or fair value less estimated selling costs of the REO. At the date of transfer, from mortgage loan to REO, the FHLBNY recognizes a charge-off to allowance for credit losses if the fair value of the REO is less than the recorded investment in the loan. Any subsequent realized gains, realized or unrealized losses and carrying costs are included in Other income (non-interest) in the Statements of Income. REO is recorded in Other assets in the Statements of Condition.
Mandatorily Redeemable Capital Stock
Generally, the FHLBNY’s capital stock is redeemable at the option of both the member and the FHLBNY, subject to certain conditions. The FHLBNY’s capital stock is accounted for under the guidance for financial instruments with characteristics of both liabilities and equity. Dividends paid on capital stock classified as mandatorily redeemable stock are accrued at an estimated dividend rate and reported as interest expense in the Statements of Income.
Mandatorily redeemable capital stock at December 31, 2020 and 2019 represented capital stocks held by former members.
Accounting Considerations under the Capital Plan — There are three triggering events that could cause the FHLBNY to repurchase capital stock.
| | ● | a member requests redemption of excess membership stock; |
| | ● | a member delivers notice of its intent to withdraw from membership; or |
| | ● | a member attains non-member status (through merger into or acquisition by a non-member, charter termination, or involuntary termination from membership). |
The member’s request to redeem excess Membership Stock will be considered to be revocable until the stock is repurchased. Since the member’s request to redeem excess Membership Stock can be withdrawn by the member without penalty, the FHLBNY considers the member’s intent regarding such request to not be substantive in nature; therefore, no reclassification to a liability will be made at the time the request is delivered.
Under the Capital Plan, when a member delivers a notification of its intent to withdraw from membership, the reclassification from equity to a liability will become effective upon receipt of the notification. The FHLBNY considers the member’s intent regarding such notification to be substantive in nature; therefore, reclassification to a liability will be made at the time the notification of the intent to withdraw is delivered. When a member is acquired by a non-member, the FHLBNY reclassifies stock of former members to a liability on the day the member’s charter is dissolved. Unpaid dividends related to capital stock reclassified as a liability are accrued at an estimated dividend rate and reported as interest expense in the Statements of Income. The repurchase of these mandatorily redeemable financial instruments is reflected as a cash outflow in the financing activities section of the Statements of Cash Flows.
The FHLBNY’s capital stock can only be acquired and redeemed at par value; and are not traded and no market mechanism exists for the exchange of stock outside the cooperative structure.
Affordable Housing Program
The FHLBank Act requires each FHLBank to establish and fund an AHP (see Note 13. Affordable Housing Program). The FHLBNY charges the required funding for AHP to earnings and establishes a liability. The AHP funds provide subsidies to members to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. The AHP assessment is based on a fixed percentage of income before adjustment for dividends associated with mandatorily redeemable capital stock. Dividend payments are reported as interest expense in accordance with the accounting guidance for certain financial instruments with characteristics of both liabilities and equity. If the FHLBNY incurs a loss for
Federal Home Loan Bank of New York
Notes to Financial Statements
the entire year, no AHP assessment or assessment credit is due or accrued, as explained more fully in Note 13. Affordable Housing Program.
From time to time, the FHLBNY may also issue AHP advances at interest rates below the customary interest rates for non-subsidized advances. When the FHLBNY makes an AHP advance, the present value of the variation in the cash flow caused by the difference between the AHP advance interest rate and the FHLBNY’s related cost of funds for comparable maturity funding is charged against the AHP liability. The amounts are then recorded as a discount on the AHP advance. As an alternative, the FHLBNY has the authority to make the AHP subsidy available to members as a grant.
Commitment Fees
The FHLBNY records the present value of fees receivable from standby letters of credit as an asset and an offsetting liability for the obligation. Fees, which are generally received for one year in advance, are recorded as unrecognized standby commitment fees (deferred credit) and amortized monthly over the commitment period. The FHLBNY amortizes fees received to income using the straight line method.
Premises, Software and Equipment
The Bank computes depreciation using the straight-line method over the estimated useful lives of assets ranging from four to five years. Leasehold improvements are amortized on a straight-line basis over the lesser of the useful life of the asset or the remaining term of the lease. The FHLBNY capitalizes improvements and major renewals but expenses ordinary maintenance and repairs when incurred, and would include gains and losses on disposal of premises and equipment in Other income (loss).
Lease Accounting
The FHLBNY adopted ASU 2016-02, Leases (Topic 842) effective January 1, 2019. Leases are recognized on the balance sheet as a lease liability with a right-of-use asset as an offset. See Operating lease commitment disclosures in Note 19. Commitments and Contingencies.
Consolidated Obligations
Accounting for Consolidated obligation debt. The FHLBNY reports Consolidated obligation bonds and discount notes at amortized cost, net of discounts and premiums. If the consolidated obligation debt is hedged in a benchmark hedge, its carrying value will include hedging valuation adjustments, which will typically be the changes in the LIBOR index. The carrying value of Consolidated obligation debt elected under the FVO will be its fair value. The FHLBNY records interest paid on Consolidated obligation bonds in interest expense. The FHLBNY expenses the discounts on Consolidated obligation discount notes, using the level-yield method, over the term of the related notes and amortizes the discounts and premiums on callable and non-callable Consolidated bonds, also using the contractual level-yield method, over the term to maturity of the Consolidated obligation bonds.
Concessions on Consolidated Obligations. Concessions are paid to dealers in connection with the issuance of certain Consolidated obligation bonds. The Office of Finance prorates the amount of the concession to the FHLBNY based upon the percentage of the debt issued that is assumed by the FHLBNY. Concessions paid on Consolidated obligation bonds elected under the FVO are expensed as incurred. Concessions paid on Consolidated obligation bonds not designated under the FVO are deferred and amortized, using the contractual level-yield method, over the term to maturity of the Consolidated obligation bond. Unamortized debt issuance costs are recorded in Consolidated obligation bond liabilities in the Statements of Condition. The FHLBNY charges to expense, as incurred, the concessions applicable to the sale of Consolidated obligation discount notes because of their short maturities; amounts are recorded in Consolidated obligations interest expense.
Finance Agency and Office of Finance Expenses
The FHLBNY is assessed for its proportionate share of the costs of operating the Finance Agency and the Office of Finance. The Finance Agency is authorized to impose assessments on the FHLBanks and two other GSEs, in amounts sufficient to pay the Finance Agency’s annual operating expenses.
Federal Home Loan Bank of New York
Notes to Financial Statements
The Office of Finance is also authorized to impose assessments on the FHLBanks, including the FHLBNY, in amounts sufficient to pay the Office of Finance’s annual operating and capital expenditures. Each FHLBank is assessed a prorated — (1) two-thirds based upon each FHLBank’s share of total Consolidated obligations outstanding and (2) one-third based upon an equal pro-rata allocation.
Earnings per Share of Capital
Basic earnings per share is computed by dividing income available to stockholders by the weighted average number of shares outstanding for the period. Capital stock classified as mandatorily redeemable capital stock is excluded from this calculation. Basic and diluted earnings per share are the same, as the FHLBNY has no additional potential shares that may be dilutive.
Cash Flows
In the Statements of Cash Flows, the FHLBNY considers Cash and due from banks to be cash. Interest-bearing deposits, Federal funds sold, and securities purchased under agreements to resell are reported in the Statements of Cash Flows as investing activities.
Federal funds sold, securities purchased under agreements to resell, and deposits with other FHLBanks are deemed short-term under ASC 320 and therefore, net presentation is appropriate.
Derivative instruments — Cash flows from a derivative instrument that is accounted for as a fair value or cash flow hedge, including those designated as economic hedges, are reflected as cash flows from operating activities if the derivative instrument did not include “an other-than-insignificant” financing element at inception. When the FHLBNY executes an off-market derivative, which would typically require an up-front cash exchange, the FHLBNY will analyze the transaction and would deem it to contain a financing element if the cash exchange is more than insignificant. Financing elements are recorded as a financing activity in the Statements of Cash Flows.
Losses on debt extinguishment — Losses from debt retirement and transfers (debt retirement) are considered financing activities in the Statements of Cash Flows. Losses are added back as an adjustment to Net cash provided by operating activities, with an offsetting increase in payments on maturing Consolidated obligation bonds as a financing activity.
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 848)
Issued in March 2020,
as amended in January 2021 | | 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 application of permissible 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 specifically ease the administrative burden for the accounting for the effects of reference rate reform. 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. |
Federal Home Loan Bank of New York
Notes to Financial Statements
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 December 31, 2020 and December 31, 2019. There were no restricted cash balances at December 31, 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 $32.4 million at December 31, 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.
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 December 31, 2020, deposits placed were $0.7 billion and $0 at December 31, 2019. 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 December 31, 2020. Accrued interest receivable was $2.5 thousand as of December 31, 2020, and no allowance for credit losses was recorded as interest due was collected.
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 December 31, 2020 and December 31, 2019, federal funds sold were $6.3 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 December 31, 2020 and December 31, 2019. Accrued interest receivable was $14.4 thousand and $0.4 million as of December 31, 2020 and December 31, 2019, and no allowance for credit losses was recorded as interest due was collected.
Securities purchased under agreements to resell — The outstanding balances of Securities purchased under agreements to resell were recorded at amortized cost basis of $4.7 billion at December 31, 2020 and $15.0 billion at December 31, 2019. 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
Federal Home Loan Bank of New York
Notes to Financial Statements
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 $10.0 thousand at December 31, 2020 and $0.6 million at December 31, 2019, and no allowance for credit losses was recorded as interest due was collected.
U.S. Treasury securities at market values of $4.7 billion at December 31, 2020 and $15.2 billion at December 31, 2019 were received at BONY to collateralize the overnight investments. Securities purchased under agreements to resell averaged $4.4 billion for the twelve months ended December 31, 2020 and $8.3 billion for the same period in 2019. Interest income from securities purchased under agreements to resell was $28.6 million for 2020, $178.6 million for 2019 and $78.3 million for 2018. 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. 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 December 31, 2020 and December 31, 2019.
Note 5. Trading Securities.
The carrying value of a trading security equals its fair value. The following table provides major security types at December 31, 2020 and December 31, 2019 (in thousands):
| Fair value | | December 31, 2020 | | | December 31, 2019 | |
| Corporate notes | | $ | 2,164 | | | $ | 3,217 | |
| U.S. Treasury notes | | | 11,240,915 | | | | 15,315,592 | |
| U.S. Treasury bills | | | 499,886 | | | | - | |
| Total trading securities | | $ | 11,742,965 | | | $ | 15,318,809 | |
The carrying values of trading securities included net unrealized fair value gains of $87.6 million at December 31, 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 $630.4 million at December 31, 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.
Federal Home Loan Bank of New York
Notes to Financial Statements
The following tables present redemption terms of the major types of trading securities (dollars in thousands):
Redemption Terms
| | | December 31, 2020 | |
| | | Due in one year
or less | | | Due after one year
through five years | | | Total Fair Value | |
| Corporate notes | | $ | - | | | $ | 2,164 | | | $ | 2,164 | |
| U.S. Treasury notes | | | 9,563,920 | | | | 1,676,995 | | | | 11,240,915 | |
| U.S. Treasury bills | | | 499,886 | | | | - | | | | 499,886 | |
| Total trading securities | | $ | 10,063,806 | | | $ | 1,679,159 | | | $ | 11,742,965 | |
| Yield on trading securities | | | 1.66 | % | | | 1.79 | % | | | | |
| | | 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):
| | | December 31, 2020 | |
| | | | | | Gross | | | Gross | | | | |
| | | Amortized | | | Unrealized | | | Unrealized | | | Fair | |
| | | Cost | | | Gains (b) | | | Losses (b) | | | Value (c) | |
| Cash equivalents | | $ | 4,164 | | | $ | - | | | $ | - | | | $ | 4,164 | |
| Equity funds | | | 36,833 | | | | 15,325 | | | | (1,909 | ) | | | 50,249 | |
| Fixed income funds | | | 24,920 | | | | 1,146 | | | | (110 | ) | | | 25,956 | |
| Total Equity Investments (a) | | $ | 65,917 | | | $ | 16,471 | | | $ | (2,019 | ) | | $ | 80,369 | |
| | | 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
In the Statements of Income, gains and losses related to outstanding Equity Investments were as follows (in thousands):
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | |
| Unrealized gains (losses) recognized during the reporting period on equity investments still held at the reporting date | | $ | 6,481 | | | $ | 7,866 | |
| Net gains (losses) recognized during the period on equity investments sold during the period | | | 519 | | | | 17 | |
| Net dividend and other | | | 2,792 | | | | 1,960 | |
| Net gains (losses) recognized during the period | | $ | 9,792 | | | $ | 9,843 | |
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 December 31, 2020 and December 31, 2019, or upon adoption of ASU 2017-12 at January 1, 2020.
The following tables provide major security types (in thousands):
| | | December 31, 2020 | |
| | | | | | Gross | | | Gross | | | | |
| | | Amortized | | | Unrealized | | | Unrealized | | | Fair | |
| | | Cost | | | Gains | | | Losses | | | Value | |
| GSE and U.S. Obligations | | | | | | | | | | | | | | | | |
| Mortgage-backed securities | | | | | | | | | | | | | | | | |
| Floating | | | | | | | | | | | | | | | | |
| CMO | | $ | 277,372 | | | $ | 3,960 | | | $ | - | | | $ | 281,332 | |
| Total Floating | | | 277,372 | | | | 3,960 | | | | - | | | | 281,332 | |
| Fixed | | | | | | | | | | | | | | | | |
| CMBS | | | 2,877,947 | | | | 282,913 | | | | (6,247 | ) | | | 3,154,613 | |
| Total Fixed | | | 2,877,947 | | | | 282,913 | | | | (6,247 | ) | | | 3,154,613 | |
| AFS Before Hedging Adjustments | | | 3,155,319 | | | | 286,873 | (a) | | | (6,247 | )(a) | | | 3,435,945 | |
| Hedging Basis Adjustments in AOCI | | | 44,052 | | | | (44,052) | (b) | | | - | | | | - | |
| Total Available-for-sale securities | | $ | 3,199,371 | | | $ | 242,821 | | | $ | (6,247 | ) | | $ | 3,435,945 | |
| | | December 31, 2019 | |
| | | | | | Gross | | | Gross | | | | |
| | | 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 | |
| CMBS | | | 2,539 | | | | 1 | | | | - | | | | 2,540 | |
| Total Floating | | | 341,958 | | | | 2,165 | | | | (74 | ) | | | 344,049 | |
| Fixed | | | | | | | | | | | | | | | | |
| CMBS | | | 2,213,592 | | | | 99,532 | | | | (3,755 | ) | | | 2,309,369 | |
| Total Fixed | | | 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 | |
| Hedging Basis Adjustments in AOCI | | | 11,593 | | | | 14,925 | (b) | | | 3,332 | (b) | | | - | |
| Total Available-for-sale securities | | $ | 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; fair 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 December 31, 2020 and 2019 reported $44.1 million and $11.6 million as hedging basis as noted in the table above, with an offset to AOCI. The hedging basis adjustment has no impact on market based fair values. |
Federal Home Loan Bank of New York
Notes to Financial Statements
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 December 31, 2020 and 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 December 31, 2020 and 2019. Accrued interest receivable was $6.7 million at December 31, 2020 and $6.1 million at December 31, 2019, and no allowance for credit losses was recorded as interest due was collected.
No credit loss allowance was necessary at December 31, 2020 based on analysis noted above. The following table summarizes available-for-sale securities with estimated fair values below their amortized cost basis (in thousands):
| | | December 31, 2020 | |
| | | 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 | | | | | | | | | | | | | | | | | | | | | | | | |
| Freddie Mac-CMBS | | $ | 526,365 | | | $ | (6,247 | ) | | $ | - | | | $ | - | | | $ | 526,365 | | | $ | (6,247 | ) |
| Total Temporarily Impaired | | $ | 526,365 | | | $ | (6,247 | ) | | $ | - | | | $ | - | | | $ | 526,365 | | | $ | (6,247 | ) |
| | | 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 Temporarily Impaired | | $ | 168,579 | | | $ | (497 | ) | | $ | - | | | $ | - | | | $ | 168,579 | | | $ | (497 | ) |
Federal Home Loan Bank of New York
Notes to Financial Statements
Redemption Terms
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees. The amortized cost and estimated fair value (a) of investments classified as AFS, by contractual maturity, were as follows (in thousands):
| | | December 31, 2020 | | | December 31, 2019 | |
| | | Amortized Cost (b) | | | Fair Value | | | Amortized Cost (b) | | | Fair Value | |
| Mortgage-backed securities | | | | | | | | | | | | | | | | |
| Due in one year or less | | $ | - | | | $ | - | | | $ | 2,539 | | | $ | 2,540 | |
| Due after one year through five years | | | 332,752 | | | | 364,081 | | | | - | | | | - | |
| Due after five year through ten years | | | 2,550,443 | | | | 2,750,824 | | | | 2,189,350 | | | | 2,273,352 | |
| Due after ten years | | | 316,176 | | | | 321,040 | | | | 375,254 | | | | 377,526 | |
| Total Available-for-sale securities | | $ | 3,199,371 | | | $ | 3,435,945 | | | $ | 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 $41.1 million and $30.4 million at December 31, 2020 and December 31, 2019. Additionally, historical amortized cost in the table above is after adjustment for hedging basis. |
Interest Rate Payment Terms
The following table summarizes interest rate payment terms of investments in mortgage-backed securities classified as AFS securities (in thousands):
| | | December 31, 2020 | | | December 31, 2019 | |
| | | Amortized Cost | | | Fair Value | | | Amortized Cost | | | Fair Value | |
| Mortgage-backed securities | | | | | | | | | | | | | | | | |
| Floating | | | | | | | | | | | | | | | | |
| CMO - LIBOR | | $ | 277,372 | | | $ | 281,332 | | | $ | 339,419 | | | $ | 341,509 | |
| CMBS - LIBOR | | | - | | | | - | | | | 2,539 | | | | 2,540 | |
| Total Floating | | | 277,372 | | | | 281,332 | | | | 341,958 | | | | 344,049 | |
| Fixed | | | | | | | | | | | | | | | | |
| CMBS | | | 2,921,999 | | | | 3,154,613 | | | | 2,225,185 | | | | 2,309,369 | |
| Total Mortgage-backed securities | | $ | 3,199,371 | | | $ | 3,435,945 | | | $ | 2,567,143 | | | $ | 2,653,418 | |
Federal Home Loan Bank of New York
Notes to Financial Statements
Note 8. Held-to-Maturity Securities.
Major Security Types (in thousands)
| | | December 31, 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 | | $ | 47,558 | | | $ | - | | | $ | - | | | $ | 47,558 | | | $ | 6,626 | | | $ | - | | | $ | 54,184 | |
| Freddie Mac | | | 9,813 | | | | - | | | | - | | | | 9,813 | | | | 1,305 | | | | - | | | | 11,118 | |
| Total pools of mortgages | | | 57,371 | | | | - | | | | - | | | | 57,371 | | | | 7,931 | | | | - | | | | 65,302 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Collateralized Mortgage Obligations/Real | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Estate Mortgage Investment Conduits | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fannie Mae | | | 942,268 | | | | - | | | | - | | | | 942,268 | | | | 9,204 | | | | (830 | ) | | | 950,642 | |
| Freddie Mac | | | 604,713 | | | | - | | | | - | | | | 604,713 | | | | 5,709 | | | | (385 | ) | | | 610,037 | |
| Ginnie Mae | | | 6,458 | | | | - | | | | - | | | | 6,458 | | | | 108 | | | | - | | | | 6,566 | |
| Total CMOs/REMICs | | | 1,553,439 | | | | - | | | | - | | | | 1,553,439 | | | | 15,021 | | | | (1,215 | ) | | | 1,567,245 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial Mortgage-Backed Securities (b) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fannie Mae | | | 1,570,197 | | | | - | | | | - | | | | 1,570,197 | | | | 53,905 | | | | (1,428 | ) | | | 1,622,674 | |
| Freddie Mac | | | 8,503,433 | | | | - | | | | - | | | | 8,503,433 | | | | 591,514 | | | | (5,142 | ) | | | 9,089,805 | |
| Total commercial mortgage-backed securities | | | 10,073,630 | | | | - | | | | - | | | | 10,073,630 | | | | 645,419 | | | | (6,570 | ) | | | 10,712,479 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-GSE MBS (c) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CMOs/REMICs | | | 3,824 | | | | (257 | ) | | | (294 | ) | | | 3,273 | | | | 146 | | | | (71 | ) | | | 3,348 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset-Backed Securities (c) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Manufactured housing (insured) | | | 23,763 | | | | - | | | | - | | | | 23,763 | | | | 768 | | | | - | | | | 24,531 | |
| Home equity loans (insured) | | | 52,262 | | | | - | | | | (3,308 | ) | | | 48,954 | | | | 13,340 | | | | (52 | ) | | | 62,242 | |
| Home equity loans (uninsured) | | | 17,450 | | | | - | | | | (1,986 | ) | | | 15,464 | | | | 2,588 | | | | (284 | ) | | | 17,768 | |
| Total asset-backed securities | | | 93,475 | | | | - | | | | (5,294 | ) | | | 88,181 | | | | 16,696 | | | | (336 | ) | | | 104,541 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total MBS | | | 11,781,739 | | | | (257 | ) | | | (5,588 | ) | | | 11,775,894 | | | | 685,213 | | | | (8,192 | ) | | | 12,452,915 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| State and local housing finance agency obligations (e) | | | 1,097,752 | | | | - | | | | - | | | | 1,097,752 | | | | 76 | | | | (21,562 | ) | | | 1,076,266 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Held-to-maturity securities | | $ | 12,879,491 | | | $ | (257 | ) | | $ | (5,588 | ) | | $ | 12,873,646 | | | $ | 685,289 | | | $ | (29,754 | ) | | $ | 13,529,181 | |
Federal Home Loan Bank of New York
Notes to Financial Statements
| | | December 31, 2019 | |
| | | | | | OTTI | | | | | | Gross | | | Gross | | | | |
| | | Amortized | | | Recognized | | | Carrying | | | Unrecognized | | | Unrecognized | | | Fair | |
| Issued, guaranteed or insured: | | 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 | |
| Freddie Mac | | | 11,526 | | | | - | | | | 11,526 | | | | 1,135 | | | | - | | | | 12,661 | |
| Total pools of mortgages | | | 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 | |
| Freddie Mac | | | 878,068 | | | | - | | | | 878,068 | | | | 2,871 | | | | (2,526 | ) | | | 878,413 | |
| Ginnie Mae | | | 9,265 | | | | - | | | | 9,265 | | | | 113 | | | | - | | | | 9,378 | |
| Total CMOs/REMICs | | | 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 | |
| Freddie Mac | | | 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-GSE MBS (c) | | | | | | | | | | | | | | | | | | | | | | | | |
| CMOs/REMICs | | | 4,451 | | | | (331 | ) | | | 4,120 | | | | 56 | | | | (30 | ) | | | 4,146 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset-Backed Securities (c) | | | | | | | | | | | | | | | | | | | | | | | | |
| Manufactured housing (insured) | | | 28,618 | | | | - | | | | 28,618 | | | | 1,175 | | | | - | | | | 29,793 | |
| Home equity loans (insured) | | | 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 | |
| Total asset-backed securities | | | 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other | | | | | | | | | | | | | | | | | | | | | | | | |
| State and local housing finance agency obligations | | | 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 | |
| (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 December 31, 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 $2.7 million at December 31, 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.
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 42 and 120 at December 31, 2020 and December 31, 2019.
Federal Home Loan Bank of New York
Notes to Financial Statements
Housing finance agency bonds — The FHLBNY’s investments in housing finance agency bonds reported gross unrealized losses of $21.6 million and $23.2 million at December 31, 2020 and December 31, 2019, respectively. 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 18 and 12 at December 31, 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 December 31, 2020, the probability default analysis reported cumulative credit loss of $0.7 million, materially unchanged from the evaluation at adoption date. The portfolio composition has not changed and no acquisitions or sales were made in the twelve months ended December 31, 2020. Additionally, our counterparty default analysis at December 31, 2020 identified no material changes from those at adoption date.
Accrued interest receivable was $1.3 million at December 31, 2020 and $4.5 million at December 31, 2019, 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. Allowance for credit loss of $0.3 million and $0.6 million were recognized in 2020 and 2019, respectively. 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 December 31, 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 10 and 8 at December 31, 2020 and December 31, 2019, respectively.
Federal Home Loan Bank of New York
Notes to Financial Statements
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):
| | | December 31, 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 | | $ | 30,867 | | | $ | 30,758 | | | $ | 9,770 | | | $ | 9,781 | |
| Due after five years through ten years | | | 100 | | | | 100 | | | | 36,810 | | | | 36,250 | |
| Due after ten years | | | 1,066,785 | | | | 1,045,408 | | | | 1,075,735 | | | | 1,053,474 | |
| State and local housing finance agency obligations | | | 1,097,752 | | | | 1,076,266 | | | | 1,122,315 | | | | 1,099,505 | |
| | | | | | | | | | | | | | | | | |
| Mortgage-backed securities | | | | | | | | | | | | | | | | |
| Due in one year or less | | | 690,206 | | | | 694,962 | | | | 613,863 | | | | 619,948 | |
| Due after one year through five years | | | 2,991,105 | | | | 3,114,446 | | | | 4,102,650 | | | | 4,142,443 | |
| Due after five years through ten years | | | 6,137,440 | | | | 6,629,839 | | | | 6,648,746 | | | | 6,815,921 | |
| Due after ten years | | | 1,962,988 | | | | 2,013,668 | | | | 2,754,479 | | | | 2,778,789 | |
| Mortgage-backed securities | | | 11,781,739 | | | | 12,452,915 | | | | 14,119,738 | | | | 14,357,101 | |
| Total Held-to-Maturity Securities | | $ | 12,879,491 | | | $ | 13,529,181 | | | $ | 15,242,053 | | | $ | 15,456,606 | |
| (a) | Amortized cost is UPB after adjusting for net unamortized premiums of $57.4 million at December 31, 2020 and $72.5 million at December 31, 2019 (net of unamortized discounts) and before adjustments for allowance for credit losses. |
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):
| | | December 31, 2020 | | | December 31, 2019 | |
| | | | | | Weighted (a) | | | | | | | | | Weighted (a) | | | | |
| | | | | | Average | | | Percentage | | | | | | Average | | | Percentage | |
| | | Amount | | | Yield | | | of Total | | | Amount | | | Yield | | | of Total | |
| Overdrawn demand deposit accounts | | $ | - | | | | - | % | | | - | % | | $ | - | | | | - | % | | | - | % |
| Due in one year or less | | | 51,202,647 | | | | 0.65 | | | | 56.42 | | | | 69,206,283 | | | | 1.99 | | | | 68.93 | |
| Due after one year through two years | | | 11,520,983 | | | | 1.52 | | | | 12.70 | | | | 8,727,277 | | | | 2.16 | | | | 8.69 | |
| Due after two years through three years | | | 7,734,061 | | | | 1.65 | | | | 8.52 | | | | 6,214,853 | | | | 2.32 | | | | 6.19 | |
| Due after three years through four years | | | 4,400,913 | | | | 1.55 | | | | 4.85 | | | | 3,032,507 | | | | 2.68 | | | | 3.02 | |
| Due after four years through five years | | | 3,770,927 | | | | 1.50 | | | | 4.16 | | | | 2,709,805 | | | | 2.02 | | | | 2.70 | |
| Thereafter | | | 12,111,628 | | | | 1.87 | | | | 13.35 | | | | 10,505,353 | | | | 2.13 | | | | 10.47 | |
| Total par value | | | 90,741,159 | | | | 1.09 | % | | | 100.00 | % | | | 100,396,078 | | | | 2.06 | % | | | 100.00 | % |
| Hedge valuation basis adjustments (b) | | | 1,325,945 | | | | | | | | | | | | 299,163 | | | | | | | | | |
| Total | | $ | 92,067,104 | | | | | | | | | | | $ | 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 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
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 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 increased to $136.2 billion at March 31, 2020, up from $100.7 billion at December 31, 2019. Since then demand has declined with maturing advances not replaced by borrowing members or due to prepayments. Carrying values were $92.1 billion at December 31, 2020.
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, 2020, or at January 1, 2020, the date ASU 2016-13 was adopted, or in the periods in 2020. Accrued interest receivable was $89.6 million and $181.8 million at December 31, 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 |
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.
Federal Home Loan Bank of New York
Notes to Financial Statements
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. None of the FHLBNY’s advances were past due, on non-accrual status, or considered impaired as of December 31, 2020 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.
As of December 31, 2020, and in all reporting periods in 2020, 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; 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 as of December 31, 2020.
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 35.6% and 24.9% of total advances at December 31, 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 onsite 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, 2020, 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
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.
As noted under Note 1. Critical Accounting Policies and Estimates, the FHLBNY has introduced a new mortgage loan program — the Mortgage Asset Program sm (MAP) and plan to fully roll it out starting in late March 2021, and cease to acquire loans under the MPF program. Legacy loans under the MPF programs would continue to be supported and serviced under the MPF loan agreements. At December 31, 2020, mortgage loans under the MAP program were $0.3 million. Because of the immateriality of loans acquired, required mortgage-loan disclosures on MAP were omitted.
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):
| | | December 31, 2020 | | | December 31, 2019 | |
| | | Carrying Amount | | | Percentage of Total | | | Carrying Amount | | | Percentage of Total | |
| Real Estate (a): | | | | | | | | | | | | | | | | |
| Fixed medium-term single-family mortgages | | $ | 178,968 | | | | 6.25 | % | | $ | 174,291 | | | | 5.57 | % |
| Fixed long-term single-family mortgages | | | 2,682,955 | | | | 93.75 | | | | 2,953,453 | | | | 94.43 | |
| Total unpaid principal balance | | $ | 2,861,923 | | | | 100.00 | % | | $ | 3,127,744 | | | | 100.00 | % |
| | | | | | | | | | | | | | | | | |
| Unamortized premiums | | | 43,103 | | | | | | | | 46,442 | | | | | |
| Unamortized discounts | | | (1,246 | ) | | | | | | | (1,562 | ) | | | | |
| Basis adjustment (b) | | | 2,691 | | | | | | | | 1,381 | | | | | |
| Total MPF loans amortized cost | | $ | 2,906,471 | | | | | | | $ | 3,174,005 | | | | | |
| MPF allowance for credit losses (c) | | | (7,073 | ) | | | | | | | (653 | ) | | | | |
| MPF loans held-for-portfolio | | $ | 2,899,398 | | | | | | | $ | 3,173,352 | | | | | |
| MAP loans held-for-portfolio | | $ | 314 | | | | | | | | | | | | | |
| Total mortgage loans held-for-portfolio at carrying value | | $ | 2,899,712 | | | | | | | | | | | | | |
| (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
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 $43.9 million and $40.2 million at December 31, 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 $2.7 million in 2020 and $2.5 million in 2019 and 2018. These fees were reported as a reduction to mortgage loan interest income.
In terms of the credit enhancement waterfall, the MPF program structures potential credit losses on conventional MPF loans into layers on each loan pool as follows:
| (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 layer or 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 layer of losses is absorbed by the FHLBNY. |
Allowance Methodology for Mortgage Loan Losses under New Accounting Framework under ASU 2016-13.
Effective January 1, 2020, the FHLBNY adopted ASU 2016-13, Financial Instruments — Credit Losses (Topic 326). With the adoption of the CECL guidance, the estimate of expected credit losses for MPF will be forward-looking. CECL 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 December 31, 2020. Amounts represent cumulative loan loss allowances at each of the dates (in thousands):
| | | December 31, 2019 | | | CECL Adoption Impact | | | Reserves Recorded
in 2020 | | | December 31, 2020 | |
| Allowance for Credit Losses | | $ | 653 | | | $ | 2,972 | | | $ | 3,448 | | | $ | 7,073 | |
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 $7.1 million at December 31, 2020 took into consideration several factors. First, the Bank’s mortgage loan portfolio has a history of incurred losses that accumulates to less than $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
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.
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., current to 30 days, 30 days to 60 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 $14.2 million and $15.5 million at December 31, 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. Additionally, as part of the service agreement between FHLBNY and the members that sold us government loans, those members 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.
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.
Federal Home Loan Bank of New York
Notes to Financial Statements
Under the incurred loss model (prior to the adoption of the expected loss model at January 1, 2020), 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.
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):
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Allowance for credit losses: | | | | | | | | | | | | |
| Beginning balance | | $ | 653 | | | $ | 814 | | | $ | 992 | |
| Adjustment for cumulative effect of accounting change | | | 2,972 | | | | - | | | | - | |
| Charge-offs | | | (94 | ) | | | (19 | ) | | | (172 | ) |
| Recoveries | | | - | | | | - | | | | 365 | |
| Provision (Reversal) for credit losses on mortgage loans | | | 3,542 | | | | (142 | ) | | | (371 | ) |
| Balance, at end of period | | $ | 7,073 | | | $ | 653 | | | $ | 814 | |
| | | | | | | | | | | | | |
| | | | December 31, | |
| | | | 2020 (a) | | | | 2019 | | | | 2018 | |
| Ending balance, individually evaluated for impairment | | $ | 7,073 | | | $ | 160 | | | $ | 238 | |
| Ending balance, collectively evaluated for impairment | | | - | | | | 493 | | | | 576 | |
| Total Allowance for credit losses | | $ | 7,073 | | | $ | 653 | | | $ | 814 | |
| (a) | With the adoption of ASU 2016-13 in 2020, we evaluate all loans on a loan-by-loan basis by policy. |
The FHLBNY’s total MPF loans and impaired MPF loans were as follows (in thousands):
| | | December 31, 2020 | | | December 31, 2019 | |
| Total MPF Mortgage loans, carrying values net (a) | | $ | 2,899,398 | | | $ | 3,173,352 | |
| Non-performing MPF mortgage loans - Conventional (a)(b) | | $ | 58,498 | | | $ | 6,899 | |
| Insured MPF loans past due 90 days or more and still accruing interest (a)(b) | | $ | 14,760 | | | $ | 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”. |
Under the new framework, the FHLBNY evaluates all loans, including non-performing conventional loans, on an individual basis for lifetime credit losses.
FHA 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 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
The following tables present unpaid principal balances with and without related loan loss allowances for conventional loans (excluding insured FHA/VA MPF loans) in the MPF program (in thousands):
| | | December 31, 2020 | |
| | | Unpaid | | | | | | | | | Average | |
| | | Principal | | | Related | | | Amortized Cost | | | Amortized Cost | |
| | | Balance | | | Allowance | | | After Allowance | | | After Allowance (d) | |
| Conventional Loans - MPF (a)(c) | | | | | | | | | | | | | | | | |
| No related allowance (b) | | $ | 1,792,650 | | | $ | - | | | $ | 1,818,942 | | | $ | 1,903,273 | |
| With a related allowance | | | 873,955 | | | | (7,073 | ) | | | 881,661 | | | | 994,262 | |
| Total measured for impairment | | $ | 2,666,605 | | | $ | (7,073 | ) | | $ | 2,700,603 | | | $ | 2,897,535 | |
| | | December 31, 2019 | |
| | | Unpaid | | | | | | | | | Average | |
| | | Principal | | | Related | | | Recorded | | | Recorded | |
| | | Balance | | | Allowance | | | Investment | | | Investment (d) | |
| Conventional Loans - MPF (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 twelve months ended December 31, 2020 and average recorded investment for the twelve months ended December 31, 2019. |
The following table summarizes MPF mortgage loans held-for-portfolio by collateral/guarantee type (in thousands):
| | | December 31, 2020 | | | December 31, 2019 | |
| Mortgage Loans Held for Portfolio by Collateral/Guarantee Type: | | | | | | | | |
| Conventional mortgage loans - MPF | | $ | 2,666,605 | | | $ | 2,910,744 | |
| MPF Government-guaranteed or -insured mortgage loans | | | 195,318 | | | | 217,000 | |
| Total MPF loans - unpaid principal balance | | $ | 2,861,923 | | | $ | 3,127,744 | |
Federal Home Loan Bank of New York
Notes to Financial Statements
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 December 31, 2020 and December 31, 2019, respectively.
Credit Quality Indicator for Conventional Mortgage Loans (in thousands):
| | | December 31, 2020 | |
| | | Conventional Loans | |
| | | Origination Year | | | | |
| | | Prior to 2016 | | | 2016 to 2020 | | | Total | |
| Payment Status, at Amortized Cost: | | | | | | | | | | | | |
| Conventional Loans | | | | | | | | | | | | |
| Past due 30 - 59 days | | $ | 10,088 | | | $ | 9,768 | | | $ | 19,856 | |
| Past due 60 - 89 days | | | 4,267 | | | | 7,682 | | | | 11,949 | |
| Past due 90 days or more | | | 28,157 | | | | 31,002 | | | | 59,159 | |
| Total past due MPF mortgage loans | | | 42,512 | | | | 48,452 | | | | 90,964 | |
| Current MPF mortgage loans | | | 1,038,404 | | | | 1,578,308 | | | | 2,616,712 | |
| Current MAP mortgage loans | | | - | | | | 314 | | | | 314 | |
| Total conventional loans | | $ | 1,080,916 | | | $ | 1,627,074 | | | $ | 2,707,990 | |
| | | December 31, 2019 | | | | | |
| | | Conventional | | | | | |
| | | MPF Loans | | | | | |
| Payment Status, at Recorded Investment: | | | | | | | | | | |
| Conventional 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 loans - MPF | | $ | 2,967,266 | | | | | | | |
Federal Home Loan Bank of New York
Notes to Financial Statements
Other Delinquency Statistics (dollars in thousands):
| | | December 31, 2020 | |
| | | Conventional | | | MPF Government-Guaranteed | | | | |
| | | MPF Loans | | | or -Insured Loans | | | Total MPF Loans | |
| Amortized Cost: | | | | | | | | | | | | |
| In process of foreclosure (a) | | $ | 23,645 | | | $ | 9,266 | | | $ | 32,911 | |
| Serious delinquency rate (b) | | | 2.44 | % | | | 8.05 | % | | | 2.82 | % |
| Past due 90 days or more and still accruing interest | | $ | - | | | $ | 14,986 | | | $ | 14,986 | |
| Loans on non-accrual status | | $ | 59,159 | | | $ | - | | | $ | 59,159 | |
| Troubled debt restructurings: | | | | | | | | | | | | |
| Loans discharged from bankruptcy (c) | | $ | 6,802 | | | $ | 1,219 | | | $ | 8,021 | |
| Modified loans under MPF® program | | $ | 926 | | | $ | - | | | $ | 926 | |
| Real estate owned (d) | | $ | 133 | | | $ | - | | | $ | 133 | |
| | | December 31, 2019 | |
| | | Conventional | | | MPF Government-Guaranteed | | | | |
| | | MPF Loans | | | or -Insured Loans | | | Total MPF Loans | |
| 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.
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):
| | | December 31, 2020 | | | December 31, 2019 | |
| Interest-bearing deposits | | | | | | | | |
| Interest-bearing demand | | $ | 1,677,526 | | | $ | 1,144,519 | |
| Term (a) | | | 5,000 | | | | 15,000 | |
| Total interest-bearing deposits | | | 1,682,526 | | | | 1,159,519 | |
| Non-interest-bearing demand | | | 70,437 | | | | 34,890 | |
| Total deposits (b) | | $ | 1,752,963 | | | $ | 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
Interest rate payment terms for deposits are summarized below (dollars in thousands):
| | | December 31, 2020 | | | December 31, 2019 | |
| | | Amount | | | Average | | | Amount | | | Average | |
| | | Outstanding | | | Interest Rate (b) | | | Outstanding | | | Interest Rate (b) | |
| Due in one year or less | | | | | | | | | | | | | | | | |
| Interest-bearing deposits (a) | | $ | 1,682,526 | | | | 0.26 | % | | $ | 1,159,519 | | | | 2.03 | % |
| Non-interest-bearing deposits | | | 70,437 | | | | | | | | 34,890 | | | | | |
| Total deposits | | $ | 1,752,963 | | | | | | | $ | 1,194,409 | | | | | |
| (a) | Primarily adjustable rate. |
| (b) | The weighted average interest rate is calculated based on the average balance. |
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 December 31, 2020 and December 31, 2019 (in thousands):
| | | December 31, 2020 | | | December 31, 2019 | |
| Consolidated obligation bonds-amortized cost | | $ | 69,063,948 | | | $ | 78,179,661 | |
| Hedge valuation basis adjustments | | | 514,436 | | | | 377,000 | |
| Hedge basis adjustments on de-designated hedges | | | 132,450 | | | | 139,605 | |
| FVO - valuation adjustments and accrued interest | | | 5,464 | | | | 67,043 | |
| Total Consolidated obligation bonds | | $ | 69,716,298 | | | $ | 78,763,309 | |
| Discount notes-amortized cost | | $ | 57,642,972 | | | $ | 73,955,552 | |
| Hedge value basis adjustments | | | 321 | | | | (105 | ) |
| FVO - valuation adjustments and remaining accretion | | | 15,545 | | | | 3,758 | |
| Total Consolidated obligation discount notes | | $ | 57,658,838 | | | $ | 73,959,205 | |
Federal Home Loan Bank of New York
Notes to Financial Statements
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):
| | | December 31, 2020 | | | December 31, 2019 | |
| | | | | | Weighted | | | | | | | | | Weighted | | | | |
| | | | | | Average | | | Percentage | | | | | | Average | | | Percentage | |
| Maturity | | Amount | | | Rate (a) | | | of Total | | | Amount | | | Rate (a) | | | of Total | |
| One year or less | | $ | 45,481,150 | | | | 0.34 | % | | | 66.00 | % | | $ | 62,319,595 | | | | 1.77 | % | | | 79.79 | % |
| Over one year through two years | | | 10,367,545 | | | | 1.01 | | | | 15.05 | | | | 4,061,125 | | | | 2.10 | | | | 5.20 | |
| Over two years through three years | | | 4,324,660 | | | | 1.72 | | | | 6.28 | | | | 2,817,715 | | | | 2.22 | | | | 3.61 | |
| Over three years through four years | | | 1,581,355 | | | | 1.94 | | | | 2.29 | | | | 1,538,835 | | | | 2.69 | | | | 1.97 | |
| Over four years through five years | | | 822,620 | | | | 1.62 | | | | 1.19 | | | | 1,240,735 | | | | 2.60 | | | | 1.58 | |
| Thereafter | | | 6,329,200 | | | | 3.14 | | | | 9.19 | | | | 6,130,800 | | | | 3.34 | | | | 7.85 | |
| Total par value | | | 68,906,530 | | | | 0.84 | % | | | 100.00 | % | | | 78,108,805 | | | | 1.96 | % | | | 100.00 | % |
| Bond premiums (b) | | | 184,084 | | | | | | | | | | | | 95,560 | | | | | | | | | |
| Bond discounts (b) | | | (26,666 | ) | | | | | | | | | | | (24,704 | ) | | | | | | | | |
| Hedge valuation basis adjustments (c) | | | 514,436 | | | | | | | | | | | | 377,000 | | | | | | | | | |
| Hedge basis adjustments on de-designated hedges (d) | | | 132,450 | | | | | | | | | | | | 139,605 | | | | | | | | | |
| FVO (e) - valuation adjustments and accrued interest | | | 5,464 | | | | | | | | | | | | 67,043 | | | | | | | | | |
| Total Consolidated obligation-bonds | | $ | 69,716,298 | | | | | | | | | | | $ | 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 interest rate, remaining terms to maturity or next call, and the notional amounts of CO bonds designated in hedge relationship. Our interest rate benchmarks are LIBOR, 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 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. |
Interest Rate Payment Terms
The following table summarizes par amounts of major types of Consolidated obligation bonds issued and outstanding (dollars in thousands):
| | | December 31, 2020 | | | December 31, 2019 | |
| | | Amount | | | Percentage
of Total | | | Amount | | | Percentage
of Total | |
| Fixed-rate, non-callable | | $ | 49,275,530 | | | | 71.51 | % | | $ | 32,588,805 | | | | 41.72 | % |
| Fixed-rate, callable | | | 1,434,000 | | | | 2.08 | | | | 4,803,000 | | | | 6.15 | |
| Step Up, callable | | | - | | | | - | | | | 15,000 | | | | 0.02 | |
| Single-index floating rate | | | 18,197,000 | | | | 26.41 | | | | 40,702,000 | | | | 52.11 | |
| Total par value | | $ | 68,906,530 | | | | 100.00 | % | | $ | 78,108,805 | | | | 100.00 | % |
Federal Home Loan Bank of New York
Notes to Financial Statements
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):
| | | December 31, 2020 | | | December 31, 2019 | |
| Par value | | $ | 57,668,646 | | | $ | 74,094,586 | |
| Amortized cost | | $ | 57,642,972 | | | $ | 73,955,552 | |
| Hedge value basis adjustments (a) | | | 321 | | | | (105 | ) |
| FVO (b) - valuation adjustments and remaining accretion | | | 15,545 | | | | 3,758 | |
| Total discount notes | | $ | 57,658,838 | | | $ | 73,959,205 | |
| Weighted average interest rate | | | 0.15 | % | | | 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. The application of ASC 815 accounting methodology resulted in the recognition of a net cumulative hedge valuation basis loss of $0.3 million at December 31, 2020 and a gain of $0.1 million at December 31, 2019. Changes in the designated benchmark interest rate, notional amounts of CO discount notes in hedging relationships and remaining terms to 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 including unaccreted discounts on CO discount notes elected under the FVO. Changes in benchmark interest rates, notional amounts of CO discount notes elected under FVO and remaining terms to maturity will impact hedge valuation adjustments. |
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):
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Beginning balance | | $ | 153,894 | | | $ | 161,718 | | | $ | 131,654 | |
| Additions from current period's assessments | | | 49,180 | | | | 52,552 | | | | 62,382 | |
| Net disbursements for grants and programs | | | (54,247 | ) | | | (60,376 | ) | | | (32,318 | ) |
| Ending balance | | $ | 148,827 | | | $ | 153,894 | | | $ | 161,718 | |
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 $5.4 billion at December 31, 2020 and $5.8 billion at December 31, 2019.
Federal Home Loan Bank of New York
Notes to Financial Statements
Membership and Activity-based Class B capital stocks have the same voting rights and dividend rates. (See Statements of Capital):
| · | 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. |
| · | 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.
Risk-based Capital — The following table summarizes the FHLBNY’s risk-based capital ratios (dollars in thousands):
| | | December 31, 2020 | | | December 31, 2019 | |
| | | Required (d) | | | Actual | | | Required (d) | | | Actual | |
| Regulatory capital requirements: | | | | | | | | | | | | | | | | |
| Risk-based capital (a)(e) | | $ | 1,067,518 | | | $ | 7,279,437 | | | $ | 1,107,356 | | | $ | 7,584,829 | |
| Total capital-to-asset ratio | | | 4.00 | % | | | 5.31 | % | | | 4.00 | % | | | 4.68 | % |
| Total capital (b) | | $ | 5,479,855 | | | $ | 7,279,437 | | | $ | 6,482,481 | | | $ | 7,584,829 | |
| Leverage ratio | | | 5.00 | % | | | 7.97 | % | | | 5.00 | % | | | 7.02 | % |
| Leverage capital (c ) | | $ | 6,849,819 | | | $ | 10,919,156 | | | $ | 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. |
| (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. |
Federal Home Loan Bank of New York
Notes to Financial Statements
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):
| | | December 31, 2020 | | | December 31, 2019 | |
| Redemption less than one year | | $ | 127 | | | $ | 835 | |
| Redemption from one year to less than three years | | | 293 | | | | 371 | |
| Redemption from three years to less than five years | | | 317 | | | | 402 | |
| Redemption from five years or greater | | | 2,254 | | | | 3,521 | |
| | | | | | | | | |
| Total | | $ | 2,991 | | | $ | 5,129 | |
The following table provides rollforward information with respect to changes in mandatorily redeemable capital stock liabilities (in thousands):
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Beginning balance | | $ | 5,129 | | | $ | 5,845 | | | $ | 19,945 | |
| Capital stock subject to mandatory redemption reclassified from equity | | | 2,743 | | | | 4,184 | | | | 8,756 | |
| Redemption of mandatorily redeemable capital stock (a) | | | (4,881 | ) | | | (4,900 | ) | | | (22,856 | ) |
| Ending balance | | $ | 2,991 | | | $ | 5,129 | | | $ | 5,845 | |
| Accrued interest payable (b) | | $ | 41 | | | $ | 84 | | | $ | 112 | |
| (a) | Redemption includes repayment of excess stock. |
| (b) | The annualized accrual rates for the three months ended December 31, 2020, 2019 and 2018 were 5.10%, 6.35% and 6.90%. Accrual rates are based on estimated dividend rates. |
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 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 $774.3 million and $685.8 million as restricted retained earnings in the FHLBNY’s Total Capital at December 31, 2020 and December 31, 2019.
Federal Home Loan Bank of New York
Notes to Financial Statements
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):
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Net income | | $ | 442,385 | | | $ | 472,588 | | | $ | 560,478 | |
| Net income available to stockholders | | $ | 442,385 | | | $ | 472,588 | | | $ | 560,478 | |
| Weighted average shares of capital | | | 61,334 | | | | 55,511 | | | | 61,798 | |
| Less: Mandatorily redeemable capital stock | | | (43 | ) | | | (60 | ) | | | (140 | ) |
| Average number of shares of capital used to calculate earnings per share | | | 61,291 | | | | 55,451 | | | | 61,658 | |
| Basic earnings per share | | $ | 7.22 | | | $ | 8.52 | | | $ | 9.09 | |
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.
Retirement Plan Expenses — Summary
The following table presents employee retirement plan expenses for the periods ended (in thousands):
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Defined Benefit Plan | | $ | 10,000 | | | $ | 9,976 | | | $ | 10,066 | |
| Benefit Equalization Plans (defined benefit and defined contribution) | | | 10,450 | | | | 7,613 | | | | 6,838 | |
| Defined Contribution Plans | | | 2,701 | | | | 2,501 | | | | 2,329 | |
| Postretirement Health Benefit Plan | | | 297 | | | | (230 | ) | | | (1,145 | ) |
| Total retirement plan expenses | | $ | 23,448 | | | $ | 19,860 | | | $ | 18,088 | |
Pentegra DB Plan Net Pension Cost and Funded Status
The Pentegra DB Plan operates as a multiemployer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. As a result, certain multiemployer plan disclosures, including the certified zone status, are not applicable to the Pentegra DB Plan. Typically, multiemployer plans contain provisions for collective bargaining arrangements. There are no collective bargaining agreements in place at any of the FHLBanks (including the FHLBNY) that participate in the plan. Under the Pentegra DB Plan, contributions made by a participating employer may be used to provide benefits to employees of other participating employers because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer. In addition, in the event a participating employer is unable to meet its contribution
Federal Home Loan Bank of New York
Notes to Financial Statements
requirements, the required contributions for the other participating employers could increase proportionately. If an employee transfers employment to the FHLBNY, and the employee was a participant in the Pentegra Benefit Plan with another employer, the FHLBNY is responsible for the entire benefit. At the time of transfer, the former employer will transfer assets to the FHLBNY’s plan, in the amount of the liability for the accrued benefit.
The Pentegra DB Plan operates on a fiscal year from July 1 through June 30, and files one Form 5500 on behalf of all employers who participate in the plan. The Employer Identification Number is 13-5645888 and the three-digit plan number is 333.
The Pentegra DB Plan’s annual valuation process includes calculating the plan’s funded status, and separately calculating the funded status of each participating employer. The funded status is defined as the market value of assets divided by the funding target (100 percent of the present value of all benefit liabilities accrued at that date). As permitted by ERISA, the Pentegra DB Plan accepts contributions for the prior plan year up to eight and a half months after the asset valuation date. As a result, the market value of assets at the valuation date (July 1) may increase by any subsequent contributions designated for the immediately preceding plan year ended June 30.
The following table presents multiemployer plan disclosure for the three years ended December 31, (dollars in thousands):
| | | 2020 | | | 2019 | | | 2018 | |
| Net pension cost charged to compensation and | | | | | | | | | | | | |
| benefit expense for the year ended December 31 | | $ | 10,000 | | | $ | 9,976 | | | $ | 10,066 | |
| Contributions allocated to plan year ended June 30 | | $ | 9,863 | | | $ | 9,696 | | | $ | 10,158 | |
| Pentegra DB Plan funded status as of July 1 (a) | | | 108.20 | % | | | 108.59 | % | | | 109.86 | % |
| FHLBNY's funded status as of July 1 (b) | | | 105.31 | % | | | 108.67 | % | | | 114.77 | % |
| (a) | Funded status is based on actuarial valuation of the Pentegra DB Plan, and includes all participants allocated to plan years and known at the time of the preparation of the actuarial valuation. The funded status may increase because the plan’s participants are permitted to make contributions through March 15 of the following year. Funded status remains preliminary until the Form 5500 is filed no later than April 15, 2021 for the plan year ended June 30, 2020. For information with respect to contributions expensed by the FHLBNY, see previous Table — Retirement Plan Expenses Summary. Contributions include minimum required under ERISA that are prepaid for the fiscal plan year that ends at June 30 in the following year, and as a result contributions may not equal amounts expensed. |
| (b) | Based on cash contributions made through December 31, 2020 and allocated to the DB Plan year(s). The funded status may increase because the FHLBNY is permitted to make contributions through March 15 of the following year. |
Benefit Equalization Plan (BEP)
The BEP restores 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.
The accrued pension costs for the BEP plan were as follows (in thousands):
| | | December 31, | |
| | | 2020 | | | 2019 | |
| Accumulated benefit obligation | | $ | 82,022 | | | $ | 67,274 | |
| Effect of future salary increases | | | 13,256 | | | | 11,032 | |
| Projected benefit obligation | | | 95,278 | | | | 78,306 | |
| Unrecognized prior service (cost)/credit | | | (851 | ) | | | (1,548 | ) |
| Unrecognized net (loss)/gain | | | (43,051 | ) | | | (31,954 | ) |
| | | | | | | | | |
| Accrued pension cost | | $ | 51,376 | | | $ | 44,804 | |
Federal Home Loan Bank of New York
Notes to Financial Statements
Components of the projected benefit obligation for the BEP plan were as follows (in thousands):
| | | December 31, | |
| | | 2020 | | | 2019 | |
| Projected benefit obligation at the beginning of the year | | $ | 78,306 | | | $ | 63,107 | |
| Service cost | | | 1,567 | | | | 1,265 | |
| Interest cost | | | 2,348 | | | | 2,544 | |
| Benefits paid | | | (2,601 | ) | | | (2,011 | ) |
| Actuarial loss/(gain) (a) | | | 15,658 | | | | 11,853 | |
| Plan amendments | | | - | | | | 1,548 | |
| Projected benefit obligation at the end of the year | | $ | 95,278 | | | $ | 78,306 | |
The measurement date used to determine projected benefit obligation for the BEP plan was December 31 in each of the two years.
| (a) | Actuarial loss of $15.7 million in 2020 was primarily due to decline in discount rate and unfavorable change in demographic experience, partly offset by favorable changes in mortality assumptions. |
Amounts recognized in AOCI for the BEP plan were as follows (in thousands):
| | | December 31, | |
| | | 2020 | | | 2019 | |
| Net loss/(gain) | | $ | 43,051 | | | $ | 31,954 | |
| Prior service cost/(credit) | | | 851 | | | | 1,548 | |
| Accumulated other comprehensive loss/(gain) | | $ | 43,902 | | | $ | 33,502 | |
Changes in the BEP plan assets were as follows (in thousands):
| | | December 31, | |
| | | 2020 | | | 2019 | |
| Fair value of the plan assets at the beginning of the year | | $ | - | | | $ | - | |
| Employer contributions | | | 2,601 | | | | 2,011 | |
| Benefits paid | | | (2,601 | ) | | | (2,011 | ) |
| Fair value of the plan assets at the end of the year | | $ | - | | | $ | - | |
Components of the net periodic pension cost for the defined benefit component of the BEP were as follows (in thousands):
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Service cost | | $ | 1,567 | | | $ | 1,265 | | | $ | 1,095 | |
| Interest cost | | | 2,348 | | | | 2,544 | | | | 2,155 | |
| Amortization of unrecognized net loss | | | 4,561 | | | | 2,879 | | | | 3,545 | |
| Amortization of unrecognized past service cost | | | 697 | | | | - | | | | - | |
| Net periodic benefit cost -Defined Benefit BEP | | | 9,173 | | | | 6,688 | | | | 6,795 | |
Benefit Equalization plans - Thrift and Deferred
incentive compensation plans | | | 1,277 | | | | 925 | | | | 43 | |
| Total | | $ | 10,450 | | | $ | 7,613 | | | $ | 6,838 | |
Federal Home Loan Bank of New York
Notes to Financial Statements
Other changes in benefit obligations recognized in AOCI were as follows (in thousands):
| | | December 31, | |
| | | 2020 | | | 2019 | |
| New (gain)/loss during the year | | $ | 15,658 | | | $ | 11,853 | |
| Recognized prior service credit/(cost) | | | (697 | ) | | | - | |
| New past service (credit)/cost | | | - | | | | 1,548 | |
| Recognized gain/(loss) | | | (4,561 | ) | | | (2,879 | ) |
| | | | | | | | | |
| Total recognized in other comprehensive loss/(income) | | $ | 10,400 | | | $ | 10,522 | |
| Total recognized in net periodic benefit cost and other comprehensive income | | $ | 19,573 | | | $ | 17,210 | |
The net transition obligation (asset), prior service cost (credit), and the estimated net loss (gain) for the BEP plan that are expected to be amortized from AOCI into net periodic benefit cost over the next fiscal year are shown in the table below (in thousands):
| | | December 31, 2021 | |
| Expected amortization of net loss/(gain) | | $ | 5,909 | |
| Expected amortization of past service cost/(credit) | | $ | 697 | |
Key assumptions and other information for the actuarial calculations to determine benefit obligations for the BEP plan were as follows (dollars in thousands):
| | | December 31, 2020 | | | December 31, 2019 | | | December 31, 2018 | |
| Discount rate (a) | | | 2.26 | % | | | 3.05 | % | | | 4.10 | % |
| Salary increases | | | 4.50 | % | | | 4.50 | % | | | 4.50 | % |
| Amortization period (years) | | | 6 | | | | 5 | | | | 6 | |
| Benefits paid during the period | | $ | (2,601 | ) | | $ | (2,011 | ) | | $ | (1,824 | ) |
| (a) | The discount rates were based on the Citigroup Pension Liability Index at December 31, adjusted for duration in each of the three years. |
Future BEP plan benefits to be paid were estimated to be as follows (in thousands):
| Years | | | Payments | |
| 2021 | | | $ | 3,202 | |
| 2022 | | | | 3,414 | |
| 2023 | | | | 3,638 | |
| 2024 | | | | 3,833 | |
| 2025 | | | | 4,216 | |
| 2026-2030 | | | | 23,801 | |
| | | | | | |
| Total | | | $ | 42,104 | |
The net periodic benefit cost for 2021 is expected to be $10.7 million ($9.2 million in 2020).
Federal Home Loan Bank of New York
Notes to Financial Statements
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.
Assumptions used in determining the accumulated postretirement benefit obligation (APBO) included a discount rate assumption of 2.18%.
Components of the accumulated postretirement benefit obligation for the postretirement health benefits plan for the years ended December 31, 2020 and 2019 (in thousands):
| | | December 31, | |
| | | 2020 | | | 2019 | |
| Accumulated postretirement benefit obligation at the beginning of the year | | $ | 10,610 | | | $ | 12,826 | |
| Service cost | | | 58 | | | | 72 | |
| Interest cost | | | 320 | | | | 406 | |
| Actuarial loss/(gain) | | | 1,054 | | | | (2,228 | ) |
| Plan participant contributions | | | 208 | | | | 220 | |
| Actual benefits paid | | | (939 | ) | | | (738 | ) |
| Retiree drug subsidy reimbursement | | | 53 | | | | 52 | |
| Accumulated postretirement benefit obligation at the end of the year | | $ | 11,364 | | | $ | 10,610 | |
Changes in postretirement health benefit plan assets (in thousands):
| | | December 31, | |
| | | 2020 | | | 2019 | |
| Fair value of plan assets at the beginning of the year | | $ | - | | | $ | - | |
| Employer contributions | | | 731 | | | | 518 | |
| Plan participant contributions | | | 208 | | | | 220 | |
| Actual benefits paid | | | (939 | ) | | | (738 | ) |
| Fair value of plan assets at the end of the year | | $ | - | | | $ | - | |
Amounts recognized in AOCI for the postretirement benefit obligation (in thousands):
| | | December 31, | |
| | | 2020 | | | 2019 | |
| Net (gain)/loss | | $ | (373 | ) | | $ | (1,509 | ) |
| Accumulated other comprehensive (gain)/loss | | $ | (373 | ) | | $ | (1,509 | ) |
Components of the net periodic benefit cost for the postretirement health benefit plan were as follows (in thousands):
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| Service cost (benefits attributed to service during the period) | | $ | 58 | | | $ | 72 | | | $ | 87 | |
| Interest cost on accumulated postretirement health benefit obligation | | | 320 | | | | 406 | | | | 465 | |
| Amortization of (gain)/loss | | | (81 | ) | | | (451 | ) | | | 64 | |
| Amortization of prior service (credit)/cost | | | - | | | | (257 | ) | | | (1,761 | ) |
| Net periodic postretirement health benefit expense/(income) | | $ | 297 | | | $ | (230 | ) | | $ | (1,145 | ) |
Federal Home Loan Bank of New York
Notes to Financial Statements
Other changes in benefit obligations recognized in AOCI were as follows (in thousands):
| | | December 31, | |
| | | 2020 | | | 2019 | |
| Net loss/(gain) | | $ | 1,054 | | | $ | (2,228 | ) |
| Amortization of net gain/(loss) | | | 81 | | | | 451 | |
| Amortization of prior service credit/(cost) | | | - | | | | 257 | |
| | | | | | | | | |
| Total recognized in other comprehensive income | | $ | 1,135 | | | $ | (1,520 | ) |
| | | | | | | | | |
| Total recognized in net periodic benefit cost and other comprehensive income | | $ | 1,432 | | | $ | (1,750 | ) |
The measurement date used to determine benefit obligations was December 31 in each of the two years.
Key assumptions and other information to determine current year’s obligation for the postretirement health benefit plan were as follows:
| | | Years ended December 31, |
| | | 2020 | | 2019 | | 2018 |
| Weighted average discount rate (a) | | | 2.18% | | | 3.04% | | | 4.09% |
| | | | | | | | | | |
| Health care cost trend rates: | | | | | | | | | |
| Assumed for next year | | | | | | | | | |
| Pre 65 | | | 6.50% | | | 6.75% | | | 6.75% |
| Post 65 | | | 4.95% | | | 5.00% | | | 4.90% |
| Pre 65 Ultimate rate | | | 4.50% | | | 4.50% | | | 4.50% |
| Pre 65 Year that ultimate rate is reached | | | 2028 | | | 2028 | | | 2025/2026 |
| Post 65 Ultimate rate | | | 4.50% | | | 4.50% | | | 4.50% |
| Post 65 Year that ultimate rate is reached | | | 2028 | | | 2028 | | | 2025/2026 |
| Alternative amortization methods used to amortize | | | | | | | | | |
| Prior service cost | | | Straight - line | | | Straight - line | | | Straight - line |
| Unrecognized net (gain) or loss | | | Straight - line | | | Straight - line | | | Straight - line |
| (a) | The discount rates were based on the Citigroup Pension Liability Index adjusted for duration in each of the periods in this report. |
Future postretirement health benefit plan expenses to be paid were estimated to be as follows (in thousands):
| Years | | | Payments | |
| 2021 | | | $ | 661 | |
| 2022 | | | | 737 | |
| 2023 | | | | 759 | |
| 2024 | | | | 743 | |
| 2025 | | | | 710 | |
| 2026-2030 | | | | 3,307 | |
| | | | | | |
| Total | | | $ | 6,917 | |
The postretirement health benefit plan accrual for 2021 is expected to be a cost of $0.3 million ($0.3 million in 2020).
Federal Home Loan Bank of New York
Notes to Financial Statements
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.
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 | |
| | | December 31, 2020 | | | December 31, 2019 | |
| Interest rate contracts | | | | | | | | |
| Interest rate swaps | | $ | 127,077,867 | | | $ | 107,837,925 | |
| Interest rate caps | | | 800,000 | | | | 800,000 | |
| Mortgage delivery commitments | | | 9,777 | | | | 44,768 | |
| Total interest rate contracts notionals | | $ | 127,887,644 | | | $ | 108,682,693 | |
Federal Home Loan Bank of New York
Notes to Financial Statements
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):
| | | December 31, 2020 | | | December 31, 2019 | |
| | | Derivative Assets | | | Derivative Liabilities | | | Derivative Assets | | | Derivative Liabilities | |
| Derivative instruments - nettable | | | | | | | | | | | | | | | | |
| Gross recognized amount | | | | | | | | | | | | | | | | |
| Uncleared derivatives | | $ | 232,355 | | | $ | 913,215 | | | $ | 241,501 | | | $ | 365,397 | |
| Cleared derivatives | | | 205,505 | | | | 211,259 | | | | 367,202 | | | | 352,576 | |
| Total gross recognized amount | | | 437,860 | | | | 1,124,474 | | | | 608,703 | | | | 717,973 | |
| Gross amounts of netting adjustments and cash collateral | | | | | | | | | | | | | | | | |
| Uncleared derivatives | | | (197,385 | ) | | | (849,880 | ) | | | (104,011 | ) | | | (333,471 | ) |
| Cleared derivatives | | | (203,835 | ) | | | (203,835 | ) | | | (266,850 | ) | | | (352,092 | ) |
| Total gross amounts of netting adjustments and cash collateral | | | (401,220 | ) | | | (1,053,715 | ) | | | (370,861 | ) | | | (685,563 | ) |
| Net amounts after offsetting adjustments and cash collateral | | $ | 36,640 | | | $ | 70,759 | | | $ | 237,842 | | | $ | 32,410 | |
| | | | | | | | | | | | | | | | | |
| Uncleared derivatives | | $ | 34,970 | | | $ | 63,335 | | | $ | 137,490 | | | $ | 31,926 | |
| Cleared derivatives | | | 1,670 | | | | 7,424 | | | | 100,352 | | | | 484 | |
| Total net amounts after offsetting adjustments and cash collateral | | $ | 36,640 | | | $ | 70,759 | | | $ | 237,842 | | | $ | 32,410 | |
| | | | | | | | | | | | | | | | | |
| Derivative instruments - not nettable | | | | | | | | | | | | | | | | |
| Uncleared derivatives (a) | | $ | 29 | | | $ | 1 | | | $ | 105 | | | $ | 1 | |
| Total derivative assets and total derivative liabilities | | | | | | | | | | | | | | | | |
| Uncleared derivatives | | $ | 34,999 | | | $ | 63,336 | | | $ | 137,595 | | | $ | 31,927 | |
| Cleared derivatives | | | 1,670 | | | | 7,424 | | | | 100,352 | | | | 484 | |
| Total derivative assets and total derivative liabilities presented in the Statements of Condition (b) | | $ | 36,669 | | | $ | 70,760 | | | $ | 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) | | $ | 630,372 | | | $ | - | | | $ | 251,177 | | | $ | - | |
| Cannot be sold or repledged | | | | | | | | | | | | | | | | |
| Uncleared derivatives securities received | | | (20,687 | ) | | | - | | | | (115,238 | ) | | | - | |
| Total net amount of non-cash collateral received or repledged | | $ | 609,685 | | | $ | - | | | $ | 135,939 | | | $ | - | |
| Total net exposure cash and non-cash (e) | | $ | 646,354 | | | $ | 70,760 | | | $ | 373,886 | | | $ | 32,411 | |
| | | | | | | | | | | | | | | | | |
| Net unsecured amount - Represented by: | | | | | | | | | | | | | | | | |
| Uncleared derivatives | | $ | 14,312 | | | $ | 63,336 | | | $ | 22,357 | | | $ | 31,927 | |
| Cleared derivatives | | | 632,042 | | | | 7,424 | | | | 351,529 | | | | 484 | |
| Total net exposure cash and non-cash (e) | | $ | 646,354 | | | $ | 70,760 | | | $ | 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 December 31, 2020, the FHLBNY posted $732.9 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
Fair Value of Derivative Instruments
The following tables represent outstanding notional balances and estimated fair values of the derivatives outstanding at December 31, 2020 and December 31, 2019 (in thousands):
| | | December 31, 2020 | |
| | | 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 | | $ | 69,885,821 | | | $ | 380,504 | | | $ | 1,088,253 | |
| Total derivatives in hedging relationships under ASC 815 | | | 69,885,821 | | | | 380,504 | | | | 1,088,253 | |
| | | | | | | | | | | | | |
| Derivatives not designated as hedging instruments | | | | | | | | | | | | |
| Interest rate swaps | | | 56,304,046 | | | | 35,555 | | | | 34,989 | |
| Interest rate caps | | | 800,000 | | | | 44 | | | | - | |
| Mortgage delivery commitments | | | 9,777 | | | | 29 | | | | 1 | |
| Other (b) | | | 888,000 | | | | 21,757 | | | | 1,232 | |
| Total derivatives not designated as hedging instruments | | | 58,001,823 | | | | 57,385 | | | | 36,222 | |
| | | | | | | | | | | | | |
| Total derivatives before netting and collateral adjustments | | $ | 127,887,644 | | | | 437,889 | | | | 1,124,475 | |
| Netting adjustments | | | | | | | (291,135 | ) | | | (291,135 | ) |
| Cash collateral and related accrued interest | | | | | | | (110,085 | ) | | | (762,580 | ) |
| Total netting adjustments and cash collateral | | | | | | | (401,220 | ) | | | (1,053,715 | ) |
| Total derivative assets and total derivative liabilities | | | | | | $ | 36,669 | | | $ | 70,760 | |
| Security collateral pledged as initial margin to Derivative Clearing Organization (c) | | | | | | $ | 630,372 | | | | | |
| Security collateral received from counterparty (c) | | | | | | | (20,687 | ) | | | | |
| Net security | | | | | | | 609,685 | | | | | |
| Net exposure | | | | | | $ | 646,354 | | | | | |
| | | December 31, 2019 | |
| | | 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 | |
| Total derivatives in hedging relationships under ASC 815 | | | 59,361,080 | | | | 414,480 | | | | 550,758 | |
| | | | | | | | | | | | | |
| Derivatives not designated as hedging instruments | | | | | | | | | | | | |
| Interest rate swaps | | | 47,404,845 | | | | 179,784 | | | | 162,702 | |
| Interest rate caps | | | 800,000 | | | | 50 | | | | - | |
| Mortgage delivery commitments | | | 44,768 | | | | 105 | | | | 1 | |
| Other (b) | | | 1,072,000 | | | | 14,389 | | | | 4,513 | |
| Total derivatives not designated as hedging instruments | | | 49,321,613 | | | | 194,328 | | | | 167,216 | |
| | | | | | | | | | | | | |
| Total derivatives before netting and collateral adjustments | | $ | 108,682,693 | | | | 608,808 | | | | 717,974 | |
| Netting adjustments | | | | | | | (342,911 | ) | | | (342,911 | ) |
| Cash collateral and related accrued interest | | | | | | | (27,950 | ) | | | (342,652 | ) |
| Total netting adjustments and cash collateral | | | | | | | (370,861 | ) | | | (685,563 | ) |
| Total derivative assets and total derivative liabilities | | | | | | $ | 237,947 | | | $ | 32,411 | |
| Security collateral pledged as initial margin to Derivative Clearing Organization (c) | | | | | | $ | 251,177 | | | | | |
| Security collateral received from counterparty (c) | | | | | | | (115,238 | ) | | | | |
| Net security | | | | | | | 135,939 | | | | | |
| Net exposure | | | | | | $ | 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 December 31, 2020 and December 31, 2019. |
Federal Home Loan Bank of New York
Notes to Financial Statements
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. Derivative not designated under a qualifying ASC 815 hedge relationship and designated as an asset/liability management hedge are classified as an economic hedge”. For more information, see Note 1. Critical Accounting Policies and Estimates in this Form 10-K.
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.
FASB’s 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), added 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 interest rate benchmarks are LIBOR, the overnight SOFR index and the overnight Fed funds index.
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 | |
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| | | Recorded in Interest Income/Expense | | | Recorded in Interest Income/Expense | | | Recorded in Other Income (Loss) | |
| Gains (losses) on derivatives in designated and qualifying fair value hedges: | | | | | | | | | | | | |
| Interest rate hedges | | $ | (978,281 | ) | | $ | (447,416 | ) | | $ | (43,845 | ) |
| | | | | | | | | | | | | |
| Gains (losses) on hedged item in designated and qualifying fair value hedges: | | | | | | | | | | | | |
| Interest rate hedges | | $ | 977,118 | | | $ | 446,278 | | | $ | 43,342 | |
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
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 December 31, 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):
| | | December 31, 2020 | |
| | | | | | 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 | |
| Assets: | | | | | | | | | | | | |
| Hedged advances | | $ | 38,275,533 | | | $ | 1,324,615 | | | $ | - | |
| Hedged AFS debt securities (a) | | | 1,162,366 | | | | 44,052 | | | | - | |
| De-designated advances (b) | | | - | | | | - | | | | 1,331 | |
| | | $ | 39,437,899 | | | $ | 1,368,667 | | | $ | 1,331 | |
| | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | |
| Hedged consolidated obligation bonds | | $ | 20,639,825 | | | $ | (514,436 | ) | | $ | - | |
| Hedged consolidated obligation discount notes | | | 7,583,549 | | | | (321 | ) | | | - | |
| De-designated consolidated obligation bonds (b) | | | - | | | | - | | | | (132,450 | ) |
| | $ | 28,223,374 | | | $ | (514,757 | ) | | $ | (132,450 | ) |
| | | December 31, 2019 | |
| | | | | | 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 | |
| Assets: | | | | | | | | | | | | |
| Hedged advances | | $ | 40,722,558 | | | $ | 298,818 | | | $ | - | |
| Hedged AFS debt securities (a) | | | 547,807 | | | | 11,593 | | | | - | |
| De-designated advances (b) | | | - | | | | - | | | | 345 | |
| | | $ | 41,270,365 | | | $ | 310,411 | | | $ | 345 | |
| Liabilities: | | | | | | | | | | | | |
| Hedged consolidated obligation bonds | | $ | 11,366,044 | | | $ | (377,000 | ) | | $ | - | |
| Hedged consolidated obligation discount notes | | | 3,493,297 | | | | 105 | | | | - | |
| De-designated consolidated obligation bonds (b) | | | - | | | | - | | | | (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. At December 31, 2020, par amounts of de-designated advances were $1.2 billion; par amounts of de-designated CO bonds were approximately $1.5 billion; par amounts of de-designated CO discount notes were approximately $0.1 billion. At December 31, 2019, par amounts of de-designated advances were not material; par amounts of de-designated CO bonds were approximately $1.3 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
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 | |
| | | December 31, 2020 | |
| | | 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) | | $ | (1,352 | ) | | $ | - | | | $ | (114,040 | ) | | $ | (112,688 | ) |
| | | Derivative Gains (Losses) Recorded in Income and Other
Comprehensive Income/Loss | |
| | | December 31, 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 | |
| Interest rate contracts (a) | | $ | (613 | ) | | $ | - | | | $ | (111,888 | ) | | $ | (111,275 | ) |
| | | Derivative Gains (Losses) Recorded in Income and Other
Comprehensive Income/Loss | |
| | | December 31, 2018 | |
| | | 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) | | $ | 180 | | | $ | (278 | ) | | $ | 36,816 | | | $ | 36,636 | |
| (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, $1.5 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
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.
Gains and losses on economic hedges are presented below (in thousands):
| | | Gains (Losses) on Economic Hedges | |
| | | Recorded in Other Income (Loss) | |
| | | Years ended December 31, | |
| | | 2020(a) | | | 2019(a) | | | 2018(b) | |
| Gains (losses) on derivatives designated in economic hedges | | | | | | | | | | | | |
| Interest rate hedges | | $ | (153,396 | ) | | $ | (40,833 | ) | | $ | (39,584 | ) |
| Caps | | | (6 | ) | | | (596 | ) | | | (268 | ) |
| Mortgage delivery commitments | | | 1,693 | | | | 709 | | | | (145 | ) |
| Total gains (losses) on derivatives in economic hedges | | $ | (151,709 | ) | | $ | (40,720 | ) | | $ | (39,997 | ) |
| (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. |
| (b) | The table above reports valuation changes of derivatives in economic hedges (not qualifying under ASC 815). Gains and losses reported in the table above for 2018 will not agree with the line item “Derivative gains (losses)” in the Statements of Income which included the impact of both ASC 815 qualifying hedges and derivatives not qualifying. As permitted under the ASU 2017-12, prior year presentations in the Statements of income has not been reclassified to reporting classifications under ASU 2017-12. |
Federal Home Loan Bank of New York
Notes to Financial Statements
| 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):
| | | December 31, 2020 | |
| | | | | | 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 | | $ | 1,896,155 | | | $ | 1,896,155 | | | $ | 1,896,155 | | | $ | - | | | $ | - | | | $ | - | |
| Interest-bearing deposits | | | 685,000 | | | | 685,002 | | | | - | | | | 685,002 | | | | - | | | | - | |
| Securities purchased under agreements to resell | | | 4,650,000 | | | | 4,649,989 | | | | - | | | | 4,649,989 | | | | - | | | | - | |
| Federal funds sold | | | 6,280,000 | | | | 6,279,989 | | | | - | | | | 6,279,989 | | | | - | | | | - | |
| Trading securities | | | 11,742,965 | | | | 11,742,965 | | | | 11,740,801 | | | | 2,164 | | | | - | | | | - | |
| Equity Investments | | | 80,369 | | | | 80,369 | | | | 80,369 | | | | - | | | | - | | | | - | |
| Available-for-sale securities | | | 3,435,945 | | | | 3,435,945 | | | | - | | | | 3,435,945 | | | | - | | | | - | |
| Held-to-maturity securities | | | 12,873,646 | | | | 13,529,181 | | | | - | | | | 12,345,026 | | | | 1,184,155 | | | | - | |
| Advances | | | 92,067,104 | | | | 92,315,784 | | | | - | | | | 92,315,784 | | | | - | | | | - | |
| Mortgage loans held-for-portfolio, net | | | 2,899,712 | | | | 3,002,883 | | | | - | | | | 3,002,883 | | | | - | | | | - | |
| Accrued interest receivable | | | 189,454 | | | | 189,454 | | | | - | | | | 189,454 | | | | - | | | | - | |
| Derivative assets | | | 36,669 | | | | 36,669 | | | | - | | | | 437,889 | | | | - | | | | (401,220 | ) |
| Other financial assets | | | 133 | | | | 133 | | | | - | | | | - | | | | 133 | | | | - | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| Deposits | | | 1,752,963 | | | | 1,752,974 | | | | - | | | | 1,752,974 | | | | - | | | | - | |
| Consolidated obligations | | | | | | | | | | | | | | | | | | | | | | | | |
| Bonds | | | 69,716,298 | | | | 70,610,339 | | | | - | | | | 70,610,339 | | | | - | | | | - | |
| Discount notes | | | 57,658,838 | | | | 57,663,523 | | | | - | | | | 57,663,523 | | | | - | | | | - | |
| Mandatorily redeemable capital stock | | | 2,991 | | | | 2,991 | | | | 2,991 | | | | - | | | | - | | | | - | |
| Accrued interest payable | | | 117,982 | | | | 117,982 | | | | - | | | | 117,982 | | | | - | | | | - | |
| Derivative liabilities | | | 70,760 | | | | 70,760 | | | | - | | | | 1,124,475 | | | | - | | | | (1,053,715 | ) |
| Other financial liabilities | | | 32,378 | | | | 32,378 | | | | 32,378 | | | | - | | | | - | | | | - | |
| | | 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. |
Federal Home Loan Bank of New York
Notes to Financial Statements
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.
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 were 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:
Federal Home Loan Bank of New York
Notes to Financial Statements
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 December 31, 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.
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. |
| · | 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. |
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 December 31, 2020 and December 31, 2019.
Starting in mid-October 2020, interest rate swaps cleared by Central Clearing Houses, LCH and the CME, are valued by discounting forward cash flows by the SOFR index, consistent with the change to SOFR in the interest accrual calculation of margins.
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:
| · | 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). |
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 SOFR and the overnight indexed swap (FF/OIS) curves as fair value measurement inputs for the valuation of its derivatives, as SOFR 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 SOFR and the 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. SOFR and the FF/OIS curves are inputs to the valuation model and are obtained from industry standard pricing vendors; the inputs are available and observable over the entire terms of the interest rate swaps.
Management considers the SOFR and the federal funds curve to be Level 2 inputs. The FHLBNY’s valuation model utilizes industry standard OIS methodology. The model generates forecasted cash flows using the contractual cash flows, then discounts the cash flows by SOFR and FF/OIS curve to generate fair values.
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 December 31, 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 December 31, 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.
Items Measured at Fair Value on a Recurring Basis (in thousands):
| | | December 31, 2020 | |
| | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Netting
Adjustment and Cash Collateral | |
| Assets | | | | | | | | | | | | | | | |
| Trading securities | | | | | | | | | | | | | | | | | | | | |
| Corporate notes | | $ | 2,164 | | | $ | - | | | $ | 2,164 | | | $ | - | | | $ | - | |
| U.S. Treasury securities | | | 11,740,801 | | | | 11,740,801 | | | | - | | | | - | | | | - | |
| Equity Investments | | | 80,369 | | | | 80,369 | | | | - | | | | - | | | | - | |
| Available-for-sale securities | | | | | | | | | | | | | | | | | | | | |
| GSE/U.S. agency issued MBS | | | 3,435,945 | | | | - | | | | 3,435,945 | | | | - | | | | - | |
| Derivative assets (a) | | | | | | | | | | | | | | | | | | | | |
| Interest-rate derivatives | | | 36,640 | | | | - | | | | 437,860 | | | | - | | | | (401,220 | ) |
| Mortgage delivery commitments | | | 29 | | | | - | | | | 29 | | | | - | | | | - | |
| Total recurring fair value measurement - Assets | | $ | 15,295,948 | | | $ | 11,821,170 | | | $ | 3,875,998 | | | $ | - | | | $ | (401,220 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | |
| Consolidated obligation: | | | | | | | | | | | | | | | | | | | | |
| Discount notes (to the extent FVO is elected) | | $ | (7,133,755 | ) | | $ | - | | | $ | (7,133,755 | ) | | $ | - | | | $ | - | |
| Bonds (to the extent FVO is elected) (b) | | | (16,580,464 | ) | | | - | | | | (16,580,464 | ) | | | - | | | | - | |
| Derivative liabilities (a) | | | | | | | | | | | | | | | | | | | | |
| Interest-rate derivatives | | | (70,759 | ) | | | - | | | | (1,124,474 | ) | | | - | | | | 1,053,715 | |
| Mortgage delivery commitments | | | (1 | ) | | | - | | | | (1 | ) | | | - | | | | - | |
| Total recurring fair value measurement - Liabilities | | $ | (23,784,979 | ) | | $ | - | | | $ | (24,838,694 | ) | | $ | - | | | $ | 1,053,715 | |
| | | 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. |
Items Measured at Fair Value on a Non-recurring Basis (in thousands):
| | | During the period ended December 31, 2020 | |
| | | | Fair Value | | | | Level 1 | | | | Level 2 | | | | Level 3 | |
| Mortgage loans held-for-portfolio | | $ | 1,671 | | | $ | - | | | $ | 1,671 | | | $ | - | |
| Total non-recurring assets at fair value | | $ | 1,671 | | | $ | - | | | $ | 1,671 | | | $ | - | |
| | | 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 | |
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 December 31, 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 December 31, 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.
The following tables summarize the activity related to financial instruments for which the FHLBNY elected the fair value option (in thousands):
| | | Years ended December 31, 2020 | |
| | | Bonds | | | Discount Notes | |
| Balance, beginning of the period | | $ | (12,134,043 | ) | | $ | (2,186,603 | ) |
| New transactions elected for fair value option | | | (19,375,000 | ) | | | (23,818,753 | ) |
| Maturities and terminations | | | 14,867,000 | | | | 18,883,387 | |
| Net gains (losses) on financial instruments held | | | | | | | | |
| under fair value option | | | 2,069 | | | | (1,946 | ) |
| Change in accrued interest/unaccreted balance | | | 59,510 | | | | (9,840 | ) |
| Balance, end of the period | | $ | (16,580,464 | ) | | $ | (7,133,755 | ) |
| | | Years ended December 31, 2019 | |
| | | Bonds | | | Discount Notes | |
| Balance, beginning of the period | | $ | (5,159,792 | ) | | $ | (3,180,086 | ) |
| New transactions elected for fair value option | | | (18,392,000 | ) | | | (2,182,845 | ) |
| Maturities and terminations | | | 11,465,000 | | | | 3,170,915 | |
| Net gains (losses) on financial instruments held | | | | | | | | |
| under fair value option | | | (3,952 | ) | | | (194 | ) |
| Change in accrued interest/unaccreted balance | | | (43,299 | ) | | | 5,607 | |
| Balance, end of the period | | $ | (12,134,043 | ) | | $ | (2,186,603 | ) |
| | | Years ended December 31, 2018 | |
| | | Advances | | | Bonds | | | Discount Notes | |
| Balance, beginning of the period | | $ | 2,205,624 | | | $ | (1,131,074 | ) | | $ | (2,312,621 | ) |
| New transactions elected for fair value option | | | - | | | | (5,225,000 | ) | | | (4,735,290 | ) |
| Maturities and terminations | | | (2,200,000 | ) | | | 1,215,000 | | | | 3,873,993 | |
| Net gains (losses) on financial instruments held | | | | | | | | | | | | |
| under fair value option | | | (590 | ) | | | 681 | | | | 118 | |
| Change in accrued interest/unaccreted balance | | | (5,034 | ) | | | (19,399 | ) | | | (6,286 | ) |
| Balance, end of the period | | $ | - | | | $ | (5,159,792 | ) | | $ | (3,180,086 | ) |
Federal Home Loan Bank of New York
Notes to Financial Statements
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):
| | | | December 31, 2018 | |
| | | | Interest
Income | | | Net Gains (Losses)
Due to Changes in
Fair Value | | | Total Change in Fair
Value Included in Current
Period Earnings | |
| Advances | | | $ | 10,085 | | | $ | (590 | ) | | $ | 9,495 | |
| | | December 31, 2020 | |
| | | Interest
Expense | | | Net Gains (Losses)
Due to Changes in
Fair Value | | | Total Change in Fair
Value Included in Current
Period Earnings | |
| Consolidated obligation bonds | | $ | (55,088 | ) | | $ | 2,069 | | | $ | (53,019 | ) |
| Consolidated obligation discount notes | | | (60,063 | ) | | | (1,946 | ) | | | (62,009 | ) |
| | | $ | (115,151 | ) | | $ | 123 | | | $ | (115,028 | ) |
| | | December 31, 2019 | |
| | | Interest
Expense | | | Net Gains (Losses)
Due to Changes in
Fair Value | | | Total Change in Fair
Value Included in Current
Period Earnings | |
| Consolidated obligation bonds | | $ | (168,329 | ) | | $ | (3,952 | ) | | $ | (172,281 | ) |
| Consolidated obligation discount notes | | | (26,475 | ) | | | (194 | ) | | | (26,669 | ) |
| | | $ | (194,804 | ) | | $ | (4,146 | ) | | $ | (198,950 | ) |
| | | December 31, 2018 | |
| | | Interest
Expense | | | Net Gains (Losses)
Due to Changes in
Fair Value | | | Total Change in Fair
Value Included in Current
Period Earnings | |
| Consolidated obligation bonds | | $ | (25,077 | ) | | $ | 681 | | | $ | (24,396 | ) |
| Consolidated obligation discount notes | | | (21,617 | ) | | | 118 | | | | (21,499 | ) |
| | | $ | (46,694 | ) | | $ | 799 | | | $ | (45,895 | ) |
Federal Home Loan Bank of New York
Notes to Financial Statements
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):
| | | December 31, 2020 | |
| | | Aggregate Unpaid
Principal Balance | | | Aggregate Fair
Value | | | Fair Value Over/(Under)
Aggregate Unpaid
Principal Balance | |
| Consolidated obligation bonds (b) | | $ | 16,575,000 | | | $ | 16,580,464 | | | $ | 5,464 | |
| Consolidated obligation discount notes (c) | | | 7,118,211 | | | | 7,133,755 | | | | 15,544 | |
| | | $ | 23,693,211 | | | $ | 23,714,219 | | | $ | 21,008 | |
| | | 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 | |
| | | December 31, 2018 | |
| | | Aggregate Unpaid
Principal Balance | | | Aggregate Fair
Value | | | Fair Value Over/(Under)
Aggregate Unpaid
Principal Balance | |
| Consolidated obligation bonds (b) | | $ | 5,140,000 | | | $ | 5,159,792 | | | $ | 19,792 | |
| Consolidated obligation discount notes (c) | | | 3,170,915 | | | | 3,180,086 | | | | 9,171 | |
| | | $ | 8,310,915 | | | $ | 8,339,878 | | | $ | 28,963 | |
| (a) | Advances – No advances elected under the FVO were outstanding at December 31, 2020, 2019 and 2018. 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. |
| 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 $0.7 trillion and $1.0 trillion as of December 31, 2020 and December 31, 2019.
Federal Home Loan Bank of New York
Notes to Financial Statements
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 December 31, 2020 (in thousands):
| | | December 31, 2020 | |
| | | Payments Due or Expiration Terms by Period | |
| | | | | | Greater Than | | | Greater Than | | | | | | | |
| | | Less Than | | | One Year | | | Three Years | | | Greater Than | | | | |
| | | One Year | | | to Three Years | | | to Five Years | | | Five Years | | | Total | |
| Contractual Obligations | | | | | | | | | | | | | | | | | | | | |
| Consolidated obligation bonds at par (a) | | $ | 45,481,150 | | | $ | 14,692,205 | | | $ | 2,403,975 | | | $ | 6,329,200 | | | $ | 68,906,530 | |
| Consolidated obligation discount notes at par | | | 57,668,646 | | | | - | | | | - | | | | - | | | | 57,668,646 | |
| Mandatorily redeemable capital stock (a) | | | 127 | | | | 293 | | | | 317 | | | | 2,254 | | | | 2,991 | |
| Premises (lease obligations) (b) | | | 6,916 | | | | 15,676 | | | | 16,202 | | | | 62,094 | | | | 100,888 | |
| Remote backup site | | | 723 | | | | 1,371 | | | | 263 | | | | - | | | | 2,357 | |
| Other liabilities (c) | | | 80,490 | | | | 11,828 | | | | 9,502 | | | | 84,730 | | | | 186,550 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total contractual obligations | | | 103,238,052 | | | | 14,721,373 | | | | 2,430,259 | | | | 6,478,278 | | | | 126,867,962 | |
| | | | | | | | | | | | | | | | | | | | | |
| Other commitments | | | | | | | | | | | | | | | | | | | | |
| Standby letters of credit (d) | | | 19,924,154 | | | | 177,396 | | | | - | | | | - | | | | 20,101,550 | |
| Consolidated obligation bonds/discount notes traded not settled | | | 3,613,925 | | | | - | | | | - | | | | - | | | | 3,613,925 | |
| Commitments to fund additional advances | | | 215,000 | | | | - | | | | - | | | | - | | | | 215,000 | |
| Commitments to fund pension | | | 10,000 | | | | - | | | | - | | | | - | | | | 10,000 | |
| Open delivery commitments (MPF and MAP) | | | 9,777 | | | | - | | | | - | | | | - | | | | 9,777 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total other commitments | | | 23,772,856 | | | | 177,396 | | | | - | | | | - | | | | 23,950,252 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total obligations and commitments | | $ | 127,010,908 | | | $ | 14,898,769 | | | $ | 2,430,259 | | | $ | 6,478,278 | | | $ | 150,818,214 | |
| (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. |
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 sheet arrangements as of January 1, 2020 or periods in this report.
Federal Home Loan Bank of New York
Notes to Financial Statements
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 December 31, 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):
| | | December 31, 2020 | | | December 31, 2019 | |
| Operating Leases (a) | | | | | | | | |
| Right-of-use assets | | $ | 70,733 | | | $ | 75,464 | |
| Lease Liabilities | | $ | 84,475 | | | $ | 89,365 | |
| | | Twelve months ended December 31, | |
| | | 2020 | | | 2019 | |
| Operating Lease Expense | | $ | 7,776 | | | $ | 7,585 | |
| Operating cash flows - Cash Paid | | $ | 7,899 | | | $ | 6,624 | |
| | | December 31, 2020 | | | December 31, 2019 | |
| Weighted Average Discount Rate | | 3.29 | | % | | 3.29 | | % |
| Weighted Average Remaining Lease Term | | 12.01 | | Years | | 12.98 | | Years |
| | | Remaining maturities through | |
| Operating lease liabilities | | December 31, 2020 | | | December 31, 2019 | |
| 2020 | | $ | - | | | $ | 7,886 | |
| 2021 | | | 8,148 | | | | 8,107 | |
| 2022 | | | 8,246 | | | | 8,205 | |
| 2023 | | | 8,615 | | | | 8,575 | |
| 2024 | | | 8,297 | | | | 8,282 | |
| 2025 | | | 8,088 | | | | 8,088 | |
Thereafter | | | 61,798 | | | | 61,798 | |
Total undiscounted lease payments | | | 103,192 | | | | 110,941 | |
| Imputed interest | | | (18,717 | ) | | | (21,576 | ) |
| Total operating lease liabilities | | $ | 84,475 | | | $ | 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
| 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 — In December 2020, the FHLBNY assumed $985.1 million of debt (par amounts) from FHLB Boston. No debt was assumed from another FHLBank in the twelve months ended December 31, 2019.
Debt transfers — No debt was transferred to another FHLBank in the twelve months ended December 31, 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 $6.0 million and $7.3 million at December 31, 2020 and December 31, 2019.
Fees paid to the FHLBank of Chicago for providing MPF program services were approximately $2.6 million, $2.5 million, and $2.6 million for the twelve ended December 31, 2020, 2019, and 2018.
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 December 31, 2020 and December 31, 2019, outstanding notional amounts were $444.0 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.
Federal Home Loan Bank of New York
Notes to Financial Statements
Loans to Other Federal Home Loan Banks
In the twelve months ended December 31, 2020 and 2019, overnight loans extended to other FHLBanks averaged $2.0 million and $6.9 million. 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 twelve months ended December 31, 2020. In the twelve months ended December 31, 2019, the FHLBNY borrowed a total of $2.1 billion in overnight loans from other FHLBanks. The borrowings averaged $6.6 million for the twelve months ended December 31, 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 December 31, 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 December 31, 2020 and December 31, 2019, and transactions for each of the years ended December 31, 2020, 2019 and 2018 (in thousands):
Related Party: Outstanding Assets, Liabilities and Capital
| | | December 31, 2020 | | | December 31, 2019 | |
| | | Related | | | Related | |
| Assets | | | | | | | | |
Advances
| | $ | 92,067,104 | | | $ | 100,695,241 | |
Accrued interest receivable
| | | 89,604 | | | | 181,792 | |
| | | | | | | | | |
| Liabilities and capital | | | | | | | | |
| Deposits | | $ | 1,752,963 | | | $ | 1,194,409 | |
| Mandatorily redeemable capital stock | | | 2,991 | | | | 5,129 | |
Accrued interest payable
| | | 45 | | | | 140 | |
| Affordable Housing Program (a) | | | 148,827 | | | | 153,894 | |
| Other liabilities (b) | | | 32,378 | | | | 45,388 | |
| | | | | | | | | |
| Capital | | $ | 7,256,699 | | | $ | 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. |
Related Party: Income and Expense Transactions
| | | Years ended December 31, | |
| | | 2020 | | | 2019 | | | 2018 | |
| | | Related | | | Related | | | Related | |
| Interest income | | | | | | | | | | | | |
| Advances | | $ | 1,166,745 | | | $ | 2,526,662 | | | $ | 2,522,040 | |
| Interest-bearing deposits | | | 1 | | | | 6 | | | | 5 | |
| Loans to other FHLBanks | | | 33 | | | | 165 | | | | 130 | |
| | | | | | | | | | | | | |
| Interest expense | | | | | | | | | | | | |
| Deposits | | $ | 3,768 | | | $ | 22,839 | | | $ | 17,816 | |
| Mandatorily redeemable capital stock | | | 235 | | | | 379 | | | | 964 | |
| Cash collateral held and other borrowings | | | - | | | | 165 | | | | - | |
| | | | | | | | | | | | | |
| Service fees and other | | $ | 18,207 | | | $ | 17,022 | | | $ | 14,439 | |
Federal Home Loan Bank of New York
Notes to Financial Statements
| 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 December 31, 2020, December 31, 2019 and December 31, 2018 and associated interest income for the years then ended are summarized as follows (dollars in thousands):
| | | December 31, 2020 |
| | | | | | | | | | Percentage of | | | | | | | |
| | | | | | | Par | | | Total Par Value | | | Twelve Months | |
| | | City | | State | | Advances | | | of Advances | | | Interest Income | | | Percentage (a) | |
| MetLife, Inc.: | | | | | | | | | | | | | | | | | | | | |
| Metropolitan Life Insurance Company | | New York | | NY | | $ | 15,245,000 | | | | 16.80 | % | | $ | 211,797 | | | | 19.03 | % |
| Metropolitan Tower Life Insurance Company | | New York | | NY | | | 955,000 | | | | 1.05 | | | | 3,176 | | | | 0.28 | |
| Subtotal MetLife, Inc. | | | | | | | 16,200,000 | | | | 17.85 | | | | 214,973 | | | | 19.31 | |
| Citibank, N.A. | | New York | | NY | | | 14,900,000 | | | | 16.42 | | | | 280,084 | | | | 25.16 | |
| New York Community Bank (b) | | Westbury | | NY | | | 14,627,661 | | | | 16.12 | | | | 233,915 | | | | 21.01 | |
| Equitable Financial Life Insurance Company (c) | | New York | | NY | | | 6,890,415 | | | | 7.60 | | | | 77,739 | | | | 6.98 | |
| HSBC Bank USA, National Association | | New York | | NY | | | 4,250,000 | | | | 4.69 | | | | 41,663 | | | | 3.74 | |
| New York Life Insurance Company | | New York | | NY | | | 3,250,000 | | | | 3.58 | | | | 68,611 | | | | 6.16 | |
| Signature Bank | | New York | | NY | | | 2,839,245 | | | | 3.13 | | | | 54,832 | | | | 4.93 | |
| Investors Bank (b) | | Short Hills | | NJ | | | 2,668,000 | | | | 2.94 | | | | 61,501 | | | | 5.53 | |
| Valley National Bank (b) | | Wayne | | NJ | | | 2,588,059 | | | | 2.85 | | | | 49,770 | | | | 4.47 | |
| Prudential Insurance Company of America | | Newark | | NJ | | | 2,517,125 | | | | 2.77 | | | | 30,158 | | | | 2.71 | |
| Total | | | | | | $ | 70,730,505 | | | | 77.95 | % | | $ | 1,113,246 | | | | 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, 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 second quarter of 2020. |
Federal Home Loan Bank of New York
Notes to Financial Statements
| | | December 31, 2019 |
| | | | | | | | | | | Percentage of | | | | | | | |
| | | | | | | | Par | | | Total Par Value | | | Twelve Months | |
| | | City | | State | | | Advances | | | of Advances | | | Interest Income | | | Percentage (a) | |
| Citibank, N.A. | | 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 Community Bank (b) | | 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 | |
| Investors Bank (b) | | 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 Life Insurance Company | | 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 | |
| Sterling National Bank | | 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 | |
| Total | | | | | | | | $ | 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. |
| | | December 31, 2018 |
| | | | | | | | | | | Percentage of | | | | | | | |
| | | | | | | | Par | | | Total Par Value | | | Twelve Months | |
| | | City | | State | | | Advances | | | of Advances | | | Interest Income | | | Percentage (a) | |
| Citibank, N.A. | | New York | | | NY | | | $ | 19,995,000 | | | | 18.96 | % | | $ | 644,926 | | | | 37.66 | % |
| Metropolitan Life Insurance Company | | New York | | | NY | | | | 14,245,000 | | | | 13.51 | | | | 301,318 | | | | 17.60 | |
| New York Community Bank (b) (c) | | Westbury | | | NY | | | | 13,053,661 | | | | 12.38 | | | | 247,973 | | | | 14.48 | |
| Signature Bank | | New York | | | NY | | | | 4,970,000 | | | | 4.71 | | | | 92,592 | | | | 5.41 | |
| Investors Bank (b) | | Short Hills | | | NJ | | | | 4,925,681 | | | | 4.67 | | | | 95,921 | | | | 5.60 | |
| Sterling National Bank | | Montebello | | | NY | | | | 4,837,000 | | | | 4.59 | | | | 92,835 | | | | 5.42 | |
| Manufacturers and Traders Trust Company | | Buffalo | | | NY | | | | 4,774,712 | | | | 4.53 | | | | 13,256 | | | | 0.77 | |
| AXA Equitable Life Insurance Company | | New York | | | NY | | | | 3,990,415 | | | | 3.78 | | | | 72,582 | | | | 4.24 | |
| New York Life Insurance Company | | New York | | | NY | | | | 3,575,000 | | | | 3.39 | | | | 67,793 | | | | 3.96 | |
| Valley National Bank (b) | | Wayne | | | NJ | | | | 3,027,000 | | | | 2.87 | | | | 83,172 | | | | 4.86 | |
| Total | | | | | | | | $ | 77,393,469 | | | | 73.39 | % | | $ | 1,712,368 | | | | 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, 2018, an officer of this member bank also served on the Board of Directors of the FHLBNY. |
| (c) | New York Commercial Bank merged into New York Community Bank in the fourth quarter 2018. Par advances are for New York Community Bank. Interest income reported in the table represent interest income received from New York Commercial Bank and New York Community Bank in 2018. |
The following tables summarize capital stock held by members who were beneficial owners of more than 5 percent of the FHLBNY’s outstanding capital stock as of February 28, 2021 and December 31, 2020 (shares in thousands):
| | | | | Number | | | Percent | |
| | | February 28, 2021 | | of Shares | | | of Total | |
| Name of Beneficial Owner | | Principal Executive Office Address | | Owned | | | Capital Stock | |
| Citibank, N.A. | | 399 Park Avenue, New York, NY, 10043 | | | 7,705 | | | | 14.51 | % |
| MetLife, Inc.: | | | | | | | | | | |
| Metropolitan Life Insurance Company | | 200 Park Avenue, New York, NY, 10166 | | | 7,648 | | | | 14.40 | |
| Metropolitan Tower Life Insurance Company | | 200 Park Avenue, New York, NY, 10166 | | | 475 | | | | 0.89 | |
| Subtotal MetLife, Inc. | | | | | 8,123 | | | | 15.29 | |
| New York Community Bank | | 615 Merrick Avenue, Westbury, NY,11590 | | | 7,088 | | | | 13.35 | |
| Equitable Financial Life Insurance Company | | 1290 Avenue of the Americas, New York, NY, 10104 | | | 3,894 | | | | 7.33 | |
| | | | | | 26,810 | | | | 50.48 | % |
| | | | | Number | | | Percent | |
| | | December 31, 2020 | | of Shares | | | of Total | |
| Name of Beneficial Owner | | Principal Executive Office Address | | Owned | | | Capital Stock | |
| Citibank, N.A. | | 399 Park Avenue, New York, NY, 10043 | | | 7,705 | | | | 14.35 | % |
| MetLife, Inc.: | | | | | | | | | | |
| Metropolitan Life Insurance Company | | 200 Park Avenue, New York, NY, 10166 | | | 7,648 | | | | 14.24 | |
| Metropolitan Tower Life Insurance Company | | 200 Park Avenue, New York, NY, 10166 | | | 475 | | | | 0.88 | |
| Subtotal MetLife, Inc. | | | | | 8,123 | | | | 15.12 | |
| New York Community Bank | | 615 Merrick Avenue, Westbury, NY,11590 | | | 7,140 | | | | 13.30 | |
| Equitable Financial Life Insurance Company | | 1290 Avenue of the Americas, New York, NY, 10104 | | | 3,219 | | | | 6.00 | |
| | | | | | 26,187 | | | | 48.77 | % |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
| Item 9A. | Controls and Procedures. |
| | (a) | Evaluation of Disclosure Controls and Procedures: An evaluation of the 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, at December 31, 2020. Based on this evaluation, they concluded that as of December 31, 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. |
| | (b) | Changes in Internal Control Over Financial Reporting: There were no changes in the Bank’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the Bank’s fourth quarter that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting. |
Management’s Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm thereon are set forth in Part II, Item 8 of the Annual Report on this Form 10-K and incorporated herein by reference.
| Item 9B. | Other Information. |
None.
PART III
| Item 10. | Directors, Executive Officers and Corporate Governance. |
2020 and 2021 Board of Directors
The FHLBank Act, as amended by the Housing and Economic Recovery Act of 2008 (“HERA”), provides that a FHLBank’s board of directors is to comprise thirteen Directors, or such other number as the Director of the Federal Housing Finance Agency (“Finance Agency” or “FHFA”) determines appropriate. For both 2020 and 2021, the FHFA Director designated nineteen directorships for us, eleven of which were Member Directorships and eight of which were Independent Directorships.
All individuals serving as Bank Directors must be United States citizens. A majority of the directors serving on the Board must be Member Directors and at least two-fifths must be Independent Directors.
A Member Directorship may be held only by an officer or director of a member institution that is located within our district and that meets all minimum regulatory capital requirements. There are no other qualification requirements for Member Directors apart from the foregoing.
Member Directors are, generally speaking, elected by our stockholders in, respectively, New York, New Jersey, Puerto Rico and the U.S. Virgin Islands. Our Board of Directors is ordinarily not permitted to nominate or elect Member Directors; however, the Board may appoint a director to fill a vacant Member Directorship in the event that no nominations are received from members in the course of the Member Director election process. In the event that only one nomination is received from members for an open Member Directorship, that nominee will automatically be declared elected by the Bank. (The Board may also take action to fill Member Directorship vacancies that arise for other reasons.) Each member institution that is required to hold stock as of the record date, which is December 31 of the year prior to the year in which the election is held, may nominate and/or vote for representatives from member institutions in its respective state to fill open Member Directorships. The Finance Agency’s election regulation provides that none of our directors, officers, employees, attorneys or agents, other than in a personal capacity, may support the nomination or election of a particular individual for a Member Directorship.
Because of the process described above pertaining to how Member Directors are nominated and elected, we do not know what particular factors our member institutions may consider in nominating particular candidates for Member Directorships or in voting to elect Member Directors. However, if the Board takes action to fill a vacant Member Directorship, we can know what was considered in electing such Director. In general, such considerations may include satisfaction of the regulatory qualification requirements for the Directorship, the nature of the person’s experience in the financial industry and at a member institution, knowledge of the person by various members of the Board, and previous service on the Board, if any.
In contrast to the requirements pertaining to Member Directorships, an Independent Directorship may, per FHFA regulations, be held, generally speaking, only by an individual who is a bona fide resident of our district, who is not a director, officer, or employee of a member institution or of any person that receives advances from us, and who is not an officer of any FHLBank. At least two Independent Directors must be “public interest” directors. Public interest directors, as defined by Finance Agency regulations, are Independent Directors who have at least four years of experience representing consumer or community interests in banking services, credit needs, housing or consumer financial protection. Pursuant to Finance Agency regulations, each Independent Director must either satisfy the aforementioned requirements to be a public interest director, or have knowledge or experience in one or more of the following areas: auditing and accounting, derivatives, financial management, organizational management, project development, risk management practices, and the law.
Any individual may submit an Independent Director application form and request to be considered by us for inclusion on the Independent Director nominee slate. Our Board of Directors is then required by Finance Agency regulations to consult with our Affordable Housing Advisory Council (“Advisory Council”) in establishing the nominee slate. (The Advisory Council is an advisory body consisting of fifteen persons residing in our district appointed by our Board, the members of which are drawn from community and not-for-profit organizations that are actively involved in providing or promoting low and moderate income housing or community lending. The Advisory Council provides advice on ways in which we can better carry out our housing finance and community lending mission.) After the nominee slate is approved by the Board, the slate is then presented to our membership for a district-wide vote. The election regulation permits our directors, officers, attorneys,
employees, agents, and Advisory Council to support the candidacy of the board of director’s nominees for Independent Directorships. (As is the case with Member Directorships, the Board may also take action to fill a vacancy of an Independent Directorship.)
The Bank encourages diversity on its Board of Directors and encourages minorities and women to consider service as Bank Directors.
Voting rights and processes with regard to the election of Member and Independent Directors are set forth in the FHLBank Act and FHFA regulations. For the election of both Member Directors and Independent Directors, each eligible member institution is entitled to cast one vote for each share of capital stock that it was required to hold as of the record date (which is December 31st). However, the number of votes that each institution may cast for each Directorship cannot exceed the average number of shares of capital stock that were required to be held by all member institutions located in the voting member’s state on the record date. The Board does not solicit proxies, nor are member institutions permitted to solicit or use proxies in order to cast their votes in an election.
The following table sets forth information regarding each of the directors who served on our Board during the period from January 1, 2020 through the date of this annual report on Form 10-K. Footnotes are used to specifically identify (i) one New Jersey Member Director and one Independent Director whose terms both expired at the end of 2020 and who could not run again due to term limits; (ii) one new New Jersey Member Director and one new Independent Director who were elected by the Bank’s membership to begin service on the Board on January 1, 2021; (iii) two New York Member Directors and one Independent Director whose terms all expired at the end of 2020 and who were elected by the Bank’s membership to serve again on the Board; (iv) one New York Member Director whose term of service ended at the end of 2020 as he retired from the positions at a New York member institution that qualified him for Board service; and (v) two Independent Directors who also serve as public interest directors.
Following the table is biographical information for each Director.
No Director has any family relationship with any other FHLBNY Directors or executive officers. In addition, no Director or executive officer has an involvement in any legal proceeding required to be disclosed pursuant to Item 401(f) of Regulation S-K.
| Director Name | | Age as of
3/19/21 | | Bank
Director
Since | | Start of
Most
Recent
Term | | Expiration
of Most
Recent
Term | | Represents
Bank
Members in | | Director Type |
| John R. Buran (Chair) | | 71 | | 12/2010 | | 1/1/20 | | 12/31/23 | | NY | | Member |
| Larry E. Thompson (Vice Chair) | | 70 | | 1/2014 | | 1/1/18 | | 12/31/21 | | Districtwide | | Independent |
| Danelle M. Barrett(a) | | 54 | | 1/2021 | | 1/1/21 | | 12/31/24 | | Districtwide | | Independent |
| Kevin Cummings | | 66 | | 1/2014 | | 1/1/19 | | 12/31/22 | | NJ | | Member |
| Joseph R. Ficalora(b) | | 74 | | 1/2018 | | 1/1/18 | | 12/31/20 | | NY | | Member |
| Jay M. Ford(c) | | 71 | | 6/2008 | | 1/1/17 | | 12/31/20 | | NJ | | Member |
| Michael M. Horn | | 81 | | 4/2007 | | 1/1/18 | | 12/31/21 | | Districtwide | | Independent |
| Thomas L. Hoy | | 72 | | 1/2012 | | 1/1/20 | | 12/31/23 | | NY | | Member |
| David R. Huber | | 57 | | 1/2019 | | 1/1/19 | | 12/31/22 | | Districtwide | | Independent |
| Thomas J. Kemly(d) | | 63 | | 1/2021 | | 1/1/21 | | 12/31/24 | | NJ | | Member |
| Charles E. Kilbourne, III(e) | | 48 | | 1/2019 | | 1/1/21 | | 12/31/24 | | Districtwide | | Independent* |
| Gerald H. Lipkin | | 80 | | 1/2014 | | 1/1/18 | | 12/31/21 | | NJ | | Member |
| Kenneth J. Mahon(f) | | 70 | | 1/2017 | | 1/1/21 | | 12/31/24 | | NY | | Member |
| Christopher P. Martin | | 64 | | 1/2015 | | 1/1/19 | | 12/31/22 | | NJ | | Member |
| Richard S. Mroz | | 59 | | 3/2002 | | 1/1/19 | | 12/31/22 | | Districtwide | | Independent |
| David J. Nasca | | 63 | | 1/2015 | | 1/1/19 | | 12/31/22 | | NY | | Member |
| C. Cathleen Raffaeli(c) | | 64 | | 4/2007 | | 1/1/17 | | 12/31/20 | | Districtwide | | Independent |
| Stephen S. Romaine(f) | | 56 | | 1/2019 | | 1/1/21 | | 12/31/24 | | NY | | Member |
| DeForest B. Soaries, Jr. | | 69 | | 1/2009 | | 1/1/20 | | 12/31/23 | | Districtwide | | Independent* |
| Carlos J. Vázquez | | 62 | | 11/2013 | | 1/1/18 | | 12/31/21 | | PR & USVI | | Member |
| Ángela Weyne | | 77 | | 9/2017 | | 1/1/20 | | 12/31/23 | | Districtwide | | Independent |
| (a) | Director Barrett was elected by the Bank’s districtwide membership on November 4, 2020 to serve as an Independent Director for a four year term commencing on January 1, 2021. |
| (b) | Director Ficalora served on the Board as a New York Member Director throughout 2020. He retired from his positions as President, Chief Executive Officer and Director of member New York Community Bank on December 31, 2020. Because service as a Member Director of a Home Loan Bank requires that one serve continuously as an officer or director of a member, his service on the Board ended on December 31, 2020. |
| (c) | Director Ford served on the Board as a New Jersey Member Director and Director Raffaeli served on the Board as an Independent Director throughout 2020, and their terms both expired on December 31, 2020. Neither Director Ford nor Director Raffaeli were able to run again for a seat on the Board due to term limits. |
| (d) | Director Kemly was elected by the Bank’s New Jersey membership on November 4, 2020 to serve as a New Jersey Member Director for a four year term commencing on January 1, 2021. |
| (e) | Director Kilbourne served on the Board as an Independent Director throughout 2020, and his term expired on December 31, 2020. On November 4, 2020, he was elected by the Bank’s districtwide membership to serve as an Independent Director for a new four year term commencing on January 1, 2021. |
| (f) | Directors Mahon and Romaine served on the Board as New York Member Directors throughout 2020, and their terms both expired on December 31, 2020. On November 4, 2020, they were both elected by the Bank’s New York membership to serve as New York Member Directors for new four year terms each commencing on January 1, 2021. |
| | |
| * | Independent Directors so indicated served as public interest directors throughout the entire course of their service covered by this table. |
Mr. Buran (Chair) is Director, President and Chief Executive Officer of Flushing Financial Corporation, the holding company for FHLBNY member Flushing Bank (formerly Flushing Savings Bank), and of Flushing Bank. He joined the holding company and the bank in 2001 as Chief Operating Officer and he became a Director of these entities in 2003. In 2005, he was named President and Chief Executive Officer of both entities. Mr. Buran’s career in the banking industry began with Citibank in 1977. There, he held a variety of management positions including Business Manager of its retail distribution in Westchester, Long Island and Manhattan and Vice President in charge of its Investment Sales Division. Mr. Buran left Citibank to become Senior Vice President, Division Head for Retail Services of NatWest Bank and later Executive Vice President of Fleet Bank’s (now Bank of America) retail branch system in New York City, Long Island, Westchester and Southern Connecticut. He also spent time as a consultant and Assistant to the President of Carver Bank. Mr. Buran is past Chairman and current Board member of the New York Bankers Association. From 2011 to 2017 he served on the Community Depository Institutions Advisory Council of The Federal Reserve Bank of New York. John is also a former member of the Nassau County Interim Finance Authority where he served for eight years. Mr. Buran has devoted his time to a variety of charitable and not-for-profit organizations. He has been a Board member of the Long Island Association, both the Nassau and Suffolk County Boy Scouts, EAC, Long Island University, the Long Island Philharmonic and Channel 21. He was the fundraising Chairman for the Suffolk County Vietnam Veteran’s War Memorial in Farmingville, New York and has been recipient of the Boy Scouts’ Chief Scout Citizen Award. His work in the community has been recognized by Family and Children’s Association, and Gurwin Jewish Geriatric Center. He was also a recipient of the Long Island Association’s SBA Small Business Advocate Award. Mr. Buran was honored twice with St. Joseph’s College’s Distinguished Service Award. Mr. Buran also serves on the Advisory Board and is a former Board President of Neighborhood Housing Services of New York City. He is a Board member of The Korean American Youth Foundation. Mr. Buran also serves on the Board of the Long Island Conservatory. He was recently presented with an honorary Doctorate of Humane Letters from St. Francis College of Brooklyn and was the recipient of the Catholic Charities Gold Medal Award in 2019. He holds a B.S. in Management and an M.B.A., both from New York University.
Mr. Thompson (Vice Chair) was Vice Chairman of The Depository Trust & Clearing Corporation (DTCC) through the end of 2018, and previously served as the Chief Legal Officer/General Counsel of the firm since 2005. He has more than 30 years of experience as a senior executive in corporate law, risk management and regulatory affairs. In his role as DTCC Vice Chairman, Mr. Thompson served as a senior advisor to DTCC and was responsible for all legal and regulatory activities of the company and its subsidiaries. He regularly interfaced with government and regulatory agencies on issues impacting the company. Mr. Thompson was Chairman of the Board of DTCC Deriv/SERV LLC and former Chairman of the DTCC Operating Committee. He was a member of the DTCC Management Committee, which is comprised of the company’s executive leadership. In addition, Mr. Thompson was a member of the DTCC Management Risk Committee, where he helped oversee and assess a broad range of issues related to market, capital and operational risks facing the corporation. Mr. Thompson previously served as Chair of a DTCC Board subcommittee charged with reviewing the potential risk impacts of high frequency trading and algorithmic trading as a result of the Knight Capital market event of 2012. Mr. Thompson is the former Co-Chair of the DTCC Internal Risk Management Committee and former Chairman of The Depository Trust Company (DTC) Internal Risk Management Committee. Mr. Thompson began his legal career with DTC as Associate Counsel in 1981 and was elected Vice President and Deputy General Counsel in 1991, Senior Vice President in 1993, General Counsel of DTC in 1999 and Managing Director and First Deputy General Counsel of DTCC in 2004. Previously, he was a partner in the New York law firm of Lake, Bogan, Lenoir, Jones & Thompson. Mr. Thompson began his legal career at Davis Polk & Wardwell. Mr. Thompson previously served on the Board of Directors of New York Portfolio Clearing (NYPC), a former joint venture derivatives clearinghouse owned by NYSE Euronext and DTCC. He is currently the chairman of the Board of Directors of both LedgerX LLC, a digital currency futures and options exchange and clearinghouse, and its parent, Ledger Holdings Inc. In addition, he also served as former Chairman of the Securities Clearing Group and former Co-Chairman of the Unified Clearing Group. His memberships include the New York State Bar Association; the New York County Lawyers’ Association; Association of the Bar of the City of New York; Business Executives for National Security; and the Global Association of Risk Professionals. He is a former director of the Legal Aid Society of New York and a former director of The Studio Museum of Harlem. Mr. Thompson’s legal and regulatory and risk management experience, as indicated by his background described above, supports his qualifications to serve on our Board as an Independent Director.
Rear Admiral Barrett, USN (Ret.) was born in Buffalo, New York and is a 1989 graduate of Boston University with a Bachelor of Arts in History where she received her commission as an officer from the U. S. Naval Reserve Officer Training Corps in a ceremony aboard the USS Constitution. She holds Masters of Arts in Management from Webster University, National Security Strategic Studies from the U.S. Naval War College, and Human Resources Development from Webster University. She also earned a Master of Science in Information Management from Syracuse University. As an admiral, Danelle served as Director of Current Operations at U.S. Cyber Command, and assumed duties in 2017 as the Navy Cyber Security Division Director and Deputy Chief Information Officer on the Chief of Naval Operations staff. In her last position in the U.S. Navy, she led the Navy’s strategic development and execution of digital and cyber security efforts, enterprise information technology improvements and cloud policy and governance for 700,000 personnel across a global network. An innovator, she implemented visionary digital transformation to modernize with unprecedented speed, significantly improving Navy Information Warfare capabilities. Ms. Barrett’s other tours of duty include assignments as Commanding Officer, Naval Computer and Telecommunications Area Master Station Atlantic where she directly led the largest telecommunications station in the Navy with responsibility for 2,700 people in 15 subordinate organizations worldwide; Chief of Staff, Navy Information Forces Command, U.S. Naval Forces Central Command/U.S. 5th Fleet and 2nd Fleet, Carrier Strike Group 2 and Carrier Strike Group 12 which included deployments in support of Operations Enduring Freedom in Afghanistan and Unified Response in Haiti, MultiNational Forces Iraq; Naval Computer and Telecommunications Stations in Jacksonville and Puerto Rico and Standing Joint Force Headquarters United States Pacific Command. She currently executes a portfolio of work that includes consulting, public speaking, and writing. She is an independent director on the boards of KVH Industries and the Protego Trust Company, and is on several advisory boards for other organizations. Her personal awards include Defense Superior Service Medal and other military decorations, Federal 100 winner 2010; Armed Forces Communications and Electronics Association Women in Leadership Award 2014; Women in Technology Leadership Award 2017 and the Executive Women’s Forum Women of Influence Award 2019. Ms. Barrett earned the National Defense University Chief Information Officer and Information Security certifications and has published 35 articles. Rear Admiral Barrett’s organizational management, project development and risk management experience, as indicated by her background described above, supports her qualifications to serve on our Board as an Independent Director.
Mr. Cummings was appointed Chairman of the Board of Directors and Chief Executive Officer of Investors Bancorp and FHLBNY member Investors Bank effective May 22, 2018. He previously served as President and Chief Executive Officer of these companies since January 1, 2008 and was appointed to serve on the boards of these companies on the same date. Prior to 2008, he served as Executive Vice President and Chief Operating Officer of Investors Bank since July 2003. Prior to joining Investors Bank, Mr. Cummings had a 26-year career with the independent accounting firm of KPMG LLP, where he had been partner for 14 years. Immediately prior to joining Investors Bank, he was an audit partner in KPMG’s Financial Services practice in their New York City office and lead partner on a major commercial banking client. Mr. Cummings also worked in the New Jersey community bank practice for over 20 years. Mr. Cummings has a Bachelor’s degree in Economics from Middlebury College and a Master’s degree in Business Administration from Rutgers University. Mr. Cummings has served as a Commissioner on the Summit Board of Recreation. He is a Trustee of The Scholarship Fund for Inner-City Children and the former Chairman of the Board of the New Jersey Bankers Association. He is also a board member of The Community Foundation of New Jersey and St. Benedicts Prep in Newark. Mr. Cummings is a certified public accountant.
Mr. Ficalora had been the President and Chief Executive Officer and a Director of New York Community Bancorp, Inc. (“NYCB”) since its inception on July 20, 1993. He had also been the President and Chief Executive Officer and a Director of FHLBNY member and NYCB primary subsidiary New York Community Bank (“New York Community”) since January 1, 1994. On January 1, 2007, he was appointed Chairman of NYCB and New York Community (a position he previously held at NYCB from July 20, 1993 through July 31, 2001 and at New York Community from May 20, 1997 through July 31, 2001); he served as Chairman of these two entities until December 2010. Since 1965, when he joined New York Community (formerly Queens County Savings Bank), Mr. Ficalora held increasingly responsible positions, crossing all lines of operations. Prior to his appointment as President and Chief Executive Officer of New York Community in 1994, Mr. Ficalora served as President and Chief Operating Officer (beginning in October 1989); before that, he served as Executive Vice President, Comptroller and Secretary. He retired from all of his positions with NYCB and New York Community on December 31, 2020, thus ending his Board service with the FHLBNY on the same date. A graduate of Pace University with a degree in business and finance, Mr. Ficalora provided leadership to several professional banking organizations. He served as a member of the American Bankers Council of the American Bankers Association, a member of the American Bankers Association’s Government Relations Council Administrative Committee, a member of the American Bankers Association Federal Home Loan Bank Committee, and was a director of the New York Bankers Association, also serving as Chairman of its Metropolitan Area Division. Mr. Ficalora also served on the Board of Trustees of Pace University, as well as on their Investment/Pension Committee, the Boards of Directors of the New York Community Bank Foundation, the Richmond County Savings Foundation, and Pentegra Retirement Trust. In addition, he was a member of the Board of
Pentegra Services, Inc. He was a former Director of Peter B. Cannell and Co., Inc., an investment advisory firm, and the former President and Director of the Asset Management Fund Large Cap Equity Institutional Fund, Inc. Mr. Ficalora also was an active participant in community affairs. He was a member of the Board of Directors of the Queens Chamber of Commerce since 1990, and served on its Executive Committee. In addition, Mr. Ficalora served on the Boards of Directors of the Foreign Policy Association, Partnership for New York City, and Flushing Cemetery; the Board of Directors, the Executive Committee, and the Development Committee of New York-Presbyterian/Queens; the Board of Trustees, the Finance and Audit Committee, and Vice Chair of the President’s Council of the New York Hall of Science; the Advisory Council of the Queens Museum of Art, and he was a Board member of Nassau County Crime Stoppers, Inc. Mr. Ficalora was a former member of the Board of Directors of the American Bankers Association, the Thrift Institutions Advisory Council of the Federal Reserve Board in Washington, and the Federal Reserve Bank of New York Thrift Institutions Advisory Panel. He was also the former Chairman of the New York State Savings Forum for Operations Audit Control, the former Chairman of CBANYS, as well as the former Chairman of CBANYS' Auditors and Comptrollers Forum, the former Chairman of the SBLI Fund, the former Director of Computhrift Corporation, a former Trustee of the Museum of the Moving Image, and past President and Director of the MSB Fund. In addition, he previously served as President of the Queens Library Foundation and as Chairman of the Board and of the Administrative Committee of the Queens Borough Public Library.
Mr. Ford serves as a director of FHLBNY member Crest Savings Bank, headquartered in Wildwood, New Jersey; he also served as President and CEO of the company from 1993 until his retirement on January 3, 2018. He has worked in the financial services industry in southern New Jersey for more than fifty years. Mr. Ford served as the 2003-2004 Chairman of the New Jersey League of Community Bankers. Mr. Ford served as Chairman of the Community Bank Council of the Federal Reserve Bank of Philadelphia in 1998-1999. He also served on the board of directors of America’s Community Bankers (“ACB”) and on ACB’s Audit and Finance & Investment Committees. Mr. Ford served on the board of the Cape Regional Medical Center Foundation and has previously served as a director and treasurer of Habitat for Humanity, Cape May County, as Divisional Chairman of the March of Dimes for Atlantic and Cape May Counties, and as a Director of the Atlantic Cape Community College Foundation. In December 2000, he was appointed by Governor Christine Todd Whitman to the New Jersey Department of Banking & Insurance Study Commission. Mr. Ford is a graduate of Marquette University with a degree in accounting and is a member of the American Institute of Certified Public Accountants and the New Jersey Society of CPAs. His service on the FHLBNY’s Board ended on December 31, 2020 due to term limits.
Mr. Horn has been a partner in the law firm of McCarter & English, LLP since 1990. He has served as the Commissioner of Banking for the State of New Jersey and as the New Jersey State Treasurer. He was also a member of the New Jersey State Assembly and served as a member of the Assembly Banking Committee. In addition, Mr. Horn served on New Jersey’s Executive Commission on Ethical Standards as both its Vice Chair and Chairman, was appointed as a State Advisory Member of the Federal Financial Institutions Examination Council, and was a member of the Municipal Securities Rulemaking Board. He is counsel to the New Jersey Bankers Association, was chairman of the Bank Regulatory Committee of the Banking Law Section of the New Jersey State Bar Association, and is a Fellow of the American Bar Foundation. Mr. Horn’s legal and regulatory experience, as indicated by his background described above, supports his qualifications to serve on our Board as an Independent Director.
Mr. Hoy serves as Chairman of FHLBNY member Glens Falls National Bank and Trust Company; he also served as CEO of the company through December 31, 2012. He is also Chairman of Arrow Financial Corporation, the holding company for Glens Falls National Bank and Trust Company and FHLBNY member Saratoga National Bank and Trust Company; he served as President of the company through June 30, 2012 and CEO of the company through December 31, 2012. He also became a director of North Country Mutual Funds in 2015. Mr. Hoy joined Glens Falls National Bank in 1974 as a Management Trainee and became President of the Bank on January 1, 1995. He became President of Arrow in 1996 and CEO in 1997. Mr. Hoy is a graduate of Cornell University and has been active in various banking organizations, including serving as past President of the Independent Bankers Association of New York, past Chairman of the New York Bankers Association, and past member of the American Bankers Association Board of Directors. Mr. Hoy served four years on active duty in the Navy as a Surface Warfare Officer on various destroyers, and retired after twenty years as a Commander in the U.S. Naval Reserve. He has been extremely active in his community, serving on numerous Boards and leading several community fundraising efforts. He has been recognized for his community service with the J. Walter Juckett Award from the Adirondack Regional Chambers of Commerce, the Twin Rivers Council’s Good Scout Award, the C.R. Wood Theater’s Charles R. Wood Award, the Warren County Bar Association Liberty Bell Award, and the Henry Crandall Award from the Crandall Public Library.
Mr. Huber is the President of Huber Advisory Services in Red Bank, New Jersey, which provides financial advisory services to clients in the healthcare and insurance industries. He served through the end of 2018 as Senior Vice President and Chief Financial Officer of Horizon Blue Cross Blue Shield of New Jersey (Horizon), which is New Jersey’s largest health insurer. He had been with Horizon since 2002 and served as Vice President of Finance before being promoted to CFO in 2012. Mr. Huber was formerly an audit partner in Arthur Andersen’s Financial Services practice in Metro New York, where he served clients in the insurance and banking industries. Mr. Huber has a Bachelor’s degree in Accounting from Lehigh University and is a CPA. Mr. Huber is the Chair of the Red Bank Redevelopment Agency and serves on the Board of Trustees of the New Jersey Symphony Orchestra. He served on the board of the New Jersey Economic Development Authority and was Chair of the Loan Committee and the Audit Committee. Mr. Huber’s auditing and accounting and financial management experience supports his qualifications to serve on our Board as an Independent Director.
Mr. Kemly was appointed President and Chief Executive Officer of FHLBNY member Columbia Bank, effective December 31, 2011. Prior to his appointment, he held various positions at the bank including Controller, Senior Vice President, Chief Financial Officer, Senior Executive Vice President, Chief Administrative Officer and Senior Executive Vice President, Chief Operating Officer. Mr. Kemly joined Columbia Bank’s Board of Directors in 2006 and the Columbia Bank Foundation’s Board of Directors upon inception in 2004. He was named Chairman of the Columbia Bank Foundation in 2012. With nearly 40 years of experience, Mr. Kemly has served as an active member of the banking industry. He has held several leadership positions including Chairman and Board Member of the New Jersey Bankers Association, Board Member of the Bankers Cooperative Group, Board Member of the New Jersey Bankers Charitable Foundation, President of the Financial Managers Society for the New York and New Jersey Chapter, and was a member of the OCC Mutual Savings Association Advisory Committee. He presently serves as the President of Northern New Jersey Community Bankers and is a Board Member for the Commerce and Industry Association of New Jersey. As an active member of the local community, Mr. Kemly has expanded Columbia Bank’s volunteering initiative “Team Columbia”, which encourages employees to volunteer their time and give back to those in need. In conjunction with Columbia Bank’s IPO in 2018, he grew the Columbia Bank Foundation to one of the largest private giving Foundations in the state of New Jersey. Mr. Kemly has been formally recognized for his continued support by organizations including New Bridge Services, the Boys and Girls Club of Paterson, and the Passaic Community College Foundation. He previously served on the Board of Directors for New Bridge Services. Mr. Kemly holds Bachelor’s degrees in Business Administration and Psychology from Trenton State College and an MBA in Finance from Fordham University.
Mr. Kilbourne is a Managing Director of the Financial Services Volunteer Corps (FSVC), a not-for-profit, private-public partnership that helps to build sound financial systems in transition and emerging market countries. As a member of FSVC’s executive management team, he has extensive experience working to strengthen central banking capabilities, and to develop commercial banking systems and securities markets. Mr. Kilbourne is an officer of FSVC serving as Secretary of the Corporation. Mr. Kilbourne previously served as Senior Advisor to the Commissioner of New York State Homes and Community Renewal, and later as Vice President of the Financial Services Forum, a public-policy organization composed of CEOs from the largest, most diversified financial services institutions based in the United States. Mr. Kilbourne is a Trustee of the Wright Family Foundation in Schenectady, New York, and serves on the Board of Directors of the Boys and Girls Clubs of Schenectady. He is the President of the Board of Directors of Better Community Neighborhoods, Inc. based in Schenectady. He is a member of the Council on Foreign Relations. Mr. Kilbourne holds a Bachelor’s degree in Political Science from Tufts University, and a Master’s degree in International Affairs from Georgetown University. Mr. Kilbourne’s project development and financial management experience, as indicated by his background described above, supports his qualifications to serve on our Board as an Independent Director and a public interest director.
Mr. Lipkin currently serves as a Banking Officer in the capacity of Senior Advisor at FHLBNY member Valley National Bank. He joined Valley in 1975 as a Senior Vice President and was elected a Director in 1986. He was promoted to Executive Vice President in 1987 and elected Chairman and Chief Executive Officer in 1989. The title of President was added in 1996; he held this title through January of 2017. He served as Chairman through April 20, 2018 and Director through December 2019. In 2013, he was elected as a Class A director to the Federal Reserve Bank of New York. Mr. Lipkin’s career in the banking industry spans 54 years. He began his career in banking with the Comptroller of the Currency in New York/New Jersey in 1963 and was appointed Deputy Regional Administrator in 1970. Beyond his business accomplishments, Mr. Lipkin’s philanthropic contributions are widely acknowledged. He helped raise funds for basic cancer research at the Lautenberg Center for Tumor Immunology in Jerusalem for over 15 years and was honored for his contributions in 1988 with the prestigious “Torch of Learning Award.” Mr. Lipkin served as a Board Trustee at Beth Israel Hospital in Passaic for over 25 years. He has been honored to receive the Corporate Achievement Award from B’nai B’rith International, the Community Service Award from NJ Citizens Action, the Emily Bissell Honor Award from the American Lung Association, the Corporate Recognition Award from the Metro Chapter of the American Red Cross, the Corporate Award from the Sunrise House Foundation and the Community Achievement Award from the Urban League of Bergen County. Mr. Lipkin received the Corporate Excellence Award from The University of Medicine & Dentistry for his contributions to Musical Moments for MS. He has been honored by the American Heart Association and has served as a member of the Foundation Board at William Paterson University which earned him the “Legacy Award” in 1994. Mr. Lipkin has been a staunch supporter of Rutgers through the years as well. He is past Chairman of the Rutgers Business School Board of Advisors, a member of the Dean’s Advisory Council, and a past member of the University’s Board of Overseers. Rutgers recognized Mr. Lipkin’s contributions with the distinguished Alumni Award from the Newark College of Arts and Sciences in 2001 and in 2006 he was elected to the Rutgers University Hall of Distinguished Alumni. Mr. Lipkin earned a B.A. in Economics from Rutgers University and an M.B.A. in Banking & Finance from New York University. He is a graduate of the Stonier Graduate School of Banking as well.
Mr. Mahon joined FHLBNY member Dime Community Bank (“the Bank”) in 1980. Mr. Mahon most recently served as the Bank’s Senior Executive Vice President and Chief Operating Officer from February 2014 to January 2016, prior to being elevated to the Bank’s President (a title he held through early 2020) and CEO (a title he held through the end of January, 2021). In February 2021 he became Executive Chairman of the Bank’s Board. Mr. Mahon has served as a Director of the Bank since 1988. Mr. Mahon was also the CEO of the Bank’s holding company, Dime Community Bancshares (the “Company”) from January 1, 2017 through the end of January, 2021. Mr. Mahon became Executive Chairman of the Company’s Board on February 1, 2021. He has served as a director of the Company since 2002. He currently serves as a board member of the Committee for Hispanic Children and Families (“CHCF”), and was formerly a director of Southside United HDFC (“Los Sures”), a community support organization in Williamsburg, Brooklyn, and Brooklyn Legal Services Corporation A, a non-profit which provides legal services for low income families in Brooklyn. Mr. Mahon is a member of the National Association of Corporate Directors.
Mr. Martin is Chairman and Chief Executive Officer of Provident Financial Services, Inc. and FHLBNY member Provident Bank, New Jersey’s oldest state-chartered bank. He was first elected as Chairman in 2010, Chief Executive Officer in 2009, and served as President from 2004 through mid-2020. He has been in the banking industry for over 35 years. Mr. Martin previously served as president and chief executive officer of First Sentinel Bancorp, Inc., which was acquired by Provident Financial Services, Inc. in July 2004. Prior to his banking career, Mr. Martin worked for Johnson & Johnson in inventory control and as a financial analyst. Mr. Martin previously served on the board of directors of the New Jersey Bankers Association. In addition, he served on the Federal Reserve Community Depository Institutions Advisory Council. He also dedicates much of his spare time helping to improve the community. Mr. Martin is a vice president of The 200 Club of Middlesex County, which provides financial assistance and scholarships to families of law enforcement, fire and public safety officials. He serves on the board of trustees and the executive committee of Elon University, and is a past president of the alumni board. Mr. Martin volunteers at local food pantries and Habitat for Humanity build sites. He also spends time teaching financial literacy to high school students at inner city schools. Mr. Martin is president of The Provident Bank Foundation, which, since its founding in 2003, has provided more than $24 million in grants for programs focusing on community enrichment, education, and health, youth and families in New Jersey and Pennsylvania. Mr. Martin has been honored for his philanthropic endeavors as a recipient of the New Jersey State Governor’s Jefferson Awards for Public Service, has been honored by the National MS Society, the American Jewish Committee, The Scholarship Fund for Inner-City Children, Habitat for Humanity, Boys and Girls Club of America, Project Live and Felician College. Mr. Martin received a bachelor’s degree in accounting and business from Elon University and holds a MBA from Monmouth University.
Mr. Mroz has a long career in law, government, and public service. His experiences are as a regulator, lawyer, lobbyist and consultant. He is Managing Director, and Founding Member, of Resolute Strategies, LLC, a regulatory and public affairs consulting business based in New Jersey and also is affiliated with Archer Public Affair in Trenton, NJ and Washington, DC. He provides regulatory and strategic advice to clients on issues including energy markets, energy industry technologies, cybersecurity, water & wastewater policy, and infrastructure development and financing. He continues to provide public service having been appointed in July 2018 by Energy Secretary Rick Perry as a member of the U.S. Department of Energy Electric Advisory Committee, which provides advice to the Department regarding modernizing the nation’s electricity delivery infrastructure. Mr. Mroz is also Senior Advisor to Protect Our Power, a national non-profit advocacy organization seeking to advance protective measures, best practices and investments for cybersecurity, an issue on which he regularly is called up to comment at educational forums and in media interviews. He is the immediate past President of the New Jersey Board of Public Utilities (NJBPU), serving as chairman and chief administrative officer of the agency and functioning as the chief energy officer for New Jersey. He was President of the NJBPU from October 2014 until January 2018, and remained as a Commissioner until April 2018. Prior to becoming President of the NJBPU, he worked in private practice as a lawyer and lobbyist as Managing Director of Archer Public Affairs and was Of Counsel to Archer & Greiner P.C., in Haddonfield, New Jersey. Previous New Jersey-related government service includes serving as the full time Solicitor for Camden County, New Jersey and as a Commissioner of the Delaware River & Bay Authority and, notably, as Chief Counsel to Governor Christine Todd Whitman after serving in various capacities in her Administration. He is a graduate of the University of Delaware, and holds a J.D. from the Villanova School of Law. The legal and regulatory experience of Mr. Mroz, as indicated by his background described above, supports his qualifications to serve on our Board as an Independent Director.
Mr. Nasca is President and Chief Executive Officer of Evans Bancorp, Inc. and FHLBNY member Evans Bank, N.A., a nationally chartered bank and wholly-owned subsidiary of Evans Bancorp. He joined Evans Bank as Director in September 2006, President in December 2006, and CEO in April 2007. Prior to joining Evans Bank, Mr. Nasca spent 11 years at First Niagara Financial Group serving as Executive Vice President of Strategic Initiatives, where he was integrally involved in the development of strategic plans for the organization, implementation of First Niagara’s merger and acquisition efforts and management of its enterprise-wide risk management program. While at First Niagara, Mr. Nasca also served as President and CEO of its commercial banking subsidiary, Cayuga Bank, shortly after it was acquired by First Niagara, as well as Regional President in Central New York. Previous to that role, he served as First Niagara’s Senior Vice President and Treasurer. He earned his MBA in Finance from the State University of New York at Buffalo and a BS in Management/Marketing from Canisius College. Mr. Nasca is a member of the Independent Bankers Association of New York State, having previously served as a member of the Board of Directors and President (2012 - 2013), and is a member of the New York Bankers Association, serving as Chair (2011 - 2012) and Vice-Chair (2010 - 2011) of the New York Bankers Association Service Corporation. Mr. Nasca was a member of the Board of Directors of the New York Business Development Corporation from 2011 to 2015. Mr. Nasca is also involved in his community on several Boards, including serving as a Trustee of Canisius College and a member of the Business Advisory Council of its Richard J. Wehle School of Business, and as a Board Member of The Lifetime Healthcare Companies (Excellus BCBS), Brothers of Mercy, Inc (Continuing Care Community), the Buffalo Urban Development Corporation and the Buffalo Niagara Partnership.
Ms. Raffaeli serves as CEO and Managing Director of the Hamilton White Group, LLC, and Soho Venture Partners Inc. and affiliates, an investment and advisory firm with New York State and Arizona affiliates dedicated to assisting companies to grow their businesses, pursue new markets and acquire capital. Focusing on the financial, education and technology services marketplaces, Ms. Raffaeli brings over 30 years of experience in financial management, strategic planning, marketing, revenue-enhancement and asset redeployment to global businesses. In addition, she has substantial experience assisting businesses with operations, technology, human resources and risk management challenges. She has worked with a variety of firms from start-ups to billion-dollar businesses, leading or assisting in maximizing the opportunities of their marketplace. While at Hamilton White, from 2004 to 2006, she was also the President and Chief Executive Officer of UNext and the Cardean Learning Group. From 1998 to 2002 she served as the President and Chief Executive Officer of Proact Technologies, Inc. and its predecessor Consumer Financial Network. During the first half of her career, Ms. Raffaeli served in a variety of traditional, large-corporate positions including the Executive Director of the Commercial Card Division of Citicorp a global, fully integrated business serving business customers with innovative payment products. She also held key executive positions in Citicorp’s Global Transaction Services and was a Senior Vice President in the Mortgage Banking Division. Ms. Raffaeli was a former Senior Vice President of Chemical Bank, now JPMorgan Chase, where she was responsible for New York retail mortgage and national telemarketing lending. Prior to that she was with Merrill Lynch, Emery Worldwide and Continental Group. Ms. Raffaeli serves on the Board of Standard Life Aberdeen PLC, a global investment and asset management company, where she serves on the Renumeration and Risk and Capital Committee. She also currently serves on two university and college boards and is Chairman of the Education Foundation. She previously served on the Board of Directors of E*Trade holding the leadership positions of Lead Director and Chairman of the Compensation Committee. She also served on the Board of American Home Financial Corporation from 1998 through 2010. Ms. Raffaeli graduated, with honors, from NYU with an MBA. Ms. Raffaeli’s financial and other management experience, as indicated by her background described above, supported her qualifications to serve on our Board as an Independent Director. Her service on the FHLBNY’s Board ended on December 31, 2020 due to term limits.
Mr. Romaine has served as Chairman of FHLBNY member Tompkins Trust Company (“TTC”) since May 2014 and as a Director, President and Chief Executive Officer of TTC’s holding company, Tompkins Financial Corporation (“TFC”), since January 1, 2007. He had previously served as President and Chief Executive Officer of Bank member Mahopac Bank from January 1, 2003 through December 31, 2006. Prior to that appointment, Mr. Romaine was Executive Vice President and Chief Financial Officer of Mahopac National Bank. In addition to his service with TTC and TFC, Mr. Romaine serves as a director on the boards of TTC affiliates and Bank members Mahopac Bank and The Bank of Castile. Mr. Romaine currently serves on the Board of the New York Bankers Association, and served as its Chairman from March 2016 through March 2017. His civic involvement includes recent service as a member of the Board of Directors of the Ithaca Aviation Heritage Foundation and the Tompkins Cortland Community College Foundation.
Dr. Soaries has served as the Senior Pastor of First Baptist Church of Lincoln Gardens (“FBCLG”) in Somerset, New Jersey since November 1990. His pastoral ministry focuses on spiritual growth, educational excellence, economic empowerment, and faith-based community development. As a pioneer of faith-based community development, Dr. Soaries’ impact on FBCLG and the community has been tremendous. In 1992, he founded the Central Jersey Community Development Corporation (“CJCDC”), a 501(c)(3) non-profit organization that specializes in helping vulnerable neighborhoods. In 1996, the CJCDC launched Harvest of Hope Family Services Network, Inc. This organization seeks to develop permanent solutions for foster children and parents. From 1999 to 2002, Dr. Soaries served as New Jersey’s Secretary of State, making him the first African-American male to do so. He also served as the former chairman of the United States Election Assistance Commission, which was established by Congress to implement the “Help America Vote Act” of 2002. In 2005, Dr. Soaries launched the dfree® Financial Freedom Movement. The dfree® strategy teaches people how to break free from debt. In 2011, Dr. Soaries wrote his first book: “dfree®: Breaking Free from Financial Slavery” (Zondervan), which highlights his top 12 keys to debt-free living. Dr. Soaries currently serves as an Independent Director at Independence Realty Trust, a position he has held since February 2011. In January 2015, he became an Independent Director of Ocwen Financial Corporation. He is chair of the Compensation Committees at both public companies. In July 2020, he became a Director of Uncommon Giving, a company formed to help increase charitable giving by connecting people and nonprofits. Dr. Soaries earned a Bachelor of Arts Degree from Fordham University, a Master of Divinity Degree from Princeton Theological Seminary, and a Doctor of Ministry Degree from United Theological Seminary. Dr. Soaries resides in Monmouth Junction, New Jersey with his wife, Donna, and twin sons. Dr. Soaries’ project development experience, as indicated by his background described above, supports his qualifications to serve on our Board as an Independent Director and a public interest director.
Mr. Vázquez was named in 2013 as Chief Financial Officer of Popular Inc. (Popular), a financial holding company composed of two principal subsidiaries: Puerto Rico’s largest bank, FHLBNY member Banco Popular de Puerto Rico (BPPR), and a US-mainland operation, Popular Bank (PB). Popular Inc. is a NASDAQ listed and SEC registered company (ticker: BPOP), presently the 40st largest financial holding company in the United States with assets over $65 billion, principally supervised by the Federal Reserve Bank of NY. From 2010 to 2014, Mr. Vázquez served as President of PB. Mr. Vázquez joined Popular, Inc. as Executive Vice President in March 1997 to establish and head Popular’s Risk Management Group, which included the Credit Risk Management, Audit, Corporate Compliance, Operational Risk Management, and the Risk Management MIS Divisions. From 2004 through 2010 he headed Popular’s Consumer Lending Group for Puerto Rico, responsible for: personal loans, credit cards, overdraft lines-of-credit, the mortgage origination and servicing business via Popular Mortgage; as well as the auto, marine and equipment financing business via Popular Auto. Before joining Popular, Mr. Vázquez spent fifteen years in a variety of corporate finance, capital markets and banking positions with JP Morgan & Co. Inc. During the two years prior to his joining Popular, Inc., he was Senior Banker and Region Manager for JP Morgan’s business in Colombia, Venezuela, Central America and the Caribbean. Mr. Vázquez serves as Senior Executive Vice President of BPPR. He is also an Executive Vice President of Popular; a member of Popular’s Senior Management Council; and serves as a member of Popular’s Credit Strategy Committee and is the head of its Asset & Liability Management Committee. In addition, he is a member of the Board of Directors of BPPR, PB, Popular Securities Inc. and Vice Chairman of the Banco Popular Foundation. He also serves on the national Advisory Board of Directors of Operation Hope, a national non-for-profit focusing on financial literacy. Finally, he is a member of the Advisory Committee to the Dean of the School of Engineering at his alma matter, the Rensselaer Polytechnic Institute. Previously, Mr. Vázquez served as a member of the board of directors for the Puerto Rico Community Foundation, the largest community foundation in the Caribbean; where he headed the Audit and Investment Committees. He was a director of Teatro de la Opera, a non-for-profit entity dedicated to the promotion of opera. He also contributed to various educational institutions in Puerto Rico, serving as a member of the board of trustees of the Saint John’s School and a member of the Development Committee for Colegio San Ignacio de Loyola. Mr. Vázquez holds a Bachelor of Science in Civil Engineering, with an economics minor, from the Rensselaer Polytechnic Institute, Troy, New York; from which he graduated on the Dean’s List and as a member and officer of Chi Epsilon, the National Civil Engineering Honor Society. He also holds a Masters in Business Administration from Harvard University’s Graduate School of Business, Boston, Massachusetts.
Ms. Weyne was the Commissioner of lnsurance for the Commonwealth of Puerto Rico from January 2013 through December 2016, appointed by former Governor Alejandro Garcia Padilla. While Commissioner, Ms. Weyne served as Vice President of the board of the Puerto Rico State Insurance Fund Corporation and of the Puerto Rico Health Insurance Administration, and she presided over the board of the Puerto Rico Automobile Accident Compensation Administration. She was also a member of various committees of the National Association of Insurance Commissioners and also a member of the Association of Latin American Insurance Superintendents Association. Ms. Weyne’s accomplishments during her 40 years of experience in the insurance sector, which started as an actuary in the Office of the Commissioner of Insurance, have included presiding a premium finance company, a claims adjusting firm, a managing general agent of which she later became owner, and presidencies of both life and disability and property and casualty companies and the presidency of the largest bank owned insurance agency in Puerto Rico. She was also president of the first reinsurance company incorporated in Puerto Rico and served as president of two health maintenance organizations. Ms. Weyne received her bachelor’s degree in mathematics from the University of Puerto Rico, where she also taught mathematics. Among the entities where she has served as a board member are the Puerto Rico Chamber of Commerce, the Puerto Rico Association of Insurance Companies, the Universidad Central del Caribe, the Trust of the Supreme Court of Puerto Rico, the Puerto Rico Chapter of the World Presidents Organization as well as the Tourism Scholarship Foundation and the School of Architecture of the University of Puerto Rico. She has also received numerous awards and recognitions such as the Top Management Award from the Sales and Marketing Association of Puerto Rico, Outstanding Woman in Business Award from the Puerto Rico Chamber of Commerce, Outstanding Woman Award from the Girl Scouts of America, and Successful Woman of the Year Award from El Nuevo Dia Newspaper. She was also named National Judge for the Ernst & Young Entrepreneur of the Year Award program. Presently, Ms. Weyne is a consultant and serves as a member of the advisory board of Rafael J. Nido, Inc., and a member of the board of directors of Friends of El Yunque Foundation and of MMM Foundation. Ms. Weyne’s organizational and financial management experience, as indicated by her background described above, supports her qualifications to serve on our Board as an Independent Director.
Information about our Executive Officers
The following sets forth the executive officers of the FHLBNY who served during 2020 and as of the date of this annual report. We have determined that our executive officers are those officers who are members of our internal Management Committee. All officers are “at will” employees and do not serve for a fixed term.
| | | | | | | | | | Management |
| | | | | Age as of | | | Employee of | | Committee |
| Executive Officer | | Position held as of 3/19/21 | | 3/19/2021 | | | Bank Since | | Member Since |
| José R. González | | President & Chief Executive Officer | | 66 | | | 10/15/13 | | 10/15/13 |
| Stephen C. Angelo | | Senior Vice President, Chief Audit Officer | | 53 | | | 09/22/08 | | 07/12/16 |
| Edwin Artuz | | Senior Vice President, Head of Corporate Services and Director of Diversity and Inclusion | | 59 | | | 03/01/89 | | 01/01/13 |
| Melody J. Feinberg | | Senior Vice President, Chief Risk Officer | | 58 | | | 10/17/11 | | 01/01/15 |
| Adam Goldstein | | Senior Vice President, Chief Business Officer | | 47 | | | 07/14/97 | | 03/20/08 |
| Kevin M. Neylan | | Senior Vice President, Chief Financial Officer | | 63 | | | 04/30/01 | | 03/31/04 |
| Deborah Cynthia R. Palladino | | Senior Vice President, Head of Affordable Housing and Community Investment | | 64 | | | 06/01/10 | | 10/01/19 |
| Michael L. Radziemski | | Senior Vice President, Chief Information Officer | | 59 | | | 07/15/19 | | 01/01/20 |
| Philip A. Scott | | Senior Vice President, Chief Capital Markets Officer | | 62 | | | 08/28/06 | | 09/03/14 |
| Michael A. Volpe* | | Senior Vice President, Head of Bank Operations | | 53 | | | 12/22/86 | | 10/01/19 |
| Jonathan R. West | | Senior Vice President, Chief Legal Officer | | 64 | | | 05/01/15 | | 05/01/15 |
*Left employment 7/25/98; rehired 10/23/06.
Mr. González was appointed President and CEO of the Federal Home Loan Bank of New York on April 2, 2014. Mr. González joined the FHLBNY on October 15, 2013, as Executive Vice President. Mr. González served as Vice Chairman of the Board of Directors of the FHLBNY from 2008 through 2013, and as an elected industry director from 2004 through 2013. Prior to joining the FHLBNY, he served as Senior Executive Vice President, Banking & Corporate Development for OFG Bancorp (formerly Oriental Financial Group, Inc.). Mr. González has also been a member of the Board of Directors of the Pentegra Defined Benefit Plan for Financial Institutions since July 2014. From August 31, 2016 to August 31, 2020, Mr. González served as one of the eight directors appointed by President Barack Obama to the Oversight Board created by the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) of 2016. Mr. González was a member of the Board of Directors of Santander BanCorp (“Santander”), a bank holding company, from 2000 to 2010. From 2002 to 2008, he was Vice Chairman of the Board, President and CEO of Santander. After joining Santander in 1996 as President and CEO of its securities broker dealer, Mr. González was named Senior Executive Vice President and Chief Financial Officer of the holding company in 2001. Mr. González began his career in banking in the early 1980s as Vice President, Investment Banking, for Credit Suisse First Boston (“CSFB”) and, from 1989 through 1995, served as President and CEO of CSFB’s Puerto Rico operations. He served as President and CEO of the Government Development Bank for Puerto Rico, a government instrumentality that acts as the Commonwealth’s fiscal agent, from 1986 to 1989. He is a past President of both the Puerto Rico Bankers Association and the Securities Industry Association of Puerto Rico. Mr. González holds a B.A. in Economics from Yale University and M.B.A. and Juris Doctor degrees from Harvard University.
Mr. Angelo joined the Bank as Chief Audit Officer in September 2008. In this role, he oversees the activities of the Internal Audit Department, which provides independent, objective assurance and consulting services designed to add value and improve the Bank’s operations. He is also responsible for providing support to the Audit Committee of the Bank’s Board of Directors, in connection with matters related to internal controls. Mr. Angelo was appointed to the Management Committee in July 2016. Mr. Angelo holds an M.B.A. in Finance and a B.S. in Accounting, both from New York University’s Stern School of Business. He is a Certified Public Accountant and is a member of the American Institute of CPAs and the New York State Society of CPAs as well as the Institute of Internal Auditors. Mr. Angelo began his career as an associate auditor with Coopers & Lybrand, and then held positions of increasing responsibilities in internal audit roles at Bankers Trust Company and Bear, Stearns & Co.
Mr. Artuz has served as Head of Corporate Services and Director of Diversity & Inclusion since July 1, 2014. In August 1, 2000, he was named Director of Human Resources; he was named as a Senior Vice President on January 1, 2013. Mr. Artuz directs the management of the Bank’s Office of Minority and Women Inclusion in the areas of Human Resources, Procurement and education and outreach to ensure that regulatory requirements are met and exceeded. Mr. Artuz also provides overall leadership, strategic direction, and oversight for all of the Bank’s human resources activities and operations. These activities and operations include the areas of employment, compensation, benefits, employee relations, employee and organizational training and development, performance management, succession planning, employee communications, and external and internal Human Resources information systems services. Mr. Artuz has the significant responsibility of providing support to the Compensation & Human Resources Committee of the Bank’s Board of Directors in connection with matters related to executive compensation and benefits. Mr. Artuz also provides strategic direction and leadership to the organization’s Corporate Real Estate departments to ensure efficient and effective management of the firm’s physical resources. From January 1996 through December 1996, Mr. Artuz served as Assistant Vice President, Administrative Services and from January 1997 through July 2000, Mr. Artuz served as Vice President, Administrative Services. In this capacity, Mr. Artuz managed the Human Resources function as well as each of the following: Purchasing; Telecommunications; Facilities; Mailroom Services; Security; Reception; Insurance; and Record Retention. Mr. Artuz holds a graduate degree from New York University in Human Resources Management and an undergraduate degree in History from the College of Staten Island. Prior to joining the Bank in 1989, Mr. Artuz held positions at Skadden, Arps, Slate, Meagher & Flom; Dillon, Read & Co.; and the Dime Savings Bank of New York.
Ms. Feinberg has served as Senior Vice President and Chief Risk Officer since March 1, 2017. Ms. Feinberg previously served as Senior Vice President and Acting Chief Risk Officer from July 8, 2016 through February 28, 2017, and Senior Vice President and Deputy Chief Risk Officer from January 1, 2015 through July 7, 2016. In her current role, Ms. Feinberg oversees the Bank’s Enterprise-wide Risk Management practice and serves as the Bank’s Compliance Officer. This role encompasses Financial Risk Management and Credit Risk Analytics; Credit Risk; Collateral Risk; Model Risk; Operational Risk; Technology Risk; and Compliance. She is a member of the Bank’s Management Committee and serves on many of the FHLBNY’s internal committees, including chairing the Enterprise Risk Committee. She also serves as the primary contact for the Bank’s regulator, the Federal Housing Financing Agency. Ms. Feinberg joined the Bank in October 2011 as the Director of Finance. In that capacity, she was responsible for all aspects of the Bank’s finance functions, including advisory on business initiatives, funding and investment decisions, capital planning, tax and regulatory issues, etc. Ms. Feinberg began her career as a CPA with Ernst & Young, and then held positions of increasing responsibilities in accounting and finance roles at three investment banks, namely, JP Morgan Chase, HSBC and Goldman Sachs over the course of 18 years. She earned an M.B.A. in Finance from Drexel University and a B.S. in Accounting from The College of New Jersey, both Magna Cum Laude. She is a graduate of the RMA Wharton Advanced Risk Management Program and holds a PRMIA Market, Liquidity, and Asset Liability Management Certification. She is a member of the NYSCPA, AICPA and the PRMIA Market, Liquidity and Asset Liability Management Risk Leader Group.
Mr. Fusco was named Chief Information Officer (“CIO”) in 2008 and took on the additional role of Head of Enterprise Services in 2009. In that role, Mr. Fusco directed and oversaw all of the Bank’s technology functions and Bank programs for information security, project management, records management, vendor management and business continuity. He was also Chairman of the Bank’s internal Operational Risk Committee from 2011 through 2019. Mr. Fusco has been with the Bank since March 1987. During his 33 year tenure, he has held various management positions in Information Technology, including IT Director starting in 2000 and Chief Technology Officer starting in 2006. Mr. Fusco received an undergraduate degree from the State University of New York at Stony Brook. He has earned numerous post-graduate technical and management certifications throughout his career, and is a graduate of the American Bankers Association National Graduate School of Banking. Prior to joining the Bank, Mr. Fusco held positions at Citicorp and the Federal Reserve Bank of New York. Mr. Fusco retired from the Bank at the end of the first quarter of 2020. As part of the transition plan, he relinquished the CIO position at the end of 2019 and served as the Special Advisor to the CEO until his retirement.
Mr. Goldstein was named Chief Business Officer in December of 2015. In this role, he leads the Sales, Marketing, Membership and Research activities for all business lines. In addition, he manages the FHLBNY’s Mortgage Partnership Finance® Program, Mortgage Asset Program and Member Service Desk. Mr. Goldstein previously served as the Head of Sales, Business Development and Marketing. Mr. Goldstein joined us in June 1997 and has held a number of key positions in our business areas. He has been a member of the FHLBNY’s Management Committee since 2008. He serves on many of the FHLB System Committees and is the Chairman of the GSIB Task Force. He also serves on many of the FHLBNY’s internal Committees and created the Products, Services and Membership Committee. He is a co-sponsor leading the FHLBNY’s Strategic Planning process, where he assists with the development and implementation of the strategic plan and new initiatives. He leads the In-District Regulatory outreach efforts. He speaks at a variety of trade conventions and conferences and also provides training for regulatory agencies and bond investors. In addition to an undergraduate degree from the SUNY College at Oneonta and an M.B.A. in Financial Marketing from SUNY Binghamton University, Mr. Goldstein has received post-graduate program certifications in Business Excellence from Columbia University, in Management Development from Cornell University, in Management Practices from New York University, in Finance from The New York Institute of Finance and in Management Excellence from the Harvard University School of Business. He is also a trustee on the Board of the Kennedy Child Study Center and Chairman of their Audit Committee.
Mr. Neylan became Chief Financial Officer on March 30, 2012. Mr. Neylan is responsible for overseeing the Bank’s Accounting, Management Reporting and Strategic Planning functions. He has held several positions with strategic planning, finance and administrative responsibilities since joining us in April 2001. Immediately prior to becoming the CFO, Mr. Neylan was the Head of Strategy and Finance, and served as the Head of Strategy and Business Development from January 2009 through December 2011. Mr. Neylan had approximately twenty years of experience in the financial services industry prior to joining the Bank, and was previously a partner in the financial services consulting group of one of the Big Four accounting firms. He holds a M.S. in corporate strategy from the MIT Sloan School of Management and a B.S. in management from St. John’s University (NY).
Ms. Palladino was named Senior Vice President and Head of Affordable Housing and Community Investment in October 2019 and is responsible for oversight of the Bank’s affordable housing and community lending programs and initiatives. Ms. Palladino previously served as Vice President and Director of Collateral and Affordable Housing Services from July 2016 through September 2019. Prior to that, she served as Vice President holding the functional titles of Director of Collateral Analytical Services (February 2012 – June 2016) and Director of Loan Review Analysis (June 2010 – January 2012). Ms. Palladino joined the Bank in June of 2010. Prior to joining the Bank, Ms. Palladino held various management positions at GMAC Mortgage Corporation and Home Savings of America. She holds an M.B.A. in Finance from Long Island University and a B.A. in Communications from William Smith College.
Mr. Radziemski was named Senior Vice President and Chief Information Officer on January 1, 2020. In this role, he directs and oversees several functions including Information Technology, Information Security, Business Continuity Planning, Vendor Management, and Records Management. Mr. Radziemski joined the FHLBNY in July 2019 as Deputy Chief Information Officer. Prior to joining the FHLBNY, he spent over 30 years working in information technology in the financial services industry, including senior technology leadership roles at Bankers Trust, MetLife, CitiGroup, and Lord, Abbett & Co., LLC (Lord Abbett). His last full-time role before joining the FHLBNY was as Chief Information Officer at Lord Abbett, from March 2003 until July 2016. After Lord Abbett, he did management consulting work as a Partner for Fortium Partners from July of 2017 until joining the FHLBNY. He received a B.Sc. in Operations Research and Industrial Engineering from Cornell University, and a M.S. in Industrial Engineering from Stanford University.
Mr. Scott was named Chief Capital Markets Officer in September 2014, after serving as Director of Trading in the Capital Markets department. He is responsible for all facets of balance sheet management including the Bank’s investments portfolio, advances position, liquidity and debt issuance. He has served as the FHLBank representative to the Federal Reserve-sponsored committee on Libor replacement, the Alternative Reference Rates Committee, also known as “ARRC”, since 2017. Mr. Scott joined the Bank’s Capital Markets department in August of 2006, following 23 years of experience in the markets and on Wall Street where he was a trader and desk manager for interest rate products at Citibank, Deutsche Bank, and Credit Lyonnais. He received a Bachelor’s Degree in Economics from Tufts University and holds a Master’s degree in Finance and Economics from the Kellogg School of Management at Northwestern University.
Mr. Volpe was named Senior Vice President and Head of Bank Operations in October 2019. In this role, he directs and oversees several functions, including Credit and Collateral Operations, Correspondent Services, Custody and Pledging Services, Business Process and Project Support, and Electronic Payments. Mr. Volpe previously served as First Vice President and Director of Bank Operations from January 2019 through September 2019. Prior to that, he served as Vice President beginning in October 2006, holding several functional titles during that time, including Director of Bank Operations (December 2018); Director of Member Services Operations (April 2015 – November 2018); Director of Collateral and Correspondent Services (February 2012 – April 2015); and Director of Collateral Operations (October 2006 – January 2012). He joined the FHLBNY in January 1989 and later took an eight year hiatus, from 1998 to 2006, where he held various positions at The Bank of New York. He received a B.S. in Finance and M.B.A. in International Finance from St. John’s University (NY), and is also a graduate of the ABA Stonier Graduate School of Banking.
Mr. West assumed the role of Senior Vice President, Chief Legal Officer for the Bank on May 1, 2015. Mr. West left the Federal Home Loan Bank of Indianapolis (FHLBI) on December 31, 2014 having served as its Executive Vice President - Chief Operating Officer - Business Operations since July 30, 2010. He was appointed by the FHLBI’s Board to serve as Acting Co-President - CEO from April through July 2013. From 1994 to 2010, Mr. West served as Senior Vice President - Administration, General Counsel, Corporate Secretary & Ethics Officer, having started with the FHLBI in July 1985 as Associate Legal Counsel. From 1983 to 1985, Mr. West was an Associate with the Indianapolis, Indiana law firm of White & Raub and practiced in the areas of insurance and corporate law. Mr. West is a Phi Beta Kappa, B.A. with Distinction graduate in political science and psychology from Indiana University’s College of Arts and Sciences, and earned an M.B.A from Indiana University Kelley School of Business and a J.D. from Indiana University School of Law - Indianapolis. Mr. West is licensed to practice law in the state of Indiana and is registered to serve as In-House Counsel in the state of New York.
Section 16 (a) Beneficial Ownership Reporting Compliance
Audit Committee
The Audit Committee of our Board of Directors is primarily responsible for overseeing the services performed by our independent registered public accounting firm and internal audit department, evaluating our accounting policies and its system of internal controls and reviewing significant financial transactions. For the period from January 1, 2020 through the date of the filing of this annual report on Form 10-K, the members of the Audit Committee included: Kevin Cummings (Chair), David R. Huber (Vice Chair), Joseph R. Ficalora, Jay M. Ford, Thomas L. Hoy, Thomas J. Kemly, Charles E. Kilbourne, III, Christopher P. Martin, and Ángela Weyne.
Audit Committee Financial Expert
Our Board of Directors has determined that David R. Huber of the FHLBNY’s Audit Committee qualifies as an “audit committee financial expert” under Item 407 (d) of Regulation S-K.
Code of Ethics
It is the duty of the Board of Directors to oversee the Chief Executive Officer and other senior management in the competent and ethical operation of the FHLBNY on a day-to-day basis and to assure that the long-term interests of the shareholders are being served. To satisfy this duty, the directors take a proactive, focused approach to their position, and set standards to ensure that we are committed to business success through maintenance of the highest standards of responsibility and ethics. In this regard, the Board has adopted a Code of Business Conduct and Ethics (Code) that applies to all employees as well as the Board. The Code is posted on the Corporate Governance Section of the FHLBNY’s website at http://www.fhlbny.com. We intend to disclose changes to or waivers from the Code by filing a Form 8-K and/or by posting such information on our website.
| | Item 11. | Executive Compensation. |
Compensation Discussion and Analysis
This section describes and analyzes the Bank’s 2020 compensation program for our “named executive officers” (“NEOs”). Our NEOs include our chief executive officer, chief financial officer and our other most highly compensated executive officers who were serving as executive officers on December 31, 2020. The Bank’s named executive officers during 2020 are identified as: 1) José R. González (President and Chief Executive Officer); 2) Kevin M. Neylan (Senior Vice President and Chief Financial Officer); 3) Melody J. Feinberg (Senior Vice President and Chief Risk Officer); 4) Michael Radziemski (Senior Vice President and Chief Information Officer); and 5) Philip A. Scott (Senior Vice President and Chief Capital Markets Officer).
| a) | Compensation & Human Resources Committee Oversight of Compensation |
The Bank’s compensation philosophy and objectives are to attract, motivate, and retain high caliber of diverse financial services executives capable of achieving strategic business initiatives, enhancing business performance and increasing shareholder value. In this regard, it is the role of the Compensation & Human Resources Committee (“C&HR Committee”) of the Board of Directors (“Board”) to:
| 1. | Review and recommend to the Board changes regarding our compensation and benefits programs for employees and retirees; |
| 2. | Review and approve individual performance ratings and related merit increases for our Chief Executive Officer and for the other Management Committee members (which Committee includes all the NEOs) of the Bank; |
| 3. | Review salary adjustments and benefits for our Chief Executive Officer and for the other Management Committee members; |
| 4. | Review and approve annually the Bank’s Incentive Compensation Plan (“Incentive Plan”), year-end Incentive Plan results and Incentive Plan award payouts for Management Committee members; |
| 5. | Advise the Board on compensation, benefits and human resources matters affecting Bank employees; |
| 6. | Review and discuss with Bank management the Compensation Discussion and Analysis (“CD&A”) to be included in our Form 10-K and determine whether to recommend to the Board that the CD&A be included in the Form 10-K; and |
| 7. | Review and monitor compensation arrangements for our executives so that we continue to retain, attract, motivate and align quality management consistent with the investment rationale and performance objectives contained in our annual business plan and budget, subject to the direction of the Board. |
The Board has delegated to the C&HR Committee the authority to approve fees and other retention terms for: i) any compensation and benefits consultant to be used to assist in the evaluation of the Chief Executive Officer’s compensation, and ii) any other advisors that it shall deem necessary to assist it in fulfilling its duties. The Charter of the C&HR Committee is available in the Corporate Governance section of our web site located at www.fhlbny.com.
The role of Bank management (including Executive Officers) with respect to compensation is limited to administering Board-approved programs and providing proposals for the consideration of the C&HR Committee. No member of management serves on the Board or any Board committee.
Regulatory Oversight of Executive Compensation
The Federal Housing Finance Agency (“Finance Agency”) has oversight authority over FHLBank executive officer compensation. Section 1113 of the Housing and Economic Recovery Act of 2008 requires that the Director of the Finance Agency prohibit a FHLBank from paying compensation to its executive officers that is not reasonable and comparable to that paid for employment in similar businesses involving similar duties and responsibilities. Pursuant to the foregoing, the Finance Agency requires the FHLBanks to provide information to the Finance Agency for review and non-objection concerning all compensation actions relating to the respective FHLBanks' executive officers. This information, including studies of comparable compensation, must be provided to the Finance Agency at least 30 days in advance of any planned FHLBank action with respect to the payment of compensation to executive officers. In addition, the FHLBanks are required to provide at least 60 days' advance notice to the Finance Agency of any arrangement that provides for incentive awards to executive officers. Under the supervision of our Board of Directors, we provide this information to the Finance Agency as required.
In addition to these rules, the Finance Agency previously issued Advisory Bulletin 2009-AB-02 regarding principles for FHLBank executive compensation as to which the FHLBanks and the Office of Finance are expected to adhere in setting executive compensation policies and practices. These principles consist of the following:
| • | Executive compensation must be reasonable and comparable to that offered to executives in similar positions at other comparable financial institutions; |
| • | Executive incentive compensation should be consistent with sound risk management and preservation of the par value of the FHLBank's capital stock; |
| • | A significant percentage of an executive's incentive-based compensation should be tied to longer-term performance and outcome indicators; |
| • | A significant percentage of an executive's incentive-based compensation should be deferred and made contingent upon performance over several years; and |
| • | The FHLBank's Board of Directors should promote accountability and transparency in the process of setting compensation. |
In evaluating an FHLBank's compensation, the FHFA Director will consider the extent to which an executive's compensation is consistent with these advisory bulletin principles. Our Board is of the view that we have incorporated these principles into our development, implementation, and review of compensation policies and practices for executive officers, as described below. We are prohibited by regulations from offering equity-based compensation. Our total compensation program takes into account the existence of these other types of compensation by offering a defined benefit and defined contribution plan to help effectively compete for and retain talent.
On December 22, 2020, the FHFA issued confidential guidance concerning the factors the regulator considers relevant in its oversight of executive compensation-related determinations under its regulations and guidance. Pursuant to this guidance, the FHFA has not approved the proposed 2021 base salary merit increases for NEOs. Due to concerns regarding the reasonableness and market comparability of the compensation benchmarks used by the FHFA, the C&HRC and the Board of Directors with the advice of our independent compensation consultants, did not agree with certain aspects of the FHFA’s guidance and its conclusions. The Board is complying with the regulator’s position, but does not agree with this override of the Board’s business judgment. The Board believes the FHFA’s guidance with regard to benchmarking may significantly impair the Board’s supervisory responsibility and ability to hire and retain qualified senior management.
The Bank is exempt from SEC proxy rules and as such does not provide shareholder advisory “say on pay” votes regarding executive compensation.
| b) | About the Bank’s Mission |
The mission of the Bank is to advance housing opportunity and local community development by supporting members in serving their markets. We meet our mission by providing our members with access to economical wholesale credit and technical assistance through our credit products, mortgage finance programs, housing and community lending programs and correspondent services to increase the availability of home financing to families of all income levels.
We operate in a very competitive market for talent. Without the capability to attract, motivate and retain talented diverse employees, the ability to fulfill our mission would be in jeopardy. All employees, and particularly senior and middle management, are frequently required to perform multiple tasks requiring a variety of skills. Our employees not only have the
appropriate talent and experience to execute our mission, but they also possess skill sets that are difficult to find in the marketplace.
| c) | Our Compensation Policy |
The Board-approved Compensation Policy acknowledges and takes into account our compensation philosophy, business environment and factors to remain competitive in the labor market. In September 2018, the Board-approved an updated Compensation Policy as a result of the 2018 Total Rewards Study discussed in Section II below, which was in effect for all compensation decisions effective January 2020 through December 2020 include the following:
| · | The Bank will focus on Regional/Commercial Banks $20B+ in assets within the Metro New York Market (where available) as the “Primary Peer Group” for benchmarking at the 50th percentile of the market total compensation (base pay + short term incentive compensation) for establishing competitive pay levels. |
| · | Bank Management Committee members and all Bank Officers will be matched against ‘level-for-level’ jobs and the publicly available proxy data. Other FHLBanks will be used as a “Secondary Peer Group” and benchmarking will be targeted at the 75th percentile of total compensation for establishing competitive pay levels. |
| · | Use publicly available data from Regional/Commercial Banks $20-65B in assets for the Bank Management Committee members (including NEOs) at the 50th percentile of market total compensation (base pay + short term incentive compensation) for establishing competitive pay levels. |
| · | For jobs within Risk Management and Capital Markets and other specialty areas not in ready supply within the Regional Banks, the Bank will use a customized peer group of Banks with $50B+ in assets including Bulge Bracket banks (i.e. large and global financial firms) at the 25th and 50th percentile to reflect realistic recruiting pressures in the Metro New York market. |
| · | A commitment to conduct detailed cash compensation benchmarking for approximately one-third of officer positions each year. |
| · | A commitment to evaluate the value of total compensation delivered to employees including base pay, incentive compensation, retirement and health and welfare benefits (“Total Rewards Study”) in determining market competitiveness every third year. |
Additional factors that we take into account to remain competitive in our labor market include, but are not limited to:
| · | Geographical area — The New York metropolitan area is a highly-competitive market for talent in the financial disciplines; |
| · | Cost of living — The New York metropolitan area has a high cost of living that may require compensation premiums for some positions, particularly at more junior levels; and |
| · | Availability of/demand for talent — Recruiting critical positions with high market demand typically requires a recruiting premium to entice an individual to change firms. |
| II. | The Total Compensation Program |
In response to the challenging economic environment in which we operate, compensation and benefits consist of the following components: (a) cash compensation (i.e., base salary, and, for exempt employees, “variable” or “at risk” short-term incentive compensation opportunities available under the Bank’s Incentive Compensation Plan, hereinafter referred as the “IC Plan”)); (b) retirement-related benefits (i.e., the Qualified Defined Benefit Plan (“DB Plan”); the Qualified Defined Contribution Plan (“DC Plan”); the Nonqualified Defined Benefit Component of the Amended and Restated Supplemental Executive Retirement Defined Benefit and Defined Contribution Benefit Equalization Plan (“DB BEP”), the Nonqualified Defined Contribution Component of the Amended and Restated Supplemental Executive Retirement Defined Benefit and Defined Contribution
Benefit Equalization Plan (“DC BEP”), and the Nonqualified Deferred Incentive Compensation Plan (“NDICP”); and (c) health and life and disability insurance programs available to all employees.
The objectives of the total compensation program are to help motivate employees to achieve consistent and superior results, taking into account prudent risk management, over a long period of time. We also provide a program that allows us to compete for and retain talent that otherwise might be lured away.
| a) | 2018 Total Rewards Study Results |
In accordance with the Board-approved Compensation Policy, we evaluate the value of total compensation delivered to employees including base pay, incentive compensation, retirement and health and welfare benefits in determining market competitiveness in the context of recruitment and retention.
In July 2018, the C&HR Committee engaged a benefits and compensation consultant, Willis Towers Watson (“Towers”), to perform a broad and comprehensive review of the Bank’s Compensation Policy and Total Rewards program for all employees including NEOs, and present recommendations to the C&HR Committee. The Bank conducted a competitive bid process with experienced compensation and benefits consulting firms that resulted in the C&HR Committee engaging Towers as the compensation and benefits consultant to perform the review.
For the compensation component, the compensation and benefits consultant used job-level market data from proprietary Financial Services surveys and jobs from five designated tiers, including NEOs and Management Committee members. Specific Bank peer groups were included in the Total Rewards Study based on their available data and alignment with the September 2018 Board-approved Compensation Policy set forth above.
For the health and welfare component, Towers used their Benefits/Value (“BenVal”) methodology to determine the value of benefit programs which assigned an actuarial value to the Bank’s benefits programs and programs offered by other employers included in the Total Rewards Study.
A representative list of the peer group that was used in the Towers healthcare and welfare component of the benefits study in 2018 is set forth in the table below.
| American Express. | CIBC | PNC Financial Services Group, Inc. |
| Banco Santander New York | Cisco Systems, Inc. | RBC Bank - US |
Bank of America Corporation BMO Financial Group BNY Mellon | Citigroup Inc. ING Intuit Inc. | State Street Corporation TD Bank |
| Capital One | M&T Bank Corporation | |
| b) | 2020 Compensation Benchmarking |
For the year 2020, Towers used for compensation benchmarking analysis purposes the Compensation Policy as of September 2018 for all NEO compensation decisions in effect beginning January 2020 (details of which are provided above).
We received a “non-objection” letter from the Finance Agency with respect to the payment of merit increases (effective January 1, 2020) for the NEOs, which letter was based upon the results of compensation benchmarking analysis by Towers.
A representative list of the peer group that was used in the compensation benchmarking analysis, excluding all healthcare and welfare benefits analysis, is set forth in the table below.
| c) | Market Data Participants — Commercial Banks used for 2020 market pay analysis: |
| Associated Bank | Commerce Bancshares | Umpqua Bank |
| CIBC Bank USA | Iberia Bank | Webster Bank |
| City National Bank | People’s United Bank | |
| Comerica | Synovus | |
In addition, the FHLBanks were included in the 2020 compensation benchmarking analysis.
| d) | Services Provided by Compensation and Benefits Consultant |
Compensation in the aggregate paid to compensation and benefits consultants Towers and McLagan Partners, Inc. (“McLagan”) in 2020 was $182,773. Regarding compensation consulting, payments made to Towers were in the amount of $153,348. McLagan also provided services for 2020 NEO compensation benchmarking services in the amount of $29,425. The Bank also engaged Towers for insurance placement services and, through insurance commissions, compensated Towers for these additional services unrelated to compensation consulting in the amount of $807,181 in 2020. The Board reviewed Towers’ compensation and benchmarking data and recommendations during the course of 2020. While the C&HR Committee has concluded that no conflict of interest was created by management's engagement of Towers or McLagan for the referenced additional services, any potential conflicts of interest were mitigated through multiple safeguards and constraints, including Board oversight of the Bank’s compensation and benefits consultants; and comprehensive Finance Agency regulations and monitoring of our compensation, corporate governance, and safety and soundness.
| a) | Overview of the 2020 IC Plan |
The objective of the Bank’s 2020 IC Plan is to motivate employees to take actions that support the Bank’s strategies and lead to the attainment of the Bank’s business plan and fulfillment of its mission. The 2020 IC Plan is also intended to help retain employees by affording them the opportunity to share in the Bank’s performance results. The 2020 IC Plan seeks to accomplish these objectives by linking annual cash payout award opportunities to Bank performance. All salaried exempt and non-exempt employees are eligible to participate in the 2020 IC Plan. Awards under the 2020 IC Plan were calculated based upon performance during 2020 and paid to participants on March 5, 2021.
When employees are individually evaluated, they receive one of four performance ratings: “Outstanding”; “Exceeds Requirements”; “Meets Requirements”; or “Below Requirements. Incentive Compensation Plan awards are only paid to participants who have attained at least a “Meets Requirements” rating on their individual performance evaluations and do not have any unresolved disciplinary matters.
| b) | Bankwide Performance Goals |
Bankwide performance goals, which are approved by the Board of Directors, are established to address the Bank’s business operations, mission and to help management focus on what it needs to succeed. Actual results of each goal are compared against the three benchmarks (threshold, target and maximum) that were established for the Incentive Plan year. The Incentive Compensation Plan participant receives a payout based on the benchmark level that is met for each goal.
We believe that employees at higher ranks have a greater impact on the achievement of Bankwide goals than employees at lower ranks. Therefore, employees at higher ranks have a greater weighting of their Incentive Plan award opportunities.
The actual results for each goal may fall between two benchmark levels. When this happens, the payout figures are interpolated for results that fall between the two applicable ranges; either threshold and target, or target and maximum. For example, if the actual results fall between target and maximum, the Incentive Plan participant will receive the payout for achieving target plus an additional amount for the excess over target. This calculation is performed for each Bankwide goal. For each goal, there is no payout if the actual result does not reach the threshold, and the payout is capped at maximum.
The 2020 Incentive Compensation Opportunity is summarized as follows:
| Rank | Incentive Compensation Opportunity |
| President – Chief Executive Officer | 50% (Threshold) 80% (Target) 100% (Maximum) |
| Other NEOs | 30% (Threshold) 50% (Target) 75% (Maximum) |
The 2020 Bankwide goals are organized into four broad categories and are presented in the charts below. These charts contain:
| ● | A description of each of the goals and their respective weightings as a percentage of the Bankwide goals; |
| ● | An explanation of each Bankwide goal measure and how each goal meets its stated purpose; and |
| ● | Actual results of each goal along with the Bankwide goal benchmarks (threshold, target and maximum) that were established. |
| | | |
1. Financial/Return Goal
Bankwide Goals
(Measure and calculation of measure) | | How Goal Meets Stated Purpose | | Weighting | | Threshold | | Target | | Maximum | | Results | |
| Return Component - Dividend Capacity as forecasted in the 2020 business plan. Dividend Capacity is calculated as net income, divided by average capital stock. The Bank’s goal is to reward management for financial results that are generally controllable by management. Therefore, we adjust net income to eliminate the impact of items such as unrealized fair value changes on derivatives and associated hedged instruments. In addition, the target is adjusted due to changes in market interest rates during the year. | | Earnings provide value for shareholders through the ability to add to retained earnings and to pay a dividend. | | 40% | | 3.72% | | 4.22% | | 4.97% | | 5.11% | |
2. Risk Goal | | | | | | | | | | | | | |
Bankwide Goals
(Measure and calculation of measure) | | How Goal Meets Stated Purpose | | Weighting | | Threshold | | Target | | Maximum | | Results | |
| Risk Component - The 2020 Bank-wide Risk goal consists of three metrics, each with a unique complementary factor. Each metric will be evaluated on PASS/FAIL basis and must meet a Threshold (a specified minimum number of PASS rated metrics) to qualify for incentive compensation. | | Lowering the Bank’s risk profile provides a level of assurance that unexpected losses will not impair members’ investment in the Bank and serves to preserve the par value of membership stock. | | 25% | | 1 | | 2 | | 3 | | 3 | |
| The three metrics are: | | | | | | | | | | | | | |
1) Dividend Sensitivity: This measure seeks to ensure dividend stability into the future by limiting downside risk to baseline forecasts from 14 specified stress scenarios (measured monthly on last business day) based on the range of scenario-based dividend capacity projections over a four quarter horizon.; 2) Capital Protection: This measure seeks to ensure members paid in capital stock are protected from potential and plausible losses. Measured as the MVE/CS ratio, this measure is defined as the quotient from dividing the Market Value of Equity (MVE) by the amount of Capital Stock (CS) outstanding and is measured monthly (last business day); and 3) Operational Exceptions: The health of the Bank’s operational control environment is represented by the aggregate number of risk events and the economic losses (i.e., an out-of-pocket loss without consideration of any insurance recoveries - this approach captures the dollar amount of the error prior to any post remediation mitigants (i.e. insurance)) that the Bank sustained for the year. | | A PASS rating will be earned as long as the measure is at or above -100 basis points for 9 of 12 calendar months A PASS rating will be earned as long as the measure is at or above 108% for 9 of 12 calendar months. A PASS rating is earned when the Bank experiences: 1. Less than 20 Risk Events for the year; and 2. Sustains an aggregate economic loss (Operational Error Amount Post Remediation) of less than $3 mm for the year. | | | | | | | | | | | |
3. Mission and Membership Goal
Bankwide Goals
(Measure and calculation of measure) | | How Goal Meets Stated Purpose | | Weighting | | Threshold | | Target | | Maximum | | Results | |
| Community Investment, Business Development and Outreach | | Supports the promotion, understanding and use of the Bank’s affordable housing and community lending programs. | | 20% | | 12 | | 24 | | 36 | | 32 | |
| | | | | | | | | | | | | | |
| Member Goal | | The number of members who, in 2020, either: 1) submit applications for the first time; 2) submit an application after having not participated in the past two years; or 3) submit more applications than what was submitted in 2019. | | | | 7 | | 12 | | 17 | | 17 | |
| | | | | | | | | | | | | | |
| Advances Balances | | Supports the provision of liquidity to members for housing and community development activities. | | | | $83.46 | | $92.73 | | $97.37 | | $107.68 | |
| | | | | | | | | | | | | | |
| Market Share | | Helps the Bank gauge its competitive position against a variety of wholesale funding alternative used by members. Strengthens the franchise as an “advances bank”. | | | | 47% | | 51% | | 53% | | 47.77% | |
4. Technology Strategy Goal
Bankwide Goals
(Measure and calculation of measure) | | How Goal Meets Stated Purpose | | Weighting | | Threshold | | Target | | Maximum | | Results | |
The Business Technology Strategy Goals will focus on three key tenets that are related to the success of the Business Technology Strategy: (1) Reduction in Technology Debt | | # of Applications or Platforms Removed | | 15% | | 3 | | 5 | | 7 | | 5 | |
| | | | | | | | | | | | | | |
| (2) Organizational Change Management: Communication and Outreach Activities for the Business Technology Strategy | | # of Communication & Outreach Activities for the Business Technology Strategy Completed | | | | 10 | | 12 | | 15 | | 16 | |
| | | | | | | | | | | | | | |
(3) Focus on “Change the Bank” Activities: Percentage of Planned Work Efforts Defined as “Change the Bank” Activities (Executing or Closed) | | % of Work Efforts Defined as "Change the Bank” | | | | 50% | | 65% | | 80% | | 93% | |
Overall, the weighted average result for Bankwide goals and the Risk Management Group was 86.3% above target. Payments are interpolated between the target and maximum amounts.
| c) | Clawback Provision of the Incentive Compensation Plan |
A clawback provision in the Incentive Plan provides as follows:
If, within 3 years after an incentive has been paid or calculated as owed to a Participant who is a member of the Bank’s Management Committee, it is discovered that such amount was based on the achievement of financial or operational goals within this Plan that subsequently are deemed by the Bank to be inaccurate, misstated or misleading, the Board shall review such incentive amounts paid or owed. Inaccurate, misstated and/or misleading achievement of financial or operational goals shall include, but not be limited to, overstatements of revenue, income, capital, return measures and/or understatements of credit risk, market risk, operational risk or expenses.
If the Board determines that an incentive amount paid or considered owed to the Participant (the “Awarded Amount”) would have been a lower amount when calculated barring the inaccurate, misstated and/or misleading achievement of financial or operational goals (the “Adjusted Amount”), the Board shall, except as provided below, seek to recover to the fullest extent possible the difference between the Awarded Amount and the Adjusted Amount (the “Undue Incentive Amount”).
The Board may decide to not seek recovery of the Undue Incentive Amount if the Board determines that to do so would be unreasonable or contrary to the interests of the Bank. In making such determination, the Board may take into account such considerations as it deems appropriate including, but not limited to: (a) whether the Undue Incentive Amount is immaterial in impact to the Bank; (b) whether the Participant engaged in any intentional or unlawful misconduct that contributed to the inaccurate, misstated and/or misleading information; (c) whether the change in the applicable achievement level was a result of circumstances beyond the control of management; (d) the likelihood of success to recover the claimed Undue Incentive Amount under governing law versus the cost and effort involved; and (e) whether seeking recovery could prejudice the interests of the Bank. The decision by the Board to seek recovery of an Undue Incentive Amount need not be uniform among Participants. Authority of the Board under this IC Plan may be delegated to the Committee but may not be delegated to the President.
If the Board determines to seek recovery of any or all of the Undue Incentive Amount (the “Recovery Amount”), it will make a written demand from the Participant for the repayment of the Recovery Amount. Subject to the IC Plan provisions regarding the forfeiture of unpaid amounts, if the Participant does not within a reasonable period, after receiving the written demand, provide repayment of the Recovery Amount, and the Board determines that he or she is unlikely to do so, the Board may seek a court order against the Participant for repayment of the Recovery Amount.
| d) | Required Deferral of IC Plan Awards |
A required deferral portion of the IC Plan (“DICP”) applies to members of the Bank’s Management Committee including all NEOs. Such deferred compensation plan provides that the payments made to Management Committee members under the IC Plan are deferred and will be made as described below.
The DICP provides that 50% of the Total Communicated Award (as defined below), if any, under the Plan year communicated to Management Committee participants (which includes the NEOs) will ordinarily be paid by the middle of March following the Plan year.
The remaining 50% will be deferred (the “Deferred Incentive Award”), subject to certain additional conditions specified in the Plan, such that 33 1/3% of the Deferred Incentive Award will ordinarily be paid by the middle of March of the following three years. Deferred Incentive Awards will be paid if the Bank’s ratio of market value of equity to par value of capital stock is equal to, or greater than 100%. To compensate employees for the lost time value of money, the Bank will pay an interest rate on the deferred amount equal to the Bank’s return on equity over the deferral period, subject to a floor of zero.
An executive who terminates employment with the Bank other than for “good reason” or who is terminated by the Bank for “cause” will forfeit any portion of the Deferred Incentive Award that has not yet been paid. In addition, the Deferred Incentive Award will be paid, if otherwise earned, in full in the event of the executive’s death or disability, or a “change in control” (as defined in the DICP).
In the chart below, the following terms have the following definitions:
“Total Communicated Award” means the total amount of the incentive award (if any) under the Plan communicated to Management Committee Participants;
“Current Communicated Incentive Award” means 50 percent of the Total Communicated Award and shall not exceed 100 percent of the participant’s base salary; and
“Deferred Incentive Award” means the remaining 50 percent of the Total Communicated Award.
| Payment | | Description | | Payment Year |
| Current Communicated Incentive Award | | 50% of the Total Communicated Award | | Base year* |
| Deferred Incentive Award installment | | Up to 33 1/3% of the Deferred Incentive Award | | Year 1** |
| Deferred Incentive Award installment | | Up to 33 1/3% of the Deferred Incentive Award | | Year 2** |
| Deferred Incentive Award installment | | Up to 33 1/3% of the Deferred Incentive Award | | Year 3** |
* Payment shall ordinarily be made within the first two and a half weeks of March.
** Payment shall ordinarily be made within the first two and a half weeks of March in the year indicated.
Introduction
We maintain comprehensive qualified and non-qualified defined benefit and defined contribution savings plans for our employees, including our NEOs. The benefits provided by these plans are components of the total compensation opportunity for employees. The Board and C&HR Committee believe these plans serve as valuable retention tools and provide significant tax deferral opportunities and resources for the participants’ long-term financial planning. These plans are discussed below.
a) Profit Sharing Plan
In 2010, the Board approved the establishment of a Profit-Sharing Plan for employees who were not grandfathered in the Bank’s retirement plan and who were participants in the DB BEP. A provision of an amount equal to 8% of the prior year’s base pay and short-term incentive payment to the extent the requirements under the Bank’s IC Plan have been achieved. The 8% payment will not be included as income for calculating the benefits for the Qualified Defined Benefit Plan. There are no NEOs who qualify for this benefit.
b) DB Plan
The DB Plan is an IRS-qualified defined benefit plan which covers all employees who have achieved four months of service. The DB Plan is part of a multiple-employer defined benefit program administered by Pentegra Retirement Services.
Participants who, as of July 1, 2008, had five years of DB Plan service and were age 50 years or older, are provided with a benefit of 2.50% of a participant’s highest consecutive 3-year average earnings, multiplied by the participant’s years of benefit service, not to exceed 30 years. Earnings are defined as base salary plus short-term incentive compensation opportunities available under the Bank’s IC Plan, and overtime, subject to the annual Internal Revenue Code limit; short-term incentives for participants of the deferred incentive compensation plan is defined as the Total Communicated Award. The Normal Form of Payment is a life annuity with a guaranteed 12-year payout. A 1% simple interest cost of living adjustment (“COLA”) is provided annually to participants beginning at age 66. These participants are identified herein as “DB Plan A.”
For participants who, as of July 1, 2008, did not have five years of DB Plan service and attained age 50 years or older, identified herein as “DB Plan B”, the DB Plan provides a benefit of 2.0% of a participant’s highest consecutive 5-year average earnings (as opposed to consecutive 3-year average earnings as provided to Grandfathered participants), multiplied by the participant’s years of benefit service, not to exceed 30 years. The Normal Form of Payment for participants hired on or after July 1, 2008 is a life annuity (i.e., an annuity paid until the death of the participant). The guaranteed 12-year payout option under a life annuity, as previously provided to Grandfathered participants, was terminated effective July 1, 2008. In addition, for the Non-Grandfathered participants, COLAs are no longer provided on future accruals.
For participants who were hired on or after July 1, 2014, the DB Plan provides a benefit of 1.50% of a participant’s highest consecutive 5-year average earnings, multiplied by the participant’s years of benefit service, not to exceed 30 years. Earnings for participants who were hired on or after July 1, 2014 are defined as base salary only, excluding short-term incentive compensation opportunities available under the Bank’s IC Plan, subject to the annual Internal Revenue Code limit. These participants are identified herein as “DB Plan C.”
The table below summarizes the DB Plan changes affecting the Non-Grandfathered employees that went into effect on July 1, 2008 and July 1, 2014:
DEFINED BENEFIT PLAN (DB PLAN)
PROVISIONS | | DB PLAN A** | | DB PLAN B*** | | DB PLAN C**** |
| Benefit Multiplier | | 2.5% | | 2.0% | | 1.5% |
| | | | | | | |
| Final Average Pay Period | | High 3-Year | | High 5-Year | | High 5-Year |
| | | | | | | |
| Normal Form of Payment | | Life Annuity with Guaranteed 12 Year Payout | | Straight Life Annuity | | Straight Life Annuity |
| | | | | | | |
| Cost of Living Adjustments | | 1% Per Year Cumulative Commencing at Age 66 | | None | | None |
| | | | | | | |
| Early Retirement Subsidy<65: | | | | | | |
| | | | | | | |
| a) Rule of 70 | | 1.5% Per Year | | 3% Per Year | | 3% Per Year |
| | | | | | | |
| b) Rule of 70 Not Met | | 3% Per Year | | Actuarial Equivalent | | Actuarial Equivalent |
| | | | | | | |
| *Vesting | | 20% Per Year Commencing Second Year of Employment | | 5-Year Cliff | | 5-Year Cliff |
* Greater of DB Plan Vesting or New Plan Vesting applied to employees participating in the DB Plan prior to July 1, 2008.
** This includes the following NEO: K. Neylan.
*** This includes the following NEOs: M. Feinberg; J. González; and P. Scott
**** This includes the following NEO: M. Radziemski
For purposes of the above table, please note the following definitions:
Benefit Multiplier — The annuity paid from the DB Plan is calculated on an employee’s years of service, up to a maximum of 30 years, multiplied by the appropriate Benefit Multiplier for each participant, as described above.
Final Average Pay Period —The period that an employee’s salary is used in the calculation of that employee’s benefit.
Normal Form of Payment — The DB Plan must state the form of the annuity to be paid to the retiring employee.
Cost of Living Adjustments (or “COLAs”) — Once a DB Plan A retiree reaches age 65, in each succeeding year he/she will receive an extra payment annually equal to one percent of the original benefit amount multiplied by the number of years in pay status after age 65. As of July 1, 2008, this adjustment is no longer offered to DB Plan B Employees on benefits accruing after that date.
Early Retirement Subsidy — Early retirement under the plan is available after age 45.
Vesting — DB Plan A Employees are entitled, starting with the second year of employment service, to 20% of his/her accumulated benefit per year. As a result, after the sixth year of employment service, an employee will be entitled to 100% of his/her accumulated benefit. DB Plan B Employees who entered the DB Plan on or after July 1, 2008 will not receive such benefit until such employee has completed five years of employment service. At that point, the employee will be entitled to 100% of his/her accumulated benefit. The term “5-Year Cliff” is a reference to the foregoing provision. DB Plan A and DB Plan B Employees already participating in the DB Plan prior to July 1, 2008 will vest at 20% per year starting with the second year through the fourth year of employment service and will be accelerated to 100% vesting after the fifth year.
Earnings under the DB Plan for DB Plan A and DB Plan B Employees continue to be defined as base salary plus short-term incentives, and overtime, subject to the annual Internal Revenue Code (“IRC”) limit. The IRC limit on earnings for calculation of the DB Plan benefit for 2020 was $230,000.
The DB Plan pays monthly annuities, or a lump sum amount available at or after age 59-1/2, calculated on an actuarial basis, to vested participants or the beneficiaries of deceased vested participants. Annual benefits provided under the DB Plan also are subject to IRC limits, which vary by age and benefit payment option selected.
The Bank’s practice is to attempt to maintain “economic” funding levels for the DB Plan; therefore in the last two years we made contributions to the DB Plan in amounts greater than the minimum required contribution as determined actuarially under current pension rules as defined by Highway and Transportation Funding Act of 2014 (“HATFA”) and the 2012 Moving Ahead for Progress Act for the 21st Century (“MAP-21”).
In order to help ensure that the Bank’s qualified pension plan continues to pass IRS Safe Harbor tests, commencing on July 1, 2021, the qualified retirement benefits for certain NEOs will no longer accrue under the DB Plan; rather, these benefits will be provided under the DB BEP described below.
c) DB BEP
Employees at the rank of Vice President and above (including the NEOs) who exceed income limitations established by the IRC for three out of five consecutive years and who are also approved for inclusion by the Bank’s Nonqualified Plan Committee are eligible to participate in the DB BEP, a non-qualified retirement plan that in many respects mirrors the DB Plan with the exception of the benefit multiplier reduction to 1.5% implemented effective July 1, 2014 under DB Plan C.
The primary objective of the DB BEP is to ensure that participants receive the full benefit to which they would have been entitled under the DB Plan in the absence of limits on maximum benefit levels imposed by the IRC. In the event that the benefits payable from the DB Plan have been reduced or otherwise limited by government regulations, the employee’s “lost” benefits are payable under the terms of the DB BEP. The DB BEP also enhances benefits for certain NEOs as follows:
NON-QUALIFIED
DEFINED BENEFIT
(DB BEP PLAN)
PROVISIONS | | DB BEP PLAN A* | | DB BEP PLAN B** |
| Benefit Multiplier | | 2.5% | | 2.0% |
| | | | | |
| Final Average Pay Period | | High 3-Year | | High 5-Year |
| | | | | |
| Normal Form of Payment | | Life Annuity with Guaranteed 12 Year Payout | | Straight Life Annuity |
| | | | | |
| Cost of Living Adjustments | | 1% Per Year Cumulative Commencing at Age 66 | | None |
* This includes the following NEOs: J. González and K. Neylan. Effective January 1, 2019, the DB BEP Component of the Supplemental Executive Retirement Plan was amended to provide J. González with the provisions under DB Plan A of the DB Plan.
** This includes the following NEOs: M. Feinberg; and P. Scott.
The DB BEP is an unfunded arrangement. However, the Bank has established a grantor trust to assist in financing the payment of benefits under this plan. The Bank’s policy is to maintain assets in the grantor trust at a level up to the Accumulated Benefit Obligation for the DB BEP. The financing level for the DB BEP is reviewed annually.
The Nonqualified Plan Committee administers various oversight responsibilities pertaining to the DB BEP. These matters include, but are not limited to, approving employees as participants of the DB BEP and adopting any amendment or taking any other action which may be appropriate to facilitate the DB BEP. The Nonqualified Plan Committee is chaired by the Chair of the C&HR Committee; other members include a Board Director who is a member of the C&HR Committee, our Chief Financial Officer, and the Director of Human Resources. The Nonqualified Plan Committee reports its actions to the C&HR Committee.
d) DC Plan
NEOs may contribute to the DC Plan, a retirement savings plan qualified under the IRC. All employees are eligible for membership in the DC Plan on the first day of the month following three full calendar months of employment.
An employee may contribute 1% to 100% of base salary into the DC Plan, up to IRC limitations. The IRC limit for 2020 was $19,500 for employees under the age of 50. An additional “catch up” contribution of $6,500 is permitted under IRC rules for employees who attain age 50 before the end of the calendar year.
If an employee contributes at least 4% of base salary, the Bank provides the maximum employer match of 6% of elective contributions upon plan entry. If an employee contributes less than 4% of base salary, the Bank will match at a rate of 150% of elective contributions. Contributions of less than 2% of base salary receive a match of up to 1.5% of the employee’s base salary.
e) DC BEP
Employees at the rank of Vice President and above (including the NEOs) who exceed income limitations established by the IRC, and who contribute to their qualified DC Plan up to the IRC Limits, are eligible to participate in the DC BEP. Participating employees are allowed to defer up to 19% of the employee’s base salary (less the amount of salary deferrals allowed under the DC Plan pursuant to the IRS Limits).
As a continuation of the qualified DC Plan, the Bank will make a matching contribution each plan year of up to 6% of base salary on the elective deferrals made under the DC BEP. If an employee elects to defer less than 4% of base salary, the Bank will match at a rate of 150% of elective deferred contributions. For deferrals beginning January 1, 2020, the Bank will make a matching contribution of up to 9% of base salary for NEO elective deferrals (in excess of the DC Plan contribution limits). All deferred monies will be the property of the Bank until distribution to the employee and thus subject to claims of Bank creditors until distribution.
Amounts deferred and contributed as matching contributions under the DC BEP shall be credited to the participant’s DC BEP account. Participants may choose to invest their DC BEP funds within a menu of investment options.
f) NDICP
The NDICP allows employees serving at the rank of a Vice President or above (including the NEOs) with a hire date of October 31st or before in a calendar year to elect to defer all or a portion of the employee’s annual incentive compensation that is paid to the employee under the terms of any Board-approved IC Plan or deferred portion of such IC Plan. The Bank does not provide a match on these deferrals. All deferred monies will be the property of the Bank until distribution to the employee and thus subject to claims of Bank creditors until distribution.
Amounts deferred and contributed under the NDICP shall be credited to the participant’s NDICP account. Participants may choose to invest their NDICP funds within a menu of investment options. Participants may elect to receive their funds in a lump sum or in at least two annual installments (not to exceed ten annual installments).
| V. | Health and Welfare Programs and Other Benefits |
| a) | Perquisites and Benefits |
We offer the following additional perquisites and other benefits to all employees, including the NEOs, under the same general terms and conditions:
| | • | Medical, dental, and vision insurance (subject to employee expense sharing); |
| | • | Vacation leave, which increases based upon officer title and years of service; |
| | • | Life and long-term disability insurance (NEOs are eligible for enhanced monthly benefits under our disability insurance program); |
| | • | Travel and accident insurance which include life insurance benefits; |
| | • | Educational assistance; and |
| | • | Employee relocation assistance, where appropriate, for new hires. |
We offer eligible employees, including certain NEOs, medical coverage when they retire. Employees are eligible to participate in the Retiree Medical Benefits Plan if they were at least 55 years old as of January 1, 2015 with 10 years of service when they retire from active service.
Retirees who retire before age 62 pay the full premium for the coverage they had as employees until they attain age 62. The premium paid by retirees upon becoming Medicare-eligible (either at age 65 or prior thereto as a result of disability) is a premium reduced to take into account the status of Medicare as the primary payer of the medical benefits of Medicare-eligible retirees.
Under the Plan as in effect from May 1, 1995 until December 31, 2007, herein identified as “Grandfathered,” retirees beginning at age 62, we contributed a percentage of the premium based on their total completed years of service (no adjustment is made for partial years of service) on a “Defined Benefit” basis. There are no NEOs who qualify for this benefit.
Effective January 1, 2008, for employees who, as of December 31, 2007, did not have 5 years of service and were age 60 or older, herein identified as “Non-Grandfathered,” we contributed $45 per month toward the premium of a Non-Grandfathered retiree multiplied by the number of years of service earned by the retiree after age 45. The total cost of medical coverage elected by the employee (determined by the number of individuals including the retiree, the retiree’s spouse, and each other dependent of the retiree) under the Plan is then reduced by the Bank contribution)
from age 62 until the retiree or a covered dependent of the retiree becomes Medicare-eligible (usually at age 65 or earlier, if disabled). There are no NEOs who qualify for this benefit.
For all covered employees as of January 1, 2015, including the NEOs, from age 62 until the retiree or a covered dependent of the retiree becomes Medicare-eligible (usually at age 65 or earlier, if disabled), we contribute $26.87 per month toward the premium of a Non-Grandfathered retiree multiplied by the number of years of service earned by the retiree after age 45. The total cost of medical coverage elected by the employee (determined by the number of individuals including the retiree, the retiree’s spouse, and each other dependent of the retiree) under the Plan is then reduced by the Bank contribution.
After the retiree or a covered dependent of the retiree becomes Medicare-eligible, our contribution toward the premium for the coverage of the Medicare-eligible individual will be reduced to $14.93 per month multiplied by the number of years of service earned by the retiree after age 45. The total cost of medical coverage elected by the employee (determined by the number of individuals including the retiree, the retiree’s spouse, and each other dependent of the retiree) under the Plan is then reduced by the Bank contribution. The $26.87 and $14.93 amounts are fixed and not cost-of-living adjusted.
Below is a summary of the Retiree Medical Benefits Plan:
| | | |
| Retiree Medical Benefit Plan | | Provisions for Retirees January 1, 2015 and After* |
| Plan Type | | Defined Dollar Plan: A medical plan in which medical coverage is provided to a retired employee up to a fixed cost for the coverage elected by the employee and the retiree assumes all costs above the stated contribution. |
| | | |
| Eligibility | | Active employee who has completed 10 years of employment at FHLBNY and attained age 55 as of January 1,2015. |
| | | |
| Medical Plan Formula | | 1) Retiree (and covered individual), is eligible for $26.87/month x years of service after age 45 and has attained the age of 62. The Cost of Living Adjustment is excluded. |
| | | |
| | | 2) Retiree (and covered individual) is eligible for $14.93/month x years of service after age 45 and after age 65. The Cost of Living Adjustment is excluded. |
| | | |
| | | $0 for Pre-62 Pre-65/Post-65 |
| Employer Cost Share Examples: | | |
| | | |
| 10 years of service after age 45 | | $3,224/$1,792/Annually |
| | | |
| 15 years of service after age 45 | | $4,837/$2,687/Annually |
| | | |
| 20 years of service after age 45 | | $6,449/$3,583/Annually |
| | | |
* This includes the following NEOs: K. Neylan.
VI. Severance Plan, Executive Change in Control Agreements and Golden Parachute Rule
a) Severance Plan
Other than as described below, all Bank employees are employed under an “at will” arrangement. Accordingly, an employee may resign employment at any time and the Bank may terminate the employee’s employment at any time for any reason with or without cause.
Severance benefits to an employee in the event of termination of his or her employment may be paid in accordance with the Bank’s formal Board-approved Severance Pay Plan (“Severance Plan”) available to all Bank employees who work twenty or more hours a week and have completed at least two “periods of service” (the number of six (6) month periods, in the aggregate, for which an employee is employed by the Bank).
Severance benefits may be paid to employees who:
(i) are part of a reduction in force;
(ii) have resigned from the Bank following a reduction in salary grade, level, or rank;
(iii) refuse a transfer of fifty miles or more;
(iv) have their position eliminated;
(v) are unable to perform his/her duties in a satisfactory manner and is warranted that the employee would not be discharged for cause; or
(vi) had their employment terminated as a result of a change in control (however, in the event of a change in control that affects the Bank President, the other Bank NEOs, and the Chief Audit Officer, provisions contained in separate Executive Change in Control Agreements shall govern; see below for more information).
An officer shall be eligible for two weeks of severance benefits for each six month period of service with the Bank (even if the employment has been less than six months), but not less than eight weeks of severance benefits nor more than thirty-six weeks of such benefits; in the event of a change in control, the ‘floor’ and ‘cap’ shall be twelve weeks and fifty-two weeks, respectively. Non-officers are eligible for severance benefits in accordance with different formulas.
If the terminated employee is enrolled in the Bank’s medical benefits plan at the time of termination and elects to purchase health insurance continuation coverage, the Bank may provide a lump sum payment in an amount to be determined by the Bank intended to be used in connection with payments by terminated employees related to health insurance. The Bank may also in its discretion arrange for outplacement services.
Payment of severance benefits under the Severance Plan is contingent on an employee executing a severance agreement which includes a release of any claim the employee may have against the Bank and any present and former director, officer and employee.
Severance benefits payable under the Severance Plan shall be paid on a lump sum basis.
b) Executive Change in Control Agreements
Executive Change in Control Agreements (“CIC Agreements”) were executed in January 2016 and renewed in January 2019 for an additional three-year term between the FHLBNY and the NEOs, which provide the executive with certain severance payments and benefits in the event employment is terminated in connection with a “change in control” of FHLBNY.
Under the terms of the CIC Agreement, if the executive’s employment with FHLBNY is terminated by FHLBNY without “cause” or by the executive for “good reason” (as defined in the CIC Agreement) during the period beginning on the earliest of (a) twelve (12) months prior to the execution by FHLBNY of a definitive agreement regarding a Change in Control, (b) twelve (12) months prior to Change in Control mandated by federal statute, rule or directive, and (c) twelve (12) months prior to the adoption of a plan or proposal for the liquidation or dissolution of FHLBNY, and ending, in all cases, twenty-four (24) months following the effective date of the Change in Control, the executive becomes entitled to certain severance payments and benefits.
The payments and benefits include: (i) an amount equal to the product of the executive’s average gross base salary for the three years prior to his employment termination date (with any partial years being annualized), multiplied by 2.99 for the Chief Executive Officer, and 1.5 for other CIC Agreement participants; (ii) if the executive is a participant in FHLBNY’s Incentive Compensation Plan (the “Annual Plan”), an amount equal to the product of the executive’s full target incentive payout estimate, or the actual amount of the payment to the executive under the Annual Plan, if lower, in either case, in respect of the year prior to the year of the employment termination date, multiplied by 2.99 for the Chief Executive Officer, and 1.5 for other CIC Agreement participants; (iii) an amount equal to the cost of health, dental and vision care benefits that FHLBNY actually incurred by FHLBNY on behalf of the Executive and his dependents, if any, during the twelve (12) months prior to the executive’s employment termination date; (iv) $15,000, which the executive may put toward outplacement services; (v) $15,000, which the executive may put toward accounting, actuarial, financial, legal or tax services; (vi) additional age and service credits under the FHLBNY non-qualified Benefit Equalization Plan of three (3) years for the Chief Executive Officer and one and one-half (1.5) years for other CIC Agreement participants; and (vii) an amount equal to 2.99 times the Chief Executive Officer’s annual matching contribution under the DC Plan and 1.5 times the match for other CIC Agreement participants.
The payments described above are payable in a lump sum within sixty (60) days following the executive’s employment termination date, with the benefits under the BEP being distributed in accordance with the terms of the BEP. All payments and benefits are conditioned on the executive having delivered an irrevocable general release of claims against FHLBNY before
payment occurs. In addition, notwithstanding anything to the contrary, all payments and benefits remain subject to FHLBNY’s compliance with any applicable statutory and regulatory requirements relating to the payment of amounts under the CIC Agreements and in the event that a governmental authority or a court with competent jurisdiction directs that any portion or all of the payments may not be paid to the executive, the executive shall not be eligible to receive, or shall return, such payments.
c) Golden Parachute Rule
The Finance Agency issued final rules on executive compensation and golden parachute payments relating to the regulator’s oversight of such compensation and payments located at 12 CFR Parts 1230 and 1231 the (“Golden Parachute Rule”). This sets forth the standards that the Finance Agency will take into consideration when limiting or prohibiting golden parachute payments by an FHLBank, the Office of Finance, Fannie Mae or Freddie Mac. The Golden Parachute Rule generally prohibits golden parachute payments except in limited circumstances with Finance Agency approval. Golden parachute payments may include compensation paid to a director, officer or employee following the termination of such person's employment by a regulated entity that is insolvent, is in conservatorship or receivership, is required by the Director to improve its financial condition, or has been assigned a composite examination rating of 4 or 5 by the Finance Agency. Golden parachute payments generally do not include payments made pursuant to a qualified pension or retirement plan, an employee welfare benefit plan, a bona fide deferred compensation plan, a nondiscriminatory severance pay plan, or payments made by reason of the death or disability of the individual. Our benefit plans comply with the Golden Parachute Rule and the Bank has not had a payment in 2020 restricted by the Finance Agency.
| VII. | Explanation of how we determine the amount and, where applicable, the formula for each element of compensation |
Please see Section II directly above for an explanation of the mechanisms used to determine employee compensation.
| VIII. | Explanation of how each element of compensation and the decisions regarding that element fit into the overall compensation objectives and affect decisions regarding other elements of compensation |
The Committee believes it has developed a unified, coherent system of compensation. Please refer to Section II under the heading “The Total Compensation Program” for an explanation of the components that make up our total compensation program. Together, these components comprised the total compensation program for 2020 and they are established in accordance with our Compensation Philosophy and the regulated environment that we operate in as discussed in Section I above.
Our overall objectives with regard to our compensation and benefits program are to motivate employees to achieve consistent and superior results over a long period of time, and to provide a program that allows us to compete for and retain talent that otherwise might be lured away.
As we make changes to one element of the compensation and benefits program mix, the C&HR Committee considers the impact on the other elements of the mix. In this regard, the C&HR Committee strives to maintain programs that keep the Bank within the parameters of its compensation philosophy as set forth in the Bank’s Compensation Policy and Compensation Benchmarking.
COMPENSATION COMMITTEE REPORT
The C&HR Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the C&HR Committee recommended to the Board that the Compensation Discussion and Analysis be included in the annual report on Form 10-K for the year 2020.
THE COMPENSATION AND HUMAN RESOURCES COMMITTEE
| | DeForest B. Soaries, Jr., Chair | |
| | David J. Nasca, Vice Chair Kevin Cummings Gerald H. Lipkin Christopher P. Martin | |
| | Stephen S. Romaine Ángela Weyne | |
RISKS ARISING FROM COMPENSATION PRACTICES
We do not believe that risks arising from the compensation policies with respect to its employees are reasonably likely to have a material adverse effect on the Bank. We do not structure any of our compensation plans in a way that inappropriately encourages risk taking to achieve payment.
Our business model operates on a low return/low risk basis. One of the important characteristics of our culture is appropriate attention to risk management. We have established procedures with respect to risk which are reviewed frequently by entities such as our regulator, external audit firm, Risk Management Group, and Internal Audit Department.
In addition, we have a Board and associated Committees that provide governance. The compensation programs are reviewed annually by the C&HR Committee and the structure of our compensation programs provides evidence of the balanced approach to risk and reward in our culture. The rationale behind the structure of the Incentive Plan and its goals is to motivate management to take a balanced approach to managing risks and returns in the course of managing the business, while at the same time ensuring that we fulfill our mission. The Incentive Plan design is intended to motivate management to act in ways that are aligned with the Board’s wishes to have us achieve forecasted returns while managing risks within prescribed risk parameters. In addition, the goals in the IC Plan will not motivate management to increase returns if they require imprudently increasing risk.
In addition, we are prohibited by regulations from offering equity-based compensation, and we do not currently offer long-term incentives. However, many of the firms in our peer group do offer these types of compensation. The total compensation program takes into account the existence of these other types of compensation by offering defined benefit and defined contribution plans to help effectively compete for talent. The defined benefit and defined contribution plans are designed to reward employees for continued strong performance over the course of their careers — that is, the longer an employee works at the Bank, the greater the benefit the employee is likely to accumulate. Senior and mid-level employees are generally long-tenured, and we believe that these employees would not want to endanger their pension benefits by inappropriately stretching rules to achieve a short-term financial gain. By definition, these programs are reflective of the low risk culture.
The Finance Agency also has issued certain compensation principles, one of which is that executive compensation should be consistent with sound risk management and preservation of the Market value of Equity to Capital Stock Ratio Value of membership stock. Also, the Finance Agency reviews all executive compensation plans relative to these principles and such other factors as the Finance Agency determines to be appropriate, including the Bank’s annual Incentive Plan, prior to their becoming effective.
Thus, the Bank’s low risk culture, which is reflected in the compensation policy, leads us to believe that any risks arising from the compensation policies with respect to our employees are not reasonably likely to have a material adverse effect.
Compensation Committee Interlocks and Insider Participation
The following persons served on the C&HR Committee during all or some of the period from January 1, 2020 through the date of this annual report on Form 10-K: DeForest B. Soaries, Jr., Kevin Cummings, Gerald H. Lipkin, Christopher P. Martin, David J. Nasca, C. Cathleen Raffaeli, Stephen S. Romaine, and Ángela Weyne. During this period, no interlocking relationships existed between any member of the Bank’s Board of Directors or the C&HR Committee and any member of the Board of Directors or compensation committee of any other company, nor did any such interlocking relationship exist in the past. Further, no member of the C&HR Committee listed above was an officer or our employee during the course of their service as a member of the Committee or was formerly an officer or our employee before becoming a member of the Committee.
Executive Compensation
The table below summarizes the total compensation earned by each of the Named Executive Officers (“NEOs”) for the years 2020, 2019 and 2018 (in dollars):
Summary Compensation Table for Calendar Years 2020, 2019 and 2018
| | | | | | | | | | | | | | | | | | | | | Change in | | | | | | | |
| | | | | | | | | | | | | | | | | | Non-Equity | | | Pension Value | | | | | | | |
| | | | | | | | | | | | | | | | | | Incentive | | | and Nonqualified | | | | | | | |
| | | | | | | | | | | | Stock | | | Option | | | Plan | | | Deferred | | | All Other | | | | |
| Name and Principal Position | | Year | | | Salary | | | Bonus | | | Awards | | | Awards | | | Compensation (a)(1) | | | Compensation (b)(2) | | | Compensation (c)(3) | | | Total (d) | |
| José R. González | | | 2020 | | | $ | 996,000 | | | $ | - | | | $ | - | | | $ | - | | | $ | 1,018,077 | | | $ | 1,430,000 | | | $ | 134,744 | | | $ | 3,578,821 | |
| President & | | | 2019 | | | $ | 993,600 | | | $ | - | | | $ | - | | | $ | - | | | $ | 961,906 | | | $ | 2,736,000 | | | $ | 145,233 | | | $ | 4,836,739 | |
| Chief Executive Officer (PEO) | | | 2018 | | | $ | 920,000 | | | $ | - | | | $ | - | | | $ | - | | | $ | 927,184 | | | $ | 69,000 | | | $ | 61,989 | | | $ | 1,978,173 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Kevin M. Neylan | | | 2020 | | | $ | 550,000 | | | $ | - | | | $ | - | | | $ | - | | | $ | 415,545 | | | $ | 1,483,000 | | | $ | 104,580 | | | $ | 2,553,125 | |
| Senior Vice President, | | | 2019 | | | $ | 531,787 | | | $ | - | | | $ | - | | | $ | - | | | $ | 365,340 | | | $ | 1,598,000 | | | $ | 71,995 | | | $ | 2,567,122 | |
| Chief Financial Officer (PFO) | | | 2018 | | | $ | 515,048 | | | $ | - | | | $ | - | | | $ | - | | | $ | 376,879 | | | $ | 528,000 | | | $ | 38,402 | | | $ | 1,458,329 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Melody J. Feinberg | | | 2020 | | | $ | 475,000 | | | $ | - | | | $ | - | | | $ | - | | | $ | 357,828 | | | $ | 575,000 | | | $ | 93,518 | | | $ | 1,501,346 | |
| Senior Vice President, | | | 2019 | | | $ | 438,813 | | | $ | - | | | $ | - | | | $ | - | | | $ | 302,648 | | | $ | 453,000 | | | $ | 60,018 | | | $ | 1,254,479 | |
| Chief Risk Officer | | | 2018 | | | $ | 425,000 | | | $ | - | | | $ | - | | | $ | - | | | $ | 309,608 | | | $ | 152,000 | | | $ | 34,064 | | | $ | 920,672 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Michael L. Radziemski* | | | 2020 | | | $ | 454,300 | | | $ | - | | | $ | - | | | $ | - | | | $ | 325,226 | | | $ | 61,000 | | | $ | 54,899 | | | $ | 895,425 | |
| Senior Vice President, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Chief Information Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Philip A. Scott** | | | 2020 | | | $ | 490,438 | | | $ | - | | | $ | - | | | $ | - | | | $ | 368,926 | | | $ | 814,000 | | | $ | 106,467 | | | $ | 1,779,831 | |
| Senior Vice President, | | | 2019 | | | $ | 475,000 | | | $ | - | | | $ | - | | | $ | - | | | $ | 324,382 | | | $ | 742,000 | | | $ | 61,996 | | | $ | 1,603,378 | |
| Chief Capital Markets Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Footnotes for Summary Compensation Table for the Year Ending December 31, 2020
| (1) | The amounts in column (a) reflect the dollar value of all earnings for services performed during the fiscal years ended December 31, 2020, 2019, and 2018 pursuant to awards under the ICP, even though fifty percent of the ICP awards for each year were subject to mandatory deferral and distribution over three years. As discussed in the Compensation Discussion and Analysis, the 2020 non-equity incentive compensation awards were subject to a 30-day review period and receipt of non-objection by the Finance Agency. The Bank received written non-objection from the Finance Agency on February 19, 2020. The amounts in column (a) also include the dollar value of all interest during each year earned on Deferred Incentive related to ICP awards for prior fiscal years, in the following amounts for 2020: $54,891 for J. González, $21,809 for K. Neylan, $17,784 for M. Feinberg and $17,830 for P. Scott. |
| (2) | The amounts in column (b) reflects the sum of the actuarial change in pension value for (i) the Pentegra Defined Benefit Plan for Financial Institutions and (ii) the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan. These values are based on actuarial calculations and depend on the level of market interest rates in addition to other factors. These plans are described in greater detail below under “Pension Benefits.” |
| (3) | The amounts in column (c) for 2020 consist of the following amounts: |
| Name | | Bank Contributions
under the 401(k)
Plan (1) | | | Matching
contributions under
the Bank’s non-
qualified Defined
Contribution Benefit
Equalization Plan (2) | | | Perquisite (3) | | | Tax Gross-ups (4) | | | Other (5) | | | Total | |
| José R. González | | $ | 11,720 | | | $ | 81,357 | | | $ | 16,667 | | | $ | - | | | $ | 25,000 | | | $ | 134,744 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Kevin M. Neylan | | $ | 6,112 | | | $ | 45,216 | | | $ | 9,252 | | | $ | - | | | $ | 44,000 | | | $ | 104,580 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Melody J. Feinberg | | $ | 6,283 | | | $ | 37,961 | | | $ | 11,274 | | | $ | - | | | $ | 38,000 | | | $ | 93,518 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Michael L. Radziemski* | | $ | 17,100 | | | $ | - | | | $ | 1,455 | | | $ | - | | | $ | 36,344 | | | $ | 54,899 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Philip A. Scott** | | $ | 6,542 | | | $ | 39,231 | | | $ | 6,417 | | | $ | 329 | | | $ | 53,948 | | | $ | 106,467 | |
| (1) | Includes amount of funds matched in connection with the Pentegra Defined Contribution Plan for Financial Institutions. |
| (2) | Includes amount of funds matched for M. Feinberg, J. González, K. Neylan and P. Scott in connection with the Pentegra Nonqualified Defined Contribution Portion of the BEP. |
| (3) | Perquisites are valued at the actual amounts paid by the Bank and are benefits not available to all employees on equal terms. The Bank paid premiums for each named executive officer for group term life and long term disability insurance. |
| (4) | The Bank paid tax gross-up amounts for P. Scott’s reimbursement for fitness club membership. This amount is included in column (c) of the Summary Compensation Table. |
| (5) | The Bank paid a performance-based award to employees (including NEOs) who received a rating of “Exceed Requirements” or “Outstanding” on their 2020 annual performance review. Payments will be made on March 26, 2021. |
* M. Radziemski is a new NEO in 2020.
** P. Scott was not an NEO in 2018. Therefore, footnotes regarding 2018 compensation are not included in this year's report.
The following table sets forth information regarding all incentive plan award opportunities made available to NEOs for the calendar year 2020 (in whole dollars):
Grants of Plan-Based Awards for Calendar Year 2020
| Grants of Plan-Based Awards for Fiscal Year 2020 |
| | | | | | | | | | | | | | | | | | | | | | | | All Other | | | All Other | | | Exercise | | | Grant | |
| | | | | | | | | | | | | | | | | | | | | | | | Stock | | | Option | | | or | | | Date | |
| | | | | | | | | | | | | | | | | | | | | | | | Awards: | | | Awards: | | | Base | | | Fair Value | |
| | | | | | Estimated Future Payouts | | | Estimated Future Payouts | | | Number of | | | Number of | | | Price of | | | of Stock | |
| | | | | | Under Non-Equity Incentive | | | Under Equity Incentive | | | Shares of | | | Securities | | | Option | | | and Option | |
| | | Grant | | | Plan Awards (2) (3) | | | Plan Awards | | | Stock | | | Underlying | | | Awards | | | Awards | |
| Name | | Date (1) | | | Threshold | | | Target | | | Maximum | | | Threshold | | | Target | | | Maximum | | | or Units | | | Options | | | ($/Sh) | | | ($/Sh) | |
| José R. González | | | 2/19/2020 | | | $ | 498,000 | | | $ | 796,800 | | | $ | 996,000 | | | $ | - | | | $ | - | | | $ | - | | | | - | | | | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Kevin M. Neylan | | | 2/19/2020 | | | $ | 165,000 | | | $ | 275,000 | | | $ | 412,500 | | | $ | - | | | $ | - | | | $ | - | | | | - | | | | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Melody J. Feinberg | | | 2/19/2020 | | | $ | 142,500 | | | $ | 237,500 | | | $ | 356,250 | | | $ | - | | | $ | - | | | $ | - | | | | - | | | | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Michael L. Radziemski | | | 2/19/2020 | | | $ | 136,290 | | | $ | 227,150 | | | $ | 340,725 | | | $ | - | | | $ | - | | | $ | - | | | | - | | | | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Philip A. Scott | | | 2/19/2020 | | | $ | 147,131 | | | $ | 245,219 | | | $ | 367,829 | | | $ | - | | | $ | - | | | $ | - | | | | - | | | | - | | | $ | - | | | $ | - | |
| (1) | On this date, the Board of Directors’ C&HR Committee approved the 2020 Incentive Plan. Approval of the ICP does not mean a payout is guaranteed. |
| (2) | Figures represent an assumed rating attained by the NEO of at least a specified threshold rating within the “Meets Requirements” category for the NEO with respect to their individual performance. |
| (3) | Amounts represent potential awards under the 2020 Incentive Plan. |
Incentive Compensation Plan Opportunity Table for Calendar Year 2020
The table below provides information regarding the total incentive compensation amount awarded to NEOs based on Bankwide goal results (in dollars):
| | | | | | Bankwide Component (1) | | | | | | | | | | |
| | | 2020 | | | (100% of Opportunity) | | | | | | | | | | |
| | | Annual Salary | | | Threshold | | | Target | | | Maximum | | | Actual Result (2) | |
| | | | | | | | | | | | | | | | | | Total | | | Current | |
| | | | | | | | | | | | | | | Bankwide | | | Communicated | | | Communicated | |
| | | | | | Bank Performance | | | Component (3) | | | Award (4) | | | Incentive Award (5) | |
| President | | | | | | | 50 | % | | | 80 | % | | | 100 | % | | | | | | | | | | | | |
| José R. González | | $ | 996,000 | | | $ | 498,000 | | | $ | 796,800 | | | $ | 996,000 | | | $ | 963,186 | | | $ | 963,186 | | | $ | 481,593 | |
| President & Chief Executive Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other NEOs | | | | | | | 30 | % | | | 50 | % | | | 75 | % | | | | | | | | | | | | |
| Kevin M. Neylan | | $ | 550,000 | | | $ | 165,000 | | | $ | 275,000 | | | $ | 412,500 | | | $ | 393,736 | | | $ | 393,736 | | | $ | 196,868 | |
| Senior Vice President, Chief Financial Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Melody J. Feinberg | | $ | 475,000 | | | $ | 142,500 | | | $ | 237,500 | | | $ | 356,250 | | | $ | 340,045 | | | $ | 340,045 | | | $ | 170,022 | |
| Senior Vice President, Chief Risk Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Michael L. Radziemski | | $ | 454,300 | | | $ | 136,290 | | | $ | 227,150 | | | $ | 340,725 | | | $ | 325,226 | | | $ | 325,226 | | | $ | 162,613 | |
| Senior Vice President, Chief Information Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Philip A. Scott | | $ | 490,438 | | | $ | 147,131 | | | $ | 245,219 | | | $ | 367,829 | | | $ | 351,096 | | | $ | 351,096 | | | $ | 175,548 | |
| Senior Vice President, Chief Capital Markets Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1 | Each NEO’s Incentive Compensation is weighted at 100% Bank Performance. |
| 2 | Overall weighted average result for Bankwide goals including employees in the Risk Management Group was 86.3% above target. Payments are interpolated between the target and maximum amounts. |
| 3 | The Incentive Compensation is calculated as follows: |
| a. | The portion of the award for achieving target equals: Annual Salary multiplied by Target percentage, plus |
| b. | The portion of the award for exceeding target equals: Annual Salary multiplied by the “Maximum minus Target percentage,” multiplied by 86.3%. |
| 4 | There may be small differences in the calculated payout amounts due to rounding. |
| 5 | The amount represented here is the Current Communicated Award of Incentive Compensation. The Current Communicated Incentive Award is the actual payout awarded to the NEO in 2021 for performance in 2020. [Refer to Section III. d. (Required Deferral of IC Plan Awards for MC Members) of this Compensation Discussion and Analysis for further details]. |
Employment Arrangements
We are an “at will” employer and do not provide written employment agreements to any of its employees, except that we do provide Executive Change in Control Agreements to the NEOs (refer to Section VI. b. of the Compensation Discussion and Analysis, “Severance Plan and Executive Change in Control Agreements”, for further details). However, employees, including NEOs, receive: (a) cash compensation (i.e., base salary, and, for exempt employees, “variable” or “at risk” short-term incentive compensation); (b) retirement-related benefits (i.e., the Qualified Defined Benefit Plan; the Qualified Defined Contribution Plan; and the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan (“DB BEP”)) and (c) health and welfare programs and other benefits. Other benefits, which are available to all regular employees, include medical, dental, vision care, life, business travel accident, and short and long term disability insurance, flexible spending accounts, an employee assistance program, educational development assistance, voluntary life insurance, long term care insurance, fitness club reimbursement and severance pay.
An additional benefit offered to all officers who are at Vice President rank or above (including the NEOs) is a physical examination every 18 months.
The annual base salaries for the NEOs are as follows (amounts in whole dollars):
| | | 2021 | | | 2020 | | | % Increase* | |
| José R. González | | $ | 996,000 | | | $ | 996,000 | | | | 0.00 | % |
| Kevin M. Neylan | | $ | 550,000 | | | $ | 550,000 | | | | 0.00 | % |
| Melody J. Feinberg | | $ | 475,000 | | | $ | 475,000 | | | | 0.00 | % |
| Michael L. Radziemski | | $ | 454,300 | | | $ | 454,300 | | | | 0.00 | % |
| Philip A. Scott | | $ | 490,438 | | | $ | 490,438 | | | | 0.00 | % |
* Proposed 2021 base salary increases for NEOs received an objection from the FHLBNY’s regulator. See Section I. a) in the Compensation Discussion and Analysis portion of Part III, Item 11 of this Form 10-K.
A performance-based merit increase program exists for all employees, including NEOs that have a direct impact on base pay. Generally, employees receive merit increases on an annual basis. Such merit increases are based upon the attainment of a performance rating of “Outstanding,” “Exceeds Requirements,” or “Meets Requirements” achieved on individual performance evaluations. Annual merit increases may also contain a market adjustment based on market compensation job benchmarking. Refer to Section II of the Compensation Discussion and Analysis, “The Total Compensation Program” for further details.
Short-Term Incentive Compensation Plan (“IC Plan”)
Refer to Section III of the Compensation Discussion and Analysis IC Plan for further details.
Qualified Defined Contribution Plan
Employees who have met the eligibility requirements contained in the Pentegra Qualified Defined Contribution Plan for Financial Institutions (“DC Plan”) can choose to contribute to the DC Plan, a retirement savings plan qualified under the IRC. Employees are eligible for membership in the DC Plan on the first day of the month following three full calendar months of employment. Refer to Section IV (DC Plan) of this Compensation Discussion and Analysis for further details.
OUTSTANDING EQUITY AWARDS AT CALENDAR YEAR-END
AND OPTION EXERCISES AND STOCK VESTED
The tables disclosing (i) outstanding option and stock awards and (ii) exercises of stock options and vesting of restricted stock for NEOs are omitted because all employees are prohibited by law from holding capital stock issued by a Federal Home Loan Bank. As such, these tables are not applicable.
PENSION BENEFITS
The table below shows the present value of accumulated benefits payable to each of the NEO, the number of years of service credited to each such person, and payments during the last Calendar year (if any) to each such person, under the Pentegra Defined Benefit Plan for Financial Institutions and the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan (amounts in whole dollars) (refer to Sections IV of the Compensation Discussion and Analysis for further details about these plans):
| | | Pension Benefits | |
| | | | | | Number of | | | | Present Value | | | | Payment During | |
| | | | | | Years Credited | | | | of Accumulated | | | | Last | |
| Name | | Plan Name | | | Service (1) | | | | Benefit (2) | | | | Fiscal Year | |
| José R. González | | Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan | | | 6.83 | | | $ | 588,000 | | | $ | - | |
| | | Nonqualified Defined Benefit Portion of the Benefit Equalization Plan | | | 6.83 | | | $ | 5,333,000 | | | $ | - | |
| | | | | | | | | | | | | | | |
| Kevin M. Neylan | | Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan | | | 19.33 | | | $ | 2,442,000 | | | $ | - | |
| | | Nonqualified Defined Benefit Portion of the Benefit Equalization Plan | | | 19.33 | | | $ | 5,453,000 | | | $ | - | |
| | | | | | | | | | | | | | | |
| Melody J. Feinberg | | Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan | | | 8.83 | | | $ | 694,000 | | | $ | - | |
| | | Nonqualified Defined Benefit Portion of the Benefit Equalization Plan | | | 8.83 | | | $ | 1,063,000 | | | $ | - | |
| | | | | | | | | | | | | | | |
| Michael L. Radziemski | | Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan | | | 1.08 | | | $ | 65,000 | | | $ | - | |
| | | Nonqualified Defined Benefit Portion of the Benefit Equalization Plan | | | 1.08 | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | |
| Philip A. Scott | | Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan | | | 14.00 | | | $ | 1,221,000 | | | $ | - | |
| | | Nonqualified Defined Benefit Portion of the Benefit Equalization Plan | | | 14.00 | | | $ | 1,973,000 | | | $ | - | |
| (1) | Number of years of credited service pertains to eligibility/participation in the qualified plan. Assuming the NEO is eligible for the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan, years of credited service are the same as for the Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan. |
NONQUALIFIED DEFERRED COMPENSATION PLAN
The following table discloses contributions to Nonqualified Deferred Compensation plans, each Named Executive Officer’s withdrawals (if any), aggregate earnings and year-end balances in such plans (in whole dollars):
| | | Nonqualified Deferred Compensation for Fiscal Year 2020 | |
| | | Executive | | | Registrant | | | Aggregate | | | Aggregate | | | Aggregate | |
| | | Contributions in | | | Contributions in | | | Earnings in | | | Withdrawals/ | | | Balance at | |
| Name | | Last FY (1) | | | Last FY (2) | | | Last FY | | | Distributions | | | Last FYE | |
| José R. González | | | | | | | | | | | | | | | | | | | | |
| DC BEP | | $ | 77,420 | | | $ | 77,659 | | | $ | 59,926 | | | $ | - | | | $ | 479,818 | |
| NDICP | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Kevin M. Neylan | | | | | | | | | | | | | | | | | | | | |
| DC BEP | | $ | 82,360 | | | $ | 43,189 | | | $ | 20,766 | | | $ | - | | | $ | 482,093 | |
| NDICP | | $ | 108,929 | | | $ | - | | | $ | 14,770 | | | $ | - | | | $ | 356,596 | |
| | | | | | | | | | | | | | | | | | | | | |
| Melody J. Feinberg | | | | | | | | | | | | | | | | | | | | |
| DC BEP | | $ | 67,404 | | | $ | 36,236 | | | $ | 9,784 | | | $ | - | | | $ | 159,370 | |
| NDICP | | $ | 283,002 | | | $ | - | | | $ | 90,334 | | | $ | - | | | $ | 950,016 | |
| | | | | | | | | | | | | | | | | | | | | |
| Michael L. Radziemski | | | | | | | | | | | | | | | | | | | | |
| DC BEP | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| NDICP | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Philip A. Scott | | | | | | | | | | | | | | | | | | | | |
| DC BEP | | $ | 65,546 | | | $ | 37,414 | | | $ | 42,484 | | | $ | - | | | $ | 288,301 | |
| NDICP | | $ | 230,700 | | | $ | - | | | $ | 89,918 | | | $ | - | | | $ | 809,662 | |
| (1) | These amounts as they pertain to the DC BEP and NDICP are also included in the “Salary” and “Non-Equity Incentive Compensation” columns of the Summary Compensation Table, respectively, for if an executive is an NEO in a particular year; these amounts would have been paid as salary or incentive compensation but for deferral into the nonqualified plans (described above as our DC BEP and NDICP). |
| (2) | These totals as they pertain to the DC BEP are also included in the “All Other Compensation” column of the Summary Compensation Table. There are no registrant contributions in connection with the NDICP. |
Refer to Section IV of the Compensation and Discussion Analysis for more information concerning the DC BEP and NDICP.
DISCLOSURE REGARDING TERMINATION AND CHANGE IN CONTROL PROVISIONS
Severance Plan
The Bank has a formal Board-approved Severance Plan available to all Bank employees who work twenty or more hours a week and have at least one year of employment. (Refer to Section VI of the Compensation Discussion and Analysis, “Severance Plan”, for further details.)
The following table describes estimated severance payout information under the Severance Plan for each NEO assuming that severance would have occurred on December 31, 2020 for reasons other than a change in control (for example, a reduction in force) (amounts in whole dollars):
| | | Number of Weeks Used to | | | 2020 Annual | | | Severance Amount | |
| | | Calculate Severance Amount | | | Base Salary | | | Based on Years of Service* | |
| José R. González | | | 28 | | | $ | 996,000 | | | $ | 536,308 | |
| Kevin M. Neylan | | | 36 | | | $ | 550,000 | | | $ | 380,769 | |
| Melody J. Feinberg | | | 36 | | | $ | 475,000 | | | $ | 328,846 | |
| Michael L. Radziemski | | | 8 | | | $ | 454,300 | | | $ | 69,892 | |
| Philip A. Scott | | | 36 | | | $ | 490,438 | | | $ | 339,534 | |
* Additionally, under the Bank’s Severance Plan, the Bank, in its discretion, may provide a payment to be used in connection with health insurance replacement costs.
Executive Change in Control Agreements
Executive Change in Control Agreements (“CIC Agreements”) were executed in January 2016 between the FHLBNY and each of the members of the Management Committee, including the CEO and the other Named Executive Officers, which, as more fully described below, would provide the executive with certain severance payments and benefits in the event employment is terminated in connection with a Bank “change in control”. The CIC Agreements were renewed in January 2019 for an additional three-year period.
The following table describes estimated severance and benefit payout information under the CIC Agreements for each NEO assuming that a “change in control” merger or acquisition would have occurred on December 31, 2020 (amounts in whole dollars). (Refer to Section VI of the Compensation Discussion and Analysis, “Executive Change in Control Agreements”, for further details).
Sample CIC Agreement contract pay-outs Assuming December 31, 2020 Bank Merger or Acquisition
| Provision | | José
Gonzàlez | | | Kevin
Neylan | | | Melody
Feinberg | | | Michael Radziemski | | | Philip
Scott | |
| Amount equal to the executive's average gross base salary for the three years prior to his employment termination date (with any partial years being annualized), multiplied by 2.99 for Mr. Gonzàlez, and 1.5 for Messrs. Neylan, Radziemski, Scott and Ms. Feinberg | | $ | 2,899,901 | | | $ | 798,417 | | | $ | 669,406 | | | $ | 619,956 | | | $ | 686,356 | |
| Amount equal to the executive’s full target incentive payout estimate, or the actual amount of the payment to the executive under the FHLBNY's Incentive Compensation Plan, if lower, in either case, in respect of the year prior to the year of the employment termination date, multiplied by 2.99 for Mr. Gonzàlez, and 1.5 for Messrs. Neylan, Radziemski, Scott, and Ms. Feinberg | | $ | 2,200,640 | | | $ | 386,286 | | | $ | 318,750 | | | $ | 0 | | | $ | 305,455 | |
| Amount equal to the cost of health, dental and vision care benefits that FHLBNY actually incurred by FHLBNY on behalf of the Executive and his dependents, if any, during the twelve (12) months prior to the executive's employment termination date | | $ | 19,998 | | | $ | 27,255 | | | $ | 1,845 | | | $ | 28,892 | | | $ | 18,626 | |
| A payment in the amount of $15,000 which may be used by the Executive for job search-related expenses | | $ | 15,000 | | | $ | 15,000 | | | $ | 15,000 | | | $ | 15,000 | | | $ | 15,000 | |
| A payment in the amount of $15,000 which may be used by the Executive for accounting, actuarial, financial, legal and/or tax services | | $ | 15,000 | | | $ | 15,000 | | | $ | 15,000 | | | $ | 15,000 | | | $ | 15,000 | |
| Additional age and service credits under the FHLBNY non-qualified Benefit Equalization Plan ("Nonqualified DB BEP") of three (3) years for Mr. Gonzalez and one and one-half (1.5) years for Messrs. Neylan, Radziemski, Scott, and Ms. Feinberg | | $ | 5,469,931 | | | $ | 690,108 | | | $ | 414,958 | | | $ | 188,392 | | | $ | 408,952 | |
| Additional age and service credits under the FHLBNY qualified & non-qualified defined contribution plan of three (3) years for Mr. Gonzalez and one and one-half (1.5) years for Messrs. Neylan, Radziemski, Scott, and Ms. Feinberg | | $ | 179,280 | | | $ | 49,500 | | | $ | 42,750 | | | $ | 40,887 | | | $ | 44,139 | |
| Total value of contract | | $ | 10,799,750 | | | $ | 1,981,566 | | | $ | 1,477,709 | | | $ | 908,127 | | | $ | 1,493,528 | |
Additionally, in the event of a change in control, the executive will be paid deferred incentive compensation otherwise owed under the terms of the deferred portion of the Bank’s Incentive Compensation Plan (as described at Section III of this Compensation Discussion and Analysis, “Deferred Portion of Incentive Compensation Plan”).
CEO Pay Ratio
For the year ended December 31, 2020, the ratio of our CEO’s Total Compensation to the FHLBNY median of the annual Total Compensation of all our employees, except the CEO (“Median Employee”) is 14.3:1. Total Compensation of the Median Employee for 2020 is calculated in the same manner “Total Compensation” for 2020 is shown for our CEO in the Summary Compensation Table, which includes among other things, amounts attributable to the change in pension value, which will vary among employees based upon their tenure at the FHLBNY. For 2020, the Total Compensation of the Median Employee was $250,470 and the Total Compensation of the CEO, as reported in the Summary Compensation Table, was $3,578,821.
We identified the Median Employee by comparing the amount of base salary and incentive awards as reflected in our payroll records for 2020 for each of the employees who were employed by the FHLBNY on October 1, 2020, and ranking the annual cash compensation for all such employees (a list of 371 employees) from lowest to highest, excluding the CEO, and which was applied consistently to all our employees included in the calculation. We believe this compensation measure reasonably reflects the annual compensation of all the FHLBNY employees and was prepared under applicable SEC rules. The FHLBNY included all full-time employees in the calculation of the Median Employee and annualized all such employees who were not employed by us for all of 2020.
DIRECTOR COMPENSATION
The following table summarizes the compensation paid by us to each of our Directors for the year ended December 31, 2020 (whole dollars):
| | | | | | | | | | | | | | | Change in Pension | | | | | | | |
| | | | | | | | | | | | | | | Value and | | | | | | | |
| | | Fees
Earned or | | | Stock | | | Option | | | Non-Equity
Incentive Plan | | | Nonqualified
Deferred Compensation | | | All
Other | | | | |
| Name | | Paid in Cash | | | Awards | | | Awards | | | Compensation | | | Earnings | | | Compensation | | | Total | |
| John R. Buran | | $ | 145,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 145,000 | |
| Larry E. Thompson | | | 125,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 125,000 | |
| Kevin Cummings | | | 122,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 122,000 | |
| Joseph R. Ficalora | | | 112,500 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 112,500 | |
| Jay M. Ford | | | 112,500 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 112,500 | |
| Michael M. Horn | | | 122,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 122,000 | |
| Thomas L. Hoy | | | 122,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 122,000 | |
| David R. Huber | | | 112,500 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 112,500 | |
| Charles E. Kilbourne, III | | | 112,500 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 112,500 | |
| Gerald H. Lipkin | | | 112,500 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 112,500 | |
| Kenneth J. Mahon | | | 112,500 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 112,500 | |
| Christopher P. Martin | | | 112,500 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 112,500 | |
| Richard S. Mroz | | | 122,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 122,000 | |
| David J. Nasca | | | 112,500 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 112,500 | |
| C. Cathleen Raffaeli | | | 112,500 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 112,500 | |
| Stephen S. Romaine | | | 112,500 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 112,500 | |
| DeForest B. Soaries, Jr. | | | 122,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 122,000 | |
| Carlos J. Vázquez | | | 122,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 122,000 | |
| Ángela Weyne | | | 112,500 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 112,500 | |
| Total Fees | | $ | 2,239,500 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,239,500 | |
Director Compensation Policy: Director Fee Opportunities
The Board establishes on an annual basis a Director Compensation Policy governing compensation for Board meeting attendance. This policy is established in accordance with the provisions of the Federal Home Loan Bank Act (Bank Act) and related Federal Housing Finance Agency. In sum, the applicable statutes and regulations allow each FHLBank to pay its Directors reasonable compensation and expenses, subject to the authority of the Director of the Finance Agency to object to, and to prohibit prospectively, compensation and/or expenses that the Director of the Finance Agency determines are not reasonable. The Director Compensation Policy provides that directors shall be paid a meeting fee for their attendance at meetings of the Board of Directors up to a maximum annual compensation amount as set forth in the Director Compensation Policy.
In determining appropriate and reasonable fee opportunities available to FHLBNY Directors, the Board takes into consideration the following factors:
| | • | the desire to attract and retain highly qualified and skilled individuals in order to help guide a complex and highly-regulated financial institution that is subject to a variety of financial, reputational and other risks; |
| | • | the highly competitive environment for talent in the New York City metropolitan area — a center of world finance in which stock exchanges, securities companies and other sophisticated financial institutions are located; |
| | • | the demands of the Director position, including the time and effort that Directors must devote to FHLBNY and Board business — demands that have grown over the past several years; |
| | • | the overall performance of the FHLBNY, an institution that is a Federal Home Loan Bank System leader, a strong financial performer, a reliable source of liquidity for its customers, and a provider of a consistent dividend — and an institution which wishes to maintain this performance; |
| | • | information pertaining to compensation opportunities available to directors of other Federal Home Loan Banks; and |
| | • | director compensation surveys performed over time by outside compensation consulting firm McLagan, most recently in 2019 — surveys which provide the Directors with the ability to compare Director compensation opportunities with compensation opportunities available at other institutions. |
The Board reviews the issue of appropriate and reasonable Director fee opportunities on an annual basis.
Below are tables summarizing the Director fees and the annual compensation limits that were set by the Board for 2020. Following these tables are additional tables summarizing the Director fees and the annual compensation limits set by the Board for 2021 (which reflect that there were no changes from 2020).
Director Fee Opportunities — 2020 (in whole dollars)
Position | | Fees For Each Board
Meeting Attended (Paid
Quarterly in Arrears)(b) | |
| Chairman | | $ | 18,125 | |
| Vice Chairman | | $ | 15,625 | |
| Committee Chairs (a) | | $ | 15,250 | |
| All Other Directors | | $ | 14,060 | |
Director Annual Compensation Limits — 2020 (in whole dollars)
| Position | | Annual Limit | |
| Chairman | | $ | 145,000 | |
| Vice Chairman | | $ | 125,000 | |
| Committee Chairs (a) | | $ | 122,000 | |
| All Other Directors | | $ | 112,500 | |
Director Fee Opportunities — 2021 (in whole dollars)
| Position | | Fees For Each Board
Meeting Attended (Paid
Quarterly in Arrears) (b) | |
| Chairman | | $ | 18,125 | |
| Vice Chairman | | $ | 15,625 | |
| Committee Chairs (a) | | $ | 15,250 | |
| All Other Directors | | $ | 14,060 | |
Director Annual Compensation Limits — 2021 (in whole dollars)
| Position | | Annual Limit | |
| Chairman | | $ | 145,000 | |
| Vice Chairman | | $ | 125,000 | |
| Committee Chairs (a) | | $ | 122,000 | |
| All Other Directors | | $ | 112,500 | |
| | (a) | A Committee Chair does not receive any additional payment if he or she serves as the Chair of more than one Board Committee. In addition, the Board Chair and Board Vice Chair do not receive any additional compensation if they serve as a Chair of one or more Board Committees. |
| | (b) | The numbers in this column represent payments for each of eight meetings attended by the Board Chair, the Board Vice Chair and the Committee Chairs. The numbers in this column also represent payments for each of seven meetings attended by all other Directors. If an eighth meeting is attended by the other Directors, they will receive $14,080 for that eighth meeting. |
Director Compensation Policy: Director Expenses
The Director Compensation Policy also authorizes us to reimburse Directors for necessary and reasonable travel, subsistence, and other related expenses incurred in connection with the performance of their official duties. For expense reimbursement purposes, Directors’ official duties can include:
| | ¨ | Meetings of the Board and Board Committees |
| | ¨ | Meetings requested by the Federal Housing Finance Agency |
| | ¨ | Meetings of Federal Home Loan Bank System committees |
| | ¨ | Federal Home Loan Bank System director orientation meetings |
| | ¨ | Meetings of the Council of Federal Home Loan Banks and Council committees |
| | ¨ | Attendance at other events on behalf of the Bank with prior approval |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
FHLBNY stock can only be held by member financial institutions. No person, including directors and executive officers of the FHLBNY, may own our capital stock. As such, we do not offer any compensation plan to any individuals under which equity securities of the Bank are authorized for issuance. The following tables provide information about those members who were beneficial owners of more than 5% of our outstanding capital stock (shares in thousands) as of February 28, 2021 and December 31, 2020:
| | | | | Number | | | Percent | |
| | | February 28, 2021 | | of Shares | | | of Total | |
| Name of Beneficial Owner | | Principal Executive Office Address | | Owned | | | Capital Stock | |
| Citibank, N.A. | | 399 Park Avenue, New York, NY, 10043 | | | 7,705 | | | | 14.51 | % |
| MetLife, Inc.: | | | | | | | | | | |
| Metropolitan Life Insurance Company | | 200 Park Avenue, New York, NY, 10166 | | | 7,648 | | | | 14.40 | |
| Metropolitan Tower Life Insurance Company | | 200 Park Avenue, New York, NY, 10166 | | | 475 | | | | 0.89 | |
| Subtotal MetLife, Inc. | | | | | 8,123 | | | | 15.29 | |
| New York Community Bank | | 615 Merrick Avenue, Westbury, NY,11590 | | | 7,088 | | | | 13.35 | |
| Equitable Financial Life Insurance Company | | 1290 Avenue of the Americas, New York, NY, 10104 | | | 3,894 | | | | 7.33 | |
| | | | | | 26,810 | | | | 50.48 | % |
| | | | | Number | | | Percent | |
| | | December 31, 2020 | | of Shares | | | of Total | |
| Name of Beneficial Owner | | Principal Executive Office Address | | Owned | | | Capital Stock | |
| Citibank, N.A. | | 399 Park Avenue, New York, NY,10043 | | | 7,705 | | | | 14.35 | % |
| MetLife, Inc.: | | | | | | | | | | |
| Metropolitan Life Insurance Company | | 200 Park Avenue, New York, NY, 10166 | | | 7,648 | | | | 14.24 | |
| Metropolitan Tower Life Insurance Company | | 200 Park Avenue, New York, NY, 10166 | | | 475 | | | | 0.88 | |
| Subtotal MetLife, Inc. | | | | | 8,123 | | | | 15.12 | |
| New York Community Bank | | 615 Merrick Avenue, Westbury, NY,11590 | | | 7,140 | | | | 13.30 | |
| Equitable Financial Life Insurance Company | | 1290 Avenue of the Americas, New York, NY, 10104 | | | 3,219 | | | | 6.00 | |
| | | | | | 26,187 | | | | 48.77 | % |
All capital stock held by each member of the FHLBNY is by law automatically pledged to the FHLBNY as additional collateral for all indebtedness of each such member to the FHLBNY.
| | | | | | | | | | Number | | | Percent | |
| | | | | | | | | | of Shares | | | of Total | |
| Name | | Director | | City | | State | | | Owned | | | Capital Stock | |
| New York Community Bank | | Joseph R. Ficalora | | Westbury | | | NY | | | | 7,140 | | | | 13.30 | % |
| Investors Bank | | Kevin Cummings | | Short Hills | | | NJ | | | | 1,598 | | | | 2.98 | |
| Valley National Bank | | Gerald H. Lipkin | | Wayne | | | NJ | | | | 1,463 | | | | 2.72 | |
| Dime Community Bank | | Kenneth J. Mahon | | Brooklyn | | | NY | | | | 607 | | | | 1.13 | |
| Provident Bank | | Christopher P. Martin | | Iselin | | | NJ | | | | 593 | | | | 1.10 | |
| Flushing Bank | | John R. Buran | | Uniondale | | | NY | | | | 434 | | | | 0.81 | |
| Popular Bank | | Carlos J. Vázquez | | San Juan | | | PR | | | | 273 | | | | 0.51 | |
| Banco Popular de Puerto Rico | | Carlos J. Vázquez | | San Juan | | | PR | | | | 225 | | | | 0.42 | |
| Tompkins Trust Company | | Stephen S. Romaine | | Ithaca | | | NY | | | | 47 | | | | 0.09 | |
| Glens Falls National Bank & Trust Company | | Thomas L. Hoy | | Glens Falls | | | NY | | | | 35 | | | | 0.07 | |
| Evans Bank, N.A | | David J. Nasca | | Hamburg | | | NY | | | | 35 | | | | 0.06 | |
| Crest Savings Bank | | Jay M. Ford | | Wildwood | | | NJ | | | | 28 | | | | 0.05 | |
| | | | | | | | | | | | 12,478 | | | | 23.24 | % |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
We have a cooperative structure and our customers own the entity’s capital stock. Capital stock ownership is a prerequisite to the transaction by members of any business with us. The majority of the members of our Board of Directors are Member Directors (i.e., directors elected by our members who are officers or directors of our members). The remaining members of the Board are Independent Directors (i.e., directors elected by our members who are not officers or directors of our members). We conduct our advances and mortgage loan business almost exclusively with members. Grants under the AHP and AHP advances are also made in partnership or in connection with our members. Therefore, in the normal course of business, we may extend credit to members whose officers or directors may serve as our directors. In addition, we may also extend credit and offer services and AHP benefits to members who own more than 5% of our stock. All products, services and AHP benefits extended by us to such members are provided at market terms and conditions that are no more favorable to them than the terms and conditions of comparable transactions with other members. Under the provisions of Section 7(j) of the FHLBank Act (12 U.S.C. § 1427(j)), our Board is required to administer our business with our members without discrimination in favor of or against any member. For more information about transactions with stockholders, see Note 20. Related Party Transactions, in the audited financial statements in this Form 10-K.
The review and approval of transactions with related persons is governed by the Bank’s written Code of Ethics and Business Conduct (Code), which is posted on the Corporate Governance Section of the FHLBNY’s website at http://www.fhlbny.com. Under the Code, each director is required to disclose to the Board of Directors all actual or apparent conflicts of interest, including any personal financial interest that he or she has, as well as such interests of any immediate family member or business associate of the director known to the director, in any matter to be considered by the Board of Directors or in which another person does, or proposes to do, business with the Bank. Following such disclosure, the Board of Directors is empowered to determine whether an actual conflict exists. In the event the Board of Directors determines the existence of a conflict with respect to any matter, the affected director must recuse himself or herself from all further considerations relating to that matter. Issues under the Code regarding conflicts of interests involving directors are administered by the Board or, in the Board’s discretion, the Board’s Corporate Governance Committee.
The Code also provides that, subject to certain limited exceptions for, among other items, interests arising through ownership of mutual funds and certain financial interests acquired prior to employment by the Bank, no Bank employee may have a financial interest in any Bank member. Extensions of credit from members to employees are acceptable that are entered into or established in the ordinary, normal course of business, so long as the terms are no more favorable than would be available in like circumstances to persons who are not employees of the Bank. Employees provide disclosures regarding financial interests and financial relationships on a periodic basis. These disclosures are provided to and reviewed by the Director of Human Resources, who is (along with the Chief Audit Officer) one of the Bank’s two Ethics Officers; the Ethics Officers have responsibility for enforcing the Code of Ethics with respect to employees on a day-to-day basis.
Director Independence
In General
During the period from January 1, 2020 through and including the date of this annual report on Form 10-K, the Bank had a total of 21 directors serving on its Board, 12 of whom were Member Directors (i.e., directors elected by the Bank’s members who are officers or directors of Bank members) and 9 of whom were Independent Directors (i.e., directors elected by the Bank’s members who are not officers or directors of Bank members). All of the Bank’s directors were independent of management from the standpoint that they were not, and could not serve as, Bank employees or officers. Also, all individuals, including the Bank’s directors, are prohibited by law from personally owning stock or stock options in the Bank. In addition, the Bank is required to determine whether at least some of its directors are independent under two distinct director independence standards. First, Federal Housing Finance Agency (Finance Agency) regulations establish independence criteria for directors who serve as members of the Audit Committee of the Board of Directors. Second, for disclosure purposes, the Securities and Exchange Commission’s (SEC) regulations require that the Bank disclose whether the members of its Board of Directors are independent under the independence criteria of a national securities exchange or an inter-dealer quotation system in assessing the independence of its directors. In addition, Rule 10A-3 promulgated under the Exchange Act sets forth the independence requirements of directors serving on the Audit Committee of an SEC reporting company.
Finance Agency Regulations Regarding Independence
The Finance Agency director independence standards prohibit individuals from serving as members of the Bank’s Audit Committee if they have one or more disqualifying relationships with the Bank or its management that would interfere with the exercise of that individual’s independent judgment. Under Finance Agency regulations, disqualifying relationships can include, but are not limited to: employment with the Bank at any time during the last five years; acceptance of compensation from the Bank other than for service as a director; being a consultant, advisor, promoter, underwriter or legal counsel for the Bank at any time within the last five years; and being an immediate family member of an individual who is or who has been within the past five years, a Bank executive officer. The Board of Directors has assessed the independence of all directors under the Finance Agency’s independence standards, regardless of whether they serve on the Audit Committee. From January 1, 2020 through and including the date of this Annual Report on Form 10-K, the Board has determined that all of the persons who served as a director of the Bank, including all directors who served as members of the Audit Committee, were independent under these criteria.
Exchange Act and NYSE Rules Regarding Independence
In addition, pursuant to SEC regulations, for disclosure purposes, the Board applies the independence standards of the New York Stock Exchange (NYSE) to determine which of its directors and committee members are independent. The Board also applies Rule 10A-3 to determine the independence of the directors serving on its Audit Committee.
After applying the NYSE independence standards, the Board has determined that all of the Bank’s Independent Directors who served at any time during the period from January 1, 2020 through and including the date of this annual report on Form 10-K (i.e., Danelle M. Barrett, Michael M. Horn, David R. Huber, Charles E. Kilbourne, III, Richard S. Mroz, C. Cathleen Raffaeli, DeForest B. Soaries, Jr., Larry E. Thompson and Ángela Weyne) were independent.
Separately, the Board was unable to affirmatively determine that there were no material relationships (as defined in the NYSE rules) between the Bank and its Member Directors, and has therefore concluded that none of the Bank’s Member Directors who served at any time during the aforementioned period (i.e., John R. Buran, Kevin Cummings, Joseph R. Ficalora, Jay M. Ford, Thomas L. Hoy, Thomas J. Kemly, Gerald H. Lipkin, Kenneth J. Mahon, Christopher P. Martin, David J. Nasca, Stephen S. Romaine, and Carlos J. Vázquez) were independent under the NYSE independence standards.
In making this determination, the Board considered the cooperative relationship between the Bank and its members. Specifically, the Board considered the fact that each of the Bank’s Member Directors are officers of a Bank member institution, and that each member institution has access to, and is encouraged to use, the Bank’s products and services.
Furthermore, the Board acknowledges that under NYSE rules, there are certain objective tests that, if not passed, would preclude a finding of independence. One such test pertains to the amount of business conducted with the Bank by the Member Director’s institution. It is possible that a Member Director could satisfy this test on a particular day. However, because the amount of business conducted by a Member Director’s institution may change frequently, and because the Bank generally desires to increase the amount of business it conducts with each member, the directors deemed it inappropriate to draw distinctions among the Member Directors based solely upon the amount of business conducted with the Bank by any director’s institution at a specific time.
Notwithstanding the foregoing, the Board believes that it functions as a governing body that can and does act with good judgment with respect to the corporate governance and business affairs of the Bank. The Board is aware of its statutory responsibilities under Section 7(j) of the Federal Home Loan Bank Act, which specifically provides that the Board of Directors of a Federal Home Loan Bank must administer the affairs of the Home Loan Bank fairly and impartially and without discrimination in favor of or against any member borrower.
The Board has a standing Audit Committee. For the reasons noted above, the Board has determined that none of the Member Directors who served at any time as members of the Board’s Audit Committee during the period from January 1, 2020 through and including the date of this annual report on Form 10-K (Kevin Cummings, Joseph R. Ficalora, Jay M. Ford, Thomas L. Hoy, Thomas J. Kemly and Christopher P. Martin) were independent under the NYSE standards for such committee members. The Board also determined that the Independent Directors who served as members of the Board’s Audit Committee during the period from January 1, 2020 through and including the date of this annual report on Form 10-K (David R. Huber, Charles E. Kilbourne, III and Ángela Weyne) were independent under the NYSE independence standards for such committee members. The Board also applied Rule 10A-3 to assess the independence of the members of its Audit Committee.
Under Rule 10A-3, in order to be considered independent, a member of the Audit Committee may not, other than in his or her capacity as a member of the Board or any other Board Committee (i) accept any consulting, advisory, or other compensation from us or (ii) be an affiliated person of the Bank. During the period from January 1, 2020 through and including the date of this annual report on Form 10-K, all of our directors, including all members of our Audit Committee, were independent under these criteria.
The Board also has a standing Compensation & Human Resources Committee (C&HRC). For the reasons noted above, the Board has determined that none of the Member Directors who served at any time as members of the Bank’s C&HRC during the period from January 1, 2020 through and including the date of this annual report on Form 10-K (Kevin Cummings, Gerald H. Lipkin, Christopher P. Martin, David J. Nasca and Stephen S. Romaine) were independent under the NYSE standards for such committee members. The Board also determined that the Independent Directors who served as members of the Board’s C&HRC during the period from January 1, 2020 through and including the date of this annual report on Form 10-K (C. Cathleen Raffaeli, DeForest B. Soaries, Jr. and Ángela Weyne) were independent under the NYSE independence standards for such committee members.
| Item 14. | Principal Accounting Fees and Services. |
The following table sets forth the fees paid to our independent registered public accounting firm, PricewaterhouseCoopers, LLP (PwC), during years ended December 31, 2020, 2019 and 2018 (in thousands):
| | | Years ended December 31, | |
| | | 2020 (a) | | | 2019 (a) | | | 2018 (a) | |
| Audit Fees and Expenses | | $ | 960 | | | $ | 874 | | | $ | 1,017 | |
| Audit-related Fees | | | 58 | | | | 148 | | | | 134 | |
| Tax Fees | | | 20 | | | | 12 | | | | 35 | |
| All Other Fees | | | 3 | | | | 1 | | | | 4 | |
| Total | | $ | 1,041 | | | $ | 1,035 | | | $ | 1,190 | |
| | (a) | The amounts in the table do not include the assessment from the Office of Finance (OF) for the Bank’s share of the audit fees of approximately $78 thousand, $66 thousand and $63 thousand for 2020, 2019 and 2018, incurred in connection with the audit of the combined financial statements published by the OF. |
AUDIT FEES
Audit fees relate to professional services rendered in connection with the audit of the FHLBNY’s annual financial statements, and review of interim financial statements included in quarterly reports on Form 10-Q.
AUDIT-RELATED FEES
Audit-related fees primarily relate to consultation services provided in connection with respect to certain accounting and reporting standards.
TAX FEES
Tax fees relate to consultation services provided primarily with respect to tax withholding matters.
ALL OTHER FEES
These other fees are primarily related to review of various accounting matters and consultation services.
Policy on Audit Committee Pre-approval of Audit and Non-Audit Services Performed by the Independent Registered Public Accounting Firm.
We have adopted a policy that prohibits our independent registered public accounting firm from performing non-financial consulting services, such as information technology consulting and internal audit services. This policy also mandates that the audit and non-audit services and related budget be approved by the full Audit Committee or Audit Committee Chair in advance, and that the Audit Committee be provided with periodic reporting on actual spending. In accordance with this policy, all services to be performed by PwC were pre-approved by either the full Audit Committee or the Audit Committee Chair.
Subsequent to the enactment of the Sarbanes-Oxley Act of 2002 (the “Act”), the Audit Committee has met with PwC to further understand the provisions of that Act as it relates to independence. PwC will rotate the lead audit partner and other partners as appropriate in compliance with the Act. The Audit Committee will continue to monitor the activities undertaken by PwC to comply with the Act.
PART IV
| Item 15. | Exhibits, Financial Statement Schedules. |
(a) 1. Financial Statements
The financial statements included as part of this Form 10-K are identified in the index to the Financial Statements appearing in Item 8 of this Form 10-K, which index is incorporated in this Item 15 by reference.
2. Financial Statement Schedules
Financial statement schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes, under Item 8, “Financial Statements and Supplementary Data.”
3. Exhibits
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.
(a) This exhibit includes a management contract, compensatory plan or arrangement required to be noted herein.
| Item 16. | Form 10-K Summary. |
None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | Federal Home Loan Bank of New York |
| | |
| | By: | /s/ José R. González |
| | | José R. González |
| | | President and Chief Executive Officer |
| | | (Principal Executive Officer) |
Date: March 19, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated below:
| Signature | | Title | | Date |
| | | | | |
| /s/ José R. González | | President and Chief Executive Officer | | March 19, 2021 |
| José R. González | | | | |
| (Principal Executive Officer) | | | | |
| | | | | |
| /s/ Kevin M. Neylan | | Senior Vice President and Chief Financial Officer | | March 19, 2021 |
| Kevin M. Neylan | | | | |
| (Principal Financial Officer) | | | | |
| | | | | |
| /s/ Backer Ali | | Vice President, Chief Accounting Officer and Controller | | March 19, 2021 |
| Backer Ali | | | | |
| (Principal Accounting Officer) | | | | |
| | | | | |
| /s/ John R. Buran | | Chairman of the Board of Directors | | March 19, 2021 |
| John R. Buran | | | | |
| | | | | |
| /s/ Larry E. Thompson | | Vice Chairman of the Board of Directors | | March 19, 2021 |
| Larry E. Thompson | | | | |
| | | | | |
| /s/ Danelle M. Barrett | | Director | | March 19, 2021 |
| Danelle M. Barrett | | | | |
| | | | | |
| /s/ Kevin Cummings | | Director | | March 19, 2021 |
| Kevin Cummings | | | | |
| | | | | |
| /s/ Michael M. Horn | | Director | | March 19, 2021 |
| Michael M. Horn | | | | |
| | | | | |
| /s/ Thomas L. Hoy | | Director | | March 19, 2021 |
| Thomas L. Hoy | | | | |
| | | | | |
| /s/ David R. Huber | | Director | | March 19, 2021 |
| David R. Huber | | | | |
| | | | | |
| /s/ Thomas J. Kemly | | Director | | March 19, 2021 |
| Thomas J. Kemly | | | | |
| Signature | | Title | | Date |
| | | | | |
| /s/ Charles E. Kilbourne, III | | Director | | March 19, 2021 |
| Charles E. Kilbourne, III | | | | |
| | | | | |
| /s/ Gerald H. Lipkin | | Director | | March 19, 2021 |
| Gerald H. Lipkin | | | | |
| | | | | |
| /s/ Kenneth J. Mahon | | Director | | March 19, 2021 |
| Kenneth J. Mahon | | | | |
| | | | | |
| /s/ Christopher P. Martin | | Director | | March 19, 2021 |
| Christopher P. Martin | | | | |
| | | | | |
| /s/ Richard S. Mroz | | Director | | March 19, 2021 |
| Richard S. Mroz | | | | |
| | | | | |
| /s/ David J. Nasca | | Director | | March 19, 2021 |
| David J. Nasca | | | | |
| | | | | |
| /s/ Stephen S. Romaine | | Director | | March 19, 2021 |
| Stephen S. Romaine | | | | |
| | | | | |
| /s/ DeForest B. Soaries, Jr. | | Director | | March 19, 2021 |
| DeForest B. Soaries, Jr. | | | | |
| | | | | |
| /s/ Carlos J. Vázquez | | Director | | March 19, 2021 |
| Carlos J. Vázquez | | | | |
| | | | | |
| /s/ Ángela Weyne | | Director | | March 19, 2021 |
| Ángela Weyne | | | | |
