| Fair Values of Financial Instruments. | Note 18. Fair Values of Financial Instruments. Estimated Fair Values — Summary Tables – June 30, 2024 Estimated Fair Value Netting Carrying Adjustment and Financial Instruments Value Total Level 1 Level 2 Level 3 (a) Cash Collateral Assets Cash and due from banks $ 66,091 $ 66,091 $ 66,091 $ — $ — $ — Interest-bearing deposits 2,860,000 2,860,014 — 2,860,014 — — Securities purchased under agreements to resell 6,920,000 6,920,029 — 6,920,029 — — Federal funds sold 14,010,000 14,010,066 — 14,010,066 — — Trading securities 5,615,738 5,615,738 5,615,738 — — — Equity Investments 95,797 95,797 95,797 — — — Available-for-sale securities 9,243,456 9,243,456 — 8,019,768 1,223,688 — Held-to-maturity securities 11,685,219 11,305,728 — 11,120,401 185,327 — Advances 114,363,400 114,503,191 — 114,503,191 — — Mortgage loans held-for-portfolio, net 2,227,452 1,934,239 — 1,934,239 — — Accrued interest receivable 733,712 733,712 — 733,712 — — Derivative assets 125,626 125,626 — 3,273,930 — (3,148,304) Other financial assets 250 250 — — 250 — Liabilities Deposits 2,214,265 2,214,297 — 2,214,297 — — Consolidated obligations Bonds 95,174,121 94,453,622 — 94,453,622 — — Discount notes 60,757,903 60,787,841 — 60,787,841 — — Mandatorily redeemable capital stock 6,336 6,336 6,336 — — — Accrued interest payable 763,553 763,553 — 763,553 — — Derivative liabilities 7,387 7,387 — 3,786,941 — (3,779,554) Other financial liabilities — — — — — — December 31, 2023 Estimated Fair Value Netting Carrying Adjustment and Financial Instruments Value Total Level 1 Level 2 Level 3 (a) Cash Collateral Assets Cash and due from banks $ 48,198 $ 48,198 $ 48,198 $ — $ — $ — Interest-bearing deposits 1,945,000 1,945,022 — 1,945,022 — — Securities purchased under agreements to resell 7,820,000 7,820,064 — 7,820,064 — — Federal funds sold 9,640,000 9,640,092 — 9,640,092 — — Trading securities 5,886,421 5,886,421 5,886,421 — — — Equity Investments 91,879 91,879 91,879 — — — Available-for-sale securities 9,106,743 9,106,743 — 7,878,505 1,228,238 — Held-to-maturity securities 11,869,328 11,531,901 — 11,337,969 193,932 — Advances 108,890,128 108,936,655 — 108,936,655 — — Mortgage loans held-for-portfolio, net 2,179,766 1,940,678 — 1,940,678 — — Accrued interest receivable 581,608 581,608 — 581,608 — — Derivative assets 125,202 125,202 — 2,557,617 — (2,432,415) Other financial assets 378 378 — — 378 — Liabilities Deposits 3,481,853 3,481,961 — 3,481,961 — — Consolidated obligations Bonds 97,569,062 96,836,586 — 96,836,586 — — Discount notes 47,906,908 47,932,222 — 47,932,222 — — Mandatorily redeemable capital stock 7,219 7,219 7,219 — — — Accrued interest payable 716,021 716,021 — 716,021 — — Derivative liabilities 12,409 12,409 — 3,256,444 — (3,244,035) Other financial liabilities — — — — — — The fair value amounts recorded on the Statements of Condition or presented in the table above have been determined by the FHLBNY using available market information and our reasonable judgment of appropriate valuation methods. (a) Level 3 Instruments — The fair values of non-agency private-label MBS and housing finance agency bonds were estimated by management based on pricing services. Valuations may have required pricing services to use significant inputs that were subjective because of the current lack of significant market activity; the inputs may not be market-based and observable. Fair Value Hierarchy The FHLBNY records trading securities, equity investments, available-for-sale securities, derivative instruments, and Consolidated obligations and advances elected under the FVO at fair values on a recurring basis. On a non-recurring basis for the FHLBNY, when mortgage loans held-for-portfolio are written down or are foreclosed as Other Real Estate Owned (REO or OREO), they are recorded at the fair values of the real estate collateral supporting the mortgage loans. The accounting standards under Fair Value Measurement defines fair value, establishes a consistent framework for measuring fair value and requires disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Among other things, the standard requires the FHLBNY to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard specifies a hierarchy of inputs based on whether the inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the FHLBNY’s market assumptions. These two types of inputs have created the following fair value hierarchy, and an entity must disclose the level within the fair value hierarchy in which the measurements are classified for all assets and liabilities measured on a recurring or non-recurring basis: ● Level 1 Inputs — Quoted prices (unadjusted) for identical assets or liabilities in an active market that the reporting entity can access on the measurement date. ● Level 2 Inputs — Inputs other than quoted prices within Level 1 that are observable inputs for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; (3) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals, and volatilities). ● Level 3 Inputs — Inputs that are unobservable and significant to the valuation of the asset or liability. The inputs are evaluated on an overall level for the fair value measurement to be determined. This overall level is an indication of market observability of the fair value measurement for the asset or liability. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities. These reclassifications are reported as transfers in/out as of the beginning of the quarter in which the changes occur. There were no such transfers in any periods in this report. The availability of observable inputs can vary from product to product and is affected by a wide variety of factors including, for example, the characteristics peculiar to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the FHLBNY in determining fair value is greatest for instruments categorized as Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Summary of Valuation Techniques and Primary Inputs The fair value of a financial instrument that is an asset is defined as the price the FHLBNY would receive to sell the asset in an orderly transaction with market participants. A financial liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair values were based on observable market prices or parameters or derived from such prices or parameters. Where observable prices are not available, valuation models and inputs are utilized. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or markets and the instruments’ complexity. Because an active secondary market does not exist for a portion of the FHLBNY’s financial instruments, in certain cases, fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change. For assets and liabilities carried at fair value, the FHLBNY measures fair value using the procedures set out below: Mortgage-backed securities, including housing finance obligations, classified as available-for-sale The FHLBNY has also concluded that the pricing vendors use methods that generally employ, but are not limited to benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of like securities, sector groupings, and/or matrix pricing. Based on the FHLBNY’s review processes, management has concluded that inputs into the pricing models employed by pricing services for the FHLBNY’s investments in GSE securities classified as available-for-sale are market-based and observable and are considered to be within Level 2 of the fair value hierarchy. Housing finance agency bonds — The fair value of housing finance agency bonds is estimated by management using information primarily from pricing services. Because of the current lack of significant market activity, their fair values were categorized within Level 3 of the fair value hierarchy as inputs into vendor pricing models may not be market-based and observable. Fair values of Mortgage-backed securities deemed impaired Trading Securities Equity Investments Advances elected under the FVO The CO Curve is the primary input, which is market-based and observable. Inputs to apply spreads, which are FHLBNY specific, were not material. Fair values were classified within Level 2 of the valuation hierarchy. The FHLBNY determines the fair values of advances elected under the FVO by calculating the present value of expected future cash flows from the advances, a methodology also referred to as the Income approach under the Fair Value Measurement standards. The discount rates used in these calculations are equivalent to the replacement advance rates for advances with similar terms. In accordance with the Finance Agency’s “Advances” regulations, an advance with a maturity or repricing period greater than six months requires a prepayment fee sufficient to make a FHLBank financially indifferent to the borrower’s decision to prepay the advance. Therefore, the fair value of an advance does not assume prepayment risk. The inputs used to determine fair value of advances elected under the FVO are as follows: ● CO Curve. The FHLBNY uses the CO Curve, which represents its cost of funds, as an input to estimate the fair value of advances, and to determine current advance rates. This input is considered market observable and therefore a Level 2 input. ● Volatility assumption. To estimate the fair value of advances with optionality, the FHLBNY uses market-based expectations of future interest rate volatility implied from current market prices for similar options. This input is considered a Level 2 input as it is market-based and market observable. ● Spread adjustment. Adjustments represent the FHLBNY’s mark-up based on its pricing strategy. The input is considered as unobservable and is classified as a Level 3 input. The spread adjustment is not a significant input to the overall fair value of an advance. Consolidated Obligations elected under the FVO ● CO Curve and Benchmark Swap Curves. The Office of Finance constructs an internal curve, referred to as the CO Curve, using the U.S. Treasury Curve as a base curve that is then adjusted by adding indicative spreads obtained from market observable sources. These market indications are generally derived from pricing indications from dealers, historical pricing relationships, recent GSE trades and secondary market activity. The FHLBNY considers the inputs as Level 2 inputs as they are market observable. ● Volatility assumptions. To estimate the fair values of Consolidated obligations with optionality, the FHLBNY uses market-based expectations of future interest rate volatility implied from current market prices for similar options. These inputs are also considered Level 2 as they are market-based and observable. No CO debt elected under the FVO were structured with options in any periods in this report. Derivative Assets and Liabilities — Starting in mid-October 2020, interest rate swaps cleared by Central Clearing Houses, LCH and the CME, are valued by discounting forward cash flows by the SOFR index, consistent with the change to SOFR in the interest accrual calculation of margins. The FHLBNY’s valuation model utilizes a modified Black-Karasinski Interest-rate related: ● SOFR curve (SOFR/OIS). ● Federal funds curve (FF/OIS curve). ● Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options. ● Prepayment assumption (if applicable). Mortgage delivery commitments (considered a derivative) Management considers the SOFR and the Federal funds curve to be Level 2 inputs. The FHLBNY’s valuation model utilizes industry standard OIS methodology. The model generates forecasted cash flows using the contractual cash flows, then discounts the cash flows by SOFR and FF/OIS curve to generate fair values. Credit risk and credit valuation adjustments The FHLBNY is subject to credit risk in derivatives transactions due to the potential non-performance of its derivatives counterparties or a Derivatives Clearing Organizations (DCO). To mitigate this risk, the FHLBNY has entered into master netting agreements and credit support agreements with its derivative counterparties for its bilaterally executed derivative contracts that provide for the delivery of collateral at specified levels at least weekly. The computed fair values of the derivatives took into consideration the effects of legally enforceable master netting agreements that allow the FHLBNY to settle positive and negative positions and offset cash collateral with the same counterparty on a net basis. For derivative transactions executed as a cleared derivative, the transactions are fully collateralized in cash and for the most part exchanged and settled daily with the DCO. The FHLBNY has also established the enforceability of offsetting rights incorporated in the agreements for the cleared derivative transactions. As a result of these practices and agreements and the FHLBNY’s assessment of any change in its own credit spread, the FHLBNY has concluded that the impact of the credit differential between the FHLBNY and its derivative counterparties and DCO was sufficiently mitigated to an immaterial level that no credit adjustments were deemed necessary to the recorded fair value of Derivative assets and Derivative liabilities in the Statements of Condition at June 30, 2024 and December 31, 2023. For uncleared derivatives transactions executed on or after September 1, 2022, we are subject to two-way initial margin obligations as required by the Wall Street Reform and Consumer Protection Act. For such uncleared derivatives transactions, a party whose initial margin requirement exceeds the $50 million threshold would be required to deliver collateral in the amount by which the initial margin requirement exceeds such specified threshold. Initial margin is required to be held at a third-party custodian for the benefit of the secured party, which can only assert ownership of such collateral upon the occurrence of certain events, which may include an event of default due to bankruptcy, insolvency, or similar proceeding. As of June 30, 2024, the Bank did not exceed the threshold with any of the uncleared derivatives counterparty and did not have to post initial margin or have the counterparty post initial margin to the Bank. Fair Value Measurement The tables below present the fair value of those assets and liabilities that are recorded at fair value on a recurring or non-recurring basis at June 30, 2024 and December 31, 2023, by level within the fair value hierarchy. Certain mortgage loans that were partially charged-off were recorded at their collateral values on a non-recurring basis. REO is measured at fair value when the asset’s fair value less costs to sell is lower than its carrying amount. Items Measured at Fair Value on a Recurring Basis (in thousands): June 30, 2024 Netting Adjustment and Total Level 1 Level 2 Level 3 Cash Collateral Assets Trading securities U.S. Treasury securities $ 5,615,738 $ 5,615,738 $ — $ — $ — Equity Investments 95,797 95,797 — — — Available-for-sale securities GSE/U.S. agency issued MBS 8,019,768 — 8,019,768 — — State and local housing finance agency obligations 1,223,688 — — 1,223,688 — Derivative assets (a) Interest-rate derivatives 125,539 — 3,273,843 — (3,148,304) Mortgage delivery commitments 87 — 87 — — Total recurring fair value measurement - Assets $ 15,080,617 $ 5,711,535 $ 11,293,698 $ 1,223,688 $ (3,148,304) Liabilities Consolidated obligation: Bonds (to the extent FVO is elected) (b) $ (1,899,284) $ — $ (1,899,284) $ — $ — Derivative liabilities (a) Interest-rate derivatives (7,297) — (3,786,851) — 3,779,554 Mortgage delivery commitments (90) — (90) — — Total recurring fair value measurement - Liabilities $ (1,906,671) $ — $ (5,686,225) $ — $ 3,779,554 December 31, 2023 Netting Adjustment and Total Level 1 Level 2 Level 3 Cash Collateral Assets Trading securities U.S. Treasury securities $ 5,886,421 $ 5,886,421 $ — $ — $ — Equity Investments 91,879 91,879 — — — Available-for-sale securities GSE/U.S. agency issued MBS 7,878,505 — 7,878,505 — — State and local housing finance agency obligations 1,228,238 — — 1,228,238 — Derivative assets (a) Interest-rate derivatives 125,045 — 2,557,460 — (2,432,415) Mortgage delivery commitments 157 — 157 — — Total recurring fair value measurement - Assets $ 15,210,245 $ 5,978,300 $ 10,436,122 $ 1,228,238 $ (2,432,415) Liabilities Consolidated obligation: Bonds (to the extent FVO is elected) (b) $ (3,780,541) $ — $ (3,780,541) $ — $ — Derivative liabilities (a) Interest-rate derivatives (12,407) — (3,256,442) — 3,244,035 Mortgage delivery commitments (2) — (2) — — Total recurring fair value measurement - Liabilities $ (3,792,950) $ — $ (7,036,985) $ — $ 3,244,035 (a) Based on analysis of the nature of the risk, the presentation of derivatives as a single class is appropriate. (b) Based on analysis of the nature of risks of Consolidated obligation bonds measured at fair value, the FHLBNY has determined that presenting the bonds as a single class is appropriate. Roll Forward of Level 3 Available-for-Sale Securities (in thousands): State and Local Housing Finance Agency Obligations Three months ended June 30, Six months ended June 30, 2024 2023 2024 2023 Balance, beginning of the period $ 1,227,090 $ 1,109,509 $ 1,228,238 $ 1,109,029 Transfer of securities from held-to-maturity to available-for-sale — — — — Provision for credit losses — — — — Total gains (losses) included in other comprehensive income Net unrealized gains (losses) (387) (713) (1,535) (233) Purchases — — — — Settlements (3,015) (3,050) (3,015) (3,050) Balance, end of the period $ 1,223,688 $ 1,105,746 $ 1,223,688 $ 1,105,746 Items Measured at Fair Value on a Non-recurring Basis (in thousands): During the period ended December 31, 2023 Fair Value Level 1 Level 2 Level 3 Mortgage loans held-for-portfolio $ — $ — $ — $ — Real estate owned 391 — — 391 Total non-recurring assets at fair value $ 391 $ — $ — $ 391 During the period ended June 30, 2024, de minimis amounts were recorded. Mortgage loans and REO In accordance with disclosure provisions, we have reported changes in fair values of such assets as of the date the fair value adjustments were recorded during the period ended June 30, 2024 and December 31, 2023, and the reported fair values were not as of the period end dates. Fair Value Option Disclosures From time to time, the FHLBNY will elect the FVO for advances and Consolidated obligations on an instrument-by-instrument basis with changes in fair value reported in earnings. Customarily, the election is made when either the instruments do not qualify for hedge accounting or may be at risk for not meeting hedge effectiveness requirements; the objective is primarily to mitigate the potential income statement volatility that can arise from economic hedging relationships in which the carrying value of the hedged item is not adjusted for changes in fair value. We may also elect advances under the FVO when analysis indicates that changes in the fair values of the advance would be an offset to fair value volatility of debt elected under the FVO. We may also elect CO bonds under the FVO to achieve asset liability objectives. The FVO election is made at inception of the contracts for advances and debt obligations. For instruments for which the fair value option has been elected, the related contractual interest income, contractual interest expense, the discount amortization on fair value option consolidated obligation discount notes and the premium/discount amortization on fair value option consolidated obligation bonds are recorded as part of net interest income in the Statements of Income. The remaining changes in fair value for instruments for which the fair value option has been elected are recorded as net gains (losses) on financial instruments held under fair value option in the Statements of Income. The change in fair value does not include changes in instrument-specific credit risk. The FHLBNY has determined that no adjustments to the fair values of its instruments recorded under the fair value option for instrument-specific credit risk were necessary at June 30, 2024 and December 31, 2023. As with all advances, when advances are elected under the FVO, they are also fully collateralized through their terms to maturity. We consider our Consolidated obligation debt as high credit quality, highly-rated instruments, and changes in fair values are generally related to changes in interest rates and investor preference, including investor asset allocation strategies. The FHLBNY believes the credit-quality of Consolidated obligation debt has remained stable, and changes in fair value attributable to instrument-specific credit risk, if any, were not material given that the debt elected under the FVO had been issued within the recent past periods, and no adverse changes have been observed in their credit characteristics. The following tables summarize the activity related to financial instruments for which the FHLBNY elected the fair value option (in thousands): Three months ended June 30, 2024 2023 Bonds Balance, beginning of the period $ (2,891,846) $ (4,206,355) New transactions elected for fair value option — — Maturities and terminations 1,000,000 — Net gains (losses) on financial instruments held under fair value option (16,352) 16,676 Change in accrued interest/unaccreted balance 8,914 7,103 Balance, end of the period $ (1,899,284) $ (4,182,576) Six months ended June 30, 2024 2023 Bonds Balance, beginning of the period $ (3,780,541) $ (4,159,862) New transactions elected for fair value option — — Maturities and terminations 1,900,000 — Net gains (losses) on financial instruments held under fair value option (27,322) (22,702) Change in accrued interest/unaccreted balance 8,579 (12) Balance, end of the period $ (1,899,284) $ (4,182,576) The following tables present the change in fair value included in the Statements of Income for financial instruments for which the fair value option has been elected (in thousands): Three months ended June 30, 2024 2023 Net Gains Total Change in Fair Net Gains Total Change in Fair (Losses) Due to Value Included in (Losses) Due to Value Included in Interest Changes in Fair Current Period Interest Changes in Fair Current Period Expense Value Earnings Expense Value Earnings Consolidated obligation bonds $ (12,402) $ (16,352) $ (28,754) $ (22,672) $ 16,676 $ (5,996) Six months ended June 30, 2024 2023 Net Gains Total Change in Fair Net Gains Total Change in Fair (Losses) Due to Value Included in (Losses) Due to Value Included in Interest Changes in Fair Current Period Interest Changes in Fair Current Period Expense Value Earnings Expense Value Earnings Consolidated obligation bonds $ (30,444) $ (27,322) $ (57,766) $ (45,343) $ (22,702) $ (68,045) The following tables compare the aggregate fair value and aggregate remaining contractual principal balance outstanding of financial instruments for which the fair value option has been elected (in thousands): June 30, 2024 Fair Value Over/(Under) Aggregate Unpaid Aggregate Fair Aggregate Unpaid Principal Balance Value Principal Balance Consolidated obligation bonds (a) $ 1,993,965 $ 1,899,284 $ (94,681) December 31, 2023 Fair Value Over/(Under) Aggregate Unpaid Aggregate Fair Aggregate Unpaid Principal Balance Value Principal Balance Consolidated obligation bonds (a) $ 3,893,965 $ 3,780,541 $ (113,424) June 30, 2023 Fair Value Over/(Under) Aggregate Unpaid Aggregate Fair Aggregate Unpaid Principal Balance Value Principal Balance Consolidated obligation bonds (a) $ 4,373,965 $ 4,182,576 $ (191,389) (a) CO bonds – The FHLBNY has elected the FVO on an instrument-by-instrument basis for CO bonds, primarily fixed-rate, intermediate- and short-term debt; management elects the FVO for such CO bonds when management is not able to assert with confidence that the debt would qualify for hedge accounting as such short-term debt may not remain highly effective hedges through the maturity of the bonds. Management may also elect the FVO of certain other CO bonds to achieve asset liability objectives. |
