UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2012

oTRANSITION 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, N.Y.	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.  Yes  x   No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes  x   No  o

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o
(Do not check if a smaller reporting company)

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

The number of shares outstanding of the issuer’s common stock as of October 31, 2012 was 47,006,007.

FEDERAL HOME LOAN BANK OF NEW YORK

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012

Table of Contents

	Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited):
Statements of Condition (Unaudited) as of September 30, 2012 and December 31, 2011	2
Statements of Income (Unaudited) for the Three and Nine Months ended September 30, 2012 and 2011	3
Statements of Comprehensive Income (Unaudited) for the Three and Nine Months ended September  30, 2012 and 2011	4
Statements of Capital (Unaudited) for the Nine Months ended September 30, 2012 and 2011	5
Statements of Cash Flows (Unaudited) for the Nine Months ended September 30, 2012 and 2011	6
Notes to Financial Statements (Unaudited)	8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	48
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	103
ITEM 4. CONTROLS AND PROCEDURES	106
PART II. OTHER INFORMATION	107
ITEM 1. LEGAL PROCEEDINGS	107
ITEM 1A. RISK FACTORS	107
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	107
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	107
ITEM 4. MINE SAFETY DISCLOSURES	107
ITEM 5. OTHER INFORMATION	107
ITEM 6. EXHIBITS	108

1

Federal Home Loan Bank of New York

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

As of September 30, 2012 and December 31, 2011

	September 30, 2012			December 31, 2011
Assets
Cash and due from banks (Note 3)	$	2,900,615		$	10,877,790
Securities purchased under agreements to resell (Note 4)	200,000			—
Federal funds sold (Note 4)	9,946,000			970,000
Available-for-sale securities, net of unrealized gains of $23,306 at September 30, 2012 and $16,419 at December 31, 2011 (Note 6)	2,519,606			3,142,636
Held-to-maturity securities (Note 5)
Long-term securities	11,674,668			10,123,805
Advances (Note 7)	77,864,259			70,863,777
Mortgage loans held-for-portfolio, net of allowance for credit losses of $6,920 at September 30, 2012 and $6,786 at December 31, 2011 (Note 8)	1,747,724			1,408,460
Accrued interest receivable	238,030			223,848
Premises, software, and equipment	12,377			13,487
Derivative assets (Note 16)	14,993			25,131
Other assets	11,805			13,406
Total assets	$	107,130,077		$	97,662,340
Liabilities and capital
Liabilities
Deposits
Interest-bearing demand	$	1,740,652		$	2,066,598
Non-interest bearing demand	16,447			12,450
Term (Note 9)	49,000			22,000
Total deposits	1,806,099			2,101,048
Consolidated obligations, net (Note 10)
Bonds (Includes $14,243,209 at September 30, 2012 and $12,542,603 at December 31, 2011 at fair value under the fair value option)	65,135,853			67,440,522
Discount notes (Includes $1,698,122 at September 30, 2012 and $4,920,855 at December 31, 2011 at fair value under the fair value option)	33,717,806			22,123,325
Total consolidated obligations	98,853,659			89,563,847
Mandatorily redeemable capital stock (Note 12)	20,494			54,827
Accrued interest payable	168,814			146,247
Affordable Housing Program	135,755			127,454
Derivative liabilities (Note 16)	466,298			486,166
Other liabilities	151,618			136,340
Total liabilities	101,602,737			92,615,929
Commitments and Contingencies (Notes 12, 16 and 18)
Capital (Note 12)
Capital stock ($100 par value), putable, issued and outstanding shares: 48,703 at September 30, 2012 and 44,906 at December 31, 2011	4,870,273			4,490,601
Retained earnings
Unrestricted	785,420			722,198
Restricted (Note 12)	79,411			24,039
Total retained earnings	864,831			746,237
Total accumulated other comprehensive income (loss) (Note 13)	(207,764		)	(190,427		)
Total capital	5,527,340			5,046,411
Total liabilities and capital	$	107,130,077		$	97,662,340

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

2

Federal Home Loan Bank of New York

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

For the three and nine months ended September 30, 2012 and 2011

	Three months ended						Nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
Interest income
Advances (Note 7)	$	103,274		$	85,440		$	316,774		$	359,640
Interest-bearing deposits	971			700			2,593			2,221
Securities purchased under agreements to resell (Note 4)	54			—			54			—
Federal funds sold (Note 4)	4,218			1,547			11,021			5,694
Available-for-sale securities (Note 6)	5,731			7,045			18,503			23,205
Held-to-maturity securities (Note 5)
Long-term securities	68,309			70,021			207,244			210,352
Mortgage loans held-for-portfolio (Note 8)	16,461			15,832			48,626			47,160
Loans to other FHLBanks (Note 19)	1			1			3			1
Total interest income	199,019			180,586			604,818			648,273
Interest expense
Consolidated obligations-bonds (Note 10)	94,110			93,292			291,344			310,784
Consolidated obligations-discount notes (Note 10)	16,999			10,286			39,938			24,695
Deposits (Note 9)	150			240			572			1,068
Mandatorily redeemable capital stock (Note 12)	398			660			1,572			1,873
Cash collateral held and other borrowings (Note 19)	4			25			28			56
Total interest expense	111,661			104,503			333,454			338,476
Net interest income before provision for credit losses	87,358			76,083			271,364			309,797
Provision for credit losses on mortgage loans	234			765			893			2,967
Net interest income after provision for credit losses	87,124			75,318			270,471			306,830
Other income (loss)
Service fees and other	2,669			1,579			6,983			4,314
Instruments held at fair value - Unrealized gains (losses)(Note 17)	(9,399		)	(5,173		)	(95		)	(10,574		)
Total OTTI losses	(81		)	(142		)	(451		)	(308		)
Net amount of impairment losses reclassified (from) to Accumulated other comprehensive income (loss)	(534		)	(918		)	(1,490		)	(1,262		)
Net impairment losses recognized in earnings	(615		)	(1,060		)	(1,941		)	(1,570		)
Net realized and unrealized gains (losses) on derivatives and hedging activities (Note 16)	45,093			(8,608		)	127,085			62,606
Net realized gains (losses) from sale of available-for-sale securities and redemption of held-to-maturity securities (Note 5 and 6)	—			—			256			17
Losses from extinguishment of debt	(4,476		)	—			(24,106		)	(55,175		)
Other	(36		)	(441		)	(295		)	(806		)
Total other income (loss)	33,236			(13,703		)	107,887			(1,188		)
Other expenses
Operating	6,022			6,815			20,485			21,995
Compensation and benefits	12,726			12,239			40,133			65,267
Finance Agency and Office of Finance	3,301			3,220			9,946			9,730
Total other expenses	22,049			22,274			70,564			96,992
Income before assessments	98,311			39,341			307,794			208,650
Affordable Housing Program (Note 11)	9,870			4,036			30,936			17,981
REFCORP (Note 11)	—			(365		)	—			30,708
Total assessments	9,870			3,671			30,936			48,689
Net income	$	88,441		$	35,670		$	276,858		$	159,961
Basic earnings per share (Note 14)	$	1.81		$	0.77		$	5.99		$	3.60
Cash dividends paid per share	$	1.12		$	1.12		$	3.50		$	3.69

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

3

Federal Home Loan Bank of New York

Statements of Comprehensive Income — Unaudited (in thousands)

For the three and nine months ended September 30, 2012 and 2011

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Net Income	$	88,441		$	35,670		$	276,858		$	159,961
Other Comprehensive income (loss) adjustments
Net unrealized gains/losses on available-for-sale securities
Unrealized gains (losses)	1,742			(2,472		)	6,887			(6,824		)
Net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities
Non-credit portion	—			(61		)	(132		)	(202		)
Reclassification of non-credit portion included in net income	534			979			1,622			1,464
Accretion of non-credit portion	2,908			3,012			8,154			9,394
Total net non-credit portion of other-than-temporary impairment losses (gains) on held-to-maturity securities	3,442			3,930			9,644			10,656
Net unrealized gains/losses relating to hedging activities
Unrealized (losses) gains	(10,698		)	(86,557		)	(38,171		)	(94,182		)
Reclassification of losses (gains) included in net income	1,058			986			3,272			2,984
Total net unrealized (losses) gains relating to hedging activities	(9,640		)	(85,571		)	(34,899		)	(91,198		)
Pension and postretirement benefits	344			—			1,031			—
Total other comprehensive (loss) income adjustments	(4,112		)	(84,113		)	(17,337		)	(87,366		)
Total comprehensive income (loss)	$	84,329		$	(48,443	)	$	259,521		$	72,595

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

4

Federal Home Loan Bank of New York

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

For the nine months ended September 30, 2012 and 2011

														Accumulated
	Capital Stock (a)													Other
	Class B					Retained Earnings								Comprehensive			Total
	Shares		Par Value			Unrestricted			Restricted		Total			Income (Loss)			Capital
Balance, December 31, 2010	45,290		$	4,528,962		$	712,091		$	—	$	712,091		$	(96,684	)	$	5,144,369
Proceeds from sale of capital stock	17,489		1,748,910			—			—		—			—			1,748,910
Redemption of capital stock	(17,028	)	(1,702,830		)	—			—		—			—			(1,702,830		)
Shares reclassified to mandatorily redeemable capital stock	(34	)	(3,349		)	—			—		—			—			(3,349		)
Cash dividends ($3.69 per share) on capital stock	—		—			(163,728		)	—		(163,728		)	—			(163,728		)
Comprehensive income (loss)	—		—			152,141			7,820		159,961			(87,366		)	72,595
Balance, September 30, 2011	45,717		$	4,571,693		$	700,504		$	7,820	$	708,324		$	(184,050	)	$	5,095,967
Balance, December 31, 2011	44,906		$	4,490,601		$	722,198		$	24,039	$	746,237		$	(190,427	)	$	5,046,411
Proceeds from sale of capital stock	29,406		2,940,626			—			—		—			—			2,940,626
Redemption of capital stock	(25,609	)	(2,560,909		)	—			—		—			—			(2,560,909		)
Shares reclassified to mandatorily redeemable capital stock	—		(45		)	—			—		—			—			(45		)
Cash dividends ($3.50 per share) on capital stock	—		—			(158,264		)	—		(158,264		)	—			(158,264		)
Comprehensive income (loss)	—		—			221,486			55,372		276,858			(17,337		)	259,521
Balance, September 30, 2012	48,703		$	4,870,273		$	785,420		$	79,411	$	864,831		$	(207,764	)	$	5,527,340

(a) Putable stock

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

5

Federal Home Loan Bank of New York

Statements of Cash Flows — Unaudited (in thousands)

For the nine months ended September 30, 2012 and 2011

	Nine months ended
	September 30,
	2012			2011
Operating activities
Net Income	$	276,858		$	159,961
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization:
Net premiums and discounts on consolidated obligations, investments, mortgage loans and other adjustments	(13,674		)	(141,359		)
Concessions on consolidated obligations	3,387			6,841
Premises, software, and equipment	3,276			4,085
Provision for credit losses on mortgage loans	893			2,967
Net realized gains from redemption of held-to-maturity securities	(256		)	(17		)
Credit impairment losses on held-to-maturity securities	1,941			1,570
Change in net fair value adjustments on derivatives and hedging activities	198,666			430,203
Change in fair value adjustments on financial instruments held at fair value	95			10,574
Losses from extinguishment of debt	24,106			55,175
Net change in:
Accrued interest receivable	(11,006		)	43,988
Derivative assets due to accrued interest	2,033			28,120
Derivative liabilities due to accrued interest	5,981			(38,102		)
Other assets	3,750			5,112
Affordable Housing Program liability	8,301			(8,586		)
Accrued interest payable	25,109			(10,608		)
REFCORP liability	—			(21,617		)
Other liabilities	782			719
Total adjustments	253,384			369,065
Net cash provided by (used in) operating activities	530,242			529,026
Investing activities
Net change in:
Interest-bearing deposits	(143,319		)	(890,153		)
Securities purchased under agreements to resell	(200,000		)	—
Federal funds sold	(8,976,000		)	24,000
Deposits with other FHLBanks	(90		)	(100		)
Premises, software, and equipment	(2,166		)	(3,268		)
Held-to-maturity securities:
Long-term securities
Purchased	(3,409,692		)	(2,815,122		)
Repayments	1,863,441			1,765,520
In-substance maturities	4,998			3,935
Available-for-sale securities:
Purchased	—			(1,094,954		)
Repayments	631,231			1,734,926
Proceeds from sales	563			486
Advances:
Principal collected	347,466,634			203,976,117
Made	(354,378,811		)	(196,097,860		)
Mortgage loans held-for-portfolio:
Principal collected	245,744			174,324
Purchased	(587,845		)	(268,842		)
Proceeds from sales of REO	993			1,140
Net cash (used in) provided by investing activities	(17,484,319		)	6,510,149

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

6

Federal Home Loan Bank of New York

Statements of Cash Flows — Unaudited (in thousands)

For the nine months ended September 30, 2012 and 2011

	Nine months ended
	September 30,
	2012			2011
Financing activities
Net change in:
Deposits and other borrowings	$	(315,930	)	$	227,631
Derivative contracts with financing element	(201,268		)	(287,280		)
Consolidated obligation bonds:
Proceeds from issuance	40,830,519			46,999,903
Payments for maturing and early retirement	(43,115,814		)	(52,752,087		)
Net payments on bonds transferred to other FHLBanks (a)	—			(167,381		)
Consolidated obligation discount notes:
Proceeds from issuance	120,033,136			126,916,123
Payments for maturing	(108,440,816		)	(123,766,867		)
Capital stock:
Proceeds from issuance	2,940,626			1,748,910
Payments for redemption / repurchase	(2,560,909		)	(1,702,830		)
Redemption of mandatorily redeemable capital stock	(34,378		)	(8,246		)
Cash dividends paid (b)	(158,264		)	(163,728		)
Net cash provided by (used in) financing activities	8,976,902			(2,955,852		)
Net (decrease) increase in cash and due from banks	(7,977,175		)	4,083,323
Cash and due from banks at beginning of the period	10,877,790			660,873
Cash and due from banks at end of the period	$	2,900,615		$	4,744,196
Supplemental disclosures:
Interest paid	$	324,489		$	399,920
Affordable Housing Program payments (c)	$	22,635		$	26,567
REFCORP payments	$	—		$	52,325
Transfers of mortgage loans to real estate owned	$	1,191		$	1,138
Portion of non-credit OTTI gains on held-to-maturity securities	$	(1,490	)	$	(1,262	)

(a) For information about bonds transferred (to)/from FHLBanks and other related party transactions, see Note 19. Related Party Transactions.

(b) Does not include payments to holders of mandatorily redeemable capital stock. Such payments are reported as interest expense.

(c) AHP payments = (beginning accrual - ending accrual) + AHP assessment for the period; payments represent funds released to the Affordable Housing Program.

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

7

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 local real estate 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 FHLBNY’s defined geographic district is New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands.

Tax Status

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

Assessments

Resolution Funding Corporation (“REFCORP”) Assessments. — Up until June 30, 2011, the FHLBanks, including the FHLBNY, were required to make payments to REFCORP based on a percentage of Net Income.  Each FHLBank was required to make payments to REFCORP until the total amount of payment actually made by all 12 FHLBanks was equivalent to a $300 million annual annuity, whose final maturity date was April 15, 2030.  The Federal Housing Finance Agency has determined that the 12 FHLBanks have satisfied their obligation to REFCORP by the end of that period and no further payments will be necessary.

Affordable Housing Program (“AHP”) Assessments. — 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 12 FHLBanks must set aside the greater of $100 million or 10 percent of their regulatory defined net income for the Affordable Housing Program.

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 reported periods. Although management believes these judgments, estimates and assumptions to be appropriate, 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 presentation of the interim period results have been made.  These unaudited financial statements should be read in conjunction with the FHLBNY’s audited financial statements for the year ended December 31, 2011, included in Form 10-K filed on March 23, 2012.

Note   1.                   Significant Accounting Policies and Estimates.

Significant Accounting Policies and Estimates

The FHLBNY has identified certain accounting policies that it believes are significant 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, evaluating the impairment of the Bank’s securities portfolios, estimating the liabilities for employee benefit programs, and estimating fair values of certain assets and liabilities.  The Bank treats securities purchased under agreements to resell as collateralized financings, and are carried at cost.  With the satisfaction of the FHLBanks’ REFCORP obligation in the second quarter of 2011, the FHLBNY is not required to pay REFCORP assessments on Net income.  Beginning with the third quarter of 2011, the FHLBNY allocates 20% of its net income to a separate restricted retained earnings account in accordance with the Joint Capital Enhancement Agreement among the 12 FHLBanks; for more information, see Note 12. Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings in this Form 10-Q.

Except for the change in the presentation of Comprehensive income as noted below, there have been no significant changes to accounting policies from those identified in Note 1. Significant Accounting Policies and Estimates in Notes to the Financial Statements in the Bank’s most recent Form 10-K filed on March 23, 2012.

Recently Adopted Significant Accounting Policies

Presentation of Comprehensive Income.  On June 16, 2011, the FASB issued guidance that requires an entity to present comprehensive income either in a single statement or in two consecutive statements.  This guidance is effective for interim and annual periods beginning after December 15, 2011 (January 1, 2012 for the FHLBNY) and should be applied retrospectively for all periods presented.  On October 21, 2011, the FASB voted to propose a deferral of the new requirement to present reclassifications of other comprehensive income in the income statement.  Entities would still be required to adopt the other guidance contained in the new accounting standard for the presentation of comprehensive income.  The FHLBNY elected and adopted the two-statement approach beginning on January 1, 2012.  The expanded disclosures are presented as the Statements of Comprehensive Income on page 4 of this Form 10-Q.

Reconsideration of Effective Control for Repurchase Agreements.— On April 29, 2011, the FASB issued guidance to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to

8

repurchase or redeem financial assets before their maturity.  The new guidance removes from the assessment of effective control: (i) the criterion requiring the transferor to have the ability to repurchase or redeem financial assets before their maturity on the substantially agreed-upon terms, even in the event of the transferee’s default, and (ii) the collateral maintenance implementation guidance related to that criterion.  The new guidance became effective for interim or annual periods beginning on or after December 15, 2011 (January 1, 2012, for the Bank) and was applied prospectively to transactions or modifications of existing transactions that occurred on or after January 1, 2012.  The adoption of this guidance did not have a material effect on the Bank’s financial condition, results of operations, or cash flows.

Fair Value Measurement and Disclosure — Beginning January 1, 2012, the FHLBNY adopted the guidance under the FASB’s ASU 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”).  The guidance is intended to result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs, and its adoption will not change the FHLBNY’s methodologies for estimating fair value.  The FHLBNY’s disclosures with respect to the classification of its financial instruments and measurement of their significance are summarized in Note 17. Fair Values of Financial Instruments.  Also, see the FHLBNY’s most recent Form 10-K filed on March 23, 2012.

Note   2.                   Recently Issued Accounting Standards and Interpretations.

Disclosures about Offsetting Assets and Liabilities.  On December 16, 2011, the FASB and the International Accounting Standards Board (“IASB”) issued common disclosure requirements intended to help investors and other financial statement users better assess the effect or potential effect of offsetting arrangements on a company’s financial position, whether a company’s financial statements are prepared on the basis of GAAP or IFRS.  This guidance will require the FHLBNY to disclose both gross and net information about financial instruments, including derivative instruments, which are either offset on the statement of condition or subject to an enforceable master netting arrangement or similar agreement.  This guidance will be effective for interim and annual periods beginning on January 1, 2013 and will be applied retrospectively for all comparative periods presented.  The adoption of this guidance will result in expanded interim and annual financial statement disclosures, but will not affect the FHLBNY’s financial condition, results of operations or cash flows.

Framework For Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention.  On April 9, 2012, the Federal Housing Finance Agency (“FHFA”), the FHLBank’s regulator, issued Advisory Bulletin 2012-02 (“Advisory Bulletin”) that establishes adverse classification, identification of Special Mention assets and off-balance sheet credit exposures.  The guidance is expected to be applied prospectively, and was effective at issuance.

The guidance also prescribes the timing of asset charge-offs if an asset is at 180 days or more past due, subject to certain conditions.

The FHLBNY is continuing to review the guidance, and its preliminary conclusion is that adoption of the Advisory Bulletin would change the FHLBNY’s existing charge-off policy but would not impact the Bank’s credit classification practices or the credit loss measurement methodologies in any significant manner.  Under existing policies, the FHLBNY records a charge-off on MPF loans based upon the occurrence of a confirming event, which is typically the occurrence of an in-substance foreclosure (which occurs when the PFI takes physical possession of real estate without having to go through formal foreclosure procedures) or actual foreclosure.  Adoption of the Advisory Bulletin may accelerate the timing of charge-offs, and the FHLBNY is reviewing the operational aspects of implementing the guidance.  Pre-existing policies require the FHLBNY to record credit loss allowance on a loan level basis on all MPF loans delinquent 90 days or greater, and to measure the allowance based on the shortfall of the value of collateral (less estimated selling costs) to the recorded investment in the impaired loan.  Therefore, the FHLBNY does not expect an acceleration of the charge-offs to impact results of financial condition, results of operations and cash flows, other than to reduce the credit loss allowance and an offsetting reduction in the carrying value of the impaired loans.  The FHLBanks are currently assessing the provisions of the Advisory Bulletin in coordination with the FHFA and have not determined the timing of the implementation.

9

Note   3.Cash and Due from Banks.

Cash on hand, cash items in the process of collection, and amounts due from correspondent banks and the Federal Reserve Banks are included in Cash and due from banks.

Compensating Balances

The Federal Reserve Board of Governors has modified the reserve requirements at the Federal Reserve Bank effective July 12, 2012.  These new requirements state that the FHLBNY is exempted from maintaining any required clearing balance.  Prior to the change, the FHLBNY maintained $1.0 million and utilized the balance to pay for services received from the Federal Reserve Banks.

Pass-through Deposit Reserves

The Bank acts as a pass-through correspondent for member institutions required to deposit reserves with the Federal Reserve Banks.  Pass-through reserves deposited with Federal Reserve Banks were $80.9 million and $69.6 million as of September 30, 2012 and December 31, 2011.  The Bank includes member reserve balances in Other liabilities in the Statements of Condition.

Note   4. Federal Funds Sold and Securities Purchased Under Agreements to Resell

Federal funds sold — Federal funds sold were unsecured advances to third parties.

Securities purchased under agreements to resell - As part of FHLBNY’s banking activities with counterparties, the FHLBNY has entered into secured financing transactions that mature overnight, and can be extended only at the discretion of the FHLBNY.  These transactions involve the lending of cash, against which securities are taken as collateral.  The amount of cash loaned against the securities collateral is a function of the liquidity and quality of the collateral.  The collateral is typically in the form of highly-rated marketable securities, and the FHLBNY has the ability to call for additional collateral if the value of the securities falls below a pre-defined haircut.  The FHLBNY can terminate the transaction and liquidate the collateral if the counterparty fails to post the additional margin.

The FHLBNY does not have the right to repledge the securities received.  Securities purchased under agreements to resell (reverse repos) generally do not constitute a sale for accounting purposes of the underlying securities and so are treated as collateralized financing transactions.

10

Note   5.                   Held-to-Maturity Securities.

Major Security Types

	September 30, 2012
			OTTI					Gross		Gross
	Amortized		Recognized			Carrying		Unrecognized		Unrecognized			Fair
Issued, guaranteed or insured (in thousands):	Cost		in AOCI			Value		Holding Gains		Holding Losses			Value
Pools of Mortgages
Fannie Mae	$	506,221	$	—		$	506,221	$	45,839	$	—		$	552,060
Freddie Mac	147,070		—			147,070		11,249		—			158,319
Total pools of mortgages	653,291		—			653,291		57,088		—			710,379
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits
Fannie Mae	2,831,494		—			2,831,494		44,232		—			2,875,726
Freddie Mac	2,744,500		—			2,744,500		30,994		(130		)	2,775,364
Ginnie Mae	71,393		—			71,393		908		—			72,301
Total CMOs/REMICs	5,647,387		—			5,647,387		76,134		(130		)	5,723,391
Commercial Mortgage-Backed Securities
Fannie Mae	938,867		—			938,867		11,593		—			950,460
Freddie Mac	3,129,720		—			3,129,720		278,886		—			3,408,606
Ginnie Mae	18,222		—			18,222		463		—			18,685
Total commercial mortgage-backed securities	4,086,809		—			4,086,809		290,942		—			4,377,751
Non-GSE MBS (b)
CMOs/REMICs	117,590		(1,083		)	116,507		3,883		(621		)	119,769
Asset-Backed Securities (b)
Manufactured housing (insured) (c)	137,611		—			137,611		149		(3,687		)	134,073
Home equity loans (insured) (c)	210,998		(47,460		)	163,538		47,042		(1,719		)	208,861
Home equity loans (uninsured)	139,977		(17,662		)	122,315		15,399		(12,066		)	125,648
Total asset-backed securities	488,586		(65,122		)	423,464		62,590		(17,472		)	468,582
Total MBS	10,993,663		(66,205		)	10,927,458		490,637		(18,223		)	11,399,872
Other
State and local housing finance agency obligations	747,210		—			747,210		2,496		(57,989		)	691,717
Total Held-to-maturity securities	$	11,740,873	$	(66,205	)	$	11,674,668	$	493,133	$	(76,212	)	$	12,091,589

	December 31, 2011
			OTTI					Gross		Gross
	Amortized		Recognized			Carrying		Unrecognized		Unrecognized			Fair
Issued, guaranteed or insured (in thousands):	Cost		in AOCI			Value		Holding Gains		Holding Losses			Value
Pools of Mortgages
Fannie Mae	$	652,061	$	—		$	652,061	$	49,797	$	—		$	701,858
Freddie Mac	187,515		—			187,515		12,709		—			200,224
Total pools of mortgages	839,576		—			839,576		62,506		—			902,082
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits
Fannie Mae	2,811,573		—			2,811,573		30,131		(1,866		)	2,839,838
Freddie Mac	2,822,438		—			2,822,438		47,207		(1,604		)	2,868,041
Ginnie Mae	89,586		—			89,586		741		—			90,327
Total CMOs/REMICs	5,723,597		—			5,723,597		78,079		(3,470		)	5,798,206
Commercial Mortgage-Backed Securities
Fannie Mae	100,445		—			100,445		8,326		—			108,771
Freddie Mac	1,993,002		—			1,993,002		138,025		—			2,131,027
Ginnie Mae	34,447		—			34,447		978		—			35,425
Total commercial mortgage-backed securities	2,127,894		—			2,127,894		147,329		—			2,275,223
Non-GSE MBS (b)
CMOs/REMICs	186,805		(1,708		)	185,097		2,925		(1,343		)	186,679
Asset-Backed Securities (b)
Manufactured housing (insured) (c)	153,881		—			153,881		—		(8,387		)	145,494
Home equity loans (insured) (c)	230,901		(53,596		)	177,305		34,483		(5,853		)	205,935
Home equity loans (uninsured)	157,089		(20,545		)	136,544		14,294		(18,395		)	132,443
Total asset-backed securities	541,871		(74,141		)	467,730		48,777		(32,635		)	483,872
Total MBS	9,419,743		(75,849		)	9,343,894		339,616		(37,448		)	9,646,062
Other
State and local housing finance agency obligations	779,911		—			779,911		2,433		(80,032		)	702,312
Total Held-to-maturity securities	$	10,199,654	$	(75,849	)	$	10,123,805	$	342,049	$	(117,480	)	$	10,348,374

(a)Unrecognized gross holding gains and losses represent the difference between fair value and carrying value of a held-to-maturity security. At September 30, 2012 and December 31, 2011, the FHLBNY had pledged MBS with an amortized cost basis of $3.1 million and $2.0 million to the FDIC in connection with deposits maintained by the FDIC at the FHLBNY.

(b)Private-label MBS.

(c)Amortized cost - Manufactured housing bonds insured by AGM (formerly FSA) were $137.6 million and $153.9 million at September 30, 2012 and December 31, 2011.  Asset-backed securities (supported by home equity loans) insured by AGM were $70.7 million and $73.7 million at September 30, 2012 and December 31, 2011.  Asset-backed securities (supported by home equity loans) insured by Ambac and MBIA, together, were $140.3 million and $157.2 million at September 30, 2012 and December 31, 2011.  For the purpose of calculating OTTI, the FHLBNY has determined that it will not rely on Ambac for projected cash flow shortfalls.  The FHLBNY will rely on MBIA through December 31, 2012.

11

Unrealized Losses

The following tables summarize held-to-maturity securities with fair values below their amortized cost basis.  The fair values and gross unrealized holding losses (a) are aggregated by major security type and by the length of time individual securities have been in a continuous unrealized loss position (in thousands):

	September 30, 2012
	Less than 12 months					12 months or more					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Non-MBS Investment Securities
State and local housing finance agency obligations	$	—	$	—		$	310,641	$	(57,989	)	$	310,641	$	(57,989	)
MBS Investment Securities
MBS-GSE
Freddie Mac	197,824		(130		)	—		—			197,824		(130		)
Total MBS-GSE	197,824		(130		)	—		—			197,824		(130		)
MBS-Private-Label	877		(2		)	363,753		(28,630		)	364,630		(28,632		)
Total MBS	198,701		(132		)	363,753		(28,630		)	562,454		(28,762		)
Total	$	198,701	$	(132	)	$	674,394	$	(86,619	)	$	873,095	$	(86,751	)

	December 31, 2011
	Less than 12 months					12 months or more					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Non-MBS Investment Securities
State and local housing finance agency obligations	$	—	$	—		$	292,348	$	(80,032	)	$	292,348	$	(80,032	)
MBS Investment Securities
MBS-GSE
Fannie Mae	993,420		(1,866		)	—		—			993,420		(1,866		)
Freddie Mac	729,246		(1,604		)	—		—			729,246		(1,604		)
Total MBS-GSE	1,722,666		(3,470		)	—		—			1,722,666		(3,470		)
MBS-Private-Label	19,418		(430		)	525,436		(61,469		)	544,854		(61,899		)
Total MBS	1,742,084		(3,900		)	525,436		(61,469		)	2,267,520		(65,369		)
Total	$	1,742,084	$	(3,900	)	$	817,784	$	(141,501	)	$	2,559,868	$	(145,401	)

(a)Unrealized holding losses represent the difference between fair value and amortized cost.  The baseline measure of unrealized holding losses is amortized cost, which is not adjusted for non-credit OTTI.  Unrealized holding losses will not equal gross unrecognized losses, which are adjusted for non-credit OTTI.

Redemption Terms

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

	September 30, 2012				December 31, 2011
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
State and local housing finance agency obligations
Due in one year or less	$	1,715	$	1,717	$	3,315	$	3,347
Due after one year through five years	8,300		8,978		—		—
Due after five years through ten years	58,610		57,105		59,175		58,750
Due after ten years	678,585		623,917		717,421		640,215
State and local housing finance agency obligations	747,210		691,717		779,911		702,312
Mortgage-backed securities
Due after one year through five years	75,850		77,402		972		981
Due after five years through ten years	4,354,771		4,679,928		2,836,464		3,005,000
Due after ten years	6,563,042		6,642,542		6,582,307		6,640,081
Mortgage-backed securities	10,993,663		11,399,872		9,419,743		9,646,062
Total Held-to-maturity securities	$	11,740,873	$	12,091,589	$	10,199,654	$	10,348,374

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Interest Rate Payment Terms

The following table summarizes interest rate payment terms of securities classified as held-to-maturity (in thousands):

	September 30, 2012				December 31, 2011
	Amortized		Carrying		Amortized		Carrying
	Cost		Value		Cost		Value
Mortgage-backed securities
CMO
Fixed	$	4,299,415	$	4,297,398	$	3,528,227	$	3,525,334
Floating	5,481,262		5,481,262		4,391,908		4,391,907
Total CMO	9,780,677		9,778,660		7,920,135		7,917,241
Pass Thru (a)
Fixed	1,099,273		1,036,133		1,373,804		1,301,956
Floating	113,713		112,665		125,804		124,697
Total Pass Thru	1,212,986		1,148,798		1,499,608		1,426,653
Total MBS	10,993,663		10,927,458		9,419,743		9,343,894
State and local housing finance agency obligations
Fixed	80,305		80,305		106,901		106,901
Floating	666,905		666,905		673,010		673,010
Total HFA	747,210		747,210		779,911		779,911
Total Held-to-maturity securities	$	11,740,873	$	11,674,668	$	10,199,654	$	10,123,805

(a) Includes MBS supported by pools of mortgages.

Impairment Analysis of GSE-issued and Private Label Mortgage-backed Securities

The FHLBNY evaluates its individual securities issued by Fannie Mae, Freddie Mac and a U.S. government agency by considering the creditworthiness and performance of the debt securities and the strength of the GSE’s guarantees of the securities.  Based on our analysis, GSE- and agency-issued securities are performing in accordance with their contractual agreements.  The FHLBNY believes that it will recover its investments in GSE- and agency-issued securities given the current levels of collateral, credit enhancements and guarantees that exist to protect the investments.  Management evaluates its investments in private-label MBS (“PLMBS”) for OTTI on a quarterly basis by performing cash flow tests on 100 percent of securities.

OTTI— Securities deemed to be OTTI in the three months ended September 30, 2012 had been previously determined to be OTTI, and the additional impairment, or re-impairment was due to further deterioration in the credit performance metrics of the securities.

The following tables present the key characteristics of securities determined to be OTTI (in thousands):

													Three months ended					Nine months ended
	Three months ended September 30, 2012 (a)												September 30, 2012					September 30, 2012
	Insurer MBIA				Insurer Ambac				Uninsured				OTTI (b)					OTTI (b)
Security			Fair				Fair				Fair		Credit			Non-credit		Credit			Non-credit
Classification	UPB		Value		UPB		Value		UPB		Value		Loss			Loss		Loss			Loss
RMBS-Prime	$	—	$	—	$	—	$	—	$	7,987	$	7,432	$	(195	)	$	114	$	(195	)	$	114
HEL Subprime (c)	—		—		42,948		30,193		2,943		2,931		(420		)	420		(1,746		)	1,376
Total Securities	$	—	$	—	$	42,948	$	30,193	$	10,930	$	10,363	$	(615	)	$	534	$	(1,941	)	$	1,490

	Three months ended September 30, 2011 (a)												Three months ended September 30, 2011						Nine months ended September 30, 2011
	Insurer MBIA				Insurer Ambac				Uninsured				OTTI (b)						OTTI (b)
Security			Fair				Fair				Fair		Credit			Non-credit			Credit			Non-credit
Classification	UPB		Value		UPB		Value		UPB		Value		Loss			Loss			Loss			Loss
RMBS-Prime	$	—	$	—	$	—	$	—	$	11,874	$	11,215	$	(81	)	$	(61	)	$	(81	)	$	(61	)
HEL Subprime (c)	18,999		10,461		17,701		11,129		—		—		(979		)	979			(1,489		)	1,323
Total Securities	$	18,999	$	10,461	$	17,701	$	11,129	$	11,874	$	11,215	$	(1,060	)	$	918		$	(1,570	)	$	1,262

(a)Unpaid principal balances and fair values on securities deemed to be OTTI at the OTTI determination quarter end dates.

(b)Represent total OTTI recorded at the OTTI determination quarter end dates.  If the present value of cash flows expected to be collected (discounted at the security’s initial effective yield) is less than the amortized cost basis of the security, an OTTI is considered to have occurred because the entire amortized cost basis of the security will not be recovered.  The credit-related OTTI is recognized in earnings. The non-credit portion of OTTI, which represents fair value losses of OTTI securities (excluding the amount of credit loss), is recognized in AOCI. Positive non-credit loss represents the net amount of non-credit loss reclassified from AOCI to increase the carrying value of securities previously deemed OTTI.

(c)HEL Subprime securities are supported by home equity loans.

Based on cash flow testing, the Bank believes no additional OTTI exists for the remaining investments at September 30, 2012.  The Bank’s conclusion is also based upon multiple factors, but not limited to the expected performance of the underlying collateral, and the evaluation of the fundamentals of the issuers’ financial condition.  Management has not made a decision to sell such securities at September 30, 2012, and has concluded that it will not be required to sell such securities before recovery of the amortized cost basis of the securities.

13

The following table provides roll-forward information about the cumulative credit component of OTTI recognized as a charge to earnings related to held-to-maturity securities (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Beginning balance	$	36,057	$	29,648	$	34,731	$	29,138
Additions for OTTI on securities not previously impaired	—		—		—		25
Additional credit losses for which an OTTI charge was previously recognized	615		1,060		1,941		1,545
Ending balance	$	36,672	$	30,708	$	36,672	$	30,708

Key Base Assumptions

The tables below summarize the weighted average and range of Key Base Assumptions for all private-label MBS at September 30, 2012 and December 31, 2011, including those deemed OTTI: 

	Key Base Assumptions - All PLMBS at September 30, 2012
	CDR % (a)		CPR % (b)		Loss Severity % (c)
Security Classification	Range	Average	Range	Average	Range	Average
RMBS Prime (d)	1.0-6.8	2.1	3.9-35.0	22.4	30.0-68.9	36.7
RMBS Alt-A	1.0-1.0	1.0	2.0-19.6	3.5	30.0-30.0	30.0
HEL Subprime (e)	1.0-11.9	4.5	2.0-9.0	3.7	30.0-100.0	70.1
Manufactured Housing Loans	3.1-6.3	4.9	2.0-3.6	2.7	73.7-79.8	77.2

	Key Base Assumptions - All PLMBS at December 31, 2011
	CDR % (a)		CPR % (b)		Loss Severity % (c)
Security Classification	Range	Average	Range	Average	Range	Average
RMBS Prime (d)	1.0-4.3	1.6	5.2-42.0	21.4	30.0-85.4	37.4
RMBS Alt-A	1.0-1.0	1.0	2.0-11.5	4.2	30.0-30.0	30.0
HEL Subprime (e)	1.0-11.5	4.4	2.0-13.0	3.6	30.0-100.0	74.6
Manufactured Housing Loans	3.5-6.7	5.3	2.1-2.3	2.2	76.6-76.8	76.7

(a)Conditional Default Rate (CDR): 1— ((1-MDR)^12) where, MDR is defined as the “Monthly Default Rate (MDR)” = (Beginning Principal Balance of Liquidated Loans)/(Total Beginning Principal Balance).

(b)Conditional Prepayment Rate (CPR): 1— ((1-SMM)^12) where, SMM is defined as the “Single Monthly Mortality (SMM)” = (Voluntary Partial and Full Prepayments + Repurchases + Liquidated Balances)/(Beginning Principal Balance - Scheduled Principal). Voluntary prepayment excludes the liquidated balances mentioned above.

(c)Loss Severity (Principal and Interest in the current period) = Sum (Total Realized Loss Amount)/Sum (Beginning Principal and Interest Balance of Liquidated Loans).

(d)CMOs/REMICS private-label MBS.

(e)Residential asset-backed MBS.

Significant Inputs

Seven PLMBS were determined to be credit OTTI at September 30, 2012.  The carrying value of one OTTI security was written down to its fair value of $7.4 million on a non-recurring basis and categorized within Level 3 of the fair value hierarchy.  The carrying values of the remaining OTTI securities were less than their fair values at September 30, 2012, and it was not necessary for further write-downs.  The FHLBNY has used third party pricing as the fair values of all MBS, including the bonds deemed OTTI.  Third party prices were obtained from four pricing services; the prices were clustered, and then averaged as described in Note 17. Fair Values of Financial Instruments.  The table below provides the distribution of the prices, and the average price adopted (dollars in thousands except for price).

	Significant Inputs
	Securities deemed OTTI at September 30, 2012
	Carrying		Fair		Fair Value Recorded on			Price		Final
	Value		Value		a Non-recurring basis		Level	Range		Price		Rating
Home Equity Loans
Subprime
Bond 1	$	3,554	$	4,267	$	—	3	$	61.55-71.31	$	62.44	D
Bond 2	2,134		2,540		—		3	$	50.91-67.09	$	58.31	D
Bond 3	5,277		6,609		—		3	$	52.94-70.61	$	55.60	D
Bond 4	2,955		3,393		—		3	$	81.29-98.33	$	81.29	BB
Bond 5	2,805		2,931		—		3	$	98.71-101.77	$	99.60	BB
Bond 6	9,561		13,385		—		3	$	73.70-95.97	$	85.27	CCC
Bond 7	7,432		7,432		7,432		3	$	91.28-95.65	$	93.06	C
Total OTTI PLMBS	$	33,718	$	40,557	$	7,432

Disaggregation of the Level 3 bonds is by collateral type supporting the credit structure of the PLMBS, and the FHLBNY deems that no further disaggregation is necessary for a qualitative understanding of the sensitivity of fair values.

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Note   6.                   Available-for-Sale Securities.

Major Security Types — The amortized cost, gross unrealized gains, losses and fair value (a) of investmentsclassified as AFS were as follows (in thousands):

	September 30, 2012
			OTTI		Gross		Gross
	Amortized		Recognized		Unrealized		Unrealized			Fair
	Cost		in AOCI		Gains		Losses			Value
Cash equivalents (b)	$	125	$	—	$	—	$	—		$	125
Equity funds (b)	5,194		—		556		(46		)	5,704
Fixed income funds (b)	3,358		—		431		—			3,789
GSE and U.S. Obligations
Mortgage-backed securities
CMO-Floating	2,440,855		—		22,509		—			2,463,364
CMBS-Floating	46,768		—		—		(144		)	46,624
Total Available-for-sale securities	$	2,496,300	$	—	$	23,496	$	(190	)	$	2,519,606

	December 31, 2011
			OTTI		Gross		Gross
	Amortized		Recognized		Unrealized		Unrealized			Fair
	Cost		in AOCI		Gains		Losses			Value
Cash equivalents (b)	$	125	$	—	$	—	$	—		$	125
Equity funds (b)	5,955		—		124		(560		)	5,519
Fixed income funds (b)	3,241		—		282		—			3,523
GSE and U.S. Obligations
Mortgage-backed securities
CMO-Floating	3,067,213		—		18,263		(1,516		)	3,083,960
CMBS-Floating	49,683		—		—		(174		)	49,509
Total Available-for-sale securities	$	3,126,217	$	—	$	18,669	$	(2,250	)	$	3,142,636

(a)The carrying value of AFS securities equals fair value.  No AFS securities had been pledged at September 30, 2012 and December 31, 2011.

(b)The Bank has a grantor trust to fund current and future payments for its employee supplemental pension plans.  Investments in the trust are classified as AFS.  The grantor trust invests in money market, equity and fixed income and bond funds.  Daily net asset values are readily available and investments are redeemable at short notice.  Realized gains and losses from investments in the funds were not significant.

Unrealized Losses — MBS Classified as AFS Securities (in thousands):

	September 30, 2012
	Less than 12 months				12 months or more					Total
	Estimated		Unrealized		Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses			Fair Value		Losses
MBS Investment Securities
MBS-GSE
Fannie Mae-CMBS	$	—	$	—	$	46,624	$	(144	)	$	46,624	$	(144	)
Total	$	—	$	—	$	46,624	$	(144	)	$	46,624	$	(144	)

	December 31, 2011
	Less than 12 months					12 months or more					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
MBS Investment Securities
MBS-GSE
Fannie Mae-CMOs	$	162,451	$	(127	)	$	247,794	$	(474	)	$	410,245	$	(601	)
Fannie Mae-CMBS	49,509		(174		)	—		—			49,509		(174		)
Freddie Mac-CMOs	77,834		(29		)	304,846		(886		)	382,680		(915		)
Total	$	289,794	$	(330	)	$	552,640	$	(1,360	)	$	842,434	$	(1,690	)

Impairment Analysis on AFS Securities— The Bank’s portfolio of MBS classified as AFS is comprised primarily of GSE-issued collateralized mortgage obligations, which are “pass through” securities.  The FHLBNY evaluates its individual securities issued by Fannie Mae, Freddie Mac and a U.S. agency by considering the creditworthiness and performance of the debt securities and the strength of the government-sponsored enterprises’ guarantees of the securities.  Based on the analysis, GSE-issued securities are performing in accordance with their contractual agreements.  The FHLBNY believes that it will recover its investments in GSE-issued securities given the current levels of collateral, credit enhancements and guarantees that exist to protect the investments.  Management has not made a decision to sell such securities at September 30, 2012 or subsequently.  Management also concluded that it would likely not be required to sell such securities before recovery of the amortized cost basis of the security.

Management of the FHLBNY has also concluded that gross unrealized losses at September 30, 2012 and December 31, 2011, as summarized in the tables above, were caused by interest rate changes, credit spreads widening and reduced liquidity in the applicable markets, and that unrealized losses represented temporary impairment.  The FHLBNY believes that these securities were not OTTI as of September 30, 2012 and December 31, 2011.

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Redemption Terms

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

	September 30, 2012				December 31, 2011
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Mortgage-backed securities
Due after five years through ten years	$	46,768	$	46,624	$	49,683	$	49,509
Due after ten years	2,440,855		2,463,364		3,067,213		3,083,960
Fixed income funds, equity funds and cash equivalents (b)	8,677		9,618		9,321		9,167
Total Available-for-sale securities	$	2,496,300	$	2,519,606	$	3,126,217	$	3,142,636

(a) The carrying value of AFS securities equals fair value.

(b) Determined to be redeemable at short notice.

Interest Rate Payment Terms

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

	September 30, 2012				December 31, 2011
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Mortgage-backed securities
Mortgage pass-throughs-GSE/U.S. agency issued
Floating- LIBOR indexed	$	2,440,855	$	2,463,364	$	3,067,213	$	3,083,960
Floating CMBS - LIBOR indexed	46,768		46,624		49,683		49,509
Total Mortgage-backed securities (a)	$	2,487,623	$	2,509,988	$	3,116,896	$	3,133,469

(a) Total will not agree to total AFS portfolio because bond and equity funds in a grantor trust have been excluded.

Note 7.                     Advances.

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

Redemption Terms

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

	September 30, 2012						December 31, 2011
			Weighted (b)							Weighted (b)
			Average		Percentage					Average		Percentage
	Amount		Yield		of Total		Amount			Yield		of Total
Due in one year or less	$	27,365,791	0.97	%	37.03	%	$	20,417,821		1.44	%	30.48	%
Due after one year through two years	8,292,399		1.89		11.22		6,746,684			2.70		10.07
Due after two years through three years	5,188,199		2.33		7.02		6,642,878			2.38		9.92
Due after three years through four years	12,757,657		3.46		17.26		6,629,810			2.57		9.90
Due after four years through five years	11,180,781		3.64		15.13		10,999,042			3.99		16.42
Due after five years through six years	5,747,511		3.30		7.78		10,840,355			3.89		16.18
Thereafter	3,368,741		2.13		4.56		4,712,312			2.71		7.03
Total par value	73,901,079		2.24	%	100.00	%	66,988,902			2.68	%	100.00	%
Discount on AHP advances (a)	—						(15		)
Hedging adjustments	3,963,180						3,874,890
Total	$	77,864,259					$	70,863,777

(a)Discounts on AHP advances were amortized to interest income using the level-yield method and were not significant for all periods reported. Interest rate on AHP advances was 3.50% at September 30, 2012, and ranged from 1.25% to 3.50% at December 31, 2011.

(b)The weighted average yield is the weighted average coupon rates for advances, unadjusted for swaps. For floating-rate advances, the weighted average rate is the rate outstanding at the reporting dates.

Advance Prepayment — The optionality embedded in certain financial instruments held by the FHLBNY can create interest-rate risk.  When a member prepays an advance, the FHLBNY could suffer lower future income if the principal portion of the prepaid advance were reinvested in lower-yielding assets that would continue to be funded by higher-cost debt.  To protect against this risk, the FHLBNY generally charges a prepayment fee that makes it financially indifferent to a borrower’s decision to prepay an advance.  Member initiated prepayments totaled $0.1 billion and $0.9 billion for the three and nine months ended September 30, 2012, and $0.3 billion and $8.1 billion for the same periods in 2011.  Prepayment fees of $1.2 million and $10.6 million were recorded in interest income for the three and nine months ended September 30, 2012, and $3.2 million and $55.6 million for the same periods in 2011.  For hedged advances that are prepaid, prepayment fees are recorded net of fair value basis adjustments of the prepaid advances.

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Monitoring and Evaluating Credit Losses — Advances

Summarized below are the FHLBNY’s assessment methodologies for evaluating credit losses on advances.  These methodologies have not changed from those reported and discussed in the audited financial statements included in the FHLBNY’s most recent Form 10-K, filed on March 23, 2012.

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

Credit Risk.  The Bank has policies and procedures in place to manage credit risk.  There were no past due advances and all advances were current for all periods in this report.  Management does not anticipate any credit losses, and accordingly, the Bank has not provided an allowance for credit losses on advances.  The Bank’s potential credit risk from advances is concentrated in commercial banks, savings institutions, and insurance companies.

Concentration of Advances Outstanding.Advances to the FHLBNY’s top ten borrowing member institutions are reported in Note 20. Segment Information and Concentration.  The FHLBNY held sufficient collateral to cover the advances to all institutions and it does not expect to incur any credit losses.

Collateral Coverage of Advances

Security Terms.  The FHLBNY lends to financial institutions involved in housing finance within its district.  Borrowing members pledge their capital stock of the FHLBNY as additional collateral for advances.  As of September 30, 2012 and December 31, 2011, the FHLBNY had rights to collateral with an estimated value greater than outstanding advances.  Based upon the financial condition of the member, the FHLBNY:

(1)Allows a member to retain possession of the mortgage collateral pledged to the FHLBNY if the member executes a written security agreement, provides periodic listings and agrees to hold such collateral for the benefit of the FHLBNY; however, securities and cash collateral are always in physical possession; or

(2)Requires the member specifically to assign or place physical possession of such mortgage collateral with the FHLBNY or its custodial agent.

Beyond these provisions, Section 10(e) of the FHLBank Act affords any security interest granted by a member to the FHLBNY priority over the claims or rights of any other party.  The two exceptions are claims that would be entitled to priority under otherwise applicable law or perfected security interests.  All member obligations with the Bank were fully collateralized throughout their entire term.  The total of collateral pledged to the Bank includes excess collateral pledged above the Bank’s minimum collateral requirements.  However, a “Maximum Lendable Value” is established to ensure that the Bank has sufficient eligible collateral securing credit extensions.  For more information about the FHLBNY’s collateral practices, see the most recent Form 10-K filed on March 23, 2012.

The following table summarizes pledged collateral at September 30, 2012 and December 31, 2011 (in thousands):

Collateral Supporting Indebtedness to Members

	Indebtedness						Collateral (a)
	Advances (b)		Other Obligations (c)		Total Indebtedness		Mortgage Loans (d)		Securities and Deposits (d)		Total (d)
September 30, 2012	$	73,901,079	$	6,716,650	$	80,617,729	$	191,814,009	$	37,292,031	$	229,106,040
December 31, 2011	$	66,988,902	$	2,865,788	$	69,854,690	$	152,236,826	$	40,912,212	$	193,149,038

(a) The level of over-collateralization is on an aggregate basis and may not necessarily be indicative of a similar level of over-collateralization on an individual member basis.  At a minimum, each member pledged sufficient collateral to adequately secure the member’s outstanding obligation with the FHLBNY.  In addition, most members maintain an excess amount of pledged collateral with the FHLBNY to secure future liquidity needs.

(b) Par value.

(c) Standby financial letters of credit, derivatives and members’ credit enhancement guarantee amount (“MPFCE”).

(d) Estimated market value.

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

Location of Collateral Held

	Estimated Market Values
	Collateral in Physical Possession		Collateral Specifically Listed		Collateral Pledged for AHP (a)			Total Collateral Received
September 30, 2012	$	42,983,664	$	186,224,000	$	(101,624	)	$	229,106,040
December 31, 2011	$	46,773,857	$	146,485,001	$	(109,820	)	$	193,149,038

(a)Primarily pledged by non-members to cover potential recovery of AHP Subsidy in the event of non-compliance.  This amount is included in the total collateral pledged, and the FHLBNY allocates to its AHP exposure.

Note 8.Mortgage Loans Held-for-Portfolio.

Mortgage Partnership Finance® program loans, or (MPF®), constitute the majority of the mortgage loans held-for-portfolio.  The MPF program involves investment by the FHLBNY in mortgage loans that are purchased from its participating financial institutions (“PFIs”).  The members retain servicing rights and may credit-enhance the portion of the loans participated to the FHLBNY.  No intermediary trust is involved.

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

	September 30, 2012					December 31, 2011
	Amount			Percentage of Total		Amount			Percentage of Total
Real Estate(a):
Fixed medium-term single-family mortgages	$	390,456		22.67	%	$	329,659		23.55	%
Fixed long-term single-family mortgages	1,331,607			77.32		1,069,956			76.43
Multi-family mortgages	167			0.01		246			0.02
Total par value	1,722,230			100.00	%	1,399,861			100.00	%
Unamortized premiums	31,214					16,811
Unamortized discounts	(2,837		)			(3,592		)
Basis adjustment (b)	4,037					2,166
Total mortgage loans held-for-portfolio	1,754,644					1,415,246
Allowance for credit losses	(6,920		)			(6,786		)
Total mortgage loans held-for-portfolio after allowance for credit losses	$	1,747,724				$	1,408,460

(a) Conventional mortgages represent the majority of mortgage loans held-for-portfolio.

(b) Represents fair value basis of closed delivery commitments.

No loans were transferred to a “loan-for-sale” category.  From time to time, the Bank may request a PFI to repurchase loans if the loan failed to comply with the MPF loan standards.  PFIs repurchased $1.4 million of loans in the three and nine months ended September 30, 2012.  PFIs repurchased $0.2 million and $3.3 million of loans in the same periods of 2011.

The FHLBNY and its members share the credit risk of MPF loans by structuring potential credit losses into layers.  The first layer is typically 100 basis points, but this varies with the particular MPF product.  The amount of the first layer, or First Loss Account (“FLA”), was estimated at $17.7 million and $13.6 million at September 30, 2012 and December 31, 2011.  The FLA is not recorded or reported as a reserve for loan losses, as it serves as a memorandum or information account.  The FHLBNY is responsible for absorbing the first layer.  The second layer is that amount of credit obligations that the PFI has taken on which will equate the loan to a double-A 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 and $1.2 million for the three and nine months ended September 30, 2012, and $0.4 million and $1.2 million for the same periods in 2011.  These fees were reported as a reduction to mortgage loan interest income.

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

·The first layer of protection against loss is the liquidation value of the real property securing the loan.

·The next layer of protection comes from the primary mortgage insurance (“PMI”) that is required for loans with a loan-to-value ratio greater than 80% at origination.

·Losses that exceed the liquidation value of the real property and any PMI, up to an agreed upon amount, the FLA for each Master Commitment, will be absorbed by the FHLBNY.

·Losses in excess of the FLA, up to an agreed-upon amount, the credit enhancement amount, will be covered by the PFI’s credit enhancement obligation.

·Losses in excess of the FLA and the PFI’s remaining credit enhancement for the Master Commitment, if any, will be absorbed by the FHLBNY.

Allowance Methodology for Loan Losses

Mortgage loans are considered impaired when, based on current information and events, it is probable that the FHLBNY will be unable to collect all principal and interest amounts due according to the contractual terms of the

18

mortgage loan agreements.  The Bank performs periodic reviews of individual impaired mortgage loans within the MPF loan portfolio to identify the potential for losses inherent in the portfolio and to determine the likelihood of collection of the principal and interest.  Mortgage loans that are past due 90 days or more or classified under regulatory criteria (Sub-standard, Doubtful or Loss) are evaluated separately on a loan level basis for impairment.  The FHLBNY bases its provision for credit losses on its estimate of probable credit losses inherent in the impaired MPF loan.  The FHLBNY computes the provision for credit losses without considering the private mortgage insurance and other accompanying credit enhancement features (except the “First Loss Account”) to provide credit assurance to the FHLBNY.  If adversely classified, or past due 90 days or more, reserves for conventional mortgage loans, except FHA- and VA-insured loans, are analyzed under liquidation scenarios on a loan level basis, and identified losses are fully reserved.  Management determines the liquidation value of the real-property collateral supporting the impaired loan after deducting costs to liquidate.  That value is compared to the carrying value of the impaired mortgage loan, and a shortfall is recorded as an allowance for credit losses.  This methodology is applied on a loan level basis.  Only FHA- and VA-insured MPF loans are evaluated collectively.

When a loan is foreclosed and the Bank takes possession of real estate, the Bank will charge any excess carrying value over the net realizable value of the foreclosed loan to the allowance for credit losses.

FHA- and VA-insured mortgage loans have minimal inherent credit risk, and are therefore not considered impaired.  Risk of such loans generally arises from servicers defaulting on their obligations.  If adversely classified, the FHLBNY will have reserves established only in the event of a default of a PFI, and reserves would be based on the estimated costs to recover any uninsured portion of the MPF loan.  Classes of the MPF loan portfolio would be subject to disaggregation to the extent that it is needed to understand the exposure to credit risk arising from these loans.  The FHLBNY has determined that no further disaggregation of portfolio segments is needed, other than the methodology discussed above.

Credit Enhancement Fees

As discussed previously, the FHLBNY pays a credit enhancement fee (“CE fees”) to the PFI for taking on a credit enhancement obligation.  For certain MPF products, the CE fees are accrued on the master commitments outstanding and paid each month.  Under the MPF agreements with PFIs, the FHLBNY may recover credit losses from future CE fees.  For certain MPF products, the CE fees are held back for 12 months and then paid monthly to the PFIs.  The FHLBNY does not consider CE fees when computing the allowance for credit losses.  It is assumed that repayment is expected to be provided solely by the sale of the underlying property, and that there is no other available and reliable source of repayment.  Any incurred losses that would be recovered from the credit enhancements are also not reserved as part of allowance for credit loan losses.  In such cases, the FHLBNY would withhold CE fee payments to PFIs.

Allowance for Credit Losses

Allowances for credit losses have been recorded against the uninsured MPF loans.  All other types of mortgage loans were insignificant and no allowances were necessary.  The following provides a roll-forward analysis of the allowance for credit losses (a) (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Allowance for credit losses:
Beginning balance	$	6,878		$	6,349		$	6,786		$	5,760
Charge-offs	(228		)	(584		)	(930		)	(2,421		)
Recoveries	36			198			171			422
Provision for credit losses on mortgage loans	234			765			893			2,967
Ending balance	$	6,920		$	6,728		$	6,920		$	6,728
Ending balance, individually evaluated for impairment	$	6,920		$	6,728		$	6,920		$	6,728
							September 30, 2012			December 31, 2011
Recorded investment, end of period:
Individually evaluated for impairment
Impaired, with or without a related allowance (c)							$	30,719		$	27,054
Not impaired, no related allowance							1,675,475			1,368,062
Total uninsured mortgage loans							$	1,706,194		$	1,395,116
Collectively evaluated for impairment (b)
Impaired, with or without a related allowance (b)							$	320		$	280
Not impaired, no related allowance							56,555			25,194
Total insured mortgage loans							$	56,875		$	25,474

(a) The Bank assesses impairment on a loan level basis for conventional loans.  Increase in allowance for credit losses is primarily because of decline in liquidation values of real property securing impaired loans.

(b) All government-guaranteed loans are collectively evaluated for impairment.  Loans past due 90 days or more were considered impaired but credit analysis indicated funds would be collected and no allowance was necessary.

(c) When a conventional loan is identified as impaired (i.e. it is past due 90 days or more), and if the impaired loan is well collateralized, no allowance may be necessary.

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Non-performing Loans

The FHLBNY’s impaired mortgage loans are reported in the table below (in thousands):

	September 30, 2012		December 31, 2011
Total Mortgage loans, net of provisions for credit losses (a)	$	1,747,724	$	1,408,460
Non-performing mortgage loans - Conventional (b)	$	27,806	$	26,696
Insured MPF loans past due 90 days or more and still accruing interest (b)	$	316	$	278

(a) Includes loans classified as sub-standard, doubtful or loss under regulatory criteria, reported at carrying value.

(b) Data in this table represents unpaid principal balance, and would not agree to data reported in table below at “recorded investment,” which includes interest receivable.

The following table summarizes the recorded investment, the unpaid principal balance and related allowance for impaired loans (individually assessed for impairment), and the average recorded investment of impaired loans (in thousands):

	September 30, 2012						Three months ended September 30, 2012				Nine months ended September 30, 2012
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
Impaired Loans	Investment		Balance		Allowance		Investment		Recognized (c)		Investment		Recognized (c)
With no related allowance:
Conventional MPF Loans (a) (b)	$	7,438	$	7,403	$	—	$	6,932	$	—	$	6,303	$	—
With an allowance:
Conventional MPF Loans (a)	23,281		23,309		6,920		23,544		—		22,672		—
Total Conventional MPF Loans (a)	$	30,719	$	30,712	$	6,920	$	30,476	$	—	$	28,975	$	—

	December 31, 2011
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
Impaired Loans	Investment		Balance		Allowance		Investment		Recognized (c)
With no related allowance:
Conventional MPF Loans (a) (b)	$	5,801	$	5,790	$	—	$	4,605	$	—
With an allowance:
Conventional MPF Loans (a)	21,253		21,287		6,786		21,572		—
Total Conventional MPF Loans (a)	$	27,054	$	27,077	$	6,786	$	26,177	$	—

(a) Based on analysis of the nature of risks of the Bank’s investments in MPF loans, including its methodologies for identifying and measuring impairment, the management of the FHLBNY has determined that presenting such loans as a single class is appropriate.

(b) Collateral values, net of estimated costs to sell, exceeded the recorded investments in impaired loans and no allowances were deemed necessary.

(c)  The Bank does not record interest received to income from uninsured loans past due 90 days or greater as insured loans are not considered impaired.

Mortgage Loans — Interest on Non-performing Loans

The FHLBNY’s interest contractually due and actually received for non-performing loans were as follows (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Interest contractually due (a)	$	482	$	378	$	1,444	$	1,045
Interest actually received	379		347		1,169		967
Shortfall	$	103	$	31	$	275	$	78

(a) The Bank does not recognize interest received as income from uninsured loans past due 90 days or greater.  Cash received is considered as an advance from the PFI or the servicer and recorded as a liability until the loan is performing again.  This table reports Interest income that was not recognized in earnings.  It also reports the actual cash that was received against interest due, but not recognized.  Cash received is recorded as a liability, as the Bank considers cash received on impaired loans as subject to reversal if the loan goes into foreclosure.   See footnote c in table above that reports zero Interest income from impaired MPF loans.

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Recorded investments (a) in MPF loans that were past due loans and real estate owned are summarized below (dollars in thousands):

	September 30, 2012									December 31, 2011
	Conventional			Insured			Other			Conventional			Insured			Other
Mortgage loans:	MPF Loans			Loans			Loans			MPF Loans			Loans			Loans
Past due 30 - 59 days	$	21,218		$	936		$	—		$	21,757		$	1,009		$	—
Past due 60 - 89 days	5,338			228			—			5,920			172			—
Past due 90 days or more	27,825			320			—			26,675			280			—
Total past due	54,381			1,484			—			54,352			1,461			—
Total current loans	1,651,645			55,391			168			1,340,516			24,013			248
Total mortgage loans	$	1,706,026		$	56,875		$	168		$	1,394,868		$	25,474		$	248
Other delinquency statistics:
Loans in process of foreclosure, included above	$	21,111		$	210		$	—		$	18,499		$	163		$	—
Serious delinquency rate (b)	1.66		%	0.56		%	—		%	1.94		%	1.10		%	—		%
Serious delinquent loans total used in calculation of serious delinquency rate	$	28,302		$	320		$	—		$	27,028		$	280		$	—
Past due 90 days or more and still accruing interest	$	—		$	320		$	—		$	—		$	280		$	—
Loans on non-accrual status	$	27,825		$	—		$	—		$	26,675		$	—		$	—
Troubled debt restructurings	$	683		$	—		$	—		$	816		$	—		$	—
Real estate owned	$	656								$	589

(a). Recorded investments include accrued interest receivable and would not equal reported carrying values.

(b). Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of total loan portfolio class recorded investment.

Troubled Debt Restructurings (“TDR”) — At September 30, 2012, the numbers and amounts of mortgage loans classified as TDR were not significant.

The FHLBNY’s MPF Loan troubled debt restructurings primarily involve modifying the borrower’s monthly payment for a period of up to 36 months, with a cap based on a ratio of the borrower’s housing expense to monthly income.  The outstanding principal balance is re-amortized to reflect a principal and interest payment for a term not to exceed 40 years.  This would result in a balloon payment at the original maturity date of the loan as the maturity date and number of remaining monthly payments is unchanged.  If the housing expense ratio is still not met, the interest rate is reduced for up to 36 months in 0.125% increments below the original note rate, to a floor rate of 3.00%, resulting in reduced principal and interest payments until the target housing expense ratio is met.  Impairment recognized on these loans would be part of the allowance for credit losses.  If impaired, the allowance for TDRs would be individually evaluated when determining its related allowance for credit loss.  The credit loss on a TDR would be based on the restructured loan’s expected cash flows over the life of the loan, taking into account the effect of any concessions granted to the borrower.  Based on the structure of the modifications, in particular, the size of the concession granted, and performance of loans modified during 2012, the allowance calculated for the individually impaired TDR loan was not material.  When a TDR is executed, the loan status becomes current, but the loan will continue to be classified as a nonperforming TDR loan as the loan is not performing per the original terms.  For more information, see Note 7. Mortgage Loans Held-for-Portfolio in our audited financial statements, included in our most recent Form 10K filed on March 23, 2012.

Prepayment Risks - Mortgage Loans — The FHLBNY invests in mortgage assets.  The prepayment options embedded in mortgage assets can result in extensions or reductions in the expected maturities of these investments, depending on changes in estimated prepayment speeds.  Finance Agency regulations limit this source of interest-rate risk by restricting the types of mortgage assets the Bank may own to those with limited average life changes under certain interest-rate shock scenarios and by establishing limitations on duration of equity and changes in market value of equity.  The FHLBNY may manage against prepayment and duration risk by funding some mortgage assets with consolidated obligations that have call features.  The FHLBNY issues both callable and non-callable debt to achieve cash flow patterns and liability durations similar to those expected on the mortgage loans.  The FHLBNY analyzes the duration, convexity and earnings risk of the mortgage portfolio on a regular basis under various rate scenarios.  Net income could be reduced if the FHLBNY replaces the mortgages with lower yielding assets and if the Bank’s higher funding costs are not reduced concomitantly.

Note 9.Term Deposits.

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

The following table summarizes term deposits (in thousands):

	September 30, 2012		December 31, 2011
Term deposits due in one year or less	$	49,000	$	22,000

21

Note 10.Consolidated Obligations.

Consolidated obligations are the joint and several obligations of the FHLBanks, and consist of bonds and discount notes.  The FHLBanks issue consolidated obligations through the Office of Finance as their fiscal agent.  In connection with each debt issuance, a FHLBank specifies the amount of debt it wants issued on its behalf.  The Office of Finance tracks the amount of debt issued on behalf of each FHLBank. Each FHLBank separately tracks and records as liability for its specific portion of consolidated obligations for which it is the primary obligor.  Consolidated bonds are issued primarily to raise intermediate- and long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits on maturity.  Consolidated discount notes are issued primarily to raise short-term funds.  Discount notes sell at less than their face amount and are redeemed at par value when they mature.

The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligations.  Although it has never occurred, to the extent that an FHLBank would make a payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank would be entitled to reimbursement from the non-complying FHLBank.  However, if the Finance Agency determines that the non-complying FHLBank is unable to satisfy its obligations, then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis the Finance Agency may determine.  Based on management’s review, the FHLBNY has no reason to record actual or contingent liabilities with respect to the occurrence of events or circumstances that would require the FHLBNY to assume an obligation on behalf of other FHLBanks.  The par amounts of the FHLBanks’ outstanding consolidated obligations, including consolidated obligations held by other FHLBanks, were approximately $0.7 trillion as of September 30, 2012 and December 31, 2011.

Finance Agency 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 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 as follows:

	September 30, 2012		December 31, 2011
Percentage of unpledged qualifying assets to consolidated obligations	108	%	109	%

The following table summarizes consolidated obligations issued by the FHLBNY and outstanding at September 30, 2012 and December 31, 2011 (in thousands):

	September 30, 2012		December 31, 2011
Consolidated obligation bonds-amortized cost	$	64,149,491	$	66,448,705
Hedge basis adjustments	907,860		979,013
Hedge basis adjustments on terminated hedges	63,293		201
FVO (a)-valuation adjustments and accrued interest	15,209		12,603
Total Consolidated obligation-bonds	$	65,135,853	$	67,440,522
Discount notes-amortized cost	$	33,715,582	$	22,121,109
Hedge basis adjustments	—		(1,467		)
FVO (a)-valuation adjustments and remaining accretion	2,224		3,683
Total Consolidated obligation-discount notes	$	33,717,806	$	22,123,325

(a) Accounted under the Fair Value Option rules.

22

Redemption Terms of Consolidated Obligation Bonds

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

	September 30, 2012							December 31, 2011
				Weighted							Weighted
				Average		Percentage					Average		Percentage
Maturity	Amount			Rate (a)		of Total		Amount			Rate (a)		of Total
One year or less	$	41,000,480		0.65	%	64.01	%	$	34,498,875		0.63	%	52.00	%
Over one year through two years	11,167,425			1.37		17.43		20,552,410			1.23		30.99
Over two years through three years	4,581,320			2.34		7.15		3,801,280			2.62		5.73
Over three years through four years	1,934,425			1.94		3.02		3,282,190			2.60		4.95
Over four years through five years	1,060,155			1.12		1.66		971,735			2.52		1.47
Over five years through six years	1,257,835			3.31		1.96		873,470			3.78		1.32
Thereafter	3,053,675			3.14		4.77		2,349,335			3.83		3.54
Total par value	64,055,315			1.12	%	100.00	%	66,329,295			1.21	%	100.00	%
Bond premiums (b)	118,961							145,869
Bond discounts (b)	(24,785		)					(26,459		)
Hedge basis adjustments	907,860							979,013
Hedge basis adjustments on terminated hedges	63,293							201
FVO (c) - valuation adjustments and accrued interest	15,209							12,603
Total Consolidated obligation-bonds	$	65,135,853						$	67,440,522

(a)	Weighted average rate represents the weighted average contractual coupons of bonds, unadjusted for swaps.
(b)	Amortization of bond premiums and discounts resulted in net reduction of interest expense of $15.2 million and $44.3 million for the three and nine months ended September 30, 2012, and $14.6 million and $40.8 million for the same periods in 2011. Amortization of basis adjustments from terminated hedges was $1.1 million and $3.3 million for the three and nine months ended September 30, 2012, and $1.0 million and $3.0 million for the same periods in 2011.
(c)	Accounted under the Fair Value Option rules.

Interest rate Payment Terms

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

	September 30, 2012					December 31, 2011
	Amount			Percentage of Total		Amount			Percentage of Total
Fixed-rate, non-callable	$	51,799,315		80.87	%	$	47,108,685		71.02	%
Fixed-rate, callable	800,000			1.25		1,935,610			2.92
Step Up, callable	781,000			1.22		950,000			1.43
Step Down, callable	40,000			0.06		—			—
Single-index floating rate	10,635,000			16.60		16,335,000			24.63
Total par value	64,055,315			100.00	%	66,329,295			100.00	%
Bond premiums	118,961					145,869
Bond discounts	(24,785		)			(26,459		)
Hedge basis adjustments	907,860					979,013
Hedge basis adjustments on terminated hedges	63,293					201
Fair value option valuation adjustments and accrued interest	15,209					12,603
Total Consolidated obligation-bonds	$	65,135,853				$	67,440,522

Discount Notes

Consolidated obligation-discount notes are issued to raise short-term funds.  Discount notes are consolidated obligations with original maturities of up to one year.  These notes are issued at less than their face amount and redeemed at par when they mature.

The FHLBNY’s outstanding consolidated obligation-discount notes were as follows (dollars in thousands):

	September 30, 2012			December 31, 2011
Par value	$	33,724,217		$	22,127,530
Amortized cost	33,715,582			22,121,109
Hedge basis adjustments	—			(1,467		)
Fair value option valuation adjustments	2,224			3,683
Total discount notes	$	33,717,806		$	22,123,325
Weighted average interest rate	0.13		%	0.07		%

23

Note 11.Affordable Housing Program.

For more information about the Affordable Housing Program and the Bank’s liability set aside for the AHP, see the Bank’s most recent Form 10-K filed on March 23, 2012.

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

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Beginning balance	$	131,960		$	133,831		$	127,454		$	138,365
Additions from current period’s assessments	9,870			4,036			30,936			17,981
Net disbursements for grants and programs	(6,075		)	(8,088		)	(22,635		)	(26,567		)
Ending balance	$	135,755		$	129,779		$	135,755		$	129,779

Note 12.Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings.

The FHLBanks, including the FHLBNY, have a cooperative structure.  To access the FHLBNY’s products and services, a financial institution must be approved for membership and purchase capital stock in the FHLBNY.  A member’s stock requirement is generally based on its use of FHLBNY products, subject to a minimum membership requirement as prescribed by the FHLBank Act and the FHLBNY’s Capital Plan.  FHLBNY stock can be issued, exchanged, redeemed and repurchased only at its stated par value of $100 per share.  It is not publicly traded.  An option to redeem capital stock that is greater than a member’s minimum requirement is held by both the member and the FHLBNY.

The FHLBNY’s Capital Plan offers two sub-classes of Class B capital stock, Class B1 and Class B2.  Class B1 stock is issued to meet membership stock purchase requirements.  Class B2 stock is issued to meet activity-based stock requirements.  The FHLBNY requires member institutions to maintain Class B1 stock based on a percentage of the member’s mortgage-related assets and Class B2 stock based on a percentage of advances and acquired member assets, mainly MPF loans, outstanding with the FHLBank and certain commitments outstanding with the FHLBank.  Class B1 and Class B2 stockholders have the same voting rights and dividend rates.  Members can redeem Class B stock by giving five years notice.  The Bank’s capital plan does not provide for the issuance of Class A capital stock.

The FHLBNY is subject to risk-based capital rules.  Specifically, the FHLBNY is subject to three capital requirements under its capital plan.  First, the FHLBNY must maintain at all times permanent capital in an amount at least equal to the sum of its credit risk, market risk, and operations risk capital requirements as calculated in accordance with the FHLBNY policy, and rules and regulations of the Finance Agency.  Only permanent capital, defined as Class B stock and retained earnings, satisfies this risk-based capital requirement.  The Finance Agency may require the FHLBNY to maintain an amount of permanent capital greater than what is required by the risk-based capital requirements.  In addition, the FHLBNY is required to maintain at least a 4.0% total capital-to-asset ratio and at least a 5.0% 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 times divided by total assets.  The FHLBNY was in compliance with the aforementioned capital rules and requirements for all periods presented.  The FHLBNY met the “adequately capitalized” classification, which is the highest rating, under the capital rule.  However, the Finance Agency has discretion to reclassify an FHLBank and to modify or add to the corrective action requirements for a particular capital classification.

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

	September 30, 2012						December 31, 2011
	Required (d)			Actual			Required (d)			Actual
Regulatory capital requirements:
Risk-based capital (a), (e)	$	560,414		$	5,755,598		$	495,427		$	5,291,666
Total capital-to-asset ratio	4.00		%	5.37		%	4.00		%	5.42		%
Total capital (b)	$	4,285,203		$	5,755,598		$	3,906,494		$	5,291,666
Leverage ratio	5.00		%	8.06		%	5.00		%	8.13		%
Leverage capital (c)	$	5,356,504		$	8,633,397		$	4,883,117		$	7,937,449

(a)	Actual “Risk-based capital” is capital stock and retained earnings plus mandatorily redeemable capital stock. Section 932.2 of the Finance Agency’s regulations also refers to this amount as “Permanent Capital.”
(b)	Required “Total capital” is 4.0% of total assets.
(c)	Actual “Leverage capital” is actual “Risk-based capital” times 1.5.
(d)	Required minimum.
(e)	Under regulatory guidelines issued by the Federal Housing Finance Agency (“FHFA”), the Bank’s regulator, concurrently with the rating action on August 8, 2011 by S&P lowered the rating of long-term securities issued by the U.S. government, federal agencies, and other entities, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, from AAA to AA+. With regard to this action, consistent with guidance provided by the banking regulators with respect to capital rules, the FHFA provides the following guidance for the Federal Home Loan Banks: the risk weights for Treasury securities and other securities issued or guaranteed by the U.S. Government, government agencies, and government-sponsored entities do not change for purposes of calculating risk-based capital.

24

Mandatorily Redeemable Capital Stock

Generally, the FHLBNY’s capital stock is redeemable at the option of either the member or the FHLBNY subject to certain conditions, including the provisions under the accounting guidance for certain financial instruments with characteristics of both liabilities and equity.  In accordance with the accounting guidance, the FHLBNY generally reclassifies the stock subject to redemption from equity to a liability once a member irrevocably exercises a written redemption right, gives notice of intent to withdraw from membership, or attains non-member status by merger or acquisition, charter termination, or involuntary termination from membership.  Under such circumstances, the member shares will then meet the definition of a mandatorily redeemable financial instrument and are reclassified to a liability at fair value.

Anticipated redemptions of mandatorily redeemable capital stock in the following table assume the FHLBNY will follow its current practice of daily redemption of capital in excess of the amount required to support advances and MPF loans (in thousands):

	September 30, 2012		December 31, 2011
Redemption less than one year	$	2,502	$	34,264
Redemption from one year to less than three years	514		2,990
Redemption from three years to less than five years	5,011		4,567
Redemption from five years or greater	12,467		13,006
Total	$	20,494	$	54,827

Voluntary and Involuntary Withdrawal and Changes in Membership — Changes in membership due to mergers were not significant in any periods in this report.  When a member is acquired by a non-member, the FHLBNY reclassifies stock of the member to a liability on the day the member’s charter is dissolved.  Under existing practice, the FHLBNY repurchases Class B2 capital stock held by former members if such stock is considered “excess” and is no longer required to support outstanding advances.  Class B1 membership stock held by former members is re-calculated and repurchased annually.

The following table provides withdrawals and terminations in membership:

	Three months ended September 30,		Nine months ended September 30,
	2012	2011	2012	2011
Voluntary Termination/Notices Received and Pending	1	—	1	—
Involuntary Termination (a)	—	—	2	1
Non-member due to merger	—	—	—	1

(a) The Board of Directors of FHLBank may terminate the membership of any institution that: (1) fails to comply with any requirement of the FHLBank Act, any regulation adopted by the Finance Agency, or any requirement of the Bank’s capital plan; (2) becomes insolvent or otherwise subject to the appointment of a conservator, receiver, or other legal custodian under federal or state law; or (3) would jeopardize the safety or soundness of the FHLBank if it was to remain a member.

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

	Three months ended September 30,					Nine months ended September 30,
	2012			2011		2012			2011
Beginning balance	$	42,035		$	58,221	$	54,827		$	63,219
Capital stock subject to mandatory redemption reclassified from equity	—			—		45			3,349
Redemption of mandatorily redeemable capital stock (a)	(21,541		)	101		(34,378		)	(8,246		)
Ending balance	$	20,494		$	58,322	$	20,494		$	58,322
Accrued interest payable (b)	$	398		$	660	$	398		$	660

(a)	Redemption includes repayment of excess stock.
(b)	The annualized accrual rates were 4.50% for the three months ended September 30, 2012 and 2011.

Restricted Retained Earnings — In 2011, the 12 FHLBanks entered into a Joint Capital Enhancement Agreement (“Capital Agreement”), as amended.  The Capital Agreement is intended to enhance the capital position of each FHLBank, by allocating that portion of each FHLBank’s earnings historically paid to satisfy its REFCORP obligation to a separate retained earnings account at that FHLBank.  Because each FHLBank had been required to contribute 20% of its earnings toward payment of the interest on REFCORP bonds until the REFCORP obligation was satisfied, the Capital Agreement provides that, with full satisfaction of the REFCORP obligation, each FHLBank will contribute 20% of its Net income each quarter to a restricted retained earnings account until the balance of that account equals at least one percent of that FHLBank’s average balance of outstanding consolidated obligations for the previous quarter.  These restricted retained earnings will not be available to pay dividends.  Each FHLBank subsequently amended its capital plan or capital plan submission, as applicable, to implement the provisions of the Capital Agreement, and the Finance Agency approved the capital plan amendments on August 5, 2011.  On August 5, 2011, the Finance Agency certified that the FHLBanks had fully satisfied their REFCORP obligation.  In accordance with the Capital Agreement, starting in the third quarter of 2011, the FHLBNY allocates 20% of its net income to a separate restricted retained earnings account.  At September 30, 2012, restricted retained earnings were $79.4 million.

25

Note 13.Total Comprehensive Income.

Changes in AOCI and total comprehensive income were as follows for the three and nine months ended September 30, 2012 and the same periods in 2011 (in thousands):

				Non-credit			Reclassification								Accumulated
	Available-			OTTI on HTM			of Non-credit		Cash			Supplemental			Other					Total
	for-sale			Securities,			OTTI to		Flow			Retirement			Comprehensive			Net		Comprehensive
	Securities			Net of accretion			Net Income		Hedges			Plans			Income (Loss)			Income		Income (loss)
Balance, June 30, 2011	$	18,613		$	(95,319	)	$	9,119	$	(20,823	)	$	(11,527	)	$	(99,937	)
Net change	(2,472		)	2,951			979		(85,571		)	—			(84,113		)	$	35,670	$	(48,443	)
Balance, September 30, 2011	$	16,141		$	(92,368	)	$	10,098	$	(106,394	)	$	(11,527	)	$	(184,050	)
Balance, June 30, 2012	$	21,564		$	(84,486	)	$	14,839	$	(137,244	)	$	(18,325	)	$	(203,652	)
Net change	1,742			2,908			534		(9,640		)	344			(4,112		)	$	88,441	$	84,329
Balance, September 30, 2012	$	23,306		$	(81,578	)	$	15,373	$	(146,884	)	$	(17,981	)	$	(207,764	)
				Non-credit			Reclassification								Accumulated
	Available-			OTTI on HTM			of Non-credit		Cash			Supplemental			Other					Total
	for-sale			Securities,			OTTI to		Flow			Retirement			Comprehensive			Net		Comprehensive
	Securities			Net of accretion			Net Income		Hedges			Plans			Income (Loss)			Income		Income
Balance, December 31, 2010	$	22,965		$	(101,560	)	$	8,634	$	(15,196	)	$	(11,527	)	$	(96,684	)
Net change	(6,824		)	9,192			1,464		(91,198		)	—			(87,366		)	$	159,961	$	72,595
Balance, September 30, 2011	$	16,141		$	(92,368	)	$	10,098	$	(106,394	)	$	(11,527	)	$	(184,050	)
Balance, December 31, 2011	$	16,419		$	(89,600	)	$	13,751	$	(111,985	)	$	(19,012	)	$	(190,427	)
Net change	6,887			8,022			1,622		(34,899		)	1,031			(17,337		)	$	276,858	$	259,521
Balance, September 30, 2012	$	23,306		$	(81,578	)	$	15,373	$	(146,884	)	$	(17,981	)	$	(207,764	)

Note 14.Earnings Per Share of Capital.

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

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Net income	$	88,441		$	35,670		$	276,858		$	159,961
Net income available to stockholders	$	88,441		$	35,670		$	276,858		$	159,961
Weighted average shares of capital	48,934			46,813			46,677			45,077
Less: Mandatorily redeemable capital stock	(352		)	(582		)	(423		)	(587		)
Average number of shares of capital used to calculate earnings per share	48,582			46,231			46,254			44,490
Basic earnings per share	$	1.81		$	0.77		$	5.99		$	3.60

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.Employee Retirement Plans.

The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra DB Plan), a tax-qualified, defined-benefit multiemployer pension plan that covers all officers and employees of the Bank.  The Bank also participates in the Pentegra Defined Contribution Plan for Financial Institutions, a tax-qualified defined contribution plan.  In addition, the Bank maintains a Benefit Equalization Plan (“BEP”) that restores defined benefits for those employees who have had their qualified defined benefits limited by IRS regulations.  The BEP is an unfunded plan.  The Bank also offers a Retiree Medical Benefit Plan, which is a postretirement health benefit plan.  There are no funded plan assets that have been designated to provide postretirement health benefits.

26

Retirement Plan Expenses — Summary

The following table presents employee retirement plan expenses (a) for the three and nine months ended September 30, 2012 and the same periods in 2011 (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Defined Benefit Plan	$	175	$	492	$	1,485	$	29,484
Benefit Equalization Plan (defined benefit)	908		695		2,725		2,085
Defined Contribution Plan	379		363		1,144		1,067
Postretirement Health Benefit Plan	372		285		1,119		854
Total retirement plan expenses	$	1,834	$	1,835	$	6,473	$	33,490

(a)

In March 2011, the FHLBNY contributed $24.0 million to its Defined Benefit Plan to eliminate a funding shortfall. Prior to the contribution, the DB Plan’s adjusted funding target attainment percentage (“AFTAP”) was 79.9% based on the actuarial valuation for the DB Plan. The AFTAP equals DB Plan assets divided by plan liabilities. Under the Pension Protection Act of 2006 (“PPA”), if the AFTAP in any future year is less than 80%, then the DB Plan will be restricted in its ability to provide increased benefits and /or lump sum distributions. If the AFTAP in any future year is less than 60%, then benefit accruals would be frozen. The contribution to the DB Plan was charged to Compensation and Benefits.

In July 2012 a transportation bill was enacted under the Surface Transportation Extension Act of 2012 - —Moving Ahead for Progress in the 21st Century Act (“MAP-21”), which includes pension plan provisions intended to ease the negative effect of historically low interest rates.  Previously, a plan sponsor could elect to calculate future pension obligations based on either the “yield curve” of corporate investment-grade bonds for the preceding month, or three “segment rates” that are drawn from the average yield curves over the most recent 24-month period.  The primary change under the relief bill is to smooth segment rate changes by calculating each rate based on the average of that segment rate over 25 years — a much longer period than the two-year period currently used to determine segment rates.  The FHLBNY’s Defined Benefit Plan participates in the Pentegra Defined Benefit Plan pension, which has adopted the relief provisions, and adoption resulted in a significant reduction in plan expenses.  The FHLBNY paid in $0.7 million for the plan period July 1, 2012 to June 30, 2013, which was the minimum amount payable under the relief provided under MAP 21.  The comparable payment to the plan under the pre-existing methodology (prior to the relief) was $2.6  million for the plan year ended June 30, 2012, and $10.1 million for the plan year ended June 30, 2011.

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

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Service cost	$	191		$	165		$	574		$	495
Interest cost	325			324			975			970
Amortization of unrecognized prior service cost	(14		)	(14		)	(40		)	(40		)
Amortization of unrecognized net loss	406			220			1,216			660
Net periodic benefit cost	$	908		$	695		$	2,725		$	2,085

Key assumptions and other information for the actuarial calculations to determine current year’s benefit obligations for the BEP plan were as follows (dollars in thousands):

	September 30, 2012			December 31, 2011
Discount rate (a)	4.23		%	4.23		%
Salary increases	5.50		%	5.50		%
Amortization period (years)	7			7
Benefits paid during the period	$	(1,221	)(b)	$	(656	)

(a)	The discount rates were based on the Citigroup Pension Liability Index at December 31, 2011 adjusted for duration.
(b)	Forecast for the entire year.

Postretirement Health Benefit Plan

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

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Service cost (benefits attributed to service during the period)	$	209		$	180		$	629		$	541
Interest cost on accumulated postretirement health benefit obligation	212			221			636			662
Amortization of loss	134			66			402			199
Amortization of prior service (credit)/cost	(183		)	(182		)	(548		)	(548		)
Net periodic postretirement health benefit cost	$	372		$	285		$	1,119		$	854

27

Key assumptions (a) and other information to determine current year’s obligation for the FHLBNY’s postretirement health benefit plan were as follows:

	September 30, 2012	December 31, 2011
Weighted average discount rate	4.23%	4.23%
Health care cost trend rates:
Assumed for next year	8.00%	8.00%
Pre 65 Ultimate rate	5.00%	5.00%
Pre 65 Year that ultimate rate is reached	2017	2017
Post 65 Ultimate rate	5.50%	5.50%
Post 65 Year that ultimate rate is reached	2017	2017
Alternative amortization methods used to amortize
Prior service cost	Straight - line	Straight - line
Unrecognized net (gain) or loss	Straight - line	Straight - line

(a) The discount rates were based on the Citigroup Pension Liability Index adjusted for duration at December 31, 2011.

Note 16.Derivatives and Hedging Activities.

General— The FHLBNY may enter into interest-rate swaps, swaptions, and interest-rate cap and floor agreements to manage its exposure to changes in interest rates.  The FHLBNY may also use callable swaps to potentially adjust the effective maturity, repricing frequency, or option characteristics of financial instruments to achieve risk management objectives.  The FHLBNY, consistent with the Finance Agency’s regulations, enters into derivatives to manage the market risk exposures inherent in otherwise unhedged assets and funding positions.  The FHLBNY is not a derivatives dealer and does not trade derivatives for short-term profit.  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 that qualifies for hedge accounting treatment; by acting as an intermediary; or by designating the derivative as an asset-liability management hedge (i.e., an “economic hedge”).  The FHLBNY will execute an interest rate swap to match the terms of an asset or liability that is elected under the FVO and the swap is also considered as an economic hedge to mitigate the volatility of the FVO designated asset or liability due to change in the full fair value of the designated asset or liability.  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 where possible.

The FHLBNY utilizes derivatives in the most cost efficient manner and may enter into derivatives as economic hedges that do not qualify for hedge accounting.  When entering into such non-qualified hedges, the FHLBNY recognizes only the change in fair value of these derivatives in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities with no offsetting fair value adjustments for the hedged asset, liability, or firm commitment.  As a result, an economic hedge introduces the potential for earnings variability.  Economic hedges are an acceptable hedging strategy under the FHLBNY’s risk management program, and the strategies comply with the Finance Agency’s regulatory requirements prohibiting speculative use of derivatives.

Types of Hedging Activities and Hedged Items.

Consolidated Obligations — The FHLBNY manages the risk arising from changing market prices and volatility of a consolidated obligation by matching the cash inflows on the derivative with the cash outflow on the consolidated obligation.  While consolidated obligations are the joint and several obligations of the FHLBanks, one or more FHLBanks may individually serve as counterparties to derivative agreements associated with specific debt issues.  For instance, in a typical transaction, fixed-rate consolidated obligations are issued for one or more FHLBanks, and each of those FHLBanks could simultaneously enter into a matching derivative in which the counterparty pays to the FHLBank fixed cash flows designed to mirror in timing and amount the cash outflows the FHLBank pays on the consolidated obligations.  From time-to-time, this intermediation between the capital and swap markets has permitted the FHLBNY to raise funds at a lower cost than would otherwise be available through the issuance of simple fixed- or floating-rate consolidated obligations in the capital markets.  When such transactions qualify for hedge accounting, they are treated as fair value hedges under the accounting standards for derivatives and hedging.  The FHLBNY has also elected the FVO for certain consolidated obligation bonds and discount notes.  To mitigate the volatility resulting from changes in fair values of bonds and notes designated under the FVO, the Bank has also executed interest rate swaps as economic hedges.

The FHLBNY has issued variable-rate consolidated obligations bonds indexed to 1-month LIBOR, the U.S. Prime rate, or Federal funds rate and simultaneously executed interest-rate swaps (“basis swaps”) to hedge the basis risk of the variable rate debt to 3-month LIBOR, the FHLBNY’s preferred funding base.  The interest rate basis swaps were accounted as economic hedges of the floating-rate bonds because the FHLBNY deemed that the operational cost of designating the hedges under accounting standards for derivatives and hedge accounting would outweigh the accounting benefits.

28

Advances— The Bank offers a wide array of advances structures to meet members’ funding needs. These advances may have maturities up to 30 years with fixed or adjustable rates and may include early termination features or options.  The Bank may use derivatives to adjust the repricing and/or options characteristics of advances to more closely match the characteristics of the Bank’s funding liabilities.  In general, whenever a member executes a fixed rate advance or a variable rate advance with embedded options, the Bank will simultaneously execute an interest rate exchange agreement with terms that offset the terms and embedded options, if any, in the advance. The combination of the advance and the interest rate exchange agreement effectively creates a variable rate asset.  This type of hedge is treated as a fair value hedge. With a putable advance borrowed by a member, the FHLBNY may purchase from the member a put option.  The FHLBNY may hedge a putable advance by entering into a cancelable interest rate swap in which the FHLBNY pays to the swap counterparty fixed-rate cash flows and receives variable-rate cash flows.  This type of hedge is treated as a fair value hedge under the accounting standards for derivatives and hedging.  The swap counterparty can cancel the swap on the put date, which would normally occur in a rising rate environment, and the FHLBNY can terminate the advance and extend additional credit to the member on new terms.  The FHLBNY also offers callable advances to members, which is a fixed-rate advance borrowed by a member.  With the advance, the FHLBNY sells to the member a call option that enables the member to terminate the advance at pre-determined exercise dates.  The FHLBNY hedges such advances by executing interest rate swaps with cancellable option features that would allow the FHLBNY to terminate the swaps also at pre-determined option exercise dates.

The Bank has not elected the FVO for any advances.

Mortgage Loans — The Bank’s investment portfolio includes fixed rate mortgage loans.  The FHLBNY manages the interest rate and prepayment risk associated with mortgages through debt issuance, and has not elected the FVO for any mortgage loans.

Firm Commitment Strategies — Mortgage delivery commitments are considered derivatives under the accounting standards for derivatives and hedging.  The FHLBNY accounts for them as freestanding derivatives, and records the fair values of mortgage loan delivery commitments on the balance sheet with an offset to Other income as a Net realized and unrealized gains (losses) on derivatives and hedging activities.  Fair values were not significant for all periods in this report.

The FHLBNY may also hedge a firm commitment for a forward starting advance with an interest-rate swap.  In this case, the swap will function as the hedging instrument for both the firm commitment and the subsequent advance.  The fair value adjustments associated with the firm commitment will be added to the basis of the advance at the time the commitment is terminated and the advance is issued.  The basis adjustment will then be amortized into interest income over the life of the advance.

If a hedged firm commitment no longer qualified as a fair value hedge, the hedge would be terminated and net gains and losses would be recognized in current period earnings.  There were no material amounts of gains and losses recognized due to disqualification of firm commitment hedges in the first three quarters of 2012 and 2011.

Forward Settlements — There were no forward settled securities at September 30, 2012 and December 31, 2011 that would settle outside the shortest period of time for the settlement of such securities.  When a Bank purchases a security that forward settles within the shortest period of time for the settlement of such a security, the Bank records the purchase on trade date.  When a security forward settles outside the shortest period of time, a derivative is recorded in addition to the purchased security.

Cash Flow Hedges of Anticipated Consolidated Bond Issuance — The FHLBNY enters into interest-rate swaps on the anticipated issuance of debt to “lock in” the interest to be paid for the cost of funding.  The swap is terminated upon issuance of the debt instrument, and amounts reported in AOCI are reclassified to earnings in the periods in which earnings are affected by the variability of the cash flows of the debt that was issued.

Cash Flow Hedges of Rolling Issuance of Discount Notes— The Bank hedges the rolling issuance of discount notes as a cash flow hedge.  In these hedges, the Bank enters into interest rate swap agreements with unrelated swap dealers and designates the swaps as hedges of the variable quarterly interest payments on the discount note borrowing program.  In this program, the Bank issues a series of discount notes with 91-day terms over periods, generally up to 15 years.  The FHLBNY will continue issuing new 91-day discount notes over the terms of the swaps as each outstanding discount note matures.  The interest rate swaps require a settlement every 91 days, and the variable rate, which is based on the 3-month LIBOR, is reset immediately following each payment.  The swaps are expected to eliminate the risk of variability of cash flows for each forecasted discount note issuance every 91 days.  The FHLBNY documents at hedge origination, and on an ongoing basis, that the forecasted issuances of discount notes are probable.  The FHLBNY performs a prospective hedge effectiveness analysis at inception of the hedges, and also performs an on-going retrospective hedge effectiveness analysis at least every quarter to provide assurance that the hedges will remain highly effective.  The fair values of the interest rate swaps are recorded in AOCI and ineffectiveness, if any, is measured using the “hypothetical derivative method” and recorded in earnings.  The effective portion remains in AOCI.  The Bank monitors the credit standing of the derivative counterparty each quarter.

Intermediation — To meet the hedging needs of its members, the FHLBNY acts as an intermediary between the members and the other counterparties.  This intermediation allows smaller members access to the derivatives market.  The derivatives used in intermediary activities do not qualify for hedge accounting under the accounting standards for derivatives and hedging, and are separately marked-to-market through earnings.  The net impact of the accounting for these derivatives does not significantly affect the operating results of the FHLBNY.

29

Derivative agreements in which the FHLBNY is an intermediary may arise when the FHLBNY: (1) enters into offsetting derivatives with members and other counterparties to meet the needs of its members, and (2) enters into derivatives to offset the economic effect of other derivative agreements that are no longer designated to either advances, investments, or consolidated obligations.  The notional principal of interest rate swaps outstanding at September 30, 2012 and December 31, 2011, in which the FHLBNY was an intermediary, was $265.0 million and $275.0 million, with offsetting purchased positions from unrelated swap dealers.  Fair values of the swaps sold to members net of the fair values of swaps purchased from derivative counterparties were not material at September 30, 2012 and December 31, 2011.  Collateral with respect to derivatives with member institutions includes collateral assigned to the FHLBNY as evidenced by a written security agreement and held by the member institution for the benefit of the FHLBNY.

Economic Hedges

In the first three quarters of 2012 and 2011, economic hedges comprised primarily of:  (1) short- and medium-term interest rate swaps that hedged the basis risk (Prime rate, Fed fund rate, and the 1-month LIBOR index) of variable-rate bonds issued by the FHLBNY.  The FHLBNY believes the operational cost of designating the basis hedges in a qualifying hedge would outweigh the benefits of applying hedge accounting.  (2) interest rate caps to hedge balance sheet risk, specifically interest rate risk from certain capped floating rate investment securities.  (3) interest rate swaps that had previously qualified as hedges under the accounting standards for derivatives and hedging, but had been subsequently de-designated from hedge accounting as they were assessed as being not highly effective hedges.  (4) interest rate swaps executed to offset the fair value changes of bonds and discount notes designated under the FVO.  These swaps in economic hedges were considered freestanding and changes in the fair values of the swaps were recorded through income.

Credit Risk

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

The FHLBNY uses collateral agreements to mitigate counterparty credit risk in derivatives.  When the FHLBNY has more than one derivative transaction outstanding with a counterparty, and a legally enforceable master netting agreement exists with the counterparty, the exposure (less collateral held) represents the appropriate measure of credit risk.  Substantially all derivative contracts are subject to master netting agreements or other right of offset arrangements.  At September 30, 2012 and December 31, 2011, the Bank’s credit exposure, representing derivatives in a fair value net gain position, was approximately $15.0 million and $25.1 million after the recognition of any cash collateral held by the FHLBNY.  The credit exposures at September 30, 2012 and December 31, 2011 included $5.9 million and $6.8 million in net interest receivable.

Derivative counterparties are also exposed to credit losses resulting from potential nonperformance risk of the FHLBNY with respect to derivative contracts.  Derivative counterparties’ exposure to the FHLBNY is measured by derivatives in a fair value loss position from the FHLBNY’s perspective, which from the counterparties’ perspective is a gain.  At September 30, 2012 and December 31, 2011, derivatives in a net unrealized loss position, which represented the counterparties’ exposure to the potential non-performance risk of the FHLBNY, were $466.3 million and $486.2 million after deducting $2.8 billion and $2.6 billion of cash collateral pledged by the FHLBNY at those dates to the exposed counterparties.  The FHLBNY is also exposed to the risk of derivative counterparties defaulting on the terms of the derivative contracts and failing to return cash deposited with counterparties.  If such an event were to occur, the FHLBNY would be forced to replace derivatives by executing similar derivative contracts with other counterparties.  To the extent that the FHLBNY receives cash from the replacement trades that is less than the amount of cash deposited with the defaulting counterparty, the FHLBNY’s cash pledged as a deposit is exposed to credit risk of the defaulting counterparty.  Derivative counterparties holding the FHLBNY’s cash as pledged collateral were primarily rated Triple B or better at September 30, 2012, and based on credit analyses and collateral requirements, the management of the FHLBNY does not anticipate any credit losses on its derivative agreements.

30

The following tables represented outstanding notional balances and estimated fair values of the derivatives outstanding at September 30, 2012 and December 31, 2011 (in thousands):

	September 30, 2012
	Notional Amount of Derivatives		Derivative Assets			Derivative Liabilities
Fair value of derivative instruments
Derivatives designated in hedging relationships
Interest rate swaps-fair value hedges	$	78,831,899	$	1,040,233		$	4,159,542
Interest rate swaps-cash flow hedges	1,106,000		839			134,503
Total derivatives in hedging instruments	79,937,899		1,041,072			4,294,045
Derivatives not designated as hedging instruments
Interest rate swaps	23,389,375		33,676			8,606
Interest rate caps or floors	1,900,000		3,155			12
Mortgage delivery commitments	66,722		40			540
Other (a)	530,000		8,828			8,435
Total derivatives not designated as hedging instruments	25,886,097		45,699			17,593
Total derivatives before netting and collateral adjustments	$	105,823,996	1,086,771			4,311,638
Netting adjustments			(1,063,178		)	(1,063,178		)
Cash collateral and related accrued interest			(8,600		)	(2,782,162		)
Total collateral and netting adjustments			(1,071,778		)	(3,845,340		)
Total reported on the Statements of Condition			$	14,993		$	466,298

	December 31, 2011
	Notional Amount of Derivatives		Derivative Assets			Derivative Liabilities
Fair value of derivative instruments
Derivatives designated in hedging relationships
Interest rate swaps-fair value hedges	$	84,502,217	$	1,124,954		$	4,074,397
Interest rate swaps-cash flow hedges	903,000		—			97,588
Total derivatives in hedging instruments	85,405,217		1,124,954			4,171,985
Derivatives not designated as hedging instruments
Interest rate swaps	31,380,021		13,460			41,093
Interest rate caps or floors	1,900,000		14,935			20
Mortgage delivery commitments	31,242		270			—
Other (a)	550,000		9,285			8,784
Total derivatives not designated as hedging instruments	33,861,263		37,950			49,897
Total derivatives before netting and collateral adjustments	$	119,266,480	1,162,904			4,221,882
Netting adjustments			(1,096,873		)	(1,096,873		)
Cash collateral and related accrued interest			(40,900		)	(2,638,843		)
Total collateral and netting adjustments			(1,137,773		)	(3,735,716		)
Total reported on the Statements of Condition			$	25,131		$	486,166

(a) Other: Comprised of swaps intermediated for members. Notional amounts represent purchases from dealers and sales to members.

Earnings Impact of Derivatives and Hedging Activities

The FHLBNY carries all derivative instruments on the Statements of Condition at fair value as Derivative Assets and Derivative Liabilities.  If derivatives meet the hedging criteria under hedge accounting rules, including effectiveness measures, changes in fair value of the associated hedged financial instrument attributable to the risk being hedged (benchmark interest-rate risk, which is LIBOR for the FHLBNY) may also be recorded so that some or all of the unrealized fair value gains or losses recognized on the derivatives are offset by corresponding unrealized gains or losses on the associated hedged financial assets and liabilities.  The net differential between fair value changes of the derivatives and the hedged items represents hedge ineffectiveness.  Hedge ineffectiveness represents the amounts by which the changes in the fair value of the derivatives differ from the changes in the fair values of the hedged items or the variability in the cash flows of forecasted transactions.  The net ineffectiveness from hedges that qualify under hedge accounting rules are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income (loss) in the Statements of Income.  If derivatives do not qualify for the hedging criteria under hedge accounting rules, but are executed as economic hedges of financial assets or liabilities under a FHLBNY-approved hedge strategy, only the fair value changes of the derivatives are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income (loss) in the Statements of Income.

When the FHLBNY elects to measure certain debt under the accounting designation for FVO, the Bank will typically execute a derivative as an economic hedge of the debt.  Fair value changes of the derivatives are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income.  Fair value changes of the debt designated under the FVO are also recorded in Other income (loss) as an unrealized (loss) or gain from Instruments held at fair value.

31

Components of hedging gains and losses are summarized below (in thousands):

	Three months ended September 30,
	2012												2011
	Gains (Losses) on Derivative			Gains (Losses) on Hedged Item			Earnings Impact			Effect of Derivatives on Net Interest Income (a)			Gains (Losses) on Derivative			Gains (Losses) on Hedged Item			Earnings Impact			Effect of Derivatives on Net Interest Income (a)
Derivatives designated as hedging instruments
Interest rate swaps
Advances (a)	$	(79,142	)	$	110,150		$	31,008		$	(327,927	)	$	(1,023,857	)	$	1,046,593		$	22,736		$	(430,967	)
Consolidated obligations-bonds	(8,821		)	8,963			142			78,561			375,271			(381,479		)	(6,208		)	113,714
Consolidated obligations-discount notes	(26		)	6			(20		)	24			239			404			643			324
Net gains (losses) related to fair value hedges	(87,989		)	119,119			31,130			(249,342		)	(648,347		)	665,518			17,171			(316,929		)
Cash flow hedges	—			—			—			(6,913		)	(119		)	—			(119		)	(4,828		)
Derivatives not designated as hedging instruments
Interest rate swaps
Advances	55			—			55			—			(489		)	—			(489		)	—
Consolidated obligations-bonds	2,252			—			2,252			—			(14,456		)	—			(14,456		)	—
Consolidated obligations-discount notes	—			—			—			—			30			—			30			—
Member intermediation	(24		)	—			(24		)	—			(43		)	—			(43		)	—
Accrued interest-swaps (b)	535			—			535			—			2,624			—			2,624			—
Accrued interest-intermediation (b)	46			—			46			—			47			—			47			—
Caps or floors
Advances	(19		)	—			(19		)	—			(19		)	—			(19		)	—
Balance sheet hedges	(4,584		)	—			(4,584		)	—			(15,184		)	—			(15,184		)	—
Mortgage delivery commitments	101			—			101			—			1,788			—			1,788			—
Swaps economically hedging instruments designated under FVO
Consolidated obligations-bonds	11,276			—			11,276			—			(5,732		)	—			(5,732		)	—
Consolidated obligations-discount notes	1,574			—			1,574			—			(418		)	—			(418		)	—
Accrued interest on swaps (b)	2,751			—			2,751			—			6,192			—			6,192			—
Net gains (losses) related to derivatives not designated as hedging instruments	13,963			—			13,963			—			(25,660		)	—			(25,660		)	—
	$	(74,026	)	$	119,119		$	45,093		$	(256,255	)	$	(674,126	)	$	665,518		$	(8,608	)	$	(321,757	)
	Nine months ended September 30,
	2012												2011
	Gains (Losses) on Derivative			Gains (Losses) on Hedged Item			Earnings Impact			Effect of Derivatives on Net Interest Income (a)			Gains (Losses) on Derivative			Gains (Losses) on Hedged Item			Earnings Impact			Effect of Derivatives on Net Interest Income (a)
Derivatives designated as hedging instruments
Interest rate swaps
Advances (a)	$	(24,741	)	$	114,841		$	90,100		$	(1,001,163	)	$	(999,311	)	$	1,078,617		$	79,306		$	(1,281,665	)
Consolidated obligations-bonds	(6,060		)	7,258			1,198			249,106			428,266			(431,173		)	(2,907		)	381,400
Consolidated obligations-discount notes	67			(1,467		)	(1,400		)	1,237			239			404			643			324
Net gains (losses) related to fair value hedges	(30,734		)	120,632			89,898			(750,820		)	(570,806		)	647,848			77,042			(899,941		)
Cash flow hedges	(214		)	—			(214		)	(19,356		)	(119		)	—			(119		)	(6,222		)
Derivatives not designated as hedging instruments
Interest rate swaps
Advances	922			—			922			—			(319		)	—			(319		)	—
Consolidated obligations-bonds	24,627			—			24,627			—			(13,226		)	—			(13,226		)	—
Consolidated obligations-discount notes	(6		)	—			(6		)	—			30			—			30			—
Member intermediation	(112		)	—			(112		)	—			(130		)	—			(130		)	—
Accrued interest-swaps (b)	(4,061		)	—			(4,061		)	—			7,751			—			7,751			—
Accrued interest-intermediation (b)	138			—			138			—			140			—			140			—
Caps or floors
Advances	(56		)	—			(56		)	—			(56		)	—			(56		)	—
Balance sheet hedges	(11,772		)	—			(11,772		)	—			(28,284		)	—			(28,284		)	—
Mortgage delivery commitments	1,428			—			1,428			—			2,327			—			2,327			—
Swaps economically hedging  instruments designated under FVO
Consolidated obligations-bonds	20,313			—			20,313			—			(3,754		)	—			(3,754		)	—
Consolidated obligations-discount notes	2,772			—			2,772			—			(1,476		)	—			(1,476		)	—
Accrued interest on swaps (b)	3,208			—			3,208			—			22,680			—			22,680			—
Net gains (losses) related to derivatives not designated as hedging instruments	37,401			—			37,401			—			(14,317		)	—			(14,317		)	—
	$	6,453		$	120,632		$	127,085		$	(770,176	)	$	(585,242	)	$	647,848		$	62,606		$	(906,163	)

(a)

In the three and nine months ended September 30, 2012, amortization of $30.1 million and $88.3 million were recorded as a gain to derivatives and hedging activities in Other income. Significant amounts of hedged advances were modified in the latter part of 2011, and swaps were modified in parallel with the modification of advances. The fair values of the swaps were in unrealized liability positions on the modification dates, and are being amortized to zero over the life of the modified swaps. Separately, fair value basis of modified advances were in unrealized gain positions at the amortization dates, and their amortization was recorded as a reduction of Interest income from advances. Taken together, the amortization of the modified swaps and the modified advances, were offsetting adjustments. The comparable amortization for the same periods in 2011 was $26.7 million and $35.1 million.

(b)

Represents interest expense and income generated from hedge qualifying interest-rate swaps that were recorded with interest income on the hedged advances, and interest expense on hedged Consolidated obligation bonds and  discount notes.  Also includes amortization as described in footnote a above.

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Cash Flow Hedges

The effect of interest rate swaps in cash flow hedging relationships was as follows (in thousands):

	Three months ended September 30,
	2012								2011
	AOCI								AOCI
	Gains/(Losses)								Gains/(Losses)
	Recognized in AOCI (c), (d)			Location: Reclassified to Earnings (c)	Amount Reclassified to Earnings (c)		Ineffectiveness Recognized in Earnings		Recognized in AOCI (c), (d)			Location: Reclassified to Earnings (c)	Amount Reclassified to Earnings (c)		Ineffectiveness Recognized in Earnings
Consolidated obligations-bonds (a)	$	(113	)	Interest Expense	$	1,058	$	—	$	(5,767	)	Interest Expense	$	986	$	(119	)
Consolidated obligations-discount notes (b)	(10,585		)	Interest Expense	—		—		(80,790		)	Interest Expense	—		—
	$	(10,698	)		$	1,058	$	—	$	(86,557	)		$	986	$	(119	)

	Nine months ended September 30,
	2012									2011
	AOCI									AOCI
	Gains/(Losses)									Gains/(Losses)
	Recognized in AOCI (c), (d)			Location: Reclassified to Earnings (c)	Amount Reclassified to Earnings (c)		Ineffectiveness Recognized in Earnings			Recognized in AOCI (c), (d)			Location: Reclassified to Earnings (c)	Amount Reclassified to Earnings (c)		Ineffectiveness Recognized in Earnings
Consolidated obligations-bonds (a)	$	(2,095	)	Interest Expense	$	3,272	$	(214	)	$	(2,063	)	Interest Expense	$	2,984	$	(119	)
Consolidated obligations-discount notes (b)	(36,076		)	Interest Expense	—		—			(92,119		)	Interest Expense	—		—
	$	(38,171	)		$	3,272	$	(214	)	$	(94,182	)		$	2,984	$	(119	)

(a)   Hedges of anticipated issuance of debt -  The maximum period of time that the Bank typically hedges its exposure to the variability in future cash flows for forecasted transactions in this program is between three and nine months.  There were no open contracts at September 30, 2012 and December 31, 2011.  The amounts in AOCI from “closed” cash flow hedges representing net unrecognized losses were $13.2 million and $14.4 million at September 30, 2012 and December 31, 2011.  At September 30, 2012, it is expected that over the next 12 months about $3.3 million of net losses recorded in AOCI will be recognized as a yield adjustment to consolidated bond interest and a charge to earnings.

(b)   Hedges of discount notes in rolling issuances - $1.1 billion of notional amounts of the interest rate swaps were outstanding under this program, and $133.7 million in unrealized fair values losses were recorded in AOCI at September 30, 2012.  The maximum period of time that the Bank typically hedges its exposure to the variability in future cash flows under this strategy is generally about 15 years.

(c)   Effective portion.

(d)   Represents basis adjustments from cash flow hedging transactions recorded in AOCI.

There were no material amounts that were reclassified 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.

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Note 17.Fair Values of Financial Instruments.

The fair value amounts recorded on the Statement of Condition or presented in the note disclosures have been determined by the FHLBNY using available market information and best judgment of appropriate valuation methods.  These values do not represent an estimate of the overall market value of the FHLBNY as a going concern, which would take into account future business opportunities and the net profitability of assets and liabilities.

Estimated fair values — Summary Tables

The carrying values, estimated fair values and the levels within the fair value hierarchy were as follows (in thousands):

	September 30, 2012
			Estimated Fair Value
Financial Instruments	Carrying Value		Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral
Assets
Cash and due from banks	$	2,900,615	$	2,900,615	$	2,900,615	$	—	$	—	$	—
Securities purchased under agreements to resell	200,000		200,000		—		200,000		—		—
Federal funds sold	9,946,000		9,946,002		—		9,946,002		—		—
Available-for-sale-securities	2,519,606		2,519,606		9,618		2,509,988		—		—
Held-to-maturity securities
Long-term securities	11,674,668		12,091,589		—		10,811,521		1,280,068		—
Advances	77,864,259		77,792,074		—		77,792,074		—		—
Mortgage loans held-for-portfolio, net	1,747,724		1,850,503		—		1,850,503		—		—
Accrued interest receivable	238,030		238,030		—		238,030		—		—
Derivative assets	14,993		14,993		—		1,086,771		—		(1,071,778		)
Other financial assets	1,095		1,095		—		439		656		—
Liabilities
Deposits	1,806,099		1,806,107		—		1,806,107		—		—
Consolidated obligations
Bonds	65,135,853		65,349,670		—		65,349,670		—		—
Discount notes	33,717,806		33,718,133		—		33,718,133		—		—
Mandatorily redeemable capital stock	20,494		20,494		20,494		—		—		—
Accrued interest payable	168,814		168,814		—		168,814		—		—
Derivative liabilities	466,298		466,298		—		4,311,638		—		(3,845,340		)
Other financial liabilities	80,875		80,875		80,875		—		—		—

	December 31, 2011
	Carrying		Estimated
Financial Instruments	Value		Fair Value
Assets
Cash and due from banks	$	10,877,790	$	10,877,790
Federal funds sold	970,000		971,233
Available-for-sale securities	3,142,636		3,142,636
Held-to-maturity securities
Long-term securities	10,123,805		10,348,374
Advances	70,863,777		71,025,990
Mortgage loans held-for-portfolio, net	1,408,460		1,490,639
Accrued interest receivable	223,848		223,848
Derivative assets	25,131		25,131
Other financial assets	1,544		1,544
Liabilities
Deposits	2,101,048		2,101,056
Consolidated obligations
Bonds	67,440,522		67,697,074
Discount notes	22,123,325		22,126,093
Mandatorily redeemable capital stock	54,827		54,827
Accrued interest payable	146,247		146,247
Derivative liabilities	486,166		486,166
Other financial liabilities	79,749		79,749

Fair Value Hierarchy

The FHLBNY records available-for-sale securities, derivative assets, derivative liabilities, certain consolidated obligations and certain other liabilities at fair value on a recurring basis and on occasion, certain private-label MBS and certain other assets on a non-recurring basis.  The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The inputs are evaluated and an overall level for the fair value measurement is determined.  This overall level is an indication of market observability of the fair value measurement for the asset or liability.  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.

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The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels:

·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 - Unobservable inputs for the asset or liability.

The FHLBNY reviews its fair value hierarchy classifications on a quarterly basis.  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 during the three and nine months ended September 30, 2012 and 2011.

Summary of Valuation Techniques and Primary Inputs

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

Because an active secondary market does not exist for a portion of the FHLBNY’s financial instruments, in certain cases, fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change.  The fair values of financial assets and liabilities reported in the tables above are discussed below.  For additional information, also see Significant Accounting Policies and Estimates in Note 1 in the FHLBNY’s most recent Form 10-K filed on March 23, 2012.

Cash and Due from Banks — The estimated fair value approximates the recorded book balance.

Interest-bearing Deposits, Federal Funds Sold, and Securities purchased under agreements to resell — The FHLBNY determines estimated fair values of certain short-term investments by calculating the present value of expected future cash flows from the investments, a methodology also referred to as the Income approach under the Fair value measurement standards.  The discount rates used in these calculations are the current coupons of investments with similar terms.

Investment Securities — The fair value of investment securities is estimated by Management using information primarily from pricing services.  This methodology is also referred to as the Market approach under the Fair value measurement standards.

In an effort to achieve consistency among the FHLBanks’ pricing of investments of mortgage-backed securities, the 12 FHLBanks have established the MBS Pricing Governance Committee (“Pricing Committee”).  The Pricing Committee is responsible for developing a fair value methodology for mortgage-backed securities that all FHLBanks would implement.  For more information about the pricing Committee and its guidelines, see the Bank’s most recent Form-10K filed on March 23, 2012.

The FHLBNY’s valuation technique, consistent with the common framework under the Pricing Committee guidelines, incorporates prices from up to four designated third-party pricing services, when available.  The four specialized pricing services use pricing models or quoted prices of securities with similar characteristics.  The valuation techniques used by pricing services employ cash flow generators and option-adjusted spread models.  Pricing spreads used as inputs in the models are based on new issue and secondary market transactions if the securities are traded in sufficient volumes in the secondary market.  These pricing vendors typically employ valuation techniques that incorporate benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of like securities, sector groupings, and/or matrix pricing, as may be deemed appropriate for the security.  Significant unobservable inputs used by pricing vendors to determine price were not reasonably available.

The FHLBNY’s base investment pricing methodology establishes a median price for each security using a formula that is based on the number of prices received.  If four prices are received from the four pricing vendors, the average of the two middle prices is used; if three prices are received, the middle price is used; if two prices are received, the average of the two prices is used; and if one price is received, it is used subject to further validation.  Vendor prices that are outside of a defined tolerance threshold of the median price are identified as outliers and subject to additional review, including, but not limited to, comparison to prices provided by an additional third-party valuation service, prices for similar securities, and/or non-binding dealer estimates, or use of internal model prices, which are deemed to be reflective of all relevant facts and circumstances that a market participant would consider.  Such analysis is also applied in those limited instances where no third-party vendor price or only one third-party vendor price is available in order to arrive at an estimated fair value.  If the analysis confirms that an outlier is not

35

representative of fair value and that the average of the vendor prices within the tolerance threshold of the median price is the best estimate, then the average of the vendor prices within the tolerance threshold of the median price is used as the final price.  If, on the other hand, an outlier (or some other price identified in the analysis) is determined to be a better estimate of fair value, then the outlier (or the other price as appropriate) is used as the final price.  In all cases, the final price is used to determine the fair value of the security.

The Pricing Committee refined its guidelines, effective December 31, 2011, and the FHLBNY also refined its method for estimating the fair values for its investment securities, and the refinement had no material impact on the fair values of the FHLBNY’s investment securities.  The refined methodology introduces the concept of clustering pricing, and to predefine cluster tolerances.  An outlier, under the methodology, is any vendor price that is outside of a defined cluster tolerance.  The outlier is evaluated for reasonableness.  Once the median prices are computed from the four pricing vendors, the second step is to determine which of the sourced prices fall within the required tolerance level interval to the median price, which forms the “cluster” of prices to be averaged.  This average will determine a “default” price for the security.  To be included among the cluster, each price must fall within 10 points of the median price for residential PLMBS and within 3 points of the median price for GSE issued MBS.  The final step is to determine the final price of the security based on the cluster average and an evaluation of any outlier prices.  If all prices fall within the cluster, the final price is simply the average of the cluster.  However, if a price falls outside the cluster, additional analysis is required.  If the price that falls outside the cluster tolerance is found to be a better estimate of the fair value, then the selected outlier price will be the final price instead of the average of prices that fit within the appropriate tolerance range.  The cluster methodology provides an additional level of analysis through pre-defined cluster tolerances, and examination of outliers in this manner will further strengthen the FHLBNY’s investment valuation process.

PLMBS securities - For private-label MBS, the FHLBNY examines yields as an additional method to validate prices.  The FHLBNY calculates an implied yield for each of its PLMBS using estimated fair values derived from cash flows on a bond-by-bond basis.  This yield is then compared to the implied yield for comparable securities according to price information from third-party MBS “market surveillance reports”.  Significant variances or inconsistencies are evaluated in conjunction with all of the other available pricing information to determine whether an adjustment to the fair value estimate is appropriate.  A specialized team examines price changes that exceed a pre-established tolerance, and compares price changes to changes in the option-adjusted spread (“OAS”).  The team also reviews pricing by putting like securities into cohorts and tracking outliers.  Separately, the Bank also runs pricing through prepayment models to test the reasonability of pricing relative to changes in the implied prepayment options of the bonds, and performs comprehensive credit analysis, including the analysis of underlying cash flows and collateral.

The FHLBNY believes such methodologies — valuation comparison, review of changes in valuation parameters, and credit analysis have been designed to identify the effects of the credit crisis, which has tended to reduce the availability of certain observable market pricing or has caused the widening of the bid/offer spread of certain securities.  As of September 30, 2012, four vendor prices were received for a significant percentage of the FHLBNY’s MBS holdings.  Fair values derived from alternative pricing methodologies were not significant.  The remaining MBS were priced utilizing three vendor prices or less.  Substantially all vendor prices fell within specified thresholds.  The relative proximity of the prices received supported the FHLBNY’s conclusion that the final computed prices were reasonable estimates of fair values.

Inputs into the pricing models employed by pricing services for the Bank’s investments in GSE securities are market based and observable and are considered to be within Level 2 of the fair value hierarchy.

The valuation of the FHLBNY’s private-label securities, all designated as held-to-maturity, may require pricing services to use significant inputs that are subjective and are considered to be within Level 3 of the fair value hierarchy because of the current lack of significant market activity so that the inputs may not be market based and observable.  At September 30, 2012 and December 31, 2011, all private-label mortgage-backed securities were classified as held-to-maturity and were recorded in the balance sheet at their carrying values.  Carrying value of a security is the same as its amortized cost, unless the security is determined to be OTTI.  In the period the security is determined to be OTTI, its carrying value is generally adjusted down to its fair value.

Held-to-maturity private-label mortgage-backed securities were written down to their fair value at September 30, 2012 and December 31, 2011 as a result of recognition of OTTI, and their carrying values were recorded in the balance sheet at their fair values.  For such securities, the fair values and the securities are classified on a nonrecurring basis as Level 3 financial instruments under the valuation hierarchy.  This determination was made based on management’s view that the private-label instruments may not have an active market because of the specific vintage of the securities as well as inherent conditions surrounding the trading of private-label mortgage-backed securities.

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 their pricing models may not be market based and observable.

Consolidated Obligations.  — The FHLBNY estimates the fair values of consolidated obligations based on the present values of expected future cash flows due on the debt obligations.  Calculations are performed by using the FHLBNY’s industry standard option adjusted valuation models.  Inputs are based on the cost of raising comparable term debt.

The FHLBNY’s internal valuation models use standard valuation techniques and estimate fair values based on the following inputs:

36

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

·Volatility assumption. 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.

Advances — The fair values of advances are computed using standard option valuation models.  The most significant inputs to the valuation model are (1) consolidated obligation debt curve (the “CO Curve”), published by the Office of Finance and available to the public, and (2) LIBOR swap curves and volatilities.  The Bank considers both these inputs to be market based and observable as they can be directly corroborated by market participants.

The FHLBNY determines the fair values of its advances 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 an 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 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.  Represents the FHLBNY mark-up based on its pricing strategy.  The input is considered as unobservable, and is classified as a Level 3 input.

The FHLBNY creates an internal curve, which is interpolated from its advance rates.  Advance rates are calculated by applying a spread to an underlying “base curve” derived from the FHLBNY’s cost of funds, which is based on the CO Curve.  The CO Curve inputs have been determined to be market observable and classified as Level 2.  The spreads applied to the base curve, which typically represent the FHLBNY’s mark-ups over the FHLBNY’s cost of funds, are not market observable inputs, but rather are based on the FHLBNY’s advance pricing strategy, and such inputs have been classified as a Level 3.  For the FHLBNY, Level 3 inputs were considered not significant.

To determine the appropriate classification of the overall measurement in the fair value hierarchy of an advance, an analysis of the inputs to the entire fair value measurement was performed at September 30, 2012.  If the unobservable spread to the FHLBNY’s cost of funds was not significant to the overall fair value, then the measurement was classified as Level 2.  Conversely, if the unobservable spread was significant to the overall fair value, then the measurement would be classified as Level 3.  The impact of the unobservable input was calculated as the difference in the value determined by discounting an advance’s cash flows using the FHLBNY’s advance curve and the value determined by discounting an advance’s cash flows using the FHLBNY’s cost of funds curve.  Given the relatively small mark-ups over the FHLBNY’s cost of funds, the results of the FHLBNY’s quantitative analysis confirmed the FHLBNY’s expectations that the measurement of the FHLBNY’s advances was Level 2.  The unobservable mark-up spreads were not significant to the overall fair value of the instrument.  A quantitative threshold for significance factor was established at 10 percent, with additional qualitative factors to be considered if the ratio exceeded the threshold.

Mortgage Loans — The fair value of MPF loans and loans in the inactive CMA programs are priced using a valuation technique referred to as the “market approach.”  Loans are aggregated into synthetic pass-through securities based on product type, loan origination year, gross coupon and loan term.  Thereafter, these are compared against closing “TBA” prices extracted from independent sources.  All significant inputs to the loan valuations are market based and observable.

Accrued Interest Receivable and Other Assets — The estimated fair values approximate the recorded book value because of the relatively short period of time between their origination and expected realization.

Derivative Assets and Liabilities — The FHLBNY’s derivatives are traded in the over-the-counter market.  Discounted cash flow analysis is the primary methodology employed by the FHLBNY’s valuation models to measure the fair values of interest rate swaps.  The valuation technique is considered as an “Income approach”.  Interest rate caps and floors are valued under the “Market approach”.  Interest rate swaps and interest rate caps and floors are valued in industry-standard option adjusted valuation models that utilize market inputs, which can be corroborated, from widely accepted third-party sources.  The Bank’s valuation model utilizes a modified Black-Karasinski model that assumes that rates are distributed log normally.  The log-normal model precludes interest rates turning negative in the model computations.  Significant market based and observable inputs into the valuation model include volatilities and interest rates.  These derivative positions are classified within Level 2 of the valuation hierarchy, and include interest rate swaps, swaptions, interest rate caps and floors, and mortgage delivery commitments.

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The Bank’s valuation model employs industry standard market-observable inputs (inputs that are actively quoted and can be validated to external sources). Inputs by class of derivative are as follows:

Interest-rate related:

·LIBOR Swap Curve.

·Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.

·Prepayment assumption (if applicable).

The FHLBNY is subject to credit risk in derivatives transactions due to the potential nonperformance of its derivatives counterparties, which are generally highly rated institutions.  To mitigate this risk, the FHLBNY has entered into master netting agreements with its derivative counterparties.  To further limit the FHLBNY’s net unsecured credit exposure to those counterparties, the FHLBNY has entered into bilateral security agreements with all of its derivatives counterparties that provide for the delivery of collateral at specified levels.  The FHLBNY has evaluated the potential for the fair value of the instruments to be affected by counterparty credit risk and its own credit risk and has determined that no adjustments were significant to the overall fair value measurements.  Additional information about credit risk associated with derivative transactions is provided in Note 16. Derivatives and Hedging Activities.

Mortgage delivery commitments:

·TBA securities prices. TBA security prices are adjusted for differences in coupon, average loan rate and seasoning.

The FHLBNY employs control processes to validate the fair value of its financial instruments, including those derived from valuation models.  These control processes are designed to ensure that the values used for financial reporting are based on observable inputs wherever possible.  In the event that observable inputs are not available, the control processes are designed to ensure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable.  These control processes include reviews of the pricing model’s theoretical soundness and appropriateness by specialists with relevant expertise who are independent from the trading desks or personnel who were involved in the design and selection of model inputs.  Additionally, groups that are independent from the trading desk, or personnel involved in the design and selection of model inputs participate in the review and validation of the fair values generated from the valuation model.  The FHLBNY maintains an ongoing review of its valuation models and has a formal model validation policy in addition to procedures for the approval and control of data inputs.

The valuation of derivative assets and liabilities reflect the value of the instrument including the values associated with counterparty risk and would also take into account the FHLBNY’s own credit standing and non-performance risk.  The Bank has collateral agreements with all its derivative counterparties and enforces collateral exchanges at least weekly.  The computed fair values of the FHLBNY’s 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.  The Bank and each derivative counterparty have bilateral collateral thresholds that take into account both the Bank and counterparty’s credit ratings.  As a result of these practices and agreements and the FHLBNY’s assessment of any change in its own credit spread, the Bank has concluded that the impact of the credit differential between the Bank and its derivative counterparties 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 September 30, 2012 and December 31, 2011.

Deposits — The FHLBNY determines estimated fair values of deposits by calculating the present value of expected future cash flows from the deposits.  The discount rates used in these calculations are the current cost of deposits with similar terms.

Mandatorily Redeemable Capital Stock — The fair value of capital stock subject to mandatory redemption is generally equal to its par value as indicated by contemporaneous member purchases and sales at par value.  Fair value also includes an estimated dividend earned at the time of reclassification from equity to liabilities, until such amount is paid, and any subsequently declared dividend.  FHLBank stock can only be acquired and redeemed at par value.  FHLBank stock is not traded and no market mechanism exists for the exchange of stock outside the FHLBank System’s cooperative structure.

Accrued Interest Payable and Other Liabilities — The estimated fair values approximate the recorded book value because of the relatively short period of time between their origination and expected realization.

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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 nonrecurring basis at September 30, 2012 and December 31, 2011, by level within the fair value hierarchy.  The FHLBNY measures certain held-to-maturity securities and mortgage loans at fair value on a non-recurring basis due to the recognition of a credit loss.  Real estate owned 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)

	September 30, 2012
	Total			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral
Assets
Available-for-sale securities
GSE/U.S. agency issued MBS	$	2,509,988		$	—	$	2,509,988		$	—	$	—
Equity and bond funds	9,618			9,618		—			—		—
Derivative assets(a)
Interest-rate derivatives	14,953			—		1,086,731			—		(1,071,778		)
Mortgage delivery commitments	40			—		40			—		—
Total recurring fair value measurement - assets	$	2,534,599		$	9,618	$	3,596,759		$	—	$	(1,071,778	)
Liabilities
Consolidated obligations:
Discount notes (to the extent FVO is elected)	$	(1,698,122	)	$	—	$	(1,698,122	)	$	—	$	—
Bonds (to the extent FVO is elected) (b)	(14,243,209		)	—		(14,243,209		)	—		—
Derivative liabilities(a)
Interest-rate derivatives	(465,758		)	—		(4,311,098		)	—		3,845,340
Mortgage delivery commitments	(540		)	—		(540		)	—		—
Total recurring fair value measurement - liabilities	$	(16,407,629	)	$	—	$	(20,252,969	)	$	—	$	3,845,340

	December 31, 2011
	Total			Level 1		Level 2			Level 3		Netting Adjustment and Cash Collateral
Assets
Available-for-sale securities
GSE/U.S. agency issued MBS	$	3,133,469		$	—	$	3,133,469		$	—	$	—
Equity and bond funds	9,167			9,167		—			—		—
Derivative assets(a)
Interest-rate derivatives	24,861			—		1,162,634			—		(1,137,773		)
Mortgage delivery commitments	270			—		270			—		—
Total recurring fair value measurement - assets	$	3,167,767		$	9,167	$	4,296,373		$	—	$	(1,137,773	)
Liabilities
Consolidated obligations:
Discount notes (to the extent FVO is elected)	$	(4,920,855	)	$	—	$	(4,920,855	)	$	—	$	—
Bonds (to the extent FVO is elected) (b)	(12,542,603		)	—		(12,542,603		)	—		—
Derivative liabilities(a)
Interest-rate derivatives	(486,166		)	—		(4,221,882		)	—		3,735,716
Total recurring fair value measurement - liabilities	$	(17,949,624	)	$	—	$	(21,685,340	)	$	—	$	3,735,716

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

Items Measured at Fair Value on a Nonrecurring Basis

	September 30, 2012
	Fair Value		Level 1		Level 2		Level 3
Held-to-maturity securities
RMBS-Prime	$	7,432	$	—	$	—	$	7,432
Total non-recurring assets at fair value	$	7,432	$	—	$	—	$	7,432

	December 31, 2011
	Fair Value		Level 1		Level 2		Level 3
Held-to-maturity securities
RMBS-Prime	$	14,609	$	—	$	—	$	14,609
Home equity loans	5,669		—		—		5,669
Total non-recurring assets at fair value	$	20,278	$	—	$	—	$	20,278

Fair values were developed by pricing vendors and reviewed by the FHLBNY.  Our review methodology is summarized in this note under “Summary of Valuation Techniques and Primary Inputs. Also, see Note 5. Held-to-maturity Securities that contains a table with price inputs and ranges of prices received from pricing vendors for securities deemed OTTI.

39

Fair Value Option Disclosures

The following table summarizes the activity related to financial instruments for which the Bank elected the fair value option (in thousands):

	Three months ended September 30,
	2012			2011			2012			2011
	Bonds						Discount Notes
Balance, beginning of the period	$	(20,233,312	)	$	(9,452,247	)	$	(1,595,484	)	$	(736,746	)
New transactions elected for fair value option	—			(8,450,000		)	(300,507		)	(3,386,076		)
Maturities and terminations	6,000,000			3,565,000			199,874			—
Net (losses) gains on financial instruments held under fair value option	(8,331		)	(3,800		)	(1,068		)	(1,373		)
Change in accrued interest/unaccreted balance	(1,566		)	(79		)	(937		)	(1,159		)
Balance, end of the period	$	(14,243,209	)	$	(14,341,126	)	$	(1,698,122	)	$	(4,125,354	)

	Nine months ended September 30,
	2012			2011			2012			2011
	Bonds						Discount Notes
Balance, beginning of the period	$	(12,542,603	)	$	(14,281,463	)	$	(4,920,855	)	$	(956,338	)
New transactions elected for fair value option	(18,793,000		)	(25,095,000		)	(1,895,772		)	(4,022,558		)
Maturities and terminations	17,095,000			25,041,000			5,117,046			853,397
Net (losses) gains on financial instruments held under fair value option	(63		)	(9,753		)	(32		)	(821		)
Change in accrued interest/unaccreted balance	(2,543		)	4,090			1,491			966
Balance, end of the period	$	(14,243,209	)	$	(14,341,126	)	$	(1,698,122	)	$	(4,125,354	)

The following table presents 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 September 30,
	2012									2011
	Interest Expense			Net Gain(Loss) Due to Changes in Fair Value			Total Change in Fair Value Included in Current Period Earnings			Interest Expense			Net Gain(Loss) Due to Changes in Fair Value			Total Change in Fair Value Included in Current Period Earnings
Consolidated obligations-bonds	$	(9,818	)	$	(8,331	)	$	(18,149	)	$	(8,093	)	$	(3,800	)	$	(11,893	)
Consolidated obligations-discount notes	(1,061		)	(1,068		)	(2,129		)	(1,159		)	(1,373		)	(2,532		)
	$	(10,879	)	$	(9,399	)	$	(20,278	)	$	(9,252	)	$	(5,173	)	$	(14,425	)

	Nine months ended September 30,
	2012									2011
	Interest Expense			Net Gain(Loss) Due to Changes in Fair Value			Total Change in Fair Value Included in Current Period Earnings			Interest Expense			Net Gain(Loss) Due to Changes in Fair Value			Total Change in Fair Value Included in Current Period Earnings
Consolidated obligations-bonds	$	(24,424	)	$	(63	)	$	(24,487	)	$	(30,732	)	$	(9,753	)	$	(40,485	)
Consolidated obligations-discount notes	(2,404		)	(32		)	(2,436		)	(2,577		)	(821		)	(3,398		)
	$	(26,828	)	$	(95	)	$	(26,923	)	$	(33,309	)	$	(10,574	)	$	(43,883	)

The following table compares 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):

	September 30, 2012
	Aggregate Unpaid Principal Balance		Aggregate Fair Value		Fair Value Over/(Under) Aggregate Unpaid Principal Balance
Consolidated obligations-bonds (a)	$	14,228,000	$	14,243,209	$	15,209
Consolidated obligations-discount notes (b)	1,695,898		1,698,122		2,224
	$	15,923,898	$	15,941,331	$	17,433

	December 31, 2011
	Aggregate Unpaid Principal Balance		Aggregate Fair Value		Fair Value Over/(Under) Aggregate Unpaid Principal Balance
Consolidated obligations-bonds (a)	$	12,530,000	$	12,542,603	$	12,603
Consolidated obligations-discount notes (b)	4,917,172		4,920,855		3,683
	$	17,447,172	$	17,463,458	$	16,286

(a)	Fair values of fixed-rate bonds at September 30, 2012 were in unrealized loss positions primarily due to increase in debt elected under the FVO. The Bank has continued to elect the FVO for short-term callable bonds because management is not able to assert with confidence that the hedges will remain highly effective through the maturity of the bonds.
(b)	The FHLBNY elected fewer discount notes under the FVO designation in the first three quarters of 2012 compared to December 31, 2011. Thus far in 2012, the interest rate environment has been less volatile relative to 2011, and the Bank has successfully hedged discount notes under qualifying fair value hedges, and relying less on electing the FVO to economically hedge discount notes.

40

Note 18.Commitments and Contingencies.

The FHLBanks have joint and several liability for all the consolidated obligations issued on their behalf.  Accordingly, should one or more of the FHLBanks be unable to repay their participation in the consolidated obligations, each of the other FHLBanks could be called upon to repay all or part of such obligations, as determined or approved by the Finance Agency.  Neither the FHLBNY nor any other FHLBank has ever had to assume or pay the consolidated obligations of another FHLBank.  The FHLBNY does not believe that it will be called upon to pay the consolidated obligations of another FHLBank in the future.  Under the provisions of accounting standards for guarantees, the Bank would have been required to recognize the fair value of the FHLBNY’s joint and several liability for all the consolidated obligations, as discussed above.  However, the FHLBNY considers the joint and several liabilities as similar to a related party guarantee, which meets the scope exception under the accounting standard for guarantees.  Accordingly, the FHLBNY has not recognized the fair value of a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations at September 30, 2012 and December 31, 2011.  The par amount of the twelve FHLBanks’ outstanding consolidated obligations was approximately $0.7 trillion at September 30, 2012 and December 31, 2011.

Standby letters of credit are executed for a fee on behalf of members to facilitate residential housing, community lending, and members’ asset/liability management or to provide liquidity.  A standby letter of credit is a financing arrangement between the FHLBNY and its member.  Members assume an unconditional obligation to reimburse the FHLBNY for value given by the FHLBNY to the beneficiary under the terms of the standby letter of credit.  The FHLBNY may, in its discretion, permit the member to finance repayment of their obligation by receiving a collateralized advance.  Outstanding standby letters of credit were approximately $6.7 billion and $2.8 billion as of September 30, 2012 and December 31, 2011, and had original terms of up to 15 years, with a final expiration in 2019.  Standby letters of credit are fully collateralized.  Unearned fees on standby letters of credit are recorded in Other liabilities, and were not significant as of September 30, 2012 and December 31, 2011.

MPF Program — Under the MPF program, the Bank was unconditionally obligated to purchase $66.7 million and $31.2 million of mortgage loans at September 30, 2012 and December 31, 2011.  Commitments are generally for periods not to exceed 45 business days.  Such commitments were recorded as derivatives at their fair value under the accounting standards for derivatives and hedging.  In addition, the FHLBNY had entered into conditional agreements under “Master Commitments” with its members in the MPF program to purchase mortgage loans in aggregate of $796.1 million and $884.1 million as of September 30, 2012 and December 31, 2011.

Future benefit payments — Future benefit payments for the BEP and the postretirement health benefit plan are not considered significant.  The Bank expects to fund $0.7 million over the next 12 months towards the Defined Benefit Plan, a non-contributory pension plan.

Derivative contracts— The FHLBNY executes derivatives with major financial institutions and enters into bilateral collateral agreements.  When counterparties are exposed, the Bank would typically pledge cash collateral to mitigate the counterparty’s credit exposure.  To mitigate the counterparties’ exposures, the FHLBNY deposited $2.8 billion and $2.6 billion in cash with derivative counterparties as pledged collateral at September 30, 2012 and December 31, 2011, and these amounts were reported as a deduction to Derivative liabilities.  Further information is provided in Note 16. Derivatives and Hedging Activities.

Lease contracts— The FHLBNY charged to operating expenses net rental costs of approximately $0.8 million for three months ended September 30, 2012 and 2011.  For the nine months ended September 30, 2012 and the same period in 2011, the FHLBNY charged to operating expenses net rental costs of approximately $2.5 million.  Lease agreements for FHLBNY 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’s results of operations or financial condition.

41

The following table summarizes contractual obligations and contingencies as of September 30, 2012 (in thousands):

	September 30, 2012
	Payments Due or Expiration Terms by Period
			Greater Than		Greater Than
	Less Than		One Year		Three Years		Greater Than
	One Year		to Three Years		to Five Years		Five Years		Total
Contractual Obligations
Consolidated obligations-bonds at par (a)	$	41,000,480	$	15,748,745	$	2,994,580	$	4,311,510	$	64,055,315
Mandatorily redeemable capital stock (a)	2,502		514		5,011		12,467		20,494
Premises (lease obligations) (b)	3,224		4,748		4,479		—		12,451
Total contractual obligations	41,006,206		15,754,007		3,004,070		4,323,977		64,088,260
Other commitments
Standby letters of credit	6,386,618		230,346		34,270		3,861		6,655,095
Consolidated obligations-bonds/discount notes traded not settled	1,030,500		—		—		—		1,030,500
Commitments to fund additional advances	10,000		—		—		—		10,000
Commitments to fund pension (c)	700		—		—		—		700
Open delivery commitments (MPF)	66,722		—		—		—		66,722
Total other commitments	7,494,540		230,346		34,270		3,861		7,763,017
Total obligations and commitments	$	48,500,746	$	15,984,353	$	3,038,340	$	4,327,838	$	71,851,277

(a)	Callable bonds contain an exercise date or a series of exercise dates that may result in a shorter redemption period. Mandatorily redeemable capital stock is categorized by the dates at which the corresponding member obligations mature. Excess capital stock is redeemed at that time, and hence, these dates better represent the related commitments than the put dates associated with capital stock, under which stock may not be redeemed until the later of five years from the date the member becomes a nonmember or the related advance matures.
(b)	Immaterial amount of commitments for equipment leases are not included.
(c)	The Bank’s expected contribution towards the funded Defined Benefit Plan is not available beyond one year. For projected benefits payable for the Bank’s unfunded Benefit Equalization Plan and the Bank’s Postretirement Benefit Plan, see Note 15.

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

Impact of the bankruptcy of Lehman Brothers

On September 15, 2008, Lehman Brothers Holdings, Inc. (“LBHI”), the parent company of Lehman Brothers Special Financing Inc. (“LBSF”) and a guarantor of LBSF’s obligations, filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in the Southern District of New York. LBSF filed for protection under Chapter 11 in the same court on October 3, 2008. A Chapter 11 plan was confirmed in their bankruptcy cases by order of the Bankruptcy Court dated December 6, 2011 (the “Plan”).  The Plan became effective on March 6, 2012.

LBSF was a counterparty to FHLBNY on multiple derivative transactions under an International Swap Dealers Association, Inc. master agreement with a total notional amount of $16.5 billion at the time of termination of the Bank’s derivative transactions with LBSF. The net amount that was due to the Bank after giving effect to obligations that were due LBSF was approximately $65 million. The Bank filed timely proofs of claim in the amount of approximately $65 million as creditors of LBSF and LBHI in connection with the bankruptcy proceedings. The Bank fully reserved the LBSF and LBHI receivables as the dispute with LBSF described below make the timing and the amount of any recoveries uncertain.

As previously reported, the Bank received a Derivatives ADR Notice from LBSF dated July 23, 2010 making a Demand as of the date of the Notice of approximately $268 million owed to LBSF by the Bank (inclusive of interest).  Subsequently, in accordance with the Alternative Dispute Resolution Procedure Order entered by the Bankruptcy Court dated September 17, 2009 (“Order”), the Bank responded to LBSF on August 23, 2010, denying LBSF’s Demand. LBSF served a reply on September 7, 2010, effectively reiterating its position.  A mediation conducted pursuant to the Order commenced on December 8, 2010 and concluded without settlement on March 17, 2011. LBSF continues to claim approximately $268 million plus interest at the rate of LIBOR plus 13.5% on a principal amount of approximately $198 million from December 6, 2010.   Pursuant to the Order, positions taken by the parties in the ADR process are confidential.

While the Bank believes that LBSF’s position is without merit, the amount the Bank actually recovers or pays will ultimately be decided in the course of the bankruptcy proceedings.

Note 19.Related Party Transactions.

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

42

Debt Assumptions and Transfers

Debt assumptions - The Bank did not assume debt from another FHLBank in the first three quarters of 2012 and 2011.

Debt transfers - There were no debt transfers to another FHLBank for the three months ended September 30, 2012 and the same period in 2011.  No bonds were transferred by the FHLBNY to another FHLBank in the nine months ended September 30, 2012.  In the nine months ended September 30, 2011, the Bank transferred $150.0 million to another FHLBank at negotiated market rates that exceeded book cost by $17.3 million, which amount was charged to earnings in that period.

When debt is transferred, the transferring bank notifies the Office of Finance on trade date of the change in primary obligor for the transferred debt.

Advances Sold or Transferred

No advances were transferred/sold to the FHLBNY or from the FHLBNY to another FHLBank in any periods in this report.

MPF Program

In the MPF program, the FHLBNY may participate out certain portions of its purchases of mortgage loans from its members.  Transactions are at market rates.  The FHLBank of Chicago, the MPF provider’s cumulative share of interest in the FHLBNY’s MPF loans at September 30, 2012 was $50.9 million (December 31, 2011 was $62.9 million) from inception of the program through mid-2004.  Since 2004, the FHLBNY has not shared its purchases with the FHLBank of Chicago.  Fees paid to the FHLBank of Chicago were $0.2 million and $0.1 million for the three months ended September 30, 2012 and 2011. Fees paid to the FHLBank of Chicago were $0.6 million and $0.4 million for the nine months ended September 30, 2012 and 2011.

Mortgage-backed Securities

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

Intermediation

Notional amounts of $265.0 million and $275.0 million of interest rate swaps outstanding at September 30, 2012 and December 31, 2011, represented derivative contracts in which the FHLBNY acted as an intermediary to sell derivatives to members with an offsetting purchased contracts with unrelated derivatives dealers.  Net fair value exposures of these transactions at September 30, 2012 and December 31, 2011 were not significant.  The intermediated derivative transactions were fully collateralized.

Loans to Other Federal Home Loan Banks

In the nine months ended September 30, 2012 and 2011, the FHLBNY extended $950.0 million and $300.0 million to another FHLBank.  Total loans of $300.0 million were made to other FHLBanks during the three months ended September 30, 2012 and $200.0 million was made for the same period in 2011.  Generally, loans made to other FHLBanks are uncollateralized.  The impact to Net interest income from such loans was not significant in any period in this report.

Borrowings from Other Federal Home Loan Banks

The FHLBNY borrows from other FHLBanks, generally for a period of one day.  There was no borrowing from other FHLBanks during the three months ended September 30, 2012 and 2011.  For the nine months ended September 30, 2012, the FHLBNY borrowed one overnight loan for a total of $50.0 million from a FHLBank, and there was no borrowing from other FHLBanks for the same period in 2011.  In the nine months ended September 30, 2012, such borrowings averaged $0.2 million, and interest expense for such borrowings was not significant in any period in this report.

43

The following tables summarize outstanding balances with related parties at September 30, 2012 and December 31, 2011, and transactions for the three and nine months ended September 30, 2012 and the same periods in 2011 (in thousands):

Related Party: Outstanding Assets, Liabilities and Capital

	September 30, 2012				December 31, 2011
	Related		Unrelated		Related		Unrelated
Assets
Cash and due from banks	$	—	$	2,900,615	$	—	$	10,877,790
Securities purchased under agreements to resell	—		200,000		—		—
Federal funds sold	—		9,946,000		—		970,000
Available-for-sale securities	—		2,519,606		—		3,142,636
Held-to-maturity securities	—		—
Long-term securities	—		11,674,668		—		10,123,805
Advances	77,864,259		—		70,863,777		—
Mortgage loans (a)	—		1,747,724		—		1,408,460
Accrued interest receivable	207,288		30,742		195,700		28,148
Premises, software, and equipment	—		12,377		—		13,487
Derivative assets (b)	—		14,993		—		25,131
Other assets (c)	282		11,523		193		13,213
Total assets	$	78,071,829	$	29,058,248	$	71,059,670	$	26,602,670
Liabilities and capital
Deposits	$	1,806,099	$	—	$	2,101,048	$	—
Consolidated obligations	—		98,853,659		—		89,563,847
Mandatorily redeemable capital stock	20,494		—		54,827		—
Accrued interest payable	22		168,792		8		146,239
Affordable Housing Program (d)	135,755		—		127,454		—
Derivative liabilities (b)	—		466,298		—		486,166
Other liabilities (e)	80,875		70,743		69,555		66,785
Total liabilities	$	2,043,245	$	99,559,492	$	2,352,892	$	90,263,037
Total capital	5,527,340		—		5,046,411		—
Total liabilities and capital	$	7,570,585	$	99,559,492	$	7,399,303	$	90,263,037

(a)	Includes insignificant amounts of mortgage loans purchased from members of another FHLBank.
(b)	Derivative transactions with Citibank, N.A., a member that is a derivatives dealer counterparty were at market terms and in the ordinary course of the FHLBNY’s business — At September 30, 2012, notional amounts outstanding were $3.1 billion; net fair value after posting $62.7 million cash collateral was a net derivative liability of $25.5 million. At December 31, 2011, notional amounts outstanding were $3.9 billion; net fair value after posting $49.5 million cash collateral was a net derivative liability of $38.0 million. Citibank, N.A., became a member in the second quarter of 2011. The swap interest rate exchanges with Citibank, N.A., resulted in interest expense of $5.3 million and $16.0 million in the three and nine months ended September 30, 2012. Also, includes insignificant fair values due to intermediation activities on behalf of other members.
(c)	Includes insignificant amounts of miscellaneous assets that are considered related party.
(d)	Represents funds not yet disbursed to eligible programs.
(e)	Related column includes member pass-through reserves at the Federal Reserve Bank.

44

Related Party: Income and Expense transactions

	Three months ended
	September 30, 2012				September 30, 2011
	Related		Unrelated		Related		Unrelated
Interest income
Advances	$	103,274	$	—	$	85,440	$	—
Interest-bearing deposits (a)	—		971		—		700
Securities purchased under agreements to resell	—		54		—		—
Federal funds sold	—		4,218		—		1,547
Available-for-sale securities	—		5,731		—		7,045
Held-to-maturity securities
Long-term securities	—		68,309		—		70,021
Mortgage loans held-for-portfolio (b)	—		16,461		—		15,832
Loans to other FHLBanks	1		—		1		—
Total interest income	$	103,275	$	95,744	$	85,441	$	95,145
Interest expense
Consolidated obligations	$	—	$	111,109	$	—	$	103,578
Deposits	150		—		240		—
Mandatorily redeemable capital stock	398		—		660		—
Cash collateral held and other borrowings	—		4		—		25
Total interest expense	$	548	$	111,113	$	900	$	103,603
Service fees and other	$	2,669	$	—	$	1,579	$	—

	Nine months ended
	September 30, 2012				September 30, 2011
	Related		Unrelated		Related		Unrelated
Interest income
Advances	$	316,774	$	—	$	359,640	$	—
Interest-bearing deposits (a)	—		2,593		—		2,221
Securities purchased under agreements to resell	—		54		—		—
Federal funds sold	—		11,021		—		5,694
Available-for-sale securities	—		18,503		—		23,205
Held-to-maturity securities
Long-term securities	—		207,244		—		210,352
Mortgage loans held-for-portfolio (b)	—		48,626		—		47,160
Loans to other FHLBanks	3		—		1		—
Total interest income	$	316,777	$	288,041	$	359,641	$	288,632
Interest expense
Consolidated obligations	$	—	$	331,282	$	—	$	335,479
Deposits	572		—		1,068		—
Mandatorily redeemable capital stock	1,572		—		1,873		—
Cash collateral held and other borrowings	—		28		—		56
Total interest expense	$	2,144	$	331,310	$	2,941	$	335,535
Service fees and other	$	6,983	$	—	$	4,314	$	—

(a) Includes insignificant amounts of interest income from MPF service provider.

(b) Includes de minimis amounts of mortgage interest income from loans purchased from members of another FHLBank.

Note 20. Segment Information and Concentration.

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

The FHLBNY’s total assets and capital could significantly decrease if one or more large members were to withdraw from membership or decrease business with the Bank.  Members might withdraw or reduce their business as a result of consolidating with an institution that was a member of another FHLBank, or for other reasons.  The FHLBNY has considered the impact of losing one or more large members.  In general, a withdrawing member would be required to repay all indebtedness prior to the redemption of its capital stock.  Under current conditions, the FHLBNY does not expect the loss of a large member to impair its operations, since the FHLBank Act of 1999 does not allow the FHLBNY to redeem the capital of an existing member if the redemption would cause the FHLBNY to fall below its capital requirements.  Consequently, the loss of a large member should not result in an inadequate capital position for the FHLBNY.  However, such an event could reduce the amount of capital that the FHLBNY has available for

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continued growth.  This could have various ramifications for the FHLBNY, including a possible reduction in net income and dividends, and a lower return on capital stock for remaining members.

The top ten advance holders at September 30, 2012, December 31, 2011 and September 30, 2011 and associated interest income for the periods then ended are summarized as follows (dollars in thousands):

	September 30, 2012
					Percentage of
			Par		Total Par Value		Interest Income
	City	State	Advances		of Advances		Three months		Nine months
Metropolitan Life Insurance Company	New York	NY	$	13,547,000	18.33	%	$	75,420	$	217,271
Citibank, N.A.	New York	NY	13,245,000		17.92		16,343		20,165
New York Community Bank*	Westbury	NY	8,243,146		11.15		75,830		227,135
Hudson City Savings Bank, FSB*	Paramus	NJ	6,775,000		9.17		75,280		228,924
Astoria Federal Savings and Loan Assn.	Lake Success	NY	3,133,000		4.24		15,979		47,148
The Prudential Insurance Co. of America	Newark	NJ	2,424,000		3.28		12,397		37,812
Investors Bank	Short Hills	NJ	2,311,000		3.13		14,576		43,415
Valley National Bank	Wayne	NJ	2,226,500		3.01		20,983		62,622
Banco Popular de Puerto Rico	San Juan	PR	1,707,500		2.31		5,834		16,500
First Niagara Bank, National Association	Buffalo	NY	1,380,800		1.87		1,020		9,057
Total			$	54,992,946	74.41	%	$	313,662	$	910,049

*  At September 30, 2012, officer of member bank also served on the Board of Directors of the FHLBNY.

	December 31, 2011
					Percentage of
			Par		Total Par Value		Twelve Months
	City	State	Advances		of Advances		Interest Income
Metropolitan Life Insurance Company	New York	NY	$	11,655,000	17.40	%	$	266,792
Hudson City Savings Bank, FSB*	Paramus	NJ	8,925,000		13.32		520,044
New York Community Bank*	Westbury	NY	8,755,154		13.07		304,289
MetLife Bank, N.A.	Convent Station	NJ	4,764,500		7.11		95,740
The Prudential Insurance Co. of America	Newark	NJ	2,424,000		3.62		57,154
Investors Bank	Short Hills	NJ	2,115,486		3.16		53,984
Valley National Bank	Wayne	NJ	2,103,500		3.14		90,261
Astoria Federal Savings and Loan Assn.	Lake Success	NY	2,043,000		3.05		71,909
First Niagara Bank, National Association	Buffalo	NY	1,667,072		2.49		16,626
New York Life Insurance Company	New York	NY	1,500,000		2.24		14,497
Total			$	45,952,712	68.60	%	$	1,491,296

* At December 31, 2011, officer of member bank also served on the Board of Directors of the FHLBNY.

	September 30, 2011
					Percentage of
			Par		Total Par Value		Interest Income
	City	State	Advances		of Advances		Three months		Nine months
Hudson City Savings Bank, FSB*	Paramus	NJ	$	13,725,000	19.87	%	$	124,938	$	405,413
Metropolitan Life Insurance Company	New York	NY	11,780,000		17.06		66,990		201,027
New York Community Bank*	Westbury	NY	7,693,157		11.14		76,937		228,261
MetLife Bank, N.A.	Convent Station	NJ	4,589,500		6.65		25,911		70,173
The Prudential Insurance Co. of America	Newark	NJ	2,500,000		3.62		14,088		43,064
Valley National Bank	Wayne	NJ	2,104,500		3.05		22,187		68,373
Investors Bank	Short Hills	NJ	2,101,993		3.04		14,861		39,500
Astoria Federal Savings and Loan Assn.	Lake Success	NY	1,944,000		2.81		17,803		55,313
New York Life Insurance Company	New York	NY	1,500,000		2.17		3,800		10,701
Doral Bank	San Juan	PR	1,391,420		2.01		6,464		24,479
Total			$	49,329,570	71.42	%	$	373,979	$	1,146,304

* At September 30, 2011, officer of member bank also served on the Board of Directors of the FHLBNY.

The following table summarizes capital stock held by members who were beneficial owners of more than 5 percent of the FHLBNY’s outstanding capital stock as of September 30, 2012 and December 31, 2011 (shares in thousands):

		Number	Percent
	September 30, 2012	of Shares	of Total
Name of Beneficial Owner	Principal Executive Office Address	Owned	Capital Stock
Citibank, N.A.	399 Park Avenue, New York, NY 10043	9,695	19.82	%
Metropolitan Life Insurance Company	200 Park Avenue, New York, NY 10166	7,363	15.05
New York Community Bank*	615 Merrick Avenue, Westbury, NY 11590	4,314	8.82
Hudson City Savings Bank, FSB*	West 80 Century Road, Paramus, NJ 07652	3,902	7.98
		25,274	51.67	%

		Number	Percent
	December 31, 2011	of Shares	of Total
Name of Beneficial Owner	Principal Executive Office Address	Owned	Capital Stock
Metropolitan Life Insurance Company	200 Park Avenue, New York, NY 10166	6,579	14.47	%
Hudson City Savings Bank, FSB*	West 80 Century Road, Paramus, NJ 07652	5,106	11.23
New York Community Bank*	615 Merrick Avenue, Westbury, NY 11590	4,546	10.00
Citibank, N.A.	399 Park Avenue, New York, NY 10043	3,647	8.02
MetLife Bank, N.A.	334 Madison Avenue, Convent Station, NJ 07961	2,343	5.16
		22,221	48.88	%

* At September 30, 2012 and December 31, 2011, officer of member bank also served on the Board of Directors of the FHLBNY.

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Note 21. Subsequent Events.

Subsequent events for the FHLBNY are events or transactions that occur after the balance sheet date but before financial statements are issued.  There are two types of subsequent events:

a. The first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements (that is, recognized subsequent events).

b. The second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date (that is, nonrecognized subsequent events).

The FHLBNY has evaluated subsequent events through the filing date of this report and no significant subsequent events were identified other than those described below:

On October 29, and 30, 2012, Hurricane Sandy swept through New Jersey and New York, in the FHLBNY’s membership district, causing severe disruption and damage in the region to homes and businesses throughout the hurricane’s path. The FHLBNY considers the impact of Hurricane Sandy as a nonrecognized subsequent event.  We are assessing the impact of this event on the Bank’s business. An estimate of its financial effect on the Bank, if any, will be made after we complete the assessment.

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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 (“we,” “us,” “our,”“the Bank” or the “FHLBNY”), 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, and include statements related to, among others, gains and losses on derivatives, plans to pay dividends and repurchase excess capital stock, future other-than-temporary impairment charges, future classification of securities, and housing reform legislation.  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.

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

This MD&A is designed to provide information that will assist the readers in better understanding the FHLBNY’s financial statements, the changes in key items in the Bank’s financial statements from period to period and the primary factors driving those changes as well as how accounting principles affect the FHLBNY’s financial statements.  The MD&A is organized as follows:

		Page
Executive Overview		50
	Financial performance of the Federal Home Loan Bank of New York	50
	Business Outlook	52
Results of Operations		56
	Net Income	56
	Interest Income	58
	Interest Expense	59
	Net Interest Income	60
	Earnings Impact of Derivatives and Hedging Activities	65
	Operating Expense, Compensation and Benefits, and Other Expenses	67
Financial Condition		69
Advances		71
Investments		75
Mortgage Loans Held-for-Portfolio		83
Debt Financing Activity and Consolidated Obligations		85
Stockholders’ Capital, Retained Earnings, and Dividend		91
Derivative Instruments and Hedging Activities		92
Liquidity, Cash Flows, Short-Term Borrowings and Short-Term Debt		96
Legislative and Regulatory Developments		100

MD&A TABLE REFERENCE

Table(s)	Description	Page(s)
1.1 — 1.16	Result of Operations	57 - 67
2.1 — 2.2	Assessments	68
3.1 — 3.3	Financial Condition	69 - 70
4.1 — 4.10	Advances	71 - 75
5.1 — 5.13	Investments	76 - 82
6.1 — 6.6	Mortgage Loans	83 - 84
7.1 — 7.11	Consolidated Obligations	87 - 91
8.1 — 8.3	Capital	91 - 92
9.1 — 9.7	Derivatives	93 - 96
10.1 - 10.6	Liquidity	97 - 99

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Executive Overview

This overview of management’s discussion and analysis highlights and selected information may not contain all of the information that is important to readers of this Form 10-Q.  For a more complete understanding of events, trends and uncertainties, as well as the liquidity, capital, credit and market risks, and critical accounting estimates, affecting the Federal Home Loan Bank of New York (“FHLBNY” or “Bank”), this Form 10-Q should be read in its entirety and in conjunction with the Bank’s most recent Form 10-K filed on March 23, 2012.

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

Business segment.  We manage our operations as a single business segment.  Advances to members are our primary focus and the principal factor that impacts our operating results.  We are exempt from ordinary federal, state and local taxation (except for local real estate tax).  Up until June 30, 2011, we were required to make payments to Resolution Funding Corporation (“REFCORP”).  We are required to set aside a percentage of our income towards an Affordable Housing Program (“AHP”).

Explanation of the use of certain non-GAAP measures of Interest Income and Expense, Net Interest income and margin.  The results of our operations are presented in accordance with U.S. generally accepted accounting principles.  We have also presented certain information regarding our spread between Interest Income and Expense, Net Interest income spread and Return on Earning assets.  This spread combines interest expense on debt with net interest exchanged with swap dealers on interest rate swaps associated with debt hedged on an economic basis.  The spread also eliminates the adverse impact of accounting charges due to amortization of fair value basis of modified hedged advances.  We believe these non-GAAP financial measures are useful to investors and members seeking to understand our operational performance and business and performance trends.  Although we believe these non-GAAP financial measures enhance investor and members’ understanding of the Bank’s business and performance, they should not be considered an alternative to GAAP.  We have provided GAAP measures in parallel whenever discussing non-GAAP measures.

Financial performance of the Federal Home Loan Bank of New York

	Three months ended September 30,								Nine months ended September 30,
(Dollars in millions, except per share data)	2012		2011			Change			2012			2011			Change
Net interest income before provision for credit losses	$	87	$	76		$	11		$	271		$	310		$	(39	)
Provision for credit losses on mortgage loans	—		1			(1		)	1			3			(2		)
Net OTTI impairment losses	—		(1		)	1			(2		)	(2		)	—
Other non-interest income (loss)	33		(13		)	46			109			1			108
Total other income (loss)	33		(14		)	47			107			(1		)	108
Operating expenses	6		7			(1		)	20			22			(2		)
Compensation and benefits	13		12			1			40			65			(25		)
Net income	$	88	$	36		$	52		$	277		$	160		$	117
Earnings per share	$	1.81	$	0.77		$	1.04		$	5.99		$	3.60		$	2.39
Dividend per share	$	1.12	$	1.12		$	—		$	3.50		$	3.69		$	(0.19	)

2012 Third Quarter Highlights

Results of Operations

We reported 2012 third quarter Net income of $88.4 million, or $1.81 per share, compared with Net income of $35.7 million, or $0.77 per share in the same period in the previous year.  The return on average equity, which is Net income divided by average Capital stock, Retained earnings (unrestricted and restricted), and Accumulated other comprehensive income (loss) (“AOCI” or “AOCL”), was 6.42% in the 2012 third quarter compared to 2.72% in the same period in 2011.

Net interest income was $87.4 million in the 2012 third quarter, up from $76.1 million in the 2011 period, and was primarily from the increase in reported interest income from advances.  The impact of a lower interest rate environment in 2012 drove down yields from advances.  In a declining interest rate environment in 2012, coupons on floating rate advances declined, and maturing short-term fixed-rate advances were replaced by lower yielding advances. At the same time, interest rate swap payments to swap counterparties declined significantly as new fixed-rate advances settled at lower coupons, reduced our obligation to pay fixed-rate cash flows to swap counterparties.  The 3-month LIBOR, which is the swap counterparties’ obligation to us, also declined but not as significantly.  See Table 1.7 for more information about the impact of interest rate swaps on reported interest income and expense.

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With stability in the market pricing of our PLMBS and improvement in their credit performance parameters, cash flow analysis of all PLMBS bonds were projecting insignificant future credit losses.  OTTI charge was only $0.6 million for the 2012 third quarter, compared to $1.1 million in the same period in 2011.

Derivative and hedging gains in the 2012 third quarter reported in Other income was $45.1 million, which included a gain of $30.1 million due to accounting amortization of fair value basis adjustments of modified derivatives in parallel with the modification of hedged advances.  Absent the amortization, derivative and hedging activities contributed a fair value gain of $15.0 million in the 2012 third quarter, in contrast to a loss of $8.6 million in the comparable period in 2011 and on an equivalent basis.  In the 2011 third quarter, the accounting amortization was a gain of $26.7 million.  We hedge almost all of our long-term fixed-rate advances and consolidated obligation liabilities with the use of interest rate swaps, and we expect to record gains and losses in earnings from our hedging activities.  Such gains and losses are generally unrealized and caused by changes in the fair values of interest rate swaps that may not be fully offset by changes in the fair values of hedged advances and consolidated obligation liabilities, resulting in inter-period volatility, which would accumulate to zero, if hedges are held to maturity, which is our intent.

Consolidated obligation debt elected under the Fair Value Option reported fair value losses of $9.4 million in the third quarter of 2012 inversely with the decrease in market yields of equivalent FHLBank debt.  Lower market coupons for FHLBank debt results in fair values losses of FVO debt that had been issued at relatively higher coupons.  Fair value losses of $5.2 million were recorded in the same quarter in 2011.  Fair value gains and losses are unrealized and will reverse over time if the bonds elected under the FVO are held to their maturity.  Typically, such debt is short-term, typically all under 2 years, and we expect to hold them to maturity or to their call dates.

In the 2012 period, our debt buy-back activity resulted in a charge to earnings of $4.5 million.  No debt was extinguished in the comparable quarter in 2011.  Typically, debt buy-back is executed to re-align balance sheet liabilities following member initiated advance prepayments.

Operating expenses, Compensation and benefits expenses, and our share of payments to the FHFA and the Office of Finance were in aggregate $22.0 million in the 2012 third quarter, almost unchanged from $22.3 million in the same period in 2011.  In the first nine months, Operating expenses were slightly lower in the 2012 period.  Compensation and benefit expenses were also lower in the 2012 period in the absence of a onetime payment to our qualified pension plan in 2011 to improve its funding status.

Net income for the first nine months of 2012 was $276.9 million, or $5.99 per share, compared with $160.0 million, or $3.60 per share in the same period in 2011.  The return on average equity was 7.09% in the first nine months of 2012, compared with 4.24% in the same period in 2011.  The increase in Net income in the 2012 period was largely the result of lower Compensation and benefit expenses, lower debt buy-back charge-offs due to a reduced debt buy-back program, and the absence of the 20% assessment payable to REFCORP.

Three cash dividends were paid to stockholders in the nine months ended September 30, 2012 -  $1.26 per share of capital stock (annualized rate 5.00%) paid on February 17, 2012, $1.12 per share of capital stock (annualized rate of 4.50%) paid on May 18, 2012, and $1.12 per share of capital stock (annualized rate of 4.50%) paid on August 17, 2012.  Dividends are payable from Unrestricted retained earnings, and cannot be paid out of Restricted retained earnings.

Financial Condition

Net cash generated from operating activities were in excess of Net income in the first three quarters of 2012 and 2011.  Our liquidity positions remained in compliance with all regulatory requirements, and we do not foresee any adverse changes.  We also believe our cash flows from operations, available cash balances and our ability to generate cash through the issuance of consolidated obligation bonds and discount notes are sufficient to fund the FHLBNY’s operating liquidity needs.

Our capital remains strong.  At September 30, 2012, actual risk-based capital was $5.8 billion, compared to required risk-based capital of $0.6 billion.  To support $107.1 billion of total assets at September 30, 2012, the required minimum regulatory capital was $4.3 billion, or 4.0 percent of assets.  Our actual regulatory capital was $5.8 billion, exceeding required capital by $1.5 billion.  Regulatory capital-to-asset ratio was 5.37 percent or 1.37 percent more than the 4.00 percent regulatory minimum.  We have prudently increased retained earnings through the period of credit turmoil.  Total retained earnings at September 30, 2012 has grown to $864.8 million, which included $79.4 million of reserves set aside as Restricted retained earnings.  Losses in Accumulated other comprehensive income (loss) (“AOCI” or “AOCL”), a component of shareholders’ equity was $207.8 million.  The primary component of the loss was due to adverse changes in fair values of $1.1 billion of interest rate swaps designated as hedges of discount notes that hedged the variability of 91-day discount notes issued in sequence for periods up to 15 years.  With this hedge strategy, the variability in discount note expense is synthetically changed to predictable fixed cash flows over the hedge periods, thereby achieving hedge objectives.  Fair value losses are unrealized and will sum to zero if the hedges are effective and held to their contractual maturities.

The AOCL also included $13.2 million due to realized losses from terminated swaps in cash flow hedge strategy associated with hedges of anticipated issuance of debt.  Amounts recorded in AOCL are being reclassified as an interest expense over the terms of the hedged bonds.  The expense is considered as a yield adjustment to the fixed coupons of the debt.

Total assets were $107.1 billion at September 30, 2012, up from $97.7 billion at December 31, 2011.  Principal amounts of Advances to member banks increased to $73.9 billion at September 30, 2012, benefitting from short- and medium-term borrowings by one large member in the 2012 second quarter.  The comparable advances outstanding at December 31, 2011 were $67.0 billion.

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Aside from advances, our primary earning assets are investment portfolios, primarily comprised of MBS issued by GSEs.  Investments in MBS totaled $13.4 billion, or 12.5% of total assets at September 30, 2012, compared to $12.5 billion, or 12.8% of total assets at December 31, 2011.  GSE- and agency-issued MBS were 96.0% of aggregate investments in MBS at September 30, 2012, compared to 94.8% at December 31, 2011.  Investments in housing finance agency bonds totaled $747.2 million at September 30, 2012, compared to $780.0 million at December 31, 2011.

We continue to report our on-going analysis of the impact to our business of S&P’s decision last year to lower our long-term credit rating from AAA to AA+.  Moody’s has maintained our credit rating at AAA.  Both rating agencies also lowered their outlook to negative.  The pricing performance of the short- and intermediate-term FHLBank debt has remained stable and we have been able to issue debt to fund our balance sheet needs.  We remain optimistic, but we cannot predict the long-term impact, if any, upon our funding costs or our ability to access the capital markets.  The downgrade required us to post additional cash collateral starting in August 2011 under the provisions of certain credit support agreements with derivative counterparties because of the downgrade.  However, credit support agreements with other derivative counterparties were not impacted because those agreements stipulate that so long, as we retain our GSE status, ratings downgrades would not result in the posting of additional collateral.  In summary, the increased collateral posting was easily dealt with and did not impact our liquidity in any significant manner.  There were no other significant contracts or covenants for any credit facility or other agreement that were impacted by the downgrade.  We have substantial investments in mortgage-backed securities issued by other GSEs and a U.S. agency.  The pricing of our portfolios of GSE securities has been stable and was substantially in net unrealized fair value gain positions at September 30, 2012, and the rating downgrade from AAA to AA+ has had no impact on the perceived creditworthiness of instruments issued, insured or guaranteed by institutions linked to the U.S. government.  That perception could change, and pricing of MBS issued by the institutions could be correspondingly affected in future periods.

Business Outlook

The following forward-looking statements are based upon the current beliefs and expectations of the FHLBNY’s management and are subject to risks and uncertainties, which could cause our actual results to differ materially from those set forth in such forward-looking statements.

Net Income for the first nine months has exceeded the $244.5 million earned for full year 2011 period.  Outlook beyond 2012 is for lower earnings in 2013 relative to 2012.  We expect long-term asset yields to remain low, and we also do not expect yields from short-term assets to rise, given the possibility of further accommodation from the FRB to lower interest rates.  If the forward yield curve flattens further in 2013, opportunities to invest in high-quality assets and earn a reasonable spread will be limited, constraining earnings.  Our primary earning assets, advances and investments in MBS may yield lower interest margins in a low interest rate environment.  The FOMC decided in August 2012 to increase policy accommodation by purchasing additional agency mortgage-backed securities at least through December 31, 2012, and longer if the outlook for the “labor market” did not improve. We believe this could result in MBS pricing that may not meet our risk-reward MBS acquisition criteria, which may impact future earnings.  The swap curve, an important indicator for us, has continued to decline, relative to December 31, 2011, with short- and medium-term interest rates a little lower at September 30, 2012, while longer-term swap rates have declined by about 20 basis points.  We believe that swap rates will remain at existing levels or a little lower, and assuming that credit conditions in Europe do not improve, the opportunities for investing cash in liquid investments and yielding an acceptable risk-reward relationship will be limited.

Pending merger - On August 27, 2012, Hudson City Bancorp, Inc. (“Hudson City Bancorp”), entered into an Agreement and Plan of Merger (“Merger Agreement”) with M&T Bank Corporation and Wilmington Trust Corporation (“WTC”), a wholly owned subsidiary of M&T Bank Corporation.  The Merger Agreement provides that Hudson City Bancorp will merge with and into WTC, with WTC continuing as the surviving entity.  The Merger Agreement also provides that, immediately following the consummation of the aforementioned merger, FHLBNY member Hudson City Savings Bank, a wholly owned subsidiary of Hudson City Bancorp, will merge with and into FHLBNY member Manufacturers and Traders Trust Company (“M&T Bank”), a wholly owned subsidiary of M&T Bank Corporation, with M&T Bank continuing as the surviving bank.  The Merger Agreement is subject to, among other items, shareholder and regulatory approvals.  The parties currently anticipate that the closing of the merger transactions will take place in the second quarter of 2013.  At September 30, 2012, total advances borrowed by Hudson City Savings Bank were $6.8 billion, or 9.2% of total advances of the FHLBNY.  Interest income earned from Hudson City Bancorp in the nine months ended September 30, 2012 was $228.9 million.  The parties have indicated their intention to pay off these advances upon the closing of the merger transactions.  For more information about transactions with Hudson City Bancorp, see Note 20.  Segment information and Concentration.  We do not expect the merger to have a significant adverse impact on our financial position, cash flows or earnings.  When advances are early terminated by Hudson City, we expect to receive prepayment fees that will make us economically whole.  However, prepayments may cause a decline in our book of business if the terminated advances are not replaced by new borrowings by other members.  A lower volume of advances, which is the primary focus of our business, could result in lower net interest income and impact earnings in future periods.

Advances — We are unable to predict the timing and extent of the expected recovery in the U.S. economy, particularly the recovery in the housing market, or whether to expect continued stability in the financial markets.  Against that backdrop, we believe it is also difficult to predict member demand for advances, which is the primary focus of our operations and the principal factor that impacts our operating results.

Generally, the growth or decline in advances is reflective of demand by members for both short-term liquidity and long-term funding driven by economic factors such as availability of alternative funding sources that are more attractive (e.g. consumer deposits), the interest rate environment and the outlook for the economy.  Members may choose to prepay advances, based on their expectations of interest rate changes and demand for liquidity.  Demand for advances may also be influenced by the dividend payout rate to members on their investment in our stock.  Members are required to invest in our capital stock in the form of membership stock.  Members are also required to

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purchase activity stock in order to borrow advances.  Advance volume is also influenced by merger activity where members are either acquired by non-members, or acquired by members of another FHLBank.  When our members are acquired by members of another FHLBank or by a non-member, the former member no longer qualifies for membership in the FHLBNY.  They cannot renew outstanding advances or provide new advances to non-members.  Subsequent to the merger, maturing advances may not be replaced, which has an immediate impact on short-term and overnight advance lending if the former member borrowed such advances.  We expect limited demand for large intermediate-term advances because many members have adequate liquidity, and other members may be reluctant to borrow intermediate and long-term advances because of the expectation of an extended period of very low interest rates.  Also, see Risks Factors in this MD&A for a discussion on Concentration risk.

Earnings — The Federal Reserve Bank’s pledge to maintain near-zero short-term interest rates through late 2014, and the impact of a flatter yield curve, taken together have compressed yields, substantially reducing the opportunity cost of holding cash.  As existing high-yielding fixed-rate MBS and some intermediate-term advances continue to pay down, mature or be prepaid, it is unlikely they will be replaced by equivalent high-yielding assets due to the prevailing low interest rates.  This will tend to lower the overall yield on total assets.  Amid a continuing weak economy and a particularly weak housing market, we do not expect advance demand from existing members to grow.  Last year, a large money-center bank with significant borrowing potential became a member.  In the 2012 second quarter the member’s intermediate-term borrowing benefitted our advance business.  We are unable to predict if that member’s borrowing will increase, or if the borrowings will be renewed at maturity.

We also earn income from investing our members’ capital and non-interest bearing liabilities, together referred to as deployed capital, to fund interest-earning assets.  The two principal factors that impact earnings from deployed capital are the average amount of capital outstanding in a period and the interest rate environment in the period.  These factors determine the potential earnings from deployed capital, and both factors are subject to change.  We cannot predict with certainty the level of earnings from capital.  In a lower interest rate environment, deployed capital, which consists of capital stock, retained earnings and net non-interest bearing liabilities, will provide relatively lower income.

Sovereign credit rating of the United States and impact on the FHLBanks — Last year, on August 5, 2011, Standard & Poor’s Rating Services (“S&P”) lowered its long-term sovereign credit rating on the U.S. to AA+ from AAA.  S&P’s outlook on the long-term rating is negative.  At the same time, S&P affirmed the A-1+ short-term rating on the U.S.  On August 8, 2011, S&P also lowered the long-term rating of the senior unsecured debt issues of the Federal Home Loan Bank System, and 10 of the 12 Federal Home Loan Banks from AAA to AA+.  Two FHLBanks were already rated AA+.  S&P also revised its rating outlook of the debt to negative.  A rating being placed on negative outlook indicates a substantial likelihood of a risk of further downgrades within two years.

S&P, Moody’s and Fitch Ratings (“Fitch”) have all indicated that they would likely not raise the outlooks and ratings of the FHLB System and/or System Banks above the U.S. sovereign rating.  If the ratings on the U.S. were lowered, the ratings on the FHLB System and System Banks whose ratings are equalized to the sovereign rating could also be lowered.  We cannot predict with certainty the longer-term impact of these recent rating actions on the FHLBank debt or the consequence of any further rating actions on the cost of our debt.  Please see Rating Actions in this MD&A with respect to most recent rating announcements and actions by S&P and Moody’s for the FHLBNY.

Credit ratings of major banks downgraded — In June 2012, rating agencies cut their ratings on certain banking institutions in the United States and Europe.  The lower ratings have the potential to raise the cost of capital for these institutions, and some of them may have already been experiencing higher funding costs after being put on credit watch prior to the downgrades.  Many of the counterparties to these firms assumed the worst case downgrade scenario would happen and adjusted their credit requirements accordingly, either in terms of requiring additional collateral or imposing maturity restrictions.  However, the rating action in June 2012 did lift some uncertainty and allowed the market to interact with more confidence toward these organizations.  The downgrades may be a positive development for the FHLBanks by reducing the pool of higher-rated investments available to investors and increasing the demand for our debt.

It is also important to recognize that these are not financial institutions that are overly reliant on short-term funding for their liquidity and thus changes in financing stemming from the downgrades may not manifest until larger funding needs develop as longer-term debt matures in the future.

Demand for FHLBank debt — Our primary source of funds is the sale of consolidated obligations in the capital markets, and our ability to obtain funds through the sale of consolidated obligations depends in part on prevailing conditions in the capital markets, which are beyond our control.  We may not be able to obtain funding on acceptable terms given the extraordinary market conditions and structural changes in the debt market.  If we cannot access funding when needed on acceptable terms, our ability to support and continue operations could be adversely affected, which could negatively affect financial condition and results of operations.  The pricing of our longer-term debt remains at levels that are still higher than historical levels, relative to LIBOR.  To the extent we receive sub-optimal funding, our member institutions in turn may experience higher costs for advance borrowings.  To the extent the FHLBanks may not be able to issue long-term debt at economical spreads relative to the 3-month LIBOR, our members’ borrowing choices may also be limited.

·Federal Reserve (“Fed”) - “Operation Twist” — At the September 2012 meeting, the Federal Open Market Committee (“FOMC”) also extended its guidance that “the federal funds rate will remain near current levels” from “late 2014” to “at least mid 2015”.  Furthermore, the Fed statement indicated that unless the outlook for the labor market improves markedly, additional accommodation will be forthcoming.  Finally, the FOMC was very clear that any monetary policy accommodation or asset purchases would continue “for a considerable time after the economic recovery strengthens.” With this last statement, the Fed has now assured the market that all

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monetary and nontraditional support will not be removed immediately upon the emergence of economic growth or inflationary pressures.

·SEC’s Rule 2a-7 reforms — In our second quarter Form 10Q, we had discussed the impending SEC proposals for a second round of revisions to Rule 2a-7 that would impact the money fund industry.  Specifics of the proposed reforms had not been released.  We also reported that such a reform could affect the FHLBank system debt, which is the second largest borrower from taxable money funds, after the U.S. Treasury.  The SEC has now acknowledged insufficient support for stricter regulations on money market mutual funds.  We believe the effort to impose additional reforms will likely move to the Federal Reserve under the Financial Stability Oversight Council (FSOC), a panel of regulators created by the Dodd-Frank Act.

Credit impairment of mortgage-backed securities — OTTI charges were insignificant thus far in 2012.  However, without continued recovery in the near term such that liquidity returns to the mortgage-backed securities market, or if the credit losses of the underlying collateral within the mortgage-backed securities perform worse than expected, we could face additional credit losses.  In addition, certain private-label MBS may be undergoing loan modification and forbearance proceedings at the loan level, and such processes may have an adverse impact on the amounts and timing of expected cash flows.

Impact of Home Affordable Refinance Program (“HARP”) — If a home value has fallen while the mortgage payment on the home has increased, and Fannie Mae or Freddie Mac owns or guarantees the home mortgage, the U.S. government’s Making Home Affordable program provides a refinance option for the home owner.  Refinancing can help a homeowner by initiating a new mortgage loan with better terms to pay off and replace the current loan.  HARP Refinancing is only available to financially stable borrowers who already have a Fannie Mae or a Freddie Mac mortgage and have been keeping it current for at least the past 12 months.  Certain other conditions also apply.

Thus far, HARP has not had any significant impact on our members’ mortgage origination business, which potentially could have a direct impact on our advances or mortgage loan program under the MPF.  We are unable to predict with certainty the future impact of this program, if any, on our members’ mortgage origination business.

Hurricane Sandy - On October 29, and 30, 2012, Hurricane Sandy swept through New Jersey and New York, in the FHLBNY’s membership district, causing severe disruption and damage in the region to homes and businesses throughout the hurricane’s path. We are assessing the impact of this event on the Bank’s business. An estimate of its financial effect on the Bank, if any, will be made after we complete the assessment.

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SELECTED FINANCIAL DATA (UNAUDITED)

Statements of Condition	September 30,			June 30,			March 31,			December 31,			September 30,
(dollars in millions)	2012			2012			2012			2011			2011
Investments (a)	$	24,340		$	21,976		$	21,450		$	14,236		$	17,130
Advances	77,864			77,610			72,093			70,864			73,779
Mortgage loans held-for-portfolio, net of allowance for credit losses (b)	1,748			1,628			1,482			1,408			1,357
Total assets	107,130			102,394			95,704			97,662			97,334
Deposits and borrowings	1,806			1,723			3,499			2,101			2,521
Consolidated obligations, net
Bonds	65,136			72,964			61,530			67,441			66,281
Discount notes	33,718			21,331			24,514			22,123			22,539
Total consolidated obligations	98,854			94,295			86,044			89,564			88,820
Mandatorily redeemable capital stock	20			42			43			55			58
AHP liability	136			132			131			127			130
Capital
Capital stock	4,870			4,888			4,582			4,491			4,572
Retained earnings
Unrestricted	786			765			746			722			700
Restricted	79			62			45			24			8
Total retained earnings	865			827			791			746			708
Accumulated other comprehensive income (loss)	(208		)	(203		)	(170		)	(191		)	(184		)
Total capital	5,527			5,512			5,203			5,046			5,096
Equity to asset ratio (c)	5.16		%	5.38		%	5.44		%	5.17		%	5.24		%

	Three months ended															Nine months ended
Statements of Condition	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
Averages (See note below; dollars in millions)	2012			2012			2012			2011			2011			2012			2011
Investments (a)	$	26,733		$	25,956		$	23,813		$	21,006		$	21,566		$	25,505		$	20,311
Advances	77,309			70,532			69,836			73,147			74,524			72,576			75,895
Mortgage loans held-for-portfolio, net of allowance for credit losses	1,690			1,566			1,434			1,378			1,326			1,564			1,293
Total assets	108,839			100,989			98,340			101,488			101,515			102,745			100,716
Interest-bearing deposits and other borrowings	1,745			2,197			3,090			2,209			2,325			2,342			2,332
Consolidated obligations, net
Bonds	68,472			66,079			62,678			67,493			65,770			65,754			68,208
Discount notes	29,474			24,016			23,938			22,191			24,050			25,822			21,190
Total consolidated obligations	97,946			90,095			86,616			89,684			89,820			91,576			89,398
Mandatorily redeemable capital stock	35			42			49			58			58			42			59
AHP liability	133			130			127			127			131			130			134
REFCORP liability	—			—			—			—			2			—			7
Capital
Capital stock	4,858			4,561			4,455			4,554			4,623			4,625			4,449
Retained earnings
Unrestricted	766			739			720			702			710			742			709
Restricted	68			49			31			14			4			49			1
Total retained earnings	834			788			751			716			714			791			710
Accumulated other comprehensive income (loss)	(212		)	(191		)	(192		)	(174		)	(135		)	(198		)	(114		)
Total capital	5,480			5,158			5,014			5,096			5,202			5,218			5,045

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

Operating Results and Other Data
(dollars in millions)	Three months ended															Nine months ended
(except earnings and dividends per	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
share, and headcount)	2012			2012			2012			2011			2011			2012			2011
Net income	$	88		$	86		$	102		$	85		$	36		$	277		$	160
Net interest income (d)	87			92			92			132			76			271			310
Dividends paid in cash (e)	51			50			57			46			49			158			164
AHP expense	10			10			11			9			4			31			18
REFCORP expense	—			—			—			—			—			—			31
Return on average equity (f)(g)	6.42		%	6.75		%	8.17		%	6.58		%	2.72		%	7.09		%	4.24		%
Return on average assets (g)	0.32		%	0.34		%	0.42		%	0.33		%	0.14		%	0.36		%	0.21		%
Net OTTI impairment losses	—			(1		)	(1		)	(5		)	(1		)	(2		)	(1		)
Other non-interest income (loss)	33			28			48			(7		)	(13		)	109			(1		)
Total other income (loss)	33			27			47			(12		)	(14		)	107			(2		)
Operating expenses (h)	19			20			21			22			19			60			87
Finance Agency and Office of Finance expenses	3			3			4			4			3			10			9
Total other expenses	22			23			25			26			22			70			96
Operating expenses ratio (i)(g)	0.07		%	0.08		%	0.09		%	0.08		%	0.07		%	0.08		%	0.12		%
Earnings per share	$	1.81		$	1.89		$	2.29		$	1.86		$	0.77		$	5.99		$	3.60
Dividend per share	$	1.12		$	1.12		$	1.26		$	1.01		$	1.12		$	3.50		$	3.69
Headcount (Full/part time)	276			282			275			276			276			276			276

(a)	Investments include held-to-maturity securities, available-for-sale securities, securities purchased under agreements to resell, Federal funds, loans to other FHLBanks, and other interest bearing deposits.
(b)	Allowances for credit losses were $6.9 million, $6.9 million, $7.3 million, $6.8 million, and $6.7 million at the periods ended September 30, 2012, June 30, 2012, March 31, 2012, December 31, 2011, and September 30, 2011.
(c)	Equity to asset ratio is capital stock plus retained earnings and accumulated other comprehensive income (loss) as a percentage of total assets.
(d)	Net interest income is net interest income before the provision for credit losses on mortgage loans.
(e)	Excludes dividends accrued to non-members classified as interest expense under the accounting standards for certain financial instruments with characteristics of both liabilities and equity.
(f)	Return on average equity is net income as a percentage of average capital stock plus average retained earnings and average accumulated other comprehensive income (loss).
(g)	Annualized.
(h)	Operating expenses include compensation and benefits.
(i)	Operating expenses as a percentage of total average assets.

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Results of Operations

The following section provides a comparative discussion of the FHLBNY’s results of operations for the three and nine months ended September 30, 2012 and 2011.  For a discussion of the significant accounting estimates used by the FHLBNY that affect the results of operations, see Significant Accounting Policies and Estimates in Note 1 in this Form 10-Q and in the Bank’s most recent Form 10-K filed on March 23, 2012.

Net Income

Interest income from advances is the principal source of revenue.  The primary expenses are interest paid on consolidated obligations debt, Other expenses, principally Compensation and benefits and Operating expense, and Assessments on Net income.  Other significant factors affecting our Net income include the volume and timing of investments in mortgage-backed securities, prepayments of advances, charges from debt repurchases, gains and losses from derivatives and hedging activities, and earnings from investing our shareholders’ capital.

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

Table 1.1:             Principal Components of Net Income

	Three months ended September 30,					Nine months ended September 30,
	2012		2011			2012		2011
Total interest income	$	199,019	$	180,586		$	604,818	$	648,273
Total interest expense	111,661		104,503			333,454		338,476
Net interest income before provision for credit losses	87,358		76,083			271,364		309,797
Provision for credit losses on mortgage loans	234		765			893		2,967
Net interest income after provision for credit losses	87,124		75,318			270,471		306,830
Total other income (loss)	33,236		(13,703		)	107,887		(1,188		)
Total other expenses	22,049		22,274			70,564		96,992
Income before assessments	98,311		39,341			307,794		208,650
Total assessments	9,870		3,671			30,936		48,689
Net income	$	88,441	$	35,670		$	276,858	$	159,961

The 2012 third quarter Net income was $88.4 million, compared with $35.7 million in the same period in the prior year.  Net income for the first nine months of 2012 was $276.9 million, up from $160.0 million in the same period in 2011.  The principal changes period over period are summarized above.

Net interest income — The primary component of Net income was Net interest income (1) of $87.4 million, up from $76.1 million in the same period in the prior year.  For the first nine months, Net interest income was $271.4 million in the 2012 period, down from $309.8 million in the 2011 period.

Net interest income for the current year quarter and year to date period was reduced by amortization of fair value basis of hedged advances that have been modified.  In the current quarter, amortization expense was $30.1 million, compared to $26.7 million in the same period in 2011.  In the year to date period, amortization expense was $88.3 million in 2012 and $35.1 million in the same period in 2011.  The 2011 expense was lower because the cumulative impact of the amortization became significant after June 2011, when the majority of the modifications commenced.  The amortization reduces (2) the effective reported yields of modified advances.  On a GAAP basis, the amortization charges, drove down reported yields (3) earned from advances.  On a GAAP basis, average yield from advances was 53 basis points, up from 45 basis points in the same quarter in 2011 on the same basis.  Absent the accounting charge, yields from advances would have been 69 basis points, compared to 60 basis points in the same period in 2011; and on that basis, Net interest income in the 2012 third quarter would have improved by $14.7 million over the same period in 2011.  Reported Net spread under GAAP was 28 basis points in the 2012 third quarter, slightly up from 26 basis points in the same quarter in 2011.  Absent the amortization, Net spread, which is the difference between yields on interest-earning assets and interest-costing liabilities, would have improved by 3 basis points versus GAAP basis.  See Table 1.8 for more information.

Yields earned from our investments in MBS have been declining even as our investment portfolios of fixed- and floating rate GSE issued MBS have grown.  As vintage fixed-rate MBS, with higher coupons, have paid down, they have been replaced by lower yielding fixed-rate bonds.  Spreads to LIBOR for the floating-rate GSE issued MBS outstanding in the 2012 third quarter have also been tighter, relative to the same period in 2011.  Overall yield from long-term investments, primarily GSE issued MBS, was 205 basis points in the 2012 third quarter, down from 252 basis points in the same quarter in 2011.  For the nine months, yield was 218 basis points, down by 45 basis points from the same period in 2011.

Cost of debt (3) was a little uneven between bonds and discount notes in the 2012 third quarter compared to the same period in 2011.  Cost of funds on bonds declined by 1 basis points to 55 basis points in the 2012 third quarter.  On the other hand, cost of funds on discount notes increased by 6 basis points on a quarter-over quarter basis.  For the first nine months, cost of issued bonds was 59 basis points in the 2012 period, 2 basis points lower than the same period in 2011.  The cost of discount notes were 21 basis points in the 2012 period, compared to 16 basis points in the 2011 period.

(1)	Net interest income is before Provision for credit losses.
(2)	An equivalent amortization is recorded as a derivative and hedging gain, because the hedging instrument, the interest rate swap, is also modified. Taken together, amortization gains in Other income were offset by amortization losses in Net interest income, with no impact to Net Income in either period.
(3)	Net after the impact of interest rate swaps, which have effectively converted significant amounts of fixed-rate instruments to LIBOR indexed instruments.

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Debt buy-back charges — In the 2012 third quarter, our debt buy-back activity was modest, and $60.6 million of debt was extinguished, and $4.5 million was charged to earnings, which represented cash payments in excess of carrying value of debt.  There was no debt extinguished in the comparable period in 2011.  In the first nine months, we extinguished $269.1 million of debt, and took a charge of $24.1 million in the 2012 period.  In the 2011 period, we extinguished $504.7 million of debt, and took a charge of $55.2 million.  Typically, debt buy-back is executed to re-align balance sheet liabilities following member initiated advance prepayments.  When high-costing debt is bought back, a premium is generally paid because market yields are lower than the debt that is extinguished, resulting in a charge to income.

Derivative and hedging gains — In the 2012 third quarter, derivative and hedging gains were $45.1 million, which included gains of $30.1 million due to amortization of fair value basis adjustments on previously modified swaps, and as discussed previously, this gain was entirely offset by amortization losses recorded in Interest income from advances so that Net income was not impacted.  Absent the accounting amortization, derivatives and hedging activities resulted in an overall fair value gain of $15.0 million in the 2012 third quarter, in contrast to a fair value loss of $35.3 million in the same period in 2011.  Recorded results include the income effects of hedging activities in a qualifying hedge (fair value effects of derivatives, net of the fair value effects of hedged items).  The result also includes the income effects of fair value gains and losses on derivatives in an economic hedge that were not designated under hedge accounting rules (fair value changes of derivatives without the offsetting fair value changes of the hedged items).  For the first nine months, we recorded fair value gains of $127.1 million in the 2012 period, which included amortization gains of $88.3 million.  In the same period in 2011, fair value gains were $62.6 million, which included amortization gains of $35.1 million.  For more information, see Components of Hedging Gains and Losses in Note 16. Derivatives and Hedging Activities.

Instruments held at fair value — Consolidated obligation debt designated under the FVO reported fair value losses of $9.4 million in the 2012 third quarter, inversely with the declining market yields of similar FHLBank debt.  Fair value losses of $5.2 million were recorded in the same quarter in 2011.  For the first nine months, the impact was insignificant in the 2012 period, in contrast to a loss of $10.6 million in the 2011 period.  Fair value gains and losses are unrealized and will reverse over time if the debt is held to their maturity.

Compensation and benefits, Operating expenses, and assessments paid to the Office of Finance and the Finance Agency — Total expenses charged in the 2012 third quarter was $22.0 million, slightly lower than $22.3 million in the same quarter in 2011.  Compensation and benefits expenses were $12.7 million in the 2012 third quarter up from $12.2 million in the same quarter in 2011.  Operating expenses, which include occupancy costs, computer service agreements, professional and legal fees, and depreciation and amortization were also almost unchanged period over period.  For the first nine months, Compensation and benefits in the 2011 period included a contribution of $24.0 million to our Defined Benefit Plan to eliminate a funding shortfall, and was the primary reason for the decline in this category in the 2012 period compared to the 2011 period.

REFCORP assessments — The REFCORP assessment obligation was satisfied in June 2011, and no further payments were necessary.  The first nine months of 2011 included a payment through June 2011 of $30.7 million.

Affordable Housing Program (“AHP”) assessment — AHP set aside from income totaled $9.9 million in the 2012 third quarter, up from $4.0 million in the same period in 2011.  Assessments are calculated as a percentage of Net income, and the increase was due to an increase in Net income.  For the first nine months, AHP assessment set aside was $30.9 million in the 2012 period, up from $18.0 million in the same period in 2011.

Analysis of Allowance for Credit Losses

·Mortgage loans held-for-portfolio — We evaluate conventional mortgage loans at least quarterly on an individual loan-by-loan basis and compare the fair values of collateral (net of liquidation costs) to recorded investment values in order to measure credit losses on impaired loans.  FHA/VA (Insured mortgage loans) guaranteed loans are evaluated collectively for impairment.  Based on the analysis performed, a provision of $0.2 million was recorded in the 2012 third quarter compared to $0.8 million in the 2011 period.  For the first nine months, provision taken in the 2012 period was $0.9 million and $3.0 million in the 2011 period.  Increase in provision in the 2011 period was due to increase in haircut values of collateral for evaluating impaired loans.  Collateral values have since stabilized in 2012.  Charge-offs were insignificant in all periods in this report.  Cumulatively, the allowance for credit losses recorded in the Statements of Condition was $6.9 million at September 30, 2012, compared to $6.8 million at December 31, 2011.  We believe the allowance for loan losses is adequate to cover the losses inherent in our mortgage loan portfolio.  For more information, see Note 8. Mortgage Loans Held-for-Portfolio.

·Advances — Our credit risk from advances in all periods in this report was concentrated in commercial banks, savings institutions and insurance companies.  All advances were fully collateralized during their entire term.  In addition, borrowing members pledged their stock in the FHLBNY as additional collateral for advances.  We have not experienced any losses on credit extended to any member since the FHLBNY’s inception.  Based on the collateral held as security and prior repayment history, no allowance for losses is currently deemed necessary.

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Interest income

Interest income from advances and investments in mortgage-backed securities are our principal sources of income. Changes in both rate and intermediation volume (average interest-yielding assets) explain the change in the current year periods from the prior year periods.  The principal categories of Interest Income are summarized below (dollars in thousands):

Table 1.2:Interest Income — Principal Sources

	Three months ended September 30,						Nine months ended September 30,
					Percentage						Percentage
	2012		2011		Variance		2012		2011		Variance
Interest Income
Advances (a)	$	103,274	$	85,440	20.87	%	$	316,774	$	359,640	(11.92	)%
Interest-bearing deposits (b)	971		700		38.71		2,593		2,221		16.75
Securities purchased under agreements to resell	54		—		NM		54		—		NM
Federal funds sold (c)	4,218		1,547		NM		11,021		5,694		93.55
Available-for-sale securities	5,731		7,045		(18.65	)	18,503		23,205		(20.26	)
Held-to-maturity securities
Long-term securities	68,309		70,021		(2.44	)	207,244		210,352		(1.48	)
Mortgage loans held-for-portfolio	16,461		15,832		3.97		48,626		47,160		3.11
Loans to other FHLBanks	1		1		—		3		1		NM
Total interest income (d)	$	199,019	$	180,586	10.21	%	$	604,818	$	648,273	(6.70	)%

Interest income from advances increased in the 2012 third quarter versus the same period in 2011 due to a decline in the cash flows paid to swap dealers on hedged advances.  We generally pay fixed-rate cash flows to swap dealers and receive variable rate cash flows indexed to LIBOR, effectively converting fixed-rate advances to LIBOR indexed variable advances.  Over the years, as vintage high-coupon advances have matured or prepaid, the fixed-rate coupons of the replacement advances have declined in line with the lower interest rate environment.  As a result, the differential between the fixed-rate paid to swap dealers and the LIBOR indexed rate received from swap dealers has narrowed, effectively reducing the net cost of the hedge.

(a)Reported Interest income from advances was adjusted for the cash flows associated with interest rate swaps in qualifying hedging relationships.  In the third quarter, we recorded prepayment fees of $1.2 million in the 2012 period, versus $3.2 million in the 2011 period. In the first nine months, we recorded prepayment fees of $10.6 million in the 2012 period, and $55.6 million in the 2011 period due to significant prepayments in the 2011 period.  In the third quarter, Interest income was reduced by $30.1 million due to amortization (as a yield adjustment) of fair value basis of modified hedged advances in the 2012 period, compared with $26.7 million in the 2011 period.  For the first nine months, Interest income was reduced by $88.3 million due to the amortization in the 2012 period, compared with a similar charge of $35.1 million in the 2011 period.  Prior period charges were lower because the impact of the modifications in 2011 became significant only after June 2011.

(b)Primarily from cash collateral deposited with swap counterparties. Cash collateral typically earns the overnight Federal funds rate.

(c)Increase due to increase in overnight Federal funds sold in 2012, and increase in overnight rates. See Table 1.9 Spread and Yield Analysis.

(d)Absent the impact of accounting amortization charges and the prepayment fees, Interest income for the nine months ended September 30, 2012 would also be higher relative to the same period in 2011.

NM — not meaningful.

Impact of hedging advances — We execute interest rate swaps to modify the effective interest rate terms of many of our fixed-rate advance products and typically all of our putable advances.  In these swaps, we effectively convert a fixed-rate stream of cash flows from fixed-rate advances to a floating-rate stream of cash flows, typically indexed to LIBOR.  These cash flow patterns from derivatives in the periods reported were in line with our interest rate risk management practices and achieved our goal of converting fixed-rate cash flows of hedged advances to LIBOR-indexed cash flows.  Derivative strategies are used to manage the interest rate risk inherent in fixed-rate advances and are designed to protect future interest income. The table below summarizes interest income earned from advances and the impact of interest rate derivatives (in thousands):

Table 1.3:Impact of Interest Rate Swaps on Interest Income Earned from Advances

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Advance Interest Income
Advance interest income before adjustment for interest rate swaps	$	431,201		$	516,407		$	1,317,937		$	1,641,305
Net interest adjustment from interest rate swaps (a,b)	(327,927		)	(430,967		)	(1,001,163		)	(1,281,665		)
Total Advance interest income reported	$	103,274		$	85,440		$	316,774		$	359,640

(a)

The unfavorable cash flow patterns of the interest rate swaps were indicative of the lower LIBOR rates (obligation of the swap counterparty) compared to our obligation to pay out fixed-rate cash flows, which have been higher than LIBOR cash in-flows. We are generally indifferent to changes in the cash flow patterns as we also hedge our fixed-rate consolidated obligation debt, which is our primary funding base, and two hedge strategies together achieve management’s overall net interest spread objective. In the three and nine months ended September 30, 2012, the average 3-month LIBOR was lower than the comparable periods in 2011 and contributed to lower cash outflow, which is our obligation to swap counterparties in the interest rate swap agreements.

(b)

Under our accounting policy, net interest adjustments from derivatives (as described in the table above) may be offset against the net interest accruals of the hedged financial instrument (e.g. advance) only if the derivative is in a qualifying hedge relationship. If the hedge does not qualify under hedge accounting rules, and our management designates the hedge as an economic hedge, the net interest adjustments from derivatives would not be recorded with the advance interest revenues. Instead, the net interest adjustments from swaps would be recorded in Other income (loss) as a Net realized and unrealized gain (loss) from derivatives and hedging activities. Thus, the accounting designation of a hedge may have a significant impact on reported Interest income from advances, although Net income would not be impacted. There was no material amount of net interest adjustments from interest rate swaps designated as economic hedges of advances that were recorded in Other income (loss) in any periods in this report.

58

Interest expense

Our primary source of funding is through the issuance of consolidated obligation bonds and discount notes in the global debt markets.  Consolidated obligation bonds are medium- and long-term bonds, while discount notes are short-term instruments.  To fund our assets, our management considers our interest rate risk and liquidity requirements in conjunction with consolidated obligation buyers’ preferences and capital market conditions when determining the characteristics of debt to be issued.  Typically, we have used fixed-rate callable and non-callable bonds to fund mortgage-related assets and advances.  Discount notes are issued to fund advances and investments with shorter interest rate reset characteristics.

The principal categories of Interest expense are summarized below (dollars in thousands).  Changes in rate and intermediation volume (average interest-costing liabilities), the mix of debt issuances between bonds and discount notes, and the impact of hedging strategies explain the changes in interest expense.

Table 1.4:Interest Expenses - Principal Categories

	Three months ended September 30,						Nine months ended September 30,
					Percentage						Percentage
	2012		2011		Variance		2012		2011		Variance
Interest Expense
Consolidated obligations-bonds (a)	$	94,110	$	93,292	0.88	%	$	291,344	$	310,784	(6.26	)%
Consolidated obligations-discount notes (a)	16,999		10,286		65.26		39,938		24,695		61.73
Deposits (b)	150		240		(37.50	)	572		1,068		(46.44	)
Mandatorily redeemable capital stock	398		660		(39.70	)	1,572		1,873		(16.07	)
Cash collateral held and other borrowings	4		25		(84.00	)	28		56		(50.00	)
Total interest expense (c)	$	111,661	$	104,503	6.85	%	$	333,454	$	338,476	(1.48	)%

(a)Reported Interest expense from consolidated obligation bonds and discount notes were adjusted for the cash flows associated with interest rate swaps in qualifying hedging relationships. We generally pay variable-rate LIBOR-indexed cash flows to swap counterparties and, in exchange, we receive fixed-rate cash flows, which typically mirror the fixed-rate coupon payments to investors holding the FHLBank bonds.  Certain discount notes were hedged in a cash flow hedging strategy that converted forecasted long-term variable-rate funding to fixed-rate funding by the use of long-term swaps.  For such discount notes, the recorded expense is equivalent to long-term fixed coupons.

(b)Average deposits from members were lower in the 2012 third quarter, and the overnight rate paid was also lower.  On a year-to-date basis, average balances were almost unchanged, although the yields were lower.

(c)For the third quarter 2012 versus 2011, reported Interest expense, period over period, is higher primarily because of higher average balance sheet (volume effects).  Rate effect, although not significant, was adverse as the cost of funding deteriorated.  In the 2012 period, we increased our utilization of discount notes to fund the balance sheet.  On a swapped-out basis, yields paid on consolidated obligation bonds were almost flat.  However, cost of discount notes was up 6 basis points in the 2012 third quarter.  For the first nine months 2012 versus 2011, Interest expense has declined only slightly in the 2012 period.   See Rate and Volume Analysis Table for more information.

Impact of hedging debt — We issue both fixed-rate callable and non-callable debt.  Typically, the callable debt is issued with the simultaneous execution of cancellable interest rate swaps to modify the effective interest rate terms and the effective durations of our fixed-rate callable debt.  A substantial percentage of non-callable fixed-rate debt is also swapped to “plain vanilla” LIBOR-indexed cash flows.  These hedging strategies benefit us in two principal ways.  First, fixed-rate callable bond, in conjunction with interest rate swap containing a call feature that mirrors the option embedded in the callable bond, enables us to meet our funding needs at yields not otherwise directly attainable through the issuance of callable debt.  Second, the issuances of fixed-rate debt and the simultaneous execution of interest rate swaps convert the debt to an adjustable-rate instrument tied to an index, typically 3-month LIBOR, which is our preferred funding rate.  Derivative strategies are used to manage the interest rate risk inherent in fixed-rate debt, and certain floating-rate debt that is not indexed to 3-month LIBOR rates.  The strategies are designed to protect future interest income.  The economic hedge of debt tied to indices other than 3-month LIBOR (Prime, Federal funds rate, and 1-month LIBOR) is designed to effectively convert the cash flows of the debt to 3-month LIBOR.

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

Table 1.5:Impact of Interest Rate Swaps on Consolidated Obligation Interest Expense

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Consolidated bonds and discount notes-Interest expense
Bonds-Interest expense before adjustment for swaps	$	172,671		$	207,005		$	540,450		$	692,184
Discount notes-Interest expense before adjustment for swaps	10,110			5,783			21,819			18,797
Net interest adjustment for interest rate swaps (a, b)	(71,672		)	(109,210		)	(230,987		)	(375,502		)
Total Consolidated bonds and discount notes-interest expense reported	$	111,109		$	103,578		$	331,282		$	335,479

(a)

The favorable cash flow patterns of the interest rate swaps were indicative of LIBOR rates (our obligation to pay the swap counterparty) being less than the counterparty’s obligation to pay us the higher fixed rates. We are generally indifferent to changes in the cash flow patterns as we typically hedge our fixed-rate advances borrowed by member to meet our overall net interest spread objective. Decline in the net cash received from interest rate swaps was mainly because the average 3-month LIBOR was lower in the three and nine months ended September 30, 2012 compared to the same periods in 2011.

(b)

Net interest adjustments from derivatives may be offset against the net interest accruals of the hedged financial instrument (e.g. bonds and discount notes) only if the derivative is in a hedge-qualifying relationship. If the hedge does not qualify under hedge accounting rules, and our management designates the hedge as an economic hedge, the net interest adjustments from derivatives would not be recorded together with the interest expense on debt. Instead, the net interest adjustments from swaps would be recorded in Other income (loss) as a Net realized and unrealized gain (loss) from derivatives and hedging activities. Thus, the accounting designation of a hedge may have a significant impact on reported Interest expense from consolidated obligations.

59

Net Interest Income

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

Table 1.6:Net Interest Income

	Three months ended September 30,						Nine months ended September 30,
					Percentage						Percentage
	2012		2011		Variance		2012		2011		Variance
Total interest income	$	199,019	$	180,586	10.21	%	$	604,818	$	648,273	(6.70	)%
Total interest expense	111,661		104,503		6.85		333,454		338,476		(1.48	)
Net interest income before provision for credit losses	$	87,358	$	76,083	14.82	%	$	271,364	$	309,797	(12.41	)%

Net interest income is our principal source of revenue, and represents the difference between interest income from interest-earning assets, and interest expense accrued on interest-costing liabilities.  Net interest income is impacted by a variety of factors — (1) transaction volumes, as measured by average balances of interest earning assets, and by (2) the prevailing balance sheet yields, as measured by coupons on earning assets minus yields paid on interest-costing liabilities, after including the impact of the cash flows paid or received on interest rate derivatives that qualified under hedge accounting rules.  These factors may fluctuate based on changes in interest rates, demand by members for advances, investor demand for debt issued by us, 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.

The 3-month LIBOR setting was still quite low relative to their historical levels, and the low rate environment has continued to compress margins for FHLBank-issued debt.  The 3-month LIBOR, which determines the cash settlements for most of our interest rate swaps was around 36 basis points at September 30, 2012 and 46 basis points at June 30, 2012, compared to 37 basis points at September 30, 2011 and 24 basis points at June 30, 2011.  The LIBOR level is important to us, as we try to execute interest rate swaps to convert fixed-rate debt to a sub-LIBOR spread, but when the LIBOR rate is low, there is very little room for achieving a sub-LIBOR spread that would normally be ascribed to the high credit quality of the FHLBank debt.  As a result, on a swapped funding level, the low LIBOR rate has effectively driven up the cost of FHLBank consolidated obligation bonds, and yields sought by investors for longer-term bonds still remain expensive.  For a discussion about the performance of the FHLBank issued consolidated bonds and discount notes, see Debt Financing Activity and Consolidated Obligations in this MD&A.

Impact of lower interest income from investing member capital — We earn interest income from investing our members’ capital to fund interest-earning assets.  Such earnings are sensitive to the changes in short-term interest rates (Rate effects), and to changes in the average outstanding capital and non-interest bearing liabilities (Volume effects).  Typically, we invest capital and net non-interest costing liabilities (“deployed capital”) to fund short-term investment assets that yield money-market rates.  The most significant element of deployed capital is Capital stock, which increases or decreases in parallel with the volume of advances borrowed by members.  The increase in overnight rates and the 3-month LIBOR in the 2012 periods, relative to the same periods in 2011, resulted in a favorable impact since capital is typically invested in money market assets.  For more information, see Spread and Yield Analysis Table and Rate and Volume Analysis Table.

60

Impact of qualifying hedges on Net interest income — We deploy hedging strategies to protect future net interest income that may reduce income in the short-term.  Net interest accruals of derivatives designated in a fair value or cash flow hedge that qualify under hedge accounting rules are recorded as adjustments to the interest income or interest expense associated with hedged assets or liabilities.  The following table summarizes the impact of net interest adjustments from hedge qualifying interest-rate swaps (in thousands):

Table 1.7:Net Interest Adjustments from Hedge Qualifying Interest-Rate Swaps

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Interest Income	$	526,946		$	611,553		$	1,605,981		$	1,929,938
Net interest adjustment from interest rate swaps (a)	(327,927		)	(430,967		)	(1,001,163		)	(1,281,665		)
Reported interest income	199,019			180,586			604,818			648,273
Interest Expense	183,333			213,713			564,441			713,978
Net interest adjustment from interest rate swaps (b)	(71,672		)	(109,210		)	(230,987		)	(375,502		)
Reported interest expense	111,661			104,503			333,454			338,476
Net interest income (Margin) (c)	$	87,358		$	76,083		$	271,364		$	309,797
Net interest adjustment - interest rate swaps	$	(256,255	)	$	(321,757	)	$	(770,176	)	$	(906,163	)

(a)In a hedge of a fixed-rate advance, we pay the swap dealer fixed-rate interest payment (which typically mirrors the coupon of the hedged advance), and in return the swap counterparties pays a pre-determined spread plus the prevailing LIBOR, which resets generally every three months.  The decrease in Net interest adjustment in 2012 period over period was due to the narrowing of the spread between the fixed-rate we pay to the swap dealer, and the LIBOR indexed cash flows we receive in exchange.

(b)In a hedge of a fixed-rate consolidated obligation debt, we pay the swap dealer LIBOR-indexed interest payments, and in return the swap dealer pays fixed-rate interest payments (which typically mirrors the coupon paid to investors holding the FHLBank debt).  The decrease in Net interest adjustment in 2012 period over period was due to the narrowing of the spread between the fixed-rate we receive from the swap dealer, and the LIBOR indexed cash flows we pay in exchange.

(c)Our Interest income is sensitive to changes in the relationship between our fixed-rate cash instruments and the LIBOR, but our margin as a percentage is stable, and we are generally indifferent to changes in the cash flow patterns, as the interest rate swap agreements achieve our overall net interest spread objective, and we remain indifferent for the most part to the volatility of interest rates.

Impact of economic hedges on Net interest income — We designate certain derivative transactions as economic hedges, primarily as hedges of the FHLBank debt.  Under our accounting policy, the interest income and expense generated from the derivatives designated as economic hedges are not reported as a component of Net interest income, rather recorded as derivative gains and losses in Other income (loss).  The following table contrasts Net interest income, Net income (a) spread and Return on earning assets between GAAP and economic basis (dollar amounts in thousands):

Table 1.8:GAAP Versus Economic Basis (b) — Contrasting Net Interest Income, Net Income Spread and Return on Earning Assets

	Three months ended September 30, 2012						Three months ended September 30, 2011
	Amount		ROA		Net Spread		Amount		ROA		Net Spread
GAAP net interest income	$	87,358	0.32	%	0.28	%	$	76,083	0.30	%	0.26	%
Amortization of basis adjustments	30,138		0.11		0.11		26,691		0.10		0.10
Interest income (expense)
Swaps not designated in a hedging relationship	3,286		0.01		0.01		8,816		0.04		0.04
Economic net interest income	$	120,782	0.44	%	0.40	%	$	111,590	0.44	%	0.40	%

	Nine months ended September 30, 2012							Nine months ended September 30, 2011
	Amount			ROA		Net Spread		Amount		ROA		Net Spread
GAAP net interest income	$	271,364		0.35	%	0.32	%	$	309,797	0.41	%	0.38	%
Amortization of basis adjustments	88,295			0.12		0.11		35,093		0.05		0.04
Interest income (expense)
Swaps not designated in a hedging relationship	(853		)	—		—		30,431		0.04		0.04
Economic net interest income	$	358,806		0.47	%	0.43	%	$	375,321	0.50	%	0.46	%

(a)The reporting classification of interest income or expense associated with swaps designated as economic hedges has no impact on Net income, as these adjustments are either reported as a component of Net interest income if the hedges are qualifying hedges, or as a component of Other income as gains or losses from hedging activities if they are economic hedges.  Amortization of basis adjustments also has no impact on Net income, as the amortization expense which depressed margin is offset by a gain recorded in Other income as a component of hedging gains.  We believe that it is useful for our readers of our financial results to understand our interest margins with and without the amortization adjustments.  The decline in the amount of interest associated with economic hedges in the 2012 periods was due to decline in the volume of swaps designated as economic hedges.  Interest expenses for both periods were associated with swaps that hedged consolidated obligation debt in a hedging strategy that converted floating-rate debt indexed to 1-month LIBOR, the Prime rate, and the Federal funds rate to 3-month LIBOR cash flows.

(b)Explanation of the use of non-GAAP measures of Net Spread, return on assets (“ROA”) used in the table above. These are non-GAAP financial measures used by management that we believe are useful to investors and stockholders in understanding our operational performance as well as business and performance trends. Although we believe these non-GAAP financial measures enhance investor and members’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.

61

Spread and Yield Analysis

Table 1.9:Spread and Yield Analysis

	Three months ended September 30,
	2012						2011
			Interest						Interest
	Average		Income/				Average		Income/
(Dollars in thousands)	Balance		Expense		Rate (a)		Balance		Expense		Rate (a)
Earning Assets:
Advances	$	77,309,141	$	103,274	0.53	%	$	74,523,719	$	85,440	0.45	%
Interest bearing deposits and others	2,678,479		971		0.14		3,045,849		700		0.09
Federal funds sold and other overnight funds	12,305,761		4,272		0.14		9,505,527		1,547		0.06
Investments	14,401,894		74,040		2.05		12,109,778		77,066		2.52
Mortgage and other loans	1,693,128		16,462		3.87		1,332,854		15,833		4.71
Total interest-earning assets	$	108,388,403	$	199,019	0.73	%	$	100,517,727	$	180,586	0.71	%
Funded By:
Consolidated obligations-bonds	$	68,472,246	$	94,110	0.55	%	$	65,770,510	$	93,292	0.56	%
Consolidated obligations-discount notes	29,473,639		16,999		0.23		24,049,554		10,286		0.17
Interest-bearing deposits and other borrowings	1,746,402		154		0.03		2,437,093		265		0.04
Mandatorily redeemable capital stock	35,202		398		4.50		58,198		660		4.50
Total interest-bearing liabilities	99,727,489		111,661		0.45	%	92,315,355		104,503		0.45	%
Other non-interest-bearing funds	3,111,946		—				2,928,143		—
Capital	5,548,968		—				5,274,229		—
Total Funding	$	108,388,403	$	111,661			$	100,517,727	$	104,503
Net Interest Income/Spread			$	87,358	0.28	%			$	76,083	0.26	%
Net Interest Margin (Net interest income/Earning Assets)					0.32	%					0.30	%

	Nine months ended September 30,
	2012						2011
			Interest						Interest
	Average		Income/				Average		Income/
(Dollars in thousands)	Balance		Expense		Rate (a)		Balance		Expense		Rate (a)
Earning Assets:
Advances	$	72,576,343	$	316,774	0.58	%	$	75,894,869	$	359,640	0.63	%
Interest bearing deposits and others	2,601,556		2,593		0.13		2,534,367		2,221		0.12
Federal funds sold and other overnight funds	11,647,650		11,075		0.13		8,459,423		5,694		0.09
Investments	13,834,421		225,747		2.18		11,856,909		233,557		2.63
Mortgage and other loans	1,567,175		48,629		4.14		1,295,204		47,161		4.87
Total interest-earning assets	$	102,227,145	$	604,818	0.79	%	$	100,040,772	$	648,273	0.87	%
Funded By:
Consolidated obligations-bonds	$	65,753,401	$	291,344	0.59	%	$	68,207,945	$	310,784	0.61	%
Consolidated obligations-discount notes	25,822,330		39,938		0.21		21,190,062		24,695		0.16
Interest-bearing deposits and other borrowings	2,351,807		600		0.03		2,406,154		1,124		0.06
Mandatorily redeemable capital stock	42,346		1,572		4.96		58,695		1,873		4.27
Total interest-bearing liabilities	93,969,884		333,454		0.47	%	91,862,856		338,476		0.49	%
Other non-interest-bearing funds	2,971,353		—				3,049,313		—
Capital	5,285,908		—				5,128,603		—
Total Funding	$	102,227,145	$	333,454			$	100,040,772	$	338,476
Net Interest Income/Spread			$	271,364	0.32	%			$	309,797	0.38	%
Net Interest Margin (Net interest income/Earning Assets)					0.35	%					0.41	%

(a) Reported yields with respect to advances and consolidated obligations may not necessarily equal the coupons on the instruments as derivatives are extensively used to change the yield and optionality characteristics of the underlying hedged items. When we issue fixed-rate debt and hedged with an interest rate swap, the hedge effectively converts the debt into a simple floating-rate bond. Similarly, we make fixed-rate advances to members and hedge the advances with a pay-fixed and receive-variable interest rate swap that effectively converts the fixed-rate asset to one that floats with 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.

62

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 tables present the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected our interest income and interest expense (in thousands):

Table 1.10:Rate and Volume Analysis

	For the three months ended
	September 30, 2012 vs. September 30, 2011
	Increase (Decrease)
	Volume			Rate			Total
Interest Income
Advances	$	3,291		$	14,543		$	17,834
Interest bearing deposits and others	(92		)	363			271
Federal funds sold and other overnight funds	563			2,162			2,725
Investments	13,195			(16,221		)	(3,026		)
Mortgage loans and other loans	3,814			(3,185		)	629
Total interest income	20,771			(2,338		)	18,433
Interest Expense
Consolidated obligations-bonds	3,764			(2,946		)	818
Consolidated obligations-discount notes	2,638			4,075			6,713
Deposits and borrowings	(66		)	(45		)	(111		)
Mandatorily redeemable capital stock	(260		)	(2		)	(262		)
Total interest expense	6,076			1,082			7,158
Changes in Net Interest Income	$	14,695		$	(3,420	)	$	11,275

	For the nine months ended
	September 30, 2012 vs. September 30, 2011
	Increase (Decrease)
	Volume			Rate			Total
Interest Income
Advances	$	(15,283	)	$	(27,583	)	$	(42,866	)
Interest bearing deposits and others	61			311			372
Federal funds sold and other overnight funds	2,568			2,813			5,381
Investments	35,659			(43,469		)	(7,810		)
Mortgage loans and other loans	9,044			(7,576		)	1,468
Total interest income	32,049			(75,504		)	(43,455		)
Interest Expense
Consolidated obligations-bonds	(11,010		)	(8,430		)	(19,440		)
Consolidated obligations-discount notes	6,106			9,137			15,243
Deposits and borrowings	(24		)	(500		)	(524		)
Mandatorily redeemable capital stock	(576		)	275			(301		)
Total interest expense	(5,504		)	482			(5,022		)
Changes in Net Interest Income	$	37,553		$	(75,986	)	$	(38,433	)

63

Analysis of Non-Interest Income (Loss) - The principal components of non-interest income (loss) are summarized below (in thousands):

Table 1.11:   Other Income (loss)

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Other income (loss):
Service fees and other (a)	$	2,669		$	1,579		$	6,983		$	4,314
Instruments held at fair value - Unrealized gains (losses) (b)	(9,399		)	(5,173		)	(95		)	(10,574		)
Total OTTI losses	(81		)	(142		)	(451		)	(308		)
Net amount of impairment losses reclassified (from) to Accumulated other comprehensive income (loss)	(534		)	(918		)	(1,490		)	(1,262		)
Net impairment losses recognized in earnings (c)	(615		)	(1,060		)	(1,941		)	(1,570		)
Net realized and unrealized gains (losses) on derivatives and hedging activities (d)	45,093			(8,608		)	127,085			62,606
Net realized gains (losses) from sale of available-for-sale securities and redemption of held-to-maturity securities	—			—			256			17
Losses from extinguishment of debt (e)	(4,476		)	—			(24,106		)	(55,175		)
Other	(36		)	(441		)	(295		)	(806		)
Total other income (loss)	$	33,236		$	(13,703	)	$	107,887		$	(1,188	)

(a)Service fees and other — Service fees are derived primarily from providing correspondent banking services to members. The category Other includes fees earned on standby letters of credit.  The increase in the current year periods was primarily due to increase in volume of issuance of financial letters of credits.

(b)Instruments held at fair value under the Fair Value Option — Recorded fair value gains and losses are primarily attributable to changes in market observable pricing (and inversely, yields) and secondarily to the weighted average remaining maturity duration of such instruments outstanding at the balance sheet dates.  See Note 17. Fair Values of Financial Instruments for more information about FHLBank debt elected under the FVO.  At inception or as the instruments approach maturity, their fair values are substantively close to par.  At September 30, 2012, market price of equivalent maturity duration FHLBank debt appreciated, market observable yields declined to levels lower than contractual coupons of outstanding debt elected under the FVO, and fair value losses were recorded.  Changes in fair value in the same periods in 2011 also resulted in losses, as the direction of market observable yields of FHLBank debt had declined.  The balance sheet carrying values of debt designated under the FVO, includes fair value basis adjustments, which are unrealized and if the debt is held to maturity, their fair values will decline to zero.

(c)Net impairment losses recognized in earnings on held-to-maturity securities - Credit-related OTTI has continued to be insignificant in all periods in this report.  Our cash flow analyses at each quarter has identified very modest deterioration in the performance parameters of certain previously impaired private-label MBS (“PLMBS”).  When cash flow analysis identifies credit losses that exceed fair value, our policy is to cap the loss to a floor equal to its amortized cost.  The amounts capped in all periods in this report were insignificant.

(d)Earnings impact of derivatives and hedging activities — We may designate a derivative as either a hedge of (1) the fair value of a recognized fixed-rate asset or liability or an unrecognized firm commitment (fair value hedge); (2) a forecasted transaction; or (3) the variability of future cash flows of a floating-rate asset or liability (cash flow hedge). We may also designate a derivative as an economic hedge, which does not qualify for hedge accounting under the accounting standards. Key fair value changes of derivatives and hedging activities in the third quarter and the first nine months of 2012 and 2011 were:

Derivative and hedging gains in the current year quarter included gains of $30.1 million due to amortization of fair values of modified interest rate swaps to offset the amortization expense (fair value basis of modified hedged advances) recorded in Net interest income.  In the same period in 2011, amortization gain recorded as hedging gains was $26.7 million.  In the first nine months, amortization gains in the 2012 period were $88.3 million compared to $35.1 million in the prior year period.  Cumulative amortization was lower in 2011 because member requests for advance modification began in June 2011, and the amortization recorded in the 2011 period was for less than the full period.  At the time the hedged advances were modified, the fair value basis of the swaps was in unrealized liability position, and fair value basis of modified advances were in unrealized gain position.  Amortization gains recorded as Derivative and hedging gains as reported in the table above, were entirely offset by amortization losses recorded in Interest income from advances so that Net income was not impacted.  Amortization of the basis is computed on a level-yield basis to contractual maturities.  Absent the amortization, the net impact of derivatives and hedging activities in the third quarter was a fair value gain of $15.0 million in the 2012 period compared to a fair value loss of $35.3 million in the 2011 period.  In the first nine months, fair value gains were $38.8 million in the 2012 period, compared to $27.5 million in the 2011 period.  Principal components are discussed below:

Impact of Qualifying hedges — Ineffectiveness recorded on fair value hedges of consolidated obligation bonds, discount notes, advances and insignificant amounts of ineffectiveness from closed cash flow hedges.  Qualifying hedges in the third quarter of 2012 reported fair value gains of $1.0 million, representing ineffectiveness between changes in the fair values of derivatives and the hedged advances and debt.  The comparable ineffectiveness in the 2011 period was a loss of $9.6 million.  In the first nine months, qualifying hedges reported gains of $1.4 million in the 2012 period, compared to $41.8 million in the 2011 period.

Impact of Economic hedges - Interest rate swaps that were economic hedges of debt were typically structured to pay 3-month LIBOR cash flows to swap dealers, and to receive federal funds indexed cash flows, 1-month LIBOR cash flows, or fixed-rate cash flows.  Such swaps are also referred to as standalone swaps.  Economic hedges also included pay floating rate (primarily 3-month LIBOR) receive fixed-rate interest rate swaps in economic hedges of short and intermediate-term consolidated obligation bonds and discount notes, elected under the FVO.  By policy, fair value changes and interest accruals associated with standalone swaps are recorded as a component of derivatives and hedging activities.  In the current quarter, fair value changes of standalone swaps made a favorable contribution of $18.5 million in the 2012 period, in contrast to a loss of $10.5 million in the 2011 period.  In the first nine months, standalone derivatives reported $49.2 million in gains in the 2012 period, compared to $14.0 million in 2011.  The rise and fall of the 3-month LIBOR, relative to the Federal funds rate or the 1-month LIBOR, or relative to a rate “fixed” at inception, are determining factors of recorded gains and losses, as is the volume of derivatives designated as standalone.  The 1-year basis spread between the 3-month LIBOR and the Federal funds index has been steadily declining in 2012, and was 20.9 basis points, compared to 55.6 basis points at December 31, 2011.  As the spread narrowed, projected obligations to pay swap dealers on the Federal fund basis swaps declined, fair values of the swaps benefited, and gains were recorded.  The basis between 3-month LIBOR and 1-month LIBOR has also narrowed.  Because our 3-month LIBOR versus 1-month LIBOR basis swaps are designed to pay 3-month LIBOR and receive 1-month LIBOR, a decline in basis benefits the fair values of the swaps, resulting in unrealized fair value gains.

The fair value of $1.9 billion of notional amounts of interest rate caps purchased primarily to hedge capped LIBOR indexed floating-rate MBS was $3.2 million at September 30, 2012, down from $7.7 million at June 30, 2012 and $14.9 million at December 31, 2011, and a loss of $4.6 million was recorded in the 2012 third quarter, compared to a loss of $15.2 million in the prior year period.  On a year to date basis, fair values loss of $11.8 million was recorded in the 2012 period versus a loss of $28.3 million in the 2011 period.  If held to maturity, cap values will decline to zero in 2018.  The forward swap curve has been steadily declining through 2011 and 2012, causing the fair values of the caps to decline period over period.  The impact of a declining interest rate environment offset the impact of increase in implied volatilities.

(e)Losses from extinguishment of debt — We buy back or retire our own debt principally to reduce future debt costs.  When assets are prepaid ahead of their expected or contractual maturities, we also attempt to extinguish debt in order to realign asset liability cash flow patterns.  Debt retirement and transfers in a declining interest rate environment typically requires a payment of a premium resulting in a loss.  For more information, see Table 7.2, Transferred and Retired Debt.

64

Earnings Impact of Derivatives and Hedging Activities

The following tables summarize the impact of hedging activities on earnings (in thousands):

Table 1.12:Earnings Impact of Derivatives and Hedging Activities — By Financial Instrument Type

	Three months ended September 30, 2012
							Consolidated		Consolidated
				MPF			Obligation		Obligation			Balance			Intermediary
Earnings Impact	Advances			Loans			Bonds		Discount Notes			Sheet			Positions		Total
Amortization/accretion/interest accruals of hedging activities reported in net interest income	$	(327,927	)	$	(188	)	$	78,561	$	(6,889	)	$	—		$	—	$	(256,443	)
Net realized and unrealized gains (losses) on derivatives and hedging activities
Gains (losses) on fair value hedges	31,008			—			142		(20		)	—			—		31,130
Net gains (losses) derivatives-FVO	—			—			13,680		1,921			—			—		15,601
Gains (losses)-economic hedges	(187		)	101			3,010		—			(4,584		)	22		(1,638		)
Net realized and unrealized gains (losses) on derivatives and hedging activities	30,821			101			16,832		1,901			(4,584		)	22		45,093
Total earnings impact	$	(297,106	)	$	(87	)	$	95,393	$	(4,988	)	$	(4,584	)	$	22	$	(211,350	)

	Three months ended September 30, 2011
							Consolidated			Consolidated
				MPF			Obligation			Obligation			Balance			Intermediary
Earnings Impact	Advances			Loans			Bonds			Discount Notes			Sheet			Positions		Total
Amortization/accretion/interest accruals of hedging activities reported in net interest income	$	(430,967	)	$	(27	)	$	113,714		$	(4,504	)	$	—		$	—	$	(321,784	)
Net realized and unrealized gains (losses) on derivatives and hedging activities
Gains (losses) on fair value hedges	22,736			—			(6,208		)	643			—			—		17,171
Gains (losses) on cash flow hedges	—			—			(119		)	—			—			—		(119		)
Net gains (losses) derivatives-FVO	—			—			(311		)	353			—			—		42
Gains (losses)-economic hedges	(1,317		)	1,788			(11,055		)	62			(15,184		)	4		(25,702		)
Net realized and unrealized gains (losses) on derivatives and hedging activities	21,419			1,788			(17,693		)	1,058			(15,184		)	4		(8,608		)
Total earnings impact	$	(409,548	)	$	1,761		$	96,021		$	(3,446	)	$	(15,184	)	$	4	$	(330,392	)

	Nine months ended September 30, 2012
							Consolidated			Consolidated
				MPF			Obligation			Obligation			Balance			Intermediary
Earnings Impact	Advances			Loans			Bonds			Discount Notes			Sheet			Positions		Total
Amortization/accretion/interest accruals of hedging activities reported in net interest income	$	(1,001,163	)	$	(326	)	$	249,106		$	(18,119	)	$	—		$	—	$	(770,502	)
Net realized and unrealized gains (losses) on derivatives and hedging activities
Gains (losses) on fair value hedges	90,100			—			1,198			(1,400		)	—			—		89,898
Gains (losses) on cash flow hedges	—			—			(214		)	—			—			—		(214		)
Net gains (losses) derivatives-FVO	—			—			23,506			2,787			—			—		26,293
Gains (losses)-economic hedges	(316		)	1,428			21,662			80			(11,772		)	26		11,108
Net realized and unrealized gains (losses) on derivatives and hedging activities	89,784			1,428			46,152			1,467			(11,772		)	26		127,085
Total earnings impact	$	(911,379	)	$	1,102		$	295,258		$	(16,652	)	$	(11,772	)	$	26	$	(643,417	)

	Nine months ended September 30, 2011
						Consolidated			Consolidated
				MPF		Obligation			Obligation			Balance			Intermediary
Earnings Impact	Advances			Loans		Bonds			Discount Notes			Sheet			Positions		Total
Amortization/accretion/interest accruals of hedging activities reported in net interest income	$	(1,281,665	)	$	27	$	381,400		$	(5,898	)	$	—		$	—	$	(906,136	)
Net realized and unrealized gains (losses) on derivatives and hedging activities
Gains (losses) on fair value hedges	79,306			—		(2,907		)	643			—			—		77,042
Gains (losses) on cash flow hedges	—			—		(119		)	—			—			—		(119		)
Net gains (losses) derivatives-FVO	—			—		16,784			666			—			—		17,450
Gains (losses)-economic hedges	(2,417		)	2,327		(3,465		)	62			(28,284		)	10		(31,767		)
Net realized and unrealized gains (losses) on derivatives and hedging activities	76,889			2,327		10,293			1,371			(28,284		)	10		62,606
Total earnings impact	$	(1,204,776	)	$	2,354	$	391,693		$	(4,527	)	$	(28,284	)	$	10	$	(843,530	)

65

Cash Flow Hedges

No amounts were reclassified from AOCL 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 in any periods in this report.  Ineffectiveness from hedges designated as cash flow hedges was not significant in any periods reported in this Form 10-Q.  Changes in the cash flows of the interest rate swap are expected to be highly effective at offsetting the changes in the interest element of the cash flows related to the forecasted issuance of the consolidated obligation bonds or the 91-day discount notes in the rollover-program.  At September 30, 2012, the fair values of interest rate swaps designated in the cash flow strategy to hedge long-term issuance of consolidated obligation discount notes in the rollover-program were in an unrealized loss position of $133.7 million, which was recorded in the balance sheet as a derivative liability, and an offset recorded in AOCL as an unrealized loss.  In addition, closed cash flow hedges of anticipatory issuance of consolidated obligation bonds, less amounts amortized, were also recorded to AOCL and that amount was $13.2 million at September 30, 2012.  See Table 1.13 for changes in cash flow hedges in AOCL.

·Hedges of anticipated issuances of consolidated obligation bonds — From time to time, we execute interest rate swaps on the anticipated issuance of debt to lock in a spread between the earning asset and the cost of funding.  The hedges are accounted under cash flow hedging rules and the effective portion of changes in the fair values of the swaps is recorded in AOCL.  The ineffective portion is recorded through net income.  The swap is terminated upon issuance of the debt instrument, and amounts reported in AOCL are reclassified to earnings in the periods in which earnings are affected by the variability of the cash flows of the debt that was issued.  The maximum period of time that we typically hedge our exposure to the variability in future cash flows for forecasted transactions to issue consolidated obligation bonds is between three and six months.  At September 30, 2012, we had no open contracts to hedge the anticipated issuances of debt.  Over the next 12 months, it is expected that $3.3 million of net losses recorded in AOCL will be recognized as an interest expense.

·Hedges of discount note issuances — We have executed long-term pay-fixed, receive 3-month LIBOR-indexed interest rate swaps that are designated as cash flow hedges of a rollover financing program involving the sequential issuances of fixed-rate 3-month term discount notes over the same period as the term of the swap.  The objective of the hedge is to offset the variability of cash flows attributable to changes in benchmark interest rate (3-month LIBOR), due to the rollover of the fixed-rate 91-day discount notes issued in parallel with the cash flow payments of the swap every 91 days through the maturity of the swap.  The maximum period of time that we hedged exposure to the variability in future cash flows in this program is up to 15 years.

Derivative gains and losses reclassified from AOCL (a) to current period income — The following table summarizes changes in derivative gains and (losses) and reclassifications into earnings from AOCL in the Statements of Condition (in thousands):

Table 1.13:Accumulated Other Comprehensive Income (Loss) to Current Period Income from Cash Flow Hedges

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Accumulated other comprehensive income/(loss) from cash flow hedges
Beginning of period	$	(137,244	)	$	(20,823	)	$	(111,985	)	$	(15,196	)
Net hedging transactions	(10,698		)	(86,557		)	(38,171		)	(94,182		)
Reclassified into earnings	1,058			986			3,272			2,984
End of period	$	(146,884	)	$	(106,394	)	$	(146,884	)	$	(106,394	)

(a) Includesunrealized losses from rollover cash flow hedge strategy, and previously recorded basis from settled derivatives that hedged anticipatory issuances of debt.  Amounts reclassified relate to reclassification of basis to interest expense in parallel with the yields being recognized on issued debt.

Debt extinguishment and sales of investment securities

We retire debt principally to reduce future debt costs or when the associated asset is either prepaid or terminated early, and less frequently from prepayments of mortgage-backed securities.  From time to time, we may sell investment securities classified as available-for-sale, or on an isolated basis, may be asked by the issuer of a security, which we have classified as held-to-maturity (“HTM”) to redeem the investment security.

The following tables summarize such activities (in thousands):

Table 1.14:Gains (Losses) on Sale and Extinguishment of Financial Instruments

	Three months ended September 30,					Nine months ended September 30,
	2012			2011		2012			2011
Gains-Sales of investment securities	$	—		$	—	$	256		$	17
Losses-Extinguishment and/or transfer of debt	$	(4,476	)	$	—	$	(24,106	)	$	(55,175	)

66

Table 1.15:Debt Extinguishment and Sale of Investment Securities

	Three months ended September 30,
	2012					2011
	Carrying Value		Gains/(Losses)			Carrying Value		Gains/(Losses)
Extinguishment of CO Bonds (b)	$	60,694	$	(4,476	)	$	—	$	—

	Nine months ended September 30,
	2012					2011
	Carrying Value		Gains/(Losses)			Carrying Value		Gains/(Losses)
Redemption of Housing Finance Agency (a)	$	4,742	$	256		$	3,918	$	17
Extinguishment of CO Bonds (b)	$	268,631	$	(24,106	)	$	353,500	$	(37,844	)
Transfer of CO Bonds to Other FHLBanks (b)	$	—	$	—		$	150,049	$	(17,331	)

(a)From time to time, we may sell investment securities classified as available-for-sale, or on an isolated basis may be asked by the issuer of a security, which we have classified as held-to-maturity to redeem the investment security.  There were insignificant gains from such redemptions in the 2012.

(b)There were no bonds retired in the third quarter of 2011.  For the nine month period, bond buy-back activity was lower in the 2012 period, compared to 2011.

Operating Expenses, Compensation and Benefits, and Other Expenses

The following table sets forth the major categories of operating expenses (dollars in thousands):

Table 1.16:Operating Expenses, and Compensation and benefits

	Three months ended September 30,
	2012		Percentage of Total		2011		Percentage of Total
Temporary workers	$	12	0.20	%	$	—	—	%
Occupancy	1,126		18.70		1,122		16.46
Depreciation and leasehold amortization	1,050		17.44		1,316		19.31
Computer service agreements and contractual services	1,773		29.44		2,229		32.71
Professional and legal fees	704		11.69		591		8.67
Other (a)	1,357		22.53		1,557		22.85
Total operating expenses (b)	$	6,022	100.00	%	$	6,815	100.00	%
Salaries	$	7,912	62.17	%	$	7,628	62.33	%
Employee benefits	4,814		37.83		4,611		37.67
Total Compensation and Benefits (c)	$	12,726	100.00	%	$	12,239	100.00	%
Finance Agency and Office of Finance (d)	$	3,301			$	3,220

	Nine months ended September 30,
	2012		Percentage of Total		2011		Percentage of Total
Temporary workers	$	25	0.12	%	$	82	0.37	%
Occupancy	3,249		15.86		3,294		14.98
Depreciation and leasehold amortization	3,276		15.99		4,085		18.57
Computer service agreements and contractual services	7,421		36.23		7,401		33.65
Professional and legal fees	1,673		8.17		2,261		10.28
Other (a)	4,841		23.63		4,872		22.15
Total Operating Expenses (b)	$	20,485	100.00	%	$	21,995	100.00	%
Salaries	$	23,810	59.33	%	$	22,594	34.62	%
Employee benefits	16,323		40.67		42,673		65.38
Total Compensation and Benefits (c)	$	40,133	100.00	%	$	65,267	100.00	%
Finance Agency and Office of Finance (d)	$	9,946			$	9,730

(a)	Other Expense — represents audit fees, director fees and expenses, insurance and telecommunications.
(b)	Operating expenses included the administrative and overhead costs of operating our Bank, as well as the operating costs of providing advances and managing collateral associated with the advances, managing the investment portfolios, and providing correspondent banking services to members.
(c)	Compensation and benefits were higher in the nine months ended September 30, 2011 because of a one-time payment of $24.0 million to our Defined benefit pension plan to restore its funding status.
(d)	We are also assessed for our share of the operating expenses for the Finance Agency and the Office of Finance. The 12 FHLBanks and two other GSEs share the entire cost of the Finance Agency.

67

Assessments

Each FHLBank is required to set aside a portion of earnings to fund its Affordable Housing Program (“AHP”) and until June 30, 2011 to satisfy its REFCORP obligations.  For more information, see “Affordable Housing Program and Other Mission Related Programs” and “Assessments” under ITEM 1 BUSINESS in our most recent Form 10-K filed on March 23, 2012.

AHP obligations — We fulfill our AHP obligations primarily through direct grants to members, who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low- and moderate-income households.  Ten percent of our annual pre-assessment regulatory net income is set aside for the AHP.  The amounts set aside are considered our liability towards our AHP obligations.  AHP grants and subsidies are provided to members out of this liability.

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

Table 2.1:Affordable Housing Program Liabilities

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Beginning balance	$	131,960		$	133,831		$	127,454		$	138,365
Additions from current period’s assessments	9,870			4,036			30,936			17,981
Net disbursements for grants and programs	(6,075		)	(8,088		)	(22,635		)	(26,567		)
Ending balance	$	135,755		$	129,779		$	135,755		$	129,779

Subsequent to June 30, 2011, AHP is 10% of net income after adding back interest expense on mandatorily redeemable stock.  Prior to June 30, 2011, AHP was 10% of net income after deducting REFCORP assessments, and adding back interest expense on mandatorily redeemable capital stock.

REFCORP— The REFCORP obligation was satisfied in June 2011, and no further payments are necessary.

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

Table 2.2:REFCORP

	Three months ended September 30,					Nine months ended September 30,
	2012		2011			2012		2011
Beginning balance	$	—	$	14,732		$	—	$	21,617
(Recoveries)/Additions from current period assessments	—		(365		)	—		30,708
Net disbursements to REFCORP	—		(14,367		)	—		(52,325		)
Ending balance	$	—	$	—		$	—	$	—

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Financial Condition (dollars in thousands):

Table 3.1:Statements of Condition — Period-Over-Period Comparison

					Net change in			Net change in
(Dollars in thousands)	September 30, 2012		December 31, 2011		dollar amount			percentage
Assets
Cash and due from banks	$	2,900,615	$	10,877,790	$	(7,977,175	)	(73.33	)%
Securities purchased under agreements to resell	200,000		—		200,000			NM
Federal funds sold	9,946,000		970,000		8,976,000			NM
Available-for-sale securities	2,519,606		3,142,636		(623,030		)	(19.83	)
Held-to-maturity securities
Long-term securities	11,674,668		10,123,805		1,550,863			15.32
Advances	77,864,259		70,863,777		7,000,482			9.88
Mortgage loans held-for-portfolio	1,747,724		1,408,460		339,264			24.09
Derivative assets	14,993		25,131		(10,138		)	(40.34	)
Other assets	262,212		250,741		11,471			4.57
Total assets	$	107,130,077	$	97,662,340	$	9,467,737		9.69	%
Liabilities
Deposits
Interest-bearing demand	$	1,740,652	$	2,066,598	$	(325,946	)	(15.77	)%
Non-interest bearing demand	16,447		12,450		3,997			32.10
Term	49,000		22,000		27,000			NM
Total deposits	1,806,099		2,101,048		(294,949		)	(14.04	)
Consolidated obligations
Bonds	65,135,853		67,440,522		(2,304,669		)	(3.42	)
Discount notes	33,717,806		22,123,325		11,594,481			52.41
Total consolidated obligations	98,853,659		89,563,847		9,289,812			10.37
Mandatorily redeemable capital stock	20,494		54,827		(34,333		)	(62.62	)
Derivative liabilities	466,298		486,166		(19,868		)	(4.09	)
Other liabilities	456,187		410,041		46,146			11.25
Total liabilities	101,602,737		92,615,929		8,986,808			9.70
Capital	5,527,340		5,046,411		480,929			9.53
Total liabilities and capital	$	107,130,077	$	97,662,340	$	9,467,737		9.69	%

Balance sheet overview September 30, 2012 compared to December 31, 2011

Our mission is to support the liquidity needs of our members.  To meet this mission, our balance sheet strategy is to keep our balance sheet in line with the rise and fall of amounts borrowed by members in the form of advances.  Total assets were $107.1 billion at September 30, 2012, compared to $97.7 billion at December 31, 2011.  Principal amounts of Advances to members increased to $73.9 billion, compared to $67.0 billion at December 31, 2011.  Aside from advances, our primary earning assets were investment portfolios, comprising mainly of GSE-issued mortgage-backed securities (“MBS”), and overnight Federal funds sold.  We also hold small portfolios of private-label MBS, bonds issued by state and local government housing agencies, and mortgage loans.

Advances — Advances have increased at September 30, 2012, compared to December 31, 2011, primarily because of short- and intermediate-term borrowing by one large member in June 2012.

Table 3.2:Advance Graph

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Investments — Our investment strategies were limited to investments in mortgage-backed securities (“MBS”) issued by GSEs and U.S. government agencies.  Acquisitions even in such securities were made only when they met our risk-reward preferences.

Market pricing of our GSE-issued MBS was substantially in net unrealized fair value gain positions.  Our investments in GSE-issued MBS are primarily in floating-rate securities indexed to LIBOR.  Certain floating-rate MBS are capped.  The rating downgrade in 2011 of the U.S. and government-related organizations, including Fannie Mae and Freddie Mac, could alter the perceived creditworthiness of instruments issued, insured or guaranteed by institutions, agencies or instrumentalities directly linked to the U.S. government, and securities issued by the institutions could also be correspondingly affected by such a downgrade.  Instruments of this nature are key assets on our balance sheet, and credit downgrades may also adversely affect the market value of such instruments.

Fair values of the private-label MBS (“PLMBS”) have also been stable, and unrealized holding losses have steadily declined through September 30, 2012, compared to December 31, 2011.  All PLMBS are held-to-maturity investments, and their fair values are not recorded on the balance sheet on a recurring basis.  We consider our PLMBS as Level 3 investments because the market for the securities remains depressed and the future is uncertain.  For more information about fair values of AFS and HTM securities, see Note 17. Fair Values of Financial Instruments.

Leverage — At September 30, 2012, balance sheet leverage was 19.4 times shareholders’ equity, almost unchanged from December 31, 2011.  Our balance sheet management strategy is to keep the balance sheet change in line with the changes in member demand for advances, although from time to time, we may maintain excess liquidity in highly liquid investments or cash balances at the FRB to meet unexpected member demand for funds.  Increases or decreases in investments have a direct impact on leverage, but generally growth in or shrinkage of advances does not significantly impact balance sheet leverage under existing capital stock management practices.  This is because changes in shareholders’ capital are in line with changes in advances, and the ratio of assets to capital generally remains unchanged.  Under our existing capital management practices, members are required to purchase capital stock to support their borrowings from us, and when capital stock is in excess of the amount that is required to support advance borrowings, we redeem the excess capital stock immediately.  Therefore, stockholders’ capital increases and decreases with members’ advance borrowings, and the capital to asset ratios remain relatively unchanged.

Debt — Our primary source of funds continued to be through the issuance of consolidated obligation bonds and discount notes.  Discount notes are consolidated obligations with maturities up to one year, and consolidated bonds have maturities of one year or longer.

Our ability to access the capital markets and other sources of funding, which has a direct impact on our cost of funds, are dependent to a degree on our credit ratings from the major ratings organizations.  In 2011, S&P lowered the long-term rating of the senior unsecured debt issues of the Federal Home Loan Bank System to “AA+” from “AAA,” and also revised the rating outlook of the debt to negative.  A rating being placed on negative outlook indicates a substantial likelihood of a risk of further downgrades within two years.  Although the FHLBank debt performance has withstood the impact of the rating downgrade, and investor preference for the high quality of our debt has in fact grown stronger, we cannot say with certainty the long-term impact of such actions on our liquidity position, which could be adversely affected by many causes both internal and external to our business.  For more information, see Business Outlook in the MD&A in this report.

Liquidity and Short-term Debt — The following table summarizes our short-term debt (in thousands).  Also see Tables 10.1 — 10.6 for additional information.

Table 3.3:Short-term Debt

	September 30, 2012		December 31, 2011
Consolidated obligations-discount notes (a)	$	33,717,806	$	22,123,325
Consolidated obligations-bonds with original maturities of one year or less (b)	$	16,400,000	$	15,125,000

(a) Outstanding at end of the period - carrying value

(b) Outstanding at end of the period - par value

Our liquid assets included cash at the FRB, Federal funds sold, and a portfolio of highly-rated GSE securities that are available-for-sale.  Our GSE status enables the FHLBanks to fund our consolidated obligation debt at tight margins to U.S. Treasury.  These are discussed in more detail under “Debt Financing Activity and Consolidated Obligations” in this MD&A.  Our liquidity position remains strong and in compliance with all regulatory requirements, and we do not foresee any changes to that position.

Among other liquidity measures, we are required to maintain sufficient liquidity through short-term investments in an amount at least equal to our anticipated cash outflows under two different scenarios.  The first scenario assumes that we cannot access capital markets for 15 days and that during that period, members do not renew their maturing, prepaid and called advances.  The second scenario assumes that we cannot access the capital market for five days, and during that period, members renew maturing and “put” advances.  We were in compliance with regulations under both scenarios.

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We also have other liquidity measures in place — Deposit Liquidity and Operational Liquidity, both of which indicated that our liquidity buffers were in excess of required reserves.  For more information about our liquidity measures, please see section “Liquidity, Cash Flows, Short-Term Borrowings and Short-Term Debt” in this MD&A.

Advances

Our primary business is making collateralized loans to members, referred to as advances.  Generally, the growth or decline in advances is reflective of demand by members for both short-term liquidity and term funding.  This demand is driven by economic factors such as availability of alternative funding sources that are more attractive, or by the interest rate environment and the outlook for the economy.  Members may choose to prepay advances (which may generate prepayment penalty fees) based on their expectations of interest rate changes and demand for liquidity.  Advance volume is also influenced by merger activity, where members are either acquired by non-members or acquired by members of another FHLBank.  When our members are acquired by members of another FHLBank or by non-members, these former members no longer qualify for membership and we may not offer renewals or additional advances to the former members.  Subsequent to the merger, maturing advances will not be replaced, which has an immediate impact on short-term and overnight lending if the former member borrowed short-term and overnight advances.

The borrowing action by one large member at the end of the second quarter of 2012 resulted in a significant increase in advance balances.  Since then outstanding advances have remained almost unchanged at September 30, 2012, with maturing advances being replaced by new borrowings.  For more information about advance concentration, see Note 20, Segment information and concentration.

Advances — Product Types

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

Table 4.1:Advances by Product Type

	September 30, 2012				December 31, 2011
			Percentage					Percentage
	Amounts		of Total		Amounts			of Total
Adjustable Rate Credit - ARCs	$	15,060,800	20.38	%	$	6,270,500		9.36	%
Fixed Rate Advances	47,840,414		64.74		53,561,735			79.96
Short-Term Advances	7,622,700		10.31		4,202,360			6.27
Mortgage Matched Advances	400,147		0.54		438,033			0.65
Overnight & Line of Credit (OLOC) Advances	1,607,886		2.18		1,480,075			2.21
All other categories	1,369,132		1.85		1,036,199			1.55
Total par value	73,901,079		100.00	%	66,988,902			100.00	%
Discount on AHP Advances	—				(15		)
Hedging adjustments	3,963,180				3,874,890
Total	$	77,864,259			$	70,863,777

Member demand for advance products

Majority of members are staying short with their borrowing preference primarily because of interest-rate uncertainties.  Other members appear to be taking advantage of prevailing low interest rates and borrowing advances with longer maturities.

Adjustable Rate Advances (“ARC Advances”) — One large member’s borrowing in June 2012 accounted for the increase in this category, and until then ARC advances had remained relatively stable, with members renewing maturing advances.  The new ARC borrowings will mature by 2013 third quarter, unless renewed at maturity or modified earlier.

ARC advances are medium- and long-term loans that can be linked to a variety of indices, such as 1-month LIBOR, 3-month LIBOR, the Federal funds rate, or Prime.  Members use ARC advances to manage interest rate and basis risks by efficiently matching the interest rate index and repricing characteristics of floating-rate assets.  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 each reset date, including the final payment date.

Fixed-rate Advances — Fixed-rate advances, comprising putable and non-putable advances, remain the largest category of advances.

Member demand for fixed-rate advances had been soft in 2011, and borrowings have further declined in 2012.  On aggregate, when maturing and prepaid fixed-rate advances have been replaced, members have borrowed short- and medium-term advances, as members remain uncertain about locking into long-term advances, perhaps because of unfavorable pricing of longer-term advances, an uncertain outlook on the direction and timing of interest rate changes, or lukewarm demand from members’ customer base for longer-term fixed-rate loans.

Fixed-rate advances are flexible funding tools that can be used by members to meet short- to long-term liquidity needs.  Terms vary from two days to 30 years.  A significant composition of Fixed-rate advances consists of advances with a “put” option feature (“putable advance”).  Historically, Fixed-rate putable advances have been more competitively priced relative to fixed-rate “bullet” advances (without put option) because of the “put” feature that we have purchased from the member, driving down the coupon on the advance.  The price advantage of a putable advance increases with the numbers of puts sold and the length of the term of a putable advance.  With a putable

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advance, we have the right to exercise the put option and terminate the advance at predetermined exercise date(s).  We would normally exercise this option when interest rates rise, and the borrower may then apply for a new advance at the then-prevailing coupon and terms.  In the present interest rate environment, the price advantage has not been significant because of constraints in offering longer-term-advances.  Maturing and prepaid putable advances were either not replaced or replaced by bullet advances (without the put feature), and outstanding balances have declined steadily in each of the quarters in 2012, and stood at $16.9 billion at September 30, 2012, compared to $18.3 billion at December 31, 2011.

Short-term Advances — Borrowing activity has been uneven in the three quarters in 2012.  Outstanding amounts increased to $7.6 billion at September 30, 2012 up from $5.3 billion at June 30, 2012 and $4.2 billion at December 31, 2011.  At March 31, 2012, balances had grown to $7.1 billion mainly because one large member’s borrowing activity in the first quarter of 2012, which as anticipated was paid down at maturity in the second quarter of 2012.  Members have generally borrowed short-term advances to take advantage of the current low coupons to replace maturing medium- and intermediate-term advances.

Overnight advances — Overnight borrowings are slightly higher at September 30, 2012, compared to December 31, 2011.  Member demand for the overnight Advances reflects the seasonal needs of certain member banks for their short-term liquidity requirements.  Some large members also use overnight advances to adjust their balance sheet in line with their own leverage targets.  The overnight advances program gives members a short-term, flexible, readily accessible revolving line of credit for immediate liquidity needs.  Overnight Advances mature on the next business day, at which time the advance is repaid.

Merger Activity

Merger activity is an important factor and, if significant, would contribute to an uneven pattern in advance balances.  Merger activity may result in the loss of new business if a member is acquired by a non-member.  The FHLBank Act does not permit new advances to replace maturing advances to former members.  Advances held by members who are acquired by non-members may remain outstanding until their contractual maturities.  Merger activity may also result in a decline in the advance book if the acquired member decides to prepay existing advances partially or in full depending on the post-merger liquidity needs.

The following table summarizes merger activity, including the impact of voluntary terminations (dollars in thousands):

Table 4.2:Merger Activity/Voluntary terminations

	September 30, 2012		December 31, 2011
Number of Non-Members (a)	2		3
Total number of Non-Members at period end	4		8
Total Advances outstanding to Non-Members at period end	$	427,359	$	710,430

(a) Members who became Non-members because of mergers and voluntary/involuntary terminations within the periods then ended.

Prepayment of Advances

Prepayment initiated by members or former members is another important factor that impacts advances.  We charge a prepayment fee when the member or a former member prepays certain advances before the original maturity.

The following table summarizes prepayment activity (in thousands):

Table 4.3:Prepayment Activity

	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Advances pre-paid at par	$	112,198	$	265,112	$	905,297	$	8,139,991
Prepayment fees (a)	$	1,207	$	3,173	$	10,592	$	55,562

(a) Amount represents fees received from members minus the fair value basis of hedged advances at the prepayment dates.  For advances that are prepaid and hedged under hedge accounting rules, we generally terminate the hedging relationship upon prepayment and adjust the prepayment fees received for the associated fair value basis of the hedged prepaid advance.

Advance modifications

At members’ request we may modify advances if the modified terms are considered minor and qualify as a modification under applicable accounting provisions for loan modification.  See Significant Accounting Policies and Estimates in Note 1 in our most recent Form 10-K filed on March 23, 2012 for a more complete discussion of the provisions that guide loan modifications.  In the third quarter of 2012, at the members’ requests, we agreed to modify $20.0 million of par amounts of advances, compared to $357.5 million in the same quarter in 2011.  In the first nine months, we agreed to modify $233.5 million in the 2012 period, compared to $4.2 billion in the same period in 2011.  All modifications were assessed contemporaneously at the time of modification, and were considered to be minor.

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Advances — Interest Rate Terms

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

Table 4.4:Advances by Interest-Rate Payment Terms

	September 30, 2012				December 31, 2011
			Percentage					Percentage
	Amount		of Total		Amount			of Total
Fixed-rate (a)	$	58,840,279	79.62	%	$	60,718,402		90.64	%
Variable-rate (b)	15,052,800		20.37		6,262,500			9.35
Variable-rate capped (c)	8,000		0.01		8,000			0.01
Total par value	73,901,079		100.00	%	66,988,902			100.00	%
Discount on AHP Advances	—				(15		)
Hedging basis adjustments	3,963,180				3,874,890
Total	$	77,864,259			$	70,863,777

(a) Fixed-rate borrowings remained popular with members, and while the overall category declined at September 30, 2012, amounts increased for short-term, fixed-rate advances, a category within Fixed-rate advances.

(b) Adjustable-rate LIBOR-based advance has increased primarily due the borrowing by one large member in June 2012.  Generally, members have not increased their borrowing in this category, despite the low prevailing rates, as members may perceive the risk of borrowing in an unsettled interest rate environment and a further decline in short term rates.

(c) Typically, capped ARCs are in demand by members in a rising rate environment, as members would purchase cap options to limit their interest rate exposure.  With a capped variable rate advance, we purchase cap options that mirror the terms of the caps sold to members, offsetting our exposure on the advance.

The following table summarizes variable-rate advances by reference-index type (in thousands):

Table 4.5:Variable-Rate Advances

	September 30, 2012		December 31, 2011
LIBOR indexed (a)	$	15,060,800	$	6,270,500

(a) LIBOR indexed advances are typically ARC advances and the larger members have increased their borrowings in 2012.

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

Table 4.6:Advances by Maturity and Yield Type

	September 30, 2012				December 31, 2011
			Percentage					Percentage
	Amount		of Total		Amount			of Total
Fixed-rate
Due in one year or less	$	17,771,791	24.05	%	$	17,949,321		26.79	%
Due after one year	41,068,488		55.57		42,769,081			63.85
Total Fixed-rate	58,840,279		79.62		60,718,402			90.64
Variable-rate
Due in one year or less	9,594,000		12.98		2,468,500			3.68
Due after one year	5,466,800		7.40		3,802,000			5.68
Total Variable-rate	15,060,800		20.38		6,270,500			9.36
Total par value	73,901,079		100.00	%	66,988,902			100.00	%
Discount on AHP Advances	—				(15		)
Hedging adjustments	3,963,180				3,874,890
Total	$	77,864,259			$	70,863,777

Impact of Derivatives and hedging activities to the balance sheet carrying values of Advances

The carrying values of Advance include fair value basis adjustments (“hedging adjustments”) for those advances recorded under hedge accounting provisions.  When medium- and long-term interest rates rise or fall, the fair values of fixed-rate advances move in the opposite direction.

We hedge certain advances using both cancellable and non-cancellable interest rate swaps.  These qualify as fair value hedges under the derivatives and hedge accounting rules.  We hedge the risk of changes in the benchmark rate, which we have adopted as LIBOR.  The benchmark rate is also the discounting basis for computing changes in fair values of hedged advances.  Recorded fair value basis adjustments to advances in the Statements of Condition were

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a result of these hedging activities.  In addition, when putable advances are hedged by cancellable swaps, the possibility of exercise of the call shortens the expected maturity of the advance.  The impact of derivatives on our income is discussed in this MD&A under “Results of Operations.”  Fair value basis adjustments, as measured under the hedging rules, are impacted by hedge volume, the interest rate environment, and the volatility of the interest rates.

Hedge volume— We primarily hedge putable advances and certain “bullet” fixed-rate advances under the hedging accounting provisions when they qualify under those standards, and as economic hedges when the hedge accounting provisions are operationally difficult to establish or a high degree of hedge effectiveness cannot be asserted.

The following table summarizes hedged advances by type of option features (in thousands):

Table 4.7:Hedged Advances by Type

Par Amount	September 30, 2012		December 31, 2011
Qualifying Hedges
Fixed-rate bullets	$	29,908,156	$	32,733,909
Fixed-rate putable (a)	16,262,912		17,439,412
Fixed-rate callable	—		325,000
Total Qualifying Hedges	$	46,171,068	$	50,498,321
Aggregate par amount of advances hedged (b)	$	46,214,545	$	50,617,650
Fair value basis (Qualifying hedging adjustments)	$	3,963,180	$	3,874,890

(a) Members have generally not replaced maturing putable advances, and outstanding balances have declined, and since almost all advances with put or call features are hedged, the decline in hedged advances was consistent with the contraction of fixed-rate putable advances.  With a putable advance, we purchase the put option in the advance from the borrowing member.  This put option mirrors the cancellable swap option owned by the swap counterparty.  Under the terms of the put option, we have the right to terminate the advance at agreed-upon dates.  The period until the option is exercisable is known as the lockout period.  If the advance is put at the end of the lockout period, the member can borrow an advance product of the member’s choice at the then-prevailing market rates and at the then-existing terms and conditions.

(b) Except for an insignificant amount of derivatives that were designated as economic hedges of advances, hedged advances were in a qualifying hedging relationship.  (See Tables 9.1 — 9.7).  No advances were designated under the FVO.  We typically hedge fixed-rate advances in order to convert fixed-rate cash flows to LIBOR-indexed cash flows with interest rate swaps.

Fair value basis adjustments— The basis adjustments primarily represent the LIBOR benchmark fair values of advances hedged under a qualifying benchmark hedge.  The carrying values of our advances included $4.0 billion of fair value basis gains at September 30, 2012, almost unchanged from December 31, 2011, and these were consistent with the higher contractual coupons of long- and medium-term fixed-rate hedged advances at the two balance sheet dates, compared to current advance pricing at balance sheet dates.  These advances had been issued in prior years at the then-prevailing higher interest rate environment.  In a lower interest rate environment, fixed-rate advances will exhibit net unrealized fair value basis gains.  Decline in outstanding hedged advances resulted in a decline in fair value basis (volume effect).  The forward swap curve has steadily flattened through 2012, and rates have declined at September 30, 2012 along almost the entire length of the curve relative to December 31, 2011, causing fair values of advances to increase (interest rate effect) and offset the volume effects.  Taken together, the fair value basis adjustment to the carrying value of hedged advances remained materially unchanged.

The following graph compares the swap curves at September 30, 2012 and December 31, 2011.

Table 4.8:LIBOR Swap Curve - Graph

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Unrealized gains from fair value basis adjustments to advances were almost entirely offset by net fair value unrealized losses of the derivatives associated with the fair value hedges of advances, thereby achieving our hedging objectives of mitigating fair value basis risk.

Advances — Call Dates and Exercise Options

The table below offers a view of the advance portfolio with the possibility of the exercise of the put option that we control.  Put dates are organized by date of first put (dollars in thousands):

Table 4.9:Advances by Put Date/Call Date (a)

	September 30, 2012				December 31, 2011
	Amount		Percentage of Total		Amount			Percentage of Total
Due or putable\callable in one year or less (b)	$	42,871,203	58.01	%	$	36,896,233		55.07	%
Due or putable after one year through two years	8,174,899		11.06		6,689,684			9.99
Due or putable after two years through three years	5,099,699		6.90		6,540,378			9.76
Due or putable after three years through four years	9,748,157		13.19		5,906,310			8.82
Due or putable after four years through five years	3,678,719		4.98		7,432,042			11.09
Due or putable after five years through six years	1,637,161		2.22		1,524,143			2.28
Thereafter	2,691,241		3.64		2,000,112			2.99
Total par value	73,901,079		100.00	%	66,988,902			100.00	%
Discount on AHP advances	—				(15		)
Hedging adjustments	3,963,180				3,874,890
Total	$	77,864,259			$	70,863,777

(a) Contrasting advances by contractual maturity dates (See Tables 4.1 — 4.10) with potential put dates illustrates the impact of hedging on the effective duration of our advances.  Advances borrowed by members included a significant amount of putable advances in which we purchased from members the option to terminate advances at agreed-upon dates.  Typically, almost all putable advances are hedged by cancellable interest rate swaps in which the derivative counterparty has the right to exercise and terminate the swap at par at agreed upon dates.  When the swap counterparty exercises its right to call the cancellable swap, we would typically also exercise our right to put the advance at par.  Under this hedging practice, on a put option basis, the potential exercised maturity is significantly accelerated, and is an important factor in our current hedge strategy.  This is best illustrated by the fact that on a contractual maturity basis, 12.3% of advances would mature after five years, while on a put basis, the percentage declined to 5.9% at September 30, 2012.

(b) There were no callable advances at September 30, 2012.  Members have purchased the option to terminate advances.

The following table summarizes notional amounts of advances that were still putable or callable (one or more pre-determined option exercise dates remaining) (in thousands):

Table 4.10:Putable and Callable Advances

	September 30, 2012 (a)		December 31, 2011 (a)
Putable	$	16,867,912	$	18,324,162
No-longer putable	$	2,021,500	$	2,217,500
Callable	$	—	$	325,000

(a) Par value

Member borrowings have been weak for putable advances, which are typically medium- and long-term.  Maturing advances with put features have been replaced by plain vanilla advances.

Investments

We maintain investments for our liquidity purpose, including to fund stock repurchases and redemptions, provide additional earnings, and ensure the availability of funds to meet the credit needs of our members.  We also maintain longer-term investment portfolios, which are principally mortgage-backed securities issued by government-sponsored enterprises (“GSEs”), a smaller portfolio of MBS issued by private enterprises and securities issued by state or local housing finance agencies.  For more information, see our most recent Form 10-K filed on March 23, 2012.

Investments — Policies and Practices

The Finance Agency issued a final rule, effective June 20, 2011, that incorporates the existing 300 percent of capital and other policy limitations on the FHLBanks’ purchase of mortgage-backed securities and their use of derivatives. In addition, the rule clarifies that an FHLBank is not required to divest securities solely to bring the level of its holdings into compliance with the 300 percent limit, provided that the original purchase of the securities complied with the limits.

It is our practice not to lend unsecured funds to members, including overnight Federal funds and certificates of deposit.  Unsecured lending to members is not prohibited by Finance Agency regulations or Board of Directors’ policy.  We are prohibited from purchasing a consolidated obligation issued directly by another FHLBank, but may acquire consolidated obligations for investment in the secondary market after the bond settles.  We made no investments in consolidated obligations during the periods in this report.

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The following table summarizes changes in investments by categories (including held-to-maturity securities, available-for-sale securities, and money market investments).  No securities classified as available-for-sale were OTTI (dollars in thousands):

Table 5.1:Investments by Categories

	September 30,		December 31,		Dollar			Percentage
	2012		2011		Variance			Variance
State and local housing finance agency obligations (a)	$	747,210	$	779,911	$	(32,701	)	(4.19	)%
Mortgage-backed securities
Available-for-sale securities, at fair value	2,509,988		3,133,469		(623,481		)	(19.90	)
Held-to-maturity securities, at carrying value	10,927,458		9,343,894		1,583,564			16.95
Total securities	14,184,656		13,257,274		927,382			7.00
Grantor trust (b)	9,618		9,167		451			4.91
Securities purchased under agreements to resell	200,000		—		200,000			NM
Federal funds sold	9,946,000		970,000		8,976,000			NM
Total investments	$	24,340,274	$	14,236,441	$	10,103,833		70.97	%

(a) Classified as held-to-maturity securities, at carrying value, which for an HTM security is amortized cost if the security is not OTTI.  If the security is OTTI, carrying value is amortized cost less total OTTI and other adjustments.

(b) Classified as available-for-sale securities, at fair value and represents investments in registered mutual funds and other fixed-income securities maintained under the grantor trust.

For more information about our exposure to European countries from investments in Federal funds sold, see Table 5.11 and accompanying discussions about our controls and procedures with respect to unsecured lending.

Long-Term Investments

Investments with original long-term contractual maturities were comprised of mortgage- and asset-backed securities, and investment in securities issued by state and local housing agencies.  These investments were classified as “Held-to-maturity” and as “Available-for-sale.”  We own a grantor trust to fund current and potential future payments to retirees for supplemental pension plan obligations.  The trust is classified as available-for-sale and is invested in fixed-income and equity funds.

Mortgage-Backed Securities — By Issuer

Issuer composition of held-to-maturity mortgage-backed securities was as follows (carrying values; dollars in thousands):

Table 5.2:Held-to-Maturity Mortgage-Backed Securities — By Issuer

	September 30,		Percentage		December 31,		Percentage
	2012		of Total		2011		of Total
U.S. government sponsored enterprise residential mortgage-backed securities	$	6,229,285	57.01	%	$	6,473,587	69.28	%
U.S. agency residential mortgage-backed securities	71,393		0.65		89,586		0.96
U.S. government sponsored enterprise commercial mortgage-backed securities	4,068,587		37.23		2,093,447		22.40
U.S. agency commercial mortgage-backed securities	18,222		0.17		34,447		0.37
Private-label issued securities backed by home equity loans	285,853		2.61		313,849		3.36
Private-label issued residential mortgage-backed securities	116,507		1.07		185,097		1.98
Private-label issued securities backed by manufactured housing loans	137,611		1.26		153,881		1.65
Total Held-to-maturity securities-mortgage-backed securities	$	10,927,458	100.00	%	$	9,343,894	100.00	%

Held-to-maturity mortgage- and asset-backed securities (“MBS”)— Our conservative purchasing practices over the years are evidenced by the high concentration of MBS issued by the GSEs.  Privately issued mortgage-backed securities made up the remaining 4.9% and 7.0% at September 30, 2012 and December 31, 2011.  In the first nine months, we acquired $3.4 billion of GSE or Agency issued MBS, primarily pass-through CMOs, versus pay downs of $1.8 billion in the 2012 period.  In the 2011 period, we acquired $2.8 billion of GSE and Agency MBS versus pay downs of $1.7 billion.  No private label MBS were purchased in any periods in this report.

Local and housing finance agency bonds— We have investments in primary public and private placements of taxable obligations of state and local housing finance authorities (“HFA”) classified as held-to-maturity.  Investments in HFA bonds help to fund mortgages that finance low- and moderate-income housing.  In the first nine months of 2012, pay downs totaled $33.2 million and no securities were purchased.  In the 2011 period, we purchased $69.0 million of securities versus pay downs of $34.9 million.

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Available-for-sale securities — Any investment we might sell before maturity is classified as available-for-sale (“AFS”).  We carry such investments at fair value.  Fair value changes are recorded in AOCL until the security is sold or is anticipated to be sold.  The composition of the FHLBNY’s available-for-sale securities was as follows (dollars in thousands):

Table 5.3:Available-for-Sale Securities Composition

	September 30,		Percentage		December 31,		Percentage
	2012		of Total		2011		of Total
Fannie Mae	$	1,565,014	62.35	%	$	1,942,230	61.99	%
Freddie Mac	888,367		35.39		1,125,609		35.92
Ginnie Mae	56,607		2.26		65,630		2.09
Total AFS mortgage-backed securities	2,509,988		100.00	%	3,133,469		100.00	%
Grantor Trust - Mutual funds	9,618				9,167
Total AFS portfolio	$	2,519,606			$	3,142,636

All of the mortgage-backed securities in the AFS portfolio were issued by Fannie Mae, Freddie Mac or a U.S. agency.  Funds in the grantor trust are invested in fixed-income and equity registered mutual funds. In the first nine month in 2012, MBS pay downs were $631.2 million, and no MBS was acquired.  In the same period in 2011, we did not purchase any MBS for the AFS portfolio as market yields did not meet our risk/reward preferences. Pay downs in that period totalled $639.9 million.

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

Table 5.4:External Rating of the Held-to-Maturity Portfolio

	September 30, 2012
									Below
									Investment
	AAA-rated (a)		AA-rated (b)		A-rated		BBB-rated		Grade		Total
Long-term securities
Mortgage-backed securities	$	58,462	$	10,603,490	$	75,387	$	50,551	$	139,568	$	10,927,458
State and local housing finance agency obligations	65,000		635,580		—		46,630		—		747,210
Total Long-term securities	$	123,462	$	11,239,070	$	75,387	$	97,181	$	139,568	$	11,674,668

	December 31, 2011
	AAA-rated (a)		AA-rated (b)		A-rated		BBB-rated		Below Investment Grade		Total
Long-term securities
Mortgage-backed securities	$	100,639	$	8,933,445	$	70,925	$	76,205	$	162,680	$	9,343,894
State and local housing finance agency obligations	69,741		663,540		—		46,630		—		779,911
Total Long-term securities	$	170,380	$	9,596,985	$	70,925	$	122,835	$	162,680	$	10,123,805

(a) Certain PLMBS and housing finance bonds are rated triple-A by S&P and Moody’s.

(b) GSE issued MBS have been classified in the table above as double- A, the credit rating assigned to the GSEs.  Fannie Mae, Freddie Mac and U.S. Agency issued MBS held by us are rated double-A (Based on S&P’s rating of AA+/Negative for the GSEs and Double-A for the U.S sovereign; Moody’s affirmed the triple-A status of the two GSEs and the U.S. sovereign rating).

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

Table 5.5:External Rating of the Available-for-Sale Portfolio

	September 30, 2012
	AAA-rated (a)		AA-rated (a)		A-rated		BBB-rated		Unrated		Total
Available-for-sale securities
Mortgage-backed securities	$	—	$	2,509,988	$	—	$	—	$	—	$	2,509,988
Other - Grantor trust	—		—		—		—		9,618		9,618
Total Available-for-sale securities	$	—	$	2,509,988	$	—	$	—	$	9,618	$	2,519,606

	December 31, 2011
	AAA-rated (a)		AA-rated (a)		A-rated		BBB-rated		Unrated		Total
Available-for-sale securities
Mortgage-backed securities	$	—	$	3,133,469	$	—	$	—	$	—	$	3,133,469
Other - Grantor trust	—		—		—		—		9,167		9,167
Total Available-for-sale securities	$	—	$	3,133,469	$	—	$	—	$	9,167	$	3,142,636

(a) All MBS are GSE/Agency issued securities and the ratings are based on issuer credit ratings.  Fannie Mae, Freddie Mac and U.S. Agency issued MBS held by us are rated double-A (Based on S&P’s rating of AA+/Negative for the GSEs and Double-A for the U.S sovereign; Moody’s affirmed the triple-A status of the two GSEs and the U.S. sovereign rating).

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Weighted average rates — Mortgage-backed securities (HTM and AFS)

The following table summarizes weighted average rates and amounts by contractual maturities.  A significant portion of the MBS portfolio consisted of floating-rate securities and the weighted average rates will change in parallel with changes in the LIBOR rate (dollars in thousands):

Table 5.6:Mortgage-Backed Securities Weighted Average Rates by Contractual Maturities

	September 30, 2012				December 31, 2011
	Amortized		Weighted		Amortized		Weighted
	Cost		Average Rate		Cost		Average Rate
Mortgage-backed securities
Due after one year through five years	$	75,850	1.69	%	$	972	6.25	%
Due after five years through ten years	4,401,539		3.02		2,886,147		3.67
Due after ten years	9,003,897		1.54		9,649,520		1.94
Total mortgage-backed securities	$	13,481,286	2.02	%	$	12,536,639	2.34	%

Adverse Case Scenario

We evaluated our OTTI private-label MBS under a base case (or best estimate) scenario, and also performed a cash flow analysis for each of those securities under assumptions that forecasted increased credit default rates or loss severities, or both.  The stress test scenario and associated results do not represent our current expectations and therefore should not be construed as a prediction of future results, market conditions or the actual performance of these securities.  In instances where forecasted credit OTTI would exceed fair values, we have limited the recognition of credit OTTI in the base case and in the adverse case to the bond’s amortized cost.  Amount capped in the determination of OTTI charges were not significant in any periods in this report.

The results of the adverse case scenario are presented below alongside our expected outcome for the credit impaired securities (the base case) at the OTTI measurement dates (in thousands):

Table 5.7:Base and Adverse Case Stress Scenarios (a)

	As of September 30, 2012
	Actual Results - Base Case Scenario				Adverse Case Scenario
	UPB		OTTI Related to Credit Loss (b)		UPB		OTTI Related to Credit Loss
RMBS Prime	$	7,987	$	195	$	7,987	$	256
HEL Subprime	45,891		420		45,891		3,184
Total Securities	$	53,878	$	615	$	53,878	$	3,440

	As of September 30, 2011
	Actual Results - Base Case Scenario				Adverse Case Scenario
	UPB		OTTI Related to Credit Loss (b)		UPB		OTTI Related to Credit Loss
RMBS Prime	$	11,874	$	81	$	11,874	$	258
HEL Subprime	36,700		979		36,700		2,187
Total Securities	$	48,574	$	1,060	$	48,574	$	2,445

(a) Generally, the Adverse Case is computed by stressing Credit Default Rate and Loss Severity.

(b) Credit OTTI recognized at the OTTI determination dates as above.

Non-Agency Private label mortgage — and asset-backed securities

Our investments in privately-issued MBS are summarized below.  All private-label MBS were classified as held-to-maturity (unpaid principal balance (a); in thousands):

Table 5.8:Non-Agency Private Label Mortgage — and Asset-Backed Securities

	September 30, 2012						December 31, 2011
Private-label MBS	Fixed Rate		Variable Rate		Total		Fixed Rate		Variable Rate		Total
Private-label RMBS
Prime	$	108,938	$	3,457	$	112,395	$	177,687	$	3,621	$	181,308
Alt-A	4,259		2,689		6,948		4,794		2,931		7,725
Total PL RMBS	113,197		6,146		119,343		182,481		6,552		189,033
Home Equity Loans
Subprime	324,551		62,291		386,842		352,836		69,283		422,119
Manufactured Housing Loans
Subprime	137,626		—		137,626		153,898		—		153,898
Total UPB of private-label MBS (b)	$	575,374	$	68,437	$	643,811	$	689,215	$	75,835	$	765,050

(a)Unpaid principal balance (UPB) is also known as the current face or par amount of a mortgage-backed security.

(b)Paydowns of PLMBS have reduced the outstanding unpaid principal balances.  No acquisitions of PLMBS have been made over the past several years.

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The following tables present additional information of the fair values and gross unrealized losses of PLMBS by year of securitization and external rating (in thousands):

Table 5.9:     PLMBS by Year of Securitization and External Rating

	September 30, 2012
	Unpaid Principal Balance																			Total
Private-label MBS	Ratings Subtotal		Triple-A		Double-A		Single-A		Triple-B		Below Investment Grade		Amortized Cost		Gross Unrealized (Losses)			Fair Value		Credit and Non-Credit OTTI Losses (a)
RMBS
Prime
2006	$	17,841	$	—	$	—	$	—	$	—	$	17,841	$	17,174	$	(35	)	$	17,449	$	(81	)
2005	22,885		—		—		—		—		22,885		21,997		—			23,056		—
2004 and earlier	71,669		39,374		3,458		5,858		22,979		—		71,471		(192		)	72,737		—
Total RMBS Prime	112,395		39,374		3,458		5,858		22,979		40,726		110,642		(227		)	113,242		(81		)
Alt-A
2004 and earlier	6,948		6,948		—		—		—		—		6,948		(429		)	6,527		—
Total RMBS	119,343		46,322		3,458		5,858		22,979		40,726		117,590		(656		)	119,769		(81		)
HEL
Subprime
2004 and earlier	386,842		12,422		74,943		78,071		42,076		179,330		350,975		(24,289		)	334,509		(370		)
Manufactured
Housing Loans
Subprime
2004 and earlier	137,626		—		137,626		—		—		—		137,611		(3,687		)	134,073		—
Total PLMBS	$	643,811	$	58,744	$	216,027	$	83,929	$	65,055	$	220,056	$	606,176	$	(28,632	)	$	588,351	$	(451	)

	December 31, 2011
	Unpaid Principal Balance																			Total
Private-label MBS	Ratings Subtotal		Triple-A		Double-A		Single-A		Triple-B		Below Investment Grade		Amortized Cost		Gross Unrealized (Losses)			Fair Value		Credit and Non-Credit OTTI Losses (a)
RMBS
Prime
2006	$	24,960	$	—	$	—	$	—	$	—	$	24,960	$	24,401	$	(260	)	$	24,141	$	(315	)
2005	39,469		—		—		—		10,062		29,407		38,267		(494		)	37,822		—
2004 and earlier	116,879		77,299		3,621		—		32,203		3,756		116,411		(439		)	117,885		—
Total RMBS Prime	181,308		77,299		3,621		—		42,265		58,123		179,079		(1,193		)	179,848		(315		)
Alt-A
2004 and earlier	7,725		7,725		—		—		—		—		7,726		(904		)	6,831		—
Total RMBS	189,033		85,024		3,621		—		42,265		58,123		186,805		(2,097		)	186,679		(315		)
HEL
Subprime
2004 and earlier	422,119		16,086		84,886		80,392		50,743		190,012		387,990		(51,415		)	338,378		(476		)
Manufactured
Housing Loans
Subprime
2004 and earlier	153,898		—		153,898		—		—		—		153,881		(8,387		)	145,494		—
Total PLMBS	$	765,050	$	101,110	$	242,405	$	80,392	$	93,008	$	248,135	$	728,676	$	(61,899	)	$	670,551	$	(791	)

(a) Credit-related OTTI was offset by reclassification of non-credit OTTI to Net income.

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Weighted-average market price offers an analysis of unrealized loss percentage; a comparison of the weighted-average credit support to weighted-average collateral delinquency percentage is another indicator of the credit support available to absorb potential cash flow shortfalls.

Table 5.10:Weighted-Average Credit Support of PLMBS

	September 30, 2012
Private-label MBS	Original Weighted- Average Credit Support % (a)		Weighted- Average Credit Support % (b)		Weighted-Average Collateral Delinquency % (c)
RMBS
Prime
2006	4.05	%	4.47	%	13.52	%
2005	2.39		5.58		4.74
2004 and earlier	1.65		5.01		2.50
Total RMBS Prime	2.18		5.04		4.70
Alt-A
2004 and earlier	12.41		36.00		7.92
Total RMBS	2.78		6.85		4.89
HEL
Subprime
2004 and earlier	58.31		30.18		16.26
Manufactured Housing Loans
Subprime
2004 and earlier	100.00		28.21		3.25
Total Private-label MBS	56.93	%	25.43	%	11.37	%

	December 31, 2011
Private-label MBS	Original Weighted- Average Credit Support % (a)		Weighted- Average Credit Support % (b)		Weighted-Average Collateral Delinquency % (c)
RMBS
Prime
2006	3.81	%	4.91	%	10.46	%
2005	2.39		4.55		3.55
2004 and earlier	1.57		4.30		1.51
Total RMBS Prime	2.06		4.44		3.19
Alt-A
2004 and earlier	11.73		34.33		9.90
Total RMBS	2.45		5.66		3.46
HEL
Subprime
2004 and earlier	58.08		30.99		16.90
Manufactured Housing Loans
Subprime
2004 and earlier	100.00		27.70		3.19
Total Private-label MBS	52.77	%	24.07	%	10.82	%

Definitions:

(a)	Original Weighted-Average Credit Support Percentage represents the average of a cohort of securities by vintage; credit support is defined as the credit protection level at the time the mortgage-backed securities closed.  Support is expressed as a percentage of the sum of: subordinate bonds, reserve funds, guarantees, overcollateralization, divided by the original collateral balance.
(b)	Weighted-Average Credit Support Percentage represents the average of a cohort of securities by vintage; credit support is defined as the credit protection level as of the mortgage-backed securities most current payment date.  Support is expressed as a percentage of the sum of: subordinate bonds, reserve funds, guarantees, overcollateralization, divided by the most current unpaid collateral balance.
(c)	Weighted-Average Collateral Delinquency Percentage represents the average of a cohort of securities by vintage: collateral delinquency is defined as the sum of the unpaid principal balance of loans underlying the mortgage-backed security where the borrower is 60 or more days past due, or in bankruptcy proceedings, or the loan is in foreclosure, or has become real estate owned divided by the aggregate unpaid collateral balance.

Short-term investments

We typically maintain substantial investments in high quality short- and intermediate-term financial instruments such as certificates of deposit, unsecured overnight and term Federal funds sold to highly rated financial institutions, and secured overnight transactions, under securities purchased with agreement to resell.  These investments provide the liquidity necessary to meet members’ credit needs.  Short-term investments also provide a flexible means of implementing the asset/liability management decisions to increase liquidity.  We may also invest in certificates of deposit with maturities not exceeding 270 days, issued by major financial institutions, and would be designated as held-to-maturity and recorded at amortized cost.

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Securities purchased with agreement to resell — Beginning in the 2012 third quarter, we have entered into secured financing agreements with certain highly-rated counterparties that involve the lending of cash, against which securities are taken as collateral.  The amount of cash loaned against the securities collateral is a function of the liquidity and quality of the collateral as well as the credit quality of the counterparty.  The collateral is typically in the form of a highly-rated marketable security, and the FHLBNY has the ability to call for additional collateral if the value of the securities falls below a pre-defined threshold.  The FHLBNY can terminate the transaction and liquidate the collateral if the counterparty fails to post the additional margin.  The FHLBNY does not have the right to repledge the securities received.  Securities purchased under agreements to resell (reverse repos) generally do not constitute a sale for accounting purposes of the underlying securities and so are treated as collateralized financing transactions.

Federal funds sold — We invest in overnight and short-term federal funds with highly rated financial institutions, allowing us to warehouse and provide balance sheet liquidity to meet unexpected member borrowing demands.  During 2012 and 2011, all investments in Federal funds sold were overnight.

We actively monitor our credit exposures and the credit quality of its our counterparties, including an assessment of each counterparty’s financial performance, capital adequacy, and sovereign support as well as related market signals.  As a result of these monitoring activities, we limit or suspend existing exposures, as appropriate.  In addition, we are required to manage our unsecured portfolio subject to regulatory limits, prescribed by the FHFA, our regulator.  The FHFA regulations include limits on the amount of unsecured credit that may be extended to a counterparty, or a group of affiliated counterparties, based upon a percentage of eligible regulatory capital and the counterparty’s overall credit rating.  Under these regulations, the level of eligible regulatory capital is determined as the lesser of the FHLBNY’s regulatory capital or the eligible amount of regulatory capital of the counterparty determined in accordance with FHFA regulation.  The eligible amount of regulatory capital is then multiplied by a stated percentage. The stated percentage that the FHLBNY may offer for term extensions, which are comprised of on- and off-balance sheet and derivative transactions, of unsecured credit ranges from 1% to 15% based on the counterparty’s credit rating.

FHFA regulation also permits the FHLBanks to extend additional unsecured credit, which could be comprised of overnight extensions and sales of Federal funds subject to continuing contract (we have no continuing arrangements).  Our total unsecured overnight exposure to a counterparty may not exceed twice the regulatory limit for term exposures, resulting in a total exposure limit to a counterparty of 2% to 30% of the eligible amount of regulatory capital based on the counterparty’s credit rating.  As of September 30, 2012, the FHLBNY was in compliance with the regulatory limits established for unsecured credit.

The FHLBNY is prohibited by FHFA regulation from investing in financial instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks.  The FHLBNY’s unsecured credit exposures to domestic counterparties and U.S. subsidiaries of foreign commercial banks, includes the risk that these counterparties have extended credit to non-U.S. counterparties and foreign sovereign governments.  The FHLBNY’s unsecured credit exposures to U.S. branches and agency offices of foreign commercial banks includes the risk that, as a result of political or economic conditions in a country, the counterparty may be unable to meet their contractual repayment obligations.  During any periods in this report, the FHLBNY did not own any financial instruments issued by foreign sovereign governments, including those countries that are members of the European Union.

The table below presents Federal funds sold, the counterparty credit ratings, and the domicile of the counterparty or the domicile of the counterparty’s parent for U.S. branches and agency offices of foreign commercial banks in the U.S. (in thousands):

Table 5.11:Federal Funds Sold by Domicile of the Counterparty

	September 30, 2012		December 31, 2011		Nine months ended September 30, 2012				Year ended December 31, 2011
Foreign Counterparties	S&P Rating (a)	Moody’s Rating (a)	S&P Rating (a)	Moody’s Rating (a)	Daily Average Balance		Balance at period end		Daily Average Balance		Balance at period end
Australia	AA-	AA2	AA-	AA2	$	1,752,602	$	1,592,000	$	1,002,466	$	—
Canada	A to AA-	AA3 to AAA	A to AA-	AA3 to AAA	3,272,145		1,592,000		2,692,626		—
Finland	AA-	AA3	AA-	AA3	645,796		—		479,356		—
France	A to AAA	A2 to AAA	A to AA-	A2	—		—		1,076,986		—
Germany	A+	A2	A+	A2	601,296		980,000		621,959		—
Netherlands	AA	AA2	AA	AA2	1,354,347		1,592,000		738,671		970,000
Norway	A+	A1	A+	A1	923,482		1,023,000		—		—
Sweden	AA-	AA3	AA-	AA3	1,257,960		1,592,000		710,575		—
UK	A	A3	A	A3	—		—		241,370		—
Subtotal					9,807,628		8,371,000		7,564,009		970,000
USA	A to AA-	A2 to AA1	A to AA-	A2 to AA1	1,804,255		1,575,000		935,088		—
Total					$	11,611,883	$	9,946,000	$	8,499,097	$	970,000

(a) Ratings as of September 30, 2012.

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Table 5.12:Federal Funds Sold Quarterly Balances

The following table summarizes average balances and outstanding balances of Federal funds sold in each of the quarters in 2011 and in the nine months ended September 30, 2012:

	Federal Funds Sold (In millions)
	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
Year	Daily Average Balance		Balance at period end		Daily Average Balance		Balance at period end		Daily Average Balance		Balance at period end		Daily Average Balance		Balance at period end
2012	$	10,559	$	7,575	$	12,071	$	7,439	$	12,199	$	9,946	$	—	$	—
2011	$	7,347	$	5,093	$	8,502	$	4,475	$	9,506	$	4,964	$	8,617	$	970

Table 5.13:Cash Balances at the Federal Reserve Banks

In addition, we maintained liquidity at the Federal Reserve Banks (“FRB”).  The following table summarizes average balances and outstanding balances at the FRB in each of the quarters in 2011 and through September 30, 2012:

	Cash Balances with Federal Reserve Banks (In millions)
	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
Year	Daily Average Balance		Balance at period end		Daily Average Balance		Balance at period end		Daily Average Balance		Balance at period end		Daily Average Balance		Balance at period end
2012	$	374	$	389	$	113	$	910	$	194	$	2,895	$	—	$	—
2011	$	97	$	2,950	$	132	$	5,541	$	588	$	4,737	$	2,296	$	10,870

At December 31, 2011, we deposited our excess liquidity at the Federal Reserve Banks rather than on an unsecured basis at a financial institution over the year-end.

Cash collateral pledged — All cash posted as pledged collateral to derivative counterparties is reported as a deduction to Derivative liabilities in the Statements of Condition.  We generally execute derivatives with major financial institutions and enter into bilateral collateral agreements.  When our derivatives are in a net unrealized loss position, as a liability from our perspective, counterparties are exposed and we would be called upon to post cash collateral to mitigate the counterparties’ credit exposure.  Collateral agreements include certain thresholds and pledge requirements that are generally triggered if exposures exceed the agreed-upon thresholds.  Typically, such cash deposit pledges earn interest at the overnight Federal funds rate.  At September 30, 2012 and December 31, 2011, we had deposited $2.8 billion and $2.6 billion in interest-earning cash as pledged collateral to derivative counterparties.  For more information, see Tables 9.1 — 9.7.

Fair values of investment securities

To compute fair values at September 30, 2012 and December 31, 2011, four vendor prices were received for substantially all of our MBS holdings and substantially all of those prices fell within the specified thresholds.

Except for a small portfolio of private-label MBS and housing finance agency bonds, our portfolio of MBS were issued by GSEs and U.S. agency and the relative proximity of the prices received supported our conclusion that the final computed prices were reasonable estimates of fair value.  GSE securities priced under such a valuation technique using the “market approach” are typically classified within Level 2 of the valuation hierarchy.

The valuation of our private-label mortgage-backed securities, all designated as held-to-maturity, may require pricing services to use significant inputs that are subjective and may be considered to be Level 3 of the fair value hierarchy.  Consistent with the classification of held-to-maturity (“HTM”) portfolio, private-label mortgage-backed securities were recorded in the balance sheet at their carrying values, which is the same as its amortized cost, unless the security is determined to be OTTI.  In the period the security is determined to be OTTI, its carrying value is generally adjusted down to its fair value.  At September 30, 2012, the carrying values of HTM securities determined to be OTTI were written down to $7.4 million, its fair value, and was classified on a non-recurring basis within the Level 3 valuation hierarchy.

For a comparison of carrying values and fair values of mortgage-backed securities, see Notes 5 and 6 to the financial statements accompanying this report.  For more information about the corroboration and other analytical procedures performed, see Note 17. Fair Values of Financial instruments in this Form 10-Q, and also Note 1. Significant Accounting Policies and Estimates in our most recent Form 10-K filed on March 23, 2012.

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Mortgage Loans Held-for-Portfolio

The portfolio of mortgage loans was primarily comprised of investments in Mortgage Partnership Finance loans (“MPF” or “MPF Program”).  We do not expect the MPF loans to increase substantially, and we provide this product to members as another alternative for them to sell their mortgage production.

The following table summarizes MPF loan by product types (par values, in thousands):

Table 6.1:MPF by Loss Layers

	September 30, 2012		December 31, 2011
Original MPF (a)	$	428,273	$	382,504
MPF 100 (b)	12,768		16,399
MPF 125 (c)	905,226		582,153
MPF 125 Plus (d)	321,252		394,052
Other	54,711		24,753
Total MPF Loans	$	1,722,230	$	1,399,861

(a)	Original MPF — The first layer of losses is applied to the First Loss Account. We are responsible for the first layer of losses. The member then provides a credit enhancement up to “AA” rating equivalent. We would absorb any credit losses beyond the first two layers, though the possibility of any such losses is remote.
(b)	MPF 100 — The first layer of losses is applied to the First Loss Account. We are responsible for the first layer of losses. Losses incurred in the First Loss Account are deducted from credit enhancement fees payable to the member after the third year. The member then provides a credit enhancement up to “AA” rating equivalent less the amount placed in the FLA. We absorb any losses incurred in the FLA that are not recovered through credit enhancement fees (should the pool liquidate prior to repayment of losses). We would absorb any credit losses beyond the first two layers.
(c)	MPF 125 — The first layer of losses is applied to the First Loss Account. We are responsible for the first layer of losses. Losses incurred in the First Loss Account are deducted from the credit enhancement fees payable to the member. The member then provides a credit enhancement up to “AA” rating equivalent less the amount placed in the FLA. We absorb any losses incurred in the FLA that are not recovered through credit enhancement fees (should the pool liquidate prior to repayment of losses). We would absorb any credit losses beyond the first two layers.
(d)	MPF 125 Plus —The first layer of losses is applied to the First Loss Account (“FLA”) in an amount equal to a specified percentage of loans in the pool as of the sale date. Losses incurred in the First Loss Account are deducted from the credit enhancement fees payable to the member. We absorb any losses incurred in the FLA that are not recovered through credit enhancement fees (should the pool liquidate prior to repayment of losses). The member acquires an additional Credit Enhancement (“CE”) coverage through a supplemental mortgage insurance policy (“SMI”) to cover second-layer losses that exceed the deductible (“FLA”) of the Supplemental Mortgage Insurance policy. Losses not covered by the First Loss Account or Supplemental Mortgage Insurance coverage will be paid by the member’s Credit Enhancement obligation up to “AA” rating equivalent. We would absorb losses that exceeded the Credit Enhancement obligation, though such losses are a remote possibility.

Mortgage Loans — Conventional and Insured Loans

The following table classifies mortgage loans between conventional loans and loans insured by FHA/VA (in thousands):

Table 6.2:Mortgage Loans — Conventional and Insured Loans

	September 30, 2012		December 31, 2011
Federal Housing Administration and Veteran Administration insured loans	$	54,544	$	24,507
Conventional loans	1,667,519		1,375,108
Others	167		246
Total par value	$	1,722,230	$	1,399,861

Mortgage Loans - Credit Enhancement

As discussed previously, in the credit enhancement waterfall, we are responsible for the first loss layer.  The second loss layer is that amount of credit obligation that the PFI has taken on, which will equate the loan to a double-A rating.  We assume all residual risk.

The amount of the credit enhancement is computed with the use of S&P’s model for determining the amount of credit enhancement necessary to bring a pool of uninsured loans to “AA” credit risk.  The credit enhancement becomes an obligation of the PFI.  For taking on the credit enhancement obligation, we pay to the PFI a credit enhancement fee.  For certain MPF products, the credit enhancement fee is accrued and paid each month.  For other MPF products, the credit enhancement fee is accrued and paid monthly after being deferred for 12 months.

The portion of the credit enhancement that is an obligation of the PFI must be fully secured with pledged collateral.  A portion of the credit enhancement may also be covered by insurance, subject to limitations specified in the Acquired Member Assets regulation.  Each member or housing associate (at this time, we have no housing associates as a PFI) that participates in the MPF program must meet our established financial performance criteria.  In addition, we perform financial reviews of each approved PFI annually.  Housing Associate are entities that (i) are approved mortgagees under Title II of the National Housing Act, (ii) chartered under law and have succession, (iii) subject to inspection and supervision by a governmental agency, and (iv) lend their own funds as their principal activity in the mortgage field.

The FHLBNY computes the provision for credit losses without considering the credit enhancement features (except the “First Loss Account”) accompanying the MPF loans to provide credit assurance to the FHLBNY.  CE Fees are paid on a pool level, and if the pool runs down, the amount of future CE fees would shrink in line.  For more information, see Note 8. Mortgage Loans Held-for-Portfolio.

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Loan concentration was in New York State, which is to be expected since the largest PFIs are located in New York.  Below is our MPF loan concentration:

Table 6.3:Concentration of MPF Loans

	September 30, 2012				December 31, 2011
	Number of loans %		Amounts outstanding %		Number of  loans %		Amounts outstanding %
New York State	70.4	%	60.4	%	71.6	%	62.9	%

Table 6.4:Top Five Participating Financial Institutions — Concentration (par values, dollars in thousands)

	September 30, 2012
	Mortgage		Percent of Total
	Loans		Mortgage Loans
Manufacturers and Traders Trust Company	$	322,011	18.70	%
Astoria Federal Savings and Loan Association	294,499		17.10
Investors Bank	165,844		9.63
OceanFirst Bank	84,148		4.89
Elmira Savings Bank	74,948		4.35
All Others	780,613		45.33
Total (a)	$	1,722,063	100.00	%

	December 31, 2011
	Mortgage		Percent of Total
	Loans		Mortgage Loans
Manufacturers and Traders Trust Company	$	394,865	28.21	%
Astoria Federal Savings and Loan Association	241,727		17.27
Investors Bank	87,935		6.28
OceanFirst Bank	69,199		4.95
Watertown Savings Bank	54,287		3.88
All Others	551,602		39.41
Total (a)	$	1,399,615	100.00	%

(a) Totals do not include CMA loans.

Table 6.5:Roll-Forward First Loss Account (in thousands)

	Nine months ended			Year ended
	September 30, 2012			December 31, 2011
Beginning balance	$	13,622		$	11,961
Additions	4,460			2,784
Resets(a)	(8		)	(715		)
Charge-offs	(380		)	(408		)
Ending balance	$	17,694		$	13,622

(a)For the Original MPF, MPF 100, MPF 125 and MPF Plus products, the Credit Enhancement is periodically recalculated.  If the recalculated Credit Enhancement would result in a PFI Credit Enhancement obligation lower than the remaining obligation, the PFI’s Credit Enhancement obligation will be reset to the new, lower level.

Table 6.6:Second Losses and SMI Coverage (in thousands)

	September 30, 2012		December 31, 2011
Second Loss Position (a)	$	51,180	$	35,862
SMI Coverage - NY share only (b)	$	17,593	$	17,593
SMI Coverage - portfolio (b)	$	17,958	$	17,958

(a) Increase due to increase in overall outstanding balance of MPF.

(b) SMI coverage has remained unchanged because no new master commitments have been added under the MPF Plus Program.

Loan Modifications

The MPF program’s temporary loan payment modification plan for participating PFIs was initially available until December 31, 2011 and has been extended through December 31, 2013.  This modification plan is available to homeowners currently in default or imminent danger of default.  The modification plan states specific eligibility requirements that have to be met and procedures the PFIs have to follow to participate in the modification plan.  As of September 30, 2012, only 3 MPF loans had been modified under this plan.

Accrued interest receivable

Other assets

Accrued interest receivable was $238.0 million at September 30, 2012, compared to $223.8 million at December 31, 2011.  Accrued interest receivable was comprised primarily from advances and investments.  Other assets included prepayments and miscellaneous receivables, and were $11.8 million at September 30, 2012, compared to $13.4 million at December 31, 2011.

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Deposit Liabilities and Other Borrowings

Deposit liabilities consisted of member deposits, and from time to time may also include deposits from governmental institutions.  Member deposits do not represent a significant source of liquidity.

Member deposits — We operate deposit programs for the benefit of our 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.  Deposit balances have fluctuated during 2012.  Compared to total deposits of $2.1 billion at December 31, 2011, deposit balances declined to $1.8 billion at September 30, 2012, almost unchanged from the balance at June 30, 2012.  Deposits at March 31, 2012 had increased to $3.5 billion, due to one member that had maintained a deposit of $1.4 billion at March 31, 2012 to collateralize short-term transactions.

Borrowings from other FHLBanks — We may borrow from other FHLBanks, generally for a period of one day and at market terms.  There were no significant borrowings in any periods in this report.

Debt Financing Activity and Consolidated Obligations

Consolidated obligations, which consist of consolidated bonds and consolidated discount notes, are the joint and several obligations of the FHLBanks and the principal funding source for our operations.  Discount notes are consolidated obligations with maturities of up to 365 days, and consolidated bonds have maturities of one year or longer.  Member deposits, capital and, to a lesser extent, borrowings from other FHLBanks are also funding sources. A FHLBank’s ability to access the capital markets to issue debt, as well as our cost of funds, is dependent on our credit ratings from major ratings organizations.  Please see Table 7.11 for our credit ratings.

Consolidated Obligation Liabilities

The issuance and servicing of consolidated obligations debt are performed by the Office of Finance, a joint office of the FHLBanks established by the Finance Agency.  Each FHLBank independently determines its participation in each issuance of consolidated obligations based on, among other factors, its own funding and operating requirements, maturities, interest rates and other terms available for consolidated obligations in the market place.  Although we are primarily liable for our portion of consolidated obligations (i.e. those issued on our behalf), we are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks.  The two major debt programs offered by the Office of Finance are the Global Debt Program and the TAP issue programs.  We participate in both programs.  For more information about these programs, see our Form 10-K filed on March 23, 2012.

Highlights — Performance of FHLBank debt

Our primary source of funds continued to be the issuance of consolidated bonds and discount notes.  Consolidated obligation debt outstanding at September 30, 2012 has increased, relative to December 31, 2011, in parallel with higher balance sheet assets.

The FHLBank debt remained in demand by investors at reasonable pricing, and has withstood the general concerns about the debt ceiling in the U.S., and the rating agency downgrades and the generally fragile conditions in the bond markets.  As investor fears subsided to a degree regarding the European debt crisis and monetary policy relaxed, swap spreads to our debt further tightened in September 2012, resulting in the highest cost of funding this year.  Similar to bonds, funding costs of discount notes were higher.

The low 3-month LIBOR has compressed margins for our debt and specifically for our short-term debt.  Typically, we execute interest rate swaps to convert fixed-rate debt to a sub-LIBOR spread, but when the LIBOR rate is low, there is very little room for achieving a sub-LIBOR spread that would be ascribed to the high-quality FHLBank consolidated obligation bonds.  Because we make extensive use of derivatives to restructure fixed rates on consolidated bonds to sub-LIBOR floating rate, the relationship between swaps rates and bond and discount note yields is an important economic indicator.  The 3-month LIBOR, a key index in the intermediation between swap rates and debt yields, has been steadily declining through the first nine months of 2012.  The 3-month LIBOR was 36 basis points at September 30, 2012, which declined from 46 basis points at June 30, 2012 and 58 basis points at December 31, 2011.  As a result, on a LIBOR swapped funding level, the low LIBOR rate has effectively driven up the cost of FHLBank consolidated obligation bonds.  Longer-term bond pricing remained prohibitively expensive, as investors were reluctant to take the risk of locking in long-term investments without a step-up option, which would protect their investment yields when rates eventually rise.

Consolidated obligation bonds

September 2012 - The weighted average cost of new issuance of TAPs in September 2012 increased by 7.6 bps from August’s level to 3-month LIBOR (“3ML”) minus 5.3 bps, the highest level in twelve months.  Negotiated bullet with maturities of 1-year or less improved by 2.1 bps from August’s recent high level to 3ML minus 16.0 bps.

Callable FHLBank bonds were also in demand.  Certain callable bonds are issued and swapped contemporaneously with a cancellable swap; for such bonds, their aggregate funding levels increased by 9.7 bps from August’s level to 3ML minus 20.0 bps, versus minus 32 bps in August, the highest monthly average since June 2011.  The callable bonds are typically issued with very short lock-out periods, and the investor acquires the bond with the expectation that the bonds get called and the investor would have made a yield pick-up relative to a lower yielding equivalent maturity discount note.  Callable bonds are also offered through the standard auction program, and costs averaged 3ML minus 12.2 bps during September, an 8.4 bps increase, compared to August and the highest monthly average

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since June 2012.

June 2012 — Funding costs increased for all bond types.  The aggregate pricing levels of FHLBank issued consolidated bonds, on a LIBOR basis, was around 3ML minus 26.2 bps, and aggregate funding levels for FHLBank “bullet” bonds with maturities in the 1- and 2-year sector increased by as much as 5 bps in all maturity buckets, from the previous month.  The weighted average cost for TAPs in June 2012 was 3ML minus 10.2 bps.  The cost of negotiated bullet increased also increased to 3ML minus 21.7 bps.

Aggregate funding levels for swapped callable bonds improved to 3-month LIBOR minus 37.1 bps.  Callables with 1-month lockouts were in demand, and the funding costs averaged 3ML minus 37 bps.  Funding cost for bonds with lockouts between 3- and 9-months was 3ML minus 23 bps.  Cost of bonds with lockouts of 1-year or greater increased to a weighted average spread of 3ML minus 2 basis points in June 2012 from 3ML minus 11 bps in May 2012.

March 2012 — TAP bond performance continued to benefit from the flight to quality trend driven by global credit events, particularly the European debt crisis.  Investors appeared to have diversified into the U.S. bond market, particularly Treasuries and to lesser extent, Agency issued bonds.  The FHLBank bonds benefitted as investors eager for diversification amongst agency issuers bid up prices of smaller volume FHLBank bonds because of declining issuances by FHLBanks due to declining FHLBank balance sheets.  Price performance of the FHLBank’s shorter-term TAP issuance was in line with other agency “benchmark” security issuance.  However, TAPs of 5-year and longer outperformed the other Agency benchmarks of similar maturities.  As a result, yields declined, and spread to 3ML LIBOR improved.  The improvements were particularly significant in the March quarter for short maturity bullet funding costs versus 3ML, although we saw a slight reversal of the positive trends in funding levels at the end of the March quarter.  In early part of the first quarter, 1-year bullets funded near 3ML minus 30 basis points, comparable to levels achieved during the initial flight to quality during the European credit crisis in 2010.  With investors demanding higher rates for discount notes, spreads compressed for FHLBank discount notes, and funding increased for alternatives to discount notes, such as short lockout callables and step-up bonds.  Auctioned callable spreads to 3-month LIBOR were close to their widest in March 2012 over the preceding eleven months.  FHLBank floaters indexed to LIBOR (3-month LIBOR and 1-month LIBOR) and to the Federal funds effective rate were priced better from the FHLBank’s perspective, and spreads were also better in March 2012 over the preceding 11 months.  Investor demand for the simple 3-month LIBOR floaters continued to be relatively low, and issuance was mainly made up of bonds indexed to Fed Funds.  The impact of the FRB’s “Maturity Extension Program” (Operations Twist) launched in September 2011 had its desired impact on longer-dated FHLBank bonds, driving rates down for maturities of 7 years and out, and rates up, albeit slightly, in the short-end of the FHLBank bond yield curve.

Consolidated obligation discount notes

Over the course of the year, discount note spreads to LIBOR have exhibited a fairly consistent narrowing trend across the money market curve.  Treasury bill issuance patterns are a major factor in pricing and thus have a strong impact on investor demand for FHLB discount notes.  This relationship has been demonstrated recently. Near term increases in net supply of Treasury bills have pushed Discount Note yields higher, especially in the very front-end of the curve.

September 2012 — Despite elevated repo levels, investor orders for overnight maturity discount notes remained healthy, and given the strong demand, the FHLBank issued discount notes priced the overnight bucket at the lowest possible 0.001% re-offer on the majority of issuances through the FHLBank discount note window program.  Funding levels were also attractive in the 1- to 3-week categories as quarter-end spurred investor demand for short-term paper.  Issuance was concentrated in the 2- to 4-month sectors; spreads were tighter compared to August 2012.  In general, however, FHLBank discount note spreads to LIBOR deteriorated across all other sectors and the cost of funding was higher in September.

June 2012 — Spreads to LIBOR in the 2- and 3-month discount note maturities deteriorated throughout the month of June as a result of multiple factors.  Auction sizes rose, spreads deteriorated due to large size of the auctions, elevated repo levels, competitive rates, and dealer quarter-end balance sheet constraints, all of which tended to put pressure on increased yields and increased cost of funds.

Repo rates are generally considered a market benchmark, and a competing investment product to FHLBank issued discount notes.  Overnight Treasury repo rates averaged about 25 bps.  Increased Repo levels had multiple implications for FHLBank issued discount notes.  First, dealers used Repo as a financing vehicle, so they were less likely to underwrite securities, like discount notes, that would create a negative carrying cost to the dealer.  In addition, as FHLBank discount notes competed with Repo for investor dollars, the low yields from FHLBank issued discount notes made it harder to attract investor participation.  This impacted mostly the 3- to 12-month maturities, and dealers and investors preferred to buy maturities 1-month and in rolling overnight issuances.

March 2012 — Early in the first quarter of 2012, the increased Treasury bill supply pushed repo rates steadily higher, and was a significant factor in the higher rates demanded by investors for discount notes.  As a result, discount note 3-month auction execution versus LIBOR deteriorated as the U.S. Treasury increased bill issuance.  That factor, together with lower 3-month LIBOR rates contributed to tightening of the sub-LIBOR spread.  The higher Treasury bill issuance was probably seasonal and bill supplies were expected to fall to normal levels, which would push overnight repo rates down and discount note rates lower.

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Consolidated obligation bonds

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

Table 7.1:Consolidated Obligation Bonds by Type

	September 30, 2012					December 31, 2011
	Amount			Percentage of Total		Amount			Percentage of Total
Fixed-rate, non-callable	$	51,799,315		80.87	%	$	47,108,685		71.02	%
Fixed-rate, callable	800,000			1.25		1,935,610			2.92
Step Up, callable	781,000			1.22		950,000			1.43
Step Down, callable	40,000			0.06		—			—
Single-index floating rate	10,635,000			16.60		16,335,000			24.63
Total par value	64,055,315			100.00	%	66,329,295			100.00	%
Bond premiums	118,961					145,869
Bond discounts	(24,785		)			(26,459		)
Hedge basis adjustments	907,860					979,013
Hedge basis adjustments on terminated hedges	63,293					201
Fair value option valuation adjustments and accrued interest	15,209					12,603
Total Consolidated obligation-bonds	$	65,135,853				$	67,440,522

Fair value basis of terminated hedges: $63.3 million — In the 2012 third quarter we terminated long-term hedges of certain long-fixed-rate bonds, and the fair value basis adjustments at the termination dates are being amortized as a yield adjustment on the unhedged bonds.

Funding strategies — Consolidated obligation bonds

The principal tactical funding strategy changes employed in executing issuances of FHLBank bonds are outlined below:

·Floating rate bonds — We have judiciously issued floating-rate bonds indexed to the 1-month LIBOR, the Prime rate and Federal funds rate and by swapping them back to 3-month LIBOR, we have created synthetic LIBOR funding at relatively attractive spreads.  Such floating bonds were generally for terms 3 years or less.  Maturing floating rate bonds were replaced by fixed-rate non callable bonds and the category declined at September 30, 2012, compared to December 31, 2011.

·Callable-bonds — FHLBank longer-term fixed-rate callable bonds have not been an attractive investment asset for investors over the last several years, and have been under price pressure.  With a callable bond, we purchase a call option from the investor and the option allows us to terminate the bond at predetermined call dates at par.  When we purchase the call option from investors, it typically improves the yield to the investor, who has traditionally been receptive to callable-bond yields.  This category has declined at September 30, 2012, relative to December 31, 2011, primarily due to lower funding needs for callable debt in line with the decline in member demand for putable advances.

·Non-callable bonds — Non-callable bonds were our primary funding vehicle.  Issuances of non-callable debt are predicated partly on pricing of such debt and investor demand, and partly on the need to achieve asset/liability management goals.  As issuance of floating-rate bonds and callable bonds declined, issuance of fixed-rate bonds increased at September 30, 2012, relative to December 31, 2011.

Debt extinguishment — The following table summarizes debt transferred to or from another FHLBank and debt retired by the FHLBNY (par amounts, in thousands):

Table 7.2:Transferred and Retired Debt

	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Debt transferred to another FHLBank	$	—	$	—	$	—	$	150,000
Debt extinguished	$	60,635	$	—	$	269,125	$	354,710

We retired $60.6 million of our debt in the 2012 third quarter, and took a charge of $4.5 million.  In the first nine months, we retired $269.1 million of debt and charged $24.1 million to earnings in the 2012 period; in the 2011 period, the charge was $55.2 million.

The FHLBNY typically retires debt to reduce future debt costs when the associated asset is either prepaid or terminated early, and less frequently from prepayments of mortgage-backed securities.  When assets are prepaid ahead of their expected or contractual maturities, the FHLBNY also attempts to extinguish debt (consolidated obligation bonds) in order to realign asset and liability cash flow patterns.  Bond retirement typically requires a payment of a premium resulting in a loss.  The FHLBNY typically receives prepayment fees when assets are prepaid, making us economically whole.  When debt is retired by transferring to another FHLBank, the re-purchases are also at negotiated market rates.  Debt extinguished other than through a transfer (to another FHLBank) is re-purchased from investors through bond dealers.

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Impact of hedging fixed-rates consolidated obligation bonds

The most significant element that impacts balance sheet reporting of debt is the recording of fair value basis and valuation adjustments.  We adjust the reported carrying value of hedged consolidated bonds for changes in their fair value (“fair value basis adjustments” or “fair value”) that are attributable to the risk being hedged in accordance with hedge accounting rules.  The discounting basis for computing changes in fair values basis for hedges of debt in a “fair value” hedge is LIBOR for the FHLBNY.  When a hedge is terminated before its stated maturity, we compute the fair values of the debt at the hedge termination date, and we amortize the basis on a level yield method to Interest expense.  Carrying values of bonds designated under the FVO also include valuation adjustments to recognize changes in fair values.  The discounting basis for computing changes in fair values of bonds elected under the FVO is the observed FHLBank bond yield curve.

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.

Fair value basis and valuation adjustments— they represent (1) the LIBOR benchmark fair values at the balance sheet measurement dates of bonds hedged under a qualifying benchmark fair value hedge, and (2) the full fair value basis of bonds elected under the FVO at the balance sheet dates.  The carrying values of our consolidated obligation bonds included $907.9 million and $979.0 million of hedge basis losses at September 30, 2012 and December 31, 2011, and these were consistent with the higher contractual coupons of long- and intermediate-term fixed-rate hedged bonds, compared to FHLBank debt pricing at the two balance sheet dates.  We use interest rate derivatives to hedge the risk of changes in the benchmark rate, which we have designated as LIBOR, which is also the discounting basis for computing changes in fair values of bonds fair value qualifying hedges.  Most of the hedged bonds were fixed-rate, and had been issued in prior years at the then prevailing higher interest rate environment.  In a lower interest rate environment in 2012 and 2011, these fixed-rate bonds exhibited unrealized fair value basis losses.  Fair value basis losses were not significant, relative to their par values, because the terms to maturity of the hedged bonds were, on average, short- and medium-term.  The period-over-period net fair value basis losses of hedged bonds remained almost unchanged because we have continued to replace maturing and called short-term and medium-term hedged bonds with equivalent term bonds.

Hedge volume — Tables 7.3 — 7.5 provide information with respect to par amounts of bonds based on accounting designation: (1) under hedge qualifying rules, (2) under the FVO, and (3) as an economic hedge (in thousands):

Table 7.3:Bonds Hedged under Qualifying Hedges (in thousands)

	Consolidated Obligation Bonds
Par Amount	September 30, 2012		December 31, 2011
Qualifying Hedges (a)
Fixed-rate bullet bonds (b)	$	31,304,830	$	30,217,830
Fixed-rate callable bonds (c)	1,356,000		1,380,610
	$	32,660,830	$	31,598,440

(a)Under hedge accounting rules.

(b)The increase is primarily due to increased issuance of fixed-rate non-callable bonds.  The hedges effectively convert the fixed-rate exposure of the bonds to a variable-rate exposure, generally indexed to 3-month LIBOR.

(c)This category is consolidated obligation bonds that have been designated under a qualifying hedge, and does not include bonds issued that have been designated under the FVO, or those that have been hedged under an economic hedge.  We have opted to designate short-term, fixed-rated callable debt under the FVO, instead of designating them in a qualifying fair value hedge, and the balance hedged under a qualifying hedge has remained almost unchanged, when such debt matures, or are called, they are replaced and again designated under the FVO.

Bonds elected under the FVO - If, at inception of a hedge, we do not believe that the hedge would be highly effective in offsetting fair value changes between the derivative and the debt (hedged item), we may designate the debt under the FVO if operationally practical, and record changes to the full fair values of both the derivative and debt through earnings.  The recorded balance sheet value of debt under the FVO would include the fair value basis adjustments so that the debt’s balance sheet carrying values would be its fair value.

The following table summarizes par amounts of bonds under the FVO (in thousands):

Table 7.4:Bonds under the Fair Value Option (FVO)

	Consolidated Obligation Bonds
Par Amount	September 30, 2012		December 31, 2011
Bonds designated under FVO	$	14,228,000	$	12,530,000

Bonds designated under the FVO were economically hedged by interest rate swaps.  We have elected to designated greater amounts of consolidated obligation bonds under the FVO, and have hedged them on an economic basis rather than designating the bonds as qualifying fair value hedges.  For such bonds, we could not assert with certainty that a fair value hedge would remain effective through to their maturity.

Economically hedged bonds - We may also decide that the operational cost of designating debt under the FVO (or qualifying fair value hedge accounting) outweighed the accounting benefits.  To mitigate the economic risk, we would then opt to hedge the debt on an economic basis.  In that scenario, the balance sheet carrying value of the debt would not include fair value basis since the debt would then be recorded at amortized cost.

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The following table summarizes the bonds that were economically hedged (in thousands):

Table 7.5:Economically Hedged Bonds

	Consolidated Obligation Bonds
Par Amount	September 30, 2012		December 31, 2011
Bonds designated as economically hedged
Floating-rate bonds (a)	$	7,345,000	$	13,570,000
Fixed-rate bonds (b)	85,000		50,000
	$	7,430,000	$	13,620,000

(a)Floating-rate debt — Outstanding balances of floating rate bonds indexed to the Federal funds effective rate and the 1-month LIBOR decreased at September 30, 2012.  The bonds were hedged to 3-month LIBOR by the execution of swap agreements with derivative counterparties that synthetically converted the floating rate debt cash flows to 3-month LIBOR.  The hedge objective was to reduce the basis risk from any asymmetrical changes between 3-month LIBOR and the Prime, Federal funds rate, or the 1-month LIBOR.  Such bonds were hedged by interest-rate swaps with mirror image terms and the swaps were designated as stand-alone derivatives because the operational cost of designating the swaps in a hedge qualifying relationship outweighed the accounting benefits.

(b)Fixed-rate debt — The interest-rate environment has been relatively stable, allowing our hedges to remain as highly effective hedges; a modest number of fixed-rate bonds were designated as hedged on an economic basis.

Consolidated obligation bonds — maturity or next call date(a)

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

Table 7.6:Consolidated Obligation Bonds — Maturity or Next Call Date

	September 30, 2012					December 31, 2011
	Amount			Percentage of Total		Amount			Percentage of Total
Year of maturity or next call date
Due or callable in one year or less	$	42,256,480		65.96	%	$	35,799,485		53.97	%
Due or callable after one year through two years	11,142,425			17.40		20,516,800			30.93
Due or callable after two years through three years	4,236,320			6.61		3,511,280			5.29
Due or callable after three years through four years	1,929,425			3.01		3,227,190			4.87
Due or callable after four years through five years	869,155			1.36		796,735			1.20
Due or callable after five years through six years	1,162,835			1.82		728,470			1.10
Thereafter	2,458,675			3.84		1,749,335			2.64
Total par value	64,055,315			100.00	%	66,329,295			100.00	%
Bond premiums	118,961					145,869
Bond discounts	(24,785		)			(26,459		)
Hedge basis adjustments	907,860					979,013
Hedge basis adjustments on terminated hedges	63,293					201
Fair value option valuation adjustments and accrued interest	15,209					12,603
Total bonds	$	65,135,853				$	67,440,522

(a)Contrasting consolidated obligation bonds by contractual maturity dates with potential put dates illustrates the impact of hedging on the effective duration of the bond.  With a callable bond, we have purchased the option to terminate debt at agreed upon dates from investors.  Call options are exercisable either as a one-time option or as quarterly.  Our current practice is to exercise our option to call a bond when the swap counterparty exercises its option to call the cancellable swap hedging the callable bond.  Thus, issuance of a callable bond with an associated callable swap significantly alters the contractual maturity characteristics of the original bond and introduces the possibility of an exercise call date that is significantly shorter than the contractual maturity.

The following table summarizes callable bonds outstanding (in thousands):

Table 7.7:Outstanding Callable Bonds

	September 30, 2012 (a)		December 31, 2011 (a)
Callable	$	1,621,000	$	2,885,610
Non-Callable	$	62,434,315	$	63,443,685

(a)Par Value.

Discount Notes

Consolidated obligation discount notes provide us with short-term and overnight funds.  Discount notes have maturities of 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.  Additionally, through a 16-member selling group, the Office of Finance, acting on behalf of the 12 Federal Home Loan Banks, issues discount notes in four standard maturities in two auctions each week.

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

Table 7.8:Discount Notes Outstanding

	September 30, 2012			December 31, 2011
Par value	$	33,724,217		$	22,127,530
Amortized cost	33,715,582			22,121,109
Hedge basis adjustments	—			(1,467		)
Fair value option valuation adjustments	2,224			3,683
Total discount notes	$	33,717,806		$	22,123,325
Weighted average interest rate	0.13		%	0.07		%

Table 7.9:Discount Notes under the Fair Value Option (FVO)

Par Amount	September 30, 2012		December 31, 2011
Discount Notes designated under FVO (a)	$	1,695,898	$	4,917,172

(a)We also hedged discount notes elected under the FVO as economic hedges to convert the fixed-rate exposure of the discount notes to a variable-rate exposure, generally indexed to LIBOR. We accomplished the strategy by the execution of interest rate swaps to mitigate fair value risk.  Because of the very short-term nature of the discount note issuances in 2012, we have not elected the FVO for new issuances of discount notes that replaced maturing notes.

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

Table 7.10:Hedges of Discount Notes

	Consolidated Obligation Discount Notes
Principal Amount	September 30, 2012		December 31, 2011
Discount notes hedged under qualifying hedge (a)	$	1,106,000	$	3,308,455
Discount notes economically hedged	$	—	$	201,520

(a)Discount note issuances have largely been concentrated at the short-end of their maturities, with a significant percentage issued to mature within 3 months; we have determined that it was not necessary to designate discount notes with short-term maturities in a qualifying fair value hedge.

Rating Actions With Respect to the FHLBNY

On July 15, 2011, Standard & Poor’s (“S&P”) placed the AAA rating on the FHLBank System’s senior unsecured debt and the AAA long-term ratings on select FHLBanks on CreditWatch with negative implications.  The A-1+ short-term ratings on those entities are not affected.  S&P’s CreditWatch action follows placement of the sovereign credit rating on the U.S. on CreditWatch with negative implications.  The CreditWatch listing on the FHLBank System’s debt reflects the application of S&P’s Government-related enterprises (“GRE”) criteria, under which S&P equalizes the rating on that debt with the sovereign rating because of the almost certain likelihood of government support.  S&P’s CreditWatch listing on the FHLBanks reflects the potential reduction in the implicit support that S&P has historically factored into the issuer credit ratings because of the important role the FHLBanks play as primary liquidity providers to U.S. mortgage and housing-market participants.  Under S&P’s GRE criteria, the issuer credit rating for the FHLBank system banks can be one to three notches above the stand-alone credit profile on any of the member banks.  Thus, a lower U.S. sovereign rating would directly affect the issuer credit ratings on the individual FHLBanks.  Each FHLBank, except FHLB-Chicago and FHLB-Seattle, is on CreditWatch with negative implications.  FHLB-Chicago is rated AA+Stable.  Seattle is rated AA+Negative.  These rating actions reflect the July 14, 2011 ratings action of S&P of the sovereign credit rating on the U.S., which was placed on CreditWatch with negative implications.  S&P expects the FHLBank System as a GSE to continue to benefit from the implied support of the U.S. government for its consolidated debt obligations.

On August 2, 2011, Moody’s Investors Service confirmed the Aaa bond rating of the U.S. government following the raising of the U.S. statutory debt limit.  Moody’s also confirmed the long-term Aaa rating on the senior unsecured debt issues of the Federal Home Loan Bank System, the 12 Federal Home Loan Banks, and other ratings Moody’s considers directly linked to the U.S. government.  Additionally, Moody’s revised the rating outlook to negative for U.S. government debt and all issuers Moody’s considers directly linked to the U.S. government.  On August 5, 2011, S&P lowered its long-term sovereign credit rating on the U.S. to AA+ from AAA.  S&P’s outlook on the long-term rating is negative.  At the same time, S&P affirmed the A-1+ short-term rating on the U.S.  On August 8, 2011, S&P also lowered the long-term rating of the senior unsecured debt issues of the Federal Home Loan Bank System, and 10 of the 12 Federal Home Loan Banks from AAA to AA+.  Two FHLBanks were already rated AA+.  S&P also revised the rating outlook of the debt to negative.  A rating being placed on negative outlook indicates a substantial likelihood of a risk of further downgrades within two years.

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FHLBNY Ratings

Table 7.11: FHLBNY Ratings

		S&P			Moody’s
		Long-Term/ Short-Term			Long-Term/ Short-Term
Year		Rating	Outlook		Rating	Outlook
2012	August 15, 2012	AA+/A-1+	Negative/Affirmed	August 15, 2012	Aaa/P-1	Negative/Affirmed
2011	August 8, 2011	AA+/A-1+	Negative/Affirmed	August 2, 2011	Aaa/P-1	Negative/Affirmed
	July 19, 2011	AAA/A-1+	Negative Watch/Affirmed	July 13, 2011	Aaa/P-1	Negative Watch/Affirmed
	April 20, 2011	AAA/A-1+	Negative/Affirmed
2010	July 21, 2010	AAA/A-1+	Affirmed/Affirmed	June 17, 2010	Aaa/P-1	Affirmed/Affirmed

Accrued interest payable

Other liabilities

Accrued interest payable — accrued interest payable was comprised primarily of interest due and unpaid on consolidated obligation bonds, which are generally payable on a semi-annual basis.  Amount outstanding at September 30, 2012 was $168.8 million, compared to $146.2 million at December 31, 2011.  Fluctuations in unpaid interest balance on bonds are due to the timing of accruals outstanding at a point in time, relative to the semi-annual coupon period.

Other liabilities — other liabilities comprised of unfunded pension liabilities, pass through reserves at the FRB held on behalf of our members, commitments and miscellaneous payables.  Amount outstanding was $151.6 million and $136.3 million at September 30, 2012 and December 31, 2011.

Stockholders’ Capital, Retained Earnings, and Dividend

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

Table 8.1:Stockholders’ Capital

	September 30, 2012			December 31, 2011
Capital Stock (a)	$	4,870,273		$	4,490,601
Unrestricted retained earnings (b)	785,420			722,198
Restricted retained earnings (c)	79,411			24,039
Accumulated Other Comprehensive Income (Loss)	(207,764		)	(190,427		)
Total Capital	$	5,527,340		$	5,046,411

(a)Stockholders’ Capital — Capital stock has increased consistent with the increase in advances borrowed by members.  Since members are required to purchase stock as a percentage of advances borrowed from us, an increase in advances will typically result in an increase in capital stock.  In addition, under our present practice, we redeem any stock in excess of the amount necessary to support advance activity on a daily basis.  Therefore, the amount of capital stock outstanding varies directly with members’ outstanding borrowings under existing practice.

(b)Unrestricted retained earnings — Net Income in the nine months ended September 30, 2012 was $276.9 million.  Three dividends paid totaled $158.3 million, and $55.4 million was set aside towards Restricted retained earnings, thus preserving $63.2 million towards Unrestricted retained earnings.  Unrestricted retained earnings grew to $785.4 million at September 30, 2012 from $722.2 million at December 31, 2011.

(c)Restricted retained earnings — Restricted retained earnings was established in the third quarter of 2011, and has grown to $79.4 million at September 30, 2012.  On February 28, 2011, the Federal Home Loan Bank of New York entered into a Joint Capital Enhancement Agreement (the “Agreement”) with the other 11 Federal Home Loan Banks (collectively, the “FHLBanks”).  The Agreement provides that, upon satisfaction of the FHLBanks’ obligations to make payments related to the Resolution Funding Corporation (“REFCORP”), each FHLBank will, on a quarterly basis, allocate at least 20% of its net income to a separate restricted retained earnings account to be established at each FHLBank until the balance of the account equals at least 1% of its average balance of outstanding Consolidated Obligations for the previous quarter.  The one percent restricted retained earnings target would have been $890.5 million if the calculations were based on the FHLBNY’s average consolidated obligations outstanding during the previous quarter as per provisions under the Capital Agreement.

On August 5, 2011, amendments to the Capital Plans of the FHLBanks intended to reflect the text of the amended Agreement were approved by the Federal Housing Finance Agency (“FHFA”), with such Capital Plan amendments to become effective on September 5, 2011.  Also, on August 5, 2011, the FHFA also certified that the FHLBanks had fully satisfied their REFCORP obligations.  In accordance with the terms of the Agreement, each FHLBank will allocate at least 20% of its net income, beginning with the third quarter of 2011, to its own separate restricted retained earnings account until the balance of the account equals at least 1% of its average balance of outstanding Consolidated Obligations for the previous quarter.  These restricted retained earnings will not be available to pay dividends, but will remain on the FHLBank’s balance sheet to help serve as an additional capital buffer against losses.  The restricted retained earnings account established under the Agreement will be separate from any other restricted retained earnings account that may be maintained by an FHLBank.  The Agreement contains mechanisms for voluntary and for automatic termination under certain conditions.  For more information, see Form 8-K filed by the Bank on March 1, 2011, and on August 5, 2011.  Also, see the Bank’s most recent Form 10-K filed on March 23, 2012.

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

Table 8.2:Accumulated Other Comprehensive Income (Loss) (“AOCI” or “AOCL”)

	September 30, 2012			December 31, 2011
Accumulated other comprehensive income (loss)
Non-credit portion of OTTI on held-to-maturity securities, net of accretion (a)	$	(66,205	)	$	(75,849	)
Net unrealized gains (losses) on available-for-sale securities (b)	23,306			16,419
Net unrealized (losses) gains on hedging activities (c)	(146,884		)	(111,985		)
Employee supplemental retirement plans (d)	(17,981		)	(19,012		)
Total Accumulated other comprehensive income (loss)	$	(207,764	)	$	(190,427	)

(a)OTTI — Non-credit OTTI losses recorded in AOCL declined, primarily due to accretion recorded as a reduction in AOCL and a corresponding addition to the balance sheet carrying values of the OTTI securities.  OTTI losses recorded in the first three quarters of 2012 on previously impaired securities did not result in significant non-credit OTTI because the market pricing of the credit impaired PLMBS was generally greater than the carrying values of the OTTI securities, and further write downs were not necessary.

(b)Fair values of available-for-sale securities — Balance represents net unrealized fair value gains of MBS securities and a grantor trust fund.  The overall pricing of the portfolio has improved at September 30, 2012 compared to December 31, 2011.

(c)Cash flow hedges gains and losses — Interest rate swaps in cash flow “rollover” hedge strategies that hedged the variability of 91-day discount notes issued in sequence for periods up to 15 years.  Fair values of the swaps were in unrealized loss positions primarily due to the adverse change in fair values of $1.1 billion of swaps designated as a hedge of discount notes at September 30, 2012.  Fair value changes will be recorded through AOCL over the life of the hedges for the effective portion of the cash flow hedge strategy.  Ineffectiveness was insignificant and was recorded through earnings.  Discount note expense is synthetically changed to fixed cash flows over the hedge periods, thereby achieving hedge objectives.

The AOCL also included $13.2 million due to realized losses from terminated swaps in cash flow hedge strategy associated with hedges of anticipated issuance of debt.  Amounts recorded in AOCL are being reclassified as an interest expense over the terms of the hedged bonds.  The expense is considered as a yield adjustment to the fixed coupons of the debt.

(d)Employee supplemental plans — Minimum additional actuarially determined pension liabilities recognized for supplemental pension plans.

Dividends — As a cooperative, we seek to maintain a balance between our public policy mission of providing low-cost funds to members and providing our members with adequate returns on their capital invested in our stock.  We also balance our mission with a goal to strengthen our financial position through an increase in the level of retained earnings.  Our dividend policy takes both factors into consideration - the need to enhance retained earnings and the need to provide low-cost advances, while reasonably compensating members for the use of their capital.  By Finance Agency regulation, dividends may be paid out of current earnings or previously retained earnings.  We may be restricted from paying dividends if we do not comply with any of its minimum capital requirements or if payment would cause us to fail to meet any of its minimum capital requirements.  In addition, we may not pay dividends if any principal or interest due on any consolidated obligations has not been paid in full, or if we fail to satisfy certain liquidity requirements under applicable Finance Agency regulations.  None of these restrictions applied for any period presented in this Form 10-Q.

The following table summarizes dividends paid and payout ratios (on all Class B stock: members and non-members):

Table 8.3:Dividends Paid and Payout Ratios

	Nine months ended
	September 30, 2012			September 30, 2011
Cash dividends paid per share	$	3.50		$	3.69
Dividends paid (a)	$	160,023		$	165,890
Pay-out ratio (b)	57.80		%	103.71		%

(a)In thousands.

(b)Dividends paid in the period divided by net income for that period.

Dividends are computed based on the weighted average stock outstanding during a quarter, and are declared and paid in the following quarter.

Derivative Instruments and Hedging Activities

Interest rate swaps, swaptions, cap and floor agreements (collectively, derivatives) enable us to manage our exposure to changes in interest rates by adjusting the effective maturity, repricing frequency, or option characteristics of financial instruments.  To a limited extent, we also use interest rate swaps to hedge changes in interest rates prior to debt issuance and essentially lock in funding costs.

The notional amounts of derivatives are not recorded as assets or liabilities in the Statements of Condition.  Rather, the fair values of all derivatives are recorded as either a derivative asset or a derivative liability.  Although notional principal is a commonly used measure of volume in the derivatives market, it is not a meaningful measure of market or credit risk since the notional amount does not change hands (other than in the case of currency swaps, of which we have none).  All derivatives are recorded on the Statements of Condition at their estimated fair values and designated as either fair value or cash flow hedges for qualifying hedges, or as non-qualifying hedges (economic hedges or customer intermediations) under the accounting standards for derivatives and hedging.  In an economic hedge, we retain or execute derivative contracts, which are economically effective in reducing risk.  Such derivatives

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are designated as economic hedges either because a qualifying hedge is not available, or it is not possible to demonstrate that the hedge would be effective on an ongoing basis as a qualifying hedge, or the cost of a qualifying hedge is operationally not economical.  Changes in the fair value of a derivative are recorded in current period earnings for a fair value hedge, or in AOCL for the effective portion of fair value changes of a cash flow hedge.  Interest income and interest expense from interest rate swaps used for hedging are reported together, with interest on the instrument being hedged if the swap qualifies for hedge accounting.  If the swap is designated as an economic hedge, interest accruals are recorded in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.

We use derivatives in three ways: (1) as a fair value or cash flow hedge 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 an economic hedge, defined as a non-qualifying hedge of an asset or liability and used as an asset/liability management tool.  We use derivatives to adjust the interest rate sensitivity of consolidated obligations 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, we use derivatives to: (1) offset embedded options in assets and liabilities; (2) hedge the market value of existing assets, liabilities and anticipated transactions; and (3) reduce funding costs.  For additional information, see Note 16. Derivatives and Hedging Activities.  Finance Agency regulations prohibit the speculative use of derivatives.  We do not take speculative positions with derivatives or any other financial instruments, or trade derivatives for short-term profits.

The following table summarizes the principal derivatives hedging strategies as of September 30, 2012 and December 31, 2011:

Table 9.1:Derivative Hedging Strategies — Advances

Derivatives/Terms	Hedging Strategy	Accounting Designation	September 30, 2012 Notional Amount (in millions)		December 31, 2011 Notional Amount (in millions)
Pay fixed, receive floating interest rate swap	To convert fixed rate on a fixed rate advance to a LIBOR floating rate	Economic Hedge of Fair Value Risk	$	35	$	111
Pay fixed, receive floating interest rate swap cancellable by FHLBNY	To convert fixed rate on a fixed rate advance to a LIBOR floating rate callable advance	Fair Value Hedge	$	—	$	325
Pay fixed, receive floating interest rate swap cancellable by counterparty	To convert fixed rate on a fixed rate advance to a LIBOR floating rate putable advance	Fair Value Hedge	$	16,263	$	17,439
Pay fixed, receive floating interest rate swap no longer cancellable by counterparty	To convert fixed rate on a fixed rate advance to a LIBOR floating rate no-longer putable advance	Fair Value Hedge	$	2,096	$	2,507
Pay fixed, receive floating interest rate swap non-cancellable	To convert fixed rate on a fixed rate advance to a LIBOR floating rate non-putable advance	Fair Value Hedge	$	27,812	$	30,227
Purchased interest rate cap	To offset the cap embedded in the variable rate advance	Economic Hedge of Fair Value Risk	$	8	$	8

Table 9.2:Derivative Hedging Strategies — Consolidated Obligation Liabilities

Derivatives/Terms	Hedging Strategy	Accounting Designation	September 30, 2012 Notional Amount (in millions)		December 31, 2011 Notional Amount (in millions)
Receive fixed, pay floating interest rate swap	To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate	Economic Hedge of Fair Value Risk	$	85	$	50
Receive fixed, pay floating interest rate swap cancellable by counterparty	To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate callable bond	Fair Value Hedge	$	1,306	$	1,381
Receive fixed, pay floating interest rate swap no longer cancelable	To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate no-longer callable	Fair Value Hedge	$	50	$	—
Receive fixed, pay floating interest rate swap non-cancellable	To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate non-callable	Fair Value Hedge	$	31,305	$	30,218
Receive fixed, pay floating interest rate swap	To convert the fixed rate consolidated obligation discount note debt to a LIBOR floating rate	Economic Hedge of Fair Value Risk	$	—	$	202
Receive fixed, pay floating interest rate swap	To convert the fixed rate consolidated obligation discount note debt to a LIBOR floating rate.	Fair Value Hedge	$	—	$	2,405
Pay fixed, receive LIBOR interest rate swap	To offset the variability of cash flows associated with interest payments on forecasted issuance of fixed rate consolidated obligation discount note debt.	Cash flow hedge	$	1,106	$	903
Basis swap	To convert non-LIBOR index to LIBOR to reduce interest rate sensitivity and repricing gaps	Economic Hedge of Cash Flows	$	7,345	$	11,720
Basis swap	To convert 1M LIBOR index to 3M LIBOR to reduce interest rate sensitivity and repricing gaps	Economic Hedge of Cash Flows	$	—	$	1,850
Receive fixed, pay floating interest rate swap cancellable by counterparty	Fixed rate callable bond converted to a LIBOR floating rate; matched to callable bond accounted for under fair value option	Fair Value Option	$	200	$	1,430
Receive fixed, pay floating interest rate swap non-cancellable	Fixed rate non-callable bond converted to a LIBOR floating rate; matched to non-callable bond accounted for under fair value option	Fair Value Option	$	14,028	$	11,100
Receive fixed, pay floating interest rate swap non-cancellable	Fixed rate consolidated obligation discount note converted to a LIBOR floating rate; matched to discount note accounted for under fair value option	Fair Value Option	$	1,696	$	4,917

Table 9.3:Derivative — Balance Sheet Hedging Strategies and Intermediation

Derivatives/Terms	Hedging Strategy	Accounting Designation	September 30, 2012 Notional Amount (in millions)		December 31, 2011 Notional Amount (in millions)
Purchased interest rate cap	Economic hedge on the Balance Sheet	Economic Hedge	$	1,892	$	1,892
Intermediary positions- interest rate swaps and caps	To offset interest rate swaps and caps executed with members by executing offsetting derivatives with counterparties	Economic Hedge of Fair Value Risk	$	530	$	550

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Derivatives 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 categories of “Fair value,” “Commitment,” and “Cash flow” hedges represented derivative transactions accounted for as hedges.  The category of “Economic” hedges represented derivative transactions under hedge strategies that did not qualify for hedge accounting treatment but were an approved risk management strategy.  The table also provides a reconciliation of fair value basis gains and (losses) of derivatives to the Statements of Condition (in thousands):

Table 9.4:Derivatives Financial Instruments by Product

	September 30, 2012					December 31, 2011
			Total Estimated					Total Estimated
			Fair Value					Fair Value
			(Excluding					(Excluding
	Total Notional		Accrued			Total Notional		Accrued
	Amount		Interest)			Amount		Interest)
Derivatives designated as hedging instruments (a)
Advances-fair value hedges	$	46,171,069	$	(3,968,181	)	$	50,498,321	$	(3,880,147	)
Consolidated obligations-fair value hedges	32,660,830		894,122			34,003,896		965,380
Cash Flow-anticipated transactions	1,106,000		(133,664		)	903,000		(97,588		)
Derivatives not designated as hedging instruments (b)
Advances hedges	43,477		(1,817		)	119,329		(4,160		)
Consolidated obligations hedges	7,430,000		4,455			13,821,520		(20,264		)
Mortgage delivery commitments	66,722		(500		)	31,242		270
Balance sheet	1,892,000		3,155			1,892,000		14,927
Intermediary positions hedges	530,000		371			550,000		483
Derivatives matching COs designated under FVO (c)
Interest rate swaps-consolidated obligations-bonds	14,228,000		13,235			12,530,000		(7,078		)
Interest rate swaps-consolidated obligations-discount notes	1,695,898		2,204			4,917,172		(568		)
Total notional and fair value	$	105,823,996	$	(3,186,620	)	$	119,266,480	$	(3,028,745	)
Total derivatives, excluding accrued interest			$	(3,186,620	)			$	(3,028,745	)
Cash collateral pledged to counterparties			2,782,162					2,638,843
Cash collateral received from counterparties			(8,600		)			(40,900		)
Accrued interest			(38,247		)			(30,233		)
Net derivative balance			$	(451,305	)			$	(461,035	)
Net derivative asset balance			$	14,993				$	25,131
Net derivative liability balance			(466,298		)			(486,166		)
Net derivative balance			$	(451,305	)			$	(461,035	)

(a) Qualifying under hedge accounting rules.

(b) Not qualifying under hedge accounting rules but used as an economic hedge (“standalone”).

(c) Economic hedge of debt designated under the FVO.

Derivative Credit Risk Exposure and Concentration

In addition to market risk, we are subject to credit risk in derivative transactions because of the potential for non-performance by the counterparties, which could result in our having to acquire a replacement derivative from a different counterparty at a cost.  We are also subject to operational risks in the execution and servicing of derivative transactions.  The degree of counterparty credit risk may depend on, among other factors, the extent to which netting procedures and/or the provision of collateral are used to mitigate the risk.  See Table 9.5 for summarized information.

Summarized below are our risk evaluation and measurement processes.

Risk measurement— We estimate exposure to credit loss on derivative instruments by calculating the replacement cost, on a present value basis, to settle at current market prices all outstanding derivative contracts in a gain position, net of collateral pledged by the counterparty to mitigate our exposure.  All derivative contracts with non-members are also subject to master netting agreements or other right of offset arrangements.

Exposure— In determining credit risk, we consider accrued interest receivable and payable, and the legal right to offset assets and liabilities by counterparty.  We attempt to mitigate exposure by requiring derivative counterparties to pledge cash collateral if the amount of exposure is above the collateral threshold agreements.

Derivative counterparty ratings— Our credit exposures (derivatives in a net gain position) were to counterparties rated Single A or better, and to member institutions on whose behalf we acted as an intermediary.  The exposures were collateralized under standard advance collateral agreements with our members.  Acting as an intermediary, we had also purchased equivalent notional amounts of derivatives from unrelated derivative counterparties.

Risk mitigation —We attempt to mitigate derivative counterparty credit risk by contracting only with experienced counterparties with investment-grade credit ratings.  Annually, our management and Board of Directors review and approve all non-member derivative counterparties.  We monitor counterparties on an ongoing basis for significant business events, including ratings actions taken by nationally recognized statistical rating organizations.  All approved derivatives counterparties must enter into a master ISDA agreement with our bank and, in addition, execute the Credit Support Annex to the ISDA agreement that provides for collateral support at predetermined thresholds.

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Derivatives Counterparty Credit Ratings

The following table summarizes our derivative counterparty credit rating, and their notional and fair value exposure (in thousands, except number of counterparties):

Table 9.5:Derivatives Counterparty Notional Balance and Credit Ratings

	September 30, 2012
				Total Net		Credit Exposure		Other		Net
	Number of	Notional		Exposure at		Net of		Collateral		Credit
Credit Rating	Counterparties	Balance		Fair Value		Cash Collateral (a) &(c)		Held (b)		Exposure
AA	4	$	10,330,421	$	—	$	—	$	—	$	—
A	12	82,599,767		15,023		6,423		—		6,423
BBB	2	12,562,086		—		—		—		—
Members (a)&(b)	2	265,000		8,570		8,570		8,570		—
Delivery Commitments	—	66,722		—		—		—		—
	20	$	105,823,996	$	23,593	$	14,993	$	8,570	$	6,423

	December 31, 2011
				Total Net		Credit Exposure		Other		Net
	Number of	Notional		Exposure at		Net of		Collateral		Credit
Credit Rating	Counterparties	Balance		Fair Value		Cash Collateral (a) &(c)		Held (b)		Exposure
AA	6	$	20,125,098	$	13,407	$	13,407	$	—	$	13,407
A	11	97,184,740		43,292		2,392		—		2,392
BBB	1	1,650,400		—		—		—		—
Members (a)&(b)	2	275,000		9,062		9,062		9,062		—
Delivery Commitments	—	31,242		270		270		270		—
	20	$	119,266,480	$	66,031	$	25,131	$	9,332	$	15,799

(a) Net credit exposures of $15.0 million and $25.1 million at September 30, 2012 and December 31, 2011, represented derivatives in a gain position net of cash collateral received from swap counterparties.  Exposures included $8.6 million and $9.1 million (at the two dates) that represented fair value exposures to members due to swap transactions in which we acted as an intermediary.

(b) Members are required to pledge collateral to secure derivatives purchased by the Bank acting as an intermediary.  As a result of the collateral agreements with our members, we believe that our maximum credit exposure due to the intermediated transactions was $0 at September 30, 2012 and December 31, 2011.

(c) As reported in the Statements of Condition.  The table above does not report fair values of counterparties in a net liability position, as only fair values in a gain position are presented.

Many of the Credit Support Amount (“CSA”) agreements with swap dealers stipulate that so long as we retain our GSE status, ratings downgrades would not result in the posting of additional collateral.  Other CSA agreements would require us to post additional collateral based solely on an adverse change in our credit rating by Standard & Poor’s (“S&P”) and Moody’s.  In the event of a split rating, the lower rating will apply.  On August 8, 2011, S&P downgraded the credit rating of the FHLBank long-term debt from AAA to AA+/Negative and lowered one notch the credit ratings of those FHLBanks rated AAA (including the Federal Home Loan Bank of New York) to AA+/Negative.  On August 2, 2011, Moody’s affirmed the AAA status of the FHLBank’s long-term debt and the AAA credit rating of the FHLBNY.

On the assumption we will retain our status as a GSE, we estimate that a one notch downgrade of our credit rating by S&P would have permitted swap dealers and counterparties to make additional collateral calls of up to $111.5 million at September 30, 2012.  Additional collateral postings upon an assumed downgrade were estimated based on the factors in the individual collateral posting provisions of the CSA with each counterparty and the exposures as of September 30, 2012.  The aggregate fair value of our derivative instruments that were in a net liability position at September 30, 2012 was approximately $466.3 million.

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Derivative Counterparty Country Concentration Risk

The following table summarizes derivative notional exposures by significant counterparty by country of incorporation.  The table also summarizes the FHLBNY’s exposure (i.e. when derivative contracts are in a gain position). (dollars in thousands):

Table 9.6:Derivative Counterparty Concentration (a)

		September 30, 2012
	Ultimate Country	Notional		Percentage		Fair Value		Percentage
Counterparties	of Incorporation (b)	Amount (c)		of Total		Exposure		of Total
Counterparty	Germany	$	15,252,421	14.41	%	$	—	—	%
Counterparty	U.S.A.	12,584,942		11.89		—		—
Counterparty	U.S.A.	11,141,686		10.53		—		—
Counterparty	France	8,764,631		8.28		6,423		42.84
Counterparties below 10%
	U.S.A.	31,987,434		30.23		—		—
	Switzerland	13,527,477		12.78		—		—
	United Kingdom	11,517,683		10.89		—		—
	Canada	701,000		0.66		—		—
	France	15,000		0.02		—		—
Members and Delivery Commitments		331,722		0.31		8,570		57.16
		$	105,823,996	100.00	%	$	14,993	100.00	%

		December 31, 2011
	Ultimate Country	Notional		Percentage		Fair Value		Percentage
Counterparties	of Incorporation (b)	Amount (c)		of Total		Exposure		of Total
Counterparty	Germany	$	20,474,146	17.17	%	$	—	—	%
Counterparty	Switzerland	14,148,654		11.86		—		—
Counterparty	U.S.A.	13,345,921		11.19		—		—
Counterparty	U.S.A.	7,780,245		6.52		2,392		9.52
Counterparty	U.S.A.	3,041,156		2.55		13,407		53.35
Counterparties below 10%
	U.S.A.	31,115,082		26.09		—		—
	United Kingdom	13,201,334		11.07		—		—
	Switzerland	5,668,694		4.75		—		—
	France	9,477,756		7.95		—		—
	Canada	707,250		0.59		—		—
Members and Delivery Commitments		306,242		0.26		9,332		37.13
		$	119,266,480	100.00	%	$	25,131	100.00	%

(a). Notional concentration —At September 30, 2012, concentration, as measured by notional principals outstanding, was with three counterparties.  Although in aggregate they accounted for 36.8% of the total notional amounts, the derivative contracts were in a liability position for all three counterparties, and the FHLBNY’s exposure was zero.

(b) Country of incorporation is based on domicile of the ultimate parent company.

(c) Total notional for all counterparties.  Fair values only when the FHLBNY has an exposure.  Fair values associated with counterparties where the FHLBNY has no fair value exposure is not reported in the above table.

Table 9.7:Notional and Fair Values by Contractual Maturity (in thousands):

	September 30, 2012					December 31, 2011
	Notional		Fair Value			Notional		Fair Value
Maturity in one year or less	$	46,142,132	$	43,900		$	46,998,539	$	(52,122	)
Maturity after one year to three years or less	22,820,336		(120,950		)	34,482,949		(86,236		)
Maturity after three years to five years or less	24,381,984		(2,608,614		)	19,740,911		(1,453,810		)
Maturity after five years and thereafter	12,412,822		(500,456		)	18,012,839		(1,436,847		)
Delivery Commitments	66,722		(500		)	31,242		270
	$	105,823,996	$	(3,186,620	)	$	119,266,480	$	(3,028,745	)

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

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

Finance Agency Regulations — Liquidity

Regulatory requirements are specified in Parts 917, 932 and 1270 of Finance Agency regulations and are summarized below.  Each FHLBank shall at all times have at least an amount of liquidity equal to the current deposits received from its members that may be invested in: (1) Obligations of the United States; (2) Deposits in banks or trust companies; or (3) Advances with a maturity not to exceed five years.

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In addition, each FHLBank shall provide for contingency liquidity, which is defined as the sources of cash an FHLBank may use to meet its operational requirements when its access to the capital markets is impeded.  We met our contingency liquidity requirements.  Liquidity in excess of requirements is summarized in the table titled Contingency Liquidity.  Violations of the liquidity requirements would result in non-compliance penalties under discretionary powers given to the Finance Agency under applicable regulations, which include other corrective actions.

Liquidity Management

We actively manage our liquidity position to maintain stable, reliable, and cost-effective sources of funds while taking into account market conditions, member demand and the maturity profile of our assets and liabilities.  We recognize that managing liquidity is critical to achieving our statutory mission of providing low-cost funding to our members.  In managing liquidity risk, we are required to maintain certain liquidity measures in accordance with the FHLBank Act and policies developed by management and approved by our Board of Directors.  The applicable liquidity requirements are described in the next four sections.

Deposit Liquidity. We are required to invest an aggregate amount at least equal to the amount of current deposits received from members in: (1) Obligations of the 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 our members, we may accept deposits from other FHLBanks or from any other governmental instrumentality.  Deposit liquidity is calculated daily.  Quarterly average reserve requirements and actual reserves are summarized below (in millions).  We met these requirements at all times.

Table 10.1:Deposit Liquidity

	Average Deposit		Average Actual
For the Quarters Ended	Reserve Required		Deposit Liquidity		Excess
September 30, 2012	$	1,762	$	62,822	$	61,060
June 30, 2012	2,216		51,562		49,346
March 31, 2012	3,107		50,840		47,733
December 31, 2011	2,223		49,402		47,179

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

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

Table 10.2:Operational Liquidity

	Average Balance Sheet		Average Actual
For the Quarters Ended	Liquidity Requirement		Operational Liquidity		Excess
September 30, 2012	$	3,480	$	25,165	$	21,685
June 30, 2012	5,006		24,988		19,982
March 31, 2012	9,152		22,440		13,288
December 31, 2011	5,888		21,205		15,317

Contingency Liquidity.  We are required by Finance Agency regulations to hold “contingency liquidity” in an amount sufficient to meet our liquidity needs if we are unable to access the consolidated obligation debt markets for at least five business days.  Contingency liquidity includes (1) marketable assets with a maturity of one year or less; (2) self-liquidating assets with a maturity of one year or less; (3) assets that are generally acceptable as collateral in the repurchase market; and (4) irrevocable lines of credit from financial institutions receiving not less than the second-highest credit rating from a nationally recognized statistical rating organization.  We consistently exceeded the regulatory minimum requirements for contingency liquidity.  Contingency liquidity is reported daily.  We met these requirements at all times.

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

Table 10.3:Contingency Liquidity

	Average Five Day		Average Actual
For the Quarters Ended	Requirement		Contingency Liquidity		Excess
September 30, 2012	$	2,450	$	24,957	$	22,507
June 30, 2012	2,540		24,806		22,266
March 31, 2012	2,642		22,316		19,674
December 31, 2011	1,397		21,086		19,689

The standards in our risk management policy address our day-to-day operational and contingency liquidity needs.  These standards enumerate the specific types of investments to be held to satisfy such liquidity needs and are outlined above.  These standards also establish the methodology to be used in determining our operational and contingency needs.  We continually monitor and project our cash needs, daily debt issuance capacity, and the

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amount and value of investments available for use in the market for repurchase agreements.  We use this information to determine our liquidity needs and to develop appropriate liquidity plans.

Advance “Roll-Off” and “Roll-Over” Liquidity Guidelines.   The Finance Agency’s Minimum Liquidity Requirement Guidelines expanded the existing liquidity requirements to include additional cash flow requirements under two scenarios:  Advance “Roll-Over” and “Roll-Off” scenarios.  Each FHLBank, including the FHLBNY, must have positive cash balances to be able to maintain positive cash flows for 15 days under the Roll-Off scenario, and for five days under the Roll-Over scenario.  The Roll-Off scenario assumes that advances maturing under their contractual terms would mature, and in that scenario we would maintain positive cash flows for a minimum of 5 days on a daily basis.  The Roll-Over scenario assumes that our maturing advances would be rolled over, and in that scenario we would maintain positive cash flows for a minimum of 15 days on a daily basis.  We calculate the amount of cash flows under each scenario on a daily basis and have been in compliance with these guidelines.

Other Liquidity Contingencies.  As discussed more fully under the section Debt Financing Activity and Consolidated Obligations, we are primarily liable for consolidated obligations issued on our behalf.  We are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks.  If the principal or interest on any consolidated obligation issued on our behalf is not paid in full when due, we may not pay dividends, redeem or repurchase shares of stock of any member or non-member stockholder until the Finance Agency approves our consolidated obligation payment plan or other remedy and until we pay all the interest or principal currently due on all our consolidated obligations.  The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligations.

Finance Agency regulations also state that the FHLBanks must maintain, free from any lien or pledge, the following types of assets in an amount at least equal to the amount of consolidated obligations outstanding: Cash; Obligations of, or fully guaranteed by, the United States; Secured advances; Mortgages that have any guaranty, insurance, or commitment from the United States or any agency of the United States; Investments described in section 16(a) of the FHLBank Act, including securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located; and Other securities that are rated “Aaa” by Moody’s or “AAA” by Standard & Poor’s.

Cash Flows

Cash and due from banks was $2.9 billion at September 30, 2012.  The daily average for the first nine months was $230.9 million.  Generally, we maintain funds at the FRB for liquidity purposes for our members.  The following discussion highlights the major activities and transactions that affected our cash flows.  Also, see Statements of Cash Flows to the unaudited financial statements accompanying this MD&A.

Cash flows from operating activities - Our operating assets and liabilities support our lending activities to members.  Operating assets and liabilities can vary significantly in the normal course of business due to the amount and timing of cash flows, which are affected by member-driven borrowing, investment strategies and market conditions.  Management believes cash flows from operations, available cash balances and our ability to generate cash through the issuance of consolidated obligation bonds and discount notes are sufficient to fund our operating liquidity needs.

Net cash provided by operating activities was $530.2 million in the first nine months of 2012, almost unchanged in the comparable period in 2011.  Operating cash flow was driven by Net income and by non-cash items such as the amount set aside for Affordable Housing Program, net changes in accrued interest receivable and payable, provisions for mortgage credit losses, depreciation and amortization, and by derivative financing element.

Net cash generated from operating activities was higher than net income, largely due to the classification of cash flows that were characterized as operating cash in-flows from interest rate swaps.  We view these swaps to contain “financing elements”, as defined under hedge accounting rules.  In 2008, we had executed certain interest rate swaps, which at inception of the contracts included off-market terms, or required up-front cash exchanges, and were largely still outstanding at September 30, 2012.  Such terms are considered to be financing elements under accounting rules, and required us to eliminate all cash outflows associated with the contracts from operating expenses ($201.3 million and $287.3 million of outflows in the first nine months of 2012 and 2011), and to increase cash outflows from financing activities.  Absent this accounting disclosure policy, reported cash flows from operating activities would have been $328.9 million in the first nine months of 2012, and $241.7 million in the same period in 2011.

Cash flows from investing activities - Our investing activities predominantly were the advances originated to be held for portfolio, the MBS investment portfolios and other short-term interest-earning assets.  In the first nine months of 2012, investing activities were a net user of cash of $17.5 billion.  This resulted primarily from net increases in advances borrowed by members, increase in investment securities purchased and overnight investments in Federal funds.  In the first nine months of 2011, investing activities were lower, primarily due to decline in advances made to members, and investing activities was a net provider of $6.5 billion.

Short-term Borrowings and Short-term Debt.

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

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

Table 10.4:Short-term Debt

	Consolidated Obligations-Discount Notes						Consolidated Obligations-Bonds With Original Maturities of One Year or Less
	September 30, 2012			December 31, 2011			September 30, 2012			December 31, 2011
Outstanding at end of the period (a)	$	33,717,806		$	22,123,325		$	16,400,000		$	15,125,000
Weighted-average rate at end of the period	0.13		%	0.07		%	0.20		%	0.16		%
Average outstanding for the period (a)	$	25,822,330		$	21,442,303		$	15,028,923	(b)	$	14,456,667	(b)
Weighted-average rate for the period	0.10		%	0.08		%	0.19		%	0.23		%
Highest outstanding at any month-end (a)	$	33,717,806		$	27,015,724		$	17,675,000		$	17,725,000

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

(b) The amount represents the average par value outstanding for the nine months ended September 30, 2012, and twelve months ended December 31, 2011.

Leverage Limits and Unpledged Asset Requirements

Finance Agency 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.  We met the Finance Agency’s requirement that unpledged assets, as defined under regulations, exceed the total of consolidated obligations at all periods in this report as follows (in thousands):

Table 10.5:Unpledged Assets

	September 30, 2012			December 31, 2011
Consolidated Obligations:
Bonds	$	65,135,853		$	67,440,522
Discount Notes	33,717,806			22,123,325
Total consolidated obligations	98,853,659			89,563,847
Unpledged assets
Cash	2,900,615			10,877,790
Less: Member pass-through reserves at the FRB	(80,875		)	(69,555		)
Secured Advances	77,864,259			70,863,777
Investments (a)	24,340,557			14,236,633
Mortgage loans held-for-portfolio, net of allowance for credit losses	1,747,724			1,408,460
Accrued interest receivable on advances and investments	238,030			223,848
Less: Pledged Assets	(3,086		)	(2,003		)
Total unpledged assets	107,007,224			97,538,950
Excess unpledged assets	$	8,153,565		$	7,975,103

(a) The Bank pledged $3.1 million and $2.0 million at September 30, 2012 and December 31, 2011 to the FDIC.  See Note 5. Held-to-Maturity Securities.

Purchases of MBS.Finance Agency investment regulations limit the purchase of mortgage-backed securities to 300% of capital.  We were in compliance with the regulation at all times.

Table 10.6:FHFA MBS Limits

	September 30, 2012				December 31, 2011
	Actual		Limits		Actual		Limits
Mortgage securities investment authority	234	%	300	%	240	%	300	%

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Legislative and Regulatory Developments

The legislative and regulatory environment in which we operate continues to undergo rapid change driven principally by reforms under the Housing and Economic Reform Act of 2008, as amended (Housing Act) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act). We expect the Housing Act and the Dodd-Frank Act, as well as plans for housing finance and GSE reform, to result in still further changes to this environment. Our business operations, funding costs, rights, obligations, and/or the environment in which we carry out our housing finance mission are likely to continue to be significantly impacted by these changes. Significant regulatory actions and developments for the period covered by this report are summarized below.

Developments under the Dodd-Frank Act Impacting Derivatives Transactions

Definitions of Certain Terms under New Derivatives Requirements.  The Dodd-Frank Act will require swap dealers and certain other large users of derivatives to register as “swap dealers” or “major swap participants,” as the case may be, with the U.S. Commodity Futures Trading Commission (the CFTC) and/or the SEC.  Based on the definitions in the final rules jointly issued by the CFTC and SEC in April 2012, we will not be required to register as either a major swap participant or as a swap dealer because of the derivative transactions that we enter into for the purposes of hedging and managing our interest rate risk or any derivative transactions that we may intermediate for our members.

Based on the final rules and accompanying interpretive guidance jointly issued by the CFTC and SEC in July 2012, call and put optionality in certain advances to our members will not be treated as “swaps” as long as the optionality relates solely to the interest rate on the advance and does not result in enhanced or inverse performance or other risks unrelated to the interest rate.  Accordingly, our ability to offer these advances to member customers should not be affected by the new derivatives regulations.

Mandatory Clearing of Derivatives Transactions. The Dodd-Frank Act provides for new statutory and regulatory requirements for derivative transactions, including those utilized by us to hedge our interest rate and other risks. As a result of these requirements, certain derivative transactions will be required to be cleared through a third-party central clearinghouse and traded on regulated exchanges or new swap execution facilities.  As further discussed in the Legislative and Regulatory Developments section in our 2011 Form 10-K, cleared swaps will be subject to new requirements including mandatory reporting, record-keeping and documentation requirements established by applicable regulators and initial and variation margin requirements established by the clearinghouse and its clearing members.  The CFTC recently issued guidance regarding the treatment of customer collateral for cleared swaps and proposed additional protections for such collateral.

The implementation timeframe for mandatory clearing of eligible interest rate swaps is determined according to the effective date of the CFTC’s mandatory clearing determinations, which were released in proposed form on July 24, 2012 for interest rate swaps.  The CFTC is expected to finalize these determinations in November, 2012, and we will have to clear eligible interest rate swaps within 180 days after publication of the final determinations; we estimate that we will be required to begin clearing such eligible swaps during the second quarter 2013. 

The CFTC has approved an end-user exception to mandatory clearing that would exempt derivatives transactions that we may intermediate for our members with $10 billion or less in assets; the exemption applies only if the member uses the swaps to hedge or mitigate its commercial risk and the reporting counterparty for such swaps complies with certain additional reporting requirements.  As a result, any such intermediated swaps would not be subject to mandatory clearing, although such swaps would be subject to applicable new requirements for derivative transactions that are not subject to mandatory clearing requirements (uncleared trades).

Uncleared Derivatives Transactions.  The Dodd-Frank Act will also change the regulatory landscape for uncleared trades. While we expect to continue to enter into uncleared trades on a bilateral basis, such trades will be subject to new requirements, including mandatory reporting, record-keeping, documentation, and minimum margin and capital requirements established by applicable regulators.  These requirements are discussed in our 2011 Form 10-K.

The CFTC recently finalized rules regarding certain new documentation requirements for uncleared trades.  These rules (and the external business conduct rules for swap dealers and major swap participants that the CFTC had previously finalized), and certain additional rules that have yet to be finalized, will require amendments to the documentation for swaps we enter into with swap dealers.  We have adhered to an ISDA protocol to address the new documentation requirements under the external business conduct rules and we will consider adhering to future ISDA protocols to address the recently finalized new documentation requirements for uncleared trades.  The recently finalized rules require new dispute resolution and valuation provisions, new representations regarding applicable insolvency regimes and credit support modifications to our existing swap documentation.  Our swap documentation with swap dealers must comply with these requirements by April 1, 2013.  The recently finalized rules also impose requirements for acknowledgments and confirmations of uncleared trades between us and swap dealers.   With respect to interest rate swaps that we enter into with swap dealers, these requirements will be phased in between November 13, 2012 and March 1, 2014.  However, we believe that this scheduled phase-in period may be delayed until December 31, 2012 due to a delay in swap dealer registration.  This same delay in registration has also delayed the start of swap dealer compliance with certain of the external business conduct rules discussed above beyond their originally scheduled effective date of October 15, 2012.  The compliance date for the remaining external business conduct rules is January 1, 2013.

The Dodd-Frank Act also imposes new margin requirements for uncleared trades, which are discussed in our 2011 Form 10-K.  The CFTC, the FHFA and other bank regulators proposed margin requirements in 2011 and the CFTC has re-opened the comment period for such requirements on two occasions.  The FHFA and other bank regulators recently re-opened the comment period for their proposed margin requirements until November 26, 2012.  As a result, we do not expect that such requirements will be finalized until sometime in 2013 and we do not expect that they will apply to the Bank until later in 2013 at the earliest.

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Recordkeeping and Reporting.   Compliance dates for the new recordkeeping and reporting requirements for all of our cleared and uncleared swaps have now been established, based on the effective date for the final rule further defining the term “swap,” issued jointly by the CFTC and SEC, which became effective on October 12, 2012.  We currently comply with recordkeeping requirements for our swaps that were (or are) in effect on or after July 21, 2010 and, beginning on April 10, 2013, we will have to comply with new record-keeping requirements for swaps entered into on or after April 10, 2013.  For interest rate swaps that we enter into with swap dealers, the swap dealers must comply with reporting requirements applicable to such swaps, including real-time reporting requirements, as of the date these swap dealers register as such.  We will be required to comply with reporting requirements, including real-time reporting requirements for any swaps that we may intermediate for our members beginning on April 10, 2013. 

We, together with the other FHLBs, will continue to monitor these rulemakings and the overall regulatory process to implement the derivatives reform under the Dodd-Frank Act.  We will also continue to work with the other FHLBs to implement the processes and documentation necessary to comply with the Dodd-Frank Act’s new requirements for derivatives.

Developments under the FHFA

Advance Notice of Proposed Rulemaking on Stress-Testing Requirements.   On October 5, 2012, the FHFA issued a notice of proposed rulemaking that would implement a provision in the Dodd-Frank Act that requires all financial companies with assets over $10 billion to conduct annual stress tests, which will be used to evaluate an institution’s capital adequacy under various economic conditions and financial conditions.  The FHFA proposes to issue annual guidance to describe the baseline, adverse and severely adverse scenarios and methodologies that the FHLBs must follow in conducting their stress tests, which, as required by the Dodd-Frank Act, would be generally consistent and comparable to those established by the Federal Reserve.  An FHLB would be required to provide an annual report on the results of the stress tests to the FHFA and the Federal Reserve and to then publicly disclose a summary of such report within 90 days.   Comments are due by December 4, 2012.

Proposed Guidance on Collateralization of Advances and Other Credit Products Provided to Insurance Company Members.  On October 5, 2012, the FHFA published a notice requesting comments on a proposed Advisory Bulletin which would set forth standards to guide the FHFA in its supervision of secured lending to insurance company members by the FHLBs.  The FHFA’s notice provides that lending to insurance company members exposes FHLBs to risks that are not associated with advances to the insured depository institution members, arising from the different state’s statutory and regulatory regimes and the statutory accounting principles and reporting practices.  The proposed standards include consideration of, among other things:

·      the level of an FHLB’s exposure to insurance companies in relation to its capital structure and retained earnings;

·      an FHLB’s control of pledged securities collateral and ensuring it has a first-priority perfected security interest;

·      the use of funding agreements between an FHLB and an insurance company member to document advances and whether such an FHLB would be recognized as a secured creditor with a first priority security interest in the collateral; and

·      the FHLB’s documented framework, procedures, methodologies and standards to evaluate an insurance company member’s creditworthiness and financial condition, the FHLB valuation of the pledged collateral and whether an FHLB has a written plan for the liquidation of insurance company member collateral.

Comments are due by December 4, 2012.

Proposed Order on Qualified Financial Contracts (QFCs). On August 9, 2012, the FHFA circulated a proposed order on QFCs that would be applicable to the FHLBs as well as Fannie Mae and Freddie Mac (collectively, the Regulated Entities).  The FHFA has indicated that the proposed order is intended to permit the FHFA to comply with certain statutory requirements for the transfer of QFCs in the event of the receivership of a Regulated Entity.  The proposed order sets forth certain recordkeeping and reporting requirements for a Regulated Entity’s QFCs.  If the order is issued as proposed, each FHLB will have to, among other things, establish and maintain infrastructure sufficient to meet the recordkeeping and reporting requirements and engage external personnel to audit its compliance with the order on an annual basis.  Comments were due by October 10, 2012.

Other Significant Developments

National Credit Union Administration Proposed Rule on Access to Emergency Liquidity.  On July 30, 2012, the National Credit Union Administration (NCUA) published a proposed rule requiring, among other things, that federally-insured credit unions of $100 million or larger must maintain access to at least one federal liquidity source for use in times of financial emergency and distressed circumstances. This access must be demonstrated through direct or indirect membership in the Central Liquidity Facility (a U.S. government corporation created to improve the general financial stability of credit unions by serving as a liquidity lender to credit unions) or by establishing access to the Federal Reserve’s discount window. The proposed rule does not include FHLB membership as an emergency liquidity source.  If the rule is issued as proposed, it may adversely impact our results of operations if it causes our federally-insured credit union members to favor these federal liquidity sources over FHLB membership.  Comments were due by September 28, 2012.

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Housing Finance and GSE Reform.  On August 17, 2012, the U.S. Treasury Department (Treasury Department) announced a set of modifications to the preferred stock purchase agreements between the Treasury Department and the FHFA as conservator of Fannie Mae and Freddie Mac (together, the Enterprises) to help expedite the wind down of the Enterprises.  The changes require all future earnings from the Enterprises to be turned over to the Treasury Department and require the accelerated wind down of their retained mortgage portfolios.  By not allowing the Enterprises to retain any profits, these changes effectively ensure that the Enterprises will never be allowed to recapitalize themselves and return to the market in their previous structure.  In addition, the FHFA recently solicited comments on their proposal to create a new framework for the secondary mortgage market.  The FHFA has indicated that the framework is intended to create a more efficient and flexible securitization platform for the Enterprises that also would be available to all market participants and interested parties. 

As the Enterprises are being wound down, Congress and the administration have been considering various proposals to reform the U.S. housing finance system and the secondary mortgage market.  A number of bills have been introduced in Congress in the past several years, although none have proposed specific changes to the FHLBs.  No further legislative action in this area is expected until the next Congress convenes in 2013.  It is impossible to determine at this time whether or when Congress will act in this area.  The ultimate effects of housing finance and GSE reform on the FHLBs are unknown and will depend on the legislation or other changes, if any, that ultimately are implemented.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Management.Market risk or interest rate risk (“IRR”) is the risk of loss to market value or future earnings that may result from changes in the interest rate environment.  Embedded in IRR is a tradeoff of risk versus reward. We could earn higher income by having higher IRR through greater mismatches between our assets and liabilities at the cost of potentially significant declines in market value and future income if the interest rate environment turned against our expectations.  We have opted to retain a modest level of IRR which allows us to preserve our capital value while generating steady and predictable income.  In keeping with that philosophy, our balance sheet consists of predominantly short-term and LIBOR-based assets and liabilities.  More than 85 percent of our financial assets are either short-term or LIBOR-based, and a similar percentage of our liabilities are also either short-term or LIBOR-based.  These positions protect our capital from large changes in value arising from interest rate or volatility changes.

Our primary tool to achieve the desired risk profile is the use of interest rate exchange agreements (“Swaps”).  All the LIBOR-based advances are long-term advances that are swapped to 3- or 1-month LIBOR or possess adjustable rates which periodically reset to a LIBOR index.  Similarly, a majority of the long-term consolidated obligations are swapped to 3- or 1-month LIBOR.  These features create a relatively steady income that changes in concert with prevailing interest rate changes to maintain a spread to short-term rates.

Despite the conservative philosophy, IRR does arise from a number of aspects in our portfolio.  These include the embedded prepayment rights, refunding needs, rate resets between short-term assets and liabilities, and basis risks arising from differences between the yield curves associated with assets and liabilities.  To address these risks, we use certain key IRR measures including re-pricing gaps, duration of equity (“DOE”), value at risk (“VaR”), net interest income (“NII”) at risk, key rate durations (“KRD”), and forecasted dividend rates.

Risk Measurements.  Our Risk Management Policy sets up a series of risk limits that we calculate on a regular basis.  The risk limits are as follows:

·The option-adjusted DOE is limited to a range of +2.0 years to -3.5 years in the rates unchanged case, and to a range of +/-6.0 years in the +/-200bps shock cases.  Due to the low interest rate environment beginning in early 2008, the September 2011, December 2011, March 2012, June 2012 and September 2012 rates were too low for a meaningful parallel down-shock measurement.

·The one-year cumulative re-pricing gap is limited to 10 percent of total assets.

·The sensitivity of expected net interest income over a one-year period is limited to a -15 percent change under both the +/-200bps shocks compared to the rates unchanged case.

·The potential decline in the market value of equity is limited to a 10 percent change under the +/-200bps shocks.

·KRD exposure at any of nine term points (3-month, 1-year, 2-year, 3-year, 5-year, 7-year, 10-year, 15-year, and 30-year) is limited to between +/-12 months through the 3-year term point and a cumulative limit of +/-30 months from the 5-year through 30-year term points.

Our portfolio, including derivatives, is tracked and the overall mismatch between assets and liabilities is summarized by using a DOE measure.  Our last five quarterly DOE results are shown in years in the table below (due to the on-going low interest rate environment, there was no down-shock measurement performed between the third quarter of 2011 and the third quarter of 2012):

	Base Case DOE	-200bps DOE	+200bps DOE
September 30, 2012	-0.96	N/A	2.43
June 30, 2012	-0.36	N/A	3.06
March 31, 2012	0.72	N/A	3.74
December 31, 2011	0.02	N/A	2.67
September 30, 2011	-1.22	N/A	1.49

The DOE has remained within policy limits.  Duration indicates any cumulative re-pricing/maturity imbalance in the portfolio’s financial assets and liabilities.  A positive DOE indicates that, on average, the liabilities will re-price or mature sooner than the assets, while a negative DOE indicates that, on average, the assets will re-price or mature earlier than the liabilities.  We measure DOE using software that incorporates any optionality within our portfolio using well-known and tested financial pricing theoretical models.

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We do not solely rely on the DOE measure as a mismatch measure between assets and liabilities.  We also perform the more traditional gap measure that subtracts re-pricing/maturing liabilities from re-pricing/maturing assets over time.  We observe the differences over various horizons, but have set a 10 percent of assets limit on cumulative re-pricings at the one-year point.  This quarterly observation of the one-year cumulative re-pricing gap is provided in the table below and all values are below 10 percent of assets, well within the limit:

	One Year Re-pricing Gap
September 30, 2012	$6.155 Billion
June 30, 2012	$5.762 Billion
March 31, 2012	$5.354 Billion
December 31, 2011	$5.641 Billion
September 30, 2011	$6.548 Billion

Our review of potential interest rate risk issues also includes the effect of changes in interest rates on expected net income.  We project asset and liability volumes and spreads over a one-year horizon and then simulate expected income and expenses from those volumes and other inputs.  The effects of changes in interest rates are measured to test whether the portfolio has too much exposure in its net interest income over the coming 12-month period.  To measure the effect, the change to the spread in the shocks is calculated and compared against the base case and subjected to a -15 percent limit.  The quarterly sensitivity of our expected net interest income under both +/-200bps shocks over the next 12 months is provided in the table below (due to the ongoing low interest rate environment, the down-shock measurement was not performed between the third quarter of 2011 and the third quarter of 2012):

	Sensitivity in the -200bps Shock	Sensitivity in the +200bps Shock
September 30, 2012	N/A	17.94	%
June 30, 2012	N/A	8.16	%
March 31, 2012	N/A	8.87	%
December 31, 2011	N/A	13.93	%
September 30, 2011	N/A	17.31	%

Aside from net interest income, the other significant impact on changes in the interest rate environment is the potential impact on the value of the portfolio.  These calculated and quoted market values are estimated based upon their financial attributes (including optionality) and then re-estimated under the assumption that interest rates suddenly rise or fall by 200bps.  The worst effect, whether it is the up or the down shock, is compared to the internal limit of 10 percent.  The quarterly potential maximum decline in the market value of equity under these 200bps shocks is provided below (due to the ongoing low interest rate environment, the down-shock measurement was not performed between the third quarter of 2011 and the third quarter of 2012):

	Down- shock Change in MVE	+200bps Change in MVE
September 30, 2012	N/A	-1.58	%
June 30, 2012	N/A	-3.01	%
March 31, 2012	N/A	-4.72	%
December 31, 2011	N/A	-2.26	%
September 30, 2011	N/A	0.51	%

As noted, the potential declines under these shocks are within our limits of a maximum 10 percent.

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The following table displays the portfolio’s maturity/re-pricing gaps as of September 30, 2012 and December 31, 2011 (in millions):

	Interest Rate Sensitivity
	September 30, 2012
				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	$	16,940		$	385		$	531		$	196		$	270
MBS Investments	8,803			333			433			295			3,653
Adjustable-rate loans and advances	15,061			—			—			—			—
Net unswapped	40,804			718			964			491			3,923
Fixed-rate loans and advances	13,699			4,095			10,427			22,792			7,827
Swaps hedging advances	43,512			(3,564		)	(9,767		)	(22,611		)	(7,570		)
Net fixed-rate loans and advances	57,211			531			660			181			257
Total interest-earning assets	$	98,015		$	1,249		$	1,624		$	672		$	4,180
Interest-bearing liabilities:
Deposits	$	1,798		$	—		$	—		$	—		$	—
Discount notes	31,718			1,999			—			—			—
Swapped discount notes	(1,106		)	—			—			—			1,106
Net discount notes	30,612			1,999			—			—			1,106
Consolidated Obligation Bonds
FHLB bonds	18,170			24,324			14,351			3,021			4,344
Swaps hedging bonds	39,881			(23,675		)	(12,645		)	(1,971		)	(1,590		)
Net FHLB bonds	58,051			649			1,706			1,050			2,754
Total interest-bearing liabilities	$	90,461		$	2,648		$	1,706		$	1,050		$	3,860
Post hedge gaps (a):
Periodic gap	$	7,554		$	(1,399	)	$	(82	)	$	(378	)	$	320
Cumulative gaps	$	7,554		$	6,155		$	6,073		$	5,695		$	6,015

	Interest Rate Sensitivity
	December 31, 2011
				More Than			More Than			More Than
	Six Months			Six Months to			One Year to			Three Years to			More Than
	or Less			One Year			Three Years			Five Years			Five Years
Interest-earning assets:
Non-MBS Investments	$	15,436		$	229		$	455		$	216		$	337
MBS Investments	8,954			527			571			214			2,306
Adjustable-rate loans and advances	6,271			—			—			—			—
Net unswapped	30,661			756			1,026			430			2,643
Fixed-rate loans and advances	14,242			3,746			12,147			17,034			13,551
Swaps hedging advances	44,910			(3,379		)	(11,415		)	(16,618		)	(13,498		)
Net fixed-rate loans and advances	59,152			367			732			416			53
Total interest-earning assets	$	89,813		$	1,123		$	1,758		$	846		$	2,696
Interest-bearing liabilities:
Deposits	$	2,130		$	—		$	—		$	—		$	—
Discount notes	21,239			885			—			—			—
Swapped discount notes	(248		)	(610		)	—			—			858
Net discount notes	20,991			275			—			—			858
Consolidated Obligation Bonds
FHLB bonds	20,922			13,594			24,443			4,272			3,217
Swaps hedging bonds	40,478			(13,095		)	(22,740		)	(2,923		)	(1,720		)
Net FHLB bonds	61,400			499			1,703			1,349			1,497
Total interest-bearing liabilities	$	84,521		$	774		$	1,703		$	1,349		$	2,355
Post hedge gaps (a):
Periodic gap	$	5,292		$	349		$	55		$	(503	)	$	341
Cumulative gaps	$	5,292		$	5,641		$	5,696		$	5,193		$	5,534

(a) Re-pricing gaps are estimated at the scheduled rate reset dates for floating rate instruments, and at maturity for fixed rate instruments.  For callable instruments, the re-pricing period is estimated by the earlier of the estimated call date under the current interest rate environment or the instrument’s contractual maturity.

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ITEM 4.   CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures: An evaluation of the Bank’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Act”)) was carried out under the supervision and with the participation of the Bank’s President and Chief Executive Officer, Alfred A. DelliBovi, and Senior Vice President and Chief Financial Officer, Kevin M. Neylan, at September 30, 2012.  Based on this evaluation, they concluded that as of September 30, 2012, the Bank’s disclosure controls and procedures were effective, at a reasonable level of assurance, in ensuring that the information required to be disclosed by the Bank in the reports it files or submits under the Act is (i) accumulated and communicated to the Bank’s management (including the President and Chief Executive Officer and Senior Vice President and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Control Over Financial Reporting: There were no changes in the Bank’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the Bank’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Federal Home Loan Bank of New York is involved in disputes or regulatory inquiries that arise in the ordinary course of business.  There has been no material change with respect to a continuing legal proceeding involving the FHLBNY that was previously disclosed in Part 1, Item 3 of the FHLBNY’s 2011 Annual Report on Form 10-K filed on March 23, 2012.

ITEM 1A.  RISK FACTORS

Other than the discussions below, there have been no material changes from risk factors included in the FHLBNY’s Form 10-K for the fiscal year ended December 31, 2011.

A loss or change of business activities with large members could adversely affect the FHLBNY’s results of operations and financial condition.  We have a high concentration of advances with three member institutions, and a loss or change of business activities with any of these institutions could adversely affect our results of operations and financial condition.  Concentration risk for the FHLBNY is defined as the exposure to loss arising from a disproportionately large number of financial transactions with a limited number of individual customers, with a particular focus on members that have outstanding advances that account for more than 10 percent of advances by par value to the total par value of all advances outstanding as of a given date.

Withdrawal of one or more large members from our membership could result in a reduction of our total assets, capital, and net income.  If one or more of our large members were to prepay their advances or repay the advances as they came due and no other advances were made to replace them, it could also result in a reduction of our total assets, capital, and net income.  In June 2012, member Citibank, N.A. borrowed significant short- and intermediate-term advances, which resulted in a high concentration of advances (17.9% of all advances at September 30, 2012) with the member.  We also have a high concentration of advances with the Metropolitan Life Insurance Company (18.3% of all advances at September 30, 2012), and with the New York Community Bank (11.2% at September 30, 2012).

Although there were no material prepayments of advances in the three months and nine months ended September 30, 2012 from members who accounted for 10 percent or more of advances, in prior years we have had large members make material prepayments.  For example, Hudson City Savings Bank, FSB, a member which accounted for 22.1 percent of advances at December 31, 2010, prepaid $6.4 billion of advances in the first quarter of 2011 and $4.1 billion of advances in the fourth quarter of 2011.  In 2013 we anticipate that Hudson City Bancorp, a “large member” will make extensive advance prepayments, and could cause our book of business to decline if the advances are not replaced by new borrowings from other member institutions.  See Page 52 under Business Outlook for a discussion of the announced merger of Hudson City Bancorp and M&T, two member institutions of the FHLBNY.

While our analysis of the impact of the merger and probable termination of advances is not expected to have a material adverse impact on our business and results of operations, these are the types of events that we consider to be Risk Factors resulting from high concentration of advances.  The timing and magnitude of the effect of a reduction in the amount of advances would depend on a number of factors, including:

·the amount and the period over which the advances were prepaid or repaid;

·the amount and timing of any corresponding decreases in activity-based capital;

·the profitability of the advances;

·the size and profitability of our short- and long-term investments; and

·the extent to which consolidated obligations (funding) matured as the advances were prepaid or repaid.

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

Not applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.  OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

No.	Exhibit Description	Filed with this Form 10-Q	Form	File No.	Date Filed
31.01	Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31.02	Certification of the Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.01	Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
32.02	Certification of the Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
101.01	Pursuant to Rule 405 of Regulation S-T, the following financial information from the Bank’s quarterly report on Form 10-Q for the period ended September 30, 2012, is formatted in XBRL interactive data files: (i) Statements of Condition (Unaudited) at September 30, 2012, and December 31, 2011; (ii) Statements of Income (Unaudited) for the Three and Nine Months ended September 30, 2012 and 2011; (iii) Statements of Comprehensive Income (Unaudited)  for the Three and Nine Months ended September 30, 2012 and 2011 (iv) Statements of Capital (Unaudited) for the Nine Months ended September 30, 2012 and 2011; (v) Statements of Cash Flows (Unaudited) for the Nine Months ended September 30, 2012 and 2011; and (vi) Notes to Financial Statements. Pursuant to Rule 406T of Regulation S-T, the interactive data files contained in Exhibit 101.01 is deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and otherwise not subject to the liability of that section.	X

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Federal Home Loan Bank of New York
	(Registrant)
	/s/ Kevin M. Neylan
	Kevin M. Neylan
	Senior Vice President and Chief Financial Officer
	Federal Home Loan Bank of New York (on behalf of the registrant and as the Principal Financial Officer)
Date: November 9, 2012

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