Federal Home Loan Bank Of New York 10-Q 2007 Q3 Quarterly report

UNITED STATES VERSION
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2007

OR

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

Commission file number: 000-51397

Federal Home Loan Bank of New York

(Exact name of registrant as specified in its charter)

Federal	13-6400946
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
101 Park Avenue, New York, New York	10178
(Address of principal executive offices)	(Zip Code)

212-681-6000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesþ                     Noo

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

Large accelerated filero           Accelerated filero           Non-accelerated filerþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso                     Noþ

41,746,557 shares of Class B capital stock, par value $100 per share, were outstanding at October 31, 2007.

FEDERAL HOME LOAN BANK OF NEW YORK
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
Table of Contents

	Page
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (Unaudited):
Statements of Condition (Unaudited) as of September 30, 2007 and December 31, 2006		1
Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2007 and 2006		2
Statements of Capital (Unaudited) for the Nine Months Ended September 30, 2007 and 2006		3
Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2007 and 2006		4
Notes to Financial Statements (Unaudited)		6
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.		29
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		73
Item 4T. CONTROLS AND PROCEDURES		79
Part II. OTHER INFORMATION		80
Item 1. LEGAL PROCEEDINGS		80
Item 1A. RISK FACTORS		80
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		80
Item 3. DEFAULTS UPON SENIOR SECURITIES		80
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		80
Item 5. OTHER INFORMATION		80
Item 6. EXHIBITS		81
Exhibit 31.01
Exhibit 31.02
Exhibit 32.01
Exhibit 32.02

PART I. FINANCIAL INFORMATION
 

Item 1. Financial Statements

Statements of Condition — Unaudited (in thousands, except par value)

As of September 30, 2007 and December 31, 2006

	September 30, 2007			December 31, 2006
Assets
Cash and due from banks	$	16,634		$	38,850
Interest-bearing deposits, includes $52,200 pledged at September 30, 2007 and $0 at December 31, 2006		11,557,305			5,591,077
Federal funds sold		2,704,000			3,661,000
Available-for-sale securities, net of unrealized gain of $71 at September 30, 2007; $0 pledged at September 30, 2007 (Note 2)		13,175			—
Held-to-maturity securities, includes $0 pledged at September 30, 2007 and December 31, 2006 (Note 2)		10,853,078			11,251,098
Advances (Note 3)		75,072,136			59,012,394
Mortgage loans held-for-portfolio, net of allowance for credit losses of$593 at September 30, 2007 and December 31, 2006 (Note 4)		1,514,573			1,483,419
Accrued interest receivable		502,062			406,123
Premises, software, and equipment, net		12,089			11,107
Derivative assets (Note 8)		119,873			224,775
Other assets		17,677			23,144
Total assets	$	102,382,602		$	81,702,987
Liabilities and capital
Liabilities
Deposits
Interest-bearing demand	$	3,316,709		$	2,307,733
Non-interest bearing demand		2,491			1,795
Term		23,800			80,000
Total deposits		3,343,000			2,389,528
Consolidated obligations (Note 5)
Bonds		63,019,870			62,042,675
Discount notes		30,063,824			12,191,553
Total consolidated obligations		93,083,694			74,234,228
Mandatorily redeemable capital stock (Note 6)		244,058			109,950
Accrued interest payable		769,677			735,215
Affordable Housing Program (Note 7)		112,481			101,898
Payable to REFCORP		21,304			17,475
Derivative liabilities (Note 8)		279,420			107,615
Other liabilities		62,888			102,685
Total liabilities		97,916,522			77,798,594
Commitments and Contingencies(Notes 5, 6, 8 and 13)
Capital(Note 6)
Capital stock ($100 par value), putable, issued and outstanding shares:
40,899 at September 30, 2007, and 35,463 at December 31, 2006		4,089,951			3,546,253
Unrestricted retained earnings		398,083			368,688
Accumulated other comprehensive income (loss) (Note 11)
Net unrealized gain on available-for-sale securities		71			—
Net unrealized loss on hedging activities		(13,358	)		(4,763	)
Employee supplemental retirement plans		(8,667	)		(5,785	)
Total capital		4,466,080			3,904,393
Total liabilities and capital	$	102,382,602		$	81,702,987

The accompanying notes are an integral part of the unaudited financial statements.

1

Statements of Income — Unaudited (in thousands, except per share data)

For the three and nine months ended September 30, 2007 and 2006

	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Interest income
Advances	$	885,601		$	923,797		$	2,470,060		$	2,430,737
Interest-bearing deposits		107,355			80,752			272,008			226,847
Federal funds sold		58,446			34,403			145,261			92,433
Held-to-maturity securities		150,405			154,232			453,023			422,429
Mortgage loans held-for-portfolio		20,117			19,181			59,350			56,767
Other		—			33			2			38
Total interest income		1,221,924			1,212,398			3,399,704			3,229,251
Interest expense
Consolidated obligations-bonds		849,407			795,177			2,397,254			2,120,574
Consolidated obligations-discount notes		210,701			270,759			553,137			707,711
Deposits		31,913			22,292			87,280			56,633
Mandatorily redeemable capital stock (Note 6)		2,823			630			6,604			1,208
Cash collateral held and other borrowings		1,058			1,120			3,863			2,243
Total interest expense		1,095,902			1,089,978			3,048,138			2,888,369
Net interest income before provision for credit losses		126,022			122,420			351,566			340,882
Provision for credit losses on mortgage loans		—			—			—			1
Net interest income after provision for credit losses		126,022			122,420			351,566			340,881
Other income (loss)
Service fees		865			878			2,526			2,541
Net realized and unrealized gain on derivatives and hedging activities (Note 8)		7,882			575			13,444			5,675
Losses from extinguishment of debt and other		(741	)		(2,510	)		(4,510	)		(6,750	)
Total other income (loss)		8,006			(1,057	)		11,460			1,466
Other expenses
Operating		16,518			15,438			49,442			46,108
Finance Board and Office of Finance		1,209			1,288			3,721			3,562
Total other expenses		17,727			16,726			53,163			49,670
Income before assessments		116,301			104,637			309,863			292,677
Affordable Housing Program (Note 7)		9,782			8,606			25,969			24,015
REFCORP		21,304			19,206			56,779			53,733
Total assessments		31,086			27,812			82,748			77,748
Net income	$	85,215		$	76,825		$	227,115		$	214,929
Basic earnings per share (Note 14)	$	2.28		$	1.97		$	6.27		$	5.73
Cash dividends paid per share	$	1.87		$	1.43		$	5.48		$	4.02

The accompanying notes are an integral part of the unaudited financial statements.

2

Statements of Capital — Unaudited (in thousands, except per share data)

For the nine months ended September 30, 2007 and 2006

										Accumulated
	Capital Stock*									Other						Total
	Class B						Retained			Comprehensive			Total			Comprehensive
	Shares			Par Value			Earnings			Income (Loss)			Capital			Income (Loss)
Balance, December 31, 2005		35,905		$	3,590,454		$	291,413		$	3,513		$	3,885,380
Proceeds from sale of capital stock		27,453			2,745,268			—			—			2,745,268
Redemption of capital stock		(23,745	)		(2,374,536	)		—			—			(2,374,536	)
Shares reclassified to mandatorily redeemable capital stock		(2,309	)		(230,851	)		—			—			(230,851	)
Net Income		—			—			214,929			—			214,929		$	214,929
Other comprehensive income (loss):
Net change in hedging activities		—			—			—			(8,129	)		(8,129	)		(8,129	)
Additional minimum liability on Benefit Equalization Plan		—			—			—			(762	)		(762	)		(762	)
Cash dividends ($4.02 per share) on capital stock		—			—			(146,558	)		—			(146,558	)
																$	206,038
Balance, September 30, 2006		37,304		$	3,730,335		$	359,784		$	(5,378	)	$	4,084,741
Balance, December 31, 2006		35,463		$	3,546,253		$	368,688		$	(10,548	)	$	3,904,393
Proceeds from sale of capital stock		23,076			2,307,679			—			—			2,307,679
Redemption of capital stock		(15,770	)		(1,577,024	)		—			—			(1,577,024	)
Shares reclassified to mandatorily redeemable capital stock		(1,870	)		(186,957	)		—			—			(186,957	)
Net Income		—			—			227,115			—			227,115		$	227,115
Other comprehensive income (loss):
Net unrealized gain on available-for-sale securities		—			—			—			71			71			71
Net change in hedging activities		—			—			—			(8,595	)		(8,595	)		(8,595	)
Additional minimum liability on Benefit Equalization Plan		—			—			—			(2,882	)		(2,882	)		(2,882	)
Cash dividends ($5.48 per share) on capital stock		—			—			(197,720	)		—			(197,720	)
																$	215,709
Balance, September 30, 2007		40,899		$	4,089,951		$	398,083		$	(21,954	)	$	4,466,080

*      Putable stock

The accompanying notes are an integral part of the unaudited financial statements.

3

Statements of Cash Flows — Unaudited (in thousands)

For the nine months ended September 30, 2007 and 2006

	Nine months ended
	September 30,
	2007			2006
Operating Activities
Net Income	$	227,115		$	214,929
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization:
Net premiums and discounts on consolidated obligations, investments, and mortgage loans		38,256			(26,307	)
Concessions on consolidated obligations		8,736			9,570
Premises, software, and equipment, net		3,287			2,901
Provision for credit losses on mortgage loans		—			1
Change in net fair value adjustments on derivatives and hedging activities		5,630			8,754
Net change in:
Accrued interest receivable		(95,940	)		(63,047	)
Derivative assets due to accrued interest		(81,596	)		(258,948	)
Derivative liabilities due to accrued interest		53,345			155,951
Other assets		3,149			2,735
Affordable Housing Program liability		10,583			8,507
Accrued interest payable		34,462			177,189
REFCORP liability		3,828			5,144
Other liabilities		(16,226	)		2,776
Total adjustments		(32,486	)		25,226
Net cash provided by operating activities		194,629			240,155
Investing activities
Net change in:
Interest-bearing deposits		(5,966,200	)		3,204,132
Federal funds sold		957,000			(1,665,000	)
Deposits with other FHLBank’s mortgage programs		(28	)		159
Held-to-maturity securities:
Purchased		(1,080,245	)		(3,643,882	)
Proceeds		1,476,053			1,839,546
Available-for-sale securities:
Purchased		(13,161	)		—
Proceeds		58			—
Advances:
Principal collected		281,196,088			446,248,318
Made		(296,757,969	)		(450,912,212	)
Mortgage loans held-for-portfolio:
Principal collected		127,577			123,618
Purchased and originated		(160,183	)		(138,647	)
Principal collected on other loans made		113			169
Premises, software, and equipment, net		(4,269	)		(2,973	)
Net cash used in investing activities		(20,225,166	)		(4,946,772	)

The accompanying notes are an integral part of the unaudited financial statements.

4

Statements of Cash Flows — Unaudited (in thousands)
For the nine months ended September 30, 2007 and 2006

	Nine months ended
	September 30,
	2007			2006
Financing activities
Net change in:
Deposits and other borrowings	$	929,902		$	(214,469	)
Short-term borrowings from other FHLBanks:
Proceeds from borrowings		120,000			435,000
Payments for borrowings		(120,000	)		(435,000	)
Consolidated obligation bonds:
Proceeds from issuance		25,357,942			26,377,681
Payments for maturing and early retirement		(24,089,023	)		(18,432,682	)
Payments for transfers to other FHLBanks		(490,884	)		(290,369	)
Consolidated obligation discount notes:
Proceeds from issuance		306,854,206			481,392,425
Payments for maturing		(289,033,908	)		(484,214,703	)
Capital stock:
Proceeds from issuance		2,307,679			2,745,268
Payments for redemption		(1,577,024	)		(2,374,536	)
Redemption of Mandatorily redeemable capital stock		(52,849	)		(129,907	)
Cash dividends paid *		(197,720	)		(146,558	)
Net cash provided by financing activities		20,008,321			4,712,150
Net (decrease) increase in cash and cash equivalents		(22,216	)		5,533
Cash and cash equivalents at beginning of the period		38,850			22,114
Cash and cash equivalents at end of the period	$	16,634		$	27,647
Supplemental disclosures:
Interest paid	$	2,404,287		$	1,830,630
Affordable Housing Program payments **	$	15,386		$	15,508
REFCORP payments	$	52,950		$	48,588

*	Does not include payments to holders of Mandatorily redeemable capital stock.
**	AHP payments = (beginning accrual – ending accrual) + AHP assessment for the year; payments represent funds released to the Affordable Housing Program.

The accompanying notes are an integral part of the unaudited financial statements.

5

Notes to Financial Statements — Unaudited

Background

The Federal Home Loan Bank of New York (“FHLBNY” or “the Bank”) is a federally chartered corporation, exempt from federal, state and local taxes except real property taxes. It is one of twelve district Federal Home Loan Banks (“FHLBanks”). The FHLBanks are U.S. government-sponsored enterprises (“GSEs”), organized under the authority of the Federal Home Loan Bank Act of 1932, as amended (“FHLBank Act”). Each FHLBank is a cooperative owned by member institutions located within a defined geographic district. The members purchase capital stock in the FHLBank and receive dividends on their capital stock investment. The FHLBNY’s defined geographic district includes New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. The FHLBNY provides a readily available, low-cost source of funds for its member institutions. The FHLBNY does not have any wholly or partially owned subsidiaries, nor does it have an equity position in any partnerships, corporations, or off-balance-sheet special purpose entities.

Members of the cooperative must purchase FHLBNY stock according to regulatory requirements. The business of the cooperative is to provide liquidity for the members (primarily in the form of advances) and to provide a return on members’ investment in FHLBNY stock in the form of a dividend. Since the members are both stockholders and customers, 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. This means that the FHLBNY is managed to deliver balanced value to members, rather than to maximize profitability or advance volume through low pricing.

All federally insured depository institutions, insured credit unions and insurance companies engaged in residential housing finance can apply for membership in the FHLBank in their district. All members are required to purchase capital stock in the FHLBNY as a condition of membership. A member of another FHLBank or a financial institution that is not a member of any FHLBank may also hold FHLBNY stock as a result of having acquired an FHLBNY member. As a result of the membership requirements, the FHLBNY conducts business with related parties in the normal course of business and considers all members and non-member stockholders as related parties in addition to the other FHLBanks.

The FHLBNY’s primary business is making collateralized loans, known as “advances” to members. This is the primary focus of the Bank’s operations and also the principal factor that impacts the financial condition of the FHLBNY.

The FHLBNY is supervised and regulated by the Federal Housing Finance Board (“Finance Board”), which is an independent agency in the executive branch of the U.S. government. The Finance Board ensures that the FHLBNY carries out its housing and community development mission, remains adequately capitalized and able to raise funds in the capital markets, and operates in a safe and sound manner. However, while the Finance Board establishes regulations governing the operations of the FHLBanks, the Bank functions as a separate entity with its own management, employees and board of directors.

The FHLBNY obtains its funds from several sources. A primary source is the sale of FHLBank debt instruments, called consolidated obligations, to the public. The issuance and servicing of consolidated obligations are performed by the Office of Finance, a joint office of the FHLBanks established by the Finance Board. These debt instruments represent the joint and several obligations of all the FHLBanks. Additional sources of FHLBNY funding are member deposits, other borrowings, and the issuance of capital stock. The FHLBNY accepts deposits principally from member financial institutions and federal instrumentalities.

The Code of Business Conduct and Ethics is posted on the Corporate Governance Section of the FHLBNY’s website atwww.fhlbny.com.

6

Notes to Financial Statements — Unaudited

Tax Status

The FHLBNY is exempt from ordinary federal, state, and local taxation except for local real estate tax.

Assessments

Assessments on net income —The Bank is required to make payments to the Resolution Funding Corporation based on percentage of its net income and to set aside funds from net income towards an “Affordable Housing Program.”

Resolution Funding Corporation (“REFCORP”) Assessments. Although the FHLBNY is exempt from ordinary federal, state, and local taxation except for local real estate tax, it is required to make payments to REFCORP, which was established by an Act of Congress in 1989 to help facilitate the U.S. government’s bailout of failed financial institutions. The REFCORP assessments are used by the U.S. Treasury to pay a portion of the annual interest expense on long-term obligations issued to finance a portion of the cost of the bailout. Principal of those long-term obligations is paid from a segregated account containing zero-coupon U.S. government obligations, which were purchased using funds that Congress directed the FHLBanks to provide for that purpose.

Each FHLBank is required to pay 20 percent of income calculated in accordance with accounting principles generally accepted in the U.S. (“GAAP”) after the assessment for Affordable Housing Program, but before the assessment for the REFCORP. The Affordable Housing Program and REFCORP assessments are calculated simultaneously because of their interdependence on each other. The FHLBNY accrues its REFCORP assessment on a monthly basis. The Resolution Funding Corporation has been designated as the calculation agent for the Affordable Housing Program and REFCORP assessments. Each FHLBank provides the amount of quarterly net income before Affordable Housing Program and REFCORP to the Resolution Funding Corporation, which then performs the calculations for each quarter end.

Affordable Housing Program (“AHP”) Assessments. Section 10(j) of the FHLBank Act requires each FHLBank to establish an Affordable Housing Program. Each FHLBank provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBanks must set aside for the Affordable Housing Program the greater of $100 million or 10 percent of regulatory net income. Regulatory net income is defined as GAAP net income before interest expense related to mandatorily redeemable capital stock under Statement of Financial Accounting Standards 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, and the assessment for Affordable Housing Program, but after the assessment for REFCORP. The exclusion of interest expense related to mandatorily redeemable capital stock is a regulatory interpretation of the Finance Board. The FHLBNY accrues the AHP expense monthly.

Basis of Presentation

The preparation of financial statements in accordance with generally accepted accounting principles in the U.S. requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities (if applicable), and the reported amounts of income and expense during the report period. Although management believes these judgments, estimates, and assumptions to be reasonably accurate, actual results may differ. The information contained in these financial statements is unaudited. In the opinion of management, normal recurring adjustments necessary for a fair statement of the interim period results have been made.

7

Notes to Financial Statements — Unaudited

These unaudited financial statements should be read in conjunction with the FHLBNY’s audited financial statements for the year ended December 31, 2006, included in Form 10-K filed on March 29, 2007.

Note 1 to the Financial Statements of the Federal Home Loan Bank of New York filed with Form 10-K on March 29, 2007 contains a summary of our significant accounting policies.

Note 1. Accounting Developments

Recently Issued Accounting Standards and Interpretations

SFAS 157 – In September 2006, the FASB issued SFAS 157, “Fair Value Measurements” (“SFAS 157”).
SFAS 157 defines fair value, establishes a framework for measuring fair value and enhances disclosure about fair value measurements required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 nullifies the guidance in Emerging Issues Task Force Issue EITF 02-3, which precluded the recognition of a trading profit at the inception of a derivative contract, unless the fair value of such derivative is obtained from a quoted market price, or other valuation technique incorporating observable market data. SFAS 157 also precludes the use of a liquidity or block discount when measuring instruments traded in an active market at fair value. SFAS 157 requires that costs related to acquiring financial instruments carried at fair value should not be capitalized, but rather should be expensed as incurred. SFAS 157 also clarifies that an issuer’s credit standing should be considered when measuring liabilities at fair value.

SFAS 157 is effective for fiscal years beginning after November 15, 2007 (January 1, 2008 for the Bank), with earlier application encouraged. SFAS 157 must be applied prospectively as of the beginning of the fiscal year in which it is initially adopted, except that the provisions related to block discounts and the guidance in EITF 02-3 are to be applied as a one time cumulative effect adjustment to opening retained earnings in the first interim period for the fiscal year in which SFAS 157 is initially applied. The Bank will adopt SFAS 157 on January 1, 2008, and is evaluating its potential effect on its financial statements.

SFAS 159 — On February 15, 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement 115”(“SFAS 159”).SFAS 159 creates a fair value option allowing an entity to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities, with changes in fair value recognized in earnings as they occur. SFAS 159 also requires an entity to report those financial assets and financial liabilities measured at fair value in a manner that separates those reported fair values from the carrying amounts of assets and liabilities measured using another measurement attribute on the face of the statement of financial position. Lastly, SFAS 159 requires an entity to provide information that would allow users to understand the effect on earnings of changes in the fair value on those instruments selected for the fair value election. SFAS 159 is effective for fiscal years beginning after November 15, 2007 (January 1, 2008 for the Bank). The Bank is continuing to evaluate the financial assets and liabilities, if any, for which the fair value option under SFAS 159 could be elected, and to assess the impact on its financial condition, results of operations and cash flows if such election was made.

FSP FIN 39-1 — In April 2007, the FASB directed the FASB Staff to issue FSP No. FIN 39-1, “Amendment of FASB Interpretation No. 39.” (“FSP FIN 39-1”). FSP FIN 39-1 modifies FIN No. 39, “Offsetting of Amounts Related to Certain Contracts”, and permits companies to offset cash collateral receivables or payables with net derivative positions under certain circumstances. FSP FIN 39-1 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted. If the Bank adopts the provisions under the FSP, it does not expect implementation to have a material impact on reported results of operations or financial condition.

8

Notes to Financial Statements — Unaudited

Note 2. Securities

At September 30, 2007, investments in securities were comprised of held-to-maturity securities and an available-for-sale portfolio of investments consisting primarily of equity and fixed-income funds in two grantor trusts. The trusts were established to fund current and future payments to plan participants in the Bank’s supplemental pension plans.

Held-to-maturity securities- consisted of mortgage- and asset-backed securities (“MBS”), and state and local housing finance agency bonds. The amortized cost and the fair value of these securities were as follows (in thousands):

	September 30, 2007
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
State and local housing agency obligations	$	595,461	$	8,696	$	(471	)	$	603,686
Mortgage-backed securities		10,257,617		43,023		(139,793	)		10,160,847
Total	$	10,853,078	$	51,719	$	(140,264	)	$	10,764,533

	December 31, 2006
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
State and local housing agency obligations	$	618,810	$	11,141	$	(283	)	$	629,668
Mortgage-backed securities		10,632,288		47,184		(139,371	)		10,540,101
Total	$	11,251,098	$	58,325	$	(139,654	)	$	11,169,769

9

Notes to Financial Statements — Unaudited

Temporary impairment¹. The following tables summarize held-to-maturity securities with fair values below their amortized cost (in thousands), i.e., in an unrealized loss position at September 30, 2007 and December 31, 2006:

	September 30, 2007
	Less than 12 months				12 months or more				Total
	Estimated Fair		Unrealized		Estimated Fair		Unrealized		Estimated Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Mortgage-backed securities - fixed rate
AAA-rated	$	3,550,054	$	43,791	$	2,446,645	$	94,821	$	5,996,699	$	138,612
AA-rated		—		—		—		—		—		—
Below AA		—		—		—		—		—		—
Mortgage-backed securities - variable rate
AAA-rated		218,096		1,181		—		—		218,096		1,181
AA-rated		—		—		—		—		—		—
Below AA		—		—		—		—		—		—
		3,768,150		44,972		2,446,645		94,821		6,214,795		139,793
State and local housing finance agencies - fixed rate
AAA-rated		—		—		—		—		—		—
AA-rated		34,909		171		9,700		300		44,609		471
Below AA		—		—		—		—		—		—
State and local housing finance agencies - variable rate
AAA-rated		—		—		—		—		—		—
AA-rated		—		—		—		—		—		—
Below AA		—		—		—		—		—		—
		34,909		171		9,700		300		44,609		471
	$	3,803,059	$	45,143	$	2,456,345	$	95,121	$	6,259,404	$	140,264

	December 31, 2006
	Less than 12 months				12 months or more				Total
	Estimated Fair		Unrealized		Estimated Fair		Unrealized		Estimated Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Mortgage-backed securities - fixed rate
AAA-rated	$	1,434,317	$	7,082	$	4,528,193	$	132,247	$	5,962,510	$	139,329
AA-rated		—		—		—		—		—		—
Below AA		—		—		—		—		—		—
Mortgage-backed securities - variable rate
AAA-rated		134,958		42		—		—		134,958		42
AA-rated		—		—		—		—		—		—
Below AA		—		—		—		—		—		—
		1,569,275		7,124		4,528,193		132,247		6,097,468		139,371
State and local housing finance agencies - fixed rate
AAA-rated		—		—		—		—		—		—
AA-rated		15,117		283		—		—		15,117		283
Below AA		—		—		—		—		—		—
State and local housing finance agencies - variable rate
AAA-rated		—		—		—		—		—		—
AA-rated		—		—		—		—		—		—
Below AA		—		—		—		—		—		—
		15,117		283		—		—		15,117		283
	$	1,584,392	$	7,407	$	4,528,193	$	132,247	$	6,112,585	$	139,654

Temporary impairment¹.The fair values and unrealized losses are aggregated by major security type and rating, and by the length of time individual securities have been in a continuous unrealized loss position. Securities, to which different rating levels have been assigned by different rating agencies, i.e., split ratings, are assigned to the lower rating category. All mortgage-backed securities, including those temporarily impaired, were rated triple-A at September 30, 2007 and December 31, 2006.

The FHLBNY has both the intent and financial ability to hold the temporarily impaired securities to anticipated recovery of their value. In addition, the FHLBNY has reviewed its holdings and determined, based on creditworthiness of the securities and including any underlying collateral and/or insurance provisions of the security, that unrealized losses in the above analysis represent temporary impairment at September 30, 2007 and December 31, 2006.

10

Notes to Financial Statements — Unaudited

Available-for-sale securities- consisted principally of investments in equity and fixed-income funds. The Bank established two grantor trusts in the third quarter of 2007 to fund current and future payments under two supplemental pension plans. The investments in the grantor trusts have been classified as available-for-sale.

Investments in equity and fixed-income funds are redeemable at short notice. Realized gains and losses from investments in funds were not significant. Unrealized gains and losses are summarized as follows (in thousands):

	September 30, 2007
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Cash equivalents	$	722	$	—	$	—		$	722
Equity funds		7,986		22		(61	)		7,947
Fixed income funds		4,396		110		—			4,506
Total	$	13,104	$	132	$	(61	)	$	13,175

Note 3. Advances

Advances outstanding are summarized below by contractual maturities (dollars in thousands):

	September 30, 2007						December 31, 2006
				Weighted1						Weighted1
	Amount			Average Yield			Amount			Average Yield
Overdrawn demand deposit accounts	$	825			5.90	%	$	498			6.05	%
Due in one year or less		22,119,254			5.07			12,273,636			4.91
Due after one year through two years		8,677,948			5.21			12,450,960			4.99
Due after two years through three years		6,576,959			5.33			4,108,983			5.05
Due after three years through four years		4,670,077			5.12			5,744,505			5.45
Due after four years through five years		4,699,492			5.05			2,591,828			4.86
Due after five years through six years		1,023,077			3.49			2,279,706			4.18
Thereafter		26,783,519			4.39			19,539,154			4.22
Total par value		74,551,151			4.85	%		58,989,270			4.73	%
Discount on AHP advances *		(440	)					(519	)
Net premium on advances *		14						489
SFAS 133 hedging basis adjustments *		521,411						23,154
Total	$	75,072,136					$	59,012,394

*	Premiums on advances and discounts on AHP advances are amortized to interest income using the level-yield method and were not significant for all periods reported. Amortization of fair value basis adjustments was a charge to interest income of $0.5 million for the nine months ended September 30, 2007 and 2006.
1	The weighed average yield is the weighted average coupon rates for advances, unadjusted for swaps.

11

Notes to Financial Statements — Unaudited

The table below offers a view of the advance portfolio with the possibility of the exercise of the put option that is controlled by the FHLBNY, and put dates are summarized into similar maturity tenors as the previous table that summarizes advances by contractual maturities (in thousands):

	September 30, 2007			December 31, 2006
Overdrawn demand deposit accounts	$	825		$	498
Due or putable in one year or less		44,230,766			29,962,181
Due or putable after one year through two years		16,735,798			16,745,798
Due or putable after two years through three years		5,878,459			6,341,532
Due or putable after three years through four years		2,305,527			2,504,205
Due or putable after four years through five years		3,233,742			1,668,578
Due or putable after five years through six years		173,577			442,706
Thereafter		1,992,457			1,323,772
Total par value		74,551,151			58,989,270
Discount on AHP advances		(440	)		(519	)
Net premium on advances		14			489
SFAS 133 hedging basis adjustments		521,411			23,154
Total	$	75,072,136		$	59,012,394

Note 4. Mortgage Loans

Mortgage loans are comprised primarily of Mortgage Partnership Finance^® Program (“MPF”^®) loans. In this program the FHLBNY invests in mortgage loans that are purchased from its participating members. The FHLBNY’s member institutions create, service, and credit-enhance the loans. No intermediary trusts are involved. Totals include $41.4 million and $45.7 million at September 30, 2007 and December 31, 2006, of mortgage loans that were originated by the FHLBNY. Mortgage loans also included investments in the Community Mortgage Asset program, which has been inactive since 2001, and were $4.8 million and $4.9 million at September 30, 2007 and December 31, 2006.

The following summarizes investments in mortgage loans (dollars in thousands):

	September 30, 2007						December 31, 2006
	2007			Percentage			2006			Percentage
Real Estate:
Fixed medium-term single-family mortgages	$	547,973			36.30	%	$	575,114			38.90	%
Fixed long-term single-family mortgages		958,021			63.40			897,153			60.70
Multi-family mortgages		4,759			0.30			4,940			0.40
Total par value		1,510,753			100.00	%		1,477,207			100.00	%
Unamortized premiums		12,073						13,323
Unamortized discounts		(7,031	)					(6,288	)
Basis adjustment1		(629	)					(230	)
Total mortgage loans held-for-portfolio		1,515,166						1,484,012
Allowance for credit losses		(593	)					(593	)
Total mortgage loans held-for-portfolio after allowance for credit losses	$	1,514,573					$	1,483,419

¹ Represents fair value basis of open and closed delivery commitments.

12

Notes to Financial Statements — Unaudited

The FHLBNY and its members share the credit risk of MPF loans by structuring potential credit losses into layers. The first layer ranges from 4 basis points annually to 100 basis points established up front at the time of funding the loan, and varies with the particular MPF program. The FHLBNY is responsible for absorbing losses in the first layer, as summarized below in the “memo” First Loss Account roll-forward analysis. The First Loss Account is not recorded or reported as a reserve for loan losses. The second layer is that amount of credit obligations that the Participating Financial Institution (“PFI”) has taken on which will equate the loan to a double-A credit rating. The FHLBNY pays a Credit Enhancement fee to the PFI for taking on this obligation. The FHLBNY assumes all residual risk. Credit Enhancement fees accrued were $0.4 million for the third quarter of 2007 and 2006. For the first nine months of 2007 and 2006, fees accrued were $1.3 million and $1.2 million. Credit Enhancement fees are reported as a reduction to mortgage loan interest income. The amount of charge-offs in each period reported was insignificant and it was not necessary for the FHLBNY to recoup any losses from the PFIs.

The following provides a roll-forward analysis of the memo First Loss Account (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2007		2006		2007		2006
Beginning balance	$	12,633	$	11,635	$	12,162	$	11,318
Additions		209		269		680		586
Charge-offs		—		—		—		—
Recoveries		—		—		—		—
Ending balance	$	12,842	$	11,904	$	12,842	$	11,904

Note 5. Consolidated Obligations

Consolidated obligations are the joint and several obligations of the FHLBanks and consisted of consolidated bonds and discount notes.

The following summarizes consolidated obligations issued by the FHLBNY and outstanding (in thousands):

	September 30, 2007			December 31, 2006
Consolidated obligation bonds-amortized cost	$	62,977,174		$	62,195,674
SFAS 133 fair value adjustments		44,792			(151,222	)
Fair value basis adjustments on terminated hedges		(2,096	)		(1,777	)
Total Consolidated obligation-bonds	$	63,019,870		$	62,042,675
Discount notes — amortized cost	$	30,063,824		$	12,191,553
Total Consolidated obligation-discount notes	$	30,063,824		$	12,191,553

13

Notes to Financial Statements — Unaudited

Note 6. Capital, Capital Ratios, and Mandatorily Redeemable Capital Stock

The FHLBanks, including FHLBNY, have a cooperative structure. To access FHLBNY’s products and services, a financial institution must be approved for membership and purchase capital stock in FHLBNY. The member’s stock requirement is based on the amount of mortgage-related assets on the member’s balance sheet and its use of FHLBNY advances and other products. FHLBNY stock can be issued, exchanged, redeemed and repurchased only at its stated par value of $100 per share. The stock is not publicly traded.

The Gramm-Leach-Bliley Act (“GLB Act”) allows the FHLBanks to have two classes of stock, and each class may have sub-classes. Class A stock is conditionally redeemable on six months written notice from the member, and class B stock is conditionally redeemable on five years written notice from the member. Membership is voluntary for all members. Members that withdraw from an FHLBank may not reapply for membership of any FHLBank for five years from the date of withdrawal. The transfer of membership without interruption between two FHLBanks is not considered to be a termination of membership for this purpose.

The FHLBNY’s capital stock at September 30, 2007 and December 31, 2006 is Class B stock which is sub-divided into membership stock and activity-based stock.

The FHLBNY is subject to risk-based capital rules. Specifically, the FHLBNY is subject to three capital requirements under its capital plan implemented on December 1, 2005. First, the FHLBNY must maintain at all times permanent capital in an amount at least equal to the sum of its credit risk capital requirement, its market risk capital requirement, and its operations risk capital requirement, calculated in accordance with the FHLBNY policy and rules and regulations of the Finance Board. Only permanent capital, defined as Class B stock and retained earnings, satisfies this risk-based capital requirement. The Finance Board may require the FHLBNY to maintain a greater amount of permanent capital than is required as defined by the risk-based capital requirements. In addition, the FHLBNY is required to maintain at least a 4% total capital-to-asset ratio and at least a 5% leverage ratio at all times. The leverage ratio is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 time divided by total assets. The FHLBNY was in compliance with the aforementioned capital rules and requirements.

Capital Ratios

The following table summarizes the Bank’s risk-based capital ratios (dollars in thousands):

	September 30, 2007						December 31, 2006
	Required*			Actual			Required*			Actual
Regulatory capital requirements:
Risk-based capital1	$	666,699		$	4,732,091		$	611,861		$	4,024,891
Total capital-to-asset ratio		4.00	%		4.62	%		4.00	%		4.93	%
Total capital2	$	4,095,304		$	4,732,684		$	3,268,119		$	4,025,483
Leverage ratio		5.00	%		6.93	%		5.00	%		7.39	%
Leverage capital3	$	5,119,130		$	7,098,729		$	4,085,149		$	6,037,335

1.	Actual “Risk-based capital” is capital stock and retained earnings plus mandatorily redeemable capital stock. Section 932.2 of the Finance Board’s regulations also refers to this amount as “Permanent Capital.”
2.	Actual “Total capital” is “Risk-based capital” plus allowance for credit losses.
3.	Actual Leverage capital is “Risk-based capital” times 1.5 plus allowance for loan losses.
*	Required minimum.

14

Notes to Financial Statements — Unaudited

Mandatorily Redeemable Capital Stock

The FHLBNY’s capital stock is redeemable at the option of either the member or the FHLBNY, subject to certain conditions. Dividends related to capital stock classified as mandatorily redeemable are accrued at an estimated dividend rate and reported as interest expense in the statements of income.

Mandatorily redeemable stock at September 30, 2007 and December 31, 2006 represented stock held by:

• Former members who were no longer FHLBNY members by virtue of being acquired by members of another FHLBank; or

• Former members who were no longer FHLBNY members by virtue of being acquired by an institution that is not a member of any FHLBank.

Such stock will be repurchased when it is no longer needed to meet stock ownership requirements for transactions outstanding with the Bank.

The FHLBNY repurchases excess activity-based capital stock daily. The three other triggering events that could cause the FHLBNY to repurchase capital stock are:

• a member requests redemption of excess stock;

• a member delivers notice of its intent to withdraw from membership;

• a member attains non-member status (through merger into or acquisition by a non-member, or involuntary termination from membership).

A member’s request to redeem excess Membership Stock will be considered to be revocable until the stock is repaid. Based on the fact that 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 and therefore no reclassification to a liability will be necessary at the time the request is delivered.

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 and, therefore, reclassification to liability will be necessary at the time the notification of the intent to withdraw is delivered.

Anticipated redemptions of mandatorily redeemable capital stock were as follows (in thousands):

	September 30, 2007		December 31, 2006
Redemption less than one year	$	131,195	$	43,184
Redemption from one year to less than three years		76,282		29,109
Redemption from three years to less than five years		34,899		30,679
Redemption after five years or greater		1,682		6,978
Total	$	244,058	$	109,950

Anticipated redemption assumes the Bank will follow its current practice of daily redemption of capital in excess of the amount required to support advances, and of redeeming excess membership stock annually.

Dividends related to capital stock classified as mandatorily redeemable were accrued at an estimated dividend rate and reported as interest expense in the statements of income. At September 30, 2007, the FHLBNY had estimated a 7.5% (annualized) dividend payout due to holders of mandatorily redeemable capital stock averaging $149.5 million during the third quarter of 2007, and a liability of $2.8 million representing accrued dividend was recognized as an interest expense. The actual rate of dividend that was paid on October 31, 2007 was 8.05% (annualized).

15

Notes to Financial Statements — Unaudited

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Beginning balance	$	77,571		$	18,168		$	109,950		$	18,087
Capital stock subject to mandatory redemption reclassified from equity		180,092			216,615			186,957			230,851
Redemption of mandatorily redeemable capital stock*		(13,605	)		(115,752	)		(52,849	)		(129,907	)
Ending balance	$	244,058		$	119,031		$	244,058		$	119,031
Accrued interest payable	$	2,825		$	606		$	2,825		$	606

*	Redemption includes repayment of excess stock.
	(Accrual is at 7.50% annualized rate for September 30, 2007; 5.75% annualized rate for September 30, 2006)

Note 7. Affordable Housing Program

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Beginning balance	$	107,996		$	93,880		$	101,898		$	91,004
Additions from current period’s assessments		9,782			8,607			25,969			24,015
Net disbursements for grants and programs		(5,297	)		(2,976	)		(15,386	)		(15,508	)
Ending balance	$	112,481		$	99,511		$	112,481		$	99,511

Note 8. Derivatives

The contractual or notional amount of derivatives reflects the involvement of the FHLBNY in the various classes of financial instruments, and does not measure the credit exposure of the FHLBNY, which is substantially less than the notional amount. The maximum credit risk is the estimated cost of replacing: favorable interest-rate swaps; forward agreements; mandatory delivery contracts for mortgage loans, and purchased caps and floors if the counterparty defaults and the related collateral, if any, is of no value to the FHLBNY at September 30, 2007 and December 31, 2006.

16

Notes to Financial Statements — Unaudited

The FHLBNY uses derivatives in three ways: by designating them as a fair value or cash flow hedge of an underlying financial instrument or a forecasted transaction; by acting as an intermediary; or in asset-liability management (i.e., an economic hedge). For example, the FHLBNY uses derivatives in its overall interest-rate risk management to adjust the interest-rate sensitivity of consolidated obligations to approximate more closely the interest-rate sensitivity of assets (both advances and investments), and/or to adjust the interest-rate sensitivity of advances, investments or mortgage loans to approximate more closely the interest-rate sensitivity of liabilities. In addition to using derivatives to manage mismatches of interest rates between assets and liabilities, the FHLBNY also uses derivatives to manage embedded options in assets and liabilities; to hedge the market value of existing assets and liabilities and anticipated transactions; to hedge the duration risk of prepayable instruments; and to reduce funding costs.

An economic hedge is defined as a derivative that hedges specific or non-specific underlying assets, liabilities or firm commitments. Hedges designated as economic do not qualify for hedge accounting under the rules of SFAS 133, but is an acceptable hedging strategy under the FHLBNY’s risk management program. These strategies also comply with Finance Board’s regulatory requirements prohibiting speculative use of derivatives. An economic hedge, by definition, introduces the potential for earnings variability due to the changes in fair value recorded on the derivatives that are not offset by corresponding changes in the value of the economically hedged assets, liabilities, or firm commitments.

The FHLBNY does not take speculative positions with derivatives or any other financial instruments, and does not have any special purpose entities or any other types of off-balance sheet conduits.

The following table presents outstanding notional balances and estimated fair value gains and (losses) of derivatives by SFAS 133 hedge type (in thousands):

	September 30, 2007					December 31, 2006
			Estimated					Estimated
	Notional		Fair Value			Notional		Fair Value
Interest rate swaps
Fair value	$	79,537,349	$	(482,449	)	$	76,125,220	$	(183,808	)
Cash flow		817,000		(7,337	)		—		—
Economic		3,573,100		702			175,000		(253	)
Interest rate caps/floors
Economic-fair value changes		1,157,694		8			1,237,694		—
Mortgage delivery commitments (MPF)
Economic-fair value changes		1,399		2			9,497		(35	)
Other
Intermediation *		80,000		23			50,000		3
Total	$	85,166,542	$	(489,051	)	$	77,597,411	$	(184,093	)
Total derivatives, excluding accrued interest			$	(489,051	)			$	(184,093	)
Accrued interest				329,504					301,253
Net derivative balance			$	(159,547	)			$	117,160
Net derivative asset balance			$	119,873				$	224,775
Net derivative liability balance				(279,420	)				(107,615	)
Net derivative balance			$	(159,547	)			$	117,160

* Classified as economic.

The categories-“Fair value”, “Commitment”, and “Cash Flow” hedges — represent derivative transactions accounted for as hedges. If any such hedges do not qualify for hedge accounting under the provisions of SFAS 133, they are classified as “Economic” hedges. Changes in fair values of economic hedges are recorded through the income statement without the offset of corresponding changes in the fair value of the hedged item. Changes in fair values of SFAS 133 qualifying derivative transactions are recorded through the income statement with the offset of corresponding changes in the fair values of the hedged item. The effective portion of changes in the fair values of derivatives designated in a qualifying cash flow hedge is recorded in accumulated other comprehensive income.

17

Notes to Financial Statements — Unaudited

Derivative gains and losses reclassified from accumulated other comprehensive income (loss) to current period income

The following table summarizes changes in derivative gains and (losses) and reclassifications into earnings from accumulated other comprehensive income (loss) in the statements of condition (in thousands):

	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Accumulated other comprehensive income/(loss) from cash flow hedges
Beginning of period	$	(4,081	)	$	9,223		$	(4,763	)	$	5,352
Net hedging transactions		(9,041	)		(11,208	)		(7,988	)		(5,984	)
Reclassified into earnings		(236	)		(792	)		(607	)		(2,145	)
End of period	$	(13,358	)	$	(2,777	)	$	(13,358	)	$	(2,777	)

Earnings impact of derivatives and hedging activities

Net realized and unrealized gain (loss) from derivatives and hedging activities

As a result of applying SFAS 133, the FHLBNY reported the following net gains (losses) from derivatives and hedging activities (in thousands):

	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Earnings impact of derivatives and hedging activities gain (loss):
Fair value changes-interest rate swaps	$	1,936		$	(5,936	)	$	7,873		$	(277	)
Fair value changes-options		(627	)		(1,669	)		(1,986	)		(5,912	)
Net interest accruals-options		945			3,086			2,784			6,787
Fair value changes MPF delivery commitments-economic hedges		11			69			(186	)		61
Fair value changes-economic hedges*		5,094			4,769			3,485			4,759
Net interest accruals-economic hedges*		523			256			1,474			257
Net impact on derivatives and hedging activities1	$	7,882		$	575		$	13,444		$	5,675

*	Economic hedges include intermediation and swaps not qualifying for hedge accounting under SFAS 133.
1	Interest accruals associated with hedges are allocated to and recorded within their hedge category to more precisely match gains and losses from hedging activities. Prior period presentation has been conformed to match current period presentation and had no impact on the net gains (losses) on derivatives and hedging activities.

Cash Flow Hedges

There were no material amounts for the third quarter of 2007 or 2006 that were reclassified from accumulated other comprehensive income (loss) into earnings as a result of the discontinuance of cash flow hedges because it became probable that the original forecasted transactions would not occur by the end of the originally specified time period or within a two-month period thereafter. Over the next twelve months, it is expected that $0.5 million of net gains recorded in accumulated other comprehensive income at September 30, 2007, will be recognized in earnings.

18

Notes to Financial Statements — Unaudited

Note 9. Employee Retirement Plans

The FHLBNY participates in the Pentegra Defined Benefit Plan for Financial Institutions (“DB Plan”), which is a tax-qualified multiple-employer defined benefit pension plan that covers substantially all employees of the FHLBNY. For accounting purposes, the DB Plan is a multi-employer plan that does not segregate its assets, liabilities, or costs by participating employer. As a result, disclosure of the accumulated benefit obligations, plan assets, and the components of annual pension expense attributable to the FHLBNY are not made.

The FHLBNY also participates in the Pentegra Defined Contribution Plan for Financial Institutions, a tax-qualified defined contribution plan. The Bank’s contributions are a matching contribution equal to a percentage of voluntary employee contributions, subject to certain limitations.

In addition, the FHLBNY maintains a Benefit Equalization Plan (“BEP”) that restores defined benefits and contribution benefits to those employees who have had their qualified defined benefit and defined contribution benefits limited by IRS regulations. The contribution component of the BEP plan is a supplemental defined contribution plan. The plan’s liability consists of the accumulated compensation deferrals and accrued interest on the deferrals. The BEP is an unfunded plan. The FHLBNY also offers a Retiree Medical Plan, which is a Postretirement Health Benefit plan. There are no funded plan assets that have been designated to provide postretirement health benefits. In the third quarter of 2007, the Bank established two grantor trusts to meet future benefit obligations and current payments to beneficiaries in the two supplemental pension plans.

The Board of Directors of Bank approved certain amendments to the BEP and the Postretirement Health Benefit plan that will be effective in the second quarter of 2008, and the Bank is assessing the impact of the changes, but does not believe they will have a material impact on reported results of operations or financial condition.

The following table presents employee retirement plan expenses (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2007		2006		2007		2006
Defined Benefit Plan	$	1,547	$	1,450	$	4,459	$	4,350
Benefit Equalization Plan (Defined benefits)		910		500		1,528		1,500
Defined Contribution Plan and BEP thrift		368		244		1,079		843
Postretirement Health Benefit Plan		481		363		1,443		1,088
Total retirement plan expenses	$	3,306	$	2,557	$	8,509	$	7,781

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

	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Service cost	$	299		$	150		$	504		$	450
Interest cost		326			200			649			600
Amortization of unrecognized prior service cost		(17	)		(13	)		(67	)		(38	)
Amortization of unrecognized net loss		302			163			442			488
Net periodic benefit cost	$	910		$	500		$	1,528		$	1,500

19

Notes to Financial Statements — Unaudited

Key assumptions used in determining the supplemental retirement plan cost for the three and nine months ended September 30, 2007 included a discount rate of 5.65%, salary increases of 5.50%, and an amortization period of 8 years. The measurement date used to determine the net periodic cost was December 31, 2006. The total amount of benefits paid and expected to be paid under this plan is not expected to be materially different from amounts disclosed in the Bank’s Form 10-K filed on March 29, 2007. Plan assumptions with respect to future benefit obligations were revised in the third quarter of 2007 and explain the increase in the amount expensed.

Components of the net periodic postretirement health benefit cost for the FHLBNY’s Postretirement Health Benefit plan were as follows (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2007		2006		2007		2006
Service cost (benefits attributed to service during the period)	$	218	$	135	$	655	$	405
Interest cost on accumulated postretirement health benefit obligation		203		148		609		443
Amortization of loss		60		80		179		240
Net periodic postretirement health benefit cost	$	481	$	363	$	1,443	$	1,088

Key assumptions used in determining the Postretirement Health Benefit plan for the three and nine months ended September 30, 2007 included a discount rate of 5.65%, and health care cost trend rate of 4.5%. The measurement date used to determine the net periodic cost was December 31, 2006. The total amount of benefits paid and expected to be paid under this plan is not expected to be materially different from amounts disclosed in the Bank’s Form 10-K filed on March 29, 2007.

Note 10. Related Party Transactions

The FHLBNY is a cooperative and the members own almost all of the stock of the FHLBNY. Stock 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. The FHLBNY 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 Board.

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.

20

Notes to Financial Statements — Unaudited

The following tables summarize outstanding balances with related parties at September 30, 2007 and December 31, 2006 as well as transactions for the three and nine months ended September 30, 2007 and 2006.

Related Party: Assets, Liabilities and Equity (in thousands):

	September 30, 2007				December 31, 2006
	Related		Unrelated		Related		Unrelated
Assets
Cash and due from banks	$	—	$	16,634	$	—	$	38,850
Interest-bearing deposits		105		11,557,200		77		5,591,000
Federal funds sold		—		2,704,000		—		3,661,000
Available-for-sale securities		—		13,175		—		—
Held-to-maturity securities		—		10,853,078		—		11,251,098
Advances		75,072,136		—		59,012,394		—
Mortgage loans*		—		1,514,573		—		1,483,419
Accrued interest receivable		381,881		120,181		319,687		86,436
Premises, software, and equipment, net		—		12,089		—		11,107
Derivative assets		—		119,873		—		224,775
Other assets**		—		17,677		—		23,144
Total assets	$	75,454,122	$	26,928,480	$	59,332,158	$	22,370,829
Liabilities and capital
Deposits	$	3,343,000	$	—	$	2,389,528	$	—
Consolidated obligations		—		93,083,694		—		74,234,228
Mandatorily redeemable capital stock		244,058		—		109,950		—
Accrued interest payable		321		769,356		—		735,215
Affordable Housing Program***		112,481		—		101,898		—
Payable to REFCORP		—		21,304		—		17,475
Derivative liabilities		—		279,420		—		107,615
Other liabilities****		19,694		43,194		43,265		59,420
Total liabilities		3,719,554		94,196,968		2,644,641		75,153,953
Capital		4,466,080		—		3,904,393		—
Total liabilities and capital	$	8,185,634	$	94,196,968	$	6,549,034	$	75,153,953

*	Includes insignificant amounts of mortgage loans purchased from members of another FHLBank.
**	Includes insignificant amounts of miscellaneous assets that are considered related party.
***	Represents funds not yet disbursed to eligible programs.
****	Related column includes member pass-through reserves at the Federal Reserve Bank.

21

Notes to Financial Statements — Unaudited

Related Party: Income and Expense transactions (in thousands):

	Three months ended
	September 30, 2007				September 30, 2006
	Related		Unrelated		Related		Unrelated
Interest income
Advances	$	885,601	$	—	$	923,797	$	—
Interest-bearing deposits *		—		107,355		—		80,752
Federal funds sold		—		58,446		—		34,403
Held-to-maturity securities		—		150,405		—		154,232
Mortgage loans **		—		20,117		—		19,181
Loans to other FHLBanks		—		—		30		—
Others		—		—		—		3
Total interest income	$	885,601	$	336,323	$	923,827	$	288,571
Interest expense
Consolidated obligations	$	—	$	1,060,108	$	—	$	1,065,936
Deposits		31,913		—		22,292		—
Mandatorily redeemable capital stock		2,823		—		630		—
Cash collateral held and other borrowings		14		1,044		22		1,098
Total interest expense	$	34,750	$	1,061,152	$	22,944	$	1,067,034
Service fees	$	865	$	—	$	878	$	—

*	Includes de minimis amounts of interest income from MPF service provider.
**	Includes de minimis amounts of mortgage interest income from loans purchased from members of another FHLBank.

	Nine months ended
	September 30, 2007				September 30, 2006
	Related		Unrelated		Related		Unrelated
Interest income
Advances	$	2,470,060	$	—	$	2,430,737	$	—
Interest-bearing deposits *		—		272,008		—		226,847
Federal funds sold		—		145,261		—		92,433
Held-to-maturity securities		—		453,023		—		422,429
Mortgage loans **		—		59,350		—		56,767
Loans to other FHLBanks		—		—		37		—
Others		—		2		—		1
Total interest income	$	2,470,060	$	929,644	$	2,430,774	$	798,477
Interest expense
Consolidated obligations	$	—	$	2,950,391	$	—	$	2,828,285
Deposits		87,280		—		56,633		—
Mandatorily redeemable capital stock		6,604		—		1,208		—
Cash collateral held and other borrowings		17		3,846		144		2,099
Total interest expense	$	93,901	$	2,954,237	$	57,985	$	2,830,384
Service fees	$	2,526	$	—	$	2,541	$	—

*	Includes de minimis amounts of interest income from MPF service provider.
**	Includes de minimis amounts of mortgage interest income from loans purchased from members of another FHLBank.

22

Notes to Financial Statements — Unaudited

Debt transferred to other FHLBanks- In the three and nine months ended September 30, 2007, the FHLBNY transferred $104.0 million and $487.0 million of consolidated obligation debt to other FHLBanks, at a cost that exceeded book value by $0.8 million and $4.6 million. Transfers were at negotiated market prices.

Note 11. Total Comprehensive Income

Total comprehensive income was comprised of net income and accumulated other comprehensive income (loss), which included net gains on available-for-sale securities, cash flow hedging activities, and additional liability for employee supplemental retirement plans. Changes in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2007 and 2006 were as follows (in thousands):

	Three months ended September 30,
									Accumulated
	Available-		Cash			Supplemental			Other					Total
	for-sale		Flow			Pension and			Comprehensive			Net		Comprehensive
	securities		Hedges			Benefit Plans			Income (Loss)			Income		Income
Balance, June 30, 2006	$	—	$	9,223		$	(2,601	)	$	6,622
Net change		—		(12,000	)		—			(12,000	)	$	76,825	$	64,825
Balance, September 30, 2006	$	—	$	(2,777	)	$	(2,601	)	$	(5,378	)
Balance, June 30, 2007	$	—	$	(4,081	)	$	(5,785	)	$	(9,866	)
Net change		71		(9,277	)		(2,882	)		(12,088	)	$	85,215	$	73,127
Balance, September 30, 2007	$	71	$	(13,358	)	$	(8,667	)	$	(21,954	)

	Nine months ended September 30,
									Accumulated
	Available-		Cash			Supplemental			Other					Total
	for-sale		Flow			Pension and			Comprehensive			Net		Comprehensive
	securities		Hedges			Benefit Plans			Income (Loss)			Income		Income
Balance, December 31, 2005	$	—	$	5,352		$	(1,839	)	$	3,513
Net change		—		(8,129	)		(762	)		(8,891	)	$	214,929	$	206,038
Balance, September 30, 2006	$	—	$	(2,777	)	$	(2,601	)	$	(5,378	)
Balance, December 31, 2006	$	—	$	(4,763	)	$	(5,785	)	$	(10,548	)
Net change		71		(8,595	)		(2,882	)		(11,406	)	$	227,115	$	215,709
Balance, September 30, 2007	$	71	$	(13,358	)	$	(8,667	)	$	(21,954	)

23

Notes to Financial Statements — Unaudited

Note 12. Estimated Fair Values

The carrying value and estimated fair values of the FHLBNY’s financial instruments were as follows (in thousands):

	September 30, 2007
	Carrying		Net Unrealized			Estimated
Financial Instruments	Value		Gains/Losses			Fair Value
Assets
Cash and due from banks	$	16,634	$	—		$	16,634
Interest-bearing deposits		11,557,305		6,136			11,563,441
Federal funds sold		2,704,000		(112	)		2,703,888
Available-for-sale securities		13,175		—			13,175
Held-to-maturity securities		10,853,078		(88,545	)		10,764,533
Advances		75,072,136		17,763			75,089,899
Mortgage loans		1,514,573		(32,507	)		1,482,066
Accrued interest receivable		502,062		—			502,062
Derivative assets		119,873		—			119,873
Other financial assets		3,109		—			3,109
Liabilities
Deposits		3,343,000		16			3,343,016
Consolidated obligations:
Bonds		63,019,870		71,442			63,091,312
Discount notes		30,063,824		8,730			30,072,554
Mandatorily redeemable capital stock		244,058		—			244,058
Accrued interest payable		769,677		—			769,677
Derivative liabilities		279,420		—			279,420
Other financial liabilities		29,148		—			29,148

	December 31, 2006
	Carrying		Net Unrealized			Estimated
Financial Instruments	Value		Gains/Losses			Fair Value
Assets
Cash and due from banks	$	38,850	$	—		$	38,850
Interest-bearing deposits		5,591,077		62			5,591,139
Federal funds sold		3,661,000		17			3,661,017
Held-to-maturity securities		11,251,098		(81,329	)		11,169,769
Advances		59,012,394		(55,450	)		58,956,944
Mortgage loans		1,483,419		(24,284	)		1,459,135
Accrued interest receivable		406,123		—			406,123
Derivative assets		224,775		—			224,775
Other financial assets		2,105		6			2,111
Liabilities
Deposits		2,389,528		1			2,389,529
Consolidated obligations:
Bonds		62,042,675		(184,723	)		61,857,952
Discount notes		12,191,553		(1,229	)		12,190,324
Mandatorily redeemable capital stock		109,950		—			109,950
Accrued interest payable		735,215		—			735,215
Derivative liabilities		107,615		—			107,615
Other financial liabilities		52,506		—			52,506

24

Notes to Financial Statements — Unaudited

Note 13. Commitments and Contingencies

The primary duty of the Finance Board is to ensure that the FHLBanks operate in a financially safe and sound manner. The Finance Board has the power to supervise the FHLBanks and to promulgate and enforce such regulations and orders as are necessary from time to time to carry out the provisions of the Federal Home Loan Bank Act. 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 Board. Neither the FHLBNY nor any other FHLBank has had to assume or pay the consolidated obligation 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 FASB interpretation 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others”(“FIN 45”), 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 liability as similar to a related party guarantee, which meets the scope exception in FIN 45. Accordingly, the FHLBNY has not recognized a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations at September 30, 2007 or December 31, 2006. The par amounts of the twelve FHLBanks’ outstanding consolidated obligations, including the FHLBNY’s, were approximately $1,148.6 billion and $951.9 billion at September 30, 2007 and December 31, 2006.

Commitments for additional advances totaled approximately $21.3 billion and $21.2 billion as of September 30, 2007 and December 31, 2006. Such commitments are conditional and generally are for periods of up to twelve months. Extension of credit under these commitments is subject to certain collateral requirements and other financial criteria at the time the commitment is drawn upon. Standby letters of credit are issued on behalf of members for a fee to facilitate residential housing, community lending, and members’ asset/liability management or to provide liquidity. Members assume an unconditional obligation to reimburse the FHLBNY for value given by the FHLBNY to the beneficiary under the standby letters of credit. The FHLBNY may, at its discretion, permit the member to finance repayment of this obligation by receiving a collateralized advance. Outstanding standby letters of credit were approximately $421.2 million and $331.1 million as of September 30, 2007 and December 31, 2006, and had original terms of up to fifteen years, with a final expiration in 2019. Unearned fees on standby letters of credit are recorded as other liabilities and were not significant as of September 30, 2007 and December 31, 2006. Based on management’s credit analyses and collateral requirements, the FHLBNY does not deem it necessary to record any provision for credit losses on these commitments and letters of credit. Standby letters of credit are fully collateralized at the time of issuance.

The FHLBNY was unconditionally obligated to purchase $1.4 million and $9.5 million in mortgage loans at September 30, 2007 and December 31, 2006, respectively, under the MPF Program. Commitments are generally for periods not to exceed 45 days. In accordance with SFAS 149, “Amendment of Statement 133 on Derivatives Instruments and Hedging Activities,”such commitments entered into after June 30, 2003 were recorded as derivatives at their fair value. The FHLBNY had also entered into conditional agreements under “Master Commitments” with its members in the MPF program to purchase mortgage loans in aggregate amount of $262.4 million and $223.9 million as of September 30, 2007 and December 31, 2006.

25

Notes to Financial Statements — Unaudited

The FHLBNY executes derivatives with major banks and broker-dealers (“derivative counterparties”), and generally enters into bilateral collateral agreements. When derivative counterparties are at risk, the Bank would typically pledge cash collateral to mitigate the counterparties’ credit exposure. At September 30, 2007, the Bank had pledged $52.2 million in interest-earning cash deposits to derivative counterparties. The pledged cash mitigated counterparties’ credit exposures resulting from certain derivative contracts that were in an unrealized loss position from the Bank’s perspective at September 30, 2007, after consideration of threshold agreements. From the perspective of the counterparties, the contracts were in an unrealized gain position. Such market value exposure was below the threshold agreements with counterparties at December 31, 2006, and it did not become necessary for the FHLBNY to pledge collateral at that date to mitigate the derivative counterparties’ credit exposure. The FHLBNY was also exposed to credit risk associated with derivative contracts, which is measured as the replacement cost of derivatives in a gain position from the perspective of the FHLBNY. The FHLBNY’s credit exposure was mitigated by cash collateral of $21.7 million and $124.0 million delivered by derivative counterparties and held by the FHLBNY at September 30, 2007 and December 31, 2006. Cash collateral received from counterparties or pledged to counterparties are interest-bearing, and reported as interest-bearing deposit liabilities or assets, respectively in the statements of condition. It is not the Bank’s current practice to net cash collateral with derivative assets and liabilities.

The FHLBNY charged to operating expense rental costs of approximately $0.8 million for the three months ended September 30, 2007 and 2006 and $2.3 million and $2.4 million for the nine months ended September 30, 2007 and 2006. Lease agreements for the Bank’s premises generally provide for increases in the basic rentals resulting from increases in property taxes and maintenance expenses. Such increases are not expected to have a material effect on the FHLBNY.

The following table summarizes commitments and contingencies as of September 30, 2007 (in thousands):

	Payments due or expiration terms by period
	Less than		One year		Greater than three		Greater than
	one year		to three years		years to five years		five years		Total
Contractual Obligations
Consolidated obligations-bonds at par	$	28,768,800	$	23,760,470	$	5,762,900	$	4,696,300	$	62,988,470
Mandatorily redeemable capital stock		131,195		76,282		34,899		1,682		244,058
Premise and equipment (rental and lease obligations)		2,992		4,589		4,346		12,047		23,974
Total contractual obligations		28,902,987		23,841,341		5,802,145		4,710,029		63,256,502
Other commitments
Standby letters of credit		386,700		5,101		20,928		8,443		421,172
Unused lines of credit and other conditional commitments		21,261,822		—		—		—		21,261,822
Consolidated obligation bonds/discount notes traded not settled		640,432		—		—		—		640,432
Open delivery commitments (MPF)		1,398		—		—		—		1,398
Total other commitments		22,290,352		5,101		20,928		8,443		22,324,824
Total obligations and commitments	$	51,193,339	$	23,846,442	$	5,823,073	$	4,718,472	$	85,581,326

The FHLBNY does not anticipate any credit losses from its off-balance sheet commitments and accordingly no provision for losses on such commitments is required.

The FHLBNY is subject to legal proceedings arising in the normal course of business. After consultation with legal counsel, the FHLBNY does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on the FHLBNY’s financial condition or results of operations.

26

Notes to Financial Statements — Unaudited

Note 14. Earnings per Share of Capital

The following table sets forth the computation of earnings per share of capital (in thousands except per share amounts):

	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Net income	$	85,215		$	76,825		$	227,115		$	214,929
Net income available to stockholders	$	85,215		$	76,825		$	227,115		$	214,929
Weighted average shares of capital		38,841			39,369			37,354			37,808
Less: Mandatorily redeemable capital stock		(1,495	)		(418	)		(1,139	)		(290	)
Average number of shares of capital used to calculate earnings per share		37,346			38,951			36,215			37,518
Net earnings per share of capital	$	2.28		$	1.97		$	6.27		$	5.73

Basic and diluted earnings per share of capital are the same. The FHLBNY has no dilutive potential common shares or other common stock equivalents.

Note 15. Segment Information

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

The following table summarizes advances to the top 5 members at September 30, 2007 and interest income earned for the three and nine months ended September 30, 2007 (dollars in thousands):

	September 30, 2007
			Par		Percent of			Interest Income
	City	State	Advances		Total *			Three months		Nine months
Hudson City Savings Bank	Paramus	NJ	$	13,341,000		17.9	%	$	138,264	$	363,439
New York Community Bank	Westbury	NY		7,113,671		9.5			84,658		264,788
Manufacturers and Traders Trust Company	Buffalo	NY		5,845,994		7.8			62,268		158,829
HSBC Bank USA, National Association	New York	NY		5,508,723		7.4			59,655		189,765
Metropolitan Life Insurance Company	New York	NY		4,000,000		5.4			33,619		44,389
Total			$	35,809,388		48.0	%	$	378,464	$	1,021,210

* Percentage calculated on par value of advances.

27

Notes to Financial Statements — Unaudited

The following table summarizes advances to the top 5 members at September 30, 2006 and interest income earned for the three and nine months ended September 30, 2006 (dollars in thousands):

	September 30, 2006
			Par		Percent of			Interest Income
	City	State	Advances		Total *			Three months		Nine months
North Fork Bank	Mattituck	NY	$	7,850,015		11.8	%	$	108,031	$	225,074
New York Community Bank	Westbury	NY		7,132,678		10.7			77,349		233,567
Hudson City Savings Bank	Paramus	NJ		8,148,000		12.3			83,001		197,508
HSBC Bank USA, National Association	New York	NY		5,009,638		7.5			72,781		191,535
Manufacturers and Traders Trust Company	Buffalo	NY		3,448,308		5.2			48,522		141,055
Total			$	31,588,639		47.5	%	$	389,684	$	988,739

* Percentage calculated on par value of advances.

The following table summarizes advances to the top 5 members at December 31, 2006, and interest income earned for the twelve months ended December 31, 2006 (dollars in thousands):

	December 31, 2006
			Par		Percent of			Interest
	City	State	Advances		Total *			Income
Hudson City Savings Bank	Paramus	NJ	$	8,873,000		15.0	%	$	289,348
New York Community Bank	Westbury	NY		7,878,877		13.4			315,626
HSBC Bank USA, National Association	New York	NY		5,009,503		8.5			260,749
Manufacturers and Traders Trust Company	Buffalo	NY		3,423,231		5.8			188,514
Astoria Federal Savings and Loan Assn.	Long Island City	NY		2,480,000		4.2			114,426
Total			$	27,664,611		46.9	%	$	1,168,663

* Percentage calculated on par value of advances.

28

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

Statements contained in this report, including statements describing the objectives, projections, estimates, or predictions of the Federal Home Loan Bank of New York (“FHLBNY” or “Bank”) may be “forward-looking statements.” All statements other than statements of historical fact are statements that could potentially be forward-looking statements. These statements may use forward-looking terminology, such as “anticipates,” “believes,” “could,” “estimates,” “may,” “should,” “will,” or other variations on these terms or their negatives. These statements may involve matters pertaining to, but not limited to, projections regarding revenue, income, earnings, capital expenditures, dividends, the capital structure and other financial items; statements of plans or objectives for future operations; expectations of future economic performance; and statements of assumptions underlying certain of the foregoing types of statements.

The Bank cautions that, by their nature, forward-looking statements involve risks or uncertainties, and actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. As a result, readers are cautioned not to place undue reliance on such statements, which are current only as of the date thereof. The Bank will not undertake to update any forward-looking statement herein or that may be made from time to time on behalf of the Bank.

These forward-looking statements may not be realized due to a variety of risks and uncertainties including, but not limited, to risks and uncertainties relating to economic, competitive, governmental, technological and marketing factors, as well as other factors identified in the Bank’s filings with the Securities and Exchange Commission.

29

Executive Overview

This overview of management’s discussion and analysis highlights selected information and may not contain all of the information that is important to readers of this Form 10-Q. For a more complete understanding of events, trends and uncertainties, as well as the liquidity, capital, credit and market risks, and critical accounting estimates, affecting the Federal Home Loan Bank of New York (FHLBNY or Bank), this Form 10-Q should be read in its entirety.

Financial Performance. As a cooperative, the FHLBNY seeks to maintain a balance between its public policy mission and its ability to provide adequate returns on the capital supplied by its members. The FHLBNY achieves this balance by delivering low-cost financing to members to help them meet the credit needs of their communities and by paying a dividend. Reflecting the FHLBNY’s cooperative nature, the FHLBNY’s financial strategies are designed to enable the FHLBNY to expand and contract in response to member credit needs. The FHLBNY invests its capital in high quality, short- and intermediate-term financial instruments. This strategy allows the FHLBNY to maintain sufficient liquidity to satisfy member demand for short- and long-term funds, repay maturing consolidated obligations, and meet other obligations. The dividends paid by FHLBNY are largely the result of the FHLBNY’s earnings on invested member capital, net earnings on member credit, mortgage loans and investments, offset in part by the FHLBNY’s operating expenses and assessments. FHLBNY’s board of directors and management determine the pricing of member credit and dividend policies based on the needs of its members and the cooperative.

Historical Perspective. The fundamental business of the FHLBNY is to provide member institutions and housing associates with advances and other credit products in a wide range of maturities to meet their needs. Congress created the FHLBanks in 1932 to improve the availability of funds to support home ownership. Although the FHLBanks were initially capitalized with government funds, members have provided all of the FHLBanks’ capital for over 50 years.

Business Overview

The FHLBNY manages its operations as a single business segment. Advances to members are the primary focus of the FHLBNY’s operations and the principal factor that impacts its operating results. The FHLBNY is exempt from ordinary federal, state, and local taxation except for local real estate tax. It is required to make payments to Resolution Funding Corporation (“REFCORP”), and set aside a percentage of its income towards an Affordable Housing Program (“AHP”). Together they are referred to as assessments.

Third Quarter 2007 Highlights

In the recent market turmoil, the Bank experienced an extraordinary increase in advances borrowed by its membership. Advances grew by over 21.0% in the third quarter to $75.1 billion at September 30, 2007, compared with $61.2 billion at June 30, 2007. Eight members increased their advances by $500 million or more. The largest increase by any single member was $2.4 billion. While this unprecedented increase in borrowing was concentrated among the large members, a broad base of membership also increased their borrowings from the FHLBNY. Events in the market place also caused a surge in demand by investors for shorter-term debt issued by the FHLBanks, including the Federal Home Loan Bank of New York. Issuances of discount notes, which have maturities from overnight to 365 days, rose to record levels at attractive sub-LIBOR spreads.

Net income for the current year quarter grew by 10.9% to $85.2 million, compared with $76.8 million in the prior year quarter.

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Net Income

Third Quarter- The FHLBNY reported 2007 third quarter net income of $85.2 million, or $2.28 per share, compared with net income of $76.8 million, or $1.97 per share, for the third quarter of 2006. Return on average equity, defined as net income divided by average capital stock plus average retained earnings and accumulated other comprehensive income, for the quarter was 8.34%, compared to 7.29% for the third quarter of 2006.

Current year third quarter net income was higher and benefited from slightly higher net interest income, which for the FHLBNY is the primary source of revenue, and from higher non-interest income. Higher revenues were partly offset by an increase in operating expenses.

Net interest income- Net interest income for the third quarter of 2007 was $126.0 million compared with $122.4 million in the third quarter of 2006. Net interest margin improved by 3 basis points in the current quarter from the prior year period and was a contributing factor. Net interest margin is the spread earned on interest-earning assets and shareholders’ equity minus the spread paid on interest-costing liabilities.

Non-interest income- Non-interest income in the current quarter was higher by $9.0 million from the prior year third quarter also contributing to higher net income in the current year third quarter. Non-interest income is comprised of fees from delivery of correspondent banking services to members, net realized and unrealized gains and losses from hedging activities, and losses from debt extinguishment.

• Hedging activities- Third quarter 2007 net gain from hedging activities was $7.9 million compared to $0.6 million in the third quarter of 2006. Third quarter 2007 net gain from hedging activities primarily represented $5.4 million in unrealized gains from changes in fair value basis of FAS 133 qualifying hedged fixed-rate advances, $5.1 million in unrealized gains from freestanding derivatives in a economic hedges of fixed-rate debt; gains were partly offset by $4.3 million in unrealized losses from changes in fair value basis of FAS 133 qualifying hedged fixed-rate debt. The Bank hedges certain fixed-rate debt and fixed-rate advances by entering into interest rate derivative contracts with highly-rated derivative counterparties. Unrealized gains and losses represent the ineffectiveness between changes in the fair value of the hedged fixed-rate debt and hedged fixed-rate advances, and corresponding changes in the fair values of derivatives.

• Debt extinguishment– In the third quarter of 2007, the Bank extinguished $104.0 million of consolidated obligation bonds at a loss of $0.8 million, compared to a loss of $2.5 million in the prior year period when $35.0 million was extinguished. Management of the Bank carefully considers market conditions and the need for aligning its assets and liabilities when assets, such as investments and advances are prepaid before their expected maturity. The decline or increase in debt extinguishment and the associated losses is a reflection of all factors, asset prepayment, market conditions and the extent of necessary re-balancing of assets and liabilities.

• Fees received from correspondent banking services were slightly down.

Operating expenses- Operating expenses, including the allocated costs of running the Office of Finance and the Finance Board, were $17.7 million, an increase of $1.0 million compared to $16.7 million in the prior year period. Increases in supplemental pension costs were the primary factor.

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Year-to-date- Net income for the first nine months of 2007 was $227.1 million, or $6.27 per share, compared with $214.9 million, or $5.73 per share in the prior year period. Return on average equity was 7.63% for the first nine months of 2007 compared with 7.06% for the prior year period. Net Income benefited from an increase of $10.7 million in net interest income, and $10.0 higher non-interest income in the current year period compared to prior year period. Operating expenses were higher by $3.3 million in the current year period compared with the same period in 2006.

Net interest income- Net interest income contribution is impacted by both rate and volume of transactions. Rate is impacted by increase or decline in yields and coupons, and volume is impacted by changes in interest-earning assets and liabilities. The impact on interest margin from higher coupons and yields on interest-earning assets minus interest-costing liabilities (considered rate-related) was a positive contribution to net interest margin of $18.1 million for the first nine months of 2007 compared to the same period in 2006. Intermediation volume was lower in the current year period and caused net interest income to be lower by $7.5 million compared to prior year period.

Non-interest income was higher by $10.0 million, principally from recorded unrealized gains of $13.4 million from hedging activities in the current year period compared to $5.7 million in the prior year period. Operating expenses, including the allocated cost of running the Office of Finance and the Finance Board were higher by $3.5 million in the current year period compared to prior year period.

Contribution from shareholders’ capital was an important factor in explaining the higher net interest income for the current year first quarter and year-to-date compared to the same periods in 2006. On average, yields from interest-earning assets have been higher in the current year periods. As a result, the Bank benefited by investing stockholders’ capital to fund higher yielding assets. For the first nine months of 2007, the average yield from interest-earning assets was 5.41%, compared to 5.05% in the prior year period.

Advances- The FHLBNY’s primary business is making collateralized loans, known as “advances,” to members, and is the primary focus of the Bank’s operations and the principal factor that impacts the financial condition of the FHLBNY.

The Bank experienced unprecedented member demand for advances in the third quarter of 2007, and par amount of advances grew to $74.6 billion an increase of $15.6 billion from December 31, 2006. The growth was concentrated in the last two months of the third quarter. While this unprecedented increase in borrowing was concentrated among the large members, a broad base of membership also increased their borrowings from the FHLBNY. There can be no assurance that the recent trend in member demand will continue. Member borrowing needs are driven by economic factors, such as availability to the members of alternative funding sources that are more attractive, or by the interest rate environment and the outlook for the economy.

Recorded advances to members, including fair value basis adjustment from hedging activities, was $75.1 billion at September 30, 2007, up from $59.0 billion at December 31, 2006. Advances as a percentage of total assets were 73.3% at September 30, 2007, compared with 72.2% at December 31, 2006, an indication of the Bank’s continued strategy of maintaining its balance sheet in line with the growth or decline in advances to members.

In the third quarter of 2007, four members became non-members of the FHLBNY. In the first quarter of 2007, one member was acquired by a non-member; no member was acquired by a non-member in the second quarter of 2007. Total advances borrowed by non-members and outstanding at September 30, 2007, including the four who became non-members in the third quarter were $3.4 billion, up from $1.8 billion at December 31, 2006. Under rules established by the Finance Board, the FHLBNY is prohibited from advancing additional funds to non-members, and outstanding advances will be allowed to remain on the Bank’s books until their contractual maturities or earlier, if prepaid by the member.

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Dividend- A cash dividend of $1.87 per share of capital stock (7.50% annualized return on capital stock) was paid in July 2007 for the second quarter of 2007, up from $1.43 paid for the prior year period. For the first nine months of 2007 cash dividends paid, including the aforementioned, totaled $5.48, up from $4.02 per share for the comparable period in 2006. An annualized dividend of 8.05% ($2.03 per share) was paid on October 31, 2007 to members for the third quarter, up from 6.25% ($1.58 per share) paid for the prior year third quarter.

Stockholders’ Equity-Stockholders’ equity comprised of capital stock, retained earnings and accumulated comprehensive income, increased by $561.7 million to $4.5 billion at September 30, 2007, up from $3.9 billion at December 31, 2006. Capital stock, par value $100, was $4.1 billion at September 30, 2007, up by $543.7 million from $3.5 billion at December 31, 2006. The increase in capital stock was consistent with increases in advances borrowed by members. Members are required to purchase stock as a prerequisite to membership, and as a percentage of advances borrowed from the FHLBNY. Stock in excess of amount necessary to support advance activity is redeemed daily by the FHLBNY. Under the FHLBNY’s present practice of repurchasing excess stock, and provisions requiring members to purchase stock to support advance borrowings, the amount of capital stock outstanding varies directly in line with members’ outstanding borrowings.

Cash dividends paid from equity was $197.7 million in the nine months ended September 30, 2007, up from $146.6 million paid in the same period in 2006.

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Selected financial data are presented below (Unaudited)

Statements of Condition	September 30,			Year ended December 31,
(dollars in millions)	2007			2006			2005			2004			2003			2002
Investments (1)	$	25,128		$	20,503		$	21,190		$	18,363		$	14,217		$	23,598
Advances		75,072			59,012			61,902			68,507			63,923			68,926
Mortgage loans		1,515			1,483			1,467			1,178			672			435
Total assets		102,383			81,703			85,014			88,439			79,230			93,606
Deposits and borrowings		3,343			2,390			2,658			2,297			2,100			2,743
Consolidated obligations		93,084			74,234			77,279			80,157			70,857			83,512
Mandatorily redeemable capital stock		244			110			18			127			—			—
AHP liability		112			102			91			82			93			110
REFCORP liability		21			17			14			10			—			14
Capital stock		4,090			3,546			3,590			3,655			3,639			4,051
Retained earnings		398			369			291			223			127			244
Equity to asset ratio (2)		4.36	%		4.79	%		4.57	%		4.38	%		4.75	%		4.59	%

	Three months ended						Nine months ended
Statements of Condition	September 30,						September 30,						Year ended December 31,
Averages (in millions)	2007			2006			2007			2006			2006			2005			2004			2003			2002
Investments (1)	$	23,120		$	19,714		$	21,307		$	19,060		$	19,490		$	19,944		$	17,642		$	19,833		$	20,677
Advances		64,682			68,165			61,159			65,027			64,658			63,446			65,289			70,943			64,210
Mortgage loans		1,516			1,480			1,502			1,467			1,471			1,360			928			527			400
Total assets		90,099			90,124			84,741			86,245			86,319			85,254			84,344			92,747			86,682
Deposits and borrowings		2,654			1,846			2,470			1,686			1,773			2,112			1,968			2,952			2,908
Consolidated obligations		82,090			82,929			77,167			79,360			79,314			77,629			76,105			81,818			76,907
Mandatorily redeemable capital stock		149			42			114			29			51			56			238			—			—
AHP liability		109			96			105			93			95			84			83			105			107
REFCORP liability		11			10			10			9			9			7			4			2			8
Capital stock		3,735			3,895			3,622			3,752			3,737			3,604			3,554			4,082			3,768
Retained earnings		365			323			356			306			314			251			159			193			204
Operating Results and other Data	Three months ended						Nine months ended
(dollars in millions,	September 30,						September 30,						Year ended December 31,
except earnings and dividends per share)	2007			2006			2007			2006			2006			2005			2004			2003			2002
Net interest income (3)	$	126		$	122		$	352		$	341		$	470		$	395		$	268		$	299		$	389
Net income		85			77			227			215			285			230			161			46			234
Dividends paid in cash		67			54			198			147			208			162			66			164			167
AHP expense		10			9			26			24			32			26			19			5			26
REFCORP expense		21			19			57			54			71			58			40			11			59
Return on average equity* (4)		8.34	%		7.29	%		7.63	%		7.06	%		7.04	%		5.97	%		4.34	%		1.08	%		5.89	%
Return on average assets*		0.38	%		0.34	%		0.36	%		0.33	%		0.33	%		0.27	%		0.19	%		0.05	%		0.27	%
Operating expenses	$	17		$	15		$	49		$	46		$	63		$	59		$	51		$	48		$	39
Operating expenses ratio* (5)		0.08	%		0.07	%		0.08	%		0.07	%		0.07	%		0.07	%		0.06	%		0.05	%		0.04	%
Earnings per share	$	2.28		$	1.97		$	6.27		$	5.73		$	7.63		$	6.36		$	4.55		$	1.12		$	6.21
Dividend per share	$	1.87		$	1.43		$	5.48		$	4.02		$	5.59		$	4.50		$	1.83		$	3.97		$	4.51
Headcount (Full/part time)		240			225			240			225			232			221			210			206			200

(1)	Investments include held-to-maturity securities, available for-sale securities, interest-bearing deposits, Federal funds, and loans to other FHLBanks.
(2)	Equity to asset ratio is capital stock plus retained earnings and accumulated other comprehensive income (loss) as a percentage of total assets.
(3)	Net interest income is net interest income before the provision for credit losses on mortgage loans.
(4)	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).
(5)	Operating expenses as a percentage of average assets.
*	Annualized.

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Critical Accounting Policies and Estimates

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. These policies include estimating the allowance for credit losses on the advance and mortgage loan portfolios; estimating the liabilities for pension liabilities; and estimating fair values of certain assets and liabilities. The FHLBNY accounts for derivatives in accordance with SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, and specifically identifies the hedged assets or liabilities and the associated hedging strategy.

For additional information, refer to Note 1 to the Financial Statements in the FHLBNY’s most recent Form 10-K filed on March 29, 2007.

Recently Issued Accounting Standards and Interpretations

SFAS 157 – In September 2006, the FASB issued SFAS 157, “Fair Value Measurements” (“SFAS 157”).
SFAS 157 defines fair value, establishes a framework for measuring fair value and enhances disclosure about fair value measurements required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 nullifies the guidance in Emerging Issues Task Force EITF 02-3, which precluded the recognition of a trading profit at the inception of a derivative contract, unless the fair value of such derivative is obtained from a quoted market price or other valuation technique incorporating observable market data. SFAS 157 also precludes the use of a liquidity or block discount when measuring instruments traded in an active market at fair value. SFAS 157 requires that costs related to acquiring financial instruments carried at fair value should not be capitalized, but rather should be expensed as incurred. SFAS 157 also clarifies when an issuer’s credit standing should be considered in measuring liabilities at fair value.

SFAS 157 is effective for fiscal years beginning after November 15, 2007 (January 1, 2008 for the Bank), with earlier application encouraged. SFAS 157 must be applied prospectively as of the beginning of the fiscal year in which it is initially adopted, except that the provisions related to block discounts and the guidance in EITF 02-3 are to be applied as a one time cumulative effect adjustment to opening retained earnings in the first interim period for the fiscal year in which SFAS 157 is initially applied. The Bank will adopt SFAS 157 on January 1, 2008, and is evaluating its potential effect on its financial statements.

SFAS 159 – On February 15, 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement 115”(“SFAS 159”).SFAS 159 creates a fair value option allowing an entity to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities, with changes in fair value recognized in earnings as they occur. SFAS 159 also requires an entity to report those financial assets and financial liabilities measured at fair value in a manner that separates those reported fair values from the carrying amounts of assets and liabilities measured using another measurement attribute on the face of the statement of financial position. Lastly, SFAS 159 requires an entity to provide information that would allow users to understand the effect on earnings of changes in the fair value on those instruments selected for the fair value election. SFAS 159 is effective for fiscal years beginning after November 15, 2007 (January 1, 2008 for the Bank). The Bank is continuing to evaluate the financial assets and liabilities, if any, for which the fair value option under SFAS 159 could be elected, and to assess the impact on its financial condition, results of operations and cash flows if such election was made.

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FSP FIN 39-1 – In April 2007, the FASB directed the FASB Staff to issue FSP No. FIN 39-1, “Amendment of FASB Interpretation No. 39”(“FSP FIN 39-1”). FSP FIN 39-1 modifies FIN No. 39, “Offsetting of Amounts Related to Certain Contracts”, and permits companies to offset cash collateral receivables or payables with net derivative positions under certain circumstances. FSP FIN 39-1 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted. If the Bank adopts the provisions under the FSP, it does not expect implementation to have a material impact on reported results of operations or financial condition.

Results of Operations

The following section provides a discussion of the Federal Home Loan Bank of New York’s results of operations. For a discussion of the critical accounting estimates used by the Bank that affect its results of operations, see page 32 of this Form 10-Q and pages 42-47 of the FHLBNY’s Annual Report on Form 10-K for the year ended December 31, 2006.

Net Interest Income- Net interest income is the principal source of revenue for the Bank. Net interest income is impacted by member demand for advances and investment activity, the yields from advances and investments, and the cost of consolidated obligation debt that is issued by the Bank to fund advances and investments. The execution of interest rate swaps in the derivative market at a constant spread to LIBOR, in effect converting fixed-rate advances and fixed-rate debt to conventional adjustable-rate instruments indexed to LIBOR, results in an important intermediation for the Bank between the capital markets and the swap market. The intermediation permits the Bank to raise funds at lower costs than would otherwise be available through the issuance of simple fixed- or floating-rate debt in the capital markets. Income earned from assets funded by member capital and retained earnings, referred to as “deployed capital”, which are non-interest bearing, is another important consideration for the FHLBNY. All of these factors may fluctuate based on changes in interest rates, demand by members for advances, investor demand for debt issued by the FHLBanks, and the change in the spread between the yields on advances and investments, and the cost of financing these assets by the issuance of debt to investors.

Net interest income was $126.0 million for the third quarter of 2007, up by $3.6 million from the prior year period. Net interest income represents the difference between income from interest-earning assets and interest expenses paid on interest-bearing liabilities. For the first nine months of 2007, net interest income was $351.6 million, up by $10.7 million from the prior year period.

Net interest spread was 31 basis points for the third quarter of 2007, up from 28 basis points in the prior year period. Net interest spread is the difference between yields earned on interest-earning assets and stockholders’ equity, and yields paid on interest-bearing liabilities. Net interest margin, is annualized net interest income as a percentage of average earning assets, and was 56 basis points for the third quarter of 2007, compared to 54 basis points for the prior year period. For the first nine months of 2007, net interest spread was 30 basis points, slightly higher than 29 basis points for the prior year period. Net interest margin for the first nine months of 2007 was 56 basis points, also higher than the prior year period margin of 53 basis points.

The FHLBNY earns income from investing its members’ capital to fund interest-earning assets. In a higher interest rate environment, deployed capital, which is capital stock, retained earnings, and net non-interest bearing liabilities, provided the FHLBNY with significant income. As an illustration, an average $4.4 billion in deployed capital in the third quarter of 2007 earned a yield of 5.43%, the annualized yield on aggregate interest-earning assets for the third quarter of 2007. In contrast, the Bank’s average deployed capital in the prior year period was slightly higher at $4.5 billion, but earned a lower yield of 5.38%. Similarly, for the first nine months of 2007 the Bank earned a yield of 5.41% on an average $4.2 billion in deployed capital. In the prior year period, the yield was lower by 36 basis points, and even though average deployed capital was higher by $263.3 million, deployed capital made a stronger contribution to net interest income as a result of a higher rate environment in the three and nine months ended September 30, 2007 compared to the same periods in 2006.

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The following tables summarize key changes in the components of net interest income (dollar amounts in thousands):

	Three months ended
	September 30,
					Dollar			Percentage
	2007		2006		Variance			Variance
Interest income
Advances	$	885,601	$	923,797	$	(38,196	)		(4.13	)%
Interest-bearing deposits		107,355		80,752		26,603			32.94
Federal funds sold		58,446		34,403		24,043			69.89
Held-to-maturity securities		150,405		154,232		(3,827	)		(2.48	)
Mortgage loans held-for-portfolio		20,117		19,181		936			4.88
Other		—		33		(33	)		(100.00	)
Total interest income		1,221,924		1,212,398		9,526			0.79
Interest expense
Consolidated obligations-bonds		849,407		795,177		54,230			6.82
Consolidated obligations-discount notes		210,701		270,759		(60,058	)		(22.18	)
Deposits		31,913		22,292		9,621			43.16
Mandatorily redeemable capital stock		2,823		630		2,193			348.10
Cash collateral held and other borrowings		1,058		1,120		(62	)		(5.54	)
Total interest expense		1,095,902		1,089,978		5,924			0.54
Net interest income before provisions for credit losses	$	126,022	$	122,420	$	3,602			2.94	%

	Nine months ended
	September 30,
					Dollar			Percentage
	2007		2006		Variance			Variance
Interest income
Advances	$	2,470,060	$	2,430,737	$	39,323			1.62	%
Interest-bearing deposits		272,008		226,847		45,161			19.91
Federal funds sold		145,261		92,433		52,828			57.15
Held-to-maturity securities		453,023		422,429		30,594			7.24
Mortgage loans held-for-portfolio		59,350		56,767		2,583			4.55
Other		2		38		(36	)		(94.74	)
Total interest income		3,399,704		3,229,251		170,453			5.28
Interest expense
Consolidated obligations-bonds		2,397,254		2,120,574		276,680			13.05
Consolidated obligations-discount notes		553,137		707,711		(154,574	)		(21.84	)
Deposits		87,280		56,633		30,647			54.12
Mandatorily redeemable capital stock		6,604		1,208		5,396			446.69
Cash collateral held and other borrowings		3,863		2,243		1,620			72.22
Total interest expense		3,048,138		2,888,369		159,769			5.53
Net interest income before provisions for credit losses	$	351,566	$	340,882	$	10,684			3.13	%

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Interest Income

Reported interest income includes the impact of interest rate derivatives.

Third Quarter- Total interest income for the third quarter of 2007 was $1.2 billion, up by $9.5 million from the prior year period. Changes in rate and intermediation volume (average interest-yielding assets) explain the change in the current year quarter from the prior year period. Increases in yields and coupons of interest-earning assets in a higher interest rate environment contributed $10.6 million to the growth in reported interest income. Lower intermediation volume resulted in lower interest income of $1.0 million. Balance sheet leverage at September 30, 2007, defined as the ratio of Total assets to Shareholders equity was 22.9, up from 20.9 at December 31, 2006, principally because of increased balance sheet liquidity through investments in short-term money-market instruments. The Bank has traditionally inventoried Federal funds and other short-term funds to meet unexpected member needs for funds.

Intermediation volume for the current year period was slightly lower than the prior year period. Intermediation volume, which is measured on the basis of average balances outstanding, tends to lag if the increase or decrease occurs at the end of a period. In the current quarter, the surge in member demand for advances was primarily concentrated in September 2007. Consequently, average volume for the current quarter did not reflect the growth in advances. Average advance outstanding in the current year period was $64.7 billion, compared to $68.2 billion in the prior year period.

The consequence of lower advance volume in the third quarter of 2007 was $47.2 million in lower interest income in the current year quarter compared to prior year period. Advance volume decline was offset by greater volume of investments in money market instruments. The Bank’s decision to increase liquidity by increased investment in money market instruments in the current quarter restored intermediation volume to about the same level as in the comparable period in 2006, and overall balance sheet assets averaged $89.3 billion, only slightly down from $89.4 billion in the prior year period. As a result, the impact on interest income from lower intermediation volume was not significant.

Contribution to interest income from higher coupons and yields in the third quarter of 2007 compared to the prior year period was $10.6 million. In the third quarter of 2007, average overall yield of interest-earning assets grew by 5 basis points to 5.43%. The weighted average yield from advances grew by 5 basis points.

Average investments in mortgage-backed and housing finance agency bonds declined in the current quarter compared to prior year period as paydowns were allowed to outpace acquisitions in the recent market turmoil. Volume related decline caused interest income from investments to be lower by $4.5 million. The impact from changes in yields was not significant. Investments yielded 3 basis points higher in the third quarter of 2007, compared to prior year period, contributing to a small increase in interest income from investments.

Total interest income included advance prepayment fees of $1.7 million in the third quarter compared to $1.3 million in prior year period. The Bank charges a prepayment fee when certain advances are prepaid before their contractual maturity dates or their contractual optional prepayment dates. The FHLBNY generally requires advances with a maturity or repricing period greater than six months to carry a fee sufficient to make the Bank financially indifferent to the borrower’s decision to prepay the advance. Prepayment fees associated with hedged advances are recorded in interest income after adjusting for the fair value of the related hedge. Prepayment fees from commercial mortgage-backed securities included in total interest income was $1.0 million for the third quarter of 2007 and 2006.

38

Year-to-date- For the first nine months of 2007, total interest income was $3.4 billion, up by $170.5 million from prior year period. Changes in rate and intermediation volume explain the changes in interest income in the first nine months of 2007 compared to the prior year period.

As in the first quarter, intermediation volume was lower in the first nine months of 2007 compared to prior year period, causing a $58.2 million decline in interest income. Lower volume was attributable to lower average advances outstanding in the current year period. Advance volume decline was partly offset by the Bank’s decision to increase liquidity by investing in short-term money market instruments. As a result, average earning assets were $84.0 billion in the first nine months of 2007, down from $85.6 billion in the prior year period.

Average advance volume in the current year period has been lower than the same period last year, and as explained in the previous paragraph, the unprecedented increase in member borrowings occurred mainly in September 2007, and its impact on average intermediation volume will be fully reflected not until the fourth quarter of 2007. Advances outstanding averaged $61.2 billion in the current year period, down from $65.0 billion in the prior year period, and had the effect of reducing interest income by $144.6��million in the current year period.

The negative impact on interest income of $58.2 million from volume declines was fully offset by rate related increases which contributed $228.7 million in higher interest income for the first nine months of 2007 compared to prior year period. Rate related increases were primarily from higher coupons and yields from advances in the current year period, contributing to a 36 basis point increase in overall yield on earning assets, which was 5.41% for the current year period compared to 5.05% in the prior year period.

Advance prepayment fee recorded in interest income was $4.3 million for the nine months ended September 30, 2007, down from $7.2 million in prior year period, a reflection of slow-down in member initiated prepayment activity in the current year period. Fees from prepayment of commercial mortgage-backed securities, included in interest income from investments, were also lower and totaled $3.7 million in the first nine months of 2007, compared to $4.4 million in the prior year period.

Impact of hedging interest income- Cash flows from interest rate swaps were also a critical component of interest income earned from advances. The FHLBNY executes interest rate swaps to modify the effective interest rate terms of many of its fixed-rate advance products, and typically all of its convertible or putable advances. In these swaps, the FHLBNY effectively converts a fixed-rate stream of cash flows from the advance to a floating-rate stream of cash flows, typically indexed to LIBOR. The impact of swapping fixed- for a floating-interest rate in which the FHLBNY paid out fixed-rate and received LIBOR-indexed cash flows in an interest rate swap agreement made a positive contribution to interest income of $92.4 million in the third quarter of 2007, a small increase of $6.0 million from the prior year third quarter. For the first nine months of 2007, cash flows from hedging activities made a positive contribution of $265.0 million, up from $149.1 million in the prior year period.

In a hedge of an advance, the Bank structures the interest rate swap whereby the Bank pays the swap counterparty a fixed coupon, and receives variable cash flows, typically indexed to the 3-month LIBOR rate. This structure generates positive cash flows when the 3-month LIBOR rates are higher than the contractual pay-fixed leg of the interest rate exchange agreement. The positive cash flows contributed in the interest rate exchanges between the Bank and swap counterparties were consistent with 3-month LIBOR rates, which the Bank received, that were, on average, higher than the fixed-rates that the FHLBNY was contractually obligated to pay to derivative counterparties.

39

If the swap is a callable swap, it is typically associated with a putable advance, and until the derivative counterparty exercises the option to terminate the swap, the swap’s cash flows will continue to impact earnings. Typically, in a rising rate environment, derivative counterparties will exercise the right to put the option and terminate the swap, and generally, the Bank would then put the advance and offer a new advance to the member at the then prevailing market terms.

The table below summarizes interest earned from advances and the impact of interest rate derivatives (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2007		2006		2007		2006
Advance Interest Income
Advance interest income before adjustment for interest rate swaps	$	793,230	$	837,375	$	2,205,082	$	2,281,596
Net interest adjustment from interest rate swaps		92,371		86,422		264,978		149,141
Total Advance interest income reported	$	885,601	$	923,797	$	2,470,060	$	2,430,737

Interest Expense

The FHLBNY continued to fund its assets through the issuance of consolidated obligation bonds and discount notes to investors in the global debt markets. Reported interest expense includes the impact of interest rate derivatives in a SFAS 133 qualifying hedge. Interest expense accruals are typically comprised of coupon payments to investors holding the Bank’s debt. Recorded interest expenses in the statements of operations are adjusted for the cash flows associated with interest rate swaps in which the Bank pays variable-rate LIBOR-indexed cash flows to derivative counterparties, and in exchange, the Bank receives from derivative counterparties fixed-rate cash flow which typically mirrors the fixed-rate coupon payments to investors holding the debt. The impact of hedging activities on interest expense is discussed separately under the section “Impact of debt hedging.”

Third Quarter- Total interest expense for the third quarter of 2007 was $1.1 billion, up by $5.9 million from prior year period. Funding costs of consolidated obligation debt, on an after-swap basis, constituted 96.7% of total interest expense, slightly below 97.8% for the comparable period in 2006. Interest expense of consolidated obligation bonds in the third quarter of 2007 was $849.4 million, up by $54.2 million from $795.2 million in the prior year period. Interest expense on discount notes was $210.7 million in the current year quarter, compared to $270.8 million in the prior year period.

Changes in interest expense in the current year quarter compared with prior year period were primarily rate related. The impact from changes in volume was not significant.

Funding volume, measured in terms of average interest-costing liabilities in the current year period was slightly lower than the prior year period and contributed to $0.6 million in lower interest expense.

Compared to the third quarter of 2006, coupons and yields of consolidated obligation bonds in the current year quarter were higher, while interest costing yields of consolidated obligation discount notes yields were lower, and resulted in an overall increase in funding yield by 2 basis points, or $6.5 million in higher interest expense.

Discount notes were issued in the current quarter to yield 5.08% on average, compared to a higher yield of 5.21% in the same period in 2006. Bonds were issued in the current quarter at an average yield of 5.13%, compared to a lower yield of 5.06% in the same period in 2006. Attractiveness of discount notes, as measured in terms of spread to LIBOR, was uneven in the third quarter and explains changes in volume of issuances in the current quarter. When issuance execution levels were unattractive earlier in the third quarter, outstanding discount notes averaged $10.8 billion. Issuances increased and outstanding amount of discount notes averaged $14.4 billion in August when spread was about 20 basis points below LIBOR; issuances were up and outstanding amounts of discount notes averaged $24.5 billion in September 2007 when at times the spread was 50-90 basis points below LIBOR. At September 30, 2007, the amount of discount notes outstanding was $30.1 billion. As a result of lower issuance cost of discount notes in the current year quarter, the overall cost of financing balance sheet assets was restrained and grew by only 2 basis points. In contrast, overall yield on interest-earning assets grew by 5 basis points in the same period.

40

Year-to-date- For the first nine months of 2007, total interest expense was $3.1 billion, up by $159.8 million from the prior year period. Higher coupons and yields contributed to $210.5 million in higher funding costs. Increase in debt expenses, because of higher overall yield was partly offset by $50.8 million decline in funding costs because of lower funding needs, as represented by lower average balance sheet. The increase in balance sheet assets occurred mainly towards the end of the third quarter and its impact on average assets was not very significant, and as a result balance sheet assets averaged $84.7 billion in the first nine months of 2007, down from $85.6 billion in the prior year period.

Consolidated bond debt service costs, net of the impact of interest rate swaps, was $2.4 billion, up by $276.7 million from prior year period. Interest expense associated with consolidated obligation discount notes was $553.1 million, down by $154.6 million from prior year period. As a percentage of total expense, discount notes accounted for 18.2% for the first nine months of 2007, compared to 24.5% in the prior year period. Through most of the first nine months of 2007, the Bank opted to reduce the issuance of discount notes because of more attractive alternative funding structures. Relative spread to 3-month LIBOR was tighter during most of the first two quarters of 2007 and the Bank was able to achieve better short-term funding executions through the issuance of alternative funding structures, such as the issuance of fixed-rate callable debt with very short lock-out periods in conjunction with the execution of receive-fixed, pay-LIBOR indexed interest rate swaps with mirrored short lock-out call terms. In a rising-rate environment, derivative counterparties tended to exercise their right to terminate the swap; in turn, the Bank exercised its right to call the bond, effectively converting a medium-term debt into a short-term debt at better overall spreads to LIBOR than the issuance of term discount notes.

Late in the second quarter of 2007, the yield curve steepened sharply and favorable execution spreads for short lockout callable debt declined. Midway through the second quarter of 2007, pricing returned to more normal levels for issuances of discount notes. Towards the latter part of the third quarter of 2007, discount notes were in great demand by investors which drove down spreads to very attractive levels for the FHLBNY and outstanding balances increased to $30.1 billion as of September 30, 2007.

Impact of debt hedging- Cash flows from interest rate swaps were an important component of interest expense on debt. The FHLBNY issues both fixed-rate callable and non-callable debt. Typically, the Bank issues callable debt with the simultaneous execution of callable interest rate swaps to modify the effective interest rate terms and the effective durations of its fixed-rate callable debt. A substantial percentage of non-callable fixed-rate debt is also swapped to “plain vanilla” LIBOR-indexed cash flows.

• In the third quarter of 2007, the net impact of accruals of receive-fixed interest-rate swaps and pay-LIBOR indexed cash flows associated with SFAS 133 qualifying debt hedges was a net out-flow of cash to derivative counterparties. Such cash out-flows increased debt expense by $44.8 million, compared to similar out-flow of $99.5 million in the prior year period.

• For the first nine months of 2007, interest accruals associated with receive-fixed, pay-LIBOR-indexed cash flows also resulted in cash out-flows of $141.9 million, compared to $224.0 million for prior year period.

In both current and prior year periods, the Bank’s obligation to pay-variable cash flows, indexed to LIBOR, exceeded the swap counterparties’ obligations to pay the Bank fixed coupons. In a rising rate environment, variable coupons will typically exceed historically lower fixed coupons. Swap counterparties, who will receive the higher variable-rate cash flows will only exercise their option to call the swap (with a callable swap), if they expect future cash flows to be less than the fixed-rate cash flows the counterparties are obligated to pay to the Bank.

41

However, the negative impact of interest rate exchanges associated with debt hedging activities has declined in the current year primarily as a result of the narrowing gap between fixed coupons being paid to the Bank and the LIBOR-indexed variable coupons being paid by the Bank to derivative counterparties in the interest rate exchange agreements. Changes in the term structure of interest rates in the third quarter of 2007 tended to narrow the spread differential between the Bank’s fixed-rate coupons on the fixed leg of the swap and the LIBOR-indexed coupons on the variable leg of the swap. Also, debt hedge volume declined in the first nine months of 2007 as a result of a lower average balance sheet compared to prior year period.

These cash flow patterns were consistent with prevailing interest rate environment during the third quarter of 2007, and were also consistent with the Bank’s asset-liability management practices of converting fixed-rate debt largely to variable rate that would reset with changes in interest rates in the marketplace. The Bank executes a similar strategy with its fixed-rate advances, converting fixed-cash flows to variable-rate cash flows.

The table below summarizes interest expense paid on consolidated obligation bonds and the impact of interest rate swaps (in thousands):

	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Consolidated bonds-Interest expense
Gross interest expense before adjustment for interest rate swaps	$	(804,609	)	$	(695,699	)	$	(2,255,355	)	$	(1,896,547	)
Net interest adjustment for interest rate swaps		(44,798	)		(99,478	)		(141,899	)		(224,027	)
Total Consolidated bonds-interest expense reported	$	(849,407	)	$	(795,177	)	$	(2,397,254	)	$	(2,120,574	)

Net Interest Spread– For the third quarter of 2007, net spread earned was 31 basis points, slightly up from 28 basis points in the prior year period. The Bank has benefited from attractive issuance levels of discount notes, relative to LIBOR, and the Bank was able to increase liquidity by investing in money market instruments and “lock-in” favorable margins. In the current quarter, the overall cost of interest-bearing liabilities increased by 2 basis points compared to prior year, while the increase in asset yields over the comparable periods was 5 basis points. For the FHLBNY, member capital is an important source of revenues. Member capital and retained earnings earned an average spread that was higher by 5 basis points in the current quarter compared to prior year period. Contribution to net interest margin by investing $4.4 billion in stockholders’ equity and net non-interest bearing liabilities was an important factor in the favorable current quarter results.

Yields earned from mortgage-backed securities lagged behind the overall increase in yields on interest-earning assets, and increased by only 3 basis points to yield 5.50% in the current quarter. In contrast, the overall yield on interest earning assets grew by 5 basis points in the current quarter compared to prior year period. The Bank has remained opportunistic in acquiring mortgage-backed securities and has acquired such securities only when they met the Bank’s risk/reward profile.

Net margin, which is a measure of balance sheet efficiency, was 56 basis points in the current quarter, up from 54 basis points in the prior year period. Net margin is net interest income divided by average earning assets and is reported on an annualized basis.

42

For the first nine months of 2007, net spread earned was 30 basis points, up from 29 basis points in the prior year period. Net margin was 56 basis points in the first 9 months of 2007, up from 53 basis points in the prior year period.

Spread/Yield Analysis:

The following tables summarize the Bank’s net interest income and net interest yield and provide an attribution of changes in rates and volumes of the FHLBNY’s interest-earning assets and interest bearing liabilities.

Spread and yield analysis for the third quarter of 2007 and 2006:

	Three months ended
	September 30, 2007							September 30, 2006
			Interest							Interest
	Average		Income/					Average		Income/
(dollars in thousands)	Balance		Expense		Rate1			Balance		Expense		Rate1
Earning Assets:
Advances	$	64,681,811	$	885,601		5.43	%	$	68,164,613	$	923,797		5.38	%
Interest-earning deposits		7,845,983		107,355		5.43			5,968,154		80,752		5.37
Federal funds sold		4,418,147		58,446		5.25			2,565,815		34,403		5.32
Investments		10,852,391		150,405		5.50			11,179,873		154,232		5.47
Mortgage loans and other loans		1,516,304		20,117		5.26			1,482,011		19,214		5.14
Total interest-earning assets	$	89,314,636	$	1,221,924		5.43	%	$	89,360,466	$	1,212,398		5.38	%
Funded By:
Consolidated obligations-bonds	$	65,632,663	$	849,407		5.13	%	$	62,306,385	$	795,177		5.06	%
Consolidated obligations-discount notes		16,457,601		210,701		5.08			20,622,507		270,759		5.21
Interest-bearing deposits and other borrowings		2,803,533		35,794		5.07			1,887,767		24,042		5.05
Total interest-bearing liabilities		84,893,797		1,095,902		5.12	%		84,816,659		1,089,978		5.10	%
Capital and other non-interest- bearing funds		4,420,839		—					4,543,807		—
Total Funding	$	89,314,636	$	1,095,902				$	89,360,466	$	1,089,978
Net Interest Spread			$	126,022		0.31	%			$	122,420		0.28	%
Net Interest Margin (Net interest income/Earning Assets)1						0.56	%						0.54	%

43

Spread and yield analysis for the first nine months of 2007 and 2006:

	Nine months ended
	September 30, 2007							September 30, 2006
			Interest							Interest
	Average		Income/					Average		Income/
(dollars in thousands)	Balance		Expense		Rate1			Balance		Expense		Rate1
Earning Assets:
Advances	$	61,158,823	$	2,470,060		5.40	%	$	65,026,664	$	2,430,737		5.00	%
Interest-earning deposits		6,750,865		272,008		5.39			6,199,622		226,847		4.89
Federal funds sold		3,669,547		145,261		5.29			2,478,645		92,433		4.99
Investments		10,885,110		453,023		5.56			10,381,494		422,429		5.44
Mortgage loans and other loans		1,501,881		59,352		5.28			1,467,867		56,805		5.17
Total interest-earning assets	$	83,966,226	$	3,399,704		5.41	%	$	85,554,292	$	3,229,251		5.05	%
Funded By:
Consolidated obligations-bonds	$	62,865,728	$	2,397,254		5.10	%	$	59,763,291	$	2,120,574		4.74	%
Consolidated obligations-discount notes		14,301,400		553,137		5.17			19,596,722		707,711		4.83
Interest-bearing deposits and other borrowings		2,583,645		97,747		5.06			1,715,551		60,084		4.68
Total interest-bearing liabilities		79,750,773		3,048,138		5.11	%		81,075,564		2,888,369		4.76	%
Capital and other non-interest- bearing funds		4,215,453		—					4,478,728		—
Total Funding	$	83,966,226	$	3,048,138				$	85,554,292	$	2,888,369
Net Interest Spread			$	351,566		0.30	%			$	340,882		0.29	%
Net Interest Margin (Net interest income/Earning Assets)1						0.56	%						0.53	%

Note¹:   Reported yields with respect to advances and debt may not necessarily equal the coupons on the instruments as derivatives are extensively used to change the yield and optionality characteristics of the underlying hedged items. When fixed-rate debt is issued by the Bank and hedged with an interest rate derivative, it effectively converts the debt into a simple floating-rate bond, typically resulting in funding at an advantageous price. Similarly, the Bank makes fixed-rate advances to members and hedges the advance with a pay-fixed, receive-variable interest rate derivative that effectively converts the fixed-rate asset to one that floats with prevailing LIBOR rates. Average balance sheet information is presented as it is more representative of activity throughout the periods presented. For most components of the average balances, a daily weighted average balance is calculated for the period. When daily weighted average balance information is not available, a simple monthly average balance is calculated. Average yields are derived by dividing income by the average balances of the related assets and average costs are derived by dividing expenses by the average balances of the related liabilities. Yields and rates are annualized.

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Rate and Volume Analysis

The Rate and Volume Analysis presents changes in interest income, interest expense, and net interest income that are due to changes in volumes and rates. The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected the FHLBNY’s interest income and interest expense (in thousands):

	Three months ended
	September 30, 2007 vs. September 30, 2006
	Increase (decrease)
	Volume			Rate			Total
Interest Income
Advances	$	(47,201	)	$	9,005		$	(38,196	)
Interest-earning deposits		25,408			1,195			26,603
Federal funds sold		24,836			(793	)		24,043
Investments		(4,518	)		691			(3,827	)
Mortgage loans		445			458			903
Total interest income		(1,030	)		10,556			9,526
Interest Expense
Consolidated obligations-bonds		42,452			11,778			54,230
Consolidated obligations-discount notes		(54,682	)		(5,376	)		(60,058	)
Deposits and borrowings		11,662			90			11,752
Total interest expense		(568	)		6,492			5,924
Changes in Net Interest Income	$	(462	)	$	4,064		$	3,602

	Nine months ended
	September 30, 2007 vs. September 30, 2006
	Increase (decrease)
	Volume			Rate		Total
Interest Income
Advances	$	(144,582	)	$	183,905	$	39,323
Interest-earning deposits		20,170			24,991		45,161
Federal funds sold		44,411			8,417		52,828
Investments		20,493			10,101		30,594
Mortgage loans		1,316			1,231		2,547
Total interest income		(58,192	)		228,645		170,453
Interest Expense
Consolidated obligations-bonds		110,084			166,596		276,680
Consolidated obligations-discount notes		(191,234	)		36,660		(154,574	)
Deposits and borrowings		30,403			7,260		37,663
Total interest expense		(50,747	)		210,516		159,769
Changes in Net Interest Income	$	(7,445	)	$	18,129	$	10,684

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Non-Interest Income

The following table summarizes non-interest income (in thousands):

	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2006			2007			2006
Other income (loss):
Service fees	$	865		$	878		$	2,526		$	2,541
Net realized and unrealized gain (loss) on derivatives and hedging activities		7,882			575			13,444			5,675
Losses from extinguishment of debt and other		(741	)		(2,510	)		(4,510	)		(6,750	)
Total other income	$	8,006		$	(1,057	)	$	11,460		$	1,466

Service fees- Service fees were derived primarily from providing correspondent banking services to members and fees earned on standby letters of credit.

Net realized and unrealized gain (loss) on derivatives and hedging activities- The Bank may designate a derivative as either a hedge of the fair value of a recognized fixed-rate asset or liability or an unrecognized firm commitment (fair value hedge), a hedge of a forecasted transaction or of the variability of future cash flows of a floating-rate asset or liability (cash flow hedge). The Bank has not early adopted SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement 115”(“SFAS 159”).

Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge under the provisions of SFAS 133, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded in Other Income as Net realized and unrealized gain (loss) on derivatives and hedging activities.

Net interest settlements on derivatives designated and SFAS 133 qualifying as fair value or cash flow hedges are recorded as adjustments to the interest income or interest expense of the hedged assets or liabilities. Net interest settlements on derivatives that do not qualify for hedge accounting under SFAS 133 are recorded in Other Income as Net realized and unrealized gain (loss) on derivatives and hedging activities.

To the extent of the effectiveness of a hedge, changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge are recorded in accumulated other comprehensive income.

For all hedge relationships, ineffectiveness resulting from differences between the changes in fair value or cash flows of the hedged item and changes in fair value of the derivatives are recognized in Other Income as Net realized and unrealized gain (loss) on derivatives and hedging activities.

Net realized and unrealized gains and losses from hedging activities are typically determined by changes in the benchmark interest rate (designated as LIBOR by the FHLBNY) and the degree of ineffectiveness of hedging relationships between the change in the fair value of derivatives and change in the fair value of the hedged assets and liabilities attributable to changes in benchmark interest rate. Typically, such gains and losses represent hedge ineffectiveness between changes in the fair value of the hedged item and changes in the fair value of the derivative. The net contractual interest accruals on interest rate swaps considered as not qualifying for hedge accounting under the provisions of SFAS 133, and interest received from in-the-money options are also included in “Net realized and unrealized gain (loss) on derivatives and hedging activities.” Interest accruals associated with SFAS 133 qualifying derivatives are recorded in interest income and interest expense.

46

For the third quarter of 2007, hedging activities resulted in $7.9 million in net gains compared to $0.6 million in the prior year period. For the first nine months of 2007, the reported net gain was $13.4 million compared to $5.7 million in the prior year period.

The primary components of reported gains and losses from hedging activities for the third quarter and the first nine months of 2007 compared to prior year periods are discussed below:

Debt hedging- Changes in the benchmark interest rate (LIBOR for the Bank) and implied volatilities of interest rates (i.e., market’s expectation of potential changes in future interest rates) of fair value hedges using receive-fixed, pay-variable swaps were:

• SFAS 133 qualifying fair value hedgesof the Bank’s debt resulted in a net loss of $3.6 million in the third quarter of 2007 on total notional hedged amount of $37.4 billion. Unrealized loss for the quarter was $4.3 million, partly offset by realized gains of $0.7 million. In comparison, loss in the prior year third quarter from SFAS 133 qualifying hedges was $7.3 million on total notional of $43.5 billion. For the first nine months of 2007, SFAS 133 qualifying fair value hedges of debt resulted in realized gains of $4.0 million, partly offset by unrealized losses of $3.5 million, for a net gain of $0.5 million in the first nine months of 2007.

• SFAS 133 non-qualifying fair value hedgesresulted in net unrealized gain of $5.1 million for the third quarter of 2007. The notional amount outstanding of non-qualifying debt hedges at September 30, 2007 was $3.6 billion. For the first nine months of 2007, debt hedging activities that did not qualify for hedge accounting under SFAS 133 resulted in a gain of $3.4 million. Recorded net accruals from non-qualifying derivatives were SFAS 133 and recorded as realized gains of $0.5 million and $1.5 million in the current quarter and the first nine months of 2007. In the prior year periods, the impact of non-qualifying debt hedges was not significant. Gains and losses from non-qualifying hedges are classified as economic hedges. While such hedges did not meet the SFAS 133 hedge accounting criteria, the hedges were executed to mitigate business risk and met the Bank’s risk management objectives.

Advance Hedging- Changes in the benchmark interest rate (LIBOR for the Bank) and the implied volatilities of interest rates of fair value hedges using pay-fixed, receive-variable swaps associated with SFAS 133 qualifying hedges of the Bank’s advances were as follows:

• In the third quarter of 2007, unrealized gain was $5.4 million on total hedged notional of $42.2 billion at September 30, 2007. For the comparable third quarter of 2006, reported net unrealized gain was $0.9 million on total hedged notional of $36.4 billion at September 30, 2006. Amortization of basis adjustments was a gain of $0.1 million in the current year quarter, compared to $0.5 million in the prior year quarter.

• In the first nine months of 2007, SFAS 133 qualifying hedging activities resulted in net unrealized gains of $6.6 million. Amortization of basis adjustments was a gain of $0.8 million. In the first nine months of 2006 SFAS 133 qualifying fair value hedges of advances resulted in net unrealized gain of $0.8 million, and amortization of basis adjustments was a gain of $1.7 million.

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Option values of caps and floors- In the third quarter of 2007, changes in the fair value basis of caps and floors, collectively “options”, resulted in $0.6 million in reported realized losses, principally from market-amortization of the time value of purchased options approaching expiration. Net interest income accruals from in-the-money option contracts associated with variable-rate advances contributed $1.0 million in realized gains. Certain purchased options, indexed to LIBOR, were in-the-money during 2007 as short-term interest rates rose past the contractual “strike-prices” of the option contracts, and the Bank accrued to income the difference between the option strike price and prevailing LIBOR rates. Under hedge accounting rules, such periodic contractual interest income is also considered as cash flows from economic hedges and is reported in “Net realized and unrealized gain (loss) on derivatives and hedging activities” in the statements of income. The change in fair value basis of options in the third quarter of 2006 resulted in a loss of $1.7 million, offset by $3.1 million of interest income accrued from in-the-money options.

In the first nine months of 2007, changes in the fair value basis of options, principally market amortization of time value of the option contracts resulted in a loss of $2.0 million, which was offset by $2.8 million in interest income accrued from in-the-money options. In the comparable period in 2006, change in the fair value basis of options resulted in a loss of $5.9 million, offset by $6.8 million of interest income accrued from in-the-money options.

Debt Extinguishment- In the third quarter of 2007, the Bank retired $104.0 million of consolidated obligation bonds at a cost that exceeded book value by $0.8 million. In the prior year period, the Bank retired $35.0 million of debt at a cost that exceeded book value by $2.5 million.

In the first nine months of 2007, loss from debt extinguishment was $4.6 million and $487.0 million of bonds were retired. The bonds retired in 2007 were by transferring the debt obligation to another FHLBank at negotiated market prices. Bonds retired in the first nine months of 2006 totaled par amounts of $283.0 million and book value exceeded proceeds by $6.8 million.

Bonds transferred were fixed-rate, non-callable and with coupons that were higher than the prevailing market coupons. When assets are prepaid in advance of their expected or contractual maturities, the Bank also attempts to extinguish debt in order to re-align asset and liability cash flow patterns. Debt extinguished was associated with prepayments of advances and commercial mortgage-backed securities.

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Non-Interest Expense

Operating expenses include the administrative and overhead costs of running the Bank and costs of providing advances to members, managing the investment portfolios, and delivering correspondent banking services. The FHLBanks pay the costs of the Office of Finance, a joint office of the FHLBanks that facilitates issuing and servicing the consolidated obligations of the FHLBanks, preparation of the combined quarterly and annual financial reports, and certain other functions. The FHLBanks also are assessed the operating expenses of the Finance Board, the regulator of the FHLBanks.

The following table sets forth the principal components of other expenses (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2007		2006		2007		2006
Other expenses:
Operating	$	16,518	$	15,438	$	49,442	$	46,108
Finance Board and Office of Finance		1,209		1,288		3,721		3,562
Total other expenses	$	17,727	$	16,726	$	53,163	$	49,670

The following table summarizes the major categories of operating expenses (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2007		2006		2007		2006
Salaries and employee benefits	$	11,759	$	9,847	$	32,894	$	29,409
Temporary workers		83		106		242		198
Occupancy		963		930		2,921		2,824
Depreciation and leasehold amortization		1,171		861		3,287		2,901
Contractual services		991		753		3,642		3,360
Professional and legal fees		206		1,664		2,358		3,196
Other		1,345		1,277		4,098		4,220
Total operating expenses	$	16,518	$	15,438	$	49,442	$	46,108

Increase in head count and general inflationary increases in salary expenses was one factor that caused operating expenses to increase. Another factor was increase in supplemental pension and post retirement health benefit plans. The numbers and scale of consulting projects in 2007 were generally less than those contracted in 2006 and explain the decline in professional fees.

Assessments

Each FHLBank is required to set aside a portion of earnings to fund its Affordable Housing Program and to satisfy its Resolution Funding Corporation assessment. These are more fully described under the section “Assessments” in notes to the unaudited financial statements.

REFCORP assessment on net income was $21.3 million for the third quarter of 2007, compared to $19.2 million for the prior year period. For the first nine months of 2007, the REFCORP assessment was $56.8 million, compared to $53.7 million for the prior year period. The assessments that were set aside from net income for the Affordable Housing Program (AHP) were $9.8 million for the third quarter of 2007, compared to $8.6 million for the prior year period. Both the REFCORP and AHP assessments are based on income and a decrease or increase reflect changes in pre-assessment income for the three and nine month periods ended September 30, 2007 over the comparable periods in 2006.

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Financial Position — Assets, Liabilities and Shareholders’ Capital

Selected balance sheet data (in thousands)

	September 30, 2007		December 31, 2006
Assets
Cash and due from banks	$	16,634	$	38,850
Interest-bearing deposits		11,557,305		5,591,077
Federal funds sold		2,704,000		3,661,000
Available-for-sale securities		13,175		—
Held-to-maturity securities		10,853,078		11,251,098
Advances		75,072,136		59,012,394
Mortgage loans held-for-portfolio		1,514,573		1,483,419
Accrued interest receivable		502,062		406,123
Premises, software, and equipment, net		12,089		11,107
Derivative assets		119,873		224,775
All other assets		17,677		23,144
Total assets	$	102,382,602	$	81,702,987
Liabilities
Deposits
Interest-bearing demand	$	3,316,709	$	2,307,733
Non-interest bearing demand		2,491		1,795
Term		23,800		80,000
Total deposits		3,343,000		2,389,528
Consolidated obligations
Bonds		63,019,870		62,042,675
Discount notes		30,063,824		12,191,553
Total consolidated obligations		93,083,694		74,234,228
Mandatorily redeemable capital stock		244,058		109,950
Accrued interest payable		769,677		735,215
Affordable Housing Program		112,481		101,898
Payable to REFCORP		21,304		17,475
Derivative liabilities		279,420		107,615
Other liabilities		62,888		102,685
Total liabilities		97,916,522		77,798,594
Capital		4,466,080		3,904,393
Total liabilities and capital	$	102,382,602	$	81,702,987

Balance sheet overview

At September 30, 2007, the Bank’s total assets were $102.4 billion, an increase of $20.7 billion, or 25.3%, from December 31, 2006. In August of the current quarter, the Bank experienced unprecedented increase in member demand for advances, and par amount of advances grew from $61.4 billion at the end of the second quarter of 2007 to $66.5 billion at August 31, 2007, and increased again in September to a record amount of $74.6 billion (par amount) at the end of the third quarter of 2007.

The Bank also increased investments in short-term money market investments — interest-bearing deposits and Federal funds sold — with the goal of increasing balance sheet liquidity. Investments in both categories have averaged higher in the current quarter and the first nine months of 2007 compared to comparable periods in 2006. Historically, the Bank has maintained a significant inventory of highly liquid Federal funds and short-term certificates deposits at other highly-rated financial institutions to ensure liquidity for its members’ borrowing needs.

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In the second quarter of 2007 management perceived some volatility in the credit markets, and to ensure members’ liquidity needs would be met, the Bank began to increase its balance sheet liquidity by increasing its investments in money market instruments. At December 31, 2006, interest earning deposits and Federal funds sold stood at $5.6 billion and $3.7 billion, respectively. As a result of management’s perception of increased demand due to market volatility, investment in liquid assets was increased by $2.1 billion at June 30, 2007, and by another $2.9 billion at September 30, 2007. Increased liquidity at September 30, 2007 increased balance sheet leverage to 22.9 times shareholders’ capital, up from 20.9 at December 31, 2006.

Generally, growth in advances does not impact balance sheet leverage under existing capital stock management practices, but increases or decreases in investments has an impact on leverage. Members are required to purchase capital stock to support their borrowings from the Bank. When capital is in excess of the amount that is required to support advance borrowings, the Bank redeems capital stock immediately. Stockholders’ capital increases and decreases with members’ advance borrowings, and capital to asset ratios would remain unchanged. As capital increases or declines in line with higher or lower volumes of advances, the Bank may also adjust its assets by increasing or decreasing holdings of short-term investments in certificates of deposit, and, to some extent, its positions in Federal funds sold, which it inventories to accommodate unexpected member needs for liquidity.

At September 30, 2007, the Bank’s total liabilities were $97.9 billion, an increase of $20.1 billion, or 25.9% from December 31, 2006. Liabilities were higher to fund significant member demand for advances, and to finance additional investments in short-term liquid funds, such as certificates of deposits and Federal funds sold. Increase in funding was primarily from greater use of discount notes, which increased by $17.9 billion between December 31, 2006 and September 30, 2007. Discount notes are consolidated obligation debt with maturities from overnight up to 365 days. Typically, consolidated obligation bonds have maturities of one year or longer.

Advances

The FHLBNY’s primary business is making collateralized loans, known as “advances”, to members.

Reported book value of advances was $75.1 billion at September 30, 2007, up dramatically from $59.0 billion at December 31, 2006, and $61.2 billion at the end of the second quarter of 2007.

The third quarter surge in advances was unprecedented. One hundred seven members increased their borrowing by an average of $137.6 million in the third quarter. By way of contrast, 76 members reduced their borrowing by an average of only $18.0 million. These metrics demonstrate the depth and width of member demand for liquidity in the recent market turmoil, and the FHLBNY’s readiness to meet that demand. Eight members increased their borrowing by more than $500.0 million in the third quarter of 2007, an indicator of the importance to the FHLBNY of the borrowing decisions of its larger members.

The very significant increase in the advance portfolio reflects in part to the FHLBNY’s willingness to be a reliable provider of well-priced funds to our members, and in part to the FHLBNY’s ability to raise funding in the market place through the issuances of consolidated obligation bonds and discount notes to local and global investors. In meeting member demand for liquidity, the Bank did not adjust pricing to either discourage members advance growth nor did the Bank take advantage of the dislocation in the marketplace in an environment of uncertainty.

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Generally, the growth or decline in advances is reflective of demand by members for both short-term liquidity and term funding driven by economic factors, such as availability to the Bank’s members of alternative funding sources that are more attractive, or by the interest rate environment and the outlook for the economy. Members may choose to prepay advances, which may incur prepayment penalty fees, based on their expectations of interest rate changes and demand for liquidity. Demand may also be influenced by the dividend payout rate to members on their capital stock investment in the FHLBNY. Members are required to invest in FHLBNY’s capital stock in the form of membership stock and activity stock. Advance volume is also influenced by merger activity where members are either acquired by non-members or acquired by members of another FHLBank. When FHLBNY members are acquired by members of another FHLBank or a non-member, they no longer qualify for membership in the FHLBNY and the FHLBNY may not offer additional advances to non-members. Subsequent to the merger, maturing advances may not be replaced, which has an immediate impact on short-term and overnight lending.

Advances — By type

The following table summarizes advances by product types (dollars in thousands):

	September 30, 2007						December 31, 2006
				Percentage						Percentage
	Amounts			of total			Amounts			of total
Adjustable Rate Credit — ARCs	$	19,132,794			25.66	%	$	13,251,464			22.47	%
Fixed Rate Advances		33,723,213			45.24			29,873,543			50.64
Repurchase (Repo) Agreement		14,889,599			19.97			11,969,036			20.29
Short-Term Advances		4,782,810			6.42			1,824,705			3.09
Mortgage Matched Advances		668,652			0.90			757,050			1.28
Overnight Line of Credit (OLOC) Advances		1,098,399			1.47			1,187,685			2.02
All other categories		255,684			0.34			125,787			0.21
Total par value of advances		74,551,151			100.00	%		58,989,270			100.00	%
Discount on AHP Advances		(440	)					(519	)
Net premium on advances		14						489
SFAS 133 hedging adjustments		521,411						23,154
Total	$	75,072,136					$	59,012,394

Advance growth was across all the principal advance products offered to members, with the greatest increases in Adjustable Rate Credit advances (“ARCs), Short-Term fixed-rate advances, Repurchase Agreement advances (“Repo”), and Fixed-Rate putable advances.

ARC Advances- ARC Advances grew from $13.3 billion at December 31, 2006 to $19.1 billion at September 30, 2007. A new member borrowed $1.1 billion in the first six months and except for that borrowing, the growth in demand for the ARC product occurred in the third quarter of 2007. ARC Advances grew from $14.4 billion at June 30, 2007 to $19.1 billion at September 30, 2007, an increase of 33.1%, or $4.8 billion in the third quarter. Generally, the FHLBNY’s larger members have been the more significant borrowers of ARCs, and the growth in the third quarter was also concentrated among the larger members.

ARC Advances are medium- and long-term loans that can be pegged to a variety of indices, such as 1-month LIBOR, 3-month LIBOR, or the Federal funds rate. Members use an ARC Advance to manage interest rate and basis risks by efficiently matching the interest rate index and repricing characteristics of floating-rate assets and liabilities. The interest rate is set and reset (depending upon the maturity of the advance and the type of index) at a spread to that designated index. Principal is due at maturity and interest payments are due at every reset date, including the final payment. ARC Advances have continued to be a significant category of advances.

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Fixed-rate Advances- Demand for Fixed-rate Advances also increased but growth was less than the growth of the ARC product. Fixed-rate Advances are primarily fixed-rate putable or convertible advances, and outstanding balances may decrease because of the put feature which allows the FHLBNY to exercise its right to “terminate” the advance at pre-determined dates or a series of dates.

One large member increased its borrowing in the first quarter of 2007. Outstanding balance remained virtually unchanged through to the second quarter of 2007. From a total outstanding of $31.5 billion at June 30, 2007, Fixed-rate Advances grew to $33.7 billion at September 30, 2007. Almost all of the growth was from increased borrowings of fixed-rate putable or convertible advances. Fixed-rate putable advances outstanding at December 31, 2006 were $21.9 billion, increased to $24.3 billion at June 30, 2007, and to $26.7 billion at September 30, 2007. Certain reported putable advances may be no longer putable if the puts have not been exercised by their last exercise dates. The competitively priced convertible fixed-rate advances continue to be in demand by members. Increase in demand was offset by member initiated prepayments and Bank initiated puts of convertible advances. In the third quarter, the Bank exercised its option to put $1.5 billion of fixed-rate convertible advances back to its member-borrowers. Members were offered “replacement” advances at prevailing terms, and new borrowings offset Bank initiated puts.

Fixed-rate advances are flexible funding tools that can be used by members to meet short- to long-term liquidity needs. Terms vary from 2 days to 30 years. Fixed-rate advances were the largest category of advances. Fixed-rate, putable advances are competitively priced where the FHLBNY has purchased the option from the member to put the advance back to borrowers (members) at predetermined exercise dates. This feature lowers the member’s cost of the advance. These advances are known as “convertible” or “putable” advances. If on the put date, the Bank exercises its options, the existing advance is matured. The member may request an advance of any type or term within the available suite of advance products that is offered to all members on that day. In order to qualify for an advance, regardless of whether or not the advance is replacement funding, a member must meet the Bank’s credit and collateral criteria.

REPO Advances- This product includes both putable (also referred to as “convertible”) advances and non-putable advances. Except for $500.0 million of a long-term non-convertible advance borrowed by a new member in second quarter of 2007, borrowed amounts remained largely unchanged until the third quarter of 2007. In the third quarter REPO Advances grew by $2.4 billion or 18.8%. At September 30, 2007, REPO Advances were $14.9 billion, up from $12.5 billion at June 30, 2007, and $12.0 billion at December 31, 2006. It appears that other sources of “repo” credit for members withdrew from the market in August and September in the current year quarter. Increase in borrowings has been largely related to demand for non-putable REPO advances. Demand for convertible REPO advances in the third quarter of 2007 has not been as strong. Putable REPO advance at December 31, 2006 was $8.9 billion, increased to $9.6 billion at June 30, 2007, and increased by only $0.2 billion in the third quarter to $9.8 billion at September 30, 2007. Certain reported putable advances may be no longer putable if the puts have not been exercised by their last exercise dates.

REPO Advances are secured by eligible securities and can be structured to have a fixed or variable interest rate, “bullet” or quarterly interest payments, and a put option, by which the FHLBNY receives an option to require payment after a predetermined lockout period. Members may use U.S. Treasuries, Agency-issued debentures, and mortgage-backed securities as collateral.

Short-term Advances- Short-term fixed-rate advances were at their historical low-point in the first quarter of 2007, and increased slightly to $864.0 million at June 30, 2007. Member demand had been very weak through August 2007, as the relatively higher coupons in the short-end of the term structure of interest rates made borrowings unattractive given the availability of alternative funding to members in the overnight and term “repo markets.” Since then, short-rates have declined. The FHLBNY’s cost of funding short-term advances declined significantly and the FHLBNY was able to pass on benefits by way of relatively lower coupons to its members. As with REPO Advances, alternative funding sources that had been previously available to members, in particular the “repo markets”, tightened due to market conditions. These conditions resulted in heavy demand for Short-term Advances in September 2007, and outstanding balances grew by $3.9 billion, an extraordinary growth over a very short time, to reach $4.8 billion at September 30, 2007.

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Member prepayment activity —Prepayments initiated by a small number of members in the third quarter of 2007 totaled $493.3 million and $1.1 billion for the first nine months of 2007.

Merger activity —Four members became non-members in the third quarter of 2007, for a total of five in the first nine months of 2007. Advances outstanding to non-members were $1.8 billion at December 31, 2006 and as a result of the activity in the third quarter of 2007, the amount outstanding at September 30, 2007 increased to $3.4 billion.

Impact of hedging-The Bank hedges certain advances under the provisions of SFAS 133 by the use of both callable and non-callable interest rate swaps as fair value hedges. Net interest accruals from qualifying hedges are recorded with interest income from advances. Fair value changes of qualifying hedged advances are recorded in “Net realized and unrealized gains losses on derivative and hedging activities”, a component of other income, and an offset recorded as basis adjustment to the carrying amount of the advances. In addition, certain LIBOR-indexed advances have “capped” coupons. These caps are offset by purchased options (caps) with mirror-image terms. Fair value changes of caps due to changes in the benchmark rate and option volatilities are recorded through “Net realized and unrealized gains and losses on derivative and hedging activities.”

The most significant elements that impacted balance sheet reporting included the recording of fair value basis adjustments. Also, when advances are hedged by callable swaps, the possibility of exercise of the swaps and the associated advances shortens the effective maturities of the advances. The impact on the Bank’s income from hedging advances is discussed in “Results of Operations” elsewhere in the MD&A. Its impact as a risk management tool is discussed in Item 3 “Quantitative and Qualitative Disclosures about Market Risk.”

Reported book value at September 30, 2007 included net unrealized gains of $521.4 million resulting from fair value hedge basis adjustments under SFAS 133 hedge accounting rules, compared to unrealized gains of $23.2 million at December 31, 2006. Fair value basis of previously recorded realized gains and losses from discontinued hedges, net of amortization, was not material. Unrealized gains and losses represent changes in the fair values of hedged advances under the provisions of hedge accounting rules under SFAS 133.

The Bank hedged $42.2 billion of par amounts of advances outstanding, representing 56.6% of par amounts of advances outstanding at September 30, 2007, compared to $35.6 billion at December 31, 2006, or 60.3% of par amounts. Declining percentage of hedged advances to total advances is attributed to disproportionate growth in ARC Advances and Short-Term advances which are typically not hedged.

The Bank primarily hedges putable or convertible advances and certain “bullet” fixed-rate advances. Advances that are still putable aggregated $35.0 billion at September 30, 2007, up from $32.0 billion at June 30, 2007. Almost all putable advances with exercise dates in the future are hedged by swaps in SFAS 133 qualifying hedge relationships. Such fixed-rate putable advances are typically swapped back to LIBOR-indexed cash flows. The Bank’s derivatives book at September 30, 2007 and December 31, 2006, also included $1.2 billion in purchased interest rate “caps”; such options were an economic hedge of “capped” variable-rate advances borrowed by members.

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The Bank uses interest rate derivatives to hedge the risk of changes in the benchmark rate, which the FHLBNY has adopted as LIBOR, and is also the discounting basis for computing changes in fair values of hedged advances. Recorded fair value basis adjustments in the statements of condition were associated with hedging activities under the provisions of SFAS 133. At September 30, 2007, the fair value basis adjustment was $521.4 million representing net unrealized gains, compared to gains of $23.2 million at December 31, 2006. Fair value changes are typically from changes in the term structure of medium- and short-term rates, from changes in volatilities of such rates, and from the growth or decline in hedge volume. Fair value basis adjustments have exhibited significant changes at each quarter in 2007 and the changes were consistent with the changes in the term structure of interest rates in 2007. At March 31, 2007 the basis adjustment was an unrealized gain of $132.5 million; at June 30, 2007 reported basis adjustment was an unrealized loss of $170.7 million as a result of a steepening yield curve and higher rates at the longer-end of the yield curve at June 30, 2007 relative to the previous quarter-end date. Unrealized fair value losses of hedged advances, primarily fixed-rate, at June 30, 2007 were consistent with the concept that fixed-rate assets would decline in value in a rising interest rate environment.

At September 30, 2007, fair value basis adjustments became positive, and the Bank recorded net unrealized gains of $521.4 million. Compared to December 31, 2006 and the two quarters in 2007, the term structure of rates at September 30, 2007 has shifted downward, with rates projected to decline. Since hedged advances are typically fixed-rate and long in tenor, in a declining rate environment, fixed-rate advances exhibit increasing fair value basis adjustments, and unrealized gain position is consistent with the downward shift of the term structure of interest rates at September 30, 2007. Changes due to amortization of previously recorded realized gains and losses were not material. Unrealized gains and losses represented by the fair value basis adjustments were almost entirely offset by fair value unrealized losses and gains of the derivatives associated with the fair value hedges.

Investments

The FHLBNY acquires investments authorized by Finance Board policies and regulations, and it maintains substantial investments in high-quality, short- and intermediate-term financial instruments. At September 30, 2007 and December 31, 2006, the FHLBNY’s investments consisted of investment securities classified as held-to-maturity, interest-bearing deposits at highly-rated financial institutions, and Federal funds sold. Two grantor trusts were established in the third quarter of 2007 to fund current and potential future payments to retirees for supplemental pension plan obligations. Trust funds are invested in fixed-income and equity funds, which were classified as available-for-sale. The FHLBNY does not actively trade its investment securities.

The following table summarizes changes in investment by category (dollars in thousands):

	September 30,		December 31,		Dollar			Percentage
	2007		2006		Variance			Variance
State and local housing agency obligations	$	595,461	$	618,810	$	(23,349	)		(3.77	)%
Mortgage-backed securities		10,257,617		10,632,288		(374,671	)		(3.52	)
Total investment securities		10,853,078		11,251,098		(398,020	)		(3.54	)
Grantor trusts		13,175		—		13,175			n/a
Interest-bearing deposits*		11,557,200		5,591,000		5,966,200			106.71
Federal funds sold		2,704,000		3,661,000		(957,000	)		(26.14	)
Total investments	$	25,127,453	$	20,503,098	$	4,624,355			22.55	%

^* Excludes bank deposits at another FHLBank.

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Held-to-maturity Securities

Held-to-maturity securities were comprised of agency and privately issued mortgage, including commercial mortgage-backed securities and asset-backed securities, collectively referred to as “MBS” that were rated “Aaa” by Moody’s or “AAA” by S&P, and mortgage-pass-throughs and Real Estate Mortgage Investment Conduit bonds issued by government sponsored mortgage agencies. In addition, the FHLBNY had investments in primary public and private placements of taxable obligations of state and local housing finance authorities (“HFA”) that were rated at least “Aa” by Moody’s or “AA” by S&P. Investment in mortgage-backed securities provides a reliable income stream. Limits for the size of the MBS portfolio are defined by Finance Board regulations, which limits holding of MBS to 300% of capital. At September 30, 2007 and December 31, 2006, the Bank was within these limits.

At September 30, 2007, held-to-maturity securities declined to $10.9 billion, compared to $11.3 billion at December 31, 2006.

• Mortgage-backed securities comprised of fixed- and variable-rate investments were $10.3 billion at September 30, 2007, down from $10.6 billion at December 31, 2006. Fixed-rate MBS was $10.0 billion, slightly down from $10.4 billion at December 31, 2006; variable-rate MBS was $238.2 million, down from $274.5 million at December 31, 2006.

• Investment in HFA bonds was $595.5 million, down from $618.8 million at December 31, 2006. No acquisitions were made during 2007.

Held-to-maturity investments in MBS and HFA bonds were allowed to decline as paydowns, prepayments and natural maturities exceeded new acquisitions. During the third quarter of 2007 the Bank purchased $386.2 million of triple-A, agency issued collateralized mortgage-backed obligations (“CMOs”). In the same period, paydowns of all held-to-maturity securities totaled $503.3 million.

During most of 2007 MBS spreads remained “tight” limiting opportunities for acquisitions. Only when pricing met the Bank’s risk-reward preferences, did the Bank consider an acquisition, and as a result purchases of new MBS investments have remained opportunistic. In the first nine months of 2007, the Bank acquired $1.1 billion, all triple-A rated, agency issued CMOs. In contrast, paydowns of MBS and HFA bonds were $1.5 billion in the same period.

Held-to-maturity MBS at September 30, 2007 included $765.1 million amortized cost, (market value $753.0 million) of seasoned MBS (acquired prior to 2003), and supported by non-conforming residential mortgage loans and home-equity loans collateralized at the time of issuance by loans with a weighted average FICO score of 660 or less. All securities were rated triple-A at the time of purchase and at September 30, 2007 and December 31, 2006. The held-to-maturity portfolio also included $86.8 million amortized cost (market value $84.1 million) of seasoned MBS supported by loans with high loan-to-value ratios (“HLTVs”). The HLTV securities were collateralized at the time of issuance by loans with a weighted average FICO score of 695 or greater. All securities were rated triple-A at the time of purchase, and at September 30, 2007 and December 31, 2006.

The FHLBNY conducts a review and evaluation of the securities portfolio to determine if the decline, if any, in the fair value of a security below its carrying value is other than temporary. The FHLBNY generally views changes in fair value caused by changes in interest rates as temporary, which is consistent with the FHLBNY’s experience. The FHLBNY has both the intent and financial ability to hold the temporarily impaired securities until recovery of their value.

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Short-term investments

High quality short-term investments such as Federal funds and certificates of deposits were held at September 30, 2007 and December 31, 2006, and provided the liquidity necessary to meet member credit needs and a reasonable return on members’ short-term deposits. Both short- and long-term investments were used by the FHLBNY to employ its capital and generated additional returns for its members. Short-term investments were higher at September 30, 2007, compared to December 31, 2006, and provided a flexible means of implementing the asset-liability management decision to increase liquidity.

Federal funds sold- Inventory of Federal funds sold was $2.7 billion, down from $3.7 billion at December 31, 2006. The average inventory for the third quarter was $4.4 billion, and for the first nine months of 2007, the average was $3.7 billion. Historically, the FHLBNY has been a provider of Federal funds to its members, allowing the FHLBNY to warehouse and provide balance sheet liquidity to meet unexpected member borrowing demands.

Certificates of deposits- At September 30, 2007, certificates of deposit at highly-rated financial institutions, all maturing within 12 months or less, were $11.5 billion, up from $5.6 billion at December 31, 2006. Average for the third quarter was $7.8 billion, and for the first nine months the average was $6.7 billion. In September 2007, the Bank took advantage of favorable execution funding levels of discounts notes, issued short-term discount notes and immediately invested in certificates of deposits for the same amount and maturity and locked in a favorable spread.

Cash collateral pledged- The FHLBNY generally executes derivatives with major banks and broker-dealers and typically enters into bilateral collateral agreements. When counterparties are exposed, the Bank’s derivatives are in a net unrealized loss position, and the Bank would be called upon to pledge cash collateral to mitigate the counterparties’ credit exposure. Collateral agreements in place include certain thresholds and pledge requirements that are generally triggered if exposures exceed the agreed upon thresholds. As of September 30, 2007, the Bank had pledged $52.2 million in interest-bearing deposits to derivative counterparties. Typically, such pledges earn interest at the overnight Federal funds rate. At December 31, 2006, no cash had been required to be pledged by the Bank.

Mortgage Loans Held-for-Portfolio

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

	September 30, 2007						December 31, 2006
	2007			Percentage			2006			Percentage
Real Estate:
Fixed medium-term single-family mortgages	$	547,973			36.30	%	$	575,114			38.90	%
Fixed long-term single-family mortgages		958,021			63.40			897,153			60.70
Multi-family mortgages		4,759			0.30			4,940			0.40
Total par value		1,510,753			100.00	%		1,477,207			100.00	%
Unamortized premiums		12,073						13,323
Unamortized discounts		(7,031	)					(6,288	)
Basis adjustment1		(629	)					(230	)
Total mortgage loans held-for-portfolio		1,515,166						1,484,012
Allowance for credit losses		(593	)					(593	)
Total mortgage loans held-for-portfolio after Allowance for credit losses	$	1,514,573					$	1,483,419

¹ Represents open and closed delivery commitments accounted for as derivatives.

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At September 30, 2007, the portfolio of mortgage loans was comprised principally of investments in Mortgage Partnership Finance loans (“MPF”®) with a book value of $1.5 billion, a net increase of $31.2 million from the amounts outstanding at December 31, 2006. During the first nine months of 2007, the Bank added $160.2 million in new MPF loans; run-offs, in contrast, were $127.6 million, including paydowns of CMA in the same period. The FHLBNY does not expect the MPF loans to increase substantially, and provides this product to its members as another alternative for members to sell their mortgage production.

Investment in Community Mortgage Asset loans (“CMA”), which has not been active since 2001, has declined steadily over time, was $4.8 million at September 30, 2007, down by $181.0 thousand from December 31, 2006.

Consolidated Obligations and Debt Financing Activity

The primary source of funds for the FHLBNY continued to be through issuance of consolidated obligation bonds and discount notes, together referred to as consolidated obligations.

Reported amounts of consolidated obligations outstanding, comprising of bonds and discount notes, at September 30, 2007 and December 31, 2006 were $93.1 billion and $74.2 billion, and funded 90.9 % and 90.8% of total assets at those dates. These ratios have remained substantially unchanged over the years, indicative of the stable funding strategy pursued by the FHLBNY to rely on FHLBank debt for financing its activities. Several tactical changes were made in response to member demand for liquidity in the third quarter of 2007 and investor demand for shorter-term FHLBank debt and discount notes in the same period.

Issuance volume increased dramatically to receptive local and global investors. Issuance volume increased and debt outstanding grew by $8.2 billion in August 2007, and $7.4 billion in September 2007 to accommodate member demand for advances and to support higher balance sheet liquidity through increased investments in short-term investments. Total debt outstanding was $78.6 billion at June 30, 2007 before the recent market turmoil; the amount outstanding grew to $93.1 billion at September 30, 2007, an increase of $14.5 billion, or 18.5% in the third quarter of 2007.

Two tactical funding strategy changes were employed in executing issuances of debt. First, in response to market demand for shorter-term debt, the Bank increased issuances of discount notes, which have maturities from overnight to 365 days. Second, the Bank also increased issuance of shorter-maturity bonds to replace maturing debt or debt that was being called by the Bank at pre-determined call exercise dates. Investor demand for shorter-term debt resulted in the issuance of discount notes at very favorable spreads to LIBOR and improved the Bank’s cost of funding. In the same period of time, member demand for ARC Advances which reprice at short intervals, and short-term advances saw unprecedented growth, and the Bank was able to issue short-term debt and finance short-term advances efficiently.

As a result of these tactical adjustments to funding strategy, the composition of debt outstanding at September 30, 2007 changed significantly compared to December 31, 2006. Discount notes outstanding at December 31, 2006 were $12.2 billion and grew to $30.1 billion at September 30, 2007, an increase of $17.9 billion. In contrast, consolidated obligation bonds increased by $782.8 million in par amounts at September 30, 2007 relative to December 31, 2006.

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The following summarizes types of bonds issued and outstanding (in thousands):

	September 30, 2007			December 31, 2006
Fixed-rate, non-callable	$	35,919,970		$	37,328,640
Fixed-rate, callable		18,320,500			17,039,000
Step Up, non-callable		—			50,000
Step Up, callable		2,038,000			3,688,000
Single-index floating rate		6,710,000			4,100,000
Total par value		62,988,470			62,205,640
Bond premiums		19,102			23,334
Bond discounts		(30,398	)		(33,300	)
SFAS 133 fair value basis adjustments		44,792			(151,222	)
Fair value basis adjustments on terminated hedges		(2,096	)		(1,777	)
Total carrying value	$	63,019,870		$	62,042,675

Fixed-rate non-callable debt- At September 30, 2007, fixed-rate non-callable debt decreased by $1.4 billion to $35.9 billion compared to $37.3 billion at December 31, 2006, as the Bank replaced maturing non-callable debt with either floating-rate debt or discount notes. At the end of the second quarter of 2007, the Bank had increased its issuance of fixed-rate non-callable bonds because of favorable execution levels prevailing during most of the first six months in 2007. The amount outstanding grew to $38.3 billion at the end of the second quarter of 2007. In the third quarter, FHLBank bond execution was also affected by the credit uncertainty in the markets, and despite the triple-A quality ascribed to the consolidated obligation bonds, investor demand was relatively stronger for shorter-term debt and discount notes. It is understandable that market turmoil drove investors into shorter duration investments and floating rate debt which reset periodically based on prevailing market rates also made them an attractive choice.

Execution levels and spreads favored issuances of discount notes and floating rate debt. Execution levels for longer-term non-callable bonds were less favorable, and the Bank did not replace maturing longer-term bonds and as a result outstanding amounts declined to $35.9 billion at September 30, 2007.

Fixed-rate callable debt- Execution levels and spreads on a swapped out basis was favorable during most of the first two quarters of 2007, and the Bank’s outstanding balance of fixed-rate callable debt was $19.7 billion in par amount at June 30, 2007, an increase of $2.7 billion from December 31, 2006. Since then, spreads to both Treasury securities and LIBOR widened mostly in the middle of the third quarter and execution levels and spreads were such that the issuance of callable debt was not as attractive. As a result, outstanding amounts of fixed-rate callable debt were allowed to decline and maturing or called bonds were not replaced. Total outstanding, which had stood at $19.7 billion at June 30, 2007 declined to $18.3 billion at September 30, 2007.

With a callable bond, the Bank purchases a call option from the investor, and the option allows the Bank to terminate the bond at predetermined call dates. When the Bank purchases the call option from investors it typically lowers the cost to the investor, who has traditionally been receptive to callable-bond yields offered by the FHLBNY.

Floating-rate debt– Issuances of floating-rate debt, indexed to LIBOR, increased earlier in the year because of execution spreads that were, at times, equal to or better than discount notes. The amounts outstanding grew to $5.5 billion at June 30, 2007, up from $4.1 billion at December 31, 2006. In the third quarter, floating-rate bonds, which reset periodically with market rates, also became an attractive choice for investors and dealers in the difficult market conditions. Increased investor appetite for floating-rate debt may also have been due to “flight to quality” and away from highly-rated commercial paper in the recent market turmoil.

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Step-up bonds- Earlier in the year, in an environment of an inverted yield curve, market demand for step-up bonds was not strong. While the yield curve has since steepened, yields on step-up bonds have remained unattractive to investors who continue to remain on the side-line for such structures. We believe the term structure of interest rates was still not steep enough to present attractive yields on callable, step-up bonds. Typically, as short and long-term rates diverge, step-up bonds may become more popular as they offer a coupon structure that reflects the shape of the yield curve.

Discount notes- Consolidated obligation discount notes provide the FHLBNY with short-term funds. These notes have maturities up to one year and are offered daily through a dealer-selling group; the notes are sold at a discount from their face amount and mature at par.

Issuances of discount notes have been uneven in the first nine months of 2007, with an extraordinary surge in demand in the latter part of the current year third quarter.

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

					Weighted
	Book		Par		Average
	Value		Value		Interest Rate
September 30, 2007	$	30,063,824	$	30,291,314		4.73	%
December 31, 2006	$	12,191,553	$	12,255,625		5.10	%

The ratio of discount notes to total assets at September 30, 2007 was 29.4%, significantly changed from 14.9%, the ratio at June 30, 2007 and December 31, 2006. All of the increase occurred in the third quarter of 2007.

Usage and issuance of discount notes during the first six months of 2007 declined compared to prior year periods because of the Bank’s view that the issuance of discount notes was at unfavorable yields relative to LIBOR. In the first six months of 2007, the Bank increased use of structured bonds associated with interest rate swaps to replace declining issuances of discount notes. This was in response to investor demand for the longer-term consolidated obligation bonds, particularly fixed-rate, callable bonds.

That condition changed dramatically in the third quarter of 2007 in the aftermath of the sub-prime mortgage market crises and the resulting decline in liquidity in the market place. Investor demand for FHLBank issued discount notes was almost unprecedented. Discount notes that had yielded 20 basis points below LIBOR very early in August were soon sought after by investors at a yield that at times was almost 90 basis points below LIBOR early in September. Reacting to market conditions and very favorable discount note yields, the Bank doubled its outstanding amounts of discount notes to $21.2 billion at August 31, 2007 from $10.1 billion at July 31, 2007. The Bank’s issuance of discount notes continued to increase in September 2007, and stood at $30.1 billion at September 30, 2007. The spread below LIBOR narrowed somewhat and was around 50 basis points below LIBOR at the end of the third quarter of 2007.

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Consolidated Obligation bonds by contractual maturity.

The following is a summary of consolidated bonds outstanding by year of maturity (dollars in thousands):

	September 30, 2007						December 31, 2006
				Weighted						Weighted
				Average						Average
Maturity	Amount			Rate			Amount			Rate
One year or less	$	28,768,800			4.70	%	$	25,888,510			4.35	%
Over one year through two years		15,450,020			4.94			20,458,280			4.69
Over two years through three years		8,310,450			5.10			6,007,350			4.80
Over three years through four years		2,582,700			4.99			3,275,700			4.62
Over four years through five years		3,180,200			5.26			2,077,900			5.00
Over five years through six years		794,750			5.22			529,800			4.71
Thereafter		3,901,550			5.39			3,968,100			5.29
Total par value		62,988,470			4.90	%		62,205,640			4.60	%
Bond premiums		19,102						23,334
Bond discounts		(30,398	)					(33,300	)
SFAS 133 fair value basis adjustments		44,792						(151,222	)
Fair value basis adjustments on terminated hedges		(2,096	)					(1,777	)
Total carrying value	$	63,019,870					$	62,042,675

Bonds issued and outstanding at September 30, 2007 and December 31, 2006 were primarily medium-term. At September 30, 2007, 70.2% of par amounts of bonds would mature within two years, slightly down from 74.5% at December 31, 2006. Within three years, 83.4% of bonds would mature, slightly down from 84.2% at December 31, 2006.

Impact of hedging fixed-rate debt —The Bank hedges certain fixed-rate debt under the provisions of SFAS 133 by the use of both callable and non-callable interest rate swaps as fair value hedges. The Bank also hedges anticipatory issuances of bonds under the provisions of “cash flow” hedging rules under SFAS 133. Net interest accruals from SFAS 133 qualifying interest rate swaps are recorded together with interest expense of consolidated obligation bonds. Fair value changes of debt in a qualifying fair value hedge are recorded in “Net realized and unrealized gains losses on derivative and hedging activities”, a component of other income, and an offset recorded as basis adjustment to the carrying amount of the debt. Net interest accruals associated with derivatives not qualifying under SFAS 133 are recorded in “Net realized and unrealized gains losses on derivative and hedging activities.”

The most significant elements that impacted balance sheet reporting of debt included the recording of fair value basis adjustments. Also, when callable bonds were hedged by callable swaps, the possibility of exercise of the call shortened the expected maturity of the bond. The impact to the Bank’s income is discussed in this MD&A under “Results of Operations.” Its impact as a risk management tool is discussed under Item 3 “Quantitative and Qualitative Disclosures about Market Risk.”

Fair value basis adjustments- The reported carrying value of hedged consolidated bonds were adjusted for changes in their fair value basis adjustments that were attributable to the risk being hedged in accordance with hedge accounting rules. The Bank hedged the risk of changes in the benchmark interest rate, which the Bank has designated as LIBOR.

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Of the par amounts of $63.0 billion in bonds outstanding at September 30, 2007, the Bank had hedged $37.4 billion under SFAS 133 qualifying fair value hedges, and another $3.6 billion in economic hedges that were non-qualifying under the provisions of SFAS 133 but were an acceptable strategy under the Bank’s risk management guidelines. In aggregate, the hedges represented a ratio of 65.0% of the amount of bonds swapped at September 30, 2007 in terms of par amounts. At December 31, 2006, the notional amount of swapped out debt stood at $40.7 billion on total debt of $62.2 billion, representing 65.4% of total par amount of consolidated obligation bonds. At September 30, 2007, the Bank had also executed hedges of anticipated issuances of debt in a cash flow hedge under the provisions of SFAS 133.

The reported carrying value of hedged consolidated bonds is adjusted for changes in their fair value basis adjustments that are attributable to the risk being hedged in accordance with hedge accounting rules. Amounts reported for consolidated obligation debt in the statements of condition included hedging fair value basis adjustments of $44.8 million, representing unrealized losses at September 30, 2007, a change of $196.0 million compared to an unrealized gain position of $151.2 million at December 31, 2006.

Changes in fair value basis reflect changes in the term structure of interest rates, the shape of the yield curve at the measurement dates, the value and implied volatility of call options of callable bonds, and from the growth or decline in hedge volume. Hedge volume, defined as the notional amount of hedged debt outstanding, was not a factor as notional amount outstanding at September 30, 2007 was $40.9 billion, only slightly up from $40.7 billion at December 31, 2006.

The yield curve at September 30, 2007 has shifted downward compared to December 31, 2006 for most tenors that are relevant to the Bank’s hedged debt portfolio. Only the 30-year forward rate appeared almost unchanged. In a falling interest rate environment, fixed-rate debt will exhibit fair value losses, and the change is consistent with the observed down shift in the yield curve especially in the short and the 2-3 year forward rates. The relative small size of the unrealized loss of $44.8 million at September 30, 2007 reflects two factors. First, the fair value of callable debt, which constituted a significant portion of the Bank’s bond fair value unrealized losses were close to par value because of the increased probability of the execution of call options in a lower interest rate environment. Second, a large portion of non-callable bonds were contractually maturing within two to three years and their fair values were also close to par value.

Changes due to amortization of previously recorded realized gains and losses were not material. Unrealized gains associated with hedged debt were almost entirely offset by unrealized losses associated with the interest rate swaps that hedged the consolidated obligation bonds at September 30, 2007 and December 31, 2006.

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Consolidated Obligation bonds by maturity or next call date.

The 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 the consolidated bonds outstanding by years to maturity or next call date (in thousands):

	September 30, 2007			December 31, 2006
Year of Maturity or next call date
Due or callable in one year or less	$	43,634,500		$	40,152,210
Due or callable after one year through two years		11,981,320			14,786,280
Due or callable after two years through three years		2,750,950			1,959,650
Due or callable after three years through four years		1,224,000			1,608,000
Due or callable after four years through five years		838,200			928,900
Due or callable after five years through six years		456,750			284,800
Thereafter		2,102,750			2,485,800
Total par value		62,988,470			62,205,640
Bond premiums		19,102			23,334
Bond discounts		(30,398	)		(33,300	)
SFAS 133 fair value adjustments		44,792			(151,222	)
Fair value basis adjustments on terminated hedges		(2,096	)		(1,777	)
Total carrying value	$	63,019,870		$	62,042,675

Because of the possibility of exercise on pre-determined call dates, it is probable that some 88.3% of bonds outstanding at September 30, 2007 may get called within two years.

Deposit Liabilities

Deposits liabilities comprised of member deposits and interest-bearing deposits pledged to the Bank as cash collateral by derivative counterparties, and from time-to-time may also include unsecured overnight borrowings from other FHLBanks.

Member deposits- The FHLBNY operates deposit programs for the benefit of its members. Deposits are primarily short-term in nature, with the majority maintained in demand accounts that reprice daily based upon rates prevailing in the overnight Federal funds market. Members’ liquidity preferences are the primary determinant of the level of deposits. Total deposits at September 30, 2007, including demand and term aggregated $3.3 billion up from $2.4 billion at December 31, 2006. Member deposits have fluctuated during the three quarters in 2007, averaging $1.8 billion in the first quarter, $2.7 billion in the second quarter and $2.6 billion in the third quarter. However, member deposits are not a significant source of liquidity for the Bank.

Cash collateral held- Cash collateral pledged to the FHLBNY by derivative counterparties at September 30, 2007 was $21.7 million compared to $124.0 million at December 31, 2006. These deposits were interest-bearing demand deposits that repriced daily based principally upon rates prevailing in the overnight Federal funds market. Derivative counterparties are required by agreement to pledge collateral to the FHLBNY to cover the FHLBNY’s credit exposure in the event of counterparty default. At September 30, 2007 and December 31, 2006, the FHLBNY’s exposure was represented by derivatives in an unrealized gain position, after giving effect to threshold triggers under collateral agreements with derivative counterparties.

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Borrowings from other FHLBanks –The Bank borrows from other FHLBanks, generally for a period of one day. There were no borrowings outstanding at either September 30, 2007 or December 31, 2006. In the third quarter of 2007, the Bank borrowed $100.0 million for one day at market terms. In the first nine months of 2007, there were two overnight transactions of $20 million and $100 million at market terms.

Mandatorily Redeemable Capital Stock

The FHLBNY’s capital stock is redeemable at the option of both the member and the FHLBNY subject to certain conditions. Dividends related to capital stock classified as mandatorily redeemable are accrued at an estimated dividend rate and reported as interest expense in the statements of income. Redeemable capital stock is generally accounted for under the provisions of SFAS 150 “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,”(“SFAS 150”). Mandatorily redeemable stock at September 30, 2007 and December 31, 2006 represented stock held by former members who were no longer members by virtue of being acquired by members of other FHLBanks. Such stock will be repaid when the stock is no longer required to support outstanding transactions with the FHLBNY.

No member had notified the FHLBNY at September 30, 2007 or at December 31, 2006 of their intention to voluntarily withdraw from membership. The Bank reclassifies stock of members to a liability on the day the member’s charter is dissolved upon acquisition by a non-member.

At September 30, 2007 the amount of mandatorily redeemable stock classified as a liability was $244.1 million, compared to $77.6 million at June 30, 2007 and $109.9 million at December 31, 2006. In the third quarter of 2007, three members were acquired by non-members and a fourth member relocated its headquarters to outside the Bank’s membership district. In compliance with Finance Board regulations, the Bank classified these four members as non-members. Capital stock held by non-members will be repaid at maturity of the advances borrowed by non-members. In accordance with Finance Board regulations, non-members cannot renew their advance borrowings at maturity. Under the provisions of SFAS 150, such capital is considered mandatorily redeemable and the Bank reclassified $180.1 million of capital stock from capital to a liability in the third quarter of 2007. In the same period, $13.6 million of non-member mandatorily redeemable stock in excess of collateral requirements was repaid to non-members for maturing advances held by the former members. On a year-to-date basis at September 30, 2007 total capital stock reclassified from capital to liability was $187.0 million, and repayments to former members were $52.8 million. For more information, also refer to footnote 6 in Notes to the unaudited Financial Statements.

Derivative Instruments

Interest rate swaps, swaptions, and cap and floor agreements (collectively, derivatives) enable the FHLBNY to manage its exposure to changes in interest rates by adjusting the effective maturity, repricing frequency, or option characteristics of its financial instruments. The FHLBNY, to a limited extent, also uses interest rate swaps to hedge changes in interest rates prior to debt issuance, and essentially lock in the FHLBNY’s funding cost.

Section 956.6(a) of the Finance Board regulations prohibits the speculative use of derivatives, and the FHLBNY does not enter into speculative positions with derivatives or any other financial instruments, or trade derivatives for short-term profits. The FHLBNY does not have any special purpose entities or any other types of off-balance sheet conduits.

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All derivatives are recorded on the statements of condition at their estimated fair value and designated as either fair value or cash flow hedges for SFAS 133-qualifying hedges or as non-SFAS 133-qualifying hedges (economic hedges, or customer intermediations). In an economic hedge, the Bank retains or executes derivative contracts, which are economically effective in reducing risk, either because a SFAS 133 qualifying hedge was not available or the hedge was not able to demonstrate that it would be effective on an ongoing basis as a qualifying hedge, or because the cost of a qualifying hedge was not economical. Interest income and interest expense from interest rate swaps used for hedging are reported with interest on the instrument being hedged. Any changes in the fair value of a derivative are recorded in current period earnings or other comprehensive income, depending on the type of hedge designation.

The FHLBNY uses derivatives in three ways: (1) as fair value or cash flow hedges of an underlying financial instrument or as a cash flow hedge of a forecasted transaction; (2) as intermediation hedges to offset derivative positions (e.g., caps) sold to members; and (3) as economic hedges, defined as a non-qualifying hedge of an asset or liability and used as an asset/liability management tool. The FHLBNY uses derivatives to adjust the interest rate sensitivity of consolidated obligations and advances to more closely approximate the sensitivity of assets or to adjust the interest rate sensitivity of advances to more closely approximate the sensitivity of liabilities. In addition, the FHLBNY uses derivatives to offset embedded options in assets and liabilities, to hedge the market value of existing assets and liabilities and anticipated transactions, and to reduce funding costs.

At September 30, 2007, the notional amount of derivatives outstanding was $85.2 billion, up from $77.6 billion at December 31, 2006. Increase was primarily attributable to greater demand for putable advances, and required increased executions of interest rate derivatives to hedge associated interest rate risk. Volume of hedges executed was significantly higher in the third quarter of 2007 and $7.2 billion in advance hedges were put on the books, representing 43.3% of all hedges executed in all nine months of 2007.

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Derivative Financial Instruments by Product-The following table summarizes the notional amounts and estimated fair values of derivative financial instruments (excluding accrued interest) by product and type of accounting treatment. The table also reconciles fair value basis gains and (losses) of derivatives to the statements of condition (in thousands):

	September 30, 2007					December 31, 2006
			Total estimated					Total estimated
			fair value					fair value
			(excluding					(excluding
	Total notional		accrued			Total notional		accrued
	amount		interest)			amount		interest)
Advances-fair value hedges	$	42,190,689	$	(518,712	)	$	35,615,115	$	(23,889	)
Advances (Caps)-economic hedges		1,157,694		8			1,237,694		—
Consolidated obligations-fair value hedges		37,346,660		36,263			40,510,105		(159,919	)
Consolidated obligations-economic hedges		3,573,100		702			175,000		(253	)
MPF loan commitments		1,399		2			9,497		(35	)
Cash Flow-anticipated transactions		817,000		(7,337	)		—		—
Intermediary positions-economic hedges		80,000		23			50,000		3
Total notional and fair value	$	85,166,542	$	(489,051	)	$	77,597,411	$	(184,093	)
Total derivatives, excluding accrued interest			$	(489,051	)			$	(184,093	)
Accrued interest				329,504					301,253
Net derivative balance			$	(159,547	)			$	117,160
Net derivative asset balance			$	119,873				$	224,775
Net derivative liability balance				(279,420	)				(107,615	)
Net derivative balance			$	(159,547	)			$	117,160

The categories — “Fair value,” “Commitment” and “Cash flow” hedges — represent derivative transactions accounted for as hedges. The category “Economic” hedges represent derivative transactions under hedge strategies that did not qualify for hedge accounting treatment under SFAS 133.

Derivative credit risk exposure- In addition to market risk, the FHLBNY is 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 replacement derivatives from a different counterparty at a higher cost. The FHLBNY also is subject to operational risks in the execution and servicing of derivative transactions.

Although notional amount is a commonly used measure of volume in the derivatives market, it is not a meaningful measure of market or credit risk since derivative counterparties do not exchange the notional amount (except in the case of foreign currency swaps). Counterparties use the notional amounts of derivative instruments to calculate contractual cash flows to be exchanged. The fair value of a derivative in a gain position is a more meaningful measure of the FHLBNY’s current market exposure on derivatives. The FHLBNY estimates exposure to credit loss on derivative instruments by calculating the replacement cost, on a present value basis, to settle at current market prices all outstanding derivative contracts in a gain position.

All derivative contracts with non-members are subject to master netting agreements or other right of offset arrangements. At September 30, 2007, the FHLBNY’s maximum credit risk, as defined above, was approximately $119.9 million without recognition of collateral held by the FHLBNY, down from $224.8 million at December 31, 2006. In determining maximum credit risk, the FHLBNY considers accrued interest receivable and payable, and the legal right to offset assets and liabilities by counterparty. The FHLBNY mitigates its exposure by requiring derivative counterparties to pledge cash collateral, if the amount of exposure is above the collateral threshold agreements. Derivative counterparties had pledged $21.7 million in cash to the FHLBNY at September 30, 2007. At December 31, 2006, the comparable cash held by the FHLBNY was $124.0 million.

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Asset Quality

The following table summarizes the FHLBNY’s loan portfolios (in thousands):

	September 30, 2007		December 31, 2006
Advances	$	75,072,136	$	59,012,394
Mortgage loans before allowance for credit losses	$	1,515,166	$	1,484,012

Advances

The FHLBNY’s credit risk from advances at September 30, 2007 and December 31, 2006 was concentrated in commercial banks and savings institutions. All advances were fully collateralized. In addition, borrowing members pledge their stock of the FHLBNY as additional collateral for advances. The FHLBNY has not experienced any losses on credit extended to any member since its inception, 75 years ago. Based on the collateral held as security and prior repayment history, no allowance for losses is currently deemed necessary.

Mortgage loans held-for-portfolio

Underwriting standards– Summarized below are the principal underwriting criteria. For a fuller description of MPF loan mortgage standards, refer to pages 7 though 16 of the Bank’s most recent Form 10-K filed on March 29, 2007.

Mortgage loans delivered under the MPF Program must meet certain underwriting and eligibility requirements. Loans must be qualifying 5- to 30-year conforming conventional or Government fixed-rate, fully amortizing mortgage loans, secured by first liens on owner-occupied one-to-four unit single-family residential properties and single unit second homes. Not eligible for delivery under the MPF Program are mortgage loans that are not ratable by S&P, or loans that are classified as high cost, high rate, or high risk.

Collectibility of mortgage loans is supported by liens on real estate securing the loan. For conventional loans, defined as mortgage loans other than VA and FHA insured loans, additional loss protection is provided by private mortgage insurance required for MPF loans with a loan-to-value ratio of more than 80% at origination, which is paid for by the borrower. The FHLBNY is responsible for losses up to the “first loss level.” Losses beyond this layer are absorbed through credit enhancement provided by the member participating in the Mortgage Partnership Program. All residual credit exposure is FHLBNY’s responsibility. The amount of credit enhancement is computed with the use of a Standard & Poor’s model to determine the amount of credit enhancement necessary to bring a pool of uninsured loans to “AA” credit risk. The credit enhancement is an obligation of the member.

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The following provides a roll-forward analysis of the memo First Loss Account (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2007		2006		2007		2006
Beginning balance	$	12,633	$	11,635	$	12,162	$	11,318
Additions		209		269		680		586
Charge-offs		—		—		—		—
Recoveries		—		—		—		—
Ending balance	$	12,842	$	11,904	$	12,842	$	11,904

The First Loss Account (“FLA”) memorializes the first tier of credit exposure. The amount of the FLA is not an indication of inherent losses in the loan portfolio, and is not a loan loss reserve.

The allowance for credit losses with respect to the mortgage loans held-for-portfolio was as follows (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2007		2006		2007		2006
Beginning balance	$	593	$	583	$	593	$	582
Charge-offs		—		—		—		—
Recoveries		—		—		—		—
Net charge-offs		—		—		—		—
Provision for credit losses		—		—		—		1
Ending balance	$	593	$	583	$	593	$	583

Nonperforming mortgage loans represent conventional mortgage loans that are placed on non-accrual and nonperforming status when the collection of contractual principal or interest from the borrower is 90 days or more past due. Loans (excluding Federal Housing Administration and Veterans Administration insured loans) that are 90 days or more past due are considered as non-accrual. Other than the non-accrual loans, no mortgage loans or advances were impaired at September 30, 2007 or December 31, 2006.

Nonperforming mortgage loans and mortgage loans 90 days or more past due and still accruing were as follows (in thousands):

	September 30, 2007		December 31, 2006
Mortgage loans, net of provisions for credit losses	$	1,514,573	$	1,483,419
Non-performing mortgage loans held-for-portfolio	$	2,019	$	2,089
Mortgage loans past due 90 days or more and still accruing interest	$	297	$	850

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The FHLBNY’s interest contractually due and actually received for nonperforming mortgage loans held-for-portfolio was as follows (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2007		2006		2007		2006
Interest contractually due	$	29	$	21	$	66	$	30
Interest actually received		19		19		43		27
Shortfall	$	10	$	2	$	23	$	3
Interest reported as income1	$	—	$	—	$	—	$	—

¹ The Bank does not recognize interest received as income from uninsured loans past due 90-days or greater.

At September 30, 2007, 14 mortgage loans were in foreclosure totaling $1.1 million, of which 10 loans were conventional and 4 government insured FHA loans. At December 31, 2006, the amount in foreclosure was $0.9 million. The FHLBNY does not have any material amounts of real estate owned nor did it take possession of any material amounts of mortgage property during the nine months ended September 30, 2007.

Securities Impairment

Temporary impairment

Note 2 to the unaudited financial statements summarizes held-to-maturity securities with fair values below their amortized cost (in an unrealized loss position) as of September 30, 2007 and December 31, 2006.

The FHLBNY has both the intent and financial ability to hold its temporarily impaired securities to anticipated recovery of their value. In addition, the FHLBNY has reviewed the investment security holdings and determined, based on creditworthiness of the securities and including any underlying collateral and any insurance provisions of the security, that unrealized losses in the analysis represent temporary impairment at September 30, 2007 and December 31, 2006.

Liquidity

The FHLBNY’s primary source of liquidity is the issuance of consolidated obligations. To refinance maturing consolidated obligations, the FHLBNY relies on the willingness of the investors to purchase new issuances. Member deposits and capital stock purchased by members are another source of funds. Short-term unsecured borrowings from other FHLBanks and in the Federal funds market provide additional sources of liquidity. In addition, the Secretary of the Treasury is authorized to purchase up to $4.0 billion of system consolidated obligation debt. The FHLBNY’s liquidity position remains in compliance with all regulatory requirements and it does not foresee any changes to that position. Violations would invoke non-compliance penalties and corrective actions under discretionary powers given to the Finance Board under applicable regulations.

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Liquidity Management

The FHLBNY actively manages its liquidity position to maintain stable, reliable, and cost-effective sources of funds, while taking into account market conditions, member demand, and the maturity profile of the FHLBNY’s assets and liabilities. The FHLBNY recognizes that managing liquidity is critical to achieving its statutory mission of providing low-cost funding to its members. In managing liquidity risk, the Bank is required to maintain certain liquidity measures in accordance with the FHLBank Act and policies developed by the FHLBNY management as approved by the FHLBNY’s Board of Directors.

The specific liquidity requirements applicable to the FHLBNY are described in the next three sections:

Deposit Liquidity.The FHLBNY is required to invest an aggregate amount at least equal to the amount of current deposits received from the FHLBNY’s members in (1) obligations of the U.S. government; (2) deposits in banks or trust companies; or (3) advances to members with maturities not exceeding five years. In addition to accepting deposits from its members, the FHLBNY may accept deposits from any other FHLBanks, or from any other governmental instrumentality. The FHLBNY met these requirements at all times.

Deposit liquidity is calculated daily. Quarterly average reserve requirements and actual reserves are summarized below (in millions):

	Average Deposit		Average Actual
For the quarters ended	Reserve Required		Deposit Liquidity		Excess
September 30, 2007	$	2,686	$	38,277	$	35,591
June 30, 2007		2,726		35,853		33,127
March 31, 2007		1,796		37,559		35,763
December 31, 2006		1,944		42,386		40,442

Operational Liquidity. The FHLBNY must be able to fund its activities as its balance sheet changes from day-to-day. The FHLBNY maintains the capacity to fund balance sheet growth through its regular money market and capital market funding activities. Management monitors the Bank’s operational liquidity needs by regularly comparing the Bank’s demonstrated funding capacity with its potential balance sheet growth. Management then takes such actions as may be necessary to maintain adequate sources of funding for such growth. Operational liquidity is measured daily. The FHLBNY met these requirements at all times.

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

	Average Balance Sheet		Average Actual
For the quarters ended	Liquidity Requirement		Operational Liquidity		Excess
September 30, 2007	$	2,290	$	16,716	$	14,426
June 30, 2007		2,186		15,653		13,467
March 31, 2007		3,482		16,033		12,551
December 31, 2006		5,852		16,970		11,118

Contingency Liquidity.The FHLBNY is required by Finance Board regulations to hold “contingency liquidity” in an amount sufficient to meet its liquidity needs if it is 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 nationally recognized statistical rating organization. Contingency liquidity is reported daily. The FHLBNY met these requirements at all times.

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

	Average Five Day		Average Actual
For the quarters ended	Requirement		Contingency Liquidity		Excess
September 30, 2007	$	1,530	$	15,643	$	14,113
June 30, 2007		1,115		14,460		13,345
March 31, 2007		1,476		14,509		13,033
December 31, 2006		2,130		14,852		12,722

Leverage and unpledged assets to debt requirements

Finance Board regulations require the FHLBanks to maintain, in the aggregate, unpledged qualifying assets equal to the consolidated obligations outstanding. Qualifying assets are defined as cash; secured advances; assets with an assessment or rating at least equivalent to the current assessment or rating of the consolidated obligations; obligations, participations, mortgages, or other securities of or issued by the United States or an agency of the United States; and such securities in which fiduciary and trust funds may invest under the laws of the state in which the FHLBank is located.

The FHLBNY met the qualifying unpledged asset requirements in each of the periods reported as follows (in thousands):

	September 30, 2007			December 31, 2006
Consolidated Obligations:
Bonds	$	63,019,870		$	62,042,675
Discount Notes		30,063,824			12,191,553
Total consolidated obligations		93,083,694			74,234,228
Unpledged assets
Cash		16,634			38,850
Less: Member pass-through reserves at the FRB		(19,695	)		(43,265	)
Secured Advances		75,072,136			59,012,394
Investments		25,114,383			20,503,175
Mortgage Loans		1,514,573			1,483,419
Other loans		—			112
Accrued interest receivable on advances and investments		502,062			406,123
Less: Pledged Assets		(52,200	)		—
		102,147,893			81,400,808
Excess unpledged assets	$	9,064,199		$	7,166,580

Mortgage investment authority

Finance Board investment regulations limit the holding of mortgage-backed securities to 300% of capital. The FHLBNY was in compliance with the regulations at all times.

	September 30, 2007						December 31, 2006
	Actual			Limits			Actual			Limits
Mortgage securities investment authority1		237	%		300	%		254	%		300	%

¹ The measurement date is on a one-month “look-back” basis.

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The credit ratings of the FHLBNY and changes thereof were as follows at September 30, 2007.

Long Term:

	Moody’s Investors Service		S & P
Year	Outlook	Rating	Long-Term Outlook			Rating
2002	July 31, 2002 — Affirmed	Aaa/Stable	March 22, 2002	Long Term rating affirmed	outlook stable	AAA/Stable
2003	September 26, 2003 — Affirmed	Aaa/Stable	March 17, 2003	Long Term rating affirmed	outlook stable	AAA/Stable
			August 8, 2003	Long Term rating affirmed	outlook negative	AAA/Negative
			September 26, 2003	Long Term rating downgraded	outlook stable	AA+/Stable
			November 17, 2003	Long Term rating affirmed	outlook stable	AA+/Stable
2004			April 15, 2004	Long Term rating affirmed	outlook stable	AA+/Stable
2005	June 30, 2005 — Affirmed	Aaa/Stable	April 29, 2005	Long Term rating affirmed	outlook stable	AA+/Stable
2006			August 11, 2006	Long Term rating affirmed	outlook stable	AA+/Stable
			September 21, 2006	Long Term rating upgraded	outlook stable	AAA/Stable

Short Term:

	Moody’s Investors Service		S & P
Year	Outlook	Rating	Short-Term Outlook		Rating
2002	July 31, 2002 — Affirmed	P-1	March 22, 2002	Short Term rating affirmed	A-1+
2003			March 17, 2003	Short Term rating affirmed	A-1+
			August 8, 2003	Short Term rating affirmed	A-1+
			September 26, 2003	Short Term rating affirmed	A-1+
			November 17, 2003	Short Term rating affirmed	A-1+
2004			April 15, 2004	Short Term rating affirmed	A-1+
2005	June 30, 2005 — Affirmed	P-1	April 29, 2005	Short Term rating affirmed	A-1+
2006			August 11, 2006	Short Term rating affirmed	A-1+
			September 21, 2006	Short Term rating affirmed	A-1+

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Management.Market risk, or interest rate risk, is the risk of loss in market value or future earnings that may result from changes in interest rates or market volatility. The FHLBNY’s tolerances for market risk are defined by the Risk Management Policy approved by its Board of Directors. The Risk Management Policy was amended during the first quarter of 2007 to lower the risk limits. The new limit requires that the Bank maintain its duration of equity, or interest rate sensitivity, within a range of +/- four years (which until this year had been +/- five years). The FHLBNY uses option adjusted duration measurements to detail the sensitivity of equity market value and includes all financial instruments, including hedges. The amended policy also requires that, in simulated environments where market interest rates are increased or decreased by 200 basis points relative to current market rates, the FHLBNY’s duration of equity must remain within a range of +/- six years, down from +/- seven years until this year. Management actively monitors and evaluates the effects of interest rate and market risk on earnings and on the market value of equity. The shock levels are chosen in accordance with internal policy and regulatory requirements to estimate the effects of significant interest rate changes on the FHLBNY’s market value.

The key elements of the FHLBNY’s strategy for interest rate risk management include (1) matching the cash flow patterns of assets and liabilities through time and under different interest rate scenarios; and (2) actively measuring and managing the balance sheet’s exposure to changes in interest rate levels (and associated spreads) and market volatilities.

Over the three-month period from June 30, 2007 to September 30, 2007, duration of equity decreased from 1.86 years to 1.31 years, indicating slightly lower sensitivity to changes in interest rates. The Bank’s risk level remained within its risk limits. As of September 30, 2007, the cumulative one-year gap between assets and liabilities was $3.1 billion, down $283 million from June 2007.

During the period June 30, 2007 to September 30, 2007, the FHLBNY’s market risk profile changed as summarized in Duration of Equity tables in subsequent sections of “Market Risk Management”. They illustrate that the FHLBNY has remained within its policy and regulatory requirements during the period.

The FHLBNY’s funding consists of a combination of short- and long-term debt instruments which do not necessarily have matching interest rate sensitivities with the FHLBNY’s investments. To more closely match the sensitivity, the FHLBNY uses derivative instruments to adjust the effective maturities, repricing frequencies, or option characteristics of the debt in a way that is consistent with the overall risk management objectives of match funding.

The FHLBNY typically enters into interest rate swaps, swaptions and cap and floor agreements (collectively referred to as derivatives). The FHLBNY uses such derivatives in three ways: (1) as fair value or cash flow hedges of an underlying financial instrument or a forecasted transaction; (2) as economic hedges to offset derivative positions (e.g., caps) sold to members; and (3) as tools of asset/liability management. In the context of its asset/liability management strategy, the FHLBNY uses derivatives to adjust the interest rate sensitivity of consolidated obligations to more closely approximate the interest rate sensitivity of assets. For instance, the FHLBNY may use a swap to effectively convert a fixed-rate consolidated obligation into a floating-rate obligation with repricing characteristics close to those of the investment being funded.

More information with respect to derivatives and hedging activities is available in Note 19 to annual financial statements included in Form10-K filed on March 29, 2007 for the period ending December 31, 2006.

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Because a significant portion of the FHLBNY’s balance sheet as of September 30, 2007 consisted of mortgage-backed securities and other mortgage-related assets, the FHLBNY is exposed to mortgage prepayment risk. The FHLBNY is exposed to a degree of interest rate risk because the cash flows of the mortgage assets and the associated liabilities that fund them are not perfectly matched through time and across all possible interest rate scenarios. The cash flows from mortgage assets are highly sensitive to changes in interest rates because of the borrowers’ prepayment option. As interest rates decrease, borrowers are more likely to refinance fixed-rate mortgages, resulting in increased prepayments and mortgage cash flows that are received earlier than would otherwise occur. Replacing the higher-rate loans that are prepaid with lower-rate loans has the potential to reduce the FHLBNY’s interest spread unless the Bank can also reduce its debt cost. Conversely, an increase in interest rates may result in slower prepayments and mortgage cash flows being received later than would otherwise occur. In this case, the FHLBNY runs the risk that the debt may re-price faster than the mortgage assets and at a higher cost. This could also reduce the interest spread.

When purchasing mortgage assets, the FHLBNY attempts to issue liabilities with similar cash flows in order to achieve a stable net interest spread. The FHLBNY issues a mix of debt securities across a broad spectrum of final maturities to achieve the desired liability characteristics. Because the estimated lives of mortgage assets change as interest rates change, the FHLBNY issues callable debt or uses derivatives to alter the estimated life of liabilities and offset the expected change in cash flows of our mortgage assets.

Risk measurement at the FHLBNY takes two major forms: (1) ongoing business risk measures and analyses; and, (2) stress test scenarios. These two categories of measures help the FHLBNY in its day-to-day risk management decisions. Stress test scenarios identify and quantify the FHLBNY’s exposure to extreme but improbable events.

Ongoing business risk measures and analyses seek to quantify the level of net interest income at risk (i.e., how much income the FHLBNY could lose as a result of various types of arbitrarily large interest rate shocks). These calculations essentially amount to studying the impact of stressful interest rate shocks on projected net interest income. The projections start from a “snapshot” of the current balance sheet and simulate its evolution, over a one-year horizon, taking into account business projections of the likely behavior of advances and assumptions about the net spread earned on each asset category. The result is a one-year projection of net interest income. Changes to that initial forecast by stressful interest rate scenarios then give the FHLBNY a measure of how much income it could gain or lose under each scenario. Experience has shown that such analyses, even though they rely heavily on assumptions, provide a reasonable measure of the risks that the FHLBNY incurs as a going concern, regardless of the interest rate environment. As defined by the FHLBNY, net interest income at risk measures the percentage change in projected net interest income from the spread between asset yields and liability costs resulting from an instantaneous, parallel +/- 200 basis-point rate shock. This risk measure is reported to the Board of Directors in accordance with the Risk Management Policy. To manage its interest rate risk, the FHLBNY keeps close watch on the difference between the interest rate sensitivity (duration) of its assets and the duration of its liabilities. This difference between the estimated durations of portfolio assets and liabilities is called the duration gap. The duration gap represents the extent to which estimated cash flows for assets and liabilities are matched, on average, over time and across interest rate scenarios. A positive duration gap signals a greater exposure to rising interest rates because it indicates that the duration of assets exceeds the duration of liabilities. A negative duration gap signals a greater exposure to declining interest rates because the duration of assets is less than the duration of liabilities.

A stress test aims at capturing the impact of extreme (but rare) market rate changes on the market value of equity and net interest income. The FHLBNY has developed a technique to identify the interest rate and volatility scenario that can cause the most severe loss in the market value of equity, given current market and balance sheet conditions. Every month, this scenario is applied to the FHLBNY’s balance sheet and the resulting loss in the market value of equity is evaluated. Besides providing a measure of the potential loss under the extreme scenario, this technique enables the FHLBNY to identify the nature of the changes in market risk factors to which it is the most sensitive, allowing FHLBNY to take appropriate action to address those risk factors. The FHLBNY views such additional tests as an integral part of its risk management strategy.

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The FHLBNY monitors the balance sheet and adjusts it as necessary to contain interest rate risk within the Bank’s policy limits on the sensitivity of net interest income from spread, the size of periodic repricing gaps, and equity duration.

Since end of 2006, the Bank’s portfolio has been subjected to significant interest rate changes including a much more inverted curve and lower rates. In addition, the credit crunch in the third quarter of 2007 made the Bank’s debt more attractive to investors compared with non-GSE debt and thus led to an increase in value of the Bank’s Consolidated Obligations compared with its mortgage-related assets and hedges. The results of the combined interest rate and basis changes created the significant differences in the Bank’s September 30, 20007 fair values compared with the December 31, 2006 values as shown in Note 12.

Net Interest Income at Risk. During the one-year period, there were no substantive changes to the FHLBNY’s modeling processes. As of September 30, 2007, the FHLBNY’s one-year net interest income from spread at risk measures were ‑9.07% and 10.25% compared to ‑6.05% and 5.37% on June 30, 2007 under the 200 basis-point up and down shocks. These figures are calculated from the perspective of an ongoing business and are, therefore, based on certain assumptions regarding the probable evolution of the FHLBNY’s main line of business, advances, and its cost of funds. The FHLBNY’s limit on net interest income from spread at risk is ‑15%. The Bank was, therefore, within its limit for net interest income sensitivity at September 30, 2007 and at June 30, 2007. The FHLBNY monitors its repricing gaps primarily to limit the variability of net interest income.

Operational Risk Management

Operational risk is the risk of loss resulting from the failures or inadequacies of internal processes, people, and systems, or resulting from external events. Operational risks include those arising from fraud, human error, computer system failures and a wide range of external events - from adverse weather to terrorist attacks. The management of these risks is the responsibility of the senior managers at the operating level. To assist them in discharging this responsibility and to ensure that operational risk is managed consistently throughout the organization, the FHLBNY has developed an operational risk management framework, which continues to evolve. The FHLBNY’s Operational Risk Management framework defines the core governing principles for operational risk management and provides the framework to identify, control, monitor, measure, and report operational risks in a consistent manner across the FHLBNY.

Risk and Control Self-Assessment

FHLBNY’s Risk and Control Self-Assessment incorporates standards for risk and control self-assessment which standards apply to all businesses and establish Risk and Control Self-Assessment as the process for identifying the risks inherent in a business’ activities and for evaluating and monitoring the effectiveness of the controls over those risks. It is the policy of the FHLBNY to require businesses and staff functions to perform a Risk and Control Self-Assessment on a periodic basis. The Risk and Control Self-Assessment must include documentation of the control environment as well as policies for assessing risks and controls, testing commensurate with risk level and tracking corrective action for control breakdowns or deficiencies. The Risk and Control Self-Assessment also must require periodic reporting to senior management and to the Board’s Audit and Risk Management Committee.

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Information Security and Continuity of Business

A particular area of focus in recent years has been business continuity planning and disaster recovery preparedness. The Bank’s operations and recovery data centers are connected by diverse, high-speed telecommunications links, allowing real-time replication of critical data.

Sensitivity of Duration of Equity

The following table summarizes the sensitivity of the duration of equity as of September 30, 2007, and December 31, 2006 (in years):

Duration of Equity (in years)	September 30, 2007			December 31, 2006
Base		1.31			1.10
Up-Base		2.35			2.84
Down-Base		(4.18	)		(3.11	)
Duration Gap (in years)		0.04			0.03

The following tables track the behavior of the FHLBNY’s duration of equity at the end of the following months during 2007 and 2006.

	2007 Duration Measures
	(as of month-end, in years)
	Duration of		Duration of		Duration		Duration of
	Assets		Liabilities		Gap		Equity
January		0.61		0.57		0.05		1.48
February		0.58		0.56		0.02		0.96
March		0.57		0.54		0.03		1.12
April		0.57		0.53		0.04		1.30
May		0.60		0.53		0.06		1.82
June		0.60		0.54		0.06		1.86
July		0.61		0.54		0.07		1.96
August		0.48		0.47		0.01		0.73
September		0.47		0.43		0.04		1.31

Note: Numbers may not add due to rounding.

	2006 Duration Measures
	(as of month-end, in years)
	Duration of		Duration of		Duration			Duration of
	Assets		Liabilities		Gap			Equity
January		0.59		0.58		0.01			0.81
February		0.59		0.58		0.00			0.66
March		0.61		0.58		0.03			1.16
April		0.61		0.56		0.04			1.38
May		0.62		0.56		0.06			1.84
June		0.59		0.55		0.04			1.41
July		0.55		0.52		0.03			1.16
August		0.55		0.54		0.00			0.62
September		0.54		0.55		(0.01	)		0.42
October		0.57		0.56		0.01			0.71
November		0.53		0.55		(0.02	)		0.10
December		0.60		0.58		0.03			1.10

Note: Numbers may not add due to rounding.

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The following tables display the FHLBNY’s maturity/repricing gaps¹ as of September 30, 2007 (in millions):

	Interest Rate Sensitivity
	September 30, 2007
			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	$	14,643	$	123		$	396		$	306		$	905
MBS Investments		1,190		1,295			3,047			1,883			2,842
Adjustable-rate loans and advances		19,133		—			—			—			—
Net unswapped		34,965		1,418			3,443			2,190			3,748
Fixed-rate loans and advances		9,961		4,294			7,603			7,607			25,954
Swaps hedging advances		41,021		(2,557	)		(5,497	)		(7,168	)		(25,799	)
Net fixed-rate loans and advances		50,982		1,737			2,106			439			154
Loans to other FHLBanks		—		—			—			—			—
Total interest-earning assets	$	85,947	$	3,155		$	5,549		$	2,628		$	3,902
Interest-bearing liabilities:
Deposits	$	3,340	$	—		$	—		$	—		$	—
Discount notes		29,575		489			—			—			—
Swapped discount notes		—		—			—			—			—
Net discount notes		29,575		489			—			—			—
Consolidated Obligation Bonds
FHLB bonds		21,041		11,566			21,092			5,722			3,557
Swaps hedging bonds		29,119		(9,164	)		(14,700	)		(3,085	)		(2,170	)
Net FHLB bonds		50,160		2,402			6,392			2,637			1,387
Total interest-bearing liabilities	$	83,075	$	2,891		$	6,392		$	2,637		$	1,387
Post hedge gaps:
Periodic gap	$	2,872	$	264		$	(843	)	$	(8	)	$	2,515
Cumulative gaps	$	2,872	$	3,136		$	2,293		$	2,285		$	4,800

Note: Numbers may not add due to rounding.

¹ Repricings are estimated at the scheduled rate reset dates for floating rate instruments, and at maturity for fixed rate instruments. For callable instruments, the repricing period is estimated by the earlier of the estimated call date under the current interest rate environment or the instrument’s contractual maturity.

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The following tables display the FHLBNY’s maturity/repricing gaps¹ as of December 31, 2006 (in millions):

	Interest Rate Sensitivity
	December 31, 2006
			More than			More than			More than
	Six months		six months to			one year to			three years to			More than
	or less		one year			three years			five years			five years
Interest-earning assets:
Non-MBS Investments	$	9,669	$	126		$	408		$	309		$	843
MBS Investments		1,150		994			4,153			1,907			2,428
Adjustable-rate loans and advances		13,251		—			—			—			—
Net unswapped		24,071		1,120			4,561			2,216			3,271
Fixed-rate loans and advances		5,678		2,744			9,799			7,073			20,444
Swaps hedging advances		34,745		(1,593	)		(6,415	)		(6,483	)		(20,254	)
Net fixed-rate loans and advances		40,423		1,151			3,384			590			189
Loans to other FHLBanks		—		—			—			—			—
Total interest-earning assets	$	64,494	$	2,271		$	7,946		$	2,806		$	3,460
Interest-bearing liabilities:
Deposits	$	2,389	$	—		$	—		$	—		$	—
Discount notes		12,171		21			—			—			—
Swapped discount notes		—		—			—			—			—
Net discount notes		12,171		21			—			—			—
Consolidated Obligation Bonds
FHLB bonds		18,339		11,747			23,070			5,560			3,481
Swaps hedging bonds		28,344		(9,045	)		(15,071	)		(2,313	)		(1,915	)
Net FHLB bonds		46,683		2,701			7,999			3,247			1,566
Total interest-bearing liabilities	$	61,243	$	2,722		$	7,999		$	3,247		$	1,566
Post hedge gaps:
Periodic gap	$	3,251	$	(451	)	$	(53	)	$	(441	)	$	1,894
Cumulative gaps	$	3,251	$	2,801		$	2,747		$	2,306		$	4,201

Note: Numbers may not add due to rounding.

¹ Repricings are estimated at the scheduled rate reset dates for floating rate instruments, and at maturity for fixed rate instruments. For callable instruments, the repricing period is estimated by the earlier of the estimated call date under the current interest rate environment or the instrument’s contractual maturity.

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Item 4T. CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures: An evaluation of the Bank’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Act”) was carried out under the supervision and with the participation of the Bank’s President and Chief Executive Officer, Alfred A. DelliBovi, and Senior Vice President and Chief Financial Officer, Patrick A. Morgan, at September 30, 2007. Based on this evaluation, they concluded that as of September 30, 2007, 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 third quarter that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.

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Part II. OTHER INFORMATION

Item 1. 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 material pending legal proceedings against the FHLBNY.

Item 1A. RISK FACTORS

There have been no material changes from the risk factors included in the FHLBNY’s Form 10-K for the fiscal year ended December 31, 2006.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Item 5. OTHER INFORMATION

None.

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Item 6. EXHIBITS

Exhibit No.	Identification of Exhibit
31.01	Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer
31.02	Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer
32.01	Certification of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act 2002, 18 U.S.C. Section 1350
32.02	Certification of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act 2002, 18 U.S.C. Section 1350

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FEDERAL HOME LOAN BANK OF NEW YORK (Registrant)
By:	/s/ Patrick A. Morgan
Patrick A. Morgan
Senior Vice President and Chief Financial Officer Federal Home Loan Bank of New York (on behalf of the Registrant and as Principal Financial Officer)

Date: November 13, 2007

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EXHIBIT INDEX

Exhibit No.	Identification of Exhibit
31.01	Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer
31.02	Certification Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer
32.01	Certification of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act 2002, 18 U.S.C. Section 1350
32.02	Certification of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act 2002, 18 U.S.C. Section 1350

83